The board’s current view
At our last AGM in August 2017 the board gave an outline of its views on the long-term financial prospects of your investments. We indicated then that the likely long-term interest rate payable to members (including community fund payments) may not exceed 5% per annum; this is significantly below the 7% target interest rate indicated in the Braydon Manor prospectus which assumed a 3% per annum inflation rate.
There are a number of reasons for this shortfall: the government abolished of Levy Exemption Certificates for renewable energy projects and there was near £300,000 capital overrun on the cost of Braydon Manor. We are now assuming a lower inflation rate of 2.5% rather than the 3% used in the prospectus. And as well as all that, over the last three years, the level of sunshine was 5% down on the levels observed over the previous 30 years.
Since the AGM we have undertaken a further review of the long-term financial prospects. In particular we have reviewed the long-term future energy price assumptions. Our 5% calculation assumed that export tariffs (which account for around half of our revenues) would grow at RPI +1.8% per annum. This assumption, which was based on the latest information available at the time that the Braydon Manor prospectus was produced, now looks unrealistic. Indeed it is now unclear whether export tariffs will grow in real terms over the next 20 years.
In reassessing our prospects, we have made the assumption that export tariffs, like feed in tariffs, will grow at the same rate as inflation. These assumptions may be conservative. But they are safe since they are guaranteed by the UK government. Changing our assumption in this way significantly reduces the sustainable interest rates payable for members from 5% per annum to just under 3% per annum.
We are now working hard to try to improve financial prospects. Our Asset Manager, Mongoose Energy has re-tendered our Operations and Maintenance contracts at our ground-mounted project sites. The new contract should significantly reduce our costs and well as improve the service we receive with regard to the management of our sites. You can read more about this news here.
We hope to be in touch soon with further progress on our financial outlook. If things go well we might be able to increase the long-term interest rate by up to 1% per annum. There is also the prospect that the sun will once more shine in line with thirty-year climate records. This might add a further 0.7% per annum to long-term interest rates.
It is worth noting that these interest rates are largely inflation proof. For example if inflation rates move from the assumed 2.5% per annum to 3% per annum then the long-term sustainable interest rate paid should rise by 0.5% per annum.
Various members have asked when they might get their capital back if they wish to sell their shares. We plan to buy back shares from members as soon as the long-term cash flow allows. This means that we expect to have purchased 50% of shares by 2034 and the remainder by 2041. Those members who want to sell shares earlier can make a request to do so and we will do our best to fulfil it. We are now in the process of developing a policy on the transfer, buy back and sale of shares which we will publish on our website in due course.