Downing Corporate Finance Limited has launched the Downing Low Carbon EIS Fund in conjunction with Low Carbon Investors Limited.
The Fund is designed to enable UK taxpayers to make lower risk, tax efficient investments in trading companies that own and operate wind and solar installations which qualify for feed-in tariffs (“FITs”) in the UK. The Fund is the first EIS product designed to take advantage of UK FITs.
The FITs regime was introduced on 1 April 2010 to incentivise the installation of renewable energy generating technologies up to a maximum installed capacity of 5MW. Under the FITs regime, renewable energy generators will receive a payment for each kilowatt hour (kWh) generated and a further payment for each kWh they feed into the grid.
The FITs payments are fixed from the date of installation, linked to the Retail Price Index, and payable for 20 or 25 years depending on the technology installed.
Tariffs for the first three years of the programme have been confirmed by the UK Government, and have been set at a level that is intended to deliver investors in the capital equipment a return of between 5 and 8 per cent for well sited installations.
The fund will be managed by Downing Corporate Finance Limited Low Carbon Investors (UK) Limited acting as advisor to the manager.
Downing and LCI believe that these target returns can be exceeded as a result of both LCI’s and Downing’s knowledge and relationships in the sector, and structuring these investments to take advantage of the attractive tax reliefs of the Enterprise Investment Scheme.
LCI is a leading fund management company focused on the low carbon sector, and manages the AIM listed fund, Low Carbon Accelerator Limited. Through its relationship with LCA, LCI has strong relationships with Proven Energy Limited, Europe’s leading manufacturer of small wind turbines, which was the first manufacturer to have a product certified under the MCS certification scheme. FITs payments are only available on equipment approved under the UK MCS scheme. LCA also has an investment in Vigor Renewables Limited, a developer of FITs qualifying renewable energy projects. Both Proven and Vigor are potential sources of deal flow to the Fund.
Downing was established in 1986 and specialises in the structuring, promotion, and management of tax efficient funds, including Venture Capital Trusts, EIS, and Inheritance Tax mitigation funds. Downing is one of the leading providers of these tax efficient funds in the UK, and currently manages nine EIS funds, which together raised GBP30 million between February 2008 and April 2010. In addition, Downing’s VCTs have raised approximately GBP200 millon.
The fund is seeking to sell the portfolio of investments after four years, and to return capital to investors at that time.
Despite its conservative investment policy, the fund is targeting a tax-free compounded return in excess of 8% for investors. This is the equivalent to a 13% IRR to a 40% taxpayer.
“We believe that the introduction of FITs, combined with the generous EIS tax refliefs, make investing in renewable energy projects a really attractive prospect for UK retail investors,” says Tony McGing (pictured), a director of Downing.
Andrew Newman, CFO of LCI, adds: “This new fund is a unique opportunity for investors to enjoy enhanced returns from renewable projects whilst reducing their tax exposure. Importantly, it also a very effective way of investors reducing their carbon footprint, because the investments will be located in prime sites for solar and wind resources and benefit from greater economies of scale than most investors can hope to achieve at home. The Downing LCI EIS Fund is a great opportunity for individual investors to be part of the UK’s low carbon future.”