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Storm surge lifts wind fund through market mayhem

Atlantic storms helped the high yielding Greencoat UK Wind fund overcome a government tax grab and falling energy prices last year.

 
Storm surge lifts wind fund through market mayhem

Plunging energy prices, Atlantic storms and the government scrapping an exemption from the climate change levy made last year difficult for Greencoat UK Wind (UKW ).

Shares in the country’s only stock market listed wind power fund have dropped 10% since August following the chancellor’s decision to make renewable energy generators pay the climate change levy.

Although the Budget move was offset by a cut in corporation tax, it highlighted the political headwinds faced by high yielding, alternative energy funds as the Conservatives cut environmental subsidies.

The Treasury’s tax grab preceded further storms in the stock market which were in part caused by the tumbling oil price which did hit the value of assets in the 6% yielding fund.

Annual results released yesterday, however, show the trust managed to overcome this and eke out a 0.5p rise in net asset value (NAV) to 102.9p in 2015 once dividends were paid.

That’s not too bad compared to the falls in conventional funds investing in shares and bonds last year. However, for a fund launched three years ago to provide real growth after inflation in both capital and income, the NAV performance was a disappointment. In both previous two years the NAV grew 2.5%.

Stephen Lilley, a partner at Greencoat Capital, the fund’s investment manager, said of the results: ‘It’s made up of pluses and minuses.’

The outcome could have been worse. With 40% of revenues linked to floating power prices, a 20% cut in long-term gas forecasts would on its own have produced a drop to NAV.

What saved the day for Greencoat was the windy weather last year which boosted energy production and offset the impact of falling prices.

Greencoat has turbines in 17 of the windiest locations across the country. Despite a handful of outages caused by technical problems, the portfolio produced 799.3GWh (gigawatt hours) of electricity, enough to power 250,000 homes. This was up from 564.6GWh in 2014 and 8% above budget.

This enabled Greencoat to declare a 6.26p per share of quarterly dividends for 2015, covered 1.7 times by earnings, which contributed to a total NAV return for the year of 6.6%. Greencoat expects to lift this year’s dividend in line with the retail price index to 6.34p per share.

Since the trust’s launch in March 2013 Greencoat had increased capital and dividends in line with inflation, Lilley said. According to Lipper data, it has produced a total shareholder return of 17.4%.

Other renewable funds have fared worse from the fall in power prices recently. Last week John Laing Environmental Assets (JLEN ) reported a 3.3p fall in its NAV during the fourth quarter. The Renewables Infrastructure Group (TRIG ) and Foresight Solar (FSFL ) are set to reveal their figures this week.

If long-term power price forecasts remain subdued Greencoat would have to cut its dividend. However, it says independent forecasts predict power prices of £60 per megawatt hour (MWH) in 20130 compared to their current £40/MWh as coal-powered stations are phased out.

In the short term, power prices are set to remain volatile. But with  winter storms Abibail and Imogen not yet reflected in the accounts, it's possible the next set of results will show a similar surge in power generation.

Analysts at Stifel upgraded their rating on Greencoat to 'neutral' earlier this month when the shares fell below NAV for the first time in two years, having declined from a 13% premium last August. They have maintained this stance, saying: 'For the renewables sector to see upward momentum in price terms, we think there needs to be at least a stabilisation in power prices, with some recovery in prices especially helpful.'

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