Ecofin U.S. Renewables Infrastructure Trust (RNEW) announced its intention to launch an IPO and seek admission to the premium segment of the London Stock Exchange’s (LSE) main market. The company is targeting $250m to invest in a diversified portfolio of mixed U.S. renewable energy assets benefiting from supportive government incentives and the availability of fixed longer-term revenue contracts (10-25+ years).
Targetting a total return of up to 7.5% per annum
- RNEW will target a net total return of 7.0%-7.5% per annum with a sustainable dividend yield of 5.25%-5.75% per annum
- It expects to acquire a circa US$61m seed portfolio consisting of four solar investments with a weighted average PPA term of 18.7 years subject to the satisfaction of certain conditions. RNEW’s manager, Ecofin Advisors, considers that the expected return profile on the seed assets is consistent with the company’s overall target return.
- Two of the Seed Assets are currently operating, a third is expected to be operational by the end of 2020, and the fourth is expected to be operational by the end of 2020 or otherwise within the first quarter of 2021
- The Company will also have access to the Investment Manager’s active pipeline of investment opportunities, currently totalling $3.0 billion across 86 transactions, and aims to have substantially committed the IPO proceeds within 12 months from Admission
It is noted in this morning’s announcement that Ecofin Advisors has extensive sector expertise and a proprietary network of industry relationships, and is backed by the financial strength of its parent company TortoiseEcofin Investments. As at 30 September 2020, the entities owned by the Ecofin Group had approximately US$7.0bn in assets under management. Ecofin will subscribe for 1% of RNEW’s shares in issue on admission. It is also noted that a fund managed by Capricorn Investment Group, a long-standing strategic partner of Ecofin Group, has agreed to subscribe for 5% of the ordinary shares.
RNEW is currently expected to qualify for the LSE’s Green Economy Mark at admission, which recognises companies that derive 50% or more of their total annual revenues from products and services that contribute to the global green economy.
The company has published a prospectus in relation to the IPO, which you can access here. We are not recommending that you deal in the shares. As usual, you should not make a decision to invest in the fund without first reading the prospectus. Please also take note that there are geographic restrictions on who may apply for the shares.
Significant potential in US renewables market
The following is taken from this morning’s RNS release:
- “The U.S. renewables market is at an inflection point with significant growth projected in the power generation mix for renewable energy due to low costs yet low penetration compared to other developed markets
- The energy transition in the U.S. to a less carbon-intensive power grid is entering a new phase of growth. Investment in renewable energy generation is expected to account for more than 67% of U.S. power capital expenditure over the next decade, representing a US$294 billion opportunity
- The U.S. power market is 12.9 times larger than the UK’s and 1.3 times larger than the EU’s (inclusive of the UK for this purpose). Despite this, the solar and wind share of the overall energy market in the U.S. is significantly lower than the UK or EU, leaving ample opportunity for growth
- The U.S. renewable energy market, a less mature market compared to the UK, benefits from near-term federal and state incentives and the availability of long-term power purchase agreements (“PPAs”)
- The company is expected to have reduced power price sensitivity relative to the UK market due to longer duration fixed-price PPAs”
Long-term PPAs to support returns
- “The company aims to provide an initial annual dividend yield of 2 to 3 per cent. (based on the Initial Issue Price of US$1 per Ordinary Share) in respect of the period from admission to 31 December 2021 (assuming that the renewable assets acquired using the net initial proceeds are substantially fully operational by 31 December 2021)
- Thereafter, the company is targeting an annual dividend yield of 5.25 per cent. to 5.75 per cent. (based on the Initial Issue Price of US$1 per ordinary share), beginning in respect of the first quarter of 2022 (assuming that the renewable assets acquired using the net initial proceeds are substantially fully operational by 31 December 2021), with an average dividend growth rate of at least 1 per cent. per annum over the medium term
- The company intends to pay a quarterly dividend and expects that the first interim dividend will be declared in July 2021 and paid in August 2021, in respect of the period from admission to 30 June 2021
- The company will aim to have substantially committed the IPO proceeds in renewable assets within 12 months from admission”
RNEW: Ecofin U.S. Renewables Infrastructure Trust announces intention to float with $250m target