The recent unprecedented rising cost of energy has put an extra strain on many farming businesses. Those with energy contracts which have recently expired and have therefore been forced to renew their deals during a period where prices are at an all-time high have been affected the most. Increases on current tariffs have ranged from 100% up to 400% in worst-case scenarios. It is therefore unsurprising that there has been a noticeable increase in mounted solar panels appearing on both existing and newly built shed roofs, giving them a particularly useful dual purpose in the current climate.
Roof top solar panel installations are commonly most attractive to farmers who operate in dairy, poultry and arable sectors which all require a high use of energy. Those that use the majority or all the electricity they produce are able to benefit from the best rate of return on their investment with many payback periods being within 5 years. Using the energy produced in house will currently save paying anywhere up to 50p per kWh whereas any surplus exported to the grid will only pay a reduced rate of 6p – 9p per kWh into your pocket.
Solar panels are classed as plant and machinery and thus qualify for capital allowances; therefore a business can claim 100% of the costs of equipment and installation against its taxable profits in the year they are purchased. This, in some cases, will create substantial tax savings and help reduce the payback period even further.
Not only can solar panels save cash in the long run but will also reduce the carbon emissions produced by your business, thereby creating a valuable business asset now and in the future. Many mainstream banks currently offer discounted finance to businesses for initiatives that are more sustainable by offering lower interest rates or 0% arrangement fees.
With the goal of reaching Net Zero across the whole of agriculture in England and Wales by 2040, future incentives, not only by banks but by supermarkets and produce buyers alike, are most likely to be offered to those businesses who have taken active steps to reduce their carbon output.
Something to consider as the saying goes 'make hay whilst the sun shines', perhaps making electricity would also be equally beneficial to your business.
By Struan Kyle (Chartered Accountant)
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