A Clean Investment

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16/10/2017
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Renewable energy has come a long way in the past 20 years, and is now a key part of the UK’s energy infrastructure. If you drive along the M4 it’s hard not to notice the fields covered in solar panels, and in areas such as Cornwall wind turbines have become a familiar part of the landscape. This infrastructure will continue to be built. The clean energy it produces is essential if we are going to limit the amount of greenhouse gases we, as a country, produce. The alternative is to reduce our use of energy and that isn’t going to be a popular option.

Demand for energy appears insatiable and if recent stories in the press are to be believed, about the phasing out of diesel cars and a big push towards electric ones, the increased energy demand is going to be significant. Nuclear power will still be needed as part of the UK’s energy framework, because one of the drawbacks to solar and wind is that the sun doesn’t always shine and the wind doesn’t always blow – it’s intermittent, so a consistent power source is always going to be needed. One way to cope with the fluctuations in power generation that solar and wind create is to store the energy when it’s produced. Battery technology is developing fast – they are getting smaller, faster to charge and able to store more power for longer. I recently spoke with a fund manager about the move towards a localised energy grid (rather than national), in which households would generate their own power via renewables, and store it on site for their own use. With the fast growing move to solar instillations in houses it seems only a short step to storing the power at home.


Renewable energy investment trust

We’ve been investing in renewable energy investment trusts for some time and see them having a number of attractive features. Firstly income, which is currently running at circa 5.0% (Source: Numis Securities Ltd.), typically paid quarterly. The income stream is reliable because of the contracts in place which provide certainty of pricing for the bulk of the energy generated. The second attraction is that the capital is exposed to a list risk asset, because they are simple concept investments backed up by a solid income stream, which in turn is paid by high quality companies. Longer term we do expect this base to grow albeit modestly. This means within a portfolio they provide diversification because they behave differently to equities and bonds, with which they have little correlation.
Being structured as investment companies does mean they are traded on the stock exchange and subject to price fluctuation. Presently all the available renewable infrastructure trusts trade on premiums, reflecting the demand for them, fortunately the premiums are not prohibitive and we continue to buy them in appropriate portfolios for clients in our discretionary service.


Past performance is not a guide to future performance.


The value of an investment with Rowan Dartington may fall as well as rise. You may get back less than the amount invested.