Undoubtedly, renewable energy is a growth sector, albeit one where public subsidies are pivotal. Approximately 40% of UK electricity demand is now met by renewable energy, a figure that is set to rise further as coal-fired stations are decommissioned and nuclear power capacity, despite the Hinkley Point C project, falls.
Of the privatised electricity companies, SSE, by some way, is the key renewables player: it owns more than 3.8GW of renewables generation capacity. However, there are now 19 quoted Renewable Energy Investment Funds (REIFs), many of which generate electricity from wind or solar.
Despite the challenges, as well as the uncertainties, caused by the COVID-19 pandemic, these 19 REIFs have raised more than £3.5bn since January 2020. Most of these funds have been deployed in either building new plant or buying existing capacity.
While most REIFs have experienced few problems in raising funds once they are quoted and have established a track record, some of the more recent IPO fundraising targets – in some cases, being decidedly ambitious – were not met; consequently, fundraising expectations had to be cut back.
With relatively secure revenues, these 19 REIFs have proven to be resilient investments of late, despite lower long-term energy price forecasts. Currently, the sector is trading at an average premium to NAV, although these premia vary quite markedly between individual funds – TRIG’s premium is currently ca.13%, while NextEnergy Solar’s is minimal. The sector’s prospective dividend yield is ca.5%.
The two most valuable REIFS are TRIG and Greencoat UK Wind, valued at £2.7bn and £2.5bn, respectively. While their strategies vary noticeably – the former is expanding into mainland Europe, while the latter is very focused on the UK – their revenues and dividend payment capacity are highly dependent on wind-power generation.
Interest of late has focused specifically on the energy storage REIFs, Gore Street and Gresham House. This duo has undertaken seven separate fundraisings – of varying size – in the past 18 months in order to finance the buildout of their planned capacity. Other REIFs are eyeing up the energy storage sector, and especially the battery element of it.
Outside the REIF sector, the quoted investment infrastructure funds have also been resilient performers. In July 2021, sector leader, HICL, despite some COVID-19-related setbacks, raised gross proceeds of £120m, at a discount to its market price of ca.2%. BBGI* did likewise and, although its £75m raise was lower, the achieved discount was similarly low.