Four "green" investments to grow

UN secretary general Ban Ki-moon urged investors to turn their back on fossil fuel-based holdings this week, as leaders, experts, celebrities and the general public joined forces in the fight against climate change.

Taking inspiration and in turn inspiring many, The Rockefeller Brothers Fund pledged to completely drop its fossil fuel investments, strengthening its earlier commitment for 10% of its portfolio to be in keeping with the group's sustainable development goals.

In a statement, it said: "The Fund has begun a two-step process to divest from investments in fossil fuels, first focusing on limiting its exposure to coal and tar sands, with a goal to reduce these investments to less than 1% of the total portfolio by the end of 2014."

But a long-standing criticism against sustainable investments is their failure to reap the same rewards as those where sustainability is further down the priority list. And while some "green" investments do crash and burn, there are pockets of growth in the sector.

Investment in the closed-ended infrastructure (renewable energy) sector grew by 10% in the year-to-September, with growth of 6% between May and August, said the Association of Investment Companies (AIC) earlier this month. This is compared to the infrastructure sector's 10% growth throughout the year and 8% growth in three months to August, so there is not the large disparity here that many expect.

Due to falling costs and rising efficiency, large wind farms and solar plants are now also cost-competitive with traditional energy like coal and nuclear, asset manager Lazard says. But it warned that rooftop solar panels and offshore wind still trail fossil fuels.

With Scottish Renewables expecting Scotland's tidal energy sector to be worth £50 billion by 2050, many are relieved that Scotland voted "no". From October, renewable energy projects will compete for over £200 million of annual subsidies in a bid to reduce risk and provide long-term certainty for investors.

"Average annual investment in renewables has doubled since 2010 - with a record breaking £8 billion worth in 2013," Energy and Climate Change Secretary Ed Davey said on Thursday.

For evidence of a global surge in changing renewable policies, the world should look to developing countries that are leading the global surge, the Renewable Energy Policy Network for the 21st Century noted in its latest Global Status Report. The number of developing nations with policies focussed towards renewable energy shot up from 15 in 2005 to 95 this year.

As easy as one, two, green

Investing in the sector is now more accessible. The report noted that commercial banks, pension funds, insurance companies and major corporations are now invested in renewables for stable, long-term returns. But further to financial innovations like sustainable yield bonds in the US, green bonds in France and the US and renewable financing company bonds in the UK; further development is needed, the report warned.

There are other risks associated with the sector too, among them policy risk. This changes from region to region, so investors should research fully before jumping into an investment vehicle with renewable exposure.

Volatility is also a problem, both in the quality of the natural resource and the price of power, with slight changes dramatically effecting forward guidance. To protect your investment, diversity is key.

Interactive Investor takes a look at four investment opportunities available for those inspired by the UN’s climate change summit and looking for sustainable exposure.

Renewables Infrastructure

One closed-ended fund option is the Renewables Infrastructure (TRIG), which invests in onshore wind and solar photovoltaic (PV) in the UK, the Republic of Ireland and France. Its portfolio generated 400 gigawatt hours (GWh) in the six months to 30 June 2014, and thanks to acquisitions in the period, directors now value the portfolio at £353 million, up 17.5% since December.

The trust is new, too, floating in July last year at 102p. Since then, the share price has returned 6.2% and net asset value (NAV) has returned 7.2%. At over 107p on Friday, and given the recent share price stability, this level looks sustainable, especially with its strong asset pipeline.

Winterflood Investment Trusts believes there is potential here.

"TRIG offers an attractive level of inflation‐linked income from these limited life assets and, like the majority of the renewable energy funds, also offers the potential for NAV growth. Recent acquisitions have increased the fund's diversification by technology, although it has reduced in terms of geography. The current premium of 4% is in‐line with other funds in the renewable energy infrastructure sector, but remains below premiums currently seen in the Public Private Partnerships and Private Finance Initiative infrastructure sector."

Foresight Solar Fund

Another closed-ended option is the Foresight Solar Fund (FSFL), which is lower-risk given it invests in operational solar plants in the UK and its Hunters Race and Spriggs Farm projects are nearly operational.

Thanks to operational efficiencies, performance was strong in the six months to 30 June with returns high-than-expected, despite weather conditions.

"Apart from strong energy generation over the period, increases in asset valuation above the cost of investment were a further contributor to net asset value," says Oriel Securities. "The weighted average discount rate used over the period was 8%. Decreasing the discount rate by -0.5% would lead to NAV per share of 105.3p whilst an increase of +0.5% would reduce NAV to 102p, based on the latest published NAV of 103.6p."

With a strong pipeline ahead, managers expect the Kencot acquisition to be completed in the next few weeks to a tune of around £50 million. An acquisition in Bournemouth is expected to cost the same.

With a 'positive' recommendation on the stock, Oriel adds: "The shares, trading at close to NAV, look cheap compared with other renewables and infrastructure funds and we maintain a 'positive' recommendation. Looking across the renewable and infrastructure peer group, we think it reasonable for the shares to trade on at least a 3% premium to NAV."

Mytrah

If investors want a more hands-on approach to managing their portfolio to organise their stock-picks independently, Mytrah (MYT) is one with potential. It has had a busy three years since floating and some in the City are optimistic that it can take advantage of growing power demand in India, which is expected to surpass China in 2035. Investec reckons its share price could double in value.

The independent wind power producer's capacity crossed the landmark 500 megawatts (MW) in recent months, with its capacity growing by 70% to 524.85MW since June last year, with 214.95MW of this new capacity ready to start generating revenues. When completed, Mytrah's total installed capacity will increase to 548.1 MW across 10 projects in six states. Mytrah also confirmed a further 300MW of capacity on Wednesday, with 200MW already ordered.

There has been strong growth over the last year, with 2013's full-year earnings per share (EPS) at 4.2p expected by Investec to rise to 10.2p this year. Again, this is set to rise the following year to 17.2p, then 27.3p in 2017. Mytrah is trading 13.5 times EPS estimates for 2014, dropping to just 8 for next year.

But despite its strong financial growth, the firm didn't get off to the greatest of starts this year, with the capacity factor - the measure of how often an electric generator runs in a specific time - below average. It does seem confident of meeting its plant load factor, however, thanks to improvements in utilisation rates.

Infinis Energy

At 222p, wind farm developer Infinis Energy's (INFI) share price has fallen below its float price of around 270p, largely due to weaker power prices. That's had an impact on forward guidance, but from 2016, things start to look up.

Released in June, its maiden full-year results beat expectations with lower-than-forecast net debt and adjusted earnings before interest, tax, depreciation and amortisation of £148.4 million thanks to strong winds. And its wind capacity is set to grow from 274MW by between 130 and 150MW of new onshore wind assets by the end of full-year 2017, keeping to its IPO pledge.

But it is thanks to its diversification that it can still deliver a decent dividend in the face of weaker prices, with it still on track to deliver an 8.6% dividend yield thanks to its 319 MW landfill gas business. These stable revenues also help finance the development of its wind assets.

With EPS of 13.75p expected in 2015, Infinis trades on a price/earnings ratio of 15.5 times. By 2017, however, earnings are expected to be just shy of 19p, so potentially one for the investor with a longer view.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.