Finance of renewable energy
Renewable energy infrastructure is expensive, however as it will last years, if not decades, it can dramatically reduce the cost of electricity if it is well planned, utilised, and maintained. It is therefore the cost of the electricity p/kWh over the long term that is all important.
Today there is the 130% Super deduction tax can be used for purchase of the assets by the ‘purchasing party’ – note that this may not be the end user .
These are some of the different types of finance available. Each has their pros and cons, and so the circumstances of each business is critical in deciding which is the best financial structure.
•Asset finance – Finance secured against physical assets that remain in the ownership of the finance firm until the payment is fully paid. Examples are Hire Purchase, and Equipment Lease
•Project finance – Finance for a specific project within a Special Purpose Vehicle, including capital, deployment, and maintenance
•Grant funding – State sponsored funding won for specific objectives. These objectives might include technological and commercial integration, R&D, environmental, and productivity increases.
•ESCo - Energy Saving Company – Finance is raised on the projected savings of an energy project. A co-owned company is set up, owned by the finance firm, and the bankable off-taker. Once the asset is paid for, the ESCo is dissolved
•PPA – Power Purchase Agreement – Finance organised by a third party with the bankable (with a good credit risk) off-taker contractually obliged to pay a minimum amount, and the PPA provider obliged to provide a minimum amount of electricity. The payments can be index linked.
In this time of great change, businesses are looking to build an energy strategy that reduces energy cost, carbon and risk.
The energy strategy can include energy reduction with LED lighting, provision of smart systems, improved insulation, voltage optimisation etc.
Part of the strategy for some businesses will also include building a microgrid with onsite renewable generation, or low carbon generation, that will help reduce energy cost, as well as carbon, and possibly build resilience against issues with the grid.
Sizing of onsite generation
Whatever smart microgrid system is put in, it needs to take in the present energy requirements, as well as future requirements. The cost of onsite generation infrastructure is large, and so it needs to be sized appropriately, as exporting to the grid will lose money at todays export price of 5 p/kWh.
In many cases future energy requirements will continue to grow as the trends of automation, and eMobility continue to grow year on year.
Financing of the microgrid is a key part of the energy strategy.
Capex – 130% Super Deduction Tax
For capex, or hire purchase agreement, at present in the UK there is a 130% Super Deduction Tax for businesses. This is on balance sheet. In parallel, there is also salary sacrifice has been enabled for the purchase of EVs by and for employees.
This enables a fully joined up renewable strategy, where businesses can build infrastructure that can reduce, and stabilise energy cost and carbon, as well as enabling employees to reduce their travel cost and carbon. Wind and solar, with zero fuel required, and low maintenance costs, is ideal for a capex purchase.
For solar, and wind, where the maintenance costs are relatively low and predictable, this is a chance for businesses to make an investment, that will fix their energy costs for the lifetime of the solar or wind assets. Therefore rooftop solar, if done at scale costs some £700,000 per MW, and would provide an electricity price of about 8 p/kWh, with only minor rises for the inflation of the maintenance costs, for the lifetime of the solar.