Green financial futures

 

With world leaders at the G20 summit earlier this year pledging $1.1 trillion to boost the economy while aiming to build an inclusive, green and sustainable recovery, the future looks bright for renewable energy.

Not only are renewable energy companies busy developing green technologies, such as wind, solar and geothermal, but traditional energy companies – the oil and gas behemoths – are also banking on a greener future, and basing their strategies around promised investment from government and fiscal incentives to up their game.

All of which is great news for accountants working in renewable energy, who tackle sector-specific financial issues against the backdrop of a dynamic commercial environment.

Challenges for accountants

One of the financial challenges particular to the renewable energy sector is explained by David Gray, finance director of independent energy consultancy McKinnon & Clarke: 'The main issues are balancing short-term and long-term goals,' he says. 'Prices for renewables will undoubtedly come down in the long term and are forecast to drop below traditional energy prices – but how do renewable companies balance the current needs of profits, cash flow, investment in R&D and investor needs against the longer-term potential benefits to be gained?'

An associated difficulty is that accountants have to rely on traditional financial modelling – such as return on investment – while dealing with a business model that usually presents an imbalance with traditional technology payback in terms of time and efficiency.

FDs working in renewable energy also face familiar problems shared by their counterparts in other industries amid the global economic crisis.

'Those who took on too much debt in the past few years are now working hard to make the interest payments or refinance the debt as it matures,' says Robin Griffiths, an interim CFO who has worked extensively in oil and gas, as well as mining. 'For those management teams that were more conservative, some great opportunities are materialising to pay good prices to purchase rivals or enterprising young companies who were less prudent. For accountants, those with good treasury or corporate finance experience are really feeling wanted right now.'

One benefit renewable energy has over some other sectors is that there is a government-supported drive to invest. But how are the promises to build an inclusive green and sustainable recovery likely to convert into real investment?

Griffiths is sceptical as to whether it will translate into hard cash in the short-term. 'Unfortunately, we are now seeing that the direct investment available from governments is minimal, as they are too indebted themselves to have much free cash.'

The next big thing?

The truth is that investors will gravitate towards the areas most ready for profitable expansion. Adrian Scholtz, who leads KPMG's renewable energy corporate finance activities in the UK and Germany, believes the most likely are 'directly linked to investment promises in the Budget'.

The first is wind power; Scholtz says that the UK's Budget announcement of £525m for the development of offshore wind projects directly led the Eon board to announce investment in building the first phase of a wind farm in the Thames Estuary which, once complete, will be the world's largest.

Scholtz also believes that carbon capture and storage is an area ready for expansion, where natural storage facilities such as old oil and gas fields are used to catch CO2 and store it.

Griffiths, though, warns, 'We will only start approaching profitability for the total product once there is sufficient demand to push down unit costs sufficiently – which for many green technologies seems years away, if not longer – and the most obvious hope for profitable renewables in the short-term is the mass production of some kind of clean car technology.

'On the back of commercial development, some of us hope that costs will come down enough to enable their deployment to somewhere with real pressing need and suitability such as mass solar energy to a developing part of Africa. And accountants can help be a part of that.'

Career prospects in renewable energy

For trainee accountants, what is the job market climate in renewable energy?

'Career prospects for trainees are strong,' says Roland Seddon, regional director at Hays Senior Finance. 'Jobs in renewable energy are likely to increase over the coming year.'

And those jobs can be found not only at the energy companies themselves but also at the professional services firms that advise them. They provide, says Scholtz, a 'big opportunity for people with financial skills to have more commercial roles'.

And as well as tax-related issues increasing in the future – such as organising tax-efficient structures for energy companies – he says that the majority of his work involves investment appraisals.

Working in industry is also attractive, partly because of the buzz surrounding renewable energy and its importance going forward, not to mention its worthy connotations.

'Blue chip energy companies are diverting more of their resources into this sector; we are seeing more and more small renewable energy start-ups,' says Seddon. 'The fact that it's a growing sector – one that's enjoying increased investment – makes it very attractive. Candidates are increasingly looking to work for companies that can demonstrate a social and moral conscience; and they are keen to display green credentials on their CVs.'

Although previous experience in renewable energy is valuable when looking for work, few finance professionals have long track records due to the relatively embryonic state of the sector. So which existing skills will stand you in good stead?

Those with experience in the mining, manufacturing and engineering sectors have an advantage, according to Seddon, who adds, 'Strong candidates will be able to demonstrate skills in investment appraisal, raising finance and corporate finance – skills attractive to a number of employers in renewables as they look to grow over the coming years.'

International opportunity for green thinkers

So if you want to do your bit for the world and move into renewables, which countries will serve you best as you forge an international career?

The answer may surprise you because, while the US fares poorly due primarily to its carbon emissions, Gray points out, 'Most of the largest international players are either based or have a presence in the US; it has companies covering all of the main renewable energy sources. For example, there are companies such as SunPower, who developed photovoltaic [solar] solutions with far greater efficiencies, while GE Energy is the world's leading turbine supplier.'

If you want to work in Europe, Germany is considered by many to be a leader in the development of green policies. 'Germany accounted for 50% of the world's photovoltaic installations in 2007,' says Gray. 'A large part of the reason for this is the system of feed-in tariffs, which rewards those who invest in renewables and export to the grid with high resale prices for the energy exported. This seriously reduces the payback times for renewables.'

As Gray concludes: 'Because of the conflict between traditional financial accounting methods and environmental concerns it certainly helps for accountants to be green thinkers, so that they can think outside the box and look at other returns, rather than just financial ones.'

CASE STUDY: HEENA PANESAR

Heena Panesar is studying for three of her final papers with Kaplan Financial and currently working at Switch2 Energy Solutions, which procures and sells energy to private wire networks. It uses combined heat and power (CHP) engines, which produce heat and electricity in the same process, consuming about 35% less fuel than if the energy is produced separately.

'I wasn't specifically looking to get into the energy sector; I had no idea what was involved, but two and a half years later, it has turned out to be a great area to be working in. When I started, I had no idea what a CHP engine was and how it was energy efficient,' says Heena.

Heena particularly likes working in the energy sector because it is so dynamic. 'It's a great field to work in – there's a growing need for renewable sources of energy, and new developments are moving more towards the use of CHP as an efficient and green way of producing energy. '

She has developed a sound knowledge of the sector through her work.

'On a monthly basis, I produce the financial accounts – but in line with that, there's a lot of investigative work to do on the inputs and outputs of the energy system. I get involved with everything from calculating the selling tariffs for our customers to producing models to monitor the efficiency of the system. I have meetings with clients to discuss any issues that have been identified as a result of the analysis; this can in turn save the company money.

'Now, I'm using the technical knowledge to contribute to the company on a profit level – and it's great working for something that's so important these days.'

Beth Holmes is a freelance journalist