Why investing in wind assets forms a core element of Foresight’s investment strategy | Blog

The Foresight Inheritance Tax Solution

The Foresight Inheritance Tax Solution (ITS) is well recognised as a leading product for intermediaries who advise on Business Property Relief (BPR) in the risk managed space. The benefits of BPR are well documented and Foresight’s investment strategy of exposure to unlisted trading businesses predominantly active in the infrastructure and renewable energy sectors, has strong appeal for our clients.

To date, the fund has attracted over £500 million of inflows and has been wholly successful in sheltering BPR qualifying assets from inheritance tax. Considering the track record since launch, Foresight ITS has consistently delivered or outperformed the target annual return of 3.5%. Combined with the innovation of Foresight Accelerated ITS, which gives investors additional peace of mind for the first two years through a group life policy to offset any IHT liability, it is no surprise that our market share has quadrupled over the last 4 years.

Investment Strategy

We focus on four core areas when considering investments for the fund:

  • Long-term contracted revenues with strong/ultra-strong counterparties
  • Stable businesses with strong underlying asset quality
  • Low market correlation to equities
  • Fund diversification

Fund focus

The portfolio currently has 11 core holdings, the largest two of these are onshore wind and solar.

 

 

The focus for renewables & wind as an asset

The fund is underpinned by the UK Government’s commitment to reach ambitious targets to decarbonise the economy. This has resulted in a significant rise in the proportion of the country’s energy provided by renewable sources; my latest electricity bill confirmed the provision of power from 5 different sources, with renewables contributing 29%.

According to the climate website Carbonbrief, renewables contributed a record 33% of the total power used in 2018. Wind, amongst the most mature of renewable energy sources, contributed 17% of that energy. The impact of renewables on UK power shows little sign of abating; in one week alone in March of this year, 35.6 % of the country’s electricity was provided by wind.

Furthermore, cumulative installed onshore wind capacity in the UK has more than doubled since 2012. A record amount of new installations were built in the UK in 2017, with capacity for a further 2.6GW of energy. The new installations alone represent enough to power over 1.8 million homes or enough to keep the lights on and boil the kettle in homes across Birmingham and Liverpool combined.

Investment returns & quality of assets

Critical to the success of the investment is the quantity of energy that can be produced. Wind power is a reliable and renewable energy source, and Foresight targets only those regions and projects with proven wind speeds and resource, whilst investing in mature and fully operational assets.

Increased sophistication in wind measurement and forecasting accuracy contribute to ensuring stable and consistent returns, aided by cutting edge technology that helps wind farms optimise and adapt to different wind conditions.  

Investors can benefit from consistent and risk adjusted returns, supported by the UK Government’s Renewable Obligation (“RO”) Scheme. In addition to income derived from selling the generated electricity, wind power plants accredited under the RO scheme receive 20 years of income from the sale of Renewal Obligation Certificates, which substantially increases the return derived from power plants.  

Foresight’s investment strategy is to acquire operational assets with locked-in price incentive mechanisms (either FiTs or ROCs) combined with a good track record, providing high energy production as well as good revenue. Once received, benefits are fixed and inflation-linked for between 20-25 years. Our strategy of investing when sites are fully operational means that construction period risks are avoided, and the sites overcome teething problems prior to investment.

Foresight currently manages a portfolio of seven wind farms in the UK with the capacity to produce a total of 114MW of power, which equates to roughly enough power for 65,000 homes. In order to optimise returns, we focus on three key aspects of the selection and management of Wind Power Plants:

1.       Minimising system cost

Foresight invests in bankable projects, using the expertise of accomplished engineers to assess the quality of the site and construction targeting projects that benefit from proven Tier 1 technology. Tier 1 contractors such as Vestas, GE or Siemens, provide long term operations and maintenance contracts with availability guarantees and revenue compensation mechanisms to supplement the core equipment guarantees.

2.       Selecting locations

Foresight expects returns to be higher for a wind power plant located in areas with more favourable wind resource than the UK average, such as Scotland, Northern England or coastal regions.

3.       Optimising performance and returns

Foresight’s highly qualified engineers use proprietary software and data monitoring to maintain the highest performance quality possible on all sites. All of our assets benefit from long term power purchase agreements with investment grade counterparties. Foresight enhances the portfolio performance by negotiating competitive rates from contractors to drive down insurance premiums and to apply measures to improve efficiency.

In short, the asset class meets the investment objectives of the fund whilst our expertise and experience in managing renewables adds value for our investors. Our focus for the fund is well served by this proven and attractive energy source.

Foresight is investing for a smarter future – to help understand how this investment can help your clients do the same, please contact your local Senior Business Development Manager, or call us direct on 020 3667 8199

Disclaimer:

Foresight Group LLP is regulated by the Financial Conduct Authority and does not provide investment or tax advice. Therefore, potential investors should seek specialist independent tax and financial advice before investing. BPR investments are long-term investments and your client may not be able to get their money back out before the end of the investment term.