Renewable energy needs smarter financial management tools

Achieving sustainable growth takes more than just a shift in culture; resources, expenses, and strategies must be curated to achieve net zero initiatives. 

A shift many businesses and organisations have been coming to terms with over recent years – challenging macroeconomic conditions and the threat of recession have only made achieving renewable energy growth all the more difficult. 

AccountsIQ COO Darren Cran believes there is a way through, though. We speak to him about how smarter financial management tools can help companies achieve their renewable energy goals despite macroeconomic pressures. 

How have renewable energy initiatives come to the fore amid rising costs? 

Hugely increased energy prices are a serious challenge to profitability in any sector. After a doubling of prices last year, finding any positives to take is a challenge for even the greatest of optimists. 

However, market shocks, despite their often deeply regrettable causes, can lead to positive change. 

Alongside the dreadful trauma of the pandemic, for example, companies accelerated their cloud migration and digitisation initiatives. 

They introduced flexible working practices, which although not universally popular with business leaders, have helped retain scarce staff. It’s arguable that the future of work has changed for the better in a timeframe that simply was not realistic without the pandemic.

The continuing energy price shock has inflicted hardship but has led to the fast-tracking of investment in renewables as countries seek lower costs and greater security of supply while advancing greenhouse gas emissions reductions. 

These significant moves will be beneficial to almost everyone in the medium and long term.

How much is the renewable energy sector expected to grow? 

The International Energy Agency (IEA) has already raised its forecast for the global growth of renewable energy including solar, wind, hydro and biofuels. 

In December it predicted the world would add as much new renewable power between 2022 and 2027, as had been achieved in the previous 20 years. 

This is a 30% increase on what the organisation predicted only a year before, with the extra growth directly linked to the continuing energy crisis. In Europe, renewables growth is set to be twice as high as the previous five-year period.

Many renewable energy companies are funded by private equity or venture capital investors. They, and any potential new entrants to the market, are more likely to seize the new opportunities if they can drive greater efficiency.

It is reasonably common practice for renewables companies to use special purpose vehicles (SPVs) which are subsidiaries that operate as separate legal entities with their own assets, liabilities, and accounting and audit requirements.

These SPVs are useful in balancing risks and returns and help attract new investors. They maintain separation between different projects and isolate the financial risks that accompany the establishment, ownership and management of renewable energy facilities. 

The risks are pretty varied. They can come in the shape of changing government policy on incentives and tariffs, planning and types of technology. 

On-shore wind farms remain a political hot potato in the UK, for example. The early, exploratory phases of any renewable energy project are often the most risky, which makes SPVs attractive as tools of mitigation.

What challenges do SVPs bring, and how can they be mitigated? 

Establishing multiple SPVs, however, can cause internal financial complexity that undermines the ability to generate expected levels of revenue. Companies need the ability to set up and scale their SPVs rapidly, but they also need increased automation to radically simplify financial management.

For example, they should have access to multi-entity consolidation that is fast and effective. Since renewables operations are likely to be on many geographically dispersed sites, they also need streamlined processes for intercompany recharging.

Increased automation in financial management is a necessity for most companies in the renewables sector or those seriously thinking about making their debut through SPVs. 

It is no longer viable to manage the profitability of multiple renewable energy assets with spreadsheets or small business accounting packages. 

Firms need to cut out unnecessary manual tasks such as expense management and approvals, eliminating paper and human error for greater speed and accuracy. 

For businesses with cross-border interests, managing multi-currency transactions can be very troublesome without automation. Finance directors should be able to see results consolidated in real-time, in base currency for all their SPVs, wherever they are.

What of costs associated with planning and implementing renewable initiatives?

As companies invest in new solar and wind generation sites, they must also keep a firm grip on the costs of planning and construction as inflation continues to take its toll. 

It is important for a company to track costs and performance indicators during construction and to continue without interruption as assets move into full operation. 

The pre-operational and post-operational costs and revenues of individual assets across the company should be visible to the CFO and their team from a single pane of glass. 

The company should be able to spot straight away when individual assets become inefficient and costly for whatever reason. Owners need the ability to drill down into the data and run or re-run reports simply and quickly so they can take decisive action quickly.

The entire renewables sector is set for major growth and in the UK especially, the SPV will continue to play a critical role in how companies invest to meet the burgeoning demand for green energy. 

If firms want to deliver on this potential quickly, they must ensure they can manage all their assets as simply and as effectively as possible. 

Companies in the renewables sector need to do all they can to achieve maximum efficiency. In an increasingly digital world, that demands more advanced financial management capabilities.

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Other magazines that may be of interest - EV Magazine | Energy Digital

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