Can I make money from green energy?

January 9, 2014 by  
Filed under Green Energy News

But he immediately added a health warning: green energy, when it comes to
investing your money, is still a “niche” or specialist area – it
is not a “mainstream” investment in the way that, say shares in
the big energy companies are.

This means that the risks are higher and it may not be an ideal place to start
if, like Jackie, you are completely new to investing. We’ll look at her
safer options below, but first Carl explains the various ways to invest in
green energy via the stock market.

Green energy Shares

There aren’t that many green energy companies on the stock market, Carl said,
and those that are tend to belong to London’s “junior” market for
small, recently established firms. This market is called “Aim” for
the Alternative Investment Market.

Good Energy is one of the green energy companies to be found here; another is
Renewable Energy Generation, which develops small wind farms, some of which
it sells to raise funds to build more sites.

Companies on Aim are seen as more risky than those on the main stock market.
Infinis, which operates power stations that burn gas produced by landfill
sites as well as onshore wind farms and hydroelectric plants, is an example
of a green power company on the “grown-up” stock market.

Carl stressed: “Unlike the big energy companies and large corporations we
see in the FTSE 100, green energy companies are smaller, much more niche and
carry with them more risk.” He said the golden rule was not to put all
your eggs in one basket but to diversify your holdings.

Green energy funds

To reduce the risk that comes with putting your money into a single company,
which could go bust for any number of reasons, why not spread the risk by
buying shares in a variety of different ones?

This can be done easily with a single purchase if you buy a “fund”.
Here, a professional investor takes your money (and other people’s) and uses
it to buy stakes in companies that he or she feels will make good
investments. Fund managers can call on research that they, their team or
other firms can carry out. Funds, as well as shares, can be held in Isas to
save you tax.

A particular type of fund called “investment trusts” proved the most
popular way to invest into green energy in 2013, Carl said. He added: “There
are several to choose from – if you like solar power there are the Bluefield
Solar Income fund and the Foresight Solar fund if solar is your preferred
choice, or there’s Greencoat UK wind for those with an interest in wind
energy.”

Because these funds are designed to attract investment into small companies,
they offer generous tax benefits. “But they are therefore still risky
investments and you must be prepared to hold the shares for at least five
years,” Carl said.

He added: “The clean technology sector remains very niche; most of the
companies operating in this area are still in the start-up or early stages
and are therefore a risky bet for investors.

“For those looking to invest in green technology, you want to choose
power generation projects that are employing proven technologies created by
large companies rather than using your money to provide early funding for
technologies that may or may not prove feasible.”

Green energy bonds

Buying their shares is not the only way to get a return from green energy
firms. Some of these companies sell “bonds” to investors. If you
buy a bond you are lending money to the company and in return it will pay
you interest. This regular income can be much more than you would get in a
savings account – sometimes 6pc or even 7pc. Normally the bond will be
repaid after a set number of years, when you get your original money back
and the interest payments stop.

Among the green energy firms to have issued bonds to individual investors
recently are CBD
Energy
, whose bonds pay 6.5pc annual interest, Good Energy (7.25pc),
Ecotricity (6.5pc) and Secured Energy Bonds (6.5pc). But to invest you would
need to buy the bonds when they were first issued – these particular bonds
are not available on the stock market.

Although bond prices tend to rise and fall less than share prices, there are
still important risks. If the company that issues the bonds goes bust,
interest payments will cease and you are almost certain to lose some or all
of your original investments. And, unlike savers with a bank, you will not
be protected by the government-backed compensation scheme.

Again, spreading your money among different companies is a good idea if you
want to take the bond route.

Solar panels

You may not see them as an investment in the way that shares are, but solar
panels on your roof can provide a steady income – potentially much higher
than you would get from a savings account. Many investors look more for a
good income than for a rise in the value of their holdings.

Carl said: “What makes the investment case for solar panels so alluring
to many people is the fact that it doesn’t involve banks or financial
advisers. All that is needed is themselves and a roof.

“Many people are tempted to the green side by the prospect of waving
goodbye to high electricity bills while earning a decent return on the side.
For every unit of electricity you generate through your solar panels, you
are paid a ‘feed-in’ tariff. While this was a generous 40p per unit
(kilowatt hour) when first launched, with a lock-in rate of 25 years, this
has been cut significantly and is now less than 50pc of what it once was.

“Do not forget that you will need to make an initial investment of
several thousand pounds in order to reap the benefit and your savings will
depend on how much solar energy you generate, the system you opt for and
whether you are using the energy during daylight hours.”

Other ways to start investing

Most expert investors would advise newcomers against choosing a specific type
of company as their first investments. Many other options exist; we outlined
the best ways to get going in our recent story, Make
2014 the year you start investing
.

Read more: How
to invest in the changing energy market

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post it on our Facebook
page
or email moneyexpert@telegraph.co.uk

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