Renewable Energy Investment Club launches

This article by Andrew Bibby, in a slightly different form, was first published in the Observer, 2002

Campaigners for sustainable energy have come up with a new way to encourage investment by individuals in community-based projects. The Renewable Energy Investment Club aims to act as a channel between would-be investors and organisations which are looking for new share capital, typically for wind turbine or small-scale hydroelectric developments.

Unlike many ‘alternative’ share issues where the prospect of dividend payments may be small or non-existent, renewable energy projects can in principle give shareholders both a warm glow and a return on their money. For example Cumbrian-based Baywind Energy Co-operative, which raised almost £2m in two share issues in 1996-7 and 1998-9, paid its 1300 investors a return of 5.6% gross last year, generated by the six wind turbines the company now owns.

Share issues like Baywind’s, however, are bound by European and British law on public share offerings and this, according to Vicky Leaney, can mean very large legal costs — perhaps as much as £100,000 for a £1m share issue. Vicky Leaney, a non-executive Baywind director who works for renewable energy consultants Dulas Ltd, was instrumental in devising the Renewable Energy Investment Club (REIC) as a route out of this difficulty. Members of the Club — who may be individuals, businesses or groups — identify themselves by the act of joining as being potentially interested in making investments. REIC then circulates them in due course with details of possible new share offers. Members decide for themselves whether or not to part with their money.

The club structure means that some of the requirements for public share offers can be sidestepped. "It’s to enable very small groups to raise money without huge legal and financial costs. Groups have to produce a business plan, but don’t have to provide a share offer document," Vicky Leaney says.

REIC, although formally launched in the summer [2002], is still in an early stage of its development and the value of its concept has yet to be tested in practice. Nevertheless, a dry-run last year [2001] enabled a mid-Wales group Bro-Dyfi Community Renewables to raise £54,000 in share capital towards the cost of a wind turbine near Machynlleth. A proposed community-run hydro project in the Usk valley south of Brecon is a possible new candidate for REIC endorsement although Debra Smith, one of REIC’s directors, says that no decision has yet been taken.

Anybody interested in the potential commercial viability of renewable energy projects should be aware of the current electricity regulatory framework, and in particular the Renewables Obligation which was introduced by the government last April [2002]. This sets electricity suppliers the task this year [2002] of sourcing at least 3% of their power from renewable sources, with the percentage rising to 10.4% by 2010. As part of this regime, Renewables Obligation Certificates are issued for each megawatt hour of electricity produced from renewable sources, and these Certificates can in turn be sold on (at a price determined by open market trading) to other suppliers needing to reach their targets. (Another alternative for electricity supply companies in this position is to ‘buy out’ their requirement to renewable energy by means of an extra payment to power regulator Ofgem; Ofgem gives this money back to suppliers who have been successful in meeting their targets.)

This government intervention means that the economics of energy generation are now tilted slightly in favour of renewable energy projects. Nevertheless, individuals considering investing need to look at each case carefully. "It’s very much caveat emptor: buyer beware," says Malcolm Lynch of Leeds solicitors Wrigley’s, who has advised REIC on its legal structure. He adds that the Investment Club idea could also be adapted for other ethical investment opportunities, including for social enterprises seeking finance capital. "Essentially, the idea is like a community version of a business angel network," he says.

More information about REIC, and a membership form, can be found at its website.

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