It is being offered by ethical peer-to-peer platform Abundance and biomass firm Monnow Valley CHP, which will use the debentures to install up to 10 combined heat and power units and two biomass boilers in Herefordshire.

Once constructed, the units will supply electricity to a neighbouring business park and become eligible for government subsidies.

Interest and gains from peer-to-peer loans can be earned tax free under the government’s Innovative Finance ISA scheme.

Abundance says this debenture will pay an interest rate of 12% over its one year duration, with a first instalment paid after six months, and a second payment at maturity when the original money invested will be also repaid.

The renewable energy bond went on sale last Friday and is more than 25% sold out, the platform says.

High risk

Abundance admits the reason the return on this project is so high is because of the “greater risk involved”.

“The reason the return on this project is much higher than most that Abundance offers is that it involves “construction risk” i.e. – the equipment involved is not yet installed and operational, whereas most of Abundance’s offers are for projects that are already built and are operational,” it said.

While peer-to-peer lending is regulated by the Financial Conduct Authority, it is not covered by the Financial Services Compensation Scheme, unless investors have received “unsuitable advice”.

Adrian Lowcock, investment director at Architas, also points out that this type of investment offers no diversification, so investors are taking on a lot of company specific risk, and that bonds are notoriously difficult to analyse.

“Very few people, including investment experts, have a very good understanding about how bonds work. Each bond is unique unlike equities which tend to be similar in nature,” he said.