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Refinancing community energy – Is it really positive Investment?

 

Changes in Government policy resulting in the removal of EIS eligibility in the renewable energy sector coupled with continued cuts to the Feed In Tariff have seriously hampered the thriving community energy sector. While there has been positive news about the first privately owned, subsidy free solar farm opening in the UK towards the end of 2017, made possible by advances in panel efficiency and battery storage, it may be be some time before we see this filtering through for use in community owned schemes. So how can investors continue to make money do good in the renewable energy space?  

Whilst new projects are not being developed as quickly there are still a number of opportunities for investors to help already operational sites with refinancing. Whilst on the face of it this might not seem hugely impactful to investors, this couldn’t be further from the truth. The ability for community benefit societies to replace higher interest construction loans from financial intermediaries with more patient capital from their local community and other engaged investors is key to their continued success.

Replacing a construction loan with community investment at a lower rate is:

  • Critical in allowing the Society to meet their financial projections and helps to deliver the surplus required for community benefit
  • Helps the social finance intermediary loan provider to exit and reinvest their capital into other new impactful ventures
  • May allow investors to come in at a later, low risk stage, when the society has ironed out operational issues, has some track record, and the site is up and running at an optimal level
  • Could allow investors to invest in operational sites with guaranteed income via higher FIT rates than are available today
  • Allows new members, including the local community, to join the Society. A larger engaged investor base from which the Society can select it’s board can help the ongoing running of the Society and allow involvement by individuals with appropriate skills.

REACR operate a 500kW wind turbine at Alvington Court Farm in Gloucestershire with full Feed in Tariff accreditation of 12.49p/kWh.

They currently have an open share offer on Ethex to raise the funds to help to repay an existing £600,000 construction loan taken up in September 2015 from Resonance, a social finance intermediary. The construction loan was used to meet the difference between funds raised from the initial REACR share offer on Ethex at the pre-construction stage (which closed in May 2015) and the full construction costs of the project. The construction of the wind turbine came in on budget at a total cost of ~ £1,350,000. They are issuing more community shares rather than refinancing the debt to increase community ownership and return to the community.

The construction loan taken out from Resonance (a social finance intermediary) is currently on an interest only basis of 9% per annum, whereas REACR are looking to replace this with up to £600,000 of new withdrawable shares offering a return to investors of up to 6% per annum. 

Successfully refinancing the construction loan in full would free up an additional £18,000 a year that could be used to support the social aims of the Society as outlined in their offer document. Over the remaining 18 year lifetime of the project this could equate to over £300,000 put to use to “build resilience” in the local community.

There have been setbacks for the Society in getting things up and running. This is due, in part, to the fact that the Society’s income was significantly reduced in the first year of operating by prolonged and unexpected delays by OfGem in administering the Feed in Tariff (FiT) scheme. Because of this change, unfortunately the society’s initial income from the FiT was be backdated only to 22nd April 2016 and not the 25th November 2015 commissioning date. The delay to the FiT commencement date affected the Society’s income and cashflow in this first year of operation. However, although the Society has yet to pay out a return to members, it targets a 6% return for 2019.

The Society currently has 170 investors located from around the UK with a large proportion from the local Forest of Dean, Gloucestershire and nearby cities of Bristol, Bath and Oxford, but this share offer will result in an increased membership (all investors also become members of the Society). Investors can apply for a minimum of £250 worth of shares, however the Society recognises the importance of having an engaged local community among their membership and has lowered the minimum investment to £50 for those local to the Forest of Dean.

If you are interested in investing in this fully operational site you can read more on the profile page of the Ethex site. Please sign up to our newsletter if you are interested in hearing about other investment opportunities as we launch them.

 

https://www.ethex.org.uk/savings--investments_16.html

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