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The wind is against green investment trusts in Europe. The share prices of groups such as London-listed Greencoat UK Wind and Octopus Renewables Infrastructure Trust trade at sizeable discounts to their net asset values. Smaller funds will try to consolidate to survive, though there will probably be some closures. Neither is good news for renewable energy developers.
Some of the sector’s problems are common to the wider investment trust industry. Higher interest rates have increased the allure of other lower-risk asset classes. The average trust was trading at a discount to NAV of almost 17 per cent in October.
Concerns about the true value of certain other alternative asset classes, such as song rights, have also increased scrutiny. Green investment trusts say privately that investors now question the accuracy of some of their trusts’ NAVs and the discount rates used. A collapse in power prices since the surge in 2022 has added to the bearishness.
Many green trusts have launched share buybacks in an attempt to boost share prices, yet steep discounts persist. A number will now face continuation votes to wind them up. These include Greencoat UK Wind, which traded at an average discount to NAV of 10.5 per cent last year. An average discount of 10 per cent over 12 months triggers a vote.
Aquila European Renewables survived its own vote in December, although 25.88 per cent of votes were cast against continuation. It will hold another vote in September.
Mergers can reduce costs, improve share trading liquidity and diversify portfolios. Octopus Renewables Infrastructure Trust proposed a combination with Aquila European Renewables in December. The latter has instructed advisers to carry out mutual due diligence with “multiple interested parties”.
But low share prices mean growth will remain an issue. Jefferies estimates that no trust has raised equity to invest in new green assets since 2022. Raising more debt is not necessarily an option. Greencoat UK Wind’s debt of £2.4bn is equivalent to 38 per cent of its gross asset value, close to a self-imposed limit of 40 per cent.
This is a problem for renewable energy developers. It removes an important pool of potential buyers. Developers often sell down stakes in large projects or sell off older schemes to de-risk their projects.
That capital can be recycled to fund new projects. Denmark’s Ørsted is relying on DKr115bn ($16.7bn) of asset sales by 2030 to bolster its balance sheet. Less competition among buyers can only make that process harder.
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