Monday, 2 December 2019

Gresham House Energy Storage - Portfolio Addition


For the past year I have been building my climate-friendly 'green' portfolio. This includes a mix of renewable energy infrastructure trusts such as TRIG and Bluefield Solar and more recently, several individual companies such as Orsted and AFC Energy. The UK is moving quickly to replace its dependence on fossil fuels and embrace clean energy alternatives such as solar and wind.

However, the national grid system needs to match supply with demand. This is easier to do with coal and gas but with intermittent solar and wind, it becomes more unpredictable and it's therefore important to introduce forms of storage to smooth supply throughout the national grid system. The greater the proportion of wind/solar renewable energy, the greater the need for storage to balance the grid.

We are now at the stage where generation from renewables is matching fossil fuel so I expect the demand for storage solutions to increase from here. Coal is due to be phased out completely by 2025 and there is increasing pressure on policy makers to reduce our generation from gas due to climate change emissions. Our government have legislated for net zero emissions by 2050 which means that gas needs to be replaced by clean energy over the coming 30 years - maybe sooner. We need utility-scale storage back-up to make this a reality.

In the past year planning applications for battery storage have increased by 50% from 6,900MW to 10,500MW today according to a report from RenewableUK. This has prompted me to take another look at investing into this fast-growing sector of the clean energy revolution.

Gresham House Energy Storage (GRID)

This investment trust came to the market in 2018 and it has been on a back burner as a possibility for my portfolio since reading an excellent article last year by IT Investor. It currently owns seven utility-scale energy storage systems around the UK with a combined capacity of 124MW. The most recent addition was the largest - a 49MW project at Red Scar near Preston which should be operational later this month.

The company released half year results in August (link via Investegate) which suggested a strong share price performance to end June - up 5.4% and confirmed dividend of 4.5p for 2019.

Commenting on the Fund's results, John Leggate CBE, Chairman of Gresham House Energy Storage Fund PLC said:
"The UK needs more grid-scale batteries. The growth in renewables demands this and recent events including the recent National Grid outage on 9 August provide confirmatory evidence that batteries can make a difference. The Fund is very well-positioned to build on its initial premise and to grow to significant scale and materiality. The Board and the Gresham House Team have the bench strength, capabilities and experience to create an impactful portfolio of high-performing assets in this sector which is becoming of critical national importance."

Shortly after these results, GRID completed a further placing of new shares raising an additional £42m which brings the total raised since launch to £200m which makes it the leading player in the UK grid-level energy storage field. The company have three further projects totalling 105MW which are due to be completed by March 2020 which will increase capacity to 229MW.

National Grid Control Room

Conclusion

In October, the government (BEIS) announced a consultation on relaxation of planning regulations for utility scale storage which should be a significant boost for this sector as it will mean larger projects over 50MW will be cheaper to progress. The consultation period ends on 10th December so it will be interesting to see what they decide.

The company is due to go XD for a quarterly dividend payment of 1.0p later this week and has a target pay-out of 7.0p for the coming year.

We are due to host the UN climate change COP26 next year and the government will be keen to demonstrate its climate credentials to the world so I am hoping this will give a boost to all things related to renewable clean energy including storage.

This acquisition is not without a degree of risk. The energy market is complex with many players and subject to government policy changes as well as competition from some of the larger energy companies likely to be looking at the increasing attractiveness of this sector. However, the company appears to have established itself over the past year so, as I like to maintain a diverse portfolio, hence the reason for adding this trust to my 'green' collection. My initial purchase was 105p in my ISA.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation - always DYOR!

Sunday, 24 November 2019

Octopus Renewables IPO


The Octopus Group is one of Europe's largest owners of solar power and globally manages over £3bn of assets in renewable energy. It operates a venture capital arm and also a household energy supply business with over 1 million UK customers.

With increasing concern about climate change in recent times from public, pension funds and other institutional fund managers, there is a growing demand for climate-friendly investment options and the renewables infrastructure sector has seen over £1bn of new capital invested in the first half of 2019 with several new trusts being launched as well as expansion of existing trusts. Most of these trusts trade at a significant premium to net assets - average around 12% to 14%.

So, tapping into this market is a natural step for Octopus Renewables (ORIT) who hope to raise an initial £250 million from mainly institutional investors however the IPO is also available for retail investors via most of the popular brokers. I have applied for some shares in my ISA with AJ Bell Youinvest.



The proceeds from the launch will be invested in mainly onshore wind and solar renewables throughout the UK and Europe and also Australia. The dividend will be paid quarterly and is expected to be 3% for the first year and 5% when fully invested with a target for total return of 7 to 8% p.a. Here's the link from AJ Bell for further details.

One of the advantage of acquiring shares via an IPO is there are no dealing charges or stamp duty, therefore a saving of around 1%. The offer closes on 5th December and the new shares should start trading shortly after this date. The launch costs will be capped at 2% and therefore the shares initial net asset value will be 98p.


As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation - always DYOR!

Wednesday, 20 November 2019

Air Liquide - Portfolio Addition

Over the past few months I have gradually removed oil and gas holdings from my portfolio and replaced them with more climate-friendly alternatives. This has involved the selling of my globally diverse index funds such as Vanguard Lifestrategy and HSBC Global Strategy which had previously formed the mainstay of my portfolio. Unfortunately, there are few if any ready-made index funds which do not hold either fossil fuel companies or the large banks which fund their operations. 

Therefore I have been increasingly looking at individual holdings and gradually building my own tailor-made fossil-free fund which includes the likes of Orsted, Vestas Wind, ITM Power and AFC Energy - I must adopt a name for this fund...thinking the "DIY's Fossil-Free Fund" doesn't quite hit the mark but any suggestions for a better name for the fund in the comments below!! 

Obviously the new strategy of replacing a global index fund such as VLS which has over 10,000 holdings of equities and bonds, will carry much more risk than a portfolio with a handful of individual shares and so, whilst it may not be for many small investors, I am prepared to run the higher risks involved to ensure my investments are more fully aligned with my values and lifestyle.

Who Are They?

So, on to my latest acquisition. Air Liquide (AL) is a large company listed on the Paris stock exchange - CAC 40 and included in the Euro Stoxx 50 index and also FTSE4Good Indexes. It operates in 80 countries and employs around 66,000 people. It is a global leader in gases technology - mainly oxygen, nitrogen and hydrogen.

The main attraction for me is its commitment to developing hydrogen as a clean source of energy. It has extensive expertise in this field spanning 50 years and across the entire chain from production to end use. In particular, development of low carbon production including green hydrogen produced from electrolysis using renewable energy.

The Hydrogen Economy

AL is currently investing heavily in hydrogen infrastructure across Europe, North America and Asia and wants to see H2 powering a large proportion of the global economy over the coming decade as we transition away from fossil fuels. If its vision of a global hydrogen-based economy can be delivered, it could spark a transformation across multiple global industries. This is because H2 has a wide range of potential applications and uses in many different sectors.

Hydrogen filling station - France

There is an urgent need to find zero-emission solutions to replace fossil fuels for transport - road, rail, sea, air - as well as heavy industrial sectors such as steel and concrete which together account for around 16% of global CO2 emissions.
It is estimated this total hydrogen economy could be worth $2.5tr per year in revenues so if AL could take just 1% of this it would double the company's current revenues.

AL currently produces around 14 billion cubic metres of hydrogen - enough to fuel 10 million hydrogen fuel-cell cars. It is currently expanding its facility in Canada by 50% to meet demand for carbon-free hydrogen in North America. At 20MW, the electrolyser will be the largest in the world. It is also building a $150m liquid hydrogen plant in California for the hydrogen energy markets.


Obviously Air Liquide cannot generate a global H2 economy all on its own. More government and policy support is required across the chain, however, the opportunities and versatility offered by hydrogen is starting to be recognised by policy makers and the only question mark seems to be how quickly will they move.

The company will release full year results next February however at the half-year mark, revenues were up 5% at just under 11bn EUR with net profits up 12%. Dividends  are around 2% paid in May and have grown at an average of 8% per year over the past decade.

3 Yr Share Price (click to enlarge)

The shares were purchased in my ISA at the price of EUR 121.00. The purchase was funded from the proceeds of the sale of Impax Environmental which I no longer wish to support as it seems to be part owned by French bank BNP Paribas which continues to finance fossil fuel companies.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation. Holding individual shares always carries more risk than collective investments - always DYOR!

Friday, 15 November 2019

AFC Energy - Update


It's just over two months since I decided to add this small AIM-listed hydrogen fuel play to my portfolio.

In the past couple of weeks there have been some significant developments.

First, at the start of this month, the company announced four new brands as it seeks to push forward its hydrogen-powered technology. It will launch HydroX Cell (L) which is a highly efficient alkaline fuel cell for use in heavy-duty industrial applications. It will also launch the HydroX Cell (S) for use in mobile and stationary applications.

The third brand is H Power which is a group of power systems which includes an off-grid electric vehicle (EV) charger and the fourth is AlkaMem, a range of exchange polymer membranes inside the fuel cell which have a wide range of applications including energy storage and fuel synthesis.


AFC have been working closely on development in collaboration with Industie de Nora - a world-leading electrolyser manufacturer - in Italy over the past three years and have now received welcome news that the membrane exceeded internal expectations. AFC say this development offers opportunities in new market segments that it has previously been unable to penetrate and that revenues in this sector amount to over $1bn per year.

The market has welcomed these developments and the share price has soared from 5p to close at 17.5p at the end of this week - a rise of 250%!

AFC 12m share price (click to enlarge)

AFC Chairman John Rennocks purchased 114,000 shares this week for a total of £11,600. The company have just launched their new website.

Obviously, after such a surge in the share price over such a brief period it is tempting to take profits however my feeling is there is much more to come from zero-emissions, low cost hydrogen fuel cell technology. An abundant gas produced from low-cost fuel cell technology which produces no greenhouse gas emissions and has many applications...could be a game changer in the fight against climate change. So I will keep my fingers crossed and hang in for the long haul and see where we get to.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation... investing in smaller companies can be rewarding but is higher risk - always DYOR!

Monday, 11 November 2019

Proton Power - Portfolio Addition


Earlier this year I started to take more interest in the potential of hydrogen as a solution in the fight against climate change. It is a gas which is the most abundant on earth and burns without producing greenhouse gases or carbon. The only waste product is water.

The costs of producing green hydrogen from using the energy from renewables such as wind and solar are falling rapidly which makes this once expensive form of producing energy more attractive.

On the back of this interest I purchased a small stake in ITM Power in late August and took advantage of adding some more shares as part of a placing last month. The combined holding have appreciated from 37p to currently 68p so up 83%. On the back of this I decided to add another player in the hydrogen sector, AFC Energy in mid September and that too has seen significant price movement - up from 4.8p to currently 9.4p, a gain of 95%.

I am probably pushing my luck but I will ride the alternative energy wave and have decided to add a third small hydrogen play Proton Power Services.

This is another small AIM-listed company - market cap. £145m - involved in the development of large scale hydrogen fuel cell technology which can be used for a variety of applications. The hydrogen fuel cell is highly efficient and, in contrast to power generated by conventional internal combustion engines, coal-fired power station or nuclear reactor, there are no toxic, radioactive or greenhouse gases produced or emitted.

According to the latest half-year results (link via Investegate), the company has initiated several new projects including taking deliver of an automated stack assembly machine capable of 5,000 units per year. They entered a joint venture with Skoda Electric to develop fuel cell electric buses using Proton's modular HyRange system. In August, they announced a joint venture to integrate large industrial fuel cells with power electronic battery storage to create a 'plug n play' power unit.

I suspect the hydrogen powered cars could well compete with battery powered EVs in the coming few years due to the higher GHG emissions produced from the manufacture of batteries. This is particularly the case for heavier vehicles like lorries and buses where the more efficient hydrogen powered vehicles have an advantage.
Basics of Fuel Cell Vehicle
(click to enlarge)

The global fuel cell market is estimated to be worth $8 bn by 2021 and growing at 15% per annum. The company has identified several key targets within this market including :

  • back-up power for telecoms and data centers
  • hydrogen battery zero emission vehicles - buses, airport vehicles, off-road vehicles, trucks and fork lift trucks
  • shipping
  • fuel cell trains


12 m share price

However exciting these projects appear, the fact remains that the company is still not making profits so for investors, it's about jam tomorrow which is always risky.
As can be seen from the chart, the share price has been volatile which is common for smaller companies - under 10p at the start of the year and rising quickly to 40p before falling back. My initial purchase price was 24p.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation... investing in smaller companies can be rewarding but is higher risk - always DYOR!

Thursday, 24 October 2019

Vestas Wind - Portfolio Addition


Following on from my acquisition of Orsted earlier this year, I have decided to add another Danish-based renewable energy company to my green portfolio.

Vestas is one of the world's leading players in wind turbines - it designs, makes, installs and services both onshore and offshore turbines and holds the record of providing more turbines throughout 80 countries than any other company. The core of the business is providing sustainable, clean and affordable energy to people all around the world.

They are the global leader in onshore wind - over 100 GW installed and also onshore servicing. They are #2 in offshore wind (behind Orsted) with 5 GW installed and plans to double this by 2022.

The Drivers

Demand for renewable energy solutions is growing rapidly and according to a recent report from the International Energy Agency, could expand by a further 50% by 2024 due to the rapid electrification of transport, industry, heating and cooling. During the coming decade, around 1,500 GW of power from coal, oil and gas will be retired. Renewables are expected to increase capacity to fill the gap and grow from around 10% today to at least 30% of global energy by 2035.

As a global leader in wind power solutions, Vestas should be well placed to capture a fair share of this growing renewables demand.


Results

According to the recent half year results, high demand for their product has led to a record-high order intake and a 15% growth in service revenues. The order backlog stands at an all-time high of EUR 31bn. However profits and margins are down so a bit mixed.

3 Yr Share Price

As can be seen from the chart, the share price can be volatile and of course there are FX considerations as the shares are listed on the Copenhagen stock exchange.
The shares have been added to my Halifax ISA and the purchase price was 535 DKK (approx. £63.00).

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation. Holding individual shares always carries more risk than collective investments - always DYOR!

Friday, 4 October 2019

ITM Power - Finals & Key Partnership Announced


This small AIM-listed clean energy company was added to my portfolio in August. 

It has recently announced results for the full year to end April 2019 (link via ITM website). Sales increased by 40% to £4.6m and grant revenue was up 75% to £7.2m.

However, the company is still not profit-making as it invests heavily to scale-up its operations. Cash burn this year was £15m and the company now needs to raise more cash to keep the show on the road. 

It has therefore announced plans to raise a minimum of £52m from equity fundraising. This involves a new partnership with Linde AG for £38m and then a placing with institutional investors for £14m and an open offer of £6.8m.

Linde Engineering Joint Venture

This is a big deal for ITM. Global industrial engineering group Linde will acquire a 20% stake in ITM for the £38m. The 50:50 joint venture will target an increasing number of companies and governments that are looking to green hydrogen as a solution to tackling climate change. These include the storage of renewable energy and grid balancing as well as the essential task of reducing CO2 emissions from sectors such as transport and heavy industry. ITM will focus on hydrogen production from its electrolysers whilst Linde will look after the engineering and construction side of the projects.

Graham Cooley, CEO of ITM Power plc, said: 
“The major strategic investment from Linde cements a five year relationship between us and provides ITM Power with a world leading partner that brings deep expertise in engineering, procurement and construction and a global customer base. The joint venture will enable us to focus on our core competency of the development and sale of electrolysers, and with Linde as our partner to deliver green hydrogen at scale, The successful fundraising provides the financial resources to exploit this exciting opportunity to the full.

We are seeing increasing global demand for hydrogen as a solution to renewable energy storage needs and the decarbonisation of major industrial processes. The fundraising and our partnership with Linde will help us to meet this demand on a growing scale, deliver efficiencies throughout our supply chain and represents a significant step on our pathway to medium-term profitability”

Energy Observer - World's First Hydrogen Powered Boat

The Case for Hydrogen

Hydrogen is the most commonly occurring element in nature and is set to play a defining role in the 'green' industrial revolution as it replaces fossil fuels. It can be stored and used to power long-distant transport such as cars, lorries, trains and ships. It can be used to generate electricity. It can be used as a gas to replace natural gas for heating our homes. It is a clean source of energy and when used the only emissions are water and heat.

12 m Share Price

The announcement seems to have gone down well with the market as the share price jumped 11% to 48p yesterday. Good news for me as my investment is up 30% since purchase and I will certainly take advantage of the open offer of a top-up to my holding at 40p if available via my broker.

Hopefully these moves can translate to profitability over the coming year.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation... investing in smaller companies can be rewarding but is higher risk - always DYOR!

Tuesday, 1 October 2019

Divesting My Portfolio of Fossil Fuels is Complete


For some time now, I have been concerned about the impact of the major oil companies in relation to global warming. Here's an article from earlier in the year outlining some concerns about investing in fossil fuels.

The extraction and burning of fossil fuels is the main cause of our climate crisis. The message is fairly simple, to have any chance of keeping warming below the 1.5C or more likely 2.0C, we can no longer afford to use coal, oil and gas.

The goals set out in the Paris Agreement to tackle our climate emergency require a complete decarbonisation of the global economy. Clearly the first stage of this process is to switch our energy production. The IPCC have indicated that the world needs to make a speedy transition from fossil fuels to renewables to limit warming to 1.5C but the message is largely ignored by the industries who have a vested interest in maintaining business as usual. The governments of the large industrialised nations, including the UK, spend over $100 bn each year to subsidise large fossil fuel extraction companies.

The large oil companies acknowledge the threat and in their annual report last year Shell said :

“Rising climate change concerns have led and could lead to additional legal and/or regulatory measures which could result in project delays or cancellations, a decrease in demand for fossil fuels, potential litigation and additional compliance obligations.”

The report specifically identifies fossil fuel divestment campaign as a material risk: 

“Additionally, some groups are pressuring certain investors to divest their investments in fossil fuel companies. If this were to continue, it could have a material adverse effect on the price of our securities and our ability to access equity capital markets.”

It also highlights the risk of climate litigation efforts: “Further, in some countries, governments and regulators have filed lawsuits seeking to hold fossil fuel companies liable for costs associated with climate change. While we believe these lawsuits to be without merit, losing any of these lawsuits could have a material adverse effect on our earnings, cash flows and financial condition.”

So long as these industries continue to explore for new oil reserves and exploit the environment, I have no desire to support their activities or invest my money in their shares. Likewise the big global banks which finance their activities.

I believe the most effective way to get their attention is to divest away from big oil. For a start, these are becoming increasingly risky assets to hold in a portfolio and secondly, continuing to derive profits and dividend income from such companies is ethically unacceptable if you understand the role of fossil fuels and our climate crisis.


Does It Work?

Some people suggest that selling shares in these big oil companies has no effect because the shares are merely bought by someone else. However, as Bill McKibbin argues in this article for the Guardian, divestment can weaken the reputation and financial creditworthiness of these companies that continue with business as usual. The US trade association spend millions on lobbying governments and media campaigns to discredit the divestment movement.


The acid test will be share price performance and we have seen this year that Exxon has fallen out of the S&P 500 index top ten for the first time in over 90 years. In fact oil and gas accounts for just 4% of the index compared to 12% just a decade earlier. The S&P is up around 15% this year to date, but the oil stocks are down 3%.

According to this latest report from 350.org $11trillion has so far been committed to divestment by institutions worldwide.

For me, it just feels better being part of the solution rather than continue to support the pollution.

In recent years over 1,000 institutional investors  have decided to divest their portfolios of fossil fuels. Many of these large organisations are beginning to understand the risks of investing in fossil fuels. Our Parliament's pension fund have agreed to develop a new climate change investment policy following representation from 200 MPs. Two thirds of UK universities have pledged to divest from fossil fuel companies. New York City $200 billion pension fund has put forward legislation to divest from oil and gas stocks. Norway's $1 trillion sovereign wealth fund - the world's largest - has started to divest from oil and gas exploration companies.


The ball is rolling and will only get more momentum as the protests from the likes of Extinction Rebellion and School Strikes for a Future grow in popularity...an estimated 6 million worldwide took to the streets last week.

However, ditching these fossil fuel companies is not straight forward. Sure if you hold shares in the individual companies likes of Shell Oil or BP, it's easy to sell them and reinvest the proceeds elsewhere. But many investors hold collective investments such as investment trusts or maybe in their pension scheme and are simply unaware of what shares are held by the manager. Furthermore, as I established at the start of the year when I put my global index funds under the spotlight, multi-asset tracker funds such as Vanguard Lifestrategy can hold a surprisingly high proportion of these undesirable assets when you drill down under the surface (pun intended!).

The FTSE 100 for example holds 17% from the oil & gas sector - principally oil majors Shell and BP. Vanguard's Developed World Index (ex UK) holds 5.2% oil and gas stocks including Exxon Mobil, Chevron and Total SA.

Globally diverse index funds have gained in popularity in the past decade, in part due to their lower costs compared to managed funds. However, the likes of Vanguard and Blackrock need to react quickly to the climate emergency otherwise they continue to be part of the problem.

My Personal Divestment

Obviously if we maintain a portfolio of individual shares, something I used to do, it will be obvious what shares we hold and most investors will keep track of dividends and the annual report. If we hold investment trusts or OEICs, it can be a little more tricky to know what individual investments the manager holds but this information should be available from perusal of the annual results or failing this by contacting the fund managers.

Over the past year I have sold my investment trust which hold oil shares - so, City of London and Aberforth Smaller were disposed of in February. Later in the year I sold my global index funds - Vanguard Lifestrategy 40 & 60, Vanguard SRI Global and HSBC Global Strategy and also my Baillie Gifford Managed fund. I also sold Edinburgh Worldwide trust and Scottish Mortgage which both recently acquired Elon Musk's SpaceX and related companies involved in rocket development and space exploration.

The proceeds have been reinvested in my growing green portfolio and some remains in cash awaiting further climate-friendly opportunities. However, my portfolio is now fossil-free and also divested out of the big banks which provide the life support for these big oil companies...finance. Some people will regard the transition of divesting fossil fuel companies and their backers as more risky but I would contend it is probably more risky to continue holding them, regardless of the moral and ethical considerations. But everyone must make their own decision.

So, 
  • energy generation from oil & gas (also coal) is now more expensive than renewables such as wind and solar, 
  • continuing to use oil and gas is morally unacceptable due to the climate crisis, 
  • the fossil fuel sector has underperformed the wider market for the past decade, 
  • there are increasing number of law suits filed against big oil.


Remaining invested in this sector is increasingly risky, so I am pleased to have finally managed to secure a more climate-friendly investment portfolio.

For further reading/reference :



As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation - always DYOR!

Thursday, 26 September 2019

NextEnergy Solar - Portfolio Addition


Having dipped a toe in the water of solar infrastructure with my purchase of Bluefield Solar and Foresight Solar earlier this year, I decided to complete the set and add NextEnergy Solar Trust (NESF.L) to my green portfolio (thanks to a nudge from Richard).

This is the largest of the three with assets of £730m and the company has recently been elevated to the FTSE 250. Launched in 2014, the trust operates a portfolio of solar 'farms' located mainly across the South of England however in 2017, they acquired the Solis portfolio in Italy which accounts for around 25% of total operations.

According to the latest annual report to end March 2019, the company performed well over the previous year with energy generated being 9% above budget mainly due to more sun than average. Total return for the year including dividends of 6.65p was 11.8% (FTSE All Share 8.8%). Over the 5 years since launch, the average annualised return is 9.5% p.a.

Around 2/3rds of the existing portfolio benefits from the usual government ROC subsidies. The rest of the portfolio revenues are derived from purchase power agreements with utility companies. These government subsidies are no longer available for new installations however the company has decided to move ahead with a new subsidy-free 5.5MW solar unit at Hall Farm in Leicestershire which is due to be completed shortly. They will then start work on a second 50MW project in Bedfordshire which will be the largest in the whole portfolio. Like Bluefield, they are working on a strategy to extend the life of existing assets and negotiate lease extensions and planning approvals which should help to increase net assets.

It will be interesting to see if this subsidy-free strategy can generate comparable returns but it is quite likely due to the falling costs and increased efficiency of the PV technology. One area which could benefit these companies is storage - battery or otherwise - because it will be a big advantage to store energy when abundant and sell it when there is higher demand. I am guessing these companies will already be looking into this area.

Dividends

The company pays quarterly dividends and the target for the current year is 6.87p - an increase of 3.3% on last year. I have purchased the shares at 120p in my Halifax ISA so the fwd yield is 5.7%. As can be seen from the chart, the share price has been fairly stable over recent years and I will be happy with any modest increase in addition to the dividends.

The shares currently trade at a 10% premium to underlying NAV of 110p which seems to be broadly in line with the others in this sector.

Ongoing charges are 1.1% which seems on a par with my other solar funds. There are a number of large institutional shareholders including Prudential, Artemis, Investec, Baillie Gifford and Legal & General
 
3 Yr Comparison v Bluefield Solar
(click image to enlarge)

In just a few short years, investment in renewables has moved from niche/risky to mainstream/solid as we transition quickly from fossil fuels to clean energy. Solar and wind can now compete on cost alone with natural gas and nuclear and this makes it easier for policy makers and government to promote renewable energy as a larger part of the mix.

A recent analysis from Carbon Brief suggested almost 50% of our electricity will come from renewables by 2025. This includes wind, biomass and hydro/wave as well as solar but it means that capacity for solar should expand from currently 5% to approx. 10% over the coming few years. Hopefully the likes of NextEnergy will secure a share of this growth.

The UK is to host the IPCC COP 26 gathering in Glasgow next year and I expect to see further government policies to increase renewables which will demonstrate leadership on climate and back up the recent decision to move to net zero emissions by 2050.


Of course as with most investments, the sector is not without risks. I suspect the main one would be a decline in the prices NESF could secure for supply of electricity and the need to revise its long term assumptions which would have a negative effect on NAV. There are also political considerations both here and in Italy so these aspects have to be weighed in the balance.

This addition takes my 'green' allocation to over 50% and I am pleased to say that following the recent disposals of Vanguard Lifestrategy and HSBC Global Strategy funds, my portfolio is now fossil-free and climate-friendly (more on this in a future post).

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation - always DYOR!

Thursday, 19 September 2019

Bluefield Solar Trust - Full Year Results


Bluefield Solar (BSIF) was added to my SIPP portfolio in March. It's focus is purely on solar power in the UK and the technology is advanced but fairly simple with few moving parts to go wrong. It is one of the largest solar operations in Europe with net assets under management of around £436 million and generating 470MW of electricity is sufficient to power 150,000 homes.

Approximately 60% of their solar assets are covered by the old subsidy scheme which provides a guaranteed return for 20 years from the date of connection to the grid. The other 40% have rolling power purchase agreements which generally last for between 12 months to 3 years and are then renewed.

Results

The company has today issued full year results to end June (pdf link via company website).

The report seems positive. Underlying earnings per share increased by 13.8% to 11.01p and the total return including dividends was 19.1%.

The company pays quarterly dividends and will pay out a total of 8.31p for the year which includes an additional payment of 0.63p which gives a yield of 6.3% based on the current share price of 131p.

The total annualised return for shareholders since launch in 2013 has been 9.6% p.a.
 
3 Yr Performance v Foresight Solar
(click to enlarge)

Chairman John Rennocks said: 

"The year has been outstanding with above target earnings and dividends, a satisfying result for a Company that has as its first priority the delivery of attractive levels of sterling income, covered by earnings.

The explanation for the outperformance is straightforward. The period had higher than average irradiation (+6.6%), favourable conditions which were effectively translated into high levels of actual generation (+7.5%), made possible by the quality of the operating portfolio and a credit to the work of BSL.

This increased generation was then converted into high levels of revenue, enhanced in the period by the Company being able to respond to, and capture, higher power prices.

The Company has also seen a modest increase in its NAV. The main driver for this is the significant progress the Company has made in lease extensions on the portfolio, which have offset the lower power price forecasts since December 2018. As detailed in the Investment Adviser's report, the Company has had several successful planning determinations on 15 year lease extensions (amounting to over 100MWp), with a further 64MWp still awaiting an outcome or under negotiation. Significantly, the Company has not had, at the time of writing, any planning rejections".

Future Expansion

The trust's portfolio has been fairly stable for the past couple of years with 87 solar 'farms' located mainly across southern England. The UK governments subsidy for renewable infrastructure has now ceased (short-sighted imo) however, the cost of solar has fallen dramatically - 50% reduction over the past five years - and this should provide opportunities for growth.

The company are currently looking for opportunities to increase assets and a number of potential sites are currently under consideration to support the next phase of growth.

As mentioned above, BSIF are in the process of increasing the life expectancy of its solar assets from 25 years to 40 years subject to planning considerations and agreement with the owners of the sites. Successful negotiations have been completed on a two thirds of existing assets and will hopefully be concluded over the coming months. This could add a further 5% to net assets. The boost to asset appreciation over the past year means the discount has narrowed and the shares are currently trading at a premium to NAV of around 12% - down from 20% earlier this year.

My holding in Bluefield Solar accounts for around 6% of my 'green' portfolio which has been gradually building over the past year. The government will roll out its plans to get us to net zero emissions over the coming months and I am sure solar, wind and wave plus battery storage will continue to benefit from the transition away from fossil fuels. I feel comfortable with this trust in the mix and will continue to hold and roll up my quarterly dividends within my SIPP. I look forward to seeing how the management deal with expansion of the portfolio and whether debt increases but for now it can return to the bottom drawer.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation - always DYOR!