Tax Insights 201 views Nov 06, 2017
Solar Success – Boosting the UK’s Renewable Energy Sector

Our investors have just received back the investment that they made in a solar renewable energy business. If you’ll pardon the pun, it’s been a shining example of how successful the Enterprise Investment Scheme can be.

 

When we made the investment, it was in response to our investors’ wish to participate in building the UK’s alternative energy infrastructure. We set out to find a credible renewable energy business. It was essential that the one we chose had an excellent track record in planning, building and operating to time and to budget. We were happy to take the investment risk that we would find a buyer to exit our investors after three years – matching the EIS qualifying investment period.

 

It has been a fascinating, and very fulfilling journey to watch the way that tight management controls ensured that the project was built on time, on budget, and then began operating. Its energy generation has been consistent and within the boundaries promised by management and probability statistics about the UK’s weather.

 

Our investors have been delighted. Although all interested in the subject of renewable energy, what really attracted them to the idea of making an investment were the benefits offered by participating in the EIS tax relief scheme. This allowed them to do two things, to reduce their income tax bill, and to defer any CGT that they owed – or might owe. An added bonus was that the investment attracted IHT relief.

 

Not surprisingly our investors, on receiving their cash back, have immediately asked to do the same thing again. Sadly, that is now not possible, for the government has removed EIS from renewable energy schemes. To be fair some investment funds have, in our opinion, provided a very poor return for their investors and at the same time tweaked the nose of HMRC over the way they have operated. However, we feel that a better compromise could have been reached to keep people engaged in supporting the UK’s renewable infrastructure build.

 

Sadly, it’s really the UK that loses out. Our investors cannot recycle their investment into renewable infrastructure again. The government’s stated intention, that our investor’s money would somehow find its way instead into higher risk venture is all very well, but it is a pipedream and misunderstands how investors think and operate. An investment in renewable energy infrastructure is an allocation to a steady yield and marginal to no capital growth. It forms a significant and valuable part of an investor’s portfolio and is very different from an allocation to higher risk venture.

 

A look at the government’s own figures on EIS, reported by HMRC in “Statistics on Companies raising funds” (just published) reveals that renewable energy accounted for a quarter of all EIS funds invested in 2014, but this has fallen precipitously since and now accounts for less than 8%. The question is, was the complete exclusion of renewable energy schemes from the EIS a sensible move? Probably not. A better compromise would not have been hard to find, and one that would have kept cash flowing into UK infrastructure projects.

 

We know, dealing with investors every day, that money that went into renewable energy is not being recycled into higher risk venture. Broader evidence of this is not hard to find, with the HMRC reporting a fall in total funds flowing into EIS in 2015/16.

 

The shame in the whole exercise is that we want to support the UK’s renewable energy sector; our investors want to support it – again, and yet it’s not something that we can do. It is particularly frustrating as it’s hard to see how anyone has lost out. All the more disappointing then, that in a time of growing political and economic uncertainty, we cannot persuade the government to reconsider the evidence and find a compromise that utilises the strengths of EIS to support the UK’s renewable energy industry.

 

Dr Julian Hickman
Partner
Juno Capital LLP

@rotaryaviator

 

@junocapital
www.junocapital.co.uk