Investing in Green Bonds with CoPower

I have always been intrigued with investing in renewable energy. A couple of years ago, I looked into installing a rooftop solar system to generate passive income by selling the generated power to the grid during on-peak hours. However, after some researching, it turned out that the initial investment was quite steep (approx. $30,000) and the generated returns were not sizeable enough to warrant it. In addition, there is no way to shelter the income from taxes, so I dropped the idea after some serious consideration.

Equity Space in Renewables

Over the last year or so, I started researching yieldcos ā€“ spinoffs from utility companies, which focus on the renewable space. There are plenty of such companies, which provide juicy yield in the market such as Brookfield Renewable Partners (BEP), TransAlta Renewables (RNW.TO), NextEra Energy Partners (NEP), 8Point3 Energy Partners (CAFD) to name a few. Analyzing these companies financially, I concluded that most of them are heavily debt-laden and provide immense risk as far as the principal goes, while searching for that high yield. This is the risk that comes with investing in equities and instead of investing in each individual company, if I was looking for equity investment, Iā€™d rather look for a broader ETF ā€“ YieldCo Index ETF (YLCO) is the only one I am aware of that specializes in this space giving exposure to the sector.

Fixed Income with Renewables

However, while the above is focused on equity investments and are for projects running on utility scale, I started exploring smaller retail projects and how they are financed and if I can tap into that market as an alternative investment. This meant looking to invest in bonds as a debt instrument to finance the renewable energy projects and generate fixed income.

I looked into investing in a local (Ottawa based) co-op program. Although there was the option of RRSP/TFSA investing to shelter from taxes, the returns were dismal — about 3% for a 5-yr bond, and there was signup fees + other catches, diminishing the total return. As such, I continue to look for better investing options in the renewable space.

CoPower

More recently, I came across CoPower ā€“ an alternative investment platform for renewable energy and energy efficiency projects. Based in Montreal, the company focuses on solar energy projects, geothermal heating and cooling systems, energy efficiency retrofits, and LED lighting installations across Canada & US. They currently have projects financed in BC, AB, ON, QC and Minnesota. The investment are limited to Canadian investors, but allows non-accredited investors to invest in such projects. This type of investment was always the domain of accredited investors, but changes in regulation recently have opened this space up to non-accredited investors in Canada.

The company offers two products currently under the Green Bonds program: 5% annually over 5 years or 3.5% annually over 3 years. Considering the current low interest rate environment, that is not a bad return at all. The bonds are backed by senior, secured loans CoPower has made to diversified portfolios of clean energy projects. (Note that investors cannot individually select which projects to finance.) The minimum investment currently is $5,000, which is a bit steep for investors with a smaller net worth to take part in, especially considering that the money is locked away for either the 3- or 5-year program. It appears that CoPower has no other signup fees and seems like an interesting opportunity for fixed income investing.

The pros and cons as far as I can tell are:

Pros:

  • Green/ethical/socially responsible investing gives you bragging rights J
  • Alternative investment space shelters from the storms in the public markets
  • Fixed income investing with good yields: 3.5% annually @ 3 years and 5% annually @ 5 years
  • Tax-sheltering via RRSP
  • No setup fees
  • Investing directly and holding a bond to maturity avoids losses in rising interest rate environment, as you would with bond funds.

Cons:

  • Available only to Canadians
  • Minimum investment of $5,000
  • The bonds are not rated

What are your thoughts on this program as an alternative investment? Have you looked at CoPower and had any experience with the company or other similar investments? I am still undecided, but I like the idea behind investing in these type of alternative investments, outside of the common capital markets. Be sure to leave a comment and share your thoughts below.

7 thoughts on “Investing in Green Bonds with CoPower

  1. Safety says:

    If you are still considering green stocks, you may want to look at Polaris Infrastructure (PIF.TO). Lower leverage of 2.5x debt/EBITDA and low valuation of less than 6x EV/EBITDA with a growing dividend yield of over 4%. It’s got single project/country risk but they plan to use the current project as a platform to grow in the region.

  2. Excellent post here lately I have thought about investing in renewables. I agree most of the companies on the have a lot of debt with high yields. I think Brookfield’s payout ratio was near 100%.

    I would be undecided as well on CoPower knowing me I would be doing more research on these bonds.
    Thanks for this post.

    • I havent looked at BEP in a while, but yes, most of them have a very high leverage. I think I saw somewhere that there was trouble brewing even in CAFD, based on the debt levels — which I thought had really good backing from SunPower & FirstSolar. Will be interesting to see how things play out.

      Bonds seem interesting, but I am still undecided whether to go down that route. This platform looks interesting and I like the idea of alternative investments.

      R2R

  3. hotrunner says:

    hello R2R !
    did you ever review Canadian Solarshare.com to see their terms and conditions of investing with their renewable program. ?

    https://www.solarbonds.ca/invest/invest

    type of Investment: 5-Year Solar Bond 15-Year Solar Bond
    Minimum: $1,000 $10,000
    Annual Interest Rate: 5% 6%
    Lifetime Member Fee: $40 $40
    RRSP/TFSA Eligible: YES NO
    Principal Repayment: 5th Year Self-amortizing

    • Thanks for sharing, hotrunner. Now that you mention it, I think I remember reading about them. IIRC Liquid from FreedomThirtyFive had posts about it and had bought some bonds from that entity. 15 years sounds way too long for bond investment…who knows what the world will look like that far away. Wouldnt want to get trapped in an illiquid investment. Will check the other option out.

      cheers
      R2R

  4. Really interesting – I’ve been looking for “clean” investments as well but haven’t found anything that’s very appealing. I’ll be giving this a closer look for sure. Keep us posted if you decide to pull the trigger on CoPower!

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