Based at Forest Row in East Sussex, Mercury Provident, which describes itself as Britain's only ethical and social investment bank, has already worked on some projects with Triodos, also an ethical bank. Mercury has provided loan finance to renewable energy schemes in the second round of Non-Fossil Fuel Obligation contracts. According to the bank's Glen Saunders, Triodos is looking to repeat its experience in the Netherlands with the UK fund, which should make community investment in wind power possible. "It makes sense for Triodos to take up this opportunity since it has a strong track record through its successful launch of a wind fund in Holland," he says.
Triodos expects to open the fund this month so that it is in place in time to invest in schemes with NFFO 3 contracts. These are to be awarded in November. The public launch of the fund is set for early 1995, by which time the bank will be able to list in its prospectus the schemes in which it intends to invest. The fund will concentrate on smaller developments, says Saunders. "It will invest in sites ranging in size from one turbine to ten turbines, possibly even up to 15 -- it all depends on what projects are successful in obtaining NFFO contracts." He says the fund will also be attractive to smaller investors as it will allow a minimum investment of as little as £250. One of the options Triodos hopes to offer is targeted investment so that investors can choose which site they wish to finance. "We are trying to provide opportunities for people to invest directly in their local wind projects," he explains.
Mercury Provident has already conducted a feasibility study into a British wind energy investment fund. The study, financed partly by the Department of Trade and Industry (DTI), concluded that a fund providing equity investments in smaller wind projects would be attractive to ethical investors and could be a viable concern. It came up with a proposed structure for the fund and outlined how it would work. "We wanted to examine more closely the possibility of a fund for small projects in the UK because we had seen the difficulties encountered by smaller schemes in securing finance under NFFO 2" explains Saunders. "At the larger end of the market institutions are tripping over themselves to invest in projects, but they are not much interested in schemes with a capital cost of less than £5 million."
Two further DTI backed studies into renewable energy investment funds have been delayed by the perceived public backlash against wind energy in Britain. An Exeter branch of accountants Ernst and Young is looking at a multi-technology fund, while Cornish developer Windelectric is considering a fund dedicated to wind energy. Both expected to publish their findings in the spring, but a barrage of negative media coverage of wind swayed fund managers into viewing wind energy with suspicion. While this lasted they were not receptive to investment. "Both studies were suspended to allow time for the negative reaction to die down," says Peter Chappell from the DTI's Energy Technology Support Unit. "The battle for public perception is now swinging in favour of wind and city opinion has become much more responsive."
Financial services company Johnson Fry has announced it is seeking to raise equity for high quality renewable energy schemes which may be suitable for private investors. It says projects should be £5-20 million in size. The company claims that private investors are often satisfied with a much lower annual rate of return than that required by venture capital companies. Johnson Fry's Jack Tenison says "Some banks are willing to lend money to renewable energy projects, but raising equity finance to top up the loans can be more difficult." He claims that with the company's experience in devising novel structures for its private clients, the NFFO 3 round presents a good opportunity for attractive equity investments. However, since Johnson Fry, in company with many other equity investors in renewables, is only looking at schemes of at least £5 million, the DTI's initiatives to encourage financing solutions for smaller projects is all the more welcome.