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Renewable energy fuels new wave of investment trusts

Mary McDougall NOVEMBER 11 2021

Investment trusts focused on infrastructure, particularly those involved in renewable energy projects, have boomed this year as income-hungry investors and those wishing to back the energy transition have flocked to participate in record numbers of share issues.

There is little sign of this momentum losing pace. One energy efficiency trust, Atrato Onsite Energy, is in the process of launching, as well as another more generalist trust with renewable components.

“There is an awful lot of investment needed in the renewable sector and it will likely raise an awful lot more money yet,” says James Carthew, head of investment company research at research firm QuotedData.

Traditional renewable energy infrastructure trusts make money by owning renewable assets and producing and selling energy. This means the income the trusts earn will fluctuate according to how much energy they produce (which includes weather impacts) and power prices, although many trusts hedge against fluctuations in these prices.

Many also have income from UK government subsidies, though these are being phased out as the cost of producing renewable energy has fallen.

The weighted average net yield of the renewable energy infrastructure sector was more than 5.2 per cent on November 8, compared with an average of 4.6 per cent for traditional infrastructure or 3.5 per cent for global equity income funds, according to Winterflood data.

But David Merriam, investment manager at Tilney Smith & Williamson, suggests investors might wish to tread carefully. The weighted average sector premium to net assets is almost 10 per cent.

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