Bluefield Solar Income (BSIF) and RM Funds manager Pietro Nicholls have welcomed the government’s move to cut the carbon price support tax and encourage renewable funds on new fixed price contracts.
BSIF, a £484m investment company that is up for sale along with its fund manager Bluefield Partners, said the removal of CPS would knock net asset value (NAV) by just 1p per share. NAV per share stood at 107.8p at 31 December after a 7.5% second fall partly caused by the government’s change to the inflation measure used in renewable subsidies.
Although CPS’ abolition would likely depress electricity prices in the near term as it removed a prop designed to strengthen the carbon price for electricity generation above the emissions trading scheme, the company’s external forecasters had already factored in its gradual withdrawal through the 2030s, BSIF said.
Bluefield Partners chief executive James Armstrong was also positive about the immediate raising in the electricity generator levy (EGL) from 45% to 55% designed to limit renewable power companies making excess profits at a time when gas prices have soared in response to the blockade of the Strait of Hormuz. The impact on BSIF was “minimal”, he said.
The hike in EGL is designed to encourage those renewable energy generators who mostly rely on market prices to adopt new fixed price wholesale contract for difference (WCfD) deals with the government. Crucially, for renewable funds, the proposal on which the government will consult on, will not replace the longstanding renewables obligation (RO) incentives that most funds already receive.
Armstrong supported the government’s objective of decoupling electricity prices form volatile gas prices. “Likewise, the proposed changes to the carbon price support have a minimal impact on BSIF but should also support lower consumer bills, which is to be welcomed,” he said.
Nicholls, who invests in renewable and other real asset funds in the £118m VT RM Alternative Income fund, was also encouraged by the government’s proposal, having feared the UK was becoming “un-investable” for clean energy companies after the abrupt indexation change.
“Power price volatility is effectively removed. The most unpredictable component of revenue disappears and cashflows become significantly more stable and visible,” he said in a post on LinkedIn.
Nicholls, who turned to investor activism to push for changes at Gore Street Energy Storage (GSF) last year, said RM Funds had increased its holdings in generators such as SSE Renewables and “pure play” providers such as Greencoat UK Wind (UKW), even though the latter estimated a hit of up to 3.8% from the early withdrawal of CPS. Yesterday Renewables Infrastructure Group (TRIG) and Octopus Renewable Infrastructure (ORIT) forecast no or little impact to their valuations.
He stated what the three big advantages of the changes would be.
- Consumers benefit from reduced exposure to volatile wholesale prices;
- Generators benefit from greater revenue certainty;
- Government benefits from a more stable and investable system.
“Only one question remains. What price will the WCfD be set at?” he said.
Our view
James Carthew, head of investment company research at QuotedData, said: “Bluefield Solar is the latest company to update investors on the impact of the removal of carbon price support and the proposal to switch older renewable generation schemes into a CfD arrangement. It strikes us that the increased predictability of revenue that the latter idea provides increases the attractions of UK renewable generation companies to private buyers. Just as Gresham House Energy Storage’s revenue floors made it easier and cheaper for it to borrow, so too should this idea. Shareholders in BSIF should expect to see this reflected in the bid price for the company, when it comes.”
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