Selasa, 17 Juni 2008

Why are investors turning to Solar?

by Chris Davidson

In the current world climate it can be hard being an investor. With financial markets in meltdown and the huge boom in property in slowdown, investors are wondering where the best place is to not only secure their money, but also to grow it too.

There is one particular investment that promises much right now; renewable solar energy. In particular the Solar market which captures UV light (known as photovoltaic) as opposed to direct sunlight has seen huge growth in the last 3-5 years. An easy example of this technology is the strip on your calculator, which uses UV light to power up. So just why are investors excited by this sector?

Energy production price versus Oil - firstly, solar has never been popular because it has been too expensive to produce compared to the price of oil. Russell Hasan from, in his "research report on Solar investment: the Dawn of Solar Power", states that the breakeven point with Oil is around the $50 a barrel level, which means in today's marketplace Solar is now becoming a really viable option. Governments historically have been slow to subsidise, but a number of markets are now starting to grow dramatically.

Feed-in tariff law - Before Solar started becoming more competitive, a number of developed nations took the lead in providing subsidies for the solar industry. The 3 global market leaders are Japan, Germany and the US, with Germany in particular bringing in a law in 2004 which interested investors greatly. The Act states that any excess renewable energy that is produced must be bought back by the utilities at a set rate per Kilowatt. Solar gets a preferential rate of 47-57c/Kilowatt compared with any other source, such as wind, depending on the type of installation. As a result, it means that the owner of the solar energy generating system can create an income stream whilst also helping the environment. Similar laws are in place in other EU countries such as France, Spain, Italy and Greece.

Solar is a growth industry - the Solar Energy industry is one of the best performing industries of today. According to Solar Buzz, a solar research group:

* Demand for solar has grown at 30% annually for the last 15 years * Solar PV installations rose by approx. 62% in 2007 compared to the previous year * Solar prices have fallen 4% on average annually over the last 15years

The reasons for growth as many and varied and will be covered at length in a further article.

High yielding - one of the main reasons investors have started looking at solar are the high yields on offer. It is difficult to predict from each installation how much income can be generated but banks who lend to buyers are generally looking for a minimum 8-10% yield before approval. Depending on the amount of sunlight, conservatively projected gross yields in the region of 10-15% are easily achievable.

High level of financing - because these investments are so secure, as discussed below, banks are prepared to lend to a high level, particularly in Germany. Anywhere in the region of 85%-90% LTV is being offered, which when compared to the average 50% LTV on property, makes interesting reading.

Immediate income - one of the great bonuses to Solar investing is the investor can generate income pretty much straight away. In the case that rooftop space is being sourced from them, a typical installation and finance approval period is in the region of 12 to16 weeks. Therefore, provided that rooftop space is available, a return on investment begins very quickly and reassures investors as to their decision. If this is compared to off-plan property for example, the build period can be as much as 2 to 3 years, which means it takes a lot longer for investors to start generating income and see whether the investment is working or not.

Security - in an age where investors are after security of their funds as much as growth rates, solar investments can be an extremely secure way to invest your money. In Germany, solar investments come with a 20 year government contract to buy back the excess you produce, and schemes along similar lines are popping up in France, Italy, Greece, Spain to name a few. Your installation can be registered independently of the property at the local land registry so if the property changes hands, the panelling system on the roof doesn't.

Many other traditional investments are not working - Historically, shares and property have been the main investment vehicles available, and right now it seems that these routes to profit are not working.

With a lack of equity in the marketplace and the subsequent rise in commodity prices, the financial markets have become an even more volatile place to invest money. There is no doubt that huge profits can be made, particularly in the commodity sector, but the risks are far higher. In the world of property investment, there has been a huge global demand, and therefore boom for all types of investment products, from holiday homes to City buy to lets, from apart-hotels to land sub-division projects. Again there is little doubt that some of these products will pay off, but with over-supply common in many areas, returns will be seen in the long-run provided investors have chosen the right location and price point in the first place.

In conclusion then, investors will be hearing much more about solar energy as an investment vehicle in the coming months and years. It is becoming cheaper to produce and has an attractive income stream, is government and bank backed which means it is secure, and it give investors peace of mind that they are contributing to the global need for energy independence from oil and long term security. Future articles will delve into this sector in more depth to provide investors with as much useful information as possible. From there we can all decide whether this is not only the next growth sector, but also if it is one of the answers to the human race's pressing energy concerns.

Chris Davidson

About the Author

Chris Davidson has worked in a variety of investment industries including football and in particular real estate. Over the last 10 years he has renovated properties in London and sourced city, tourist and lands subdivision projects in over 20 countries worldwide for investment clients at Chris' skills in researching, client relations and packaging means he able to find the right opportunities that the market place desires. Chr

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