DBS

24 UNDERLYING ASSETS POPULAR SECTORS BACKING DBS INVESTMENTS RENEWABLE ENERGY INSTALLATIONS The alternative finance model of debt based securities has been strongly associated with renewable energy firms – so much so that in 2015, the European Alternative Finance Benchmarking Report defined it as, “predominantly for renewable energy firms (e.g. for financing wind farms or solar panel installations).” 31 Whilst DBS are also increasingly used as a funding mechanism for other underlying assets, it is true to say that crowdfunding activity in the renewables industry has been significantly busier in debt. This is because renewables projects are typically long assets with stable, predictable cash flows from power purchase agreements and government subsidies. Typical transactions have therefore comprised relatively long term debt (5 – 20 years) to match the life of the relevant project, with either a fixed or floating interest rate. This characteristic duration in renewable energy projects, as well as the prospect that the individual platforms working with those ventures appear to have a preference for DBS, mean that securities business is probably more prevalent than P2P funding (unlike the non-energy market, where P2P lending is much bigger). 32 The funds raised through DBS are usually directed at repaying any development finance after the construction phase, but there are examples of the funding being used at an earlier phase during construction 35 . Individual issues tend to be for £500,000 to £1 million, hence the need for other funding sources, although some companies may undertake multiple issues and there have been larger projects with self-promoted bond offerings of £20 million or more for very large solar or wind projects 36 . A recent survey found that more than half of those questioned like the idea of investing in pioneering investment funds and supporting companies that contribute to creating a positive society and sustainable environment. The survey findings also challenge a perception that ethical funds are less profitable than mainstream investments, as survey respondents see investing in sustainable and ethical funds as ‘smart investment’. Indeed, this year the MSCI World SRI index has outperformed the MSCI World index (YTD April 28 2017) 37 . It’s good news then that, in spite of reductions in government subsidies, and the withdrawal of Trillion Fund (a crowdfunding platform focused on renewables) from the market, other platforms argue that there is a good number of projects available. However, a lot of due diligence work is required to ensure that the projects are investment-worthy before they can be opened to the public. As is the case for any DBS investment, advisers and investors should be satisfied that this has been done by a platform and that sufficient information is available to assist their own review before committing capital. THE UK RENEWABLES MARKET WIND TURBINES Either single site / farmscale wind turbines or sometimes portfolios of wind farms (particularly where crowdfunding is only part of the funding mix) ●ANAEROBIC DIGESTION Facilities projects 33 SOLAR PV Typically smaller sites (including roof-mounted solar for residential, public (schools) and commercial sites), although again, crowdfunding has sometimes been part of the mix of funding for larger sites HYDRO POWER STATIONS Again, because of the larger scale of these projects, crowdfunding is likely to be only a part of the funding mix 34