Energy Retail Bonds: Should You Invest?

Tempted by the promise of 7% income? We take a look at the latest way to access the renewable energy sector: mini bonds

Emma Wall 16 October, 2013 | 4:44PM
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Read more on ethical and sustainable investing in Morningstar's Ethical Investing Week 2013.

An inflation busting income and a chance to support clean green energy sounds too good to be true, but that is exactly what three renewable energy companies - Good Energy, Ecotricity and Secured Energy Bond - are offering. 

Retail bonds are a relatively new way for companies to raise cash. The London Stock Exchange only established a market for them in 2010 called the Order Book of Retail Bonds (ORB). This means retail bonds can be traded like shares. 

However these offerings are mini-bonds, which are not listed cannot be traded on the ORB, are illiquid and must be held to maturity.

Because of this mini-bonds are a more risky investment. The lack of a secondary market to buy and sell the bonds makes it impossible for investors to get a value on their investment and sell if necessary. This also means that the only return they can make is the income, there is no potential for capital growth.

Reducing some of this risk is Secured Energy Bonds' Energy Bond - only the second 'secured' mini bond ever available on the UK market. It invests in rooftop solar panels, utilising more than 45 sites across the UK. The panels will be placed on factory and farm building roofs, reducing damage to the countryside. The bond term is three years, requires an initial investment of £2,000 and pays 6.5%.

The bond is 'secured' against the solar sites themselves, meaning that should the company go under it can sell off the panels to an alternative company. The company is launching the bond in conjunction with an FCA regulated company called Independent Portfolio Managers. 

Good Energy, an AIM quoted renewable energy company, has also issued a mini bond, offering investors a yield of 7.25% with a minimum investment of £500. The Good Energy Bonds have a term of four years and are invested directly in UK clean energy infrastructure.

In 2011, green energy supplier Ecotricity launched a four year mini-bond paying up to 6.5%. The bond was so popular that it was oversubscribed - as investors clamoured for high income unachievable with cash or gilts. 

These investments are more risky than choosing a composite bond product such as an OEIC or investment trust, and should only occupy a minimum allocation in a well-diversified portfolio. 

Adrian Lowcock of Hargreaves Lansdown concluded: "The ORB has helped to provide essential liquidity to investors, but it also allows the bond to be held inside a SIPP and ISA wrappers. I believe unlisted investments are inappropriate for the majority of retail investors. You are taking risks when lending your money to a company and I urge investors to think carefully about the suitability of mini-bonds before they buy."



The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Emma Wall  is former Senior International Editor for Morningstar

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