I have been looking at investing in renewable energy plants now for the last 6 months. At the moment if you are offered any such product - take care. There is a legal dispute in relation to the price for energy generated through Spanish plants which will only be resolved at the end of September. The ROI will be less that what you are offered regardless.
Agreed.
I read through the prospectus in detail.
Firstly, the prospectus does not say who is providing the AAA zero coupon bond guarantee and exactly when it will be obtained or whether it has already been obtained and whether it is subordinated to other debtors. I'm suspicious that the bank guarantee has been changed apparently late in the preparation phase. A lot of my cash is in the Rabobank. That truly is a AAA rated bank, and anyone can easily check that online. I would want to see a name of a company and a detailed prospectus for that product too. Since the zero coupon bond is the financial underpinning for the guarantee it is IMHO materially important for making an informed investment decision. There are really not many institutions that are AAA rated.
Secondly the small print on the income tariff:
In one part of the document the income level is certain:
This means that a secure, fixed selling price of 0.4403 €/kwh for a period of 25 years must be paid if sold to the Spanish national grid! So a single kW of power sold will earn 44 cents!
And yet in another part of the document it is admitted that this figure is purely speculative.
The expectation is that the following table will be the basis for the upcoming few years:
Importantly, a revision of the tariff rates is due at the end of September 2008 and, although speculative, it is anticipated that a reduction of 20% to 30% will be implemented. Only installation connected to the grid before this date would fall into the tariffs set above.
That's a huge disclosure. They have used the higher tariff for their financial model stating that it is a fixed selling price, and yet that price is apparently anything but fixed and they even already
anticipate a drop (which is conveniently noted in the text but is not taken into account in the financial figures at all). Buyer beware until that tariff really is fixed.
Thirdly: they've split up a 3MW plant into 30 off 100KW plant to get higher tariffs. It really isn't clear to me that they will qualify to be treated as 30 separate plants (especially if they only have one common feed cable to the supplier)
Update: 16/8/2008 Just read an update on the website about the zero coupon bonds. They are to be used as
a guarantee for the benefit of the investor, so that the Investment Amount is guaranteed at the end of this contract. That's clear. All will be ok if the company makes it to the end of the contract. The issue to me is what happens if the company fails before the end of the 12 year contract. There seems to me to be a clash with the fundamental priority of ownership rights over the zero coupon bond between the original investor and the mortgage provider if things go pear shaped during the term of the deal. The zero coupon bond is being used to provide the company with the capital that they are leveraging up via a mortgage. I would expect that the mortgage provider BBVA would demand first rights on the underlying zero coupon bond capital as the security on the mortgage. In which case the zero coupon bond would not be available to the original investor in the event of a bankruptcy. If the original investor does have sole rights to that bond during the 12 year term, how can the company use it to leverage up by 80%? I wouldn't accept that if I was the mortgage bank. So I can only conclude there's a hidden risk here in the guarantee structure.