Peer to Business Lending
Alternative Finance Sector Report - November 2014
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PEER TO BUSINESS LENDING
ALTERNATIVE FINANCE SECTOR REPORT
PUBLISHED
November 14
AUTHOR
Luke Jackson
Samantha Goins
RISKS
Government – FiTs were originally introduced at too-high a rate and have gradually been reduced to reflect increased power
prices, rising efficiency and falling equipment costs. The Government has stated that FiTs will be payable at the initial level set
and index-linked for twenty years.
Technology – Renewable energy technology has in the past been subject to teething issues, but now much of the technology
in use is relatively well established and proven to operate at stated levels. New equipment is covered by manufacturer’s
warranties (5 years+), whilst comprehensive insurance covers breakdown or damage. Equipment is generally covered by
maintenance contracts adding additional cover to maintenance and repairs.
Construction - The main contractor will be responsible for all installation works other than grid connection, which will be
undertaken by the Distribution Network Operator (DNO). Construction can take 9-12 weeks, with tight schedules to minimise
the risk of cost overruns. Projects are often quoted at a fixed price at the outset to reduce the risk to investors.
Generation – Power output is calculated based on criteria including location, equipment used, meteorological data and local
topography to provide accurate forecasts. Energy production can be accurately forecasted for a number of years into the
future. Conservative figures are used when estimating output to cover lending repayments.
LOAN SECURITY
Projects are often held within a single special purpose vehicle (SPV). The land will be freehold or long-term leasehold (20+
years) and have full planning permission and a valid gird connection offer before being advertised to investors. Security will
include a first legal charge over the land and assets; a debenture over the SPV; assignment of all income to an account under
the control of the lender(s); and valuations by a RICS accredited valuer that the completed project is worth at least 2x the
value of the loan.
EXIT
Loans fall into two categories:
1.
Short-term loans - 2-5 years with capital repayments of 15-25%. The exit involves the sale or refinancing of the project.
There is currently strong demand from banks and institutional investors for established renewable energy projects with
proven revenue streams.
2.
Longer-term loans - 7-10 years with full capital repayments over the term. Payments may be index linked to increase over
the term of the loan as income streams rise with inflation (RPI).
