EU-linked feed-in tariffs
could be cash bonanza for finance companies.
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The UK government’s recent
announcement it will pay feed-in tariffs (FITs) to households and
small businesses that generate electricity from renewable sources
could make a business case for leasing, according to the UK’s
Finance and Leasing Association (FLA).
In a discussion paper based on Scottish research and
analysis provider Delta Energy & Environment for its Asset
finance for low-carbon equipment seminar (held last month in
London), the FLA suggested leasing could play a significant role in
the government’s ambitious low-carbon technology targets.
The FLA-Delta paper focuses on those assets
within the renewable energy technology sector that could be leased,
and also takes into account that lenders would need to have
reasonable returns and reasonable residual values at the end of the
term, and ultimately see it as a profitable business to enter.
A number of incentives – such as the FITs and
the proposed Renewable Heat Incentive, the Carbon Reduction
Commitment and incentives for electric vehicles – are all being
introduced by the UK government to encourage renewable energy
growth.
The FITs scheme will start from 1 April and is
specifically aimed at incentivising small-scale, low-carbon
electricity generation, as well encouraging decentralised energy
technologies (those close to energy consumers’ premises).
It was first envisaged in the Energy Act 2008,
part of the UK legislation on renewable energy alongside the
Climate Change Act 2008, and in line with overall EU targets of
having a 20 percent share of energy from renewable sources by
2020.
Last year, the EU also approved a directive
establishing a common framework for the production and promotion of
energy from renewable energy sources, whose deadline for being
transposed in the member states is December 2010.
The FLA discussion paper suggests that with
the new FITs, leasing low-carbon energy equipment is now beginning
to appear feasible to many businesses for the first time.
A FLA spokesperson explained: “If you consider
this feed-in tariff, so that effectively there is an additional
revenue steam to add to the equation, we have drawn the conclusion
that low-carbon technology becomes a viable option.”
But the trade association also believes that
whichever party wins the UK’s next general election, it should
properly tackle high-cost technology and enhanced capital
allowances, as doing so would increase demand from businesses for
low carbon energy assets.
“What you might need to have is some sort of
additional incentive within the capital allowance structure, in
order to make the more costly technology accessible to small
businesses,” the spokesperson said.
In addition, the FLA is suggesting a form of
“risk sharing” with the government, which could share a small part
of any shortfall between the actual and expected value of equipment
at end of lease, in return for a fee.
In their combined research, FLA and Delta
looked at various elements of renewable energy financing, including
photovoltaic panels with a FIT (in a six-year lease and 10 percent
residual value).
In that specific case, it was found that,
despite the tariff, the cost of solar photovoltaics was still too
high, and therefore not a viable option, unless there was some
additional government support.
But in other cases, such as with combined heat
and power (CHP) units, small and medium-sized wind turbines,
anaerobic digestion units, or electric vehicles (where at least the
battery is leased), leasing combined with a feed-in tariff would
become a viable option, the FLA said.
The spokesperson concluded: “We are suggesting
to the government that leasing is one option, where you can finance
SMEs with technology that will allow them to reduce their carbon
emissions – and if you could do that in volumes, it would make a
significant difference.”
Antonio Fabrizio
