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Trust Insider: Bluefield Solar fund overshadowed by smallprint concerns
by James Carthew on Oct 30, 2013 at 13:28
As promised, this week the topic is Bluefield Solar Income (BSIF) and the Renewables Infrastructure Group (Trig). Both funds were launched this summer; BSIF raising £130 million and Trig £300 million.
BSIF invests in UK-based solar plants. Its issue was underpinned by a £25 million commitment from CCLA Investment Management (the investment arm of the Church of England).
It helps that these renewable energy companies are seen as socially beneficial areas to invest. Though this does not mean that the sector is without controversy, part of which relates to whether renewable energy generation stacks up against conventional power plants.
As I mentioned last week in the context of Greencoat UK Wind’s (UKW) wind farms, a large part of BSIF’s revenue comes from government incentives for renewable energy generation and these help make the business case work – BSIF estimate the contribution to revenue from incentives will be about 60% (a bit higher than for UKW).
Reliance on tariffs
Feed-in tariffs guarantee inflation-linked energy prices for periods up to 25 years but are only available for small projects (up to 5MW). Bigger projects benefit from Renewable Obligation Certificates – it would take too much time to explain the ins and outs of these, suffice to say solar attracts higher subsidy than onshore wind but not as high as offshore wind.
The rest of the income relates to sales of the power produced. Some of this may be sold to wholesale power purchasers but they also have the option of selling to large local power consumers as well. Some of this may be contracted at long-term fixed prices but an element of BSIF’s income will move with UK electricity prices.
BSIF is an income vehicle. The objective is to pay a 4p dividend in the first year and at least 7p (adjusted for RPI) per annum thereafter.
The manager has even agreed to rebate 35% of its fee if it fails to meet this dividend target in any one year.
As a quid pro quo for this, the manager earns a performance fee of 30% of income available for distribution in excess of the 7p adjusted for RPI target – this is capped at 1% of NAV.
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