Renewable energy can reduce fixed costs and boost bottom line profit
Published November 18th, 2014
Most farmers will probably agree that they are currently feeling the pinch. It has been well reported that milk prices have dropped below cost of production, wheat prices are depressed and beef prices are well below last year’s highs.
By James Fulton, associate and business consultant with Berrys at Kettering
Looking back over the last 10 years the price of wheat in real terms has increased by 65 per cent, beef has increased by 38 per cent and milk has increased by more than 20 per cent, even once inflation has been taken into account.
With this in mind it is difficult to see how farming could possibly be struggling – that is until you start looking at the costs of production. Red diesel and heating oil have both increased by 80 per cent using the same measure and electricity by 40 per cent and while we are currently seeing a dip in the oil market it is unlikely that this will be a continuing trend.
In most farming businesses energy will contribute between 10 per cent and 15 per cent of all costs and perhaps 25 per cent of fixed costs. The nature of fixed costs is such that if there are ways to reduce them the savings generally add straight back on to bottom line profit as they do not affect output.
In many cases, renewable energy schemes are sold based upon their return on investment but in some instances a knowledge of the business and how it currently utilises energy can affect the decision made, whether that be the choice of technology or the manner in which it is funded.
Before investing in either renewable energy production or renewable heat production it is advisable to carry out a full audit of your current energy usage. This will give you a baseline figure as to the current energy spend and may come up with options to reduce this cost.
We were approached by a dairy farm business that was using more than £1,000 of electricity a month and because it had half-hourly metering we were able to ascertain how much electricity was being used at different points during the day.
The analysis indicated that the peak requirement was around 30kW and by changing when certain equipment was turned on and off we were able to advise installing a 35kW solar PV installation. This meant that 90 per cent of the electricity was used on site which provided a significantly improved return on investment compared to a 50kW system where more power would have to be exported.
In this particular case, electricity bills have been reduced by more than £3,000 per year and the Feed in Tariff generates a further £4,000 per year and all for an investment of just £38,000. In addition, the energy audit identified some issues with incoming voltage which cost £2,000 to rectify but reduced the electricity bill by a further £1,000 per year.
Whether you are looking at installing renewable energy or not, a baseline audit can help outline where you are using energy that you don’t need and thus pinpoint ways to reduce costs.
If you are considering installing renewable energy generation hardware this sort of analysis of current usage is key to ensuring that you receive the best possible return on investment even as tariffs reduce.
James Fulton can be contacted at the Kettering office of Berrys on 01536 532386, mobile 07966 160349, mailto://email@example.com