Angel-power investment plan for millions to fire up small hydro schemes

Deputy Business Editor, Sunday Herald

Sunday 22 July 2012

A GROUP of Edinburgh businessmen is spearheading a scheme to unlock tens of millions of pounds for small-scale hydroelectric projects by making them more attractive to angel investors, the Sunday Herald has learned.

Custom byline text:

Multiple backers will fund local schemes to spread the risk By Steven Vass

Sandy Finlayson, who is closely involved with Archangel Informal Investment, Ian Rogers of building engineer RSP Consulting, and Bob Salter of planning specialist Geddes Consulting, have overseen the development of a new company called Sustainable Head and Power Ltd (SHPL) that is designed to overcome the barrier to investing in small hydro-electricity and other renewable projects.

The UK Government's subsidy system of feed-in-tariffs (FITs), backed by tax breaks under the enterprise investment scheme, aims to make hydro projects that will produce between 50KW and 100KW – enough to power between 50 and 100 homes – particularly attractive. But landowners and communities that own the water-courses with the potential to power these schemes struggle to find backers for the £300,000 to £500,000 investment because banks generally do not lend for projects under 1MW and angel investors do not want to risk that size of investment on one project. SHPL, which has also been informally assisted by the University of Edinburgh, aims to get around this problem by putting together a roster of projects and offering each of them to a newly set-up investment syndicate called GAIIL (Green Angel Informal Investments Limited). The idea is that multiple investors will back individual projects to spread their risk around, in a similar way to schemes that have leveraged hundreds of millions of investments into solar power in the south of England. While the government has made solar FITs less attractive to deliberately slow down development, subsidies for the likes of hydro and anaerobic digestion are still considered generous. SHPL will be run by Stephen Westwood, who previously ran the defunct Dundee dental specialist IDMoS, along with Phillip Bruner and Vijay Bhopal of Edinburgh-based investment intermediary the Sustainable Community Energy Network (SCENE). The company is already piloting a commercially confidential scheme in Midlothian and will start looking to sign up investors in the next couple of weeks. Phillip Bruner said that the model was already attracting considerable interest from Scotland's networks of high-net-worth individuals and angel investors. It is also understood to have attracted significant interest from investors in London. He said: "There's a financing gap for small-scale projects. If communities look for grants for their schemes, they are not eligible for feed-in tariff subsidies under EU state aid rules. "To be able to attract equity investors during the early stages, you need an intermediary that can de-risk the project. We are in the market to prove that these projects are good and not too risky." He said the reason for the scheme focusing initially on hydro is that the subsidies were particularly attractive. Projects can also be delivered in months where the likes of wind take years. If the scheme takes off, there is no shortage of opportunities available. According to a study carried out by Nick Forrest Associates four years ago, Scotland has another 657MW of untapped commercially viable hydro potential to add to the 1.4GW that has already been installed. "If you compare local energy deployment with other countries, Scotland could do much better," he said. "In Denmark, over 80% of renewable energy is locally owned. In Germany, it's about 50%. In Scotland, it's about 3%, so we want to do something about that." Finlayson, who is also a senior partner at Edinburgh law firm MBM Commercial, said: "The hope is that we might then be able to sell them to a big energy company in the fullness of time. "An energy company would not want to buy these projects on their own but if you created a portfolio of them, you could then sell the portfolio." He explained that it was vital that GAIIL's investors each chose which projects to get involved in, since this would ensure that it was not simply an investment fund and would enable investors to enjoy tax breaks under the enterprise investment scheme (EIS). He added: "There were 20 flour mills in the water of Leith 200 years ago. We have forgotten how to harness these basic raw energy sources." David Grahame, head of business angel association LINC Scotland, was intrigued by the scheme, saying that access to EIS tax breaks and control over which projects to back would help to attract angel investors.

Contextual targeting label:

Business

Commenting & Moderation

We moderate all comments on HeraldScotland on either a pre-moderated or post-moderated basis. If you're a relatively new user then your comments will be reviewed before publication and if we know you well then your comments will be subject to moderation only if other users or the moderators believe you've broken the rules, which are available here.

Moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours. Please be patient if your posts are not approved instantly.

Angel-power investment plan for millions to fire up small hydro schemes

Commenting & Moderation

MOST READ

SPONSORED LINKS

MOST COMMENTED