Self-generation for Small Businesses: a quick introduction

Over a quarter of businesses in the UK and Ireland have already invested in on-site generation.

Over a quarter of businesses in the UK and Ireland have already invested in on-site energy generation, with a further third considering it. If you run a small business and haven’t yet explored this option, our quick guide explains why it’s something to consider.

Drivers of self-generation for small businesses

Several different factors are motivating small businesses in the UK to invest in on-site generation. Here are some of them:

  • Shelter from price volatility. Wholesale energy prices are changeable, and Covid has made the energy markets even more unpredictable than before. Generating some of your own energy will cushion your business from these shocks.
  • Avoid non-commodity costs. These charges don’t relate to the actual energy itself, however they make up more than 60% of your energy bill. They cover the cost of delivering the energy to you, and the cost of government levies to help green the grid.
  • Avoid peak electricity costs. When combined with battery storage, electricity generated on-site can be stored and used at times of the day when grid electricity is expensive.
  • Achieve your climate goals. Many businesses have emissions reductions targets and perhaps a net zero strategy. Investing in your own renewable generation is a great way to lower your business’ carbon footprint.
  • Boost your reputation. Public attitudes are changing, and it is becoming less acceptable for a company to take no action on its greenhouse gas emissions. Many small businesses are choosing to be proactive on this issue, to strengthen their reputation.
  • Future-proof against regulation change. If the UK falls behind on its own targets for emissions reductions and renewable heat generation, the government may introduce various measures to get back on track, from new taxes to new regulatory obligations. Small businesses who are already decarbonising their energy supply won’t be caught out by these changes.
  • Take advantage of falling costs. The cost of installing renewable generators has fallen even as the technology improves. The cost per watt of a solar panel  is around a tenth of what it was just a decade ago. This makes it a much more feasible option for cost-conscious small businesses.

Where to start

The type of self-generation project and funding model your business chooses will depend on its individual circumstances and priorities. For example, if your site is off the gas grid, you are likely to be paying over the odds for heating, so building your own heating capacity will deliver significant cost savings as well as cutting your carbon footprint. You may want to install a biomass boiler and perhaps a ground source heat pump. But a business that is a heavy electricity user might see better returns from installing photovoltaic solar panels.

Funding models

There are a variety of ways for a business to fund an on-site generation project, which fall into two broad categories:

  • Paying upfront. The business raises the capital costs to fund the scheme so that it can own and control the whole asset itself.
  • In partnership. It’s quite common practice for a generator to enter into a Power Purchase Agreement (PPA), with an energy supplier. The energy buyer guarantees that it will purchase energy from the project for a defined period. The length of the agreement varies, but Good Energy’s approach is to offer a 1 to 2 year PPAs so that small generators have the security of a guaranteed income stream when they are getting up and running, but aren’t tied into one contract for too long. Our free One Price service allows generators to maximise the price they get for their power in a volatile market.

In other scenarios an investor may pay for the installation and maintenance of the renewable asset, and sell the power back to you (these are sometimes known as ‘rent-a-roof’ schemes).

Government schemes

The government’s Smart Export Guarantee replaces the well-known Feed-In Tariff (FiT) and helps small scale generators receive payment for the renewable electricity they export to the grid. Good Energy has long supported all sizes of renewable generators, from micro to large scale, through FiT as well as our own SmartGen PPAs. We’ll be launching a competitive Smart Export Guarantee tariff soon, you can register your interest here.

The Non-Domestic Renewable Heat Incentive scheme has just closed, and it is not yet clear what will replace it. The funding and incentives available are continually changing, so it pays to do your research on what’s available. For example, your business may be able get a local government grant, such as the West of England Green Business Grant. But it’s also important to explore the business case for on-site generation in its own right. Many small businesses are finding that it helps them to cut costs, develop a new income stream and protect themselves from price volatility. If your business is one of the three-quarters of businesses who haven’t yet looked into on-site generation as an option, it’s time to act.

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