South West businesses are being urged to take full advantage for their annual investment allowance (AIA) by installing renewable energy schemes, massively increasing the profitability of such installations.
The past few years have seen the annual investment allowance for plant and machinery increase from £25,000 (2012) to a whopping £500,000 via a temporary measure announced in the last Budget to stimulate business investment in plant and equipment.
This is an ‘up-front’ allowance claimable against either corporation tax or income tax (as appropriate), and the allowance can be deducted from tax the same year.
“For a 40% tax payer this potentially shaves £100,000 off the net cost of a 250kW PV system, £200,000 off the cost of a 250kW wind turbine, and around £20,000 of the cost of even a smaller 11kW Gaia wind turbine,” explains Iain Beveridge, South West Regional Manager of Mosscliff Environmental.
“It hugely increases the returns on such systems for the next twenty years by dramatically lowering the initial fixed capital cost, whilst the grants are index linked and the related price of energy is increasing.”
Mosscliff have financial models to assess the impact of such savings and on, for example, a single 11kw Gaia wind turbine costing £60,000 the average annual return on investment can jump from 20% to over 32%. For a company on the lowest level of corporation tax a 100kW PV system return can increase from 17% to over 22%. “These are levels of return based on conservative forecasts that in the current climate are not to be ignored,” added Iain.
Much has been made of the potential for community-owned renewable energy projects, but there are few examples of successful projects where the community actually own the scheme.
A 250kW WTN wind turbine recently installed by Mosscliff at Dingwall is 100% owned and run by the local residents. Stakes in the unit range for £250 to £20,000 and over 85% of the money needed for the project was raised from residents living within ten miles of the development.
“This is a great example of a community share offer in action,” said Molly Ede, community energy officer for Mosscliff Environmental. “In addition there is a community benefit scheme which should be worth around £8,000 in an average year and which will go to fund community projects in the immediate local area.”
It is expected investors will enjoy a return on their investment of around 7% per annum, which is considerably better than other savings and carries a low risk as the grant payments supporting the scheme are underwritten by the UK government.
“Everybody wins,” added Molly. “The scheme has great environmental and ecological benefits, local community groups are well supported, and the local residents who have invested get a safe return considerably better than that paid by savings accounts. This is an effective way for projects of this scale to be funded and provide a major contribution to the local community.”
The WTN250 turbine was commissioned on June 16th and is now fully operational. Mosscliff are actively seeking to engage with other communities who would be interested in exploring such community owned renewable energy projects.
The latest round of grant rates for renewable energy were released by Ofgem on July 31, and it’s good news for farm scale PV systems up top 50kW in scale. There will be no change in the FIT rate payable for systems under 50kW until at least 31st December 2014 – allowing time for projects to be installed ahead of any future grant drop. Systems under 50kW are also allowable under planning permitted development rights and projects of this scale can proceed swiftly.
Medium scale PV systems between 50kW and 150kW in scale are being hit with a grant drop from 10.7 pence per unit (PPU) to 10.34 PPU on October 1. And larger systems are being similarly affected.
Wind turbines under 100kW are facing a rate reduction from 17.78ppu to 16ppu on 30th September – but should not decline again now until April 2015 – so there is still time to get projects through planning ahead of the next round of grant reductions.
“The key to any renewables project now is to move quickly,” said James Dixon, Exeter Branch manager at Mosscliff Environmental. “There are ways we can increase the income through selling excess power and applying tax incentives, and this can dampen the recent grant decline, however the trend is downwards and if you’re thinking of exploring a project it really is best advice to move swiftly.”