Sunny days will be the key driver for generating income in a new solar energy investment vehicle in Canada.
Toronto-based Solar Income Fund Inc. plans to launch a fund tomorrow that will invest in projects that generate and sell solar energy power to local utility grids in Germany under a feed-in tariff.
The policy is an incentive to small-scale producers to develop renewable energy sources, and consists of a rate fixed under legislation and long-term contracts guaranteed by the government.
Solar Income Fund LP is the first of a series of funds aimed at accredited investors looking for both annual income and also tax deductions similar to those offered by energy and mining flow-through limited partnerships, Paul Ghezzi, company founder and fund manager, said yesterday.
"It provides green income and green tax deductions," he said in an interview.
The limited partnership is targeting distributions of 8 per cent a year, but that can vary, Mr. Ghezzi said. "It's based on the amount of sunlight we produce ... That is based on the average 20-year radiation studies for that particular area where we will be building."
The tax deductions are basically limited partnership losses that are driven by capital cost allowance and interest expense, he added.
The first three funds will focused on owning solar energy assets in Germany, while the fourth will be based in Ontario, which is instituting a similar system under the Green Energy Act.
"We'll have projects all over Germany, but it is more concentrated to the south of Munich," he said. "We want to get as much radiation into the panels as we can, and that tends to be more in the south."
Solar Income Fund has a management expense ratio of 0.25 per cent. There is also a 20-per-cent performance fee above the yearly distribution target that would include potential capital gains.
The first fund, which requires a minimum investment of $25,000, is expected to be liquidated by 2013. The plan is to sell the assets, and investors can potentially make a capital gain from the sale, Mr. Ghezzi said.
While studying the solar energy markets, he said Italy and Spain pay "much better returns." He opted for Germany to reduce risk. "Germany is seen as stable, very secure and a world leader [in solar energy]," he said.
Mr. Ghezzi said he is focused on raising about $33-million in the first fund. It will either build or purchase the solar-energy-producing assets. Half of the fund will be invested in a solar park, and the other half in rooftop solar installations. Rooftop systems pay a better energy tariff, but the maintenance costs are higher, he said.
Mr. Ghezzi, who founded his firm along with Toronto-based ASG Financial Corp., describes himself as a "green investor," but one frustrated by returns offered by socially responsible stock funds or "green" exchanged-traded funds (ETFs) that "basically went up and down with the market...
"What is interesting to me as a chartered accountant who is a bit conservative and likes stability was that we could create something that was income-based," he said. "So you could be green and make money."
© 2007 The Globe and Mail. All rights reserved.
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