Investment Trust Insider on Greencoat UK Wind

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Investment Trust Insider on Greencoat UK Wind – James Carthew: renewables swap subsidies for price rises

Despite the volumes of hot air emerging from Westminster, UK wind speeds have been below seasonal averages for some time. This impacts on the earnings of the renewable energy generators with UK wind exposure. These are: Greencoat UK Wind (UKW), which is 100% invested in UK wind, The Renewables Infrastructure Group (TRIG), 71% onshore wind and 6% offshore wind, and John Laing Environmental Assets (JLEN), 44% onshore wind.

Fortunately for the investment companies, the current period of low wind speeds has been offset by a period of higher UK power prices. JLEN and TRIG are further cushioned by having exposure to solar, where production has been above-average, and JLEN has diversified even more of its weather-related risk away by building a portfolio of highly subsidised anaerobic digestion plants.

UKW and TRIG have both recently released results for 2018. UKW’s power generation was 6% below budget but its cash generation hit targets. Cash generation was significantly above the level needed to cover its dividend (£117 million versus £75 million) and the board has raised its dividend target for 2019, in-line with the retail price index (RPI), to 6.94p.

UKW has now surpassed TRIG in size with a stock market value over £1.5 billion and gross assets including debts approaching £1.9 billion. It made some sizeable investments in 2018, taking its generation capacity to 836MW but it has already announced deals this year that will push that up to 950MW.

To put that into a more user-friendly format, UKW reckons their plants would power about 900,000 homes if they perform in-line with budget: 950MW is the amount of electricity that its plants could produce if working flat out for one hour.

In reality, the plants are rarely working flat out. UKW sets a budget, based on historical observations, for output from each plant; a forecast net load factor is assumed (there should be a 50% probability of hitting this level). These range from 23.5% for its plant at Slieve Divena in Northern Ireland, up to 43.8% for…

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