A workshop was held in the IFSC on December 8th 2016, looking at financial incentives to promote citizen investment in renewable energy. The workshop was organised by Dr. Celine McInerney, Cork University Business School, and Joseph Curtin, UCC. It was funded by the EPA Research programme.

1. Financial Inventive to Promote Local Ownership
and Investment in Low Carbon Technologies
Identify Pressures, Inform Policy and Develop Solutions
Dr. Celine McInerney, Joseph Curtin
EPA Research Programme 2014-2020
Project Number 2014-SE-MS-1
“Financial Incentives for a Resource Efficient Irish
Economy”

2. Introductory Remarks

3. Research Questions
• What policy interventions / investment structures have been
successful in attracting capital and creating buy-in for citizens
and local communities in resource efficient / low carbon /
renewable projects?
• Drawing on findings of extensive literature review and several
case studies / interviews we examine the different investment
structures that have been used for community investment:
1. What are considerations in terms of risk and return?
2. At what stage should community investors buy in?
3. What has worked internationally?
4. What structures facilitate would local ownership of
low carbon technologies in Ireland?

4. Investment Risk Context: Windfarm
Development Process
Build reserves
Repay EIIS
Loan repayment

5. Economics of a Windfarm (SEAI)
• Typical wind farms investment costs are in the region of €1.6 - €2million
/MW
• Cost of 10MW wind farm is approximately €16 million
• Debt finance of 75% of total cost available at financial close
• => Equity requirement is 25% x € 16 million = €4 million
• With 200 community investors that is €20,000 each
• Ranking for repayment
• Debt
• Mezzanine
• Equity
• Pre-financial close development costs are assumed to be 8.6% of the
engineer procure contract (EPC) prices per Mott McDonald (2010, p83),
or €1.38 million (€6,880 each with 200 people)
• All this real cash spent pre-financial close is at risk before you know if
project is viable
http://www.seai.ie/Renewables/Wind_Energy/Wind_Farms/Wind_Farm_Development/Finan
cing_wind_farms/#offer

6. Investment Considerations
1. How do we define community – is investment open to everyone or do
immediate community get preferred return? Denmark 4.5km radius
2. Fixed versus variable return
3. Level of risk – could community investors lose money?
4. Exposure to development risk pre-financial close?
5. Ranking and minority shareholder protections for community investors?
Drag along, tag along, pre-emption
6. Title of asset with community investors?
7. Voting and control? Proportional voting control or one man one vote?
8. Taxation – income or capital gain, partnership structure? GmbH & Co. KG
structure key enabler in Germany
9. Regulated investment? Crowd funding generally regulated
10. Liquid secondary market for investments?
11. Time, financial, legal, technical and operational skills in community?

7. Structures for community ownership
• A number of structures for community participation are
emerging including:
1. Community Benefit-type Schemes
§ Leases
§ Community benefit / near-neighbour schemes
§ Subsidised electricity
2. Debt / Mezzanine
§ Crowdfunding using debt instruments
§ Mezzanine – fixed return
§ EIIS – fixed timeframe and can have relatively fixed return
3. Equity
• Enhanced tariffs for projects with community ownership
• Joint Venture – project is jointly owned
• Split Ownership – community owns 1 of 4 turbines, share grid access
• Revenue Sharing – community invests 5% of capital, get fixed return but do not own
asset
• 100% Community Owned

8. Typology of Investment StructuresStructure Form of Return Timing of Return Risks Security Developer
Considerations
Community
Considerations
Lease
agreement
Fixed circa 2%
of Revenue
Annual None Rank ahead of
bank debt for
repayment
Retain control Only landowners can
benefit
Community
Benefit
£1,000 / MW pa
guaranteed
Annual None Don’t need any Ease of
administration
Fixed return but no
specific benefits for
near neighbours
Crowdfunding
/ Debt –
based
funding
Can be fixed
coupon on debt
Varies – usually
fixed and usually
clear exit
Project risk Usually rank
ahead of equity
but after senior
debt
Retain control Small min. investment
– can be as low as £5
Liquid secondary
market
Joint Venture Variable Variable – but
usually senior debt
restrictive
covenants on
disbursement
Exposed to
development
risk pre-
financial
close
Party to loan
agreement
Usually have
title over asset
Challenges of
dealing with minority
investor
Avail of developer
expertise
Drag and tag along and
preemption provisions
Risk of cash call
Split
Ownership
Variable Variable – but
usually senior debt
restrictive
covenants on
disbursement
Pools
revenue from
all turbines
so reduces
turbines
specific risk
Only have title
to part of asset
owned
Can pose challenges
– title to substation
for grid connection,
important for EIIS
relief
If developer wants
to sell / refinance
could be messy
Avail of developer
expertise
Risk of cost inflation
Does not qualify for tax
relief
Shared
Revenue
Community
Group provide
5% of project
cost in return for
share of profits
(revenues less
costs)
Variable – Small
annual
disbursements
capital returned at
end of project life
Senior debt impose
restrictive
covenants on
disbursement
Project risk
…but
eliminates
development
risk
Community do
not own a
physical asset
Challenges of
dealing with
‘minority’ investor
Avail of developer
expertise
100%
Community-
owned Co-op
Dividend if
available
Annual dividend if
available but may
be years before
capital is repaid
Project risk
Potential
cash calls
Rank behind
bank debt and
preference
equity
NM Taxation
Skills & Expertise
Is team bankable?

9. Concluding Remarks

10. Concluding Remarks
• Need to acknowledge development risks
• Investor exit – how would community investors get their money back?
• Tax treatment can significantly increase investor return
• Section 23-type schemes for low carbon investments? State aid?
• A number of approaches required - suggestions:
1) Community benefit / near-neighbour schemes lowest risk option – gift tax
issues to be resolved
2) Enhanced tariffs for projects with community ownership - Based on
Ontario model
3) Modified EIIS- accepting smaller amounts and administered by Post
Office, Credit Unions, employers
4) Green SSIA administered through banks – similar to Dutch Green Funds
scheme
3) Co-ownership models but at or close to financial close - free carry for
local community until financial close?
• Clearer planning process – this was key enabler in Germany
• Role for agencies to provide support

11. Back-up Slides

12. The BES / EIIS scheme in Ireland
• BES introduced in 1984. The Employment and Investment Incentive
Scheme (EIIS) replaced the Business Expansion Scheme (BES) in the
Finance Act 2011. The primary objective of both schemes is to encourage
investment, creation and R+D and provide an alternative capital source to
the SME sector
• BES was intended to operate for a three-year period; however, it has been
renewed on a regular basis – currently extends to 2020
• Qualifying trades include companies carrying out traditional
manufacturing activities (including renewable energy generation),
companies that are involved in internationally traded services, approved
tourism projects and certain recycling activities (Revenue, 2013)
• Scheme modifications in 2011 made it easier for companies carrying on
green activities with a view to producing energy from renewable sources
to qualify
• Annual and lifetime investment limits of €5m and €15m respectively
• For EII relief to apply the investment must be for a 4 year period

13. The BES / EIIS scheme in Ireland
• For top rate taxpayers the relief is at 30/40 of the investment in the year the
investment is made (against all income) 30/40th relief immediately
• The balance of the relief which is 10/40 of the investment is granted in the
fourth tax year of the investment provided there is an increase in the number of
employees; the number of qualifying employees in the tax year before the
investment was made compared to the number of employees in the tax year 3
years after the investment was made AND
• The amount of wages paid to employees must have increased by the wages of
at least 1 employee
Other Conditions
• The company must not have operated in any market
Or
• It must be trading for less than 7 years
Or
• The investment under the EII scheme is required to fund a new product or
enter a new geographical market and the EII investment must be greater than
50% of its average annual turnover in the previous 5 years

14. Data and Sample
“The lack of availability of data on the schemes has impacted on the
thoroughness of this review. This is mainly due to the fact that the first round
of investments are not due to mature until the end of 2014 and therefore there
are no figures available on the number of investors who received the
additional 11%. It is therefore critical that any amendments to the schemes
will need to include the requirement to collect more quantitative data and
statistics in order to allow for a more thorough review of the schemes in the
future”
Year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Cost of
the BES /
EIIS
Scheme
39.6 50.1 38.2 50.9 42 135.7 62.3 58.3 41 31.5
Number
of
Investors
2,046 2,599 1,642 1,994 1,913 3,200 1,642 1,467 927 984
(Department of Finance, 2014, p. 19)
(Department of Finance, 2014, p. 61)

15. Review of Irish Financial Incentive Schemes
• BES / EIIS tax incentive scheme – has this tax incentive been used by resource efficient
companies?
(Department of Finance, 2014, p. 19)
Summary of Scheme from our database analysis – preliminary findings:
• 2,681 BES/ EIIS investments between 2007 and 2014
• Total invested €491m
• Estimated cost to government @30% = €147m (may be low as pre-2011 relief at 41%)
• €68.3m in low carbon, resource efficient, renewable and related companies
• €50.5m in wind farms (circa 10% of total)

16. Irish Financial Incentives
Wind € 50,593,702
Wave € 500,000
Biomass € 7,509,716
Energy Conservation € 2,754,331
Energy Provider € 754,000
Environmental Consultants € 400,000
Forestry € 342,833
Geothermal € 130,000
Hybrid € 308,500
Hydro € 1,500,000
Manufacture of Electricity € 78,500
Other Renewable Energy € 2,136,007
Solar € 1,340,740
Total € 68,348,329
Count € 185
Investment Size Number of Companies %
More than €1,000,000 19 10%
€100,000 - €999,999 105 58%
Less than €100,000 61 32%
BES / EIIS tax incentive scheme 2017- 2014

17. EIIS wind farms investments 2007-
2014
Wind
Total € 50,593,702
Count 115
Average € 439,945
Median € 295,004
High € 2,490,000
Low € 8,500
• 115 wind farms investments
• 49 different companies
• Trend of companies raising multiple funding rounds