Ian Cowie: where to find low prices and high discounts

Our new Labour government wasted no time in scrapping bureaucratic barriers to onshore wind farms plus committing £8.3 billion to offshore renewable energy. The latter will include payments to King Charles III for his ancient “mud rights” beneath the waves of the North Sea.

Not many people know this but the Crown Estate owns the seabed up to 12 miles offshore, which is why oil rigs and wind farms must both pay to be attached to it. Energy Secretary Ed Miliband predicted the Crown Estates partnership would “lead to lower household bills”, although the Conservatives claim it is “nothing but a gimmick that will end up costing families”.

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You don't need to be a monarchist, socialist or a Tory to see which way the wind is blowing. So it might make sense to own some shares in clean and green energy investment trusts before Labour's new quango, Great British Energy (GBE), begins to splash the cash and push up asset prices.

Within 72 hours of winning the election, Labour quietly removed a nine-year de facto ban on onshore wind farms by deleting two clauses in the planning legislation. Chancellor Rachel Reeves added that she is considering reclassifying these often unpopular developments as Nationally Significant Infrastructure Projects. This would mean central government can give them the go-ahead, whatever local councils and not-in-my-backyard, or NIMBY, types might say.

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I predict trouble ahead. Never mind the politics, what about the economics? This small DIY investor is happy to declare a financial interest in the less controversial aspects of the UK's drive to decarbonise and arrive at net zero.

Last August, I paid £1.45 for shares in Greencoat UK Wind (LSE:UKW) that have been battered by falling electricity prices and rising uncertainty about Britain’s strategy for sustainable energy. The shares currently trade around the same level while yielding just over 7% dividend income, which has risen by an impressive annual average of 8.15% over the past five years.

It is important to remember that dividends can be cut or cancelled without notice. But this income seeker, whose prime aim in investment these days is to build a portfolio that can pay for an enjoyable lifestyle after I stop working, cannot resist pointing out that if UKW can maintain that rate of ascent, it would double shareholders' income in less than nine years.

Here and now, this £4.7 billion fund leads the 20 other investment trusts in the “renewable energy infrastructure” sector today over the last decade and five-year periods, with total returns of 131% and 35% respectively. It would also do so over the last difficult year with meagre returns of 4.3%, if you exclude a tiddler such as Triple Point Energy Transition Ord (LSE:TENT), with £88 million in assets, which is ahead over 12 months with a total return of 8.5% but lacks a five-year or decade record, having been launched in 2020.

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For completeness, it is only fair to point out that the biggest investment trust in this sector is the Renewables Infrastructure Group (LSE:TRIG), which has £5.5 billion total assets but delivered total returns of only 72% over the past decade, 5.4% over five years and -3.5% over the past year. TRIG’s above-average yield of 7.3% has risen by just over 2% per annum over the past five years, which may justify why it trades -19% below its net asset value (NAV). 

To put that in perspective, UKW shares are priced nearly -12% below their NAV, while TENT also trades at a -19% discount, despite yielding nearly 8% dividend income. Low prices and high discounts can be explained by headwinds that hit this sector when the last Conservative government imposed an idiotic windfall tax on North Sea energy producers, which - true to form - Labour has said nothing about reversing.

No wonder the anarchists used to argue that it doesn't matter who you vote for, because the government always gets in. More positively, there is some wisdom in the American adage “Don’t fight the Fed” - that is, shareholders should beware betting against central bank policy. Similarly, closer to home, investors might profit from “following Labour’s lead”.

Ian Cowie is a freelance contributor and not a direct employee of interactive investor.

Ian Cowie is a shareholder in Greencoat UK Wind (UKW) as part of a diversified global portfolio of investment trusts and other shares.