Venture capital for a niche need -- Finance for small projects

A new venture capital trust is looking to raise £25 million for investments in small UK wind energy projects. Ventus VCT plc has been launched by Climate Change Advisory Limited, a subsidiary of specialist merchant bankers Climate Change Capital. Ventus aims to invest in projects of 2 MW to 12 MW. These are likely to be community owned, on small industrial sites, or by small scale developers. The trust will invest up to £2 million in each project, holding an equity stake of 25% to 49%.

Ventus is targeting the market niche that finds it most difficult to attract finance. Banks are reluctant to look at small developments, arguing that the costs and effort of arranging finance are as great as for much larger projects. Small developers have similar difficulties obtaining power purchase agreements (PPAs).

To overcome the problem, Ventus is offering a financing package consisting of a long term PPA, equity and mezzanine debt by Ventus, senior debt by a major financial institution and, in some cases, development funding. The PPA will be provided at a fixed price by Geotrupes Energy, a new wholesale renewable energy company.

If Ventus raises the full £25 million from the share offer, it expects to invest in up to 80 MW of wind capacity. Climate Change Advisory says the venture capital trust will provide investors with an 8% annual return once it is fully invested. The company's Charles Connor says that the tax relief eligible for venture capital trusts has been raised from 20% to 40%. "It makes it a very attractive structure for investments in small unquoted companies in the UK; dividends and capital gains are tax free," he says. Ventus is the first VCT to focus on the renewable energy sector, he adds.