Figure 5 displays FGEN’s portfolio by project type, as at 30 September 2024. In aggregate, at that date there were 42 projects spread across the wind, AD, solar, waste & bioenergy, hydro, controlled environment, and low carbon & sustainable solutions technologies. The weighted average remaining asset life of the portfolio was 16.5 years, although the manager feels it is being conservative in this area.
The majority of its portfolio (90%) is located in the UK, with the 10% outside the UK accounted for by FGEN’s Italian, German and Norwegian investments.
Figure 7: Portfolio split by operational status as at 30 September 2024
Figure 8: Net present value of future revenues by type as at 30 September 2024
Source: FGEN, Marten & Co
Source: FGEN, Marten & Co
At 8%, FGEN’s construction exposure is not excessive. These projects offer the potential for NAV uplifts as the projects become operational and the discount rate applied to them can be reduced as they become de-risked.
Following the failure of HH2E, the manager is keen to stress that there is no read across to the company’s construction-stage assets. These are further along the construction phase and do not exhibit the same degree of risk that HH2E did. Here we have profiled FGEN’s non-energy assets that are either in construction or are in the ramp-up phase.
CNG Foresight
FGEN has invested £26.3m (with a further £2.3m of capital committed) into a portfolio of 15 biomethane refuelling stations for compressed natural gas (CNG) vehicles in the UK, operating under the brand CNG Fuels. 13 are operational, while a further two are currently under construction. Revenues are earned from sales of biomethane fuel to customers under contract – which include several of the largest fleet operators in the UK – with the price of gas passed through to the customer, meaning that FGEN has no exposure to underlying merchant gas prices.
Transport operators are heavily incentivised to reduce carbon emissions, with the sector being the largest source of emissions in the UK (accounting for 34% in 2019). The manager says that HGVs fuelled by biomethane generated by anaerobic digestion plants are the only commercially-available, at-scale solution to substantially reduce these emissions – achieving more than an 85% reduction in CO2 emissions. The government has committed to maintaining a clear advantage for gas-powered vehicles until 2032.
Potential ramp-up in revenues as CNG vehicle usage grows
The prospect for a ramp-up in revenues is tied to the growth of transport fleets using CNG vehicles. There are promising signs that growth is coming through, with 48% uplift in gas dispensed from CNG Fuels sites in the 12 months to September 2024. Meanwhile, Tesco has committed to significant growth in its CNG fleet with new truck orders.
A key development in the CNG sector could come to fruition in the next 12 months, and with it a significant opportunity to reach new customers. Vehicles that use CNG fuel are currently limited to smaller trucks, but larger-capacity CNG vehicles are being trialled and could open up a far larger market. These larger vehicles require up to 50% increase in gas per vehicle, compared to the smaller trucks.
The Glasshouse
The Glasshouse is a controlled-environment facility set on a 4-hectare site that lawfully cultivates tetrahydrocannabinol (THC) flowers under a UK government issued licence, which are sold to established UK-based pharmaceutical manufacturers.
Offtake contract in place for medicinal cannabis supply
Phase one of construction of the Glasshouse, which is co-located with an existing FGEN AD facility that supplies low-carbon heat and power via a private wire, completed in September 2023, allowing for around 12,000kg of plant to be grown per annum. A major offtake contract is in place with Releaf, the UK’s fastest-growing medical cannabis provider, in a multi-million-pound deal to supply cannabis-based products for medicinal use to Releaf’s patients and resulted in the first-ever patient to receive prescribed medical cannabis from a flower grown in the UK, ending the reliance on imported flower.
Ramping-up of operations is expected to complete in 2026, with new offtake partners being sought. The scheme is set to achieve breakeven performance in 2025. Longer-term, there is scope to undertake phase two of construction to facilitate increased output of up to 100%.
Rjukan
Rjukan is a land-based trout farm in Norway that uses recirculating aquaculture system (RAS) technology to recirculate pure, clean mountain water. The manager says that the technology is the most sustainable, scalable, and environmentally conscious form of aquaculture production available today. The facility is capable of producing 8,000 tonnes of trout (or 22,000,000 dinners) per year which is to be sold to European and international salmonid markets.
Set to complete in 2025, with double-digit return expected
The project is partially operational, with the first fish tanks constructed and first eggs delivered in January 2024. Construction remains ongoing for later-life areas of the facility. Construction is expected to complete by the end of 2025, with the first trout harvest expected at a similar timeframe. Marketing has begun and the manager says that interested offtakers have been identified.
FGEN has invested £35.8m in the project, with a further £4.5m committed, and the manager expects the project to achieve a low double-digit return once fully operational.
Portfolio activity
In August, FGEN sold a 51% stake in a portfolio of six AD assets to the operator Future Biogas for £68.1m (in line with their book value). FGEN retained a 49% holding in the assets, which have a combined generating capacity of 38MW, allowing it to benefit from the future growth and income generated by the portfolio.
The proceeds of the sale were used to repay some of the company’s RCF – reducing gearing to 28.7% – and to fund a £20m share buyback programme.
The manager says that it will look to make further selective divestments to recycle capital and further reduce drawings on the RCF.
Performance
FGEN’s NAV returns over the past two years have been flat despite substantial headwinds that have faced it and the renewable energy infrastructure sector over the period, including higher discount rates used to value FGEN’s assets.
Figure 9: FGEN NAV TR over five years to 31 October 2024
Source: Morningstar, Marten & Co. NB with effect from 1 May 2021, Morningstar’s NAV estimate includes an estimate of accrued income
Figure 10: FGEN cumulative performance to 31 October 2024
| 3 months (%) | 6 months (%) | 1 year (%) | 3 years (%) | 5 years (%) | 10 years (%) | |
|---|---|---|---|---|---|---|
| FGEN NAV total return | (1.2) | 0.0 | (1.5) | 34.6 | 46.3 | 110.4 |
| FGEN share price total return | (8.6) | (2.9) | 8.6 | 1.4 | (2.1) | 55.4 |
Source: Morningstar, Marten & Co. NB with effect from 1 May 2021, Morningstar’s NAV estimate includes an estimate of accrued income
Peer group
You can access up-to-date information on FGEN and its peers on the QuotedData website.
FGEN has one of the broadest remits of the 21 companies that comprise the members of the AIC’s renewable energy sector. Most of these funds are focused on solar or wind or some combination of the two. Three of these funds are focused solely on energy storage.
There is variation of geographic exposure within the peer group too, with a number of funds that are heavily exposed to the North American market (which has a different risk/reward structure). Atrato Onsite Energy is in the process of liquidating, having agreed a deal to sell its entire portfolio in early November. Aquila Energy Efficiency is in managed wind-down. Harmony Energy Income is seeking buyers for its portfolio.
Figure 11: AIC renewable energy infrastructure sector comparison table, as at 28 November 2024
| Market cap (£m) | Premium/(discount) (%) | Yield(%) | Ongoing charge (%) | |
|---|---|---|---|---|
| FGEN | 490 | (32.2) | 10.4 | 1.24 |
| Aquila Energy Efficiency | 43 | (45.1) | 8.7 | – |
| Aquila European Renewables Income | 209 | (26.1) | 8.7 | 1.10 |
| Atrato Onsite Energy | 115 | (14.8) | 7.2 | 1.80 |
| Bluefield Solar Income | 578 | (22.5) | 9.2 | 1.02 |
| Downing Renewables & Infrastructure | 135 | (33.2) | 7.4 | 1.60 |
| Ecofin US Renewables Infrastructure | 45 | (36.5) | 1.7 | 1.78 |
| Foresight Solar | 456 | (28.0) | 9.9 | 1.15 |
| Gore Street Energy Storage Fund | 258 | (51.5) | 13.7 | 1.42 |
| Greencoat Renewables | 788 | (22.6) | 7.9 | 1.18 |
| Greencoat UK Wind | 2,858 | (19.9) | 7.9 | 0.92 |
| Gresham House Energy Storage | 287 | (54.1) | 10.9 | 1.19 |
| Harmony Energy Income | 117 | (45.5) | 0.2 | – |
| HydrogenOne Capital Growth | 31 | (76.4) | 0.0 | 2.56 |
| NextEnergy Solar | 413 | (26.9) | 11.9 | 1.11 |
| Octopus Renewables Infrastructure | 390 | (32.2) | 8.6 | 1.16 |
| Renewables Infrastructure Group | 541 | (45.7) | 12.7 | 1.02 |
| SDCL Energy Efficiency Income | 2,235 | (25.2) | 8.3 | 1.04 |
| Triple Point Energy Efficiency Infrastructure | 45 | (26.2) | 12.2 | 2.06 |
| US Solar Fund | 108 | (40.5) | 5.1 | 1.39 |
| VH Global Energy Infrastructure PLC | 268 | (39.6) | 8.4 | 1.39 |
| Peer group median | 268 | (32.2) | 8.6 | 1.19 |
| FGEN rank | 6/21 | 10/21 | 6/21 | 11/19 |
Source: Morningstar, Marten & Co
FGEN is one of the larger funds within this peer group, and the substantial de-rating of its shares over the last month (following the HH2E news) has seen its discount move from one of the narrowest in the sector to middle of the pack. Although disappointing, we believe that the limited exposure of the investment (2.6% of NAV), the diversification of its wider portfolio, and the fund’s long-term record – ranking highly in NAV terms over longer periods – make its current discount attractive.
Wide discounts have distorted yields across the sector. Nevertheless, FGEN’s yield is highly attractive. Its ongoing charges ratio ranks middle of the pack, but is expected to fall when the impact of a reduction in the management fee is felt going forward.
Figure 12: AIC renewable energy infrastructure sector performance comparison table, periods ending 31 October 2024
| 3 months(%) | 6 months(%) | 1 year(%) | 3 years(%) | 5 years(%) | 10 years(%) | |
|---|---|---|---|---|---|---|
| FGEN | (1.2) | 0.0 | (1.5) | 34.6 | 46.3 | 110.4 |
| Aquila Energy Efficiency | (0.0) | (0.0) | (1.0) | (0.3) | n/a | n/a |
| Aquila European Renewables Income | 3.7 | (1.3) | (10.7) | 4.9 | 16.0 | n/a |
| Atrato Onsite Energy | 1.6 | 3.2 | 1.9 | n/a | n/a | n/a |
| Bluefield Solar Income | (1.1) | (2.5) | (1.1) | 30.3 | 51.2 | 135.8 |
| Downing Renewables & Infrastructure | 1.3 | 1.5 | 4.9 | 32.3 | n/a | n/a |
| Ecofin US Renewables Infrastructure | (1.2) | (20.4) | (30.1) | (22.5) | n/a | n/a |
| Foresight Solar | (0.3) | 1.7 | 1.9 | 30.5 | 44.1 | 106.9 |
| Gore Street Energy Storage Fund | 1.9 | (2.2) | (2.8) | 22.0 | 56.6 | n/a |
| Greencoat Renewables | 0.2 | 0.5 | 0.5 | 31.9 | 42.7 | n/a |
| Greencoat UK Wind | 1.2 | 2.4 | 2.2 | 45.7 | 72.6 | 172.3 |
| Gresham House Energy Storage | (0.1) | (16.4) | (24.7) | 9.3 | 40.2 | n/a |
| Harmony Energy Income | 0.0 | (1.4) | (16.0) | n/a | n/a | n/a |
| HydrogenOne Capital Growth | (2.7) | (2.7) | (0.6) | 2.7 | n/a | n/a |
| NextEnergy Solar | 2.2 | 0.9 | 0.8 | 21.7 | 30.3 | 92.7 |
| Octopus Renewables Infrastructure | 0.1 | 2.8 | 2.6 | 22.4 | n/a | n/a |
| Renewables Infrastructure Group | 0.1 | (1.9) | (1.6) | 25.6 | 43.5 | 122.1 |
| SDCL Energy Efficiency Income | 1.8 | 3.5 | (4.3) | 4.0 | 24.2 | n/a |
| Triple Point Energy Efficiency Infrastructure | n/a | n/a | n/a | n/a | n/a | n/a |
| US Solar Fund | 2.0 | 3.7 | (6.2) | 8.0 | n/a | n/a |
| VH Global Energy Infrastructure PLC | 0.7 | (4.4) | (12.4) | 0.6 | (2.9) | n/a |
| Peer group median | 0.2 | (0.0) | (1.1) | 22.0 | 43.1 | 116.2 |
| FGEN rank | 19/21 | 10/21 | 12/21 | 2/19 | 4/12 | 4/6 |
Source: Morningstar, Marten & Co
Premium/(discount)
Figure 13: FGEN premium/(discount) (%) over five years to 28 November 2024
Source: Morningstar, Marten & Co
FGEN’s discount widened substantially since October as firstly the UK budget raised concerns of inflationary pressures and a higher-for-longer interest rate narrative grew, then latterly the announcement that HH2E had fallen into administration. Before this, FGEN’s discount had been narrowing. Over the year to 31 October 2024, FGEN’s shares traded in range of a 12.1% and a 30.2% discount to NAV, and averaged a discount of 19.5%. As mentioned, FGEN’s discount has widened further and at 28 November 2024 it was trading on a discount of 32.2%.
Fund profile
Further information can be found at FGEN.com
FGEN invests in infrastructure projects that use natural or waste resources or support more environmentally-friendly approaches to economic activity, support the transition to a low carbon economy, or mitigate the effects of climate change.
FGEN’s assets are broadly categorised as intermittent renewable energy generation, baseload renewable energy generation and non-energy-generating assets that have environmental benefits. Intermittent energy generation investments include wind, solar and hydropower. Baseload renewable energy generation investments include biomass technologies, anaerobic digestion and bioenergy generated from waste. Non-energy-generating projects include wastewater, waste processing, low carbon transport, battery storage, and sustainable solutions for food production such as agri- and aquaculture projects.
FGEN aims to build a portfolio that is diversified both geographically and by type of asset. This emphasis on diversification reduces the dependency on a single market or set of climatic conditions and helps differentiate FGEN from the majority of its peers, which tend to specialise in solar or wind.
Reflecting its objective of delivering sustainable, progressive dividends and preserving its capital, FGEN does not invest in new or experimental technology. A substantial proportion of its revenues is derived from long-term government subsidies.
FGEN’s AIFM is Foresight Group LLP (Foresight). Foresight is one of the best-resourced investors in renewable infrastructure assets, with £12.6bn of AUM as at 30 September 2024. This includes Foresight Solar Fund, which sits in FGEN’s listed peer group. Foresight has a highly experienced and well-resourced global infrastructure team with 180 infrastructure professionals managing around 4.7GW of energy infrastructure. It is a global business, with offices in eight countries. The co-lead managers for FGEN are Chris Tanner, Edward Mountney and Charlie Wright.
