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Investing In Clean Energy – The Low Risk Way

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This article first appeared on 3D Investing’s blog and is republished with kind permission. John Fleetwood writes: “Clean energy has been one of the darlings of the sustainable investment world, at least in terms of investor demand.  Its something that every socially motivated investor wants to have in their portfolio, but until relatively recently, it has proven an almost unmitigated disaster area for investors.”

Even now, most clean energy funds are languishing below the level they were 5 years ago, most significantly down in value.  Those that have limited the losses have only done so by diversifying into natural gas and stocks not directly related to clean energy.  And individual shares in the sector have been even more volatile. Vestas Wind, one of the leading wind turbine manufacturers is typical:
 

It may be that clean energy investment will prove to be highly profitable over the decades ahead, but the last decade has not been encouraging and this sort of volatility does not sit well in most people’s portfolios.  So are there any alternatives and if so, are they worthy of consideration? I believe there are, and I’d like to highlight two ways of investing in renewable energy without being exposed to the volatility of clean energy equities.The first is via environmental infrastructure funds.


These are a relatively recent phenomenon in the UK, and consist of large portfolios of renewable energy assets, often already operational and with long-term, relatively secure contracts for the energy they produce.  This removes much of the risk of planning and development, albeit with lower potential returns.  Typically, these funds are structured as investment trusts with a target initial yield of around 6% that is expected to grow in line with inflation.

Borrowings are secured for periods similar to the expected lifetime of energy generation, and income is underpinned by long term agreements, often in association with Government incentives.  All of this makes infrastructure funds a less risky way of investing in clean energy, albeit without the potential upside offered by renewable energy equities.  That said, an inflation linked dividend of 6% isn’t to be sneezed at, especially when there is the potential for modest capital growth on top of that.

I suspect that many, if not most investors, would rather accept a lower overall return than take on a high level of volatility.Most of the funds trade at a modest discount to their net asset value, and are either wholly focused on one form of clean energy (wind or solar), or a combination.  The table below summarises those available in the UK.  All of these funds are now paying dividends of 5.5% or more, supported by predictable revenue streams from operational assets.

There are also a number of funds that invest in environmental assets, of which a large proportion is invested in renewable energy. The other way of investing in clean energy that I’d like to highlight is community share issues.  These are promoted as social investments as indeed they are, but they also offer long term income streams that might be considered to be less volatile than investing directly in listed companies.


There have been a proliferation of such investments over the past few years, boosted by Government tax incentives.  These took some of the risk our of investment by providing generous tax relief up front and with the maturation of the industry, the Government now considers that this is no longer appropriate.  Although disappointing, the withdrawal of tax relief is testament to the predictable nature of the income streams and the lowered risk of this type of investment.

The number of new solar investments has diminished sharply but there are still opportunities for both solar and wind investments in community based projects.  There are two very good community investment sites that facilitate investment in these type of projects.The first is Ethex, a partner of 3D Investing.  Ethex makes positive investing easy to understand and do, providing a direct and personal way for individuals to invest in businesses they believe in.  It does this by providing in depth social and financial profiles that enable comparison of the investments.  Investment can then be made online in a simple and straightforward way.  Current offers include:

 
 

A 3 year bond paying 6% interest to finance new solar energy projects in the Bristol area.

A 2 year bond paying 5.5% interest to purchase the assets of a solar Community Interest Company.

Shares in a Community Benefit Society with a forecast return of 6-8%, derived from investing in two community owned wind turbines.

The second portal for community energy investment is Abundance.  Abundance is wholly focused on community energy investment and offers peer-to-peer investments in long term debentures.  Most notably, Abundance has pioneered a pretty unique financing model, whereby the majority of investments offer the repayment of capital and interest every six months throughout the term of the investment.  So far, £1,241,437 has been paid back to investors by way of capital repayments and interest on £14,771,983 capital raised, offering proof of the business model.

Furthermore, it provides a secondary market in investments with £178,511 having been traded already.  This is very encouraging as these types of investment having historically proven to be very illiquid with poorly functioning secondary markets. Abundance has also enabled investment through a pension.  This is to be lauded as these investments generate long term income flows that match the required profile of an investor seeking income in retirement, or for whom the long term predictability of returns is highly desirable.  The usual financial caveats apply, but this is a very significant development.  Well done, Abundance.

Energy

Are the UK Governments Plans for the Energy Sector Smart?

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The revolution in the energy sector marches on, wind turbines and solar panels are harnessing more renewable energy than ever before – so where is it all leading?

The UK government have recently announced plans to modernise the way we produce, store and use electricity. And, if realised, the plans could be just the thing to bring the energy sector in line with 21st century technology and ideologies.


Central to the plans is an initiative that will see smart meters installed in homes and businesses the length and breadth of the country – and their aim? To create an environment where electricity can be managed more efficiently.

The news has prompted some speculation about how energy suppliers will react and many are predicting a price war. This could benefit consumers of electricity and investors, many of whom may be looking to make a profit by trading energy company shares online using platforms such as Oanda – but the potential for good news doesn’t end there.

Introducing New Technology

The plan, titled Smart Systems and Flexibility is being rolled out in the hope that it will have a positive impact in three core areas.

  • To offer consumers greater control by making smart meters available for all homes and businesses by 2020. Energy users will be able to monitor, control and record the amount of energy they use.
  • Incentivise energy suppliers to change the manner in which they buy electricity, to offer more smart tariffs and more off-peak periods for energy consumption.
  • Introduce new standards for electrical appliances – it is hoped that the new wave of appliances will recognise when electricity is at its cheapest and at its most expensive and respond accordingly.

How the Plans Will Affect Solar Energy

Around 7 million houses in the UK have solar panels and the government say that their plan will benefit them as they will be able to store electricity on batteries. The stored energy can then be used by the household and excess energy can be exported to the national grid – in this instance lower tariffs or even payment for the excess energy will bring down annual costs significantly.


The rate of return on energy exported to the national grid is currently between 6% and 10%, but there are many variables to take into account, such as, the cost of battery storage and light levels. Still, those with state-of-the-art solar electricity systems could end up with an annual profit after selling their excess energy.

The Internet of Things

Much of what the plans set out to achieve are linked to the now ubiquitous “internet of things” – where, for example, appliances and heating systems are connected to the internet in order to make them function more smartly.

Companies like Hive have already made great inroads into this type of technology, but the road that the government plans are heading down, will, potentially, go much further -blockchain technology looms and has already proved to be a game changer in the world of currency.

Blockchain Technology

It has already been suggested that the peer to peer selling of energy and exporting it to the national grid may eventually be done using blockchain technology.

“The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.”

Don and Alex Tapscott, Blockchain Revolution (2016)

The upshot of the government’s plans for the revolution of the energy sector, is that technology will play an indelible role in making it more efficient, more flexible and ultimately more sustainable.

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Energy

4 Case Studies on the Benefits of Solar Energy

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Demand for solar energy is growing at a surprising rate. New figures from SolarPower Europe show that solar energy production has risen 50% since the summer of 2016.

However, many people are still skeptical of the benefits of solar energy.Does it actually make a significant reduction in our carbon footprint? Is it actually cost-effective for the company over the long-run?


A number of case studies have been conducted, which indicate solar energy can be enormously beneficial. Here are some of the most compelling studies on the subject.

1.     Boulder Nissan

When you think of companies that leverage solar power, car dealerships probably aren’t the first ones that come to mind. However, Boulder Nissan is highly committed to promoting green energy. They worked with Independent Power Systems to setup a number of solar cells. Here were the results:

  • Boulder Nissan has reduced coal generated electricity by 65%.
  • They are on track to run on 100% renewable energy within the next 13 years.
  • Boulder Nissan reduced CO2 emissions by 416,000 lbs. within the first year after installing their solar panels.

This is one of the most impressive solar energy case studies a small business has published in recent years. It shows that even small companies in rural communities can make a major difference by adapting solar energy.

2.     Valley Electric Association

In 2015, the Valley Electric Association (VEA) created an 80-acre solar garden. Before retiring from the legislature, U.S. Senate Minority Leader Harry Reid praised the new project as a way to make the state more energy dependent and reduce our carbon footprint.


“This facility will provide its customers with the opportunity to purchase 100 percent of their electricity from clean energy produced in Nevada,” Reid told reporters with the Pahrump Valley Times. “That’s a step forward for the Silver State, but it also proves that utilities can work with customers to provide clean renewable energy that they demand.”

The solar energy that VEA produced was drastically higher than anyone would have predicted. SolarWorld estimates that the solar garden created 32,680,000 kwh every year, which was enough to power nearly 4,000 homes.

This was a major undertaking for a purple state, which may inspire their peers throughout the Midwest to develop solar gardens of their own. It will reduce dependency on the electric grid, which is a problem for many remote states in the central part of the country.

3.     Las Vegas Casinos

A number of Las Vegas casinos have started investing in solar panels over the last couple of years. The Guardian reports that many of these casinos have cut costs considerably. Some of them are even selling the energy back to the grid.

“It’s no accident that we put the array on top of a conference center. This is good business for us,” Cindy Ortega, chief sustainability officer at MGM Resorts told Guardian reporters. “We are looking at leaving the power system, and one of the reasons for that is we can procure more renewable energy on the open market.”

There have been many benefits for casinos using solar energy. They are some of the most energy-intensive institutions in the world, so this has helped them become much more cost-effective. It also helps minimize disruptions to their customers learning online keno strategies in the event of any problems with the electric grid.

4.     Boston College

Boston College has been committed to many green initiatives over the years. A group of researchers experimented with solar cells on different parts of the campus to see where they could produce the most electricity. They discovered that the best locationwas at St. Clement’sHall. The solar cells there dramatically. It would also reduce CO2 emissions by 521,702 lbs. a year and be enough to save 10,869 trees.

Boston College is exploring new ways to expand their usage of solar cells. They may be able to invest in more effective solar panels that can generate far more solar energy.

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