The renewable energy sector is home to some of the most eye-catching income stocks in the entire FTSE right now.
Investor sentiment has soured badly on renewables due to regulatory uncertainty, subsidy changes, and the weight of high interest rates on leveraged balance sheets. But for income investors willing to look past the headlines, the resulting yields are extraordinary.
Two names in particular stand out: Greencoat UK Wind (LSE:UKW) – the UK’s largest listed wind energy fund, operating a diversified portfolio of onshore and offshore wind farms across Britain.
Foresight Environmental Infrastructure (LSE:FGEN) – a broad environmental infrastructure investor, spanning wind, solar, anaerobic digestion, and sustainable resource assets across the UK and Europe.
They offer dividend yields of 10.1% and 9.8% respectively. The question is, is this the time to be greedy when others are fearful?
Can rising energy prices unlock operating leverage?
The contrarian bull case for buying shares today centres on the war in the Middle East pushing energy prices higher.
With production costs essentially fixed, any sustained rise in wholesale electricity prices flows almost entirely through to profit. It’s a powerful operating leverage dynamic that could make these not only affordable but expandable as well. And, excitingly, there’s already evidence of this playing out.
Greencoat’s first quarter update noted that power prices came in ahead of expectations, with wind generation running 4.2% above budget. And Foresight’s latest NAV announcement showed that updated short-term power price forecasts contributed a 1.6p uplift to its net asset value per share.
As such, both businesses are currently delivering on their income promises. Greencoat’s targeting 10.70p per share dividend for 2026, while Foresight has just announced its 12th consecutive dividend increase, with cover sitting at a comfortable 1.25x for the year.
So where’s the risk?
On paper, higher energy prices sound perfect. In practice, the situation’s a bit more complicated. The problem is that neither business has unlimited upside exposure to higher power prices.
Greencoat’s been actively hedging its merchant exposure and subsequently, 68% of its near-term cashflows are now fixed. In other words, even if energy prices rise, 68% of the group’s income won’t benefit. And Foresight’s seemingly in a similar spot.
Meanwhile, the government’s decision to abolish the Carbon Price Support mechanism from April 2028 will reduce electricity prices by an estimated £4 to £5 per megawatt hour (MWh). That’s great for consumers, but bad news for renewable generators.
But the real sting is inflation. If energy prices rise and drags interest rates back up, the limited top line growth will be paired with much faster growth in debt expenses, compressing margins and putting dividends at risk.
In short, higher prices help, but the secondary effects might actually hurt these businesses more.
So what’s the verdict?
Both Greencoat and Foresight are well-managed funds with proven track records of delivering progressive dividends. But the regulatory headwinds, hedging constraints, and interest rate sensitivity introduce enough uncertainty that I don’t feel the risk-reward is sufficiently compelling right now – even at these extraordinary yield levels.
That’s why I think investors should focus on researching other income stocks with sturdier cash flows right now.
Should you invest £5,000 in Foresight Environmental Infrastructure right now?
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Zaven Boyrazian owns shares in Greencoat UK Wind.
