Angel News article: EIS, the end of renewable energy

As the UK reaches its renewable energy obligation targets, it was inevitable that the Government would eventually rule that renewable energy projects are to no longer qualify for EIS status.  By 2020, 15% of UK energy has to be produced from renewable sources and statistics show during Q3 2014 this figure stood at 17.8% [Source: UK Government Energy Trends Report, 9 January 2015]. Some have suggested this is a short term anomaly; but even if that is the case the longer term trend is on an upwardly mobile trajectory and, following the trend of the past 5 years, the UK target of 15% would be hit by 2016 anyway.

The Enterprise Investment Scheme was launched over 20 years ago.  Then Prime Minister John Major, and then Chancellor Kenneth Clarke, created EIS in order to stimulate investment in small UK businesses with the intention of creating jobs and economic growth.  To this end, EIS has been successful with £10bn now raised in total and approximately £1bn now being raised each year the investment has certainly been stimulated.  Equally, some estimates suggest that as many as 70,000 jobs have been created as a result of EIS funding.  However, over the past 6 years we have seen EIS investments in renewable energy rise from approximately 5% of funds raised to over 30%. 

This increase in volume of EIS investments in renewable energy is not surprising.  The government subsidies on offer to renewable energy generators can mitigate investment risk in such unquoted companies.  In addition, The Chancellor increased the maximum EIS investment per company to £5m and thus made this market increasingly interesting for investment managers.

EIS purists may argue that renewable energy projects don't necessarily create the level of jobs intended when Major and Clarke launched EIS but there is no denying the adoption of EIS for renewable energy projects has significantly assisted the UK's Renewable Obligations agreed in 2002.

Investors looking to invest in renewable energy EIS propositions have until the end of the 2014-2015 tax year to do so before these opportunities cease to be EIS qualifying.  However, renewable energy will continue to be an appealing investment opportunity for some.  With reduced nuclear power in the UK, a number of coal power stations to close in the next few years and with Northern Ireland only half way to their 2020 target of 40% generation from renewables; there could still be good reasons to invest in renewables.  Renewable energy is here to stay: the increasing political focus on energy security amidst rising geo-political instability will be major focus of the energy policy for the forthcoming Government.

In the short term, renewable energy EIS propositions are still open for those appropriate investors seeking potential tax reliefs and a government subsidised investment in a growing market.  For example, UK hydropower electricity output in Q3 2014 was 5.9% higher than the same period in 2013 despite lower rainfall.

Longer term, renewable energy is likely to continue to be an appealing investment for suitable investors looking for potentially stable returns, within a continually growing market.  I find that investors often like investments where they understand the technology involved and to this end hydropower and wind energy will always tick boxes.

The Deepbridge Hydro EIS closes to investors on Thursday 26th March 2015.

by Ian Warwick, Managing Director, Deepbridge Advisers Limited

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The value of an investment may go down as well as up, in which case an investor may not get back the amount invested. Investments in small unquoted companies carry a high level of risk.