Bruce Nelson, managing
director of Compass Renewables, provides a whistle-stop tour of the
sector.
The government has committed to the
EU Renewable Energy Directive, and at present levels of activity
will not meet its target of 15% renewable energy by 2020 – this
being a legal requirement. Financing the technology is clearly a
critical aspect in achieving this goal, so how are we
progressing?
Some of the principal areas being
considered for finance would be: solar PV, small wind turbines,
biomass woodchip boilers, CHP (combined heat & power), and
segregation equipment for anaerobic digestion. In the future we
will see smart meters become more common.
This is not an exhaustive list, and
there are other energy saving technologies that may also attract
interest from the asset finance sector.
In the main these assets are
financed over periods of up seven or eight years, using an amalgam
of HP, finance lease or, in some instances, operating lease. The
latter are often rolled up into a managed services agreement.
For the term, much will depend on
the life expectancy of the asset before major overhauls or
replacements are required.
Asset cost could range from £10,000
(€11,600) toms of pounds. Longer repayment periods are available
for larger, more complex versions of these assets, which require
other structures, often facilitated by banks and the equity
market.
From a security perspective,
funders will be looking for recourse to a sound balance sheet, or
individual. They will also want to see robust forecasts showing the
benefits of the feed-in tariff (FIT) incentive.
This may prove valuable if there’s
any default, as the asset may have limited value, but entitlement
to the FIT may allow you to sell the entitlement or asset to a new
user.
Not all assets attract enhanced
capital allowances, although some associations are approaching HMRC
and/or Treasury to get agreement for their technology to be
included in the quality assurance process.
Also, Defra has indicated a cap on
the amount of FIT available to solar PV. It’s not clear whether the
cap will be achieved in advance of the review du
e for this
technology, in April 2011.
Much of the finance market is
interested in the renewable sector, not least because it has strong
political backing and government-supported incentives, almost
sovereign revenue.
However, the funders that have
achieved sufficient understanding of the sector will not
necessarily be adequate to meet the investment required for the
government to meet its renewable energy obligations.
Events such as the FLA’s Low Carbon Forum, will help the finance
industry achieve a greater confidence in the way it considers
renewable energy.
See also:
