Greencoat UK Wind (LSE:UKW) is a closed-ended investment company listed on the FTSE 250. It’s one of a limited number of UK stocks that can provide me with exposure to the green energy market.
Not too many years ago, investors were concerned that wind power wouldn’t be competitive against traditional power generation. But things have really changed.
Under Liz Truss, plans were brought forward to block wind farms from boosting their profits as part of emergency measures to bring down household bills. And in 2023, wind energy sold above £75 per megawatt‑hour will be subject to a windfall tax. More of that later, but first let’s look at Greencoat.
What is Greencoat UK Wind?
The company owns 45 wind farm investments across England, Scotland, Wales and Northern Ireland with an aggregate net capacity of 1,289.8 megawatts (MW).
It’s one of only a few indigenous companies owning wind farms in the UK — many of the farms on the British Isles are owned by foreign governments. The biggest wind farm is at the heads of five valleys across South Wales. It’s owned by Vattenfall — a Swedish state-owned enterprise.
Greencoat aims to provide investors with an annual dividend that increases in line with inflation while preserving the capital value of its investment portfolio. The dividend yield is currently 4.72%. That’s not bad, but it’s not in line with inflation right now.
The trust’s facilities, generating 1,289.8 megawatts, provide enough energy to power over 1.5 million homes. That’s approximately 6% of all dwellings in the UK.
Greencoat has around 5% market share of operating UK wind farms and its 45 facilities vary in size. It recently invested in Windy Rig — a site consisting of 12 turbines — and took a 12.5% stake in Hornsea 1 — the world’s largest offshore wind farm.
Should I buy?
Well, there are several positives for the firm right now. To start with, Greencoat is profitable and shouldn’t be impacted by the windfall tax on energy producers.
That’s because this tax will only apply when electricity is sold for more than £75 per megawatt‑hour and Greencoat’s “valuation model appears to include [a] power price below £75”, according to analysts.
Right now, the company is also trading at a discount (2.3%) versus its estimated net asset value (NAV). However, analysts said estimating the NAV is difficult considering all the moving parts and fluctuating price of energy.
More broadly, I’m pretty optimistic on the sector. The government looks set to drop its ban on new onshore wind farms, due to pressure from Conservative MPs and that should aid low-cost developments in the coming years. And, looking further into the future, it’s highly likely wind turbines will become increasing efficient.
There are, naturally, challenges. Energy generation from wind can be erratic. When the wind fails to blow they struggle to make money. For Greencoat, this risk is exacerbated by its relatively small geographic footprint on the British Isles.
Despite this, the pros outweigh the cons for me, and I’m looking to add this trust to my portfolio.
