UK social solar bonds programme targets £60m after pension fund backs pilot with £10m

Financing round will be backed by government funding.

Social Finance, the UK-based intermediary for social/impact investments, aims to tap institutional investors for £60m to finance a pipeline of solar energy bonds after successfully raising £10m from a large UK pension fund for a pilot project providing free daytime solar energy to 2,300 social homes in the city of Sunderland. Following the success of the initial deal, Social Finance has teamed up with the solar division of British Gas and sustainable energy consultants, Gen Community, to package the new solar energy bonds. A spokeswoman for Social Finance said it was already in a number of informal discussions with institutional investors. The organisation is not naming the pension fund which has made the first £10m commitment.
The UK government supported the pilot deal with a £100,000 grant from the Investment and Contract Readiness Fund, which supports social investment projects to attract private capital and bid for public contracts. The UK Minister for Civil Society, Nick Hurd, has said he hopes to see the model replicated across the country in housing associations, schools and hospitals.
Martin Rich, sales director at Social Finance, who advised on the deal, said that: “This is the first large-scale, socially-focused investment into solar energy for social housing. We are delighted that institutional investors can see the value of investing for social good whilst still achieving market rate returns.”The pension fund invested £10.1m in a 20-year amortising loan note which provides an inflation-linked annual return based on revenue from the UK government’s solar feed-in-tariffs scheme. A portion of the tariff revenue will flow back into the community to support local social enterprises and educational services targeting fuel poverty. Social Finance arranged the deal. Empower Community, a social enterprise which develops renewable energy solutions, will use the proceeds from the loan note to acquire and manage existing solar photovoltaic installations on 2327 social homes and six corporate buildings in Sunderland. The access to free daytime energy is designed to help tenants reduce their bills and reduce carbon emissions.
The Feed-in-Tariff (FiT) for UK Solar PV was introduced in April 2010. The scheme is designed to make small scale renewable energy generation economically attractive and stimulate market demand. The FiT is a UK statutory legal instrument that obliges electricity supply companies to pay a guaranteed, long-term subsidy to the owners of small renewable energy generating assets. Gen Community will also manage the projects for the planned £60m in new bonds, liaising with local authorities and engaging with community organisations. British Gas Solar will be the contractor for the solar installation, while Social Finance will be the lead arranger for the 20-year inflation-linked, amortising, asset-backed, social solar bond.
The UK government is also supporting the new financing round with £132,359 in grant funding.