Regular followers of QuotedData’s coverage of investment companies, and, increasingly ETFs, will hopefully know that, as each new year approaches, we ask each of our analysts to come up with a couple of stocks ideas for the year ahead. One is a relatively mainstream core investment idea, and the other is a spicier idea that is a bit more adventurous. We also check back in at the halfway point to see how our ideas are doing and then we mark our homework properly at the year end.

This year, we livened things up by dedicating one of our weekly shows to discussing how our ideas for 2025 had faired, where we also set out our ideas for 2026 – you can watch the show here. I should however remind readers that these ideas are purely the analysts’ own opinions. These are not recommendations and they are not meant to encourage anyone to deal in the securities mentioned.

A classic investment conundrum

The reason I mention this is that my spicier pick for 2025 – Gresham House Energy Storage (GRID) – has presented me with a conundrum that I think will resonate with our readers. I haven’t chosen GRID as one of my top picks for 2026, but I still like the company and think there is more to go for. In fact, I gave serious consideration to making it my spicier pick again, which I was reminded of earlier this week when I saw the announcement that GRID had secured two more projects (click here to read more) as part of its three-year turnaround programme (click here for more).

This plan, along with clear signs that problems with new software that balances the grid were being resolved, were key factors in me choosing GRID in the first place. Although the turnaround path is rarely a straight line, this announcement reminded me that GRID is still making good progress, prompting me to refresh my thinking on renewables, BESS and GRID itself.

Renewable sector still looks cheap

First, I’m going to reiterate my view that, bar the odd challenged fund, most of the funds in the renewable energy infrastructure sector are way too cheap. The median discount at the time of writing being 39.6%, which is far too wide in our view. It was not that long ago that the renewable funds were trading at premiums and issuing lots of stock, but interest rate rises in 2022 and falling net asset values (NAVs) have pushed them out to discounts, where they have been ever since.

These discounts are pushing up the dividend yields available in the sector, many of which now look pretty compelling. For example, funds such Bluefield Solar (BSIF) and NextEnergy Solar (NESF) are offering yields of 12.9% and 17.2% at the time of writing. It may also be reassuring that a portion of the revenues underpinning these is inflation-linked.

Furthermore, asset sales in the sector have largely been achieved at prices close to and sometimes exceeding those used in the NAVs. This not only underpins the credibility of the valuations, but underlines our view that, by and large, these discounts are real.

Renewables are stable and predictable

With limited exceptions, the underlying renewable assets have continued to perform as expected. Solar in particular is highly predictable – in a given year irradiation will be within a range of +/-7% of budget with 95% confidence. While the UK government has introduced unwelcome uncertainty about how they are calculated, subsidy regimes have remained largely intact. Near-term power prices have been tending to come in ahead of estimates (long-term power price estimates have been problematic, but we will return to that later).

Lower than average wind speeds have been a recurring theme in recent years, which is inherently challenging for the pure play wind funds, but, for the sector as a whole, this has been balanced out by a tendency towards higher solar irradiation. Solar and wind are inherently complementary: when the sun doesn’t shine, the wind tends to blow, and vice versa.

It is also true that a number of US assets have not performed as expected. There have been unexpected stock specific issues, such as the tornado that took out the power line to Ecofin US Renewable’s (RNEW) Texan wind farm. The structure of the US renewables market is different to that of the UK and Europe more generally. The margins achieved on US assets tend to be leaner to begin with, while dramatic policy shifts from an administration that seems very oil-centric and therefore anti-renewables have not helped valuations either.

Long-term power price assumptions

NAVs across the renewables sector are based on forecast cash flows which includes revenues calculated using a weighted average of the prices from a number of independent power price forecasters. A key challenge for the sector during the past 18 months has been a trend towards longer-term reductions in power price assumptions, which has eaten away at NAVs; adding to poor sentiment and exacerbating discounts, despite the short-term power price coming in ahead of expectations.

While we agree with the methodology of using independent power price forecasts, we think that in the UK there could be considerable upside that is not factored into the NAV calculations. First, the power price forecasts assume that cheap nuclear generation comes in on time and on-budget. Given the UK’s history of large-scale infrastructure projects, this feels unrealistic. Good progress is being made with developing SMRs, but these still appear to be further away than had previously been hoped.

Second, there is some debate about whether the assumptions properly capture the impact of factors such as the roll-out of EVs, the electrification of heating, and power demand from datacentres to support the growth of AI.

To illustrate this point, around 5% of all cars on UK roads are electric at present but the proportion is growing. According to the Society of Motor Manufacturers and Traders (SMMT), electric car sales during 2025 were a record 473,000 – 23.4% of the c. 2m new car sold during the year – which is around four percentage points higher than in 2024.

It is difficult to accurately model these sorts of complex, dynamic factors and, against the current backdrop, there seems to be more risk that demand exceeds supply to the benefit of the power price, particularly when you consider that private capital is unlikely to continue to finance new renewables projects if the power price isn’t high enough to justify them.

The power price assumptions do not make any allowance for shocks to the system; for example, events such as the invasion of Ukraine. Geopolitical tensions continue to rise, increasing the risk of such shocks, which tend to impact power prices positively from a generator’s perspective.

Thankfully, most of the funds in the renewable energy sector are focused predominantly on the UK and Europe, where governments, despite the increase in anti-renewables rhetoric, still want to both reduce their dependency on fossil fuels and improve energy security.

Renewable energy generation, BESS, and in time nuclear, play squarely into these themes. This is part of the reason that I also like funds such as Ecofin Global Utilities and Infrastructure, with its strong focus on renewables, as well as Geiger Counter, with its focus on uranium, as we will need a variety of sources in the generation mix.

The main problem with renewable generation is that it is intermittent in nature – for example, the sun doesn’t shine at night and some days the wind doesn’t blow. This means that, in isolation, renewables are not suitable for baseload power but, when combined with storage solutions, they can be and BESS remains the technology best placed to achieve this at scale.

Clean Power 2030

Clean Power 2030, the UK government’s commitment to largely decarbonise the UK’s energy system by 2030, remains intact. Under its Clean Power 2030 action plan, clean sources will produce over 95% of Great Britain’s generation and these will produce as much power as the country uses in a year. The plan recognises not only that a substantial investment will be required in renewables but that a major investment in BESS – some 22GW of BESS and up to 81GW / 99GWh of Long Duration Energy Storage (LDES) – is also needed.

Limited ways to get exposure to pure-play BESS

There is no doubt that significant amounts of private capital will be needed to finance the investment required and, with HEIT now gone, there are only two listed funds offering pure play exposure to BESS. I think both have convincing propositions, but GRID is not weighed down by the challenges GSF has experienced with its US assets.

As this week’s announcement shows, GRID is now investing in growth again. Battery prices have come down significantly and so the payback periods on augmentations are relatively short. These upgrades provide battery owners with much more flexibility in generating revenues. In the short term, the full resumption of dividend payments has been delayed to help pay for these upgrades, but the result is that the funds are in a stronger position with more profitable portfolios. At the same time, improvements continue to be made to the grid, allowing it to better despatch BESS assets and improving the profitability of the BESS funds.

Given the backdrop, I still think GRID’s 32.1% discount is too wide and think that, as the improved cash flows start to come through again, NAVs should improve and discounts should narrow again.