It is great to be back with another new instalment of our series, The FI Group Podcast Episode 5. Each episode we look at a new sector and aspect of R&D Tax Credits alongside the work that we do at FI Group.
Episode 5 is available to listen to on the following platforms:
In this months episode, we look at why the renewable energy sector is set to remain one of the biggest recipients of government & private sector support.
Amber Farrington is joined by Mark Denscombe, Key Account Manager at FI Group & expert of the renewable energy sector, to answer this question. They also cover topics such as the 10 point plan for green recovery and the qualifying activities that companies need to undertake to secure R&D tax credits in this sector.
Hello, and welcome to a podcast series brought to you by the FI Group. FI Group are leaders in the field of R&D tax and for over 20 years have been helping companies fund their innovation.
I’m Amber Farrington, a consultant with FI Group, and in today’s episode we will be looking at renewable energy and discovering why it is set to remain one of the biggest recipients of government and private sector support.
Today we are joined by Mark Denscombe, Key Account Manager at FI Group and expert of the renewables sector.
As leaders in the field of R&D tax, here at FI Group we are familiar with the excellent work being done in the renewable sector and have a large presence across Europe, North America and in more recent years Latin America and Asia. Here in the UK, our clients work on renewable projects related to wind, hydro and solar allowing us to build significant operational intelligence over the years.
In previous episodes of this podcast series, we have covered in detail what R&D tax relief is and how companies can take advantage of it. However, we realise that R&D tax relief is but one way in which the government supports innovation in the UK
A: Hi Mark, welcome! Why don’t you start by giving us an overview of R&D within the Renewable energy sector?
M: A palpable shift was felt in 2015 with the international Paris Agreement treaty on climate control, which signalled a global response to the way governments and large corporations would have to go about lowering CO2 emissions and meeting sustainability criteria.
This meant the established players had to adapt quickly with the realisation that their current model would not feature as part of their longer-term revenue stream and so they joined the pioneers and earlier-adopters of renewable energy.
For the incumbent energy giants, this meant having to redesign processes to reduce emissions as well as developing systems to meet new regulations, both of which require significant technological uncertainties to be overcome. Achieving these objectives are R&D heavy and therefore qualify for R&D tax relief.
This sort of innovation comes at a price. This is why existing methods of incentivising and compensating companies for investing in innovation, such as R&D tax credits, continue to have a vital role to play. In addition, when undertaken at an appropriate time, the claim process provides clear data points that allow for CFO’s to achieve more accurate forecasting. So, you can see, prudent use of tax relief can feed directly into a company’s future innovation funding structure with positive implications for companies of all sizes.
A: Yes definitely, I completely agree. I’ve heard about “10-Point Plan for Green Recovery”, can you tell us a bit more about it?
M: On the global stage, the UK has been a long-time advocate for the need to address climate change. The government recently re-enforced their commitment and continued investment in addressing this agenda through the ’10-Point Plan for Green Recovery’ with £12billion mobilised (and potentially 3 x as much from pvt sector) to create 250,000 green jobs. This is clearly an ambitious move to accelerate the level of innovation needed to reach the carbon ‘net zero’ targets that have been revised from 2050 to 2030.
Of the 10 points that include advancing offshore wind, delivering new advanced nuclear power, investing in carbon capture usage and storage, but also importantly green finance and innovation.
Govt’s 10-Point plan for Green Recovery
The ending of onshore wind farm subsidies in 2016 and the closure of the renewables obligation (RO) mechanism for new solar capacity, a year earlier than that, significantly affected financing within the sector and so this is welcome news for start-ups who have traditionally had sizeable barriers to entry, having to contend with the might of the massive market players.
To show their value, start-ups must show an ability to scale, as investors typically demand large amounts of energy production, which can be challenging.
The 10-Point plan illustrates the higher investment required in clean energy from governments to level this playing field and encourage innovation at all levels.
A: Thank you Mark, that was a really good overview for what the ten point plan for green recovery is. Back to R&D Tax, would you give us an idea of the qualifying R&D activities that a company needs to take in order to claim R&D Tax Credit in this sector?
M: As I mentioned previously, in overcoming technological or scientific uncertainty, there must be evidence of both the R and the D to qualify for R&D tax relief.
Qualifying activities include redesigning processes to reduce emissions, experiments with more sustainable materials and creating and integrating more efficient automated processes. On this point, we have seen R&D focussed on the integration of existing renewable energy production mediums with other technologies for example battery storage and payment solutions. This might benefit more remote communities who lack any transmission infrastructure from a main grid and this direct wire solution is rapidly gaining momentum owed in large part to lower transmission costs.
Elsewhere, we are seeing R&D in the conversion efficiency of crystalline silicon cells used in solar that will continue to impact on price and drive deployment which, in itself, meets the criteria of improving the energy efficiency of systems.
Combining both efficiency and sustainability, we have a client taking existing PV technology and improving its ability to withstand extremes of temperature so that it can be integrated into new environments that extend the reach of energy production. This might be a desert environment that regularly has a temperature range of 45C between highs and lows in a given day.
Questions and answers
A: What are the biggest challenges that face the sector today?
M: Although there have been notable improvements in recent years, there are still considerable challenges faced today and these can be categorised broadly as cost, infrastructure, storage, green credentials of manufacturing.
There is the Cost: of developing and installing renewable sources such as wind farms and solar fields have a relatively high cost per kW of energy when compared to no traditionally fuelled power stations although running costs can be comparatively low.
Infrastructure: In their competition with mature fossil fuel and nuclear technologies, renewables encounter major challenges to commercialisation, including underdeveloped infrastructure. Often, the most suitable environments for wind or hydro energy are the furthest away from existing means of transmission.
Storage:We have seenAdvances in battery storage solutions making huge leaps in recent years, driven by huge investment in the EV market. Improved storage offers the renewable energy sector the means to mitigate against fluctuations in power sources that are reliant on suitable weather conditions.
Fluctuating power source: Wind power ramp events and shortages as well as cloud interruption are all factors that can see grid fluctuations that were not experienced with the more consistent power supply from fossil fuelled generators.
Control software is overcoming these issues and when combined with battery solutions can see smart distribution of power. GIS or Geographical Information Systems allow the data from an entire wind farm located far from shore to be unified and where there is more data, there is the ability to make better informed decisions.
Green credentials of manufacturing process:with so much focus on reducing CO2 emissions, it is hardly surprising that there is a high level of scrutiny on every aspect of green energy production. The need to generate efficiency and maximise operational returns from sites has led to the scale of hardware increasing which poses greater risk of disruption both in the carbon footprint of manufacturing turbines (be they wind or hydro) as well as disruption to the environment. For example, we are beginning to see greater use of new composite materials that are providing solutions such as on-site fabrication and potentially doing away with a great deal of the logistics army that would have been required.
A: These kinds of challenges or barriers are so familiar as we see them all the time in our R&D claims due to the high level of uncertainty they contribute to advancing green technologies.
How has COVID effected energy demand?
M: COVID-19 and enforced lockdowns have proved to be the catalyst for a shift in energy demand and initially, global demand plummeted to levels not seen in 70 years. According to the International Energy Agency (IEA), overall energy demand shrunk by 6% in 2020, with oil dropping 9%, coal 8% and oil prices at record lows. Importantly, during this same period, demand for renewable energy jumped with the share of wind and solar electricity rising by nearly 40% in the USA and India by 45%.
A: What are the wider implications for the renewable sector?
M: From the viewpoint of the corporate consumer, there needs to be a shift in the perception of value as renewable energy remains more expensive. Paying this ‘green premium’ has a longer-term value to the corporation owing to heightened awareness from consumers who are more likely to choose who they conduct business with based on these credentials. Industry peer pressure and conscience buying will play a huge role going forwards. Support from consumers, corporate consumers in particular, mean we are at the point of no return.
A: Thank you so much Mark for the information that you have provided, it’s a great insight into the renewable energy industry.
If you liked this episode, please subscribe so you don’t miss out on future episodes. To find out how we can support you in your claim, please head to fi-group.com for more information, or contact us today. I’ll be back in two weeks’ time. Thank you for listening.