Half Yearly Financial Report -3-
July 22 2010 - 12:38PM
UK Regulatory
market. However, the political will to reduce dependence on fossil based energy
remains strong, and therefore provides a powerful argument for long term growth
in the sector. Since the Copenhagen Climate Summit, well over 100 new policy
announcements have been announced globally, including voluntary pledges by more
than 80 countries to reduce emissions on the back of the Copenhagen Accord.
Global clean energy investment is projected to reach US$200bn in 2010 as a
result of the green elements of the national stimulus packages announced during
2009.
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| Premier Renewable Energy Fund Limited |
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| INVESTMENT ADVISER'S REPORT (continued) |
| For the six months ended 31 May 2010 |
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As a result of tariff cuts set to take effect in Germany in the second half of
2010, the solar market there has been seeing record volumes with a significant
proportion of 2011 sales brought forward into 2010 to enable developers to
install plant at higher tariffs. The weaker Euro has also started to favour the
European solar producers' higher quality output at the expense of Chinese
production, despite its significant production cost advantage. The Company has
been adding to existing positions in Phoenix Solar and Centrotherm, and since
the period end to Solarworld, as companies that may be expected to benefit from
both factors. While there is uncertainty elsewhere in Europe from the threat of
retroactive tariff cuts in the Spanish solar market, currently under
consideration by the government there, the European Commission has warned that
it will consider legal action to ensure that broad European support for the 20%
by 2020 renewable energy target is maintained.
Demand for European wind power is less likely to be materially affected by
regulatory uncertainty, given that it is competitive with traditional power
generation technologies, although in the US, low gas prices make this comparison
more challenging. The Company's positions in Acciona, EDPR, Hansen Transmissions
and Iberdrola Renovables have all been increased over the period, to exploit the
apparent over-reaction by these shares to the perceived threat of European
tariff reductions. In the US, geothermal energy, well supported by federal
funding, is a fast growing theme, and importantly forms part of a utility's base
load power, rather than being dependent on wind conditions or the absence of
cloud cover. The Company's position in Ormat Technologies has been increased,
and since the period end, complemented by a holding in the smaller US
Geothermal, which has secured federal loans and cash grants worth over US$100m
to fund a significant element of its capital expenditure programme. Ormat has
geothermal plants stretching from California through Mexico to Central America,
while US Geothermal is almost entirely focused on the west coast states.
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| Premier Renewable Energy Fund Limited |
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| INVESTMENT ADVISER'S REPORT (continued) |
| For the six months ended 31 May 2010 |
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With nuclear remaining a key part of future global clean energy supply, the fund
has also started a number of holdings in this area, including Uranium One, a
Canadian-based mining company with operations in Australia, Canada, Kazakhstan,
South Africa and the United States. Uranium One concluded a number of strategic
alliances and acquisitions during 2009 which significantly raise its production
potential. It has net cash and, unlike the majority of its competitors, its
shares are trading at a discount to NAV. It should be a beneficiary of the long
term growth in nuclear power and therefore demand for uranium.
Geographically, developed markets are increasingly focusing on efficiency
programmes: In order to tap into the integration of intermittent renewables in
the more developed markets, together with the more efficient use of the power
that they generate, the purchase of Comverge, a small US stock, brings exposure
to both residential and commercial/industrial markets for smart meters.
Following the wave of smart grid stimulus grants being issued to US utilities,
Comverge has won a number of demand response contracts from the recipients of
these grants, and appears significantly undervalued in relation to other smart
grid stocks. The holding replaces that of ITC, a strong performer that was
however facing an increasingly tough planning environment as it sought to invest
further in US transmission networks.
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| Premier Renewable Energy Fund Limited |
| |
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| INVESTMENT ADVISER'S REPORT (continued) |
| For the six months ended 31 May 2010 |
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Emerging markets continue to fund significant renewable energy capacity
additions. Recent announcements from China suggest that the government there
will introduce a new 10-year programme aiming to make clean energy account for
15% of the total consumption of energy by 2020, compared with 9.9% of the total
energy consumption in 2009. Given this increasingly attractive regulatory regime
for renewables in China, the fund's weighting has continued to expand, up from
15% at the year end, to over 23% at the half year, with additions to China High
Speed Transmissions, and a new holding in the waste to energy space, through New
Environmental Energy, which has first mover advantage in the field of anaerobic
digestion technology. As mentioned in the Annual Financial Report for the year
ended 30 November 2009, identifying opportunities to exploit the significant
power shortfall in India - which also has a favourable regulatory backdrop for
renewables - remains a key focus of the Company.
Outlook
Some of the background conditions constraining growth in the renewables sector
in 2009, such as reduced availability of debt funding and low electricity
demand, have started to show signs of easing during 2010. President Obama has
continued to urge Congress - most recently in light of the BP oil spill - to
pass clean energy legislation in an effort to create employment and reduce US
dependence on fossil fuels. Meanwhile the appetite in many Asian markets for
renewable energy remains strong. Stock valuations, especially in the wind and
solar sector, appear to discount limited government support to come, creating a
good source of value in the renewable space.
Premier Fund Managers Limited
July 2010
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| Premier Renewable Energy Fund Limited |
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| PRINCIPAL RISKS AND UNCERTAINTIES |
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PRINCIPAL RISKS AND UNCERTAINTIES
The key risk of the Company is the identification and evaluation of investments.
As the principal investment objective of the Company is to invest in companies
that generate power from renewable energy sources, the responsibility of
identifying appropriate investments has been delegated to the Investment
Adviser, Premier Fund Managers Limited ("Premier"). Premier has extensive
experience investing in the renewable energy market and is well placed to
identify potential investments via their research and contacts to meet the
Company's investment objective and policy.
Other business risks identified by the Board include the risks arising from the
Company's financial instruments such as market price risk, credit risk,
liquidity risk, interest rate risk and foreign exchange risk.
More information on the principal risks and how they are mitigated can be found
in the Annual Financial Report for the year ended 30 November 2009. These can be
accessed on the Company's website at www.premierassetmanagement.co.uk
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| Premier Renewable Energy Fund Limited |
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| SCHEDULE OF INVESTMENTS (unaudited) |
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As at 31 May 2010
+--------------------------+----------+------------+----------+------------+----------+--------+
| INVESTMENT SECURITIES | | NOMINAL | | VALUATION | | TOTAL |
| PORTFOLIO | | HOLDINGS | | | | ASSETS |
+--------------------------+----------+------------+----------+------------+----------+--------+
| | | | | GBP | | % |
+--------------------------+----------+------------+----------+------------+----------+--------+
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