Sustainable Loans

We thought we had bought our first bond a couple weeks ago. But after some digging this turned out to not be (completely) true. The Dutch term for the product we bought is an “obligatielening”. An “obligatie” is a bond.  A “lening” is a loan. So what did we get, a bond or a loan? Either way, we did some ethical investing!

Sustainable Loans
Sustainable Loans – Solar Investments

Sustainable Bonds vs. Loans

When I started to write this post I did not have much knowledge about bonds. Why not, because we don’t own any. Why don’t we own any, because the return on investment is usually too low for us. We are happy to take on more risk and in return have the chance of a higher reward. We have time on our hands, so let’s use that. That is why we are primarily invested into dividend stocks, index funds and real estate.

But what is a bond? The picture below gives a nice simple overview of the difference between a bond and a loan.

Sustainable Loans - Bonds vs Loans
Sustainable Loans – Bonds vs Loans

Reading the prospectus of the financial product we were invested in, it appears that it is transferable (with limits), but it won’t be traded on any financial market. In short, it looks to be more like a loan than a real bond. For those interested, there are various sustainable bonds out there in the market. The post give you some examples.

Sustainable Investment Loans/Bonds

All this talk about FIRE and Investment Ethics a couple weeks ago, and than this came by (Karma anyone?). Our energy provider is one of the more sustainable in the Netherlands, and they regularly come up with sustainable projects to invest in. If we can make a (small) environmental difference and invest some money at the same time, we might be interested! It all depends on the project specifics and the projected return on investment.

A couple of weeks ago we purchased 8 “wind” participations  (€55 each) with our energy provider. They will be using the proceeds to construct a new wind turbine. These wind participations will “generate” a minimum guaranteed 250kWh each for the next 5 year. The power production is taken from our usage and if we use less then we get the difference paid out. Return on investment is up to about 5% per year on average, not too bad eh? And we now know that every kWh we use will be sustainably produced. Nice win-win here.

Sustainable Loans
Sustainable Loans

Anyhow, what about that other investment we were looking at? This sustainable energy project involved the placement of close to 9.000 solar panels on the top of the Nissan production facility at the Port of Amsterdam. For this investment, they needed money. Part of this money is collected via a crowdfunding platform dedicated to sustainable energy projects. The remainder is financed by a “green projects” funds from a Dutch Bank (ASN Bank for those interested).

We looked that terms, the return on investment and decided to invest a total of €1.000 into this project for the next 15 years. Making this the first sustainable loan (not bond!) we own (or the second? technically the earlier mentioned wind participations are a loan too).

Return on Investment

Now, because this is an investment into solar power, the return on investment will fluctuate. This is the result of environmental factors (power production) and economic factors (electricity price, system performance/maintenance). Based on the provided summary and prospectus this is what we can expect (we get a “bonus rate” because we are also a client of the energy provider associated with this project).

Sustainable Loans - Return on Investment
Sustainable Loans – Return on Investment

In short, is the electricity price stays about the same at round €0.058 per kWh (the core energy price before taxes) and we have an average amount of sunshine, we should get about 4.2% over a 15 year period. That’s not bad actually. “Worst case” (low sunshine hours and low energy price) we still make 3.4%. For a sustainable project, this is pretty good! Most sustainable projects make a whole lot less (there are a few notable exceptions).

However, there are more risks, like default of the main user (Nissan) or solar operator, storm of fire damage, equipment malfunction, etc. All of this will result in risks to the project, and in lesser amount to you as the loan provider. Insurance is included for the project, but I could not quickly find it production losses are included here as well. As with ANY investment, there are risks.

Process and Maturity

What are the next steps. Well the crowdfunding project raised over €0.5M within a couple of days. That’s impressive! We also already transferred the funds. The plan for the future is as follows.

Sustainable Loans - Time Sequence
Sustainable Loans – Time Sequence

In short, the construction of the solar project will commence on February 2018 (funds will formally be transferred too). First power production is scheduled for late April 2018. The first (combined) interest payment is scheduled for July 21, 2019. Then we get paid every year around February 22 and we receive the original deposit back in early 2033.

 

Do you own bonds (the real deal!)? Or do you also have invested some of your money into sustainable projects? How well is that going?

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14 Comments

  1. Hi CheesyFinance, Thanks for your blogpost about the Zonnedak Nissan project. Great so see you ‘delved’ into the project documents and have become a ‘ZonneDeler. Welcome!

    If you have any addition questions please let me know!

    Cheers, Edwin / ZonnepanelenDelen

    1. Hey Edwin,
      I applaud your efforts and believe they are necessary to get this energy transition going. That being said just hope that one day my return on investment is coming directly from the energy produced and not from the government subsidies required to make these projects economically viable. It’s great to get my tax euros back this way, but it’s not a financially sustainable practice for the long run. Lot’s of political work to be done I’m afraid.
      Best of luck with starting up more of these projects.

  2. Too low returns for me. Fun fact: Berkshire Hathaway Energy is the largest win farm operator in the USA. And the average returns of BRK are way higher (although I wouldn’t recommend it at current price, it is a bit expensive …). So making a decent return and being sustainable is possible, you just have to knwo where to look, grin …
    Once I have reached FIRE I might accept a low return for a full off grid solution for the house just because the cool factor. But at the moment the return for that is negative and I am not yet FIRE ..

    1. Low returns, yes, but again a relatively stable source of income. Not everything has to be a “high” risk money machine. Making a difference is also worth some money to us. That being said, I’m not accepting BRK as sustainable, sorry. Is it a better investment, absolutely.

  3. Sustainable investing not only makes sense, but it’s actually a really profitable idea! Lots of sustainable businesses are the businesses of the future (i.e. clean energy, sustainable farming). These companies tend to be fast growing companies as well. Doing good and making a lot of money in the process 🙂

    1. Agreed! Definitely a win-win scenario here, but you do have to make the right call on which company will do well with sustainable technologies and business ideas.

  4. Very cool! I hope we catch up to the Dutch in focusing on renewable energy here in the states. It does appear however that the coal industry is in its death throes, despite what the idiot-in-chief wants to belief. Wind and solar are here to stay. Thank god!

    1. Being involved with sustainable energy production at the moment, I can already confirm that solar power in parts of the US is cheaper than coal (even without subsidies!), it’s just a matter of time before sustainable energy will take over. Just that storage issue…..need a good and efficient solution for that.

  5. Nice post, CF.
    I have a comment/worry regarding solar panels (and green projects in general): they need state subsidies.
    In Spain there was an exponential growth of solar energy some years ago. But due to the crisis subsidies/privileges were removed, and it is not profitable anymore. And investor/companies still have to pay their loans back.
    Dutch institutions are more reliable, but this still a large risk.
    I am worried because we, citizens, want to believe in these green projects, we invest, and perhaps they are overvalued. A kind bubble (but I am not an expert!).
    Thanks for sharing!

    1. Hey Willyfog, thanks for the comment and right you are (was already hoping one would touch on this topic). I’ve gone through the prospectus in detail and the purchase costs and operating costs don’t match right now (i.e. with the current energy prices, even projects of this scale don’t work without subsidies). Technically, we are being paid from the subsidies on the project! Not a good situation actually, but the technology will continue to develop and ultimately we should be able to do this without subsidies. Don’t think it’s a bubble though, but there is a long road ahead of us to make this work. Step one would be to remove subsidies and benefits for the oil and gas markets (worldwide) and price carbon fairly, that would quickly make green energy cheaper without subsidies being required. Political will power is lacking unfortunately.

  6. At this point I hold bonds. I would not mind investing in wind or solar farms. Unfortunately my condo association does not allow solar panel installations. I am constantly on watch out for green energy investments … especially where I can own a part of the real assets (panels) … instead of just holding stock.

    1. Too bad your condo board consists of a bunch of dinosaurs….(you are not in it, right?). ah well, good reason for you to shop around of see what other sustainable investments you can find (bond, loan or otherwise). Thanks for the comment DG!

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