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Hold onto your geothermals, new bond pays 12% income

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26/07/2017
Investors can help build the first commercial geothermal electricity power station in the UK via an 18-month bond paying 12% per year, with a new offer from United Downs Geothermal and ethical peer-to-peer platform Abundance.

The United Downs Geothermal bond will pay the equivalent of 12% per year at the end of the 18-month term.  The bond can be held in an Abundance Innovative Finance ISA, meaning the income is tax free.

The Bond aims to raise £5m to help construct the UK’s first commercial geothermal plant near Redruth in Cornwall. The project has recently been awarded a £10.6m grant from the European Regional Development Fund and £2.4m of public funding from Cornwall County Council.

Geothermal energy is heat energy generated and stored in the earth. There are currently projects in Italy and Iceland but it hasn’t been used in the UK to generate electricity. The first stage of the project is to drill a well down to 2.5 km, followed by a second deeper well of 4.5 km to create a geothermal circuit to power the electricity generation plant built on the surface. The project is designed to create enough energy to power 5,500 typical homes each year.

Ryan Law, managing director of Geothermal Engineering, said: “The geothermal resource beneath our feet is extensive, and, if properly managed, inexhaustible. The granite rocks of Cornwall have the highest heat flow in the UK and are the best place for the development of geothermal power.  The United Downs project is at the cutting edge of geothermal technology and we want to give the local community the chance to be involved in this project.”

People can invest directly, from a minimum of £5. Abundance has raised c£8m in the last two months to support tidal energy (Atlantis Resources) and energy efficiency (Green Deal Financial Services) through debenture offers.

A 2012 study by Sinclair Knight Merz  ‘Geothermal potential in Great Britain and Northern Ireland’ estimated that geothermal energy – which captures the heat held in rocks far beneath the earth’s surface – has the potential to meet up to 20% of UK electricity needs, with zero carbon emissions and it also provides a constant supply.

YourMoney.com verdict

12% is a chunky yield, when interest rates are at 0.25%, a 10-year gilt pays around 1.2% and stock market dividends average around 3.5%. However, it is not guaranteed and reflects the risks that are involved in the project.

Ben Yearsley, director at Shore Financial Planning, said: “The return on offer reflects the risk associated with the project. With this bond you are taking construction risk and then refinancing risk by the looks of it as to repay the bond, the underlying company will need to raise additional finance in 18 months’ time. While I have invested in a number of renewable energy projects and I like the space, I prefer lending money to projects already up and running and generating.”

If investors are still tempted, the key is to invest relatively small amounts and keep the remainder of your savings in safer options.

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