Alternative Outlook

Managers of funds investing in UK renewable energy projects have welcomed some of the proposed changes to feed-in tariffs (FiT) announced last week, but say they are unlikely to invest in new solar projects.

The UK government launched consultations last week on a raft of proposed changes, notably on a system for gradually reducing support (or ‘tariff degression’) for solar photovoltaic (PV) installations, which were subject to a controversial decision to slash subsidies last year.

However, this aspect was largely irrelevant to the crop of UK fund managers who use tax-efficient vehicles to invest in renewable energy projects, as the government last year decided to exclude FiT-qualifying solar and wind projects from venture capital trusts (VCTs) and enterprise investment schemes (EISs) from April 2012.

The cut to the solar tariff “doesn’t make any difference to us”, said David Gammond, asset manager at Goldfield Partners, as the firm has already identified the solar projects it will invest in, all of which qualify for the pre-12 December 2011 tariff of £0.43 ($0.67) per kWh. London-based Goldfields has raised £10 million into a solar EIS fund and is seeking to raise a further series of three £2 million EISs before the April deadline.

Shane Gallwey, a London-based investment manager at Guinness Asset Management, who runs two solar-focused renewable energy EIS funds, said the latest proposal will not affect any of its investments.

He welcomed the news that the government had more than doubled its budget for FiTs, to £2.2 billion from £867 million over April 2010-April 2015, and said he was delighted about the clarity on hydro, anaerobic digestion and wind tariffs out to 2020. Furthermore, the proposed preliminary accreditation process – so that projects with long lead times are guaranteed their tariff before installation is complete – will be a “big help”.

“Putting in place some sort of process whereby there will be visibility on tariffs will encourage investment,” he said, but he added that “obviously having lower tariffs is less of an incentive”.

Gallwey said the change to the VCT and EIS eligibility means that Guinness will not be raising money to invest in solar projects, but hydro and anaerobic digestion will be a focus, as will energy efficiency.

Jamie Richards, head of infrastructure at Foresight Group, said the firm would continue to monitor the UK’s regulatory climate before committing more capital to the sector. Foresight runs several solar VCT and EIS funds and over the last year has invested £150 million in renewables projects, predominantly solar PV in the UK and Italy.

“The UK FiT regulations have been anything but predictable and we made a decision more than a year ago to acquire larger ground-based projects that were operational and had locked in the pre-1 August 2011 FiT rate,” Richards said. “We have completed our current UK solar investment programme on this basis.”

Nonetheless, Richards was encouraged by the UK government’s renewed focus on infrastructure investment, and said environmental projects can continue to be structured to provide infrastructure-like risk-return profiles for investors.

For example, waste-to-energy and waste recycling projects can provide steady cashflows, he said, if the technology is appropriately matched to the waste stream.

Source : Environmental Finance

Christopher Cundy