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BHESCo

Financial Performance

BHESCo’s income comes from the sale of electricity and/or gas, the Feed-in Tariff and/or Renewable Heat Incentive, project management and energy survey fees.

Income

The Feed-in tariff is presently paid at a rate of 4.03p per kWh of electricity generated. The Renewable Heat Incentive is presently paid at a rate of about 6.88p per kWh for the size of the installations BHESCo intends to install.

The rates are subject to periodic derogation as determined by HM Treasury. This derogation will have an impact on the subsidy rates for future projects. Existing rates increase on 1st April in each year by the rate of inflation in the previous calendar year.

The energy generated by BHESCo's systems that is consumed by customers will be sold to them for up to 50% discount on their energy tariffs per kWh with the price fixed for a term of up to 20 years. The price reflects the cost and anticipated generation of the system and is set at a rate that, in a typical year, will enable interest to accrue to members at a rate of 5%.

Electricity generated that is not used by the customer will be sold via the grid for a guaranteed export tariff of 5.24p per kWh, increased each year by the rate of inflation. Solar panels generate most electricity and income in the summer. Biomass boilers generate most heat and income in the winter. By investing in both technologies, the Co-operative has a steady flow of income throughout the year.

BHESCo completed its first project in October 2015 and has now completed over 42 projects. The output of solar panels gradually reduces over time. This effect is reflected prudently in the project finance model.

BHESCo’s business plan includes income from other sources including Energy Surveys and EPCs, project management fees, consultancy income and grant funding for its charitable work and innovative projects.

Consultancy fees include license fees on products that BHESCo develops.

Expenditure

Expenses represent the cost of operations, including salaries for developing projects, conducting energy advice desks, marketing activities, community engagement, administration (such aspreparing accounts and insurance); monitoring our installed systems, maintaining and repairing the operating equipment, like solar panels, inverters and biomass boilers, overheads such as office running costs, and depreciation.

Depreciation will be taken over the agreement period or over asset’s useful life, whichever is shorter. The cost to fund replacement equipment, like inverters or LED light bulbs, is included in the project finance model should the agreement extend more than 10 years.

Customers may also opt into a maintenance agreement with BHESCo where we continue to maintain the equipment after the agreement is paid off to ensure that they still receive value for money well into the asset’s useful life.

Depending on the agreement terms, replacement inverters may be at BHESCo’s expense. The inverters are the only part of the solar panel system that are likely to need replacing and each is budgeted to be replaced once in 10 years

The Co-operative minimises its operating costs to the lowest reasonably practicable level. Board members who are not employees give their time to the Co-operative voluntarily.

Others work on a consultancy basis for the Co-operative at a reasonable rate. BHESCo has a robust volunteer programme and seeks to recruit staff members from its volunteer pool

Interest on investment shares

Investors in BHESCo are projected to receive a fair return on their investment established at a rate that is directly associated with the finance rate of its projects.

BHESCo plans to pay 5% annual interest in arrears on the balance of each member’s shareholding reflecting BHESCo’s financial performance in the previous year.

The interest is calculated gross and is not subject to a retained income tax credit.

Shareholders can decide to have their interest paid out, to invest it back in BHESCo or to donate it to help fund our fuel poverty intervention work.

Assumptions to the financial model

The financial projections set out below are based on the following principal assumptions:

  • BHESCo has taken a conservative approach to projections which means that there is a better chance of meeting performance targets and provides more assurance of cash flows.
  • Costs incurred in the installation will be in accordance with the quotes received.
  • The installations will be undertaken in accordance with the timetable and it is assumed that all projects are commissioned by 31 January 2020.
  • The Feed-in tariff rates continue in accordance with the regulations that currently apply to them.
  • Electricity and heat generation, including panel degradation, are in accordance with the estimates provided by the manufacturer for a typical year and follows the anticipated seasonal variations
  • Inflation is modelled at 2.5% per annum; the FIT, RHI, expenses and export electricity prices increase by this inflation rate.
  • Project models are created using the RHI and FiT available on the date the assets are operational. If there is any doubt about the ability to obtain this subsidy it is removed in its entirety.
  • Inverters are expected to require replacing once in 10 years, and the maintenance is set at a level that is sufficient over the life of the contractual agreement with the customer.
  • Energy prices will increase by an average of 3% each year. This takes into consideration historical energy price movements, temporary price declines and projections from industry experts.
  • The Co-operative generates net losses from the depreciation taken on the assets held. The operations become profitable in September 2019. Most costs are attributed to cost of sales, staffing and paying interest on members’ shareholding

Cash flow summary

Year Actual 17/18 Actual 18/19 Forecast 19/20 Forecast 20/21 Forecast 21/22 Forecast 22/23
Profit (loss) after tax (£33,428) (£28,877) £106,913 £43,326 (£3,411) (£10,448)
Depreciation £6,773 £6,576 £15,097 £32,745 £52,187 £74,211
Change in working capital (£269,494) (£37,362) (£88,196) (£104,070) (£158,526) £6,397
Total cash flows from operations (£296,149) (£59,662) £33,094 (£27,999) (£109,780) £70,161
(Increase) decrease in long term debtors £0 (£1,200) (£15,620) (£12,650) (£14,548) (£16,730)
Assets purchased - Machinery and Equipment (£1,773) (£1,576) (£302,400) (£358,050) (£411,758) (£473,521)
Total Outflows from investing activities (£1,773) (£2,776) (£318,020) (£370,700) (£426,305) (£490,251)
Increase (decrease) in interest free loan (£1,200) (£3,600) (£6,000) (£19,200) £0 £0
Investment from members £59,040 £49,760 £560,750 £310,000 £509,000 £512,450
Total in(out)flows from financing activities £57,840 £46,160 £554,750 £290,800 £509,000 £512,450
Movement in cash (£240,082) (£16,279) £269,824 (£107,899) (£27,085) £92,360
Opening balance in cash £139,861 (£100,222) (£116,500) £153,323 £45,424 £18,339
Ending balance in cash (£100,222) (£116,500) £153,323 £45,424 £18,339 £110,699

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