Time to buy Renewable funds?
Why UK Renewable Energy Funds Are Oversold and Where Opportunities May Lie....
Dear Reader,
Like many private investors, I spend a lot of time looking through the FTSE 350, trying to spot where the next opportunity might lie. What’s become increasingly clear is that the market is far from uniform. Some shares are flying. Others are being quietly ignored.
Is there a reason for this? In one corner of the market at least, the answer seems to be yes.
Renewable energy funds have fallen firmly out of favour. If you take a look across the sector, you’ll see that many of these funds are trading not just at low prices, but at or near all-time lows. That’s never a guarantee of value but it is usually a reason to take a closer look.
For long-term, income-minded investors, this raises an important question: has the market become too pessimistic?
In this article, we’ll break down what’s been going wrong for renewable energy funds, why investors have been selling them so aggressively, and whether the outlook is really as bleak as the share prices suggest. We’ll then look at a handful of renewable funds that could be worth considering for a diversified portfolio.
What’s been going wrong for renewable energy funds can largely be traced back to the sharp rise in interest rates over the past two years. Renewable infrastructure trusts are long-duration assets: they generate stable cash flows over decades, which are valued using discount rates linked to government bond yields.
Current official Bank Rate (BOE): 3.75%
When UK 10-year gilt yields rose from around 1% in 2021 to over 4.5% in 2023, the present value of those future cash flows fell sharply, dragging down reported net asset values and, in turn, share prices. According to data from the Association of Investment Companies, yields in the Renewable Energy Infrastructure sector reached a record high of around 10.6%, and the average discount to NAV widened to about −33%, driven in large part by “rising interest rates and cost disclosure issues” that have weighed on performance and sentiment.
At the same time, confidence in the sector has been further undermined by heightened political and regulatory uncertainty. The UK government’s introduction of temporary windfall-style levies on electricity generators, alongside ongoing changes to subsidy regimes and planning policy, has made future cash flows feel less secure, even where existing assets benefit from long-term contracts.
AIC data shows that the average renewable energy infrastructure trust moved from trading at a premium of around +5% to NAV in 2020 to a discount exceeding −30% by late 2024, a valuation swing rarely seen outside periods of market stress. As the AIC has observed, these historically wide discounts largely reflect sentiment rather than a collapse in underlying asset performance, leading to aggressive selling not because assets stopped generating cash, but because confidence in the sector narrative broke down.
Where are the Discounts?
Greencoat UK Wind:
Discount to NAV: 16%
Dividend Yield: 8.7
Dividend Cover: 1.3
Gearing: 36%
Greencoat UK Wind is the largest listed renewable infrastructure trust in the UK and arguably the most familiar name for investors looking at clean energy. It owns 49 operating wind farms across the UK and has been a long‑standing FTSE 250 constituent, widely held by both private and institutional shareholders. At its latest half‑year update, Greencoat’s shares were trading at around a 16% discount to net asset value (NAV). Its target dividend for 2025 is 10.35 pence per share, which equates to a yield of about 8.7 % at current share prices, making it one of the higher income‑yielding names in the UK renewables space.
The Renewables Infrastructure Group (TRIG)
Discount to NAV: 37%
Dividend Yield: 10.75%
Dividend Cover: 1.2
Gearing: 12%
The Renewables Infrastructure Group (TRIG) is one of the UK’s largest renewable energy investment trusts and a well‑known name in the sector. It owns a diversified portfolio of wind, solar and other renewable assets across the UK and Europe and is included in the FTSE 250 Index. TRIG’s shares have been trading substantially below their net asset value, most recently at around a 31.9% discount to NAV. Its market capitalisation sits near £2.95 billion, making it one of the bigger listed renewable vehicles, albeit materially cheaper than its underlying book value. TRIG also offers a strong income focus, with a dividend yield above 10%, which reflects how far the share price has lagged the trust’s cash generation.
