08:21 EST, 29 October 2013
12:43 EST, 29 October 2013
If you want to profit from renewable energy but the thought of solar panels on your
roof seems too expensive or a wind farm in your garden sounds too noisy,
you could benefit by investing in a new breed of funds and trusts.
Energy companies are hitting the headlines again after price hikes have arrived in time for winter and part of the driving force for rising bills is the Government’s commitment to – and subsidies for – green energy.
The government is aiming to provide 15 per cent of energy from renewable sources in 2020, up from 3 per cent in 2009, and to do that it needs to subsidise solar, wind and other renewable energy sources.
Sun seeker: You could earn more than 6 per cent a year by investing in renewable energy
That means that there is a lot of opportunity for
businesses providing solar panels and wind power sites. However, these
do rely on continued government support for renewable sources and
schemes such as feed-in-tariffs.
The government has a number of incentives for households and businesses to use renewable energy through feed-in-tariffs.
For example, the government is aiming to produce 20gigawatts of solar power capacity in the UK by 2020, but so far has only produced 2gigawatts.
This has created a solid investment for those willing to take subsidies for solar panels on their roof.
But if you’d rather not be lumbered with something so permanent, a fund or trust could help you tap into the investment idea.
On the one hand, you could get paid for energy produced through solar panels put on a residential or commercial building, which in returns help the government meet its carbon reduction targets.
Or you could invest in a business that is providing this power and benefit from their dividends.
Mick Gilligan, head of research for Killik, says: ‘What makes this area economically viable is the regulatory regime and the financial incentives to generate alternative sources of energy.
‘Because of that financial incentive the revenue stream versus the cost of building them makes financial sense
‘We have suggested investors put these types of funds or trusts in their portfolios as an alternative to fixed income.’
Mr Gilligan highlights four top funds and trusts to invest in solar wind and power below.
HOW TO USE OUR INVESTING IDEAS
This is Money asks our panel of experts to suggest investments for a variety of investors.
These are people with a long history in the investment field and looking
at their choices gives you some pointers. But remember, these are just
ideas and whether a particular product is right for you is your own
decision and making that requires deeper research.
Read the ideas, check fund and trust performance, and then do your own research into how the investment and the company running it stack up. If you have any doubts,
talk to an independent financial adviser.
Invest in the UK’s sunshine
Bluefield Solar Income Fund
WHAT IS NAV?
Net asset value, or NAV, is the value of an investment trust’s holdings.
It is calculated by dividing the
total value of assets (what it owns) minus liabilities (what it owes) by
the amount of shares existing.
This is separate to a trust’s share price, which is what it would cost an investor to buy in.
An investment trust trading at a
discount to NAV may be regarded as cheap because the shares cost less
than its overall value – although there might be good reasons why, such
as investors being justifiably pessimistic about its prospects.
When a trust trades at a premium to NAV it is more expensive than its net worth.
This is different to investment funds which do not have a separate share price and NAV.
Charges: 1 per cent of net asset value up to £100million, 0.8 per cent above £100m, 0.6 per cent above £200m. The NAV is currently £99.3m, so charges should be 1 per cent.
Yield: 4.1 per cent
It will target long life solar energy infrastructure, expected to generate stable renewable energy output over a 25 year asset life.
It has acquired four solar plants so far since launch in July, the latest in Oxfordshire constructed by Solarcentury.
The fund’s total investments are worth £55.3m
Launched in July, the company is targeting a return of 4 per cent in the first year, rising to 7 per cent in the second year, and then increasing its returns in line with retail price index each year.
It is currently trading at a 1.7 per cent premium to net asset value.
Invest in British and European sunshine
Foresight solar fund
Charges: 2 per cent set-up charge, 1 per cent annual management charge.
Dividend yield: Only listed in October
The Foresight Group has raised £150m for a solar fund that has listed on the London Stock Exchange. It listed on Tuesday 29 October and the price is hovering at just over 100p.
It is targeting a 6 per cent annual dividend.
While the product is called a fund, it will work as an investment trust, meaning the usual system of share price and net asset value applies.
The trust will invest in UK-based solar power plants predominantly in the UK.
Investments outside the UK and assets which are still under construction will be limited to 25
per cent of the value of the company.
Invest in wind and sun
Wind up: The government is committed to wind power but it can be noisy and spoil local scenery
Renewables Infrastructure Group
Charges: 1 per cent a year for first £1billion of the portfolio and 0.8 per cent above £1billion.The NAV is currently £98m.
Dividend yield: 5.8 per cent
It is aiming for an initial dividend of 6 per cent and a long term return of 8 to 9 per cent per year.
Launched in July, the initial
portfolio consists of 18 sites in the UK, France and the Republic of
Ireland, 14 of which are operating onshore wind projects and four are
operating solar projects.
The company plans to acquire
investments in the UK and other Northern European countries including
France, Ireland, Germany and Scandinavia.
It is currently trading at a 5.8 per cent premium to net asset value.
Invest in wind
Greencoat UK wind
Charges: Annual management fee of 1 per
cent. 0.2 per cent annual fee paid to the manager in shares with a 3
year lock-up. This trust does not yet have an AIC ongoing charge.
Dividend yield: 5.8 per cent
If you are more into wind than sun, Greencoat UK Wind offers investors exposure to this specific sector.
Launched in March, Greencoat UK Wind aims for a 6 per cent annual dividend, increasing in line with the retail price index.
The success of this investment will depend on the continued government support for wind power as an alternative form of energy.
The company has already acquired a seed portfolio of interests in six wind farms. The Department of Business Innovation and Skills and renewable energy company SSES are among the big investors.
The trust has interests in three wind farms in England, two in Scotland, two in Northern Ireland and one in Wales.
Revenue is raised from the sale of power produced and green benefits accredited. All are sold under long term agreements to utilities who are obliged by law to procure a certain percentage of power from green sources.
It currently has a net asset value of £103.61m and Association of Investment Companies figures show it trading at a 0.8 per cent discount to net asset value.
Mr Gilligan says this trust currently looks attractive on price as it has previously been trading at a premium to NAV.
He explains: ‘An interim management statement earlier this year showed that operational performance of the portfolio was in line with expectations and the company remains on track to meet the objective of distributing a 6p annual dividend, putting the shares on a prospective 5.7 per cent yield.
‘Steady NAV growth since launch has now put the shares on a smaller premium to that of the initial capital raise.’
MINI ENERGY BONDS: ARE THESE WORTH A LOOK
This is not a Killik pick but This is
Money has noticed a trend of energy mini-bond launches, with CBD Energy
providing one of the latest.
Mini-bonds are unlisted corporate bonds. The market for
mini-bonds is set to grow to from under £90million last year to
£1billion by the end of 2013, according to research from Capita
Capita believes consumers are
welcoming a new investment alternative and expressing a healthy appetite
for a savings vehicle which doesn’t mean dead money in a bank account.
But because mini-bonds are unlisted they operate
outside of the regulated space and are not protected by the Financial
Services Compensation Scheme. Ultimately, there is no safety net beyond a company’s solvency.
They are different to direct corporate bond funds which spread risk and are regulated and individual retail corporate bonds that can be traded on the Orb market.
Renewable energy firm, CBD Energy has
launched a mini-bond dedicated to solar power that offers a 6.5 per cent
annual return over three years. The offer is open until 9 December.
The Secured Energy Bonds
will use money raised, through minimum investments of £2,000, to install
solar panels on chosen projects. The company is hoping to raise
The solar panels collect energy from the sun, even on cloudy days, and convert it to electricity. This electricity attracts a government
incentive and is also sold to the businesses at a reduced rate,
generating a constant revenue stream.
For those worried about the impact on
scenery and the countryside, the company has pledged not to use the
money for wind turbines or ground mounted solar installations. It will
only be used for rooftop installations and on industrial sites.
The product is touted as the first
secured solar mini-bond. This tackles one of the risks of mini-bonds.
The structure set up by CBD means
bondholders will hold the security over all the cash, income and assets
of Secured Energy Bonds, meaning if the company collapses and can no
longer make payments, investors will be the first creditors.
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london, United Kingdom,
2 hours ago
I am sure I read the other day that the government wants to end subsides for solar in five years time.
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