Avoiding SPV Setup Risks with Energy Accounting Software

Benefits of using an SPV for energy companies

1. Risk isolation

Establishing a new SPV as a separate entity helps limit liability, as any debts or legal issues are confined to that SPV and cannot affect the group or other entities. For example, if a project is not profitable, then the loss is isolated to the SPV without damaging the parent company.

This is a highly effective method for managing risk in energy companies where projects are subject to uncontrollable external obstacles, such as adverse weather conditions, currency fluctuations, or changing demand for energy.

2. Project funding

SPVs are often easier to fund than large venture projects because they don’t require investors to commit to a blind pool of money that is invested later. SPV investors know exactly where and how their money is used, a significant incentive that helps to rally investors for specific projects with high profitability potential. 

3. Tax and regulatory compliance

SPVs bring tax and regulatory compliance benefits. Depending on the structure and location of the new SPV, the new entity can benefit from local tax incentives, particularly if the SPV focuses on renewable energy.

How to avoid common SPV setup risks with energy accounting software

Despite a plethora of benefits, setting up a new SPV still comes with challenges. So what are the risks involved, and can energy accounting software mitigate these obstacles?

Energy companies often set up new projects or SPVs in different countries, and opting to work with local partners can open a plethora of construction, maintenance, and management connections at the national and local levels. If the local partners and SPV do not share the same interests, local partners may try to steer the project to align with their needs. But with complete financial control at the enterprise level, this shift in financial control becomes difficult to manipulate.

Like any company, SPVs must comply with local and national regulations and energy production laws. These can be hard to navigate, stealing significant time from finance and legal teams. Real-time accounting software helps mitigate these challenges by providing accurate, consolidated data that facilitates efficient compliance and reporting.

When relying on manual processes, juggling the setup and maintenance of a new entity can also be overly complex. But finance teams can drive consistency by leveraging hierarchical software solutions with rule-based configuration. Here, the SPV benefits from following the same accounting rules as those already set up at the group level. 

As a result, finance teams gain:

• A new SPV that is configured with the same rule-based processes as its parent company.
• High levels of automation that save labour costs, reduce manual workarounds, and automate general ledger, accounts payable, intercompany accounts, and other accounting tasks.
• Real-time automated audit trails ensuring regulatory-compliant reporting and financial management.
• Live consolidated views of the group company and the new SPV for better budget management and fund allocation.
• Improved operational control across multiple SPVs, reducing data duplication and manual processing.

Managing energy data and costs across SPVs

Visibility over cost and energy usage is crucial to maintaining control across multiple energy SPVs; however, if data is fragmented across multiple finance and energy management systems, it can be difficult to track project performance accurately.

Modern accounting software that is purpose-built to support complex multi-entity organisations addresses this challenge by balancing real-time financial insights with robust business system integrations. At a granular level, finance teams can use multi-dimensional reporting to monitor project performance; at a group level, teams can consolidate key financial data for all entities and make data-driven decisions.

Consequently, finance teams have the tools to track utility bill data, identify trends in cost and energy usage, and allocate the correct funds to the correct SPV. The higher the potential profit, the easier it is to secure investment for SPVs, so this level of tracking detail can help to reduce energy and carbon emissions costs while increasing return on investment (ROI).

If your group energy company is struggling to manage its SPVs efficiently, book your free demo with our accountancy-trained consultants to begin your journey towards streamlined multi-entity accounting.