Brexit has brightened the outlook for UK solar funds, with higher power prices lifting earnings for the industry and burnishing its attraction for investors seeking to insulate themselves from political upheaval.
Trading volumes at three London-listed UK solar funds more than doubled in the six months after Juneâ€™s referendum calling on Britain to exit the European Union, compared with the first half of the year, according to data compiled by Bloomberg. The top-performing NextEnergy Solar Fund Ltd. returned 18 percent since the vote. All the funds beat the 11 percent gain of Londonâ€™s FTSE 100 Index.
â€œBrexit is of course not so good in general, but itâ€™s good for solar,â€ said Michael Bonte-Friedheim, founding partner and chief executive officer of NextEnergy Solar Fund Ltd. â€œWith the low interest rates, investors searching for returns come to us.â€
Known for its overcast skies, the UK became one of Europeâ€™s hottest solar markets after offering incentives for the industry in 2010. About 9.2 gigawatts of photovoltaics sprung up across the country as a result â€” about the capacity of seven nuclear reactors â€” according to data compiled by Bloomberg New Energy Finance. While the government has slashed support for the industry since, the funds have taken on a life of their own because of the wider climate for investing. â€œThereâ€™s a combination of positive factors for us,â€ said Giovanni Terranova, founding partner at Bluefield Partners LLP. â€œPower prices are up. Interest rates are down. UK investors avoiding taking exposure overseas are looking for yield at home. There are also opportunities for foreign investors at a discount because of the currency.â€
The pound has dropped almost a fifth since a majority of voters chose to leave the EU on June 23. The currency depreciation has fueled rising power prices and, in turn, lifted the amount revenue generated by funds holding solar assets. The funds typically sign power-sale agreements 12 to 48 months in advance, so higher prices will benefit investors in the medium-term after new contracts are signed.
â€œThe solar funds may be benefiting from enthusiasm from UK-based investors seeking protection from pound inflation,â€ said Jenny Chase, head of solar analysis at Bloomberg New Energy Finance in Zurich. â€œFeed-in tariffs are also adjusted for inflation.â€
The Bank of Englandâ€™s decision last year to cut rates in an effort to boost the UK economy in anticipation of Brexit-related issues has also benefited solar funds. The listed funds, which funnel cash from solar electricity sales back to their shareholders, appeal to investors hunting for dividends. They typically pay 5.75 pence to 7.25 pence a share quarterly. The Bluefield Solar Income Fund Ltd. provided the top dividend yield, returning 6.7 percent over the last 12 months, according to data compiled by Bloomberg.
NextEnergy has attracted new investors in recent months, according to NextEnergy CEO Bonte-Friedheim. Heâ€™s planning to expand the UK portfolio by adding 180 megawatts this year, raising assets under management to about 600 megawatts.