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What are energy REITs?


Many investors stick to blue chip stocks, real estate, and telcos usually, as these are proven to have a high demand and limited supply. Besides these two categories, food and beverage — despite the challenges to agricultural products — remain a top favorite of investors. Sexy businesses like restaurant chains have lots of appeal as consumers feel their ownership, especially when they directly patronize the very establishments their stockholdings support.

But what about the new breed of investments called real estate investment trusts (REITs)? First, they are a new category worth a deeper look because they live on incomes of the chosen sector — be it real estate and, in the case of the even newer subcategory, energy REITs. Take solar, for example.

I recently went on a field trip to see how a solar farm works and how important it is to build more of these farms. I got very interested because solar farms seem to be like lifeless industrial farms, yet they also can create value with agricultural crops growing around the property. Root crops like turmeric, for example, can grow around the solar panels without changing the output of each panel. Other free areas can be planted to sun-hungry vegetables, even high-value arugula or the lowly pechay (bok choy).

What are other advantages of solar farms?

FIT IS A FIXED PAYMENTAs explained by experts in the team during our field trip, the electricity generated from solar, wind, run-of-river hydro, and biomass power plants approved by the Department of Energy (DoE) and Energy Regulatory Commission (ERC) are delivered to us consumers to our homes immediately through different transmission and distribution lines. These renewable energy (RE) plants then receive payments from the market operator in the spot market and the National Transmission Corp. (Transco) under the Feed-In Tariff (FIT) system of government for a fixed period of 20 years.

The ERC has approved FIT rates for each of these RE projects based on a reasonable return of investment in these RE projects. If the payments of the market operator are not enough, then the remaining FIT cost of generated electricity shall be paid by consumers through the FIT-allowance (FIT-All) charge per kilowatt hour (kWh) in our electricity bills.

So, there is in fact a sure taker or buyer for the electricity generated by these solar farms: us electricity consumers.

FITs then become a sure winner and the ERC-approved margin becomes a sure profit for the investing public. This is why REITs in solar power can promise certain returns for the next 20 years. That’s sure income for a long period of time.

ENERGY DEMAND WILL REMAIN HIGHER THAN SUPPLYElectricity demand rises during the summer months as more people use air conditioners, electric fans, air coolers, and even ref and freezers run on overtime. Why do brownouts or power outages occur? There just is not enough power supply available, whether from coal or renewables. Why did this happen? We sat on our power choice decisions too long, too late. And in the past, the focus was all about the supposed cheaper coal.

So, for the next five to six years, unless half of us decide to live elsewhere where we do not need air-conditioning, the power supply will be negative. And this is why solar farms need to be multiplied many times over.

But for those who will only invest now, profits may not be as handsome as those of the first-movers, who were able to get into the FIT program. But still, there are profits to be made.

AGRO-SOLAR FARMING IS A REALITYWhen you put up solar farms, you need a whole village to maintain and protect the hard assets while looking for soft profits like community engagement, livelihood opportunities and agriculture production. This will be the case in every project as agricultural land will need soil regeneration and projects that contribute to biodiversity.

Besides using the soil as the surface for the installation of the solar panels, helping dry acidic soil recover is another plus point for solar farming. You can watch soil recover, you can actually make soil while watching the solar panels do their work. The regenerated soil can then be a medium for various crops that the community can consume as well as sell, if they have any extra production.

What is the downside you might ask?

I really cannot find any, except it was too easy for people to just choose coal and oil as they were more familiar with these old traditional polluting energy sources.

It was also something unfamiliar to invest in, except for forward-thinkers and first movers.

When something is so new, it takes a gutsy entrepreneurial mindset to enter a new field — literally a new energy field. Putting up solar also poses challenge in terms of finding large tracts of land. The government needs to make sure that we also keep enough land for agriculture and our food security.

With coal prices now at P9-P11/ kilowatt and solar at P3.50-P4/ kilowatt, you will not need rocket science to know where to invest your money. Solar and even wind power are the better choices.

Maintenance-wise, you just need to wipe these panels clean of dust, like cleaning your glass windows or your walls. And if you have plants growing around the panels, you will even have less dust and more vegetables.

If the demand is there for the next five to six years until we play catch up, it is worth investing in solar energy for your home, for your plant, or even just for your portfolio. Diversifying your portfolio and adding some renewable energy REITs may do well for your financial planning.

It is amazing to hear about the state of our energy demand and supply from experts I met from the DoE. It is worth sitting down with your board on how to participate in this opportunity to not only stay away from coal and oil, but to do Mother Nature a favor. In our own manufacturing plant, we installed solar panels on the roof and so far, we have already reduced our electric bill by 10%. Imagine a whole farm — tracts of land as far as your eyes can see — which can generate free power.

As I was on a road trip in Spain recently, I googled their use of renewable energy and found out it is a happy 45% because I saw a lot of wind farms and solar farms along the way. We could do this, too.

In the meantime, you can also join the joyride by supporting companies who invest in renewable energy and watch your profits grow while taking care of the environment, too.

It’s time to ask your investment counselor about energy REITs.

This article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or MAP.

Chit U. Juan is a member of the MAP Diversity & Inclusion Committee and the MAP Agribusiness Committee. She is the chair of the Philippine Coffee Board, and a councilor of Slow Food for Southeast Asia.

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