How to invest in renewable energy bonds

Written by Rebecca Jones on 18th Feb 2019

This is the fifth article in a new series from Good With Money: “How To Invest In Renewable Energy,” produced in collaboration with Mint Selection, a renewable energy finance and project development recruitment consultancy.

As we have already explored in the third of our series, ‘How to Invest in Renewable Energy Equities’, renewable energy equities, or shares, allow investors to own chunks of a renewable energy company that is either listed on a stock market (listed), or not (unlisted).

Bonds, on the other hand, give investors access to the debt of a renewable energy company. While this may sound a little strange to newbie investors, bonds in fact pre-date equities (the first was issued in 2,400 BC!)[1] and serve a well-established purpose in financial markets.

When a company wants to grow, perhaps by investing in a new project, it needs cash. Issuing a new tranche of shares is not typically seen as a good way to do this as it dilutes the value of each share and can lead to other problems down the line too.

Instead, most ask for a loan. And that’s a bond: a loan. When a company issues a bond it is asking the market to lend it a specified amount of money in return for a regular income payment. This is sometimes known as the ‘coupon’ as back in the old days bondholders would be issued with a physical receipt.

 

Reliable, renewable returns

Bonds have a number of advantages. The regular coupon means they are highly attractive to those looking for a regular income stream such as pensioners or others that need to make a chunk of money work hard while they don’t – perhaps students or those on a career break.

The returns on offer in the renewable energy bond space vary widely depending on the type of project investors choose and how long that bond will be active for. Typically, though, renewable bondholders can expect to make between 5 and 15 per cent per year on an investment.

Bonds are also attractive as, typically, they are lower risk than equities. This is because creditors are always repaid before shareholders when a company collapses. In this way, bonds bridge a gap between the stock market and cash accounts – the latter of which have been paying below inflation returns for a decade now.

This doesn’t, however, mean that bonds are risk-free. This is especially the case in the renewable energy space, where projects may run up against numerous issues before and after they become fully operational.

 

Who issues renewable bonds?

As highlighted above, there are a number of reasons a renewable energy company may want to raise a bond rather than issue more shares, as well as a number of reasons investors may find a bond more attractive.

Typically, existing renewable energy projects are best suited to bond issues as they are already operational. As we explored in the first of our series, How to Invest in Renewable Energy, renewable projects under construction are subject to potential glitches and delays and so they may be less attractive to those looking for a reliable income stream.

While these firms may be looking to borrow money to construct new infrastructure or boost existing capacity, the fact they already have a track record makes them more reliable in the eyes of lenders. This is similar to why consumers with less than five years of accounts history would struggle to get a mortgage.

That doesn’t mean bond investors shouldn’t consider new projects. However, they will typically be longer term investments – at least five and perhaps even twenty years – and may not start to pay-out for the first two or three years. Bonds on existing projects, on the other hand, will usually pay out straight away and have a much shorter life span.

 

What can I invest in now?

Bonds, unlike listed shares, will only be offered for a set period of time and so investors looking for a new opportunity should keep a close eye on projects they like and/or the platforms that list them.

The latter category includes Ethex, Abundance Investments, Triodos Crowdfunding and Downing Crowd, all of which give investors access to regular peer-to-peer bonds in renewable projects in the UK and abroad. As of 3 February 2019, opportunities include:

 

Dove Renewables

Projected Annual return: 5 per cent

Bond Term: 11 years

Operational: Yes

Dove Renewables owns two hydro schemes in the UK and this bond is for its Norbury weir scheme on the River Dove in the Peak District. Built in 2016, it was partly funded by an £800,000 bond promoted by Triodos Bank and has been performing to target since. The company is hoping to raise up to £1.1 million to repay the £800,000 bond issued in 2016 and to repay shareholder loans.

 

Co-gen Ltd Waste Gasification

Projected annual return: 10 per cent

Bond term: 4 year 6 months

Operational: No

CoGen Limited is offering a 4.5 year bond targeting 10 per cent interest a year which it will use to build waste processing facilities that can turn some of the 222 million tonnes of waste the UK produces every year into green energy. The firm already has four waste gasification sites in the UK and plans to use cutting edge Japanese technology to develop further sites.

 

Energise Africa UpOwa – Issue 5: Cameroon 6.75 per cent Bond

Projected Annual return: 6.75 per cent

Bond Term: 4 years

Operational: No

Every £104 invested in the UpOwa – Issue 5: Cameroon bond will allow upOwa – the country’s leading pay as you go solar provider – to install a 10Wp Solar Home System (‘SHS’) to a household that was previously off-grid. With the funds from this raise, upOwa intend to supply 720 10Wp systems meaning that they will be able to bring electricity to 720 families previously off-grid in Cameroon.

Sign up to our weekly newsletter

Get better with money, in every way.

 

[1] http://bondfunds.com/education/a-brief-history-of-bond-investing/