Octopus Investments has launched a tranche of its Enterprise Investment Scheme focusing on the anaerobic digestion renewables sector.
Anaerobic digestion produces methane from waste and while small in the UK, is widely used in Germany.
The tax-efficient investment house has been investing in energy and renewables for four years. Since 2011, it has poured £900m of client money into solar power farms and forged a relationship with developer Lightsource Renewable Energy.
However, during the Budget the Government closed the door on EIS and VCT firms double-dipping on the lucrative tax breaks they enjoyed from solar and windfarms.
Government subsidies for the sale of power from the renewable plants can no longer be taken by VCTs and EIS companies as they are already given handsome tax relief.
Octopus has invested £20m into anaerobic digestion plants, with five currently being built by UK-based developer Qila.
Octopus head of renewable energy Matt Setchell says opportunities in UK energy are “significant”, with solar a case in point.
“[Anaerobic digestion] is a growing industry, and, as evidenced by the Finance Bill 2014, the government is actively encouraging investment into the more nascent sectors to help them develop and become more established in order to meet renewable energy targets,” he explains.
Anaerobic digestion is “ripe for growth”, he adds, and has a proven business case from the much more mature industry in Germany.
“However, it still remains undeveloped and there is currently insufficient bank finance available to support these businesses, especially during the plant construction phase.”
Octopus EIS is capitalising on that, Setchell says.
The EIS will also invest in reserve power, which sells energy to the National Grid when demand spikes because of weather, seasonality or other reasons. Ofgem has forecast that the market is likely to swell.
as demand for greater capacity to provide reserve power increases. Octopus EIS aims to invest in the development of reserve power plants in order to benefit from the predictable returns that are targeted by investors.
Shares in EIS-approved smaller companies are entitled to 30 per cent income tax relief, capital gains tax deferral, tax-free growth and 45 per cent loss relief if held for three years.