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Trust Insider: renewable energy trusts recharge alternative yield
by James Carthew on Oct 22, 2013 at 00:01
The interesting bit is that, in addition, the manager gets shares in UKW to a value of 0.2% per annum on the first £500 million of assets and 0.1% per annum on assets above this level. The manager has to hold onto these shares for at least three years.
The manager also gets money if UKW gets taken over (which is OK by me) or if shareholders decide they want their money back (not so good). Shareholders get a continuation vote if the average discount exceeds 10% over any financial year.
An investment in UKW is, to some extent, a bet on UK electricity prices and the longevity of government’s pro-renewables energy policy. At launch, it estimated half of the revenue would come from payments for generating renewable energy – this reduces their sensitivity to fluctuations in power prices somewhat.
Much has also been written on the unreliability of wind power – they do not get paid if the wind does not blow but they have spread their assets across the length and breadth of the UK. The wind turbines are assumed to have a 25-year life and a cost/benefit will accrue to UKW if this assumption is wrong.
The UK government has introduced various incentives to encourage a shift towards its target of 15% energy production from renewables by 2020. As part of this, it has committed not to alter agreed subsidies on existing projects even if the policy on new projects changes. Investors in UKW must hope the politicians stick to this promise.
With the equity fully invested and the debt facility utilised, the suspicion must be that UKW will now look to grow through a fresh equity issue. The company estimates the total pool of wind assets in the UK will be worth more than £35 billion within the next few years and, as many developers of these assets seek to crystallise development gains and recycle their portfolios, this should mean that there is a substantial pool of assets available to UKW, notwithstanding the sizeable volume of capital looking get to exposure to the sector.
I will have a look at the other two funds next week but, on current form, UKW looks OK to me. It will be interesting to see what the total return is for the full year.
James Carthew is director of Sapient Research
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on Dec 10, 2013 at 12:57