REG - Downing Renew& Infra - Half-year Report
19/09/2024 07:00
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RNS Number : 7787E Downing Renewables & Infrastructure 19 September 2024
19 September 2024
Downing Renewables & Infrastructure Trust PLC
Interim Report and Accounts
Downing Renewables & Infrastructure Trust plc ("DORE" or "the Company")
announces its interim results for the six months ended 30 June 2024.
The Interim Report and Accounts can be found on the Company's website at:
https://www.doretrust.com/investor-relations
(https://www.doretrust.com/investor-relations) .
Highlights
· NAV as at 30 June 2024 of £207.6 million, 117.9 pence per
ordinary share, an increase of 0.2 pence per ordinary share compared to the
NAV as at 31 December 2023.
· NAV total return(1) of 4.0% for the 12 months to 30 June 2024 and
37.9% (9.6% annualised) since IPO.
· Interim dividends per ordinary share of 2.80 pence paid during
the period, a 7.7% increase from the corresponding period last year, and a
further 1.45 pence per ordinary share declared (but not accrued) relating to
the three months to June 2024 to be paid in September 2024.
· The Company has continued its buyback programme, purchasing 4.2
million shares during the period at an average price of 80.4 pence creating
further value and increasing NAV per share by 0.9pps. In line with the peer
group, the shares traded at a discount during the period, however DORE
continues to provide additional market liquidity to help mitigate discount
volatility.
· Strong focus on revenue and portfolio optimisation, utilising small
capital amounts to invest in opportunities with large impact including:
· Successfully extending the lease of the Gabrielsberget Syd Vind AB
farm to 35 years has resulted in a £4.4 million uplift in its valuation.
· Successful pre-qualification of DORE's first Swedish hydropower plant
for participation in the Frequency Containment Reserve Markets with first
revenues being earned in July 2024.
· Achieving a positive capture price by using water storage with
dispatchable hydropower assets of 7.6% for the 12 months to 30 June 2024.
· The Portfolio generated 205 GWh of renewable energy during the
period, avoiding 96,764 tonnes of CO(2)e(2) and powering the equivalent of
151,760 UK homes' electricity demand.
Post period end:
· Appointment of a new Non-Executive Director, Astrid Skarheim
Onsum who brings extensive knowledge in the energy transition and renewable
energy sectors across various geographies.
· Signed an agreement to acquire three hydropower plants and their
associated dams on the Norasjon river in SE3, Sweden that will take the
hydropower portfolio to 37 plants.
(1)This is an alternative performance measure, see the full Interim Report
for further details.
(2) Details on how these are calculated can be found in the full Interim
Report.
Hugh Little, Chair, Downing Renewables & Infrastructure Trust plc,
commented:
"During the period under review, DORE has continued to prioritise delivering
value within the underlying portfolio, with a series of capital expenditure
initiatives in progress, all aimed at increasing long term returns for
investors, and from which tangible benefits are already emerging. Further, we
are confident that by careful selection of the many investment and capital
expenditure opportunities identified by the Investment Manager, DORE will
continue to progress its strategic priorities, whilst focussing on its
principal objective, the optimisation of shareholder returns."
Tom Williams, Partner, Head of Energy and Infrastructure at Downing LLP,
commented:
"We have focused on increasing productivity through active asset management
and portfolio enhancement. Optimisation initiatives across hydropower and wind
have progressed well, which have further diversified and strengthened DORE's
revenue streams. Acquisitions completed during and after the period-end
further underpin the Company's commitment to pursuing this highly diversified
strategy. The outlook for DORE remains very encouraging as we progress a
significant pipeline of investment opportunities and portfolio enhancements
that we expect will deliver inflation-linked returns and robust operational
cash flows."
Contact details:
Downing LLP - Investment Manager to the Company
Tom Williams +44 (0)20 3954 9908
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
Tania Wild +44 (0)7425 536 903
Henry Crane +44 (0)7918 207157
DORE@tbcardew.com (mailto:DORE@tbcardew.com)
About DORE
DORE is a closed-end investment trust that 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 Northern Europe. DORE has been awarded the
London Stock Exchange's Green Economy Mark in recognition of its contribution
to the global 'Green Economy' and also in 2022 DORE won 'Renewables Fund of
the Year' at the Sustainable Investment Awards.
The Board classifies DORE as a sustainable fund with a core objective of
accelerating 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. The
Company believes that this directly contributes to climate change mitigation.
DORE's strategy, which focuses on diversification by geography, technology,
revenue and project stage, is designed to increase the stability of revenues
and the consistency of income to shareholders. For further details please
visit www.doretrust.com (http://www.doretrust.com/) .
About Downing LLP
The Company is managed by Downing LLP, an established Investment Manager with
over 30 years' experience and a considerable track record in the core
renewables space. Downing is authorised and regulated by the FCA and, as at 30
June 2024, had over £2.0 billion of assets under management.
The Investment Manager has over 230 employees and partners. The team of over
49 investment and asset management specialists who focus exclusively on energy
and infrastructure assets is supported by business operations, IT systems
specialists, legal, HR and regulatory and compliance professionals.
The Investment Manager is responsible for the day-to-day management of the
Company's investment portfolio in accordance with the Company's Investment
Objective and policy, subject to the overall supervision of the DORE Board.
The Investment Manager has managed investments across various sectors in the
UK and internationally and identified the Energy & Infrastructure sector
as a core area of focus from as early as 2010. Since then, it has made over
190 investments in renewable energy infrastructure projects and currently
oversees 640 MWp of electricity generating capacity, covering seven
technologies across c.13,470 installations.
For further details please visit www.downing.co.uk
(http://www.downing.co.uk/)
Key Metrics
As at or for the 6-month period ended 30 June 2024 As at or for the 6-month period ended 30 June 2023
Market capitalisation £140m £184m
Share price 79.4 pence 100.0 pence
Dividends with respect to the period(3) £5.0m £4.8m
Dividends with respect to the period per ordinary share 2.90 pence 2.69 pence
GAV(3)(,4) £348m £319m
NAV £208m £217m
NAV per share 117.9 pence 118.0 pence
NAV total return for the period(4,5) 2.6% 1.6%
Total Shareholder Return for the period(3,6) -7.4% - 10.5%
NAV total return since inception(3,4,5) 37.9% 30.5%
Total Shareholder Return since inception(3,6) -9.3% 2.5%
Weighted average discount rate(7) 7.7% 7.7%
During the period, assets saved 96,764 tonnes of CO(2)e and powered the
equivalent of 151,760 homes.
(3) Dividends are not paid on shares held in treasury.
(4) These are alternative performance measures, see the full Interim Report
for further details.
(5) A measure of total asset value including debt held in unconsolidated
subsidiaries.
(6) Total returns, including dividend reinvested.
(7) This is the weighted average discount used in the valuation of underlying
investments.
Chairman's Statement
On behalf of the Board, I am pleased to present the Interim report of the
Company covering the period from 1 January 2024 to 30 June 2024 (the "Interim
Report").
Revenue Optimisation
In an increasingly challenging time for capital availability, I am pleased to
see that the Investment Manager has prioritised delivering value within the
underlying portfolio, with a series of initiatives aimed at increasing returns
to shareholders.
The period saw continued focus on revenue resilience, increasing the quality
of earnings and diversifying revenues through operational and strategic
improvements. The optimisation initiatives progressed during the period
further underpin the Company's commitment to focusing on shareholder value.
Notably, the Company continues to optimise its use of water storage in its
dispatchable hydropower portfolio, achieving a positive capture ratio of 7.6%
for the 12 months to June 2024.
To provide further stable revenues, the Company successfully translated the
Icelandic Power Purchase Agreement ("PPA") from Icelandic Krona to Euro,
reducing volatility and providing constant inflation linked, eight-year 100%
pay-as-produce offtake payments from HS Orka, the third largest energy company
in Iceland.
In June 2024, Downing Hydro AB ("DHAB") pre-qualified its first hydropower
plant site, Gottne, for participation in the Frequency Containment Reserve
("FCR") markets in Sweden, which serve to stabilise the Swedish grid. Gottne
hydropower plant has now successfully been earning FCR revenues since 5 July
2024. Work is continuing to enable additional hydropower plants to access the
FRC markets.
A contractual improvement for the grid infrastructure assets was completed in
August 2024. Mersey Reactive Power Limited, a UK-based, fully operational 200
MVAr shunt reactor renegotiated its contract with the National Grid to provide
additional reactive power. The project's annual revenue will increase up to
c.30% for the remainder of the nine-year contract, the equivalent of £300,000
per annum.
Blasjon Nat AB ("Blasjon"), operates as the sole Electricity Distribution
System Operator ("DSO") in its concession area. Consequently its tariffs to
customers are regulated by the Ei, the Swedish regulator for all Swedish DSOs.
Ei has reached a final regulatory conclusion for the DSOs for Regulatory
Period 4 (2024-2027). The regulatory conclusion allows Blasjon (and its
industry peers) to charge end users a 4.53% real Weighted Average Cost of
Capital ("WACC") over the next four-year period. This can be compared to a
real WACC of 3.6% for the previous regulatory period (restated from 2.3% by Ei
following appeal by the industry). The higher real WACC is reflective of
increases in cost of capital such as interest rates compared to the previous
regulatory period.
In the period the Company, prompted by extensions of certain land leases,
extended the economic life of the Gabrielsberget Syd Vind AB wind farm to
35-years (a five-year increase from the original 30-year assumption). The
extended operating life has resulted in a £4.4 million uplift in the assets'
valuation.
Acquisitions
Post period end, the Company signed an agreement to acquire three Swedish
hydropower plants and their associated storage reservoirs. Completion is
subject to customary regulatory approvals. The combined expected annual
average production is c. 7 GWh, with a potential to increase production by a
further 0.5 GWh following the implementation of Downing Hydro's modernisation
programme. The total investment for the acquisition of these assets is c. £5
million.
The Swedish energy market is divided into four pricing regions. This
transaction offers an opportunity to extend the geographical catchment area of
the current portfolio within the SE3 region. The portfolio has an attractive
revenue profile, with a significant part of its production during the winter
months and it benefits from storage capacity, creating the potential for
further revenue optimisation.
The Company has also secured opportunities to construct battery storage
projects on land owned by the hydropower facilities at projected returns in
excess of similar investments held by the Company and in excess of equivalent
projects in the UK. A grid connection agreement, facilitating a 20 MW Battery
Energy Storage System ("BESS") installation focused on Frequency Containment
Markets, has been signed with Ellevio for the Tvarforsen site.
Further details on the optimisation initiatives and acquisitions progressed
during the period can be found in the Investment Manager's Report in the full
Interim Report.
Debt Facilities
In the interests of capital efficiency and to enhance income returns,
long-term capital growth and capital flexibility, the Company is permitted to
maintain a conservative level of gearing. As at 30 June 2024, the total
Portfolio's gearing (expressed as a loan to value ("LTV") ratio) was 40%(8).
The Company has access to a £40m Revolving Credit Facility ("RCF") which can
be drawn in either Euros or Sterling, of which £18.6 million is drawn in
Euros. On 24 June 2024, the Company converted its total drawings under the RCF
of £18.6 million into a EUR denominated loan of €22.0 million. This allows
the Company to take advantage of lower interest rates in Europe and provides a
natural hedge for Euro distributions from the Swedish and Icelandic wind and
hydropower assets.
The Portfolio's gearing also includes two long term debt facilities at asset
level, a £79.6 million facility which is fully drawn and a €68.5 million
facility of which €49.4 million was drawn as at 30 June 2024. In total, the
Sterling value of debt was £140.2 million as at 30 June 2024. The weighted
average cost of debt across the long term borrowings is 1.8%, which is fixed
until 2033.
(8) These are alternative performance measures, see the full Interim Report.
Financial Results
During the period to 30 June 2024 the NAV per ordinary share increased from
117.7 pence at 31 December 2023 to 117.9 pence, an increase of 0.2% and
representing a total return of 2.6% including dividends paid. The NAV total
return from IPO to 30 June 2024 is 37.9%, when dividends paid of 15.33 pence
per ordinary share are included.
The Company made a profit for the period to 30 June 2024 of £3.9 million,
resulting in earnings per ordinary share of 2.2 pence.
Portfolio Performance
The underlying portfolio generated a £14.3 million operating profit during
the period. The 4,856 core renewable energy assets produced approximately 205
GWh of renewable electricity, enough to power 145,000 UK houses per year.
For the period, energy generation was slightly below expectations mainly due
to natural resource constraints. The wind and solar portfolios suffered from
significantly lower than expected wind speeds and low irradiation levels
respectively, while the hydropower portfolio experienced a harsh winter
resulting in icing considerations followed by abnormal levels of spring
floods. However, strong power prices across the portfolio led to operating
profit being in line with expectations at £14.3 million.
Dividends
The Company's dividend in respect of the quarter to 31 December 2023 of 1.345
pence per share was announced and paid during the period, as well as the first
increased quarterly dividend of 1.45 pence per share, paid in June 2024.
The Board was pleased to announce a target dividend of 5.80 pence per share
relating to the year to 31 December 2024, a 7.85% increase from 2023. I am
pleased to report that a further dividend of 1.45 pence per share has been
announced and will be paid on or around 27 September 2024 in respect of the
quarter to 30 June 2024.
Capital Structure
In the six months to 30 June 2024, the Company has demonstrated strong
resilience despite a challenging market. High interest rates to control
inflation have created uncertainty among investors about when the tightening
cycle would peak and the possibility of prolonged higher rates. Share price
discounts to NAV across the real assets investment trust sector widened
significantly. To address these conditions and protect shareholders'
interests, the Board implemented the share buyback programme in March 2023.
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 six months to 30 June 2024 the Company has bought back a total of
4,214,899 shares into treasury at a cost of £3.4 million, the total number of
shares repurchased as at 30 June 2024 was 8,590,262. The buybacks added 0.9
pence per share to NAV during the period. Since the period end, a further
1,944,855 shares have been bought back into treasury at a cost of £1.5
million. As at 18 September 2024, the Company had 184,622,487 shares in issue
(including 10,535,117 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 prioritised revenue optimisation initiatives.
The Company has utilised small amounts of capital to invest in opportunities
with large impact, increasing capital efficiency in particular in its
hydropower portfolio, where we are now earning revenues from Swedish FCR
markets.
The Board continues to pursue further opportunities to expand its investment
in this strategy with the aim of increasing overall portfolio returns.
Outlook
Despite the market challenges experienced across the investment trust sector
over the past two years, the fundamental driving forces behind renewable
energy investment are stronger than ever. In the UK, the new Labour Government
has emphasised its commitment to the deployment and operational performance of
renewable assets, while in the Nordics there is continued substantial growth
of the renewable energy sector to achieve net zero obligations, enhancing our
confidence in our strategy and outlook.
DORE is strategically positioned to play a key role in the energy transition.
There are more opportunities to make compelling investments than any other
time in the life of the Company. Through selective investments, we aim to
progress the Company's strategic priorities and enhance shareholder returns.
Our diversified portfolio of hydropower, wind, solar, and grid infrastructure
assets consistently performs well, delivering inflation-linked returns and
generating robust operational cash flows. By maintaining a disciplined
approach to capital allocation and pursuing revenue optimisation projects,
DORE is well positioned to provide continued growth while placing its
sustainability goals at the centre of its operational objectives.
I am also delighted to welcome our new Non-Executive Director, Astrid Skarheim
Onsum, who was appointed to the board on 15 July 2024. Astrid's engineering
background combined with a successful career working in energy markets and a
more recent focus on renewable energy within the Nordic Region will expand the
knowledge and experience of the Board.
Hugh W M Little
Chair
18 September 2024
Downing Renewables & Infrastructure Trust PLC
Portfolio Summary
At the period end, the Company owned 202.7 MWp of hydropower, wind and solar
assets with an annual generation of around 424.2 GWh. The portfolio is
diversified across 4,858 individual installations and across five different
energy markets.
The Group currently has no exposure to any assets under construction.
Portfolio composition by valuation, as at 30 June 2024
Technology by GAV
Hydro 42%
Solar 42%
Wind 8%
Grid Services 6%
Cash 2%
Geographic Exposure by GAV
Sweden 52%
Great Britain 37%
Northern Ireland 8%
Cash 2%
Iceland 1%
Power Market Exposure by GAV
Great Britain 33%
Sweden SE2 26%
Sweden SE3 20%
Northern Ireland 8%
No Exposure 6%
Sweden SE4 4%
Cash 2%
Iceland 1%
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
Värån Övre 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 5.5 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 0.2 0.7
Tunsjon Hydro Dec-23 Sweden SE2/ n/a 0.2 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 30 JUNE 2024 202.7 424.2
Post period end acquisitions:
Investment Technology Date Signed Location Power Market / Subsidy Installed capacity (MW) Expected annual generation (GWh)
Gyttorp Hydro Aug-24 Sweden SE3/ n/a 0.5 1.0
Hagby Hydro Aug-24 Sweden SE3/ n/a 1.2 3.6
Hammarby Hydro Aug-24 Sweden SE3/ n/a 2.1 2.1
Investment Manager's Report
Introduction
The first half of 2024 has been challenging but productive with active asset
management and portfolio enhancement being our key focus. The optimisation
initiatives have progressed well and acquisitions completed during and after
the period end, further underpin the Company's commitment to pursuing a highly
diversified investment strategy. The optimisation projects provide new and
improved long-term revenue streams, and the new acquisitions (post reporting
period) provide additional geographical coverage within SE3, Sweden.
Acquisitions/Revenue Optimisation
In the period the Company continued to prioritise revenue optimisation
projects to diversify fixed revenue streams and enhance shareholder return.
Swedish FCR Markets
In the period, DHAB pre-qualified its first hydropower plant site, Gottne, for
participation in the Frequency Containment Reserve markets (FCR-N and FCR-D)
in Sweden. The pre-qualification process is administered by Svenska Kraftnat
("SvK", the Swedish Transmission System Operator). Once a company has
successfully completed the pre-qualification process with SvK, it allows the
company to operate in the FCR markets, designed to stabilise the Swedish grid.
Gottne hydropower plant has now successfully been earning revenues since 5
July 2024. Gottne is one of the first small-scale hydropower plants to be
qualified by SvK for both FCR-N and FCR-D, following significant work by the
Asset Manager.
FCR is a type of ancillary service provided by power system operators to
maintain the grid frequency within the standard range. If the frequency
deviates from this value, it can cause significant issues and even blackouts.
The combination of an increasingly centralised operation system across the
hydro portfolio and software and hardware upgrades enable the Company to
regulate its power production to such an extent that it can bid for FCR
contracts.
DHAB has applications to the Swedish Transmission System Operator for two
further hydropower plants to participate in the FCR-D market. Further sites
will be submitted for FCR pre-qualification as DHAB will continue to roll out
this programme across many of its hydropower plants.
Acquisition of three hydropower plants in Sweden
In July, the Company signed an agreement to acquire three Swedish hydropower
plants and their associated dams. The combined expected annual average
production is c. 7 GWh, with a potential increase of 0.5 GWh after further
upgrades have taken place. The total investment is c. £5 million.
All three hydro plants, Hagby, Gyttorp and Hammarby, are located on the
Norasjon River in the Orebro County in the SE3 price region in Sweden. Two of
the plants - Hagby and Gyttorp - were built in 1946 and underwent extensive
refurbishment in 2012. The third, Hammarby, was built in 1982 and recently
underwent a significant upgrade.
The transaction offers a strategic opportunity to extend the current portfolio
into a new geographical area of SE3. The portfolio has an attractive revenue
profile, with a significant part of its production during the winter months.
Once the transaction completes, the Company's hydropower portfolio will have
37 assets with a forecast annual average production of c. 222 GWh.
Improved Contract and Revenue for Mersey Reactive Power
In August, Mersey Reactive Power Limited, a UK-based, fully operational 200
MVAr shunt reactor which the Company acquired in June 2023 renegotiated its
contract with the National Grid Electricity System Operator ("NGESO") to
provide additional reactive power.
The shunt reactor is now available to be called upon by the network operator
for unlimited use throughout the year, which will allow DORE to benefit from
increased revenues under the availability-based Pathfinder Contract, part of
National Grid's Stability Pathfinder Initiative. DORE expects the shunt
reactor to receive an increase in annual revenue of up to c.30%, which is the
equivalent of £300,000 per annum, for the remainder of the nine-year
contract.
Blasjon
Blasjon, a Swedish Electricity Distribution System Operator acquired by DORE
in July 2023, has reached a final regulatory conclusion with Ei, the Swedish
regulator for the electricity distribution sector. Blasjon and its industry
peers are allowed to charge end users 4.53% of its Weighted Average Cost of
Capital (WACC) over the next four-year period.
The transmission and distribution of electricity in Sweden is considered a
natural monopoly, which means its tariffs and charges to customers are subject
to regulation. Ei, implements revenue caps for each distribution system
operator for a regulatory period of four years and has concluded the
regulatory decision for Regulatory Period 4 (RP4, 2024-2027) for Blasjon. As
part of the regulatory decision, Blasjon will be making investments during the
period totalling c. SEK 33.2 million (c. £2.5 million). The real Weighted
Average Cost of Capital (WACC) which Blasjon is allowed to apply to its
charges is set at 4.5%. As a comparison, Ei concluded a WACC of 3.6% for RP3
(2020 - 2023, restated from 2.3% by Ei, following appeal by the industry).
Blasjon also announced the appointment of Jan Delin as its new Chief Executive
Officer following the retirement of Ingemar Persson after 27 years in the
role. Mr. Delin, who was previously CEO of regional Swedish utility Edsbyn
Elverk for nine years, has been a Board member of Blasjon for four years.
Case Study - Gabrielsberget
The Company purchased Gabrielsberget Net Wind farm in the SE3 pricing region
of Sweden in January 2022 for a total consideration of £19.8 million. As at
30 June 2024, the wind asset is valued at £29.1 million after distributions
of £2.7 million.
This uplift in valuation has been secured from a combination of contributing
factors, including asset performance, macroeconomic factors and active asset
management. A total of £5.5 million of uplift can be directly attributable to
operational improvements made by the Asset Manager in the past 2.5 years.
Gabrielsberget Value Drivers (£m)
Cost 19.8
Asset Performance/profit 1.2
Macroeconomic 1.3
Directly attributable - operational 5.5
Directly attributable - acquisition 2.2
Other 1.8
Total Value at 30 June 2024 31.8
Distributions (2.7)
Valuation at 30 June 2024 29.1
Two contractual improvements led to a £1.1 million uplift in valuation,
£900,000 associated with a new Operations and Maintenance ("O&M")
contract and £200,000 from a new insurance contract. In 2023, the Asset
Manager carried out an in-depth tender process for a new O&M provider. The
contract inherited at acquisition was not adequate to effectively manage the
asset and was overly expensive. The Investment Manager was able to renegotiate
the price to reduce the cost significantly and adjusted the scope to better
fit the wind farm needs. This has been an improvement to the quality of
maintenance of the asset, maximising its efficiency and lifespan as well as
ensuring safety and compliance with regulatory requirements.
A £3.2 million uplift was recognised following a technical evaluation to
consider the economic life of the wind farm and the lifecycle costs associated
with a possible life extension. As a result, the valuation now reflected a
35-year economic life (a 5-year increase from the original 30-year assumption)
for turbines representing c.37 MW of the total 46 MW capacity. The life
extension was identified at acquisition as possible future value but was not
recognised until the technical adviser's work had been completed.
A further £1.2 million uplift was recognised with the 5-year extension of
Gabrielsbergets' lease. As part of this exercise, technical advisors were
engaged to review the viability and projected cash flows associated with the
operation of the project through the extended term with these figures added to
projected cash flows for the asset. The extended lease term has been agreed
with the landlord whilst, the formal conformation from the authority of the
extension registration is still in progress.
The Asset Manager continues to explore new opportunities to increase
efficiency and value in the wind project, creating attractive returns to
shareholders.
Case Study - Capture Price and Hydrogrid
Over the past 15 years the Swedish energy market has changed significantly,
with a shift from equal parts hydropower and nuclear energy to a more
diversified balance of hydropower, nuclear and wind. The increase in wind
generation in the market creates a more intermittent energy supply, which can
cause grid stability issues and increased price volatility. The challenges
created by the higher proportion of wind generation in the Swedish energy
market, however, provide an opportunity for hydropower plant owners.
Now that a larger share of Swedish energy is being produced by assets with
intermittent production, the Transmission System Operator ("TSO") finds it
more difficult to balance the grid. The increased need for grid balancing
resulted in an increase in the prices for ancillary services such as those
associated with maintaining the integrity and stability of the energy system
as well as the power quality. This has provided an opportunity for new
entrants into the ancillary services market in Sweden, especially for
hydropower operators with certain scale. DHAB can use its existing assets to
enter these markets quickly and efficiently which creates additional
incremental income streams. Further information on DHAB's entrance into the
ancillary markets can be found in the full Interim Report.
Historically, Swedish energy prices have been stable, similar to a normal
distribution around the mean price. However, Sweden is now experiencing a much
flatter power price profile with large volumes trading at very low and very
high prices. This provides an opportunity for dispatchable operators as they
can adjust their production to hours with higher prices. Currently, 63% of
DHAB's generation capacity is dispatchable, which we expect to become
increasingly more valuable due to limited new hydropower capacity and its
share of production expected to reduce from c. 40% to c. 25% over the next 15
years.
Due to the influx of wind energy in Sweden, days with high wind speeds
typically result into high intraday price volatility and lower prices often
during periods of lower demand, causing wind capture price ratios to dip below
100% in the last few years. The hydropower sector has been the main
beneficiary of this with the sector's capture prices reaching almost 115% in
2023. With the expectation of further development of assets with intermittent
production, we expect this to continue to provide positive capture price
opportunities for the hydropower market. To run a successful dispatch strategy
and maximise the capture price we have worked to improve the portfolio's real
time data and automation.
After extensive market research, the Asset Manager decided to make use of the
Hydrogrid system to maximise its opportunities within its dispatch strategy.
Hydrogrid provides real time planning and dispatch for hydro plants. The
platform uses real time generation, hydrological modelling, inflow forecasts
and power market data to produce a production plan for each asset that is
optimal for the portfolio. The production plan is regularly updated based on
changes in real time conditions such as changes in weather forecasts and power
prices whilst ensuring regulatory obligations are met.
The aim of the Asset Manager is to make use of Hydrogrid to increasingly
automate the production planning process so that more time can be focused on
key operational and strategic decisions. A pilot project has been completed
for the Norsalven cascade which includes Asteby, Fensbol, Robjorke and
Kristinefors and corresponding reservoirs. The rollout will start in Q3 2024
and will take around 6 months to complete. The project also contemplates the
incorporation of ancillary services in the production plan.
Capture prices achieved in for the 12 months to June 2024 were at a 7.6%
premium, and with the assistance of Hydrogrid we are seeking to improve the
capture price further. Maximising our capture price strategy continues to
offer value optimisation, with a permanent 1% uplift in capture price
representing a potential c. £1.4 million increase in net present value.
Market Development and Opportunities
The outlook for the Company is very encouraging. The Investment Manager is
progressing a significant pipeline of opportunities across technologies,
geographies and sectors including wind, solar, hydropower, utilities, battery
storage and ancillary markets and continues to work to finalise a series of
investments. The main geographical focus of the opportunities in progress is
the Nordic region and the UK, with certain further opportunities across
Northern Europe.
In July, the UK voted in the first Labour Government for 14 years. Labour is
keen to ramp up renewable energy generation capacity to meet the Paris
Agreement target of cutting carbon by 68% by 2030. To meet this, the target
capacity for offshore wind is a quadrupling, onshore wind is doubling and
solar is tripling.
To meet these ambitious targets, Sir Keir Starmer's government has already
begun to take steps to cut the UK's emissions by changing the rules to make it
easier to build onshore wind projects in England and greenlighting new solar
farms.
Within the hydropower portfolio, the Investment Manager has now submitted
applications to the Swedish Transmission System Operator for two further
hydropower plants to participate in the FCR-D market. Further sites will be
submitted for FCR pre-qualification as DHAB continues to roll out this
programme across many of its hydropower plants.
The Company has a significant landbank alongside its hydropower plants that
make suitable locations for battery installations and is well positioned for a
reduced cost of entry to the FCR and Fast Frequency Reserve ("FFR") markets.
Supply constraints in the FCR / FFR markets combined with increased underlying
demand as a result of an increased share of intermittent generation in the
electricity system has resulted in high FFR and FCR prices historically,
making the market particularly attractive. Batteries, especially large-scale
energy storage systems, play a crucial role in modern power systems due to
their ability to store and release electricity quickly. This makes them
valuable assets for providing FCR and FFR services to the grid.
Portfolio Performance
During the reporting period, the 4,858 operating assets produced approximately
205GWh of renewable electricity, enough to power over 151,760 UK homes
annually. From a financial perspective, DORE's combined portfolio produced an
operating profit of £14.3 million. This was in line with expectations,
despite constraints in natural resources.
The hydropower portfolio benefitted from higher than seasonally average
rainfall for the period and generated 110GWh of electricity. This was slightly
below expectations as a result of some availability issues due to a
particularly harsh winter causing icing disturbances in some of Sweden's
rivers, followed by strong spring floods which carried debris and clogged a
number of intake channels requiring downtime for clearance. Operating profit
was higher than projected at £3.8 million, driven by higher than expected
power prices particularly in the SE2 and SE4 pricing regions.
The solar portfolio generated 49GWh, below expectations mainly due to a
combination of poor irradiation levels and some unavoidable downtime for
National Grid cable improvements at one site. Operating profit was lower
than projected at £9.3 million, driven by the lower than expected generation
but alleviated somewhat due to high fixed prices under some of the portfolios'
PPA terms.
The wind portfolio's technical availability was in line with projections and
45GWh of electricity was generated. This figure was 15.1% lower than expected,
directly attributable due to windspeeds being significantly lower than
average. In turn, operating profit was 18.7% lower than expected.
The grid infrastructure portfolio's operating profit was slightly above
expectations for the period at £753,000, with the Mersey shunt reactor
exceeding expectations as a result of strong availability enabling the asset
to provide its service consistently to the National Grid.
Asset Generation vs Budget for six months to 30 June 2024
Actual Production (MWh) Expected Production (MWh)
Hydro 110,051.20 113,317.09
Solar 49,187.60 55,877.37
Wind 45,637.55 53,734.00
Asset Operating Profit vs Budget for six months to 30 June 2024
Actual Operating Profit (£) Expected Operating Profit (£)
Electrical Grid 707,372 729,431
Hydro 3,893,720 4,138,752
Solar 9,438,460 9,625,909
Wind 426,823 617,353
Portfolio and Asset Management
Downing has invested significantly in an in-house asset management team
capable of providing a full scope service to a wide range of generation, grid
and storage technologies. Established in 2019, the team totals 35 and includes
expertise across power markets, engineering, data analytics, finance and
commercial management.
Ancillary Services Projects
In response to opportunities identified in the ancillary market, the Asset
Manager has been pursuing a number of ongoing ancillary service projects
during the period. These services not only take advantage of additional
revenue streams when registered assets are requested to power up/down, but
also support the relevant local grid with supply and demand challenges.
The digitalisation of the hydropower portfolio has continued to progress,
supporting optimisation of dispatching, including participation in the FCR
markets. To successfully participate in the provision of FCR services, the
hydropower portfolio must meet stringent technical demands and as a result the
Asset Manager has been iteratively and comprehensively evaluating each site's
suitability for FCR-N (for normal grid disturbances) and FCR-D (for
significant grid disturbances) to establish refurbishment plans on a
site-by-site basis.
Simultaneously, Downing has been assessing and pursuing opportunities to
install BESS at some of the Company's hydropower sites. Installing BESS will
enable Downing to participate in further frequency regulation markets such as
Fast Frequency Reserve ("FFR"), which works similarly to FCR in that it
actively assists on the management of grid imbalances. On Tvarforsen
hydropower estate land, the Company have successfully secured the grid
connection and building permit to operate a 20 MW BESS, able to provide three
hours of continuous energy at 7 MW power output. Subject to finalisation of
procurement and construction, the BESS could become operational during 2025.
There is a pipeline of further Behind-The-Meter BESS under development for the
hydropower estate which would enable it to operate in the FCR market
independent of hydropower production.
With a view to participating in the manual Frequency Restoration Reserve
("mFRR"), hardware enhancements have been made at Gabrielsberget wind farm
during the period and we expect the site to be able to perform
prequalification tests in late 2024.
Optimisation of portfolio service
The Asset Manager has continued to develop and implement performance and
proprietary data optimisation and power pricing strategies, enhancing
Downing's data driven approach to asset management and unveiling further
efficiencies.
The Asset Manager has reconceptualised the hydropower O&M service
framework, streamlining in-house management of O&M services to enable it
to work closely with a more agile network of local technicians. This is a
cost-effective model which we expect to help facilitate the Company's
ambitions around ancillary markets and high-quality asset management in a
growing portfolio.
The Asset Manager continues to progress several optimisation projects to
replace and improve technical equipment within the UK ground-mounted solar
portfolio, including enhancement of the dynamic spare parts stock which aims
to reduce downtime and maintain asset performance given prolonged equipment
lead times in the market. The spare transformer stock increased from 4 to 9
during the period, the strategically intercompatible nature of which means
cover is now available for 41 of the total 43 transformers installed on the UK
ground-mounted solar portfolio. Inverter and panel spare parts have also been
purchased and are already being actively used across the portfolio to
significantly reduce downtime.
The Asset Manager has also been active in pursuing a number of warranty claims
against solar panel manufacturers. These claims are being carried out
preventatively to address systematic defects before they cause any potential
downtime. In order to collect the information required for the series of
claims, the Asset Manager used a new high-resolution drone in combination with
image recognition software to photograph and categorise panels. This data
collection method has successfully allowed for the collection and sorting of
high-resolution photographs of 80,488 panels across three sites at a
significantly reduced cost. Feedback has been received from one of the three
claims so far where warranty claims on 13,647 panels have been accepted and
equipment is due to arrive in September 2024 for replacement. All disused
panels will be returned to the manufacturer for recycling.
Health and Safety
The health and safety of contractors and the public is a fundamental and
ongoing focus in asset management processes. Throughout the period, a range of
workstreams were carried out by the Asset Manager in line with the Company's
approach to Health and Safety management.
In order to ensure a consistent approach to health and safety management, the
Asset Manager has continued to engage a third-party expert to provide health
and safety support to assess systems in place and revise existing processes
where applicable. To further reinforce a positive health and safety culture,
the Asset Manager rolled out interactive health and safety training for
Directors of the Company's portfolio of assets.
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 also at the asset 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. These systems
not only act as tools for the enabling of performance measurement and trend
analysis, but also ensure the effective communication, escalation, and
management of incidents.
Financing and Capital Structure
The Company and its subsidiaries (the "Group") adopt a prudent approach to
leverage, aiming at a total long-term structural debt not exceeding 50% of the
prevailing Gross Asset Value. Its objective is that each asset will be
financed appropriately for the nature of its underlying cashflows and their
expected volatility. Long-term debt may be used where appropriate at the SPV
level to facilitate acquisitions, refinancing, capital expenditure or
construction of assets.
At 30 June 2024, including project level financing, the Group's gearing
(expressed as a LTV ratio) was 40%. All third-party debt is held by the
Company's subsidiaries.
In addition, the Company and/or its subsidiaries may also make use of
short-term debt, such as revolving credit facilities, to assist with the
funding of suitable investment opportunities as and when they become
available.
Revolving Credit Facility
The Group has access to a loan agreement through its main subsidiary DORE Hold
Co with Santander UK plc. The RCF is available until December 2025, with the
possibility to be extended for a further year. The RCF has the additional
benefit of being able to be drawn in both GBP and EUR and is priced at the
Sterling Overnight Index Average ("SONIA") for the case of GBP funding or
EURIBOR for EUR funding, in both cases combined with a margin set at 2.25% per
annum. The Group will make use of the RCF mainly to fund the acquisition of
additional assets.
On 24 June 2024, the Company converted drawings under the RCF of £18.6
million into a EUR denominated loan of €22.0 million. This allows the
Company to take advantage of lower EURIBOR rates and provides a natural hedge
for EUR distributions received from our Swedish and Icelandic portfolio.
Refinancing of Hydropower Assets
The Group acquired the first set of assets now aggregated under the ownership
of DHAB, its holding company for the 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 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 interest rate swaps until end of 2033.
As of 30 June 2024, DHAB has drawn down EUR 49.4 million under the facility,
predominately as source of funding for the acquisition of hydropower plants in
Sweden during 2023 but also to fund some of the capital expenditure in DHAB.
UK Solar Portfolio
Medium term amortising debt (September 2034 maturity) is in place for the
United Kingdom solar portfolio and, as at 30 June 2024, comprised outstanding
principal amounts of £69.7 million lent by Aviva and £10.0 million lent by
institutional investors managed by Vantage Infrastructure.
The Aviva debt operates on the basis of fixed rates, with approximately 12% on
a nominal fixed rate of 3.37% and the balance on a 0.5% interest rate, fixed
in real terms. The debt service of this larger debt tranche is
inflation-adjusted, with indexation tracking UK RPI. The Vantage
Infrastructure managed facility has an all in fixed rate of 1.54%, operating
on the basis of a similar inflation-adjusting mechanism.
A summary of the debt (excluding the RCF) across the portfolio can be found in
the table below:
30 June 2024 31 December 2023
Hydro Wind Solar Grid Infrastructure Working capital Total Hydro Wind Solar Grid Infrastructure Working capital Total
Equity value (£'m) 105.2 29.1 65.0 19.9 7.1 226.3 111.5 27.2 68.1 19.6 4.3 230.7
Debt (£'m) 41.9 0.0 79.6 0.0 0.0 121.5 42.8 0.0 78.7 0.0 0.0 121.5
GAV (£'m) 147.1 29.1 144.6 19.9 7.1 347.8 154.3 27.2 146.8 19.6 4.3 352.2
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 revenue exposure has been in Euro. Assets in the UK
operate entirely in Sterling.
The Group, together with its foreign exchange advisor, has developed and
implemented its foreign exchange risk management policy. The policy targets
hedging for the expected 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, 36% of the Group's forecast EUR dividend receipts from SPVs out to
June 2028 were hedged as at the reporting date.
Dividend Hedging
% hedged of forecast distributions
12 months 72%
24 months 43%
36 months 33%
48 months 9%
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 the cash flows for the hedged periods. The fixed price
generation position for the portfolio as of 30 June 2024 can be seen in the
full Interim Report, and shows the impact of the combination of the hedging
policy with the 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.
Power prices in the first half of 2024 were relatively flat due to high levels
of UK and European gas storage, reducing the uncertainty and subsequent
volatility previously seen during the Russian invasion of Ukraine. In June
prices rallied due to an increase in Asian LNG demand and increasing tensions
in the Middle East.
The Company's exposure to power markets remained stable throughout the period.
United Kingdom
Weather, gas storage levels and political tensions controlled the evolution of
forward power prices in the UK in the first half of 2024. Cold weather created
uncertainty early in the period which pushed prices up, but prices then came
off due to increasing imports and strong renewable generation. The market
observed a number of short price rallies in late Q1 and early Q2 due to
tensions in the Middle East, combined with weak LNG supply. Late Q2 saw
further rallies in prices due to intense Asian LNG demand and political
instability due to several elections.
Nordics
The Nordic power market was dominated by weather during H1 2024. The start of
2024 saw colder weather than is seasonally normal, resulting in the highest
demand seen in four years, uplifting forward power prices. Spot prices were
relatively volatile during Q1, where weather was variable throughout the
period. Strong winds and high precipitation, bringing prices down, were
followed by dry, cold weather and a delayed spring flood bringing prices up.
Q2 saw variability due to weather, but otherwise prices remained relatively
flat.
Dividends
The Board has declared the Company's interim dividend of 1.45 pence per share,
equivalent to £2.6 million, in respect of the three months to 30 June 2024.
Once paid, this will bring total dividends paid in respect of the first half
of the financial year to 2.90 pence per share. This dividend is not reflected
in the accounts to 30 June 2024.
In the Annual Report to December 2023, the Board stated that it would increase
its dividend guidance to target 5.80 pence per share for the 12 months to
December 2024, a 7.85% increase from 2023. The increased dividend is expected
to be fully covered by income from the current portfolio.
The Board 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 paid during the financial year to 31 December 2024 are as follows:
For the Period Dividend Paid No. of Shares Total Dividend (pence per share) Interest Element (pence per share) Dividend Element (pence per share)
December 2023 March 2024 180,247,124 1.345 1.00875 0.33625
March 2024 June 2024 178,017,225 1.45 1.0875 0.3625
June 2024 September 2024 176,032,225 1.45 1.0875 0.3625
Total 4.245 3.18375 1.06125
The Company intends 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.
Valuation of the portfolio
Net Asset Value
The Company's NAV decreased during the period from £212.1 million to £207.6
million as at 30 June 2024, largely as a result of share buy backs. On a pence
per share basis, the NAV increased by 0.2 pence per share from 117.7 pence per
share to 117.9 pence per share.
The table below shows the movement in NAV during the period, with each step
explained further below.
DORE Valuation - H1 2024
Opening NAV 1-Jan-24 212.1
Performance 6.8
Power Curve (4.2)
Inflation 0.5
FX 0.6
Other Model Updates (1.4)
Asset Life 4.4
Dividend (5.0)
Share Buybacks (3.4)
Management Fee (1.0)
Other Costs (1.8)
Closing NAV 30-Jun-24 207.6
Opening
Represents the audited NAV at 31 December 2023.
Performance
Represents the balance sheet variance at the portfolio company level
representing higher cashflows than anticipated in the short term.
Power Curve
The Investment Manager uses long-term, forward-looking power price forecasts
from third party consultants for the purposes of asset valuations and energy
price hedging. 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 asset
valuation. Where fixed price arrangements are in place, the valuation models
will reflect such fixed price arrangements for the applicable time frame. The
impact of the power pricing hedging strategy and adjustments for embedded
benefit pricing are also included in this step.
Inflation
Inflation indexation was revised to reflect the latest actuals and a market
consensus of quarterly inflation forecasts across the remainder 2024 and 2025,
reverting to existing long-term assumptions thereafter.
A summary of annualised rates detailed below, noting that the UK reverts to
2.25% RPI in 2030, in line with the RPI reform announced by the UK government,
whereas European CPI reverts to the central bank target rate.
Figures in brackets show the relevant assumption at December 2023
2024 2025 2026-2029 2030 onwards
UK RPI 3.70% 2.90% 3.00% 2.25%
(3.46%) (3.00%) (3.00%) (2.25%)
UK CPI 2.40% 2.10% 2.25% 2.25%
(2.38%) (2.25%) (2.25%) (2.25%)
Sweden CPI 2.00% 1.80% 2.00% 2.00%
(4.60%) (2.00%) (2.00%) (2.00%)
Eurozone CPI 2.70% 2.00% 2.00% 2.00%
(3.20%) (2.00%) (2.00%) (2.00%)
Foreign Exchange
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 between four and ten years, at which
point the exchange rate is held constant due to the impracticalities of
hedging currency further into the future.
Other Model Updates
Reflects changes to operational contracts (such as insurance), the cost of
debt in the future, and other minor changes.
Discount Rates
Discount rates used for the purpose of the valuation process are
representative of the Investment Manager's and the Board's assessment of the
expected rate of return in the market for assets with similar characteristics
and risk profile.
Discount rates in use across the portfolio range from 6.3% and 8.05%, with the
weighted average value sitting at 7.7%. This has not moved since reported at
31 December 2023.
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, in
its normal operations. No transaction costs are included.
Asset Life
Where the land is owned by an external landlord and the asset operates on the
basis of a land lease agreement, 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 term of the
respective lease agreement. In addition to these factors, assets life
assumptions are also capped at the useful economic life of the specific
equipment installed on site.
As such, a useful economic life of 35 years is assumed for the Swedish wind
portfolio commencing in 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 for the extension of the operating life of the Company's assets.
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 or length
of planning permit 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 of the Company comprises the sum of the discounted value of future
cash flows of the underlying investments in solar, wind, hydropower and the
grid infrastructure assets (being the portfolio valuation), the cash balances
of the Company and its holding Company and the other assets and liabilities of
the Group.
The portfolio valuation is the largest component of the NAV and the key
sensitivities to this valuation are considered to be 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.
NAV Movement (PPS)
Negative directional change to assumption (pence per share) Positive directional change to assumption (pence per share)
FX (+/- 10%) (5.70) 7.82
Inflation (+/- 1%) (8.30) 9.66
Power Prices (+/- 10%) (11.24) 11.20
Generation (+/- 5%) (9.68) 9.69
Discount Rate (+/- 1%) 13.09 (10.81)
Discount Rate
The weighted average discount rate of the portfolio at 30 June 2024 was 7.7%
(December: 7.7%).
The Investment Manager considers a variance of +/- 1.0% to be a reasonable
range of alternative assumptions for discount rates.
Generation
For the solar and wind assets, our underlying assumption set assumes the 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, a figure that has similar characteristics 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 also taking into consideration the effect of climate change in the
future and validated by technical advisors.
The generation sensitivities use a variance of +/- 5% applied to the
generation for each year of the asset life.
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.
Inflation
The Company's inflation assumptions are set out above. A long-term inflation
sensitivity of plus and minus 1% is presented.
Foreign Exchange
The Company's foreign exchange policy is set out above. A sensitivity of +/-
10% is applied to any non-hedged cashflows derived from non-sterling assets
for each year of the assumed asset life of each asset. The Company will also
aim to ensure sufficient near-term distributions from any non-sterling
investments are hedged.
Condensed Statement of Comprehensive Income
For the six-month period ended 30 June 2024 (unaudited)
For the six-month period ended 30 June 2024 (unaudited) For the six-month period ended 30 June 2023 (unaudited)
Revenue Capital Total Revenue Capital Total
Notes £'000s £'000s £'000s £'000s £'000s £'000s
Income
Return on investment 4 5,500 93 5,593 5,253 84 5,337
Total income 5,500 93 5,593 5,253 84 5,337
Expenses
Investment management fees 3 (996) - (996) (1,003) - (1,003)
Directors' fees (73) - (73) (78) - (78)
Other expenses 5 (592) - (592) (500) - (500)
Total expenses (1,661) - (1,661) (1,581) - (1,581)
Profit before taxation 3,839 93 3,932 3,672 84 3,756
Taxation 6 - - - - - -
Profit after taxation 3,839 93 3,932 3,672 84 3,756
Profit and total comprehensive income attributable to:
Equity holders of the Company 3,839 93 3,932 3,672 84 3,756
Earnings per share - Basic & diluted (pence) 7 2.17 0.05 2.22 2.85 0.05 2.90
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).
Condensed Statement of Financial Position
As at 30 June 2024 (unaudited)
As at 30 June 2024 As at 31 December 2023 (audited)
Notes (unaudited) £'000
£'000s
Non-current assets
Investments at fair value through profit and loss 8 208,425 212,030
208,425 212,030
Current assets
Trade and other receivables 9 351 337
Cash and cash equivalents 13 97 1,778
448 2,115
Total assets 208,873 214,145
Current liabilities
Trade and other payables 10 (1,247) (2,083)
(1,247) (2,083)
Total liabilities (1,247) (2,083)
Net assets 207,626 212,062
Capital and reserves
Called up share capital 11 1,846 1,846
Share Premium 65,910 65,910
Special distributable reserve 103,607 107,341
Revenue reserve 8,803 6,209
Treasury (7,454) (4,065)
Capital reserve 34,914 34,821
Shareholders' funds 207,626 212,062
Net asset value per ordinary share (pence) 12 117.94 117.65
The unaudited financial statements of Downing Renewables infrastructure Trust
PLC were approved by the Board of Directors and authorised for issue on 18
September 2024 and are signed on behalf of the Board by:
Hugh W M Little
Chair
Company registration number 12938740
Statement of Changes in Equity
Notes Share Capital Share Premium Capital Reserve Treasury Revenue Reserve Special Distributable Reserve Total
Account
£'000s £'000s £'000s £'000s £'000s £'000s £'000s
Balance at the start of the period 1,846 65,910 34,821 (4,065) 6,209 107,341 212,062
Shares bought back - - - (3,389) - - (3,389)
Share issue costs - - - - - - -
Dividends 16 - - - - (1,245) (3,734) (4,979)
Total comprehensive income for the period - - 93 - 3,839 - 3,932
Net assets attributable to shareholders at 30 June 2024 1,846 65,910 34,914 (7,454) 8,803 103,607 207,626
For the six-month period ended 30 June 2024 (unaudited)
Notes Share Capital Share Premium Capital Reserve Treasury Revenue Reserve Special Distributable Reserve Total
Account
£'000s £'000s £'000s £'000s £'000s £'000s £'000s
Balance at the start of the period 1,846 65,910 35,385 - 1,140 114,618 218,899
Shares bought back - - - (741) - - (741)
Share issue costs - (150) - - - - (150)
Dividends 16 - - - - (1,560) (3,226) (4,786)
Total comprehensive income for the period - - 84 - 3,672 - 3,756
Net assets attributable to shareholders at 30 June 2023 1,846 65,760 35,469 (741) 3,252 111,392 216,978
The Company's distributable reserves consist of the Special distributable
reserve, Capital reserve attributable to unrealised gains and Revenue reserve.
There have been no realised gains or losses at the reporting date.
Statement of Cash Flows
For the six-month period ended 30 June 2024 (unaudited)
For the six-month period ended 30 June 2024 (unaudited) For the six-month period ended 30 June 2023 (unaudited)
Notes £000s £'000s
Cash flows from operating activities
Profit before taxation 3,932 3,757
Adjusted for:
Interest income 4 (5,003) (4,757)
Unrealised gain on investments at fair value 4 (93) (84)
Increase in receivables (14) (383)
Decrease in payables (836) (1,100)
Net cash outflows from operating activities (2,015) (2,567)
Cash flows from investing activities
Purchase of investments 8 - (17,356)
Repayment of loan principle 8 3,927 -
Loan Interest Received 8 4,774 3,500
Net cash inflows/ (outflows) from investing activities 8,701 (13,856)
Cash flows from financing activities
Repurchase of shares into Treasury 11 (3,389) (741)
Dividends 11 (4,979) (4,786)
Share issue costs 16 - (150)
Net cash outflows from financing activities (8,368) (5,677)
Decrease in cash and cash equivalents (1,681) (22,101)
Cash and cash equivalents at the start of the period 1,778 23,328
Cash and cash equivalents at the end of the period 13 97 1,227
National Storage Mechanism
A copy of the Interim Report will be submitted shortly to the National Storage
Mechanism ("NSM") in accordance with DTR 6.3.5(1A) of the Financial Conduct
Authority's Disclosure Guidance and Transparency Rules 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) .
LEI Number: 2138004JHBJ7RHDYDR62
For further information, please contact: Link Company Matters Limited, +44
(0)7596 599436
Name of authorised official of issuer responsible for making notification:
Link Company Matters Limited, Company Secretary
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