Compass Business Finance to focus on anaerobic digestion finance
Although still new in the UK asset finance arena – having been founded in 2006 – Compass Business Finance could soon be at the forefront in at least one area of the country’s renewable energy sector.
Having decided not to focus on geothermal and photovoltaic energy, the directors of the finance house/broker – Bruce Nelson and his son Mark – are putting lots of efforts in developing anaerobic digestion finance, an area where they see decent returns in the near future.
Anaerobic digestion (AD) is a process whereby organic waste is treated within special reactors, producing a methane rich biogas, while the solid material remaining after the treatment can be used as a fertiliser.
Although well-developed in some EU countries – Germany, for instance, has approximately 4,000 anaerobic digesters – the AD sector is still nascent in the UK, with less than 20 plants.
But a rapid expansion is expected in order to meet government and EU targets, with the UK Anaerobic Digestion and Biogas Association forecasting that around £5 billion (€5.6 billion) will be invested over the next 10 years to fund the construction of some 1,000 AD plants across the country.
According to Bruce Nelson, who used to run the UK business of Key Equipment Finance, AD finance usually involves some forms of structured finance, with asset finance itself being used for various elements of the plant.
In particular, asset finance would be suitable for the front-end/segregation end of the waste, as well as for the unit that turns gas into electricity.
Costs of the plants range between £1 million and £20 million (averaging £5 million), and Compass Business Finance is involved in organising the whole package of the funding for various farms and merchant plants.
Nelson explained: “We don’t just look at the asset finance aspect of an AD plant, we look at the complete plant, so there would be private equity, bank debt, asset finance all rolled in into a cocktail of funding.”
He added that the number of funders in AD plants is fairly limited, and an AD conference held in mid-December also tried to address that issue.
Nelson said: “We can’t give historic economics on plants in this country. But I think that with a good understanding of the assets, and working with specialists like us there are many opportunities for funders.”
Apparently, change is already happening, and banks like Co-op, Triodos, and Clydesdale, as well as private equity houses, are opening up to the AD market.
Between now and spring 2010, Compass forecasts that it will be involved in around 25 out of the 100 AD projects that are about to take off in the country.
The FLA, too, according to Nelson, is now looking at this with interest and has been talking to Compass about it.
Alongside AD, however, Compass also has a significant involvement in the micro-generation wind and the biomass market (wood burners).
Mark Nelson, MD of Compass Business Finance
Outside renewable energy, Compass focuses on the professions sector, providing assets for dentists, vets and opticians.
Mark Nelson summed up: “We specialise, we are not a general asset company, and we make sure we understand the market.
“This is particularly important, because in any sector in finance, you are going to have delinquent accounts, so it is knowing how to manage those, knowing when to recover goods if necessary, how to remarket them, that is crucial.”