The oil price surge and a forgotten investment trend

Buyers of solar panels a decade ago are likely to be pleased with their investment. Rooftop systems that might once have been expected to take around 15 years to pay for themselves through lower electricity bills are likely to have broken even far sooner.

The energy price surge of 2022, following Russia’s invasion of Ukraine, dramatically altered the economics. The average annual electricity bill rose from £731 in 2021 to £1,213 by 2023, according to government figures – a jump of 66%.¹

Solar panel owners were not the only beneficiaries. A mini-bubble in green energy investments had already begun forming before the Ukraine war. Tackling climate change was the hottest of topics.

Amid a post-Covid ethos of ‘build back better’, makers of solar panels, wind turbines and storage batteries were expected to flourish as these new technologies would reduce our reliance on fossil fuels.

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Then the oil price surge of 2022 sparked a further rise in alternative energy investment valuations. There was a need for cheaper alternatives to gas and electricity, but countries were also reminded of the importance of energy security – the notion that it’s better to make your own energy.

The mood shifted with the arrival of President Donald Trump in the White House. A new mantra of ‘drill baby drill’, along with a rollback of green energy subsidies, compounded an already fading wave of investor enthusiasm for the sector.

Perhaps there is another shift afoot. The surge in the oil price suddenly changes the economic appeal of alternative energy sources to fossil fuels.

The investment options

There are many ways to invest in green energy but two have caught the attention of DIY investors in the last few years.

1. Investment trusts that own renewable energy projects and pay income from the sale of the energy generated.
2. Shares in companies that make renewable energy products or infrastructure – and the funds that hold them.

Among investment trusts, Greencoat UK Wind has probably generated most interest. It operates a portfolio of 49 wind farms across the UK, with the sale of that energy providing investors with dividends. The aim is to increase the payments in line with inflation.

The level of income – shares in the trust currently yield nearly 11% – has clear appeal. This is partly because the share price has fallen, so the yield has risen. The shares have fallen 23.3% over the past five years. Even with considerable income paid and reinvested, investors would only have a total return of 8.4% (according to Refinitiv data on 18 March 2026).

• Read: Challenging year for Greencoat UK Wind

Why the fall? Returns are partly driven by broader energy prices, and these fell after a spike in 2022. These types of investment are also at the mercy of more unusual external factors. For instance, the government has announced that indexation under the Renewables Obligation scheme will move from the Retail Prices Index (RPI) to the lower Consumer Prices Index measure in April. This is good news for electricity customers, but not so good for renewables schemes.

Investors must also consider the pricing of government UK bonds, known as gilts. When yields rise on gilts, income from steady income payers like Greencoat UK Wind look less appealing, demand for the shares falls and so does the share price. In the first two weeks of the Iran conflict, the yield on 10-year gilts rose from under 4.3% to over 4.8%, perhaps undermining demand for the likes of Greencoat. Its price rose in spite of this, driven by rising energy prices, but the increases were probably stifled.

Greencoat is one of many in the renewables investment trust sector. Other examples include The Renewables Infrastructure Group, Bluefield Solar and Foresight Solar Fund. The Association of Investment Companies (AIC) points out that despite price falls it is still the third largest investment trust sector.

Yields, which are not guaranteed, are high across the sector. The chart below, from the AIC, emphasises this point.

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Shares in Greencoat UK Wind are listed on the London Stock Exchange and their price is affected by supply and demand. Investment trusts can gain additional exposure to the market, known as gearing, potentially increasing volatility. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Tax treatment depends on individual circumstances and all tax rules may change in the future. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.