Part ownership of a Ripple Wind Turbine, fancy it?

[Adokforme]

Many thanks for additional explanation Nowty.

Your mentioning SWMBO working from home, a second EV and perhaps a HP as well just shows how any total can vary so much.

It does show how difficult it is to arrive at a final decision and what is relevant today may not be so in future!

[nowty]

I am confused about the tax treatment and the electricity usage limit.

As I understand it, each member gets a reduction in their electricity bill. Part of this is a repayment of our investment and part is taxed as interest income. If that is the case, why are HMRC bothered about the 120% rule for FITs? Our income is either redemption of our shares (no gain, so not taxable) or it is being treated as interest income and will be taxed.

There is also a cash maximum investment limit but little detail on the amount.

It is difficult to understand why the Coop might otherwise want to restrict us investing in WT2 (such that we exceed our watts cap) given that they have already allowed a large investor to buy the remaining shares in WT1 so that the loan facility was not needed.

I appreciate that our agreements with ripple do not allow us to sell/transfer our ownership shares for two years, but there might be a case for asking ripple to relax this restrictions to allow us to swap ownership shares in WT1 for shares in WT2 if there are sufficient investors in WT2 who also want to own part of WT1 as it would allow more diversification of risk and supply.

So Ripple have explained most of what your asking in some of their webinars when various questions have been asked.

So the 120% rule is not a legal rule for investing in the wind turbine BUT Ripple has made it a rule to argue to the taxman that this type of investment is no different than having microgeneration at your own property which you are allowed tax free income from as long as your total generation roughly equals your total usage. In fact you can have more (the 20%) as long as it was not your intention to over generate. If you installed a huge amount of solar, way beyond your normal usage then the taxman says that's a commercial investment and income tax should be paid. Whether or not Ripple succeed in this request I have no idea so the status quo is as you have said in terms of the rebate being part capital repayment (non taxable) and part interest (taxable). For many people there would be no tax to pay as their interest income allowance may cover it. But if they allowed larger investments from Coop members, then Ripples argument for favourable tax treatment would not be valid even though many members would only have a small investment.

The cash investment limit I believe is £100k from a single Coop member, but I think that is more to do with a limit of being a community project or its a anti tax avoidance rule.

The large investor who has been allowed to buy circa £1m is a commercial investor and likely his income will either be in the form of a dividend subject to income tax or corporation tax if he's using his commercial company to buy in. I suspect that they may allow other large investors in on a commercial basis to speed up the financing of future larger projects.

Ripple did explain that allowing to swap investments from WT1 with WT2 and vice versa was simply too complicated. You have two different coop companies, different project timelines, different generation per watt, different cost per watt. Sounds good in theory but totally unworkable in practice.

[John_S]

Thanks for the explanation, Nowty.

I can see where they are coming from but have issues with their logic.

For PV, the HMRC limit was set in times of the generous FIT rate. Thus it lets you earn up to around 4 x your electricity costs depending on prices,FIT and export rates etc.

For Ripple you can earn up around 60% of your costs, assuming the wholesale rate we are paid is 50% of the average unit price. They already restrict Octopus to only reducing our electricity costs and if the credit takes the cost below zero, it cannot be paid to us but must wait and be offset against months where the cost is more than the credit. I am happy with that scenario and consider that it is the only restriction that is needed.

Also, Ripple don’t ask if we have PV and are already receiving an income, although in my case it will be only for another 13+ years and nothing near the full life of the WT.

John

[nowty]

Thanks for the explanation, Nowty.

I can see where they are coming from but have issues with their logic.

For PV, the HMRC limit was set in times of the generous FIT rate. Thus it lets you earn up to around 4 x your electricity costs depending on prices,FIT and export rates etc.

For Ripple you can earn up around 60% of your costs, assuming the wholesale rate we are paid is 50% of the average unit price. They already restrict Octopus to only reducing our electricity costs and if the credit takes the cost below zero, it cannot be paid to us but must wait and be offset against months where the cost is more than the credit. I am happy with that scenario and consider that it is the only restriction that is needed.

Also, Ripple don’t ask if we have PV and are already receiving an income, although in my case it will be only for another 13+ years and nothing near the full life of the WT.

John

You can withdraw your excess credit back to your bank account, this has already been confirmed by Ripple, you just ask Octopus in the same way as if you built up too much credit by overpaying.

On your last point, this is where Ripple's argument with the taxman will likely fail, as you would have to add up your total generation from solar and Ripple and that may well be above 120% of your usage. So say you already generate 120% of your annual usage with solar but half is exported, so you also import half. You then cover 120% of the half you import with Ripple, but then your total generation would be near 180% of your annual usage which would be inconsistent with the current tax rule. But the status quo is there is no issue with that scenario as tax will become due on the interest element of the rebate. There may also be other practical reasons Ripple imposed the 120%, from speaking with them I know they had difficulty with the FCA agreeing to the scheme in the first place from fear of tax evasion and money laundering, also Octopus may not have wanted to deal with stuffing thousands of pounds of rebate into customers accounts and then have to deal with the constant withdrawal requests.

I personally think the 120% limit Ripple have imposed is flawed as a business plan, because once a Ripple customer achieves 120% in an ALL electric house with EVs, there is no more repeat business with that customer. So it would not surprise me if Ripple allowed members who were already at the limit to buy in as an investor and receive a dividend payment. There would be no shortage of takers, even my climate change denying father wanted to put in 20k because he just saw it as a good investment.

[John_S]

Nowty,

Thanks for your reply. I appreciate and value your insight. Together with insight from other early investors, it encouraged me to assess the merits of the project, invest and then to invest an additional amount. I am still glad that I did so.

Some further thoughts below. I hasten to add these are my own thoughts and should not be taken as investment or tax advice etc.

I think that HMRC treat the income as interest as the investment is more akin to a loan which is repaid rather than equity which is never repaid, same as redeemable preference shares.

I have reread the offer document and the customer agreement. Taken together they foresee WT1 being the first of many projects. There is a watts cap on WT1 of 120% of expected annual electricity usage. There is an undefined maximum investment limit in all projects managed by Ripple (possibly £100k). Ripple encouraged investors to apply for enough shares in WT1 to meet 100% of their annual electricity usage "We expect many people to determine how many shares to buy so that their share of the power generated roughly equates to the amount of electricity they use" (Offer document Section 5, page 12, second paragraph).

This leads me to conclude that we are likely to be able to invest in WT2 up to the 120% limit, irrespective of our investment in WT1. Otherwise their statement in the share offer document was misleading.

John

[Andy]

I thought that if you are going for a 120% you need to provide a electric bill as proof of usage (or was it only high use?). This will automatically factor in the PV by virtue of it only being the electric you use from the grid.

[nowty]

I think that HMRC treat the income as interest as the investment is more akin to a loan which is repaid rather than equity which is never repaid, same as redeemable preference shares.

I have reread the offer document and the customer agreement. Taken together they foresee WT1 being the first of many projects. There is a watts cap on WT1 of 120% of expected annual electricity usage. There is an undefined maximum investment limit in all projects managed by Ripple (possibly £100k). Ripple encouraged investors to apply for enough shares in WT1 to meet 100% of their annual electricity usage "We expect many people to determine how many shares to buy so that their share of the power generated roughly equates to the amount of electricity they use" (Offer document Section 5, page 12, second paragraph).

This leads me to conclude that we are likely to be able to invest in WT2 up to the 120% limit, irrespective of our investment in WT1. Otherwise their statement in the share offer document was misleading.

John

I agree with your first point as I have some Bank preference shares and the income is treated as "interest", rather than a "dividend" payment. But as I hold mine in an ISA the income is still non taxable for me.

I don't quite understand what your implying by your second point, if you are saying you can buy another 120% of your import in WT2 on top of whatever you bought in WT1, that is not correct. If your saying you can invest in WT2 up to an amount, that between WT1 + WT2 equals 120% of your import then that is correct.

It was clarified in an email from Ripple (copied below) and in some other communications from them.

Step 4: Join the co-operative for the second wind farm and convert your reserved shares into full membership shares! You can choose whether to buy the full 900 watts you reserved, or just part of it. Subject to availability you will also be able to purchase more than the 900 watts reserved. Note - the maximum ownership level equivalent of 120% of your consumption applies across both wind farms.

[nowty]

I thought that if you are going for a 120% you need to provide a electric bill as proof of usage (or was it only high use?). This will automatically factor in the PV by virtue of it only being the electric you use from the grid.

6999 kWh or less, no questions are asked, my father bought several times his low usage. If its 7000 kWh or more and your historic electric usage does not match, evidence is required. That could be an electric bill or it could be the order of an EV or some other explanation, like having a heatpump fitted. Or in my case SWMBO was on furlough for over a year so no commuting in the EV temporarily reduced our consumption. There is no end of reasons but it has to sound reasonable.

[nowty]

Another bit of clarifying info of the 120% limit at the AGM, its a long watch so go to 1:07:00 to 1:09:00 for the explanation which matches what I said in my earlier posts about Ripples plea to the UK Taxman in bringing micro ownership of windfarms in line with the tax treatment of domestic Solar Panel income.

[Joeboy]

After the week long 'will they won't they'. I am incredibly relieved that the 'prop' is on and hopefully we will see a modified app displaying output in the not too distant future.

On the financials, I will easily max out my 120% allocation on WT2 (combined with WT1 allocation) and hope the parameters for buy in change as the company grows. I would very much like to be involved in WT2 thru to WT6 and pass onto grandkids etc if I ever get any.