A business case is a written document outlining the economic or financial case for your community energy project. It usually overlaps with your business plan, and is an essential document as you start working with investors and lenders. You will use it to present your project to potential investors, developers or government organisations.
Main topics covered in this article include:
What is a business case?
A business case is the argument for your project – the evidence of its social, environmental and financial value. It differs from a business plan in that it also includes financial objectives, but is a broader overview of the structure, management, marketing plans and goals of your organisation. Over time, your business case will evolve. Data and assumptions will become more accurate, and the risks you highlighted initially should be mitigated as the project develops. It’s a living document, and an important milestone in the feasibility process.
Why produce a business case?
A community energy development requires a significant amount of economic investment, and you’ll need to engage with and inform a diverse group of people. Plus, as a proponent you need to understand all the important issues to help you make the best decisions. Preparing a business case can help you focus on these key issues.
A business case allows you to explain your project in a clear, transparent way. You'll want to outline:
- the proposed technology
- expected energy supply
- project benefits
- capital requirements
- return on investment
- projects risks.
Ultimately, it's these elements that will determine the success of your project.
Risk assessment and management may seem complex and tedious, but there are a lot of risks involved in wind farm development. However, once you break it down in a business case it's really quite straightforward.
You also need a business case for financing, as any lender or investor will use it to assess the project's viability and risk. But it also keeps you accountable for the project by setting out checks and balances and financial goals.
When do you develop a business case?
Start with a preliminary financial assessment towards the end of the pre-feasibility stage, as you’ll soon start spending money on a particular site. You’ll need to be able to compare costs between your shortlist of sites, and your business case will help you make that first decision by looking at straightforward economic variables.
Once you’re confident you have a site to develop, the business case becomes your way of demonstrating and documenting due diligence. You may have different versions of your business case at each milestone of the project depending on what purpose it serves.
Who will read the business case?
Potential investors or business partners will use your business case. This may include but is not limited to:
- angel investors
- government grant or funding agencies
- private shareholders
- banks and lending institutions
- co-operative members.
You may not want to make your business case public. This will depend on your organisational structure and marketing strategy, and how confident you are in the project.
Business case checklist
You should include the following elements in your business case. This Business case template is a guide which you can adapt to your specific situation and project.
Depending on what stage your project's at, your financial assessment will consist of basic financial modeling or more detailed financial analysis and cash flow projections. For more information, read the Developing the financial model for the project article.
What assumptions have you made about energy and REC pricing, capital costs, operating costs, interest rates and inflation? Who will buy the power you generate? The revenue-in and expenditures-out data is fundamental to your business case. On the revenue-in side, the main factor is your energy yield predictions. Get the best advice you can afford from specialists in this area. A 10% difference in yield predictions can make a big difference to your bottom line. Always be conservative in respect to yield predictions.
What business model are you using? Is there a Board of Directors? A good board with diverse skills can make a big difference to your success. Is it a co-operative, limited company or a joint venture with a commercial developer?
Scope of project
How big is your project? What's its energy capacity? What's your budget and time-frame?
Are there any site constraints or design issues? Will you have access to the grid?
Sensitivity cost analysis
What's the energy resource quality at different times of the year? How might this affect your cash flow? How will you manage these seasonal fluctuations?
Are there any outstanding issues that could prevent your project from going ahead?
Who should produce the business case?
You need to understand financial analysis and have good writing skills to develop an effective business case. You may want to research the market, your competitors, and interpret the latest site data. A good business case usually takes several months to complete.
Key tips for writing a business case
Analyse all risks
Address any potential issues that could hinder development, as they form part of the risk. This could include approval being referred on from council to state, or state to federal level, or the accuracy of financial projections being dependent on the availability of turbines you propose using.
Keep it alive
Revise your business model as you gather more information. At an early stage, wind modelling may be a rough estimate, but by the time you're ready for construction you’ll have high resolution data — and the risks will have reduced accordingly.
Include a financial model
This is an important snapshot of the variables involved, and indicates the payback period of the project.
Keep it simple
An initial business case should be around 30 to 40 pages long. Think about your target audience and their level of technical understanding. The clearer your argument, the more persuasive it will be.
Sustainable Energy Development Authority of NSW's (SEDA) NSW Wind Energy Handbook 2002
Guide to Developing a Community Renewable Energy project in North America
OSEA Community Power Financing Guidebook
Funding the early stages of projects
Developing the financial model for the project
Raising Debt - what banks look for
Developing the offer document, prospectus or PDS
Marketing to raise capital
Grants and government funding options