Nobody could have mistaken Budget 2014 for the greenest budget ever. A few of the disappointments for those interested in promoting green energy were headline news, but others have taken a little time to emerge. For example, in the Overview of Tax Legislation and Rates document published alongside the budget, paragraph 1.59 stated:
“Legislation will be introduced during the passage of Finance Bill 2014 to prevent companies from benefiting from investment via the Enterprise Investment Scheme (EIS), the Seed Enterprise Investment Scheme (SEIS) or the Venture Capital Trust (VCT) scheme when they also benefit from DECC Renewable Obligations Certificates (ROCs) or Renewable Heat Incentive (RHI) subsidies.”
That sounds quite sensible – why should companies be able to get hold of two lots of help? Indeed, there are already similar restrictions on the Feed in Tariff (FIT). However, there’s a crucial difference: discussions with Treasury and HMRC when the FIT restriction was put in place led to an exemption for community energy schemes. This exemption has been vital to the growth of the community energy sector, where investment is largely coming from local share offers under the EIS scheme. It’s pleasing that this relief remains for FITs but concerning if it is not to be available for ROCS or RHI schemes.
EIS relief enables qualifying community organisations to raise capital at a lower return rate than would otherwise be possible. This increases the potential for surplus income to be generated to re-invest in the locality.
Giving a hand to Plymouth
A current example is the offer being run by Plymouth Energy Community (PEC), with the assistance of Communities for Renewables CIC looking to raise up to £500,000 to invest in local energy projects . It is expected to generate a £900,000 fund over its life to help the fuel poor in the locality. The scheme has galvanised schools that for many years have been considering PV investment but have been unable to do so and wisely eschewed commercial schemes which would not have generated community benefit. Now, as the issue shows every sign of being more than fully subscribed, it will provide half price electricity for the twenty schools on whose roofs the PV would sit. The community will benefit still further through the use of local suppliers to install the equipment.
If required to seek funding by more traditional means such as bank debt, bonds or equity, projects like this would founder. Either they would fall victim to the current lending climate, particularly given the travails of the Co-op Bank, or the higher level of return that would be expected would make it impossible for genuine community benefits to be supported.
Community panels: local green electricity generation is benefiting from greater support than renewable heat. Photo by USDA, via Wikimedia Commons
Capped capital
Promoting community energy is a public policy objective. However, its delivery looks set to be severely impacted unless a community sector exemption is also put in place for RO and RHI schemes, which are likely to form an increasingly important part of community energy.
There is potential for RO and RHI schemes to qualify under the separate Social Investment Relief. However, dealing with two separate tax reliefs would be complex for the community energy sector. Furthermore, each recipient can only receive a maximum of €344,000 over three years, and possibly less (according to a complex formula) if they have other forms of state aid. The result is to limit the application of this relief to small RHI schemes and put it wholly out of reach for RO schemes.
In practice, for RHI the scheme cap is insufficient to support a scheme on a scale that might, for example, provide renewable heat for multiple schools. Of course, it would be possible for each school to set up its own qualifying recipient entity, but this would eliminate economies of scale and result in most of the support being taken up by increased administration costs. Accountants’ and lawyers’ reports would be necessary for both tax schemes, and both sets of legislation would need to be monitored for the duration of the project, in case they were to cease to proceed in tandem.
RO-bust budget
Turning to the Renewables Obligation (RO), the availability of EIS relief and prior to that Business Expansion Scheme (BES) relief has been a vital instrument in facilitating community ownership of wind farms. BES relief was critical to the development of the first community wind farm at Harlech Hill, and the schemes sponsored by Energy4All have relied heavily in EIS to ensure that meaningful community benefits are able to arise.
At present, a number of developers of larger RO schemes would like to offer community ownership. The proposal is to make individual wind turbines or arrays of PV panels separable assets available for community ownership, even if set within larger wind or solar projects, in a way that would qualify for EIS relief. These assets would also generate substantial funds for local community investment. However, specific legal and physical structures need to be put in place to allow such separation and this entails additional cost. Again, such costs will be harder to bear in the absence of EIS relief for RO schemes.
The community energy movement is finally beginning to gain momentum. Granting an exemption to the EIS exclusion for community schemes would give it a further push: providing much needed capital for the industry, allowing communities to be financially involved in the renewable schemes they are kind enough to host and giving them a genuine ownership stake.
Jonathan Johns is director of climatechangematters limited and chairman of Communities for Renewables CIC.
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