The following list of risk factors is not exhaustive and there may be other risks which relate to an investment in a renewable development. It is essential that a group takes its own independent financial and other advice before making any decisions about the options available.

  • The return derived from investment in the Project Vehicle can go down as well as up. Additionally, the entire investment made by the community vehicle could be lost.
  • The value of any interest in the Project Vehicle held by the Community Vehicle could be lost.
  • The financial operations of the Community Vehicle may be adversely affected by the impact of general economic conditions.
  • The Community Vehicle might have no voting rights in the Project Vehicle, therefore will have no control over the direction or decisions of the Project Vehicle.
  • Any investment in the Community Vehicle will be difficult to value.
  • Any investment in the Community Vehicle should not be regarded as short term in nature and community groups must be prepared to take a long-term view of their investment.
  • Changes in economic conditions and legislation can substantially adversely affect investments.
  • The Project Vehicle may be adversely affected by external events such as fires, floods, etc.
  • No representation or warranty is or can be made as to the future performance of the Community Vehicle which becomes a member of the Project Vehicle.
  • The Project Vehicle may require further funding post Financial Close and if the Community Vehicle does not participate its stake may be correspondingly reduced.
  • By their nature, energy generation projects have significant construction risks arising from delayed operation and commissioning, costs escalation during the construction period, environmental.

Typical risks in shared ownership

High likelihood risk

Investment price is too high

There is a risk that the price is too high for the investment which could mean that communities can’t afford the money at a low interest rate to cover their return and make a profit.

Mitigations:

  • A CARES grant can help mitigate risk by allowing community groups to get the right financial and legal professionals on board.
  • CARES support and advice, including this module, can help communities make the right choice.

No quick wins

There is a risk that the length of time it takes to conclude an investment may outweigh community expectations, resulting in the community becoming frustrated and giving up the shared ownership project. For example, negotiations can take two to six years – or longer – before there is an investment opportunity, however, this does not require input all the time from the community side.

Mitigations:

  • Communities to be aware and manage expectations with the CARES shared ownership team.
  • Community groups to look at previous CARES case studies.
  • Communications to be clear on long terms investment of time and money.

Medium likelihood risk

Project dropped by developer pre-planning

There is a risk that the project is dropped by developer before planning, resulting in the community feeling they have wasted the time and resources invested.

Mitigations:

  • Building a good relationship and strong communication with developer should mean the community are aware of any major issues before they become showstoppers.
  • If in the end the project doesn’t work out, the investment of the time the community put into learning about shared ownership could help them in future projects. For example, the community group may be offered shared ownership another project or different types of community investments.

Project dropped by developer post-planning

There is a risk at post-planning that there is no route to market and the developer may drop the project, resulting in the community group feeling they have wasted time, resources and possibly finance.

Mitigations:

  • Building a good relationship and strong communication with developer should mean the community are aware of any major issues before they become showstoppers.
  • If in the end the project doesn’t work out, the investment of the time the community put in to learning about shared ownership could help them in future projects. For example, the community group may be offered shared ownership another project or different types of community investments.

 Not enough financial return to interest bank investors

There is a risk that although key investors are keen to support communities, there isn’t enough financial return for them to invest.

Mitigations:

  • Communities to engage with funders, eg SNIB, as soon as possible, through CARES. They can offer support and commercial financing guidance, as well as investment potential and analysis.