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Why investing in renewable energy assets is a compelling option for investors seeking stability
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Don't invest unless you are prepared to lose all the money you invest. This is a high-risk investment and you are unlikely to be protected if something goes wrong.
Our recent acquisition of a portfolio of c.4,200 operational solar PV residential installations across England and Wales with its long-term (inflation linked), fixed revenue subsidies, enhances our ability to provide continued steady returns to investors.
This deal will mean on average, over the next 10 years, 56% of the portfolio’s revenues are fixed, and therefore not exposed to merchant power pricing.(1)
The Downing Estate Planning Service (DEPS) is our inheritance tax service, which gives investors the chance to benefit from Inheritance Tax (IHT) relief (subject to holding the shares for two years and at the date of death). DEPS looks to diversify a client’s subscription across multiple different sectors, which is then diversified across multiple geographies, technologies and revenue drivers.
A main sector within this portfolio is renewable energy assets, which are asset-backed and provide long-term, stable revenues.
This article explores our strategic approach to diversifying the portfolio’s revenue streams through the acquisition of renewable energy assets that are secured with fixed revenue agreements, reducing our exposure to the variable pricing of the energy market, and providing stability for investors.
Operational, fixed revenue energy assets and why they mean steady, predictable returns
Investing in energy assets means an investment in assets that are tangible, substantial and income-generating. They can be acquired when they are already operational, with fixed revenue arrangements, ensuring steady and predictable returns.
The advantages of these types of acquisitions are twofold:
Fixed revenue agreements mitigate market volatility and act as a safeguard against energy market uncertainties, and merchant power price risk, enhancing our ability to preserve capital and provide stable returns over the long term.
Operational assets are established, functioning businesses. In addition to this, years of performance data allows for accurate predictions of future energy generation.
Here is a summary of the Downing Estate Planning Service’s latest acquisition
The portfolio consists of c.4,200 solar PV residential installations across England and Wales.
This is a 13.8 MWp portfolio which is forecasted to generate a total of c.12 GWh per annum. This is enough energy to power the equivalent of c. 4,500 UK homes annually.
100% of the portfolio’s revenue is fixed.
The management of this large portfolio will be overseen by our in-house asset management team.
How can we achieve 100% fixed revenues?
The portfolio does not contain any power price risk, with its revenues 100% fixed per unit of generation. Its sole income stems from legacy Feed-in-Tariffs (“FiT”). This means that the revenue earned from these investments is linked solely to output and does not vary with changes in the energy market. These FiT subsidies remain in place until 2036/37.
Why is Downing best placed to manage portfolios of this size?
The key to managing a portfolio of this scale, that is spread across so many individuals rooftops, is to automate the flow of generation data into a centralised platform. This enables real-time monitoring of performance, improved response time, and minimised down time respectively.
At Downing, we have a dedicated in-house asset management team which has been set up to do just that. Our remote monitoring capabilities empower us to make detailed performance analysis and drive optimal performance.
In the chart below, you can see how adding these assets and actively looking for fixed revenues make a material impact on the portfolio’s revenue composition.
Figure 1. Source: Bagnall portfolio as at 31 December 2023, where revenues are forecasted, there is no guarantee these will occur.
On average over the next 10 years, 56% of the portfolio’s revenues are fixed and 51% of revenues are directly linked to inflation.
What is the impact for investors?
In a world where energy prices can be relatively volatile, stability and predictability are critical to ensure that capital preservation can be delivered. With this goal in mind, we will continue to navigate this by:
Providing stability during heightened volatility by hedging & fixing revenue;
Strategic asset acquisitions to improve revenue composition; and
Utilising long term power prices curves in valuations, so that asset value is not exposed to short term price fluctuations.
In the chart below, you can see how fluctuations and market volatility do not immediately influence the underlying value of the renewable energy portfolio within DEPS.
Conclusion
This acquisition not only expands our diverse asset base but also increases the portfolio's exposure to fixed revenue.
Our ongoing efforts to expand our portfolio's exposure to fixed revenue streams, both in the near and long term, underscore our commitment to delivering steady returns and aiming to preserve capital for our investors.
We invite you to learn more about the Downing Estate Planning Service and explore how it can align with your client’s estate planning goals, always keeping in mind the inherent risks involved in any investment.
Figure 2. Source: Energy price information provided by Energy Market Price, long term price information provided to Downing by Aurora and Baringa. 5-year data to Sept 2023. Past performance is not an indicator of future performance. The value of investments can go down as well as up and investors may not get back the full amount invested.
Risk warning
This article has been approved and issued as a financial promotion under section 21 of the Financial Services and Markets Act 2000 by Downing. Downing is a trading name of Downing LLP. Downing LLP is authorised and regulated by the Financial Conduct Authority (Firm Reference No. 545025). Registered in England and Wales (No. OC341575). Registered Office: 6th Floor, St Magnus House, 3 Lower Thames Street, London EC3R 6HD.
Tax treatment is dependent on the individual circumstances of each investor and may be subject to change in the future.
The rates of tax, tax benefits and allowances described are based on our interpretation of current legislation and HMRC practice. These may change from time to time and as such, are not guaranteed.
The availability of tax reliefs depends on investee companies maintaining their qualifying status.
