Renewable energy trusts tumble on budget changes

In his Summer Budget on Wednesday, the Chancellor of the Exchequer announced that The Climate Change Levy (CCL) exemption for renewable energy will be removed, effectively severing valuable income streams to listed infrastructure trusts.

In response shares in UK listed renewable energy trusts tumbled on Thursday. The Renewable Infrastructure Group was one of the hardest hit, with shares sliding 3.8 per cent by mid-morning trading on Thursday to 101.25p.

John Laing Environmental Assets Group also suffered, with shares down 2 per cent on Thursday morning to 103p. Greencoat Wind and Bluefield Solar saw more modest slides, with shares down 1.4 per cent and 1.6 per cent to 107.5p and 106.25p respectively. Foresight Solar was the least affected, with shares down just 0.5 per cent to just 103p.

'imbalance in the tax system'

The regulatory change means that renewable energy companies will no longer receive additional revenue from the sale of Levy Exemption Certificates (LEC), which they have historically sold to other energy suppliers who could purchase them instead of paying the CCL.

In its Budget statement the government says that the removal of the CCL exemption for renewable electricity will 'correct an imbalance in the tax system by preventing taxpayers' money benefitting renewable electricity generated overseas and by helping ensure support for low carbon generation provides better value for money'.

The removal is effective from 1 August 2015, with a transition period for renewable electricity generated before that date.

Commenting on the change, investment trust broker Numis Securities says: 'The government has removed the CCL because it represented an indirect support to renewable energy generation, and more effective support mechanisms targeted directly at renewable generators have been introduced.

'In addition, one third of the value of the CCL would have gone to supporting renewable electricity generated overseas,' says Numis.

already factored in

Despite the share price falls seen on Thursday, the broker says that it expects the removal of the CCL to have 'a small negative impact across listed renewables funds.' This is not least because the reduction in corporation tax from 2017 announced on Wednesday largely offsets the removal of the levy.

Numis adds that many trusts, including Greencoat Wind, had also already factored in the removal of the levy.

However, rival broker Stifel (formerly Oriel Securities) is a little more cautious, stating that the effect on listed infrastructure trusts is 'material':

'The impact on the listed funds is in some cases material and a number have clarified their situation this morning while we expect all the renewables funds to make RNS announcements on these changes.

'We think there is likely to be some impact on their revenue accounts and potentially dividend cover, although the reduction in corporation tax should at least partly offset this. We are also seeking some clarification from GCP Infrastructure on any potential impact on its portfolio of debt in renewables energy projects,' says Stifel.

Initial estimates of the impact from the management of renewables funds are:

● Greencoat UK Wind: The company was already factoring in the removal of the Climate Change Levy from 2022, as a result, the reduction in corporation tax 'largely offsets' the small reduction in net asset value (NAV).

● John Lang Environmental Assets: A reduction in NAV of 0.6p at March 2015, with the loss of revenue from LECs broadly offset by the reduction in the corporation tax rate. There is also likely to be a 'minor impact' on dividend cover in the near term.

● The Renewables Infrastructure Group: A net reduction in the current NAV of 4p. As a result, its share placing timetable will be delayed by around one week and a new placing price will be announced. There is no change in the target first interim dividend for the six months to 30 June of 3.08p.

Other listed renewables funds are expected to make announcements later on Thursday.

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