Two renewable-energy investment trusts to watch

Robert Stephens, CFA, looks at the prospects for two renewable-energy infrastructure investment trusts.

Renewable-energy investment trusts, such as Greencoat UK Wind (LON: UKW) and Bluefield Solar Income (LON: BSIF) have become extremely popular over recent years. Their total returns of 48% and 70%, respectively, over the past five years − compared to a 26% total return for the FTSE 100 − suggest that investors have sought to capitalise on increasingly ambitious net-zero carbon pledges from a range of governments.

Indeed, the prospects for both companies and the wider renewable-energy infrastructure sector appear to be relatively encouraging. According to the International Energy Agency (IEA), around 90% of new, global electricity demand will be met by renewables, such as wind and solar assets, over the next 20 years. This could catalyse their financial performance and lead to rising dividends over the long run.

Greencoat UK Wind

The company aims to deliver an annual dividend that grows in line with RPI inflation over the long run, while maintaining the value of its portfolio in real terms. This could make it relatively appealing in an era of low interest rates and rising inflation. Indeed, its dividend yield of 5.5% compares favourably to the 3% on offer from the FTSE 100.

The trust currently holds 38 operational UK wind farms. Most (70%) are onshore assets and the remainder located offshore. Its recent performance has been mixed, with power generation in the first half of the year 20% below budget. However, this was partially offset by higher power prices caused by rising gas prices. Further short-term volatility in the company’s financial performance is relatively likely as energy prices change, since it generally avoids long-term, fixed power prices.

The popularity of Greencoat UK Wind over recent years means that it trades at a 4% premium to its net asset value (NAV). However, the long-term prospects for the company, in terms of sustained high demand for renewable energy, could mean that its shares continue to outperform the FTSE 100 in the coming years.

Bluefield Solar Income

The company has historically invested in UK-based, solar-photovoltaic (PV) energy assets to fulfil its goal of delivering attractive, long-term growth in capital and dividends. However, it recently decided to broaden its asset base to include other renewable projects, including onshore wind farms. This may help to diversify its income stream and provide further long-term growth opportunities as the renewable-energy industry evolves.

Its portfolio currently contains 106 solar-PV projects. They include a mixture of large-scale sites, as well as smaller and rooftop sites. Together, they provide a relatively robust revenue stream because a high proportion of the income they generate is from government subsidies that do not change depending on power prices.

Bluefield Solar Income’s premium to NAV has fallen markedly over recent months, since its share price has come under a degree of pressure. As such, it trades at a 12% premium to NAV, compared to a premium that reached in excess of 20% last year. Its dividend yield stands at around 7%, which suggests it could offer income-investing appeal and good value for money on a long-term investment outlook.