Renewable energy trusts in focus as oil and gas prices soar

Annabel Brodie-Smith, Communications Director of the Association of Investment Companies (AIC), said: “The renewable energy infrastructure sector is one of our highest-yielding, with an average yield of over 10%. The problem in recent years has been falling capital valuations which have taken the shine off these high payouts, along with some dividends being cut or suspended. The Iran conflict provides an opportunity to reassess this sector, which could benefit from higher oil prices.”

The Association of Investment Companies (AIC) asked a range of investment trust specialists about the prospects for renewable energy infrastructure trusts, along with their favoured trusts. Their responses are below.

Ashley Thomas, Infrastructure and Renewables Analyst at Winterflood Securities, said: “The impact of higher gas and power prices has already been felt in the share price performance and investor demand for renewable energy investment trusts. During the month of March, total share price returns for the AIC Renewable Energy Infrastructure sector declined by just 1.3%, compared to a fall of 5.5% for the AIC Infrastructure sector and a 6.7% decline for the FTSE All Share.

“Winterflood Retail Intelligence data also suggests that the Renewable Energy Infrastructure sector experienced the third largest value of retail buy orders of all the AIC sectors in March, despite it generally being a month of heavy selling because of the Iran conflict. Greencoat UK Wind was the most popular renewable energy and infrastructure investment trust in March.”

Saftar Sarwar, Chief Investment Officer at Binary Capital, said: “The escalation of the Iran conflict has introduced a layer of uncertainty into global markets. With Brent Crude shooting through $100 per barrel following the closure of the Strait of Hormuz, we are reminded of the fragility of our oil dependent energy infrastructure. From a long-term perspective, the current geopolitical crisis gives further momentum to the push towards energy security and the renewable transition.

“For investors, there could be a profound benefit in the change of sentiment, reinforcing the potential upside for the renewable sector as governments accelerate the deployment of domestic, low-carbon infrastructure to insulate their economies from global energy volatility.”

Iain Scouller, Analyst at Canaccord Genuity, said: “The recent damage to Qatar’s LNG facility, which QatarEnergy says will impact 17% of its export capacity for between three and five years, plus other damage to energy infrastructure in the region, suggests a scenario of higher UK power prices for longer. The investment companies specialising in renewables have ‘locked-in’ contracts at fixed or proportionate prices for much of their generation over the next year or two, with the intention of reducing volatility in their revenues and dividend cover levels. Typically, around 80% of revenues are ‘locked-in’. That means there may be little immediate benefit from higher power prices.

“However, we think there is an increasing chance that the independent power price forecasters will start adjusting power price forecasts upwards. If this happens, and assuming we don’t see a rise in discount rates due to higher gilt yields, higher power prices may result in a positive impact on performance and valuation of the trusts’ assets. Indeed, this scenario could break the trend of falling power price forecasts and net asset value (NAV) falls that have plagued the sector for a couple of years. This scenario may result in flat-to-positive NAV returns over the first half of 2026.”

Markuz Jaffe, Research Analyst at Peel Hunt, said: “Higher energy and power prices, with the associated impact on inflation, typically have a positive feed through to the revenues generated by renewable energy generators. This can come in the form of higher prices achieved on merchant power sales (the daily market price), along with opportunities to strike power purchase agreements at higher prices as power consumers look to hedge their exposure at rebased levels. In addition, trusts benefit from higher inflation-linked subsidies such as Renewable Obligation Certificates (ROCs) or remuneration mechanisms such as Contracts for Difference (CfDs), backed by the government, which adjust for the latest, potentially higher inflation data.

“However, this needs to be balanced against the negative impacts on infrastructure investments that higher inflation expectations can have. Return expectations (known as discount rates) can increase as interest rates rise, and this can negatively affect valuations.”

Trust recommendations

Saftar Sarwar, Chief Investment Officer at Binary Capital, said: “Greencoat UK Wind remains an interesting trust. It invests in operating onshore and offshore UK wind farms, with its scale and disciplined focus on UK wind assets providing a clear competitive advantage. With a yield now around 10%, it offers a solid return profile. The shares are positive for the year and have picked up since the Iran conflict started.

“The Renewables Infrastructure Group offers geographic and technological diversification (wind, solar, and battery storage) that is important for navigating a volatile geopolitical landscape. Its position as a potential consolidation target only adds to its appeal. The shares are marginally down for the year and trade on a large discount to NAV of around 37%, with a covered dividend yield of 12%. So it’s attractive from a risk and reward perspective.

“For those seeking more focused exposure, Bluefield Solar Income Fund and NextEnergy Solar are well placed to capture the rapid infrastructure advantages of solar technology. These trusts are energy providers of the future, and their current valuations are not that demanding relative to the risks, with high dividend yields of more than 10% and significant discounts to NAV. Opportunities for consolidation in the future cannot be ruled out, which gives additional upside potential.”

Iain Scouller, Analyst at Canaccord Genuity, said: “In March we upgraded Greencoat UK Wind to Buy. We view it as the renewables company most exposed to market prices, with approximately 30% of 2026 revenues linked to merchant prices. The latest NAV was 133.5p at 31/12/25 and the shares are currently trading at 96p, a discount of 28%. We see the key positives being the prospect of a more stable NAV in 2026, compared with declines of around 10% in 2024 and 2025. The company also has high exposure to elevated power prices and the potential for asset disposals to reduce debt in the first half of this year. Finally, the prospective dividend yield of more than 10% provides a further attraction. Considering these factors, we argue a discount around the mid-teen level is justified.”

Ashley Thomas, Infrastructure and Renewables Analyst at Winterflood Securities, said: “While not the current market expectation, there is a risk that the Iran conflict becomes entrenched and energy prices remain permanently elevated. We estimate the renewable energy investment trusts with the greatest sensitivity to an increase of 10% or more in long-term energy prices include Greencoat Renewables (+17.4% NAV sensitivity, as its Irish fixed priced subsidies expire and given its relatively high level of leverage), Greencoat UK Wind (+10.3% NAV sensitivity due to its large merchant power price exposure) and Octopus Renewables Infrastructure Trust (+9.7% NAV sensitivity). 

“Given share prices in general have already moved more than we would expect from our estimated NAV sensitivity, we would focus more on the investment trusts that haven’t discounted as much energy price uplift. On this basis, we estimate the share prices of The Renewables Infrastructure Group, Foresight Solar Fund and Foresight Environmental Infrastructure² have moved the least relative to our estimated NAV sensitivity. Given Foresight Environmental Infrastructure benefits from higher energy prices across both its anaerobic gas and renewable power divisions (with anaerobic gas generation around a third of total energy generation output), we view its portfolio diversity as offering more protection from any potential affordability policy levers, compared to a renewable energy investment trust with more exposure to power prices.”

Factors influencing performance of renewable trusts

Iain Scouller, Analyst at Canaccord Genuity, said: “There have been a number of headwinds over the last two years including weather patterns – unusually low UK wind speeds a year ago – and unhelpful government policy which changed the indexation basis for subsidy calculations from RPI to CPI, which effectively lowers income for renewable trusts. Lower power price forecasts have been a significant negative for returns, while the fall in inflation has generally been unhelpful. That said, this may turn around if inflation starts rising again.

Saftar Sarwar, Chief Investment Officer at Binary Capital, said: “The performance of renewable trusts over the past few years has been shaped by a number of factors. Higher interest rates and therefore ‘discount rates’ have put downward pressure on NAVs. Extreme swings in wholesale power prices have not helped as profitability and investment levels have moved significantly. Finally, many trusts trade at deep discounts, reflecting negative sentiment towards those trusts and the broader renewable sector. These can often be seen as unloved investment trusts, as investors focus more on the bigger and more popular equity trusts.”

Ashley Thomas, Infrastructure and Renewables Analyst at Winterflood Securities, said: “In addition to falling power prices in the last year or two (which have improved near term) and increased discount rates due to higher bond yields, which are competing for investors’ money, we would highlight government policy and regulation as key considerations for investors.

“While the indexation change from RPI to CPI only had an average -1.4% negative impact on NAVs across the board, the government review that led to this change created a large degree of uncertainty. More broadly, the outlook for the renewable energy investment trusts has a degree of policy risk already factored in. That is due specifically to the forthcoming Fixed Price Certificate consultation (essentially another review on subsidies), carbon pricing (both EU and UK) and 2029 General Election risks given the energy policy proposals of the Reform and Conservative parties.

“Energy policy is likely to remain a key factor for renewable energy investment trusts. The strategic importance of domestic, low-carbon energy will have been strengthened as a result of the Iran oil and gas price spike and this is likely to feed through to an increased desire to reduce fossil fuel dependence. 

“While energy security has seen new emphasis, higher energy costs are likely to have increased the government’s focus on managing affordability for households. The EDF energy price cap predictor currently forecasts an average annual domestic energy bill of £1,909 from 1 January 2027: that’s an increase of £268, or 16%, from the current £1,641 price cap. We would therefore highlight that higher energy prices are potentially a double-edged sword for the sector. As we experienced in 2022 with the introduction of the Electricity Generation Levy, short-term commodity price increases could prompt more enduring price control policy measures in future.”

Notes to editors

1. Source: theaic.co.uk / Morningstar. Share price total return, 28/02/26 to 17/04/26.
2. Foresight Environmental Infrastructure is a corporate broking client of Winterflood Securities.