Investment, these days, is dominated by nasty losses,
dispiriting rescues and, perhaps at best, damage limitation. It is
refreshing, therefore, to come across a story that is more or less
untainted by the current meltdown, is encouragingly wholesome and
could provide respectable investment returns in the medium to long
term.
It will appeal to those who are eager to remember that fears
about the warmth of the planet, which have been overtaken by
economic concerns, have not gone away. It will attract those who
like to help the little guys and suspect that much of the recent
financial crisis has come about because big was assumed to be
beautiful.
Ventus is an investment fund managed by Climate Change Capital,
the advisory body set up to find sustainable routes around the
threat of environmental degradation. It collects money from private
investors, pools it and then invests in wind farms and other
small-scale renewable electricity plants. At present about £28
million is invested in 21 ecofriendly generating plants - a
selection is shown on the map, right. Generally, Ventus takes a
half share of these individual projects, with the rest owned by
landowners, such as farmers, who provide access to the renewable
source of energy; classically wind.
Big electricity generators are building wind farms, and
investors can give their portfolios a tinge of green by buying
shares in the likes of Centrica and Scottish & Southern Energy.
Ventus, however, is more direct and gives concentrated exposure to
green power.
Wind turbines cost about £2million to £2.5million each. Without
capital provided by Ventus, and its ilk, more of the land that is
now being given over to renewable energy generation might end up
with the big generators. Bigger operators may win economies of
scale, but Ventus investors may well enjoy the knowledge that their
money will help small-scale entrepreneurship.
As well as equity capital, Ventus helps these little guys to
arrange debt finance that, hopefully, will magnify returns to
equity investors. It also provides advice on how and where to
build, and how to tie down the all-important income from selling
the power produced.
But this is far from a risk-free investment. Backers are exposed
to swings in the cost of power, which can be wild, as the rise and
fall in the price of oil demonstrates. Producers of renewable
energy are reliant on government policies designed to increase
production. Steve Read, one of the Ventus investment managers, says
that government-inspired support mechanisms double the income, at
current prices, of electricity produced from renewable sources,
simply because it has the right ecological credentials.
Yes, it is hard to see why any government, Labour or
Conservative, would change tack. But logic does not always drive
the political agenda, and other priorities often get in the way.
Meanwhile, it is not always easy, or cheap, to obtain planning
permission. Furthermore, Ventus uses debt to finance about three
quarters of its building. Loan conditions and shifting interest
rates can bite.
As with most investment trusts, existing Ventus shares trade at
a discount to the underlying asset value - and hard-to-fathom
market sentiment could widen the discounts. If you buy shares in
the second-hand market, the risk of widening discounts is less of a
danger because you will buy at a discount. It is a bigger headache
for those subscribing for new shares that Ventus is creating,
though tidy tax breaks - because Ventus is a venture capital trust
(VCT) - soften the blow. Taxpayers qualify for a 30 per cent tax
credit if shares are bought at creation and kept for five years. It
is still hard to countenance that every £1,000 invested is likely
to shrink to between £850 and £900 almost instantly. But the tax
credit means that, effectively, a £700 investment will grow to
between £850 and £900 on day one.
If asset values increase in the way that the track record
suggests they could, Ventus investors will claw back the lost
ground as underlying asset values rise. Ventus also predicts that
funds invested at 100p for five years will attract an 8p dividend.
Only foolish investors stake money because of tax breaks alone, but
if those dividends come, VCT rules mean that they are tax-free, as
are capital gains. Buy.
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here.
14 March 2009