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Britain’s Climate Levy Change Hits Green Energy Funds

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Gavin Lumsden, Citywire

The chancellor’s decision to make renewable energy generators pay the climate change levy has cast a cloud over wind and solar power investment funds at a time when many income investors were assessing their prospects.

Although none of the high yielding investment companies has suffered as badly as Drax Group, the green power plant operator whose shares plunged 25% last week, the abolition of levy exemption certificates (LECs) has dented valuations in the sector and again highlighted the political risks in clean energy investment.

All seven renewable energy funds have issued statements since the Budget saying their dividend targets remain intact as the sale of LECs formed a small part of their revenues and their loss had been partly offset by the chancellor’s cuts to corporation tax.

The £353 million Renewables Infrastructure Group (TRIG ), which invests in both wind and solar plants, is the worst affected, revealing its net asset value per share would fall 4p to 97.9p. Its shares slipped from 106.5p before the Budget to close last week at 101.75p as the company announced it would delay a placing of up to £150 million of new shares while a new prospectus and placing price was published.

The slide in the share price halved TRIG’s premium over NAV to 2.4%, although with the company still targeting a first interim dividend of 3.08p share, the shares still yield nearly 6%.

It was a similar story with the £287m Foresight Solar Fund (FSFL) which revealed a 3% reduction in NAV but maintained its dividend target of 6.08p per share for this year, which supports a 5.9% yield. It releases half-year results on 5 August. […]

George Osborne said he decided to cut the exemption as it cost £3.9 billion and much of the money went to overseas generators who often already received subsidies in their countries.

Analysts said the surprise move was a blow to the sector.

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