Readers Letters from Ethical Consumer Issue 151
Misleading interest rates in renewable energy ads
Over recent months I have seen a number of organisations advertising in EC promoting share issues for community energy schemes. Calculations show that the interest rates declared in some of these offers are frequently higher than the true rate of interest that an investor will receive. In this sense, the offers are misleading to prospective investors. The causes of these misleading offers are a miscalculation of the effective rate of return. The miscalculation arises from one or more of:
- Use of averaging of annual % returns instead of a discounted cash flow internal rate of return (IRR) calculation.
- Failure to use the true dates of investment and interest payment.
- Failure to allow for reduced income in the first financial year.
I have contacted four companies on this subject: Abundance, Ethex, Sharenergy and Enery4all. Responses have been mixed.
- Abundance NRG accepted the point and in a new offer, they changed their calculation to an XIRR based on appropriate dates.
- Ethex have said that they are looking to have a consistent method of calculating returns. They said that they believe that the XIRR calculation should be based on the date that shares are allocated. I have explained to them that this overestimates the return to most investors and is therefore misleading. The outcome remains to be seen.
- Sharenergy accepted during in a telephone conversation that assuming the first interest payment occurs a year after investment leads to the calculated rate of return being higher than the true return to investors. Again, it remains to be seen what happens in the next share offer.
- Energy4all uses average rate of interest. They maintain that IRR is inappropriate and continue to use averaging despite that fact that this often produces the most misleadingly advantageous interest rates eg 6.3% calculated as IRR compared to a declared average return of 8.6% in a prospectus.
Typical shortfalls due to use of incorrect dates and reduced first year income are between 0.3% and 0.8%. As a keen supporter of community energy I am concerned that incorrect calculation methods will tarnish the reputation of this sector. I think that it would be unethical for your magazine to carry any more advertising from these organisations until they declare interest rates obtained from internal rate of return (IRR) calculations based on appropriate dates.
John Stott ( by email)
Ed: Following your email, we sought technical advice from a renewable energy investment specialist. His opinion was that there were a number of different ways to calculate interest rates and that Energy4All clearly state the method they choose in each share issue prospectus. Nevertheless, you are right to warn potential investors to look out to see if an XIRR – the ‘gold standard’ – is being used in communications on interest rates. We have published your longer analysis on this subject in the forums area of our website so that people can see, and potentially discuss, the detail of your position
Desktops and laptop operating systems
A fascinating set of articles about the internet in recent special report on the internet! You included mobile phone operating systems, but I’d love to have also seen something on laptop/desktop operating systems. There’s less choice of course. Windows and Apple were covered in the article about mobiles. The other option is Linux, which I guess would score high with its open source ethos. Am I right? It has a history of being just for geeks, but it seems this has changed now – even as a non-techie I found the transfer reasonably straightforward. I was prompted by Microsoft’s ‘blackmailing’ 30% of the world’s users into ‘upgrading’ by ending XP’s security patching. On the down side, the many flavours of Linux are confusing; I chose one most like XP from what I read (Mint Xfce). On the plus side, it came ready packaged with Firefox, Thunderbird, lots of other software, and no Google (I won’t be using them anymore).
Dave R (by email)
Ed: A wide range of alternative operating systems are indeed available. A quick poll in our office highlighted Ubuntu (Linux based) as a good bet, not least because of its collaborative approach. As well as being free, Ubuntu, comes pre-loaded with Firefox (EC’s ‘Best Buy’ browser), Thunderbird (an EC ‘Best Buy’ email provider) Libre Office (used at EC for documents, spreadsheets, etc.) and other free software.
Did EC miss a trick? (or should that be click?)
Your article on Search Engines in your Sept/Oct issue (p.16) does not mention the small, British company Everyclick. They make a donation to your named charity every time you make a search. To date they have raised almost £5m. They appear to use their own technology to link to the Yahoo! search engine. Everyclick also operates the Give as you Live charity donation scheme for participating online retailers.
Colin Greaves (by email)
People vs Efficient Dishwasher
Modern dishwashers (EC149) do indeed use water, energy and detergent sparingly and they save time, but there are downsides. One is that machines are inflexible. Few things are more annoying and inefficient in the kitchen than placing a piece, say a spatula, in the dishwasher, then finding, a day later, that we need it again. We have to retrieve this single item, now with the food dried on, and wash it individually. We are faced with a trade-off between having spares of everything (more stuff, more space!) and running the machine at convenient times even if it is far from full.
Alan Cottey (by email)
Measuring the ethics of reuse
I am a keen supporter of, and evangelist for, Ethical Consumer, but I also think we do not reuse products enough. Sometimes EC misses a trick by implying that it is always better to buy new. It could be, with washing machines for example, better to reuse an old secondhand one. Part of the equation should be the embodied energy or carbon cost, water footprint, etc, of making a new one, compared to reusing an old one. Would it be possible to occasionally comment on this in your Best Buys? Even if ‘reuse’ cannot appear in the table, perhaps it could feature in a small box somewhere on the page.
Thornton Kay (by email)
Ed: The reuse of products (to divert from recycling) is a consumer behaviour that Ethical Consumer implicitly supports and where we think buying second hand is the best option we do say this, though perhaps not on every occasion. For instance in our current report on laptops we say ‘Best Buys for laptops and netbooks will be second hand where possible’ while our guide to buying books has similar advice, to name but two. There is some credible independent research emerging which tries to answer the question of the relative environmental impact of new and re-used products and we refer to it where we find it. For some heavy energy users like fridges and washing machines, evidence is beginning to favour newer products. Running a washing machine uses many times more energy than is used during manufacture or disposal. So, a new energy and water-efficient machine may be better than your old machine. One good resource we use a lot in this regard is the book “How Bad are Bananas?” by Mike Berners-Lee.