The UK government is expected to double down on its mission for clean power by 2030 in this year’s Autumn Budget. This would move the UK to a fully clean electricity system this decade.
That should speed up grid connections and network upgrades, simplify planning for new wind, solar and battery storage, and scale ‘warm homes’ energy-saving upgrades.
Why are investment trusts trading at a discount?
For investors, renewable and green infrastructure investment trusts offer a way to gain exposure to the transition to cleaner, cheaper energy.
However, rising interest rates, investor caution and US policy headlines have left renewable trusts caught in a headwind. Trust discounts in the sector remain wide, meaning trust share prices are trading at discount to the value of their underlying assets.
The average discount in the AIC’s renewable energy infrastructure sector was near 26% this summer, with flagship names trading materially below their asset values. In simple terms, that’s paying roughly 75p for £1 of assets.
Yields are also near record highs, close to 10% in some cases.
Overall, this provides an opportunity to invest in renewable and infrastructure assets at a discount. If sentiment improves, investment trusts’ discounts could close, providing growth potential.
In the meantime, investors are paid an attractive income. There are no guarantees though – discounts could widen further, and yields are not guaranteed and will vary over time.
Premium/discount (%) on three investment trusts over ten years
Step back from the noise and the fundamentals still stack up.
Low-emission sources are expected to meet growth in electricity demand by 2027, with renewables overtaking coal in the power mix. And even with recent cost pressures, large-scale solar and onshore wind remain the cheapest sources of electricity, supporting global growth in renewables.
This article isn’t personal advice. Remember, investments and any income from them can rise and fall in value, so you could get back less than you invest. If you’re not sure if an investment’s right for you, ask for financial advice.
Global electricity generation by source
What are countries doing about the green transition?
The transition also isn’t just about turbines and solar panels.
It requires vast investment in infrastructure – from subsea cabling to grid upgrades – to connect projects to consumers. In fact, to connect new wind and solar to homes, businesses and data centres, the world must almost double annual grid investment to over $600bn by 2030. That’s why some infrastructure trusts with exposure to renewable build-out are a core part of the story.
Ultimately, the energy transition is bigger than politics – and many nations have recognised this. China and India continue to scale up renewables at pace, while in Europe the twin goals of net zero and energy security are cementing long-term policy support.
Discounts reflect uncertainty today but could also represent an attractive entry point into a sector with enduring power. These assets also offer diversification in investment portfolios mainly focused on shares and bonds, while contributing to cleaner and more secure energy systems.
3 investment trust ideas
Investing in these trusts isn’t right for everyone. Investors should only invest if the trust’s objectives are aligned with their own, and there’s a specific need for the type of investment being made.
You should understand the specific risks of a trust before investing, and make sure any new investment forms part of a diversified portfolio. Investing in a single sector like infrastructure or renewables is a higher-risk approach compared to a more diversified one. Investment trusts investing in a specific sector should usually only form a small part of an investment portfolio.
Investors should be aware that trusts can trade at a discount or premium to the net asset value (NAV). These trusts can use gearing to invest, which increases the gains in a rising market, though the reverse is also true, which makes it a higher-risk approach.
Greencoat UK Wind
The UK aims for a 95% clean electricity grid by 2030, with major expansions in offshore and onshore wind. The goal is to enhance energy security by reducing reliance on volatile fossil fuel markets and creating a more affordable and sustainable energy system for the nation.
Greencoat UK Wind invests solely in operating onshore and offshore UK wind farms that are currently producing income.
It aims to pay investors a resilient annual dividend that increases in line with inflation as measured by RPI (Retail Price Index), while seeking to preserve the value of an investment. This means the majority of any returns will come in the form of income rather than capital growth.
At the time of writing, the trust offers an attractive yield of 9.57%, and trades on a discount of 27.25%, compared with a 10-year average premium of 4.80%.
The Renewables Infrastructure Group
The Renewables Infrastructure Group aims to provide investors with long-term, stable dividends whilst trying to preserve the capital value of its investment portfolio. It invests in a diversified mix of renewable infrastructure assets that contribute towards a net zero future. This includes onshore and offshore wind farms and solar parks in the UK and Europe.
It also invests in flexible capacity technologies which can store energy and release it back to the grid when needed. This is largely battery storage parks but could also include hydrogen in the future.
Like the Greencoat trust, most of the trust’s returns come in the form of income. At the time of writing, the trust offers an attractive yield of 10.23%, and trades on a discount of 32.36%, compared with a 10-year average premium of 1.58%.
HICL Infrastructure
HICL Infrastructure aims to provide investors with a stable, sustainable income over the long term, along with some capital growth. It invests in infrastructure assets that are vital to communities, covering sectors like transport, utilities and healthcare.
Around 20% of the trust invests in assets supporting the energy transition and continued resource security, like water, electricity transmission, and Offshore Transmission Owners (OFTOs), which connect offshore wind farms to the UK grid, helping bring renewable electricity to over 1.7m homes.
The trust also invests in areas like health, education, accommodation and toll roads. This means it’s more diversified compared with trusts that only invest in a single asset like wind farms, but it still invests in a specialist area of the market.
At the time of writing, the trust offers a yield of 6.83%, and trades on a discount of 21.68%, compared with a 10-year average premium of 1.95%.
