Lights Out for EIS Investing ! The government have just announced in the last few hours that EIS investments that fall into the Reserve Power category will no longer be a qualifying activity for EIS after 30 November 2015.
This move follows the government ceasing the use of asset rich EIS funds (generally at the lower risk end of EIS investing) as the government believes that the 30% tax relief against income tax as offered by EIS investments is exceptionally generous and should only be offered if clients are facing uncertainty (risk) over the returns they may receive. The government believes that to qualify for this generous tax relief that EIS funds should focus on real UK growth businesses; and that both asset backed EIS funds AND EIS investments in the renewable and alternative energy sectors should not obtain tax relief.
There is likely to be a very strong demand for Reserve Power products as weather forecasts predict a El-Nino induced deep freeze and the likely impact on our weak national energy capacity suggests that peak energy demand will be the highest ever this winter.
Given that investment markets are somewhat unpredictable, then perhaps investing in Reserve Power is something to be considered, particularly as demand is likely to be strong AND that the returns could be further improved if your particular Reserve Power EIS contracts to supply to the National Grid.
UK excess power margin could hit 0% in the winter of 2016-17, making winter blackouts and other power problems more likely. This has created a market for ‘Reserve Power’ – power generation equipment that can quickly increase the supply of electricity when most needed. Reserve Power companies can earn revenues through a number of mechanisms put in place by Government and by National Grid to help incentivise power generation investment and secure additional electricity supply.
Predicted returns from EIS providers for Reserve Power projects is £1.11 – £1.40 per £1 invested, with potential for significant upside.
The UK’s power supply has typically operated with a total generating capacity that exceeds peak demand by a comfortable margin. This ensures a robust electricity supply during periods of peak demand, even if some power generating assets experience temporary technical problems or outages. But spare capacity is coming under pressure due to a number of factors, including the closure of fossil fuel power stations and the increasing use of wind and solar power, which is now so prevalent that a cloudy, windless day can produce a challenging shortfall in power generation.
Ofgem now forecasts that spare capacity could fall to 0% next winter. If this occurs, it becomes more likely that businesses and homes will experience blackouts and brownouts.
To mitigate this issue, both the UK Government and National Grid, which has responsibility for balancing power demand and supply, have put in place a number of measures designed to reward companies that can provide additional power during periods of peak demand.
If Reserve Power EIS lights your investing torch, do get in touch!