Bruce Davis talks to Blue & Green Tomorrow about Abundance Generation – a democratic renewable energy funding platform that allows investment of as little as £5.
This piece originally featured in Blue & Green Tomorrow’s Guide to Limitless Clean Energy 2013.
What is Abundance Generation?
At its simplest, we provide finance for renewable energy projects direct from the general public. We do that through a regulated platform, which allows people to invest directly into a project that they choose, and they get a return based on the energy produced.
We offer products called debentures, which are bonds or debts lent to the wind farm or the solar project, and then they are secured on a share of the revenue that that project generates over its lifetime.
So people lend the money as an IOU, and they get their money back – not as a lump sum at the end, but over the lifetime of the project – and a bit of income return on the top, which works out somewhere between 6-9% as an IRR return. It’s not an interest rate; it’s called an internal rate of return (IRR).
On the wind farm, for example, people can expect to get between 2-2.3 times the money they’ve put in – but obviously some of that is the capital that they’ve invested.
What problem is Abundance uniquely trying to solve?
We were originally set up because there was a massive hole in the financing of renewable energy. It’s also a realisation of the infrastructure that needs to be built to accommodate renewable energy in the grid and make it work. Fundamentally, that’s what we set out to do.
At that point, it wasn’t just a focus of the financial crisis, but you were seeing a massive retreat from the banks from smaller-scale projects. You still had the Co-operative and Triodos and so on, but they’re relatively small and their balance sheets can’t grow at the pace required.
The clever thing about Abundance in a way is that we don’t have a balance sheet. We’re not holding capital or working like a bank.
Because we’re doing this direct finance model, 100% of our customers’ money goes into the project. So the growth is only really at the pace at which people are prepared to invest.
We’re saying we’re a more sustainable model, because we use actual money. We’re not using the confidence of banks to lend to the industry; we’re using people’s cash.
On the other side, I think people are looking for high yields on their money. At the moment, they’re happy to chase riskier assets to get those yields, but we think renewable energy is a good middle ground. There are a lot of reasons to be confident about what we’re investing in.
Was renewable energy always going to be the sector Abundance was going to work in or were there other options?
As a start point, it was the first one because it exists as an investment sector already for high net-worth individuals. We can see that they were making a lot of money from it, and making it accessible to the general public was a good idea.
At the time, there was a lot of talk about social impact investment, and we haven’t really seen that develop enough to offer it to an ordinary retail investor. The risks are not as easy to understand.
As part of our authorisation process with the Financial Conduct Authority, as it was, it was agreed that renewable energy projects presented a set of risks and rewards which were understandable by the general public and that you didn’t need to be sophisticated as an investor to put money into a wind or solar project.
Has the government’s politicking and infighting over renewables affected investor confidence?
In 2013, I don’t think we‘ve seen a lot of that. But at the back end of 2012, there was a lot more hot air being blown around. We have a lot more questions about the regulatory framework and I think a lot more confusion from pretty poor quality media reporting that meant that people thought feed-in tariffs no longer existed, for example.
Do you think your model – community ownership – could really help push renewable energy into the mainstream?
I think it will address this local noise that you get. The majority of people are in favour of renewable energy. I think politicians are misreading the runes, as it were.
At a micro level in terms of the planning process, you have to examine why it is these people are feeling that they need to protest. Some of it is a little bit more insidious, in that they seem to be funded by organisations beyond their community. But others, they’re just operating because they’re either misinformed or just don’t like renewable energy.
It’s not a clearcut picture, but as a general rule of thumb, I think the industry does need to always engage with the community. It is part of the environment; it doesn’t have a God-given right to develop anywhere, even though it acts like it does.
What are the overall aims for Abundance?
We’re kind of spoilt for choice at the minute. I think renewable energy, for the next two years, is going to be 99% of what we do. There’s plenty to do and there’s some interesting projects coming down the pipeline in solar and wind.
We will continue to do that and the aim is to double the business year-on-year. That’s really in terms of the amount invested; that’s how we measure our success.
And then, more broadly than that, we’re always examining how we can work with other types of investment. So, for example, social housing is something that we’ve considered quite carefully.
We’ve very proactive and we’re having lots of conversations about social investment, but we haven’t, as yet, seen an opportunity that we would want to put our effort behind to make it available for the general public.
There’s still some work to do to make these projects more bankable and investable by the general consumer.