Renewable finance: Making the most out of biomass energy

Renewables are an increasingly popular farm and estate diversification project, both from an income perspective and due to the push for more green energy production within the UK. We have over 20 years of experience in renewable finance and will consider any proven technology, even pre-planning permission.

Renewable energy projects can be a great source of additional income and add real value to under-utilised land on your farm, or even turn waste products into revenue. But they often require significant upfront investment, which is where we can help. At UK Agricultural Finance, we can provide a range of loan options for renewable finance. One such case involved the installation of a large biomass plant.

What were the loan requirements and background for this renewable finance case?

The borrowers ran a large family-owned poultry business that operated across multiple farms in the Midlands. The borrowers could see the value of biomass on their farm, both for heat generation and power.

Poultry units require significant energy inputs compared to other livestock types such as beef or sheep. Poultry units need to be heated during the winter and sometimes cooled during the summer to maintain a fairly constant temperature that is ideal for the birds. Additionally, there are often energy requirements from lighting and incubator units if birds are produced on site. Due to this, poultry units are an ideal farm type for renewables, particularly solar or biomass, as these can both be used to generate heat and energy.

In this case, the borrowers felt the best fit for their poultry business was a biomass unit. The biomass unit would also provide a feed-in tariff, which helped to offset the substantial cost of construction and installation.

Why was UK Agricultural Finance selected?

The borrowers were unable to raise funding from their bank in a timely manner. The overall poultry business was much larger than the security we required or obtained, and had total assets of over £70m. The borrowers did have moderate lending, but this was also well within reasonable risk limits.

On face value, this would suggest that they were an ideal candidate for high street or traditional bank lending. In fact, their bank was keen to lend to them, but the bank were unable to guarantee funds in under nine months. This was far too long for the borrower, as a timescale of over nine months would have meant them losing their renewable energy tariff and equipment deposit.

However, at UK Agricultural Finance, we are experts in renewable finance and understand the speed at which funding needs to be sought with the ever-changing tariff requirements. As such, we were able to offer the borrowers guaranteed funding quickly. We were also able to offer flexible options regarding the security we used for the loan. The borrowers were also impressed with our understanding and knowledge of the renewable energy technology and feedstock being used.

What type of renewable finance could we offer for this biomass project?

To ensure the most appropriate renewable finance option, we visited the borrowers to understand both the location of the biomass plant and also the security options we could use to make the lending process as efficient as possible.

One stumbling block for the high street bank had been that they required security to be on the land on which the biomass plant was to be located. However, this site had already been pledged to the high street bank for another loan. As such, the bank would need to reconsider what land was pledged to them on which loans, all of which reduced the speed of loan approval.

However, we were happy to take security over various plots of land and did not require security against the actual renewable energy site, as this was already pledged to their high street bank.

In the end, we were able to take security against two farms totalling 440 acres, plus other fields of 75 acres, and two farm cottages. This provided us with a loan-to-value of 60%, which was within our 65% limit, on a loan of £3.5 million.

The most appropriate loan was a term loan over 60 months which gave the borrowers the option to either repay the loan through cash flow, the preferred option for them, or refinance to the high street at a later stage.

What did we see that others didn’t?

On visiting the borrowers, we were able to see the quality of their business operations. We saw a very high-quality and professional business that had a well-researched and clear plan to improve its economic and environmental sustainability through green energy.

We also recognised that the choice of biomass meant they would be using an ostensibly complex technology and feedstock, which in reality was a very robust and proven process. Our experience in this type of renewable energy and feedstock allowed us to assess the case more effectively than a traditional lender.

UK Agricultural Finance has many years of experience in the renewable energy sector and, as such, is well positioned to provide renewable finance for projects, particularly those set up as part of an estate or farm diversification. Renewables offer an ideal additional income stream for landowners or can be used to reduce costs for high-energy dependency businesses such as poultry.

Therefore, we are expecting increasing demand for loans of this type. However, many traditional lenders lack expertise in assessing the risk and value of renewable projects and therefore often fail to offer a suitable finance option.

If you are a broker and have a renewables loan case you are struggling to place, please do get in touch.