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Investing in Green Infrastructure Funds (ITs)

Stocks and Shares ISA , Choosing funds for ISA's, risk factors for funds etc
Investment strategy discussions not dealt with elsewhere.
richfool
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Re: Investing in Green Infrastructure Funds (ITs)

#510951

Postby richfool » June 30th, 2022, 6:00 pm

On the subject of NESF (Next Energy Solar Fund), from the AIC website:

High-yielding NextEnergy Solar lifts dividend target as RPI-linked fund eyes share issue
29 June 2022
The 6.9%-yielding renewable infrastructure fund hopes a 5% increase in this year’s dividend target will help re-rate its shares as it looks to raise more money for a £350m investment pipeline.

NextEnergy Solar (NESF ), the highest-yielding renewable infrastructure fund, will hope a 5% increase in this year’s dividend target will help re-rate its shares as the £642m investment company looks to raise more money for a £350m investment pipeline.

In the year to 31 March NextEnergy paid covered quarterly dividends totalling 7.16p per share. In annual results this week it lifted its target for the current financial year to March 2023 to 7.52p. Although the 5% rise is well below the latest 11.7% annual rate in inflation, as measured by the retail prices index (RPI), NextEnergy said it was above the 4.1% RPI originally forecast by the Treasury for this year.

At yesterday’s closing price of 109p, that puts the shares in the eight-year-old closed-end fund on a forward yield of 6.9%, ahead of the 5.3% average of its peer group. The payouts were 1.2 times covered by cash earnings last year and the board is aiming to increase this to between 1.3 and 1.5 times this year.

Strengthening the high dividend could bolster appeal for the portfolio, which flagged up it was looking to raise more capital soon to enable fund managers Michael Bonte-Friedheim and Aldo Beolchini at NextEnergy Capital to invest in more solar parks and battery storage schemes in the UK and Europe.

As at 31 March the Guernsey investment had £19.6m cash and £49m left of its £145m credit facility.

The fly in the ointment is the 4% discount at which the shares trade below their net asset value of 113.5p at 31 March.

The results confirmed the now 100-asset portfolio made a total underlying investment return of 14.8% in the year to March, boosted by surging power prices and rising inflation assumptions with revenue up 19% to £114m.

Over five years, however, the shares have provided a total return of 29.8%, below all five rivals with a track record that long.

During the year, the 99 operational assets generated 773 GWh of energy, 1.8% above budget although the outperformance could have been higher at 3.6% were it not for unforeseen distribution network operator outages.

The company generates half its revenues from RPI-linked government subsidies, with the remainder from selling its power in the open market. Of this portion, 85% of this year’s sales have been fixed to capture the current high prices, with the proportion of fixes falling to 74% and 42% in 2023 and 2024.

https://www.theaic.co.uk/aic/news/cityw ... -fund-eyes

richfool
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Re: Investing in Green Infrastructure Funds (ITs)

#515323

Postby richfool » July 18th, 2022, 2:39 pm

An interesting Investor's Chronicle article about "The best renewable infrastructure trusts":

https://www.investorschronicle.co.uk/ne ... re-trusts/

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Re: Investing in Green Infrastructure Funds (ITs)

#536243

Postby NearlyThere » October 10th, 2022, 10:55 am

Anything in particular going on with renewables today? I see a big drop in NESF and UKW

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Re: Investing in Green Infrastructure Funds (ITs)

#536245

Postby Itsallaguess » October 10th, 2022, 11:02 am

NearlyThere wrote:
Anything in particular going on with renewables today? I see a big drop in NESF and UKW


They're being hit regarding concerns over potential price-caps.

From today's Financial Times -

Renewables groups hit by concerns over possible UK revenue cap -

Shares in companies that own low carbon electricity generation in Britain fell on Monday as investors brace for a UK government revenue cap that would effectively amount to a windfall tax on the sector.

Energy companies SSE and Greencoat UK Wind were among the fallers after the Financial Times reported that legislation to impose a revenue cap, similar to a policy announced in the EU, could be introduced as early as this week.


https://tinyurl.com/2mxlbvj6

Greencoat (UKW) currently down around 7.5%, with NextEnergy Solar Fund (NESF) trading about 10% lower at the time of writing.

Cheers,

Itsallaguess

Dod101
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Re: Investing in Green Infrastructure Funds (ITs)

#536250

Postby Dod101 » October 10th, 2022, 11:11 am

SSE is not down much today but it has fallen a lot in the last couple of weeks or so. I think it is a bit rich to hammer the renewables companies, if indeed they do, considering that they were the heroes not so long ago. Quite predictably, they are bound to complain that they need to be profitable so as to enable them to continue with their investment. In fact there is a big difference between SSE for instance and some like Greencoat which is simply investing in assets as opposed to actually planning and constructing them.

Dod

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Re: Investing in Green Infrastructure Funds (ITs)

#536259

Postby Itsallaguess » October 10th, 2022, 11:36 am

Dod101 wrote:
I think it is a bit rich to hammer the renewables companies, if indeed they do, considering that they were the heroes not so long ago.

Quite predictably, they are bound to complain that they need to be profitable so as to enable them to continue with their investment.


The FT article I linked to earlier explained what the issue is, and it's not the companies per-se, but more in relation to some of the earlier energy-contracts that some renewables companies are currently still able to enjoy, where even though their cost of energy-production has not risen, they have been able to charger higher and higher prices when selling some of that renewable energy into the market, because some of the older contracts are linked not to their cost of production, but to the marginal cost of gas, which as we know has risen considerably in recent months.

In many of these cases, it's the very definition of a 'windfall profit', and the abnormal situation has been in the Governments sights for some time now, as explained in this Bloomberg story from the 8th of September -

While the UK gets an increasing amount of power from low-cost renewable sources, it’s not readily apparent in wholesale prices that have soared to record levels this year. That’s partially because all generators are paid the price set by the most expensive source, a concept known as marginal pricing. In most cases, that’s natural gas.

Britain will now offer generators the chance to switch to using so-called contracts for difference, which pay a set price for electricity produced over a fixed period. Already, Britain’s growing fleet of offshore wind farms is supported by the contracts, which can be attractive to developers because they offer guaranteed income over a relatively long period of 15 years.

“Renewable and nuclear generators will move onto contracts for difference to end the situation where electricity prices are set by the marginal price of gas,” Truss said in Parliament Thursday. “This will mean generators are receiving a fair price, reflecting their cost of production.”


https://www.bloomberg.com/news/articles/2022-09-08/uk-plans-shift-in-renewables-pricing-to-help-combat-gas-costs

Cheers,

Itsallaguess

Dod101
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Re: Investing in Green Infrastructure Funds (ITs)

#536280

Postby Dod101 » October 10th, 2022, 12:43 pm

Thanks for that background. I was probably too hasty in reading the piece. But that surely means that some of these falls are rather overdone I shopuld imagine. Anyway need to let it all play out.

Dod

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Re: Investing in Green Infrastructure Funds (ITs)

#547949

Postby BusyBumbleBee » November 19th, 2022, 1:22 pm

Those of you interested in the way the government is going to tax these funds, this is well worth reading

Https://www.gov.uk/government/publications/electricity-generator-levy-technical-note

Makes the shares a compelling buy in my opinion. Most of those I own were bought earlier this year at or below a £1 per share.

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Re: Investing in Green Infrastructure Funds (ITs)

#547954

Postby mc2fool » November 19th, 2022, 1:44 pm

BusyBumbleBee wrote:Those of you interested in the way the government is going to tax these funds, this is well worth reading

Https://www.gov.uk/government/publications/electricity-generator-levy-technical-note

Makes the shares a compelling buy in my opinion. Most of those I own were bought earlier this year at or below a £1 per share.

So, basically and in short, the tax "will be applied to groups generating electricity from nuclear, renewable and biomass sources who are benefitting from a significant increase in the price received for their output without a corresponding increase in the costs of generation", "to those groups generating more than 100 Gigawatt-hours (GWh) per annum" and will, basically, be 45% of aggregate generation receipts over £75 per MWh.

The tax won't apply to pumped hydro or battery storage systems.

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Re: Investing in Green Infrastructure Funds (ITs)

#548189

Postby BusyBumbleBee » November 20th, 2022, 2:55 pm

mc2fool wrote:So, basically and in short, the tax "will be applied to groups generating electricity from nuclear, renewable and biomass sources who are benefitting from a significant increase in the price received for their output without a corresponding increase in the costs of generation", "to those groups generating more than 100 Gigawatt-hours (GWh) per annum" and will, basically, be 45% of aggregate generation receipts over £75 per MWh.

The tax won't apply to pumped hydro or battery storage systems.

It's the other bits that make it interesting. for example
The levy will apply to revenue from electricity generated in the
UK both sold in the UK and exported. It will not apply to electricity
generated outside the UK and imported
.

The ROCs and Fit payments are outside the scope of the levy

The way the levy on "Exceptional Generation Receipts"is crafted is as follows:

Exceptional Generation Receipts will equal the sale price of electricity generated in the UK
(Generation Receipts) from which can be subtracted

A. Electricity Generation x Benchmark Price the number of MWHrs produced multiplied by the Benchmark price of £75 per MWhr *which is generous bearing in mind historic prices
B. In addition each group for every year can deduct a further £10 million from the amount they have to pay.

BUT "The levy will not be deductible from profits subject to Corporation Tax. "

So, a Group that produces 500 gigawatt hours in the UK and sells at £200 per MWHr (£200,000 per Gigawatt hour) will :
~~ Receive £100 million in total
~~ pay the 45% levy on 'deemed' excess price of £62.5 million
~~ Pay £18 Million in levy (£28 million minus the allowance of £10 million) but retain £44.5 million of the excess income to add to the 'benchmark income of £37.5 million
~~ but have to pay corporation tax on all profit even though some of the profit has been taken for the levy: probably amounts to about £4 million.

The larger funds actually produce about 3 Terawatt hours per year.

Very interested in other folks views on this - kind regards - BBB


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