Renewable energy infrastructure companies hit by falling power prices
By David Brenchley , Investment Week, 9 March 2020
A fall in power prices that has significantly reduced net asset value (NAV) of renewable energy infrastructure investment companies over the past six months is likely to remain a headwind for a sector that has been popular with investors in recent years…
Funds in the sector had a good run, returning 58.4% in the five years to 31 December 2019, with the sector as a whole reaching a record-high premium of just over 20% by the end of the year…
However, 2020 has gotten off to an inauspicious start. A mid-January report by thinktank Bloomberg New Energy Finance (BNEF) predicted a global collapse in power prices in the coming years.
Broker notes from J.P. Morgan Cazenove and Jefferies followed, downgrading “overvalued” funds in the sector. “Essentially renewables become a victim of their own success by ‘cannibalising’ their own revenue base,” said J.P. Morgan’s Christopher Brown…
The sector average fund fell by 3.3% in January alone. Hardest hit were Bluefield Solar Income, Foresight Solar and Greencoat UK Wind, losing 7.8%, 6.2% and 5.5% in January respectively. The trusts have now stabilised, with Bluefield wiping out almost all of January’s losses since.
Nicholls suggested “there was a hint of sensationalism” in the BNEF findings as well as the brokerage houses’ research notes, “in the sense that it suggests power prices will be zero, or very, very low”.
James Carthew, head of investment company research at QuotedData, agreed explaining that “the government has to continue with its support of the sector to meet the new net zero emissions commitment.” …
Carthew thinks “the yield offered by these funds will remain attractive relative to bonds and interest rates for a long while yet”, also preferring JLEN’s diversified portfolios.
Analysts at Numis Securities, meanwhile, “believe that Bluefield Solar is well-placed, offering the highest dividend yield and most conservative valuation, so any further weakness could prove an attractive entry point”.
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