Liquidation: 80% Upside
This idea was shared by Daniel.
Introduction
This trust has exemplified almost every issue renewable trusts have faced. Firstly, American-only funds have been viewed to be at a disadvantage compared to funds in other regions during the recent inflationary spike as the long-term PPAs common in the US generally limit rate increases to 1-2% steps. Secondly, it was sub-scale, only half the size of its closest peer ‘US Solar’, limiting its investor appeal. This also compromised its diversification, which meant it was hit hard by operational setbacks in 2023. Its flagship asset, the Whirlwind wind farm in Texas, accounting for 33% of the portfolio, had transmission poles damaged by a tornado, whilst a solar farm in Massachusetts was infested with rats (really) and taken offline for months. This has led to a sustained 30+% discount to NAV, one of the widest and most consistent of all infrastructure trusts listed in London, so it almost seemed like it was being put out of its misery when a strategic review was initiated in September 2023.
The trust has two shares traded – ticker RNEP in Sterling and RNEW in USD. Given they are listed in London and Sterling has been on a strong run since 2022, liquidity for the dollar denominated shares is very limited. RNEP volume is hovering around 20-30,000 at the moment. Bid/ask spreads are currently at over 5%.
Catalyst
The board has so far achieved little. At first, it was reported that they were looking for a merger partner, and then a buyer for the entire portfolio. More bad news has come in recent months as oscillation concerns from the new Whirlwind transmission line have forced ERCOT to severely limit the farm’s output until a new substation is built in Q4 or Q1 2025. This looks to have delayed the sale process.
A catalyst has emerged more recently. Wind-down specialist Brett Miller has been appointed to the board as of July 11, 2024, arriving after spending time at Digital 9 Infrastructure, another beleaguered fund conducting a liquidation. The company announced in June that it was now in “specific discussions and negotiations are ongoing but have been taking longer than anticipated”, so there are signs of progress.
Whilst Whirlwind is an ageing asset that could take longer to sell, one advantage is that there’s only 4 years remaining of the current utility PPA, and a new contract could be reached at a higher price given the inflation of recent years. The turbines themselves are unharmed from the extreme weather last year and thanks to insurance, the financial hit to Ecofin has been limited.
The rest of the portfolio consists of a mix of rooftop and utility solar projects largely in California and the North-East coast that are newer and have longer PPAs remaining. The two largest, Echo Solar in Minnesota and Beacon Solar in California, account for 21% and 17% of the portfolio respectively. This means three assets comprise 71% of NAV.
Portfolio as of March 31:
Valuation
Current NAV is $0.79/share at an unlevered discount rate of 7.5%. There is also likely to be another 1-2¢ in dividends until any sale goes through. There is scepticism of this given US Solar Fund’s (peer of RNEW) discount rate has increased to 8.8%, based on recent transactions including its own asset sales. Ecofin’s spread across technologies is not enough to warrant a 1.3% lower discount rate in my view and equalising it to USF’s lowers NAV by roughly 16% to circa $0.66/share, which seems like a realistic sales valuation. There is a moderate chance Whirlwind will be impaired, so taking that into account together with transaction costs I propose a conservative realisation value of $0.60/share (that assumes Whirlwind is written down by 30%). Trading at $0.33/share, there is ~82% upside, though this may take anywhere from 12 to 24 months, or longer, to materialize. Despite the long timeline, I believe this provides an attractive margin of safety as well as little currency risk for US-based investors, with the potential for further upside once interest rates come down. The latest portfolio sensitivity suggests that 50 bps cut would boost the valuation by 8.3%.
The assets continue to provide cash flow in the meantime, with 2.1¢ in dividends targeted for the last two quarters of 2024.
The trust’s gearing is around 40%, consisting of $49m non-recourse project-level debt, and $27m drawn under an RCF at group level, against around $1m cash. The RCF is a $65m secured facility, of which the main tranche is due in October 2024. Ecofin expects to renew on favourable terms but its worth noting its lender only extended for 12 months last year.
Why does the opportunity exist?
I believe this is mainly because (1) the market expects it will take a long time to wind down the trust and convert NAV into cash, and (2) the market is sleeping on this opportunity due to its small size and illiquidity. 70% of NAV is tied up in three assets, and since one of those is upcoming, that’s great. But conversely, any delay in the other two will substantially affect capital returns. Specifically, I’d be gobsmacked if Whirlwind was the first one to go, as it won’t be fully operational until next year, meaning 33% of NAV is locked away for now. In my opinion, this is driving a substantial part of the current extraordinarily large discount. Cash flows for the next 6-12 months (equivalent to perhaps a few pence/cents per share) will be exclusively redirected to debt repayment, so any transaction expenses will eat into the trust value. But I think investors are still missing two key points:
- debt reduction will boost NAV;
- the longer the wind-down takes, the higher valuations could potentially go, due to interest rate cuts. As I mentioned earlier, a 50 bps rate cut theoretically increased NAV by 8%.
For this reason I’m not too worried about excessive costs as they should be largely offset, the margin of safety is huge, and the asset valuations are now much more robust. It is much easier to sell individual projects than an entire portfolio.
I don’t think USD investors take any currency risk by investing in the more liquid RENEP (the GBP version), so long as we don’t (mistakenly) hedge the position back to USD.
The underlying assets are in USD, which is all that matters. (I assume the company at the corporate level doesn’t hedge USD incomes back to GBP?).
I think the discount rate is linked to longer-term rates (such as 10-year treasury), which don’t necessarily decline as the Fed continues to cut rates (because longer-term rates already anticipate a future rate-cutting path).
So 10-year rate is unlikely to fall from 3.75% to 3.25% when the Fed cuts overnight rate from 4.75% to 4.25%.
What’s downside/risk here? Is it in fact only timing?
The downside is that the fund provides very little disclosure about the underlying assets (i.e. insurance proceeds, interest rate of their debt, yada yada) – basically you are taking a big leap of faith believing the discount rate they use is correct. With some minor assumption changes (to for example that discount rate) NAV is all over the place. They already tried to shop these assets without any results – not a good sign, whatever explanation you have for that.
The assets structurally operate below budget (making me question the quality of both management and these assets) and they have a loan that matures in a few weeks so the bank could pull the plug at any moment ( “The Directors acknowledge that this may indicate the existence of material uncertainty which may cast significant doubt about the Company’s ability to continue as a going concern” ).
I agree with Daniel that it’s an interesting situation. Brett Miller is a bit of a legend in UK small-cap land. But I don’t think there’s no downside. I’d caution anyone to have too much faith in the NAV mark and at least come up with some sort of valuation yourself. Never underestimate the capacity of idiots to disappoint you over and over again.
That and the general concentration of their holdings. Since the board has now recommended a managed wind down, they have communicated it may take some time to realise value. Two years would be a safe bet and that still gives a pretty attractive IRR. The biggest benefit of a more drawn out wind down is that shareholders may start to benefit from the Fed interest rate cuts increasing volumes in the secondary renewable market.
I would say there is almost no chance of assets being sold below current implied value, which is assuming very large write-downs to key assets. There is probably a lot of doubt surrounding Whirlwind specifically, but its important to point out no future owner would be on the hook for repairs/upgrades and ERCOT is a large market with attractive economics.
The investment manager is reputable, they have over $1.4b AUM and a fairly successful utilities fund running for almost 8 years.
Latest reporting is here: https://citywire.com/investment-trust-insider/news/ecofin-us-renewables-announces-wind-down-and-suspends-dividend/a2449736
didnt they suspend dividend though (sep8th announcement)? do you expect it to be turned back on, or otherwise what explains your divergent view?
isnt the issue they just concluded a >1yr strategic review for the whole co with zero ‘acceptable’ bids for the whole company – meaning, 20% discount to NAV? since the asset base is so concentrated, doesn’t that increase risk that the NAV mark is just very hard to get comfortable with? and surely if anyone wanted one of the main assets during that process at anything close to NAV the board would have just signed those deals ad hoc (which they didnt)?
not a renewables guy and the discount is juicy but with the div turned off and the assets well shopped this seems tricky.
I finished this writeup before the recent announcement, so no I don’t expect future dividends! I think deleveraging is the right priority given the circumstances.
Despite the concentration, the trust has quite a varied mix across technology and geography. There are only so many buyers that would pickup utility solar, rooftop solar, and wind across multiple states in a single transaction, so I think your suggestion is exactly what happened. They struggled to ship the whole fund, and started negotiating ad hoc (and have guided the first deal is progressing). But they only formally ended the previous sale strategy this month. This is a liquid market (compared to most “alternative assets”) with lots of players, including utilities, energy companies, institutional investors and developers. Developers actually use the secondary market as a vital source of funds so these are real figures.
Investors were right to be sceptical of the previous NAV, and the prior discount rate probably also hampered any negotiations. The valuation has since been rectified to pretty much what I expected. Nothing in the portfolio suggests to me that it might be unsaleable at close to NAV. Whirlwind is the biggest risk given its transmission issues, large portfolio weighting and age, but none of these should prevent a sale, especially with a discount. Ecofin has the mandate to consider all offers, and while it is 17 years old, it is still almost a decade off requiring turbine replacement. Ex-Whirlwind, there is very likely 35p/45¢ realisable value here, with 40-50p the target range overall.
Is it possible to find out how much money the portfolio subsidiaries are making, either collectively or separately? The company doesn’t consolidate its subsidiaries, instead measuring them at fair value. Its revenue and thereby the whole P&L and cash flow statement appear discretionary as it’s dividends paid down from another entity. Another renewable energy trust I invested in applied the same IFRS 10 but disclosed a detailed portfolio breakdown.
They do not, although they do break down generation per asset in their annual reports, so you could do a rough estimation.
I’m not sure if my rough estimation is way off base or not, so I’ll add it here. I’m trying to get at the cash flow produced by the portfolio for any buyer (debt and equity) excluding overhead. I’m using the latest reported NAV of $0.6503, it’s very close to your proposed $0.60 realization value.
I’ll assume RNEW has the same prices and margins as the larger peer USF. I’m assuming wind and solar are the same as it’s roughly the same % of fair value and capacity. RNEW 2023 generation was 30% of USF. USF reported $25.9 million project cash flow before debt expense and overhead (debt + equity at NAV of $383m). So that would be $7.77 million for RNEW (debt + equity at NAV of $166m). Something should be added to normalize for the wind project lost generation and extra expenses that were covered by insurance, as well as 3 projects that were not yet generating in 2023. Rat losses I’m not sure, seems like insurance didn’t cover and maybe a recurring incompetence issue in light of other projects also being way below forecast. Using capacity % (40%) instead of generation as a proxy for a normalized number it would be $10.36m.
According to RNEW’s annual report “net cash flow generated was able to cover $4.8 million of dividends”. This would include some part of insurance recoveries but since no additional detail was provided it’s hard to know what else it includes or doesn’t. Interest expense would have been about $5.5m, so total maybe about $10.3m.
I think you’re in the ballpark. They do report overall revenues:
From the 2023 annual report:
“The performance of the underlying operating portfolio combined with its 100% contracted revenue structure generated revenues of $7.3 million for the Company.”
From 2022 with no disruption:
“The performance of the underlying operating portfolio combined with its 100% contracted revenue structure generated revenues of $13.4 million for the Company.
Average of $0.04/KWh which is right on for renewables.
8.5% pre-tax discount rate seems very low when 33% of your NAV is based on a wind project with 4 yrs left on its existing PPA. Strategic would likely repower it to take advantage of another round of PTCs (which probably gives it more value/upside, but don’t think buyers are paying for that now).
Given how near that PPA is to ending, whatever price forecast they’re using is doing a lot of work here.
I can see why no buyers were interested – a bunch of subscale assets and a mix of commercial/utility scale.
My other q would be, is the market for this size of asset liquid enough to earn those kind of discount rates?
I think there’s a lot more risk in that NAV number than one would like. I think the ideal view would be to do a blowdown here, make some reasonable assumptions on op costs, and see how much the work the post-PPA period is doing for the NAV.
That discount rate is in line with peers and recent transactions according to disclosures from several parties, although I agree the wind project should be a considering factor.
I found this resource which suggests Whirlwind could see a broadly similar PPA price if it renewed last year: https://www.renewafi.com/blog/ercot-ppa-offer-prices.
ERCOT seems to have been softer recently after so much renewable addition, but I doubt PPA prices will be substantially lower in 4 years. Could be wrong. https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/north-american-solar-wind-power-prices-continued-ascent-in-2023-8211-report-80219261.
In any case, as I mentioned in a comment above, NAV for the rest of the portfolio (which I think had >18 years PPA remaining) is 45¢.
On liquidity, see my comment in response to puppyeh. It’s difficult to tell but some research from 2020 pegged the global market at $289b. It’s fallen since then but the overall renewable energy sector is larger than it was four years ago. There’s still plenty of upside at a 10% discount rate.
https://www.european-services-strategy.org.uk/news/2020/626-transactions-in-global-renewable-energy-secondary-market-in-20-months-in-2019-2020-cost-us289bn
I think I’m missing something super obvious but if it’s trading at 33p ($0.44) and NAV is $0.60/share isn’t that a 36% return not 42%?
While RNEW is listed on LSE, it trades in USD, not GBP. So the current price is $0.33/share. The typo has been corrected in the write-up.
RNEW released its half year report. As of June 30, reported NAV stood at $0.65/share (vs. $0.852/share in Dec 2023), mainly due to an increase in the discount rate from 7.4% to 8.51%, driven by transmission issues at the Whirlwind wind farm and delays in the Echo Solar portfolio. So Daniel’s estimates in the write-up have been quite right.
https://www.londonstockexchange.com/news-article/RNEW/half-yearly-report/16684333
Interesting pitch Daniel–really like the premise. Spent some time researching comps and it seems like virtually all of them are trading at meaningful discounts to NAV ranging from 41% (US Solar) to 16% (TRIG). A number of them also have it written into their bylaws that they must hold a discontinuation vote if they trade at a >10% discount for more than a year. US Solar shareholders voted 65% against discontinuation this spring and Foresight Solar voted 76% against it but I can see a world in which shareholders get fed up in the next year and vote to dissolve a number of these trusts (which would bring a lot of assets to market). Think this could still be an interesting pitch but trying to figure out if the risk/reward is worth it given that these assets seem unlikely to sell anywhere near NAV.
Thanks for the comment! You’ve touched on a really important point so thought I’d add some colour here.
So most infrastructure and alternative assets trusts are of course highly correlated to interest rates given their high fixed revenue and financial gearing – you will see them move in tandem with benchmark UK assets. Given the trajectory of interest rates in recent times they have all been slammed pretty hard. This has been compounded by a marked decline in LSE liquidity over the years, especially for smaller-cap names, as well as unfavourable cost disclosure regulation. Most have adjusted their discount rates higher, some have bought back stock, but the discounts have persisted as there simply hasn’t been the demand to soak up all the selling pressure whilst risk free rates remained high. Those with the longest track record, best management and favourable financing arrangements (like TRIG) have suffered the least.
For the record I don’t believe they will be able to achieve NAV either, but 50¢ seems very realistic, and that is a 17% discount to the present valuation. Other renewable assets have sold at or close to NAV, one has even sold at a 14-19% premium: https://www.morningstar.co.uk/uk/news/AN_1696579213440396700/octopus-sells-two-polish-wind-farms-to-orlen-affiliate-.aspx and that was well before any rate cuts. Renewable valuations are undoubtedly lower than they were a few years ago, as they should be, but the secondary market is orderly. Some of the current discounts to NAV go far beyond that in my view, so I think it’s a messier picture than scepticism. Certainly investors have been quite wide of the mark on several discontinuation/M&A events recently, including in the sale of Hipgnosis, which was another trust idea I highlighted on SSI.
On saturation, I will say that there is essentially no chance of the large trusts discontinuing, at least within a timeframe relevant to this windup (and by large I mean those above ~£1b in assets). They all have their own cornerstone investors and various long-term focused institutions, including major UK pensions, backstopping them. What’s left is a rather small universe of around a dozen trusts that likely total less than £3b aggregate NAV, focused on a wide range of technologies (eg hydrogen, batteries) and geographies. US Solar is the only other trust with significant investments in North America so I’m not overly worried about a glut of sales.
There’s lots of interesting commentary on the situation, one recent piece: https://citywire.com/investment-trust-insider/news/james-carthew-crazy-lack-of-demand-for-cheap-renewables-funds/a2445948
Thanks for the color Daniel, makes sense and appreciate all the work you’ve put into this. Do you feel that London-based renewable infrastructure trusts have been disproportionately hurt by some of the dynamics you mentioned (poor liquidity etc.) relative to American trusts? I haven’t been able to calculate NAV for Brookfield Renewable Partners (BEP), NextEra Energy Partners (NEP), or other US funds yet (they don’t break NAV out as cleanly as their British counterparts) but would love your thoughts on how they are trading and any recent acquisitions they’ve made given that I see them as likely buyers.
As a follow on: I’m looking more at US Solar Fund which is trading at 37% discount to NAV with a 9.2% discount rate. If we apply a 9.2% discount rate to RNEW:L’s assets vs. their 8.51% discount rate, it likely looks closer USF’s discount to NAV (37% vs. 49%). I know this stuff is never apples to apples but would be curious to get your thoughts given I worry this implies RNEW:L’s assets are not significantly undervalued relative to USF:L.
US Solar Fund is interesting because I don’t think RNEW is more undervalued, it just has an active catalyst that is likely to close the discount. They recently completed a $20m tender at a 60%+ premium which says a lot about where it’s trading. USF should probably have a lower discount rate given its larger, higher quality assets, but as you say it’s not always that simple.
I don’t follow the US names close enough to comment but like in most cases, I’d be amazed if the answer wasn’t a resounding yes.
They are selling most of their solar assets for a $54.4m enterprise value or $34.5m cash proceeds:
https://www.londonstockexchange.com/news-article/RNEW/proposed-disposal-of-distributed-solar-assets/16809979
The Company also estimates that, taking into account the net proceeds receivable pursuant to the Disposal, the unaudited net asset value per ordinary share (as at 30 June 2024 on a pro forma basis) will be reduced to approximately US$0.53, representing a discount of 18.5 per cent. to the latest published unaudited net asset value per ordinary share as at 30 June 2024 of US$0.65).
Good news that the worst quality assets are out of the window.
“The Board is exploring the potential realisation of the remaining assets in the Portfolio comprising the “Whirlwind Energy” wind asset and its share of the “Beacon 2” and “Beacon 5″ solar assets.”
Net cash is around 10¢ per share. So a fifth of NAV is cash, and the discount to NAV is now 32%. The market is implying ~25¢ realisation from assets booked at 40¢. Utility scale solar is more liquid, and with Whirlwind priced at almost a complete write-off I think there’s still attractive 25-40% upside, with the possibility of a nearer term capital return.
When an IT is being wound up, they usually sell their best and most attractive assets first, just because it’s easier to find buyers for them. What makes you think the company can find buyers for the remaining assets? The renewable sector isn’t attractive to investors at the moment and USF was unable to find buyers for its assets at acceptable prices. Thanks.
Hi, sure. The sector certainly isn’t booming but there’s a good level of activity, especially from private equity buyers. Just today Orsted have sold stakes in some onshore projects at 86¢/MW, which included a large battery storage site that doesn’t fetch the same multiples as the mature techs. https://orsted.com/en/media/news/2024/12/orsted-divests-shares-in-three-us-solar-and-batter-1419547111
Other examples:
Another stake in a solar+battery portfolio to Apollo at ~ 80¢/MW https://www.nasdaq.com/articles/apollo-funds-acquire-50-stake-2-gw-texas-solar-bess-portfolio
Sale of 89MW portfolio to Blackrock, undisclosed https://www.reuters.com/business/energy/excelsior-energy-sells-solar-assets-inaugural-fund-blackrock-2024-03-12/
Sale of 395MW solar, undisclosed https://lightsourcebp.com/us/news/jera-nex-expands-presence-in-us-with-395mw-solar-farms-acquisition-from-lightsource-bp-2/
Assuming a price below the above for the solar farms, I’d expect around $70m. Knock off the $49m project-level debt:
21¢ per share utility solar
10¢ per share cash
3¢ per share cash flow until windup
-2¢ per share termination costs
Gets you to 25¢. Now Ecofin paid $49m for Whirlwind in 2021, book value is around $40m (29¢) now. So you could say best case is around 54¢. If it sells for something more distressed, say 50% of par, that would be 39¢. That is still almost 30% upside. And there is nothing fundamentally wrong with the asset other than its age, which is baked into its valuation.
Any concerns regarding the recent transition of the chairman?
https://www.londonstockexchange.com/news-article/RNEW/directorate-change/16842014
Not particularly, I see this as continuing with the process of winding up, especially now the that the liquidation specialist will be in the driving seat.
Thanks DanielK. Really good analysis so far.
Small update:
Asset Value Investors, which is a well-known activist in this space (those who read my Hipgnosis writeup will recognise the name) published their December commentary and, despite being disappointed with the valuation of the first sale, are continuing to hold. AVI have been invested in RNEW since the tornado event in 2023 and indeed are overweight the renewables sector as a whole. One reason they remain confident is that Trump-IRA uncertainty could make existing projects more attractive.
https://www.assetvalueinvestors.com/newsletters/?filter=migo&company_name=Ecofin+US+Renewable+Infrastructure&company=ecofin-us-renewable-infrastructure
That’s quite reassuring. I’m aware of AVI and the manager Joe Bauenfreund. They understand the IT space very well.
Positive news for RNEW. The management fee structure has been updated to better align the incentives. Previously, the fee was 1% per annum of the company’s NAV (up to $500m), paid quarterly. Starting January 1, 2025, the fee will instead be calculated on the lower of the company’s market cap or NAV.
https://www.londonstockexchange.com/news-article/RNEW/new-management-fee/16862151
Thanks, was waiting for this given a lot of trusts are improving their offering on this side at the moment. Nice to see it retroactively reduced to reflect the lower NAV post the sale last month. Savings should not be insignificant given the massive discount.
The investment management agreement has been terminated. The phrasing is interesting. The investment manager will now “work with the Board towards an orderly transition during its 12-month notice period.” Does this imply that everything gets wrapped up in 12 months?
https://www.londonstockexchange.com/news-article/RNEW/investment-manager-update/16889365
Certainly a chance they have bids on all the remaining assets and decided to start the ball rolling on the IM. I’m not sure if this is common, as a lot of wind downs have resulted in new managers being appointed, which are unlikely to have had lengthy (if any) notice periods.
Obviously a much larger-scale transaction, but Brookfield have today bought National Grid’s US Renewables business for an enterprise value of $1.74b. With 1.8GW operational, this is 95¢/MW which is on the higher end of the ballpark I’ve discussed previously, due to a 1.3 GW pipeline, valuation ex-that is likely in the 70-80s). More evidence of US demand and potential validation of AVI’s thesis.
https://www.proactiveinvestors.com/companies/news/1066753/national-grid-to-sell-us-renewables-unit-for-1-7bn-to-brookfield-1066753.html
RNEW has recently completed the previously announced disposal of distributed solar assets. Net proceeds amounted to $33.5m, compared to the $34.5m estimated initially, due to certain adjustments. RNEW has used $23m of the proceeds to repay its revolving credit facility. The stock continues to trade at a 45% discount to NAV.
https://www.proactiveinvestors.co.uk/companies/news/1067974/harmony-energy-income-trust-flags-191m-foresight-bid-approach-1067974.html
Looks like there’s good demand at close to NAV prices for renewable assets, and I can’t see why RNEW will have any trouble selling their holdings.
Harmony Energy Investment Trust just disclosed a firm offer price for their portfolio and shares jumped 22%. They already said they were negotiating the sale at prices close. to NAV in November 2024 when I bought in at 54p, and I was surprised that buyers let the stock hang around the 60-65p level while buyers were lined up.
In retrospect I should have recommended it to SSI but I’m quite new here and it didn’t cross my mind, so sorry about that.
Possibility of a bidding war too bringing it even closer to NAV, definitely could have been a SSI contender! I also bought into HEIT as the dip below 50 was, again, totally irrational. GSF is another one of my biggest positions and trades at less than 5x normalised EBITDA.
I’m pretty confident on RNEW and have been adding. They have $10m of cash, and $45m project debt left. At 40p EV is only $90m, for a 113 MW utility scale portfolio (bearing in mind they just sold assets at >$1.10/MW). EBITDA is more a stab in the dark but I think we can all do the math and see how low the hurdle is.
Last month Brookfield joined the growing chorus of voices noting the gigantic gap between public and private renewable valuations, saying they were “monitoring a few things”: https://www.ft.com/content/79bf91a3-5450-46cd-8aff-748c6d40ff44
M&A increasing, Innergex being taken private by CDPQ at 14x EBITDA (an 80% premium) https://www.innergex.com/en/media/innergex-enters-into-definitive-agreement-to-be-acquired-by-cdpq-for-13-75-per-share
Another piece in the FT yesterday showing the clean energy index at a 5 year low: https://www.ft.com/content/c9280df5-eaa6-4bbe-a36e-6fe908fba0f5
Don’t know, seems we’re quite far down the tunnel here sentiment-wise and the bottom of the barrel has completely fallen out since the election. I’m certainly keeping a very close eye on some opportunities.
I find it very difficult to buy/sell RNEW or RNEP on the market, unless paying a very wide bid-ask spread such as 5%. Any technical advice on trading them?
Liquidity has been lower recently and it has taken me a couple days to complete orders. My position is 100% RNEP as I’m UK based and it had more consistent trading last year but RNEW is actually more than twice as liquid over the last few months (don’t know if that’s an SSI/general overseas interest effect). I have an outstanding order from the 3rd March that still hasn’t fully filled, and I’m buying in pretty small batches, so I would avoid RNEP. Still, I can see there’s several days where RNEW notional volume is under $1k.
Correction on my comment above: $90m EV would be 40¢ not pence. I’m treating that as a floor for expected liquidation value.
Yeah I have a large position in GSF, because it basically sold off when GRID had issues with connecting its batteries to the UK network, but GSF was far more diversified internationally. 15.5% yield, low debt and about 50% discount to NAV is madness, but it’s not a special situation, just great value. I saw the comments by Brookfield.
I suspect there are lots of discussions re taking assets private going on behind closed doors.
BNEF reporting 5% fall in offshore wind valuations per MW in 2024.
https://www.rechargenews.com/wind/buyers-market-for-wind-assets-as-sales-and-valuations-fall-bnef/2-1-1809992?zephr_sso_ott=RYn6ki
Peak Wind, an EU based consultancy, published their global transaction report for 2024 which showed average multiples holding fairly steady YoY (Onshore wind not far from the values discussed here). Though this includes pipeline deals which are valued less than operating assets, there may well have been less appetite for existing projects in the US where the regulatory environment has worsened sentiment. Both show overall M&A volumes declined 20-30% over 2023. Will be interesting to see how numbers given the uptick so far this year. I’ve counted three large listed renewable takeovers (two in NA) at an average multiple of $2m/MW (or ~$1.3m/MW including projects in construction and near term development).
https://peak-wind.com/wp-content/uploads/2025/04/Transaction-report-2024-2-2.pdf
Do I get it right that RNEW’s NAV has dropped even further to US$0.447/share, compared to previous US$0.53/share, due to some issues in Beacon and Whirlwind assets? Seems like a pretty big swing. It also looks like the liquidation could take longer than expected as management doesn’t want to sell at low prices:
“However the Company is not a forced seller at any price in the short term and the Board will review over the next few months the two assets in detail to understand what if anything needs to be carried out before any sale to improve the likelihood of receiving a fair price for shareholders and, in so far as it is possible, the appropriate timing of any sale, recognising also that there may need to be a period of time before there is greater clarity of the environment for selling renewable assets. This includes the impact the economic policies of the new US Administration may have on the Company’s ability to operate these assets whilst at the same time seeking a fair price for shareholders for these assets as part of a Managed Wind down. However the Board does not expect the Company to retain the assets for any length of time and will keep shareholders informed as its thinking progresses”
https://www.londonstockexchange.com/news-article/RNEW/final-results/17005145
The latest valuation is 50% based on bids received:
“given recent market data received by way of bids from third parties, a market approach was also used in combination to determine fair value”
My estimated SOTP: https://i.imgur.com/lNOBwKa.png
So we can trust that the real value if sold right now is somewhere between $0.40-50, 30% upside to the price when the idea was shared. This is more or less in line with both the developed market renewables basket I track and UK trust peers. It is lower than the premiums recent listed owners have been taken private at though (which are, simply put, 15-40% above current multiples), which is why I think management are hoping for higher bids.
I’d say at this point everything revolves (no pun intended) around Whirlwind and how much can be realised, and how quickly. The asset is expected to require a repower in 2027 which would affect how much a buyer is willing to pay. However, it was not powered for half a year in 2023 following the tornado, and has been at limited capacity during 2024, extending its effective lifetime into 2028. Further, it is already valued more like a development project, much less than a regular wind farm.
It is also worth noting it has been under an O&M agreement with the manufacturer (Siemens Gamesa) since installation, who offer a life extension program to owners prolonging operations for 10 years and beyond. Given Siemens is incentivised to keep the asset under contract I expect this is quite attractive.
I have written to the company asking if they are assessing opportunity cost of waiting for a valuation rebound v further Whirlwind depreciation, what options they are considering for Whirlwind in terms of extension/repowering etc and whether they will consider a capital return this year given cash is likely to exceed £15m at YE.
Looking at the shareholder register, 20% is now held by Almitas Capital, a US hedge fund focused on “securities trading at discounts to intrinsic value” according to their website. Another 15% is still held by AVI.
Thank you. Do you know if they were actually legally required to adjust the valuations based on the bids received, or was that their own choice? It would seem pretty strange if they made a 50% cut, only to then decide not to sell because it was too low.
Annual report mentions that this is standard under IPEV guidelines. The valuer is (in theory) supposed to be independent too. It could be that they received a couple lowball opening offers materially below their NAV which required the methodology shift (say in the high $0.30s) but they expect more in the $0.40s. It’s interesting that they’re considering onsite BESS to enhance the attractiveness of the solar farms. There could be a very enticing ROI on that but again it should be weighed against capital returns and the timeline.
Ecofin Advisors is officially out. The trust has applied for FCA approval to become a self-managed AIF, and will terminate the investment manager contract early. Ecofin Advisors waives all fees from May 6 until the FCA approval date and will pay $100k to the company upon exit. Operational oversight moves to Sustainability Partners, a U.S.-based infrastructure services firm. Nancy Johnson (ex-NextEra, VP at EA since 2022) will continue managing the assets as CFO at SP.
SP will charge the lower of 1% of NAV or market cap, vs. the previous flat 1% of NAV under Ecofin. With RNEW trading at a ~45% discount, this change cuts the effective management fee nearly in half. Minimum annual fee is $325k.
https://www.londonstockexchange.com/news-article/RNEW/new-management-arrangements/17019930
As someone who has been bearish on this idea, at these prices it’s approaching a mgn of safety but still not attractive enough imo.
My very rough SOTP based on what I have seen in MKT (all EV)
Beacon 2: $27m ($900k/mw)
Beacon 5: $22m ($900k/mw)
Whirlwind: $22m (rough cash blow down at $25/mwh for ebitda and 12% wacc)
Cash: $11m
Total: $82m
Less debt: $42m
Less txn costs: $3-5m
NAV: $35-37m before txn costs
Current: $34m
Upside: 3 – 9%
Main unknowns here are if there are any unique ppa terms on Beacon as the PPA appears roughly in line with mkt today. Can build solar at $1.25m/MW and can discount 8 years out of the life to get to $900k/MW
Whirlwind is a bit of an unknown on what the PPA looks like so could be some flex there. I assumed a 25 yr asset life as that’s what that vintage of wind is seeing. Downside there from additional abandonment costs if that is what happens vs. A repower. I assume it gets repowered but those econs are tough to handicap because there’s a lot of work to be done and I’m not sure how much someone is willing to pay for that.
Almitas Capital, a US hedge fund (holding since at least 2024) have been buying and now control 24.4% of shares (incl. derivatives).
Don’t know how I missed this but Ecofin has signed a LoI for the disposal of Whirlwind to an undisclosed buyer. It consists of three parts:
1. A guaranteed $12m paid on closing
2. An “escrow holdback” of up to $11m paid paid depending on the transmission curtailment issue being solved, reducing equally every month of 2026 until December
3. A “repowering earnout” of up to $7m ($0.27m per turbine) for every unit repowered by Dec 31 2027
Tackling the earnout first, this is in line with the deadline for production tax credits under the Trump admin phaseout. Based on Section 45Y PTCs and assuming like-for-like capacity replacement and below average capacity factors, the new owners would be in line for credits of $1.1-5.5m per annum for 10 years (excluding inflation uplifts)/$11-55m total. This does not take into account the likelihood of upgrading to larger turbines. Given wholesale rates can be volatile, especially in West/Northern Texas, the buyers are clearly incentivised to get towers in the ground before the deadline to secure this subsidy, so I would say the likelihood of this being paid is high.
The escrow is more of an unknown. During the half-year report management stated the following:
“Whirlwind continues to work with ERCOT and AEP to lift the curtailment restriction, engaging with engineering consultants to undergo the necessary studies. Ongoing oscillation and instability issues on the extended transmission line to Paducah have necessitated curtailment by ERCOT, limiting output to 30 MW until grid stability improves. Whirlwind continues to collaborate with NAES, the Balance of Plant manager, and Siemens Gamesa, the turbine O&M provider, to integrate a real-time data feed into the production database. This enhancement enables more effective analysis of production drivers and performance metrics. While Whirlwind’s overall production capacity has improved, resolution of ERCOT’s curtailment remains critical to achieving increased operational potential. Strategies are also being developed to replace damaged transmission poles and limited roadway access. Both are expected to be resolved by the end of 2025. The current DCF model for Whirlwind assumes full reconnection takes place by June 2026.”
But back in April they expected this issue to be resolved by “Q2 2025”. ERCOT curtailment is “exploding” (https://www.amperon.co/blog/us-solar-and-wind-curtailment-is-exploding), so one does have to question how high this is up their priority list when they’re struggling balancing the grid so much day-to-day. But I’m not an expert in the Texan grid, maybe others know more here. To me, it seems highly unlikely more than $3.5m will be paid (assuming full connection by June) and a decent chance that nothing will.
That means total consideration is probably $19m. So NAV is around ~37¢ (68% upside), can assume future cash generation will offset transaction fees. If Beacon sells for $0.9m/MW as Warrant Buffett suggests NAV would be around ~28¢ (27% upside).
https://www.londonstockexchange.com/news-article/RNEW/proposal-for-disposal-of-whirlwind/17305886
https://taxnews.ey.com/news/2025-1160-inflation-adjustments-for-renewable-energy-production-tax-credits-issued-for-2025
Deal needs to close asap to get the re-powering upside. Should know pretty quick if it’s likely as the buyer would not risk missing that 2027 deadline so I would agree that is reasonably high likelihood. Incentives between the buyer and Ecofin are also aligned as the re-power should be more than lucrative enough to justify the earnout.
On the curtailment, It’s based on every MW UNDER curtailment each month – it’s not binary whether or not there is curtailment. If it is fixed by June, my math says they should get $6.3m vs. the $3.5m you’re quoting – however my concern here is that it seems that the buyer will not be incentivized to actually push for getting the holdback removed.
Rough math on the 32.5MW is that it generates ~$4-7m in revenue per year vs. the holdback of $11m effectively for the entire year. Would like to know what the contractual protections Ecofin gets on it, but it seems bleak regardless.
Was hoping that this would at some point become more attractive but still can’t get there on it as I’m not sure how you get to your NAV math of 28c. H1 also had simply bad results for the solar which is problematic as well. Assets are clearly poorly managed, so I suspect the $900k/MW is also overstating the value they’ll get for them…
Separately, the curtailment article you’re highlighting relates to the lack of transmission lines whereas Whirlwind’s dealing with a specific technical issue on their transmission line so it’s apples to oranges. I have no idea of the solve here, but my read of the report is it’s on ERCOT to give them the go ahead to add back and there’s limited work for them to do to get it.
There’s the other issue that these earnouts are subject to the buyer gaming them which is also a concern.
Thanks, appreciate the comment. The alignment is an important point – as I see it its entirely on Ecofin to push for curtailment resolution. These are my workings for the 28c NAV:
Beacon 2 $27m
Beacon 5 $22m
Whirlwind $19m
Less debt ($42m)
Plus cash $12m
Total $38m (27.5c)
Whirlwind sale closed 31 Dec and up to $20m (14.5¢) capital return approved during the AGM last week.
Over the past 6 months, AVI has increased its stake meaningfully, both directly and through managed event driven funds. AVI now holds 21.4%, as well as 7%, 3.3% and 4.3% through Miton Global Opportunities, AVI Worldwide Opportunities and FINDA SPV OY.
Alongside Almitas at 24.4% this means the company is now majority owned (60%) by these two investors.
RNEW released results for 2025 and also announced the buyout of the remaining 51% stake of the solar assets for $4m, alongside a refinancing for a further 5 years. This may have been prompted by the Beacon sales process stalling last year.
NAV at year end was 37¢, valuing the remaining assets at around $0.95m/MW. Adjusted for the buyout, NAV was 34¢ (68% upside). Using the scenario analysis of the contingent consideration related to the Whirlwind sale, NAV assuming the curtailment holdback is fully forfeited is 30¢ (45% upside) and NAV assuming no repowering earnout is 25¢ (21% upside). As mentioned before, I think the scenario with no curtailment holdback but with the repowering earnout is most likely.
$10m (5¢) will be distributed via a capital return with ex-date of tomorrow. AVI has increased its stake by 2% in the days leading up to the announcements.
https://www.londonstockexchange.com/news-article/RNEW/final-results/17570486
https://www.londonstockexchange.com/news-article/RNEW/refinancing-acquisition-of-membership-interests/17573039