November 1, 2011
How to get our fair share
If our sector is to enjoy the fruits of renewable energy, we need to be able to access appropriate finance. But how and where from? The banks seem more reluctant by the day to lend any of the cash that was quantitatively eased (given) to them recently. Is it possible to create a mechanism which can draw in local investors while safeguarding community interests at the same time? Community owned Islay Energy Trust think they might be onto something
Community Investment Trust – Executive Summary. Full report here
1. The reason for exploring the option to establish a Community Investment Fund (CIF) is that local engagement with large-scale renewable energy projects is potentially enhanced if local people and their communities have a financial stake in the ventures, and the process may yield outcomes that can benefit developers, investors, communities and consenting authorities. A number of options have been studied. The one which is presented here is a CIF which leases from the operator part of the renewable energy resource (e.g. the wind) accessed by the project asset (e.g. the wind turbines) and pays a toll for the electricity produced. The CIF is then able to sell the electricity to generate funds. In summary the structure is as follows:
- The community investment fund (CIF) vehicle is a standard Limited Liability Company (LLC) that satisfies the requirements for community interest and qualifies for Enterprise Investment Scheme (EIS) relief.
- CIF funds are obtained from members of the community – “investors” – who each purchase shares in the CIF, and apply for tax relief due under EIS rules.
- These funds (created by the tax relief) are used to pay for the lease fee and toll for the energy source and infrastructure which yields electricity as a saleable product. The lease fees and toll tariffs payable are calculated to give the project operators or capacity/asset owners a positive return.
- Profitable sale of electricity and associated Renewable Obligation Certificates (ROCs), Climate Change Levy Exemption Certificates (LECs) etc. creates revenue for the CIF which can be used to benefit the community, and for CIF investors to make a return on their investment.
2. Resources available for this study were limited, and many issues related to this model need further examination and discussion. For example:
- Who are the “investors” – individuals, organisations, match funders?
- Who or what is the “community”? The more proximate the community is to the renewable energy project, the greater the sense of local engagement, cohesion etc. How are the community that can invest and the community that can benefit defined?
- What is the “project” being invested in? There is a recognised area of risk around the EIS tax incentive (as there would be with any tax driven incentive) in terms of eligibility and whether this will change in the near future. The main commercial issues to be negotiated between the CIF and project owners/operators include leasing terms and tariff, power purchase/sales agreement (if applicable), entitlement to ROCs, LECs etc. How is the electricity output marketed? An assessment of costs of governance and fund management for the CIF