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What do recent Government changes mean for investing in community energy?

With all the recent Government changes on tax relief and the Feed-in Tariff, we thought a simple Q&A would help clarify some points.

Will I get tax relief on community energy schemes I’ve invested in those currently listed on Ethex?
All community energy schemes raising investment before 30th November of this year are eligible for Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) tax reliefs. However you will need to place your Ethex order by 5PM on the 24th November if paying by BACS. And if you want to pay by cheque rather than BACS, we need to have your cheque by midday on the 23rd November. This is to allow us sufficent time to process all orders by Novemebr 30th.

The Ethex product profiles details which schemes have assurance for which tax reliefs. It will be clear in each offer profile if advanced assurance from HMRC for SEIS and EIS has been applied for. Shares qualifying for SEIS tax relief attract income tax relief at a rate of 50% compared with a rate of 30% for shares qualifying for EIS tax relief. Note: individual investors must meet HMRC’s eligibility criteria in order to claim the tax relief. You can find information on the HM Revenue and Customs website here.

Will I get tax relief on future community energy share offers I invest in?
No. A sudden, and unannounced, change to the third reading of the Finance Bill at the end of October stated that community energy projects will be excluded from the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) tax reliefs after the 30th November 2015. They have further stated that community energy schemes will be excluded from Social Investment Tax Relief (or SITR), reversing the Government’s previous statement in March 2015. In short, it looks like community energy projects raising investment after 30th November will not be eligible for any tax reliefs. For more information on Government changes to the Finance Bill, see our blog here.

Will the proposed Government changes to the Feed-in Tariff scheme affect my current investments in community energy schemes?
In short, the answer is no. The proposed changes to the Feed-in Tariff will not affect any of your investments in community energy schemes that have already raised finance.

To clarify. Up until 1st October 2015, community energy schemes could fix the rate of the Feed-in Tariff by pre-accrediting with OFGEM before raising finance for projects. The Feed-in Tariff rate is then fixed for the lifetime of the project, is index-linked, and not affected by future changes to the FiT rate. The community energy schemes that you have invested in via Ethex have all had the Feed-in Tariff fixed before raising investment so returns to investors are to be as expected.

Will the changes to the Feed-in Tariff scheme affect investments I make in community energy currently listing on Ethex?
No. All community energy share offers listing on Ethex until the end of this year have also pre-accredited their schemes for the Feed-in Tariff (or FiT) with OFGEM so that the income from FiT is at a fixed rate for the life-time of the project and is index-linked. This means the proposed Government changes to the Feed-in Tariff will not affect these community energy schemes currently listing on Ethex and therefore returns to investors should be as expected.

Will the changes to the Feed-in Tariff affect any future investments I make in community energy?
Yes. For future community energy schemes raising investment next year, the outlook is rather different. As projects no longer have the opportunity to pre-accredit their schemes for the Feed-in Tariff, they can now only register for FiTs with OFGEM at the time the project is commissioned to fix the rate. In the future, if projects want to raise finance before building renewable schemes, they can only predict the FiT rate.

Secondly, on 27th August, the Government announced a full-scale review or consultation for the Feed-in Tariff, or FiT, scheme that supports renewable energy technologies in the UK. The proposal is to dramatically cut the FiT, introduce a more stringent degression mechanism and deployment caps, and move towards the phased closure of the scheme in 2018–19. The consultation proposes to put the scheme on an “affordable and sustainable footing” and make cuts to the FiT of up to 87% for solar, 31% for hydro and 67% for wind. These changes would be introduced as early as January 2016 and dramatically reduce rates of return for community energy schemes and renewable energy projects in the UK as a whole.

The consultation for the changes to the FiT closed on 23rd October. If the proposed cuts to the FiT are to go through, the Government needs to make an announcement on 22nd November, 40 days before the published rate reductions. However, there has been a huge response – some say up to 50,000 responses – to the FiT consultation so we would be surprised if the announcement came through on this date. We will keep you posted.

So it’s all change for community energy. We hope to see new models of investment for these schemes next year and for sector to continue to grow.

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