For a minimum investment of £250 you can buy shares in a solar farm in David Cameron’s Oxfordshire constituency. Your investment in Southill Solar, a community-owned solar farm near Charlbury, has a target return of 5 per cent over its 25-year life.
Perhaps more gratifying than these returns will be the knowledge that the farm will serve as a constant reminder to the prime minister of a time when MPs said his energy policy was so confusing that it was deterring all but the most committed investors.
A House of Commons energy and climate change select committee report says that the government’s overhaul of renewable energy subsidies has spooked investors and could add £120 to average annual household bills.
This comes just a week after Energy UK, the association that represents British Gas, E.ON, EDF and the National Grid, predicted that the British energy market would shift to a model in which small-scale electricity generation via rooftop solar panels and wind turbines would become increasingly important.
Southill Solar is one of the last community-owned solar farms to be supported by a feed-in tariff — a special contract and payment scheme for contributing renewable power to the National Grid.
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It is not only that tariffs are reducing; investors will soon not be able to use tax-advantageous schemes such as Venture Capital Trusts (VCTs), the Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS) to invest in renewables.
The government says they were benefiting from a double subsidy of tariffs and tax relief and is changing the rules on April 6. Ben Yearsley, the investment director and co-founder of Wealth Club, says: “The good news is that, despite subsidies having been removed, falling production costs mean that attractive opportunities still exist.”
VCTs and the EIS funds give investors income tax relief of up to 30 per cent on investments, capital gains tax exemption and loss relief. Investors still wishing to use them in the energy sector will need to look at other innovations, including smart energy meters, combined heat and power generators, and storage systems.
Hazel Renewable Energy VCT (B Share) is attracting interest with its bid to raise £15 million to invest in battery energy storage systems. The targeted return is 5 to 10 per cent a year, which includes annual dividends of 6 to 7 per cent of net asset value. Mr Yearsley explains that these big batteries (about the size of a ship container) have two key sources of revenue: grid stability services — pulling out power and storing it during times of plenty and returning when supplies are low — and selling electricity at peak times.
His enthusiasm is shared by Mark Dampier, the research director at Hargreaves Lansdown, the investment company: “I generally don’t like to invest in single sectors or things reliant on political subsidies so have steered clear of renewable energy VCTs. I like the sound of the Hazel VCT though. It doesn’t rely on the cost of electricity and there are no subsidies. For the first time I might invest in the sector.”
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Also generating interest in the investment world are combined heat and power (CHP) generators. Mr Yearsley says: “CHP is simply a small gas-fired power station. The plan is to install these in factories so the electricity generated can be sold to the factory owner at a discount to the prevailing electricity price.” Funds managers investing in this technology include Triple Point and Guinness Asset Management.
Investors can wrap renewable energy investments in SIPPs or Isas and will be able to benefit from the £1,000 tax-free personal savings allowance from April. Mr Yearsley recommends solar energy investments that focus on countries with more sunshine, such as Foresight’s investments in Italy and the United States.
Alternatively Bruce Davis, the co-founder of Abundance Investment, says his company‘s renewable energy peer-to-peer debentures (a type of bond), which have never been packaged in VCTs or EIS funds can be wrapped into the new Innovative Finance Isa from autumn. The minimum investment in a debenture is £5.
Abundance offers debentures in solar, wind and biomass projects, with the average investor placing £1,500 in each of five projects. Returns vary from 6 per cent on a solar bond in which a council is a co-owner to 9 per cent on a wind turbine venture.
Mr Davis believes that a subsidy-free future would ultimately be better for investors in renewable energy. “It would make the pipeline of products more reliable. As Lord Adonis said, we need to build an internet of energy. This is a big opportunity for small investors.”