Monday, 24 June 2019

Aquila European Renewables Trust - New Addition

I was encouraged to read last week that here in the UK, clean energy has now overtaken fossil fuels for the first time since the industrial revolution. In just the past decade, power from coal has declined from 30% to just 3% whilst wind power has increased from 1% to 19%.

According to BP's recent global energy outlook, renewable energy such as wind, hydro and solar will be the world's main source of power within two decades. In Europe, that could easily account for over 50% of energy supplies and the transition from fossil fuels to renewables is likely to speed up now that the EU is looking to follow the UK and target net zero carbon emissions by 2050. Personally, I think 50% by 2040 is conservative and could easily rise to 80% or even 90% as the world wakes up to the threats posed from the climate emergency.

This transition will support the expansion of the renewable energy industry and, having already re-jigged my portfolio to embrace this shift, I decided to add this recently floated trust to my green section as it offers more exposure to the European renewables market.

The newly launched fund is managed by Christine Brockwell of Hamburg based Aquila Capital and supported by a 40-strong research team. The firm has a long-standing commitment to ESG and sustainable values. It has assets in excess of £7 bn and has several renewable assets earmarked for this new fund which raised £140 million from its IPO earlier this month. The pipeline includes wind (33%), solar (40%+) and hydro projects (20%) spread far and wide - Sweden, Norway, Finland, Denmark, Germany, Spain and Portugal but excluding the UK. Once fully invested, the fund is targeting a total return of 6% - 7.5% and will aim to pay a dividend of 5%.
Small Scale Hydropower

I have some exposure to European renewable energy via the likes of TRIG with its assets in Sweden and France, also my ETF in iShares Global Clean Energy holds Siemens Gamesa based in Spain and Vestas Wind of Denmark. I also hold shares in Orsted of Denmark so I am hoping this trust will compliment these investments.

The shares are listed on the LSE but denominated in Euros so there will be currency exchange considerations in relation to the purchase and subsequent dividends. My initial purchase price was 92p (1.02 EUR) - sterling version AERS - and I am hoping for a first dividend payment later this year of around 1.5%. Most of the trusts in this sector trade at a significant premium to net assets so hopefully this will be the case for the Aquila fund and the share price will rise when the value of the assets are evaluated.

Ongoing charges are 0.75% which is modest for the renewables infrastructure sector and also there is no performance fee.

I think the politicians and policy makers have realised we need to speed up the transition from fossil fuels to renewables to achieve net zero carbon emissions by 2050 As this unfolds over the coming decade or so, the beneficiaries should clearly be those producing energy from solar, wind and hydro. 

This addition takes my 'green' allocation to 45% of my total portfolio.

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!

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