The Impact of Renewable Energy Accountants on Wind Farm Projects of Institutional Landowners
 Topic: |  Read Time: 6 mins |
 Landowner type:Independent landowners | Institutional landowners |  Energy: Onshore wind |
24th July 2023I’m a big supporter of renewable energy accountants. As an accountant, I have seen first-hand the benefits that accountancy training can have in the renewables industry. Until recently, I was a member of the ICAEW’s Sustainability Committee, where there was a big drive for finance professionals to get more involved in the green economy and sustainability.
For context, my area of work within the green economy has primarily been with large-scale renewable energy projects.
I first got involved in this space when I worked on the finance team of the UK’s largest renewable energy developer. Then, I took the leap and started my own business working with renewable energy developers and landowners who host these projects on their land.
In my experience, much of the work done on the landowner side of projects within corporate organisations are managed by in-house land agents, energy teams and asset managers. That includes councils, waste management companies and other types of businesses.
The Importance of Finance Teams
But, there are many areas where finance professionals (in particular in-house accountants) can add a lot of value but are often forgotten.
And this is because they do not instinctively come to mind when we think of renewables!
I’ve recently worked with two great accountants at companies with renewable energy projects on their land -namely John Seaward of Tudor Griffiths and Ben Arden of Dewlay Cheesemakers.
Both parties did a fantastic job of keeping an eye on their third-party run renewables projects. They simply used what they’d learnt about renewables on-the-job and accomplished this without any specialist training. Here are a few ways that I think finance teams can add further value to the renewable projects that they manage.
4 Ways Finance Teams Can Add Major Value
In my experience, finance teams are the most underutilised asset in the management of renewable energy projects. So, here is a list of a few key areas where accountants for renewable energy can add value to the projects of institutional landowners:
Reviewing Contracts For Financial Compliance
Historical Rents
For projects that already exist and are approaching the contract re-negotiation stage, renewable energy accountants should be involved in reviewing your organisation’s historical rents. This will make certain that all payments are fully up-to-date in preparation for the contract renewal. This needs to be a comprehensive review that reconciles back to source contracts rather than simply checking that payments appear reasonable and have been consistently made.
Checking the contract and matching it to what has been paid
When rent or royalties are paid from renewable energy projects, they are usually:
- a standalone figure
- are not given much context
- are often not sufficiently scrutinised for completeness
But if one looks further into those payments, there are many intricate layers of information that aggregate into the final amount received. Usually, there’s a lot more information and judgement involved in calculating those rent or royalty payments than originally meets the eye.
As these figures are linked to the source contractual agreements, even the way in which those contracts are worded can have small subtleties that materially alter the magnitude and timing of payments due.
So, it is crucial to fully understand how those figures were determined by the site developers.
How do we do this?
Renewable energy revenues are typically made up of numerous income streams. These can vary from half-hour to half-hour, month to month, season to season and/or year-to-year.
There are also enormous differences between PPA’s, which are essentially the power purchase agreements used to sell the energy produced by the renewables projects from which the rent or royalty payments are derived. These agreements exist between the site developer and the energy buyer (commonly known as the energy “off-taker”). And they are the industry’s most closely guarded secret due to their commercial sensitivity.
These agreements vary widely, and the terms and prices at which the energy is sold can alter this significantly.
This leads to variations in the timing and magnitude of payments. As renewable energy accountants, we must regularly check rent and royalty payments back to these power purchase contracts.
If this isn’t done, there can be legal implications that may reduce the long-term value of the renewables project and the amounts of rent or royalties paid to landowners over time. To make things more complicated, any shortfall payments may not be recoverable.
Assessing The Finances of Prospective Site Developers
Selecting a site developer is a crucial step in any renewables project and can’t be rushed or overlooked.
For this reason, I encourage institutional landowners to review the market and assess the various options available from a range of developers before settling on anyone.
If your organisation decides to do this, the finance team should carry out a financial viability review of the proposed project in addition to the developer’s previous projects.
They should also assess who the new tenant will be and if they are financially secure. Renewable energy accountants should also obtain references to verify that site developers have a sound track record and with no significant previous disputes. Furthermore, every effort should be made to confirm who will be buying the energy produced by the project and whether this will be priced at an arm’s length market value,
It isn’t uncommon for some developers to sell energy to a related company at less than the full market price. can reduce the rents or royalties due to your organisation (which is obviously less than ideal).
The goal is to ensure that your organisation enters a lease with a reputable developer of excellent standing who will fulfil their legal, commercial and financial obligations. Whilst operating the project as well as (or better than) other developers in the market, of course.
Reducing Admin and Improving Insights
If you’re running a business, the last thing you want to think about is admin. And that’s where renewable energy accountants can really lend a helping hand.
Not only can they take a detailed look at reports, payments, and current financial decisions, but they can assess static data and identify interesting trends.
Perhaps you’re missing ways that you can streamline your current project approach. Or it could be that you’re missing a trick by dedicating too much of your internal workforce to tracking trends. Regardless of where your pain points are, utilising finance teams for renewable energy projects can seriously take the edge off.
Saving You Money!
Whatever the size of your business, saving money without cutting corners is always a bonus. And if you’re spending your time trying to solve your own finances while running a business – you’re bound to feel overwhelmed and may miss a few things
But, there are several ways that accountants can lend a helping hand.
Not only can they help you take advantage of capital allowance claims, and research and development reliefs, but they can even advise on possible investments. Plus, if you’re not quite sure how viable it’ll be to bring your project in-house (or how profitable it might be in the long run!), accounting advice is always worth seeking.
By taking advantage of all possible tax relief and incentives, you can significantly increase returns.
Should We Bring Our Project In-House?
If your organisation is considering whether to bring a renewables project in-house or to work with a third-party site developer, finance teams will be able to do a cost-benefit analysis of both options to see what’s most commercially viable.
If this is the avenue you would like to go down, your finance team should do the following:
- utilise clear costings (ideally from three separate developers)
- formulate a realistic budget and ascertain if there are sufficient funds available to carry out and maintain the renewables project.
This is especially important if your organisation wishes to move an existing renewables project away from a developer which has a protected business tenancy (i.e. security of tenure).
The takeaway
It’s clear that finance teams can have an enormous impact on the ultimate success of your negotiation process. Although they’re often underused assets, getting ahead of the game and hiring a qualified team of experts can save you a lot of time and money. And you know what that means – you’ll be able to allocate your energy and expertise to areas of your business that matter most.
If you need any assistance with your current auditing process or simply need a helping hand with bringing a project in-house, feel free to reach out. Our expert team will be happy to lighten your load and provide the advice your business needs to thrive.
