At the end of the day, it all comes down to ROI. If this had a good ROI, it probably already attracted enough investors without needing to create such a investment product. If not, then I might as well buy SP500.
Note that ROI is not the only criteria for investment. Some people invest on lower ROI investments if they think the positive externalities align with their values, and risk is just as important as ROI anyway.
While I don't think this investment is effective either way, there is probably a market for people that want a more visible way to track their impact.
I strongly disagree. I would quite happy to invest a venture like if I was confident it would help us make a transition to renewable energy faster, even if the ROI was significantly worse on average than S&P. My concern is how do I know that buying solar panels with them will actually help to increase the percent of renewable energy being supplied by the grid. I don't want to just help some commercial investor who has built out a solar project recover the capital they've put into it unless they'll guarantee they are going to put that capital back into building more renewable generation.
One interesting thing I found is that there is a downward trend for electricity prices (adjusted for inflation) for the last 40 years so it doesn’t seem like there’s no future growth:
The return, for some people, will be more than the just the money though (because they'll attribute some value to the green aspect). For them it doesn't necessarily have to beat the SP500. The sum of the money earned and their perceived green value will likely have to exceed it, I agree.
Joking aside, why would that be? They're creating an investment vehicle that pays 7% return subject to various conditions and taking some cut for themselves. You can't just assume that all investments are already fully sold on the market and no one can create new ones.
The ROI exists - Goldman, Walburg, etc all have billions invested. Most solar developers are private companies. A lot of the oil giants have been investing in these developers to diversify. The issue is not whether this asset class generates a return, but rather is it available to non-institutional investors. Diversification normally preserves wealth - we tend to recommend our investors to allocate 5% of their portfolio in this asset class - its not correlated and annuity generating). Full disclaimer - I'm a co-founder at renewables.org.
It might be useful to think of Legends Solar panels as a kind of fixed income security. It depreciates over time but produces a steady stream of dividends. Significantly lower risk than the stock market, but with somewhat predictable returns.
The important thing we hope to capture is the experience... it'll feel much more like owning a consumer product than an investment.
It sounds more like real estate investment than fixed income security. You get electricity instead of rent.
Similarities include physical depreciation, need for maintenance, insurance, importance of location, vacancy risk (vs bad weather), tenant risk (vs power customer), how each case is special snowflake, etc.
Fixed assets depreciate over time, but fixed-income securities do not unless you are assuming inflation.
1. How are you defining risk in this context and comparing it to the stock market? There is no track record shown in the FAQs.
2. What is the "somewhat" in "somewhat predictable"? The 7.3% estimated returns seem to come out of thin air with no backing calculations to them.
3. How are you returning capital to investors? This is nowhere in the FAQ. Do I actually get what I put in back or am I buying an interest rate depending on the life of the panels hoping to break even at some point?
4. If there is no secondary market, how do I re-coup any of my initial investment? Am I locked in for life? Circles back to question 3, is the principal returned after a fixed amount of time?
5. Do I receive a K-1 and operating losses due to panel depreciation?
ROI is not knowable ahead of time. This might fit one person's risk profile and not someone else's.
It's also a good asset for people who are OK with lower returns if the investment slows climate change, or for people who want to make a bet that solar will be in higher demand in the future.
ROI is only one factor - the other is risk. These are an interesting asset because, while they have some risk, that risk is at least partially decoupled from market risk. It could also be a hedge against energy prices rising (depends how the power purchase agreement is structured).
This doesn't apply to the stock market because the stock market is the alternate investment for retail investors.
But this does apply to most investments. Most investments that are looking for retail investors are scams. If they delivered ROIs better than or as good as the S&P they'd attract large sophisticated investors.
You can say that about any ESG investment, though.
Matt Levine writes about this sometimes. One possible justification to invest in ESG is that you believe that investments that are relatively good for the environment (or whatever) will beat the stock market. Another justification is that it makes the cost of raising funds cheaper for companies that are good for the environment and more expensive for companies that are worse for the environment.
According to the latter theory, if it's working, you should earn less than the S&P 500. If you're not earning less, you haven't lowered the cost of raising funds.
(On the other hand, if a company is advertising a niche investment to small investors, they probably have a cost of customer acquisition that's going to be cutting even more into investment returns? Isn't their cost of raising funds going to be pretty high?)
While I don't think this investment is effective either way, there is probably a market for people that want a more visible way to track their impact.