Xero Setup for Renewable Energy Start-ups: Beyond the Basics

Jayne Aplin

If you are scaling a renewable energy venture—be it solar, wind, or battery storage—your accounting system is more than just a place to log invoices. It is the engine that tracks capital expenditure, justifies financing, and manages complex project profitability.

We often see high-growth start-ups in this sector outgrow their initial bookkeeping setup within a year.

Using Xero strategically from day one is essential, and it all starts with setting up the framework correctly.

1. The Strategic Chart of Accounts (CoA)

We treat the Chart of Accounts (CoA) as a financial roadmap that reflects the unique lifecycle of a renewable energy asset, from initial feasibility through to operation. Simply using the default Xero CoA won't suffice; you need granularity, particularly on the Balance Sheet.

During the development phase, it’s crucial to separate accounts for Feasibility Costs, Permitting & Legal Fees, and Grid Connection Application Costs. These are not immediate expenses; they must be capitalised as assets in the making, which preserves your reported profitability during the crucial build phase.

The heart of the build phase lives in the Asset Under Construction (AUC) account. This key Balance Sheet account is where you accumulate all materials, professional fees, and installation labour costs before the asset is operational. Clear segregation here is essential for accurate Capital Expenditure (CapEx) tracking and substantiating asset valuation to both investors and lenders. Once operational, you then need distinct Operation and Maintenance (O&M) accounts—such as Scheduled Maintenance versus Unscheduled Repair—for clear investor evaluation of ongoing operational expenditure (OpEx).

The Professional Take: Ensure internal developer salaries (for proprietary IP) are carefully separated from third-party installation fees. The latter are almost always CapEx, while the former might qualify for R&D Tax Relief, requiring distinct, auditable tracking.

2. Multi-Project Tracking and Costing in Xero

The fundamental financial unit in renewables is the Project (i.e., each wind farm, solar array, or battery installation). You must be able to report on the costs and revenues of each one individually.

Forget using the basic 'Contacts' feature for this. The professional way to manage this is through Xero's Tracking Categories. We typically recommend setting up 'Project' as your primary category, using the installation name (e.g., 'Site A - Kidlington Solar'), and 'Cost Type' as your secondary category, using codes like C1 (Construction) or C3 (Operations). Every single transaction—from supplier bills to internal time costs—must be tagged to both categories.

This rigorous tagging allows you to generate a Project Profitability Report in Xero, showing the true CapEx and eventual OpEx margin for each asset. This is critical for robust portfolio management and due diligence.

3. Fixed Asset Register and Compliance

Renewable assets (turbines, solar panels, inverters) are high-value, long-term investments that demand precise management for depreciation and capital allowance purposes.

Once an asset moves from Asset Under Construction (AUC) to operational status—which is triggered by the commissioning date—the accumulated costs must be moved to the Fixed Asset Register (FAR). The commissioning date is the vital starting point for recording depreciation and, crucially, claiming UK capital allowances. Getting the specific rules wrong—whether applying Annual Investment Allowance, full expensing, or Writing Down Allowances—will result in incorrect tax calculations.

Furthermore, if you receive a capital grant (e.g., for early development), the grant element must reduce the cost of the asset on which you claim capital allowances. This reduction is a non-negotiable compliance point.

4. Grant, Subsidy, and Revenue Accounting

Renewables often involve complex, long-term income streams and government schemes.

Revenue from Power Purchase Agreements (PPAs) should be accounted for using an Accrued Income or Deferred Revenue model. This is necessary under financial reporting standards to match the physical electricity delivery to the invoicing, avoiding distortion.

Similarly, treat capital grants under IAS 20 as Deferred Income on the balance sheet. This income must be recognised in the P&L over the asset's life or as the related expenditure is incurred.

Do not book the full grant amount as income in the year it's received; this drastically and incorrectly inflates your profitability metrics.

5. Integration with Field Service and Monitoring Tools

Your Xero setup needs to integrate seamlessly with your operational software.

If your Field Service Management (FSM) tool records maintenance hours and materials used for a specific turbine repair, that data should be pushing directly into Xero.

The Strategic Advantage: Integration means maintenance costs flow directly to the correct Project Tracking Category (O&M), and if you charge O&M services to a third party, the FSM data generates the corresponding client invoice in Xero. This eliminates manual data entry, provides real-time profitability figures for each asset, and ensures your financial records reflect the true operational performance of your portfolio.

For renewable energy start-ups, the right accounting setup isn't a formality; it's a foundation for strategic decision-making and securing future financing rounds.