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Three vehicles plan to float and are keen to differentiate themselves from existing peers
Thursday 19 Nov 2020 Author: Mark Gardner

As the stock market recovers and investors approach the new year in a more optimistic mood, a number of investment trusts are eyeing up an initial public offering (IPO) on the London market.

A lot of these trusts are in the renewable energy space, which has gained rising investor interest particularly this year as the cost of solar and wind farms has fallen dramatically, making them economically viable without any subsidies and in some cases making them more attractive, purely from a monetary point of view, to build and operate than fossil fuels like coal.

Three investment trusts in this space have over the past week announced their intention to float on the London Stock Exchange – Victory Hill Global Sustainable Energy Opportunities, Downing Renewables & Infrastructure Trust, and Ecofin US Renewables.

Anthony Catachanas, chief executive of Victory Hill, tells Shares that VH Global Sustainable Energy Opportunities aims to tap into growing investor interest in not just the transition to cleaner energy, but also funds that have a positive social impact and are aligned with the UN’s Sustainable Development Goals.

He says: ‘Over the last 10 years we’ve witnessed a change in mindset from institutional and indeed retail investors, who have recognised the environmental problems, social problems, governance problems and a number of issues which have resulted from a lack of consciousness around human activity and the impact it has on society. Unsurprisingly, as financiers we want to provide a solution to that.’

The trust, which expects to publish a prospectus in early January and list by early February, is looking to invest in a range of renewable energies including wind and solar, but also projects in areas like hydro power, waste-to-energy and hydrogen.

There are 14 investment trusts focused on renewable energy currently on the London market, which all trade at a premium to net asset value (NAV) – in most cases a double-digit premium.

But one of the big concerns surrounding renewable trusts is the impact of a significant fall in future power prices, as the growth in carbon-free energy slashes the cost of electricity and reduces the amount of money they can generate. This has been highlighted by analysts and seen in the results of some trusts this year.

The trusts launching now are keen to stress their reduced exposure to power prices, and Tom Williams, head of energy and infrastructure at Downing, explains that ‘one of the key aims’ of Downing Renewable & Infrastructure Trust is to limit exposure to the merchant power price as much as possible.

He says: ‘We use a range of tools to limit power price exposure. For our legacy assets we already have long-term subsidy agreements, but for our newer assets we have corporate power-purchase agreements (PPAs) and fixed-price contracts in place.’

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