SMALL CAP IDEA: Renewables attract fresh interest, but the grid’s storage problem caps
UK-listed wind and solar investment trusts have held up better than the wider market as oil tops $100 a barrel.
The investment case is more compelling than it has been for two years. It also has a structural ceiling.
Why the sector is back on investors’ radar
Oil above $100 a barrel and disruption to Strait of Hormuz shipping have put energy security back at the top of the political agenda.
For UK-listed renewable infrastructure trusts, which spent much of 2024 and 2025 grinding lower on falling power price forecasts and widening NAV discounts, the timing is useful. The sector held up better than the broader market in March. Investors are taking another look.
The arithmetic helps. Greencoat UK Wind trades at a discount of around 26 per cent to NAV. Foresight Solar Fund is nearer 40 per cent. Analyst consensus targets imply upside of 40 to 55 per cent if the right catalysts arrive.
Yields across the sector run from 10 to 13 per cent, backed by assets with long-dated contracted or subsidy-linked revenues. In a volatile market, that income is not easy to dismiss.
The geopolitical backdrop adds a narrative that was absent 18 months ago. Wind and solar generate power with no exposure to Middle Eastern supply chains. That matters when tanker insurance costs are rising and gas import routes look fragile. Trusts with meaningful merchant price exposure stand to benefit most if power price forecasters revise their assumptions upward.
Renewable trusts are gaining fresh attention but there are structural problems at play
The structural problem the market is glossing over
The enthusiasm is understandable. It is also incomplete. The UK’s grid cannot efficiently absorb the renewable power it already generates, and that constraint does not disappear because oil has spiked.
Wind curtailment, the practice of paying wind farms to switch off because the system cannot handle their output, already costs more than £1.5bn a year, according to EnergyPathways.
The National Energy System Operator projects that figure rising above £8bn by 2030 as more capacity comes online. A wind farm switched off is a wind farm earning nothing. Trusts with high merchant exposure face a ceiling on upside if the grid cannot absorb output.
The problem is not generation. The UK has built enough renewable capacity to make a serious contribution to its power mix. The missing piece is long-duration energy storage, the systems capable of capturing surplus output during periods of high generation and releasing it when demand outstrips supply.
Short-term battery storage, the kind Gore Street Energy Storage Fund and Gresham House Energy Storage Fund deploy, operates over minutes and hours. It cannot bridge the multi-day or seasonal gaps the grid regularly faces.
The UK’s gas storage capacity compounds the problem. It is a fraction of what Germany, France and Italy hold in reserve, leaving the country exposed to price shocks during peak demand or supply disruptions. The Iran conflict has demonstrated exactly that vulnerability. The irony is that the geopolitical shock making renewable trusts look attractive is the same one exposing the storage gap that constrains them.
The EnergyPathways MESH project in the East Irish Sea, which combines offshore salt cavern and depleted gas field storage for natural gas, compressed air and hydrogen, is among the more advanced concepts in development.
Projects of that scale need long-term policy certainty to attract capital. And that’s something that’s in short supply at the moment.
Yet in the face of this uncertainty, EP is making significant progress. And it has managed to enlist a stellar line-up of potential partners. One of those partners, engineering contractor Costain, on Monday shortlisted possible locations for its long-duration energy storage project in Barrow-in-Furness.
Policy risk: what the government has already shown it is willing to do
Investors who have followed the renewables sector through a full cycle will not need reminding about regulatory risk.
The government switched the inflation support mechanism for contracted renewable revenues from RPI to CPI, a change that knocked 2 to 5p per share off NAVs across the sector. It was not a dramatic intervention, but it was a reminder that the terms of the investment case can be adjusted.
The Electricity Generation Levy, introduced in 2022 when power prices last spiked, is the more instructive precedent. Sustained high electricity prices create political pressure, and governments respond. Investors buying renewable trusts today for the energy price uplift should price in some probability that a portion of it gets taxed away.
Wind versus solar: not all trusts face the same exposure
The investment case varies significantly within the sector. Wind trusts carry less curtailment risk than solar because wind generation patterns partially align with demand.
Greencoat UK Wind and The Renewables Infrastructure Group both carry inflation-linked revenue streams and benefit most directly from the energy price spike. For investors who want renewable exposure with the least structural drag, these are the cleaner names.
Solar trusts face a harder set of problems. Peak generation occurs in summer, when demand is at its lowest, creating a seasonal mismatch that long-duration storage would
resolve and that, without it, acts as a permanent drag on revenue. Foresight Solar Fund is managing a wide NAV discount alongside an exit from its Australian assets.
NextEnergy Solar Fund has cut its dividend. Bluefield Solar Income Fund is in a formal sale process. The fund-specific issues at each of the major solar names reflect a sector under pressure that goes beyond the macro.
Octopus Renewables Infrastructure Trust, with its diversified mix of wind, solar and storage across the UK and Europe, sits between the two camps. Its ongoing disposal programme and stated ambition to reach £1bn in scale give it a different operational dynamic from the pure-play trusts.
A recovery play, not a structural compounder
The investment case for UK renewable infrastructure trusts is real. Wide discounts, double-digit yields, and a geopolitical shift toward energy security have created a window that did not exist 18 months ago.
For investors with a long time horizon and tolerance for policy risk, Greencoat UK Wind, with its size, liquidity and merchant price exposure, remains the most compelling large-cap option.
Foresight Solar Fund deserves a second look too, despite its wide NAV discount and ongoing exit from Australian assets.
The fund capitalised on recent energy price volatility to hedge production at favourable prices, contracting 87% of expected 2026 revenue and 75% of expected 2027 revenue. That gives meaningful visibility over near-term income at a time when power price forecasts remain uncertain.
The UK portfolio, the fund’s core market, has outperformed expectations in nine of the last 12 years.
The dividend was covered 1.3 times in 2025 and is expected to be covered at least 1.1 times in 2026. The fund yields 12 per cent and has paid every quarterly dividend since its 2013 listing. Retail investors appear to be taking note: their collective holding rose 27.8 per cent in the 12 months to 31 March 2026.
But the sector’s long-term returns depend on a problem no individual trust can solve: the UK needs a funded, coherent plan for long-duration energy storage.
Without it, curtailment costs will keep rising, NAV forecasts will stay under pressure, and the clean energy transition will oscillate between surplus and scarcity.
The MESH project is the kind of integrated solution the grid needs. Until projects like it have political and financial backing at scale, renewable trusts are a recovery play. The structural compounder thesis has to wait.
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