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Investors in EIS schemes linked to anaerobic digestion plants will have noted that the new EIS rules introduced in 2015 prohibit or restrict further investment in renewable energy, including in biomass, bio gas and anaerobic digestion (AD) plants. This has created a situation where EIS schemes and VCTs will not be able to invest directly in these projects nor take advantage of the tax breaks that were previously in place.
But in some ways this is a credit to the progress that has already been made with renewable energy projects in the UK – the government no longer feels these projects need the tax-based support they previously attracted and AD projects are considered too low risk to be the destinations of EIS/VCT funding. Such projects meet the definition of strong guaranteed income streams or strong tangible asset bases.
Prestige and our dedicated finance arranger Privilege have helped with the funding, construction, and sometimes the management of almost 50 biogas plants in the UK during the past seven years. We have been able to do this thanks to a strong and knowledgeable team and our approach to the day to day management and close oversight of the risks we have taken on with our portfolio of plants. We count Philip Gerrard, one of the leading experts on AD plants in the UK, among our senior management team.
Our core investment strategy is one of lending to, rather than acquiring equity within, projects. We have not relied on tax breaks for the success of our approach, which now stretches back over a decade. As a secured lender we enjoy a much higher level of control over the projects we support: under UK law we are treated very differently from equity holders. Our returns derive not from the appreciation in the value of a plant, but from the interest paid on the loans we extend. As an asset backed lender, Prestige represents as an important component in the ongoing development of the UK’s renewables infrastructure, filling the void that has been created by banks withdrawing from the provision of infrastructure finance to the sort of firms that build and run bio gas plants. The strong economic fundamentals that underpin the bio gas and anaerobic digestion plants, the UK’s demand for energy and energy security, are still firmly in place.
We have a pipeline of projects that is currently in excess of GBP 300 million which will remain a fundamental part of what we are doing within Prestige. Through our partnership with Goji, investors in the Prestige renewables portfolio will be buying entire or fractional shares of mature or complete projects, not originating new loans for new projects.
As we look at the UK’s energy situation today, we see a more mature renewables sector which, while it may not need the direct support of the government in terms of enterprise investment qualification, is still in need of financing to continue to drive its growth. The UK still needs to meet its obligations under the Paris Climate Change agreement, and recent events have also demonstrated that it may be unwise to rely on foreign sources of gas. We foresee yet more demand for energy produced by the plants we are financing in the years to come.
Craig Reeves, Founder, Prestige Funds
1. ‘The Autumn 2017 Budget Has Changed the VCT Landscape’, Shepherd & Wedderburn LLP