How The Crown Estate's New Strategy Could Supercharge The Government's Clean Energy Push

Late on a warm June evening in 1961, British MPs fervently debated legislation that would change the way the Crown Estate operated, exposing centuries-old tensions between the government and the Crown that traces its roots back almost a thousand years.

At the heart of the debate was worry the Crown Estate was being given a monopoly over how the British sea bed would be managed and how its grip might hinder the success of the British oil and gas industry.

“I point out that for hundreds of years, parliament has fought against the power of the crown whereas this bill puts power into the hands of the crown which should not be there,” Conservative MP Frederick Gough said at the time, opposing legislation brought by his own party. 

Roll forward 63 years, and changes are again being proposed for how the £16B Crown Estate is allowed to function.

As the saying goes, history doesn’t repeat itself, but it does rhyme. This time, though, the changes to the Crown Estate are set to reduce the UK’s reliance on fossil fuels. 

Last month, as it unveiled its first wave of new policies following a landslide election victory, the UK's new Labour government put forward The Crown Estate Bill, putting the company at the centre of its legislative agenda and its efforts to turn Britain into a net-zero economy. 

But in a departure from other fights between Parliament and the sovereign over hundreds of years, this time it is the government using the Crown Estate — its assets and its innovations — to accelerate plans for growth and to help the country cut its carbon emissions. 

The bill, which will go before parliament in September, gives the Crown Estate new powers to borrow and invest. It would expand the £4.4B offshore wind business created on the sea bed that caused such consternation in 1961, build out a £1.5B science and innovation property portfolio, spur thousands of new homes and boost its £6.9B London property portfolio. 

“Having borrowing powers frees us up to invest in all areas of the portfolio, allows us to undertake major regeneration schemes, bringing forward more offshore wind leases, and retrofitting and improving our London portfolio,” a spokeswoman for the Crown Estate told Bisnow. “It brings everything together.”

Bisnow spoke to the Crown Estate and reviewed briefing documents prepared for members of Parliament, and can for the first time disclose full details of what is being proposed for the Crown Estate, how the changes will work in practice and how it will use its new powers to build its portfolio and innovate in the realm of decarbonisation. 

A Property Company Like No Other

The Crown Estate is a property company like perhaps no other in the world. It is made up of assets that are owned by the reigning British monarch and managed by an independent board. 75% of its profits are directed to the UK Treasury, or £4.1B over the last decade, with the remainder going to the king and the royal family.

No inheritance tax is paid on the estate. When one monarch dies and the next takes over, the arrangement simply carries on.

The Crown Estate traces the ownership of its portfolio back to the time of William the Conqueror, King of England from 1066 to 1087. Through 700 years of upheaval that included the War of the Roses, the Reformation instigated by Henry VIII and the English Civil War, the British monarch retained ownership of the portfolio, using it to raise revenue to fund the operation of the state, to fight wars or to give away land to buy the support of the nobility.

In 1760, George III decided it would be a better deal if he swapped the income from the estate for a fixed annual payment from parliament called the Civil List. This arrangement lasted until 2011, when the Civil List and other public payments to the British monarchy were consolidated into the Sovereign Grant, or a 75% to 25% profit share. 

George III made the swap partly because the Crown Estate had gradually become smaller and smaller. That is not the case today. A specific company was set up to manage the estate in 1955, and by the end of 2023 its portfolio was valued at £15.5B. It includes the entirety of London’s famous Regent Street among £6.9B of assets in the UK capital, the parkland around Windsor Castle and a portfolio of regional assets.

It also owns a huge slug of the UK’s offshore wind sector. The Crown Estate owns most of the UK seabed, out to a distance of 12 nautical miles, along 6,500 miles of coastline, excluding Scotland. It researches and readies the seabed for development before leasing it to offshore wind companies, which build wind farms there.

The value of that portfolio was £4.4B at the end of 2023. It created 12 gigawatts of renewable energy last year, enough to power 11 million homes. 

Leveraging 'Significant Investment'

Making money from the UK seabed was once a small part of the Crown Estate’s business, but not any more.

In the early 2000s, it began researching the seabed to see if it would be suitable for wind farms, then preparing it for development. Its marine division produced revenue of £1.2B last year as new licenses were given out to wind farm developers, almost five times higher than the £229M produced by its London portfolio — though that figure will drop in years when there is no auction for new licenses.

The new Labour government has made that division a key part of its energy policy, and The Crown Estate Bill would fundamentally overhaul how it moves going forward. As a quasi-public organisation, one of the government-set rules it has been obliged to abide by is not investing in anything other than land or property. Another is that it is not allowed to borrow money. 

The latter rule has long been a hindrance to the Crown Estate and the way it manages its portfolio. In 2011, it formed its first-ever joint venture, selling a 25% stake in the office and retail assets on London’s famous Regent Street to Norway’s sovereign wealth fund for about £450M. The deal came about because it didn’t have enough cash on hand to invest in expanding and refurbishing other parts of its portfolio, unable to unlock capital by borrowing against its portfolio like any other property company. 

The Labour bill would relax those rules.

“These measures — which conform to our fiscal rules — will unlock significant investment in public infrastructure for the benefit of the nation,” the government said in its legislative agenda set out last month. “That includes vital marine investment needed to accelerate and quadruple offshore wind capacity by 2030 as part of the government’s clean power mission.”

An inability to borrow and make new investments put The Crown Estate's ability to manage its portfolio and maximise its profit in “jeopardy,” the company said in its 2023 annual report. At the time, the government gave it temporary powers to raise a cap on the amount of its revenues it was allowed to keep back and hold as cash from 9% to 27%. 

The report also said that the Crown Estate first wrote to the Treasury, the department that oversees it, in 2022 asking to be given powers to borrow. The previous Conservative government had planned to give it these in 2023 but didn’t get around to it, the report stated. 

Labour’s new bill will be debated when parliament returns in September. Given the party’s huge majority, it is expected to pass before the end of the year. 

That doesn't mean the Crown Estate will leverage up right away. A briefing note to MPs said that borrowing would not likely begin immediately, and a spokeswoman said that when it does start borrowing it will start small. 

The company can either borrow directly from the Treasury in the form of draws from the national loans fund, or it can take on external borrowings with approval from the Treasury. The borrowing could be secured or unsecured, and the Crown Estate would essentially be borrowing against the strength and income of its entire £15.5B portfolio.

A decent proportion of the investment unlocked by increased borrowing powers will be in the marine division, allowing the Crown Estate to be quicker in exploring, mapping and preparing the seabed. That would enable it to grant leases to wind farm developers sooner, increasing electricity generation capacity. 

In addition to new borrowing powers, the government has entered into a partnership with the Crown Estate through GB Energy, its new state-owned energy company.

Together, the pair will invest in bringing new wind farms forward as well as investing in research and development of new technologies, such as floating wind farms, hydrogen energy generation, tidal energy and carbon capture — all of which are non-property areas the Crown Estate is now barred from investing in. 

Government official say the new borrowing powers and partnership could bring forward 20-30 gigawatts of clean electricity and could stimulate a further £30-£60B of private capital to invest in the UK clean energy sector. 

'Long-Term Financial Returns' For Taxpayers

As well as accelerating the marine division, the new borrowing and investment powers will also stimulate activity in the Crown Estate’s real estate portfolio. 

The company is planning a major push into the life sciences real estate sector. It announced in May that it had teamed up with sector specialist Pioneer Group and venture investor Oxford Science Enterprises to buy and transform a former Debenhams department store in Oxford City Centre into lab and office space. The venture will invest £150M in the scheme, and the Crown Estate said it will invest £1.5B in the science and innovation sector over the next decade.

“With the science and innovation portfolio, it’s about supporting that sector and partnering to promote the UK globally,” the Crown Estate spokeswoman said.  “We can bring patient capital to that sector to attract businesses.”

The life sciences push will also include the redevelopment and expansion of Cambridge Business Park, an office park on the north east edge of the university city, which will be converted to lab space, new homes and offices.

The Labour government’s first round of policy announcements also included a big push on boosting housebuilding, and new borrowing powers would also allow the Crown Estate to be part of this strategy. That could include schemes like its development in Hemel Hempstead in Hertfordshire, north west of London, which has consent for 4,000 homes.

"The modernisation of the Crown Estate’s property portfolio, as well as urban regeneration, will help to further the government’s housebuilding priority,” the government said in its briefing document. 

It also has pilot projects in Cheshire and Bedfordshire, where it is testing whether highly energy-efficient homes can be built at scale. 

Lastly, new borrowing powers could be used to invest further in the Crown Estate’s London portfolio. The company has recently rebooted its development pipeline and is planning to invest £430M in three retrofit projects to make some of its older buildings more sustainable. 

It has been hundreds of years since the government and the monarchy were at war, and it is clear the two are now very much working together.

“Together these reforms will ensure the successful future of the Crown Estate business,” the government said in its briefing, adding they will “help meet our clean energy superpower mission and deliver long-term financial returns to the UK taxpayer.”