Investing for income using CoPower Green Bonds
Are you investing to achieve Financial Independence and Retire Early (FIRE)?
Are you investing for long-term growth?
Are you investing for income?
Are you investing for relative safety using bonds?
All valid questions to ask any investor.
I write about my (retirement) income journey on this site because I feel my approach is slowly getting us to where we want to be. We’re realizing our financial goals by maxing out our TFSAs and RRSPs with Canadian, U.S. dividend-paying stocks and low-cost Exchange Traded Funds (ETFs) for international diversification.
Our dividend income machine is now in full gear.
Our investing approach is not without risks though. For many investors, our approach is likely too much risk. Depending upon your risk tolerance and/or retirement income needs, it might make far more sense to invest in assets that reduce risk while still offering income.
You may also wish to invest in cleaner and greener initiatives. Not only will our world be better off with a move into greener, more environmentally friendly economy, you’ll stand to benefit financially too.
Earn income with Green Bonds
When it comes to clean energy projects, like most capital initiatives, they need financing. That financing is not always available from commercial banks or institutional infrastructure investors. This creates a funding gap – small to medium-sized projects want to get funded but can’t. That’s a lose-lose scenario: not great for our environment nor our economy.
CoPower Green Bonds are changing that.
CoPower’s Green Bonds are private, fixed-rate bonds.
Using bond proceeds, CoPower lends to green energy projects – these initiatives offer solid environmental benefits related to renewable energy and energy efficiency. Whether it’s a new community solar farm just down the road from me in Renfrew, or LED condo lighting retrofits in the heart of oil and gas country (Alberta), pooled money is helping power cleaner energy projects across Canada.
Image courtesy of CoPower.
The green energy business and infrastructure projects are booming
Over the past decade, the green bond market has boomed. In fact, in recent years, CoPower itself is booming thanks to its financing to solar energy projects, energy efficiency retrofits, and geothermal heating and cooling systems – to name a few.
Since 2015, CoPower has raised nearly $25 million for green energy through green bonds and green funds.
Today, there are more than 1,100 individual projects backing the bonds and the company reports a strong pipeline of potential projects being considered for financing in 2019.
How do Green Bonds work? Where can I hold them?
Green Bonds are backed by senior, secured loans made to clean energy projects.
Image courtesy of CoPower.
Starting with as little as $5,000 (or as much as $500,000) you can invest in a 6-year Green Bond that offers 5% interest annually. You can hold in Green Bonds inside your TFSA or RRSP – although personally I favour maxing out our TFSA before our RRSP every year.
Actually, these Green Bonds are eligible to be held in most registered accounts (e.g. RRSP, TFSA, RESP, RRIF). The easiest and most cost-effective way for most investors, according to CoPower, is by opening an account at Questrade. Before investing through a registered account be mindful that your financial institution may charge you certain administrative and/or private placement fees.
You can find more details on CoPower’s transparent FAQs page here.
While this sounds good, I wanted to get more details so I reached out to CoPower’s Head of Capital, Trish Nixon, for some answers.
If I don’t own a Questrade account, how could I make a purchase?
Actually, the majority of our investors choose to invest directly with CoPower through our online platform to avoid brokerage or advisor fees.
We’ve developed a straightforward, online process. It involves completing an investor application and booking a short “know your client” call with one of our dealing representatives to ensure that a) investors understand the product and associated risks, and b) that it’s suitable given an investor’s financial goals and situation. Following a successful suitability assessment, investors complete a subscription agreement and Pre-Authorized Debit form online, and as long as forms are submitted correctly and on time, they’ll start earning interest on the 1st of the following month.
Can I get my money out if I need it? Why or why not? How?
This is an important point and we emphasize to all investors that CoPower Green Bonds are private investments and can’t be sold on a secondary market or redeemed before the end of the term. We haven’t found this to be a significant barrier since most of our investors use a “buy and hold” strategy to manage their investments and have liquidity elsewhere in their portfolios. Still, if you’re planning on making a large purchase like a house soon, and may need to access that capital to do so, our bonds may not be for you.
The upside here is that as a private investment the bonds aren’t exposed to public market sentiment. That means they can help diversify and reduce volatility in your portfolio by shielding some of your savings during a market downturn while still earning a steady fixed return.
Can I choose what projects I want to fund? Why or why not?
We get this question a lot, Mark. Some crowdfunding sites do allow you to invest in one particular project, and there was a time when we considered taking CoPower in that direction. It all goes back to the question of how to best mitigate risks for our investors. Investing in one project means putting all your eggs in one basket. Investing in a CoPower Green Bond, on the other hand, means investing in a diversified portfolio of many projects. This is a good way to diversify and mitigate some of the risks you wrote about above. It’s also more efficient and cost-effective, so your returns aren’t diluted by extra fees.
What other risks should I know about?
Your readers should be aware, as pointed out earlier, that investors have to hold the bond through maturity and as a private investment they can expect less information and reporting than they’d get when investing in a public company.
Green Bonds are issued by a separate corporation, CoPower Finance Inc, that owns and invests in clean energy loans. Some of the other risks to bondholders have to do with 1) the manager’s ability to continue to issue new loans (changes in market or manager circumstances could result in early repayments or delays in payments) and 2) the performance of the underlying project loans. That said, we do a lot to mitigate these risks and to-date all interest payments have been paid on time and in full and we have had no defaults on loans to date. We advise all investors to review our offering memorandum which contains full details on risk before making an investment.
One of the ways we generally mitigate risk is by financing projects, as opposed to clean energy development companies, thereby shielding investors from venture risk. In these cases, bondholder returns come from the fixed loan repayments linked to the sale of clean energy or services resulting in energy savings, not from the performance of the companies developing the projects or performing the installations.
In addition, we lend to diversified portfolios of clean energy projects that use established commercially available technologies. Projects have strong contracts in place and are typically already operational and earning revenues. In certain cases, where risks are well understood and easily mitigated, we may also lend to projects that have a short construction or installation period.
Should a widespread defect or weather-related event affect the performance of the projects severely enough to affect the project partner’s ability to make loan repayments on the portfolios, there are measures in place to protect investors’ returns. For example, we often require project owners to establish debt-service reserve funds, and part of our due diligence process involves ensuring that relevant warranties and insurance are in place. Following our typical structure, where we act as the senior, secured lender, we reserve the right to step in to either run or sell projects in an event of default. In circumstances where loans take on a different structure, alternative avenues for recourse form a significant part of our risk analysis.
I’ve always had part of my portfolio in renewable energy and likely always will. I invest in such companies because I believe dividend income and growth will occur from the part of my portfolio that invests in a cleaner and greener economy. In short, “going green” can be profitable all around.
CoPower’s innovative Green Bonds bring together environmentally conscious investors and green energy projects in an alternative way.
To learn more about CoPower Green Bonds visit copower.me and be sure to review the company’s current offering memorandum (dated May 11, 2018) before investing to ensure the bonds are appropriate for you.
This post has been brought to you in partnership with CoPower. All thoughts and questions to CoPower and opinions are my own. What’s your take on green investing?
Even if I wanted to buy more bonds I could not consider these since they are private investments, not tradeable, and not rated. I have no way of knowing how secure they are.
Fair concerns RBull. They are certainly not tradeable/transferable as far as I know. I would think they are rather secure though but I’m not an owner myself.
Could be relatively secure but without professional agencies putting ratings on them as private investments we don’t really know. There is some premium over investment grade rated bonds with similar maturities.
Bonds make up about 10% of our portfolio now. 2/3 corporate investment grade and 1.3 RR (all govt)
Do you own these Copower green bonds?
I do not Bonnie and here are the reasons:
1. I primarily invest in dividend paying stocks and a couple of low-cost ETFs. Other investors may have different goals though!
2. I used to own a number of bond ETFs but over time, I realized, I should really treat my pensions, house, etc. as one big portfolio. So, given I have a small pension at work, I consider that a big bond and that’s my bond portion, for now.
3. My registered accounts (RRSP, TFSA) are maxed and I feel bonds, with any interest income including Green Bonds, might contribute negatively to my income tax vs. the CDN dividend paying stocks I keep in my taxable account.
That said, this post was a partnership with CoPower and I’m happy to highlight this alternative product since I know some investors who are interesting in learning more.
Thanks for your question – happy to answer.