Utility Week

UTILITY Week 9th September 2016

Utility Week - authoritative, impartial and essential reading for senior people within utilities, regulators and government

Issue link: https://fhpublishing.uberflip.com/i/723894

Contents of this Issue


Page 27 of 31

28 | 9TH - 15TH SEPTEMBER 2016 | UTILITY WEEK Markets & Trading Market view T he benefits of anaerobic digestion (AD) are clear – or they are if you're in the industry, but what if you're an outsider? What will the development of an AD plant mean for your life, for your com- munity? What if the development of a new AD plant was driven by your community, designed and built to serve the community, its people, its enterprises? Never has this idea been more relevant than in light of the government's announce- ment of a further delay to a decision on Hin- kley Point C. Local communities may want to consider the benefits of taking energy plan- ning and security into their own hands. To turn this vision into a reality, planning and preparation is the key. Selling the benefits of AD For local communities, AD has a great story to tell, bringing investment to the local econ- omy in terms of jobs, revenue, power supply, and as a means of waste disposal; and eco- logically, by providing fertilizer to be used in local farm land. There are, as with any commercial development, drawbacks and environmental issues, many of which can be negated by careful planning. Where una- voidable, much can be done to prepare and engage communities with timely and honest information. One approach is to establish a Commu- nity Interest Company (CIC), a type of lim- ited company. CICs are designed for social enterprises that want to use their profits and assets for community benefits. CICs must have an "asset lock" to ensure the com- pany's assets are not used to benefit private shareholders, giving the community peace of mind that they will receive the benefits of the project over the long term. Writing your AD business plan If there is one key word, it's "certainty". Your business plan must deliver a clear, well- reasoned and achievable vision for your pro- ject. Not everything will go to plan, but the more work that's done in the initial stages, the more likely you are to succeed. Your business plan should consider five core elements: structure, options, viability, contracts, and the financial model. • Structure. This is your chance to set out your vision, who will be involved, who will "own" the plant and how you intend to operate it. If you have already identified a contractor, ask them how to best exploit the advantages of their technology. •  Options. If you are going out to the mar- ket, you need to consider how you want the plant to be funded, how you will reward your investors and how they will be protected. Many plants are funded by a mix of debt and equity, but the rise in micro- financing should not be overlooked. Small-scale plants, those with less than a 100kW output, will be far less capital intensive and lower risk. You must demonstrate to any investors that you understand the strengths and weaknesses of the project and what can be done to mitigate any risks. •  Viability. A viable project needs, as a minimum, a grid connection agreement, planning permission, environmental permit, an option for lease and a long-term, stable and affordable supply of feedstock. Planning permission and environmental permits oen come with conditions, such as permitted vehicle movements, which will change the way the plant operates and how profitable it will be. It is important to demonstrate that you have taken any restrictions or conditions into account in your financial model. •  Contracts. The design, construction, operation and feedstock agreements you enter into will determine how the plant develops and how much risk the project will be exposed to. The more you can understand these agreements and what impact they will have on the financial model, the better. You may not be entering into any agreement before submitting your business plan, but you should have agreed and signed "heads of terms" with the significant contractors. These heads of terms will be the foundation of your contracts (and financial projections), so it is important you can work within those terms and the cost. Changing your mind later may not be possible or attractive. •  Financial model. The financial model needs to set out not only your projected earn- ings (including the tariffs available, which will vary depending on size and configura- tion of the installation) and expenses, but a thorough stress-test against variable eco- nomic factors, such as a rise in feedstock prices. An investor will need to know how safe their investment is, and how the plant would stand up to a change in conditions. This is the time to ask some tough questions and give some very honest answers. AD can be an attractive and affordable way to bring investment, engagement and energy security to local economies. AD plants are not everyone's cup of tea, but if you do your homework and provide hon- est and timely information you may yet win round the most vocal of critics. Brian Farrell, partner in the Energy & Waste Team, Ashfords LLP AD in the community There is a quiet revolution taking place throughout the UK, a power revolution – the anaerobic digestion revolution. Brian Farrell explains how to get a project off the ground. Food and amenity waste Crops and residues Digestate Anaerobic digester Biomethane Heat Transport fuel ©NNFCC Gas grid Power Biogas Slurry and manure

Articles in this issue

Archives of this issue

view archives of Utility Week - UTILITY Week 9th September 2016