27 July 2023
We have invested in a wide range of renewable assets, and have a target to increase this exposure. One such asset, which we hold in our secured income allocation (through a £100m portfolio of operational renewable assets, managed by Schroders Greencoat via the Brunel pool), is a collection of carbon neutral greenhouses, located in the South East of the UK.
We recently had the chance to visit one of these greenhouses in person, and learn more about how it operates. This provided a valuable opportunity to ask questions around sustainability and the investment case.
Our exposure to carbon neutral greenhouses is c£7m. These assets are targeting a return of >8%, which comes from Renewable Heat Incentive payments (a scheme which is now closed for new investments, but is secured for existing projects), and inflation-linked rental payments from the growers, who have signed 20-year leases. This leads to secure, long-term, sterling, inflation-linked returns for the Pension Fund.
As soon as we entered the greenhouse we were overwhelmed by the scale. The greenhouse we visited is the largest of its kind in the UK, at a staggering 12.5 hectares. We learned that it would be a 52-mile journey to walk all the paths inside the greenhouse. This greenhouse is currently being used for peppers (red, orange and yellow), but can easily be used for other crops, such as tomatoes or strawberries. Inside the greenhouse, 334,000 pepper plants grow up strings from tiny compost squares, where a calibrated amount of water, nutrients and CO2 is delivered by a system of pipes. Larger pipes encircle the rows of plants, providing heat to the greenhouse. A busy fleet of self-driving carts head up and down the rows, entering the greenhouse empty and leaving full with a freshly picked harvest of peppers.
The plants are farmed on a 1-year rotation, taking most of the year to entwine their way up the strings towards the roof. Side shoots are pruned to ensure maximum height. Each pepper plant grows 3 "heads", which are the tall fruiting stalks. Each head produces around 25 peppers, leading to an annual yield of 25 million peppers. At the end of the year the plants are composted by local farmers, and the planting cycle begins again.
Rainwater is collected from the roof and last year this provided all the water needed for the plants. There are hives on site which provide the bees to pollinate the plants. And the CO2 for the plants is also produced on site...
Leaving the greenhouse, we donned PPE and headed to the energy centre, on the way passing through the greenhouse's monitoring system, where machines constantly measure the growing conditions. Inside the energy centre, we learnt how the renewable heat is generated. At a nearby water treatment plant, once the water has been processed, clean water is released which is 6 degrees above ambient temperature. The energy centre uses heat pumps to boost this to 50 degrees C, and this water is then used to heat the greenhouse. The cooled water which is then released is better for local ecosystems. The heat pumps are powered by electricity generated bycombined heat and power. The CO2 produced in this process is stored in a giant cylinder and used to feed the plants.
Our visit to the greenhouse was an ideal way to discover more about our investment, hearing direct from the growers. This investment is an ingenious marriage of established technologies, enabling us to earn returns in a sustainable way, whilst promoting better outcomes for the environment and the British food economy.