Foresight Solar Fund Ltd (LSE:FSFL) fund manager Ross Driver talked with Proactive’s Stephen Gunnion about the current landscape for renewable energy investments and the role of government policy in fostering growth. 

Proactive: Hello, you’re watching Proactive. I’m joined by Ross Driver, fund manager of the Foresight Solar Fund. Ross, very good to speak with you. The government’s investment summit took place on Monday, and the government seems committed to creating a positive environment for private investments. Are you seeing that in conversations as well?

Ross Driver: Hi Stephen, yes, well, I think looking at it, when the new government took office, they’ve been rolling out this hard medicine narrative, which was arguably overdone. They’re now having to work hard to bring the public and private sectors together and unlock the necessary investment for the UK to return to growth. Let’s say this, there’s plenty of private capital here on the sidelines, waiting for a more stable environment to invest.

The UK has one of the most developed capital markets in the world, with trustworthy institutions and incredible courts. It is an appealing combination if we have that stability. We’re hearing from investors everywhere that they need demonstrations of a stable policy environment to get them back into deploying money. This week’s investment summit is a good example of how to get that started. But, I’d say, now let’s see if they take businesses’ feedback into consideration and actually show their commitment when the Chancellor announces the budget later this month.

Proactive: Ross, the government’s also made shows of support for the renewable energy industry. What would the sector like to see from policymakers?

Ross Driver: The rhetoric has been positive for the renewable industry so far. To date, the government has approved several nationally significant solar projects, revised the budget for this year’s contracts for differences in the renewables auction, and proposed changes to the planning regime. All of these are positive steps for the deployment of solar here in the UK.

These are all steps in the right direction to unlock the solar and wind energy capacity needed to transform the UK economy. But we must not forget the basics. A reliable energy system is built on a balanced electricity grid, and with public and private investment, we’d like to see the government implement the recommendations of the Windsor report and stop the first-come, first-serve model in grid connections. This system has resulted in zombie plans and plants blocking viable renewable projects for decades.

It’s taking far too long for viable projects to get into the grid queue and be pushed forward. Renewable energy investment trusts, like us, are some of the biggest backers of solar and wind infrastructure in the UK, with almost 20 billion deployed to date. We need this to be consistent, and as infrastructure investors, we’d gladly trade some upside for less volatility. That’s what we’d like to see from the government—longer-term clarity on the policymaking direction.

Proactive: Ross, it’s been a challenging macroeconomic environment for the last 24 months. Is that changing, and how does government support play a role in that?

Ross Driver: Well, certainly. The high inflationary environment of the last couple of years has led to record interest rates, which has posed a challenge for renewable investments. But in the last few months, we’ve started to see indications that those macro factors may be changing. Interest rates have been coming down, and energy prices have become less volatile.

We’ve positioned ourselves to take advantage of these shifts with measures like our debt repayments and a share buyback—the largest in the sector relative to NAV. We’ve strengthened our balance sheet, returned capital to investors, and at current prices, our shares are yielding nearly 9%, plus the growth we’re aiming to deliver on top of that.

That said, there are still concerns. For instance, gilt rates have risen by about 50 basis points in the last month alone, which isn’t helpful. It’s vital that the government doesn’t max out its borrowing capacity. A clearer signal on that front would be reassuring for the markets.

Looking forward, we are building a proprietary development pipeline that will deliver growth on top of our dividend income. The renewable energy sector has matured significantly in the last decade and stands on its own two feet. What we need from policymakers now is certainty so that we can continue to make the long-term investments needed for a low-carbon economy.