Area of work:
Abundance Generation is revolutionising the way people invest for their future. Its user-friendly crowdfunding platform lets people take control of where their money is invested by allowing them to put it directly into sustainable energy projects of their choosing.
The UK has a significant number of small to medium scale renewable energy developers, both in the commercial and community sector. They all face two key problems in developing a renewable energy project: accessing finance at a reasonable price, and gaining the acceptance of the local community.
Abundance Generation has helped to solve both problems by developing a crowd-funding platform which allows individuals to invest in renewable energy projects. By creating a low-cost, efficient process with minimised risks, finance is provided to developers at a competitive cost, and by enabling people to invest in local projects, community support for them increases.
Abundance fills a critical gap in the renewable energy finance marketplace, by providing affordable finance for projects in the £1 – 4 million range, where the larger commercial lenders show little interest. It does this by identifying viable projects generating electricity from renewable sources and raising investment to fund them from hundreds of small investors via a web-based platform. All the projects Abundance has worked with so far have been fully funded by debentures, but it is also possible for projects to source a portion of their funding through other routes, such as bank finance or a community share offer.
Abundance is happy to consider any renewable energy technology, but all the projects currently operating or open for investment use solar or wind power. This is because projects based on these technologies are relatively easy to evaluate, but the current pipeline of future opportunities includes a hydro power project as well as more solar and wind. Maintenance of a completed project is the responsibility of the developer, and all equipment installed is expected to last at least the lifetime of the debenture.
Abundance carries out due diligence on each project, bringing in external expertise as required to ensure projects are viable and the forecast returns are realistic. It also usually only offers debentures for projects that are already built or where construction has started, thus significantly reducing risk.
Abundance is an intermediary so needs to promote its services to both developers and investors. The focus of its efforts is its website, which is of a very high standard and clearly explains how buying debentures in renewable energy projects works, using a mixture of video, text and interactive tools to get the message across. Prospective investors can not only read the offer documents of available projects, they can also view monthly energy generation from existing projects to see how well they are performing compared to predictions. Having developed an excellent website, Abundance also works hard to bring traffic to it, through stories in online and print media, interviews and blogs. A significant proportion of its operating costs is marketing to attract investors.
In the UK, a debenture is a contract or certificate for an investor making a loan to an entity – in this case a renewable energy developer. Abundance manages the debentures, but each debenture is a contract with the actual developer. Abundance’s debentures are long-term investments, usually running for 20 years, as this is the duration of Feed In Tariff payments, which are a part of the income stream on current projects. Returns are paid direct to investors’ Abundance account every six months, and each payment includes a portion of the original capital invested as well as their investment income. The investment income portion of the returns remains similar throughout the duration of the debenture, despite the capital being repaid, effectively giving an increasing yearly rate of return over time on the capital still invested. Capital repayments are tax-free, while investment income payments are taxable.
The minimum investment is just £5, and debentures can be transferred to another person, bought as a gift or held in trust for a person under the age of 18. It is also possible to include debentures in a Self Invested Personal Pension (SIPP), enabling people to move money away from traditional personal pension funds and into renewable energy.
Debentures can be sold before they have matured through a marketplace administered by Abundance. Only a minority of investors choose to sell their debentures, but those that do have all recovered the capital invested, and many have sold at a profit.
Abundance has three main costs: due diligence for the projects to be invested in, marketing to investors, and administration of the investments. The first two costs are covered through a fee charged to the developer of the project, typically 3.5 – 5% of the amount raised, while the administration is covered by a 1.5% annual management fee. Fees are already factored into predicted returns for investors, so there are no surprises for them.
By setting the minimum investment at only £5, Abundance has opened the renewable energy investment market to almost everyone, though clearly it hopes that £5 will just be a ‘taster’ for an investor, to be followed by a larger sum. When surveyed, Abundance investors have indicated that they value being able to invest their money where it is doing some good and helping tackle climate change at the same time as earning a good return.
Some of the developers working with Abundance are also creating significant community funds – the Resilience Centre donates up to 4% of gross revenues to projects to benefit local people. Others, such as EvoEnergy and Engynious, have installed solar panels on schools and leisure centres, and are helping reduce running costs by selling power to them at a discount compared to utility company prices.
Economic and employment benefits Investors earn a return on their investment, typically in the range of 6 to 9% IRR.
The lack of funding for small to medium renewable energy and the low returns on saving accounts are continuing to drive investors towards products like Abundance debentures, and the increasing geographic spread of Abundance projects means people can put money into projects that are local to them. Abundance is also expanding into technologies other than solar and wind, with hydro projects in the pipeline and a desire to add anaerobic digestion and biomass in the future as well.
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