Making the leap to renewables – how to clear the financial hurdles

Green case, business case – or both? That’s the question any organisation planning a move to renewable energy technology needs to answer.

But whether the overriding goals are cost savings, greater efficiency or reputational benefits, the upfront cost of going green is the most immediate challenge.

Whether you plan to install a renewable energy source – such as solar panels and wind turbines – or green technology such as a biomass boiler, getting the funding right at the outset can be the difference between success and failure.

And the initial financial hurdle can be just as daunting for someone hoping to cover the roof of their home with solar panels as it is for a local authority planning a large wind turbine project.

Fortunately, there are several incentives available to ease some of the financial burden, driven by the government’s desire to position the UK at the forefront of innovation in renewables.

Many of these incentives come in the form of tax breaks, especially for those considering using renewables in their business. Business owners can claim capital allowances when they buy energy-efficient technology, which can substantially reduce the amount of tax they pay.

Meanwhile, for those operating in the public sector, it’s worth learning from the financing structure of large-scale community projects such as wind farms. Typically, these projects are funded through a combination of debt and equity.

Equity investors share in the profits of the project – typically from the sale of any excess energy generated – whereas banks or other lenders who provide loans receive interest on the funds advanced.

For smaller renewables projects, attracting equity investors may not be an option, meaning that for organisations unwilling to sink a big chunk of their cash reserves into buying the technology outright, the primary source of funds is likely to be a lender.

Look for a specialist

While it can be tempting for any organisation to see its existing bank as the first port of call for such funding, it is rarely the best option.

The reason is that most high street banks have little experience of lending for renewable technology projects. Any would-be borrower would need to jump through multiple hoops to apply for a loan from a mainstream bank, and even then approval would be far from guaranteed.

Fortunately, there’s now an array of specialist lenders who have sprung up to fill this niche. Firstly, there are the ‘challenger’ banks who have different lending criteria to Big Four.

But then there are the asset finance specialists – lenders whose loans are specially tailored to fund equipment such as renewable energy technology.

In practical terms, this means a loan that is backed by the asset, i.e. the renewable technology itself. The loan repayments can be made using the profits from any income derived from the asset, such as the sale of excess energy generated.

As a loan that sits outside the purview of the borrower’s bank, asset finance won’t impact the organisation’s relationship with its bank – leaving it free to seek additional credit or an overdraft from the bank if it needs help with cash flow in future.

Regardless of how you plan to fund a green energy project – be it in your home, business or community – it pays to shop around and find the right finance structure. Traditional bank-led finance options have failed to keep pace with the rapid advance of the renewable energy sector, and this has proved the catalyst for the creation of a more diverse, more competitive lending market.

The net result is that for anyone planning to go green, the initial hurdle remains – but there is plenty of expert help and funding available to enable them to clear it.