The Lemon Fool

ReallyVeryFoolish wrote:Having been pondering investments in this area, I have been weighing all the options I can find. I don't like the premia on all these investments at all. I have been looking for a GBP ETF as a way into a broad selection of investments in the industry, but failed to find one listed in GBP so far.

I have been looking this morning at a fund of renewable energy funds as a possible managed investment option in this area. Yes, I already know funds of funds are not the cheapest option. Yes I already know this isn't an investment trust. And yes I know such vehicles are often talked down here. And yes I know I am late to this party.

But I am looking seriously for an investment with a degree of diversification and a professional management that buying one investment trust or one energy company doesn't really provide. I am OK in principle paying for that -

https://www.graviscapital.com/funds/gra ... ergy/about

RVF

Gravis seems to be investing in all those investments which are priced at a premium to asset value. I don't see the point. All of those individual investments are already diversified across a number of assets if not a number of technologies and countries too
https://www.graviscapital.com/funds/gra ... /portfolio

ReallyVeryFoolish wrote:Indeed, that's what I am wondering. The question therefore is whether the extra diversity and the portfolio management is worth paying for. I am thinking on balance, in a fairly immature market, that perhaps it is worth it. But again, perhaps the management will do a rubbish job.

RVF

When I listened to yesterday's starter pitch on the BP webcast my brain hit a "does not compute" moment. They were saying that they were going to do all this renewables stuff bigger/faster/cheaper/lighter/more-profitably because they were BP and had unique capabilities in project management and etc.

Translated that told me that BP either think that the existing renewables industry is stupid & useless, or that BP doesn't think that but thinks it can say that so as to justify BP's investments. Either way to my mind is plain wrong, as existing renewables projects/technology are in the main very well done, and ordinarily are being executed at an appropriate scale and in a well thought-out pipeline. I am still struggling to see what additional value BP will bring to the party, and as a BP shareholder (at the moment) that worries me. Ditto for Shell by the way. As my GF said to me, maybe I should be entering into a phase of "managed decline" of my investments in BP and Shell.

I have the same problem with this lot - is it really an immature market any longer ? Surely not. If not, where is the extra value really coming from, or is it not of value ?

regards, dspp

dspp wrote:

ReallyVeryFoolish wrote:Indeed, that's what I am wondering. The question therefore is whether the extra diversity and the portfolio management is worth paying for. I am thinking on balance, in a fairly immature market, that perhaps it is worth it. But again, perhaps the management will do a rubbish job.

RVF

When I listened to yesterday's starter pitch on the BP webcast my brain hit a "does not compute" moment. They were saying that they were going to do all this renewables stuff bigger/faster/cheaper/lighter/more-profitably because they were BP and had unique capabilities in project management and etc.

Translated that told me that BP either think that the existing renewables industry is stupid & useless, or that BP doesn't think that but thinks it can say that so as to justify BP's investments. Either way to my mind is plain wrong, as existing renewables projects/technology are in the main very well done, and ordinarily are being executed at an appropriate scale and in a well thought-out pipeline. I am still struggling to see what additional value BP will bring to the party, and as a BP shareholder (at the moment) that worries me. Ditto for Shell by the way. As my GF said to me, maybe I should be entering into a phase of "managed decline" of my investments in BP and Shell.

I have the same problem with this lot - is it really an immature market any longer ? Surely not. If not, where is the extra value really coming from, or is it not of value ?

regards, dspp

I think this market is indeed immature in that:
a) opportunity is for the renewables to scale massively
b) industry structure is not that embedded yet.

The one technology that seems to be getting competitive at scale on generation is off shore wind.

BP (or Shell) could decide that they have the offshore engineering skills, large project management, big ticket financing to really start making some vertical integration in this arena.
Think the scale in terms of buying VESTAS, buying up most of the North Sea wind operating licenses, taking a stake in NG, + doing the equivalent in Belgium, Netherlands etc

All of the above is just off the top of my head, and I am not saying that these particulars are feasible/sensible, but both BP (avowed sea change in direction under Looney) and Shell have the means to shake things up in a major way

This is a most interesting thread, and I have learned a lot trawling through all 16 pages of it.

I have understood better how NAV is estimated for these IT’s, with the key risks being electricity prices, wind characteristics and asset longevity.

Looking at the aic website for this sector, all the IT’s are at a premium to NAV, up to an eye-watering 25%. I guess that this is because the market considers these NAV estimates to be conservative?

I have just purchased a small stake in UKW, but even this is at a premium of 12%.

I want a solar IT to complement wind, and am looking at NextEnergy solar (NESF), which is at a much lower premium of just 4%.

Would a solar company assess NAV any differently to a wind company?

Anyway, thanks for all the contributions on this thread.

FD

One approach I'm taking is to have a position in 3 or 4 of these, and wait for fundraising amongst existing shareholders. You don't always get to buy in at NAV, but you certainly don't buy in at the very high premia that these all trade at currently.

Stuart

I suspect that the very high NAV is a whole combination of things, to answer or at least comment upon funduffer's post. I think it is the perceived reliability of the dividend and the green credentials creating a sort of 'flavour of the month'. I think these factors are probably as important as anything else.
Another factor may be that investors think that the assets are undervalued, although there really seems to me to be no reason for that, except that being conservative in such matters is a good selling point. However most of the quoted companies are relatively young as is the industry so just what economic life the assets actually have we do not yet know

Dod

Anyway, I have now topped up UKW in their recent open offer, and added a similar stake in NextEnergy Solar Fund (NESF), at a mere 5% premium.

That's it for now - a bit of wind and sunshine in the portfolio. I am looking forward to the dividends, and I hope the recent announcement of the government supporting off-shore wind will see long-term growth in this sector.......and reliable income.

If off-shore wind expands, and sets the electricity price paid, won't his make the on-shore assets of the likes of UKW even more attractive, given their lower operating costs?

These funds look a better bet than the usual HYP candidates at the moment, if you are investing for income.

FD

Those who are happy to consider renewable energy investments that dont pay much of a dividend but are growth investments might want to take a look at the INRG ETF. Or for anyone who can purchase US non UCITS ETFs (as those with some brokers can still do) the iShares ICLN and Invesco's TAN are also very good performers.

The big renewable trusts covered in this thread to date all make their money by operating various types of renewable energy plant (solar, wind, abearobic digestion, water etc.) and by selling the energy so generated, making them very sensitive to forward energy prices. The ETFs I have listed holds companies that make renewable energy products and related services eg Solaredge makes inverters used in solar systems, Vestas makes and maintains wind turbines etc. etc. So these companies products are used by the renewable energy trusts to build and maintain their electricity generating estates AND such sales are a global business.

I bought INRG in the low 700s on 3rd September, on Friday 9th Oct it closed at 942. A close to 30% gain. If Biden gets in as US President his policies should see the renewable energy industry surge in the US further driving gains in these companies.

Something to think about anyway.

ATB

Pref

PS I have long since sold all my investments in the big renewable trusts. With the UK subsidy scheme cancelled these trusts are starting to employ subsidy free assets which make them vulnerable to future power prices, which are steadily falling. Thats a big future risk for these companies. These trusts are good dividend payers so are popular with income seekers, too popular in fact and people have driven their share prices to huge premiums in some cases. This is a threat to your capital if you invest there now. I believe that there is little scope for capital growth in these trusts now and that in time it is inevitable that their share prices will come down to reduce the premia. This has already happened with a couple of the trusts and I suspect that this effect will spread to the others in time. All IMHO obviously !.

I've been doing a bit of intermittent reading on these this evening. Thoughts that arise:

Is it not the case that the subsidies already in place are guaranteed for 15 - 20 years?

Do we really think that energy prices will fall further, bearing in mind that Governments will want to suppress demand/consumption in order to minimise environmental emissions.

Wind seems to be the preferred renewable energy source.

JLEN has a wide spread of activities, including: Solar: 23%. Wind: 33%. Waste water: 15%. Waste digestion: 28%. Hydro: 15%
TRIG: Solar: 11%. Wind (onshore & offshore): 89%. Battery: 1%

richfool wrote:JLEN has a wide spread of activities, including: Solar: 23%. Wind: 33%. Waste water: 15%. Waste digestion: 28%. Hydro: 15%

"Including" ? You mean there's even more than 114% ... ?

Reading this thread in conjunction with the recent thread on TRIG suggests that it might be an idea to wait before investing in the likes of TRIG which is what I took from the TRIG thread but I also think it a good thing for the industry that subsidies are removed so that they stand or fall on their own economic case.

The very high premium also puts me off. Companies like National Grid and SSE are also sensitive to changes in the price of electricity but they of course have other strings to their bow. I will watch with interest what happens to the price of the renewable companies.

Dod

richfool wrote:I've been doing a bit of intermittent reading on these this evening. Thoughts that arise:

Is it not the case that the subsidies already in place are guaranteed for 15 - 20 years?

Do we really think that energy prices will fall further, bearing in mind that Governments will want to suppress demand/consumption in order to minimise environmental emissions.

Wind seems to be the preferred renewable energy source.

JLEN has a wide spread of activities, including: Solar: 23%. Wind: 33%. Waste water: 15%. Waste digestion: 28%. Hydro: 15%
TRIG: Solar: 11%. Wind (onshore & offshore): 89%. Battery: 1%

Yes richfool thats true, but if the trusts want to expand their estate (which they all do, hence the new share issues every so often to fund the expansion) then there only options are

a) Buy some plant already covered by a subsidy scheme - not many of those on the market
b) Go subsidy free and face the full perils of whatever the energy market might do in future years with no protection (unless they negotiate their own PPAs).

Some trusts are better situation in terms of this than others, but the share price (and premium) of FSFL and NESF have already been hit. IMV its only a matter of time till the same happens to all the others.

A couple of the sources I looked at include these. There were a number of articles in the Telegraph, they were however behind a paywall.

Note the dates, some date back to late 2019.

https://www.ii.co.uk/analysis-commentar ... s-ii511054

https://www.thisismoney.co.uk/money/inv ... stors.html

https://www.investopedia.com/articles/s ... stries.asp

I hold: JLEN and TRIG only in that sector. I have been looking at ETF INRG

mc2fool wrote:

richfool wrote:JLEN has a wide spread of activities, including: Solar: 23%. Wind: 33%. Waste water: 15%. Waste digestion: 28%. Hydro: 15%

"Including" ? You mean there's even more than 114% ... ?

That's inflation for you.

UncleEbenezer wrote:

mc2fool wrote:

richfool wrote:JLEN has a wide spread of activities, including: Solar: 23%. Wind: 33%. Waste water: 15%. Waste digestion: 28%. Hydro: 15%

"Including" ? You mean there's even more than 114% ... ?

That's inflation for you.

No wonder the large premium!!
Sorry, the "Hydro" should have read: 1%
I copied the info from some scribbled notes I had gathered late last night

The source was JLEN's factsheet via HL:
https://www.hl.co.uk/shares/shares-sear ... -group-npv

A relevant article FYI albeit dated April...

https://citywire.co.uk/investment-trust ... s/a1349562

ATB

Pref

PrefInvestor wrote:Yes richfool thats true, but if the trusts want to expand their estate (which they all do, hence the new share issues every so often to fund the expansion) then there only options are

a) Buy some plant already covered by a subsidy scheme - not many of those on the market
b) Go subsidy free and face the full perils of whatever the energy market might do in future years with no protection (unless they negotiate their own PPAs).

Some trusts are better situation in terms of this than others, but the share price (and premium) of FSFL and NESF have already been hit. IMV its only a matter of time till the same happens to all the others.

Well made points.

The UK government has recently indicated that it will encourage investment mainly into Off-shore, but also on-shore wind, and solar, so that every home can be powered by renewable energy. St the moment this is just a small investment in UK ports to support wing turbine production and delivery.

However this is a political commitment to meet climate change targets, so I feel that the government will be obliged to ensure that future renewable energy capacity is economically viable. If electricity prices drop too far due to recession / lower demand, it seems likely that they will be forced to re-introduce subsidy to meet their own target.

FD

The renewable infrastructure funds play a role one step removed from government policies.

Their main role is to buy and hold assets, providing a market for the developers of those assets. A bit like government schemes to push up house prices for housebuilders by financing buyers at ever-higher prices. In the case of housing each new wave of money fails[1] pretty rapidly 'cos it just feeds straight through to the price of the land, but I don't think we've seen that with renewable energy. Not yet, anyway.

[1] at least for the stated purpose of increasing supply.

PrefInvestor wrote:A relevant article FYI albeit dated April...

https://citywire.co.uk/investment-trust ... s/a1349562

ATB

Pref

Thanks for that. I had read it earlier in the year. Though since the hiccoughs earlier in the year, I note SP's of JLEN and TRIG have risen and continued to rise.

I have to say that I thought the comments after the article were equally if not more pertinent.

I see SSE is selling some "energy for waste" projects partly in order to increase its investment in renewable energy, in particular UK offshore wind.

So some still believe in renewable energy and offshore wind.

SSE sells stake in energy-from-waste projects for £995m

Energy giant SSE has agreed a near-£1 billion deal to sell its stake in three energy-from-waste facilities under plans to raise at least £2 billion by next autumn.

Shares in the group rose 4% as it announced the sale of its 50% holding in the West Yorkshire multifuel sites for £995 million.

SSE was part of a joint venture on two sites in Ferrybridge and one in Skelton Grange.

The sale – to an infrastructure fund managed by First Sentier Investors – comes as part of an aim to raise at least £2 billion by selling off unwanted assets.

Mark Nelson, an analyst at Killik & Co, said: “The divestments will help to strengthen the balance sheet and support the company’s plans to invest £7.5 billion in low-carbon energy infrastructure over the next five years.”

He added the latest sale will boost SSE’s increased focus on electricity networks and renewable energy, in particular UK offshore wind.

https://uk.finance.yahoo.com/news/sse-s ... 12485.html