WHAT IS WIND ENERGY BOND AND PROPERTY BOND
Before we delve deeper, property and wind energy bonds have to understand first. While property bond is usually a means for developers to raise money from investors (in form of a loan as they would be paying dividends) to fund property development projects in its early stages, wind energy bond, on the other hand, is also used to raise funds from investors but this time to fund wind energy powered projects in a bid to go green.
Investing in wind energy bonds is all the rave across the world. People have developed environmental sensitivity, which has resulted in a lot of businesses adopting environmentally friendly business practices and becoming a fully green company. Converting into green business has been a call to action for many companies and for some companies it was already a going market trend which was recognized by them quite early. Green bonds as they are most commonly called can be any of solar energy, biofuels, wave energy and property bonds. These sources of alternative energy have enabled the generation of income and this income haves been further pushed into the generation of electrical energy using turbine technology which is another groundbreaking alternative and renewable source of energy. In essence, green has paved the way for more green.
BENCHMARKS FOR GREEN BONDS
Before investors decide to invest in certain green bonds, they usually use certain bench-marks to ascertain if truly the said bonds are green. Hence there are four principles that are considered when characterizing a bond as a green bond and they are:
- Management of the proceeds: The proceeds of every wind energy bond or property bond should be well managed. They are better kept in a separate sub-account and monitored all through the project allowing investors access information on them to foster transparency.
- Use of the proceeds: Most times funds and investment proceeds are mismanaged by the owners of the green project. Proceeds are supposed to be channeled to be used for other green centered projects.
- Analysis and Reports: Financial analysis of the financial reporting of the running of the project should be accurately kept and should be available whenever needed by the investors.
- Process Flow: The process flow of any green business should be easy to comprehend by both investors and the general public. This makes the projects sustainability objectives transparent and clear.
To safeguard investor’s funds and ensure that no capital is lost, once the bonds are issued, there are usually secured with the property using a legal charge. When this legal charge is applied to a property bond, for instance, there is usually a lot of assurance in such a bond. This is because it ensures that investors funds would be repaid even when there is a default by the development company by no fulfilling their obligations as and when due. The assets for which the funds are secured can be sold off to pay back the investor’s capital in the event that all didn’t work out as planned. The investors usually rest assured when there is a legal charge inclusive in the bond and can feel safe investing their money in the project.
The economic climate bordering on the financial crisis of increased regulatory supervision and a consistently low rate of interest has led to other finance houses (excluding banks) to seek an alternative source for a long-term stable investment. A number of pieces of evidence show that renewable energy and energy efficiency are sectors of the economy that show promise and would in the future scale into unbelievable heights. According to a report, 190 of the fortune 500 companies together saved around 3.7 billion dollars through energy efficiency initiatives and renewable energy plots. With the surmounting results that have been shown by this, there has been an increase in the borrowed funds used by investors to provide more traditional renewable energy assets to help generate more power.
ADVANTAGES OF PROPERTY AND WIND ENERGY BONDS
Just as there are some factors that make property bonds not so desirable to investors, there are also properties that have drawn a lot of people to invest in it.
One of the major attractions of green bonds is that it has a fixed return ranging between 9 to 14 percent. And investors prefer fixed rates than rates that fluctuate as they would like to hedge their risks.
Because the green bonds are usually asset-backed, the investor has the assurance that their monies are protected and they can get all or almost all of their investment back in case of any mishap. The bonds are secured against the property being developed. This is also a major attracting factor for investors.
The convenience associated with wind energy bond is also a factor that makes it desirable to investors. Not only do the investors have to do almost nothing but to review reports and be sure that things are turning out well for the project they invested in, they also do not have to go in search of a broker as the project can be invested in directly without help (and need to pay a broker) from any broker
There is typically diversification in the types of investment made on property and energy bonds.
The volatility of bonds is less than the everyday shares or stocks because the interest is fixed and it does not solely depend on the money market trend.
FACTORS THAT AFFECT WIND ENERGY AND PROPERTY BONDS
Just as opportunities abound in the use of green bonds, there are also inherent risks that abound also:
There’s is that ever-present a risk of liquidity when going green. Because it’s a small market, the process of entrance and exit is not clearly defined and as such when investors are looking for liquidity ready businesses, they do not venture towards the wind energy bonds or property bonds
Also because it’s new in the markets, there’s usually low returns on investment and hence this affects its pricing and this has led to investors and the general public shying away from it.
Other factors also tend to affect them. For example, when there is a decline in oil prices, the support for both wind energy bonds and property bonds as a source for alternative energy also reduces as the main source of energy (oil) can be easily sourced.
With many countries jumping in on the bandwagon of fostering green and renewable energy there has been a spike in the returns in the past few years and also an increase in investors this has led to cross-border investment and has reduced the over-dependency on bank loans as a means of generating funds to power these projects.
Most Green companies in this case now opt to issue property and wind energy bonds as a means of raising funds. for property bonds, this is issued by the developers or construction companies for the sole purpose of funding the property development while for wind energy bonds, it is issued for the sole purpose of driving the use of wind energy(using windmills) as a means of power generation for a farm or on-site factory production.
Investing in property and wind energy bond is the way to go as the world is going green. Also worthy of note is the fact that these investments are usually more secure, having assets to back the investment and they are less volatile than the generic shares and stocks.