Downing Renewables EIS. Half-Yearly Report for the six months ended 30 September 2014

Transcription

1 Downing EIS Half-Yearly Report for the six months ended 30 September 2014

2 About the Service Introduction Downing EIS initially launched in September 2012 to provide investors with access to investments in renewable energy businesses and attractive EIS tax reliefs, including 30% income tax relief. Key features of the Service Minimum investments per Tranche: 5 renewable energy EIS Companies Minimum subscription: 15,000 Target exit: within approximately 4 years of underlying investments being made Seeking to manage risk All EIS investments should be considered as high risk. Within the restrictions of the EIS rules, Downing seeks to manage risk by: 1. Diversification: both by spreading funds across different investments and investing in at least two different sectors in each Tranche. 2. Predictable revenue streams: from (i) Government-backed subsidies and (ii) sale of renewable energy (electricity, biogas or heat). 3. No planning risk: we only invest in businesses that have in place all the relevant consents and planning permissions. 4. Downing consents: we place various restrictions on the businesses in order to protect our investors, including limiting debt and Downing consent being required for major expenditure. EIS tax reliefs 30% income tax relief on the amount subscribed, subject to 3 year holding period IHT-free after 2 years (from date of share issue) CGT deferral relief Loss relief against income or capital This is only a brief summary of the EIS tax reliefs and investors should take personal tax advice on the reliefs available to them. Upside potential Investments are made in genuine renewable energy businesses. The focus is on companies that are installing their own renewable energy plant rather than purchasing existing operating developments, in order to enhance potential returns. Although this strategy increases risk, it is managed by working with experienced operators on fixed priced contracts. Downing will seek the best possible price on exit and our interests are aligned with investors because we receive a performance fee based on cash proceeds paid to investors in excess of the initial 1 per share invested. Key risks Investors capital is at risk. Rates of tax, tax benefits and allowances may change and depend on personal circumstances. There is no access to capital until exit, which is expected in approximately four years. Investments made through the Service will be in unquoted companies that are considered to be higher risk than securities traded on the London Stock Exchange. Past performance is not a guide to future performance. The value of investments may go down as well as up and investors may not get back the full amount invested. Changes to legislation regarding renewable energy subsidies may reduce the revenue streams of the EIS Companies and, therefore, the returns to investors. 2 Downing EIS

3 Investment Manager s Report Progress Tranches 1 to 7 of this Service raised approximately 105 million and all of these funds have been invested in renewable energy EIS Companies. Recent investments Tranches 6 and 7 raised a combined total of over 41 million. These funds have been invested in a mixture of anaerobic digestion (AD), solar, hydro and wind businesses. The summary pages for Tranches 6 and 7 provide further details of how the funds have been invested and when the EIS3 forms are expected. For both of these tranches, income tax relief should be available in the 2014/15 tax year and in the 2013/14 tax year (via carry back). Tranche 8 Tranche 8 has raised over 19 million to date and is open for subscription until 30 January The focus will be on investing in businesses in the AD and hydro sectors, which are the only renewables sectors that benefit from subsidies and also qualify for EIS tax reliefs. It was announced in the Autumn Statement that from 6 April 2015 these sectors will no longer qualify for EIS. This leaves a short window of opportunity for investors to combine UK renewables and EIS. Income tax relief for Tranche 8 should be available in the 2014/15 tax year and in the 2013/14 tax year (via carry back). Valuation Although we are at an early stage, progress so far has been in line with expectations. Once an investment has been generating electricity for at least 12 months, we will consider a revaluation to reflect performance to date. At the valuation date of 30 September 2014, all investments remain held at cost. Outlook All of the companies in Tranches 1 to 3 are operational and generating electricity. Some companies in Tranches 4 to 7 are generating and others are in the construction phase. We are working closely with operators to monitor performance and progress. We have a strong pipeline of opportunities undergoing due diligence for Tranche 8 and funds will be fully invested by the end of the 2014/15 tax year. Investors in this tranche will receive contract notes and updates as each of the underlying investments are made. Downing EIS 3

4 Renewable Energy Sectors Anaerobic digestion (AD) AD is a process of decomposition, which breaks down organic matter and produces biogas. The biogas can power a generator to produce electricity, or be de-oxidised to produce bio-methane which is fed into the national gas grid. Run-of-river hydro Run-of-river hydro harnesses the energy in water as it loses altitude. Water is diverted from a stream or river through a pipeline to a powerhouse, driving a turbine that generates electricity, before the water is returned back to its course. panels create an electric field when solar energy reaches them, generating electricity which can be fed to the National Grid. Wind Wind is used by aerodynamically engineered rotor blades to turn a turbine, which generates electricity. Government-backed Renewable Energy Subsidies Feed-in Tariffs (FITs): a fixed tariff for each kilowatt hour of energy generated by FITs qualifying renewable energies (AD and hydro installations qualify for FITs within EIS Companies) and a further payment for generated energy that is not consumed but exported to the National Grid. Tariffs are set for 20 years and linked to the retail price index. Renewable Heat Incentive (RHI): the RHI scheme makes payments to those installing renewable heat generation technologies that qualify for support, including biomass and heat pumps. RHI covers the difference in cost between conventional fossil fuel heating and renewable heating systems, plus an additional rate of return on top. Renewable Obligation Certificates (ROCs): ROCs are awarded for every megawatt of renewable electricity generated, plus an additional value over and above the price of the electricity itself. ROCs can be sold to utility companies that must source over 10% of their energy from renewables. The UK government has committed to ROCs until Downing EIS

5 Tranche 1 Date of Investment 19/03/2013 Oak Grove 19/03/2013 Wickham 19/03/2013 Galgorm 19/03/2013 Wylam Power Generation 19/03/2013 Merlin 19/03/2013 Lambridge EIS Company Sector Cost & Value % of tranche by value EIS3 sent AD 3,466, % 25-Oct-13 2,964, % 04-Oct-13 1,003, % 29-Nov-13 3,557, % 09-Jan-14 AD 2,873, % 27-Feb-14 4,378, % 30-May-14 18,242,215 Amount invested: 100% across 6 investments Target exit date: Spring 2017 Tax certificates: EIS3 certificates have been sent to investors for all 6 investments. Sector split: 65% AD 35% Downing EIS 5

6 Tranche 2 Date of Investment 05/04/2013 Oak Grove 05/04/2013 Wickham 05/04/2013 Galgorm 05/04/2013 Wylam Power Generation 05/04/2013 Merlin 05/04/2013 Lambridge EIS Company Sector Cost & Value % of tranche by value EIS3 sent AD 492, % 25-Oct , % 04-Oct , % 29-Nov , % 09-Jan-14 AD 625, % 27-Feb , % 30-May-14 3,004,589 Amount invested: 100% across 6 investments Target exit date: Spring 2017 Tax certificates: EIS3 certificates have been sent to investors for all 6 investments. Sector split: 63% AD 37% 6 Downing EIS

7 Tranche 3 Date of Investment 24/07/ /11/2013 EIS Company Sector Cost & Value % of tranche by value Eider 2,000,008 1,272,503 EIS3 sent 19.27% 31-Jan-14 5-Mar-14 26/07/2013 Agri-Gen AD 1,738, % 02-Oct-13 12/09/2013 Woodbridge 13/09/ /11/2013 Merlin 18/10/2013 West Kingsmill 30/10/2013 Egmere Energy 30/10/2013 Wylam Power Generation 28/11/2013 Galgorm 4,999, % 3-Oct-14 AD 500, , % 27-Feb Feb-14 1,700, % 18-Sep-14 AD 1,415, % 5-Mar , % 09-Jan-14 1,647, % 31-Jan-14 16,983,364 Amount invested: 100% across 8 investments Target exit date: Late 2017 Tax certificates: EIS3 certificates have been sent to investors for all 8 investments. Sector split: 73% AD 27% Downing EIS 7

8 Tranches 4 & 5A Date of Investment EIS Company Sector Cost & Value % of tranche by value EIS3 sent/ estimated 04/12/2013 Argyll 3,239, % 18-Sep-14 04/12/2013 Nomansland Biogas 04/12/2013 Redstow AD 3,340, % Mar-15 AD 4,180, % Feb-15 04/12/2013 Grange Farm AD 3,380, % Feb-15 04/12/2013 Goldcrest 04/12/2013 Mulard 2,500, % 15-Oct-14 Hydro 4,230, % Apr-15 20,869,079 Amount invested: 100% across 6 investments Target exit date: End 2017 Tax certificates: EIS3 certificates have been sent to investors in respect of the investments in Argyll and Goldcrest. The remaining EIS3 certificates are expected by the end of April Sector split: 28% Hydro 20% AD 52% 8 Downing EIS

9 Tranche 5B Date of Investment EIS Company Sector Cost & Value % of tranche by value EIS3 sent/ estimated 18/03/2014 Argyll 1,160, % 18-Sep-14 18/03/2014 Nomansland Biogas 18/03/2014 Willowglen AD 1,160, % Mar-15 AD 1,000, % Mar-15 18/03/2014 Grange Farm AD 344, % Feb-15 18/03/2014 Galgorm 894, % 12-May-14 4,560,530 Amount invested: 100% across 5 investments Target exit date: End 2017 Tax certificates: EIS3 certificates have been sent to investors in respect of the investments in Galgorm and Argyll. The remaining EIS3 certificates are expected by the end of March Sector split: 45% AD 55% Downing EIS 9

10 Tranche 6 Date of Investment 17/04/2014 Willowglen EIS Company Sector Cost & Value % of tranche by value EIS3 sent/ estimated AD 4,000, % Mar-15 26/06/2014 Redstart Hydro 2,100, % Apr-15 03/07/2014 Galgorm 1,000, % 20-Oct-14 07/07/2014 Shearwater 2,000, % Mar-15 08/07/2014 Eider 600, % 18-Sep-14 08/07/2014 Nomansland Biogas AD 360, % Mar-15 08/07/2014 Lambridge 510, % 18-Sep-14 11/07/2014 Asgard AD 3,060, % Mar-15 11/07/2014 Garganey 1,300, % Apr-15 14/07/2014 Curlew Power Wind 2,900, % Jun-15 14/07/2014 Avocet AD 2,890, % Apr-15 14/07/2014 Goldeneye Hydro 1,156, % Apr-15 31/10/2014 Merlin AD 1,379, % Feb-15 11/11/2014 Gorst Energy AD 1,023, % Jun-15 24,281,030 Amount invested: 100% across 14 investments Target exit date: End 2017 Tax certificates: EIS3 certificates have been sent to investors in respect of the investments in Galgorm, Eider and Lambridge. The remaining EIS3s are expected by June Sector split: Wind 12% 22% Hydro 14% AD 52% 10 Downing EIS

11 Tranche 7 Date of Investment EIS Company Sector Cost & Value % of tranche by value EIS3 sent/ estimated 11/07/2014 Lambridge 1,020, % 18-Sep-14 11/07/2014 Asgard AD 1,440, % Mar-15 11/07/2014 Garganey 1,900, % Apr-15 11/07/2014 Shearwater 1,000, % Mar-15 14/07/2014 Avocet AD 1,109, % Apr-15 14/07/2014 Goldeneye Hydro 544, % Apr-15 14/07/2014 Curlew Power Wind 2,099, % Jun-15 31/10/2014 Merlin AD 619, % Feb-15 11/11/2014 Gorst Energy AD 2,850, % Jun-15 12/12/2014 Egmere Energy AD 2,377, % Feb-15 17/12/2014 Osprey Green Power Hydro 2,185, % Jun-15 17,146,275 Amount invested: 100% across 11 investments Target exit date: End 2017 Tax certificates: EIS3 certificates have been sent to investors in respect of the investment in Lambridge. The remaining EIS3 certificates are expected by June Sector split: Wind 12% Hydro 16% 23% AD 49% Downing EIS 11

12 The Investments Agri-Gen Agri-Gen owns and operates a newly built 3.5MW AD plant in Suffolk. The plant is located on a former US air base and is an electricity producing AD facility which qualifies for payments under the FIT scheme. The company has recently installed two organic rankine cycle plants to convert waste heat into electricity which will also benefit from FITs. The plant is fed a combination of maize silage and sugar beet. The feedstock is sourced locally from farms on long term fixed price contracts. The plant is operating to plan. Argyll Argyll has developed a 4.2 megawatt ground mounted solar farm in Lincolnshire. The array was commissioned in March 2014 and receives 1.6 ROCs for each megawatt of power generated. A number of minor teething issues were encountered at the site following commissioning and these are in the process of being fixed. Asgard Asgard is negotiating to build a 0.5MW waste AD plant in Cardigan, Wales. The plant will process organic waste to produce biogas which will be run through a gas engine to generate electricity. Waste feedstock has a higher calorific value and bio methane potential than agricultural waste and therefore each tonne of feedstock generates more electricity and higher revenues. The electricity will be exported to the national grid and the company will earn income from both the sale of the electricity and FITs. Avocet Avocet is developing a 0.5 MW AD plant on a farm near Norwich, and is expected to process 14,000 tonnes of feedstock per annum. Construction of the plant is underway and completion is expected by the end of The plant will process agricultural wastes and energy crops to produce biogas. The biogas will be fed through a Combined Heat and Power engine to produce electricity which will then be fed into the grid. The company will earn income from both the sale of the electricity and FITs. 12 Downing EIS

13 The Investments Curlew Power In December 2014, Curlew acquired 16 operational wind turbines on the Cumbrian coast. The wind farm, which has a total capacity of 9.6MW, qualifies for ROCs and receives 1 ROC for each megawatt of electricity produced. Egmere Energy Egmere is developing a 2.0MW AD plant in Holkham, Norfolk. Following a 12 month build programme, the plant is now close to completion. The commissioning phase has started and the plant has begun to inject gas into the grid and generate electricity. The plant will qualify to receive payments under the RHI for injecting bio-methane into the gas grid. Eider Eider is developing a portfolio of roof mounted solar photovoltaic systems in Northern Ireland. Since completing its first installation in July 2013, Eider has built a portfolio of 2.2MW (to the end of September 2014) and is currently installing at a rate of 30kWp per week. installations in Northern Ireland that are sub-50kw in size qualify for 4 ROCs for each megawatt of electricity produced, which is higher than the equivalent FIT scheme. The sites are performing in line with expectations. Galgorm Galgorm has built a 3.2MW portfolio of roof mounted solar photovoltaic systems in Northern Ireland. installations in Northern Ireland that are sub-50kw in size qualify for 4 ROCs for each megawatt of electricity produced which is higher than the equivalent FIT scheme. The sites are performing in line with expectations. Downing EIS 13

14 The Investments Garganey Garganey is developing a portfolio of roof mounted solar photovoltaic systems in Northern Ireland and has to date installed 200kW across more than 50 properties. The funds are expected to be fully invested by 31 March installations in Northern Ireland that are sub-50kw in size qualify for 4 ROCs for each megawatt of electricity produced which is higher than the equivalent FIT scheme. Goldcrest In March 2014, Goldcrest acquired a 2.2MW ground mounted solar photovoltaic system in Goldenhaye, Somerset. The site is fully operational and has been generating electricity since the end of May A 5-year Power Purchase Agreement was entered into with Total who acquire all the electricity produced at a pre-agreed price. The system is performing as planned. Goldeneye Goldeneye is developing a 0.5MW run of river hydro electric scheme in the Scottish highlands. Construction is underway and is scheduled to be completed by mid The electricity will be exported to the national grid and the company will earn income from both the sale of the electricity and the FIT scheme. Gorst Energy Gorst is building a 4MW gas injection AD plant near Exeter in Devon. The plant is due to be commissioned by the third quarter of It will be fed energy crops which will be grown on nearby farms as part of their crop rotation. The plant will sell the bio methane that is injected into the gas grid and it will also qualify to receive payments under RHI. Grange Farm Grange Farm is developing an AD plant in Lincolnshire. Construction of the plant is well underway and completion is expected in December The plant will produce electricity and receive payments under the FIT scheme alongside injecting gas into the grid and qualifying to receive payments under RHI. 14 Downing EIS

15 The Investments Lambridge Lambridge has developed a 9.0MW ground mounted photovoltaic system at Burton Pedwardine in Lincolnshire. The system qualifies for ROCs and receives 1.6 ROCs for each megawatt produced. The site was connected to the national grid and commissioned on 31 December 2013 and is performing in line with expectations. Merlin Merlin has developed a 2MW gas injection AD plant in Hibaldstow, Lincolnshire. Construction of the plant has completed and the plant is in the commissioning stage. The plant will be fed on a combination of maize, rye grass and beet which is being grown on nearby land and sold to Merlin for use in the plant. The plant will qualify to receive payments under the RHI for injecting bio-methane into the gas grid. Mulard Mulard is developing a 1.6MW run of river hydro electric scheme in the Scottish highlands. Construction is underway and expected to be completed in Spring The electricity will be exported to the national grid and the company will earn income from both the sale of the electricity and the FIT scheme. Nomansland Biogas Nomansland is developing a 1.2MW electricity producing AD plant in Devon. The plant will be located at Menchine Farm, Devon, and the farm will be the primary provider of the feedstock. Construction commenced in December 2013 and the plant is scheduled to be operational in December The plant has applied for pre-accreditation with OFGEM which will fix the starting FIT level at pre-accredited rates. Oak Grove Oak Grove has built a 2MW electricity producing AD plant in Scottow, Norfolk. The plant was commissioned in November 2013 and is fully operational. The plant qualifies to receive payments under FITs and is primarily fed on maize and rye grass acquired from a local farming cooperative on a long-term feedstock agreement. The plant is operating well and generation is ahead of budget for the 9 months of the year to date. Downing EIS 15

16 The Investments Osprey Green Power Osprey is developing a 1.45MW run of river hydro electric scheme in the Scottish highlands. The scheme will involve building water intakes high up a river and a pipeline of several kilometres down the valley to a power house where the pressure of the water will turn turbines to generate electricity. Construction is underway and is scheduled to be completed towards the end of Redstart Redstart is developing a 0.9MW run of river hydro electric scheme in the Scottish highlands. Construction is underway and is scheduled to be completed during the first half of The electricity will be exported to the national grid and the company will earn income from both the sale of the electricity and the FIT scheme. Redstow Redstow intends to develop an AD plant on a farm in Swaffham in Norfolk. The start of construction was delayed because legal negotiations with the landowner took longer than expected. This process is now concluded and we expect construction to begin in early The plant will produce electricity and receive payments under the FIT scheme. Shearwater Shearwater is building a 3.0MW ground mounted solar farm in Rutland. The array is scheduled to be commissioned before 31 January 2015 and should qualify to receive 1.4 ROCs for each MW of power generated. The solar farm is being built on the site of a working quarry owned by Hanson plc, which is part of the Heidelberg Cement Group. In return for a peppercorn lease, Hanson will receive a percentage of the power generated free of charge. West Kingsmill West Kingsmill has developed a 1.6MW ground mounted solar farm in Cornwall. The array was commissioned in March 2014 and receives 1.6 ROCs for each MW of power generated. Neas Energy, a Danish electricity trading house backed by Danske Bank, acquires the electricity produced under a Power Purchase Agreement. Whilst the solar farm initially suffered from technical issues following commissioning, it is now operating in line with expectations. 16 Downing EIS

17 The Investments Wickham Wickham has developed a 5.6MW ground mounted solar photovoltaic system in Lincolnshire. The system, which was fully completed on 9 July 2013, receives 2 ROCs for every MW produced. A 5-year Power Purchase Agreement has been entered into with Total who acquire all the electricity generated at a pre-agreed price. Generation for the 12 months ended 31 August 2014 was 4.3% above forecast. Willowglen Willowglen is developing a 1.0MW AD plant in Exeter on land neighbouring a business park. The plant will produce electricity and receive payments under the FIT scheme, and it is anticipated that the nearby business park will purchase most of the electricity produced under a Power Purchase Agreement. Woodbridge Woodbridge has developed a 9.0MW ground mounted solar farm in Rutland, which was voted best ground mounted solar site (<10MW category) at the 2014 Power Portal Awards in October. It was commissioned in March 2014 and receives 1.6 ROCs for each MW of power generated. The solar farm is on the site of a working quarry, which in return for a peppercorn lease receives 30% of the power free of charge. The site is performing ahead of expectations. Wylam Power Generation In November 2013, Wylam acquired an operational 4.0MW ground mounted solar photovoltaic system in Rexon Cross, Devon. The site had been generating electricity since the end of May A 5-year Power Purchase Agreement was entered into with Total who acquire all the electricity produced at a pre-agreed price. The site is performing in line with expectations. Downing EIS 17

18 Guide to Claiming EIS Income Tax Relief Claiming income tax relief Once you have received your EIS3 Forms, you should enter the amount invested on your tax return for the year you are entitled to claim the income tax relief. If you have already submitted your tax return, then the claim section of the EIS3 Form should be completed and sent to your tax office. Please note that you will receive one EIS3 Form per EIS Company (i.e. you do not receive one form for your entire investment through the Service), and these are likely to arrive separately. If your shares were issued in the current tax year and you pay tax under PAYE, you can apply to claim relief for that year now. Claiming capital gains tax deferral relief If your chargeable gain accrues in the current tax year and the shares were issued either in the current tax year, or in a previous year, fill in the EIS 3 Form and send it with your tax return to your HMRC office after the end of the tax year. If your chargeable gain accrued in a previous tax year, fill in the EIS3 Form and send it to your HMRC office with your tax return if not already submitted. In both circumstances, you will need to enter the chargeable gain(s) details on the appropriate capital gains summary page. Fill in the claim form on page 3 of the EIS3, then tear off and send that page to your HMRC office. Remember that if you are sent a tax return after the end of the year, you will also have to enter details of the claim on that return. If you want to claim relief for a previous tax year for which you either did not receive a tax return, or you received a return and you have already sent it in, fill in the claim form on page 3 of the EIS3, then tear off and send that page to your HMRC office. If the claim is made in time it will be treated as amending the tax return. Please keep your EIS3 forms safe as it can take time to source replacements from HMRC. sample EIS3 Form 18 Downing EIS

19 The Investment Team All members of Downing s investment team are available to transact and manage renewable energy investments. The five members listed below specialise in the sector. Investments are only made after rigorous due diligence is carried out and they have been approved by Downing s Investment Committee. Colin Corbally Colin is a partner of Downing LLP and head of the renewable energy investment team. He qualified as a solicitor with Linklaters in He spent six years at 3i Group in corporate finance and venture capital where he was a senior manager. He then spent four years at The Royal Bank of Scotland where he was a director, structuring debt and equity investments, before joining Downing in Michael Hughes Michael is a partner of Downing LLP. He qualified as a chartered accountant in 2001 and spent seven years at Close Investments Limited where he was a director within the property and tax division. He joined Downing in May 2009 and has cross-sector investment experience with special focus on renewable energy and licensed trade investments. Ed Simpson Ed qualified as a chartered accountant with Arthur Andersen in 1998 before moving into corporate finance where he advised on over 20 corporate finance and venture capital transactions for a range of private companies. He has been working in venture capital and private equity since 2006, most recently advising the Carbon Trust on its venture investments and before that with Bridges Ventures with a focus on the environmental sector. David Freeder David is responsible for deal origination, appraisal and execution. David joined Downing in 2013 from Ernst & Young s Environmental Finance team (renewable energy sector) and previously, in 2012, spent a year on secondment at the Social Business Trust. He qualified as a Chartered Accountant with Deloitte. Ross Board Ross joined Downing in 2014 as an Investment Executive, focusing upon the renewable energy sector. Prior to joining Downing, he acted on numerous renewable energy transactions with a combined value of over 200m. Downing EIS 19

20 About Downing Downing is owned by its partners, has 70 staff, and its main office is in Westminster, London. We have specialised in tax efficient investments for over 25 years and have raised in excess of 1 billion from over 20,000 UK investors. Downing is experienced in providing equity finance to renewable energy businesses that qualify for attractive tax reliefs, having invested over 200 million in the sector since Structure of the Service The Service is a discretionary managed portfolio of EIS Companies, where each investor will own, through a nominee, a beneficial holding in each EIS Company. The Service is not an unregulated collective investment scheme. The Financial Services Compensation Scheme, which provides compensation to eligible Investors in the event that an FCA authorised and regulated party (Downing, a custodian or retail bank) fails to meet its liabilities, will apply to the Service. Important notice This document has been prepared for investors and their advisers by Downing LLP ( Downing ), Ergon House, Horseferry Road, London SW1P 2AL. It is for information only and does not constitute an offer or invitation to apply for shares in the Service and no reliance should be placed on it. Any subscription to the Service should be made solely on the basis of the memorandum relating to the Service and investors should note that their investments may be illiquid, high risk and are long term in nature. Past performance is not a guide to future performance. Ergon House Horseferry Road London SW1P 2AL eis@downing.co.uk This document has been printed on 100% recycled paper Downing LLP is authorised and regulated by the Financial Conduct Authority