Rising inflation and power price forecasts are powering impressive first quarter updates from high-yielding London-listed renewable energy funds.

Foresight Solar (FSFL ) today became the latest to beat analyst expectations, reporting a 8.2% or 9.5p increase in net asset value (NAV) in the three months to 31 March.

Shares in the £722m investment company, which operates solar parks and energy storage projects in the UK and overseas, jumped 4% to 118.4p, a 1.3% premium to the new NAV per share of 117.1p.

Analysts at Numis Securities said the rise in FSFL’s revenues, which were 30% above budget in March due to power sales and higher-than-expected generation, should strengthen the support for the 6%-yielder’s dividend target of 7.12p, which was already covered 1.25 times by earnings, it said.

With power price forecasts having continued to shoot up after Russia’s invasion of Ukraine, Liberum analyst Conor Finn said the increase - and that of Greencoat UK Wind last week - signalled further advances in the second quarter for other renewables funds.

Breaking down its first quarter growth in NAV, FSFL said power price forecasts had been the main positive factor, adding 5.8p per share. This was followed by a 2.1p per share contribution from an uplift in the inflation forecast to 5% for the rest of the year, less than the 8% UK Wind forecast last week, although FSFL’s long-term assumption of 3% inflation was unchanged.

The company said Foresight fund managers Ricardo Piñeiro and Ross Driver were reviewing a ‘strong pipeline of UK battery storage and subsidy-free solar projects’ they said would boost NAV and target yields.

UK Wind blast 

Last week Greencoat UK Wind (UKW ) announced a record first quarter growth of 11.8%, aided by its unusual policy of not fixing the price at which it sells its power.

The 16p uplift in NAV per share to 149.3p produced a 13.4% total investment return including the fourth quarter dividend paid in February.

Like FSFL, the £3.5bn portfolio of 40 mostly onshore wind farms said the rise in asset value had been mainly caused by higher power forecasts for the next three years, which added 7p per share, although power generation 1% above budget also helped. 

UKW, which is the only renewables fund in this country to still peg its dividend to the retail prices index (RPI), said a spike in its inflation estimate for this year from 3.5% to 8% added 6p to NAV per share. Encouragingly, for investors and consumers, the 3.5% assumption for future years was unchanged. 

It is targeting quarterly dividends of 7.72p this year, equating to a 4.8% yield at the current share price of 159.6p, which places the fund at a near 7% premium over the new valuation.

Noting the 30% discount UK Wind previously applied to the rising curve of power price forecasts, Numis analyst Colette Ord said: ‘It will be interesting to see if UKW is able to capture the forward pricing assumed in its model. We estimate that the manager has applied a 40% discount to the futures curve dated 11 April to reflect the volatility that prevails in the power market. 

‘If they are able to access future power prices at a lower discount, this would have further positive implications for NAV,’ Ord added.

The analyst said it was difficult to assess the precise impact of power prices on renewables funds as they took different approaches to implementing the independent forecasts they received. Nevertheless, she expected all funds to post positive first quarter updates.

Christopher Brown of JPMorgan Cazenove said: ‘The UK renewables funds provide strong near-term protection against inflation due to their index-linked subsidy revenues and also benefit from high current power prices. UKW is the most attractive of those, in our view, as it has the best ability to capture high current power prices.’

The analyst retained an ‘overweight’ rating on UKW but lifted his current NAV per share estimate from 134.9p to 150.1p, which would ease its share price premium to 6.3%.