Should SMEs consider the switch to renewable energy?

By | March 15, 2012

There is no doubting the importance of SMEs in the debate surrounding energy usage in the UK. According to Carbon Trust UK SMEs account for 45 per cent of UK business energy usage and have a much higher potential for energy saving than larger organisations; twenty per cent compared with eight per cent. If the majority of UK SMEs were convinced to invest in renewable energy production such as solar panels, wind turbines, or a anaerobic digestion a large reduction in carbon output could be secured. For this reason small businesses are often cited as an important model of a low-carbon economy but how practical is it for businesses to switch to renewables, such as green electricity with Good Energy.

The advantage for SMEs in switching is the ability to reduce energy costs in the long-term by producing energy through renewable sources. And for those who have the capacity to produce an excess there is the option of selling on surplus energy produced to renewable energy companies. Additionally by making the switch to renewables early SMEs can appear to be ahead of a trend which will undoubtedly be a corner-stone of the growing moves towards a low-carbon economy nationally. There are certainly signs of a positive attitude towards renewable energy amongst SMEs and it is has been estimated, according to recent research by Opus Energy, that investment will increase by a third in the next five years. The key motivator for this enthusiasm is the opportunity to maximise revenue streams by producing green energy on-site.

However a number of issues remain which stifle interest in renewables. These include the expensive outlay in acquiring the necessary infrastructure to produce renewables, the complexity of maintaining systems, and a lack of transparency surrounding the subject. Such is the confusion surrounding renewables, Opus have estimated that currently ten per cent of the average SME energy bill is made up by renewables, a figure set to rise to a quarter within twelve months. Many SMEs will be paying for renewables without knowing it and certainly without reaping the reputational benefits for doing “their bit” for the environment.

Investment in renewables is further threatened by a government u-turn regarding solar power subsidies last year. Solar is a popular area for SMEs to invest in renewables and this was encouraged by the government’s announcement of “feed-in tariffs” for SMEs that invested in the production of solar power. The revision to the initial policy, implemented in the government’s first months in power, means that only small installations (less than 50kW) will receive the full subsidy of twelve per cent. Anything larger than the 50kW cap, such as a solar covered farmer’s barn or school roof will receive just five per cent. Solar experts have expressed concern that this reduction so soon after policy implementation will cause fear amongst lenders and mean SMEs will be unable to secure the capital required for set-up costs. Access to funding is further complicated by the fact that a significant proportion of SMEs are categorised as being too large to qualify for government initiated “Green Deal” loans but too small to secure bank loans. This dangerous middle ground of SMEs represents a serious risk to renewable investment.

There is certainly strong interest in renewable energy amongst UK SMEs and the long-term benefits for revenue and reputational advantage are plain to see. However both a climate of confusion surrounding the renewable industry and access to capital remaining a sever obstacle to renewable investment threaten to dampen this.

About the Guest Post Author: Written by Tara who has been working as a freelancer for several years now. She enjoys researching and writing about money and energy, and particularly enjoys advising about money-saving techniques and business ventures.