Summary of Financial Plan
The total capital cost of the project was approximately £470,000. The contract for the purchase of all equipment and its installation was awarded as a ‘turnkey’ project. A turnkey project is an ‘all in’ contract where all elements of a project are awarded to a single contractor who will have to do everything needed for the construction, completion, commissioning and handover of the project. One advantage of a turnkey project is that it reduces the financial risk Esk Energy (Yorkshire) Limited is exposed to.
A Financial Forecast was prepared including a detailed long-term income and expenditure forecast. The Esk Energy financial plan Aug12 provides the actual income and expenditure and balance sheet for 2011/12, with the forecast for the following three years. Inflation was included in the forecast as the income from the FITs is index-linked. This plan has then been updated on a regular basis for our strategic management team to help with planning.
After commissioning, and throughout the life of the project, the only anticipated source of income is from the Feed-in Tariff scheme (FITs) based on the sale of all electricity generated being exported to the national grid. Income in the first year of operation was budgeted for at half the expected annual income to allow for any delays. In 2011-12, in addition to the capital costs, there was a one-off revenue cost of approximately £10,000 associated with the Share Issue. A cash reserve was allowed to increase over the first few years of the project to provide a contingency against any unforeseen events.
As well as enjoying an annual return on their investment, it is anticipated that if needed shareholders will be able to request the repayment of their shareholding after the project has been operating for five years. The long-term forecast assumes that all shareholder capital will have been repaid by Year 20 of the project (lifetime of the FITs payments).
In addition to repaying the loans and making payments to shareholders, the project’s cash flow forecast demonstrates that sufficient cash will be generated to enable Esk Energy to support other carbon reducing projects in the Esk Valley area.
Feed-In Tariff Scheme
Ofgem’s fact sheet on FITs gives an overview of the Feed-In Tariff scheme.
More information about the FITs scheme is available at www.ofgem.gov.uk/fits.
Use of grants
Grants are permitted to be used in addition to receiving income from generating electricity through the Feed-in Tariff Scheme as long as they are not related to the purchasing and installation of generating equipment. We were awarded grants of £40,000 from the National Park Authority Sustainable Development Fund grant and £50,000 from North Yorkshire County Council Community Fund grant. These grants were towards costs associated with the share issue, running costs in the first few years to help with the establishment of the project, renewing the fish pass and other costs directly related to delivering additional environmental benefit or mitigating environmental harm.