Investing in renewable energy does not mean sacrificing gains to ease one’s conscience. It’s a growing sector that appeals as much to the red blooded capitalist as it does to the hardened environmentalist.

While the ESG (environmental, social and governance) tag gets bandied around quite often lest not forget that one of the reasons to invest is to make money. These funds are great for income investors as they pay a regular dividend.

With certain international agreements like Kyoto Protocol and the recent Paris Climate accord, countries are putting more emphasis on renewable sources of energy.

On 8 June this year, over 50% of the UK’s energy supply was generated from renewable sources. The largest renewable power suppliers in the UK are solar and wind which both have their merits as well as disadvantages.

Bluefield Solar Income Fund (BSIL)

Price: 113.5p

Target dividend per share: 7.18p

Implied yield: 6.3%

As Bluefield partner James Armstrong says, this investment is ‘not for someone looking for something sexy, just long term earning capabilities’.

While its target dividend is 7.18p per share, Armstrong says the board has given guidance that it aims to pay out 7.25p, the same as last two years. He adds that the fund’s track record shows it can produce such a dividend.

A popular trust, Bluefield’s shares have rallied this year by around 10%. Solar power is the second cheapest form of energy behind onshore wind but less expensive than new coal, gas, nuclear and offshore wind according to analysis by Bloomberg New Energy Finance.

In terms of adding assets to the fund’s portfolio, Armstrong thinks valuations have become a bit stretched. Also the fund operates a full payout model, meaning there is little equity to invest in new assets anyway.

In April this year, the UK Government decided that subsidies would not be given to new solar projects. This suggests there may not be any new solar farms coming online, further driving up the price of solar assets.

Bluefield’s solar fund is sterling dominated unlike some rivals, so it will not go abroad to look for assets to boost earnings potential due to currency risk.

John Laing Environmental Assets (JLEN)

Price: 107.75p

Target dividend per share: 6.31p

Implied yield: 5.9%

JLEN is a diversified fund of renewable assets including both solar and wind.

Chris Tanner, investment director at JLEN, says the benefit of having a diversified portfolio allows the fund to be more opportunistic and ‘take up attractive investment opportunities that fall outside the remit of the many pure solar funds’.

He adds that when acquiring assets, the time online or producing energy is taken into account and doesn’t believe that one technology is inheritantly superior to another. One charge laid against wind assets, especially those offshore, is that due to them having more moving parts such as gears they can go wrong. This could take them offline and cost money to repair.

‘Things can change, and sometimes the sun doesn’t shine when you expect it to, or perhaps there can be a change in regulation or tax for example, and it is at those times that the benefits of having a more balanced portfolio become pronounced,’ says Tanner.

Regarding the rising cost of assets, JLEN has a first offer agreement with infrastructure group John Laing (JLG), which offers the fund visibility of assets outside of an auction environment.

The changes to the subsidy rules has also not impacted the fund as it invests in assets that have already established the level of their subsidies underpinned by the principle of ‘grandfathering’ set out by the UK Government. This states that once a generating asset has been accredited to receive a subsidy at a certain level, that level will remain unchanged.

NextEnergy Solar Fund

Price: 114p

Target dividend per share: 6.42p

Implied yield: 5.6%

The largest listed solar fund both by market cap and energy produced, NextEnergy Solar is also a highly acquisitive fund. In June, it increased its portfolio with the purchase of three plants adding an extra 14.9 megawatts of energy to its offering.

These plants were already operating but the fund also acquired four development projects with a combined output of 59.8 megawatts.

The issue of not receiving subsidies is not a problem according to the fund’s investment adviser. This is because they expect subsidy-free solar plants to become financially viable in the UK over the next 12 to 24 month period as investment values and operating costs continue to decline. NextEnergy  is at present working with suppliers to drive investment values and operating costs down to sustainable levels.

The Renewable Infrastructure Group (TRIG)

Price: 109.6p

Target dividend per share: 6.4p

Implied yield: 5.8%

TRIG is another diversified fund, with its portfolio containing both wind and solar assets. The fund is the odd one out of the group in this article as it contains assets across Northern Europe thus not limited to the UK.

Both its solar and wind assets are split between the UK and Europe which makes sense as weather conditions will vary from country to country.

One issue regarding having continental European assets is that a tight control must be maintained on foreign currency fluctuations and the fund also employs interest rate hedging strategies.

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