Octopus Investments has announced that it has opened a new tranche of the Octopus Enterprise Investments Scheme (EIS).
The latest tranche will focus on investing in companies in the energy sector, where predictable revenue streams and government support mean that Octopus is able to offer investment into exciting opportunities while also delivering the significant tax benefits that an EIS provides.
As the largest provider of EIS in the UK, Octopus has seen investor demand for EIS increase significantly over the years. Introduced by the government in 1994 to encourage investment into smaller companies, EIS solutions provide investors with a range of tax benefits including 30% upfront income tax relief, capital gains tax deferral, up to 45% loss relief and tax-free growth. Investments are also free from inheritance tax after two years. In the 2012/13 tax year, more than GBP1 billion was invested in them, taking the cumulative EIS investment since inception of the scheme above GBP10 billion.
John Thorpe, Business Line Manager for EIS at Octopus, says: “EIS investments have always been a popular choice for certain investors in the run up to 5th April due to the tax benefits they offer. However with the upcoming changes in pension legislation, and the potential flexibility and access they bring, growing numbers of advisers and investors are looking for tax-efficient solutions that can complement their existing arrangements. EIS has built a strong track record of delivering for investors over the past twenty one years and more and more people are recognising the meaningful role it can play within a balanced investment portfolio.”
Octopus has been investing in the energy market since 2010, when it entered into a partnership with Lightsource Renewable Energy, the UK’s largest fully integrated solar developer. Since then, in partnership with Lightsource, Octopus has deployed over GBP1 billion into solar, creating a significant number of jobs and helping to grow solar from a nascent to a highly developed part of the energy market.
Over the last five years, alongside its relationship with Lightsource, Octopus has built an experienced energy team and has created a broad platform to raise and deploy funds into different sectors of the energy industry which provide investors with attractive investment opportunities. The team looks to partner with industry leaders and strong development teams, like Lightsource, to invest in technologies and services that are expected over time to deliver robust, predictable yields for investors. The latest tranche of Octopus EIS will focus on investment into anaerobic digestion and reserve power, with Octopus recently entering into partnerships with three developers in these sectors (with Qila Energy and Material Change in anaerobic digestion and with Welsh Power to develop reserve power plants). Each of these partners have strong track records of delivery in their areas of expertise.
Matt Setchell, head of the Renewable Energy team at Octopus, says: “Energy is a high growth industry that has already proved attractive for many EIS investors. Our investments are based on tried and tested technologies where there is an absence of funding and where we believe there is good visibility on potential future revenues and costs. In addition to this, the partnerships we have forged with leading developers enable us to get closer to the technologies and help manage risks. The opportunity within the energy market in the UK is significant.”
Octopus has been investing in anaerobic digestion since 2013, with six plants at various stages of construction. Anaerobic digestion is a biological process that generates gas from organic material such as food and agricultural surplus. This gas is then burned to produce electricity or supplied directly into the gas grid. While it is a relatively new technology in the UK, the sector has a strong track record of performance over many years of successful operations in Germany and other countries, providing good visibility on potential future returns.
Reserve power is a more established sector of the energy market in the UK but one which is experiencing increasingly strong demand. Reserve power plants provide electricity to the National Grid during periods when demand reaches peak levels or there are unexpected fluctuations in supply or demand. In its 2014/15 Winter Outlook Report, National Grid stated that its capacity to supply electricity this winter will be at a seven-year low – consequently the reserve power market needs to expand. Through its partnership with Welsh Power, Octopus already has two plants under construction. The latest tranche of Octopus EIS will invest in the construction of further sites in order to benefit from the predictable revenue streams which come from the National Grid in return for providing this essential service.
In addition to anaerobic digestion and reserve power, the energy team at Octopus is considering a number of other opportunities that Octopus EIS may invest in. The team will only consider those industries with similar characteristics to the energy investments they currently make – for example the use of proven technologies, known costs and government support.
