Investing in traditional or alternative energy sources

Many investors are interested in the energy sector. Global demand for energy is growing, particularly for alternative energy sources (“green,” “renewable,” “clean”).

Promoters run campaigns extolling investment in traditional and alternative energy sources. They highlight the growth potential of companies operating in such fields as wind energy, solar power collectors, ethanol, biodiesel, oil fields, geothermal energy, natural gas, etc.

Warning

Be careful

Unscrupulous promoters are taking advantage of the renewable energy craze to defraud investors.

End of the warning

These promoters try to attract investors interested in ethical and responsible investing by using expressions such as “green energy investment opportunities.” The terms “green” and “alternative” energy tend to indicate that a company is associated with environmentally-friendly green power generation. However, in some cases, the company is nothing but an empty shell that does not produce anything at all.

Before investing in the energy sector, be informed

Read the prospectus

Ask for a copy of the prospectusA prospectus is a detailed information document that a company must prepare to be able to sell securities (such as shares) to the public.

It must provide full, true and plain disclosure of all material facts likely to affect the value or market price of the security in question.  
. Some issuers may be exempted from the requirement to prepare a prospectus in order to sell securitiesA security is a legal instrument that grants certain privileges and that, as a rule, can be bought or sold. Here are some examples of securities: 

Treasury bill
Guaranteed Investment Certificate (GIC)
Savings bond
Shares
Etc.
, such as sharesA share, also referred to as stock, is an equity security that entitles you to an ownership interest in a company.

The company can distribute a portion of its earnings to shareholders by paying them a dividend.

The shares of companies listed on an exchange are bought and sold at the exchange.

When a company ceases to operate, the proceeds from the sale of its assets are used to pay its debts and taxes, and the rest of the money is distributed to shareholders.
, but only under certain conditions. Most securities issued without a prospectus are only suitable for certain types of investors, such as accredited investors who have above-average income or assets.

Is it too risky?

Investments in the energy sector, just like investments in the mining sector, can be very risky. Do you have the means to lose all or part of your investment? For example, for an oil company, a lot of extensive and costly research and work are required between the discovery and the exploitation of a petroleum deposit. There is no guarantee that the company will be successful.

Make sure you really understand the nature of the investment and the risks it entails. Are you being offered sharesA share, also referred to as stock, is an equity security that entitles you to an ownership interest in a company.

The company can distribute a portion of its earnings to shareholders by paying them a dividend.

The shares of companies listed on an exchange are bought and sold at the exchange.

When a company ceases to operate, the proceeds from the sale of its assets are used to pay its debts and taxes, and the rest of the money is distributed to shareholders.
bondsA bond is a security issued by governments and companies through which an investor lends money to the issuer.

In general, the government or company promises to pay the investor interest at a fixed rate and at certain intervals (for example, 2% per year). Interest is normally paid twice a year. At maturity, the government or company pays back a predetermined amount that is called the face value. The face value is usually $1,000.

There are several types of bonds:

Stripped bond
Real return bond
Convertible bond
Savings bond
Retractable bond
Unsecured bond
Etc. 
exchange-tradedAn exchange, such as a stock exchange, is a market where investors can buy and sell securities, including shares and options.

In order for a company to be listed on an exchange, it must meet certain criteria and regulations, relating to accounting practices and information for shareholders, for example. 
 fund (ETF) units, limited partnershipA limited partnership is a specific form of partnership.

The partnership is managed by a general partner and the capital is supplied by limited partners, whose liability is limited to their investment outlay.

These partnerships usually invest in a particular sector such as real estate or the oil and gas industry.

Most limited partnerships provide tax benefits that may be transferable from the partnership to the limited partners. 
 units or optionsAn option grants the right to buy (call option) or sell (put option) an asset at a fixed price for a specified period.

The asset, called an underlying interest, may be a common share, a commodity, a currency or an index (such as a stock market index). 
? Don’t invest if you don’t understand the proposed investment.

Ask questions

Are you familiar with the “leading-edge technologies” promoted by the company in which you’re being urged to invest? What are the risks?

Who is proposing the investment?

Be wary if you’re approached by strangers, especially if they’re insistent, call often and enthuse about “guaranteed high-yield” investments. Remember: There is no such thing as a high-yield investment without risks.

Get information about the company and the people proposing the investment. Ask for advice from a trustworthy investment dealer you already know or who is recommended by someone you know.

Insight

Check that the firm and person you are dealing with are authorized to offer you the investment. Call the AMF Information Centre at 1-877-525-0337 or consult the Register of firms and individuals authorized to practise.

End of the insight

Don’t just rely on a fancy website. Scammers can easily design sophisticated sites, full of graphs showing fabulous profits and pictures and videos of modern facilities. In fact, here is an example of a very convincing fake website: BlueHedge Investments This link will open in a new window.

If it looks too good to be true, don’t invest.