This week, listed renewable energy trust Bluefield Solar reported a strong set of first half results, with record earnings and a dividend hike. However, given last month’s JP Morgan Cazenove analyst note suggesting that price forecasts could see this trust and others have their share price slashed as their success leads to “cannibalism”, how confident is the team behind what is arguably one of the most successful pure play solar power closed-ended funds?
James Armstrong, managing partner of Bluefield Partners, the investment advisor to the trust told Fundeye that he takes issue with these negative price forecasts, saying that certain bodies had “cheery-picked information”.
“If you went to price levels they’re talking about here, nobody would be able to economically keep the generation they’ve got going and wouldn’t be incentivised to build new capacity. It doesn’t make economic sense,” Mr Armstrong enthused.
Given that Fundeye had spoken to other trusts such as ‘ALTS’ which has diversified infrastructure holdings due in part to fears of an energy price slump, the answers were intriguing. All the more so when Bluefield’s first half report contains a section with two sets of price forecasts; one of which is supplied by recognised price forecasters (although for some reason their identity if shrouded in secrecy) which paints a much rosier picture than the bleaker ‘alternative price forecasts’ which show prices lowering at dramatic rates.
Mr Armstrong is adamant, he said that if the suppliers of the recognised price forecasters were called (assuming it was possible to find their identity) and asked about the bleaker predictions they would say “it doesn’t make sense because it pretends people will make an irrational economic decision. They’re assuming there’s no government intervention and the market just takes care of pricing”.
In an age of increasing focus on all things environmental, social and governance (ESG), the idea that the UK, or any other developed nation for that matter, would let renewable energy players essentially price themselves out of the market does seem odd. Mr Armstrong said: “I think the government is getting so scared by climate change because the population is, the most likely outcome is intervention whether it’s a carbon law or fixing out (prices) because you’re doing a good thing, you’ll be entitled to benefits.”
Similar initiatives are already underway in continental Europe where governments keen to keep renewable energy providers incentivised are locking them into long term deals at fixed prices with no major outlay as they use contracts for difference.
If the worse was to come, what would be an alternative way of ensuring decent energy prices? Others in the space have talked about locking into agreements with large corporates but due to Bluefield’s size, its revenue is all regulated, this would have to be done via a ‘sleeving agreement’ whereby the energy is first put into the national grid then a large company would agree to purchase all of its power.
There’s a problem with this model, FTSE 100 chairmen, Mr Armstrong said, might all talk about being ‘100 percent committed to renewable energy’ but as it’s more expensive so might be a hard sale to shareholders.
Ever the optimist, Mr Armstrong thinks that yet again the prevailing importance of ESG matters might compel shareholders of large companies to call for renewable energy, so this sleeving agreement scenario might well come into play at some point.
As it stands, Bluefield Solar produced a solid set of results although its share price had been damaged by the analyst note and subsequent coverage. Even if unconvinced about the power prediction debate, a look at the shareholder register shows the fund has some large backers, BNY Mellon has a 25 percent stake in the fund. As Mr Armstrong said, “we are insulated in the short term”.
