TRIG - Full Year Results

The investment trust was launched in 2013 and gives investors an opportunity to tap into the UK and European renewable energy sector – offshore and onshore wind, solar and battery storage. They aim to generate sustainable returns from a diversified portfolio of renewable energy infrastructure that contribute towards a zero-carbon future.

It has grown steadily over the past few years, from £300m at launch to become one of the largest funds in the renewable infrastructure sector with assets of £2.7bn. The shares were first purchased for my green portfolio in 2019 and topped up last November.

The trusts works closely with InfraRed Capital who have extensive expertise in the renewable energy market and flag up opportunities for expansion and also with Renewable Energy Systems who manage the assets after acquisition and ensure they are operated safely whilst delivering maximum efficiency.

Since launch, TRIG has outperformed the FTSE All Share Index with total returns averaging 8% p.a. plus lower volatility. The shares are increasingly in demand from institutional investors wanting to respond to the demand from their clients for more climate-friendly ESG investments.

Results

Last week the company released results for full year 2021 (link via TRIG website).

Profits came in more than double the previous year at £210m (2020 £100m) with earning per share back up to speed at 10.0p (5.9p). The portfolio generated 4,125 GWh of clean electricity, an increase of  4% on 2020 which is sufficient to power over 1m homes and avoid 1.4m tonnes of CO2.

Net assets per share for the period increased by 3.5% to 119.3p compared to 115.3p a year earlier. Factor in dividends and the total return for the year was 9.5%.

The board have announced a final dividend of 1.69p for the end of March making a total of 6.76p for the year and a 1.2% uplift to 6.84p  is planned for the coming year giving a fwd yield of 5.3%.

The shares trade at a 13% premium to net assets.

Power Prices

Given the recent dramatic rise in energy prices, I was interested to read this section of the report...

“The power price environment over recent months has been remarkable. From the pandemic induced lows of Q1 2021 we have now seen wholesale power pricing rise to the highest levels since the Company's IPO in 2013. Two factors dominate this surge: high commodity prices and low weather resource for renewables generators; with other factors such as increasing geopolitical concerns, supply outages and a rapid recovery in demand also contributing.

Elevated spot power prices are flowing into season ahead forward power prices. For instance in the GB market, which has been one of the most affected, forward power prices for the coming summer and winter seasons increased by an average of 166% over the last six months of 2021; indicating an expectation from the market that elevated power prices will continue for the next year or so. There is a similar pattern across all markets where TRIG has investment

The UK and European carbon prices reached all-time highs peaking above €89 a tonne during the year, influenced by demand from coal and gas generators competing to fill the gap created by low wind resource. Higher carbon prices are consistent with policy encouraging industry to invest in cleaner technologies.

The Company is seeking to benefit from these elevated near-term forward power prices by entering into forward fixes, supplementing its longer-term fixed revenues per megawatt hour from government subsidies. This is consistent with the Company's low-risk, yield-oriented investment proposition. Over the next 12 months, 70% (2020: 84%) of revenues are fixed per unit of generation and over ten years this figure is 66% (2020: 74%). The decline in these numbers is largely driven by the elevated power prices in the near-term compared to last year's assumptions”.

Conclude

The demand for more renewable electricity both in the UK and Europe will only be moving in one direction as governments come under increasing pressure to decarbonise their economies and meet their carbon emission reduction targets. The UK government have brought forward the date for all new cars to be emission free from 2035 to 2030. In a decade we could see 35 million pure electric cars on our roads which will require lots of clean energy.

In addition, gas which heats 85% of our homes is due to be phased out for all new house build from 2024 so there will be increased demand for alternatives for space heating. Hydrogen from renewable energy will be part of the mix as well as electric heat pumps.

In addition, we see the higher power prices which is an important aspect of valuing these renewable energy infrastructure trusts.. Power prices are one of the key risks faced by the trust.

TRIG 3 yr share price/NAV

Finally, with inflation expected to rise to 7% later this year and maybe remain at a high level whilst the energy crunch play out, I am hoping my renewable energy infrastructure holdings will provide their traditional hedge against rising inflation whilst their 5% income will offset my higher energy bills.

The higher weighting in my green portfolio proved to be a drag on returns in 2020. However, in more recent times, the performance has improved and no doubt the higher power prices due to the global energy crunch is a significant factor. I decided to top up my portfolio last Autumn and the shares currently make up around 6% of my green 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!