Investment trusts investing in renewable energy sources have embarked on a spree of capital raising as popularity of the sector continues to grow.
Last week, the Foresight Solar fund announced it had raised £60m to invest in new projects, while three other renewable trusts are looking to raise a combined £320m.
Although the renewable infrastructure sector is very young – of the six trusts, four were launched in 2013 and the other two this year – it has already attracted a significant amount of money.
The six trusts launched with an aggregate of nearly £1.1bn and have already raised £273m of extra money, even before this latest wave of fundraising.
The investment trust analyst team at Numis Securities, led by Charles Cade, said the popularity of the trusts has come about because the sector is “underpinned by attractive yields and a binding commitment for the UK to increase its renewable energy output”.
The trusts are targeting a dividend yield of between 6 per cent and 7 per cent, though none of them have yet reached that target because their assets are all recently purchased and some have yet to start paying the trusts.
The trusts have also committed to raising their dividends at least in line with the rise in the retail prices index every year, because the payments on the renewable energy assets tend to be linked to inflation.
The renewable infrastructure trust shares are also trading on lower premiums to their net asset value than the more conventional infrastructure trusts.
The average premium on the shares of trusts in the renewable energy sector stands at 4.8 per cent, according to data from the AIC, while the average premium in the infrastructure sector is 16.5 per cent.
The fundraising from the renewable energy trusts is used to either fund the acquisitions of new energy-generating assets, such as wind farms or solar power facilities, or to pay off debt the trusts have incurred buying up these assets.
The three trusts looking to raise money are the Bluefield Solar Income trust, the Greencoat UK Wind trust and the NextEnergy Solar trust.
Greencoat UK Wind, which is already the largest trust in the sector with assets of £484.4m, is looking to raise £100m in order to pay off the debt it has incurred from purchasing new wind farms.
The gearing on the trust stands close to its limit of 40 per cent and the £100m will lower that to roughly 20 per cent.
The management team behind the trust has said that there is a £60bn investment market for wind farms in the UK and it will continue to raise capital to acquire more assets if there is investor demand.
Bluefield Solar Income is looking to raise £150m to both finance the purchase of new assets and to pay off the £30m of debt it has already incurred.
And NextEnergy Solar has said it will look to sell 75m more shares by early November as part of a 12-month ongoing placing programme for up to 250m shares.
