Here comes the sun

10th April 2026

In recent years, the renewable energy infrastructure sector in the UK has faced a perfect storm of headwinds which has left the sector in the doldrums. Net asset values (NAVs) have been steadily declining and discounts to NAV have widened resulting in very poor outcomes for shareholders. Discount-triggered (and ordinary course) continuation votes have started coming thick and fast, and pressure on Boards to act has significantly ramped up. We believe the sector is now at an inflection point with a few rays of sunshine starting to peek through the clouds.

First, it’s worth laying out what has gone wrong in recent years:

1. Poor energy generation. I.e. last year was one of the worst years on record for wind generation.
2. Lower power price assumptions. Power prices came down as the world adjusted to the impact of Russia’s invasion of Ukraine in 2022, and increased expectations for future renewable infrastructure build out brought energy curves lower (lowering NAVs across the sector).
3. Rapid repricing of interest rates from c.0% to 4.5% on the UK 10-year yield and knock on negative NAV impact.
4. Balance sheet concerns. Some trusts in the sector have stretched balance sheets and falling NAVs risked straining debt covenants.
5. Supply/demand imbalance for shares. Wealth management consolidation, changes in investment company cost disclosure rules, apathy at the complicated moving NAV parts, and tax loss selling have all contributed to high levels of supply of shares not matched by enough new buyers.
6. Own goals. There have been trust level issues too, including poor business model structures being found out in the tough times (ie battery storage trusts committing to high dividends despite having huge merchant revenues that change a lot year to year), accounting issues (tax hit at Foresight Solar), and overpromising and underdelivering (in particular around assets sales and consolidation in the sector).
7. Rising political risk. ROC consultation to move the goal posts of existing contract pricing from RPI to CPI linkage. Reform UK leading the polls and have been outspoken about their dislike of renewable energy.
8. Some operational challenges and higher-than-expected maintenance costs.

When combined, it is little wonder that the sector has struggled. But everything above is known, and several factors are showing signs of improvement. Why are we increasingly confident in the outlook for the sector today?

1. Poor energy generation was predominantly driven by low renewable resource (ie a historically poor year for wind generation), not poor asset operation. Energy generation is always volatile from one year to the next. Patient investors need to look through the short-term noise and consider a 5-year time horizon, over which the renewable resource achieved has consistently been close to published assumptions. This year, it’s already been a lot windier which will support cash flows and Q1 NAVs.
2. Power prices are highly volatile and notoriously difficult to forecast accurately. Geopolitical risk has been structurally higher post-covid than pre-covid, and risks to energy markets especially so. We had an energy price shock in 2022, and we have another one brewing now driving prices sharply higher which renewable trusts benefit from. Despite the stressed environment last year of lower power prices and generation, many renewable trusts still delivered fully covered dividend yields. It’s also worth remembering that many trusts have a high proportion of contracted revenues that mitigate against short-term power price fluctuations too.
3. Long term government bond yields have stabilised in a range of 4-5% in the UK. Breaking out of that range to the upside would be a headwind, but the probability of another 4.5% yield increase from this starting point is low. NAV sensitivity to bond yields is offset by the sensitivity to inflation, which often gets forgotten.
4. High quality renewable trusts have rock solid balance sheets. For example, The Renewable Infrastructure Group (TRIG) recent re-fi’d a chunk of debt at a 150bps margin, an A- credit rating, and has an amortising debt structure. Lenders are not concerned about high quality renewables balance sheets.
5. Supply/demand imbalance should improve from here. The cost disclosure campaign was successful, and investment company expenses do not need to be aggregated in OCFs which removes one of the supply drivers. Asset sales anticipated in the coming months should provide renewed confidence from investors in published NAVs. We are through potential tax loss selling supply this year. Boards have increased the capital being deployed in share buybacks. There is also the potential for the Pension Schemes Bill to be amended to allow for investment trusts holding private assets to contribute towards a pension fund’s Mansion House Accord agreed 10% allocation of private assets. One factor we accept isn’t changing is wealth manager consolidation.
6. Own goals have been rectified. Boards are actively changing and improving strategies/business models across the sector – often this results in some short-term pain and shareholder rotation but sets the foundation for a better long-term experience, confidence in dividend sustainability and NAV per share growth.
7. Reform UK aren’t going away, but the best trusts are expanding revenue sources to diversify risks of the government changing the goalposts on contracts (for example striking corporate PPAs). Many are also geographically diversified with assets outside of the UK. The ROC consultation has passed, and whilst the change from RPI to CPI pricing can be taken as disappointing, the UK government emphasised the importance of renewable energy generation and supporting future renewables build out in their conclusions.

Now we get to the most important lens that we look through – valuations. As mentioned, in a highly stressed year, high quality renewable trusts like TRIG, Foresight Environmental Infrastructure (FGEN) and Greencoat UK Wind (UKW) delivered fully covered double-digit dividend yields. Each of those trusts continues to offer dividend yields over 10%, when lenders (traditionally far more conservative than equity investors) believe these businesses are firmly investment-grade quality. If the share prices simply trade sideways, you are getting very attractive, equity-like returns from defensive, core-infrastructure assets with high degrees of contracted revenues. Discounts to NAV range across the sector from 25% to closer to 50%. Asset sales are very likely in the coming months, and we anticipate this will improve investors’ confidence in published NAVs. Looking beyond fund-based discount-to-NAV metrics towards classic earnings-related equity metrics (i.e. looking at these companies as if they were operating companies – like SSE or Orsted) reveal these stocks to be cheap in relative and absolute terms, too.

Investors remain fixated on what has gone wrong for renewables in recent years, rather than focusing on the improving rate of change for the sector. We believe several of the renewable trusts represent classic cases of a big gap in perception vs reality (see Daniel’s last Crescendo for a different perception vs reality case study, here) with a significant margin of safety at current prices, and in recent weeks we have been accumulating stock across the sector at close to rock bottom prices.

Dan Cartridge – Fund Manager

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