Renewable energy trusts seek growth after subsidy loss

By Emma Agyemang, Investors Chronicle

29 September 2017

 

Renewable energy trusts invest in wind and solar generation and are popular with investors due to their high, inflation-linked and government-backed yields. The average investment trust within the Association of Investment Companies (AIC) Infrastructure - Renewable Energy sector is trading on a 9.6 per cent premium to net asset value (NAV). The yields these trusts are currently generating have been partly driven by generous subsidy schemes, with around 60 per cent of fund revenues coming from this source. But March saw the closure of an important subsidy – the Renewables Obligation Certificates (ROCs) scheme – to new projects, raising the question of how renewable trusts will continue growing in future.  

Diversifying clean energy projects 

A different strategy for increasing growth is to expand the type of assets a trust invests in. Trusts can also wring out further income from the projects they do own, rather than acquiring new projects. Bluefield Solar Income Fund (BSIF), the highest-yielding trust in the sector at 6.4 per cent, is currently taking this approach. It has a team of 40 staff who focus on how to maximise revenues within the fund’s PPAs or via cost reductions in existing contracts. In addition it has a team of technical engineers who continually monitor their solar plants to see how they can improve efficiencies and generate more power.

"The model that we adopted from our Initial Public Offering (IPO) was that of building, with the vast majority of the portfolio – over 80 per cent – acquired through funding via construction as we took advantage of the rapidly growing solar market in the UK,” says James Armstrong, managing partner of Bluefield partners, investment adviser to Bluefield Solar Income. “Whereas what we are looking at [now] in a steady state is how we can drive earnings growth, which is what our shareholders want."

The various methods funds are using to continue growing suggest they have largely taken the loss of ROC subsidies in their stride, however new acquisitions may potentially change their risk/return profile going forward.

 

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