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Solar farms on the rise

solar panelsA huge debate is currently taking place regarding solar farms and revolves around the size and number of projects currently being planned and constructed in the UK.

Solar farms provide energy to homes and businesses. The main advantage of this type of energy is that it’s sustainable, which means that no matter what happens, it won’t run out, because it comes from a completely natural source – the sun. As a relatively low maintenance energy production option, this way of powering our energy requirements comes under regular attack.

Although Greg Barker, the Energy Minister, made a public commitment to ensure that excessively large, or poorly sited solar farms would become a thing of the past, the trend certainly seems to be heading towards a bit of both actually taking place.

Part of the reason for so many people jumping on the solar farm bandwagon is to meet the sell-by date of high-level subsidies in March 2014. However, the real question to be addressed for most farmers is the balance between the income generating opportunities for you as a farmer and the conservation and environmental issues for the community at large.

At the tail end of last year, Dorset County Council came under specific attack for approving plans for a 28MW solar farm on MP, Richard Drax estate. The criticism had its roots in the fact that, if it goes ahead, the installation will take place over 70 hectares of high-grade agricultural land (grade three land to be precise). It is estimated that the energy produced by this particular installation will produce enough energy each year to power just short of 7000 homes.

If the plan goes ahead, the energy provider involved, Good Energy have allowed in their design to allow sheep to graze between the installations, as well as the planting of wild flower areas on the site, to make it all a bit more palatable. What’s more, in this particular case, the cherry on the cake for the local community is a proposed investment in the local community of an outdoor facility in the local school to support teaching about wildlife, environment and energy, together with a community fund for local projects which will benefit from a payment of £25,000 a year thanks to the installation.

Acts like these make such proposals much more palatable to some members of the community, but is there ever justification for choosing high-grade, open countryside for such projects, rather than factory rooftops? Should we support the fact that most new solar farms are now marring the visual impact of our open spaces? Is it acceptable that the average size of solar farms has doubled in the past two years to an average of 40 acres?

The upside of the solar farm argument for farmers is, of course the opportunity to take advantage of the highly attractive subsidies on offer, as well as the potential revenue stream that the proposal offers. What’s more, if well planned, there’s still the opportunity for farmers to use the land for grazing and to make it pretty through wild flower planting.

All of that said, as a firm of accountants, it would be foolhardy of us not to remind you that there are of course accounting implications should you decide to get involved in solar farming.

Here are just some of the things that are worth thinking about:

1. Income Tax. In a nutshell it’s essential that you account correctly for the different income and VAT effects of a solar farm and remember, in particular that electricity exported to the grid attracts VAT whereas there is no VAT on the Feed-In-Tariff income. What’s more, if you lease a site for a solar farming project, then the income from that should be treated as rental income and not trading income.

2. Depreciation. Although some income streams from solar farms will be guaranteed over 25 years, in many cases it makes good sense to depreciate at 5% p.a., enabling investment write-off over 20 years.

3. Annual Investment Allowance (AIA). Renewable energy installations that are for business purposes qualify for AIA and those entering into such arrangements for the first time should take advice nice and early to make sure that their allowances are maximised.

4. Make sure your business is set up using the most advantageous structure. Making the right decisions on how you set up your renewable energy project should help save on income tax, inheritance tax and other taxes along the way. Making sure you get the best advice possible on how you structure your affairs at the outset pays real dividends.

If you’re struggling to sort out your thinking when it comes to a solar, or any other renewable energy proposition, why not get in touch?  We have experts on hand who can help you weigh up the pros and cons as well as creating the very best proposition for your business circumstances.

 

Posted in: renewable energy, Rural business, solar farms

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