Investing in Green Infrastructure Funds (ITs)

[PrefInvestor]

Seconded, I don't see a reverse to the investment theme but high premiums should result in on-going share offerings as managers grow AUM. As a consequence in October I reduced my TRIG and GRP and went into GCP infrastructure which is more debt heavy (albeit 60% is against renewable projects).

Hi Walkeia, Well I confess I think all of the focus on net zero by 2050 etc. is just going to increase the interest in renewables not reduce it. Witness the success if the Octopus IPO early in a December which was hugely oversubscribed. The government are going to want this stuff done but they won’t want to stump up the money I’m guessing, so the existing players should all do very well is my bet FWIW.

So you moved from TRIG (~20% premium) and GRP (~14% premium) to GCP (~19% premium) then ?. Might have been better to buy the Octopus IPO mightn't it ?. Just a thought.

All of the renewables got a bit of a lift with the election result and TRIG an even further lift from the InfraRed Capital Partners deal. I think that holders are most likely to sell if the price gets so high that the dividend yield gets significantly reduced. I recently dumped UKW for that reason and bought some more NESF with the proceeds. I confess I can’t see the UKW price going much beyond 150....could be wrong but that’s my view.

I agree that we may see more share issuance to fund further expansion of the businesses. And yes probably at at discount to the current share price. But that hasn’t worked out too badly for holders so far has it....

All the best anyway.

Pref

[Walkeia]

Hi Pref,

Thanks for your views which I always appreciate. I don't contest the focus on net zero by 2050 which will keep the environment central to political and public discussion. What I do question is the scope at which Green infra can continue its performance after what I view as a blistering year for the asset class. As you yourself mention, UKW below 4.5% and you begin to lose interest; TRIG isn't a huge leap away from this yield either.

Having said this, private investors, like us, are unlikely to have meaningful influence and I have previously made the case (I forget if here or another forum) that Green Infra should arguable be spread to 15y UK linker yields for projects with Green subsidies. There's a dearth of yield for life insurance and pension funds in long dated government bonds. If this investor base enters this asset class then yields could head significantly lower.

Given the above, I moved from a significant overweight to more neutral long term stance towards Green Infra in late Oct. Now I have ~5% of my portfolio invested (I exclude GCP). Not ideal timing looking at post election moves but it's been an excellent overweight. This is why I passed on the Octopus new issue. My preference for GCP was because the fund has significant debt structure exposure to Green projects rather than 100% equity.

So I guess in summary, when I first started buying Green infra I felt it stood out like a sore thumb - prevailing yields vs. risk of the funds. Now it feels like they're within the range of the right price in my view. From here I think there's a fair number of funds I really like competing for my investment in the 3.5-5% yield range - my current favourite is Secure Income REIT and if, on new share issues, this asset class cheapens I would happily go overweight again.

Merry Xmas and all the best for the NY

[PrefInvestor]

Hi Again Walkeia, Well to date the renewable energy trusts have pretty well all been offering RPI linked dividends which is pretty attractive for income seekers. But the share price has “overpowered” the dividend payment in the case of UKW and if share prices continue to rise the same may happen with some of the others too, notably BSIF and TRIG. Still OK ATM though I think.

If other sources of funding for these trusts were to become available then that might be a game changer. Let’s face it when the BoE started supplying the banks directly with money for mortgage lending they suddenly didn’t need peoples savings anymore, which is when personal savings rates tanked and why they are never likely to recover. Some funding by pension schemes would probably be OK (some big investment Trusts invest in the renewable energy sector) but if they got all their money that way then they wouldn’t need private investors money so would likely slash the dividends. Hasn’t happened yet but something to keep an eye out for maybe ?.

I am still enjoying great success with these renewable energy trusts and they represent about 15% of my portfolio ATM. No plans to buy any more though.

ATB

Pref

[richfool]

Hi All, Personally I see GSF as a bit of a minnow of a Trust which didnt start well, failing to raise the desired amount at its IPO. If the Capacity Market takes off it could do well though. Personally I am steering clear for the moment.

Also after developments in the markets these last few days I have cancelled my subscription to the ORIT IPO as I see many other likely more profitable opportunities now for deploying the money.

ATB

Pref

What about GRID Gresham House Energy Storage Fund? Similar to GSF but a slightly larger animal, market cap: £169m targeting a dividend of 7p per share, paid qtly. Current SP: 107.50p NAV: 99.1p

Factsheet accessible through:
https://www.hl.co.uk/shares/shares-sear ... rd-gbp0.01

[PrefInvestor]

Hi richfool, Well GRID is already at close to a 10% premium and the share price hasn’t reached 110p yet. And targeting 7p is no guarantee of delivering it, looks like they only paid 3.5p in 2019 by the look of it (1.4p, 1.1p and 1p) over 3 quarters ?.I don’t know though it may come good. Not interested personally as I am already overweight in renewables.

Regretting not having subscribed to ORIT though which is up sort of 7% now, but I got distracted with the election and other possibilities at the time. ORIT performance demonstrates the continued strength of demand for renewable energy investments though I think, up ~7% and only about 3 weeks since the IPO.

ATB

Pref

[monabri]

A note of caution ?

https://citywire.co.uk/investment-trust ... ider+Daily

[jonesa1]

A note of caution ?

https://citywire.co.uk/investment-trust ... ider+Daily

It certainly puts the £92.50 per MWh the UK will pay EDF for Hinkley Point (assuming it ever gets humility) into perspective.

[colin]

A note of caution ?

https://citywire.co.uk/investment-trust ... ider+Daily

It certainly puts the £92.50 per MWh the UK will pay EDF for Hinkley Point (assuming it ever gets humility) into perspective.

The linked article is why I don't buy such funds as being geared to energy prices does not seem like such a safe bet for long term income, though reservations are not relevant to short term traders. Of course if the falling energy price scenario does play out it will impact oil and gas prices even more. I can only hope that the new industries which will arise are to be listed and held buy my tracker funds, certainly the FTSE 100 is very exposed to energy prices but then who knows if the miners won't play a key part, Rolls Royce may pull off it's pocket nuclear power station project at competitive price but I don't believe placing a concentrated bet on energy production is appropriate for my conservative portfolio.

[richfool]

A note of caution ?

https://citywire.co.uk/investment-trust ... ider+Daily

Thanks for the link to the article.

I think the comments after the article were interesting and relevant.

[AJC5001]

A note of caution ?

https://citywire.co.uk/investment-trust ... ider+Daily

How are you accessing this article? I can't get it without registering. and that wants 'Work Email' and other company details.

Adrian

[BusyBumbleBee]

A note of caution ? ... https://citywire.co.uk/investment-trust ... ider+Daily

It certainly does - thankfully I divested all of my Green Infrastructure funds (too early perhaps) as I saw all the off shore wind coming ashore in good old East Anglia a price of

£19/MWh in 2040, slipping further to £15/MWh by 2050

seems likely to me and I agree with nearly everything in the report except

a likely switch by the government to the consumer prices including housing costs (CPIH) measure of inflation rather than the ‘structurally too high RPI’

which would amount to retrospective legislation and is in my view unlikely for that reason alone

[mc2fool]

How are you accessing this article? I can't get it without registering. and that wants 'Work Email' and other company details.

So register, it's free and they don't spam you (as long as you turn off all the email/contact options).

The only thing they actually need is a (any) good email address for you, and a password. For the rest you can either leave blank or put in any old tosh, it's not checked. (Looking at my profile I see I left job title and company blank and put in SW1A 1AA for postcode, which must have been required. )

[jonesa1]

The AJ Bell weekly podcast "Money and Markets" will be covering the renewable energy industry on Thursday this week, hopefully they'll be able to include an assessment of the JPM analysis.

[BrummieDave]

Jefferies have put the boot in now, questioning whether Renewable Trusts' can deliver their stated aim to grow dividends if or when, as some believe, electricity prices fall; a sort of pincer movement with JPM Cazenove who took a shot at valuations of course.

All can be read at Citywire, for those who can login of course.

[colin]

Something that may well impact solar is the new development of light weight panels designed to fit on the roofs of industrial buildings and warehouses, farmers are reluctant to give over too much land to solar because such land becomes subject to inheritance tax and they are no longer farming it and lose grazing land subsidy , so I asume that they demand a high rent to compensate for these negatives, after all why wouldn't they? But who owns the big box warehouses? Property investment funds so if the new light weight panels are suitable for their roofs why would they not get into supplying electricity as a sideline? No planning objections I'm sure. Just a thought.

[PrefInvestor]

Hi All, Well not without some regret I sold my other 4 renewable holdings today having sold BSIF and UKW yesterday. I have built up these holdings since March 2018 subscribing to new issues as they became available and have benefitted both from the dividends and the enormous increase in the share prices. In recent times I had formed the view that BSIF and UKW in particular with share prices of 145.5 and 147ish as they were last Friday really had little room for further growth. But income investors obviously love all these trusts and I confess I had expected the share prices to remain stable and elevated. Though I was getting increasingly nervous about the high premiums.

Things seem to have come to a head these last two days. Actually I had already decided at the weekend to sell BSIF and UKW and invest elsewhere. But even as I came to do that I found that the share prices had dropped a couple of pence, which I found surprising. It wasn’t till later in the day that I read the Citywire article below highlighting possible extreme scenarios for these trusts:-

https://citywire.co.uk/investment-trust ... nt#1317851

Sorry but you will need to register with Citywire to read this, but it’s free…

Then today, possibly as a result of this article ?, ALL of the renewable stocks took a hit. Not wishing to lose my ~20% gain on these holdings I sold just in case they went much lower. This evening I have seen the following article also from Citywire which is along the same lines as the earlier one:-

https://citywire.co.uk/investment-trust ... -news-list

Now actually I am not sure that I agree with the analysis that these articles are putting forward. It’s my understanding that at this point in time all of the trusts are holding assets with guaranteed power prices for some 15-20 years with built in inflation protection. I recognise that there may be a significant risk when so called “subsidy free” assets become the norm, which they are all starting to do as it is the only way for them to expand. But right now I am not sure that there is a problem. But the authors of these articles might well be better informed on this than I am and they clearly see a major potential risk.

Anyway something has spooked the market (even ORIT was down a bit I noticed) and where things go from here is not clear, though i noticed that some of the trusts regained some ground towards the end of the day. Should you decide to keep your holdings then I wish you the best of luck. Personally as of today I am completely out and I am going to be watching from the sidelines for a while to see what happens next.

ATB

Pref

[supremetwo]

RNS Number : 2248B Jlen Environmental Assets Grp 29 January 2020 Net Asset Value and Dividend announcement.

https://tools.eurolandir.com/tools/Pres ... v=redesign

JLEN's diversified portfolio has one of the lowest exposures to wholesale power prices in the sector, with 64% of the Fund's underlying revenues coming from subsidies and concession-based payments that are fixed in nature and have explicit inflation linkage. Of the remaining 36% of revenues that come from sale of wholesale electricity and gas, JLEN currently has fixed price or floor arrangements covering 55% of electricity generation for the remainder of the current Winter Season, 46% for the upcoming Summer 20 season and 44% for Winter 20.

There is an element of market panic due to the China virus affecting not just infrastructure.

The percentage reductions in share values quoted by PrefInvestor have been exceeded in many other sectors.

[BrummieDave]

RNS Number : 2248B Jlen Environmental Assets Grp 29 January 2020 Net Asset Value and Dividend announcement.

https://tools.eurolandir.com/tools/Pres ... v=redesign

JLEN's diversified portfolio has one of the lowest exposures to wholesale power prices in the sector, with 64% of the Fund's underlying revenues coming from subsidies and concession-based payments that are fixed in nature and have explicit inflation linkage. Of the remaining 36% of revenues that come from sale of wholesale electricity and gas, JLEN currently has fixed price or floor arrangements covering 55% of electricity generation for the remainder of the current Winter Season, 46% for the upcoming Summer 20 season and 44% for Winter 20.

There is an element of market panic due to the China virus affecting not just infrastructure.

The percentage reductions in share values quoted by PrefInvestor have been exceeded in many other sectors.

JLEN is my only holding in the Renewables Energy Sector (as defined by the AIC), bought for income purposes (at 104p against a current SP of 117p), so I'm happy to hold.

My only other holding that's in any way similar is Ecofin Global Utilities and Infrastructure (EGL) which the AIC places with the Infrastructure Securities Sector, and which has not been impacted at all over the past few weeks. I also hold HICL, this time the AIC puts it simply in Infrastructure, and which again has performed well over the past few weeks. Both have narrowed their discount (EGL)/increased their premium (HICL) in the past 12 months, reflecting their SP performance over that period, EGL up 37%, HICL up 9%.

I would not be surprised if EGL fell back a little, but think HICL will stick around its current level for some time. But I'm veering OT now...

[BrummieDave]

JLEN has confirmed a reduction in NAV. This is covered in a 5.21pm article over at Citywire titled "Risky Renewables: JLEN cuts valuation on power price fall".

Still a 'hold' for me.

[PrefInvestor]

The percentage reductions in share values quoted by PrefInvestor have been exceeded in many other sectors.

Well actually I didnt quote any reductions, merely referred to the citywire articles that threatened doom and gloom.

But some ARE quite significant

BSIF has dropped from 145.5 on Friday 24/1 to 135 today (-6.5%)
UKW has dropped from 147.2 on Friday 24/1 to 140.8 today (-4.3%)
JLEN has dropped from 123.1 on Friday 24/1 to 117.5 today (-4.5%)

I could go on, but you get the idea. And every single renewable energy trust is down, even ORIT the new one. TRIG is the least affected but even that has dropped about 5p, make that 10p from the start of the year.

Now I repeat my understanding of the situation is as quoted by somebody else from that JLEN RNS earlier, that most of their income is secured by long term subsidy schemes (and indeed is inflation protected). Though this situation will steadily change as they all move to subsidy free assets - which they will have to if they want to expand. And I'm also not sure I believe the statements that the wholesale electricity price is going to fall radically either, certainly not true of the electricity thats going to be produced by Hinkley Point C. And are all our electricity bills going to start drastically reducing in future years, I for one dont believe it.

Good luck to those of you who are hanging on to your renewable energy investments. I am sorry to have sold mine, but I'm not prepared to give up my capital gains if the share prices of these trusts are going to start going south significantly. There are many other places to invest at a decent yield ATM.........

Oh and I dont believe that this drop is anything to do with the virus scare myself.

ATB

Pref