Investors on the up Investing in wind power: a profitable green investment?

Whether for diversification or as a returns booster, wind power can be a promising part of your portfolio. 

Wind energy has experienced a turbulent upturn in recent years: the expansion of wind energy capacities increased rapidly and costs fell just as quickly.  And the developments of recent months have called for an even more pressing rethink in terms of energy generation. 

If you are interested in investing in wind energy, you will therefore find a promising investment opportunity. It contributes to climate and environmental protection, benefits from state support for the energy transition and, as a tangible asset, is less dependent on short-term stock market fluctuations.

In Germany, wind is the most significant source of renewable energy. Germany is in third place (behind China and the US) in terms of installed power from wind farms.¹ It will continue to play a leading role in climate-friendly energy supply in the future. 

Unfortunately, in the past, investors have also had negative experiences with dubious providers. Many investment offers lack a minimum degree of transparency. Which securities and projects are invested in exactly? How is a return forecast made? Which questions can be used to thoroughly check for safety or risk? And which investments really have a sustainable impact? 

This article explains the opportunities, risks and options of wind energy investments. The text briefly outlines how wind power and corresponding investments work, highlights various forms of investment and gives tips on what to consider when dealing with the topic. Know which way the wind is blowing.

Wind is on the up: worldwide, the number of wind turbines and investments in this form of renewable energy are increasing. In the first half of 2020 alone, global investments in offshore wind farms quadrupled.² In Germany, wind energy already accounted for more than 20% of gross electricity generation in 2021.³ Wind power is also expected to play an important role in the future energy mix.  

So there are plenty of reasons for investors to look at the boom and how it can benefit their portfolio. The following sections are therefore intended to highlight the most important aspects of wind power investments.

Institutional investors such as insurance companies and banks have been benefiting from the expansion of renewable energies for some time now. But you don't have to be an energy professional to invest in wind farms. However, it is worth checking the products thoroughly beforehand and critically asking yourself whether this form of investment fits your own life situation and risk appetite.  

In principle, retail investors can also participate in projects today, often starting with an investment of 100 euros. They should pay attention to how long their money will be tied up (investment period), what fees and expenses the project entails (cost transparency) and what experience operators and financial managers have with wind projects (provider quality). 

The form of investment is also decisive for the risk-return profile of a wind power investment. There is lots to choose from here, from equities and bonds to closed-end and open-end funds, citizen-run wind farms and other forms of crowdinvesting – more on that later.

No fossil fuel sources such as coal, gas or crude oil are needed to harvest wind. Wind energy is therefore one of the renewable energies contributing to protecting the climate: generating electricity from wind produces very few climate-damaging greenhouse gases such as CO₂.  

In Germany alone, wind power production in 2019 enabled the avoidance of more than 89 million tonnes of greenhouse gases⁴. This will enable Europe to meet a growing part of its needs: wind turbines already accounted for 15% (437 TWh) of the electricity consumption of the 27 EU countries and the United Kingdom in 2021.⁵ However, the EU’s greenhouse gas reduction targets cannot be achieved without a forced expansion of wind energy.

By investing in wind power, retail investors can actively support climate change mitigation and take advantage of returns. The ever-growing expansion of wind power capacities ensures that potential customers for green investments find an attractive market here. At the same time, the investment volumes for wind farms are usually so large that the costs for planning, sales and operation are well distributed and make interesting returns possible. 

Wind farms fall under the heading of tangible investments. They remain stable even in crises and counteract inflation. The state subsidy for renewable energies (feed-in tariff) ensures 20-year purchases in electricity production in Germany.

Investors can participate in the development of the wind power industry in many ways, whether with profit distributions or interest. Each offer varies in terms of factors such as investment form, location and wind farm operator. The forecast returns are also correspondingly different.  

The annual interest rate is often between 4 and 6% for wind farm investments, sometimes up to 9%, and general statements should be viewed with caution. This usually includes the costs for administration and operation (expertise, prospectuses, maintenance, sales), but this must be checked in detail in individual cases.⁶

Several factors speak in favour of seeing wind energy as a relatively safe investment.

After all: 

• the global energy demand is increasing.⁷
• International agreements promote the expansion of renewable energies because they are cleaner. 
• More and more countries are promoting renewable electricity production with a legally guaranteed remuneration over a fixed period of time. In Germany, the Renewable Energies Act (EEG) ensures this income security. 
• As a result, the capital requirements in the growth market that is the wind industry are increasing. 
• The technology is mature and proven, and yields are easy to calculate. 

At the same time, investing in wind farms also entails investment risk.

• Wind is temperamental. Although winds and temporary downturns are included in the yield forecasts, the natural phenomenon cannot be precisely calculated. Prolonged periods of low wind can reduce yields. During the major project failures at the beginning of the 2000s, project developers had based their wind forecasts on that of the 1990s, which had above-average wind volumes. 
• Such planning and management mistakes happen mainly to inexperienced project developers, for example when they base their assumptions on wind strengths that blow at different heights than the planned wind turbines. Here, the entire industry has learned a lot from the negative experiences of the dubious suppliers of years past. 
• However, as with all investments, a total loss cannot be ruled out. For example, too little wind leads to large revenue losses, interest on loans can no longer be paid to the banks and the project is at risk of insolvency. 
• Politics could change the amount of the EEG levy, which could reduce profits. However, such a reduction is not possible retroactively – at least not in Germany. Providers already feeding into the grid will receive the legally guaranteed feed-in tariff. 

So if you see more wind power investments in your portfolio, it’s a good idea to diversify these investments – whether through a variety of individual investments or an internationally positioned tangible assets fund. This means that you will not experience a proverbial storm when the wind fails to blow in a particular region. 

How long and how flexible an investment in wind energy is depends on the form of investment and the respective project. Wind farms belong to the class of infrastructure assets. This makes them less susceptible to cyclical fluctuations and more independent of stock market movements. At the same time, these types of investments tie up investors’ capital in the longer term and 

investors should expect their capital to be tied up for several years. Depending on the project, the investment period is between 5 and 20 years, in some cases also slightly less. This is because the initial investments for a wind farm are only reinvested over the years with the income from the sale of electricity or through the feed-in tariff. 

At the latest after the end of the statutory funding period of 20 years, "repowering" usually takes place. New wind turbines – with improved performance and less maintenance – replace the old turbines. This saves operators the initial expense, as grid connections, permits and experience with wind are already available.

The German Renewable Energies Act has given renewable generation of electricity and heat momentum since 2000. On the one hand, it defines the priority that renewables have, as they are prioritised when fed into the grid, while fossil energy sources may not come into play at all or will only do so later. 

On the other hand, the law sets a feed-in tariff for a specific duration of generally 20 years. As a result, wind farm operators and their investors receive fixed subsidies for every kWh of renewable electricity produced and fed into the grid.

In principle, the form of taxation depends on the type of investment. For example, profits from shares or equity funds are subject to the usual taxes, such as withholding tax or capital gains tax. 

Certain forms of wind investments can provide tax advantages. Those who invest in a direct shareholding and thus become a co-shareholder can benefit from tax deferrals. The depreciation for the wind turbine can be treated as an expense or the tax burden can be deferred for the future. 
 
In any case, however, it depends on the investor’s personal situation, so a tax adviser should always be consulted.

In general, a large proportion of the European population supports the expansion of renewable energies for a clean energy supply.⁸ However, opponents of wind power have different arguments against wind farms. These include the aspects of aesthetics in landscape design, objections based on health, the local economy and, in particular, nature conservation. 

In order to minimise the unpleasant effects of noise from and shadows cast by the blades, the federal states have enacted laws to regulate the distance between wind turbines and houses. In some regions, this has led to a significant slowdown in the expansion of wind power.  

Nature conservation associations such as NABU broadly welcome the expansion of wind energy because it is regarded as a highly efficient form of renewable energy generation and takes up relatively little space.⁹

Bird strikes are, however, considered problematic. Studies recommend painting one of the rotor blades black so that flying animals can spot the wind turbines in time. In addition, to reduce the negative impact of the installations project developers should consider the local biodiversity and the protection of endangered birds and bats when selecting a location.

First of all – a good question. Investors should always ensure that the companies behind them have sufficient expertise and financial strength to keep their investment sustainably up-to-date. This is the only way to ensure the desired longevity. 

In Germany, wind energy projects are usually planned for a term of 20 years. Guaranteed subsidies under the German Renewable Energies Act (Erneuerbare-Energien-Gesetz: EEG) apply for this period. But what happens to the farms after this time?  

There are 3 possibilities: 

1. Continued use. Electricity continues to be produced and sold on the electricity exchange. Although the feed-in tariff is no longer applicable, the demand for electricity will tend to increase.
2. Dismantling. The plant will be dismantled, with the residual value of the material financing the dismantling costs. This case is assumed to be rare. 
3. Retrofitting. Many plants will be replaced by more modern and efficient turbines before the 20-year subsidy period expires. This is known as “repowering” and increases the electricity yield.

Many offers for a green investment in wind energy are available. Traditional forms of investment are also represented here. A comparison of the most important wind investment opportunities illustrates this wide range.

Many investments in wind farms (or solar funds, for example) are offered as direct investments. As limited partners, investors are involved in a limited partnership (KG), which pools the investors’ funds. Once the required investment amount for the wind energy project has been reached, the fund is closed. In most cases, the holding is regulated via a trust company so that each investor does not have to individually go to the notary for an entry.

Pros: Investors become co-owners: they directly own a part of the wind farm – including having a say and profit sharing. The corporate investment results in tax benefits.

Cons: Such investments are normally made for at least 10 years and involve a relatively high investment amount. There is no fixed interest rate. 

To sum up, direct investments can be lucrative; funds with a high return are often found here. However, they are risky, not intended for small investment amounts and require perseverance.

With a bond or loan, investors do not become co-owners, but lend money to the company that manufactures, plans or builds wind farms. Fixed interest income applies to this loan. 

Pros: Lenders receive their interest income regularly. A bond is considered to be less risky than a direct investment, because in the event of insolvency of the operating company, borrowers have a better chance of receiving disbursements from the liquidation assets than the co-owners. In addition, the terms are often shorter. 

Cons: As a lender, you hardly have any say or information rights, and returns are often also lower. 

To sum up: the risk of capital loss is relatively low and full repayment of the invested capital is considered very likely. However, the level of participation is also low.

Many companies that plan, manufacture, trade or build wind turbines issue share certificates on the stock exchange. Investors can make profits through dividend distributions and selling at a higher price.  

Those who do not want to evaluate and buy equities individually as it is time-consuming, invest in wind energy funds or eco funds or ESG funds that pool shares in companies in the renewable energy sector and thus spread the risk. Such actively managed funds add corresponding fees. 

Pros: Exchange-traded securities are easier to buy and sell – investors are not affected by the long investment return cycle of wind turbines. Nevertheless, a long holding period is recommended as each switch costs money. 

Cons: Investors cannot influence the direct expansion of renewable energies with this form of investment. The funds usually do not flow directly into the real economy, but take a diversion via the financial sector. Although investors are in an asset class with a strong future, they are still dependent on speculation on the stock market. What does this imply? Even though renewable energies are generally on the rise, you may be on the wrong track and your investment is affected by general sentiment, including weaknesses, on the stock market. 

To sum up: although equities (or equity funds) are supposed to offer more flexibility, returns are are affected by short-term price fluctuations and are therefore less predictable. In addition, their contribution to climate protection remains indirect and difficult to measure.

Impact funds are thematic funds with double returns. The investment flows into concrete projects with financial returns, environmental objectives and measurable impact in the real economy. For example, these sustainable funds set specific objectives, such as how much greenhouse gases the investments are intended to save.  

Pros: In impact funds, the direct, transparent effect of an investment in a wind farm is combined with the diversification offered by equity funds. Open-end impact funds also offer flexibility that is not possible for co-owners in closed-end funds. This results in an interesting combination: no price fluctuations like on the stock market, but units can be traded on any trading day. 

Cons: A relatively high investment amount is required for an investment, often upwards of 10,000 euros. 

To sum up: The aim of this form of investment is demonstrable sustainability performance aligned with the United Nations Sustainable Development Goals (SDGs). Experienced investors in particular appreciate the interesting combination of attractive risk-adjusted returns and liquidity that impact funds can offer.

If several people pursue one goal, then a larger group (crowd) invests in a joint project. Crowdinvestments in wind farms can take on various company structures, e.g. as regional citizen-owned wind farms. In addition, there are different forms of financing for them, which are reflected in the contracts concluded between the project and investors, such as direct shareholdings or GmbH & Co. KGs (limited partnerships with a limited liability company as a general partner, see above), as cooperatives, with participation certificates or with subordinated loans. 

Participation certificates with participation rights

Participation rights are issued in the form of bearer instruments securitised on a participation certificate. With the profit participation instrument, investors benefit from the net profit of wind farms. 

Pros: Investors participate in the net profit through a variable or fixed interest rate (in the case of profit-making). It offers an attractive interest rate. 

Cons: Investors have no voting rights. A total loss is also not excluded. 


Subordinated loans

This is the most common form of crowdinvestment in wind farms. Investors give the operating company a loan that is repaid over several years with interest. 

Pros: Investments of small amounts are possible (some from 100 euros). No direct costs. 

Cons: In the event of insolvency, lenders are treated in a subordinated manner and may not be paid out at all (total loss) – the claims of all other creditors are paid first. 

 
General summary: Crowdinvesting can be structured in a wide variety of ways. It is worth investors taking a close look and, above all, paying attention to the experience and previous successes of the providers.

The combination of sustainability and return makes wind power investments attractive. Direct investments or closed-end funds are suitable if, as an investor, you can forgo your capital for a while and have an entrepreneurial spirit.

Here you have a say and can expect good returns; but if the wind shifts and you may have to quickly use your invested money elsewhere, you cannot get out of a long-term investment promptly. 

If you, as an investor, are looking for more security and flexibility, but still want to participate in the growth of the industry and actively contribute to climate change mitigation, an open-end impact fund may be advisable. These investments score points with their directly measurable impact and also ensure greater diversification, as they invest in a variety of renewable energies. By spreading your capital across different investments, you can prevent a high level of risk and still bring a breath of fresh air into your portfolio. 

Crowdinvesting can be interesting for anyone who wants to support wind energy in their own region or with a very small amount. Here, too, it is important to take a close look at how the contract is structured and see what experience the operators have.