Abundance Generation: earn 7.35% a year from solar panels

You could earn a cracking return from investing in solar energy, and the risk is relatively low.

Getting a decent return on your savings is very difficult these days, so more and more people are looking at alternatives to the big banks.

The best known alternatives are probably peer-to-peer lenders like Zopa or RateSetter. But there are some other options out there and one of the most attractive is Abundance Generation.

I’ve written about Abundance before, but the basic idea is that you provide finance for renewable energy projects in the UK, and in return you get an annual income. Abundance is the online middleman between you and the renewable energy project.

Oakapple

The latest project is called Oakapple One. It will fund the installation of roof-top solar panels on a large number of newly-built homes across the UK. These panels will generate power for the residents of the homes  and any surplus energy will be sold to the National Grid. Thanks to the feed-in tariff scheme, the Government has promised to pay a fixed rate for the electricity that is generated.

If you decide to provide funding, you will buy a debenture which is effectively an ‘IOU’ for your loan.

If you invest £1,000, you will be repaid that sum over a 20-year period, and you will also receive further cash payments over the period which are roughly equivalent to interest payments. Abundance estimates that these payments will give a return of somewhere between 7.35% and 8.6% a year – in other words, around £80. This annual return is after all fees and charges are deducted.

Abundance can’t give a precise forecast for what you’ll receive because the levels of sunlight will vary from year to year. Less sun means less energy. The prediction also assumes that consumer inflation will be roughly round the 2.5% mark. If inflation is higher, investors should receive a larger return.

The risks

You may be wondering if there are any risks here.

Personally, I think the risks are pretty low, but let’s look at what might go wrong:

- The Government might change the rules on the feed-in tariff scheme and pay a lower rate

- The panels might malfunction and not generate enough electricity 

Although the Government has reduced the rates paid by the feed-in tariff, it has only done this for new schemes. So if you installed panels and signed up for the scheme when it was paying 21p per kilowatt hour, you’re still receiving that rate. It’s only more recent joiners who now receive a lower rate of 16p/kwh. 

There is no sign that the Government has any intention of backtracking on its commitment to any schemes that are already up and running. Abundance’s forecasts won’t be affected by any future changes to the tariff. I also think it’s unlikely that there will be any serious technical issues with the panels.

So, assuming that inflation does stay around the 2.5% mark, I’d be very surprised if investors received a return of less than 7.35% a year.

FSCS

That said, I should add that Abundance debentures are not covered by the Financial Services Compensation Scheme (FSCS). So if the Oakapple scheme did collapse for some reason, you wouldn’t get any help from the Government.

That’s why I’d say that Abundance is riskier than putting your money in a savings account, and I also think it’s riskier than Zopa or its peer-to-peer rivals. That said, it’s still relatively low risk.

For not much risk, you’ll get the satisfaction of knowing exactly where your money is going as well as boosting the UK’s production of solar energy. And you’ll get a very attractive return too!

> Check out the Abundance website.

More from Lovemoney:

Crowdfunding: Invest in green energy with Abundance

Democratic finance: the future is rosy

Abundance Generation: get a 6.5% annual return on solar energy