Renewable energy for commercial landlords

Why the split incentive decides everything on a let building

A commercial landlord who installs solar on a let building buys an asset that lowers somebody else's bill. The tenant sees the saving in their electricity account, the landlord sees the invoice. That is the split incentive, and it is the reason most property companies stall on renewables long after the engineering has been agreed.

It matters more now because the pressure is no longer voluntary. Non-domestic minimum energy efficiency standards already bite on continuing leases, occupiers with their own reporting duties ask harder questions at heads of terms, and electricity at 25p to 45p per kWh is a large enough line in a tenant's costs to be worth negotiating over.

The useful move is to stop treating this as an environmental decision and start treating it as an income and lease decision. Once the asset produces a measurable, contractable output, there are only a handful of places that output can go: to the tenant under a supply arrangement, into the common parts, back through the service charge as a recovered cost, or out to the grid. Each route carries different paperwork, a different tax position and a different effect on what the building is worth.

Portfolios where this works tend to have one thing in common. Somebody read the lease before anybody surveyed the roof.

The order a landlord scheme runs in

Sequence matters more here than on an owner-occupied building, because two of the early steps can stop a project outright and both are cheap to run.

We would rather find at step one that a lease blocks recovery than find it after a design fee has been spent. On a multi-let estate the first three steps often reshape the scheme entirely, because the roof area available and the electrical load available behind any given meter are rarely the same size.

• Lease review first: who is entitled to the roof, what the service charge clause actually permits, how long the unexpired terms run, and whether alterations need tenant or lender consent.
• Supply and metering survey: which MPANs serve the site, what sits behind the landlord's supply, how each tenant is metered, and whether a private wire is physically feasible.
• Consumption analysis: twelve months of half-hourly meter data from every supply on site, not an annual total, so the shape of demand can be matched to a generation profile.
• Roof and structure: remaining covering life, loading capacity, access, penetrations and any asbestos.
• Network application to the DNO for connection or export, including an export limitation scheme where one is needed.
• Commercial structure, settled before the design is fixed: sold to tenants, absorbed in common parts, exported, or handed to a third-party funder.
• Detailed design, itemised quotation, installation, commissioning and registration.

Metering, private wire and who owns the export

Physically, a rooftop array connects behind one supply point. On a single-let building that is straightforward. On a multi-let estate it is the whole problem, because the landlord normally controls only the landlord's supply, which serves lighting, lifts, pumps and common areas and carries a modest load. A large array behind a small load exports most of what it makes.

Three structures are common. The array sits behind the landlord's supply and power reaches tenants through a private wire and sub-meters. The array sits behind a single tenant's supply, with the lease or a side agreement setting out who pays what. Or the array stays behind the landlord's supply and the surplus is exported and sold.

Export ownership follows the meter, not the roof. The party registered on the export MPAN is the party that contracts with a supplier for export payments, so on a landlord-metered array the landlord owns the export, and on a tenant-metered array the tenant does unless something in writing says otherwise. That is one of the more expensive drafting errors we see.

Selling power directly to a tenant needs care. Most on-site arrangements rely on the class exemptions made under the Electricity Act 1989: the small supplier exemption covers supply of no more than 5 MW at any time, of which no more than 2.5 MW may go to domestic customers, and the on-site exemption covers supply to non-domestic consumers over a private wire. There is no application or approval process and compliance is self-assessed, which is precisely why it needs a lawyer rather than an installer's assurance. Ofgem's maximum resale price cap applies to resale for domestic use, so a purely commercial letting is governed by the lease and the supply agreement instead. On a mixed estate the cap still applies to the residential units.

Recovering the cost: service charge, green leases, rent and yield

Service charge recovery is the route landlords reach for first and the one that most often fails on the drafting. A clause permitting repair, maintenance and renewal of existing plant will not usually stretch to installing something the building never had, and many leases exclude improvements outright. Where recovery is arguable, the RICS professional standard Service charges in commercial property, 2nd edition, which is effective from 31 December 2025 and applies to service charges with year ends of 31 December 2026 onwards, sets expectations on transparency and on costs being properly incurred for the benefit of occupiers. A large capital item pushed into a single year's charge is exactly the sort of item occupiers challenge.

Green lease drafting is the durable fix. The Better Buildings Partnership's Green Lease Toolkit, first published in 2008 and refreshed in January 2024, sets out green lease essentials plus menus of drafting options for parties at different starting points, covering cooperation between landlord and tenant, data sharing and the treatment of environmental improvements. Adding the clause at renewal or on a new letting costs nothing today and removes the argument later.

Rent and value follow from the contract rather than from the panels. Because rent review usually disregards the tenant's improvements and not the landlord's, landlord-funded plant can be reflected in a reviewed rent, subject to the assumptions and disregards in the lease. Separately, a contracted power income secured against the building is income, and as arithmetic alone, the £60,000 a year in the modelled example below, capitalised at 7 per cent, is worth roughly fourteen times that figure. A valuer will not automatically treat it as rent, and covenant strength, contract length and transferability all bear on the number. Get the valuation view before the structure is signed, not after.

Sizing and economics on a let building

Sizing starts from roof area and lands on load. Roughly 5 to 6 square metres of usable roof supports 1 kWp, and 1 kWp yields about 900 to 1,000 kWh a year in the UK. Installed cost runs £600 to £1,300 per kWp, with large single-roof schemes at the bottom of that band and small, awkward or multi-roof schemes at the top. Self-consumption typically sits at 55 to 85 per cent, rising to 80 to 95 per cent once battery storage is added.

The following is a modelled scenario for illustration, not a real client project. A multi-let industrial estate with about 2,500 square metres of usable roof supports roughly 450 kWp, generating around 430,000 kWh a year, at an installed cost of about £270,000 to £340,000 where the estate delivers a small number of large, simple, contiguous roof planes. A genuinely fragmented multi-roof estate sits higher in the £600 to £1,300 per kWp band, can reach £500,000 or more at the same capacity, and stretches payback past nine years on the same income. Assume the landlord supplies three tenants over a private wire at 20p per kWh against grid tariffs nearer 30p, and that 70 per cent of output is consumed on site. That is around 301,000 kWh sold at 20p, or £60,200, plus roughly 129,000 kWh exported at 6p, or £7,700. Deduct about £8,000 a year for operation, metering, billing and administration and the net sits close to £60,000, paying back a £320,000 outlay in under six years.

Change one input and the answer changes. If the tenants will not buy and everything is exported at 4 to 15p, the same array can take well over a decade. If the units run refrigeration or process load through the day, self-consumption rises and payback shortens. That sensitivity is why we model each building from its own data rather than quoting a rule of thumb. The headline ranges in the summary are indicative project totals across the sizes we install; the £600 to £1,300 per kWp band is the better guide for any specific building.

Paying for it: allowances, export income and funder-owned routes

Annual Investment Allowance. The AIA has been £1m a year since 1 January 2019 and covers most plant and machinery, which is the route to a 100 per cent deduction in year one for solar, batteries and heat pumps. Solar is special rate plant under HMRC's capital allowances manual at CA22335, which is why the AIA rather than full expensing is the 100 per cent route for it. A company may also be able to claim the 50 per cent first year allowance on special rate expenditure above the AIA, with the balance entering the special rate pool at 6 per cent a year on a reducing balance. An unincorporated business cannot claim it, and the general exclusions, including expenditure on plant bought to lease to others, can remove the first year allowance altogether, which is a live question on a let building. The AIA is shared between related companies, and whether a property investment business can claim on a particular asset depends on ownership of the plant and how it is used, so have your own accountant confirm the position before it drives an appraisal.

Smart Export Guarantee. Suppliers offering SEG tariffs pay for exported units, and set their own rates, contract lengths and terms subject only to the rate being above zero, so the figure has to be checked against live tariffs at the time of appraisal rather than assumed. Eligibility rests on a dedicated export MPAN, export metering at half-hourly resolution, and MCS certification or an equivalent standard. Larger commercial arrays more often negotiate a direct export agreement instead of a standard SEG tariff.

Funder-owned routes. Under a power purchase agreement or roof lease, a third party funds, owns, operates and insures the asset for no capital outlay, and power is bought at a contracted unit rate over a long term, commonly fifteen years or more. The landlord grants a lease or licence over the roof, which solves the capital problem and creates a title problem, so lender consent and redevelopment break rights need attention early. Asset finance, by lease or hire purchase, spreads cost against the income instead, with tax treatment varying by structure.

Grants worth naming. The Workplace Charging Scheme runs to 31 March 2027 and covers up to 75 per cent of purchase and installation costs, capped at £500 per socket for installations completed on or after 1 April 2026 and £350 before that date, for up to 40 sockets across all sites per applicant. The catch for landlords is that the sockets must serve staff or fleet parking and the applicant must own the site or hold written landlord consent, so on a let building the natural applicant is the occupier and the landlord's contribution is consent plus electrical capacity. The Industrial Energy Transformation Fund is closed to new applications, with no further extension agreed after the Spending Review and the second Phase 3 competition window cancelled, so it is no longer a route for a tenant's process load. The Public Sector Decarbonisation Scheme is for public bodies only. The EV infrastructure grant for staff and fleets and the commercial landlord chargepoint grant both closed to installer claims on 26 May 2026. No appraisal should rely on any of the three.

MEES, EPC reform and the compliance sitting behind them

This is where a lot of published advice is now wrong, so it is worth being precise.

Where MEES stands today. In England and Wales it has been unlawful to let a non-domestic property with an EPC below band E since 1 April 2018 for new lettings, and since 1 April 2023 for continuing leases, unless a valid exemption is registered on the PRS Exemptions Register. Exemptions include the seven year payback test, all relevant improvements made, third party consent refused and property devaluation, each lasting five years, plus a six month exemption for someone who has recently become the landlord. Penalties under regulation 41 of the 2015 Regulations run to the greater of £5,000 or 10 per cent of rateable value, capped at £50,000, for a breach of less than three months, and the greater of £10,000 or 20 per cent of rateable value, capped at £150,000, at three months or more, with a publication penalty alongside.

Where it is going. The government's interim response of 18 June 2026 confirms the intention that privately rented non-domestic buildings over 1,000 square metres in England and Wales reach EPC B from 2031, with buildings below that threshold continuing at EPC E. The previously proposed interim EPC C milestone for 2027 will not be taken forward, and the seven year payback test and existing exemptions remain. Further detail is due in the full government response, so treat 2031 as a stated direction rather than settled law. An EPC C by 2027 deadline and an EPC B by 2030 deadline are both out of date and should not be used to plan capital expenditure.

EPC methodology. The partial government response on the Energy Performance of Buildings regime confirms that non-domestic EPCs keep the single carbon-based Environmental Impact Rating as the headline metric. That helps on-site generation, which is credited in the assessment behind a non-domestic EPC, although how many points it moves depends heavily on the building.

Reporting. SECR catches large unquoted companies, which since 6 April 2025 means meeting two of three tests: turnover above £54m, balance sheet total above £27m, or more than 250 employees, with an exemption below 40,000 kWh a year. The turnover and balance sheet figures were uplifted from £36m and £18m by the Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024, so older guidance understates the threshold. Property companies can still qualify on the balance sheet test with very few staff. ESOS phase 4 has a compliance deadline of 5 December 2027, must cover at least 95 per cent of energy consumption, and is followed by an action plan and annual progress updates.

Scotland works differently. There is no equivalent minimum rating to let. Under section 63 of the Climate Change (Scotland) Act 2009 and the 2016 Regulations, non-domestic buildings over 1,000 square metres that do not meet 2002 building standards need an action plan prepared by a registered adviser when sold or let to a new tenant, with the option to defer works by reporting operational energy use annually through a Display Energy Certificate.

How the seven technologies land across a property portfolio

We work across seven technologies, and on let property they are not equally useful. The sensible sequence on a portfolio is nearly always efficiency, then solar, then storage, then heat and transport, because each stage reduces the size and the cost of the next.

• Commercial solar, 30 kW to 2 MW, around a 6 year payback, £25,000 to £1.5m. The main event on industrial and retail warehouse roofs.
• Battery storage, 30 kWh to 1 MWh, around a 7 year payback, £20,000 to £500,000. Lifting self-consumption from 55 to 85 per cent up to 80 to 95 per cent is what makes a sell-to-tenant model stack up.
• EV charging, 7 kW to 350 kW, around a 5 year payback, £3,000 to £150,000 and above. Increasingly a letting requirement rather than an income line, unless the site supports paid charging.
• Energy management and efficiency, site wide, around a 3 year payback, £2,000 to £100,000. Cuts 8 to 25 per cent of consumption and is usually the first thing we recommend on a building with a weak roof.
• Heat pumps, 30 kW to 1 MW thermal, around an 8 year payback, £30,000 to £750,000. A COP of 3 to 4 rewards good controls and punishes poor ones.
• PPA and procurement, any scale, no capital outlay because the funder owns the asset.
• Wind and CHP, 5 kW to 500 kW, around a 9 year payback, £40,000 to £1m and above. Site specific and planning led.

Buildings we will tell you to leave alone, and how we assess yours

Some buildings are not candidates, and we would rather say so at the assessment than design around it.

Where we land on efficiency alone, we say so plainly. An 8 to 25 per cent cut in consumption with a 1 to 4 year payback is a good result on a building that cannot carry an array.

• Short unexpired terms or high tenant churn undermine any model that depends on a tenant buying power for years.
• A roof with under fifteen years of covering life left should be replaced first. Fitting an array to a covering you will strip in five years spends the money twice.
• A large roof over a low-consumption occupier exports most of its output at 4 to 15p when the tenant would have paid 25 to 45p. Size to load, not to roof.
• Network constraint is real. A connection offer carrying reinforcement costs, or a tight export limit, moves a scheme from good to marginal.
• Multi-let offices with individually metered floors and no route for a private wire often cannot get the power to the people using it at proportionate cost.
• Listed status, conservation areas and planning conditions can rule out visible plant regardless of the numbers.

How we work. The assessment is free and carries no obligation. We look at leases and metering alongside the roof, model the building from its own consumption rather than from averages, and issue an itemised written quotation you can put in front of a board or a lender. We are MCS certified, OZEV approved, NICEIC Approved and TrustMark registered, we work UK wide, and installations carry a 25 year panel performance warranty and an insurance-backed workmanship warranty. Use the form on this page, or the quote page, to start with a single building or a whole portfolio.