You’d have to be living under a rock, or some other equally weighty and soundproof implement, to not be aware of climate activist Greta Thunberg and the uproar caused by the unshakeable extinction rebellion. Greta laments elites and corporations alike, for focusing wholly on myopic ‘economic growth’ without any concern for the long-term implications of quarterly profit maximization. And to some extent she’s right to do so. Regardless of whether you like her message (or indeed her presentation), she highlights a wider structural inability within modern society: to reconcile market interests and socio-political obligations. A plethora of approaches have been offered to address this dilemma, the bulk of which focus either on adjusting consumer habits or government regulation – both of which are at worst untenable and at best disruptive. Alternatively, some companies have taken it upon themselves to act as the engines for change, though this has more often-than-not boiled down to little more than symbolic or shallow fads to peddle their respective marketing narratives. The subject of this article – JLEN (LON: JLEN) – provides a means of ameliorating short-term economic gain and larger-picture thinking, with a business model that makes the ethical, profitable.
With such a forthright opening, it’s only right I try to qualify my claims by sharing what I’ve learned. Some weeks back I had the pleasure of speaking to Chris Tanner and Chris Holmes, both of whom are involved with JLEN in an investment advisory capacity. In the most concise manner possible, Tanner told me the Company is,
“A diversified environmental infrastructure fund.”
They invest in an assorted portfolio of environmental infrastructure assets, which currently include; onshore wind, solar, waste management and waste water, run-of-river hydro (with co-located battery) and anaerobic digestion assets. I stress that ‘currently’ is the optimum word. Not only because JLEN has continued its efforts to branch out with recent acquisitions in the two latter-mentioned sectors, but because the Company have said further diversification is within its remit.
Diversification is key
This theme of diversity is something of a motif, not only within JLEN’s portfolio, but within its business model. I could repeat the word one hundred times over and I still wouldn’t be able to emulate the enthusiasm Tanner and Holmes conveyed in regard to this approach.
Setting out the Company’s strategy, Tanner stated, “diversification means no one risk predominates. It gives us a good spread of risks. We have a high level of fixed price index linked revenues, and that in turn underpins our dividend.”
With a view to continue the variation of their portfolio in future, the Company are currently excited about the potential returns of their anaerobic digestion offerings, including their recent Warren acquisition.
“We think it offers a very good risk-return profile and a good opportunity to enhance the value of those assets,” said Holmes.
He continued, “Where we can, we’d like to pick up some more assets in that sector. But we think there are other asset classes out there, for example biomass and energy from waste, that are of interest to us.”
Already, then, while lauding the potential of their recently expanded anaerobic digestion offerings, the Company are already contemplating a presence in sectors such as biomass. Tanner explained that this asset class could prove favourable, not only on account of its straightforwardness and subsidy backing, but also the fact that JLEN has the opportunity to access the developed biomass assets listed on a first offer agreement it has with John Laing – all factors which combine to make this sector an ‘exciting investment opportunity’.
Further, when asked about whether the Company would entertain an expansion into geothermal energy, Tanner stated that it was “within mandate”, but that JLEN is ultimately focused on expanding into what it deemed to be tried and tested asset classes. Geothermal energy will have to gain scale and post some encouraging yields before enticing this Company, then. After all, maximising the return on not-yet-commercial assets by spreading your risk base, only works if you don’t buy haphazardly into risky assets.
Tanner summarised it perfectly, “We aim to be ‘steady as she goes’, which is why we invest in assets with a track record […] and support the dividend promise which is still a major feature for our investors.”
Going forwards, the Company will explore more options following its takeover by Foresight earlier in the year. Additionally, it will look to involve itself more heavily outside of the UK, with a pipeline of potential assets amounting to around £200 million, with this predominantly being made up of wind assets.
Dividends and risks
Alongside its asset strategy, one of JLEN’s major selling points is its inviting income potential. Due to the quality of its assets, the Company was able to pay a full-year dividend of 6.51p with a current cover of 1.2. This is forecast to increase to 6.66p for the full-year 2019/2020, which would represent a generous yield of around 5.60%.
The Company identified one of the main risks posed to it fulfilling this target as being, like any energy-focused actor, their exposure to wholesale power prices. The fact that JLEN relies upon renewables appears more of a virtue than a vice, at least in the short term.
On the one hand, Tanner pointed out, “Low wind speeds, low solar radiation, lower crop yields. These are all things that have an impact,” however, he went on to say that, “because we’re diversified, we’re not overly exposed to any one of these risks.”
Further, their diversity means that they’re not left quite as stranded by volatile power prices, as some of their energy counterparts. For instance, Tanner pointed out that their anaerobic digestion assets’ revenues are largely made up of subsidies and feed-in-tariffs. Thus, aside from having different asset classes making money, the Company somewhat shields itself from volatility by having revenue streams coming from different sources.
What is even more interesting though – and surprising given that “less than 1%” of its assets are overseas – is that that JLEN isn’t particularly phased by the UK’s current diplomatic situation.
In fact, Tanner said, “We don’t see any first order issues from Brexit, particularly from a disorderly Brexit. As a second order issue, we can speculate that if Brexit had a strong impact upon FX rates and the Sterling depreciated, you may see that come through in higher UK domestic electricity prices. Because the margin generator (the price setter) does tend to be gas, and gas is imported either in Euros or dollars, that may actually be a positive for funds like ourselves with UK-generating assets. That’s the main risk out there at the moment and it’s not one we see as particularly negative for us.”
So, without being cynical and shorting the failure of other companies or the market itself, JLEN still sees Brexit as an opportunity. Can it get any better?
Environmental and social added value
Actually, yes. Aside from offering what its track record shows as a consistent source of income, JLEN goes one step further by adding value to wider society, in the form of the social and environmental impacts of their operations.
The Company predicted that each year, their assets produce an estimated 520 GWh of energy, which is equivalent to some 140,000 homes having their electricity and heading needs fulfilled. What this level of renewables implementation means in terms of emissions, is an avoidance of 370 kilotons of CO2 equivalent from being created, which equates to the effect of having 170,000 cars taken off the road. If that wasn’t enough – and demonstrative of the Company’s commitment to environmental ends – JLEN buys UK woodland tree planting carbon credits in order to offset the carbon emissions from all flights between their headquarters in Guernsey and their offices in London.
Now, while a renewables infrastructure company lauding its eco-friendly merits may not seem too unsurprising, the Company’s commitment to social surplus should be applauded. Going beyond the mutualised business structure of old, where all parties involved would have a say and a stake in the business, JLEN commits to putting money back into the communities where it has a presence. In the full-year 2018/2019 alone, the Company delivered £350,000 worth of funding to local communities. This manifested near one of its anaerobic digestion sites, as heating units for residential care homes and funding for scout equipment. Near one of its wind assets, this materialised as a much-needed extension to the village hall and a refurbishment of local sports facilities.
If by this point, you’re thinking JLEN offers a model for business conduct which should act as a benchmark for all those that follow, I would be hard-pressed to disagree. It’s almost alien to the senses to think something profitable can also be (for want of a better word) so wholesome, but the Company are fully aware that what they offer is something to be excited about.
“For some people it is absolutely not enough just to say ‘this is a good financial investment’. They want to know what the impact is and whether their money is ultimately being channelled into something that’s doing good” Tanner told us.
In turn, you could say the Company acts as an ideal case study for ethical investment. For those shying away from trading on the basis of moral queries, JLEN could offer the perfect solution. You know your investment is not only going to make money, but that it will help further the worthwhile causes the Company is committed to supporting.
Renewables gaining scale
Aside from further expansion and hopefully more of the same, what does the future hold for companies such as JLEN, and will renewables surpass oil?
“Its difficult to comment on oil per se” responded Holmes, “I think what we can talk about is government aspirations – the most recent one being net zero by 2050 – which in itself requires a huge expansion in the amount of renewable generation that’s on the system at the moment.”
“The obvious place for that in terms of the scale required would be offshore wind, and you can see that already taking place with further tender rounds being released and the size and the scale of those assets would help to bridge some of that gap.”
“I think the desire to get to that net zero target will stem the tide of renewables being rolled out.”
The company think the likelihood of listed pure play renewable funds becoming more commonplace in the near future, is dependent upon the speed and scale at which unsubsidised wind and solar ventures become investable. Tanner added that this is already the case in some places in the UK, and that the question then becomes – will it only become investable in certain, very specific locations (in positions with high wind speed, an industrial user close to the site)?
For now, though, we wish JLEN every success going forwards, as it treads the path which many of its counterparts could do little better than to follow. The Company has provided a means of tackling contemporary dilemmas in a way that is profitable, and can only wait as everyone else catches up.
Elsewhere, there have been renewable energy updates from; Scottish government policy, Active Energy Group PLC (LON: AEG), Velocys PLC (LON: VLS), AFC Energy plc (LON: AFC), John Laing Environmental Assets Group Ltd PLC (LON: JLEN), SIMEC Atlantis Energy (LON: SAE), Aquila European Renewables Income Fund (LON: AERI), PowerHouse Energy Group (LON: PHE) and SIMEC Atlantis Energy (LON: SAE).