by Jan-Willem Bode, Managing Director of Mongoose Energy
Over the last few months, I have been taking a sanguine view about the avalanche of negative announcements from the government cutting support for renewable energy. Reducing dependence on subsidies and special carve-outs would at least focus people’s minds on building robust business models. I am a strong believer in renewable energy being able to stand on its own two feet without subsidies and have been advocating a “looking forward” approach. It is exciting to be working in renewables, and especially in community energy.
I have made a case for community energy needing support on a temporary basis, until it is mature enough for the financial and energy markets to step up their activities in this field. A sensible way of doing this would be to use the existing Feed In Tariff regime, especially as the sector is not as mature as the “regular” renewable energy market. Community-owned projects cannot be refinanced in the same way as these projects. There are no vertically integrated community energy companies yet, so the additional margins that arise from refinancing and direct sale of electricity to end-users are not available to the this sector.
It is within this context that yesterday, during the Report Stage and the Third Reading of the Finance Bill, the next blow was dealt to the community energy sector, coming totally out of the blue. Community energy is, as from 30 November, one of the excluded activities from SEIS and EIS tax relief and, for good measure, the as yet untested SITR.
This will undoubted have a major impact on the activities of various players in this market. We know that by the end of June 2015, there were hundreds of megawatts of community solar that was consented and pre-accredited for the Feed-in Tariff. Under the regulations put forward by the previous government, these community-based projects have 12 months from their tariff date to fund raise and be implemented. Removing EIS now effectively removes a great incentive to investors to place their hard earned money in those projects.
The community energy investment market may be immature and relatively fragile, but it is growing rapidly. Many community energy groups have been preparing for fund raises, a great number of them including EIS. This tax relief is needed as the risks for these projects are higher than for conventional commercial projects and equity returns to investors are capped to maximize the community benefit they generate. I find it ironic that the investors who will suffer most from the disappearance of EIS are the very same ‘hardworking families’ so beloved of the Conservative Party.
Many of these projects can only be built once the money has been raised from local investors. Removing EIS at such a critical stage in the development of the community energy market is yet another blow, and one that many community energy groups that are still standing will not survive.
I have been very positive for a long time. But this really feels like being kicked while we are down.
Even I now find it very hard to come up with a positive story for the projects many of our community energy partners have been working on for a very long time, projects that may now not be implemented after all. There will still be projects, that in themselves are good investment opportunities, but this move represents a significant destruction of capital, both financial and emotional, and a major blow to the community energy sector.