Go with the Flowgroup

Flowgroup's patented micro-CHP boiler generates electricity as it heats the home, which means it can pay for itself in five years. Indeed, to gain market traction, Flowgroup has worked out a deal whereby electricity generated by newly installed boilers (estimated to be worth £80 a month) can be used to pay off a loan from peer-to-peer lender Zopa over five years that will cover the full £3,675 cost of the boiler. Flowgroup will guarantee the £80 a month from the electricity generation, so customers will effectively get a boiler for free plus the benefit of generating electricity from the boiler after five years.

The VAT ruling has pushed back the launch of the boiler while Flowgroup finds savings of £500 per boiler to cover the tax hike from 5 per cent to 20 per cent so it can maintain the terms of its 'free boiler' deal. Most of this has been achieved through increasing manufacturing volumes and making improvements to the heat exchanger, which has reportedly also improved electricity generation. It's also worth noting that, while enforcement of the EU ruling is likely, it is not a given and the company is still lobbying the UK government.

Manufacturing partner Jabil (US:JBL) has played a key role in finding cost savings. The $4bn US company is shouldering all working capital requirements associated with production and will sell stock to Flowgroup on a 'cost-plus' basis as orders come in. Jabil, which tied up with Flowgroup two years ago as part of a broader strategy to gain exposure to disruptive technology, holds an 8 per cent stake in Flowgroup, having part-funded a £21m fundraising earlier this year.

The other side of Flowgroup's business is energy supply, which should help it implement its feed-in-tariff boiler-financing model. Since the VAT blow, the company has announced plans to rapidly grow this operation, taking its year-end customer number target from 66,000 to 100,000 - equivalent to £55m in annualised revenue. This could potentially provide an excellent source of early boiler customers to help it towards Equity Development's forecasts of 125,000 boiler sales in 2020.

Critics will rightly point out that Flowgroup's dream is already at least a decade old. The company was known as Energetix between its 2006 IPO and 2013. Following this year's setback, it's not hard to understand why so many investors lost patience and sold out. But chief executive Tony Stiff and his non-executive directors have recently shown faith with share purchases.