Put some green in your portfolio

Renewable energy can be a good option for investors as subsidies wind down and fundraising cranks up. By Sarah Davidson

Wind turbines, solar farms and tidal power – renewable energy is moving into the investment mainstream. The launch of several specialist funds and the advent of crowdfunding means private investors can invest in renewables from as little as £5.

"2013 has seen private investment in the renewable energy sector explode as project developers woke up to the potential for raising funding directly from investors," says Julia Groves, managing director of the renewable Trillion Fund.

For a long time, investors could only access renewable energy by investing in complex Enterprise Investment Schemes with a high minimum investment. But this has now changed with dedicated investment trusts – listed on the stock exchange – such as Greencoat Wind, Bluefield Solar, Infinis, the Foresight Solar fund and The Renewable Infrastructure Group, raising a collective £918m .

It's not just funds that have improved access to renewables. Private investors have also had the option to invest through two retail bonds issued this year – Good Energy and Energy Bonds – and there have been five project fundaisers done through crowdfunding platform Abundance Generation.

Each type of investment offers different advantages. Bruce Davis, managing director of the crowdfunding firm Abundance, says: "In general, single company bonds are good for investors looking to get a short-term return on their money and diversify away from conven-tional bonds from building societies and listed companies."

However you choose to invest, returns are generated in part from the sale of electricity to the grid and also from Government subsidies in the form of feed-in tariffs (FITs) for smaller scale projects and Renewable Obligation Certificates for larger scale projects.

This means one of the advantages of including some renewable energy in a portfolio is that returns are linked to energy prices, so rising prices – as we have now – means higher returns.

But a concern for investors has been the reliance of renewable energy on subsidies and indeed, it is because of a wind-down in these that developers are looking to raise capital from private investors.

Groves explains: "Developers have previously relied upon private equity and bank finance. But private equity interest in renewables has dried up as subsidies have declined and bank finance is still quite costly for medium-sized projects."

For that reason Darius McDermott, managing director of broker Chelsea Financial Services, says private investors who still want exposure to renewables but who want lower risk should consider fund and he points to two he likes – Foresight Solar VCT and Ventus.

"This offers diversification and an expert team doing the research for you," he says. "It's a very volatile sector and hugely susceptible to Government interference so individual stocks can be hit hard."

Patrick Connolly from financial planning adviser deVere also urges caution. He says: "They should only be considered by those who already have a significant and diversified investment portfolio in place and are prepared to accept the risks."

For those who think they fit this bill deVere recommends the Oxford Capital Infrastructure EIS or Downing Renewables EIS to its clients.

If you're thinking about including renewables in your portfolio Groves has one last piece of advice.

"These are not savings accounts – even if returns are steady, your capital is at risk," she says.

"If the investment goes belly up, even those with FCA-authorised firms won't get their money back though they may get compensation if they were mis-sold."

How to invest

Investment trusts or companies

Advantages: Funds are closed-ended; funding won’t be withdrawn unexpectedly. Steady dividends and strong revenues.

Disadvantages: Riskier than open-ended funds. Losses in bad times can be steep.

Enterprise investment schemes

Advantages: Income tax relief is available to investors who purchase shares in an EIS at 30 per cent up to a maximum of £1m. Investors in similar venture capital trusts get income tax relief at 30 per cent.

Disadvantages: High minimum investment requirements of £10,000. Tax relief may be curbed.

Mini Bonds

Advantages: Fixed-term loans to developers, repaid out of cash flow. Minimums of £500 or £1,000.

Disadvantages: Mini bonds are not as heavily regulated as funds and offer investors less protection.

Crowdfunding

Advantages: Abundance Generation is regulated, so investors are protected.

Disadvantages: Your funds will be tied up for up to 20 years.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

PROMOTED VIDEO
Arts and Entertainment
British musician Mark Ronson arrives for the UK premiere of the film 'Mortdecai'
music
Voices
Winston Churchill, then prime minister, outside No 10 in June 1943
voicesA C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
News
i100
Sport
footballBrighton vs Arsenal match report
Arts and Entertainment
Benedict Cumberbatch has spoken about the lack of opportunities for black British actors in the UK
film
News
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Tax Assistant

    Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...

    Recruitment Genius: Outbound Sales Executive - OTE £25,000

    £16000 - £25000 per annum: Recruitment Genius: This is an exciting opportunity...

    Ashdown Group: Java Developer / J2EE Developer - Watford - £45,000 - £47,000

    £45000 - £47000 per annum + bonus + benefits: Ashdown Group: Java Developer / ...

    Ashdown Group: Marketing Product Manager - (Financial Services) - SW London

    £35000 - £38000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

    Day In a Page

    Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

    What the six wise men told Tony Blair

    Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
    25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

    25 years of The Independent on Sunday

    The stories, the writers and the changes over the last quarter of a century
    Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

    Homeless Veterans appeal

    As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
    Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

    Smash hit go under the hammer

    It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy
    Geeks who rocked the world: Documentary looks back at origins of the computer-games industry

    The geeks who rocked the world

    A new documentary looks back at origins of the computer-games industry
    Belle & Sebastian interview: Stuart Murdoch reveals how the band is taking a new direction

    Belle & Sebastian is taking a new direction

    Twenty years ago, Belle & Sebastian was a fey indie band from Glasgow. It still is – except today, as prime mover Stuart Murdoch admits, it has a global cult following, from Hollywood to South Korea
    America: Land of the free, home of the political dynasty

    America: Land of the free, home of the political dynasty

    These days in the US things are pretty much stuck where they are, both in politics and society at large, says Rupert Cornwell
    A graphic history of US civil rights – in comic book form

    A graphic history of US civil rights – in comic book form

    A veteran of the Fifties campaigns is inspiring a new generation of activists
    Winston Churchill: the enigma of a British hero

    Winston Churchill: the enigma of a British hero

    A C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
    Growing mussels: Precious freshwater shellfish are thriving in a unique green project

    Growing mussels

    Precious freshwater shellfish are thriving in a unique green project
    Diana Krall: The jazz singer on being friends with Elton John, outer space and skiing in Dubai

    Diana Krall interview

    The jazz singer on being friends with Elton John, outer space and skiing in Dubai
    Pinstriped for action: A glimpse of what the very rich man will be wearing this winter

    Pinstriped for action

    A glimpse of what the very rich man will be wearing this winter
    Russell T Davies & Ben Cook: 'Our friendship flourished online. You can share some very revelatory moments at four in the morning…'

    Russell T Davies & Ben Cook: How we met

    'Our friendship flourished online. You can share some very revelatory moments at four in the morning…'
    Bill Granger recipes: Our chef serves up his favourite Japanese dishes

    Bill Granger's Japanese recipes

    Stock up on mirin, soy and miso and you have the makings of everyday Japanese cuisine
    Michael Calvin: How we need more Eric Cantonas to knock some sense into us

    Michael Calvin's Last Word

    How we need more Eric Cantonas to knock some sense into us