Orchard Community Energy

Financial performance

This Bond Offer aims to raise up to £1.2 million towards refinancing a newly-operational 5 MW solar array at Orchard Farm near Iwade, Kent.

Projected costs

Total investment costs to build the project were £6 million, including construction, acquisition and fund raising costs.

The acquisition of the Orchard Farm Solar Array has been made possible through the use of two sources of capital: a £3.3 million loan facility from Triodos Bank, and the Orchard Community Energy share offer, which raised £522,000 in equity investment in November 2015.

The outstanding purchase price balance of £2.22 million has been lent as a sub-loan by the project’s developer, OPDE. Repayment of this sub-loan shall come from this Bond offer and further fundraising programmes that shall be approved by the Orchard Community Energy board.

The principal operational costs of the Orchard Farm Solar Array are:

  • Payments to OPDE for ensuring the proper running of the solar farm under the Operations and Maintenance contract;
  • Payments due to landlords under the site agreements; and
  • Payments to Mongoose for managing Orchard Community Energy’s relationship with OPDE under the Mongoose management services agreement.
  • Business rates & insurance
  • Funds are also set aside each year for a sinking fund to pay for equipment replacement later in the project life.

Other costs include: electricity imports, metering, security and bank monitoring fees.

Borrowing

Triodos Bank has provided a first ranking debt facility that has contributed £3.3 million towards the cost of the Orchard Farm Solar Array. 

As part of the loan facility, Triodos Bank will hold security over the assets relating to Orchard Farm Community Solar CIC. After payments have been made to commercial lenders, payments to bondholders will take priority over any interest due on Orchard Community Energy members’ capital. Remaining cash surplus will be used to pay interest on members’ capital, contributions to the community fund and for either reinvestment in new projects or to repay members’ capital. The precise amounts available will depend on the overall business performance.

Projected income

The total projected income over the 25-year life of Orchard Farm Solar Array is £17.5 million. This consists of income from the sale of generated and exported electricity.

  • FiT: The Orchard Farm Solar Array has secured pre-accreditation with Ofgem for the Feed in Tariff so that it has been offered a price of 6.23 pence per kWh, adjusted in line with RPI each year for the next 20 years.
  • Electricity export revenue: Ofgem offers a minimum export tariff to solar farms such as the Orchard Farm Solar Array of 4.91 pence per kWh. This tariff will be accepted until wholesale energy markets increase in price and can therefore offer a more attractive price to Orchard Community Energy. It is established market practice that power purchase agreements with providers be renegotiated approximately every 12-24 months, and, with Mongoose’s assistance, the Directors intend to use this approach to achieve the best price for Orchard Community Energy from time to time.

Cash flow summary

Year end Feb 17 Feb 18 Feb 19 Feb 20 Feb 21 Feb 22-26
Revenue
Generation £186,047 £317,292 £323,514 £329,823 £336,515 £1,786,043
Export £144,428 £246,560 £251,586 £256,672 £261,701 £1,642,441
Total £330,475 £563,852 £575,100 £586,496 £598,217 £3,428,484
Operating costs £-140,052 £-159,470 £-151,843 £-151,351 £-154,510 £-822,766
Net revenue £190,423 £404,383 £423,257 £435,145 £443,707 £2,605,719

Key assumptions

The financial projections are based on the following key assumptions:

  • The solar array is forecast to generate 5,020 MWh in its first full year of operation.
  • Total investment costs to build the project are £6 million, including construction, acquisition and fund raising costs.
  • This offer will raise the maximum sum £1.2 million.
  • RPI inflation is 1% for the next two years, but after that will average 2.5% per annum. This projection is provided by Mongoose Energy who have taken account of the long-term historic average for RPI and the Bank of England’s long-term inflation goal.
  • FiT revenue and all costs will increase by RPI each year.
  • Electricity export revenue increases in line with accepted industry projections (with RPI in the short term, and more than RPI in the long term).
  • Maximum degradation in solar panel performance is up to 0.5% per year in line with performance warranties.
  • The project continues to be insured for risks and loss of income.
  • Current expectations relating to the global energy market, the UK electricity industry, UK government policy and the desirability for and the promotion of electricity from renewable sources will remain reasonably consistent and reasonably favourable to Orchard Community Energy over the next 20 years.

Any one of the assumptions on this page not being realised is likely to result in adjustments to the financial projections.

Annual return

Orchard Community Energy aims to pay bondholders a return of 5.5% per year.

Tax relief

The precise tax treatment of a bondholder will depend on the bondholder’s individual circumstances and the law and practice in force at the relevant time and may therefore be subject to change in the future. If applicants are in any doubt about their tax position they should consider taking appropriate financial and other advice.

Orchard Community Energy will pay interest to bondholders without deducting any amount by way of tax. Applicants should be aware that they may need to pay tax on that interest, and therefore may need to declare it to HMRC.

From the 6 April 2016, basic rate taxpayers are able to earn up to £1,000 in savings income tax-free. Higher rate taxpayers are able to earn up to £500. This is called the Personal Savings Allowance.

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