Oct 102016
 

Investing in a Brighter Future

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The Easiest $300 I’ll Make This Year

Hello eco-conscious friends! I recently discovered a way to earn $300 in interest/year by using leverage and low interest rates. 🙂 For those who are interested in the details, here’s how it’s done.

  • Step 1: Borrow $10,000 from the bank at 3% annual interest rate.
  • Step 2: Download the online SolarShare purchase form.
  • Step 3: Fill out the form with instructions to invest $10,000 in bonds that pay 6% annual interest.
  • Step 4: Send the completed form back to SolarShare and start collecting net interest of $300/year. 🙂

That’s all there is to it. 🙂 Simple right? Once I made my decision to go for it the entire process only took about 30 minutes.

What I essentially did was borrow money at 3% to buy an investment that pays 6%. This means my net investment return is 3% pre tax. All the investment capital comes from someone else so I don’t have to spend a dime myself. This is the easiest way I know how to make $300, lol.

But of course just because this strategy works for me doesn’t mean it’s right for everyone else. So in today’s post I will discuss how my new investment works and why I chose to buy it. If you don’t yet believe in solar energy, maybe this post will help you warm up to the idea, haha. 😉 But please do additional research on your own and consult with a professional before making any financial decisions.

An investor who uses $10,000 of savings to buy these bonds would make the full 6% return since there would be no cost of debt. I didn’t use my savings for this investment because my money is earmarked to make another big purchase later this month.

Why Invest in Solar Energy

Sustainability is very important to me. This is because I love bacon, lobster, steak, sea bass, and all things delicious. Animals require a sustainable habitat to live and grow. But if there is too much pollution then entire ecosystems or farms where animals live could be destroyed. I simply cannot allow that happen.

So as you can see, investing in renewable energy is a matter that’s very close to my heart. 😆 And we are lucky here in Canada where we receive a decent amount of sunshine throughout the year, unlike some other parts of the world.

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I had previously wrote about how to invest in renewable energy. Not only is it environmentally responsible, but it can also be quite profitable. My investment last year in Brookfield Renewable is now up by 12%, including dividends, which is not too shabby. 🙂 But this time I ventured into the world of alternative investments to directly invest in solar energy projects.

Reasons to let the sun heat up your investment portfolio

  • Eco-conscious investing. – If your investment is in the red or black, why not try making it green 😀 and feel better about your returns? Fossil fuels carry a lot of environmental risk. A large oil spill is called a disaster. But do you know what we call a massive solar energy spill? We simply call it a nice day! 😀
  • Competitive returns. – “The myth of sustainable investments delivering dismal returns has been shattered,says Stephen Whipp, managing director of Wolverton Securities. Recent studies by Morgan Stanley and Carleton University both concluded that environmentally responsible funds of all types and risk profiles actually outperformed their competition 63% of the time.
  • Global trend. – Both the Chinese and U.S. governments are investing heavily in renewables. In some European countries like Finland and Denmark, more than a third of their gross energy consumption is made from renewable sources. German solar power plants produce a world record 22 gigawatts of electricity per hour, equal to 20 nuclear power stations. Canada’s solar capacity is still relatively small but growing fast. Installed capacity for solar thermal power has seen annual compound growth rate of 13.8% since 2004, according to Natural Resources Canada.
  • Growing interest from other investors. – A lot of baby boomers are investing in solar energy because they want to park their money in an environmentally friendly place while earning adequate returns to get them through retirement. The market for climate themed bonds is already over $500 billion globally and growing quickly.
  • Create economic growth. – Investing in solar energy opens new manufacturing facilities and creates jobs.
  • Decreasing input cost. – Like most technology, the cost of new solar projects will decrease over time. The efficiency of photovoltaic (PV) cells will also improve.

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Now you see why I invested $10,000 in the sun! 😀 With convincing reasons like the ones above how could I have passed up the opportunity? 20 years from now when solar panels become more ubiquitous, I can tell myself that I was once a pioneer investor in the green energy movement. 😀

Investing in SolarShare Bonds

SolarShare is a renewable energy co-op based in Ontario. Their solar projects range in size from 10 kW rural systems to 600 kW (DC) arrays on industrial rooftops. Investors pool their money together to fund solar projects across the province and generate revenue by selling electricity to the government under long term FIT contracts.

What is FIT and how does it work?

Solar panel projects require high initial upfront capital and long investment timelines. According to the Ontario Energy Board, electricity users only pay between 8.7¢ to 18¢ per kWh. Building, operating, and maintaining a solar panel project on a commercial level will not be profitable at these prices. 16-10-solar-panels-solarshare-bonds-ontario-energy-price

So in order to attract investors to support green energy, the Ontario government created the Feed-In Tariff (FIT) program as part of the Green Energy Act in 2009. This program issues 20-year fixed price contracts for renewable energy projects. So the governments will guaranteed that as long as the project generates electricity, it will buy that electricity at a set price for 20 years. Here are the rates table for one version of the FIT program.

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As we can see, solar projects that feed green power into the grid will receive up to 38.4¢ per kWh from the Ontario government. This is much higher than what Ontario consumers pay for their electricity. Needless to say, the FIT program has been a huge success. Investors finally have a way to make decent returns on environmentally responsible investments. 🙂 Thank you Ontario taxpayers! You guys rock for putting up with this subsidy. 😀 Since the Green Energy Act has become law, the government cannot renege on its promise. Even if a separate governing party such as the Progressive Conservatives were to lead Ontario in the future, they will not be able to change the existing FIT contracts in operation today.😉

How the 15-year bond works

The $10,000 of SolarShare bonds I purchased is self amortized and pays out every 6 months. In other words, I will receive a fixed amount of payment every year (roughly $1000.) Part of this amount will be my principal investment, and the other part is interest. By the end of the 15 year period all of my principal amount ($10,000) will have been slowly paid back in full.

The easiest way to understand this investment is to think about it like a mortgage at 6% interest rate amortized for 15 years. Except instead of being backed by real estate, this loan is backed by solar panel installations. And instead of getting paid 12 times a year, I would receive payment twice a year.

For the level of risk associated with this investment, 6% return is worth it. 😀

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Potential Risks

As with any alternative investment asset it’s important to understand all the financial risks before making an informed opinion. Here are some risk factors to consider.

  • Cash flow. – SolarShare anticipates positive cash flow over the life of its projects. However these projections are based on a number of assumptions like the government continuing to pay elevated prices for electricity as per the FIT contracts. But there’s a very small chance the Ontario government could run out of money within the next 15 years.
  • Currency risk. – Some materials and components for the making of PV cells and installation of solar panels are imported from other countries. So changes to the Canadian dollar’s value could affect the cost of future projects.
  • Operation risk. – Equipment failure, technological issues, parts replacement, etc can affect SolarShare’s financial situation.

At the end of the day I think the potential rewards of this investment outweigh the risks so I decided to invest in these SolarShare bonds. $10,000 is the minimum investment requirement for the bonds I purchased. SolarShare also offers a 5-year bond that has a lower $1,000 minimum investment requirement.

If you’re also a socially minded investor like myself who wants to make a positive impact on the planet, then I suggest taking a look at renewable energy options that will make you feel good about your investment while earning a decent return. 😀

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Random Useless Fact:

Thanksgiving in Canada has been celebrated a lot longer (since 1578 in Newfoundland) than people south of the border. Americans didn’t begin this annual tradition until 1621.

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12 Comments on "Making Money from the Sun – My New Solar Energy Investment"

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Stephen
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Interesting investment! Hopefully it works our for ya! I haven’t ventured off into renewables too much myself but it’s something I like to keep an eye on

Anon
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Anon
“However these projections are based on a number of assumptions like the government continuing to pay elevated prices for electricity as per the FIT contracts.” That’s the real kicker — behind almost all solar investments lies big government subsidies; this is the predominant reason why solar projects exist to the extent they do. Remove the “free” money and almost all these business would collapse. Yeah, sounds like a solid sector to me. FIT contract prices have already declined a fair bit over the last 5 years. “This means my net investment return is 3% pre tax.” What does this even mean? ‘Net’ is after all costs; ‘pre tax’ would be gross. What will be your net return after factoring i) investment loan tax deduction, and ii) capital gain/distribution tax? With all parameters predetermined, this should be easy to determine. “I simply cannot allow that [too much pollution] happen.” Again, you didn’t dig deep enough into all aspects of solar, did you? If you think solar power is negative/net zero-pollution, you’d be very wrong. There is so a lot of downside to many “green” energies, yet idealistic people seem to overlook these in favour of the ‘it’s not oil’ mantra. Thorium-based… Read more »
Finance Journey
Guest

Hey Liquid,

It seems interesting investment; however, recent cancellation announcement from Ontario government is questioning on government supports for renewable energy in the future.

http://www.cbc.ca/news/canada/toronto/ontario-electricity-plans-1.3780440

What is the impact in your investment of the above cancellation?

Best Regards,

Snute
Guest
Snute

Where did you find a bank that would loan to you at 3% without security?

Steve
Guest
Steve

Hi Liquid,

I have been reading through the SolarShare application. It said that membership application was only available to Ontario residents. Is that correct? As a fellow Vancouverite, I am wondering whether that caused you issues when you purchased your SolarShares, or, if you avoided that by purchasing them under a corporation.

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[…] about a month ago I purchased $10,000 of bonds from SolarShare, which is a renewable energy company that allows investors to earn a competitive return while […]

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