If you are concerned about the environment, you might be asking yourself: Should I invest directly in Solar assets?

There are three principle ways in which an individual could do this. Each has its own merits – and of course none of content of this piece constitutes financial advice.

The first thing you should consider is your own motivation for making this kind of investment.

ESG Investing – where you prioritise Environmental, Social and Corporate Governance matters – is relatively popular these days. The wife of your author has been transferred to a new pension provider called SMART Pensions, whose default fund is a “sustainable fund”. Precisely what this means is not made obvious to the pension holder, but in broad terms they are applying macro-level change in the investing industry, nudging large firms in which they invest to tilt towards sustainable business practices. The literature from SMART Pensions isn’t specific about what this is. For instance, do they include or exclude the oil majors from their portfolios? Whilst that answer is probably clear from the underlying fund composition, they are not prepared to be explicit on their main consumer facing website.

And this is important, since SMART Pension do state that 90% of their customers are in their default fund. Now as everyone who takes an interest in Pension Savings knows, being in the default fund isn’t necessarily a good thing.

But this is the first key point. If you are not particularly interested in Pension Savings, you can take the path of least resistance and remain in the default fund, knowing that in some way you Pension savings are helping “sustainability”, but without being aware of the specifics.

If you are part of the 10% who does take sufficient interest in your pensions or your investments to not be in the default fund, then you might also be someone who would be interested in taking a more active role in allocating your investments into one of the three categories below.

So decision number one: Do I want to take an active decision about how to allocate my personal resources, and if so do I want to invest directly in renewable energy assets?

The second question is to do with availability. Am I acting under a time constraint or some other physical constraint which limits my options? These could be many and various. For instance there might be a time constraint for the deployment of the money imposed by tax deadlines. It might be that you have limited time to dedicate to this project, and so need the solution that requires the smallest possible time commitment from you. Or alternatively some solutions might be ruled out by your own living arrangements. For some people, owning their own generation equipment will not be possible. Perhaps they live in a flat or a listed building, or they rent or their roof just isn’t suitable.

The third decision is to do with emotional involvement in this asset. In other words, to what extent do I see this investment as a purely financial investment versus to what extent do I want to be able to touch my investment?

Category number 1

First up is buying into an investment trust (or other legal entity) which invests on your behalf in renewable energy assets. An example of this is the “Next Energy Solar Fund” which is a “specialist solar energy investment company…which invests primarily in utility scale solar assets.” In this case, you buy shares in the company, and that company has the explicit business remit to buy, develop or operate solar assets.

So it completely meets the criteria of putting your money to work in a way that is positive for the environment. However, you are buying a single stock. NESF is down over 20% for 2023. For context the S&P 500 index of the leading shares in the United States is up over 20% in the same time period.

So for your trouble, you have not only lost money, but the person in the S&P 500 (not an ESG fund, just the index) is now 50% better off than you after just one year.

This isn’t to say that all such investments will suffer this fate, but it does highlight the risk associated with buying single shares.

Category number 2

An alternative to making a financial investment in a stock would be to make an investment in buying the actual asset itself, not the company that owns the asset.  This is usually done in the form of a Co-op scheme.

The first such scheme in the UK was the Westmill Co-op in Oxfordshire. “Westmill is the first wind farm in the South East of England and the first 100% community owned scheme in the UK from commissioning.” There are now a series of these schemes around the UK, but each one is small, and you must buy into the Co-op at the time of the share issue. This means that other folk wanting to put their money to work in a constructive way cannot.

Step forward Ripple Energy. Ripple Energy are acting as project manager and facilitator that develops, builds and runs renewable energy assets. Ripple themselves do not own the asset. They set up the co-op, advertise it, manage the share sale and any ongoing issues.

Ripple Energy are in effect industrialising the process of putting co-op owned energy assets into the reach of ordinary consumers.

All of the co-ops (including those run by Ripple Energy) are arranged such that the power that is generated by the energy asset is purchased by Your COOP Energy, which is now linked to Octopus Energy. The Co-op members do not benefit directly from any financial transaction, but see an equivalent amount of money returned to them in the form of a discount on their bill.

So what are the benefits to the consumer? The primary benefit is that the investment is tangible, it is a physical thing. You can go and touch your asset, visit it on an open day. This makes it fundamentally an emotional thing. You are investing less for the investment returns, and much more for the ethical benefits that accrue to you. That feeling inside.

Category number 3

The other obvious alternative is to buy the asset yourself and to physically locate it on your property. Here we are talking about roof-top solar, or where your land is sufficiently large and suitable, a ground mounted solar array.

This is clearly the ultimate hands on experience. Whilst you can touch the solar panels, in reality owners spend most time monitoring their App. You can reap 100% of the benefits. The generation of electricity becomes something tangible and real. Whereas previously it was something that was done for you by a national utility provider, you can now participate in the generation process. Add in a battery to this home generation tool kit, and you can generate and store your own electricity. Depending on your electricity consumption patterns, it is even possible to be totally self-reliant on your own electricity.

And what a satisfying feeling this is. This appeals to the emotionally orientated as well as to the tech orientated people, since the array of data that you are presented with is unparalleled.

Should I invest directly in Solar assets? Conclusion

Where you intersect with these options will determine which avenue you wish to pursue.

Of course, these options are not mutually exclusive. You author is a member of 2 Co-ops offered by Ripple Energy, owns a solar array on his house which is integrated with a GivEnergy All in One.

And by dint of the fact that your author owns a FTSE 250 tracker fund, he also owns a small part of NESF, which is a constituent part of the FTSE 250.

So, where do you fit on this continuum?

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