The end of the month sees a big milestone for the investment companies sector – Greencoat UK Wind (UKW ), the first of the renewable energy infrastructure trusts, will be 10 years old. The initial launch raised £260m, helped by backing from both the Department for Business Innovation and Skills and SSE.

Today, this is a £15.7bn sector with 22 constituents. Notwithstanding the upcoming demise of Aquila Energy Efficiency (AEET ) and the discount problem currently plaguing the sector, this has been a real success story.

UKW, the pioneer of the sector, remains its largest fund with a market value of £3.6bn, having delivered respectable growth in net asset value (NAV) and dividend growth since launch under the management team of Laurence Fumagalli and Stephen Lilley. The only big change has been the controlling stake in the original management company acquired by Schroders last year.

Last month, I highlighted the problem facing income investors hoping to at least preserve the value of their dividends in real terms. That was before UKW announced its results and stuck by its ambition to grow its dividend in line with RPI inflation. The 13.5% increase planned for the dividend over 2023 represents one of the largest dividend increases that we have seen from an income fund so far this year.

Most objective observers would agree UKW has proved to be a good investment. However, what impresses me are the positive impacts delivered by the investment company and the clutch of other renewable energy funds launched soon afterwards – Bluefield Solar (BSIF ), Renewables Infrastructure Group (TRIG ), Foresight Solar (FSFL ), JLEN Environmental Assets (JLEN ), and NextEnergy Solar (NESF ).

These go beyond the obvious metrics of power generated and carbon emissions averted. These companies are funding renewable energy projects that might otherwise not have been built. They encouraged investors to think that their investment decisions could make a difference. They also revitalised an investment company sector that was struggling to stay relevant, re-engaging the institutional investors who had previously written it off.

There has been huge change within the wind industry over the past decade. In 2013, the Department for Energy and Climate Change reckoned that the levelised, or break-even, cost of new onshore wind in the UK was about £101 per MWh. For offshore wind, the figures were a bit higher, between £113 and £120/MWh. That compared with baseload energy prices of around £50/MWh. Subsidies were essential, therefore.

Fast forward to July 2022, and developers of new onshore wind farms signed up to build these on the basis of receiving fixed (but index-linked) prices of about £53/MWh. Offshore wind developers were happy to take about £47/MWh. This despite market prices for power that were multiples of this (and still are).

At the end of 2022, about 22% of UKW’s portfolio was more than 10 years old. These are subsidy-heavy assets. Those subsidies have been great for the trust – the inflation-linkage that they come with has helped underpin the inflation-matching increases in UKW’s dividends since launch. However, they have a fixed life. A decade from now, if nothing else changes, the make-up of UKW’s revenue stream will be very different. The subsidy element will fall away relatively quickly from 2031 onwards. Managing the messaging around that will be an important job for the trust over the coming years.

It is important to remember that these changes are already factored into the NAV, which is based on discounting UKW’s future cash flows (DCF).

One slightly worrying thing in UKW’s 2022 accounts is that you have to go back to 2015 to find a year when UKW’s generation was above budget. In 2021, it was 20% below target. UK wind speeds seem to be slowing (they were 12% below the long-term mean in 2021), which is one sign of higher temperatures associated with climate change. I think that this is a good argument for holding a diverse portfolio of renewables projects varied by type and geography.

There is not much terminal value built into UKW’s DCF. Regardless of the maths, some investors were sceptical when renewable energy companies wrote up their NAVs on securing asset life extensions.

However, barring great leaps forward with alternatives such as nuclear fusion, it seems likely to me that these assets will be required to continue producing well beyond their original design lives and over the past decade the cost and efficiency of new kit has improved greatly, which is why the levelised cost of wind power has fallen. Repowering older projects could be a great way to add value to the fund.

UKW also hopes to be able to continue to recycle surplus cash flow into new investments – both subsidy-free and older subsidised assets.

As the relative contribution of renewables to the UK power mix rises, so too does the need to manage the volatility of supply that this creates. UKW is unusual in that it doesn’t seem to be keen to explore the opportunities that exist in the energy storage market. That simplifies the marketing message, I guess.

For almost all of its life, UKW has traded at a decent premium to NAV but that changed last September, around the time of the disastrous mini-budget. Currently, the shares are trading on a discount of about 6%, despite offering a prospective dividend yield of 5.6%. Clearly, it is not alone in this but beyond concerns about whether discount rates used in the DCF calculation need to rise further, it is not obvious why this is happening.

This will be frustrating for a fund that has been steadily expanding over the past decade, but hopefully it will be short-lived. There is plenty of need for additional investment in UK renewables over the coming years.

James Carthew is a co-founder and head of investment companies research at QuotedData. Any opinions expressed by Citywire, its staff or columnists do not constitute a personal recommendation to you to buy, sell, underwrite or subscribe for any particular investment and should not be relied upon when making (or refraining from making) any investment decisions. In particular, the information and opinions provided by Citywire do not take into account people’s personal circumstances.