Rebecca O’Connor, editor of renewable energy investment platform Trillion Fund, goes through 10 good reasons for investing directly in renewable energy projects.
If you can’t put solar panels on your own roof – usually the first port of call if you want to invest in renewable energy because you get the cheaper energy, too – but you are still interested in the growing opportunities to invest in renewables, then you might wish consider investing in a project.
They can make an interesting, profitable and feel-good addition to a mix of investments (tempting as it might be, it is not a good idea to put all your eggs in one basket, or all of your pension in one solar farm, in this case). And also bear in mind that investments in renewable energy projects tend to be long-term. Your capital may be at risk and investments may not be readily realisable. Returns tend to be variable.
1. The level of returns
Returns from renewable energy projects knock the socks off standard cash savings accounts, where we Brits insist on putting our money despite the negative real interest rates.
The average rate on the top five easy access savings accounts is 1.6%, according to Savings Champion. A typical internal rate of return (IRR) on a renewable energy project would be 6-8% at current rates. Although it is important to note that project investments are not easy access and are higher risk than a typical savings account at the bank, so you might get the return, but not some of the other benefits of a standard account.
It is possible for returns from direct investments in renewable energy projects to reach 8%, sometimes more if the project hasn’t been built yet, or if there are tax breaks included, such as the Enterprise Investment Scheme (EIS), for which some projects qualify, giving investors a 30% uplift. Although generally, remember the higher the return, the higher the risk.
Another part of the reason returns can be higher than on investments of a comparable risk profile is down to the feed-in tariff (FIT), the government-backed subsidy that pays developers of renewable energy a top-up amount for producing clean energy instead of the alternative dirty stuff. This amount is set at the date a project is installed and changes only to rise in line with inflation for 20 or so years – the typical term for which a FIT is guaranteed.
2. The stability of returns
The wind and sun are pretty much constant. OK, they may go up or down a bit daily and seasonally, but the projected returns are designed to account for these blips to the average wind speed or solar radiation. Overall, the blow of the wind is predictable and so is daylight from the sun.
The subsidies renewables attract are also constant – and rise in line with inflation (see below). In the past, there have been concerns over the reliability of the existence of the subsidy itself, i.e. could the government pull it altogether? Following a court case in 2012 that ruled the government could not retrospectively pull the FIT, these fears have been calmed.
The only real variables in the returns come from changes to electricity prices, which are governed by the market and are harder to predict than subsidies, although there are historical trends.
3. The low risk of the technology failing
Renewable technologies are relatively new, but they are pretty dependable (one reason why insurers are quite happy to issue warranties for performance of panels and turbines for 20 years or more, and also why pension funds, which need sturdy places to put pension savers’ cash, like investing in them).
Once a turbine or some panels are installed, then barring some exceptional circumstances, they can be relied upon to start working straight away and not stop for years – in most cases way outlasting their 20-year FIT term or insurance warranty.
Because of the FIT, but also because of energy prices, which contribute to returns in two ways. First, if energy prices are going up, the developer is receiving more revenue for the energy they produce and some of this goes back to the investors. Second, energy prices are included in the Retail Price Index (RPI) and in fact, have a large bearing on it as energy makes up so much of household spending.
So energy prices push up RPI and therefore also push up the index-linked FIT. So investors in renewable energy projects might be paying more on their energy bills, but are getting some money back in the form of higher returns on your renewable investments.
5. The impact on local communities
Discounting the shrill minority of nimbys (‘not in my back yard’), the impact on local communities from local renewable projects is largely perceived as positive. Homeowners will benefit from cheaper energy and there is now a planned government incentive scheme to enshrine discounts on energy bills for communities that approve local renewables projects.
You can now invest in panels on the roofs of new-build and sometimes existing homes, contributing to the lower energy bills of others, or even on school roofs. And there are local jobs in it too.
6. The long-term impact on energy bills
One of the problems with energy from fossil fuels is price volatility, but on an upwards curve. This is because fossil fuels are a finite resource, and as any budding economist knows, a dwindling supply of any good or service pushes up its price.
Guess what? The wind and sun are infinite – as long as there are enough turbines and panels relative to people on the planet, supply-side pressures on the price of energy from renewable sources are kept in check.
It is getting to that point where there are enough panels and turbines (and hydro plants) that could potentially lead to higher bills, but this is a short-term phenomenon and far less damaging than the long-term fossil fuel curve of rising, rising, rising, until it runs out. And no amount of subsidy is going to pay for the Earth to produce more oil and gas for us to extract.
7. The impact on the UK’s energy security
We are dependent upon imports from other countries for everything we take for granted in our modern lives. And in these days of dependency on dwindling, increasingly expensive fossil fuels from or through countries, that’s a fairly powerless and perilous position to be in.
One of the greatest reasons to generate our own renewables projects and the structure to support them, favoured by academics in particular, is energy security. In other words, if you own it, and it is down the road, that’s a darn sight more secure (and cheaper) than a tanker passing through the Gulf.
8. The impact on the planet
This is a quick one: no noxious by-products equals less pollution and less threat of massively destructive natural disasters.
On the thorny issue of climate change, even if you don’t believe that the planet is getting warmer, few deny the harmful effects of carbon dioxide (CO2) on the balance of the planet’s ecosystem.
Imagine if your lungs were being pumped full of CO2 – you wouldn’t last long. If we can stop pumping out that CO2 at such an alarming rate, the planet will breathe a little easier.
You know where your money is going. For years, investment banks and fund managers in that place called the Square Mile have been funnelling our cash, unbeknownst to us, into the hands of the great greedy, the bonus boys, the Machiavellis of the modern era, who have in turn ploughed it into companies that have no remit other than to make lots of profit, by any means necessary, mainly for no one but themselves.
In many ways, this mechanism of cash into bank, cash into God knows what and by whom but certainly not much back to where it came from, is how we have ended up in the sorry state the economy is currently in.
But you can’t siphon money off into a renewable energy project. It is not a ‘trust’ (so illicit); it is not a ‘derivative’ (of what?); it is there, you can drive up to it, touch it and maybe have a cup of tea with the developer.
10. The length of the investment term
Short-termism is everywhere in life, but nowhere is it more damaging than in finance. Think of the havoc wreaked by payday loans, for example. Long-term means building something worthwhile, not cutting and running. And renewable energy investments are long-term.
Abundance Generation debentures, for example, are for 20 years or so, in line with the duration of the FIT payments (capital is at risk). This won’t suit everyone, particularly if your investment goal is for something you want soon, such as a car or holiday. But it does provide a big boost to returns to keep your money in something that is (crucially) inflation-linked, for a longer period.
If you re-invest any payments you receive from the investment before the end of the term, so much the better. Great if you are 20 years from retirement, for example, or saving for your young children’s university education. A secondary market for some renewable energy investments is developing. However, the sector is still quite young, so it may be hard to find a buyer for any investment you wish to sell.
BONUS REASON: The good feeling
Please note that investments in renewable energy projects tend to be long-term. Your capital may be at risk and investments may not be readily realisable. Returns tend to be variable.
2017 Was the Most Expensive Year Ever for U.S. Natural Disaster Damage
Devastating natural disasters dominated last year’s headlines and made many wonder how the affected areas could ever recover. According to data from the U.S. National Oceanic and Atmospheric Administration (NOAA), the storms and other weather events that caused the destruction were extremely costly.
Specifically, the natural disasters recorded last year caused so much damage that the associated losses made 2017 the most expensive year on record in the 38-year history of keeping such data. The following are several reasons that 2017 made headlines for this notorious distinction.
Over a Dozen Events With Losses Totalling More Than $1 Billion Each
The NOAA reports that in total, the recorded losses equaled $306 billion, which is $90 billion more than the amount associated with 2005, the previous record holder. One of the primary reasons the dollar amount climbed so high last year is that 16 individual events cost more than $1 billion each.
Global Warming Contributed to Hurricane Harvey
Hurricane Harvey, one of two Category-4 hurricanes that made landfall in 2017, was a particularly expensive natural disaster. Nearly 800,000 people needed assistance after the storm. Hurricane Harvey alone cost $125 billion, with some estimates even higher than that. So far, the only hurricane more expensive than Harvey was Katrina.
Before Hurricane Harvey hit, scientists speculated climate change could make it worse. They discussed how rising ocean temperatures make hurricanes more intense, and warmer atmospheres have higher amounts of water vapor, causing larger rainfall totals.
Since then, a new study published in “Environmental Research Letters” confirmed climate change was indeed a factor that gave Hurricane Harvey more power. It found environmental conditions associated with global warming made the storm more severe and increase the likelihood of similar events.
That same study also compared today’s storms with ones from 1900. It found that compared to those earlier weather phenomena, Hurricane Harvey’s rainfall was 15 percent more intense and three times as likely to happen now versus in 1900.
Warming oceans are one of the contributing factors. Specifically, the ocean’s surface temperature associated with the region where Hurricane Harvey quickly transformed from a tropical storm into a Category 4 hurricane has become about 1 degree Fahrenheit warmer over the past few decades.
Michael Mann, a climatologist from Penn State University, believes that due to a relationship known as the Clausius-Clapeyron equation, there was about 3-5 percent more moisture in the air, which caused more rain. To complicate matters even more, global warming made sea levels rise by more than 6 inches in the Houston area over the past few decades. Mann also believes global warming caused the stationery summer weather patterns that made Hurricane Harvey stop moving and saturate the area with rain. Mann clarifies although global warming didn’t cause Hurricane Harvey as a whole, it exacerbated several factors of the storm.
Also, statistics collected by the Environmental Protection Agency (EPA) from 1901-2015 found the precipitation levels in the contiguous 48 states had gone up by 0.17 inches per decade. The EPA notes the increase is expected because rainfall totals tend to go up as the Earth’s surface temperatures rise and additional evaporation occurs.
The EPA’s measurements about surface temperature indicate for the same timespan mentioned above for precipitation, the temperatures have gotten 0.14 Fahrenheit hotter per decade. Also, although the global surface temperature went up by 0.15 Fahrenheit during the same period, the temperature rise has been faster in the United States compared to the rest of the world since the 1970s.
Severe Storms Cause a Loss of Productivity
Many people don’t immediately think of one important factor when discussing the aftermath of natural disasters: the adverse impact on productivity. Businesses and members of the workforce in Houston, Miami and other cities hit by Hurricanes Harvey and Irma suffered losses that may total between $150-200 billion when both damage and sacrificed productivity are accounted for, according to estimates from Moody’s Analytics.
Some workers who decide to leave their homes before storms arrive delay returning after the immediate danger has passed. As a result of their absences, a labor-force shortage may occur. News sources posted stories highlighting that the Houston area might not have enough construction workers to handle necessary rebuilding efforts after Hurricane Harvey.
It’s not hard to imagine the impact heavy storms could have on business operations. However, companies that offer goods to help people prepare for hurricanes and similar disasters often find the market wants what they provide. While watching the paths of current storms, people tend to recall storms that took place years ago and see them as reminders to get prepared for what could happen.
Longer and More Disastrous Wildfires Require More Resources to Fight
The wildfires that ripped through millions of acres in the western region of the United States this year also made substantial contributions to the 2017 disaster-related expenses. The U.S. Forest Service, which is within the U.S. Department of Agriculture, reported 2017 as its costliest year ever and saw total expenditures exceeding $2 billion.
The agency anticipates the costs will grow, especially when they take past data into account. In 1995, the U.S. Forest Service spent 16 percent of its annual budget for wildfire-fighting costs, but in 2015, the amount ballooned to 52 percent. The sheer number of wildfires last year didn’t help matters either. Between January 1 and November 24 last year, 54,858 fires broke out.
2017: Among the Three Hottest Years Recorded
People cause the majority of wildfires, but climate change acts as another notable contributor. In addition to affecting hurricane intensity, rising temperatures help fires spread and make them harder to extinguish.
Data collected by the National Interagency Fire Center and published by the EPA highlighted a correlation between the largest wildfires and the warmest years on record. The extent of damage caused by wildfires has gotten worse since the 1980s, but became particularly severe starting in 2000 during a period characterized by some of the warmest years the U.S. ever recorded.
Things haven’t changed for the better, either. In mid-December of 2017, the World Meteorological Organization released a statement announcing the year would likely end as one of the three warmest years ever recorded. A notable finding since the group looks at global land and ocean temperature, not just statistics associated with the United States.
Not all the most financially impactful weather events in 2017 were hurricanes and wildfires. Some of the other issues that cost over $1 billion included a hailstorm in Colorado, tornados in several regions of the U.S. and substantial flooding throughout Missouri and Arkansas.
Although numerous factors gave these natural disasters momentum, scientists know climate change was a defining force — a reality that should worry just about everyone.
How to be More eco-Responsible in 2018
Nowadays, more and more people are talking about being more eco-responsible. There is a constant growth of information regarding the importance of being aware of ecological issues and the methods of using eco-friendly necessities on daily basis.
Have you been considering becoming more eco-responsible after the New Year? If so, here are some useful tips that could help you make the difference in the following year:
1. Energy – produce it, save it
If you’re building a house or planning to expand your living space, think before deciding on the final square footage. Maybe you don’t really need that much space. Unnecessary square footage will force you to spend more building materials, but it will also result in having to use extra heating, air-conditioning, and electricity in it.
It’s even better if you seek professional help to reduce energy consumption. An energy audit can provide you some great piece of advice on how to save on your energy bills.
While buying appliances such as a refrigerator or a dishwasher, make sure they have “Energy Star” label on, as it means they are energy-efficient.
Regarding the production of energy, you can power your home with renewable energy. The most common way is to install rooftop solar panels. They can be used for producing electricity, as well as heat for the house. If powering the whole home is a big step for you, try with solar oven then – they trap the sunlight in order to heat food! Solar air conditioning is another interesting thing to try out – instead of providing you with heat, it cools your house!
2. Don’t be just another tourist
Think about the environment, as well your own enjoyment – try not to travel too far, as most forms of transport contribute to the climate change. Choose the most environmentally friendly means of transport that you can, as well as environmentally friendly accommodation. If you can go to a destination that is being recommended as an eco-travel destination – even better! Interesting countries such as Zambia, Vietnam or Nicaragua are among these destinations that are famous for its sustainability efforts.
3. Let your beauty be also eco-friendly
We all want to look beautiful. Unfortunately, sometimes (or very often) it comes with a price. Cruelty-free cosmetics are making its way on the world market but be careful with the labels – just because it says a product hasn’t been tested on animals, it doesn’t mean that some of the product’s ingredients haven’t been tested on some poor animal.
To be sure which companies definitely stay away from the cruel testing on animals, check PETA Bunny list of cosmetic companies just to make sure which ones are truly and completely cruelty-free.
It’s also important if a brand uses toxic ingredients. Brands such as Tata Harper Skincare or Dr Bronner’s use only organic ingredients and biodegradable packaging, as well as being cruelty-free. Of course, this list is longer, so you’ll have to do some online research.
4. Know thy recycling
People often make mistakes while wanting to do something good for the environment. For example, plastic grocery bags, take-out containers, paper coffee cups and shredded paper cannot be recycled in your curb for many reasons, so don’t throw them into recycling bins. The same applies to pizza boxes, household glass, ceramics, and pottery – whether they are contaminated by grease or difficult to recycle, they just can’t go through the usual recycling process.
People usually forget to do is to rinse plastic and metal containers – they always have some residue, so be thorough. Also, bottle caps are allowed, too, so don’t separate them from the bottles. However, yard waste isn’t recyclable, so any yard waste or junk you are unsure of – just contact rubbish removal services instead of piling it up in public containers or in your own yard.
5. Fashion can be both eco-friendly and cool
Believe it or not, there are actually places where you can buy clothes that are eco-friendly, sustainable, as well as ethical. And they look cool, too! Companies like Everlane are very transparent about where their clothes are manufactured and how the price is set. PACT is another great company that uses non-GMO, organic cotton and non-toxic dyes for their clothing, while simultaneously using renewable energy factories. Soko is a company that uses natural and recycled materials in making their clothes and jewelry.
All in all
The truth is – being eco-responsible can be done in many ways. There are tons of small things we could change when it comes to our habits that would make a positive influence on the environment. The point is to start doing research on things that can be done by every person and it can start with the only thing that person has the control of – their own household.