What are Wind Energy Bond And Property Bonds?
Before we delve deeper, we need to know what property and wind energy bonds are. Developers use property bonds to raise money in the form of loans for property development projects in their early stages. This money is raised in the form of a loan. Wind energy bonds are also used for raising money, but to fund wind energy projects in a bid to go green.
Bonds are issued by governments and large companies to borrow money. Investors buy them and are paid back later with interest. Put simply, a bond is a way of borrowing money.
Investing in wind energy bonds is extremely popular today across the whole world. The growing dangers associated with global warming and climate change have made many of us more concerned about the environment. Businesses have become aware of this and have initiated several different types of green projects and ventures. Going green was not a good business move move a couple of decades ago – today it is.
Green bonds, as they are often called, are bonds issued by solar and wind energy companies. Biomass energy companies and hydroelectric businesses are also in this category.
We refer to wind, solar, biofuel, and biomass energy as renewable energy sources. This means that as a source, they never run out on a human time scale.
I can use all the wind there is available today to generate electricity, but I will never use it all up. I know that tomorrow, next week, and for years and centuries to come, there will be more and more wind. The same applies to sunlight, the movement of the tides, and the energy from flowing water in rivers and waterfalls.
Property bonds allow ordinary savers to invest their money into property development in a way that does not require expert knowledge of construction and land development.
They are asset-backed investments – investors can contribute to both land development and housing.
Benchmarks for Green Bonds
Before investors decide to purchase green bonds, they usually use certain benchmarks to ascertain whether they truly come from green businesses. There are four principles investors use when determining how green a bond is:
- Management of the proceeds: The proceeds of every wind energy bond, for example, should be well managed. They are better kept in a separate sub-account and monitored throughout the project, allowing investors transparent access to information.
- Use of the proceeds: investors need to make sure that the proceeds are channeled for use in other green-type businesses and projects.
- Analysis and Reports: Analysis of the financial reporting of the running of the project should be accurately kept and available whenever needed by investors.
- Process Flow: The process flow of any green business should be easy to comprehend by both investors and the general public. The project’s sustainability objectives must be transparent and clear.
Property bonds – legal charge
To safeguard investor’s funds and ensure that no capital is lost, once the bonds are issued, they are usually secured with the property using a legal charge. A legal charge means that creditors will get their money back by selling the bond issuer’s property. In other words, the legal charge makes the investment significantly safer.
Ever since the global financial crisis of 2007/8, financial institutions, pension funds, and other major investors have looked wider afield to make their investment portfolios less vulnerable to market shocks.
Green initiatives make economic and investment sense, as far as major investors are concerned. Today, they clearly have promising medium- and long-term prospects.
Advantages of Property and Wind Energy Bonds
Just as there are some factors that make property and green bonds not so desirable to investors, there are also features that have the opposite effect – they attract investment.
One of the major attractions of green bonds is that they have a fixed return ranging between 9 and14 percent. Most investors across the world, especially those who as risk-averse, prefer fixed rate rather than variable risk financial instruments. A risk-averse investor does not like to take significant risks; they contrast with their risk-loving counterparts.
Because bonds are usually asset-backed, investors have the assurance that their monies are protected and they can get all or almost all of their investment back in case of any mishap. The bonds are secured against, for example, a property that is being developed.
Official support for green projects
Most governments, especially those of the advanced economies, are introducing legislation to encourage companies to go green. Some governments provide generous financial incentives for companies to initiate solar or wind energy projects.
With such official enthusiasm for green business ventures, investors feel encouraged to become part of the new movement with their own money. Ideally, you should widen your investment portfolio with renewable energy, property, and other types of bonds, and perhaps also stocks and shares.
Bonds are significantly less volatile that stocks and shares. Look up a ten-year history of bond prices and compare their movements to those of company shares over a similar period. You will see that the stock market is a much more unpredictable environment.
Factors that Affect Wind Energy and Property Bonds
Just as opportunities abound in the use of green bonds, there are also inherent risks.
Green businesses, such as those that use renewables to generate electricity, are relatively new. As is the case with most startups and young companies, return-on-investment over the short-term is low. These are definitely long-term investments.
Price of non-renewable energy sources
The price of non-renewable energy sources can also influence green projects. Non-renewable energy sources include oil, gas, and coal. Non-renewable, in this context, means that one day we will use up all the resource, i.e., there will be none left. One day, for example, we might use up all the world’s oil or gas reserves.
If the price of oil, gas, or coal drops dramatically, that is bad news for wind or solar energy companies. It means that the electricity they generate may suddenly become relatively expensive. If a coal power station can produce electricity more cheaply than a solar energy farm, utility distributors are less likely to get their electricity from the more expensive option. If solar farms have to cut their prices, their profits will fall. If prices fall too much, they could suffer serous losses.
The recent increase in green bond investments is an example of how priorities in the world of business is changing. Over the next few years and decades, renewable energy is likely to become even bigger business, especially as the temperature of our planet continues to rise.