Budgeting for your small wind project

0
Your rating: None
Published: March 2012
Tags:

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.

Realise Renewables site assessment

Small wind turbine project budget list:

  1. Design and planning work to design a solution and submit a planning application
  2. Capital costs of turbine and other equipment (inverter, cabling, substation etc) – turbine prices can change regularly due to foreign currency exchange rates.
  3. Labour time to install it (laying foundations, digging cable trenches, electrical work etc.)
  4. Equipment hire for installation eg. mini-crane, digger, telehandler  (may not be needed)
  5. Grid connection (you should get a budget quote from your local Distribution Network Operator or DNO)
  6. Upgrade to electricity meter  (may not be needed)
  7. Putting in access tracks to the turbine location (may not be needed)
  8. Putting in hard-standing area next to turbine for crane (may not be needed)
  9. Warranty / Extended Warranty (standard warranty may be included in the turbine price)
  10. Servicing Costs for annual/bi-annual servicing (should only be needed outside of warranty period)
  11. Call-out fees, labour and spare parts for ad hoc repairs (outside of warranty period)
  12. Major repair bill during project lifetime (blades, generator, inverter etc)
  13. Annual insurance premium
  14. Annual lost revenue due to downtime, cable losses, turbulence etc.
  15. 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.
  16. Legal fees eg. land title checks, check contract terms of suppliers etc. (may not be needed)
  17. Accountancy/Financial Advisor fees (may not be needed)
  18. 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.

Related Articles

Comments

It is a shame that you are

It is a shame that you are encouraging rich people to take the money from poor bill-payers. If the technology and need is so essential then sureley it shouldn't need the subsidies that are being paid to land-owners and developers.

Do renewables favour the rich?

Unfortunately all forms of power generation require public money to develop and sustain.  Power from fossil fuel and nuclear generated energy requires substantial public subsidy.

Are feed-in Tariffs unfair to the poorest people in society?  I do understand where you are coming from.  We would generally agree, much like almost every other kind of investment, that wealthy people are likely to be in a better position to benefit than those who are not wealthy.  It's much easier to make more more money if you have money..as they say.  But there is risk involved.

We would prefer the Feed-in Tariff to be paid from the central tax pot rather than margins on fuel bills as this should be fairer.  Currently we estimate poorer households are likely to pay proportionally more than they would do if the Feed-In Tariff was funded centrally.

That said, adding margins to all household fuel bills has traditionally been widely used to raise additional tax revenue.  What is the major factor in driving up your household energy bill?  It is global wholesale gas and oil prices.  Here's a decent article about it (unlike the recent Panorama Programme which was widely inaccurate).

Is it only wealthy people that are able to do projects like this?  No, but it would be true to say they are likely to find it easier to take the risks to fund them.  We are aware of lots of households and farmers that are not wealthy but have been prepared to take a significant financial risk in order to do a project like this.  Lots of people think these projects are 'risk free' but that is not the case - anyone prepared to take out a significant loan to purchase a wind turbine is taking a risk.  

We met a specialist renewables advisor at one of the UK's leading banks the other day.  He is also a farmer.  He can't understand why landowners with tight finances and poor or mediocre wind resources are prepared to put up their land for security against a loan for a wind turbine given the potential risks.  We would contend a lot of people are not fully aware of the risks and are sold an overly optimistic picture of the benefits.  Be aware of all your potential costs and a 'worst case scenario' where your turbine manufacturer goes out of business over the next 20 years.  In general we would be sceptical about any sort of renewables investment with a payback period of 10 or more years.

 

Hi, Good list! Just would

Hi,

Good list! Just would need somewhere between point 1 and 2 a wind monitor resource assessment kit and and of course time to gather the wind data.

Wind is not as simple as PV and to make sure the project runs at its highest efficiency, it is very important to know for sure what to expect from the wind but also make sue the wind turbine is up time as much as possible.

If you are new to wind monitoring and wind resource assessment, have a look at this:
http://shop.logicenergy.com/blogs/news/5325492-make-wind-pay-i

Cheers

Ed

Don't just think about your wind project

Ed,

Very good point.  We are concerned that many of those interested in doing small wind projects approach an installer for advice.  However it's not exactly in their interests to tell them they have a poor wind resource and we have seen a few examples where farmers are advised to progress a project that have really poor wind!  Installers also tend to rely on the free NOABL wind data which, at best, is only an indication of the potential resource.

On a separate point, we might also suggest anyone considering a wind project doesn't look at their turbine project in isolation.  You can generate much better financial returns if you can utilise the majority of energy that you generate.  So you should also build in budget into your project to consider how you can do this.  This could involve longer cabling solutions to reach a meter in your property or barn.   If you can link it into a space or water heating solution then this is very sensible but this may well require additional equipment to allow you to utilise the power you generate (see http://www.coolpowerproducts.com/uk/index.html as an example).  We believe that Air Source and Ground Source Heat Pumps are a great solution for 'twinning' with your turbine - if you want something simiple to install consider an air-to-air heat pump like this http://www.lowergy.com/lgy/index.php?option=com_content&view=article&id=52&Itemid=71.

Don't think about your small wind project in isolation - think about it as a way to cut your bills through offsetting the energy you buy from your supplier.  Ensure you advise your installer that you need a solution designed to do this.  Find out more from someone who has done this - a complete energy make-over.

Indeed! 100% agree, we should

Indeed!

100% agree, we should always look at the big picture.

Regards,

Ed