The world is finally waking up to the climate challenge ahead. That spells good news for the UK’s multi-billion pound renewables market and the funds that own stakes in solar, offshore and onshore wind farms, tidal and hydroelectric power plants.
The UK government was the first in a major economy to declare its intention in line with the landmark 2015 Paris Agreement to go to net zero emissions by 2050.
Over the next 30 years, that means oil and gas coming off the political agenda, less protection for polluting producers and much more investment in sustainable fuels and energy sources.
Solar
Of the FTSE-listed solar funds available, I’m looking seriously at 5.8%-yielding BlueField Solar Income (LSE: BSIF) trading at a 20% premium and the 5.7%-yielding Foresight Solar Fund, for which you’ll pay a 10.7% premium over the Net Asset Value.
While FSFL is larger and listed on the FTSE 250, whereas its rival is not, BSIF just pips it for me at the moment. It owns 46 projects across England and Wales focused on providing a long-term stable yield.
BSIF has seen modest share price appreciation of 30% in the last five years, which betters FSFL, and while operating costs remain stable, underlying earnings grew from £35.8m in 2018 to £40.7m in 2019.
On 20 January, Guernsey-based BSIF announced its three buyouts of ground-mounted photovoltaic plants for £13.9m: Gretton and Thornton in England and Scotland’s Wormit. Together these provide 13.5MW of energy.
Since its 2013 IPO, shareholders have seen 73% returns, and the BSIF board is targeting at least 7.9p per share dividends in 2020, which would offer a 5.9% yield.
Hydropower
Industry insiders have long been calling for an energy market review to allow large capital-intensive hydroelectricity projects to proceed.
While I’ve recommended the 6.4% yielding SSE before, and the former Big Six energy operator has plans for an £800m plant at Coire Glas in the Scottish highlands, I don’t think there is enough government support for hydroelectricity at the moment to make investments in this area viable just yet.
Wind
It might sound like an odd statement to say that a fund trading at a 17% premium to its Net Asset Value is cheap, but I think the premise holds up for FTSE 250-listed Greencoat UK Wind (LSE:UKW).
In December 2019, the wind farm owner bought up another two properties for £104m, the 43.2MW Windy Rig and 37.8MW Twentyshilling in Dumfries and Galloway, taking its total allocation to 37 onshore and offshore farms.
Capping investment at 40% for offshore projects is also sensible planning because of the higher cost of maintenance.
The share price has fallen slightly in the last month and investors may want to hold off on buying until the premium falls to a more acceptable 10%-12%, but UKW currently supports a 4.8% dividend with cover flying up to 2.7 times earnings in 2018, so I see this as a portfolio booster with great promise.
These funds tracking industries that are ahead of the game, in my opinion, make a good long-term play for any investor who has his or her eyes open to what the future holds.
