In our previous article - Manage the risk when going green. These are the top 5 renewable assets you can finance we explained the types of assets that you can invest in to increase your green impact.
In this article, we will give you some hypothetical examples to show you how to use asset finance to reduce the risk when investing in green technologies whilst aiding cashflow.
Generally speaking, there are three opportunities which will allow you to support the climate agenda and make your business more green, all whilst carefully managing the financial risk.
Opportunity 1: New projects
How?
By enabling you to save money on your energy bill or to take advantage of additional income by selling the energy.
What kind of new project could you invest in?
Roger's Dairy Farm: Due to an increase in energy costs, Roger’s outgoings have increased considerably. He is looking at ways to reduce his bills whilst becoming more sustainable. Other farmers in the area have taken advantage of this and he is looking into this as well.
Roger has a spare field which is not used on his dairy farm and would like to install a wind farm on this piece of land.
Following numerous conversations with industry experts, Roger has earmarked some wind turbines which he thinks would be ideal to achieve a more sustainable future – both for the environment, economically and financially. However, they are costly at c£1.5m.
Roger contacts his local Director at Custom Business Finance to find out if this is viable and how to finance such a project. After weighing everything up, he decides that a lease purchase solution is his best option. He also takes advantage of the stage payments that the funder can support him with as this is critical in ensuring the suppliers terms are met.
This kind of asset finance for green technology allows Roger to spread the cost of the investment to suit his business cashflow. It will give him ownership of the wind turbines at the end of the agreement, and he will also benefit from the additional income by selling excess electricity to the national grid. This was funded over a 7-year term.
Opportunity 2: Refinancing of projects
How?
When green technology has been installed for six months, we are able to review the performance data and see if we can offer you better terms.
What current projects can you refinance?
College: Angela works for the college in her town as Head of Estates. A few years ago, she commissioned the installation of solar roof panels on a new building. This was originally financed through working capital such as their bank overdraft. However, they are looking to re-finance this and release much needed capital for other projects such as potentially expanding solar panels to other buildings on campus.
After speaking with her Director at Custom Business Finance, a number of lender terms were sought. Angela has decided to go ahead with the new deal by spreading the remaining costs over a 5-year term at competitive interest rates.
This was achieved through positive business financials along with a proven track record, not to mention the remaining 15 years of the feed-in-tariff which guarantees additional revenue.
Opportunity 3: New installs
How?
Generating income from selling the energy to the third party and/or receiving government incentives from a new installation of green technology.
What new installs can you finance?
Construction: A local construction company is developing a new leisure centre that includes a gym and swimming pool. The company are inviting investors to back a combined heat and power (CHP) system. The CHP generates electricity for the leisure centre and captures the heat that would otherwise be wasted to provide useful thermal energy — such as steam or hot water — which can be used for space heating, cooling and hot water.
By looking at this technology, it allows the leisure centre to meet their carbon footprint obligations; longer-term, it proves financially beneficial as they can obtain RHI (renewable heat incentive) support (providing the project application was made by March 2021 and would be completed by March 2022) and reduce their heating bills. In this scenario, the investors would also be able to charge the leisure centre for using the power using a power purchase agreement (PPA). This rate or tariff would be less than the grid is charging, but enough for the investors to turn a profit.
This project is funded on a Variable Rate Lease Purchase, as this gave them the additional flexibility of being able to settle the finance off without incurring any penalty.
A reminder of assets you can finance
At Custom Business Finance, we are delighted to support businesses to go green and, via our funding partners, can help find you the perfect deal. Here are our top 5 examples of assets you can invest in:
- Biomass plants – burning natural waste material to generate power, this can be used to generate electricity, heat, or biofuels (such as biodiesel).
- Combined heat and power (CHP) – a technology that generates electricity and captures the heat that would otherwise be wasted to provide useful thermal energy. This energy can then be used for things such as space heating, cooling, domestic hot water, and industrial processes.
- Solar photovoltaic (PV) – this is the generation of electricity using energy from the sun in the main form of solar panels.
- On shore wind turbines – this technology uses the power of the wind and generates electricity, onshore wind turbines are usually installed in an area of low conservation and habitat.
- Air, ground & water source heat pumps – these technologies use pipes to extract heat. This heat can then be used to heat radiators, underfloor or warm air heating systems and hot water in housing.
Find out more
To find out more information about investing in going green and the financial opportunities that can help you do so, please get in touch and we’ll be more than happy to advise you on your plans.
hello@custombusinessfinance.co.uk
0114 442 8008