Renewable energy funds have raised over £1 billion in the past 12 months as investors are attracted to the promise of a solid yield.
But what are investors actually putting their money into? I took advantage of 'Solar Independence' day to head to Wymeswold Solar Farm in Leicestershire, the UK's biggest, to find out more. It's owned by the Foresight Solar (FSFL) investment trust, one of three solar funds in the UK.
Watch the video to see what I found.
Can't watch now? Read the script instead
When I heard the solar power industry was opening its doors for ‘Solar Independence’ day I thought what a great chance to find out more about the renewable energy that is attracting a lot of investor interest.
So I’ve come to Wymeswold Solar Farm in Leicestershire. It’s currently the biggest solar farm in the UK, built last year on the 150-acre site of a former RAF airfield.
First impressions are good! Although it’s not as sunny as I might have wanted for a video on solar power, actually that’s the whole point. It turns out solar energy requires daylight not direct sunlight and can work well on cloudy days.
According to the Solar Trade Association, the UK gets up to 60% of the solar energy you’d get in the Equator.
And it’s quiet! Although there are a few visitors here today ordinarily the only sounds you’d get would be from the race track and the driver training centre that also share the site.
There are 132,000 solar panels at Wymeswold spread over six fields. The managers use sheep to keep the grass down. At its peak this place can produce 32 mega watts (MW) of energy an hour, enough to supply 8,500 homes.
These are photovoltaic (PV) panels which are the most commonly used in solar power. They’re made up of cells which have two layers of silicon acting as positive and negative conductors. When light hits the panel it creates an electric field between the layers of silicon.
The panels are organised in lines – or strings – at the end of which is a combiner which takes the DC energy and sends it off to a building on the other side of the field. That is an ‘invertor’ which turns the DC into AC energy, sends it off to a sub-station nearby which in turn pipes it off to Loughborough and the grid six kilometres away.
Solar power is an important part of the government’s pledge to meet European 20-20-20 targets.
These require a:
20% reduction in greenhouse gases from carbon fuels by 2020;
20% of energy consumption to come from renewable sources by 2020 and a;
20% improvement in energy efficiency by the same date.
The massive increase in wind power and solar these targets require led the government to develop a system of subsidies known as feed-in tariffs and renewable obligation certificates (ROC).
Under these power companies have to prove they’ve taken a proportion of their energy from renewable sources or pay a punitive price for the energy that should have been green.
Renewable power generators, like this place, get a subsidised price for their energy under contracts which are linked to inflation and can last up to 20 years.
These subsidies have attracted investors. Wymeswold is owned by the Foresight Solar Fund, which is one of three solar funds in the UK.
They and other renewable energy funds have raised over £1 billion in the past 12 months. These funds generate half their income from selling power to the grid and the other half from the inflation-linked ROC subsidies. They aim for total returns of between 7% and 9% a year with yields of between 6% or 7%.
Not surprisingly, with income like that these funds have proved attractive to pension funds, wealth managers and retired investors.
Although the long-term need for renewable energy is clear investing in the sector has its drawbacks.
Earlier this year the government revealed it had been taken totally by surprise by the speed of development of the solar industry.
It announced that it would end the ROC subsidy system for new, large solar parks in March 2015, two years earlier than expected. This has caused great uncertainly among solar developers and funds who are rushing to get new projects finished before the deadline.
It goes to show that in solar power – and in renewable energy investing – investors are replacing stock market risk with political risk.