How to harness wind power for a regular income

With inflation weakening, it is highly likely that the Bank of England will soon start to reduce interest rates, yet there are lots of high-yielding investment trusts that are still available at wide discounts. It is possible that these could be due a re-rating, with a good example being Greencoat UK Wind, which owns a portfolio of wind farms and was one of the top-10 best-selling investment trusts on the Fidelity platform in June.

Wind is the most mature and widely deployed renewable energy technology in the UK and was responsible for 30% of GB electricity generation in 2023. The offshore wind target of 50 gigawatts for 2030 is an important milestone in the delivery of the government’s 2050 net zero emissions commitment.¹

Strategy

Greencoat UK Wind is a £4.7bn fund that currently has 49 onshore and offshore wind farm investments located across England, Scotland, Wales and Northern Ireland. It aims to provide shareholders with a sustainable annual dividend that increases in line with retail price index (RPI) inflation, while preserving the portfolio's long-term capital value by reinvesting the excess cash flows.

The revenue that wind farms receive in the UK is made up of a number of components, primarily from the sale of power produced and green benefits accredited. These are governed by long-term agreements with utilities who are required by law to obtain a certain percentage of energy from green sources.

Is it delivering?

Greencoat’s earnings are designed to provide sufficient cash to meet the target dividend even if there are significant downsides in wind volume and power prices in any individual year. The excess is then reinvested in new UK operating wind farm assets.

In the latest annual accounts to the end of December 2023, the portfolio generated 4.7 terawatt hours of electricity, which was equivalent to around 1.5% of the UK's total demand. This was 13% below budget due to low wind speeds, yet the net cash generated of £406m was more than twice the £197m paid in dividends during the year.²

Attractive returns

The company has announced a target dividend for 2024 of 10 pence per share, with a payment of 2.5p declared in respect of the first quarter. Based on the current share price of 139p this is equivalent to a 7.2% yield that is fully covered by earnings.³ Please note this yield is not guaranteed.

Since inception in 2012 to the end of April 2024, the net asset value (NAV) per share has risen from around 100p to 160p. This more than makes up for the impact of RPI inflation, which would have required a valuation of about 150p and means that it has successfully met its objective to date.

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Shares in the trust are listed on the London Stock Exchange and their price is affected by supply and demand. The trust can gain additional exposure to the market, known as gearing, potentially increasing volatility. This fund uses financial derivative instruments for investment purposes, which may expose the fund to a higher degree of risk and can cause investments to experience larger than average price fluctuations. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.