Not securing sites: The viability of a project depends upon obtaining a lease agreement with the host sites. Without a lease agreement Brighton Energy Coop is obviously unable to proceed further. It is therefore a risk that the money spent on developing some projects – prior to their lease signing - may be spent without a result.
Mitigation: Brighton Energy Coop anticipate being able to offer investors a targeted 5% return, and the financial projections make provision for project development costs. Any future installation will not proceed unless they are able to deliver this targeted 5%. Members’ funds will only be invested in new arrays and shares issued once the Board is confident that the array will deliver the target returns
Raising insufficient funds: It is possible that, once the share launch is under way, not all the required capital can be raised.
Mitigation: The Board is confident that all subscription targets set are realistic and achievable. If the fundraising target for each phase is not achieved then the business will refund all shareholder capital for that phase. Investor monies are held in a segregated client account which can only be drawn down by the business once the offer has closed and the allocation list of potential investors has been approved by the Board of Brighton Energy Coop. In the event that the offer doesn't go ahead for any reason then Ethex will return all monies to investors.
Decreasing importance of FITs in the financial forecasts: FIT rates have dropped considerably since the beginning of the subsidy scheme, meaning that the income forecasts are now increasingly reliant upon sales of electricity to the host sites.Since these sales are less predictable than a Government backed income stream, the income from new sites is less secure.
Mitigation: Brighton Energy Coop has upgraded its lease agreements with host sites so that – in the event of the host business changing hands – any new tenant will be required to either buy the system or continue with the agreement between Brighton Energy Coop and the original tenant. To further spread this risk, Brighton Energy Coop aims to ensure it partners with the widest range of different types of business, especially those that are long-term focussed.
General investment risks: Brighton Energy Coop shares will not be transferable or traded on a recognised stock exchange, but they are buyable back by Brighton Energy Coop. They will never increase in value above their nominal value of £1 each, but could fall in the event that Brighton Energy Coop became financially unsustainable.
Risks associated with the assumptions: RPI and cost increase rates are variable and unpredictable. Energy cost inflation may prove more volatile; it’s expected to rise ahead of inflation but will probably do so in an irregular fashion. Revenue may be ahead of projections in the short term but fall back to the trend later, or vice versa; alternative energy sources might in the long run reduce energy costs in real terms and so reverse recent inflationary trends and erode profit. The Board will always review actual revenue and developing trends before making annual payments of interest or allocating grants.
Risks specific to Brighton Energy Coop: Warranties and insurance will be in place in the event of mechanical breakdown of the equipment. Complete failure and loss of revenue through mechanical breakdown is reduced through the use of multiple inverters and the system is subject to regular monitoring maintenance and serviced to minimise supply interruptions. Accidental or malicious damage to the equipment will be covered under Brighton Energy Coop's insurance.
Renewable energy industry risks: Government policy towards renewable energy may change, although long-term commitments to FiTs make this unlikely, since FiTs are part of primary legislation and thus difficult to change. Throughout the operation of the FiT the Government has maintained the commitment to the process of ‘grandfathering’ which ensures that whatever tariff a project is registered for at the commencement of operation, the tariff will remain the same for the duration of the FiT period. Projections are based on current FIT rates on the assumption that the business is able to comply with preliminary registration through Ofgem ROO-FIT regulations. The Board is unable to guarantee that this will be possible. Any changes to the FiT that occur before the end of the share issue period could result in Brighton Energy Coop returning funds received from prospective members at the end of the Share Offer Period if those changes are judged to render a project unviable.
FIT extensions expire before installation: All sites have extensions to the FIT regime (which expired on 1st April 2019) from OFGEM. So the latest date to install and receive FITs is 1st April 2020. There is a risk, therefore, that, if installations complete after this date, Brighton Energy Coop would not receive the FIT.
Mitigation: The installation schedule includes a six month contingency period before the end of the extensions. Brighton Energy Coop has installed thirty systems in the past eight years, many of which were installing before deadlines (as have Brighton Energy Coop's contractors), and Brighton Energy Coop is confident that its installation schedule is realistic.