Renewables Infrastructure - New Addition

Well, as so often in life, one thing leads to another...and then another. Whilst looking at some of the renewable energy holdings in my Capital Gearing trust, I came across the Foresight fund and whilst researching that fund, I had a further look at the Renewables trust when it released results last week.

So I have decided to add TRIG to my portfolio. The investment trust was launched in 2013 and gives investors an opportunity to tap into the renewable energy sector - wind, solar and battery storage. It has grown steadily to become one of the largest funds in the sector with assets of £1.3bn.

Results

Last week, the trust released full year results for 2018 (link via Investegate). Total return was 11.6% and earning per share increased by just under 20% from 9.8p to 11.7p. Over the past year it has added 5 new wind farms to the portfolio - Ireland, Scotland, France(2) and Sweden. This brings capacity up from 821MW to 1,110MW, an increase of 35%.

The combined portfolio generated a total of 2,011GWh over the year (1,766 for 2017) and sufficient clean energy to power 650,000 homes or 0.6% of total electricity consumed in the UK.

Helen Mahy CBE, Chair of TRIG said:

"2018 is TRIG's fifth year of operations and was another strong year. Once again, we have been able to deliver attractive returns to our investors with a total NAV and dividends return in the year of 11.6%. The period saw ongoing diversified growth through acquisitions, good asset availability and healthy levels of cash generation.

In the years ahead we are confident of TRIG's ability to continue to provide its investors with long-term, sustainable dividends whilst contributing to a lower carbon future."

Legislation

Under the Climate Change Act of 2008, the UK government is obliged to reduce greenhouse gas emissions by 80% below pre-industrial levels by 2050. This target is reviewed by parliament every 5 years and in the most recent review, a target of 57% by 2030 was agreed. In the light of the recent IPCC report, many are suggesting this target is not sufficient and are calling for zero emissions by 2035.

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Under the 2015 Paris Agreement, 200 countries entered into a voluntary accord pledging to keep global warming well below 2C. Last year the IPCC agreed on the lower limit of 1.5C.

As a result of the efforts by the global community to tackle climate change, renewable energy production such as wind and solar is expected to expand rapidly. In its recent report, BP forecast that renewable energy will be the worlds main source of power by 2040 - personally, I think it could be much sooner.

Outlook

The Renewables asset class represents a growing and important segment of the rapidly evolving energy market and, accordingly, a compelling investment opportunity. Furthermore, TRIG is well placed over the longer term to take advantage of the drive towards global de-carbonisation and continued investor appetite for long-term yield from sustainable asset classes.

With an active and healthy pipeline, the management are confident that 2019 will be another year of continued growth and solid performance. They have an advanced pipeline comprising several investment opportunities where negotiations have reached an advanced stage for investments in wind farms located within France, the Nordics and the UK. Should all be successfully concluded they would involve expected new investment in excess of £250m in aggregate by June 2019.

"As the renewables market in Europe continues to evolve at pace, the Board, along with the Managers of the Company, will continue to look for opportunities to adapt the portfolio, seeking to enhance diversification and avoid reliance on singular markets at risk of scarcity premia, so to best capture value for investors. This will include examining new markets in Europe including where grid parity allows development of renewables without subsidies."

Conclusion

I have held back from investing in this sector for some time due to the fact that most of the established trusts trade on a high premium to underlying assets. However, I like the story so far and the prospects of expanding the operation further afield to France, Spain and Sweden appeals.

The returns compare well against other investments over the past 5 years - TRIG 56% v All Share Index 31.2% and Vanguard LifeStrategy 60 is 46%. There is a handy quarterly dividend of 5.5% (which I will reinvest). The share price has had a good run over the past year and is currently trading at a premium of 9% however the management are thinking of following Greencoat UK Wind and extending the life of its assets by a further 2 or 3 years which would lift the value of net assets by around 3% or 4%. Obviously I would prefer to purchase at a discount but due to demand across the sector, this is not currently an option. I have now added this trust to my ISA portfolio with Halifax - purchase price is 117p. They are proposing to raise funds next month for acquisitions and I hope to top up my holding at what could be a lower price.

I don't imagine the re-alignment of one small investor's portfolio towards more environmentally friendly investments will be moving the climate change dial very far. This will be done by the large institutional fund managers such as pension funds and the likes of Vanguard and BlackRock. However, I also think that when lots of small investors start to rethink the relationship between financial goals and the future security of the environment, it could have a significant impact.

Apart from all this it just makes me feel a bit better. This takes the total 'green' portion of my portfolio to 15%.

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!