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A high yield, low risk investment that's also environmentally friendly?

Every day there seems to be yet another news story announcing more massive corporate investments in 'green energy' companies. From biofuels to wind farms, money is pouring into environmentally friendly ventures. Fund managers are plowing billions into renewable energy companies. It all seems very reminiscent of those heady-years before the internet stock market boom of the late 1990's. So, if you haven't got a few hundred million to invest in researching the next generation of new technology, how can you profit from this trend?

The Bank of England are telling us that the retail price index is currently 4.4%. This is the measure of inflation excludes housing costs, but includes energy. By comparison, a Halifax Web Saver high interest savings account is currently paying 3.6% net. If prices are advancing faster that the interest being paid in your bank or building society, your savings are losing value every day!

So, how do you find a low-risk inflation beating investment? Well, if householders approach renewable energy from a financial perspective there can be some surprising results.

Firstly, we should always consider the risk of any investment. The basis of the profitability of investing in renewable energy is your opinion of what future gas and electricity prices will be. Most people think that energy prices will continue to go up.

Reasons for this may include a perception that for political reasons, tax on energy may continue to go up. The Climate Change Levy recently went up, which has resulted in an extra 8-10% on business energy costs. Also, political uncertainties about continuity of supply from the Middle East and Russia are preceived as possibly pushing energy costs upwards in the future.

The approach to profiting from this situation is to invest in equipment that generates energy for your home at a time when costs are going up. For example, a £2,800 investment in equipment to harness the sun's energy to boost your central heating system could yield a return of 11.0% and deliver a tax free profit of £7,461.20 in real terms, adjusted for inflation*. Plus, you have the satisfaction of knowing that whether energy prices go up or down, you are insulated against all price changes because you are "growing your own".

The web site

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has a Financial Benefits Calculator that allows UK householders to explore their investment options for free. There's also a wealth of free advice on the viability of all of the different types of technology available. Not all the technologies are the same, for example, according to the web site, a building-mounted wind turbine similar to the one David Cameron has erected on his Notting Hill home may actually result in a loss but this all depends on your opinion of how much electricity, gas, oil, LPG or coal might cost 10-20 years from now.

Source

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Based on heating your water with solar energy instead of an electric immersion heater and assuming electricity prices go up by just 2% above RPIX inflation which is less than the current trend in electricity prices.

Reply to
Grow Your Own Energy
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I think this part needs a little deeper explanation before I believe it.

Reply to
Miss L. Toe

Wrong

Reply to
Daytona

A rip off. See , as used recently by Dick Strawbridge on the programme 'It's Not Easy Being Green'.

Daytona

Reply to
Daytona

There is no such thing as a high yield, low risk investment, environmentally friendly or otherwise.

Reply to
Jonathan Bryce

How about biodegradable condoms?

Reply to
Ronald Raygun

Hopefully the yield would be 0 !

Reply to
Miss L. Toe

Sure. I know that taking manufacturer's claims at face value is highly dubious. I've used the BREDEM model based on a 3 bedroomed semi-detached house. If you are so inclined, you can see the full methodology at

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The two key variables are :

  • Your opinion on the future trend of energy prices
  • Which fuel you will be replacing with a sustainable one (electricity, gas, coal, oil...)

adjusted for inflation over a 30 year life expectancy of the equipment.

Really keen to get peer reviews of the methodology, the more challenges the better. I'm not claiming perfection in my methodology, generalising for everybosy's circumstances is difficult.

Reply to
Grow Your Own Energy

I quote

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&Pos=2&ColRank=2&Rank4

Reply to
Grow Your Own Energy

Humm, yes,

Well, "low risk" is subjective of course. I'm claiming low risk compared to, say, equities on the basis that most (not all) people asked would say that they expect gas and electricity prices to continue to go up over a 30 year timespan.

Reply to
Grow Your Own Energy

No; you misquote.

Daytona

Reply to
Daytona

Sure. I know that taking manufacturer's claims at face value is highly dubious. I've used the BREDEM model based on a 3 bedroomed semi-detached house. If you are so inclined, you can see the full methodology at

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The two key variables are :

  • Your opinion on the future trend of energy prices
  • Which fuel you will be replacing with a sustainable one (electricity, gas, coal, oil...)

To which I would add:

  • How much energy the investment will save you (and here I *really* wouldn't believe the manufacturer's claims)
  • The length of time over which you're doing the calculations (personally, I'd be reluctant to spend money on something that was going to take more than 5 years to save me money and wouldn't even dream of touching anything that would take over 10 years)

Adam

Reply to
Adam

Sounds pretty high risk to me. What if they biodegrade too soon?

Adam

Reply to
Adam

Not if they have been listening to the news today. The huge drops in wholesale gas prices are finally filtering though to the consumers.

"The group says it will cut gas prices by 17% and electricity by 11%."

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Over the medium term I would expect gas prices to fall due to improved infrastructure which allows us to import more gas.

"A huge increase in gas pipeline and storage capacity is scheduled to come on stream over the next three years."

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Reply to
Gareth

electricity is a fuel? Mined at the Alberta electricity deposits no doubt?

Reply to
Tumbleweed

My problem is that where I live the sun rarely shines when I need the heating on.

Reply to
Miss L. Toe

Yes, I agree there will certainly be fluctuations in energy prices and perhaps quite rapidly in the next 12-24 months. What matters for an investment perspective in order to calculate a yield adjusted for inflation is the trend. You might think that over a 30 year timeframe (the lifetime of a wind turbine or solar panel) a) energy prices will go up less than inflation ie. it will get cheaper and cheaper in real terms b) energy prices will go up by a little above underlying inflation c) energy prices will go up in the upcoming years as fast as they did over the past two years

These are the scenarios that I have modelled at

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I'm interested to know opinions of a) b) or c)

The scenarios do have radical impacts on the yeild - have a go at the online calculator and try your opinion.

Personally, I'm forecasting b) - there will be spikes and troughs but because of worries about continuity of supply, wars in the Middle East and the government looking to raise taxes on non-renewable energy to meet their targets and raise taxes in a "popular" way - I'm predicting gas and electricity prices going up above 4% annually as a long term trend and it's this scenario that gave me the 11% return figure.

Reply to
Grow Your Own Energy

enews: snipped-for-privacy@h3g2000cwc.googlegroups.com...

I'm really glad you mentioned this. It's a very common comment.

When you are heating water or generating electricity with solar panels, they actually work best on cold wintery days. Their performance is not directly related to the amount of sunshine, rather the amount of solar radiation that hits the panel.

Cold, bright winter's day = tons of free hot water

Sunny summer's day = plenty of hot water

Cloudy, overcast day = not so much hot water - but whatever you get is free and means your boiler is working less hard to make up the difference

Reply to
Grow Your Own Energy

messagenews: snipped-for-privacy@h3g2000cwc.googlegroups.com...

No they don't. They may still work a bit but certainly not as well. Also you have the problem that there aren't actually many hours of daylight in the winter.

What is the difference between sunshine and solar radiation? Anyway there is a lot less solar radiation in winter.

Reply to
Gareth

Like I said, I would guess at significant drops in price over the next three years due to improved infrastructure, then probably rising roughly in line with inflation for a few years, by which time we are already a fair way into the lifetime of the product.

Hard to predict what will happen after that - we could have cracked nuclear fusion and have limitless supplies of cheap energy or we could passed the peak in oil and gas production and be in serious trouble.

If you look at what experts were predicting would be around in > 10 years time greater > 10 years ago I doubt you will find many got it right.

Anyway the alternative energy technology is improving rapidly and energy prices are dropping rapidly at the moment so I'm going to wait a while.

Yes, I know. That's the problem with long term investments.

Reply to
Gareth

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