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Innovative Finance ISA offers 8% for biomass boilers

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Ethical peer-to-peer platform Abundance Investment has launched a second offer to invest in Monnow Valley Biomass with a bond paying 8% over a 19-year term.

The new offer seeks to raise £1.4m, with which Monnow Valley Biomass plans to grow its portfolio of biomass boilers. The debenture is eligible for the Abundance Innovative Finance ISA, which means any income and capital gains earned are tax-free.

The funds raised will go towards refinancing the installation of two new biomass systems at a goat farm in Monmouthshire, supplying goats’ milk to Waitrose and to Neal’s Yard Creamery, and a kiln-dried log business in Herefordshire. Monnow Valley already owns six biomass boilers. The installations will qualify for the government’s Renewable Heat Incentive subsidy.

The minimum investment is just £5. The offer closes on October 30th, or earlier if fully subscribed. Colin Bennett, Director of Monnow Valley Biomass, said: “Our goal is to help small and medium-sized businesses reduce their carbon footprint at the same time as their heating and electricity costs while upgrading to a more efficient heating system. We think that crowdfunding is a great way to raise the money we need to do this, while the Renewable Heat Incentive gives us a high degree of predictability over our revenues which should provide assurance to investors.” verdict

The first offer for £300,000 in 2015 for Monnow Valley sold out quickly and Abundance has been a popular choice among Innovative Finance ISA investors. The platform took the biggest slice of the Innovative Finance ISA (IFISA) market in 2016/17 tax year, according to HMRC data, taking 1,436 of the 2,000 IFISA accounts – a total investment of £10.5m.

It is certainly eco-friendly – the fuel for biomass boilers needs to meet stringent criteria set by Ofgem in order to qualify for the government subsidy. The two key advantages of using wood over fossil fuels are that the wood can be grown relatively quickly, and it is considered carbon-neutral.

8% is an attractive yield, when interest rates are at 0.25%, a 10-year gilt pays around 1.4% and stock market dividends average around 3.5%, but it reflects the risks that are involved in the project. Equally, 19 years is a long time, and while the investments can be traded on the Abundance platform, liquidity is not guaranteed and that may affect the price. That Monnow Valley Biomass already has biomass boilers up and running is welcome, however, and for long-term investors with an ethical inclination, it may prove an interesting part of a diversified portfolio.

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