Frequently Asked Questions
This list of Frequently Asked Questions (FAQs,) with their associated Answers, aims to provide clarifications about various aspects of membership and the operation/activities of Kennet Community Energy Limited (KCEL).
This additional information is not intended to replace, update or contradict the Rules of the Society which under all circumstances provide the definitive position should some ambiguity appear to arise.
In addition, this information should not be considered in any way as financial advice; any decision to become a Member and to invest in the Society should be based upon consideration of an individual share offering and, where considered necessary, having consulted an independent advisor authorised by the Financial Conduct Authority or a solicitor or accountant.
To see the Answer to a Question just click the [+] below the individual Question. If you have a query that is not currently addressed by this list, then please click here to send us an email with your question and we will, if at all possible, get back to you with an answer and if appropriate we will also add your new question to this list.
Q: What is KCEL?[+]
A. KCEL (or the Society) is a Community Benefit Society. This means it is governed by a set of Rules which specify how it is governed and what it is in business to do. KCEL is in business to develop and operate renewable energy projects. It expects to pay its Members a return on their investment and to benefit the wider local community through money allocated to a Community Fund. The Society is owned by its Members and each Member has one vote, regardless of amount invested. The Members elect the board of Directors (the Board) from the current membership, except for up to two external independent Directors who may be co-opted by the Board, and Members also make other key decisions, usually at the Annual General Meeting (AGM).
Q: How will I receive communications from the Society?[+]
A. In order to minimise costs we will use electronic communications as our default method in all circumstances i.e. via this web site for publicly released information and with the use of an individual Member secure login method for private Member information. Email will also be used for individual communications as well as issuing an occasional Newsletter and of course there will also be an Annual General Meeting with an associated company report. It should be noted however that should an individual Member not have access to a computer and not have an email address - hopefully a very rare possibility these days - we can make special arrangements, but it must be recognised that this will significantly increase our administrative overheads and costs, which will decrease the returns to Members and the contributions to the Community Fund, so we hope this will not be necessary.
Q: Who runs KCEL?[+]
A. KCEL is run by the elected Board of Directors, all of whom are Members. The current Board are a group of local people with experience of renewable energy, community enterprises and business management (please see the Our Team for details). The Society's Rules dictate that all Directors must put themselves up for election at the first AGM of Members and this was done at the 2014 AGM. At every subsequent Annual General Meeting one-third of the elected Directors, or if their number is not a multiple of three then the number nearest to one-third, shall stand down from office but can stand again for re-election.
Q: Will the Directors benefit personally?[+]
A. Each Director is a Member, so will receive interest on their investment in the same way as all other Members will. No Directors currently are being paid for their time managing KCEL and there are no current plans to change this, but reasonable expenses are being paid to cover any out of pocket costs that Directors incur in managing KCEL activities.
Q: What is the purpose of fund raising?[+]
A. To raise money from Members to invest in renewable energy projects. KCEL has had its launch solar PV project up and running since May 2013, a 2nd project went live in November 2014 and a third project went live in May 2015. The first round of fund raising was set at £150k, which aligned with the SEIS limit, and further funds were raised in a second round to meet the needs of the additional projects identified. The second round was eligible for EIS tax benefits (see the "What returns can I expect as a Member?" and "What are the tax implications of the investment?" questions below for more detail on SEIS).
Q: What are the costs of operating the Society?[+]
A. It is expected that the income from the solar PV Feed In Tariff (FIT) or the Renewable Heat Incentive (RHI) scheme, depending upon the project, plus income from selling the generated energy to the organisation where the equipment is installed will be used to pay operating costs of the Society. These are principally a) overhead costs for management, communication and book-keeping, and b) allocation of funds for repayment of capital. After these costs we are estimating that the deployed projects will generate a net return sufficient to pay Members a reasonable return on their investment and to contribute to the Community Fund.
Q: What is your relationship with Bath & West Community Energy (BWCE)[+]
A. During our start-up period BWCE gave us a great deal of support to both establish KCEL and to get our first solar PV project developed, providing operational support for the initial project for its first two years of operation. After this first project the KCEL Board now directly manages all subsequent new project development and all operational matters.
Q: What impact will KCEL have on efforts to address climate change or peak oil?[+]
A.The solar PV panels, biomass boilers, etc., to be installed will supply discounted electricity or heating to the businesses and community buildings where they are installed, resulting in a significant reduction in the use of grid electricity and/or heating oil/other fossil fuels, and a corresponding reduction in carbon emissions. KCEL is focussing on the installation of renewable energy projects in the first instance in order to establish a financially viable community enterprise via income from the FIT/RHI schemes. However, once established, KCEL will also be looking to develop opportunities to improve the energy efficiency of homes and businesses and reduce energy demand through partnerships with public and private sector partners. In addition, the Community Fund, underpinned as a result of the renewable energy projects established by KCEL, will also look to support further local low carbon projects that might involve for example, energy efficiency improvements, local food production to reduce food miles/carbon emissions or sustainable transport initiatives that would also reduce carbon emissions.
Q: What returns can I expect as a Member?[+]
A. The return to Members comes in the form of an interest payment. This comes from the surplus KCEL expects to make from the renewable energy projects (i.e. the difference between FIT/RHI scheme revenue and operating costs). We aim to be able to pay Members an attractive annual return that is sufficient to obtain and retain the capital required to fund projects. We currently anticipate that, after the first 2-3 years, this will be an average annual return of up to 7%. This is not guaranteed and is subject to risks as outlined in individual share offer documents. For Members eligible for, and taking advantage of either the Seed Enterprise Investment Scheme (SEIS) or the Enterprise Investment Scheme (EIS), the expected income tax rebate will increase the annual return since either 50% (for SEIS) or 30% (for EIS) of the investment can be reclaimed against tax. The rebate is passed back to the investor in the form of a tax rebate or via an adjustment in PAYE code.
It should also be noted that the structure of the Society means that shares cannot increase in value. They can be withdrawn by Members, but only at the discretion of Directors, after 3 years from the date of issue and subject to the availability of funds. You may not be able to withdraw the full price paid if KCEL does not have sufficient capital available in the business. The shares could fall in value if the Society makes insufficient returns.
Q: When will Member’s interest payments be made?[+]
A. KCEL’s financial year ends on 31st December. When annual accounts have been prepared, the Directors will review the surplus generated in the year and make a proposal on the level of interest to be paid to Members for that year. This proposal needs to be approved at the AGM of Members which must take place within 6 months of the year end (ie by 30th June of the following year). Once a proposal is approved by Members at the AGM interest payments can be made.
Q: How realistic are the projected returns?[+]
A. The return is calculated by taking the income from the FIT/RHI across all the 'live' projects and deducting the expected costs of installing and operating the individual projects, plus the expected costs of operating KCEL. As the return comes from a portfolio of projects which will already be installed or for which we have already agreed a fixed cost and which will be installed in an agreed timescale, we are confident of the capital and operational costs of these projects. The FIT/RHI scheme payments are guaranteed by UK Government for the time periods applicable for each scheme and type of system e.g. up to 25 years for an individual project in live operation, and payments increase by RPI each year. The exact income from FIT/RHI scheme payments will be somewhat variable since for solar projects for example the income is sunshine dependent. Where variability applies, our projections are based on conservative estimates. All projects will be covered by leases with the site owners and by operation and maintenance contracts, and insured against damage or loss to minimise the risk of unexpected costs or loss of revenue. As the number of projects in the KCEL portfolio increases we would expect to approach our target returns but in the early years this may not be achievable due to the start-up costs and the need to cover the fixed but modest central operational overheads.
Q: What are the key risks to earning the projected returns?[+]
A. The main part of the return comes from the FIT or RHI scheme income, so, as long as the solar PV or biomass project installations are in operation for the designated period of time defined by the FIT/RHI schemes in which the renewable energy systems will benefit, KCEL will continue to receive this return. Once commissioned, this RPI linked income is set by government legislation and will not be affected by any future changes in FIT/RHI scheme tariffs for new projects. Therefore the main risks to the projected return are:
- Lower than expected sunshine over the lifetime of solar PV projects – whilst this may affect individual years, our projections are based on conservative estimates of average sunshine hours which are very reliable over the long term.
- Default by the site owner on the lease agreement established with them, although the risks are minimised as much as possible through the terms of the lease agreement.
- Higher operational costs than planned – the majority of the costs are contractual and therefore predictable over the lifetime of the installation. The management costs of KCEL could vary over time, but these are a small element of the total cost and we have structured our operation to be as low cost as possible.
- Physical security/continued operation of equipment – project equipment is guaranteed by the individual manufacturers for a number of years, is maintained on a contractual basis, and is insured against damage/theft.
- Continued operation of KCEL – see below.
Q: Are the returns dependent on future expansion and further fund raising by KCEL?[+]
A. No. While our business plan has the objective to grow KCEL into a much larger society with substantial electricity generation and biomass heating capacity, the financial projections of the business are based on a portfolio of individual projects. The funds we raise from Members in fund raising rounds will be used to finance the initial and subsequent portfolio of project installations. If KCEL was unable to commission any further installations than those already financed, the projected returns to Members would still be expected to be achieved so long as we had sufficient active projects to service the fixed overheads. Future projects will only be undertaken where we are confident the target returns can be met and when additional finance is in place to support these projects. Rule 94 of our constitutional Rules "APPLICATION OF PROFITS" states that the profits we make should be allocated as follows (in such manner and in such proportion as the Society at the AGM may decide): to a general reserve for the continuation and development of the Society, to pay Members interest on their shareholding; to make payment for social and charitable purposes (The Community Fund).
Q: Why does a Member have to make a minimum investment of £500 ?[+]
Whilst we want to encourage the widest possible participation in the Society, the management of each Member's investment incurs an overhead so to keep our overheads to the minimum we need to set a minimum investment level which we judge to be £500.
Q: Is my investment protected in any way?[+]
A. No. As a Community Benefit Society, KCEL does not need to be authorised by the Financial Conduct Authority to issue withdrawable shares which are non transferable. This exempts the share offering from the requirements of an approved share offering required by section 85(1) of Financial Services and Markets Act 2000 (FSMA). Therefore your investment is not protected by any investor compensation or dispute resolution scheme. The shares are not specified investments for the purposes of section 22 of FSMA pursuant to paragraph 76 of FSMA (Regulated Activities) Order 2001. Therefore you do not have the protection that you would otherwise be offered under FSMA. In particular, the share offer documents do not need approval by an authorised person under FSMA.
Q: How can I be sure that KCEL is managed properly?[+]
A. The Board will be elected by Members from the membership on the basis of 1 Member, 1 vote. The Board can then co-opt up to two further Directors, who need not be Members, if additional skills/expertise are required, and in addition some day-to-day project operation may be outsourced to the more experienced and resourced BWCE. The Society is governed by a constitution, and the constitution Rules can only be changed by Member vote. The financial returns will be independently audited when appropriate and published to Members with full transparency on financial performance and ongoing viability of the business. An AGM will be held every year to review performance and for Members to vote on resolutions proposed including the election of Directors.
Q: Under what circumstances could KCEL go bust, and what would happen to my investment then?[+]
A. KCEL could go bust if it was unable to meet its financial obligations. The only ongoing obligations we are currently expecting to have are any outsource contracts to BWCE and Member interest payments which are both matched to FIT/RHI scheme income and could be stopped if something completely unexpected happened. In the very unlikely event that KCEL did become insolvent, it would be wound up and, after statutory payments to creditors and Members, the Asset Lock Rules would apply with assets being transferred to another society with similar rules.
Q: Can I sell or withdraw my investment?[+]
A. Shares in KCEL cannot be sold or traded. You may withdraw some or all of your shares after the first three years of subscription on 90 days’ notice at the discretion of the Directors. Normally withdrawal requests will only be considered every 12 months; each withdrawal request must be for a minimum amount of £500, and all requests that have given the required 90 days’ notice will be reviewed by the Board in April/May in order to make repayments for the period up to 1st July. Withdrawal involves offering shares back to the Society for cancellation at a value not exceeding what you originally paid for them. It should be noted however that you may not be able to withdraw the full price you paid for them if KCEL has insufficient funds available at the time you wish to withdraw shares. A member may also nominate another person to whom the member's shares may be transferred on death.
Q: Can my investment increase or decrease in value?[+]
A. Under the Society’s rules, KCEL will not pay you more than you originally paid for your shares, and you may not be able to withdraw the full price you paid for them if KCEL has insufficient funds available at the time you wish to withdraw. The return to investors comes from the interest payments over the respective periods of time for the FIT/RHI schemes. Our financial projections assume that very few Members will want to withdraw their shares before the end of this period.
Q: What are the tax implications of the investment?[+]
A. We have already received approval from HMRC that, based on the facts we provided to them, the initial £150k invested in the company was eligible for tax benefits under the Seed Enterprise Investment Scheme. This means that, assuming Members that invested in the first round were also eligible, they will have received a 50% tax rebate on the amount they invested in this first fund raising round, provided they paid at least that much in tax during that tax year.
We also successfully achieved Enterprise Investment Scheme (EIS) eligibility for the 2nd round, which means that investments made in that round benefit from a 30% tax rebate on the amount invested. This means for every £1,000 you invest you would receive a tax rebate of £300.
It should be noted that an individual cannot currently invest more than £100,000 in the Society and that the interest payments you receive will be regarded as income and so will be taxable and should be declared on your tax return.
As the Society's claims for SEIS and EIS eligibility have been accepted, tax relief forms have already been issued to current investors so they can make a claim on their self assessment tax return for the year in which the shares were issued. For full details of the scheme and to check your eligibility, please consult the HMRC website (www.hmrc.gov.uk) and your financial adviser.
Shares in the Society may also attract business property relief and so, provided that they have been held for at least two years before death, might be exempt from inheritance tax - but you should seek financial advice to be certain about how this may apply to you.
Q: How much will be generated for the Community Fund?[+]
A. Once we have covered our operating costs, paid Members interest on their shareholding, allocated sufficient income to repay Members' share capital, and retained some funds to cover the Society’s growth, then our Rules state that any surplus will be used for social and charitable purposes. This surplus is allocated to the Community Fund. It will take several years to build up a significant fund and the amount generated will depend on the amount we invest. The exact sums are difficult to predict at present but any allocation will be agreed by Members at an AGM.
Q: If I become a Member how does KCEL manage my membership information and make sure it is kept up to date and what measures are taken to prevent accidental loss of data?[+]
A. To reduce our administrative overheads we use this web system to maintain membership information - each Member has a secure login and Members are expected to keep their contact information up to date using this on-line system. Each Member however can only access their own data and all computer records are regularly backed up - in addition key records are extracted from the system and downloaded to create paper copies that are maintained at our Registered office.