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View the article online at http://citywire.co.uk/wealth-manager/article/a724101

Trust Insider: understanding the generational divide in green tech trusts

by James Carthew on Dec 17, 2013 at 00:01

The bigger issue is: what is the potential for the portfolio? The largest holdings, by amount invested, are Johnstown Regional Energy (landfill gas projects in Pennsylvania); Skyfuel (a solar thermal power equipment company whose technology is being used for a project in Canada); Invenergy Wind (a developer of wind and solar projects with 3,400 megawatts completed and 700 MW planned); MaxWest Environmental Systems (wastewater biosolids gasification technology); Vital Renewable and some smaller investments in wood-fuelled biomass power plants in Georgia and Florida, a Mexican developer of hydroelectric schemes and a company that has the technology to convert reclaimed rubber into industrial chemicals. All are interesting.

To some extent, the fortunes of the renewable power generation businesses depend on US electricity prices, which have been on a gently rising trend. Leaf’s annual report suggests US demand for renewable energy should be underpinned by falling production from coal-fired plants, as shale gas-powered plants will not fully replace this capacity.

The dramatic increase in shale gas production did depress natural gas prices. These are up on last year but, in any case, Leaf is selling this gas in California, where its green credentials mean it attracts higher prices. It was pointing to planned Saudi Arabian investment in solar as potential good news for Skyfuel this year. There is little news around on the company other than it has raised $5.25 million of debt over 2013.

Invenergy certainly seems to be busy with new wind projects in the US, Poland and Japan and solar farms in the US. I could not find any news about contract wins by MaxWest but the technology has great potential and there is not much I can add to the Vital Renewable picture either.

I believe Leaf’s discount is largely a reflection of the market’s uncertainty about the outlook for and the valuation of its investments. In theory, it is operating in the higher risk/higher reward part of the renewable energy industry. I suggest if you are interested, you get the managers to talk you through the portfolio and the likely exit routes from each investment before piling in.

James Carthew is director of Sapient Research

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