Investment manager Downing LLP has launched of a new bond on its crowdfunding platform, Downing Crowd, paying 7.6% p.a. interest to investors by lending £10M to projects across the UK’s reserve power market.
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In this latest launch, Downing Reserve Power has been established as a company which will make loans secured against the assets of a range of reserve power plants. Two plants, which require funding, have already been selected for the portfolio and further projects will be added over time. All loans will share first ranking charge with Bridging Trading LLP (another Downing managed lending business) and a maximum loan-to-cost ratio of 65%, with the aim of reducing risk for investors. Over £1,248,697 has already been raised toward the £4.25M initial goal.
“With renewables now nudging a third of all power produced in the UK, the new challenge is how to ensure supply matches demand with this new, cleaner, but more fluctuating energy mix. Put simply, you can’t ‘turn on’ the sun or wind!” explained Downing Head of Crowdfunding Julia Groves. “This has created extra challenges for the National Grid, which is struggling to react to peaks in demand or sudden loss of supply. Reserve power plants can tackle this issue head on by providing extra capacity to the National Grid at these times and potentially benefit from the peaks in pricing by supplying into a tight market.”
The Bond offers investors a chance to earn 7.6% p.a. over a period of up to 33 months and, depending on individual circumstances, this interest is also available tax free if the Bond is held through Downing’s Innovative Finance ISA. The 7.6% interest rate is higher than a typical Downing Crowd Bond, reflecting both the longer term of the Bond and the higher level of risk associated with funding projects before they are operational and where there is a high degree of variability in potential revenue streams.
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DRP will use the proceeds of the bond to lend to reserve power projects typically consisting of 4-20MW of capacity. DRP will initially support a minimum of two existing reserve power projects loans and it will continue to seek further loan opportunities with between two and ten engines, provided that the LTC does not exceed 65% and the value of the gas-fired engine is at least 50% of the total cost.
Downing Crowd also shared information about reserve power technology works. Two of the most flexible means of reserve power have been developed using either battery technology or gas-fired engines. Downing Reserve Power will focus on investing in the latter, with each project typically consisting of 4-20MW of capacity. These gas-fired engines are able to generate income in a number of ways including selling energy on the wholesale market and from subsidies and incentives to ensure energy is always available.
“Investing in this type of Bond can be a great way to see your money go into businesses that will have a direct impact on local economies across the UK, just like we’re seeing with reserve power plants,” added Groves. “Despite the growing popularity of alternative finance (the market grew by 43% during 2015-16 to reach £4.6 billion), the different kinds of crowdfunding still tend to all get labelled as ‘extremely risky’. In fact, Crowd Bonds are a simple type of investment and, provided investors fully understand the higher risks compared to savings accounts, they can potentially offer attractive returns – that can also be held tax free through our IFISA – in the current climate of low interest rates and rising inflation.”
Downing LLP has developed investment specialisms across a wide range of sectors including energy, having invested over £500 million in over 100 energy businesses since 2010. Following its launch in March 2016, the Downing Crowd platform has raised a total of £52 million, returning over £18 million in capital and paying over £1.4 million of interest to investors (as at 5 April 2018).
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