Renewables still powering ahead, but trust discounts suggest investors haven’t plugged in

In spite of the ‘drill baby drill’ ambitions of the new US administration, the rapid adoption of renewable energy sources continues. More than 40% of the world’s electricity was generated without burning fossil fuels in 2024, according to think tank Ember. Solar powered electricity has doubled in three years, with India and China setting the pace[1]. By Cherry Reynard

Investors get a very different picture if they look at the performance of the renewable energy infrastructure sector. Trusts continue to languish on significant discounts to net asset value: at one extreme, HydrogenOne Capital Growth now trades on a 77.5% discount, but even trusts holding mainstream, fully operational wind and solar assets such as Greencoat Renewables, Foresight Solar or The Renewables Infrastructure Group trade on significant discounts – 36%, 34% and 34% respectively.

Trusts with a higher weighting in US assets, such as Ecofin US Renewables Infrastructure are showing higher discounts. They need to contend with the mounting criticism of the net zero agenda from the new administration, and a desire to revert back to fossil fuels.

There are some extraordinary dividend yields on offer across the sector. Greencoat UK Wind, Bluefield Solar Income, Foresight Solar Fund, Gore Street Energy Storage and NextEnergy Solar all have yields of over 10%. Minesh Shah, lead manager on The Renewables Infrastructure Group (TRIG), says: “When you’re trading at a 10% dividend yield, it means one of two things. There’s a question on the dividend yield or the stock is fundamentally mispriced.” Which is it?

Many of the major renewable energy infrastructure trusts have seen NAV growth over the past year. Greencoat Renewables is up 5.9%, Foresight Solar is up 5%, NextEnergy Solar is up 1.22%, Greencoat Wind is up 0.22%. The wide discounts appear to suggest that the market doesn’t believe the values the trusts are reporting.

Does that NAV look secure? Stephen Rosser, investment director at NextEnergy Capital (manager of the NextEnergy Solar Fund) says: “NAV is a discounted cash flow model. It starts by putting in capex, projecting out revenues and operating costs, and therefore the free cash flow the assets are likely to throw off over the residue of their life, and then it is discounted back.”

All these variables for the trusts look relatively stable. Unless trusts are involved in developing new projects, capital costs are already established. Even where there are development costs, lower inflation has helped stabilise them. Many trusts have also fixed their borrowing, so they are less vulnerable to swings in interest rates.

Revenues come from a number of sources. Index-linked subsidies will play a role for many trusts and therefore the ongoing commitment of governments to renewables is important. In the UK and Europe, these commitments appear to be stable. James Armstrong, managing partner of Bluefield Partners, investment adviser on the Bluefield Solar Income Fund, says “While it is foolish to be too certain about anything at the current time, there is a very supportive public policy tailwind for the sector from this government in attaining its Net Zero goals for 2030. This is focused on a few key technologies, especially solar and batteries.” He points out that the cost dynamics of solar remains very attractive.

It is a similar picture in Europe. In 2023, the EU raised its renewable energy goal to 42.5%, up from 32% set in 2018[2], and remains committed to this target. For the UK and other European nations, it has the added benefit of creating energy independence at a time when they are increasingly nervous about trusting other nations.

Demand for electricity also remains strong. Armstrong says: “Electrification will be a major factor driving demand, but there are also enormous requirements for data centres and AI, which creates a bullish case for power demands over the next decade. While there are these macro economic tectonic plates shifting in global markets, these long-term drivers of power demand remain.”

The funds often hedge prices for the power they sell, up to 90-100% in some cases, which brings predictability. That means, says Rosser, that when there are exogenous peaks, such as the spike around Russia’s invasion of Ukraine, they won’t capture it, but they will be protected through incidents such as Covid. Operating expenses will be another factor. He adds that operating expenses are usually predictable for renewable energy assets. They will be higher for wind, but far lower for solar.

Recent deals have also supported the valuation of renewable energy infrastructure assets. The takeover of infrastructure fund BBGI, by a Canadian pension fund manager, was followed quickly by reports that another Canadian heavyweight, Brookfield Asset Management, was looking for ‘big listed sustainable energy producers to buy’, according to the Financial Times. There have been similar deals for battery operators, which also support valuations at their current levels.

Could the sector be affected by tariffs? Rasmus Errboe, chief executive of wind group Ørsted, recently said European offshore wind was in a “tough place”, adding that Trump’s new tariffs would have a “meaningful impact” on the cost of its projects in the US. However, Armstrong sees fewer problems in Europe: “The reality is that it is so early and so febrile, it is difficult to see where it lands. Let’s wait and see.”

There are no smoking guns for renewable energy infrastructure trusts, which suggests that the market has simply got it wrong on pricing. But what might draw investors back to the sector? Shah says: “Underlying cash flows are fundamentally greater than they were three years ago, and yet the NAV is similar. Investors have had dividend growth and should now see a pathway to capital growth. To fully re-rate, we need greater confidence in the value beyond the dividend, the total return story.”

In the recent tariff turmoil in markets, bonds and equities have started to correlate more closely, as they did in 2022. Renewable energy infrastructure trusts may also receive a boost from investors looking to diversify their assets and sources of income. Shah says they are starting to see some improvement in share price performance over the very short-term.

Investors may ultimately be drawn by the momentum of change. Battery technology promises to turbo-charge demand for renewables. Many trusts are looking to increase their battery exposure. TRIG, for example, is raising its exposure from 6% today to 10-15%. Rosser says: “The way we consume power has a shape. There are peaks in demand between 4pm and 8pm, for example. Solar is determined by irradiated light – daylight hours – and this is often when it is rolling off. Having a mix of battery storage and electricity generation makes real sense. It’s a physical hedging tool.” The real risk for the sector as a whole is a loss of faith in the energy transition before people start to see its benefits. Shah says: “The universal theme is that the energy transition remains important in Europe, where we are focused. In some countries, the driver is energy security, in others it is decarbonisation.” The biggest risk is political. That cash-strapped governments start to backtrack on their commitments to net zero. This may derail any nascent recovery in the sector, but in the meantime, the valuations and dividends on offer look compelling.

[1] Ember Global Energy Review 2025

[2] https://ember-energy.org/latest-insights/the-eu-persuaded-the-world-on-renewables-can-it-now-persuade-its-own-member-states/

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