28-unit industrial estate, landlord-tenant PPA

Situation

A regional industrial-estate REIT operating a 28-unit estate near Manchester. Total roof area ~22,000m². Tenant mix: 60% light manufacturing and engineering, 30% logistics and distribution, 10% trade counter / retail. All units on full repairing and insuring leases with electricity supplied directly to tenants under their own supply contracts. Aggregate tenant electricity spend across the estate ~£780k per year.

Constraint

The REIT had identified solar as a strategic asset uplift opportunity (improved EPC ratings, MEES compliance future-proofing, ESG positioning) but couldn't make the standard capital case work. With FRI lease structures, any electricity savings would flow to tenants, not to the REIT. Direct landlord investment in solar to sell to tenants required either an electricity supply licence (impractical) or a class exemption — and even with that, the structuring complexity put off the REIT's capital committee.

Structure

We brokered a developer-funded PPA structure with a specialist commercial PPA provider. The developer installed and owns the 1.4MWp system at no cost to the REIT. The system supplies electricity to all 28 tenants via a private wire arrangement at a tariff fixed at 12p per kWh (RPI-indexed, capped at 4% per year), against a market grid rate around 24p per kWh. The REIT receives an annual roof rental from the developer plus a margin share on PPA revenue above an agreed threshold.

How the economics flow

EPC and asset value implications

The PPA installation lifted the average EPC rating across the estate from D to B, well ahead of the 2027 C threshold and within striking distance of the 2030 B threshold for new commercial tenancies. The asset valuation impact, calculated at the next rent review, contributed an estimated £1.2m of capital uplift across the estate — significantly more than the operational margin from the PPA itself.

Why this structure won

• Capital aligned with risk appetite. The REIT didn't want to deploy capital on tenanted assets — the PPA structure put capital with a developer who wanted exactly that risk.
• Tenants got a clean operational saving. Tenants signed direct supply contracts with the PPA provider — no involvement in capital, no operational liability, just a cheaper kWh rate.
• Asset value uplift was the strategic prize. EPC compliance and MEES future-proofing dwarfed the operational margin in valuation terms.
• Lease compatibility. The PPA structure didn't require lease variations — supply contracts sat alongside the FRI lease without disturbing it.

Things to negotiate carefully

• Tenant churn risk on a 20-year PPA — what happens if a unit is vacant for 6 months?
• Tariff escalation cap and indexation methodology — uncapped RPI is a red flag.
• Change-of-control provisions on REIT exit or estate sale.
• Roof access rights for repair, replacement, or building reconfiguration.
• End-of-term position at year 20 — buyout, hand-back, or extension.