AD plants claiming FiTS receive Budget blow

Both the Enterprise Investment Scheme and Venture Capital Trusts are designed to help smaller higher-risk companies which are not listed on a recognised stock exchange to raise finance by offering a range of tax relief to investors.

But,the Treasuryannounced last week in its Budget report that itisto exclude companies which claim Feed-in Tariffs from accessing them because they are already being subsidised by the government and are therefore not deemed high risk.

The move has caused some alarm in the organics recycling sector where some companies had been counting on these are important sources of funding for AD.

However, other small high-risk companies in the waste management and recyclingsector could potentiallybenefit more, because the Budgetmakes the VCT and EIS schemes more attractive for those businesses which do qualify.

This could potentially see some of the larger plants which qualify for FiTS opting to gain Renewable Obligation Certificate subsidies (ROCs) instead.

The Feed-in Tariff (FiTs) system was introduced in April 2010 to help stimulate investment in small-scale low carbon energy generation facilities by subsidising the energy they generate.From April 2011, anaerobic digestion (AD) installations with capacity up to 250kW will receive 13p per kWh of energy they produce while facilities with an installed capacity between 250kW and 500kW receive 14p/kWh (see letsrecycle.com story).

Budget

The Budget 2011 document states: The government will reform the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT), raising the rate of EIS income tax relief to 30% from April 2011.

From April 2012 the government will increase the annual EIS investment limit for individuals to 1 million, increase the qualifying company limits to 250 employees and gross assets of 15 million (EIS and VCT), and increase the annual investment limit for qualifying companies to 10 million (EIS and VCT).

The government will consult on options to provide further support for seed investment, simplication of the EIS rules by removing some restrictions on qualifying shares and types of investor and refocusing both EIS and VCTs to ensure they are targeted at genuine risk capital investments. Feed in tariffs businesses will be added to the excluded activities list.
All changes are subject to EU State aid clearance. (Finance Bill 2011 for rate increase in 2011, Finance Bill 2012 for other changes).

David Collins, anaerobic digestion expert at the Renewable Energy Association, told letsreycle.com that the move to exclude FiTS businesses was not good news for the small-scale anaerobic digestion sector because VCTs and the EIS represented an important channel of funding.

He said: This will see investment directed away from small-scale anaerobic digestion. We are grateful that the government recently increased Feed-in Tariff levels for AD but they are lower than expected and now we have an additional restraint in stopping investment. The government seems to be fine-tuning before we have seen any progress.

“Terrible”

The Anaerobic Digestion and Biogas Association (ADBA)added that the move toinclude businesses claiming FiTS onthe list of activities excluded from Enterprise Investment Scheme and Venture Capital Trust investment would be a “terrible step backwards” for the AD industry.

An ADBA spokesman said: Getting investment into new plants remains a challenge for businesses, and for many the EIS route is the only way they can raise the investment needed, so the last thing they need is a move which could remove this option.

ADBA has already been contacted by concerned members, some of whom have projects in development which are now at risk of being abandoned.

We will be pushing Government hard on this, and hope they will see how devastating this step could be.

Relief

Jeremy Elden, director of Glendale Power, which develops anaerobic digestion facilities to process waste, agreed that some smaller plants which claimed FiTS would find it harder to gain funding.

However, he said he thought that this would mostly affect farm-based facilities and that larger plants which do not claim FiTS such as the 1MW facility which Glendale specialises in would benefit from the improvements to the EIS and VCT schemes.

In particular, he praised the rise in income tax relief under the EIS scheme from 20% to 30%.

He said: They have made a number of changes which are very positive for larger AD plants and negative for smaller plants. Personally I think this change is very important and Im considering how I might use EIS in a couple of projects which Im involved in.