Renewable infrastructure trusts on the road to ruin?

Renewables mean a glut when the wind blows and not enough on calm days.

(Image credit: Getty Images)

published 5 February 2025

Investors in renewable infrastructure trusts have had a dismal few months. Share prices have kept falling, pushing up discounts to net asset value (NAV) and dividend yields from tempting to alarming.

The £2.2 billion Renewables Infrastructure Group (LSE: TRIG) now trades on a 26% discount and yields 8.3%, the £2.9 billion Greencoat UK Wind (LSE: UKW) trades on a 21% discount and yields 8.7% and the £580 million Bluefield Solar (LSE: BSIF) trades on a 24% discount and yields 9.2%. Elsewhere, some discounts are over 30% and some yields in double digits.

Explanations for this have followed rather than led the share prices. In September, David Bird, manager of Octopus Renewables Infrastructure Trust, warned of the increasing prevalence of negative power prices across Europe as a result of the roll-out of wind and solar capacity. He expected negative prices to reach 10% of hours by 2030 and 20% by 2050. Octopus is protected by long-term power purchase agreements (PPAs), he said, but the difference between the price at which renewable generators sell electricity and the baseload price is expected to widen.

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The latest forecasts for power prices from Bloomberg New Energy Finance (BNEF) are 45% below the average forecasts of the renewables sector for wind and 61% for solar. BNEF expects baseload electricity prices to fall by 3.5% per annum in real terms up till 2050. This assumes the UK misses its target for net zero, but BNEF also publishes a forecast of annual falls of 1.6% in real terms in a net-zero scenario.

The UK government’s ambitious plan to significantly increase renewable power generation is based on the assumption that the wholesale price of gas will increase steadily until 2035, then flatten out. However, the International Energy Agency (IEA) expects fossil fuels to become cheaper and more abundant as consumption peaks and falls. In particular, the IEA expects liquefied natural gas (LNG) capacity to increase by 50% by 2030, which would make BNEF’s new forecasts highly plausible.

What’s more, the continued expansion of renewable energy will result in a glut of output when it is needed least (and hence negative power prices) and shortages when the wind isn’t blowing and the sun isn’t shining. Back-up generation by gas plants will still be expensive, since high fixed costs and overheads will have to be paid for, but while wholesale power prices are likely to be volatile in the short term, the overall trend will be downwards.

Thus the renewables sector in the UK and Europe will increasingly rely on subsidies, even without the new capacity of which governments dream. With new capacity, the cost will be ruinous. The UK wants most of this investment to be financed by the private sector, but it would be insane for investors to rely on a growing rip-off for consumers and taxpayers. Generators such as Octopus may think they are protected by PPAs, but the market senses that this is unsustainable. Sooner or later, the gravy train could come to a grinding halt.

For the renewables trusts, “there is still downside risk that could negatively affect future net asset values”, as Christopher Brown at JPMorgan Cazenove says. A better alternative is Ecofin Global Utilities & Infrastructure Trust (LSE: EGL), of which I am a non-executive director. By investing globally in listed electricity generators, grids and other utilities, its shares have returned 21% in the last year against a weighted average of -8% for the renewables sector. It currently trades on a 12% discount to NAV and yields 4.2%.

Max has an Economics degree from the University of Cambridge and is a chartered accountant. He worked at Investec Asset Management for 12 years, managing multi-asset funds investing in internally and externally managed funds, including investment trusts. This included a fund of investment trusts which grew to £120m+. Max has managed ten investment trusts (winning many awards) and sat on the boards of three trusts – two directorships are still active.

After 39 years in financial services, including 30 as a professional fund manager, Max took semi-retirement in 2017. Max has been a MoneyWeek columnist since 2016 writing about investment funds and more generally on markets online, plus occasional opinion pieces. He also writes for the Investment Trust Handbook each year and has contributed to The Daily Telegraph and other publications. See here for details of current investments held by Max.