Farmers and landowners, being approached by an increasingly diverse range of energy companies, may well question how funding for renewable energy schemes is provided. While large energy companies are often national or international utility companies, which have been active in the renewable sector for many years, there are now many more local and regional developers as well as individual landowners seeking finance to implement a variety of renewable energy schemes.
Jamie Younger, a partner of Saffery Champness Landed Estates & Rural Business Group, comments: "Small and medium sized renewable energy companies are now benefitting from investment from EIS and VCT funds that have been raised by asset managers over the last 18 months or so.
"These funds target renewable energy companies that have planning permission and show a good enough return. The RPi linked feed in tariff clearly makes them an attractive investment. They are now investing significantly in wind, biomass/landfill gas and solar technology companies as well as suppliers of equipment for such projects."
"However, there are a number of important changes to EIS for renewable energy generation in the pipeline. Although income tax relief under EIS this tax year has risen to 30 per cent (from 20 per cent), legislation will be introduced in the Finance Bill 2012 providing that companies whose trade consists, wholly or substantially, in the receipt of feed in tariffs (FiTs) or similar subsidies will only be eligible for EIS or VCT reliefs where electricity generation commences before 6 April 2012. Shares issued before 23 March 2011 will not be affected. However, Renewables Obligation Certificates (ROCs) are not defined as a subsidy similar to FiTs for this purpose – projects receiving ROCs will continue to qualify.
"There are also a number of proposals currently being consulted on (i) increasing the annual EIS investment limit for individuals to £1m from April 2012 (ii) trades generating electricity by hydro power or anaerobic digestion to continue from EIS/VCTs reliefs unencumbered by the changes above."
"Under EIS, investors can defer Capital Gains Tax (CGT) liabilities by investing in the fund and will qualify for 100 per cent relief from Inheritance Tax after two years. Any capital gains realised on disposal of investments held after three years should be exempt from CGT, though any deferred gains will come back into charge again subject of course to a further reinvestment deferral at that time."
Saffery Champness point out the EU’s Renewable Energy Directive states that 20 per cent of all energy in Europe must come from renewable sources by 2020.
"The level of industry growth required to meet these targets is expected to be substantial" says Jamie Younger who adds: "While smaller regional and local energy firms are actively seeking landowners interested in renewable schemes, it is nonetheless important to critically access what they offer in terms of obtaining the best possible terms for any renewable project or scheme. Financial and tax advice in the appraisal process should be taken as early as possible so as to secure the best terms possible".
