There are “compelling” reasons for investing in renewable energy, but farmers must carefully assess the risks first, rural land agent Carter Jonas has advised.
An analysis of four renewable energy technologies by the firm found that wind, solar, hydro and anaerobic digestion projects could all produce a decent financial return, but each carried its own risks.
Out of the four technologies examined in the Carter Jonas Energy Index, a 330kW wind turbine produced the highest Internal Rate of Return, at 18.1%, with a payback period of 5.7 years. That was closely followed by a 50kW hydro plant (IRR of 17.8% and 5.3-year payback) and a 1MW anaerobic digestion plant (IRR of 16.5% and 5.5-year payback).
Returns for the 8kW solar photovoltaic system were a lot lower (IRR 5.8%) and payback the longest at almost 13 years, due to the relative capital cost of the technology. But because solar was less “risky” to develop, it could be seen as the safest investment overall, the report said.
“Solar PV is unique among renewable energy technologies in that, in addition to generating electricity from daylight, it can also be used as a building material in its own right.
“It ranks the lowest in terms of risk profile of all technologies, being the least contentious renewable technology reviewed in terms of planning.”
Internal Rate of Return IRR
Essentially it is the highest rate of interest at which an investment can be funded if the cash flow generated is to be sufficient to repay the original outlay at the end of the project life.
IRR takes account of project costs, such as capital expenditure during development and construction and consultancy fees, plus revenue from electricity generated. It excludes depreciation and finance costs.
The Energy Index assumes that the project developer owns the freehold of the site.
• Download the Energy Index at www.carterjonas.co.uk/news-and-events/publications.aspx
Know the risks
• Wind speed critical to success
• Planning permission is often trickier and more expensive
• Lack of grid connection
• Impact on aviation, radar, telecommunication signals
• Site access – especially during construction
• Can require large area
Sourcing sufficient inputs
• Disposal of digestate
• Higher operation and maintenance costs
• Planning objections from perceived odour and noise
• Food versus fuel debate
Hydroelectric• Very site specific (rainfall, river dynamics and ecology, etc)
• Obtaining Environment Agency permits can be complex and time consuming
• Ecological studies could inflate costs
• Relatively small electricity generating capacity
• Roofs may require reinforcing to take extra weight of solar panels – a typical PV panel weighs 13kg per m2
• Lower returns due to high capital cost