Utility Week

UTILITY WEEK | 3RD - 9TH NOVEMBER 2017 | 17 Finance & Investment Analysis I t may seem curious for Utility Week to analyse the fortunes of the Crown Estate. Aer all, the body is best known for its real estate associated with royalty, such as Windsor Great Park and Ascot Racecourse, with an overall value underpinned by a for- midable £12.4 billion property portfolio. The Crown Estate is a statutory corpora- tion that describes itself – not overly mod- estly – as a "specialist real estate business with an actively managed portfolio of high- quality assets in great locations". And it operates broadly as a commercial business, transferring its annual net consolidated prof- its – £329 million in the 2016/17 financial year – to the Treasury. Pre-eminent among its property holdings are widespread Lon- don assets, including the recently completed St James's Market complex in the West End, which was developed with Oxford Proper- ties. This portfolio accounted for just under half of its 2016/17 revenues and just over half its total operating surplus for the year. The Crown Estate is also active in regional property markets, where its assets yielded £95 million of revenues in 2016/17 and an operating surplus that was only slightly lower. In particular, a "ground-breaking" £140 million retail park at Rushden in North- amptonshire is under construction while a joint venture with Land Securities is financ- ing the large Westgate development – with 100 new shops – in Oxford. But it's another arm of the Crown Estate that is particularly relevant for the future of UK energy. Part of the £61 million revenues generated by the corporation's energy, min- erals and infrastructure division in 2016/17 arose from offshore activities. Crucially, the Crown Estate manages the seabed around England, Wales and Northern Ireland from the mean low water level to the 12-mile nautical limit; it also owns more than 50% of the UK's foreshore. Crown Estate Scotland manages similar assets north of the border. The Crown Estate is literally at the fore- front of much of the UK's offshore wind development, which has been boosted by the recent auction for new contracts to pro- vide clean electricity – an undoubted game- changer. With some offshore wind plants currently operating at up to £140 per MWh, it really was staggering that Dong Energy and Engie, two very large international compa- nies, submitted winning bids for contracts for difference (CfDs) of below £60/MWh – even if there were special circumstances. Since the Treasury was looking for a drop to around £100/MWh by 2018 – a level that many thought was optimistic – the recent auction seems certain to kick-start invest- ment in offshore wind generation, which has undoubtedly come of age. The Crown Estate should benefit from this trend, especially in the English section of the North Sea. Its head of energy development, Will Apps, sums up the current situation as fol- lows: "With our expertise in managing the seabed, we're continuing to work closely with our customers to overcome common challenges and bring down costs, securing an important revenue stream for us and the UK's position as a world-leading market." Last year, the Crown Estate signed a major leasing deal with Denmark's Dong Energy (which will be rebranded Orsted on 6 November) covering the 1.2GW Hornsea 1 offshore plant. Once built, it will provide enough energy for a million homes. Looking forward, as nuclear power costs soar, offshore wind looks very well placed to fill much of the gap caused by the planned closure of all coal-fired plants by 2025 and the disinclination of major utility companies to build new gas-fired plants. And it may well be that Hinkley Point C – assuming that it is eventually commissioned – will be the last-ever UK nuclear-powered plant. It is also the case that the Crown Estate's seabed ownership rights are pivotal in other energy-related areas. Underwater gas and electricity pipes are obvious examples. Despite Brexit, interconnection arrange- ments with other EU members are set to boom, as individual countries take measures to deal with anticipated capacity shortages. And, although it is early days, the Crown Estate may be further involved as wave and tidal schemes are gradually developed. To be sure, the progress of many such projects, including the proposed Severn Barrage and the Swansea Bay Tidal Lagoon scheme, has stalled, but they may eventually be revived. If they are, neighbouring fore- shore and seabed access will be needed. Given the Crown Estate's impressive £12.4 billion property portfolio and irrespec- tive of its other attractions, shares in the organisation would be much sought aer – it would be an automatic FTSE 100 entrant – if it were sold off by the government in a public flotation. Such a scenario in today's testing political environment, though, is improbable. However, for the UK's long-term energy requirements, the Crown Estate is set to make an important contribution to averting power cuts through its ability to facilitate off- shore wind generation projects, and prefer- ably those with capacities of over 1GW. Nigel Hawkins, director, Nigel Hawkins Associates King of the offshore wind As the owner of virtually the entire UK seabed right out to the 12-mile limit, property business the Crown Estate is a key player in enabling offshore wind generation – and our energy future. Offshore wind and tidal power installations in the UK all require Crown Estate leasing deals

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