Finance of renewables

 

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,  on-balance sheet 

For capex, or hire purchase agreement, at present 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.  

 

PPAs Power Purchase Agreements), off-balance sheet 

For businesses that are wanting energy to remain off-balance sheet, PPAs (Power Purchase Agreements) can be provided at a p/kWh cost.  The asset (solar, wind turbine or CHP) is owned by the PPA provider, who also fully manages and maintains the asset.  The p/kWh payments are index linked normally to CPI or RPI.  This is therefore a more costly way of financing the asset if it is onsite.

However, PPAs come into their own when there is a private wire taking energy from a 3rd party to the business.  This can provide energy substantially below the cost of grid, and deliver carbon and security benefits as well.