Type Reserve Power
Estimated loan-to-cost 65%
Downing Reserve Power Limited (“DRP”) is a company that makes loans to reserve power projects across the UK. The Bond will offer investors a chance to earn 7.6% p.a. over a period of up to 33 months. The Bond has a higher rate of interest than is typical of Crowd Bonds; this reflects both the longer term of the Bond and the higher level of risk associated with funding projects before they are operational and where there is a high degree of variability in potential revenue streams.
The reserve power projects will consist of two or more gas-fired engines, held within individual containers. These engines are designed to provide flexible generation that helps to mitigate the intermittent power supply of renewable energy sources such as wind turbines and solar panels. During times of peak demand or low supply, these engines can be switched on to provide additional capacity to the network at short notice – something renewable energy plants can’t always provide. Reserve power engines can generate income in a number of ways including selling energy on the wholesale market and from subsidies and incentives to ensure energy is always available.
DRP will use the proceeds of the bond to lend to reserve power projects typically consisting of 4-20MW of capacity. DRP will initially support a minimum of two existing reserve power projects loans and it will continue to seek further loan opportunities with between two and ten engines, provided that the LTC does not exceed 65% and the value of the gas-fired engine is at least 50% of the total cost.
Reserve power is a relatively new market and investors should read the Offer Document in detail to understand the principles behind reserve power, the particular nature of the risks involved in the projects and the level of due diligence undertaken.
Investors will be asked to answer a few questions before they proceed with an investment to check that the Offer Document is clear about the risks as well as the potential returns.
The UK’s energy infrastructure is undergoing significant change. Historically, the UK’s power supply has been serviced by a relatively small number of large scale generators – typically gas and coal fired power stations. This simpler, centrally managed system could be balanced with supply being turned up or down to meet demand.
With the introduction of renewable energy suppliers on both a larger and local scale, we believe energy generation is becoming more intermittent and harder to forecast. With many users now becoming suppliers (i.e. household rooftop solar panels) and the unpredictable nature of renewable energy generation, balancing supply and demand has become far trickier.
Reserve power plants can help balance the system by being turned on during times of peak demand or low supply to provide additional capacity. This flexible generation has become crucial in helping match supply and demand on short notice.
Downing LLP has significant experience in the energy sector having invested more than £500 million in energy businesses since 2010. This is Downing Crowd’s 12th energy bond. As at 31 January 2018, Downing Crowd has raised over £22 million for energy projects around the UK and have repaid almost £12 million of capital with over £800,000 of interest from these projects to bondholders. Though, past performance is not a reliable indicator of future performance.
The firm is developing its expertise in both battery storage and reserve power projects which we believe can potentially offer attractive returns to investors with a good understanding of the opportunity and the risks. To this end, the Offer Document includes an overview of the market and all investors will be asked to answer a few key questions on reserve power projects before they proceed to invest.