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Future solar bonds to go ahead despite funding cuts

0
  • by Colin Marrs
  • in Resources · Treasury
  • — 25 Feb, 2016
Photo: Belectric, Flickr

Photo: Belectric, Flickr

Cuts in government subsidies for renewable energy will not scupper plans to extend a pioneering retail bond funding mechanism, according to the council promoting the concept.

Swindon Borough Council this week launched a bond aimed at raising £1.8m towards a solar farm investment through a bond issue to its residents – in an initiative it claims is a UK first.

The council says it still wants to issue more bonds, even though its first venture relies on subsidies which were slashed by the government in December.

Paddy Bradley, head of economy, skills and property development at the council, told Room151: “Luckily, we managed to get in just before Christmas for the first bond and the government has now slashed feed-in tariff subsidies by up to 80%.

“However, we are now looking at a model based on renewable obligation certificates for future issues.”

He also said that further issues will need to be designed to take into account the risk of interest rates rising.

“Currently, for every £1m we need to find revenue for £80,000 a year over 25 years for interest payments. If rates go up we have to make sure we have scope to cope with that – any return on investment has to cover interest and capital repayments. If we can’t get returns then we won’t go for it. We can’t misuse public funds.”

Future bond issues could include the funding of solar canopies in car parks, as well as combined heat and power plants, Bradley said.

The council hopes the model can help it reach its target of generating 200MW from renewable sources.

The initial bond allows citizens to invest for a minimum stake of £5, providing an estimated return of 6% over 20 years.

Karl Harder, director of Abundance, the peer-to-peer funding platform through which Swindon is issuing the bond, told Room151: “All our research shows that people will be happier to invest if it is a local authority raising money – they will take a hit on the return if they know they are helping locally.

“Specific projects like solar parks are easy because they are revenue generating, but the model could in theory be extended into broader infrastructure projects.”

He also said that new ISA rules being introduced from April could provide the potential for investors to invest in the projects without paying tax on their returns.

Harder said: “In the US, 70% of funding for municipal bonds comes from households – one of the things that has driven that has been the tax relief that is available for investing in them.”

Photo: Belectric, Flickr

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