With the market for renewables exceeding all expectations, we take a look at the top five renewable energy Investment Trusts to keep your eye on.
With the global renewable energy market is expected to be worth $1.9 trillion by 2025, is now the perfect time to invest? A few years ago, analysts believed the global renewable energy market would be worth $1.5 trillion by 2025. But the size of the market touched nearly $1.1 trillion in 2019 and Money continues to flow into the sector.
Pitfalls of individual companies
There are lots of options available to investors in this sector. Top individual market players like General Electric, Vestas Wind Systems A/S and ACCIONA all have some exposure to renewables. However, as the industry is changing and developing so quickly, buying individual companies may not be the best solution.
For example, Vestas is one of the world’s largest producers of wind turbines today. Still, if hydrogen suddenly overtakes wind as one of the cheapest and most convenient renewable energy sources, the company may start to struggle.
This is, of course, just an example of the risks of investing in individual businesses. We ultimately don’t know what the future holds for the renewable energy industry.
Renewables and investment trusts
However, there is a selection of investment trusts on the market that could be a better option. These trusts provide exposure to renewables assets without the need for a large upfront investment.
Investment trusts are, in the most basic sense, investment funds. They allow investors to pool money with that of other investors. This provides exposure to a range of assets through a single investment. Trusts are set up like investment companies. Their shares trade on the stock market and they have to publish an annual report and audited accounts.
Here are five options that provide exposure to renewables projects around the world.
1 – US Solar Fund
The US Solar Fund aims to provide investors with sustainable dividends along with an element of capital growth through its investment in a diversified portfolio of utility-scale solar power plants across North America. It has a net asset value of $194 million and is currently building its portfolio of solar assets.
The latest dividend declared was $0.50 per share, payable for the period ended 31 December 2020, providing an annualized dividend yield of 2% against the issue price of $1.
The fund’s last acquisition was the first tranche of an asset representing a 25% interest in a 200MW operating solar plant located in the Imperial Valley of Southern California.
Following this deal, the Solar Fund’s portfolio consists of 493MW of fully operational assets in four US states, with a weighted average investment-grade power purchase agreement (PPA) term of 15.4 years.
2 – Ecofin US Renewables Infrastructure Trust
The Ecofin US Renewables Infrastructure Trust also aims to provide shareholders with an attractive level of income by investing in renewable energy assets. Unlike US Solar, Ecofin’s offering can invest in different types of renewable assets.
In February of this year, the company completed its fourth acquisition. This was a 50% cash equity interest in a 107.8MW utility-scale solar portfolio consisting of two operating assets in Kern County in California. All of the revenue from the asset is contracted with a remaining PPA term of 22 years. As of yet, the investment trust has not declared a dividend.
3 – SDCL Energy Efficiency Income Trust
The SDCL Energy Efficiency Income Trust offers something a little different from the trusts listed above. The company focuses on providing investment solutions for energy sectors for the betterment of the environment and infrastructure.
The trust is not limited in where it can invest, and its portfolio contains a variety of projects from solar assets for the UK-based supermarket Tesco to Stockholm’s gas grid.
Last year the trust also acquired 112 electric vehicle charging stations as part of an agreement with Electric Vehicle Network (EVN). With a dividend yield of 5%, this is an attractive way to invest in a diverse portfolio of renewables assets.
4 – Gore Street Energy Storage Fund
The Gore Street Energy Storage Fund is designed to fill a gap in the energy market.
Renewable energy generation can be volatile and unpredictable. To get around this challenge, utility providers and governments are constructing storage facilities that store power during periods of high generation. This power can then be fed back into the grid when generation drops.
Gore Street is one company that is working to build energy storage facilities. The group has constructed and acquired an operational portfolio with 210MW of capacity in Great Britain and Ireland. It targets an internal rate of return of 10% for portfolio assets and has a pipeline of 1.3GW potential storage facilities across the UK and internationally. The stock currently offers a dividend yield of 8.4%.
5 – Renewables: Gresham House Energy Storage
Gresham House Energy Storage is another energy storage business. It has 350MW of capacity across the UK, at present and there is another 515MW of capacity in the pipeline. Management believes the UK storage market is significantly undersupplied with as much as 49GW of renewables capacity in the UK supported by just 1.2GW of energy storage.
These figures indicate the potential for growth at both Gresham House and Gore Street. As the renewables market in the UK and worldwide continues to expand, the demand for storage facilities will continue to increase.
These two investment trusts are some of the only options available to invest in this industry and its potential over the next few years.