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Cavendish has initiated coverage of nine listed renewable energy investment trusts with a broadly cautious but selectively optimistic outlook.
The broker argues the sector is showing early signs of recovery after three years of compounding headwinds, while flagging the solar funds as structurally more challenged than their wind-focused peers.
The renewables investment trust sector is currently trading near its all-time widest average discount to net asset value of approximately 35%, a level first breached around a year ago.
The broker's overarching view is that dividend yields of at least 10% are appropriate given persistent capital erosion, which in turn implies a discount ceiling of around 15-20% for the foreseeable future.
The peer group has delivered an average shareholder total return of 9% year-to-date, helped by elevated power prices from the Strait of Hormuz blockade, improving wind speeds and the prospect of government-backed wholesale contracts for difference allowing funds to voluntarily lock in merchant pricing.
Among the wind funds, Cavendish initiates on Greencoat UK Wind and The Renewables Infrastructure Group (TRIG) with 'buy' ratings, and on Greencoat Renewables with a 'hold'.
Greencoat UK Wind is the broker's preferred name in the sector, citing its sector-leading dividend cover of an estimated 1.7 times for 2026, assuming generation returns to budget, and its record of inflation-linked dividend growth.
Wind speeds for the fund were 4.2% above budget in the first quarter of 2026, though Cavendish cautions that ten consecutive years of below-budget generation remain a structural concern and any further downward revision to long-term output assumptions would carry a significant NAV impact.
TRIG is rated a 'buy' on the basis of its revenue diversification across contracts for difference, corporate power purchase agreements and European assets, which Cavendish argues means the fund's current dividend could remain covered through the 2030s even without reinvestment. That is a distinction the broker considers undervalued at a 34% discount.
The 'hold' on Greencoat Renewables reflects the highest gearing in the peer group at 52% of gross asset value, a projected dividend cover of only 1.2 times for 2026 and an ambitious disposal programme that the broker believes carries execution risk.
In the solar segment, Cavendish takes a more cautious view across the board. Solar funds face a steeper revenue decline in the mid-2030s as renewable obligation certificate subsidies expire, tighter dividend cover now required, and generation losses from rising grid outages cannot be compensated.
The most pointed call is a 'sell' on Bluefield Solar Income Fund, which is despite a bid process currently underway.
Cavendish argues the share price, up 15% year-to-date, already reflects takeover speculation, that any offer is unlikely to come in much above 85% of net asset value, and that the downside if no binding bid emerges could be around 20%.
The dividend was uncovered at 0.9 times in the six months to December 2025 and Cavendish believes it will remain uncovered even if generation recovers.
Investors wanting exposure to a potential bid outcome, the broker suggests, would benefit more from holding NextEnergy Solar or Foresight Solar on wider discounts given their portfolio similarities to Bluefield.
Foresight Solar is rated 'hold', with dividend cover expected at around 1.1 times for 2026 and a difficult capital recycling challenge given its Australian assets cannot currently be sold.
Among the diversified technology funds, Cavendish initiates on Foresight Environmental with a 'buy'.
It cites its unique growth assets in sectors including compressed natural gas fuelling and controlled environment agriculture, which provide both capital growth potential and flexibility for capital recycling without squeezing the current dividend.
It is the only fund in the peer group to have delivered a positive NAV total return in 2025. Octopus Renewables Infrastructure is rated hold, with dividend cover likely only around 1 times this year and acquisitions probably needed before further asset sales can be made.
The note also highlights the government's proposed Wholesale CfD scheme, which could allow existing projects to voluntarily swap merchant revenue for fixed pricing, as potentially the most significant policy development for the sector in several years.