This article explains why the service has a significant focus on UK solar, and how it could provide an opportunity to mitigate the risks of the record levels of inflation that we see today
The UK solar energy sector has the potential to provide lucrative opportunities for investors at a time when inflation is at a 30-year high.
Below, we explain why the ProVen Estate Planning Service has a focus on solar energy.
Solar energy is generated from the sun’s rays through panels on rooftops or on the ground.
There are two types of panels:
The solar sector is expected to grow significantly over the next 10 years as the UK Government looks to meet its legally-binding commitment to hit net zero by 2050. There is currently a total solar capacity of 14GW in the UK, and this is forecast to increase to 35GW over the next 15 years.
There are a number of reasons why solar energy provides lucrative opportunities for investors.
1. There is strong Government support
The UK Government is committed to creating cleaner, more affordable energy. The current Ukraine/Russia conflict has shown the downsides of being reliant on other nations for our energy. It makes sense for the UK to produce more of its own energy that has been produced in a sustainable way.
The Government’s recent Energy Security Strategy outlined plans to create an extra 10,000 jobs in solar by 2028 as it expects a five-fold increase in solar panel installations by 2035.
2. Investors could receive reliable income to beat inflation
Many older renewable energy projects receive the majority of their income from Government-backed schemes that are designed to protect against inflation. Many newer projects are backed by inflation-linked long-term power purchase agreements with good quality corporate off-takers.
At the ProVen Estate Planning Service, a high proportion of income within our solar-focused trading companies comes from Government mandated payments linked to inflation indices (known as Feed-in-Tariffs). So, rising inflation means these companies generate higher revenues, meaning the ProVen Estate Planning Service has the potential to offer investors reliable returns.
Our returns are currently at least 4% after fees and costs*. These returns are paid in the form of dividends, which investors can either use to boost their income or to invest elsewhere.
There may of course be higher input prices as a result of rising inflation. But solar maintenance costs are generally low, so overall our projects benefit from rising inflation.
3. Solar panel costs are falling
The price of solar panels has fallen significantly over the past decade, making them more affordable to install and therefore reducing the cost to investors.
In the UK, the cost of solar panel installation per kw has dropped from £2,080 in 2014 to £1,628 - a decrease of 22%, UK government data shows.
4. There are generous tax incentives
In the UK, if you invest in a company that qualifies for Business Relief you may be exempt from paying inheritance tax (IHT) on these investments**.
Through the ProVen Estate Planning Service, we offer our investors the opportunity to invest in trading companies focused on the UK solar energy sector that are expected to qualify for Business Relief.
To qualify for IHT relief, your investment must have been held for at least two years at the time of death.
The Feed-in-Tariff (FIT) scheme involved long-term contractual agreements put in place by the Government - lasting up to 25 years - to pay producers of renewable energy a guaranteed, generous rate for electricity generated.
Even though the FIT scheme closed to new projects in April 2019, many of our investments at the ProVen Estate Planning Service are still benefiting from the scheme. And when we negotiate new long-term contracts with businesses, we are still able to secure inflation-linked contractual agreements of up to 25 years for the energy we produce.
In February 2022, the UK Government announced plans to hold annual ‘Contracts for Difference’ renewable energy auction schemes from 2023. Previously, these auctions were held every two years.
The Contracts for Difference (CfD) scheme is the government’s main method of supporting renewable electricity generation.
The scheme guarantees prices for renewable energy suppliers for 15 years. The aim is to incentivise investors to invest in clean energy through the promise of predictable revenues, and to protect consumers from paying higher costs when electricity prices are high.
Developers of renewable energy projects compete to be awarded one of these contracts at auction.
The UK Government is looking at a number of plans to support the fast-growing solar industry.
Meanwhile, there have already been a number of measures introduced to encourage more take-up of solar panels. These include the removal of VAT on solar panels installed on residential homes, saving homeowners up to £1,000.
* No guarantees can be made. As with all investments, your capital is at risk and past performance is not a reliable indicator of future results.
** UK tax rules and regulations are subject to change, and such changes may be retrospective. Your ability to obtain tax reliefs will depend on your personal circumstances.
Investments accessed through the ProVen Estate Planning Service are made into private companies and are deemed to carry a higher risk than many other types of investment. You should read the risks associated with the Service before deciding whether to invest.
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Find out more about the ProVen VCTs’ annual shareholder event, which featured insights from Beringea, the investment manager, the boards of the two funds, as well as several of the companies from the portfolio
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