Risky Renewables: the bulls vs the bears

Investment Trust Insider on Capital Gearing Trust

Risky Renewables: the bulls vs the bears

by Jennifer Hill, Issue 53, Investment Trust Insider ezine

 Until recently, shares in renewable infrastructure investment trusts were trading at all-time highs, reflecting investor enthusiasm and flows into the asset class. However, a string of negative broker notes has cast doubt on the sustainability of returns and caused their premiums over net asset value (NAV) to drop.

…BNEF is pencilling in a 4% annual decline in UK baseload electricity prices in real terms to £19/MWh by 2040 and £15/MWh by 2050…


Stifel analyst Iain Scouller expects the current reporting season to act as a ‘reality check’ for the sector with lower inflation, a cancelled corporation tax cut and falling yields all ‘lurking’ alongside energy price declines.

…We asked a number of them to detail their bullishness on the sector on a scale of one (most bearish) to ten (most bullish) and their top pick.

James Carthew, QuotedDataRenewables Rating: 8/10

While James Carthew, head of investment company research at QuotedData, thinks power prices will come down, he doesn’t think the drop will be as dramatic as BNEF expects. It appears an outlier in its forecast with others, such as Baringa and Poyry, being less bearish in their outlooks.

‘One comment we have heard that makes sense is that renewable energy funds would just stop investing if they didn’t think the returns were available,’ said Carthew. ‘Another thing to bear in mind is that the shifts from petrol/diesel powered transport to electric vehicles and gas-powered heating to electricity means a lot more demand for electricity.

‘I also think that the yields offered by these funds will remain attractive relative to bonds and interest rates for a long while yet.’

If he had to pick a single trust in the sector, it would be JLEN Environmental Assets (JLEN), which benefits from having a very diverse portfolio and relatively lower proportion of its revenues linked to market power prices (36% according to Stifel)

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