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Decentralised energy projects attract investors

Investors are “queuing up” to put their money into decentralised energy projects, according to one of the UK’s leading energy services companies (ESCOs).

The opportunity for installing decentralised energy projects has grown rapidly over the last two years, said Mike Tivey, London-based managing director of the asset management division at outsourcing firm Mitie, which claims to be the UK’s second-largest ESCO with revenues from energy services of close to £680 million ($1.1 billion) last year.

Major energy users – such as hospitals, local authorities, manufacturers and retailers – are seeing advantages of contracting ESCOs to install on-site generation, Tivey said, to mitigate against rising prices, ensure security of supply and reduce their environmental impact – without having to invest capital.

Mitie’s energy centres typically have a thermal energy capacity of between 1MW and 10MW. Among its recent projects, it has worked with food retailer Waitrose to develop an energy centre at its store in East Cowes, Isle of Wight, fuelled by biomass from local coppices. At the Royal Free Hospital in north London, Mitie developed and now operates a 4.6MW gas-fired combined heat-and-power plant. Both facilities will supply surplus heat to nearby homes.

Such projects tend to be financed in one of two ways: deals with government bodies tend to involve the energy centre being constructed with debt provided by a number of lenders, such as the UK’s Cooperative Bank. These investments are then ‘flipped’ into a long-term supply contract, typically lasting 15 years.

Deals for the private-sector tend to be project financed, with debt from those same lenders and equity from “a real mix” of providers, Tivey said. Investors are “queuing up” to finance these projects, he noted, attracted by the security of the long-term supply contracts.

Andrew Page, a partner at Kent-based environmental fund manager Foresight Group, which has invested in decentralised waste-to-energy projects, agreed that the sector has much to offer investors. “Decentralised energy generation has always been an important part of energy infrastructure, but this is becoming increasingly attractive for businesses and is a clear growth area.

“Many businesses now see that, given the financial benefits and given the perceived risk to future energy costs or supply security, the installation of an on-site facility is both prudent and beneficial.”

Delta Energy and Environment, an Edinburgh-based consultancy firm, estimates that the UK market for business-to-business energy services is around £2 billion and could easily double by 2020.

Making businesses understand that there is a different model for sourcing energy is key to growing the sector, Mitie’s Tivey said. “We need to take it out of the hands of the estate manager and give it to the CFO,” he added.

Of the energy centres recently installed by Mitie, about half use natural gas and half use renewable energy, mostly in the form of biomass. “Renewables will continue to grow as long as we get stability in the support mechanisms,” such as feed-in tariffs and the UK’s Renewables Obligation, he said.

By Christopher Cundy
Envinmental Finance 


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