Renewable energy: To invest or not invest

Renewable energy: To invest or not invest

Renewable energy: To invest or not invest Canada has fallen behind the rest of the world when it comes to making investments in renewable energy – but does that mean you should be encouraging your clients to turn their backs on the sector too?

New statistics from Clean Energy Canada show that there has been a record investment worldwide in both wind and solar power with a total of $497 billion invested during last year alone: a leap of seven per cent compared to 2014. The bulk of that money – some $226 billion – was spent in developing countries.

However, while spending in the USA was up seven per cent, in China 17 per cent, in the UK and India 23 per cent and Mexico 114 per cent, Canada’s spending actually declined to nearly half the levels of 2014, albeit the country did remain in eighth place for overall spend worldwide.

So what about renewable energy as an investment area in the present economic climate? According to Declan Ramsaran, managing director at PANGEA private family offices, renewable energy investments have the potential to be lucrative.

“Renewable energy investments generally require a long-term commitment and provide some form of known, periodic repayments back to the investor,” he said.

“Consider the Feed-in-Tariff (FIT) programs offered by some governments where the government guarantees a rate of payment for a defined number of kilowatts or megawatts from the renewable energy project over a defined period, for example 15 or 20 years. These types of FIT programs are accessible to individuals as well as large corporations.

“In fact, some of the bigger renewable energy projects between governments and corporations occur right here in Ontario. A renewable solar and wind project between Samsung Renewable Energy and the province of Ontario worth over $5 billion is an example. These investments can be quite lucrative and given that their revenue streams are backed by a local government that also provides tax incentives to the corporations for developing these renewable energy projects, a certain degree of risk is mitigated within the investment structure. In the current financial environment, investment return predictability accompanied by mitigated risk with government guarantees can be attractive.”

Merran Smith, of Clean Energy Canada, believes that government targets are needed to push Canada forward. For example, most of the investment that came from Ontario’s decision to buy more renewable energy has already happened; while provinces like British Columbia have yet to make promises, and the likes of Saskatchewan and Alberta have yet to detail their plans. Alberta has promised to get just under a third of its power from renewables by 2030 while Saskatchewan said by that year, half its electricity is expected to come from clean sources. According to Smith “we need to see that translated into policy this year.”

Ramsaran, meanwhile, believes that individual investors can see investments in this area as both potentially profitable and progressive.

“I think individual investors have several appealing options to choose from in the socially responsible investment space, of which renewable energy investments are a part,” he said. “Consider green bonds for example. Green bonds were created to fund projects that have positive environmental and/or climate benefits. In 2013, approximately $11 billion worth of green bonds were issued.  A surge in the popularity of green bonds led to over $36 billion worth of green bonds being issued – that’s a 300 per cent increase in just one year. HSBC forecasts that the green bond market will grow to $158 billion in 2016. Green bonds have definitely caught the attention of investors. 

“If an individual investor could achieve their personal investment return objectives while investing in projects that help the environment, I believe putting more money into these types of opportunities demonstrates progressive thinking.”

What do you think of renewable energy as an investment area? Leave a comment below with your thoughts.