At a time when the global economy is still struggling to produce the highs of the early part of the 21st century many are looking beyond regular pension plans and the investment opportunities they offer. It should be no surprise therefore that investing in renewable energy projects is becoming more popular as these are proving to show higher returns than the more traditional staples such as property.
After Energy Minister Greg Baker claimed that solar developments could deliver results better than a pension Renewable Energy company EvoEnergy compiled a report based on returns for different types of renewable energy projects and this research showed how these types of projects can produce a return on investment in double digits for private investors in their retirement.
They compared the estimated returns achievable over a twenty year period by investing £5,550 in either solar panels, renewable energy debentures, or a regular managed pension fund.
Domestic solar topped the results showing a return of over 10% for the lifetime of the feed-in-tariff (FiT) while after charges a typical pension fund would be expected to grow 6% year on year over the same period. An investment in a debenture style scheme for a renewable energy development can expect to earn 8% per year.
Although pensions come with the added benefit of tax relief the difference in returns shows that renewable energy projects a realistic option for long term pension style investments for those serious about diversifying their retirement portfolios.
Steve Wilks, director of finance at EvoEnergy, said: “Following the former Minister’s announcement in February, we set out to see for ourselves exactly how solar actually stacked up against a pension as an investment aimed specifically at delivering income before and after retirement.
“Mr Barker said returns of eight per cent or above could be achieved – what we found was that, with an average, unshaded 3kW array installed at a cost of £5,550 upfront, a homeowner could see returns of more than 10 per cent once the FiT, export tariff and possible energy savings are accounted for.
“That’s more than £600 per year before inflation with just a moderate 25% saving off energy bills accounted for. Figures like that, along with the falling cost of installations and the security offered by the 20-year FiT, show that solar can now be on everyone’s radar when they’re planning for the future. The fact that returns are both income tax free and available before 55 just makes them look even better.
“Investing in solar is by no means a direct replacement for traditional pension funds, in our opinion. However, what it does offer is a tax-efficient alternative for a lump sum that isn’t susceptible to market fluctuations that can deliver significant returns over the medium to long-term in addition to a pension.”
Pensions broker Hargreaves Lansdown echoed the view that diversity can offer benefits when it comes to retirement planning.
Tom McPhail, Head of pensions research at Hargreaves Lansdown, said: “Pension investors can and should take a long term view of investing; often they are in the unique position of being able to take a view over an investment horizon which stretches decades into the future.
“This means diversifying investment portfolios and taking advantage of some less conventional opportunities which might not be suitable for investors operating over shorter time spans.”
Along with solar, another such opportunity is through alternative Debenture investments with companies like Abundance Generation, which allows private investors with a lump sum to invest directly into larger renewable projects which support local communities.
Bruce Davis, managing director of Abundance Generation, said: “From our point of view, generating electricity from solar power offers homeowners a real choice when looking for a long term income generating investment in their retirement.
“Whether that’s through a domestic installation or through a Debenture that invests directly into other projects will very much depend on their own individual circumstances.
“With the government reforming annuities because of a lack of competition and poor value for retirees, advisers are starting to looking beyond conventional investments and considering a Debenture, which can provide an income that is less volatile and access to an uncorrelated asset.
“Each investment is individual and offers different returns; however Abundance targets projects which are estimated to produce an IRR of 7% of more. This would potentially provide investors with around 2.2 times their original investment although they should bear in mind that their capital is at risk and debentures are not readily realisable.”
At ILI Energy we are about medium wind and some of the returns on these types of developments top the 10% that solar can achieve. Admittedly the capital expenditure of these types of projects is much higher and not something the man in street will ordinarily get involved in on their own however it is no surprise to see community projects where several can get involved and share the cost as well as these excellent returns.