Monday October 20th 2014

Wind Farm Investment Risks & Returns

Wind Farm Investment Risks & Returns

 

Within the European Union, governments have been trying to implement environmental policies to lessen the proposed risk and impact of climate change due to the effect of increased fossil fuel emissions.

Wind farm investments are high on the agenda along with other sustainable energy schemes. Many of the schemes are complicated and carry a high risk level for the potential returns.

Schemes In Process

In Denmark and the Netherlands co-operative wind farm schemes have already been up and running for nearly 10 years. Basically, individuals get together to form a co-operative and lend money (minimum about £60) to the turbine scheme. These funds are used to install one or more turbines.

Any electricity produced by the turbine is sold back to the local electricity utility, which then allows the income to pay the co-op members a return on their loan capital.In this way  “wind co-operatives” have given a return on investment of around 8% for the last 5 years.
There are two types of wind farm investment; onshore and offshore. Onshore, such as the above, feed back into a government tariff such as the FIT tariff. Offshore wind technology has proven harder to get off the ground and in the UK the government has attempted to kick start the process by paying higher subsidies to offshore wind projects which will begin over the next two years. Many feel this will not be enough of an incentive.

Feed In Tariffs

The Feed In Tariff is an essential tool for looking at the possible risk versus return of any wind farm investment. Turbine operators get a fixed price for every kilowatt-hour of energy generated. Normally this price is guaranteed over a twenty year term. Incentive schemes vary for larger operators. They sell their energy output to a distribution company who in turn give them the market rate for the energy. In the UK this is about 8 pence per kilowatt-hour. Larger turbine operators also get a Renewables Obligation Certificate for every megawatt-hour of electricity produced.

Wind Farm Risks

Many renewable energy schemes have been delayed, and some abandoned altogether, due to lengthy objections on planning applications. As all wind projects are heavily wrapped up with governmental control, investors should be aware that successive changes of government can also mean legislation changes which in turn may effect the investments into wind farms at short notice. Wind farm projects will also be open to fluctuating incentivised tax rates.

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