Thousands of investors in VCTs could lose £100m following a potential about-turn on solar energy investment ruling.
Proposed changes to the way investors in renewable energy funds are paid could result in a loss of £100m.
In April this year, Department of Energy and Climate Change (DECC) announced that feed-in tariff payments – when you contribute to the grid by generating your own renewable energy – would no longer apply to sites of a certain size.
Roof-top solar panels and private schemes smaller than 0.5 megawatts still qualify, as well as commercial sites larger than 5 megawatts, but new sites between 0.5 and 5 megawatts would have their feed-in tariff payments cut by 70pc – and this could affect VCTs as their sites are typically 0.5 and 5 megawatts in size.
DECC said it did not intend for feed in tariffs to be for investors’ gains and VCTs had until August 1 to complete investment on new sites in order to qualify for the original feed in tariffs. Under the “extension rule” companies then had 12 months to extend the sites up to the maximum size of 5 megawatts if they wished.
But new plans from DECC this week propose to pull this “extension rule” allowance and allow no further development on existing sites.
Ben Guest, who runs the Hazel Capital Venture Capital Trust (VCT), invests in solar energy and has written an open letter to the DECC raising his concerns.
Mr Guest said: “If feed in tariffs are reduced by 70pc investors will get 3pc rather than 8pc, resulting in a loss of £100m in growth. We want the government to stick to its word and desist from any action regarding the removal of the extension rule without first following full due process and correctly representing facts to all Members of Parliament.”
Hazel Capital is not the only VCT to be potentially affected by the changes. Solar Asset Partners, Albion VCT, Octopus EIS and Foresight Solar all have exposure to the solar industry.
Octopus EIS completed its sites prior to the August deadline, and have designed its new investments with the changes in mind. Albion VCT also restricts its investments to these smaller sites which will continue to pay the original feed-in tariffs.
Paul Latham, managing director at Octopus said that his company would only be investing in smaller sites going forward in order not to be affected by the new rules.
He said: “I think that it is a knee-jerk reaction by DECC. It has disrupted the industry and it is not comforting for the solar industry.”
When DECC opened the review into feed in tariffs in April, it forced investment groups Matrix and Ingenious to abandon plans for renewable energy VCTs. Both companies returned funds to investors.
Adrian Lowcock, investment adviser at Bestinvest said: “The feed in tariffs paid to new solar investments have come down from 29.3p to 41.3p per kilowatt hour to between 8.5p to 19.0p per kWh. The drop in fees is quite significant and reduces the appeal of investment in solar energy for individuals.”