Is micro-generation a good business investment?

The UK government yesterday announced its strategy for microgeneration of renewable energy.  It is aimed at businesses and individuals who want to produce energy on their own property, rather than energy companies or investors.  In my 16^th May article I pointed out that small businesses may be able to invest in renewables profitably if they have an idle resource that can be turned into energy cost effectively.  Does the UK government’s strategy make this any easier?

It will.  The government has already put financial incentives in place to promote small scale renewables, most notably the Feed-In Tariffs (FiTs).   These incentives work, yet not every suitable business is installing solar panels on the roof or a wind turbine on vacant land.  Why not?  One major obstacle is the lack of knowledge, and uncertainty about whom to trust.  The government’s strategy will address this by taking a stronger lead in establishing standards, quality marks and the like, to give decision-makers more confidence in choosing systems and services.

Will this strategy overcome all the major obstacles to the development of microgeneration?  No – the missing piece of the puzzle remains planning permission.  Although the government’s strategy mentions the issue in relation to community energy projects, they describe it as essentially a work in progress.  However, approval rates do vary widely, as the National Audit Office has reported, with Scotland taking the strongest lead in application approval rates.

A longer term consequence of regional variations in micro-generation approvals will be that business decisions about new site location may be influenced in part by planning attitudes to renewable energy.   This will be particularly attractive to those firms in energy-intensive industries, or where carbon footprint is important to the buying decisions of their customers.

Of course, the difficulties in obtaining planning permission do not make renewable micro-generation less attractive in terms of financial returns.  Instead, these obstacles increase the business risk associated with considering renewables, as it becomes more likely that the management time and pre-planning investments will come to nothing.  Businesses are no strangers to this problem – tenders, pitches, and investments in unproven markets all suffer from this sort of risk.  The secret to managing them is to make these efforts many and small, so the firm can afford to fail with most of them.

 

Translating this to micro-generation, the approach should be similar.  Look at all resources that could be converted to energy.  Plan to put in applications for any renewable installations that have a positive financial value.  Do this over a period of time that does not put excessive burden on management.  Expect to lose most of them, unless your business is located within an authority that is friendly to renewables, so keep the up-front investments low unless there is good reason to think your application will succeed.  Use independent, specialist consultants to evaluate the business case and advise on planning.   Micro-generation can be profitable, and approaching it with the same attitude taken to any business investment will bring good financial returns, as well as environmental benefit.

Finally, keep an open mind about micro-generation opportunities, because government policies, carbon pricing, and fuel costs will continue to alter the landscape in which businesses have to make their choices.