Good Energy bonds - 7.5% pa return

mac2008

See:

http://www.goodenergy.co.uk/bond

Got a letter from Good Energy about this the other day. Your investment pays for windfarms. 4 year fixed term, 7.25% pa, 0.25% bonus for Good Energy customers.

An attractive return, but given Good Energy's ethical credentials, I'm a little disappointed that the treatment of (significant) risks for the investment is on page 24 of the invitation document only, and not mentioned in the general info or FAQ's on the website.

To be fair, there is some small print telling you to seek independent financial advice, and the website does tell you the bond is unsecured company debt, but I doubt many people would recognise all the implications of this...

Anyone tempted?

hander

Interesting to come across this. I got the same letter. Various comments online, of course - including a serial one from a naysayer with the initials DP...

It's too good to be true, isn't it? But still I'm tempted... I like GE. And the company itself (while small) looks sound.

More thoughts?

EricMears

hander wrote: »

Interesting to come across this. I got the same letter. Various comments online, of course - including a serial one from a naysayer with the initials DP...

It's too good to be true, isn't it? But still I'm tempted... I like GE. And the company itself (while small) looks sound.

More thoughts?

7.25% is a pretty good return for a bond. There are better yielding ones but they would be considered more risky so the GE bonds are not really in the 'too good to be true' class. If you're a GE customer you get an even better return than Joe Public and ought to be in a better position to assess whether or not they can afford to keep paying you.

But there's still a very simple rule with bonds - don't invest more than you can easily afford to lose ! Even the (apparently) strongest company can go under for reasons that nobody would have forecast.

If you've got more money than you know what to do with then it's reasonably safe to invest in a large number of different bonds - they surely wouldn't all go bust at the same time. If you've only got a small pot of life savings and might need it for something else one day than bonds are not for you.

Cardew

Agree with above - but all the independent advice is that they are 'high risk'.

Personally I wouldn't be tempted.

InVestor_2

I much prefer the near 20% from my solar panels, tax free

mac2008

Having now looked at Good Energy's performance over the last 4 years (solid growth in operating profit, increasing customers, sites already operational etc.) I'd agree that whilst the risks are relatively high, they could make sense as part of a portfolio.

For those interested, Good Energy list the following risks in the invitation document:

1. Non-transferable & illiquid investment - i.e. can't sell or otherwise realise the bonds until maturity
2. No FSCS protection
3. Nature of bonds as unsecured debt of the company means insolvency would likely mean losing part or all your money.
4. Changes in Legislation (environmental, tax, regulatory etc.)
5. Actual wind speeds and solar radiation
5. Failure of Delabole wind farm
6. Loss or failure of wind turbines
7. Delays in new windfarm becoming operational
8. Dependence on key personnel at Good Energy
9. Construction delays and cost overruns on projects
10. Delays due to planning consent or grid access
11. Competition risks
12. Financing of the development project pipeline - e.g. if future funds are not forthcoming, this could affect the Group's prospects and profit.
13. Loss of licence
14. Other unforeseen factors and developments - e.g. technological change, economic downturn etc.

macman

A good rate of return if you are prepared to tie up your capital for 4 years, and are prepared to potentially lose your entire investment (up to £5 million, I see).
Energy retailers have gone bust before, and it can happen again. If I was a customer of GE, I'd probably be prepared to put £500 or £1,000 into this-but I wouldn't bet the (wind) farm on it.
GE have been relatively slow in developing their own renewable capacity compared to competitors such as Ecotricity, this is presumably their response. The figures below are revealing (though, since they're supplied by Ecotricity, to be taken with a pinch of salt).
http://www.whichgreen.org/energy-supplier-rating

hander

I reckon I'm in for a punt. Feel free to buy me a pint if it all goes belly up...

Skept

7.5% is a lot for a 4 year bond, suggests that they were unale to find cheaper funding either from banks, private debt firms or the bond markets. Suggests a 'sub-prime' status in the eye of standard fund providers....

Skept

Thanks to mac2008 for summarising the risk factors, on point 2/ is any bond ever covered by FSCS ? I thought it was just cash deposits ? As another forum member said, there's no free lunch, return is nearly always a function if risk....

thenudeone

This bond is a loan to the company, not a savings account, and so doesn't offer any FSCS protection.