Turning a profit in green energy

Turning a profit in green energy

Renewable energy firm Earthmill is thriving in spite of industry red tape, its operations director Mark Woodward tells Andrew Mernin

Since the introduction of feed-in tariffs four years ago, an army of green energy companies have tried and failed to take advantage of it.

But a few have succeeded – despite naysayers who prefer nuclear, shale and other grubbier cousins – in driving clean energy profits.

Among them is Earthmill, the Yorkshire-based wind turbine installer which has grown into a £14m turnover business and is now focused on broadening its horizons. Farmers across the land, from rugged Cornwall to remotest Scotland, are plugged into an Earthmill-installed turbine. And their spinning – whether in an Atlantic breeze or North Sea blast – continues to bring earnings for their masters while driving jobs and growth at Earthmill’s Wetherby HQ.

The firm’s emergence as one of the fastest growing renewables companies in the North of England has been overseen by investor and operations director Mark Woodward and MD and founder Steve Milner.

“We always say working here is like working in dog years,” says Woodward. “Because everything moves so quickly, one year in this industry is like seven in others.”

This fast forward mode comes, in part, from the rapid development of new technologies making wind evermore viable. But political influence also has the industry in a seemingly constant state of flux.

“The lack of clarity is our biggest challenge and it means we only do a one-year business plan each year. The UK has the windiest conditions in Europe but places like Germany and Denmark have a much more developed industry because our Government will commit to it, and then step back, and so it’s hard for people to make long term investments.

“If you’re building a turbines factory, you need about five years before you get your money back. But if you have short term policies that keep changing, it’s a real challenge,” he says.
“The danger is we have an industry that’s doing well but most of the manufacture is going on abroad. It’s criminal when we’ve got the best wind resource here.”

Despite such challenges, Earthmill has thrived largely on the back of the feed-in tariff, which pays for electricity generated through renewable or low carbon means. While selling a small amount of turbines, Earthmill increasingly rents the land a turbine stands on for a period of 20 years and handles the planning, buying, installation and maintenance process. It works with Endurance, a leading UK manufacturer of turbines, to fulfil demand.

The 50-250kw turbines typically cost between £270,000 and £600,000 and range in height from 100ft to 160ft.

A recent move to a bigger premises, £4.1m in fresh investment and the gradual opening up of new, non-agricultural markets, have charted a successful last 12 months for the firm.

The company was initially a one man band launched with Steve Milner’s £45,000 redundancy cheque in 2009, offering a range of renewable services.

Then Woodward’s meandering path as an investor – having made his early fortune in software – intervened and the pair decided to put their faith in wind turbines.

A trip to an agricultural show which brought them hundreds of enquiries was pivotal in their decision. Once they’d reaped £120,000 in annual turnover, made up largely of the value of two wind turbines, “we binned everything else from the prospect list”.

Woodward started working one day a month with Milner, providing business advice, but eventually became commercial director.

“I was looking at how to build some value into the business. The main challenge with wind energy is that once you sell a turbine there’s no ongoing revenue. So for me this was always going to be a side of the business that I knew needed to be improved.”

He took inspiration from his days in software, where rental and maintenance models were the most lucrative and applied it to Earthmill, through its adoption of its own rental, rather than outright sales model.

And given his success in software, he had good reason to trust a strategy that had served him so well. Woodward played a key role in the growth and circa £20m sale of Leeds software business Solicitec (later Visualfiles), having risen from sales to MD in 14 years at the firm.

The 2006 sale left the computer science graduate with a tidy sum, having held 30% in shares, which led him into investment – after brief thoughts of early retirement.

“My ambition was to play golf and I bought a property and did it up and really just enjoyed life for a while rather than jumping straight back on the saddle. However, I quickly got itchy feet. I was being asked to do all sorts of chores around the house as well as accompanying my wife on way too many shopping trips.”

He joined forces with former Solicitec business partner Neil Ewin to establish angel investment group Ewin Woodward Development.

While Earthmill is Woodward’s most successful investment to date, he and Ewin have a number of other business interests. These include Halifax-based low carbon lighting firm Carbon Reduction Technology and Derbyshire biotech business Retrogenix, which enables pharmaceutical companies to determine which proteins are targeted by drug molecules.
Bespoke furniture business Neil Jones Furniture, of Clitheroe, Lancashire, is also on the books.

Earthmill is his day-to-day area of focus, however, having helped the business to develop a network of over 150 turbines across the country, with a further 120 planned.
Around 90% are on agricultural land and, with an estimated 300,000 farms in the country, Woodward sees plenty of room for growth.

Wind turbines are an attractive option for farmers keen to offset energy bills amid rising costs and completion from cheaper imports.

The feed-in tariff pays somewhere in the region of £42,000 a year on top of energy savings of more than £20,000 per year, according to a recent FT report. They are also payable for 20 years at the rate that was in effect when the farmer registered.

As well as cutting costs, turbines can also help farmers handle pressure from supermarkets that are seeking to reduce their carbon output.

Woodward says: “Supermarkets are increasingly chasing their carbon footprint down the food chain. So when they’re calculating it, they’re going back to the farmer and putting pressure on them. So a wind turbine is a way of alleviating that.

“We know farmers like being in control of their assets and are desperate for cheaper energy solutions, but we also know that many of them don’t have the money to invest in a turbine themselves. We offer a number of ways in which they can gain access to wind energy, including renting a turbine from us or a joint consortium deal, which sees them own 50% of the turbine and any subsequent revenues, while we own the other half.”

Earthmill today employs around 30 full time staff and, after growing its turnover rapidly to £14m, is now focused on its long term future.

“We won’t grow our turnover massively over the next few years as it’s the rental side of the business that we want to focus on,” he says. “But there is an opportunity for us based on something we’ve seen gaining ground in Germany where local residents are investing in a wind turbine as a community resource.”

Flourishing in a market which is still playing catch up to its European counterparts is no mean feat, especially given the rigours of the planning process, as Woodward explains.
“Unfortunately the planning process in this country seems to be getting slower. The biggest thing we need from Government is more clarity around planning and regulations. Our planning applications end up in front of a committee that would usually decide on things like whether homeowners should be allowed to put up an extension and they may have little knowledge of renewables, turbines and the scales at which we work to. This means large numbers of our cases are initially rejected and have to go through the appeal process, adding an extra six or seven months to a project.”

For all the  hurdles facing Earthmill, however, Woodward is optimistic about its future – especially as it now has the backing of a heavyweight investment group. Last autumn the firm attracted £4.1m in backing from private equity group Connection Capital, which valued the company at £10m. At the time, Earthmill reported that it had seen a 150% increase in requests for land surveys from farmers looking to reduce energy costs.

The funds will fuel increased capacity to help the company take advantage of such growth opportunities. But Earthmill is also looking beyond farmers’ fields in search of growth.

“Anyone who uses energy in a remote location is an opportunity for us,” he says. “Water companies with pumping stations in the middle of nowhere or distribution centres, for example, could benefit from our turbines. It would involve a more complex decision-making process because we’d be dealing with corporates rather than individuals, but the advantage is that the pressure on them to be green and to cut carbon is greater.”

With only 5% of UK farms currnetly taking advantage of wind turbines, and several new markets emerging, Earthmill looks well placed to keep on spinning long into the future.