Investors in NextEnergy Solar Fund Ltd (LSE:NESF) could be forgiven for feeling a chill from Westminster’s latest cost-of-living cure.
The government wants to overhaul the way inflation is applied to long-standing renewable subsidies, and Cavendish reckons it could take a bite out of the fund’s value.
At the heart of it is a Department for Energy Security and Net Zero consultation on whether Renewable Obligation Certificates and Feed-in Tariffs should rise with the Consumer Prices Index instead of the Retail Prices Index.
The first option is a straight switch from April 2026, which NextEnergy says would clip about 2p a share from net asset value. The second, a freeze until a CPI-linked “shadow” rate catches up in the mid-2030s, could mean an 8p hit.
That might sound arcane, but for funds whose income depends on inflation-linked cash flows, the implications are real. NextEnergy’s portfolio, heavy with legacy solar assets, was built on RPI uplift. Lower indexation would erode revenues, squeeze returns and complicate new project financing.
The government estimates households could save £3 to £12 a year on electricity bills under the changes. Hardly transformative. The fund argues that the shift would end up “detrimental for all stakeholders”, not least investors already nursing a 35% discount to NAV.
Cavendish’s note captures the irony neatly: trimming the inflation uplift may ease headline bills, but it risks dimming the very investment needed to keep the lights on in the UK.