Friday, 27 May 2022

Greencoat UK Wind - Update

This renewable energy trust was added to my portfolio in late 2019 to sit alongside TRIG and Bluefield Solar.

UKW is one of the largest renewable infrastructure trust with a market value in excess of £3.2bn and a constituent of the FTSE 250. The trust operates a portfolio of 44 onshore and offshore wind farms throughout the UK. The trust was launched in 2013 and over this period, returns for investors including dividends have more than doubled making it one of the best performing trust in the renewables infrastructure sector.

The trust pays quarterly dividends and aims to maintain payments at least in line with RPI inflation. The company's target is for a total shareholder return including dividends of 8% to 9% per year which it has exceeded since launch.

Results

UKW has recently announced results for the full year 2021 (link via Investegate). 

Net assets increased by 40% to £3.1bn (£2.2 in 2020) and generating 2,933 GWh of clean electricity which was 20% below budget as a result of lower wind speeds. However power prices were much higher than anticipated as a result of the surge in gas prices in the second half of the year.

Total return for the year (dividend + net asset appreciation) was 15.4% which includes dividends of 7.18p paid quarterly.

Dividends should keep pace with inflation and the target for the coming year is increased by 7.5% to 7.72p (based on December RPI) which gives a forward yield of 5.1% based on the current share price of 150p.

UKW raised a total of £648m over the year from two oversubscribed placings which has been deployed in new acquisitions. The latest is a 12.5% stake in Hornsea 1 which is the world’s largest offshore wind farm located around 80 miles off the Yorkshire coast in the North Sea.

 

World's largest Offshore Wind Farm

The renewable infrastructure sector has held up reasonably well these past few months. In contrast, my technology shares have dropped around 20% year-to-date. The energy crisis is likely to prevail for some time subject to the situation in Ukraine, inflation will also remain higher than the 2% we have become accustomed to over the past decade...it's forecast to peak at 10% this year in the UK. Then there is always the climate crisis to address. I think on several fronts the likes of UKW have an advantage so I will continue to hold for the foreseeable future.

UKW - SP now close to net asset value...

Over the past couple of months, energy prices have risen by around 30% which will mean more cash coming down the line for UKW which should be a significant boost to net assets by the year end and into 2023. For this reason I have recently topped up my holding in UKW which currently accounts for around 8% of my green portfolio and is one of several renewable energy infrastructure trusts which make up just over one quarter of the portfolio.

Under the renewables obligation certificate (ROC) arrangements, around half of UKW revenues are effectively guaranteed until 2037 and going forward they will likely take advantage of long term contracts for difference which again fixes the prices of the electricity generated. More homes and businesses receive clean energy whilst more carbon dioxide from thermal fossil fuel generation is displaced and investors receive their relatively safe 5% inflation-proofed income...a win, win all around!

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!

8 comments:

  1. Looking good... unless our glorious populist leaders decide to apply a windfall tax to renewables as well as oil and gas firms.

    I understand the small scale picture (there's a cost of living crisis and as you note they've also profited from energy price rises) but there's a bigger picture here (we want far more investment in renewables, and only recently such NAVs were shaken by lower forecast long-term energy prices).

    Currently I hold UKW plus TRIG and a couple of others. But I tend to trade them, unlike most owners of such trusts, depending on how in or out of favour they are -- the premiums scare me!

    Maybe if they got whacked by a windfall tax they'd all go on sale again. :)

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    1. Yes, we really need to see more investment in renewables. Unfortunately the announcement yesterday is not helpful...it will give 90% tax breaks for investment into new oil & gas projects but no tax breaks for new renewable infrastructure.

      The government were burnishing their green credentials last November at the COP26 gathering of world leaders, now they are showing their lack of credibility on several fronts.

      I certainly would not rule out a tax on the renewable energy sector but it's not going to bring in a huge amount of extra cash and would be very damaging in the run up to the next election where I believe climate change will be a big issue for many voters.

      As you say, if they do impose a tax, there could be bargains to be picked up.

      In the meantime, I hope they will start to look at help with home insulation which would do far more to address this problem than giving people money to pay ever-higher energy bills. Last summer I insulated my loft and during the winter months I saved around 40% on my heating and 25% on electricity compared to the previous year.

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  2. Yes we really need more renewables.
    After spending £100,000,000,000 (or so), here we are desperately searching for a source of gas... Just like most countries on earth.
    Days on end with wind providing less than 10% of the energy mix. Solar barely 2%.
    Some people think just a few more wind turbines is the answer!

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    1. I am encouraged by the outcome of the G7 meeting in Germany this week. The major economies - US, Germany, UK, France, Japan etc agreed to phase out coal by 2030 and decarbonise their electricity grids by 2035 i.e replace gas.

      Hopefully they will put pressure on the G20 - resonsible for 80% of GHG emissions - to follow.

      Obviously this will mean a huge push for cleaner alternatives - wind, solar, hydro, marine and hydrogen as well as storage.

      Things appear to change slowly, slowly at first and can then move very quickly.

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  3. I've been a shareholder in UKW for almost 10 years now and the returns have been good and it's nice to know that the money is actually being put to use.
    It's funny that the threat of a windfall tax on renewables has hit the sector quite hard (down about 5% since it was announced) and it's a bit sad that the government has cut funding on insulating homes and energy efficiency, is threatening to tax producers more whilst giving everyone "free money" to pay their huge bills.

    I can't change government policy or the public's behaviour but my own gas/elec. bills are paid for by UKW with a £500 dividend received last week.

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    1. Well done for getting in at the start with this one GFF and for sticking with it.

      The government have not really provided much support for home insulation since 2012 which is a missed opportunity. However, they have pushed on with the decarbonisation of our electricity grid...especially the roll-out of offshore wind and have pledged to fully decarbonise by 2035.

      On a personal level, I will do OK from the hand-outs with an additional £300 winter fuel payment and then the £400 from October plus £150 council tax rebate. The magic money tree really does exist!

      I like the idea of having sufficient shares in renewable energy trusts to cover your annual fuel bills...that's a very handy sum from UKW last week - that sort of sum would just about cover my annual energy costs!

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    2. I disagree with you - this government have not done enough.
      Besides not supporting home insulation, their effective prohibition of new onshore wind in England and Wales brought in to appease Tory backbenchers in 2015 and their continued failure to do anything about it this year is one reason why the elec. grid's decarbonisation is slowing down.
      The offshore wind projects are/were going to happen - but if we want new power generation within the next 2 years (to cut costs, CO2 emissions, stop Putin... take your pick) we needed to have a lot more onshore wind - particularly in England and that isn't happening.

      Giving everyone £400 or whatever is popular - who doesn't want free money? - but the government should be better at spending money than this blunt instrument that does nothing to wean us off high carbon/high cost lifestyles.

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    3. I don't think that the government has done enough - they've said enough that's sure.
      The best route to reducing our dependence on foreign gas, stop giving money to Putin, reduce our CO2 footprint, provide additional power to the grid and help with decarbonising and doing so in 1-2 years would have been a massive increase in ONshore wind - and the government ducked this issue hoping that Offshore will carry the day - except there's no New offshore wind developments and even if there was it would take much longer for them to come onstream.

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