12% interest biomass bond – not a typo

Written by Rebecca O'Connor on 8th Dec 2016

A new renewable energy project in Herefordshire is promising to pay investors 12 per cent on their money for one year.

Any investor lending money to the project through a new Innovative Finance ISA, available on the Abundance Investments platform, can also reap that reward tax-free.

Not surprisingly, the raise, which launched last Friday, is already over the half way mark, with nearly £2.2mn already invested and a further £1.7mn to go to reach the target.

Monnow Valley is issuing this short-term debenture to install up to 10 Combined Heat & Power units and two biomass boilers in Herefordshire. Once constructed, the units will supply electricity to a neighbouring business park and become eligible for government subsidies.

All being well, the biomass boilers and CHP units are expected to be installed and commissioned by the end of March 2017.

This one-year bond will be refinanced by a long-term debenture at the end of its term.

Enough to make you want to remortgage? This author is thinking about it (but do remember there is a risk you could lose all your money).

Before you say “too good to be true”, let’s explain.

To understand how anyone can legitimately pay 12 per cent over one year without huge amounts of risk attached, you need to get your head around subsidies for renewable energy, just a little bit.

Biomass and Combined Heat and Power are relatively under-used forms of renewable energy, therefore they attract higher incentives than, say, onshore wind and solar, which have been very successful.

Incentives are designed to be reduced the more mainstream a renewable energy becomes – the theory is that once the technology reaches a certain scale, the developers no longer need the additional incentive to develop it, because it becomes profitable by itself.

However, biomass and CHP are a way off this point, which is why they still need quite chunky subsidies to attract investors to bother to build them.

So the 12 per cent return reflects the additional subsidies to which these forms of renewable energy are entitled.

Early wind and solar investors made these kind of returns. It is thanks to the development of renewable energy crowdfunding and sites like Abundance that regular punters can get access to this kind of deal now too.

Bruce Davis, co-founder and joint managing director of Abundance, said: Our customers told us they wanted a wider range of investments available when our ISA launched on November 1st. This Biomass debenture paying 12% over 12 months will fund the installation of tried and tested Combined Heat and Power technology to power small and medium businesses in Hereford.   Powering your ISA with green energy makes sense for investors seeking a higher level of risk and return for their tax free investment pot.”

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