The chancellor’s decision to make renewable energy generators pay the climate change levy has cast a cloud over wind and solar power investment funds at a time when many income investors were assessing their prospects.

Although none of the high yielding investment companies has suffered as badly as Drax Group (DRX), the green power plant operator whose shares plunged 25% last week, the abolition of levy exemption certificates (LECs) has dented valuations in the sector and again highlighted the political risks in clean energy investment.

All seven renewable energy funds have issued statements since the Budget saying their dividend targets remain intact as the sale of LECs formed a small part of their revenues and their loss had been partly offset by the chancellor’s cuts to corporation tax.

The £353 million Renewables Infrastructure Group (TRIG), which invests in both wind and solar plants, is the worst affected, revealing its net asset value per share would fall 4p to 97.9p. Its shares slipped from 106.5p before the Budget to close last week at 101.75p as the company announced it would delay a placing of up to £150 million of new shares while a new prospectus and placing price was published.

The slide in the share price halved TRIG’s premium over NAV to 2.4%, although with the company still targeting a first interim dividend of 3.08p share, the shares still yield nearly 6%.

It was a similar story with the £287m Foresight Solar Fund (FSFL) which revealed a 3% reduction in NAV but maintained its dividend target of 6.08p per share for this year, which supports a 5.9% yield. It releases half-year results on 5 August.

Bluefield Solar Income (BSIF) didn’t state the NAV impact of losing LECs but said they accounted for 3-4% of total revenues from the portfolio. It will publish an independent review of its portfolio for the year to 30 June with its annual accounts.

NextEnergy Solar (NESF) said it would take a 2% hit to the NAV per share of 103.3p it published at the end of March. The £252 million will provide a new NAV this month although it noted that it expected the valuation to benefit from four new solar projects it had completed in the second quarter. These takes its assets to 14 and lifts its power generation capacity from 126.7 MW to 191 MW. With the 6.25p dividend target intact it yields nearly 6% after the shares dipped 4p to 105p last week.

The £500m, 5.8% yielding Greencoat UK Wind (UKW) fund expected lower corporation tax would largely offset the scapping of LECs.

Meanwhile the £662m GCP Infrastructure Investments (GCP) fund, which invests in the subordinated bonds of renewable operators rather than their equity, reassured investors that its projects’ ability to service their debts was ‘wholly unaffected’ by the government’s move.

John Laing Environmental Assets (JLEN) appears to be one of the least affected with a 0.6p hit to NAV per share. It managed to raise £60 million in an over-subscribed share placing last week. Although its target dividend of 6.054p is unchanged this year it said the loss of LEC revenues would have a ‘minor impact’ on dividend cover.

George Osborne said he decided to cut the exemption as it cost £3.9 billion and much of the money went to overseas generators who often already received subsidies in their countries.

Analysts said the surprise move was a blow to the sector. However, Numis Securities said it was not a ‘game changer’ to the funds' investment income and its impact on their valuations would be mitigated by the high prices bidders were prepared to pay for the operational renewable power plants they own.

Winterflood Securities said the abolition of the LEC exemption ‘serves as a reminder of some of the pitfalls that can beset investments in regulated sectors as well as the political nature of energy and renewable sources.’ However, it said the sector was supported by the fact the government still required significant investment in renewable energy in order to meet its 2020 climate change targets.

For more on renewable energy funds read the latest issue of Investment Trust Insider.