There are few financial rules more worth remembering than “if it seems too good to be true, it probably is”.
That maxim came to mind reading about the thousands of complaints made by people who have installed solar panels on their roofs in the belief they would be able to cut their electricity bills to nothing - and pocket a tidy income stream into the bargain by selling power back to the Grid. These people have found the promised returns have not materialised while maintenance bills mean they are losing out overall, and they have taken their complaints to the Financial Ombudsman Service.
You can’t have missed the boom in solar panels on homes in the past decade. Greater environmental awareness has no doubt played a role in that, but it has also been greatly encouraged by government incentive payments to those selling the sustainable power they produce. A complicated system of tariffs was set up to make the payments and, subsequently, many private companies sprang up promising to install the panel with the cost met through a loan.
I don’t know enough about the specific schemes in question to know whether these people were misled, but what seems startling in hindsight is that so many people were willing to enter such a complicated scheme just in order to secure a little extra income.
The past few years have been tough for those looking for an income from their cash savings. Low interest rates have meant getting a return from cash that beats inflation has been near-impossible. I suspect that many of those tempted by the income on offer from solar panels were cash savers looking for a more lucrative home for their money. Overlooking more traditional assets like shares and bonds, they wanted something more tangible and believed that solar panels fitted the bill.
After all, the sun always rises and we’re only going to need more and more sustainable energy, right?
It could prove to be a costly miscalculation. While the risks attached to shares and bonds are known about and can be quantified, the risks in more esoteric investments are harder to identify and can be missed. The risks are specific to your panels and your property, something which makes estimations of future returns even less reliable.
Calculating the real income yield from putting solar panels that you have installed on your home is incredibly difficult because it depends on the hours of sunlight your panels receive and will be hurt by any maintenance costs that can be impossible to predict.
Contrast all this with more traditional income investing via bonds and dividend-paying equities and inside collective investment like funds. Here you’ll see your money split across a large number of companies, reducing your exposure to any one of them. You’ll have long track records of dividend payments to help you understand your expected level of return and you’ll have the potential for capital growth as well.
And if you really want to tap into the undoubted potential of sustainable energy, you can do it via funds. The Foresight UK Infrastructure Fund is a recent addition to our Select 50 list of favourite funds. It buys the shares of companies operating in the infrastructure industry, including many solar and other renewable energy producers.
Important information The value of investments and the income from them can go down as well as up, so you may get back less than you invest. There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.
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