Jefferies has cautioned there might be a bumpy few months ahead for UK-listed renewable trusts as electricity forward prices have continued to drop in 2024.
“A further meaningful decline in the UK forward power price curve during Q1 points to another round of weak NAVs for the UK-focused renewable funds,” says the US broker.
Forward pricing is, however, cushioning the immediate impact, adds Jefferies.
“Fortunately, the high degree of fixing/hedging at the very front-end of the assumptions will once again mitigate much of the negative impact here.
“However, looking forward, there is no longer a 'buffer' effect from unwinding the assumed liability to the EGL, as merchant prices are now below the EGL benchmark price.”
The broker notes that average prices on the forward curve (April 2024 - March 2028) have dropped to £66/MWh from £84/MWh.
June 2024 and December 2024 prices decreased from £75/MWh to £57/MWh, and from £97/MWh to £71/MWh, respectively, it adds.
“As before, the funds are largely fixed/hedged, particularly at the very front-end of the curve, so limiting the overall negative impact to NAVs.
Greencoat UK Wind (UKW) is the obvious exception given its merchant revenues, notes the broker, but even here only 50% of its revenue is exposed to merchant prices (spot or non-contract) by ROC subsidies (and some CfDs).
“We also note the decline in the forward curve means the funds now do not have any assumed liability to the Electricity Generator Levy (EGL) where merchant prices (as opposed to fixes) are assumed.
“This is because the forward curve is now below the CPI-linked £75/MWh benchmark price above which the EGL takes effect. “
Shares in Greencoat Wind were down 1% at 137p.