Renewable energy trusts may need to change direction: Will investors be on board?
Archived article: Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
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12 November 2025
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Since its inception in 2013, the renewable energy sector has wooed investors with attractive income levels powered by wind and solar projects. And over the past 12 years, renewable energy trusts have generally served their purpose well, with the original group of trusts delivering annual total returns of about 7.3%, with 80% as income, according to Deutsche Numis.
But the second half of that period has not proved to be as fruitful as the first. Swathes of investors have turned away from renewables, which has put the trusts in a sticky position. In the past five years, the average share price for investment trusts in the renewable energy infrastructure sector has dropped by 9%, despite the net asset value for the sector rising by more than 40%, according to the industry body Association of Investment Companies.
What is net asset value and why do trusts trade at discounts and premiums?
Net asset value or NAV, in the context of investment trusts, is the total value of a trust’s assets minus any liabilities. Dividing this total by the number of shares can give you a NAV per share. Unlike an open-ended fund whose price automatically matches the value of the underlying assets, investment trusts’ price is dictated by supply and demand. This means their shares can trade at a discount or a premium to the net asset value of the underlying portfolio.
What has gone wrong with renewables trusts?
This is far from the only sector where investment trusts are faced with wide discounts. Some problems are universal for investment trusts, like cost disclosure. Due to the way that investment trusts currently need to comply with FCA guidelines, the products end up looking more expensive than they are, because the system is designed for open-ended funds, not investment trusts. While this is now in the process of being reviewed, it has not been resolved and is still weighing on the industry as it can deter potential investors.
Renewable energy infrastructure trusts, in particular, have found themselves in something of a perfect storm. Not only do the funds face cost disclosure issues, but the market has lost appetite for the entire sector. A higher interest rate environment has increased the appeal of alternative asset classes.
Another blow was delivered at the end of October 2025 with news the government is launching a consultation on changes to the inflation link in existing clean energy incentives, which could include a retrospective element. Additionally, since the sector’s launch, other investment trusts have become available that have a significant focus on income.
The net result is that, while renewable energy infrastructure might have been an obvious sector for investors to focus on if they were looking for income 10 years ago, there are now a much larger range of options.
For some of these trusts, this issue is becoming more critical than just a wide discount.
‘All of these companies have a long pipeline of potential investments they could make... but they haven’t got the cash on hand because they can’t issue more shares,’ says James Carthew, head of investment company research at QuotedData.
What can trusts do?
This forces the trusts into a choice: They can either maintain the current investments and use the cash they generate to pay out dividends but deliver limited growth or sell those investments to generate funds for new opportunities.
These may boost growth but also come with greater risks and would result in less immediate income. Some trusts are also considering a third option, which would involve merging with another trust that is more focused on growth.
‘The quid pro quo with that would be that you might end up with a dividend cut,’ Carthew says. ‘That has understandably upset some investors because they’re thinking: “Well, I bought it for the income.” But you might actually end up making a bigger return, from a combination of capital and income, instead.’
Still, if trusts were to make this change, it could run counter to what investors are hoping to get from their holding. Three renewable energy infrastructure trusts, NextEnergy Solar Fund, Foresight Environmental Infrastructure, and Foresight Solar Fund, have increased their dividend to investors for 10 years in a row or more. Despite this, Foresight Environmental trades on a discount of more than 35%, with NextEnergy right behind at 35.1% discount, and Foresight Solar at 34.2%.
How much could dividends be reduced?
Even the most popular trusts in the sector have felt the pressure. Among AJ Bell customers, the most widely-held trust in the sector, and fifth-most held investment trust full stop, is Greencoat UK Wind. However, the trust still trades on a 30.7% discount, despite paying out a dividend of 10.3% and having a net asset value total return of 58.9% over the past five years.
This could mean that some shareholders who have stuck with it would be open to a change. But, due to the structure of investment trusts, any material changes, like a focus that veers more towards growth, would need to be approved in a shareholder vote.
‘I think (a change) that gives you a yield of 8% or 9% rather than 12% would be fine, and 6% or 7% instead of 12% may be fine. But if you go down a lot, people might be more upset. So, you have to think about existing holders versus new investors,’ Carthew says.
‘This is why anything changed like this is going to need to be voted on by investors. That is the beauty of the structure really, the managers can propose this stuff, the boards can propose this stuff, but in the end it’s the shareholders who get to decide.’
For now, many trusts are waiting to pull the trigger. But if a few can take the leap successfully, a new path for the sector might emerge.
Hannah Williford: Content Writer
Hannah joined AJ Bell in 2025 as an investment writer. She was previously a journalist at Portfolio Adviser Magazine, reporting on multi-asset, fixed income and equity funds, as well as macroeconomic impacts and regulatory changes...
