thumbnail of Alternative Energy Developments

Alternative Energy Developments

Return 6.0% IRR
Term 17 years
Total Invested £780k
519  investors
Maturity date 31 Dec 2034
thumbnail of Alternative Energy Developments

What does the company do?

Alternative Energy Developments owns a portfolio of six operational biomass heat systems with a total capacity of 1.2 MWth which supply renewable heat to a range of businesses including a group of charity-owned outdoor adventure centres in Scotland. The boilers are owned and operated by Alternative Energy Developments on behalf of the businesses where they are situated.

Each biomass system consists of one or more biomass boilers which generate heat by burning biomass fuel (a renewable and sustainable source of energy that usually comes in the form of wood chips or pellets) and this heat is sold to businesses under a contract. The boilers are also eligible to receive the Renewable Heat Incentive (RHI) over 20 years for generating renewable heat from renewable sources, with the earliest biomass system expiring in 2034.

Why did the company raise money?

The money raised in 2018 on Abundance was used to repay an existing loan which helped pay for the installation of the biomass boilers.

How does the company expect to repay the investment?

Alternative Energy Developments expects to repay investors from the operational revenues it earns over the life of the investment.

How is the company making an impact?

The renewable heat generated is sold to the businesses where the boilers are situated, which reduces the environmental cost of their heating requirements while saving them money on their energy bills. In the case of the outdoor adventure centres, the biomass boilers replaced old-oil based heating systems.

The biomass boilers are very similar in operation to those burning fossil fuels but with the advantage of using biomass that is considered a renewable and carbon neutral fuel source. As per the requirements of the RHI scheme only biomass that meets certain sourcing and sustainability criteria can be used.

One of the biomass systems installed at Barcaple in Kirkcudbrightshire
One of the biomass systems installed at Barcaple in Kirkcudbrightshire

Key terms

Issuer Alternative Energy Developments
Return 6.0% IRR
Term period 17 years
Start date 1 February 2018
Maturity date 31 December 2034
Capital repayment Regular instalments
Amount raised £780,000.00
Return structure

The interest and capital is paid in equal instalments every 6 months over 17 years (the first return period was 5 months and the last will be 7 months long).

Secured or unsecured Unsecured
Early repayment options

The company can only make an early repayment of the investment in certain circumstances, such as a change of control of the company (for example, if some or all of the company was sold to a new owner) or a regulatory/tax requirement.

See the Debenture Deed for details of all circumstances in which the option for early repayment may be exercised.

Documents

Debenture Deed
Download PDF The debenture deed sets out the legal agreement and terms for this investment.

Payment schedule

This table gives a breakdown of what is due to be paid back on this investment, based on an example investment of £1,000.

Payment schedule table
Payment date Capital repayment Interest Total
7 September 2018 £24.63 £15.11 £39.74
11 March 2019 £29.56 £18.13 £47.69
6 September 2019 £29.56 £18.13 £47.69
10 March 2020 £29.56 £18.13 £47.69
8 September 2020 £29.56 £18.13 £47.69
11 March 2021 £29.56 £18.13 £47.69
8 September 2021 £29.56 £18.13 £47.69
11 March 2022 £29.56 £18.13 £47.69
8 September 2022 £29.56 £18.13 £47.69
10 March 2023 £29.56 £18.13 £47.69
8 September 2023 £29.56 £18.13 £47.69
8 March 2024 £29.56 £18.13 £47.69
6 September 2024 £29.56 £18.13 £47.69
11 March 2025 £29.56 £18.13 £47.69
8 September 2025 £29.56 £18.13 £47.69
11 March 2026 £29.56 £18.13 £47.69
8 September 2026 £29.56 £18.13 £47.69
11 March 2027 £29.56 £18.13 £47.69
8 September 2027 £29.56 £18.13 £47.69
10 March 2028 £29.56 £18.13 £47.69
8 September 2028 £29.56 £18.13 £47.69
9 March 2029 £29.56 £18.13 £47.69
7 September 2029 £29.56 £18.13 £47.69
11 March 2030 £29.56 £18.13 £47.69
6 September 2030 £29.56 £18.13 £47.69
11 March 2031 £29.56 £18.13 £47.69
8 September 2031 £29.56 £18.13 £47.69
10 March 2032 £29.56 £18.13 £47.69
8 September 2032 £29.56 £18.13 £47.69
11 March 2033 £29.56 £18.13 £47.69
8 September 2033 £29.56 £18.13 £47.69
10 March 2034 £29.56 £18.13 £47.69
8 September 2034 £29.56 £18.13 £47.69
9 March 2035 £29.45 £18.13 £47.58
Total £1,000.00 £613.40 £1,613.40

Updates

These updates tell the story of the investment over its life and include information reported to investors by the company or council behind the investment. The updates are provided for informational purposes only and do not constitute an inducement or invitation to invest. Information provided at the time of publishing may no longer be accurate.

Overall the generation performance of our boilers is sound and our cash position continues to be stable. There has been a period of milder weather and some breakdowns which have seen lower generation output than expected at some sites.

The boiler systems are approximately 9 years old and are operating well, and while we do keep common spare parts, we are starting to need to order in some spare parts from our main suppliers. We are keeping an eye on supply chain risks and mitigations.

The two systems with the lowest generation compared to forecast are the ones at the Masonic Lodge and the school sites.

The generation at Masonic Lodge showed an increase compared to the same period last year but there is still room for improvement. The manager at that location appears to be getting used to the process and we expect to see further heat usage from our boiler system over the next 12 months.

The system we installed at the school in 2022 is slowly seeing an increase in heat usage, albeit not at the capacity that it should be and we have undertaken some training with the school caretaker to improve this. We continue to work with Ofgem to get the move approved for the RHI subsidy accreditation. This is sadly not an unusual length of time for the process to take and we appear to be close to finalising the review process with our consultant and Ofgem.

The main key development for the portfolio is that we are now finalising the opportunity to move the boilers at the Ashwell Recycling site to a commercial garden centre and greenhouse with surrounding ancillary buildings such as their office building. This site will offer the potential to see a higher usage from the boiler system and therefore increase our revenues.

Pellet fuel costs are substantially lower than their peak 12 months ago. Although they are not in line with our original forecasts, this is a much more manageable market to contract supply from and we are in a stable position with that. Our RHI subsidy income is benefiting from indexing to RPI inflation and so we expect to see increasing profit margins going forward.

An investment return from Alternative Energy Developments was paid today.

An investment return from Alternative Energy Developments was paid today.

Overall our systems have been operating well and our customer’s businesses appear to be stable with good heat usage during the period.

The only exception to this is the usage of the system at the Masonic Lodge where we are still getting the new management team up to speed. The minimum offtake payments have continued to be made by them to compensate for lower usage than contracted. We have recently performed training to ensure their team are ready to use the system properly over this coming winter period.

Wood pellet prices have been gradually decreasing since the high from last winter and are currently almost half the price of that previous peak. We expect the market to be less volatile this winter as the supply chain adjusts, however the underlying shortage of supply due to the lack of supply from Russia and Ukraine is expected to still cause some price increases. Increases in our revenues (RHI and heat supply sales) are also now catching up as they are contractually linked to inflation and oil prices. While our profit margin has been squeezed over the last year or so, we expect this to improve as the cost of fuel stabilises and our revenues continue to benefit from inflationary price adjustments. Note – we have taken back the responsibility for procuring pellets for two customers that wanted to do this themselves as it is more efficient for us to do this and we feel sufficiently mitigated against pellet price volatility.

The system that was installed at the school last summer has been operating well but we are still working with Ofgem and the consultant to complete the RHI move for the system. There are no issues of note, it is simply a lengthy admin process to step through. A catch up payment of the RHI accrued to date will be made when the process is completed.

We are also in discussions with one existing customer and one potential new customer around ways of generating additional heat usage. The potential new customer is a local horticultural site who we may move the system to from its current location at the Ashwell Recycling due to the possibility for increased usage and offtake revenues.

We have been able to manage through a very challenging time for the biomass industry which has been badly impacted by significant increases to pellet fuel prices.

The price reached a level of over £600 per tonne (it was £195 per tonne in 2018 when we prepared our original forecasts). The high price of fuel has reduced any profitability from selling the heat our systems’ generate – per our contracts with our customers we are only able to increase our heat sales price annually (in line with a weighted average increase between the retail price inflation and movement in the oil price) at the anniversary of each contract.

We did however take the opportunity to agree temporarily increases to the heat sales price to some customers and in two instances the customer has agreed going forward to be responsible for buying the pellets. For these two customers we won’t therefore charge a heat sales price and while this reduces our potential income (to receiving RHI only) it mitigates against the risk of losses from volatile pellet prices as we have seen this last year.

All the systems are operationally running well and overall the usage across the portfolio was above that from the same period last year.

The system that was installed at the school last summer had a few teething issues but these appear to have been resolved and there have been no significant outages. We are still working with Ofgem and a consultant to complete the RHI move for the system. Until this is completed we won’t be paid the RHI income from this site (a catch up payment will be made when the process is completed).

The usage at the Ashwell Recycling site has continued to improve. This is reflecting the increase in sale of kiln dried logs which are produced using the heat we generate.

The Masonic Hall boiler did have lower usage over the period but we are working with the new management team to ensure the consistent running of the biomass system. The minimum offtake payments have been made and since the new team took over the usage has increased significantly suggesting the contract is back on track with our initial forecasts.

An investment return from Alternative Energy Developments was paid today.

An investment return from Alternative Energy Developments was paid today.

Overall, after a few years of disruption mainly due to Covid, the sites where are our biomass boilers are located have reverted back to more normal operations. The exception to this is the system previously located at the Ashwell Biomass’ old headquarters which has now been moved (see below). For the 5 operational systems, total heat demand now exceeds the minimum offtake requirements in the heat supply contract and operating levels are moving towards our original forecasts.

There have also been a couple of significant and positive changes in the portfolio over the last few months as follows:

  • The sale of the Ardeonaig site has been completed. The new owners, who will use the site to carry out a similar children’s education business to the previous owners (The Abernathy Trust) have signed a new contract for the sale of heat on the same basis as the previous contract. The new owners are also discussing extending the heating system to include additional properties on the site.
  • The system that was previously at the old Ashwell Biomass headquarters remained disconnected this period while a new location was found. Ashwell Biomass, the counterparty to the heat supply agreement, paid the minimum offtake amount during the period. It has now been installed at a school near Doncaster and will start providing heat from 1 October 2022.

Our fuel costs have been impacted by a shortage of wood pellet supply in the UK due to the Ukraine conflict, forest fires in Europe and the closing of two large producers in the UK. Our heat supply contracts do enable our heat supply price to adjust to each year to negate fuel cost increases. Our Renewable Heat Incentive income also increased in April this year by 9% in line with inflation.

There have been no material operational problems with the boilers themselves.

An investment return from Alternative Energy Developments was paid today.

The operations of our customers’ are returning to more normal levels after the relaxing of Covid restrictions.

The Masonic Lodge has reopened and the new tenants using the spaces have commenced trading. The Abernethy Trust sites in Scotland are returning to operate as outward bound training centres. The drying business at Ashwell Recycling had a quieter 6 months, however, we now expect the level of usage to increase performing well. Any customers who do not meet the minimum off-take will be invoiced for the difference according to the heat supply contracts.

One of the sites owned by Abernethy, the Ardeonaig site which is suffering from capacity problems, is still up for sale. We have a conference call next week with a prospective new owner who will still have a requirement for the heat from our biomass boiler system and we expect there to be no changes to the contract, which will continue in its current form.

The boiler that was being moved from the previous Ashwell Biomass headquarters is still disconnected while a new location is found for it. We are however currently in negotiations to move it to a school which Ashwell Biomass has had a long relationship. Ashwell Biomass, is also owned by our shareholders David and Amanda. It is continuing to focus on growing its operations and maintenance services.

There have been no material operational issues impacting the boilers, which have received their scheduled maintenance. The price of wood chip and pellets had remained relatively steady over the last 6 months, although we have been informed there will be around a 10% increase in costs due to Ukrainian conflict, as some of the supply of pellets to the UK comes from Russia. The current increase in oil prices will mean that our heat sale price can be increased which should mitigate increased pellet costs.

An investment return from Alternative Energy Developments was paid today.

The operations at most of our customers’ sites appear to be getting back to some normality after the lockdowns.

The Masonic Lodge has a number of new tenants using the space. The Abernethy Trust sites in Scotland are continuing to operate as training locations. The drying business at Ashwell Recycling is performing well. Heat usage across these sites was in total 96% of the minimum offtake amount under the contracts. The customers will be topping up the remaining 4% to ensure our revenue from these systems is in line with our minimum offtake forecast.

One of the sites owned by Abernethy, the Ardeonaig site which is suffering from capacity problems, is likely to be sold in the near future. We have been in discussions with the prospective new owner who will still have a requirement for the heat from our biomass boiler system and we expect there to be no changes to the contract which will continue in its current form.

The boiler that was being moved from the previous Ashwell Biomass headquarters is still disconnected while a new location is found for it. Its revenues are expected to make up approximately 12% of our revenues. We are however currently in negotiations to move it to a turkey farm. Ashwell Biomass, the counterparty to the heat supply agreement, has still paid the minimum offtake amount during the period. Ashwell Biomass, is also owned by our shareholders David and Amanda. It is focusing on growing its operations and maintenance services.

There have been no material operational issues impacting the boilers, which have received their scheduled maintenance. The price of wood chip and pellets has remaining relatively steady.

An investment return from Alternative Energy Developments was paid today.

The COVID-19 pandemic is still impacting the business, including with this further current lockdown, and operating conditions are challenging.

We are pleased to report that the three Abernathy sites have reopened and are now functioning as training locations. They are trading on a fairly limited basis but their heat usage from our boilers is back to being almost in line with the contracted minimum offtake amount. The boiler at the Ashwell Recycling site has also been operating at near its normal level, the operations at Ashwell Recycling are considered essential services.

Heat usage at the Masonic Hall site, which is open but only for very limited hours, has been very low unfortunately. We also had to disconnect the boiler at the Ashwell Biomass site pending a move of the office operations to a smaller premises. This was significantly delayed due to the lockdown restrictions but since last week is now back in process. There was no heat generation this period for the boiler.

Despite the reduced usage of the boilers in our portfolio, we are protected by the minimum offtake amounts our clients have contracted to and which they are still currently paying. We continue to keep in regular contact with these clients and offering our support where possible. We are hopeful that their businesses will manage to trade through these difficult times.

Our fuel costs have reduced in line with the reduced usage of the boilers and fuel prices seem to be remaining stable. There have been no material operational problems with the boilers themselves.

An investment return from Alternative Energy Developments was paid today.

We understand these are uncertain times for everyone, and our operations have also been affected by the COVID-19 outbreak.

Our biomass boilers are based on several different sites throughout the UK and generally have lower generation in the summer months. One of the Abernathy Trust sites which closed to the public, has communicated to us they will unlikely re-open in the next year. The boiler system on this site represents approximately 10% of the generation across the total AED portfolio. We are speaking to the Abernathy Trust about possibly relocating the boiler to another site or ending the contract. If the latter, then we are aware of other potential customers through Ashwell Biomass that could use the heat and we could move the boiler to. It will take some time before all avenues have been explored and we have come to a resolution. At this stage we do not expect there to be a significant financial impact to our business.

One other boiler has had to be turned off (due to the Masonic Hall temporarily closing) and the others are in general maintaining a low level of operations. We therefore do expect to see lower outputs across the portfolio for this current period. Our revenue should however be protected to an extent due to the summer months being generally low generation months and also the minimum offtake agreements we have in place.

We are in regular contact with the site owners to understand how they are affected and to provide as much support as possible. While we have had to put on hold some regular servicing, we do have staff available to attend to breakdowns as part of essential services.

We are hopeful the impact of COVID-19 will be short term, but until all lockdown restrictions are lifted we won’t know the full impacts with any certainty.

We will keep you updated when we have any further material developments to report.

An investment return from Alternative Energy Developments was paid today.

This six month period has been consistent with previous periods. Overall the portfolio is meeting expectations. There have been a couple of technical issues which is expected, and these have been resolved within agreed timeframes. There is a difference in performance across the portfolio so we will be focusing on raising the level of usage for the lower performing systems. Pellet supply is being reviewed to ensure costs are minimised, without jeopardising quality.

An investment return from Alternative Energy Developments was paid today.

The six month period has been consistent with the previous periods. The boilers have run within expected performance levels. Although there are occational technical issues these are within the norm for solid fuel heating systems. The portfolio has run well and is meeting the expected level of heat demand, considering this is a low usage period due to the summer period which has been milder than normal.

The cost of pellets remains higher than expected due to exchange rate changes and demand within the UK market, however indexation will mitigate some of the increased costs. There has been no significant changes within the RHI scheme.

An investment return from Alternative Energy Developments was paid today.

Throughout the 6 month period the boilers have run within the expected performance levels with technical issues on individual boilers, over short periods, within expectations. Overall the portfolio of boilers has performed well and are meeting the level of heat demand - cumulatively each site is ahead of forecast. One individual site did not meet the minimum offtake for heat on it's respective anniversary date and has been invoiced for the shortfall. However, changes on this particular site mean that their heat demand has increased. Therefore, all sites are expected to meet their minimum requirements in their current year's useage.

The cost of pellets has seen a rise due to the adverse exchange rate. In our model we have however factored in a rise in fuel costs linked to inflation. The heat sale price to customers has also risen which should offset any cost in the price of pellets.

There have been no significant changes to the RHI scheme during the period.

Throughout the 5 month period the boilers have run within the expected performance levels. There have been a couple of technical issues with individual boilers over short periods. Overall the portfolio of boilers has performed well and are meeting the level of heat demand. Where individual sites have not met the minimum offtake for heat they have been invoiced for the shortfall. Several of the sites have seen an increase in demand due to expansion of the facilities being heated.

The cost of pellets has seen a rise as there was a shortage on pellets due to adverse weather conditions in December 2017 and January 2018. In our model we have however factored in a rise in fuel costs linked to inflation. The heat sale price to customers has also risen which should offset any cost in the price of pellets. AED will also retender for the supply of pellets to ensure pellet costs are minimised.

In October 2018 the RHI scheme will allow, for the first time, new boilers to replace older problem boilers where an installation is deemed to be of poor quality. We do not believe this applies to our installed base, however it does provide a mitigation to the risk of boilers failing in the future. Where a boiler is replaced under this scheme, we understand that the original rate will be applied.

The RHI rates applying to the AED boilers have seen an increase in April 2018 due to inflation indexation being applied. The annual increase in the price paid by our customers for their heat where applicable has increased more than expected due to the sharp increase in the DECC Oil price index (applicable contracts are 50% based on RPI and 50% on DECC Oil price).

An investment return from Alternative Energy Developments was paid today.

This investment closed today.

Alternative Energy Developments opened for investment today.