Executive summary

• Many of the remaining 23 quoted infrastructure funds – there were 31 only three years ago – continue to struggle. Of the 23, six are currently in managed wind-down (MWD) as investor confidence erodes, especially with respect to the Renewable Energy Infrastructure Funds (REIFs). High interest rates, which may increase further, are continuing to weigh on NAV discounts, thus making equity fund-raising for most REIF participants a non-starter.
• Nevertheless, with the notable exception of Digital 9 Infrastructure, which is currently in MWD and recently wrote down its £459m investment in Arqiva to zero, the remaining Infrastructure Investment Companies (IICs) are performing solidly, with Cordiant Digital Infrastructure and HICL both reporting a notably higher NAV return and a progressive dividend growth policy. IICs now account for 60% of the combined infrastructure sector value, with the remaining 40% attributable to REIFs.
• Most REIFs are experiencing difficulties, although the larger funds, including Greencoat UK Wind and TRIG, have avoided many of the issues affecting the smaller REIFs. Earlier in the year, Bluefield Solar recommended a £561m bid from the Drax Group, the operator of the eponymous – and heavily subsidised – biomass generation plant in Yorkshire; as such, shares in the former were recently de-listed.
• However, it is on the downside where focus on the REIFs rests. Aside from Digital 9 Infrastructure, an ICC, no less than five REIFs, excluding the now de-listed Hydrogen Capital Growth, are at various stages of MWD. This route was successfully – and surprisingly quickly – completed by Triple Point Energy Transition. Nevertheless, to deliver sales at close to NAV – albeit at written down valuations – will be challenging for several REIFs, especially for SDCL, which has indicated that its MWD “could take a number of years to complete”.
• With a few exceptions, recent NAV movements have been flat. To be sure, some telecoms-related IICs ‒ such as Cordiant Digital Infrastructure – as well as HICL have reported increased NAVs, but some REIFs have announced substantial falls; Gore Street Energy Storage and SDCL fall into this category.
• Not surprisingly, dividend policy in the sector has been quite cautious, even though 3i Infrastructure is projecting a 6.3% dividend increase per share for this year. HICL has also re-instated a dividend growth policy after paying an unchanged dividend of 8.25p per share between 2018/19 and 2024/25. GCP Infrastructure is still retaining its 7.00p per share dividend – and seems set to do so for some time.
• Given the mostly low sector cover ratios, REIF dividends are decidedly fragile. Both NextEnergy Solar and SDCL have cut their dividends recently. In terms of prospective yields, the two largest REIFs, Greencoat UK Wind and TRIG, were both yielding above 10% until very recently – a considerable premium in excess of 5% to the latest long-term year gilt yield of 5%.
• UK political issues may also continue to affect the sector. With a new Prime Minister in office, policy shifts are expected. At the macro-economic level, interest rate changes may result; currently, the market expects slight increases rather than further cuts. For the REIFs, any major adjustments to the controversial Net Zero policy are particularly relevant, with subsidies being a key financial element, especially in the solar generation sector.