Q. What is Southill Community Energy (SCE)?
A. Southill Community Energy is an industrial and provident society set up for community benefit - a Community Benefit Society. This means it is governed by a set of rules that specify what it is in business to do and how it should be run to ensure that it delivers community benefit. The Society was registered with the Financial Conduct Authority on 16th November 2015.
SCE will develop and operate Southill Solar, a solar farm project initiated by Sustainable Charlbury. It expects to pay its members a return on their investment and to benefit the wider local community through money allocated to a community fund.
Planning permission was granted on conditions volunteered by Sustainable Charlbury to provide up to £100k each to the new Charlbury Community Centre to make it the best low energy building possible, and to the Corner House to help deliver a low energy refurbishment. SCE is also committed to pay £15,000 a year or 25% of surpluses (whichever is the lesser) to the Cotswolds Conservation Board. Any remaining surpluses will go into a Community Fund to provide grants for landscape improvements and other low carbon initiatives.
For more about Community Benefit Societies, see www.communityshares.org.uk
Q. Who runs SCE and how can I be sure that the organisation is managed properly?
A. Currently there are no formal directors but just three founding members and two new members of the Society, whom we are calling ‘directors’ because this describes our role. In the meantime, SCE is run by a group of local people with significant experience of renewable energy, community enterprises and business management. See details of our team on the website and in the share offer document for further information about the skills and experience of those managing the project to generation and operation.
Society members will be able to elect directors on the basis of one member one vote at a meeting to be held as soon as possible after a share offer close and within six months of the company’s date of registration (16th November 2015).
The Society is governed by a constitution, and the constitution rules can only be changed by member vote. The financial returns will be independently audited and published to members with full transparency on financial performance and ongoing viability of the business. An AGM will be held every year to review performance and for members to vote on resolutions proposed, including the election of executive and non-executive directors.
Q. Will the directors benefit personally?
A. Each director is a member and will receive interest on any investment in exactly the same way as other members. It is proposed that the executive directors be paid a basic amount to cover the operation of the community business.
Q. What is the purpose of the fund raising and how much do you expect to raise?
A. The total cost of the Southill Solar 4.5MW project including site acquisition, fundraising costs, grid connection, site clearance, solar panels & installation is approximately £4.4 million. We aim to raise £3 million of equity to invest in the project, with the remainder around £1.4 million of debt finance to be negotiated with bank lenders. We are also proposing to approach a range of other possible funders to raise the funds to allow us to contract for project commissioning in July 2016.
Q. What will you do if you don’t raise sufficient finance in this fundraise?
A. Southill Solar is now fully financed.
Q. What are the costs of operating SCE?
A. The operating costs of SCE are:
a) loan interest and repayment of the principal sum
b) insurance for the solar PV systems
c) operation and maintenance costs
d) an asset management fee to cover performance monitoring, liaison with the energy purchaser and regulatory bodies, troubleshooting and contractor liaison
e) an administration fee for member liaison, meeting management, bookkeeping, and
After paying all these costs we are estimating that the solar PV project will generate an average annual net return of 7.5%, from which we can pay members interest on their investment and contribute to the Community Fund.
Q. What impact will this project have on efforts to address climate change?
A. The 4.5MW solar PV array installed as a result of this fundraise will export electricity to the local electricity grid, thereby contributing to the process of de-carbonising the national electricity system and resulting in a significant reduction in carbon emissions equivalent to approximately 2,372 tonnes of CO2 every year over the 25-year lifetime of the project. The solar farm is expected to have an annual yield of 4,414 MWh, enough to supply the equivalent of around 1,100 homes – approximately three-quarters of the total in Charlbury, Finstock and Fawler.
In addition the Community Fund will also look to support further local community projects that reduce carbon emissions, for example building energy efficiency improvements, local food production or sustainable transport initiatives, as well as improvements to the landscape.
Q. What is the wildlife situation at the Southill Solar site and how will it be affected?
A. The current agricultural field does not support any significant wildlife, though deer from Cornbury Park can be seen crossing it occasionally. There are opportunities, however, to fill gaps in the existing hedgerows, to plant new fruit trees, and to replace the now sterile soil with wildflower rich grassland that would act as foraging habitat for small mammals, bats, birds, reptiles and invertebrates. A Wildlife Management and Enhancement Plan will govern all activities to be undertaken during the 25-year project lifespan.
Q. Why was this particular site chosen?
A. Sustainable Charlbury had a set of requirements for its site which included a south-facing field, a suitable connection to the 33kV electricity network, good road access, not too visible, and a willing landowner. Based on our innovative Bring Your Brolly Day, we have been able to demonstrate that the project has been designed to minimise its visual impact. Enhancement of existing hedges and new tree planting means that the solar farm will have only a small impact on the landscape.
Q. Why are you building a solar array on open land, shouldn’t this be used for agricultural purposes?
A. The field on which the array will be built will remain agricultural land with sheep grazing on a new wildflower meadow. When the system is decommissioned in 25 years, the land can continue as grassland or be sown with crops again.
Q. What returns can I expect as a member?
A. The return to members comes in the form of an interest payment. We aim to pay members an average annual return of 5%. We anticipate being able to pay interest to members by the end of year 2 of operation when surpluses should have been accrued over and above those required to fulfill our existing community benefit commitments.
These returns are based on a set of assumptions about our costs and about RPI and energy cost inflation. Changes in any of these may mean that we may need to reduce the interest payments; equally, we may be able to pay higher interest payments to achieve an annual average of 5%. Decisions about the level of interest payments are at the discretion of the directors. Please note that the return to investors is not guaranteed – we would recommend that you review the risks outlined within the share offer document.
If projects perform above forecast we will pay excess surplus into the community fund in line with our rules as a Community Benefit Society. We may also choose to repay members capital more quickly.
The structure of the Society means that shares cannot increase in value. Shares can be withdrawn by members, at the sole discretion of directors, after 3 years from the date of issue. You will not be able to withdraw the full price paid if SCE does not have sufficient capital available in the business. The shares could fall in value if the Society makes insufficient returns, but our financial projections are based on the full return of members’ investment in addition to the annual return on that investment over 25 years.
Q. Why do you talk about members being paid interest rather than a dividend?
A. As specified by the Society’s rules, payments made to members are deemed as interest and so a cost on the business, rather than a dividend and are treated as such for tax purposes. Interest payments are made before profit is calculated, unlike a normal limited company which is allowed to pay dividends only when there is profit available for them. Member interest payments can be made even if the Society is technically making a loss.
Q. When will interest on my investment start accruing?
A. We will start accruing surpluses in Year 1, but these have already been allocated to our community benefit commitments. We aim to be able to pay interest to members at the end of Year 2.
Q. Is my investment protected in any way?
A. No. As a Community Benefit Society, SCE is not required to be authorised by the Financial Conduct Authority to issue withdrawable shares which are non-transferable. This exempts the share offering from the requirements of an approved share offering required by section 85(1) of Financial Services and Markets Act 2000 (FSMA). Therefore your investment is not protected by any investor compensation or dispute resolution scheme.
The shares are not specified investments for the purposes of section 22 of FSMA pursuant to paragraph 76 of FSMA (Regulated Activities) Order 2001. Therefore you do not have the protection that you would otherwise be offered under FSMA. In particular, the share offer documents do not need approval by an authorised person under FSMA. Our share offer document has, however, has been verified by both legal and financial experts. Further, debt finance will be required to provide the balance of the total project costs, and the loan provider will therefore have security over the project. In the event of a default on the loan, the lender may have the ability to take ownership of the project.
Q. Under what circumstances could SCE go bust, and what would happen to my investment then?
A. SCE could go bust if it was unable to meet its financial obligations, which would primarily be the repayment of debt. Debt finance secured for this project is on terms such that the projected revenue, under conservative assumptions, would cover the repayments and still allow SCE to pay the projected return to members and contribute to the Community Fund.
In the event that revenue was significantly below expectations, the order in which payments to stakeholders would be made would be: first, debt repayments (if debt required); then member interest; and finally the Community Fund. There is only a risk of insolvency if revenue fell so dramatically that SCE had insufficient cash to meet debt repayments, which would require a significant fall from our financial projections. In the event that SCE did become insolvent, it would be wound up. The debt provider would have a first claim over assets (i.e. the installed energy generation equipment) and any surplus assets would have to be transferred to another society with similar rules and this would be agreed by members at the time.
Q. Can I sell or withdraw my investment?
Withdrawable shares in SCE cannot be sold or traded. You may withdraw some or all of your shares, at the sole discretion of the Directors.
Q. Can my investment increase or decrease in value?
A. As specified by the Society’s rules, SCE cannot pay you more than you originally paid for your shares, and you may not be able to withdraw the full price you paid for them if SCE has insufficient funds available at the time you wish to withdraw. The return to investors comes from the interest payments over 25 years based on financial projections that assume full return of the initial investment. We currently aim to start returning capital to members at the end of Year 6. Our financial projections assume that some members will want to withdraw their shares before the end of this period.
Q. What are the tax implications of the investment?
A. When you are paid interest on your investment, you are required to declare it on your tax return.
Q. Can I invest in SCE on behalf of my children or grandchildren?
A. Yes you may. The shares can be transferred to them to hold in their own right once they have reached their sixteenth birthday.
Q. What happens if I die before my shares are repaid?
A. Your shares will form part of your inheritance and can be transferred under the terms of your will, or will be dealt with as part of any other arrangements made if you die intestate.
Q. How much will be generated for the Community Fund?
A. SCE expects to generate over £750,000 for the Community Fund over the lifetime of the project.
Q. When will the project go ahead?
A, The project is expected to go live – start generating electricity - in Summer 2016, and certainly no later than 6th September 2016 to conform with the terms of the FIT pre-accreditation.
Q. What’s the minimum investment?
A. The minimum investment is £250.
Q. What’s the maximum investment?
A. The maximum investment on behalf of one individual or organisation is £100k.
Q. If the scheme goes to time and budget - when would I get my first cheque?
A. SCE is expecting to pay interest on capital provided by members at the end of the second year of operation.
Q. Is my capital re-paid?
A. Yes, capital is re-paid over the course of the project. We currently expect to start repayments of members’ capital in Year 6 and that all of it will be re-paid within the first twenty years.
Q. I have pledged money now and again once the share prospectus is issued. How will these sums be treated?
A. It is intended that the loans will be repaid in full from the proceeds of the equity raise. In the event that the equity raise does not meet the minimum target and funds are returned to shareholders the 5% of retained funds will be used to discharge these loans together with other creditors. The lenders of these loans will rank pari passu with all other unsecured creditors in this respect and will only be partially repaid if the 5% retention is insufficient to discharge the liabilities of SCE in full.
In the event that the share offer exceeds the minimum sum the lenders will be given the option to convert their loans to equity. In the event that the share offer is less than the minimum raise by an amount equal to the loans then the lenders will be given the option to convert their loans to equity in order to ensure the minimum sum is raised and the project proceeds.
Q. When will the share offer be launched?
A. The share offer launched in on the 17th February 2016 and will close at 17.00 on 8th April 2016. The share offer period may be extended if the minimum equity has not been reached by that time.
Q. Can I invest for my niece in the USA?
A. Investing for people living abroad can give rise to complicated tax issues and is not recommended.
Q. Will you prioritise local people for investments?
A. We intend this project to be as locally-owned as possible and will accept all applications for membership from those:
Resident and on electoral roll within 12km of the site
Resident and on electoral roll within 50km of the site
Member of another cooperative
- If the offer becomes oversubscribed by priority applications, these may also be proportionately scaled down within priority classes. However, subscriptions in respect of priority applications of £250 or less will not be scaled down.
Q. Will you still have a bank loan if you are over-subscribed?
A. We expect to require a bank loan so are making arrangements to borrow £1.4 million in principle. The amount of loan we take will be partly dependent on the terms of that loan, and the level of interest payments relative to the rate of interest that we pay members. Lenders have a first call on assets (i.e. the electricity generating equipment) should anything go wrong.
Q. Do large shareholders have a bigger voice than smaller ones?
A. The Society is owned by its members and each member has one vote at AGMs, regardless of the amount invested.
Q. What happens if the build goes over-budget?
A. The terms of the contract for the build will be based on a fixed price so any risk of capital cost over-run will be down to the contractor.
Q. Can the government change the rules about FiT payments for this project?
A. This project was pre-accredited for FITs before the latest set of rule changes were announced and will not be subject to any changes made in the future.
Q. With all the government changes that have been announced, is the scheme still viable?
A. A series of government announcements were made during 2015 which altered the arrangements for subsidising various renewable technologies. Schemes that were ready to claim the subsidy before 30th September 2015 were able to secure the current levels of subsidy for the next twenty years.
Q. When will you give the money to the community buildings?
A. The Charlbury Community Centre will be under construction during the course of 2016 which means that the community benefit for the Gifford Trust for the funding to improve the building’s energy performance in needed by the end of SCE’s first year of operation. The Corner House cannot begin its refurbishment until the library has moved to its new home in the Charlbury Community Centre so the timetable for their receipt of community benefit is more relaxed and not yet known.
Q. Can I get tax relief on any investment?
A. Investors in community renewable energy projects used to be able to claim tax relief under the Enterprise Investment Scheme and Seed Enterprise Investment Scheme. However, these opportunities were withdrawn by the Treasury at a few weeks’ notice to apply from 30 November 2015. SCE was not in a position to launch its share offer in time to be able to offer such benefits and no other form of tax relief is available.
Q. Can I or the community buy the electricity?
A. Under the rules which govern the electricity market, community energy schemes cannot supply electricity to their members directly, much as many of them would like to do. All electricity generated is fed into the distribution network, and although it may be used locally, it cannot be sold locally. All electricity is sold to end customers by electricity suppliers who contract with electricity generators to feed electricity in to the system.
SCE will sell its exported electricity to a supplier, and local people could then buy their electricity through the same supplier. This means that there is a notional relationship between the solar farm and local residents.
There are various initiatives around the country trying to find ways of creating direct links between community energy schemes and their members, but these will not be immediately available. SCE aims to be able to supply directly if and when the option becomes viable.
Q. Will the shares be listed anywhere?
A. SCE is using Ethex to conduct its share offer and to administer the company once the share offer is successfully closed, including holding and updating the share register, making annual dividend, interest and redemption payments. However, SCE shares will not be publicly listed, are not tradable and can only been withdrawn at the discretion of the directors.