Do the numbers add up?
The numbers that we need in order to write a decent business plan are coming together. Please note however that they are still quite approximate. This is a summary of the how the project looks financially.
We have also produced a key facts document for financial advisers. It is not financial advice - that is still the responsibility of the adviser.
How much will it cost?
We commissioned Peter Brett Associates to do an engineering design study, to identify the factors that could cause problems later and work out how to build it. That also gave the quantity surveyor something to work on.
His total for the civil engineering was too high for comfort, so we are finding ways in which the cost can be reduced. As with many hydro projects, difficult access to the site pushes up the cost of the civil engineering. The total looks like 1 to 1.2 million pounds, of which the screws will probably account for around a third of the total cost. So we set the share offer target a little higher, £1.25 million.
How much income?
The calculations give an average output of about 450 MWh per year, which would give an annual income of about £110,000 at present. However we must expect some inefficiencies, so £100,000 would be a safer figure. The income can vary widely from year to year, depending on rainfall. An estimate would be between about £70,000 and £140,000. After 20 years the feed in tariff ends, then the only income will be from the wholesale price. Although it looks safe to assume that it will be substantially higher than it is now, we do not know by how much, so by then we will need to have cleared all debts and be financially viable.
How much expenditure?
The first call on the income is the running costs: servicing, insurance, rent, admin, etc. Then, if the funding is partly by a loan, comes the loan repayment plus interest. Then comes the interest payments to the shareholders, and buying back shares. We aim to raise as much as possible of the capital from share sales, to broaden the community ownership and because interest on a loan will be higher than is paid on the shares. Any profit remaining belongs to the community.
We have a financial model from the Low Carbon Hub in Oxford to help with our financial planning.
Is my money safe?
Renewable energy projects, especially community ones, do not have much spare cash. Their capital is invested in hardware. In that sense the money is safe enough, but the only way to get it back is from earnings. If you put PV panels on your roof, you do not plan to sell them to get your money back, you ask if they are a good long term investment. By "good" we are not thinking just of the financial return but also of the environmental and social benefits.
But how safe are other investments, long or short term? Equities go down as well as up; building societies could be in trouble if the value of housing falls much; hide your money under the mattress and it does nothing; and we all know what happened to the banks.
Summary: this is intended to be a competitive long term investment, and its wider social dimension makes it specially worthwhile, BUT note that the company Rules do not oblige the directors to buy back shares. So think again if you may need your money out again quickly.
Where do we stand now?
We invited what might be called pre-investment, to cover our costs up to the share offer, in exchange for shares when they are issued, plus 10%. We have now withdrawn the offer of extra shares, as we have received about £40,000 which should be enough to see us through to the share offer. Here is a chart showing our expenditure for the year up to the AGM in November 2013:
Now we have planning permission we can apply for VAT registration and recover a useful amount of the expenditure.