Budgeting for your small wind project
Mark Jennison from Realise Renewables reviews the list of items you should consider if you are setting a budget for your small wind project.
Many of those considering a small wind project are putting together their own budgets to understand all their likely up-front and on-going costs. This is required by the loan provider, usually the bank, as the basis on which to offer finance. But even those who are funding their project wholly themselves should still be aware of all the potential costs involved.
An indication of costs and likely returns is often provided by the installer. However we have seen many examples where we believe the list of potential costs is incomplete and under-estimates the financial contribution required. This, of course, has the consequence of making the returns look more appealing. While we have provided independent advice to a number of clients on this, we recognise the large number of projects taking place on this scale many of which are unlikely to merit additional budget for independent consultants. So instead we intend to provide generic guidance through GEN articles around small wind project development.
Here's our check-list of all items you should consider if you are looking at a small wind project. We suggest this list would be suitable for most projects up to a scale of around 100kW. Larger projects will involve a more comprehensive list of items.
Small wind turbine project budget list:
- Design and planning work to design a solution and submit a planning application
- Capital costs of turbine and other equipment (inverter, cabling, substation etc) – turbine prices can change regularly due to foreign currency exchange rates.
- Labour time to install it (laying foundations, digging cable trenches, electrical work etc.)
- Equipment hire for installation eg. mini-crane, digger, telehandler (may not be needed)
- Grid connection (you should get a budget quote from your local Distribution Network Operator or DNO)
- Upgrade to electricity meter (may not be needed)
- Putting in access tracks to the turbine location (may not be needed)
- Putting in hard-standing area next to turbine for crane (may not be needed)
- Warranty / Extended Warranty (standard warranty may be included in the turbine price)
- Servicing Costs for annual/bi-annual servicing (should only be needed outside of warranty period)
- Call-out fees, labour and spare parts for ad hoc repairs (outside of warranty period)
- Major repair bill during project lifetime (blades, generator, inverter etc)
- Annual insurance premium
- Annual lost revenue due to downtime, cable losses, turbulence etc.
- If you ‘opt out’ of the FiT export arrangement (3.1p/unit) in favour of a separate Power Purchase Agreement with a supplier, there are often charges for doing this.
- Legal fees eg. land title checks, check contract terms of suppliers etc. (may not be needed)
- Accountancy/Financial Advisor fees (may not be needed)
- Your own time to research optimal solution, identify and select suppliers, negotiate finance and oversee project build
You should also be aware of tax issues - see HMRC FiT guidance.
Most of the above tems in our budget will charge VAT on top. VAT on the price of turbines and associated installation work is not necessarily straight-forward - see specific HMRC guidance here. Our understanding is that VAT can be charged at 5% if the development is linked to improving your personal situation. Otherwise, for a commercial or industrial project, it is likely to be charged at 20%. Exactly where the line is drawn between these is not clear and you should probably seek guidance from HMRC and your installer.
If you are a business and you are exporting electricity back to the National Grid then it's likely VAT is due on the sale of your electricity - see our discussion on this issue for more information.
It's possible that if you are doing this as a personal (non-business related) project where you intend to use a majority of the energy you produce then you won't pay tax on the FiT income. However businesses and farmers may be subject to tax (usually at standard rate of 20%) on all their FiT income. This will significantly reduce your profit margins. Many of those giving you quotes that include financial returns will not include tax on this income.
You should seek guidance from HMRC and your personal financial advisor on your specific circumstances.