REG - Downing Renew& Infra - Annual Financial Report
11/04/2024 07:00
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RNS Number : 1077K Downing Renewables & Infrastructure 11 April 2024
Downing Renewables & Infrastructure Trust PLC
("DORE" or the "Company")
Annual Report and Accounts
Downing Renewables & Infrastructure Trust plc (LSE: DORE) announces its
Annual Report and Accounts for the financial year ended 31 December 2023 (the
"Annual Report").
The Annual Report is available to view on the Company's website at
https://www.doretrust.com/investor-relations
(https://www.doretrust.com/investor-relations)
Highlights
• Deployed £47m into 11 investments, including:
o £18m into electricity grids and grid stability infrastructure projects in
Sweden and the UK;
o A further £13m into a portfolio of 1600 operational rooftop solar
installations in the UK; and
o £16m into 9 hydropower plants, including the Company's first investment
in Iceland.
• Reduced the proportion of the Company's revenues that are exposed to variable
power prices through strategic investments in grid and grid stability assets
and the Icelandic hydropower acquisition with its long term, fixed price,
inflation linked revenues.
• Generated £24.7 million (up 26.6% from £19.5 million in 2022) operating
profit for the underlying portfolio during the period.
• Continued to build out and optimise the hydropower portfolio, implementing
hardware and software upgrades necessary to enable access to new lucrative
grid frequency markets in Sweden in 2024.
• Interim dividends of 5.38 pence per ordinary share declared in respect of the
year, in line with target. Cash dividend cover of interim dividends paid
during the year of 5.285 pence of 1.21x(1), (2022:1.17x), increasing to 1.78x
using pre debt service cashflows.
• The target dividend relating to 2024 has been increased by 7.85% to 5.80 pence
per ordinary share.
• NAV total return(1) of 3.5% for the year to 31 December 2023 and 33.0% since
IPO in December 2020.
• Net asset value ("NAV") as at 31 December 2023 was £212.1 million or 117.7
pence per ordinary share.
• The Company's renewable energy portfolio generated 395GWh in 2023, (up 21.1%
from 326GWh in 2022), avoided 186,348 tonnes of CO2e (up 21.4% from 153,457
tonnes of CO2e in 2022) and powered the equivalent of 146,183 UK homes (up
29.9% from 112,523 UK homes in 2022).
• Responded to the significant discount at which the Company's shares, and the
sector as a whole traded by commencing a buyback programme in March 2023. The
Company repurchased 4.38 million shares increasing shareholders' NAV return by
0.6 pence per share.
Key Metrics
As at or for the period ending 31 December 2023 As at or for the period ending 31 December 2022
Market capitalisation £162m £210m
Share price 90.0 pence 113.5 pence
Dividends paid in the year £9.7m £8.0m
Dividends paid in the year per ordinary share 5.285 pence 5.000 pence
GAV(2,3) £352m £310m
NAV £212m £219m
NAV per share 117.7 pence 118.6 pence
NAV total return with respect to the year (1,2,3) 3.5% 19.5%
Total Shareholder Return with respect to the year (1,4) -16.3% 15.1%
NAV total return since inception (1,2,3) 33.0% 28.5%
Total Shareholder Return since inception (1,4) 1.1% 21.1%
Weighted average discount rate(5) 7.7% 7.7%
Environmental Performance Assets avoided 186,348 tonnes of CO(2) and powered the equivalent of 146,183 Assets avoided 153,457 tonnes of CO(2) and powered the equivalent of 112,523
homes homes
1 These are alternative performance measures.
2 A measure of total asset value including debt held in unconsolidated
subsidiaries.
3 Based on NAV at IPO of £0.98/share
4 Total returns in sterling, including dividend reinvested
(5) This is the weighted average discount used in the valuation of underlying
investments
A glossary of terms can be found in the full Annual Report.
Hugh Little, Chair, Downing Renewables & Infrastructure Trust PLC,
commented:
"The Board is pleased that during the period DORE continued to build
significantly on its key objective of diversification by geography,
technology, revenue, and project stage, namely through its investments in
electricity grids and grid stability infrastructure projects in Sweden and the
UK, and with the Company's first Icelandic hydropower acquisition. We are
confident that DORE is well positioned to navigate the ongoing transformative
period of both the macroeconomic and the global energy landscapes, and to
continue delivering sustainable returns for our shareholders."
Tom Williams, Partner, Head of Energy and Infrastructure at Downing LLP,
commented:
"It is testament to the strength of our in-house asset management team, and
their ability to identify accretive growth opportunities for our assets, that
the underlying portfolio has enjoyed a 26% jump in operating profit compared
to the previous year. Although electricity markets have returned to normalised
levels more quickly than anticipated in some of the regions in which DORE is
invested, the strategic investments the Company has made in grid and grid
stability assets have mitigated our exposure to this volatility and we
continue to see opportunities for further diversification and incremental
growth in the portfolio."
About DORE
Downing Renewables & Infrastructure Trust PLC ("DORE" or the "Company") is
a closed ended investment company incorporated in England and Wales. The
Company aims to provide investors with an attractive and sustainable level of
income, with an element of capital growth, by investing in a diversified
portfolio of renewable energy and infrastructure assets in the UK, Ireland and
Northen Europe.
The Company's strategy, which focuses on diversification by geography,
technology, revenue and project stage, is designed to deliver stability of
revenues and consistency of income to shareholders.
The Company Is an Article 9 fund pursuant to the EU Sustainable Finance
Disclosure Regulations ("SFDR"). The core sustainable Investment Objective of
the Company is to accelerate the transition to net zero through its
investments, compiling and operating a diversified portfolio of renewable
energy and infrastructure assets to help facilitate the transition to a more
sustainable future. This directly contributes to climate change mitigation.
DORE is a Green Economy Mark (London Stock Exchange) accredited company with
an ESG framework that aims to provide investors with attractive returns while
contributing to the successful transition to a net-zero carbon economy,
resulting in a cleaner, greener future.
As at 31 December 2023, the Company had 184,622,487 ordinary shares in issue
(of which 4,375,363 were held in treasury) which are listed on the premium
segment of the FCA's Official List and traded on the London Stock Exchange's
Main Market.
DORE is managed by Downing LLP (the "Investment Manager" or "Downing").
Contact details:
Downing LLP - Investment Manager to the Company +44 (0)20 3954 9908
Tom Williams
Singer Capital Markets - Joint Corporate Broker +44 (0)20 7496 3000
Robert Peel, Alaina Wong, Jalini Kalaravy (Investment Banking)
Sam Greatrex, Alan Geeves, James Waterlow, William Gumpel (Sales)
Winterflood Securities Limited - Joint Corporate Broker +44 (0)20 3100 0000
Neil Morgan (Corporate Finance)
Darren Willis, Andrew Marshall (Sales)
TB Cardew - Public relations advisor to the Company +44 (0)20 7930 0777
Ed Orlebar +44 (0)7738 724 630 /
Tania Wild +44 (0)7425 536 903
DORE@tbcardew.com (mailto:DORE@tbcardew.com)
Chairman's Statement
On behalf of the Board, I am pleased to present the Annual Report of Downing
Renewables & Infrastructure Trust PLC ("DORE") covering the year to 31
December 2023 (the "Annual Report"). As we navigate a transformative period in
the global energy landscape, the Company continues to make significant
progress in achieving its strategic objectives of delivering sustainable
returns through diversification of geography, technology, revenue, and project
stage.
Acquisitions
In the Company's Interim Report I advised that the Investment Manager had
continued to deploy the Company's funds during the first half of 2023, when
DORE acquired two additional operational hydropower plants in Sweden (with
annual generation of 8.3 GWh), for £5.1 million, a portfolio of operational
solar PV assets located in the UK for £12.6 million and Mersey Reactive
Power, a UK-based, fully operational project providing grid stability services
to the transmission system for £11.0 million.
The second half of the year saw further progress in increasing the stability
of revenues and consistency of income to shareholders.
In July, DORE made its second acquisition in the grid infrastructure sector, a
Swedish Electricity Distribution System Operator, Blasjon Nat AB ("Blasjon"),
for £7.6 million. Blasjon is a regulated electricity distributor which
delivers 16-18 GWh per annum of electricity through medium and low voltage
lines to its c.1,500 domestic and business customers in Stromsund, northern
Sweden. Its revenues are set by the Swedish regulator and are dependent on
neither volume nor price of electricity, increasing the Company's
diversification of revenues and reducing the proportion of the Company's
revenues that are exposed to variable power prices.
Further geographic and electricity market diversification was achieved with
the acquisition of a 8.3 GWh per annum hydropower plant, located in
south-central Iceland, for £5.0 million. The plant has been operational since
2018 and adds long-term, fixed price, inflation-linked revenues to the
Company's portfolio, and also reduces the proportion of Company's revenues
that are exposed to variable power prices. The Company now generates revenue
from four different revenue sources and has two new revenue streams that are
not derived from energy sales.
The core Swedish hydropower portfolio was bolstered through the acquisition of
a further five hydropower plants for a total investment of £6.0 million. The
acquisitions increase the total number of hydropower plants owned by DORE to
34 with a total average annual production of 215 GWh per annum, increasing the
Swedish hydropower platform generation capacity by c.14% and the storage
capacity to 213 million cubic meters.
Further details on the acquisitions during the period can be found in the
Investment Manager's Report below.
The Board is pleased with the deployment of £47 million during the year,
further increasing geographical and revenue diversification. At the portfolio
level, the Investment Manager's in-house asset management team remains
committed to ensuring ongoing positive operational performance. This
performance, combined with the accretive acquisitions, has enabled the Company
to raise the dividend target by 7.85% to 5.80 pence per ordinary share in
respect of the year from 1 January 2024.
Debt Facilities
In the interests of capital efficiency and to enhance the potential for income
returns, and long-term capital growth, the Company is permitted to maintain a
conservative level of gearing. As at 31 December 2023, the total Portfolio's
gearing (expressed as a loan to value (LTV) ratio) was 40% (2022: 30%). The
Company has access to a £40m Revolving Credit Facility ("RCF"), of which
£18.6m is drawn. There are two additional long term debt facilities at asset
level, a £78.8 million facility which is fully drawn and a €68.5 million
facility of which €49.4 million was drawn as at 31 December 2023. In total,
the sterling value of debt was £140 million at 31 December 2023. The weighted
average cost of debt across the borrowings is 2.5%.
Further information on these facilities can be found in the Investment
Manager's Report, and the Company's borrowing policy is laid out in the full
Annual Report.
Portfolio Performance
The underlying portfolio generated £24.7 million (2022: £19.5 million)
operating profit during the period(6), an 11.6% return (2022: 8.9%) on equity
capital deployed. The 4,866 core renewable energy assets produced
approximately 396 GWh of renewable electricity, enough to power 146,183
houses, with the two new grid infrastructure assets in particular performing
well.
Financial Results
Despite the strong return on capital deployed, during the period the NAV per
ordinary share decreased 0.8% from 118.6 pence at 31 December 2022 to 117.7
pence at 31 December 2023. Including dividends paid of 5.285 pence per
ordinary share in the year, the NAV total return since 31 December 2022 was
3.5% resulting from the valuation across all four technologies and the payment
of the dividend. The reduction in NAV was largely driven by future power
prices being forecast to return to more normalised levels more rapidly than
anticipated at the start of the year.
The NAV reflects the fair market valuation of the Company's portfolio based on
a discounted cash flow analysis over the life of each of the Group's assets
plus the value of the Company's other assets and liabilities. The assumptions
which underpin the valuation are provided by the Investment Manager and the
Board has satisfied itself with the calculation methodology and underlying
assumptions. Further details of the valuation changes are given in the full
Annual Report.
The portfolio companies distributed £15.2 million to the Company by way of
shareholder loan repayments and interest during the period. Cash of £3.7
million was retained in the Company's subsidiary DORE Hold Co and forms part
of the valuation.
The Company made a profit for the year to 31 December 2023 of £6.9 million,
resulting in earnings per ordinary share of 3.8 pence.
Dividends
The Company has paid interim dividends to shareholders of 1.345 pence per
share for the first three quarters of 2023, and a further dividend of 1.345
pence per share was announced on 20 February 2024 in respect of the quarter to
31 December 2023. Together, these amount to the 5.38 pence per share target
for the 2023 financial year, announced on 2 March 2023.
In cash terms, the Company and its subsidiary achieved a cash dividend cover
of 1.21x against the dividends of 5.285 pence per share paid during the year.
When amortisation of debt is added back, the dividend cover was 1.78x. Cash
dividend cover has been calculated on the basis of cash actually received by
the Company and its immediate subsidiary, post the payment of any debt service
obligations.
The Company will target a dividend of 5.80 pence per share relating to the
year to 31 December 2024, a 7.85% increase from 2023. The increased dividend
is expected to be covered by cash in excess of 1.35x by the current portfolio.
Capital Structure
Share prices across the broad infrastructure investment fund sector are
depressed and the Company is trading at a discount to NAV. The Board is
closely monitoring the Company's share price discount and is committed to
buying back its own shares when deemed appropriate. While share buybacks will
not necessarily prevent the discount from widening, particularly in times of
market weakness or volatility, the Board believes that buybacks enhance the
NAV per share for existing shareholders, provide some additional market
liquidity and help to mitigate discount volatility which can damage
shareholder returns.
During the twelve months to 31 December 2023 the Company has bought back a
total of 4,375,363 shares into treasury at a cost of £4.1 million. Since the
period end, a further 2,544,899 shares have been bought back into treasury at
a cost of £2.1m. As at 10 April 2024, the Company had 184,622,487 shares in
issue (including 6,920,262 shares held in treasury, which are available to be
resold at a premium to NAV per ordinary share when the opportunity arises).
Alongside buybacks the Board has balanced accretive acquisitions and revenue
optimisation initiatives. The Company has benefitted in particular from its
hydropower aggregation, modernisation and revenue optimisation strategy and
has further opportunities to expand its investment in this strategy with the
aim of increasing overall portfolio returns. The Company has also secured
opportunities to construct battery storage projects on land owned by the
hydropower facilities at projected returns in excess of other investments held
by the Company and in excess of equivalent projects in the UK.
In light of the potential value to the Company of: (1) these investment
opportunities; (2) reducing borrowings under the RCF; and (3) the value
created through ongoing share buybacks, the Company continues to make progress
in considering potential co-investors for its existing Swedish hydropower
assets.
Outlook
The Board is pleased with the deployment of £47 million in high-quality
investments made in the year and is especially encouraged by the progress made
into further diversifying the portfolio with acquisitions in both a new
geography (Iceland) and a new technology (grid infrastructure).
In 2024, the Investment Manager's in-house asset management team will continue
to focus on delivering positive operational performance and increasing
revenues from the portfolio through optimisation initiatives and careful
allocation of capital.
The area of greatest focus and where the potential return is greatest is in
implementing the software and hardware upgrades that enable the hydropower
plants to participate in frequency containment reserve ("FCR") markets in
Sweden. This increases the number of revenue streams and the overall capital
value of the plants and the Investment Manager believes that this could add as
much as 5% to the value of the hydropower portfolio over time with little
capital investment required. The hardware has currently been installed at 20
plants.
The Company will continue to leverage the deep expertise of the Investment
Manager to deliver strong operational performance while placing its
sustainability goals at the centre of its operational objectives.
The Board looks forward to bringing shareholders further updates on future
progress.
Hugh W M Little
Chair
10 April 2024
Downing Renewables & Infrastructure Trust PLC
6 Based on figures from underlying spv unaudited management accounts which are
not included within this report.
Financial Objectives
Objective KPI and Definition Relevance to Strategy Performance Explanation
Attractive and sustainable level of income Dividends per share (pence) The dividend reflects the Company's ability to deliver a low risk but growing The Company has paid dividends of 4.035 pence per share in respect of the year The Company successfully met the increased dividend guidance of 5.38 pence per
income stream from the portfolio. ending 31 December 2023. The company has declared a further 1.345 pence per share for the year to 31 December 2023. The Company's annual dividend target
share to be paid in respect of the period to 31 December 2023. will increase by 7.85% for the year ended 31 December 2024 to 5.80 pence per
share.
Cash dividend cover1(2) Reflects the Company's ability to cover its dividends from the income received 1.21x The Company, through DORE Hold Co received distributions of £15.2m from the
from its portfolio. underlying projects enabling the Company to pay fully covered dividends.
£11.5 million was paid up via loan interest from DORE Hold Co in the period.
Capital preservation with an element of capital growth NAV per share (pence)(12) The NAV per share reflects our ability to preserve capital value and provide 117.7 pence per share 117.7 pence per share as at 31 December 2023. NAV has decreased since 31
an element of capital growth throughout the life cycle of our assets. December 2022 from 118.6 pence per share after taking into account dividends
paid.
Total NAV return (%)(12) The total NAV return measure highlights the gross return to investors 3.5% The Company's NAV has decreased due to the downward revaluation of the
including dividends paid. Company's Investment in Hold Co, however the Total NAV % increased due to
dividends paid.
Total Shareholder return since IPO(12) The share price movement plus reinvested dividends over a period, is a measure 1.1% The Company's closing share price as at 31 December 2023 was 90.0 pence per
of a company's capital growth over the long term. share.
Ongoing charges ratio(12) Ongoing charges shows the drag on performance caused by the operational 1.6% Company level budgets are approved annually by the Board and actual spend is
expenses incurred by the Company. reviewed quarterly. Transaction budgets are approved by the Board and
potential abort exposure is carefully monitored.
(12)These are alternative performance measures.
A glossary of terms can be found in the full Annual Report.
Objectives and Key Performance Indicators
The Company sets out above its KPIs which it uses to track the performance of
the Company over time against the objectives, as described in the
Sustainability report in the full Annual Report. The Board is of the opinion
that the KPIs detailed in the table above, alongside the environmental, social
and governance objectives set out in the full Annual Report provide
shareholders with sufficient information to assess how effectively the Company
is meeting its objectives. The Board will continue to monitor these KPIs on an
ongoing basis.
Portfolio Summary
At the year end, through its main subsidiary, DORE HoldCo Limited, the Company
owned a renewable energy portfolio of hydropower, wind and solar assets,
representing 203 MW of installed capacity with expected annual generation of
around 424 GWh.
The Company also owns a grid infrastructure portfolio including a shunt
reactor that regulates voltage on the UK Transmission System by absorbing
200MVAr reactive power per hour and a Swedish Electricity Distribution System
Operator which delivers electricity to c.1,500 domestic and business
customers.
The generating portfolio is diversified across 4,868 individual installations
and across five different energy markets. The grid infrastructure portfolio is
diversified across two geographies and technologies.
The Group currently has no exposure to any assets under construction.
Portfolio composition by valuation, as at 31 December 2023
Technology by GAV (%)
Hydro 44
Solar 42
Wind 8
Grid Services 5
Cash 1
Geography by GAV (%)
Sweden 52
Great Britain 37
Northern Ireland 8
Iceland 2
Cash 1
Power Market Exposure by GAV (%)
Great Britain 34
Sweden - SE2 26
Sweden - SE3 21
Northern Ireland 8
No Exposure 5
Sweden - SE4 4
Iceland 2
Investment Technology Date Acquired Location Power Market / Subsidy Installed capacity (MW) Expected annual generation (GWh)
Ugsi Hydro Feb-21 Alvadalen, Sweden SE3/n/a 1.8 10.0
Bathusstrommen Hydro Feb-21 Alvadalen, Sweden SE3/n/a 3.5 13.7
Asteby Hydro Feb-21 Torsby, Sweden SE3/n/a 0.7 2.8
Fensbol Hydro Feb-21 Torsby, Sweden SE3/n/a 3.0 14.0
Robjorke Hydro Feb-21 Torsby, SE3/n/a 3.3 14.9
Sweden
Vals Hydro Feb-21 Torsby, Sweden SE3/n/a 0.8 3.2
Torsby Hydro Feb-21 Torsby, Sweden SE3/n/a 3.1 13.2
Tvarforsen Hydro Feb-21 Torsby, Sweden SE2/n/a 9.5 36.9
Sutton Bridge Solar Mar-21 Somerset, England UK/ROC 6.7 6.7
Andover Airfield Solar Mar-21 Hampshire, England UK/ROC 4.3 4.2
Kingsland Barton Solar Mar-21 Devon, England UK/ROC 6.0 5.9
Bourne Park Solar Mar-21 Dorset, England UK/ROC 6.0 6.0
Laughton Levels Solar Mar-21 East Sussex, England UK/ROC 8.3 8.8
Deeside Solar Mar-21 Flintshire, Wales UK/FiT 3.8 3.4
Redbridge Farm Solar Mar-21 Dorset, England UK/ROC 4.3 4.2
Iwood Solar Mar-21 Somerset, England UK/ROC 9.6 9.3
New Rendy Solar Mar-21 Somerset, England UK/ROC 4.8 4.7
Redcourt Solar Mar-21 Carmarthenshire, Wales UK/ROC 3.2 3.2
Oakfield Solar Mar-21 Hampshire, England UK/ROC 5.0 4.7
Kerriers Solar Mar-21 Cornwall, England UK/ROC 10.0 9.7
RSPCA Llys Nini Solar Mar-21 Swansea, Wales UK/ROC 0.9 0.8
Commercial portfolio Solar Mar-21 Various, England and Wales UK/FiT 5.5 4.3
Commercial portfolio Solar Mar-21 Various, Northern Ireland SEM/NIROC 0.7 0.5
Bombardier Solar Mar-21 Belfast, N. Ireland SEM/ROC 3.6 2.8
Residential portfolio Solar Mar-21 Various, N. Ireland SEM/NIROC 13.1 10.1
Lemman Hydro Jan-22 Alvadalen, Sweden SE3/n/a 0.6 2.6
Ryssa Ovre Hydro Jan-22 Mora, Sweden SE3/n/a 0.7 2.6
Ryssa Nedre Hydro Jan-22 Mora, Sweden SE3/n/a 0.6 2.4
Rots Ovre Hydro Jan-22 Alvadalen, Sweden SE3/n/a 0.8 2.8
Rots Nedre Hydro Jan-22 Alvadalen, Sweden SE3/n/a 0.3 1.4
Gabrielsberget Syd Vind AB Wind Jan-22 Aspea, Sweden SE2/n/a 46.0 107.9
Vallhaga Hydro Jan-22 Edsbyn, Sweden SE2/n/a 2.6 12.8
Osterforsens Kraftstation Hydro Jan-22 Edsbyn, Sweden SE2/n/a 1.5 11.5
Bornforsen 1 Hydro Jan-22 Edsbyn, Sweden SE2/n/a 0.7 2.9
Bornforsen 2 Hydro Jan-22 Edsbyn, Sweden SE2/n/a 1.4 9.3
Fridafors Ovre Hydro May-22 Fridafors, Sweden SE4/n/a 2.3 10.0
Fridafors Nedre Hydro May-22 Fridafors, Sweden SE4/n/a 2.9 7.7
Hedvigsfors Hydro Oct-22 Sweden SE2/n/a 0.3 1.2
Gysinge Hydro Oct-22 Sweden SE3/n/a 0.3 2.5
Brattfallet Hydro Oct-22 Sweden SE3/n/a 0.5 3.7
Molnbacka Hydro Oct-22 Sweden SE3/n/a 1.8 3.8
Varan Ovre Hydro Oct-22 Sweden SE3/n/a 0.2 1.2
Varan Nedre Hydro Oct-22 Sweden SE3/n/a 0.2 1.2
Kristinefors Hydro Oct-22 Sweden SE3/n/a 0.1 0.7
Hogforsen Hydro Feb-23 Sweden SE2/n/a 0.35 2.5
Gottne Hydro Feb-23 Sweden SE2/n/a 0.7 5.8
AEE Renewables UK 13 Solar Apr-23 Devon, England UK/ROC/FiT 5.6 5.6
Gloucester Wind Solar Apr-23 Various, England and Wales UK/FiT 1.1 1.2
Hewas Solar Solar Apr-23 Various, England and Wales UK/FiT 2.0 1.9
Penhale Solar Solar Apr-23 Surrey, England UK/FiT 0.3 0.4
Priory Farm Solar Farm Solar Apr-23 Suffolk, England Great Britain UK/ROC 3.2 2.5
St Colomb Solar Solar Apr-23 Various, England and Scotland UK/FiT 0.8 0.6
Blasjon Nat Grid Jul-23 Sweden SE2 n/a n/a
Mersey Shunt reactor Nov-23 United Kingdom UK/n/a n/a n/a
Bruket Hydro Dec-23 Sweden SE2/n/a 0.9 3.9
Nylandsan Hydro Dec-23 Sweden SE2/n/a 0.55 1.6
Kallsjon Hydro Dec-23 Sweden SE2/n/a 0.25 0.7
Tunsjon Hydro Dec-23 Sweden SE2/n/a 0.25 0.6
Lagmansholm Hydro Dec-23 Sweden SE3/n/a 0.5 2.4
Urdarfellvirkjun Hydro Dec-23 Iceland IS/n/a 1.1 8.3
TOTAL AS AT 31 DECEMBER 2023: 202.9 424.2
Investment Manager's Report
Introduction
We are delighted with the progress made investing in the portfolio during the
year. The Company announced eight acquisitions in the hydropower, solar and
grid infrastructure sectors totaling £47 million, which support and
strengthen the Company's aim of diversification by technology, geography,
power market exposure and revenue. During the year GAV increased by 13% from
£310 million to £352 million and the expected annual generation of the
portfolio grew by 11% from 382 GWh to 424 GWh. In addition, two non-generation
assets were acquired, providing revenue streams that are not derived from
energy sales.
Acquisitions and Capital Deployment
Although we have focused on growing the core renewables portfolio, we have
also prioritised our strategic aim of reducing the proportion of the Company's
portfolio that is exposed to merchant power prices through investment in grids
and grid infrastructure projects. This is an attractive sector for the Company
and one which we believe has huge potential to unlock value.
We delivered further geographical diversification through the acquisition of
the Company's first hydropower plant in Iceland, which also benefits from long
term, fixed price, inflation linked revenues through its power sales
agreement. We believe that Iceland is an attractive market for the Company,
particularly given the long term offtake contracts available for generating
assets.
A great deal of resource has been dedicated to upgrading the capabilities of
the Company's hydropower portfolio, concentrating efforts on the area of the
portfolio where the return on investment has the potential to be highest.
Hydropower - Downing Hydro AB ("DHAB")
DHAB is the vehicle through which the Group acquires and owns its portfolio of
hydropower plants.
In January 2023, the Group acquired a 2.5 GWh hydropower plant in Hogforsen,
on the Gilleran river, a tributary to the Indalsalven river, in Sweden's SE2
region. The plant was commissioned in 1915 and in 2011, the plant underwent a
major renovation, including replacement of generator, turbine and control
system.
In March 2023, the Group acquired a 6 GWh hydropower plant in the municipality
of Gottne, located on the Moalven river, also in SE2. The plant underwent a
major refurbishment in 2015.
In December 2023, the Group acquired a 7GWh portfolio of four hydropower
plants and a reservoir located in the Bruksan tributary in Sweden's SE2. The
plants were originally built between 1890 and 1930, three of which were
refurbished between 2008 and 2012. All four plants benefit from meaningful
reservoir capacity that allows for better water storage and management to
optimise production.
Also in December 2023, the Group acquired a 2.4 GWh hydropower plant in the
SE3 pricing region located on the Savean river in south-west Sweden. It
includes an upstream weir, which regulates waterflow from a lake, enabling
better resource management to improve energy production. The hydropower plant
was originally built in the 1930s but underwent extensive refurbishment in
2013. This asset expands the existing portfolio into a new geographical area
and river system, further diversifying the portfolio across different water
catchment areas.
The above acquisitions increased the total number of DORE's Swedish hydropower
plants to 34 with a total annual average production of c. 215 GWh. The new
hydropower plants will be integrated into the existing portfolio and will
continue to support DORE's highly diversified investment strategy, designed to
increase the stability of revenues and consistency of income to shareholders.
The acquisitions were accretive to NAV, due to operational and capital
efficiencies resulting from the integration of the assets into the Company's
platform. During the period, a £0.3 million increase in NAV was recognised as
the new investments were brought into the platform.
Iceland
The Company acquired its first Icelandic asset, an 8 GWh (1.1 MW) hydropower
plant, located in south-central Iceland. The Urdafellsvirkjun plant has been
operational since 2018 and comprises a powerhouse, penstock and dam
facilities. Unlike the Swedish assets, where the freehold land is owned, this
asset has a lease agreement that secures the land and water rights for the
next 65 years, with strong rights to extend. The useful life of the asset is
valued over 30 years, noting that the Swedish assets are perpetual.
Iceland has a unique energy market shaped by its abundant renewable energy
resources, primarily geothermal and hydroelectric power, making it one of the
cleanest and most sustainable energy markets globally. Energy-intensive
industrial consumers have been drawn to Iceland due to its ability to provide
consistent and relatively low-cost electricity; causing Iceland to have the
highest per capita generation/ consumption of renewable energy in Europe.
Similar to other European countries, Iceland is actively progressing towards
electrification for vehicles and the maritime sector, further increasing
future demand for electricity.
The Icelandic hydropower market provides an attractive investment proposition
for the Company, with electricity producers benefitting from 100%
inflation-linked take-or-pay offtake arrangements with no exposure to merchant
power pricing for the duration of the offtake agreement. In the past few
years, power prices have been increasing in Iceland but remain relatively low
compared to its European peers providing upside opportunities.
The hydropower plant benefits from a Euro denominated, inflation linked, 100%
pay-as-produce offtake agreement with HS Orka, the third largest electricity
producer in Iceland running until 2032.
Solar - Domestic Rooftop Portfolio
In April 2023, the Group acquired a portfolio of operational solar PV assets
located in the UK for a cash consideration of £12.6 million. The 13.0 MWp
portfolio of two ground-mounted sites and approximately 1,600 commercial and
residential installations benefits from high levels of feed-in tariffs and
renewable obligation certificate subsidies running to 2037. As a result of
acquiring these assets, the proportion of revenue derived from subsidies
within the solar portfolio has risen from 51% to 54%.
The new portfolio will increase the total number of DORE's solar assets to
c.4,800, with a total annual average production of 100 GWh. The new portfolio
benefits from high subsidies, equating to c. £122/MWh during the year. In
addition, it has benefited from high fixed power purchase agreements, meaning
during 2023 the average power price achieved was £105/MWh.
DORE will remain unaffected by the UK's Electricity Generator Levy ("EGL")
following this acquisition, with the Company having significant headroom in
the EGL's annual allowance.
Grid infrastructure - Blasjon Nat AB
In July, DORE acquired a Swedish Electricity Distribution System Operator
("DSO"), Blasjon Nat AB ("Blasjon "), for £8.5 million. Blasjon is a
regulated electricity distributor, which delivers 16-18 GWh per annum of
electricity through medium and low voltage lines to its c.1,500 domestic and
business customers in Stromsund, northern Sweden.
The DSO grid network is a monopoly with very long-life assets (comparable to
the lifespan of the Company's hydropower portfolio). It is a critical entity
within the electricity supply chain that plays a vital role in the efficient
and reliable distribution of electrical power to end-users. The electricity
distribution system is the part of the power grid responsible for delivering
electricity from the generating powerplants to consumers, businesses, and
industries at lower voltage levels.
Blasjon's grid network is 436km in length and comprises overhead lines, three
primary and 161 secondary substations. Blasjon operates a licensed monopoly in
a highly regulated environment and generates consistent and predictable
cashflows that are not exposed to energy price fluctuations. Long term
revenues under the regulatory regime are linked to inflation and interest
rates. Blasjon's revenues are set by Energimarknadsinspektionen, the Swedish
electricity market regulator to meet a predetermined return on capital.
Grid infrastructure - Reactive Power
In October, the Group acquired Mersey Reactive Power, a UK-based, fully
operational 200 MVAr shunt reactor for a cash consideration of c.£11.0
million. It is located in Frodsham, Merseyside.
This grid infrastructure asset became operational in May 2022 and was the
first project to go live as part of the National Grid's Stability Pathfinder
initiative. Mersey Reactive Power further increases the Company's long term,
inflation linked, fixed revenues, by virtue of its availability-based contract
with National Grid ESO which runs until 2031.
The project, which has an expected asset life of 40 years, supports the UK's
electricity system in voltage management, providing reactive power to increase
network resilience, reducing costs to consumers and lowering carbon emissions.
Mersey Reactive Power supports the balancing of real and reactive power
through a shunt reactor, a piece of electrical equipment used in high-voltage
electricity transmission systems. It is a passive device, meaning it does not
generate electricity itself but rather helps to regulate the flow of
electricity on the power grid.
Traditionally, reactive power services have been provided by large fossil fuel
plants, but to support the transition to low and zero carbon energy, new
sources and providers of reactive power are needed. The Mersey region has
been identified as a key problem area for reactive power, an issue which is
expected by National Grid ESO to become more acute as fossil fuel generation
assets continue to be decommissioned across the network, positioning the
Mersey project well for the future.
Blasjon and Mersey account for 6.5% of the portfolio's annualised revenues,
providing a steady stream throughout the year with low seasonal variations.
Market Development and Opportunities in the Frequency Regulation Markets
The outlook for the Company is very encouraging, given the strong operational
performance of the existing assets and eight new acquisitions signed in 2023,
including the Company's first two grid infrastructure assets, which further
diversify the portfolio.
The Investment Manager is focussed on deploying capital into areas of the
portfolio where the potential return on capital is the greatest.
Accordingly, the Investment Manager is pursuing opportunities to gaining
access to the attractive Swedish Frequency Containment Reserve ("FCR") market
by building out the hydropower plants into power generation stations through
the installation of add-on equipment and software. The Investment Manager has
also been identifying sites for the installation of battery energy storage
systems ("BESS"), often located on land owned by the hydropower portfolio,
which will enable DORE to gain access to the Fast Frequency Reserve ("FFR")
markets, thus creating additional revenue streams and increasing productivity
of the site.
The FFR market requires instantaneous reactions to address immediate frequency
deviations, while FCR provides a slightly more gradual response to maintain
overall grid stability. Both reserves play crucial roles in ensuring reliable
electricity supply.
The combination of an increasingly centralised operation system across the
hydropower portfolio and software and hardware upgrades will enable the
Company to regulate its power production to such an extent that it can bid to
participate in the FCR markets. The storage capability of hydropower plants
acts in a similar but slower manner to that of a battery, allowing
hydropower production to be adjusted relatively quickly (up or down) to
assist in stabilising the grid.
Downing LLP, a professional Asset Manager (the "Asset Manager") has now
upgraded hardware and software at 20 hydropower sites to enable the additional
functionality required to participate in these markets, and it is now
anticipated that the first of the Swedish hydropower plants will be able to
participate in Q2 2024.
Most of DORE's hydropower plants can participate in the Frequency Containment
Reserve for Normal Operation ("FCR-N") market with some assets also deemed
suitable for the Frequency Containment Reserve for Disturbances ("FCR-D")
market. This opens up the portfolio to
new revenue streams with limited capital investment requirement.
Limited supply in the FCR / FFR markets, combined with increased underlying
demand resulting from an increased share of intermittent generation in the
electricity system, has created high FFR and FCR prices, making the Swedish
market particularly attractive.
The Investment Manager has estimated the additional value of the revenues from
the FCR-N and FCR-D markets at 4-5% of the net asset value of the hydropower
portfolio. Given the advanced status of the programme, approximately 50% of
this value is now reflected in the valuation of the hydropower portfolio at 31
December 2023.
A project is also underway to register the Swedish windfarm Gabrielsberget Syd
Vind AB for manual Frequency Restoration Reserve ("mFRR") in the Nordics. To
enable this, the Asset Manager is upgrading the current hardware onsite to
allow for remote power down and this project is expected to be complete in Q2
2024. No value has been included in the valuation of the Swedish windfarm for
potential future mFRR revenues.
Portfolio Performance
For the year to 31 December 2023, the 4,866 core renewable energy assets
produced approximately 396 GWh of renewable electricity. Operating profit
increased 27% and generation increased 21% in the year.
From a financial perspective, the portfolio generated an operating profit of
£24.7 million(8), which was below expectations. Operating profit variance was
primarily caused by low electricity prices across the Nordics resulting from
high levels of hydropower generation in the region during a particularly wet
summer, combined with low demand from the European market where there has been
high levels of gas storage throughout the year. This had a direct impact on
the revenues generated by the wind and hydropower portfolios.
Contributions to operating profit from the underlying technologies varied.
Operating profit across the solar portfolio exceeded expectations at £16.9m,
driven by strong Renewable Energy Guarantee of Origin ("REGO") pricing.
Generation from the solar portfolio was 95 GWh across the year and was
moderately impacted by proactive interventions to replace and / or upgrade
electrical equipment across several ground mount sites. Examples of these
projects include replacing PV connectors and panels and a full inverter
repowering project in Andover. These workstreams completed during the period
now position the portfolio well for improved technical performance going
forwards. As previously reported the dynamic spare parts strategy implemented
in 2022 continues to support the solar portfolio in mitigating the risk of
downtime through prolonged equipment lead times.
Operating profit for the hydropower portfolio was £5.8m, which was lower than
expected, despite generation being broadly in line with expectations at 194
GWh. This was driven by power prices in Sweden (which started the year at
relatively high levels as a result of the invasion of Ukraine) reducing to
more normalised levels more quickly than expected. Operational performance was
broadly in line with expectations in the wind portfolio, with generation at
106 GWh. Operating profit was £1.0m, also below budget for the same reasons
as the hydropower portfolio.
Investments into new technologies during the period brought additional revenue
streams to the portfolio. The grid infrastructure assets had an operating
profit of £1m, which was in line with expectations. The UK grid stability
asset, Mersey, performed very well during the period, driven by strong
availability, enabling the asset to benefit from its fixed revenue contract to
provide a reactive power stabilisation service to the National Grid. This was
offset by the Swedish electricity distribution grid, Blasjon, incurring excess
costs for storm damage repairs. Costs were also incurred for grid and land
works required to set up new customer connections, the benefit of which will
be reaped in future periods.
(8)Based on underlying spv management accounts
2023 2022
Hydro Wind Solar Grid/Grid Stability Total Hydro Wind Solar Grid/Grid Stability Total
GWh generated 194.2 105.8 94.7 N/A 394.7 128.3 108.0 89.9 N/A 326.3
Average price per MWh €55.98 €30.60 £216.0 N/A £49.0 €72.9 €29. 9 £65. 5 N/A £51.0
Revenues (£m) 9.5 3.3 21.5 2.0 36.3 8.2 3.1 15.4 N/A 26.7
Operating profit (£m) 5.8 1.0 16.9 1.0 24.7 6.0 1.0 12.5 N/A 19.5
Portfolio and Asset Management
The Investment Manager has continued to invest and strengthen its
capabilities, with seven additional hires during the period. The 31 strong
team is located in offices in London, Stockholm and Glasgow, where the skill
set and expertise spans a broad range of specialisms such as power markets,
engineering, data analytics, finance, and commercial management.
The asset management team works in parallel to the investment team and ensures
work is started long before an asset is acquired. Prior to any acquisition
being completed, the asset management team carries out a comprehensive
onboarding process to ensure that new assets are transitioned smoothly into
the wider energy portfolio resulting in an optimised performance from that
asset from day one of ownership.
The onboarding captures all key milestones that need to be completed as part
of the transition, including the collection of key documents such as project
contracts and design documents, and the assets are embedded into existing
processes, such as contract management and compliance, incident tracking,
monitoring, and reporting. Assets are fully incorporated within the asset
management team's portfolio reporting systems within 60 days of completion of
an acquisition.
This dynamic onboarding process not only enables a smooth transition of new
assets but is also critical in supporting the team's data led approach to
asset management. By focussing on the collection and quality of the portfolio
data set and deploying the latest technologies and tools to optimise
strategies such as preventative maintenance or water dispatch to increase
power generation and therefore returns to investors.
The effectiveness of having such a dynamic and efficient onboarding process
was demonstrated during the period as the asset management team onboarded two
new grid technologies. As a result of well-established systems and processes,
the asset management team quickly completed onboarding and have now fully
incorporated these new technologies into normal operations and existing
systems.
Optimisation
During the period, the asset management team continued to develop and
implement performance and proprietary data optimisation strategies, the latter
enhancing Downing's data driven approach to asset management.
Significant progress has been made on the previously reported hydropower
digitalisation project. Four pilot hydropower sites were successfully
connected to a centralised control and data system and performance of these
sites can now be remotely monitored and controlled. Furthermore, the sites are
now being integrated into GPM software, which will allow extended analytics
and insights and mark the completion of the pilot project. This will also
enable the Asset Manager to use real-time data on reservoir levels and flow
rates, alongside the Optimal Price Analysis tool to make flexible decisions on
optimal periods of generation. Given the success of the pilot projects, the
digitalisation programme is now being rolled out across the balance of the
hydropower portfolio.
The asset management team has undertaken several optimisation projects to
replace and improve technical equipment within the UK ground-mounted solar
portfolio. Having recognised a systematic issue with inverters at one 4.3 MW
site, the asset management team successfully replaced all 200 inverters during
the period, with old inverters now kept in stock as spare parts. Inverters at
five additional sites were upgraded during the period to improve heat
dissipation which will reduce failure rates and downtime in the future. The
asset management team has also been active in pursuing a number of warranty
claims against panel manufactures where systematic panel defects exist. So far
these claims have been successful at two sites where 100% of panel connectors
have been replaced by the manufacturer.
Ongoing active power price management ensures revenues are optimised in the UK
and Nordic markets. This included the forward sale REGO and Guarantee of
Origin (GOO) certificates which will enable the portfolio to benefit from the
current strong market pricing of these certificates and fix strong and stable
revenues for several years into the future.
Health and Safety
The health and safety of contractors and the public is a fundamental part of
management processes. Throughout the period, the Investment manager maintained
a range of workstreams in line with the Company's approach to Health and
Safety management and continued to actively review the approach to ensure
continuous improvement.
Following the investment in Blasjon, a Swedish Electricity Distribution System
Operator delivering electricity to c.1,500 domestic and business customers,
the Investment Manager has undertaken a thorough review of operational
procedures which confirmed adherence to Swedish Standard Electrical Safety
Guidelines (ESAs) procedures for the asset. The asset runs at a significant
distance through rural mountainous areas of Sweden where access is often
difficult and requires specialist vehicles such as snowmobiles. To enhance
contractor safety and optimise grid stability in the case of cables impacted
by adverse weather conditions, a phased programme is underway to upgrade the
isolation methods of overhead cables.
A rolling programme of Health and Safety audits continues across the
portfolio. These audits are based on a two-tier approach, where risks and
procedures are audited at the site level and the operator level. Downing has a
process of continuous assessment and feedback of site and operator practices,
ensuring effective management systems are in place and adhered to.
Finally, IT systems are used to thoroughly track all incidents. As well as
these systems enabling performance measurement and trend analysis, they also
ensure the effective communication, escalation, and management of incidents.
Financing and Capital Structure
The Company through its subsidiary DORE Holdco Limited adopts a prudent
approach to leverage. Its objective is that each asset will be financed
appropriately for the nature of its underlying cashflows. Long-term debt may
be used where appropriate at the SPV level to facilitate acquisitions,
refinancing, capital expenditure or construction of assets.
Total long-term structural debt will not exceed 50% of the prevailing Gross
Asset Value. At 31 December 2023, including project level financing, the
Company and its subsidiaries' leverage stood at 40%.
In addition, the Company and/or its subsidiaries may also make use of
short-term debt, such as a revolving credit facility, to assist with the
acquisition of suitable opportunities as and when they become available.
Revolving Credit Facility
As at 31 December 2023, the Group had entered into a loan agreement through
its main subsidiary DORE Hold Co Limited for a £25 million RCF with Santander
UK plc. The RCF is available until December 2025, with the possibility to be
extended for a further year. On 26 January 2023, the Company announced that
the RCF had been increased to £40m further facilitating the execution
capabilities of the Company's pipeline. As at 31 December 2023, the total
drawn amount under the RCF was £18.6 million.
The terms of the RCF now includes a 'Green Projects' initiative, operating
under the Loan Market Association's (LMA) Green Loan Principles, a framework
of market standards and guidelines that provides a consistent methodology for
use across the green loan market.
Under the 'Green Projects' criteria, the RCF can only be used in connection
with assets that present environmental benefits and appropriate green
credentials. The RCF is available to be drawn for the funding of investments
and working capital requirements. Additional monitoring and reporting
obligations on the environmental benefits delivered by such assets will be
required, which comfortably aligns with DORE's current investment strategy as
an Article 9 fund.
The RCF has the additional benefit of being able to be drawn in both GBP and
EUR (with the ability to also able to make use of funds in other currencies)
and is priced at the Sterling Overnight Index Average ("SONIA") or Euro
Interbank Offered Rate ("EURIBOR") plus 2.25% per annum.
Refinancing of Hydropower Assets
The Group initially acquired DHAB, its Swedish hydropower portfolio, on an
unlevered basis in February 2021, shortly after the Company's IPO. Given the
strong transaction pipeline and ongoing capital expenditure requirements, DHAB
entered into a seven-year bullet repayment EUR 43.5 million debt facility with
SEB, a leading corporate bank in the Nordics.
In December 2023, the SEB facility was increased from EUR 43.5 million to EUR
68.5 million to fund future capital expenditure requirements and further
acquisitions. The total all-in cost of the drawn debt for 2024 is c. 3.3%,
benefitting from swaps until end of 2033.
As of 31 December 2023, DHAB has drawn down EUR 49.4 million under the
facility, predominately as source of funding for acquiring further hydropower
plants in Sweden during 2023 but also to fund some of the capital expenditure
in DHAB.
UK Solar Portfolio
Long term amortising debt (September 2034 maturity) is in place for the UK
solar portfolio and, as at 31 December 2023, comprised outstanding principal
amounts of £68.3 million lent by Aviva and £10.5 million lent by
institutional investors managed by Vantage Infrastructure.
Approximately 12% of this debt is nominal with a fixed interest rate of 3.37%.
The interest rate is fixed in real terms on the remaining balance at 0.5%. The
debt service of this larger debt tranche is inflation-adjusted, with
indexation tracking UK RPI.
A summary of the debt across the portfolio (excluding the RCF) can be found in
the table below:
2023 2022
Hydro Wind Solar Grid Working capital Total Hydro Wind Solar Grid Infra-structure Working capital Total
Infra-structure
Equity value (£'m) 111.5 27.2 68.1 19.6 4.3 230.7 103.0 26.4 62.6 n/a 26.9 218.9
Debt (£'m) 42.8 0.0 78.7 0.0 0.0 121.5 23.0 0.0 68.5 n/a 0.0 91.5
GAV (£'m) 154.3 27.2 146.8 19.6 4.3 352.2 126.0 26.4 131.1 n/a 26.9 310.4
Foreign Exchange
The Group's generating assets in Sweden earn revenues in EUR and incur some
operational cost in SEK. Blasjon revenues and costs are in SEK. From 1 March
2024, Urdafellsvirkjun's revenues exposure is Euro. Assets in UK operate
entirely in sterling.
The Group, together with its foreign exchange advisor, has developed and
implemented its foreign exchange risk management policy in line with the
Prospectus. The policy targets hedging the short to medium-term distributions
(up to five years) from the portfolio of assets (that are not denominated in
GBP) on a "linear reducing basis", whereby a high proportion of expected
distributions in year one are hedged and the proportion of expected
distributions that are hedged reduces in a linear fashion over the following
four years. This is a rolling programme and each year further hedges are
expected to be put in place to maintain the profile.
In total, 46% of the Group's EUR dividend receipts from SPVs out to March 2027
were hedged as at the reporting date. In addition, 54% of the Group's EUR
denominated NAV is hedged.
Power markets and exposure
Through its portfolio companies, the Group adopts a medium to long-term power
price hedging policy for its generation assets, providing an extra degree of
certainty over a portion of the Company's cash flows. The fixed price
generation position for the portfolio as of 31 December 2023 is set out in the
chart below, showing the benefits of the combination of subsidy and fixed
income from power sales. The hedging positions are continuously reviewed to
ensure an appropriate position is maintained and new hedges are taken out as
appropriate.
The war in Ukraine will continue to have a major impact on power prices in
Europe and the UK where gas supply is dominated by Russia. Consequently, the
UK gas and UK power markets are likely to stay volatile as long as the
uncertainty about the Russian gas supply continues. The Company is
well-protected from this volatility, due to its high level of fixed pricing
over the short to medium term.
Nordic Power Market
The Nordic power market was dominated by the falling gas and power prices on
the continent, a cold spell resulting in demand increase and a delayed spring
flood. Prolonged outages with Swedish and Finnish nuclear facilities also
contributed. Consequently, the market remained volatile, albeit less volatile
than for the last quarter of 2022. The variability in wind generation added to
the volatility on the spot market. The news about the cracks in some the
French nuclear facilities also resulted in some bullish news for the Nordic
power markets at the end of March. The latter part of Q1 and the beginning of
Q2 saw a cold snap in the Nordic regions. The weather then became warmer than
is seasonally typical by the end of May, which resulted in the delayed spring
flood and sudden hydro inflows at approximately twice the seasonal average.
The high hydro levels combined with high wind and PV solar generation lead to
very low (sometimes negative) spot prices across the Nordics and Europe. In
June, prices increased due to high continental temperatures and lower
precipitation, combined with reduced French nuclear availability and low
renewable generation. However, prices decreased again in Q3 due to high
precipitation. The spot market occasionally traded at negative prices because
of low demand and high wind generation.
UK power market
Weather and LNG supply dominated the evolution of forward power prices in the
UK throughout the year. Prices gradually came down from the previously
reported extreme highs in September 2022. Power prices are now trading below
the levels of just before the Ukraine war but still higher than the longer
historical price range. The market witnessed a number of mini rallies due to
industrial action in France, news about potential new cracks in French nuclear
power plants, extreme temperature spikes on the continent in the Summer and
news about potential supply issues in the gas markets. As cold weather
combined with signs of tightness in physical supply, National Grid ESO ordered
three coal-fired units to be readied for production. Potential gas supply
issues included North Sea gas outages, threats to global gas supply due to
potential industrial actions from Australian LNG workers and rising
maintenance restrictions. These mini rallies were short lived, however, as
overall gas reserves have been high due to a relatively mild winter and
relatively wet summer, pushing prices down.
Dividends
The Company achieved a cash dividend cover of 1.21x post debt service and
1.78x before debt service for dividends of 5.285 pence per share paid during
the year. Cash dividend cover has been calculated on a cash basis of income
received by the Company and its immediate subsidiary.
The Board has resolved to pay the Company's fourth interim dividend of the
year of 1.345 pence per share, equivalent to £2.4 million, in respect of the
three months to 31 December 2023. This will bring total dividends paid in
respect of the financial year to 5.38 pence per share, which is in line with
the Company's dividend guidance. The fourth interim dividend is not reflected
in the accounts to 31 December 2023.
The Company has chosen to designate part of each interim dividend as an
interest distribution for UK tax purposes. Shareholders in receipt of such a
dividend will be treated for UK tax purposes as though they have received a
payment of interest in respect of the interest distribution element of this
dividend. This will result in a reduction in the corporation tax payable by
the Company.
Dividends in respect of the financial year to 31 December 2023 are as follows:
For the Period Ended Dividend Paid No. of Shares Total Dividend (pence per share) Interest Element (pence per share) Dividend Element (pence per share)
March 2023 June 2023 184,587,487 1.345 0.875 0.470
June 2023 September 2023 183,919,987 1.345 1.076 0.269
September 2023 December 2023 181,411,624 1.345 1.143 0.202
December 2023 March 2024 180,247,124 1.345 1.009 0.336
The Company intends to continue to pay dividends on a quarterly basis, with
dividends typically declared in respect of the quarterly periods ending March,
June, September and December. Payment of the relevant dividend declared is
expected be made within three months of the relevant quarter end.
The target dividend for the year from 1 January 2024 has been increased by
7.85% to 5.80 pence per ordinary share. On a 3 year average basis, future
dividend cover is expected to exceed 1.35x.
Net asset value and Portfolio Valuation
The Company's NAV decreased by 3.1% during the year from £218.9 million to
£212.1 million. The NAV movement comprised a positive contribution of £11.5
million from valuation gains, offset by dividends and share buybacks of £13.8
million combined, and management and other costs of £4.5 million.
At a per share level, the effect of the share buyback was to increase the NAV
per share by 0.6p, partially offsetting the overall NAV per share decrease of
0.8% from 118.6 pence per share to 117.7 pence per share as at 31 December
2023.
The bridge below shows the movement in NAV during the period, with each step
explained further below.
NAV Movement Bridge (£'m)
Opening NAV (1-Jan-23) 218.9m 118.6p
Performance 16.0m 8.7p
Power Curve -17.8m -9.6p
Inflation -1.6m -0.9p
Discount Rate -0.5m -0.3p
FV uplift relating to new investments 1.1m 0.6p
Accessing new revenue streams 3.0m 1.6p
Contractual changes 3.1m 1.7p
FX and Other 8.2m 4.4m
Dividend -9.7m -5.3p
Share Buybacks -4.1m 0.6p
Management Fee -2.0m -1.1p
Other Costs and Charges -2.5m -1.4p
Closing NAV (31-Dec-23) 212.1m 117.7p
Opening
Represents the NAV at 31 December 2022.
Performance(1)
Represents the difference between the expected performance, and actual
performance of the portfolio companies throughout the year.
Power Prices(1)
The Group uses long-term, forward-looking power price forecasts from third
party consultants for the purposes of asset valuations. In the UK an equal
blend is taken from the most recent central case forecasts from two leading
consultants, whilst in Sweden an equal blend is taken from the most recent
central case forecasts from three leading consultants. This is then blended
with actual pricing for forward market trades for the next four years in
Sweden and the next three years in the UK enabling a more holistic view of the
power market to be included in the valuation. Where fixed price arrangements
are in place, the financial model will reflect this price for the relevant
time frame. The impact of our short-term power hedging strategy is also
included in this step.
Inflation(1)
2023 inflation forecasts were revised during the period reflecting the
increasing rate of inflation and in line with government forecasts.
The Group is now using the near-term (calendar year 2024) inflation forecast
of 3.46% for the purposes of UK asset valuations, falling to a medium-term
inflation forecast of 3.00% from 2025. From 2030 onwards, this forecast
reduces to 2.25% in line with the RPI reform announced by the UK Government.
A near-term inflation (calendar year 2024) forecast of 4.60% is used for the
Swedish asset valuations. The forecast in the medium term (2025 onwards) to
long term reduces to 2.00%, in line with the long term Swedish central bank's
target inflation rate.
Models are also updated quarterly to reflect actual inflation to date.
Discount rate(1)
Discount rates used for the purpose of the valuation process are
representative of the Investment Manager's and the Board's assessment of the
rate of return in the market for assets with similar characteristics and risk
profile.
As a result of movements in the risk-free rate in the UK, the weighted average
discount rate of the levered and unlevered Solar portfolio increased by 0.2%
to 8.0%. The increased discount rates took effect as at 30 June 2023.
Discount rates in use across the portfolio range from 6.3% to 8.05%, with the
weighted average value at 7.7%.
Acquisitions(1)
The difference between the original cost of an investment and the revaluation
of that investment throughout the year.
Accessing new revenue streams(1)
Net present value of 50% of budgeted FCR revenues on the hydro portfolio after
significant progress has been made in the hardware and software upgrades to
participate in the FCR markets.
Contractual Changes(1)
Reflects changes to underlying valuations as a result of changes to
operational contracts (such as insurance).
FX and Other(1)
The impact of foreign exchange movements on underlying investment valuations.
The impact of the foreign exchange hedging activity is included in this
movement.
Cashflows from assets that are generated in a non-sterling currency are
converted in each period they are earned using the actual hedges in place,
with the residual amounts converted at the relevant exchange rate.
The relevant exchange rate is taken from a forward curve provided by the
Company's foreign exchange advisors for ten years, at which point the exchange
rate is held constant due to the impracticalities of hedging currency further
into the future.
Other reflects changes to the underlying valuations as a result of changes to
long term capital expenditure assumptions and long term debt pricing, along
with other minor changes including increases relating to improved spot rates
and impact from increasing the size of the facility.
Dividends
Distributions paid by the Company in the period.
Share buybacks
This is the cost of repurchasing shares in the market.
Management Fee
Fees charged to the Company by the Investment Manager.
Other costs and charges
Charges incurred by the Company, and its immediate subsidiary DORE Hold Co
Limited, in its normal operations. No transaction costs are included.
(1) This is a component of the Fair Value of Investment.
Asset life
Where the land is owned by an external landlord, which is the case for the UK
solar, Icelandic Hydro and Swedish wind assets, asset operations have been
modelled to the earlier of the expiry of the planning or permit, and the lease
agreement. As well as these factors, life assumptions are also capped at the
useful economic life of the specific equipment installed on site.
As such, a useful economic life of 30 years is assumed for the Swedish wind
portfolio commencing 2010.
An average useful economic life of 25 years is used for the UK solar
portfolio. It is noted that over the last few years the market has started to
assign economic value to years 25-40 for solar assets, where lease and
planning arrangements allow. Downing has and will continue to explore
opportunities with local councils and landlords to extend existing planning
permissions and lease agreements. In several cases this has been successful
and extensions to planning permission have been granted.
Where the land is owned with the asset, which is the case for the Swedish
hydro assets, there are no constraints in terms of lease agreements that need
to be considered in the valuation. Also, due to the nature of hydro as an
asset class, the assets have a very long life assuming an appropriate level of
capex to maintain the equipment and dams etc.
Portfolio Valuation sensitivities
The NAV reflects the fair market valuation of the Company's portfolio based on
a discounted cash flow analysis over the life of each of the Group's assets
plus the cash balances of the Company and its holding Company and other cash
and working capital balances in the Group.
The portfolio valuation is the largest component of the NAV and the key
sensitivities to this valuation are considered to be the discount rate and the
principal assumptions used in respect of future revenues and costs.
A broad range of assumptions are used in the Company's valuation models. These
assumptions are based on long-term forecasts and are generally not affected by
short-term fluctuations in inputs, whether economic or technical.
The Investment Manager exercises its judgement and uses its experience in
assessing the expected future cash flows from each investment.
The impact of changes in the key drivers of the valuation are set out below.
Discount Rate
The weighted average discount rate of the portfolio at 31 December 2023 was
7.7%.
The Investment Manager considers a variance of plus or minus 1.0% is to be a
reasonable range of alternative assumptions for discount rates.
Energy Yield / Availability
For the solar assets, our underlying assumption set assumes the so called P50
level of electricity output based on reports by technical advisors. The P50
output is the estimated annual amount of electricity generation that has a 50%
probability of being exceeded and a 50% probability of being underachieved.
For hydropower assets, the expected annual average production is applied to
the valuation, similar to the P50 assumption applied to solar and wind assets.
Given the long operational record of the hydropower assets, the annual
production forecast is derived from historic datasets and validated by
technical advisors.
Grid infrastructure assets do not generate energy. For Mersey, a shunt
reactor, availability is used as a comparable sensitivity. Blasjon is not
dependent on availability, as the regulator sets the total revenue cap and
therefore its result does not vary in this sensitivity.
The Energy Yield sensitivities uses a variance of plus or minus 5% applied to
the generation.
Price
The power price sensitivity assumes a 10% increase or decrease in power prices
relative to the base case for each year of the asset life.
While power markets can experience volatility in excess of +/-10% on a
short-term basis, the sensitivity is intended to provide insight into the
effect on the NAV of persistently higher or lower power prices over the whole
life of the portfolio, which is a more severe downside scenario.
Grid Infrastructure assets do not generate energy and are therefore not
reliant on power prices. Mersey is reliant on a contract with National Grid
which is currently in place until 2032. After this agreement expires the price
is unknown; pricing after 2032 has been sensitised relative to the base case.
Blasjon is reliant on the WACC assumption which is set by the regulator and
drives the regulatory cap. The WACC assumption can be used as a comparable
sensitivity for pricing.
Inflation
The Company's inflation assumptions are set out above. A long-term inflation
sensitivity of plus and minus 1.0% is presented below.
Foreign Exchange
The Company's foreign exchange policy is set out above. A sensitivity of plus
and minus 10% is applied to any non-hedged cashflows derived from non-sterling
assets. The Company will also try to ensure sufficient near-term
distributions from any non-sterling investments are hedged.
Non-Statutory Accounts
The financial information set out below does not constitute the Company's
statutory accounts for the year ended 31 December 2023 but is derived from
those accounts. Statutory accounts for the period for the year ended 31
December 2023 will be delivered to the Registrar of Companies in due course.
The Auditor has reported on those accounts; their report was (i) unqualified,
(ii) did not include a reference to any matters to which the Auditor drew
attention by way of emphasis without qualifying their report and (iii) did not
contain a statement under Section 498 (2) or (3) of the Companies Act 2006.
The text of the Auditor's report can be found in the Company's full Annual
Report on the Company's website at www.doretrust.com
(http://www.doretrust.com)
Statement of Comprehensive Income
For the year from 1 January 2023 to 31 December 2023
Revenue Capital Total Revenue Capital Total
Notes* 31 December 2023 31 December 2023 31 December 2023 31 December 2022 31 December 2022 31 December 2022
£'000s £'000s £'000s £'000s £'000s £'000s
Income
Return on investment 5 10,872 (564) 10,308 8,044 28,058 36,102
Total income 10,872 (564) 10,308 8,044 28,058 36,102
Expenses
Investment management fees 4 (2,043) - (2,043) (1,781) - (1,781)
Directors' fees 18 & 22 (150) - (150) (125) - (125)
Other expenses 6 (1,191) - (1,191) (1,001) - (1,001)
Total expenses (3,384) - (3,384) (2,907) - (2,907)
Profit before taxation 7,488 (564) 6,924 5,137 28,058 33,195
Taxation 7 - - - - -
Profit after taxation 7,488 (564) 6,924 5,137 28,058 33,195
Profit and total comprehensive income attributable to:
Equity holders of the Company 7,488 (564) 6,924 5,137 28,058 33,195
Earnings per share - Basic & diluted (pence) 8 4.1 (0.3) 3.8 3.2 17.4 20.6
The total column of this statement is the Statement of Comprehensive Income of
the Company prepared in accordance with International Financial Reporting
Standards (IFRS) as adopted. The supplementary revenue return and capital
columns have been prepared in accordance with the Association of Investment
Companies Statement of Recommended Practice (AIC SORP).
Statement of Financial Position
As at 31 December 2023
31 December 2023 31 December 2022
Notes* £'000s £'000s
Non-current assets
Investments at fair value through profit and loss 9 212,030 196,866
212,030 196,866
Current assets
Trade and other receivables 10 337 567
Cash and cash equivalents 15 1,778 23,328
2,115 23,895
Total assets 214,145 220,761
Current liabilities
Trade and other payables 11 (2,083) (1,862)
(2,083) (1,862)
Total liabilities (2,083) (1,862)
Net assets 212,062 218,899
Capital and reserves
Called up share capital 12 1,846 1,846
Share Premium 65,910 65,910
Special distributable reserve 13 107,341 114,618
Treasury Account 12 (4,065) -
Revenue reserve 6,209 1,140
Capital reserve 34,821 35,385
Shareholders' funds 212,062 218,899
Net asset value per ordinary share (pence) 14 117.65 118.57
The audited financial statements of Downing Renewables & Infrastructure
Trust PLC, which can be found in the full Annual Report, were approved by the
Board of Directors and authorised for issue on 10 April 2024 and are signed on
behalf of the Board by:
Hugh W M Little
Chair
Company registration number 12938740
Statement of Changes in Equity
For the year ending 31 December 2023
Share Capital Share Premium Capital Reserve Treasury Account Revenue Reserve Special Distributable Reserve Total
Notes* £'000s £'000s £'000s £'000s £'000s £'000s £'000s
Net cash attributable to shareholders at 31 December 2021 1,370 14,506 7,327 - 203 118,436 141,841
Gross proceeds from share issue 476 52,375 - - - - 52,851
Share issue costs - (971) - - - 22 (949)
Dividends - - - - (4,201) (3,840) (8,041)
Total comprehensive income for the year - - 28,058 - 5,137 - 33,195
Net assets attributable to shareholders at 31 December 2022 1,846 65,910 35,385 - 1,140 114,618 218,899
Share issue costs 12 - - - - - - -
Shares bought back - - - (4,065) - - (4,065)
Dividends 20 - - - - (2,419) (7,277) (9,696)
Total comprehensive income for the year - - (564) - 7,488 - 6,924
Net assets attributable to shareholders at 31 December 2023 1,846 65,910 34,821 (4,065) 6,209 107,341 212,062
The Company's distributable reserves consist of the Special distributable
reserve, Capital reserve attributable to realised gains and Revenue reserve.
There have been no realised gains or losses at the reporting date. Total
reserves available for distribution were £113,897k (2022: £115,756k).
Statement of Cash Flows
For the year ending 31 December 2023
Year to Year to
Notes* 31 December 2023 31 December 2022
£000s £000s
Cash flows from operating activities
Profit before taxation 6,924 33,195
Adjusted for:
Interest income 5 (9,872) (7,792)
Unrealised loss / (gain) on investments at fair value 5 564 (28,058)
Decrease/ (Increase) in receivables 230 (285)
Increase in payables 221 661
Net cash outflows from operating activities (1,933) (2,279)
Cash flows from investing activities
Loan advanced to DORE Holdco Limited 9 (17,356) (38,008)
Loan Interest Received 9 11,500 8,500
Net cash outflows from investing activities (5,856) (29,508)
Cash flows from financing activities
Gross proceeds of share issue 12 - 52,852
Amounts paid in respect of share buybacks (4,065) -
Dividends paid 20 (9,696) (8,041)
Share issue costs - (949)
Net cash flows from financing activities (13,761) 43,862
Decrease in cash and cash equivalents (21,550) 12,074
Cash and cash equivalents at the start of the year 23,328 11,254
Cash and cash equivalents at the end of the year 15 1,778 23,328
*The references to the Notes to the Financial Statements are available to view
in the full Annual Report.
National Storage Mechanism
A copy of the Annual Report will be submitted shortly to the National Storage
Mechanism ("NSM") and will be available for inspection at the NSM, which is
situated at https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) in accordance with
DTR 6.3.5(1A) of the Financial Conduct Authority's Disclosure Guidance and
Transparency Rules.
Legal Entity Identifier: 2138004JHBJ7RHDYDR62
ENDS
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