Stronger power prices bodes well for solar funds, says broker

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Recent spikes in spot power prices offer potential for a boost to net asset values for green energy funds, including NextEnergy Solar Fund (LON:NESF) and Greencoat UK Wind (LON:FSFL), broker Stifel says.

The spot power price has seen some significant spikes in recent weeks, reaching an average daily price of £199 per megawatt-hour (MWh) on January 13, 2021, compared with a typical price before of around £50/MWh.

“This is being driven by low wind and solar production at a time of high demand for heat and light,” analysts at the broker said, noting that National Grid has issued alerts due to shortages of power being generated in the UK at a time of high demand.

There was one alert last week and another two weeks earlier. 

“While this is a short term move and it is unlikely to have a material impact on the funds’ revenues, the recovery in electricity pricing that we saw in H2 2020 should at least underpin NAVs at the 31/12/20 valuation point,” the analysts said. 

If prices remain above £50/MWh in the months ahead, there may be some positive impact on NAVs during 2021, they added.

Last year, some of the solar funds saw significant share price weakness related to falls in power prices and the analysts said, “we think there is scope for some recovery in share prices”.

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