Meeting documents

Councillor Mordue

Cabinet Member for Finance, Resources and Compliance

To consider the attached information.

Contact Officer:  Andrew Small (01296) 585507

 (a)      Decision(s)

That no action be taken in relation to the invitation to the Council to participate in this Bond offer.

(b)       Reason(s) for Decision(s)

            Although appreciating the potential benefits to the community, Cabinet felt that its commitment to the scheme might be viewed as an endorsement of the Bond as an investment to the wider community.  Without making any judgement on the quality of the Bond offer as an investment, Cabinet felt that it was inappropriate for it to be in a position of effectively recommending investments through its actions.

(c)       Alternative Option(s) Considered

            To participate in this Bond offer.

(d)       Relevant Scrutiny Committee

            Finance and Services. 

(e)       Conflicts of Interest / Dispensation(s)

None.

Cabinet was advised of an approach by "Communities For Renewables CIC (Community Interest Company) seeking the Council’s agreement to participate in the Community Bond Offer for Gawcott Fields Community Solar CIC.  At that point "Communities for Renewables" had a well developed and advanced proposal for the scheme with all the necessary permissions, agreements and contractors in place to deliver the scheme by the Feed in Tariff deadline of 29 June, 2016.

"Communities for Renewables" was a specialist advisory company that helped local energy enterprises to develop, finance and manage renewable energy generation schemes that were owned by and run for, the benefit of the local community.  They had considerable experience in this field and were seeking the Council’s commitment to participate in a Community Bond Offer both as advocate of the concept and to encourage members of the local community to also invest in the proposed Gawcott Fields Community Solar Community Interest Company (Gawcott CIC).

A Community Interest Company was not established or conducted for private gain, but rather to benefit the community.  The Gawcott CIC would generate a "community surplus" instead of a profit and this "community surplus" had to be used to provide funding for community organisations and projects in the local community.  It was hoped that this particular scheme would generate up to £1.5m over the 30 year life of the project.  The local community was defined as the parishes within a 5km radius of the Community Solar Farm.

Initially, the Community Interest Company Board would be made up of Messrs Jake Burnyeat and Tom Cosgrove of Communities for Renewables CIC and Ian Payne, CEO of Citizens Advice, Buckingham, Winslow and District.  In time, it was intended that the Board membership would be expanded to include other directors taken from the local community.  This might include the opportunity for an elected member of AVDC to take a Board position, should the Council decide to participate.  The Buckingham accountancy firm, Tearle and Carver, were providing support to the Board, in addition to providing accountancy services.

The scheme would be partly financed by a bank loan and partly by a Community Bond Issue.  It was proposed that the Council should take a stake in the Bond Issue to support the community and renewable energy aspirations.

The project was an operational 4.17MWp solar PV array at Gawcott Fields, adjacent to an existing 5MWp solar PV field array owned by the landowner.  This would complete the planning application for a 9.18MWp scheme under a permission dated 28 October, 2015.  Solar was a proven technology and at the end of 2014, global PV arrays amounted to 175GWp (International Energy Agency) or around 700 million panels.

Expectation of annual generation from the array was 4,100MWh of electricity per year from approximately 16,000 panels.  The annual electricity generation estimate which underpinned the business plan had been produced by an independent technical expert and was considered to be a robust long term projection, accepted and relied upon by commercial lenders.  Whilst weather conditions were subject to short term and inter-annual variations, a good level of certainty over long term averages could be assumed.  Given that the average UK home used around 4,100kWh of electricity per year, this array amounted to energy for approximately 1,000 average homes. The arrays sat adjacent to each other and were connected to the same grid connection.

The scheme was unique in that it was the last to take advantage of the more generous guaranteed feed in tariff rates for electricity generated.  To qualify, the scheme had to be completed before the deadline of 29 June, 2016 (which it achieved).  Meeting this deadline meant that it qualified for a rate of £0.0623/kWh generated.  Had the deadline not been met, the feed in tariff would have degraded to £0.0087/kWh generated.  Any future scheme would be much harder to justify and finance because of the ending of these guaranteed favourable feed in tariffs.

In order to meet the requirements of the feed in incentive, the project sat beside the 5MWp commercial array and had to be a community owned and operated project.  The array was all export, meaning that there was no use of the electricity generated being utilised on site at Gawcott.

The construction contractor, Pfalz Solar, was to take responsibility for the operation and maintenance of the site for up to 10 years, with the ability to break the contract after 5 years.  The site was flat and there was perceived to be no flood risk.  The site was secured and bounded by 2m fencing and there was limited CCTV monitoring on site.  Pfalz Solar had considerable experience in the design, installation and management of these projects throughout Europe.

The export floor rate was £.0491/kWh meaning that this was what was expected to be delivered for every kWh generated and exported to grid.  A decision might be made later to adjust this to a market based figure (if a higher rate could be achieved as a consequence of doing so) through a power purchase agreement (PPA). As a consequence, the project benefited from both the generation and export tariffs so the total value of the power generated was 6.26p + 4.91p/kWh.

The approximate cost of the development and construction of the site was £4m.  This was to be funded around 70% by Santander Bank and around 30% by the Community Bond Offer.  Should the Bond Offer fail to generate the minimum amount of community interest, then the scheme could be sold to an institutional investor and the Community Interest value lost as a consequence.

The Bond holding position should enable the scheme to meet its minimum amount.  The Bonds were being offered for sale in £250 lots and the expectation was that these would receive a 6% return.  The Bond would represent a contractual obligation, but the Bonds were unsecured and should for any reason the company fail, then there was no special protection for Bond holders.

If the 6% return was not achieved in any given year then the difference between the actual amount payable and the target return would be carried over and paid when funds allowed.  If inflation rose above 3%, the Bond interest would increase by 0.5% for each 1% rise above 3%.  This was possible as the feed in tariff was inflation linked.  The Bonds would be repayable at the end of the 20 year term, or sooner (at the discretion of the CIC), should finances allow.  The Bonds were tradeable but only on the proviso that a willing purchaser could be found.  The Bond offer was currently open until the end of October, 2016.  A detailed and comprehensive prospectus had been prepared and could be viewed on the Gawcott Solar web site.

The prospectus contained the details of the scheme proposals, the finances and the validation of the proposals by the appropriate professionals.  The Bond offer had been approved as an authorised financial promotion by Bates Wells Braithwaite Solicitors.  This involved a full verification review of all the statements made in the Bond offer document.  The financial projections had been prepared by Westerly Chartered Accountants.  A financial model was available.

It was reported that if the Council took a Bond holding position in the company of up to £200,000 in order to support the community and renewable energy ambitions of the project, then the funding would be considered capital expenditure under the Local Government Act, 2003 and would therefore require a variation to the Capital Programme.  In order to meet the deadline of the project to raise the requisite minimum amount of funding, it would be necessary to make a direct recommendation to Council.  Funding for the scheme could be identified from the excess Working Balances held at the start of the year and if supported a sum of up to £200,000 would be transferred to Capital Balances to fund the position.

After lengthy discussion however and although appreciating the potential benefits to the community, Cabinet felt that its commitment to the scheme might be viewed as an endorsement of the Bond as an investment to the wider community.  Without making any judgement on the quality of the Bond offer as an investment, Cabinet felt that it was inappropriate for it to be in a position of effectively recommending investments through its actions.  Accordingly, it was,

RESOLVED –

That no action be taken in relation to the invitation to the Council to participate in this Bond offer.