Green Energy Investment Account is live

According to an early post by Chris the PF has been seeded with £1M but it is capped at maximum 5% of the the assets in the issue, so it currently has cover for £20M of investments

The 2.5%-3.0% spread between the GEIA return and the individual WT loan returns has struck a number of people as being unnecessarily high.  My own guess for the logic behind that is to build up the PF as quickly as possible, but possibly also in anticipation of lower future returns on any solar loans or lower returns on future WT loans.  I'm expecting the latter.  There are a couple of WT loans on the Upcoming list and when they arrive this may give us some clues of the trend, but AC must already know it.  And AC may have more that haven't progressed far enough to be shown to anyone outside AC. 

Some people may have been following the WT loan Qs&As closely enough to be aware that some of the current WT projects need to be commissioned pretty soon in order to qualify for higher pre-authorised FIT rates.  More recent projects will receive lower FIT rates and that is a long-term trend/expectation.  The costs of buying WTs and building and operating the projects might be dropping, but is it coming down fast enough to offset the financial impact of the reducing FIT rates?  I don't know, but I suspect not, so it wouldn't surprise me if future WT projects need lower interest rates to be viable, so I'd expect to see lower rates on future WT loans.  Whether AC could find investors willing to fund those loans is a good question considering how long it's taking to work down the amount of WT loans on the Aftermarket, but the GEIAs might help in that regard.

Since AC probably will be marketing the GEIA to people who wouldn't be interested in MLIAs because of the time required to manage them, they may not think those people will be making the comparisons that we are making.  For those people, the question simply is whether a 7% return is enough to make them want to invest.  If it is, there's no reason for AC to offer them a higher return.  If it turns out that GEIA uptake is disappointing, AC might be forced to close the Series 1 offering and bring out a Series 2 offering at a higher return.  Pricing a new product never is easy, and a bit of trial and error often is part of the process.

I'm guessing the GEIA will be pitched against RS's 3 and 5 years offerings, which at 7% at present they outperform in headline rates.  So once the provision fund looks solid, the GEIA should be attractive competition, especially with the Green label.  

The other market they might attempt to compete with is Abundance Generation, based on a shorter loan term (generally 3 years versus, AIUI, up to 20 years on AG, and the provision fund.  

Regarding the completion deadlines to get the FIT, some loans do seem to have fine margins, and I guess a patch of unhelpful weather or some other delay may end up with the provision fund getting it's first test.  

For example if a particular project missed it's deadline and so, for example, it only qualified for 14p/kWh instead of 18p/kWh that would be a drop of 4/18th i.e. 22% of income, which might or might not push the project into a loss.  If it were a sizeable developer I suppose they might just take the hit for the sake of their reputation and the prospect of future deals, but a stand-alone project might simply decide to walk away.  

We might be about to find out. The F******* WT needs to be operational by 21st Nov according to the Valuation Report (CR says 30th Nov). Q&A tab on 6th Nov. We have spoken to the borrower who tells us that although drawdown was delayed, expectation still is that commissioning should happen before the end of November.

By the time a project is this close to commissioning, there will be a lot of 'sunk' costs, and the economics of carrying on will almost inevitably be positive.  To walk away would be to give up most -- all? -- of the equity in the project, and that would be rather expensive. 

If the applicable FIT ends up being lower than that used to make the initial valuation, then the actual valuation would be lower than hoped for.  However, if the value decrease is in proportion to the income decrease then even a 22% reduction still would leave some positive equity.  So carrying on would seem likely to produce a better result than walking away, especially if walking away would mean calling in receivers which would mean an extra layer of costs incurred.