FREQUENTLY ASKED QUESTIONS
The information below is designed to give simple answers to some common questions.
In making any decision to invest you should rely only on the information set out in the Offer Document rather than on this leaflet. It is important that you read and consider the Offer Document as a whole with care, ensuring particularly that you understand the risks and that you take financial and other advice as necessary.
The purpose of Highland CES, which was established in 2018, is to take up a community stake in a series of hydroelectric sites that generate renewable energy.
The next Offer, on behalf of Highland CES as a Community Benefit Society, is exempt from the prescriptive regulation of share Offers. Essentially this is because an investment in a community benefit society is primarily for its public benefit purposes. At the same time, as in this case and similar Offers supported by Energy4All, there may be an intention to Offer such shares on the basis of a reasonable financial model, Offering reasonable prospects also in investment terms.
Note that the next Offer is not to own shares in the SPV itself but in Highland CES which will itself hold ownership in the SPVs. Hence although the risks are closely related to the risks of the SPV, they are not identical.
Highland CES has already taken up stakes in three hydro projects and intends to take up a community stake in another three hydroelectric sites that generate renewable energy. The next offer relates to the final four sites, Achlain, Littleton Burn, Feorline and Kinlochbervie. Highland CES has previously arranged a loan from other Energy4All Societies to purchase the stake in Achlain In October 2019 and the capital raised from this Offer will repay that loan. The purpose of the Society is to support projects in all of the communities local to the Projects through community benefit payments and to Offer a reasonable financial return to its members.
THE INVESTMENT OPPORTUNITY
The first two projects are Allt Dearg and Allt An Laghain which have already been completed. A new share offer will be launching soon.
After the first financial year, Highland CES plans to pay a return to members of 4.5% per annum on their shareholdings in Highland CES, for the remainder of the proposed term of 20 years. All financial detail are provided in the Share Offer document. You are advised to read this carefully before investing.
WILL THE CO-OP GET INVOLVED IN OTHER ACTIVITIES?
Highland CES intends to support the local communities in partnership with local bodies. Surplus profits will be for the benefit of the community.
CAN I GET MY MONEY OUT EARLY?
Members do not have the right to withdraw Share Capital but the Board has the power to permit Shares to be withdrawn or to redeem Shares. It is anticipated to start repaying a proportion of each member’s share capital each year starting from May 2021.
WHEN WILL I GET MY FIRST PAYMENT?
It is anticipated interest will be paid on share capital in May each year with the first payment being made in May 2020 for the 2018 Share Offer.
WHAT HAPPENS IF I DIE?
It is understood that under current rules, Shares may qualify for relief for inheritance tax purposes, however Members should seek their own advice if this point is important to them. The Personal Representative or Executor should contact Energy4All to discuss what the options are with transferring the Shares.
WHAT ARE THE ENVIRONMENTAL BENEFITS?
Highland CES’s business activities are aimed at reducing carbon dioxide emissions through the generation of renewable energy at the sites and through funding projects that support its objects and priorities identified by members and local people. Each member of Highland CES will be benefiting the community through reducing their carbon footprint and contributing to the fight against climate change in a practical and measurable way.
WHAT MAKES UP THE HYDRO SITES’ INCOME?
Each hydro site will generate electricity to send to the grid. Electricity that is generated goes through an export meter which monitors the output of electricity. This electricity is sold to a distributor for an export rate per kWh. Each hydro site will receive the Feed-in-Tariff (‘FIT’) which is additional income to the export rate. This is based on each kWh of electricity generated.
WHAT IS THE FEED-IN-TARIFF (FIT)?
The FIT scheme is a government programme designed to promote the uptake of renewable and low-carbon electricity generation technologies.
Introduced on 1 April 2010, the scheme requires participating licensed electricity suppliers to make payments for both generation and export from eligible installations.
FIT payments are made quarterly (at least) for the electricity the installation has generated. Payments are made based on the meter reading submitted to the energy supplier (the ‘FIT licensee’).
FIT payments are made by the FIT licensee from the date the installation become eligible for the scheme. FIT rates for each of the first three sites can be found in the Share Offer document.
Further information can be found here (https://www.ofgem.gov.uk/environmental-programmes/fit)
WHAT FUNDS GO TO THE COMMUNITY?
The majority of the sites will be operating on Forestry Commission land where it has been agreed as part of the lease arrangement to pay £5000 per MW per annum to the local community. The projected total amount for all six sites is £5,750 per annum. In addition, any surplus profits in Highland CES will be applied for the benefit of the local community. Once the members of Highland CES have been repaid, anticipated to take 20 years but being regularly repaid during that period, then Highland CES’s entire net income will be available for community benefit.
HOW DOES THE BUSINESS STRUCTURE WORK BETWEEN PARTIES INVOLVED?
Highland CES invests and acquires a stake in each site (each held though a separate company (SPV) whose sole business is to own and operate that site) generally, once the site is operational. The acquisition price is fixed, this reducing the risk for Highland CES. Under the terms of the Shareholder Agreements Highland CES will typically acquire a 25.1% stake in the share capital of each SPV for a nominal sum and will also lend to each SPV the balance of the capital it needs to acquire the hydro site, through the Loan Notes. The Loan Notes will pay interest at 5% and return capital over 20 years. These returns enable Highland CES to pay interest to its members and repay their capital.
The Loan Note arrangements are intended to ensure Highland CES gets the interest and capital return from the Loan Notes prior to any potential dividends the directors of the SPV could approve each year. The Highland CES loans are typically larger than the loans made by Coille-Dhealain Ltd (‘CD’), the company which holds the remaining share stake in each SPV. CD is linked to the contractor and developer but is not the same organisation. CD’s loans to each SPV are made on the same terms as the Highland CES Loan Notes. The financial model also projects dividend income accruing to Highland CES and CD in proportion to their shareholdings but the principal return in the early years of the project will be through the Loan Notes.
The construction contracts are for a fixed price, so the risk of overruns (and the benefit of underruns) is taken by the contractor. However construction interest will be accumulating during the build. This is included in the financial model, but any time overrun and commissioning later will potentially increase costs and impact the Highland CES return. If there are material overruns then Highland CES is not bound to acquire its stake.
All the operating contracts have already been agreed as part of the agreements made prior to acquiring a stake in each SPV. They are on terms the current Highland CES directors consider reasonable comparing them to contracts made on other sites. The fee for the operating contract is typically a % of revenue generated from the site. This also provides extra protection if there is a year of lower generation and income, for instance due to a serious drought. Energy4All have an agreement to provide administration and accounting services to each SPV for the duration of the project.
There is an agreement between CD and Highland CES relating to the conduct of the affairs of each SPV where jointly owned. This prevents either party taking returns out of the SPV other than by mutual agreement or pursuant to the contracts the SPV has made with the prior agreement of CD and Highland CES, such as the Loan Notes. CD and Highland CES have equal representation on the board of each SPV and all strategic decisions likely to impact on the value of Highland CES’s interest requires both parties’ consent. This agreement is designed to protect Highland CES as the minority shareholder in most SPVs.
E4A has a long-standing relationship with HECO and have worked with HECO on prior projects. Technical and legal due diligence has been undertaken by Energy4All and by reputable consultants.
HAS THE ENVIRONMENTAL IMPACT, ESPECIALLY ON RIVER AND WATER LIFE BEEN CONSIDERED?
To work on these hydro sites an application was made to SEPA (Scottish Environment Protection Agency) for a CAR (Controlled Activity Request) licence to work on the sites and abide by the controlled activity and conditions for ‘the body of inland water’ and ‘body of surface water’. Activities include abstraction and impounding works on these sites.