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MONEY MATTERS


FEATURE SPONSOR


FUNDING RENEWABLES PROJECTS EQUITY AND DEBT INSTRUMENTS


Renewable energy plays an important role in combating climate change, however there are barriers including cost issues, to the development of the renewable energy sector in the UK.


Raising money for renewables projects can take different forms and adopt different structures. This article outlines alternative funding options for projects such as bonds (a debt instrument) or equity, but ignoring mainstream commercial bank funding.


ATTRACTIVE INVESTMENTS Renewables projects are seen as attractive investments as the cashflow required to service investor repayments can be modelled fairly predictably due to the nature of the underlying renewables project.


VARIABLE COSTS


The cost of renewable energy projects varies due to technology and location, for example an offshore wind farm is more complex and expensive than a micro-wind turbine servicing a building. Funding can take the form of equity or bonds and any funder or investor will expect a return on that investment, which differs between the equity or bonds approaches.


CONFIDENCE


Funders need to have confidence that the project has been properly put together, and that it is both practically and economically viable. This is generically referred to as a project being ‘bankable’, whether a bank is involved or not. That comfort comes from a careful examination of the financial, legal, commercial and technical aspects of the project.


KEY CONSIDERATIONS The key considerations before any fundraising should be…


• What do we want to do? • How much money do we need? • Can we write an effective business plan? • Who will give us the money? • On what terms will we accept the money?


There are principally two routes available… 1 Private equity 2 Share or bond issues undertaken by the project company


PRIVATE EQUITY PROVIDERS There are a number of private equity providers, some of which specialise in renewables, and some who are looking to increase their presence in the sector. Private equity investors expect a priority return, a high degree of control and a clear exit plan. With a share issue, this is most effectively undertaken through experienced brokers, as they have the best distribution channels.


OFFERING CONSIDERATIONS The costs of a share or bond issue will depend largely on what sort of offering is being made – the costs will be highest with a UKLA vetted full prospectus. There is a regulatory environment to be navigated and a developer will need to consider the minimum amount it needs to raise to fulfil its investment plan as well as cover the costs of raising the funds.


Moving forward, you will have a number of new shareholders or bondholders with, potentially for a share issue, a say over the running of the company and you will need to consider ongoing relations.


56 www.windenergynetwork.co.uk


TRENDS


Trends in the renewables sector have emerged over the last few years. There have been a number of fundraises in the sector through Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCTs). Although EIS and VCT investments are subject to various limitations, they have been very successful for wind projects both FiTs and ROCs supported. The attractive tax reliefs available for investors coupled with the returns available for the underlying project have resulted in small scale EIS/VCT fundraisings being widespread.


MOST RECENT TREND


The most recent trend is a move towards fully listed equity and bond issues – the amounts being raised under these issues are much larger than traditionally have been seen in the market, looking to attract a new investor base with the added benefit of a market being available to trade their investment.


The main players so far have been in solar, but wind will no doubt be hot on its heels.


Where the market will move to next will no doubt depend on the decision of the Government as to what supports will be available to the industry going forward.


Richard Tall TLT solicitors www.TLTsolicitors.com


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