Solar power, wind farms, I love thee.
If you are a regular follower of this blog , you will know that I am a current investor in two photovoltaic solar power projects.
So naturally I am also very interested in investing in wind power.
Ask no more, Minimal5 is here with answers.
Here in Denmark we have a decent number of small to mid sized wind farm developers who are open for investments from private capital. Historically investments were mainly in single windmills, but as markets and developers have matured, there are now decent projects sized projects out there, also organized in more familiar Ltd constructions.
One such opportunity is Obtons vindenergi Windpark II. This is a mid size project consisting of 5-10 German windmills, depending of the total committed/invested capital in the project.
The project aims to deliver an average of 7 pct. yearly yield, and with around 5 pct. dividends. This is done on the back of fixed and guaranteed 20 year long electricity prices. Investment is possible from 750.000 DKK, or roughly 120.000 USD. Investment can be done with both private as well a corporate funds.
Why have you invested in solar and not wind farms you might ask?
There are a number of reasons for this actually. First the average yield is actually a bit higher on the solar investments. Usually around 1% higher. But with two projects in the portfolio I am at a point where I think it is better to diversify.
The good thing about these types of investments nowadays are definitely that they typically are structured as regular limited investment structures, meaning the banks who deliver the foreign capital do not have recourse in your investment, and so hence if everything goes haywire you only risk your principal investment.
I won’t go through all the financial details for the given project here and all the assumptions that it depends upon, but highlight some of my considerations.
First, with government guaranteed prices off course you have a government risk. This might seem trivial to most, but as we saw in the aftermath of the financial crisis in 2008 the Spanish government actually imposed some changes in their pricing schemes. That is one of the main reasons that the first investment I did was located in Germany. I trust a German government and then Angela Merkel, wann sie sagen das ordnung muss sein.
If I ever accumulate enough capital to do a renewables investment more, it will for sure be located in Germany.
There are two more things I worry about in these types of investments. First is related to technology versus mechanics. Wind mills are inherently mechanical. They have gear boxes. They have rotating blades, they are subject to wear and tear. Solar cells are more similar to technology. They don’t rotate. There are no moving parts. They will gradually decline in utilization yes, but the risk of them just breaking from one day to another is in my opinion just very much smaller. That is the main reason I started my renewable investment portfolio with a solar project.
Second thing I worry about is scrap value. Every time someone produces a budget for a physical capital investment at some point there will be an end of life scenario and hence a scrap value, which will be discounted and included in the investment case for sure. The big uncertainty here is what is a realistic value of a solar panel 20 years from now, when it has been degrading for 20 years and has to compete with technology that is 20 years better. Most likely not a lot. So what you might ask. Does this really matter that much, and unfortunately the answer is yes. The expected end scrap value actually has quite an effect on the average yield calculations.
If you want to know more about these kinds of considerations see my other blog post with links to my best reads on capital and investment My best reads on capital, investment, risk and uncertainty
Ps. Please remember that the cleanest and cheapest kWh of energy is the one not consumed at all – do your piece;
PPs. Please like/share/follow my page on Facebook as well, as it will really help my blogging efforts as I try to be anonymous