Power, Pricing and Real Estate Resilience: A Lawyer’s Guide to the New Energy Landscape

Adam (00:00)
Hello, hello, hello and welcome to the ESG and property podcast. You're here with Adam Hines, the co-founder of LifeProven Real Estate Advisory, helping institutional investors deliver the industry's most future resilient assets and portfolios. And if you're new to the show, we give you insider access to the most innovative, the most ambitious real estate leaders, the people who are truly

pioneering financial, social and environmental impact at scale for real estate assets. And we are specifically uncovering how these leaders think differently, but most importantly, how they then behave differently to deliver superior financial, social and environmental outcomes. And the idea is that so you can learn from the very, best in the game.

And today we've got an absolute legend of a guest and episode for you with Jonathan Cohen, who is an energy lawyer and partner at Fladegate. And Jonathan has, an extensive and amazing amounts of experience in the energy sector, advising clients for over 20 years through and through that sort of time period, there's been some really significant industry changes and those evolutions really focused on

sort of new business plans and new business models and an evolution of financial structures and also revenue generating contracts, which are driven by, clean technology innovations around solar PV, onshore offshore wind data centers, district heating, et cetera. So really, really exciting topic where financial performance intersects with environment, environmental technologies. So Jonathan, an absolute.

pleasure to have you back here on the show for the second time and a very, very warm welcome back.

Jonathan Cohen (01:49)
Thanks, Adam. Good to be back.

Adam (01:50)
Great to be back. So we love to kick off with a background to our guests. So is it all right just to give an overview and rewind the clock back to how you sort of first became interested in real estate, in the real estate space.

Jonathan Cohen (02:06)
Yeah, so I, as you mentioned, I'm an energy lawyer, but really my practice has evolved over the years. And one of the main areas that I work in is the interaction between property and sustainability stroke energy. And really that has gone up the corporate agenda of all property developers, investors over the past few years for various reasons, but one being

Whereas it used to be a nice to have to be seen to be green for properties. Now it's an actual commercial imperative. And what we see is our clients that range from mixed use developers, residential, commercial data centers, a whole host of logistics and commercial and industrial clients. They are doing various innovative things vis-a-vis energy and sustainability. But with

with the main imperative or goal that actually it will reduce operational costs and make those properties or sites more attractive for tenants, investors and other market participants.

Adam (03:08)
And Jonathan, what actually got you into that? where, how did that, how did that sort of interest spark in you way back before you were qualified as a lawyer?

Jonathan Cohen (03:17)
Yeah, I mean, I've always been interested in...

in energy, climate change, environments. I think it's more sort of a sort of, know, from looking at news and what's going on in the world. But really, when I started practicing, was probably a good time for that or the sort of evolution of property and sustainability, because lots of my more sort of institutional clients were really looking to do things in this area. And one of the key drivers, I think, for some developers, especially in London, was that

Adam (03:21)
Mm.

Jonathan Cohen (03:46)
in order for them to develop their sites they had to get planning permission obviously and one of the conditions to planning permission for various sites is they have to do things, they have to put in place certain solutions vis-a-vis energy sustainability. So I think that was one of the key drivers once I started was actually the sort of almost the stick of planning, know mandated clients to do certain things and that's when it started to get quite interesting.

Adam (04:10)
And Jonathan, could you give us an introduction to Flagate? You're obviously a partner there. Could you give us sort of overview as to what it is, who you work for, where you work, what you do, we sort of get into the nuts and bolts of your role and area of expertise.

Jonathan Cohen (04:20)
Yeah.

Yeah, well, so Flagate is a full service law firm and the area that I'm in is the green energy group. And so they deal with all sorts of issues around energy transition, green energy and the like. But this is really a cross-sector group and there's various

specialists within that group and probably the closest interaction we have is with the real estate team for some of those things that I mentioned earlier. And so I work with people within the firm who deal with property developers, investors, all of those other areas that I mentioned. And so I think that's probably a relevance for this discussion, but that's probably the area that I would see as one of the most buoyant, busy areas at the moment.

drill down into some of what those issues are, but really, you know, any developers who are developing land, the energy piece is such a key part of it. And Flaggate, you know, has all the disciplines necessary for any of those projects. So for example, planning, construction, property, the energy piece, what I do, sustainability, ESG, and all of the other aspect of disciplines you'd expect for large law firms, corporate, finance, and the like. But I think one thing that's quite different at Flaggate

is we have all of those under one roof in a sort green energy team that deals with all of these issues for clients, which I think is quite a unique offering we can provide to the market.

Adam (05:52)
And within that experience, Jonathan, from, we sort of rewind the clock back, let's say five, 10 years, what has changed in the marketplace and what is the sort of evolution of the marketplace around clean technologies and, and renewable energy and how that's, that's evolved significantly and how has that sort of started to

shift business plans and financial products and instruments. What's sort of been the material shift over the last sort of five, 10 years from what it was before?

Jonathan Cohen (06:24)
Yeah, it's a good question and I think as I mentioned it's really gone up the corporate agenda so this whereas energy or sustainability

used to, know, clients or people who doing these projects used to give it sort of, you know, lip service, but it wasn't really the main driver. And as I say, I think the difference now is that actually it's commercial imperative. And, you know, that means that clients are now looking on a longer term perspective. So the sustainable long-term value creation, they see that, you know, sites that

have sustainability or green energy built into the DNA of those sites are less at risk of capital depreciation, obsolescence, and they understand.

the changing regulatory and policy environment. I think that's quite key here, that actually this area is quite dynamic. There's lots of changes and things being imposed on landowners, developers. But the real driver for me in my area, my practice has seen the commercial imperative. And so some of these onsite solutions, these revenue opportunities.

they make use of what we call sort of the brown discount. So where if you don't do any of these things, there'll be higher operational costs for those sites. There'll be more occupancy voids. And so that's really a drive to my clients to do certain things. And all of those things add up to...

a requirement, a driver for doing some of these greener, sustainable innovations, if you like. And I probably said the other area that's quite interesting at the moment is the availability of finance. And we're starting to see in the market some of my clients where they have corporate funding lines or processes. Actually, those lenders are now saying to them, we will lend you this money.

but you will have the certain strings attached to that. So you will have to do things with your development with the Vue 2, sustainability requirements or ASG. And I think that that also will be a real driver going forward.

Adam (08:22)
And Jonathan, just on that. So I wholeheartedly agree out of the balance between. I suppose at a co at a corporate level, if you rewind back historically, the businesses that were doing really, really sustainable things, they weren't necessarily getting a commercial benefit from those activities, or it wasn't widely understood.

And they were pretty much doing it out of not the goodness of their heart, but that was just sort of part of their cultural approach and their DNA. And I think what we have seen just through our business over the last probably five years is the more sophisticated investors who have a fiduciary obligation, especially at an institutional level, adopting and integrating ESG and sustainability factors

Jonathan Cohen (08:53)
Thank you.

Adam (09:13)
both from they want to have a positive impact through their investment decisions, but mostly because it makes better business sense. And over a long-term investment horizon, doing those sustainable activities is going to yield a better risk-adjusted return. And that has been a really interesting shift from our perspective.

⁓ as to sort of the key drivers behind it. And we always call it the win-win-win where if you can, if you can integrate new innovative solutions, designs, technologies that over a long invest longer investment lifespan will achieve better financial performance. And whether that's through capital appreciation of the asset value, rents, higher retention of occupancy,

accessing discounted sustainability linked debt, all these sort of different opportunities. And then that's then balanced with better environmental performance, which is inherently linked because with financial because better environmental performance, if you zoom super out at a macro level, we the entire economic ecosystem is based upon nature and the environment functioning. And if that doesn't function, then our entire capitalist system

would erode. So that is the first element that we don't want to erode that relationship. And then the second, which we're zooming in more, is if you have a better environmental performing asset, portfolio, business, whatever, you're going to have better ability to navigate tightening and changing regulations, laws, investor, occupier expectations that are sort of becoming more stringent and focused on sustainability.

So therefore you're reducing your capex and opex costs of having to make those upgrades and changes later, which is typically a lot more expensive. And then the third piece is the social is if you're making spaces, places, buildings that enhance health, wellbeing, satisfaction, experience, you're gonna have happier, healthier people that hopefully you then are driving demand because more people wanna stay there and come there and then you're increasing your retention. So.

I really appreciate how you've, you've sort of connected the financial and the environmental together to create a win-win. And it's no surprise to me that you're sort of attracting those more sophisticated clients who are have, have identified that this is both a positive impact opportunity to go down this route, but also it's, it makes good business sense and has strong financial performance. So I want to sort of dive into the financial element of what are the, what are the main.

technologies or platforms that have changed that are now like a material financial opportunity? it mainly around like solar PV farms or that on buildings? What have you seen that's been a shift where it's basically completely changed a business model?

Jonathan Cohen (12:03)
Yeah, so first I completely echo your sentiments around it being ⁓ a commercial imperative and that's one of the points I was mentioning earlier. It's all very well having something in place, but if it doesn't make sense from a commercial imperative or a business plan, then it's no good in the real world. know, it's not scalable.

Adam (12:20)
Absolutely. It's not scalable, is it? You're going to do one and then it'll never

get done again. Yeah.

Jonathan Cohen (12:24)
And I'm privy to some things come across my desk, business models, and you can just say they don't work, even though they have really good environmental credentials. so I think living in the real world, that's just not going to fly. So I completely agree with I think in terms of technologies and solutions, think it's a really good One thing that we have seen from some of our clients is that they have to take a much more of a long term view.

with all of this. really, that can present a sort of a new way of thinking for some clients because actually they have to give that long term view. But it's absolutely for reasons, as you say, to mitigate against risks of obsolescence and capital values.

In terms of solutions and what we're seeing for developments, there's lots of interesting things going on at the moment. One is the ability to put energy saving devices or on-site generation onto a particular site. And they can include things like batteries or solar PV, EVs. And these are all really, really sort of

good solutions that have been tested and the cost of all of those are coming down. There's lots of emerging business models whereby developers, so property developers, the energy piece is clearly not their core business. Their core business is developing property and developing land. And so actually, those solutions that I've mentioned may seem quite expensive, but actually what we're seeing in the market is third party providers

providing those solutions, Solar PV on roofs, for example, no capital outlay. And so actually from a business perspective for my clients, where they actually don't have to put large amounts of money or if you need any money at the start, that helps cash flows, that helps all the other constraints that developers are facing at the moment, high cost of doing the deals. So actually I would say that...

These technologies, the ones you mentioned, solar PV, batteries, EVs, there are models out there where the developer, so the person that's going to be benefiting from those technologies, does not have to put his hand in his pocket almost to have those solutions installed. And I think that does make a big difference to the economics of a development site.

Adam (14:42)
Hugely, hugely. I'll actually link listeners back to an episode we did, or this is a while ago, this was probably 18 months ago, with Scott Burrows, who is the co-founder of Eden Sustainable. And within that, they're a PV provider installer and really fascinating. were

one of the first, if not the first in the UK to start rolling out the zero capex PV installation. So for listeners who haven't heard that episode, just to expand on what Jonathan was mentioning, effectively what they do is they will take a lease over a roof space. And that lease might be eight years, 12, 15, I think they probably might go up to about 20 years. And that company will

cover the costs of the design, the planning application process, the installation, and also all of the maintenance for that PV's life cycle. So the landlord will pay zero, which is why it's called a zero capex solution. But how the structure works is then the landlord is then effectively tied into a power purchase agreement on to buy a certain amount of energy per annum for that, however long that lease agreement runs for.

And then that energy is then obviously back to back with whoever the occupier is within the building. But the landlord's benefit is they get access to green energy on-site, energy generation for zero capex. And ultimately they are hopefully enhancing the value of their asset. And I don't know if Jonathan, if you want to sort of expand on the legalities of that in a more technical framing.

Jonathan Cohen (16:18)
No, absolutely. again, just another point on that is you say it's zero capex and green credentials. Actually, if I'm the occupier of that building, the power will be cheaper for me. So again, going back to that commercial point, why should I rent that building if I'm the tenant? Well, actually, you'll be getting green credentials and whatever the rent is.

Adam (16:30)
Mmm.

Jonathan Cohen (16:41)
payable, but you'll also get cheaper power. And that's really attractive at the moment, especially for commercial tenants where the UK has the highest power prices in Europe. And so actually, to rent a property that has lower operational costs, one being energy, is very attractive at moment.

Adam (16:48)
Mmm.

What did you say about the power prices? Did you say Jonathan? Did you say that again? Sorry. Yeah.

Jonathan Cohen (17:02)
So in the UK, our

power prices are one of the highest, if not the highest, I think, in Europe. So that's especially hurting commercial tenants who have manufacturing processes as their business.

Adam (17:08)
Wow.

Yeah,

I imagine any company who's got sort of high energy use demands, whether it's manufacturing data centers, that would be prohibitive for investment at scale in the UK then.

Jonathan Cohen (17:29)
So, and to that point, that is why this issue of energy, green energy, is fundamental to the bottom line of some of these companies. And so actually, going back to the topic of this discussion, which is property and energy sustainability, that will make these sites much more attractive and going back, less occupancy voids and those sorts of things. And so,

If you can combine some sort of model where your capital outlay, from a landlord's perspective, if your capital outlay is zero or next to zero, you're improving the green credential of the site. You're offering green power as a discount to what you would normally do, you know, buy in from the grid. It's a win-win. you know, in a world of high energy costs, that's a big selling point.

Adam (18:14)
You mentioned the grid there, Jonathan, while we're on that topic. there things that you see with your clients around connection restrictions to the grid? that something that you're sort of consistently having to navigate?

Jonathan Cohen (18:17)
Yeah.

Yeah, so grid is a really hot area at the moment of discussion. So over the past few years, I've acted for all sorts of companies, but in the property development sense, where a property developer is looking to develop a new site from scratch or build a new site, new development, they will go to the local distribution network operator and they will say, can we please have a grid connection for our site? And they will come back.

Adam (18:32)
Yeah.

Jonathan Cohen (18:55)
and say, yes, you can, it's going to cost you X millions and you won't be able to connect until 2035 for argument's sake. Now, clearly that isn't viable for a developer. It has its own business models and you're looking at when it can start, be revenue generating. And that's the case also, not to property development, for data centers. And I use those as an example because we do lots of work in the data center space because they are so power hungry. And so actually again,

Adam (19:18)
Hmm.

Jonathan Cohen (19:22)
grid delays means that some of these projects just can't go ahead. Simple as that.

Adam (19:26)
What is the cause of the delays? What's driving that? Why would they say 2035? it? Yeah. What's the driver behind that?

Jonathan Cohen (19:29)
Yeah, yeah,

it's like it's lack of lack of space in the system. So there's not there's not enough ⁓ resilience. And so there needs to be upgrades and reinforcements. And what has happened in the past is that certain companies have been what's called hoovering up these

connection offers and so there's lots of these offers in the system that aren't being used. These what we call these zombie sites. So the government over the last couple of years has been looking at this. can we remove this logjam in the system to make it a more speedy efficient process? And also clearly some of these assets that are looking to connect like data sensors are being developed for the good of UK economy. So actually

you know, it's for the benefit of the economy to do this. So what the government has said is they brought in new rules around grid connections. So actually, if you have planning or land offers, you will go higher up in the queue to this what they call this gate to offer stage, whereby you will be able to connect much quicker. And it's still early days in that sense. But the aim is that, you know,

landowners, asset owners will be able to connect to the grid quicker and that will be of benefit for the whole country really.

Adam (20:47)
And out of curiosity, Jonathan, is that any type of development application that is prioritized or is there a hierarchy within development applications that one is more valuable and gets priority over another?

Jonathan Cohen (20:59)
Yeah, so it's really looking at it from the transmission level. this is probably the higher voltage, the higher use. So data sensors being worn, some of these large onshore solar PV battery projects, see this. large development projects as well, but it's really connection at the transmission level where there has been this delay.

Adam (21:02)
show.

Mmm.

And out of curiosity, is this something that you do and can help clients with in the navigation of trying to accelerate and best position for priority positions in the grid connection process?

Jonathan Cohen (21:33)
Yeah,

I mean, in terms of helping them or expediting the grid connection process, that's something that will be very much dependent on National Grid or the local distribution company. But we are very much looking at grid connection offers all the time and telling our clients what the commercial positioning, if you like, of these offers are and how they can.

Well, how they can mitigate the risk, but just so they're aware of them because lots of these contracts with grid connection companies are non-negotiable. But it's just really for our clients to understand what the inherent risks of these are. So yeah, we look at them very closely on both development projects and also on generation data center projects.

Adam (21:56)
Mmm.

Okay. And I'm going to go a bit off piece for a sec. Out of curiosity, how much of that investigative work around grid connection and capacity is done at pre-acquisition versus an existing site? And I'm just curious to know, do you think there are people out there that aren't assessing this as a potential risk or unaware of it, and they are potentially acquiring a site and then looking to develop and they're not doing enough?

due diligence before investing into buying.

Jonathan Cohen (22:41)
I mean, ⁓ I would say that the availability of power to a site should be one of the first things a client, a purchaser is looking at.

Adam (22:52)
And do you think that's being

done to the degree of that it should be currently or not?

Jonathan Cohen (22:57)
Yeah, I mean, I think very much the answer depends on what the underlying asset is going to be. So data sensors, clearly very power hungry. That would be one of the first things they're looking at. So it will be planning land grid, you know, not necessarily in that order, but they will be looking at this very closely. And as I say, because of the timescales involved, the earlier the better. And that's what I always encourage clients. For developers, more so as traditional real estate developers, yeah, they also should be looking at

Adam (23:02)
Sure, sure.

Jonathan Cohen (23:23)
the grid constraints, what the underlying arrangements are and start that, kick off that process as soon as possible. It can take a while.

Adam (23:33)
Hmm.

Yeah. Well, and also it's, it's fundamental to the capacity of what can be delivered at the site as well. So yeah.

Jonathan Cohen (23:39)
Correct. And we'll

have an impact on what they can actually build. So yeah, absolutely.

Adam (23:43)
Have you, out of curiosity, had instances where maybe a client's got an existing site and they want to build a certain scheme and they have been limited in their viability because of the grid capacity? And then how detrimental has that been out of curiosity? Have they been able to navigate that or is that just like put a complete stop to everything?

Jonathan Cohen (23:57)
yeah.

Yeah, I mean.

I've seen varying degrees on that. I don't think I've ever seen a complete stop to things, but actually definitely a ⁓ rethink around the actual development plans. typically what we see is that the power may only be available at one point at a lower amount than they'd like. And so it really...

Adam (24:07)
Yeah.

Mmm.

Jonathan Cohen (24:24)
What we tend to see in this area, especially from real estate developers, is this phasing mentality where they can only get certain amounts of power at one point, then a few years later they might get more from a reinforcement or upgrade to the grid supply point or service or substation. And so actually that phased opportunity, it's not all, whereas a developer would like to say build a number of homes at one point, it may prevent from doing that because of the power and therefore maybe sort of a phased development plan.

Adam (24:52)
Okay, that's really interesting. And I think one thing we've sort of come across in the past, and I'd be curious to know, you're obviously touching this stuff day in, day out. So I'd be curious to know your perspective on it. There was a scheme that Jordan and I were running, well, this is probably over 10 years ago, student accommodation development. And as part of the planning requirements, we had to effectively install

It wasn't ready yet, but it was connection to a district heat network, but the district heat network wasn't live. They didn't know when it would be live, but we had to put a provision into the building for future connection. Plus we also then obviously had to, because that wasn't live, still adopt the infrastructure to heat the building as of today until that period of the district heat network was up and running.

So effectively you're significantly increasing your costs without having visibility of what's coming down the line in the future and when and how that will be adopted. that changed and shifted over the last few years or is that still an ongoing battle?

Jonathan Cohen (25:54)
Yeah, so it's really interesting when I think I think I know the scheme you were you were talking about. It's the heat. The heat sector is a really interesting one. So what what what what we've seen, especially in large conurbations like like like London and the other cities, you will not be able to develop a scheme unless you connect to a district heating scheme and that that would pass the planning obligations and that and that's probably the case that the scheme you're talking about. Yeah.

Adam (26:18)
Actually, could I just jump in there, Jonathan,

before you could you just define and just give an explanation to listeners who might not be familiar with a district heat network as well? That's probably helpful.

Jonathan Cohen (26:26)
Yeah,

absolutely. So at the moment in many of the listeners homes, you will have your own boiler and that will be serviced by you effectively and you buy the gas for the operation of that boiler and you get a bill every month along with your electricity bill. And that's how the majority of people get their heat and hot water in the UK at the moment.

There are an alternative to that where there is a centralized boiler system, what we call district heating networks, and you tend to have this in large new build developments, whereby there is an energy center on site and that energy center provides heat and hot water to the whole of the development. So, to give you context, we worked on the Battersea Power Station district heating network where there was a large

if you like, power station in the basements and that generates heat and hot water for the whole of the development. That's a monopolistic provision, so if you're living on that development you can only get your heat and hot water from that network. The idea again is that the heat is more reliable, cheaper and greener.

The interesting nuances around district heat network are in the UK heat is not regulated like electricity and they're looking to bring that in. really the idea behind that is that actually the consumer protection is one of the key benefits of being regulated. So actually at the moment there's nothing to stop those providers as heat providers giving poor service and high heat bills to consumers.

inclusion of a heat regulatory regime will be beneficial. That is underway at the moment and over the next year or so that will be imposed and I think that will be a very good thing. So district heating networks all around the country and they will provide more more heating to end consumers.

They're looking to roll out what we call these heat network zones. So if you're in one of these zones, you can actually connect to those networks. But yeah, over the years, there has been uncertainty around timing and rollout of some of those and going back to your...

But from an environmental perspective, potentially from a ⁓ billing perspective, for end consumers, again, this should be beneficial. And there's countries in Europe, lots of Scandinavia that have a much higher penetration of district heating networks.

Adam (28:51)
And Jonathan, I'd like to transition into something we spoke about when we, ⁓ went for a coffee a couple of months ago, which was around corporate, power purchase agreements and adopting that on long-term contracts. So is it, is it all right just to expand on what a corporate power purchase agreement is?

and what the sort of requirements are in order to qualify for being able to procure that and what the benefits and ins and outs are just for listeners to get to understand if they haven't had interaction with that before, that would be helpful.

Jonathan Cohen (29:25)
Yeah, absolutely. at its basic level, a power purchase agreement is a purchase of electricity from and traditionally that has been from a generator of electricity, solar PV farm, wind farm, whatever the underlying asset is to an end consumer that could be a, typically that was an electricity supplier. you know, who would then buy that electricity?

along with the renewable credentials, what they call these regos. And then that supplier would then sell that electricity onto, well, however it wishes to do so, to commercial consumers, to residential. Corporate PPAs are whereby you have a generator, solar PV, wind, who is then selling that directly to a ⁓ user of that power. So the likes of a data center, to use that as an example.

And the benefits of doing that is that that data center would lock in for a long term period, 15 years typically. And they would be buying all of the output from that wind farm or a tranche of that. And they'd be buying the power and get the benefits of the environmental benefits of doing that as well. Because it's on a long term nature.

it would be as a discount to market or the wholesale price. so there's a number of ⁓ benefits of doing so. Certain challenges as well, these arrangements are not as tried and tested as the traditional ones. And so from a contracting perspective, they can take a bit of time and quite involved. They are also dependent on credit worthiness of the what we call the off-taker. That would be the data center in my example.

But those things, we're seeing more and more of those in the marketplace and probably more common in other jurisdictions or we see more around the world, but the UK has been moving quite quickly on this. And yeah, we're seeing those a lot more.

Adam (31:14)
And can I just dive into this a little bit more for anyone that that perhaps could be qualified for this, but they didn't know it existed or they didn't know how to navigate

Is there a sort of like a hurdle rate in terms of, the geographical location to the solar farms or a minimum requirement to purchase energy in order for you to be able to actually qualify to have those discussions?

Jonathan Cohen (31:39)
Yeah, so it typically it would be a consumer that has a large energy requirements to make it worthwhile doing, I think.

Adam (31:48)
What's large?

What would large requirement be?

Jonathan Cohen (31:51)
Well, would say someone that uses, and I haven't got an exact figure here, commercial industrial that use a lot of energy, the likes of a data center, the likes of a manufacturing process, something like that. the rationale for them doing this is the long-term reduction to market price of the power. So it makes sense. And again,

Adam (31:56)
Yeah, sure, sure.

Jonathan Cohen (32:14)
against a backdrop of what I was saying before about high UK energy prices. These mechanisms can really make a difference. What's an interesting dynamic of these agreements is that obviously if you have a wind farm up in Scotland and I'm a data center in London or London area, there needs to be a third party supplier to...

if you like, what's called sleeving that energy from the site where it's being generated down to where it's being used. And so that adds, again, a third party into the arrangement. But there's some regulatory things that need to be done there as well. But the idea is that, yes, it's large energy users really to make this worthwhile.

We have seen a sort of nuance on that mechanism whereby you have, for example, a data center that's next door to a solar, it won't be a solar farm, another source of generation and you can actually transport that, what we call via private wire. So it's non-regulated networks and that has a benefit because you wouldn't be paying the cost of transporting energy from say north to south.

So that's where you have an industrial next door to an energy generation site. So those private structures, we see a lot as well. But yeah, but the corporate PPA one is very interesting. They're becoming more widely used and the government has actually not incentivized them, but has promoted them in some of its recent energy updates.

industrial strategy and the like, where it's saying that corporate PPAs are part of the future for UK energy, which I think is again another positive.

Adam (33:54)
OK, and out of curiosity, if we take your first example of data center in North London and a wind farm in Scotland, and we've got to work with a third party supplier to sleeve power from Scotland to London, the sleeve costs, is that like a one-off capex cost to manage that? Or is that just, let's say, instead of paying 50p a kilowatt, you're paying 55p a kilowatt for the additional sleeving function?

Jonathan Cohen (34:22)
Yeah, so there's obviously a cost to the sleeving, otherwise the supplier wouldn't do it. But I think when you add the overall cost into the end consumer, they factor that in. So you've got the unit cost of the power, you've got the cost of that transport and the sleeving. And from an economic perspective, that still would be cheaper than buying it from a traditional route from a supplier.

Adam (34:25)
Yeah.

Jonathan Cohen (34:46)
So yeah, absolutely, it's a discount to market basically. And you're getting green power.

Adam (34:51)
Yeah. Okay. And is, how does someone find out about this? So let's say hypothetically, I've got a data center. I haven't got that in place. I want to have that in place. Is there a marketplace that I can go in and procure this? they, is this through you and like how, how would someone go about actually finding out if this is a viable option for them and then procuring it?

Jonathan Cohen (35:12)
Yeah, so it's what you what you tend to see is generators who are operating or looking to develop an asset. So, for example, if you've got an onshore wind farm, that developer would be looking to procure a corporate power purchase agreement prior to operation of that wind farm. And the reason for that is for their financing requirements as well.

if they've got a credit worthy off-taker like a data center that they could enter into a 15-year term corporate PPA with, funders of that wind farm look very familiar on that. That revenue stream is sorted, if you like, for that long term, 15 years. so I guess in answer to your question is those generators will, they may do procurements of that power and so.

the likes of data sensors will be able to get involved in that way. There's no formal exchange or place where you can go to see that, but I think if you're a large data sensor, you're probably quite privy to who the players, the generators that are looking at these sorts of things.

Adam (36:24)
And what if you were just a large industrial warehouse that has manufacturing capabilities to high energy use? If you wanted to explore that as an option, would you call someone like yourself to then try and like connect the dots? It sounds like it's sort of relationship driven as to knowing who the key players are that could facilitate it as opposed to a Google.

Jonathan Cohen (36:45)
But yeah.

Yeah, it's I mean, can be relationship driven. Also these these large generators are you have a you know, large these large sites of generations solar wind or whatever it may be, they will have they will have formal procurements that where they're looking for a counterparty to, you know, to that CPBA. So they're, you know, it sort of market Intel when that happens. And there's obviously agents that people that specialize in that.

Adam (36:59)
Mmm.

Fine.

Jonathan Cohen (37:14)
Sometimes the land agents are quite good in that respect as well.

Adam (37:17)
Okay. And then the last piece you mentioned, Jonathan was around, I think you said called it non-regulated energy or the sort of private market where I presume you were, were you in the explanation of that? And sorry if I misunderstood this, but that was effectively you've got, I don't know, a PV installation just on land and you use happen to have a warehouse or industrial unit next to it. And that is, that. Yep.

Jonathan Cohen (37:26)
Yeah.

joining one. Correct. Yeah. Or indeed on the same site even.

Adam (37:44)
On the same side and effectively that's just a contractual agreement between two parties that's saying, Hey, I've seen you've got solar PV. Could we please connect to it and access that in some capacity? And you would be effectively brokering that relationship. that.

Jonathan Cohen (37:57)
Well, yeah, mean, so that that that relationship is good private wire arrangement and really what private private wire. Yeah. you're ⁓

Adam (38:02)
Is it say private wire? Is that what you called it? Okay, I sorry,

I don't know why I wrote non regulated energy. Everyone ignore that I said that. it is I was correct. Okay.

Jonathan Cohen (38:09)
Yeah, no, but it is really

because the benefits of doing that is you're not paying for the cost of transporting the energy using what we call the regulated network. So those costs automatically come off. in those arrangements, you're really paying for the cost of the power. Of course, the generator will build in.

Adam (38:19)
from? Sure. Okay.

⁓ gotcha. Okay. Okay. So it's yeah.

Jonathan Cohen (38:37)
certain other costs into that as well but it but it that is perceived to be a much more efficient way of purchasing power if you have a next door if you have a you power station.

Adam (38:47)
really interesting. Thank you for that. So yeah, for all listeners, if you've got PV very local to your site, it's definitely worth a conversation with the landowner. ⁓ Jonathan, last sort of question section for you. I'm mindful of time. We've really gone deep. This is lovely. But last sort of question block is around green leases. Now,

Jonathan Cohen (38:54)
Yeah, definitely.

Adam (39:08)
Well, from our perspective, these have evolved significantly and are continuing to evolve in their sort of sophistication and how specific they are from when they first were released, they were relatively generic clauses. And now we're seeing and helping advise to make them specific to portfolios or to specific assets, depending on what type of infrastructure they have. a very simple example would be,

Jonathan Cohen (39:21)
Yeah.

Adam (39:34)
If a building has smart utility meters within it already, and the landlord has access to those smart utility meters and can see that remotely, the green lease clause can be adapted to say that we have permission to access that information as opposed to historic green lease clauses where it's something generic like you will have to send us your utility data once every quarter. So it's just honing that right in to be asset specific for the function of each building.

So is it all right if we zoom back out one step, Jonathan, just to give an overview from a contractual perspective as to what a green lease clause actually is. And then from your perspective, how they have sort of been changing and will continue to change.

Jonathan Cohen (40:14)
Yeah, so mean, green leases are in effect a lease. So it's a property document that has certain provisions in it that require the landlord or tenant or both to improve the environmental performance of a building. And so some of those provisions will include certain things or obligations around energy efficiency, net zero objectives, water waste management clauses and

really in our experience to have practical effect they need to be demonstrable and enforceable. So that's probably the key thing here is that they do actually do something. We've seen green leases that don't have any particular teeth or cut in to be seen to be green.

Adam (40:55)
Mmm.

Can you explain what demonstrable and enforceable is? Just so there is complete clarity on those terms.

Jonathan Cohen (41:01)
Well, yeah, yeah,

yeah. So I think really what that means is that the certain, the things that they are looking to change or to be done are done. And really some of the mechanisms to ensure that are, you know, that they're clearly drafted with KPIs, key performance indicators that really drive environmental improvements.

And so they need to be clearly drafted, measurable outcomes and have enough flexibility respond to the evolving legal and regulatory framework. I think that one's quite key because when you have a lease, which typically is a long term agreement, the law at day one may say one thing and the law at year 10 will have evolved. And so one of the challenges for these sorts of arrangements is that they need to be flexible enough to comply with whatever.

the environmental provisions of the day are. And I think that can be easier said than done, but there's ways to do that change of law provisions, et cetera. But really, in terms of the question, demonstrably and enforceable, it's really having a ⁓ clear framework that changes behavior. People have to do certain things and KPIs really is probably the way that they're typically done.

Adam (42:12)
And I know, know green, these causes isn't, isn't necessarily your day to day specialism in terms of what you're doing. ⁓ but I don't know just from your experience and working with your, your team implementing these in a day to day setting, if is it, is it typically the sort of asset owner that's driving the integration of these causes or is it occupier? Is it a mix? where, are you sort of seeing this?

Jonathan Cohen (42:17)
Hmm.

Adam (42:37)
Sit.

Jonathan Cohen (42:37)
Yeah, I mean, this is an interesting one because it kind of feeds back into who's paying for these changes as well. And there's always an argument in the industry, well, actually the landlord or the building owner owns the building for the long term, tenants may actually take a tenancy for a shorter term. So why should they be paying for the benefits of the building long term? So I would say.

Adam (42:43)
Yeah.

Jonathan Cohen (43:02)
I would say it's the landlord that typically drives what's going on in the building, although larger tenants may come in with a view as well. I think it does vary, but I think because the landowner is obviously the long-term owner and wants to bring in changes for the long-term, typically tend to see the landlord trying to change some of these larger tenants are obviously very, very

Adam (43:11)
Yeah

Jonathan Cohen (43:27)
innovative in terms of what they want from a building as well.

Adam (43:30)
And you mentioned something, Jonathan, that really stood out to me when we spoke about this last time, where how important it was to make Greenlees clauses bankable. What does that mean?

Jonathan Cohen (43:39)
Yeah,

bankable means standing up to scrutiny of a lender at any given time. And I think, you know, lenders will look at any contractual revision and make sure that, you know, that they are willing to lend money to the relevant party on the basis of these contractual documents and provisions. I think, you know, bankable in the context of a green lease means that it's

It's doing everything it can do vis-a-vis the latest policy regulation law at the time. But also it's doing things that will protect the, if you're a landlord, will protect the building and make it drive operational efficiencies, make the building more valuable going forward. I mentioned it before, capital values, all that sort of thing.

So, know, bankability can mean quite a few different things, but really it's protecting the assets, making sure that the lender is lending money now off the back of what's going on. But also, you know, if they picked up the documents in 10 years time, we'd still be able to do that. We still want to.

Adam (44:42)
Hmm. Jonathan, two very short, quick final questions for you. first one is around your personal interests. Obviously you're very passionate, very interested in this space. Where do you...

Jonathan Cohen (44:58)
Hmm.

Adam (45:01)
draw your inspiration from and your knowledge base from? And I get a lot of that would probably come from your colleagues, but are there sort of wider platforms that you follow, that you read, that you get inspiration from and learn from as well? And what are they?

Jonathan Cohen (45:16)
Yeah,

I think it's probably all of the above. You can't pick up any broadsheet newspaper without something on energy and sustainability. And I think if you're passionate about these things, it's just, I find it interesting as well. But I I probably get most of my intel from transactions, speaking to clients, seeing what they're doing on the

Adam (45:25)
Yeah.

Jonathan Cohen (45:37)
We're members of various trade associations as well. think they're really good to sit around the table and discuss things on a practical level with people and seeing what they're doing on the ground. We're lawyers and we're privy to lots of the developments that are going on, but we're obviously not physically doing the developments and doing the deals. So I think for us, it's always great to meet as many people at industry events, conferences, that sort of thing.

Adam (45:40)
Sure.

Jonathan Cohen (46:05)
And yeah, it's keeping real close contact with clients. Because as I say, for me, one of the interesting areas here is that it's a very dynamic sector. It's constantly evolving from a legal, regulatory, policy environment. And actually, part of my job, larger and larger parties, actually just understanding what is going on, what is the latest policy, regulatory environment. Because that will impact on the business models that our clients are looking to develop.

Adam (46:34)
It's a really interesting point that you made around, your colleagues and the insights that you also get from having access to and being on the bus for quite a high volume of transactions and, and, and sort of events at different key stages of the investment life cycle. And I think that's probably a really interesting point around the added value of advisors and consultants is.

in comparison to landowners. And I'll just make a really generic explanation as to what I mean here, but you might have a developer who acquires one site, they go through planning, then they build it, then they'll operate the asset for a couple of years and sell it. And then they'll buy something else. Now from them buying and going through planning to the doing it the next time, that might be a five year window. And in that same time period,

you having a being advising lots of different projects all at once, you may have been through that same cycle a hundred times in that five year period, whereas that client's only done it once or maybe twice. So your volume of conversations, interactions, experiences, what's happening, what a different sector types doing is so much greater that you have essentially

Jonathan Cohen (47:35)
Yeah.

Adam (47:47)
a much broader in depth perspective. And that I think is probably a huge area of added value that might be looked over that you've just got so much volume under your belt of seeing different things and how they've panned out and how things have been positioned, what's worked, what hasn't, that that is really valuable. So I would definitely recommend to all listeners out there, whether you're

a developer and investor, a consultant to share your experiences with people to help other people as well. Cause that's, that's the only way we're going to continually evolve. And that's basically the platform of this whole podcast, right? Is, is sharing ideas, insights, what's working, what's not. So.

Jonathan Cohen (48:24)
Absolutely. I think, know, if like me, like you, you know, you're believing in getting to a point where, property, which accounts for so much carbon emissions around the globe, where, where we can make any difference to that and where we can commoditize certain things where it can make, you know, lower operational costs, the environmental benefits of doing things.

Adam (48:34)
Mmm.

Jonathan Cohen (48:46)
My view on this is that sharing Intel, speaking to people, sharing what has worked, what hasn't worked is a really big thing in driving the growth of this industry. ESG, property, sustainability, and that's how we're going to get to that point, which is speaking, sharing, and meeting like-minded people. I think, again, great to be on this podcast.

Adam (49:08)
Love it.

Love it. Any final thoughts or advice you'd like to leave with our listeners? It's completely optional. If you feel like you've emptied the tank, you don't have to. But if you've got anything you want to add as a final sign off, please, the mic is yours.

Jonathan Cohen (49:17)
Yeah

No, I think another great podcast, great to speak to you. I think if you're interested in this area, ESG, real estate, feel free to reach out to me and just we can have a chat. for me, that's where the added value is just speaking to people.

some thoughts on certain things as well.

Adam (49:39)
Jonathan, always a pleasure. Please keep up the amazing work and thank you very much for sharing your knowledge, wisdom and expertise. Keep doing what you're doing.

Jonathan Cohen (49:48)
Thank you.

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