Unpicking the curveball that’s rocked trusts with 10%-plus yields

Shares in renewable energy investment trusts have tumbled – widening discounts across a sector that had hoped the worst was behind it – following a government consultation proposing changes to subsidies.

The investment trust industry has sharply criticised proposals to retrospectively switch the inflation indexation of older renewable energy subsidies – the Renewable Obligation Certificate (ROC) and Feed in Tariff (FiT) schemes – branding it a “redistribution by stealth” from UK investors.

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The changes would align indexation with Consumer Prices Index (CPI) instead of the Retail Prices Index (RPI), altering the terms of contracts that underpin billions of pounds of investment in wind, solar and other clean energy projects.

Renewable energy investment trusts derive up to half their income from government subsidies, with the rest coming from market power prices. Opponents argue that changing indexation halfway through the 20-25-year support periods would undermine investor confidence in the UK and deliver almost no meaningful benefit to consumers, with an estimated reduction in household energy bills of just a couple of pounds per year.

The Association of Investment Companies (AIC) highlighted that the ROC scheme supports projects generating 30% of the UK’s electricity and has attracted £12 billion of investment into UK renewable energy trusts.

“The impact of this U-turn midway through an agreement would erode investor confidence in the British government as a business partner,” says chief executive Richard Stone.

“These proposals must be withdrawn. They threaten the viability of clean energy projects and the entire UK transition to net zero for a saving of only £3 a year on household bills.”

The long-term consequence, he warns, would be higher costs for consumers as investors lose faith and the cost of capital increases.

Gravis, which manages several renewable trusts including GCP Infrastructure Investment Ord (LSE:GCP), also calls for a government rethink.

“This would be a redistribution by stealth,” says associate Haohua Wu. “These assets are owned in large part by UK pension funds, insurance companies and UK-listed investment companies – in other words, by ordinary savers.”

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Gravis argues that the overall cost of legacy subsidy schemes is already declining and will start to fall sharply from 2027 as older projects reach the end of their support periods. In addition, environmental levies make up only a small proportion of energy bills, with recent surges driven mainly by global gas prices.

“If the goal is to ease the pressure on bills, a fairer approach would be to move the cost of legacy renewables support off electricity bills entirely,” adds Wu. “This could perhaps be achieved by funding it through general taxation or a small levy on gas consumption. That would reflect the real cost drivers and avoid penalising UK investors who helped finance the transition to clean energy.”

Another option, she says, would be to lower existing subsidy levels but extend scheme durations, balancing the protection of investor interests with lower bills.

The proposals: switch or freeze

The government consultation sets out two potential approaches: an immediate switch to CPI indexation, implemented ahead of the next annual adjustment scheduled for March 2026, or a freeze in inflation-linked increases until CPI-based inflation catches up with the higher RPI level, which could take until 2035.

James Carthew, head of investment company research at QuotedData, says the discounts on renewable energy trust share prices already more than reflect the worst-case scenario – option two.

“In fact, I wonder whether they now also reflect my feared outcome of this, which is that a future government that is less keen on renewable energy and addressing climate change cites this as a precedent for scrapping subsidies altogether and reneging on CfD arrangements agreed through the various auction rounds,” he says. CfDs, or Contracts for Difference, guarantee a fixed price for renewable electricity, giving investors revenue certainty.

Winterflood Securities says the key to understanding how material the proposed changes could be is to look at how much each trust relies on ROCs and FiT income, the inflation assumptions baked into their valuations – including the expected gap between RPI and CPI – and how long each trust’s remaining subsidy life is.

On this basis, Foresight Environmental Infra Ord (LSE:FGEN) has the lowest estimated exposure, with only around 13% of its portfolio revenues coming from these schemes. Renewables Infrastructure Group (LSE:TRIG) and Octopus Renewables Infrastructure Ord (LSE:ORIT) follow at 17% and 28%, respectively.

At the other end of the spectrum, Bluefield Solar Income Fund (LSE:BSIF), Foresight Solar Ord (LSE:FSFL) and NextEnergy Solar Ord (LSE:NESF) derive close to half their revenues from these schemes (48%, 46% and 46%). These solar trusts, however, typically have long remaining subsidy lives – around 26 years for BSIF, 25 for NESF and 21 for FSFL.

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Greencoat UK Wind (LSE:UKW) has a lower proportion of ROC/FiT revenue than the UK solar funds (around 36%), but this is offset by higher inflation assumptions embedded in its models. UKW assumes RPI of 3.5% to 2030 and the largest wedge between RPI and CPI (a 100 basis point differential from 2027-30, compared with TRIG’s 75 basis points from 2027-29).

Several trusts have already quantified the potential net asset value (NAV) hit from the two consultation options. TRIG estimates a reduction of 0.5% under option one and 2.2% under option two, ORIT forecasts a 1.1% and 4% impact respectively and BSIF expects 2% and 10%. GCP Infrastructure expects more modest effects, at 0.5% and 1.2% for the two scenarios.

Across the seven trusts reviewed by Winterflood, the average impact of option one is a 1.3% hit to NAV (and a 2.1% implied share price reduction). For option two, the average NAV impact rises to around 6%, with an implied share price hit of 9.3%. BSIF is expected to be the most exposed under option two, with an estimated 10% NAV decline and 16% share price impact, followed by NESF (-9% / -14%), FSFL (-8% / -12%) and UKW (-8% / -11%).

Against this backdrop, dividend cover is an increasingly important differentiator, with FGEN and FSFL having the highest levels at 1.3x.

However, Ashley Thomas, infrastructure and renewables research analyst at Winterflood, says: “Our analysis of share price implied returns flags the UK solar funds as all distributing more than the base portfolio should be able to support, so excluding TRIG and ORIT (where the ROC/FiT indexation impact is very limited), we would view FGEN as having the more secure dividend cover on a post-debt amortisation basis.”

The future: re-pricing the renewables trade

Whether the proposals translate into action remains to be seen, with some analysts assigning a low probability to the most severe outcomes.

“We see the likelihood of drastic changes, particularly retroactive ones, that would cause material losses to investors in UK ROC/FiT subsidised projects as low, given the potential negative consequences this might have for the funding cost of future UK infrastructure projects reliant on public subsidy or funding,” says Peel Hunt analyst Markuz Jaffe, noting that several affected trusts have already begun to recover from the initial share price shock.

William Heathcoat Amory, managing partner at Kepler, adds: “This is not the first time ROCs have been consulted on, and the pullback is pricing in an overly negative scenario for a decision that is far from certain, and still subject to input from key stakeholders.”

Peel Hunt currently has ‘outperform’ ratings on two renewable energy trusts – ORIT and UKW.

ORIT benefits from diversification across European wind and solar markets, reducing dependence on any single regulatory or power price regime. Its newly announced ‘ORIT 2030’ roadmap also provides clearer visibility on medium-term growth priorities.

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UKW, by contrast, appeals through its simplicity and cashflow resilience: a single-geography, single-technology wind portfolio supported by robust dividend cover, even under scenarios of materially lower power prices.

“This helps to offset potential concerns around the ongoing consultation, where UKW’s portfolio mix places it as one of the most sensitive, based on the financial impact estimates we’ve seen the peer group report,” says Jaffe.

EQ Investors also sees “the larger and more liquid” UKW as the standout option – but points to value across the sector.

“Across the board, it increasingly seems as though share price falls are reaching a capitulation point,” says Daniel Bland, head of sustainable investment management. “Ultimately, these trusts are to a certain degree interest-rate plays. It’s a matter of time before the value of cash flows versus lower rates (and cost of capital) is recognised.”

Renewable energy infrastructure sector performance, yields and discounts

Morningstar data sourced by interactive investor via the Association of Investment Companies (AIC) on 3 December 2025. Past performance is not a guide to future performance.