Octopus Renewables - Final Results to 31 December 2022
29/03/2023 07:00
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RNS Number : 5509U Octopus Renewables Infra Trust PLC 29 March 2023
LEI: 213800B81BFJKWM2JV13
29 March 2023
OCTOPUS RENEWABLES INFRASTRUCTURE TRUST PLC
Final Results to 31 December 2022
Strong FY performance with double digit NAV total return and significant
increase in FY 2023 dividend target(2)
Octopus Renewables Infrastructure Trust plc ("ORIT" or the "Company")
announces its audited results for the year from 1 January 2022 to 31 December
2022 ("FY 2022").
Financial Highlights
As at 31 December 2022 As at 31 December 2021
(audited) (audited)
NAV per Ordinary Share (p) 109.44 102.26
Ordinary Share price (p) 100.00 110.8
Dividends declared per Ordinary Share (p)(2) 5.24 5.00
Net asset value (£ million) 618 578
Gross asset value (£ million)(1,3) 1,073 738
Total value of all investments (£ million) 1,304 878
NAV total return in the year +12.3% +9.3%
Ongoing charges ratio(1) 1.12% 1.15%
· Achieved strong NAV growth of +12.3% (2021: +9.3%). The NAV growth
was driven primarily by rising inflation and power price assumptions, offset
by an increase in the average discount rate applied in the portfolio
valuations.
· Robust total shareholder return in the period from IPO in December
2019 of +12.1% (2021: +17.7%).
· Strong NAV total return in the period since IPO in December 2019 of
+25.9% (2021: +12.1%)(1).
· Total shareholder return in FY 2022 of -4.8% (2021: +1.6%)(6).
· A valuation increase of £10.7 million resulted from the unwinding of
construction risk premium and development gain.
· Strong dividend cover of 1.77x during FY2022 has been supported by
the acquisition of operational portfolios as well as the successful completion
of construction assets(4).
· In July 2022, the Company extended its RCF facility, through the
accordion feature, bringing the total committed facility to £246 million.
Operational Highlights
· The Company completed eight transactions during the period, including
into a new country, Germany, committing over £350 million of capital on a GAV
basis, across onshore and offshore wind, solar and battery storage, in both
construction and operational assets, in addition to two developer investments.
· At the SPV level, the Company's operational portfolio generated 1,005
GWh (2021: 348 GWh) of electricity, generating revenue of £112.0 million
(2021: £38.5m), 4.5% ahead of target.
· 68% of forecast operational revenue in 2023 and 2024 is already fixed
(31 December 2022: 50%), the increase driven by the acquisition of the Leeskow
onshore wind farm (Germany), adding a new country to the portfolio, and
investment into Lincs offshore wind farm (GB).
· As at 31 December 2022, the portfolio comprised 36(7) assets across
seven countries (UK, France, Ireland, Finland, Poland, Sweden and Germany) and
three technologies, as well as developer investments. Total capacity,
excluding conditional acquisitions, of 662 MW(7) (2021: 494 MW).
· Once fully invested, the portfolio has the potential to power the
equivalent of 522,000 homes with clean energy, an estimated 580,000 tonnes of
carbon emissions avoided, up from 337,000 homes and 364,000 tonnes of carbon
in 2021, respectively.
· During the year under review, the Company committed to its first
battery storage investment, a 50% stake in the 12MW, Woburn Road battery
construction project in Bedfordshire, UK, growing the portfolio's technology
diversification.
· ORIT currently has 117MW of new renewable generation capacity at the
construction-ready or in-construction stage.
· In November 2022, ORIT was promoted to the FTSE250, demonstrating the
strong progress made since IPO in December 2019.
Post Period End
· Target dividend for FY 2023 increased to 5.79p for FY 2023(2), an
increase of 10.5% over FY 2022 and in line with the Consumer Price Index
(CPI), marking the second consecutive year the Company has increased its
dividend target in line with inflation. ORIT's operational portfolio is
forecast to generate significant cash flows (after debt service) in excess of
the target dividend for FY 2023(4). The expected dividend cover for FY2023(4)
is forecast to be 1.7x, and the average expected annual dividend cover over a
5-year period to 31 December 2027(4) is also 1.7x. Cash flows generated by
fixed or contracted sources (e.g. PPAs, CFDs, ROCs and FITs) are estimated to
cover expected dividends by 1.1x over the same period(5).
· Extended and increased the Group's RCF, with the total committed
multi-currency facility increasing to £271 million at a lower margin of 2.0%
above SONIA(9). The RCF also has an uncommitted accordion feature allowing the
facility to be increased in size by up to a further £150 million.
· ORIT successfully signed a 10-year PPA over the electricity to be
generated at the Breach Solar Farm, a c.67 MW solar PV project in
Cambridgeshire, UK. The solar farm will cover 14% of Iceland Foods'
electricity needs for its UK stores. This will reduce Iceland's emissions by
nearly 22,955 tonnes of CO2 a year.
Phil Austin, Chairman of Octopus Renewables Infrastructure Trust plc,
commented:
"ORIT has achieved another strong performance with double digit NAV growth and
delivering a 1.77x covered dividend, despite 2022 being a turbulent year in
the energy sector, against a challenging macroeconomic backdrop.
We are delighted with the Company's operational performance this year, driven
by our Investment Manager, whose over 100 strong team actively manage the
portfolio, including successfully bringing a number of high-quality renewable
energy assets through construction into operation and negotiating optimal
energy pricing strategies, as well as developing our ongoing pipeline.
During the period, the Company made an investment in a new country in Europe,
added a new technology to the portfolio and completed eight significant
transactions, increasing ORIT's contribution to the green energy transition.
In a world where energy security and decarbonisation continue to rise to the
top of the agenda globally, ORIT's fundamental objective is to help companies
and countries transition to net zero whilst ensuring an attractive level of
returns for our shareholders. We remain well positioned to take advantage of
opportunities that will create a genuinely positive impact and deliver an
attractive, growing dividend."
Results presentation today
There will be a presentation for sell side analysts at 9.00 a.m. today, 29
March 2023. Please contact Buchanan for details on octopus@buchanan.uk.com
For further information please contact:
Octopus Energy Generation (Investment Manager) Via Buchanan
Chris Gaydon, David Bird
Peel Hunt (Broker) 020 7418 8900
Liz Yong, Luke Simpson, Huw Jeremy (Investment Banking)
Alex Howe, Chris Bunstead, Ed Welsby, Richard Harris, Michael Bateman (Sales)
Buchanan (Financial PR) 020 7466 5000
Charles Ryland, Hannah Ratcliff, George Beale
Apex Listed Companies Services (UK) Limited (Company Secretary) 020 3327 9720
Notes:
1. These are alternative performance measures. Definitions of these and
other performance measures used by the Company, together with how these
measures have been calculated, are set out in the Annual Report.
2. The dividend target stated is a target only and not a profit
forecast. There can be no assurance that it will be met or that the Company
will make any distributions at all and it should not be taken as an indication
of the Company's expected future results. Accordingly, potential investors
should not place any reliance on this target in deciding whether or not to
invest in the Company and should decide for themselves whether or not the
target dividend is reasonable or achievable. Investors should note that
references to "dividends" and "distributions" are intended to cover both
dividend income and income which is designated as an interest distribution for
UK tax purposes and therefore subject to the interest streaming regime
applicable to investment trusts.
3. A measure of total asset value including debt held in unconsolidated
subsidiaries, but excluding any outstanding equity or debt commitments.
4. Dividend cover is calculated on the basis of actual (in respect of FY
2022) and expected (in respect of subsequent financial years) total net
operational cash flows from the portfolio after debt service and Company and
intermediate holding company expenses.
5. Dividend cover is calculated on the basis of expected net operational
cash flows from the portfolio excluding uncontracted revenues (e.g. power
sales linked to prevailing market prices) and after debt service and Company
and intermediate holding company expenses.
6. Total Shareholder return since IPO stated in sterling, including
dividends reinvested, from 9 December 2019 to 31 December 2022.
7. Excludes conditional acquisitions.
8. The increase of 10.5% over FY 2022's dividend target is in line with
the increase to the Consumer Price Index (CPI) for the 12 months to 31
December 2022. For FY 2023, the Company has elected to increase the target in
line with CPI, rather than the lower CPIH.
9. Or the equivalent reference rate for other currencies.
About Octopus Renewables Infrastructure Trust
Octopus Renewables Infrastructure Trust ("ORIT") is a closed-ended investment
company incorporated in England and Wales focused on providing investors
with an attractive and sustainable level of income returns, with an element of
capital growth, by investing in a diversified portfolio of renewable energy
assets in Europe and Australia. ORIT's investment manager is Octopus Energy
Generation.
Further details can be found at www.octopusrenewablesinfrastructure.com
(http://www.octopusrenewablesinfrastructure.com/)
About Octopus Energy Generation
Octopus Energy Generation ("OEGEN") is driving the renewable energy agenda by
building green power for the future. Its London-based, leading specialist
renewable energy fund management team invests in renewable energy assets and
broader projects helping the energy transition, across operational,
construction and development stages. The team was set up in 2010 based on the
belief that investors can play a vital role in accelerating the shift to a
future powered by renewable energy. It has a 12-year track record with
approximately £6 billion of assets under management (AUM) (as of January
2023) across 12 countries and total 3.2GW. These renewable projects generate
enough green energy to power 2 million homes every year, the equivalent of
taking over 800,000 petrol cars off the road. Octopus Energy Generation is the
trading name of Octopus Renewables Limited.
Further details can be found at www.octopusenergygeneration.com
(http://www.octopusenergygeneration.com/)
About the Company
Octopus Renewables Infrastructure Trust plc ("ORIT" or the "Company") is a
closed-ended investment company incorporated in England and Wales.
The Company's purpose and investment objective is to provide investors with an
attractive and sustainable level of income returns, with an element of capital
growth, by investing in a diversified portfolio of Renewable Energy Assets in
Europe and Australia.
ORIT classifies itself as an impact fund with a core impact objective of
accelerating the transition to net zero through its investments. ORIT's
ordinary shares were admitted to the Official List of the Financial Conduct
Authority and to trading on the premium listing segment of the main market of
the London Stock Exchange on 10 December 2019.
ORIT is managed by one of the largest renewable energy investors in Europe,
Octopus Energy Generation (the "Investment Manager").
Highlights
As at 31 December 2022
-4.8% +12.3% 5.24p +12.1%
Total shareholder return NAV total return Dividend per Ordinary Total shareholder return
in the year(1 3) in the year(1 2 3) Share for FY 2022 since IPO (3.8% per
2021: (+1.6%) 2021: (+9.3%) FY 2021: (5.0p) annum)(1 3)
2021: (+17.7%, 8.3% per annum)
+25.9% 109.4p £618m £1,073m
NAV total return NAV per Ordinary Share(2) Net Asset Value ("NAV")(2) Gross Asset Value
("GAV")(1 4)
since IPO (7.8% per annum)(1 2 3) increased by 6.9% since 2021: (102.26p) 2021: (£578m)
increased by 45% since 2021: (£738m)
2021: (+12.1%, 5.7% per annum)
£1,304m 1,740GWh 580k 522k
Total value of all investments(1 5) Potential Renewable Electricity(6) Estimated tonnes of carbon avoided(6) Equivalent homes
2021: (£878m) 2021: (1,168 GWh) 2021: (364k) powered by clean energy(6)
2021: (337k)
Alternative Performance Measures ("APMs")
The financial information and performance data highlighted in footnote 1 are
the APMs of the Company. Definitions of these APMs together with how these
measures have been calculated can be found in the Annual Report.
(1 ) These are alternative performance measures
(2) The Net Asset Value (NAV) as at 31 December 2022 is calculated
on the basis of 564,927,536 Ordinary Shares in issue
(3) Total returns in sterling, including dividends reinvested
(4) A measure of total asset value including debt held in
unconsolidated subsidiaries
(5) Total asset value including total debt and equity commitments
(6) All metrics are calculated based on an estimated annual
production of the whole portfolio once fully constructed and exclude
conditional acquisitions
Key milestones during 2022
1
February 2022
19MW Polish onshore wind farm fully operational
2
April 2022
Commitment into development platform focussed on Finland
3
April 2022
Acquisition of 7.75% interest in 270MW UK operational offshore wind farm
4
June 2022
Acquisition of 67MW ready-to-build solar PV project in Cambridgeshire, UK
5
June 2022
Conditional acquisition of 50% stake in ready-to-build battery storage project
in Bedfordshire, UK
6
July 2022
Extended the RCF to a total facility of £246m
7
September 2022
Increased interest in 270MW UK offshore wind farm from 7.75% to 15.5%
8
October 2022
Acquisition of 34.6MW operational onshore wind farm in Germany
9
November 2022
24MW French onshore wind farm operational
10
November 2022
Acquired 51% stake in 46MW operational onshore wind farm in Scotland, UK
11
November 2022
Promoted to the FTSE 250, 3 years after IPO
12
December 2022
Acquired further interest in Irish based developer, Simply Blue
13
January 2023
Completed the acquisition of a 50% stake in a the ready-to-build battery
storage project in Bedfordshire, UK
14
February 2023
Increased the RCF to a total facility of £271m and extended term for a
further 3 years
15
March 2023
Secured 10 year PPA for 67MW UK solar PV project currently under construction
Portfolio at a glance
Technology Country Sites Capacity (MW)* Avg. asset life remaining (years) Status Key information
Onshore wind Sweden 1 48 28.5 Operational Fully operational as of June 2021
France 1 24 29.9 Operational Fully operational as of November 2021
UK 1 50 30.0 Construction, 12 turbines Expected to be operational in Q1 2023
1 23 28.5 Operational Fully operational as of June 2021
Poland 2 59 28.7 Operational Polish CfD from Q3 2023
Germany 1 35 29.7 Operational German CfD
Finland 2 71 28.8 Operational Fully operational as of Q1 2022
Offshore wind UK 1 42 21.0 Operational ROC Subsidised
Solar PV UK 8 123 25.4 Operational ROC Subsidised
1 67 40.0 Construction Expected to be operational in H2 2023
France 14 120 29.2 Operational FiT Subsidised
Spain 4 175 35.0 Conditional acquisition Expected to be operational in 2024
Ireland 5 243 40.0 Conditional acquisition First 200MW expected to be operational by Q3 2023
Developers Ireland n/a n/a n/a n/a Floating offshore wind
UK n/a n/a n/a n/a Onshore wind
Finland n/a n/a n/a n/a Onshore wind/Solar PV
Battery UK 1 6 35 Conditional acquisition Acquisition completed in January 2023
* Pro-rated by ownership
Total number of assets 36(7)
Total capacity 663(7) MW
(7) Excludes conditional acquisitions
Chair's Statement
Philip Austin MBE
Chair,
Octopus Renewables Infrastructure Trust plc
On behalf of the Board, I am pleased to present this annual report for Octopus
Renewables Infrastructure Trust plc for the year ended 31 December 2022 (the
"Annual Report").
2022 was a turbulent year in the energy sector, as Russia's invasion of
Ukraine drove dramatic increases in power prices, which were already high, and
led to government action across Europe to cap prices or impose taxes on
generators. The high inflation resulting from rising energy prices has driven
central banks to raise interest rates to levels not seen since 2008, which has
fed through to asset valuations via increased discount rates. Despite this,
the Company has delivered strong NAV growth during the period, as well as
successfully bringing projects through construction into operation, and
increasing dividend cover accordingly. In a world where energy security and
decarbonisation are increasingly important, the Company remains well
positioned to take advantage of opportunities that will create a positive
impact.
Investment Activity
During 2022 the Company committed over £350 million of capital on a gross
asset value basis through eight transactions, increasing the size of the
portfolio to 662MW of operational and in-construction renewable projects, with
a gross asset value of £1,073 million. Should the conditional acquisition of
the Irish solar portfolio complete as expected in 2023, the portfolio will
stand at over 900MW of capacity, with a gross asset value of approximately
£1.3 billion. The Company also has the option to acquire a portfolio of solar
sites in Spain with expected additional capacity of 175MW.
The investments during the year added to the strong technological
diversification within the Company's portfolio of assets. This included our
first battery storage investment, a 50% stake in the 12MW, Woburn Road battery
construction project in Bedfordshire, UK, and our first offshore wind
investment, a 15.5% stake in the 270MW operational Lincs offshore wind farm,
located off the east coast of England. The portfolio also saw the addition of
a new country, with the acquisition of the 35MW operational Leeskow onshore
wind farm in Germany.
The other new investments in 2022 were the acquisition of a 51% stake in the
46MW operational Crossdykes wind farm in Scotland, the acquisition of the 67MW
ready-to-build Breach solar farm in Cambridgeshire, UK, and an investment of
up to €3.5 million (c.£2.9m) into Nordic Renewables Limited, a developer
focused on renewable energy assets in Finland. The Company also invested an
additional €6.25 million (c.£5.5m) into the Simply Blue Group, with a
further €6.25 million expected to be provided during 2023; and increased its
commitment to the Irish solar conditional acquisition to reflect the greater
value associated with a long-term fixed price PPA now in place for the sites.
At a General Meeting held on 28 July 2022, Shareholders approved a change to
the Company's investment policy to include offshore wind farms in the
Company's core investment focus, in addition to onshore wind farms and solar
PV parks. The change allows the Company slightly greater flexibility to make
additional offshore wind farm investments as part of the Company's diversified
portfolio of Renewable Energy Assets.
Results
During the year NAV per share increased from 102.3p to 109.4p. In combination
with the dividends paid during the year this gave rise to a NAV total return
of 12.3%.
The NAV growth was driven primarily by rising inflation and power price
assumptions, offset by an increase in the average discount rate applied in the
portfolio valuations. The Company's prudent approach to valuations, including
significant haircuts to forward power prices in the June and September
valuations, meant that the dramatic volatility in power prices seen throughout
the year did not lead to a corresponding level of NAV volatility. In
particular the haircuts applied as part of the September valuations meant that
inclusion of the UK's Electricity Generator Levy and the various EU price caps
did not lead to a net fall in valuations at year end.
Total shareholder return for the year was minus 4.8%, as share price falls
across the sector and beyond following the mini-budget in September and the
corresponding increase in bond yields outweighed the dividends paid during the
year.
The Company's operating income for the year was £77.9 million, giving rise to
a profit for the period of £69.8 million. This was underpinned by EBITDA from
the portfolio of operational assets totalling £ 76.3 million, arising from
gross revenues of £112 million.
Dividend
The Board declared dividends of 5.24p per Ordinary Share in respect of the
year, achieving the target announced in February 2022. The fourth and final
interim dividend of 1.31p per Ordinary Share was paid in February 2023. The
total dividends of £29.6 million paid in respect of the year were 1.73 times
covered by the cash generated in the portfolio of assets, after deducting
holding company costs and debt service, including principal repayments on the
fully amortising debt held within the portfolio of assets.
In line with the Company's progressive dividend policy, the Board announced an
increase in the target dividend to 5.79p per Ordinary Share for 2023, an
increase of 10.5%. This increase marks the second consecutive year the Company
has increased its dividend target in line with inflation. For 2023, the
Company has elected to increase the target in line with CPI, rather than the
lower CPIH. The 2023 dividend target is expected to be fully covered by
cashflows generated from the Company's operating portfolios.
Portfolio Performance
During the period the Company's assets generated 1,005GWh of electricity, an
increase of 189% compared with the prior year. This increase was driven by the
successful transition of the Kuslin, Krzecin and Cerisou projects into
operation during the period, representing 83MW of new generation capacity, as
well as the acquisition of the operational Lincs, Crossdykes and Leeskow wind
farms. Generation was 7% below budget, principally driven by lower than
average wind speeds in northern Europe.
Construction gains of £10.7 million were recognised during the year,
including from the Cumberhead wind farm in Scotland, which had four turbines
erected by the end of the period. The 12th and final turbine was installed in
early March 2023, and the project is in the late stages of commissioning. In
addition a development gain of £4.1 million was recognised following the
second investment into the Simply Blue Group, reflecting the strong progress
of the business since the initial investment, with the pipeline under
development of 10GW. Following the end of the period Simply Blue received
their first maritime consent, for the 100MW Erebus project off the coast of
Wales.
Once fully constructed, ORIT's portfolio is expected to generate sufficient
electricity to power 522,000 homes. This generation will avoid CO2 emissions
of approximately 580,000 tonnes per annum, the equivalent of planting 2.9
million trees.
Outlook
Within the investment trust universe, most renewable infrastructure companies
are now trading at discounts to NAV, restricting the ability of the Company
and its peers to fund acquisitions through new equity issuance. However the
Company's Investment Strategy includes a focus on funding assets at the
construction ready stage to allow the opportunity for capital growth, and this
is also core to our Impact Strategy. In order to ensure we can continue to
access such opportunities, the Board and the Investment Manager will therefore
consider opportunistic disposals where appropriate to recycle the capital into
new construction projects.
This aligns with the drive from governments across the Company's target
geographies to accelerate the deployment of new renewable generation and
related energy transition projects. Russia's aggression in Ukraine is
continuing, reinforcing the need for Europe and the UK to reduce reliance on
fossil fuels to preserve energy security. Energy prices remain high and are
forecast to do so for several years, even though prices have now fallen from
the peaks of 2022. Decarbonisation remains an urgent priority, as extreme
weather events continue to increase in frequency.
Wind and solar generation represent a key part of the solution to all three of
energy security, energy affordability and decarbonisation. Furthermore, the
strong support for renewable and energy transition investments in the US as
part of the Inflation Reduction Act is leading to a response from Europe to
increase their backing for new clean infrastructure, in order to ensure the
industry remains competitive. The tailwinds behind the sector therefore remain
as strong as ever, and the Company is well positioned to play a significant
part in capturing those opportunities, creating positive impact whilst
delivering an attractive growing dividend to investors, alongside continued
capital growth.
Strategic Report
The Directors present the Strategic Report for the year ended 31 December 2022
in the Annual Report.
Business Model, Objectives and KPIs
Business Model
Octopus Renewables Infrastructure Trust plc was incorporated on 11 October
2019 as a public company limited by shares. The Company intends to carry on
business as an investment trust within the meaning of section 1158 of the
Corporation Tax Act 2010 and was listed on the premium segment of the main
market of the London Stock Exchange on 10 December 2019. The Company holds and
manages its investments through a parent holding company, ORIT Holdings II
Limited and two holding company subsidiaries, ORIT Holdings Limited and ORIT
UK Acquisitions Limited (together the "intermediate holding companies"), which
in turn hold investments via a number of Special Purpose Vehicles ("SPVs").
The jurisdictions in which the SPVs are incorporated is typically determined
by the location of the assets, and further portfolio-level holding companies
may be used to facilitate debt financings.
As at 31 December 2022, the Company owns a portfolio of 36 Renewable Energy
Assets (including three developer investments) totalling 662MW, 545MW of which
is operational capacity and 117MW relates to assets under construction.
Long-term structural debt is in place for the French solar portfolio and, as
at 31 December 2022, this comprised outstanding principal amounts of €113
million provided by Allied Irish Banks, Société Générale and La Banque
Postale. Cerisou Wind Farm has a €43.2 million fully amortising facility,
provided by Société Générale, for the funding of the construction and
commissioning of the project. The Polish wind farms have facilities in place
with EBRD and Bayern LB, used to fund construction. The acquisition of the
15.5% ownership interest in the Lincs Offshore Wind Farm came with a long-term
facility (£82.3 million remaining as at 31 December 2022) provided by a
consortium of seven international commercial lenders and the acquisition of
Leeskow Wind Farm in September 2022 included four existing long-term debt
facilities of up to €61.2 million with Deutsche Kreditbank AG. Short-term
debt financing is available through a £246 million Revolving Credit Facility
("RCF") held at ORIT Holdings II Limited (an intermediate holding company) and
a £50 million short-term facility held at ORIT Lincs Holdings Limited (a
portfolio-level holding company). As at 31 December 2022, £77 million was
drawn down on the RCF and £50 million was drawn on the short-term facility.
The Company has a 31 December financial year end and announces half-year
results in September and full-year results in March. The Company pays
dividends quarterly, targeting payments in February, May, August and November
each year.
The Company has an independent board of non-executive directors and has
appointed Octopus AIF Management Limited ("OAIFM") as its Alternative
Investment Fund Manager ("AIFM") to provide portfolio and risk management
services to the Company. The AIFM has delegated the provision of portfolio
management services to the Investment Manager, Octopus Renewables Limited,
whose trading name is Octopus Energy Generation ("OEGEN"). OEGEN has day to
day portfolio management responsibilities. Further information on the
Investment Manager is provided in the Investment Manager's Report.
As an investment trust, the Company does not have any employees and is reliant
on third-party service providers for its operational requirements. Likewise,
the project companies do not have any employees and services are also provided
through third-party providers. Each service provider has an established track
record and has in place suitable policies and procedures to ensure they
maintain high standards of business conduct and corporate governance. Simply
Blue Holdings Limited, a portfolio-level holdings company, does have employees
and has its own policies and procedures in place to maintain similarly high
standards.
Figure 1: Company operating model
Shareholders
Independent Board of Directors Octopus Renewables Infrastructure Trust plc, Company Service Providers
Day to day management subcontracted Listed on the LSE Main Market • Broker: Peel Hunt
• Fund Administrator and Company Secretary: Apex Listed Companies
Services
• Depository: BNP Paribas
• Registrar: Computershare
• Auditors: PWC
• PR Advisor: Buchanan
• Tax Advisor: BDO
• Legal: Gowlings WLG
AIFM
Octopus AIF Management
Investment Manager
Octopus Energy Generation
Debt Providers ORIT Holdings ll Ltd Key
Revolving Equity
Credit Facility Debt
Services
ORIT Holdings Ltd ORIT UK
Acquisitions Ltd
Debt Providers Non-UK SPVs UK SPVs Asset Service Providers
Short-term Facility · External Asset Managers
Asset level Debt · Operations & Maintenance ("O&M") contractors
· Engineering, Procurement and Construction ("EPC") contractors
· Specialist consultants
Portfolio investments held in SPVs*
* Some investments in SPVs may be held indirectly through
portfolio-level holding companies
Objectives and KPIs
The Company's objective is to provide investors with an attractive and
sustainable level of income returns, with an element of capital growth, by
investing in a diversified portfolio of Renewable Energy Assets in Europe and
Australia.
Financial Objectives
Objective KPI Performance commentary Monitoring activities
Sustainable level of income returns 5.24p The dividend of 5.24p was fully covered by operational cashflows at the SPV The Board monitors dividend cover and ratios at each quarterly Board meeting
level less costs at the plc and intermediate holding company level. against the targets and makes determinations on the dividends to be paid.
· Provide investors with a dividend of 5.24 pence per Ordinary dividend declared for the year, in line with target
Share for FY22
The Company's dividend target is rising by 10.5% to 5.79 pence per Ordinary The Investment Manager actively manages operational performance of assets on
£76.3m Share for FY23 (in line with CPI) and is expected to be progressive an ongoing basis with actions taken to resolve and mitigate operational
· Generated from strong operational cashflows
thereafter.(8 9) issues.
EBITDA from operational assets
While output was lower than expectations for the year, EBITDA from operational Financial performance of assets is reviewed monthly by the Investment Manager.
assets was 6% above budget, principally as a result of higher power prices Any material issues would be highlighted to the Board without delay.
achieved in Poland.
Operational and financial performance is reviewed quarterly by the Board.
(8) Investors should note that references to "dividends" and
"distributions" are intended to cover both dividend income and income which is
designated as an interest distribution for UK tax purposes and therefore
subject to the interest streaming regime applicable to investment trusts
(9) The dividend and return targets stated are targets only and
not profit forecasts. There can be no assurance that these targets will be
met, or that the Company will make any distributions at all, and they should
not be taken as an indication of the Company's expected future results.
The Company's actual returns will depend upon a number of factors, including
but not limited to the Company's net income and level of ongoing charges.
Accordingly, potential investors should not place any reliance on these
targets and should decide for themselves whether or not the target dividend
and target net total shareholder return are reasonable or achievable.
Objective KPI Performance commentary Monitoring activities
Capital preservation with element of growth 109.4p There was strong growth of the value of the portfolio driven by high wholesale The Board monitors both the NAV and share price performance and compares with
energy price forecasts and de-risking of construction assets. other similar investment trusts. A review of performance is undertaken at each
· Provide investors with a net total shareholder return of 7% to NAV per Ordinary
quarterly Board meeting and the reasons for relative under and over
8%(10) per annum over the medium to long-term
The acquisitions in the year include ORIT's first offshore wind farm and performance against various comparators is discussed. The Investment Manager
Share battery storage project along with its first investment in Germany, increasing evaluates and selects investment opportunities to deliver against the
· Generated through a diversified portfolio including construction
the diversifications of ORIT's portfolio. investment strategy and policy. Company level budgets are approved annually by
and development assets 12.1%, 3.8% per annum
the Board and actual spend is reviewed quarterly. Transaction budgets are
The ongoing charges ratio has decreased to 1.12% (FY 2021: 1.15%). approved by the Board and potential abort exposure is carefully monitored.
· Cost control and prudent financial management Total shareholder return since IPO
Transaction costs incurred on acquisitions in the period were in line with
25.9%, 7.8% per annum expectations in the latest KID of 0.5%.
NAV total return since IPO
4(10) new acquisitions delivering 167MW(10) of capacity including onshore and
offshore wind, solar, construction and operational assets, together with a new
developer investments, all diversified across 2 new countries
1.12%
Ongoing charges ratio
0.54%
Transaction costs as percentage of committed acquisition spend
(10) Excludes conditional acquisition.
Impact Objectives
Our core impact objective is to accelerate the transition to net zero through
our investments, building and operating a diversified portfolio of Renewable
Energy Assets to help facilitate the transition to a more sustainable future.
Our investments are long-term and therefore require a long-term view to be
taken both in the initial investment decisions and in the subsequent asset
management, adopting long-term and sustainable business practices.
Objective KPI
Performance:
Build and operate a diversified portfolio of Renewable Energy Assets, £1,304m committed into renewables
mitigating the risk of losses through robust governance structures, rigorous
due diligence, risk analysis and asset optimisation activities to deliver 1,740GWh of potential annual renewable energy generation, 669GWh of which
investment return resilience will be additional generation from constructing assets(11)
36 assets
Financial return metrics are shown in the Financial Objectives table.
Planet:
Consider environmental factors to mitigate risks associated with the 580k equivalent tCO(2) avoided(12)
construction and operation of assets, enhancing environmental potential where
possible 8.48t CO(2)e per MW estimated carbon intensity (direct and indirect)
11.52t CO(2)e/£m weighted average carbon intensity
886t CO(2)e emissions offset (all direct emissions)
100% investments qualify as sustainable in line with EU Taxonomy(13)
87% generating sites on renewable import tariffs
People:
Evaluate social considerations to mitigate risks and promote a 'Just 0 RIDDORs or equivalent relating to injuries on people(14)
Transition' to clean energy
396 students benefitting from first social initiative
Further information on our Impact Strategy and performance against our Impact
Objectives can be found in the Impact Report section of the strategic report
as included the Annual Report and the Company's Impact Strategy published on
our website here: www.octopusrenewablesinfrastructure.com/investors/
(http://www.octopusrenewablesinfrastructure.com/investors/)
(11) Metric calculated based on an estimated annual production of the
construction portfolio once fully constructed.
(12) Metrics based on an estimated annual production of the whole
portfolio once fully constructed. Carbon avoided is calculated using the
International Financial Institution's approach for harmonised GHG accounting.
(13) 100% of investments are significantly contributing to climate
change mitigation.
(14) RIDDOR stands for the Reporting of Injuries, Diseases and
Dangerous Occurrences Regulations 2013 and these are reportable incidents to
the UK Health and Safety Executive. In the period there was 1 reported RIDDOR
associated with technical equipment.
Investment Strategy and Policy
Investment Strategy
The Company will seek to achieve its objectives in four ways:
· Diversification: The Company's Investment Policy includes a broad
mandate to invest across different renewable technologies and in different
geographies, reducing concentration of risk in particular to power markets,
regulatory change or weather conditions as well as allowing the Company to
access investments from a large set of opportunities originated by the
Investment Manager.
· Inclusion of construction and development: The Company has a
diversified portfolio of operational assets, which generate income, supporting
the Company's dividend. Also investing into Renewable Energy Assets at the
construction ready stage allows the opportunity for greater capital growth
through the successful management of construction risks and delivery of the
asset into operations, as well as increasing the ability to influence social
and environmental benefits. Investments into development stage Renewable
Energy Assets are limited to 5% of GAV and allows the Company access to a
wider range of renewable energy asset investment opportunities.
· Active construction and asset management: The Company, via the
Investment Manager, takes an active role in ensuring site safety, in managing
construction risks and in seeking to enhance the value of the portfolio
through maximising generation, optimising the price received for generation,
dynamic risk management and controlling costs as well as longer term value
enhancements such as equipment upgrades or life extension.
· Embedding impact into investments: As an Impact Fund the Company
ensures that social and environmental benefits are considered and maximised
alongside financial returns, both at the time of initial investment and
throughout the ongoing management of the portfolio.
Investment Policy
The Company will seek to achieve its investment objective through investment
in renewable energy assets in Europe and Australia, comprising (i)
predominantly assets which generate electricity from renewable energy sources,
with a particular focus on onshore and offshore wind farms and photovoltaic
solar ("solar PV") parks, and (ii) non-generation renewable energy related
assets and businesses (together "Renewable Energy Assets").
The Company may invest in operational, in-construction, construction ready or
development Renewable Energy Assets. In-construction or construction ready
Renewable Energy Assets are assets that have in place the required grid access
rights, land consents, planning and regulatory consents. Development Renewable
Energy Assets comprise projects that do not yet have in place the required
grid access rights, land consents, planning and regulatory consents, as well
as investments into development pipelines and developers ("Development
Renewable Energy Assets").
The Company intends to invest both in a geographically and technologically
diversified spread of Renewable Energy Assets and, over the long-term, it is
expected that investments: (i) located in the UK will represent less than 50
per cent. of the total value of all investments, (ii) in any single country
other than the UK will represent no more than 40 per cent. of the total value
of all investments, (iii) in onshore or offshore wind farms will not exceed 60
per cent. of the total value of all investments, and (iv) in solar PV parks
will not exceed 60 per cent. of the total value of all investments. For the
purposes of this paragraph, investments shall (i) be valued on an unlevered
basis, (ii) include amounts committed but not yet incurred and (iii) include
Cash and Cash Equivalents to the extent not already included in the value of
investments or amounts committed but not yet incurred.
The Company may acquire a mix of controlling and non-controlling interests in
Renewable Energy Assets and may use a range of investment instruments in the
pursuit of its investment objective, including but not limited to equity and
debt investments. A controlling interest is one where the Company's equity
interest in the Renewable Energy Asset is in excess of 50 per cent.
In circumstances where the Company does not hold a controlling interest in the
relevant investment, the Company will secure its shareholder rights through
contractual and other arrangements, to, inter alia, ensure that the Renewable
Energy Asset is operated and managed in a manner that is consistent with the
Company's investment policy.
Investments may be made into Development Renewable Energy Assets, which may be
developers, portfolios and/or pipelines of Development Renewable Energy
Assets, where the relevant investment: (i) includes limited exposure to
Renewable Energy Assets outside Europe and Australia, which at the time of
investment comprises both a minority of the assets in the relevant developer,
portfolio or pipeline by number and value and is less than 1 per cent. of
Gross Asset Value, and/or (ii) may include indirect exposure to ancillary
assets and/or businesses unrelated to renewable energy whose value is de
minimis as at the time of investment. The Company may retain an interest in
any such assets and/or businesses following achievement of construction ready
status.
Investment Restrictions
The Company aims to achieve diversification principally through investing in a
range of portfolio assets across a number of distinct geographies and a mix of
wind, solar and other technologies.
The Company will observe the following investment restrictions when making
investments:
· the Company may invest up to 32.5 per cent. of Gross Asset Value
in one single asset, up to 27.5 per cent. of Gross Asset Value in a second
single asset, and the Company's investment in any other single asset shall not
exceed 20 per cent. of Gross Asset Value, in each case calculated immediately
following each investment.
· the Company's portfolio will comprise no fewer than ten Renewable
Energy Assets.
· no more than 20 per cent. of Gross Asset Value, calculated
immediately following each investment, will be invested in Renewable Energy
Assets which are not onshore or offshore wind farms and solar PV parks.
· no more than 25 per cent. of Gross Asset Value, calculated
immediately following each investment, will be invested in assets in relation
to which the Company does not have a controlling interest.
· no more than 5 per cent. of Gross Asset Value, calculated
immediately following each investment, will be invested in Development
Renewable Energy Assets.
· the Company will not invest in other UK listed closed-ended
investment companies.
· neither the Company nor any of its subsidiaries will conduct any
trading activity which is significant in the context of the Group as a whole;
and
· no investments will be made in fossil fuel assets.
Compliance with the above restrictions will be measured at the time of
investment and non-compliance resulting from changes in the price or value of
assets following investment will not be considered as a breach of the
investment restrictions.
In addition to the above investment restrictions, following the Company
becoming fully invested and substantially fully geared (meaning for this
purpose borrowings by way of long-term structural debt of 35 per cent. of
Gross Asset Value) at the time of an investment or entry into an agreement
with an Offtaker, the aggregate value of the Company's investments in
Renewable Energy Assets under contract to any single Offtaker will not exceed
40 per cent. of Gross Asset Value.
The Company will hold its investments through one or more special purpose
vehicles owned in whole or in part by the Company either directly or
indirectly which will be used as the project company for the acquisition and
holding of a Renewable Energy Asset (an "SPV") and the investment restrictions
will be applied on a look-through basis.
For the purposes of the investment policy, "Gross Asset Value" means the
aggregate of (i) the fair value of the Company's underlying investments
(whether or not subsidiaries), valued on an unlevered basis, (ii) the
Company's proportionate share of the cash balances and cash equivalents of
assets and non-subsidiary companies in which the Company holds an interest and
(iii) other relevant assets and liabilities of the Company (including cash)
valued at fair value (other than third-party borrowings) to the extent not
included in (i) or (ii) above.
Borrowing Policy
The Company may make use of long-term limited recourse debt to facilitate the
acquisition or construction of Renewable Energy Assets to provide leverage for
those specific investments. The Company may also take on long-term structural
debt provided that at the time of drawing down (or acquiring) any new
long-term structural debt (including limited recourse debt), total long-term
structural debt will not exceed 40 per cent. of Gross Asset Value immediately
following drawing down (or acquiring) such debt. For the avoidance of doubt,
in calculating gearing, no account will be taken of any investment in
Renewable Energy Assets that are made by the Company by way of a debt
investment.
In addition, the Company may make use of short-term debt, such as a revolving
credit facility, to assist with the acquisition or construction of suitable
opportunities as and when they become available. Such short-term debt will be
subject to a separate gearing limit so as not to exceed 25 per cent. of Gross
Asset Value immediately following drawing down (or acquiring) any such
short-term debt.
The Company may employ gearing at the level of an SPV, any intermediate
subsidiary of the Company or the Company itself, and the limits on total
long-term structural debt and short-term debt shall apply on a consolidated
basis across the Company, the SPVs and any such intermediate holding entities
(but will not count any intra-Group debt).
In circumstances where these aforementioned limits are exceeded as a result of
gearing of one or more Renewable Energy Assets in which the Company has a
non-controlling interest, the borrowing restrictions will not be deemed to be
breached. However, in such circumstances, the matter will be brought to the
attention of the Board who will determine the appropriate course of action.
Currency and Hedging Policy
The Company can enter into hedging transactions for the purpose of efficient
portfolio management. In particular, the Company may engage in currency,
inflation, interest rates, electricity prices and commodity prices (including,
but not limited to, steel and gas) hedging. Any such hedging transactions will
not be undertaken for speculative purposes.
Cash Management
The Company may hold cash on deposit and may invest in cash equivalent
investments, which may include short-term investments in money market type
funds ("Cash and Cash Equivalents").
There is no restriction on the amount of Cash and Cash Equivalents that the
Company may hold and there may be times when it is appropriate for the Company
to have a significant Cash and Cash Equivalents position. For the avoidance of
doubt, the restrictions set out above in relation to investing in UK listed
closed-ended investment companies do not apply to money market type funds.
Changes to and Compliance with the Investment Policy
Any material changes to the Company's investment policy set out above will
require the approval of shareholders by way of an ordinary resolution at a
general meeting and the approval of the FCA.
In the event of a breach of the investment guidelines and the investment
restrictions set out above, the AIFM shall inform the Board upon becoming
aware of the same and if the Board considers the breach to be material,
notification will be made to a Regulatory Information Service.
Investment Manager's Report
Octopus Energy Generation, part of the Octopus Energy Group, is a specialist
clean energy investment manager with a mission to accelerate the transition to
a future powered by renewable energy.
Since 2010, Octopus Energy Generation has, on behalf of its clients, invested
in a diverse portfolio of assets with a capacity of over 3GW and is now the
largest commercial solar investor in Europe and a leading UK investor in
onshore wind, with assets under management valued at c.£5.0 billion. Of those
investments c. £2.4 billion has been invested in solar and wind assets at
construction stage. Octopus Energy Generation has over 100 employees in the UK
across five teams: Investments and Development; Fund Management, Finance &
Operations; Asset Management; and Risk and Compliance. Octopus Energy
Generation is the trading name of Octopus Renewables Limited.
£5.0bn OEGEN Assets under Management as at 31 December 2022
The Investment Manager has established a robust investment and due diligence
process to ensure that each of the investments acquired by ORIT complies with
the Company's investment policy and its impact metrics that include
Performance, Planet and People objectives. This includes an assessment against
the Company's ESG Policy to ensure consideration is given to the wider
stakeholder impacts and risks inherent in the Company's investments and
decision making.
Whilst ORIT benefits from the breadth of the Investment Manager's whole team
of over 100 professionals and a range of external professional advisors,
within the Investment Manager, Chris Gaydon and David Bird are the named Fund
Managers for ORIT.
"ORIT has continued to add high quality assets to its diverse portfolio during
2022, with over 900MW* of capacity now operational or in construction. As
governments seek to stimulate acceleration of the energy transition, we look
forward to bringing more green generation onto the system in the coming
years."
Chris Gaydon
Investment Director
Chris joined Octopus Energy Generation as an investment director in 2015, is a
long-standing member of the OEGEN's Investment Committee and a director of
several of OEGEN's wind and solar special purpose vehicles.
Chris originated and led one of the largest wind farm portfolio acquisitions
in the UK valued at c.£320 million and led the transaction team that
delivered over £1 billion of debt and equity transactions. Chris now focuses
on the origination of acquisition opportunities and fundraising, as well as
strategic investments in related sectors.
Prior to joining the Octopus Group, Chris was a business development director
at Falck Renewables where he had a range of roles, including in M&A and
leading greenfield development in France and Poland. Chris holds a Bachelor of
Commerce (Finance) degree and a Bachelor of Engineering (Chemical) degree from
the University of Sydney.
"2022 was a dramatic year in the energy sector and in financial markets,
however ORIT's portfolio has proven resilient, delivering NAV total return of
12.3% in the year. We have successfully completed construction on the Cerisou,
Krzecin and Kuslin wind farms, with Cumberhead commencing operations after
period end."
David Bird
Investment Director
David is an investment director who joined the Octopus Energy Generation team
in 2014 and works full-time on fund management for ORIT. As well as working in
the transaction team leading acquisitions and project finance debt raising in
the UK, France and Ireland, David has previously led the team responsible for
the management of Octopus Energy Generation's bioenergy investments and has
represented Octopus Energy Generation on a number of industry panels convened
by Ofgem, the GB energy regulator.
Prior to joining the Octopus Group, David was a director at Walbrook Capital,
a boutique investment manager with a particular focus on renewables. He is a
chartered accountant having qualified at EY, and holds a Masters in
Mathematics from Oxford University.
* Including the conditional acquisition of the Irish solar assets
Investments
8 £205m £1,304m
Investments made Total allocated capital to Total value of all investments
during the year
(new investments includes future construction) commitments
Company Developments in 2022
During the year, the Company announced eight investments including its first
investments in offshore wind and battery storage. Shareholders also approved
an amendment to the Investment Policy to include investments into offshore
wind as part of the Company's core wind investment allocation.
In April 2022 the Company announced that it had committed to invest up to
€3.5 million (c. £2.9m) to set up and fund Nordic Renewables Limited, a new
development platform focused on renewable energy assets in Finland. Nordic
Renewables Limited will initially target the development over the next 3-5
years of onshore wind farms and solar PV assets in Finland with a potential
combined capacity of approximately 400MW.
Later in April 2022 the Company announced that it had entered into an
agreement to acquire a 7.75% ownership interest in the Lincs Offshore Wind
Farm, a 270MW operational wind farm located off the east coast of England.
Lincs Offshore Wind Farm benefits from the UK's ROC regime, receiving 2 ROCs
per megawatt hour of electricity generation during the first 20 years of
operation. This acquisition completed in May 2022.
In June 2022 the Company announced that it had acquired the Breach Solar Farm,
a c.67MW ready-to-build solar PV project in Cambridgeshire, UK, from AGR
Renewables. The total cost of acquisition and construction of the solar PV
project is expected to be approximately £50 million. The acquisition also
gives the Company the right to construct a battery storage project which is
expected to be ready-to-build later in 2023, with a capacity of 50MW/100MWh.
In June 2022, the Company agreed to amend the terms of its conditional
acquisition of five solar PV sites in Ireland, to permit the sites to enter
into a long-term fixed price PPA with an AAA-rated Offtaker. The higher price
received under the PPA is expected to lead to an increase in purchase
consideration to between approximately €169 million and €193 million
(approximately £144m and £165m respectively).
Also in June 2022, the Company announced that it had entered into an agreement
to acquire a 50% stake in a 12MW/24MWh ready-to-build battery storage project
in Bedfordshire, UK, from Gridsource. The acquisition completed post period
end once the lease agreement for the project site came into effect in January
2023 and was made alongside another Octopus Managed Fund. The consideration
for the Company's share of future construction costs is expected to be
approximately £4 million.
At a General Meeting held on 28 July 2022, shareholders approved a change to
the Company's investment policy to include offshore wind farms in the
Company's core investment focus, in addition to onshore wind farms and solar
PV parks. The change moves offshore wind from the non-core technology
allocation, which is limited to 20% of Gross Asset Value, to the core wind
allocation, which is expected, over the long-term, to make up less than 60% of
the total value of all investments. The change allows the Company slightly
greater flexibility to make additional offshore wind farm investments as part
of the Company's diversified portfolio of Renewable Energy Assets.
In July 2022, the Company extended its revolving credit facility ("RCF") by
utilising the accordion feature, bringing the total committed facility to
£246 million. ORIT's increased RCF was entered into under the same terms as
the existing facility.
In August 2022, the Company entered into an agreement to acquire a 51%
ownership interest in the Crossdykes Onshore Wind Farm ("Crossdykes"). The
remaining 49% is being acquired by another Octopus Managed Fund. Crossdykes,
located in southern Scotland, was developed by Muirhall Energy and has been
operational since June 2021. It is amongst the largest unsubsidised wind farms
in operation in the UK, with a total capacity of 46MW, made up of 10 Nordex
turbines. The wind farm currently benefits from fixed pricing through its PPA
until March 2025. Completion of the acquisition occurred in November 2022 once
all regulatory consents were received.
In September 2022, the Company acquired a further 7.75% ownership interest in
the Lincs Offshore Wind Farm, from a fund managed by Macquarie Asset
Management. This follow-on investment adds to the original 7.75% stake in this
wind farm that ORIT acquired earlier this year.
Also in September 2022, the Company agreed to acquire the Leeskow Onshore Wind
Farm, a 34.6MW operational wind farm located in Brandenburg, north-east
Germany. Leeskow Onshore Wind Farm benefits from a government backed floor
price for twenty years under the German EEG regime and is therefore not
exposed to movements in or caps of wholesale power prices in the short to
medium-term. Leeskow Onshore Wind Farm has existing long-term debt funding
with fixed interest rates. Completion of the acquisition occurred in October
2022.
In connection with the Lincs and Leeskow acquisitions, a subsidiary of ORIT
entered into a £50 million debt facility with existing lender NatWest in
September 2022.
In November 2022, the Company invested an additional €6.25 million
(c.£5.5m) into Simply Blue Holdings Limited, the parent company of the Simply
Blue Group ("SBG"), an Irish developer of predominantly floating offshore wind
projects. Following this investment, ORIT's ownership interest in SBG has
increased to c.15.5%. The Company also agreed to provide a further investment
of up to €6.25m which is expected to be drawn in 2023, and which would
increase ORIT's ownership interest to c.19%.
Portfolio Breakdown (as at 31 December 2022)
The Company's portfolio of assets is not segmented by technology, phase or
jurisdiction for the Company's reporting purposes.
Technology Country Site name Capacity Phase Start of operations Remaining asset life Stake %
(MW)
Onshore wind UK Cumberhead 50 Construction - 30 100%
France Cerisou 24 Operational 15/11/2022 30 100%
Sweden Ljungbyholm 48 Operational 30/06/2021 28 100%
Poland Krzecin 19 Operational 08/02/2022 28 100%
Kuslin 40 Operational 31/12/2022 29 100%
Finland Saunamaa 28 Operational 28/08/2021 29 100%
Suolokangas 43 Operational 29/12/2021 29 100%
Germany Leeskow 35 Operational 30/09/2022 30 100%
UK Crossdykes 46 Operational 30/06/2021 28 51%
Offshore wind UK Lincs 270 Operational 31/10/2013 26 15.5%
Solar UK Wilburton 2 19 Operational 29/03/2014 21 100%
Abbots Ripton 25 Operational 28/03/2014 31 100%
Ermine Street 32 Operational 29/07/2014 22 100%
Penhale 4 Operational 08/03/2013 30 100%
Chisbon 12 Operational 03/05/2015 28 100%
Westerfield 13 Operational 25/03/2015 22 100%
Wiggin Hill 11 Operational 10/03/2015 17 100%
Ottringham 6 Operational 07/08/2013 32 100%
Breach 67 Construction - 40 100%
France Charleval 6 Operational 26/03/2013 30 100%
Cuges 7 Operational 17/04/2013 30 100%
Istres 8 Operational 18/06/2013 30 100%
La Verdière 6 Operational 27/06/2013 30 100%
Brignoles 5 Operational 26/06/2013 30 100%
Saint Antonin du Var 8 Operational 28/11/2013 31 100%
Chalmoux 10 Operational 01/08/2013 31 100%
lovi 1 6 Operational 17/07/2014 32 100%
lovi 3 6 Operational 17/07/2014 32 100%
Fontienne 10 Operational 02/07/2015 32 100%
Ollieres 1 12 Operational 19/03/2015 32 100%
Ollieres 2 11 Operational 19/03/2015 32 100%
Arsac 2 12 Operational 05/03/2015 19 100%
Arsac 5 12 Operational 30/01/2015 19 100%
Ireland Ireland 1 56 Conditional acquisition - 40 100%
Ireland 2 68 Conditional acquisition - 40 100%
Ireland 3 47 Conditional acquisition - 40 100%
Ireland 4 30 Conditional acquisition - 40 100%
Ireland 5 42 Conditional acquisition - 40 100%
Spain Spain 1 44 Conditional acquisition - 35 100%
Spain 2 44 Conditional acquisition - 35 100%
Spain 3 44 Conditional acquisition - 35 100%
Spain 4 44 Conditional acquisition - 35 100%
Developer UK (HQ) Wind2 - Developer - - 25%
Ireland (HQ) Simply Blue - Developer - - 15.5%
Finland (HQ) Norgen - Developer - - 50%
Battery UK Woburn Road 12 Conditional acquisition - 35 50%
Portfolio composition broken down by total invested basis in accordance with
the Company's investment policy (including the amounts committed to the
conditional acquisitions of the Spanish and Irish solar PV assets and Woburn
Road Battery.(15)
(15) Portfolio composition on a total invested basis in line with the
Company's investment policy (including the amount committed to the conditional
acquisition of the Spanish and Irish solar PV assets and Woburn Road Battery)
as at 31 December 2022. The investments are valued on an unlevered basis and
including amounts committed but not yet incurred.
Country
UK: 37%
France: 14%
Ireland: 11%
Finland: 11%
Poland: 9%
Sweden: 7%
Germany: 6%
Spain: 3%
Developer: 2%
Technology
Onshore wind: 46%
Solar: 39%
Offshore wind: 13%
Developer: 2%
Battery: 0.2%
Asset phase
Operational: 86%
Construction: 12%
Developer: 2%
Portfolio composition broken down by MW of installed capacity on a current
invested basis (and therefore exclude the Spanish and Irish solar PV assets
and Woburn Road Battery).(16)
(16) Portfolio composition by MW on a current invested basis (and
therefore exclude the amount committed to the conditional acquisition of the
Spanish and Irish solar PV assets and Woburn Road Battery) as at 31 December
2022.
Country
UK: 46%
France: 22%
Finland: 11%
Poland: 9%
Sweden: 7%
Germany: 5%
Technology
Onshore wind: 47%
Solar: 47%
Offshore wind: 6%
Asset phase
Operational: 82%
Construction: 18%
Portfolio Performance
Technical and Financial Performance
In the financial year ending 31 December 2022, the Company's operational
portfolio generated 1,005GWh of electricity, 7% below budget largely due to
low wind speeds and grid curtailment impacting the performance of the
Company's wind assets. Revenues of £112.0 million were generated in the year
(2021: £38.5m), 4.5% above expectations, as high power prices partially
offset the impact of reduced output, leading to total EBITDA generated across
ORIT's operational portfolio of £76.3 million (2021: £29.9m).
1,005GWh
£112.0m
£35.7m £76.3m
Output (2021: 348GWh) Revenue +4.5% vs budget Opex +1%
vs budget EBITDA +6% vs budget
UK Solar
Output for the 8 site, 123MW UK operational solar portfolio was 122.7GWh for
the year. The portfolio over performed by 10.5% against budget, largely driven
by higher irradiance. Generation was 1.3GWh higher than in the same period in
the previous year, equating to a 12% increase in renewable energy generated.
The portfolio generated revenues of £17.3 million (2021: £14.2m), a 18%
increase to budget due to both the technical overperformance and high pricing.
Operational expenditure for the year totalled £3.6 million (2021: £3.1m),
1.8% above budget primarily the result of increased electricity consumption
costs and additional surveillance costs following a CCTV upgrade across the
portfolio. EBITDA for the UK portfolio for the year ending 31 December 2022
was £13.7 million (2021: £11.1m), 22.7% up on budget for the year.
French Solar
Performance of the 14 site, 120MW French operational solar portfolio was in
line with budget, with the portfolio producing 170GWh for the year. Irradiance
was 4% above budget, however output was impacted by lower than expected
availability across three sites (partly covered by contractual recoveries for
lost revenue) and underperformance at one site, the 8MW Saint-Antonin-du-Var,
where a number of panels were disconnected during the year due to a technical
fault. The rectification costs associated with this issue are expected to be
covered by manufacturer warranties.
The portfolio generated revenues of €19.3 million (2021: €18.7m) in line
with the budget for the year. Operational expenditure for the period totalled
€5.5 million (2021: €4.9m), 2.7% less than budget primarily due to
compensation received to cover the availability losses at the three
underperforming sites, resulting in EBITDA of €13.8 million (2021:
€13.8m), 1% above budget.
Saunamaa and Suolakangas Wind Farms (Finland)
The assets completed the commissioning phase during Q1 2022 and are operating
under a long-term operations and maintenance agreement with Vestas, the
turbine supplier. Output for the period was 252.1GWh, 8% below budget driven
primarily by wind speeds (5% down on budget) and lower than expected
availability across the sites. Losses in relation to these availability issues
are expected to be covered by the warranties in the Vestas contracts.
Revenues for the Saunamaa and Suolakangas wind farms totalled €22.0 million
(2021(17): €7.3m) for the year, a 2% increase to budget, driven largely by
high pricing despite output being below expectations. Operational expenditure
totalled €3.3 million (2021(17): €1.4m), a 16% increase to the budget,
largely due to increased electricity consumption costs. EBITDA for the year
was in line with budget and totalled €18.7 million (2021(17): €6.2m).
(17) 2021 comparatives for a 6 month period from locked box date of 1
July 2021
Lincs (UK)
On 26 April 2022 the Company agreed to acquire a 7.75% ownership stake in
Lincs offshore wind farm, and the acquisition was completed in early May. The
Company acquired an additional 7.75% ownership interest in Lincs offshore wind
farm in September 2022, increasing the stake in the asset to 15.5%. Lincs is
located off the east coast of England and has produced 954.6GWh of electricity
since the locked box date of 31 December 2021. Production over the year was
3.7% below budget due to an outage on the main cable in July and unexpected
component replacements required on a few turbines over the summer.
In 2022, Lincs wind farm generated £54.0 million of revenue and EBITDA of
£14.2 million for ORIT in line with investment case as high price indexation
offset lower output.
Crossdykes (UK)
In September 2022, the Company acquired a 51% ownership interest in the
Crossdykes Onshore Wind Farm, a 46MW operational wind farm in southern
Scotland. The asset generated 112.7GWh since 31 December 2021, the locked box
date of the transaction, 22% below investment case expectations. This is
largely because the site was curtailed off during the year under the Balancing
Mechanism administered by NGESO and will be compensated for lost production.
Since the locked box date, Crossdykes Onshore Wind Farm has generated revenues
of £13.5 million, in line with investment case expectations after including
Balancing Mechanism revenues. EBITDA was £9.8 million for the year, 7% below
investment case due to higher than expected operating expenditure, primarily
due to fluctuations in network charges such as BSUoS and TNUoS.
Ljungbyholm Wind Farm (Sweden)
Output at the Ljungbyholm wind farm was 10% below budget with the wind farm
producing 134.8GWh of electricity during the year. The site had budgeted for
150GWh, however wind speeds were down by 10.5%.
Ljungbyholm wind farm generated revenues of €11.4 million (2021: €6.3m),
51% below budget. This is as a result of the power prices captured in the
Swedish market being significantly below those budgeted with actual power
prices achieved averaging at 84 €/MWh versus budgeted prices of 156 €/MWh.
The FY22 budget was based on forward prices which proved to be much higher
than the market out-turn price over the same period. During the year the site
benefited from the corporate PPA with an innovative structure executed in late
2021, that allows for the asset to benefit from higher market prices while
providing a degree of revenue certainty. See the Annual Report for further
details.
Operational expenditure totalled €1.3 million (2021: €1.2m), 36% under
budget largely due to lower variable costs associated with the decreased
revenue, and EBITDA for the year was €10.2 million (2021: €5.1m), 52%
below budget.
Krzecin and Kuslin Wind Farms (Poland)
Construction of the Krzecin Wind Farm in the north-west of Poland and the
Kuslin Wind Farm in western Poland commenced in Q4 2020, with the Krzecin Wind
Farm achieving operational status during Q1 2022 and the Kuslin Wind Farm
becoming operational in September 2022(18).
Since achieving operational status, the Krzecin and Kuslin wind farms
generated 92.1GWh, 10.9% below budget in the year to 31 December 2022, driven
largely by lower wind speeds. Over the same period the wind farms generated
revenues of PLN 71.2 million, 33% above budget and driven by high power
prices. Over the year, average power prices of PLN 756/MWh were achieved
compared to budget prices of PLN 512/MWh. Operational expenditure for the
period totalled PLN 7.6 million, 25% favourable to the budget, mainly due to
operating costs not incurred whilst the sites remained under construction. As
a result, EBITDA for year was 46% above budget totalling PLN 63.6 million.
(18) Full commercial operations under the construction contracts
occurred in December 2022, following completion of all required tests.
Leeskow (Germany)
Leeskow was acquired towards the end of the year, representing the Company's
first investment in Germany. Since the locked box date of 30 June 2022, the
asset produced a total of 16.6GWh, compared to a budgeted 28.4GWh. This is
partly due to the fact that the site was commissioned slightly later than
planned (3.2GWh), site curtailment in the period (1.1GWh) and lower than
expected wind speeds (7.5GWh). The team is collaborating with the newly
onboarded asset manager to reduce curtailment on site, following a change in
German legislation to boost wind energy production in response to the European
energy security crisis.
Since the locked box date, Leeskow onshore wind farm has generated €1.4
million of revenue and EBITDA of €0.8 million, 55% below investment case
predominantly as a result of the reduced output.
Cerisou Wind Farm (France)
Construction at Cerisou Wind Farm started in August 2021 and completed in line
with expected timelines, with the site generating its first revenues in Q3
2022 and becoming fully operational in Q4 2022. The 24MW wind farm, made up of
8 turbines, has now formally entered the French Contract for Difference
("CfD") regime under which it will receive fixed, index-linked revenues for
twenty years.
Since achieving operational status the French wind portfolio generated an
output of 12 GWh, 12% below budget due to technical underperformance. Three
turbines experienced outages as a result of recabling, and converter/hub
issues. This downtime is covered by the availability warranty in the O&M
contract. Despite this, Cerisou Wind Farm generated revenues of €1.8
million, 6% above budget for the year as output generated before the CfD
started on 1(st) November 2022 sold at higher than forecast market prices.
Operational expenditure for the period totalled €0.3 million, 8% favourable
to budget mainly the result of certain site works being pushed back into next
year, resulting in EBITDA of €1.5 million, 9% above budget.
Cumberhead Wind Farm (UK)
Construction at the onshore wind farm project in Scotland commenced in January
2022. All major civil works are complete and all turbines are now erected,
with site energisation achieved in December 2022. All 12 turbines are expected
to be energised and producing energy by 31 March 2023 with full commercial
operations expected to be achieved in Q2 2023 once all testing is complete.
The Group has entered into a 10-year fixed price virtual PPA with Kimberley
Clark Limited and a physical PPA with EDF.
Breach Solar Farm (UK)
The total investment in the 67MW construction ready solar farm is c.£50
million which will be disbursed as the construction progresses. Construction
began in November 2022 and is expected to complete in H2 2023. Subject to
updates to the grid connection agreement and planning consent, the site has
the potential to add a 50MW/100MWh battery project co-located to the solar
project.
Revenues
Figure 3 presents the Company's forecast revenues, categorised by price
structure, through to 2050. The portfolio's exposure to wholesale power prices
is limited due to fixed price PPAs (with corporate and utility offtakers)
which the Investment Manager has originated, as well as government-backed
subsidies across GB, France, Germany and Poland.
Comparing with 12 months prior, despite a commodities market which has surged
following Russia's invasion of Ukraine, the Investment Manager has increased
ORIT's proportion of near-term forecast fixed revenues. The acquisitions of
the Leeskow onshore wind farm (Germany) and investment into Lincs offshore
wind farm (GB) have positively contributed to this outcome. In addition to
this, the Investment Manager's active approach to hedging has secured further
fixed revenues, most notably for hedges executed for the Saunamaa and
Suolokangas (Finland) wind farms, whose PPA has been structured in a way that
enables a flexible approach to hedging the assets' wholesale power price
exposure.
As at 31 December 2022, 68% of ORIT's forecast revenues over the period to 31
December 2024 (2021: 50% to 31 December 2023) are fixed. Fixed-price revenues
arise from either subsidies, such as ROCs or power prices fixed under PPAs.
Furthermore, approximately 53% of the revenues forecast in the period to 31
December 2032 are now explicitly inflation linked (with reference to UK RPI,
French inflation and Polish CPI). This high proportion of inflation-backed
revenues provides a natural hedge to the Company from rising interest (and
discount) rates.
Figure 4: Fixed vs Unfixed revenues: period to 31 Dec 24
Fixed: 68%
Variable: 32%
Market Outlook
The energy generation industry as a whole continues to navigate through a
challenging period, with the effects of the Russia-Ukraine war looking set to
continue for some time and beyond. The most obvious impacts have been supply
chain problems, rising inflation, upwards pressure on interest rates and
abnormally high power prices (which are clearly inter‑related). The
intrinsic linkage of power prices to gas prices under the current market
system in the UK has meant that day-ahead electricity prices saw a 72%
increase in 2022 compared to 2021, and they were around four times
pre‑pandemic levels. European prices have also been abnormally high. In the
long-term we are likely to see system re‑designs in order to remove the
linkage between gas and power prices for renewable generators, but for now
short-term solutions have been put in place through price caps (in Europe) and
the Electricity Generator Levy (in the UK). Whilst these measures reduce the
returns available to investors and asset owners, the finalisation of their
details gives the market clarity in this area after a period of uncertainty in
Q4 2022. As a result, we expect the slow-down in transaction activity seen
towards the end of 2022 to recede, and for a broad increase in investor
activity to emerge as we move through the coming months.
Following three prime ministers in 2022, the political uncertainty in the UK
has calmed and the future now looks brighter for the development of new
projects: solar looks to have escaped a risk of changes to land-classification
rules that would have hampered planning permissions, the long-standing ban on
onshore wind is expected to be lifted, and Contracts for Difference ("CfD")
auction frequency has been increased to once per year starting in 2023. We can
therefore expect healthy development and construction pipelines to emerge
which will provide a home for capital looking for new renewable generation
projects.
Whilst there is now more certainty on revenues, high inflation rates (expected
to remain for some time) mean increasing construction costs, and price caps or
windfall taxes mean that returns available to developers may come under
pressure. To compound this, the increases in base interest rates have led to
higher discount rates for projects. However, we expect project valuations to
be supported by a healthy amount of competition for assets from investors
seeking attractive projects. Grid access challenges have become increasingly
prevalent across several geographies. We are seeing projects coming to market
with grid connection dates in the late 2020s and beyond, due to aging networks
and the need for capacity upgrades, and at this stage there is little clarity
on how and when this will be resolved.
Newer technologies are gathering further momentum, especially the growing
trend for battery storage, but also hydrogen and floating offshore wind, which
saw its first CfD contract awarded in 2022.
In Europe there has been much focus on responding to the US Inflation
Reduction Act, in order to ensure the continued competitiveness of European
industry throughout the energy transition. The EU had already earmarked
billions of Euros of funding, including through REPowerEU, but has now
responded to the Inflation Reduction Act with measures to give member states
more freedom to support industry, and to accelerate permitting and access to
funding for relevant projects.
Power prices
2022 has been another extraordinary year for electricity markets. The market
was already stressed at the start of the year due to the ongoing impacts from
strong post-covid demand for LNG from Asia, and droughts in China and Brazil
compounding this effect.
Over time, Europe's economy has grown heavily reliant on the supply of cheap
Russian gas. Flows on the Nord Stream pipeline had been reduced since
mid-2021, and Russia's invasion of Ukraine in February 2022 caused markets to
react dramatically to expected Western sanctions and the resulting accelerated
reductions in supply. Power prices and volatility surged as a result.
To compound things, the discovery of corrosion and micro-cracks across
France's aging nuclear fleet triggered a series of inspections across the
fleet. This sent nuclear output to a 30 year low and European power prices
even higher. Usually Europe's largest exporter of power, the nuclear outages
turned France into a net importer, no longer able to play the same role in
stabilising power prices for neighbouring markets, such as GB.
As wholesale prices continued to increase, late summer saw dramatic events as
liquidity in power markets fell sharply as a result of rapid increases in the
cost of meeting margin calls and posting collateral for trades. The market
then became dominated by utilities managing their margin call exposure rather
than following market fundamentals.
Weather also continued to play an important role, with droughts impacting
Nordic and Alpine hydroelectricity production across the summer and autumn,
exacerbating the crisis. The winter months then saw unexpectedly mild weather
bring prices down from the highs seen earlier in the year.
Russia's invasion of Ukraine is likely to leave long-lasting effects on energy
markets. Government responses and market intervention will also be a key
determinant of outcomes, with the UK and the EU considering longer term
reforms. Whatever the precise outcome however, one thing which remains clear
is that the tailwinds behind renewable generation are as strong as ever. With
wind and solar being the cheapest form of electricity generation, and
inherently domestic, renewables offer the solution not only to
decarbonisation, but also to the current affordability and energy security
crises.
Counterparty Risk
As detailed in the Annual Report, reliance on third-party counterparties is a
principal risk to the Company. In the current economic climate, there is an
increased risk associated with service providers defaulting on contractual
obligations or suffering an insolvency event, and this can impact the
performance of the portfolio of assets and ultimately the Company. The
Investment Manager monitors this risk closely and carries out qualitative and
quantitative due diligence on counterparties before they are appointed and,
where possible, seeks to obtain extensive warranty protection on all
contracts. Exposure to counterparties is reviewed by the Investment Manager on
a quarterly basis. The graphs below illustrate the Company's exposure to
offtakers and O&M providers as at 31 December 2022.
Offtaker by GAV (19,20)
CPPA (Various): 27%
EDF: 18%
British Gas: 13%
Esti Energi: 11%
NEXT: 9%
Npower/Axpo: 7%
Alpix: 6%
N/A: 4%
OE: 4%
O&M by GAV
Nordex: 25%
Vestas: 17%
Orsted: 13%
Statkraft: 11%
Engie: 10%
PSH: 6%
Res: 5%
N/A: 4%
SGRE: 4%
Goldbeck: 3%
BayWa 1%
(19) Graph details the current offtaker weighted by overall GAV. The
NPV will vary over the lifetime.
(20) Sites sell ROCs and power to NPower but also have a price-fixing
arrangement with Axpo.
Financing
More favourable debt terms tend to be available for assets with
government-backed fixed revenues in stable jurisdictions. Borrowing in euros,
secured against assets whose revenue is euro denominated, provides a natural
hedge against foreign exchange movements. Therefore, the Investment Manager
has prioritised securing long-term structural debt against the non-Sterling
assets.
The acquisition of the 15.5% ownership interest in the Lincs Offshore Wind
Farm came with leverage of 56%. This long‑term, non-recourse debt is
provided by a consortium of seven international commercial lenders and is
expected to stay in place until 2033 when the ROC revenues expire.
In August 2022, the Company extended its revolving credit facility ("RCF") by
utilising the accordion feature, bringing the total committed facility to
£246 million. ORIT's increased RCF was entered into under the same terms as
the existing facility. In addition, in September 2022, the Company's
subsidiary ORIT Lincs Holdings Limited, entered into a new £50 million
short-term facility with NatWest, maturing in November 2023.
The acquisition of Leeskow Wind Farm in September 2022 included four existing
long-term debt facilities of up to €61.2 million with Deutsche Kreditbank
AG. These 20-year facilities have a weighted average fixed interest rate of
1.27% and were substantially fully drawn as at 31 December 2022 with the
final amount remaining to be drawn in 2023.
Post period end the Company's direct subsidiary ORIT Holdings II Limited
secured an amendment and extension to the existing RCF from a group of four
lenders with the total committed facility increasing to £271 million. The
three-year multi currency facility is provided by National Australia Bank,
NatWest, Santander and Allied Irish Bank and has an interest margin of 2.0%
and commitment fees of 0.7%. The RCF includes an additional uncommitted
accordion, allowing the facility to be increased by up to £150 million
without requiring the consent of any existing lenders not participating in the
increase.
Short Term Long Term
Asset HoldCo HoldCo FR Solar FR Wind IRE Solar POL Wind GER Wind UK Offshore Wind
Debt Terms
Currency GBP or EUR GBP or EUR EUR EUR EUR PLN EUR GBP
Term loan £ 271.0m £ 50.0m € 125.7m € 43.2m € 91.0m PLN 318.8m € 61.0m £ 110.5m
Drawn at signing date £ 95.6m £ 50.0m € 113.4m € 43.2m - PLN 282.3m € 59.3m £ 82.3m
Drawn at signing date £m £ 95.6m £ 50.0m £ 100.6m £ 38.3m - £ 53.3m £ 52.6m £ 82.3m
Initial Term (yrs) 3 1 18 20 20 18 18 15
Expiry Date Nov-23 Nov-23 Dec-38 Sep-42 Jun-42 Aug-38 Mar-41 Sep-32
Facility date Nov-20 Sep-22 Jan-21 Apr-21 Jul-21 Sep-21 Sep-22 Dec-17
Y1-5 1.30% Construction: 2.65% 2017 - 2022: 1.45%;
Margin 2.0% 2.50% 1.25% 1.30% Y6-10 1.40% CfD period: 2.65% 0.83% - 1.75% 2023 - 2027: 1.65%
Y10+ 1.65% Post CfD period: 2.85% 2028 - 2032: 1.85%
Variable interest % SONIA SONIA EURIBOR EURIBOR EURIBOR WIBOR EURIBOR SONIA
Hedging
% hedged - - 85% 90% n/a 75% 100% 85%
Swap rate n/a n/a -0.12% 0.51% n/a 2.03% 0.12% 1.27%
Portfolio Valuation
Regular valuations are undertaken for the Company's portfolio of assets. The
process follows International Private Equity Valuation Guidelines using a
discounted cashflow ("DCF") methodology. DCF is deemed the most appropriate
methodology where a detailed projection of likely future cash flows is
possible. Due to the asset class, availability of market data and the ability
to project the asset's performance over the forecast horizon, a DCF valuation
is typically the basis upon which renewable assets are traded in the market.
Key macroeconomic and fiscal assumptions for the valuations are set out in
Note 9 to the financial statements. As such the sensitivities also do not
capture any potential benefit of a portfolio effect through non-correlation of
technologies or energy markets.
The fair value of the Company's portfolio of assets as at 31 December 2022 was
£743.7 million, reflecting acquisitions and capital injections during the
year of £209.7 million alongside changes to economic, wholesale energy and
asset specific assumptions and the return on the portfolio net of
distributions. Including the Company's and its intermediate holding companies'
other liabilities of £125.4 million, the total portfolio value as at 31
December 2022 is £618.3 million or 109.4 pence per Ordinary Share.
Year ended
31 December 2022
(£m)
Investment value at 31 December 2021 483.5
Acquisitions in the year 209.7
Distributions paid out of the portfolio of assets (40.1)
Changes in economic assumptions 75.5
Changes in wholesale energy price forecasts 27.9
Construction and risk premium and development gain 10.7
Change in discount rates (54.5)
Balance of portfolio return 31.0
Fair value of the portfolio of assets 743.7
ORIT and intermediate holding company net assets (125.4)
Audited net asset value 618.3
Investments in the year
During the year, the Company made several investments across wind and solar
technologies.
In April, the Company agreed to provide up to €3.5 million (c. £2.9m) of
funding into a new development platform, Nordic Renewables Limited, focused on
onshore wind farms and solar PV assets in Finland.
The Company acquired Breach Solar Farm in June, committing a total of £50
million to fund the acquisition and construction of the asset. The transaction
also gives the Company the right to construct a battery storage project in the
UK, with a capacity of 50MW/100MWh.
In June, the Company acquired a 7.75% stake in the Lincs Offshore Wind Farm,
located off the east coast of England. In September, the Company acquired a
further 7.75% stake.
In October, the Company acquired Leeskow Onshore Wind Farm from German
developer UKA. The site benefits from the government backed floor price for
twenty years under the German EEG regime.
In November, the Company acquired 51% ownership in Crossdykes Onshore Wind
Farm in Scotland. Investment costs have totalled approximately £41 million.
The remaining 49% was acquired by a fund managed by the Octopus Energy Group.
In November, the Company invested a further €6.25 million (£5.5m) into a
developer of sustainable marine projects focused on floating offshore wind,
Simply Blue Holdings Limited. The amount is expected to be drawn in 2023 and
will increase the Company's stake to c.19%.
Following the end of the period, after agreeing the lease for the site, the
Company completed the acquisition of a 50% stake in a 12MW/24MWh
ready-to-build battery storage project in Bedfordshire, UK.
Elsewhere in the portfolio, capital injections and construction payments of
£40.1 million were made in relation to the Cumberhead wind farm in the UK.
Distributions paid out of the portfolio of assets
This relates to the amount of cash paid out of the portfolio of assets and
received by the Company or its intermediate holding companies in the year
ending 31 December 2022.
Economic assumptions
The main economic assumptions used in the portfolio valuation are inflation
rates, interest rates, foreign exchange rates and tax rates.
Since the end of 31 December 2021, inflation forecasts for 2022 and 2023 have
increased significantly across the markets where the Company's portfolio of
assets is located, resulting in a valuation uplift of £60.0 million. The
inflation inputs used to calculate the NAV per Ordinary Share as at 31
December 2022 have been sourced from: (i) recent consensus UK inflation
forecasts published by Her Majesty's Treasury (November 2022); and (ii)
inflation forecasts for European countries published by the European
Commission (November 2022).
Per the enactment of the Finance Act 2021, the rate of UK corporation tax is
set to increase from 19% to 25% with effect from April 2023. The calculation
of the audited NAV as 31 December 2022 was based on an assumption that this
increased rate remained in place for three years, before trending down by 1%
per year until reduced to the current level of 19% long-term. The change in
assumption to a flat UK corporation tax rate of 25% from April 2023 for the
lifetime of the portfolio reduced NAV by approximately £4.8 million or 0.8
pence per Ordinary Share.
During the year, sterling depreciated against the euro by 5.3%, leading to a
positive valuation impact of £20.2 million. Euro-denominated investments
comprised 59% of the portfolio at the year end. The Investment Manager
regularly reviews the level of euro exposure and utilises hedges, with the
objective of minimising variability in shorter term cash flows. After the
impact of currency hedges held at Company level are taken into account, the
gain on foreign exchange reduces to £9.5 million.
Power prices
Unless fixed under PPAs or otherwise hedged, the power prices used in the
valuations are based on market forward prices in the near term, followed by an
equal blend of up to three independent and widely used market consultants'
technology-specific capture price forecasts for each asset.
Further detailed in the Market Outlook section, commodity prices have
increased dramatically in 2022 as a result of Russia's invasion of Ukraine,
sending price forecasts higher in the near and medium-term. In the
longer-term, elevated commodities price forecasts exert upwards pressure on
power price forecasts. This is partially offset by the downwards pressure
exerted by increased renewable build-out forecasts, as governments react to
the ongoing gas crisis with heightened decarbonisation ambitions.
During H2 2022, governments announced plans to mitigate the effect of rising
energy prices on consumers and businesses, including through price caps,
windfall taxes or generation levies. Key announcements affecting renewable
energy generators include the European Commission's proposal to introduce
revenue caps of €180/MWh or lower and the UK Government proposal for a
"cost-plus revenue limit" on renewable energy companies. At the time of
determining the Q3 NAV there was significant uncertainty surrounding both the
level of mitigation measures that would be introduced by governing bodies as
well as ambiguity regarding the practical application of such measures. As a
result, the Board and Investment Manager considered it appropriate to include
a material discount to power market forwards of approximately 70% in 2022,
reducing to 50% by 2025, in the valuation as at 30 September 2022.
During Q4 2022, governments across the UK and Europe confirmed their approach
to tackle and resolve the impact of rapidly increasing energy prices and these
policies have been incorporated into the valuation as at 31 December 2022 and
therefore, the material discounts to prevailing market forwards, which were
incorporated into the Q3 valuations predominantly in anticipation of these
changes have been reduced significantly. The net impact of applying the
government measures and removing the conservative discounts between Q3 and Q4
was NAV accretive.
Application of the Electricity Generator Levy or "EGL" for the UK and the
emergency measure price cap in Poland, resulted in a decrease in the
valuations in these countries as at 31 December 2022 when compared to the Q3
NAV. The assets in ORIT's portfolio located in France, Germany, Ireland,
Sweden and Finland are not expected to be impacted by these caps due either to
being exempt via enrolment in government-backed initiatives, such as CfD or
FiT schemes, because the revenue that is subject to price cap rules is fixed
at levels below the announced cap, or because the transaction structure does
not include exposure to revenues above the level of the government scheme.
Whilst government announcements over energy policies are now clearer, given
volatility in power prices exhibited over 2022 and the general downward trend
in pricing over Q4, the Board and the Investment Manager still consider it
appropriate to include a modest discount to the prevailing forward prices of
20% over the 2023 to 2025 period, in addition to the normal discounts to
reflect the lower prices typically captured by wind and solar generators.
Overall, the net impact of these updates has led to a £27.9 million increase
in the value of the portfolio as at 31 December 2022.
The portfolio's forecasted power only generation weighted prices ("Power only
GWP") and the generation weighted prices including subsidies and additional
benefits ("Total GWP") for the period from 2023 to 2050 are shown in the graph
above. The curves are blended across the markets in which the portfolio's
generation assets are located, weighted by the portfolio generation mix and
converted into £/MWh using the FX spot rate as at 31 December 2022. On
average, the graph shows Power only GWP of £74.47/MWh in the period 2023-2027
and £41.55/MWh in the period 2028-2050.
Construction risk premium and development gain
Total construction risk premium and development gain realised during the year
amounted to +£10.7 million. A valuation increase of £6.6 million resulted
from the unwind of the remaining construction risk premium included in the
discount rate applied to the Kuslin and Krzecin wind farms in Poland and the
Cerisou wind farm in France, as well as a portion of the premium included for
the Cumberhead wind farm in the UK, recognising the significant construction
progress made by the end of the period.
As at 31 December, the Kuslin, Krzecin and Cerisou wind farms are now fully
operational. For the remaining portfolio under construction (Cumberhead wind
farm and Breach solar farm), it is estimated that further value will be
crystallised as the projects becomes substantially de-risked through the
completion of construction milestones.
Following ORIT's follow-on investment into SBG, an Irish developer of floating
offshore wind, ORIT's ownership interest has increased to c.15.5%. The
follow-on investment was calculated based on an increased valuation of the
Company, implying a development gain on ORIT's original stake of £4.1
million.
Change in discount rates
A range of discount rates are applied in calculating the fair value of the
investments, considering the location, technology and lifecycle stage of each
asset as well as leverage and the split of fixed and variable revenues. The
weighted average discount rate as at 31 December 2022 is 7.5%, an increase of
0.7% since 31 December 2021.
The increase in discount rate over the course of the year, reflects that,
whilst bond yields have fallen since the highs of September 2022, they remain
significantly higher than they were at the start of 2022. Competition for
renewable assets has remained high, dampening the extent to which benchmark
rate rises have fed through into asset discount rates. Nevertheless, the Board
and the Investment Manager consider it appropriate to reflect an increase in
the discount rates applied to certain assets, particularly those in the UK and
Poland where rates have risen further than in the rest of Europe. The
increases to these discount rates resulted in a decrease of -£54.5 million in
the portfolio valuation, or -9.6 pence per Ordinary Share.
Balance of portfolio return
This refers to the balance of valuation movements in the year excluding the
factors noted above and represents a net increase of £27.9 million.
Of this, £35.4 million reflects the net present value of future cashflows
being brought forward from 31 December 2021 to 31 December 2022. A net uplift
of £1.0 million was recognised due to financial and technical performance
during the period not captured in the movements due to changes in power price
and macroeconomic assumptions during the period, and a further £3.7 million
resulted from the implementation of power purchase agreements or decisions to
exercise options in existing power price agreements to fix prices for a given
period.
31-Dec-21 30-Jun-22 31-Dec-22
UK Assets
Leveraged IRR 5.8% 5.9% 485.4
Gross Asset Value (GAV) 174 256 440
Leveraged %GAV 0% 15% 19%
European Assets
Leveraged IRR 7.2% 6.8% 7.5%
Gross Asset Value (GAV) 564 568 633
Leveraged %GAV 28% 32% 40%
Total Portfolio
Leveraged IRR 6.8% 6.5% 7.5%
Gross Asset Value (GAV) 738 824 1,073
Leverage %GAV 22% 24% 31%
Leveraged %GAV (plc) 22% 24% 42%
The valuation uplift was partially offset by increased capital expenditure
related to the construction of Cumberhead wind farm (total expenditure is
still within initial forecast including contingency) and lost revenues due to
minor construction delays at the Cumberhead and Kuslin wind farm. The impact
of these adjustments resulted in a decrease in valuation of £5.0 million.
Recoveries are currently under negotiation with the relevant contractors, with
some of this impact expected to be recaptured in future valuation cycles.
The remaining £4.1 million decrease related to minor assumption updates
across the portfolio, including a decrease of £2.4 million related to an
increase in forecast decommissioning costs.
Portfolio valuation sensitivities
The sensitivities are based on the existing portfolio of assets as at 31
December 2022 as well as cash flows of conditional acquisitions, and as such
may not be representative of the sensitivities once the Company is fully
invested and geared. For each of the sensitivities shown, it is assumed that
potential changes occur independently with no effect on any other assumption.
As such the sensitivities also do not capture any potential benefit of a
portfolio effect through non-correlation of technologies or energy markets.
Discount rate
A range of discount rates are applied in calculating the fair value of the
investments, considering the location, technology and lifecycle stage of each
asset as well as leverage and the split of fixed and variable revenues. A
50bps increase in the levered cost of equity of the portfolio equates to an
increase in the implied WACC of 0.29%, holding the cost of debt and leverage %
constant.
The weighted average discount rate as at 31 December 2022 is 7.5% (2021:
6.8%).
Volumes
Each asset's valuation assumes a "P50" level of electricity output based on
yield assessments prepared by technical advisors. The P50 output is the
estimated annual amount of electricity generation that has a 50% probability
of being exceeded - both in any single year and over the long-term - and a 50%
probability of being underachieved. The P50 provides an expected level of
generation over the long-term.
The P90 (90% probability of exceedance over a 10-year period) and P10 (10%
probability of exceedance over a 10-year period) sensitivities reflect the
future variability of wind speed and solar irradiation and the associated
impact on output, along with the uncertainty associated with the long-term
data sources used to calculate the P50 forecast. The sensitivities shown
assume that the output of each asset in the portfolio is in line with the P10
or P90 output forecast respectively for each year of the asset life.
Power price curve
As described above the power price forecasts for each asset are based on a
number of inputs. The sensitivity assumes a 10% increase or decrease in power
prices relative to the base case for each year of the asset life.
Inflation
The sensitivity assumes a 0.5% increase or decrease in inflation relative to
the base case for each year of the asset life.
Foreign exchange
The Company seeks to manage its exposure to foreign exchange movements to
ensure that (i) the sterling value of known future construction commitments is
fixed; (ii) sufficient near term distributions from non-sterling investments
are hedged to maintain healthy dividend cover; (iii) the volatility of the
Company's NAV with respect to foreign exchange movements is limited; and (iv)
all settlements and potential mark-to-market payments on instruments used to
hedge foreign exchange exposure are adequately covered by the Company's cash
balances and undrawn credit facilities.
Of the portfolio as at 31 December 2022, 59% of the NAV is euro denominated.
Hedges are in place for all non-sterling construction payments as well as
forecast cash generation from all Euro based investments for the first three
years of operations. The sensitivity highlighted in Figure 6 shows the impact
on NAV per Ordinary Share of a +/- 10% movement in the GBP: EUR exchange rate.
Financial Review
The financial statements of the Company for the year ended 31 December 2022
are set out in the Annual Report. These financial statements have been
prepared in accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006 and the applicable legal
requirements of the Companies Act 2006. In order to continue providing useful
and relevant information to its investors, the financial statements also refer
to the "intermediate holding companies", which comprise the Company's wholly
owned subsidiary, ORIT Holdings II Limited and its indirectly held wholly
owned subsidiaries ORIT UK Acquisitions Limited and ORIT Holdings Limited.
Basis of accounting
The Company applies IFRS 10 and Investment Entities: Amendments to IFRS 10,
IFRS 12 and IAS 28, which state that investment entities should measure all of
their subsidiaries that are themselves investment entities at fair value. The
Company accounts for its interest in its wholly owned direct subsidiary, ORIT
Holdings II Limited as an investment at fair value through profit or loss.
The primary impact of this application, in comparison to consolidating
subsidiaries, is that the cash balances, the working capital balances and
borrowings in the intermediate holding companies are presented as part of the
Company's fair value of investments.
Results as at/for the year ended 31 December
2022 2021
£m
£m
Net asset value 618.3 577.7
Fair value of Company's investments 608.8 485.4
Net assets per share 109.44p 102.26p
Investment income from portfolio 40.3 31.8
Gains on fair value of investments 37.6 8.6
Profit for the year 69.8 34.8
Net assets
Net assets have increased from £577.7 million at 31 December 2021 to £618.3
million at 31 December 2022 principally driven by changes in wholesale energy
price forecasts and macro-economic assumptions such as inflation and FX.
The net assets comprise the fair value of the Company's investments of £608.8
million (2021: £485.4m) and the Company's cash balance of £10.6 million
(2021: £93.9m), offset by £1.1 million (2021: £1.6m) of Company net
liabilities.
Included in the fair value of the Company's investments are liabilities of
£135.0 million (2021: assets of £1.9m) held in the intermediate holding
companies. These comprise cash of £4.5 million (2021: £1.3m) and amortised
transaction costs associated with bank loans of £2.0 million (2021: £1.4m),
offset by the principal and interest outstanding on the bank loans of £128.0
million (2021: £nil), the negative mark-to-market value of the FX hedges
taken out to minimise the volatility of cashflows associated with non-UK
portfolios of £8.0 million (2021: £2.3m asset) and other liabilities of
£5.5 million (2021: £3.1m) predominantly relating to accrued transaction
costs not yet paid and outstanding VAT liabilities.
Results as at 31 December
2022 2021
£m £m
Fair value of portfolio of assets 743.7 483.5
Cash held in intermediate holding companies 4.5 1.3
Bank loans and accrued interest held in the intermediate holding companies (128.0) -
Fair value of other net (liabilities)/assets in intermediate holding companies (11.4) 0.6
Fair value of Company's investments 608.8 485.4
Company's cash 10.6 93.9
Company's other liabilities (1.1) (1.6)
Net asset value as at 31 December 618.3 577.7
Number of shares 564.9 564.9
Net asset value per share (pence) 109.44 102.26
Income
In accordance with the Statement of Recommended Practice: Financial Statements
of Investment Trust Companies and Venture Capital Trusts ("SORP") issued in
July 2022 by the Association of Investment Companies ("AIC"), the statement of
comprehensive income differentiates between the 'revenue' account and the
'capital' account, and the sum of both items equals the Company's profit for
the year. Items classified as capital in nature either relate directly to the
Company's investment portfolio or are costs deemed attributable to the
long‑term capital growth of the Company (such as a portion of the Investment
Manager's fee).
In the financial year ending 31 December 2022, the Company's operating income
was £77.9 million (2021: £40.4m), including interest income of £23.1
million (2021: £12.7m), dividends received of £17.3 million (2021: £19.2m)
and net gains on the movement of fair value of investments of £37.6 million
(2021: £8.6m). The operating expenses included in the statement of
comprehensive income for the year were £8.1 million (2021: £5.6m). These
comprise £5.7 million Investment Manager fees (2021: £4.1m), transaction and
abort costs of £1.3 million (2021: £nil) and other operating expenses of
£1.1 million (2021: £1.5m). The details on how the Investment Manager's fees
are charged are set out in Note 17 to the financial statements.
Ongoing charges
The ongoing charges ratio ("OCR") is a measure, expressed as a percentage of
average net assets, of the regular, recurring annual costs of running the
Company. It has been calculated and disclosed in accordance with the AIC
methodology, as annualised ongoing charges (i.e. excluding acquisition costs
and other non-recurring items) divided by the average published undiluted Net
Asset Value in the year. For the year ended 31 December 2022, the ratio was
1.12% (2021: 1.15%).
Dividends
During the year, interim dividends totalling £29.3 million were paid (1.25p
per share paid in respect of the quarter to 31 December 2021 in March 2022
and 1.31p per share paid in respect of the first three quarters of 2022 in May
2022, August 2022 and November 2022 respectively).
Post year end, a further interim dividend of 1.31p per share was paid on 24
February 2023 in respect of the quarter ending 31 December 2022 to
shareholders recorded on the register on 10 February 2023. As such, dividends
totalling £29.6 million have been paid in respect of the 12-month period
under review.
For the year ending 31 December 2022, the portfolio of assets generated
operational cash flows of £76.3 million, paid interest of £4.0 million and
made repayments of £10.2 million on external debt. Company and intermediate
holding company expenses for the year totalled £9.6 million (after commitment
fees and interest payable on the RCF and the short-term facility) and
therefore total net cash flows from operating activities for the year were
£52.5 million, leading to an operational dividend cover of 1.77x the total
dividend payable for the year.
The strong dividend cover of 1.77x during FY22 has been supported by the
acquisition of operational portfolios as well as the successful completion of
construction assets(1). ORIT's operational portfolio is forecast to generate
significant cash flows (after debt service) in excess of the target dividend
of 5.79 pence per ordinary share for FY23(21). The average expected annual
dividend cover over a 5-year period to 31 December 2027 is 1.7x(21). Cash
flows generated by fixed or contracted sources (e.g. PPAs, CFDs, ROCs and
FITs) are estimated to cover expected dividends by 1.1x over the same
period(22).(23)
(21) Dividend cover is calculated on the basis of actual (in respect of FY22)
and expected (in respect of subsequent financial years) total net operational
cash flows from the portfolio after debt service and Company and intermediate
holding company expenses.
(22) Dividend cover is calculated on the basis of expected net operational
cash flows from the portfolio excluding uncontracted revenues (e.g. power
sales linked to prevailing market prices) and after debt service and Company
and intermediate holding company expenses.
(23) The dividend target stated is a targets only and not a profit forecast.
There can be no assurance that the target will be met, or that the Company
will make any distributions at all and it should not be taken as an indication
of the Company's expected future results. The Company's actual returns will
depend upon a number of factors, including but not limited to the Company's
net income and level of ongoing charges. Accordingly, potential investors
should not place any reliance on this target and should decide for themselves
whether or not the target dividend is reasonable or achievable. Investors
should note that references to "dividends" are intended to cover both dividend
income and income which is designated as an interest distribution for UK tax
purposes and therefore subject to the interest streaming regime applicable to
investment trusts.
Dividend cover - operational cash flows (portfolio level)
Year ended 31 December
2022 2021
£m £m
Operational cash flows
UK Solar 13.7 11.1
French Solar 11.7 11.9
Swedish Wind 8.8 4.4
Finnish Wind 15.9 5.3
Polish Wind 12.1 -
French Wind 1.3 -
German Wind(22) 0.7 -
UK Wind(23) 5.0 -
UK Offshore Wind(24) 7.1 -
76.3 32.7
Interest payable on external debt
French Solar (1.1) (1.1)
Polish Wind (2.1) -
French Wind (0.4) -
German Wind (0.4) -
Operational cash flow pre debt amortisation 72.3 31.6
Company and intermediate holding company level expenses(25) (9.6) (5.3)
Net cash flow from operating activities pre debt amortisation 62.7 26.3
Dividends paid in respect of year 29.6 23.8
Portfolio level operational cash flow dividend cover pre debt amortisation 2.1x 1.1x
External debt amortisation
French Solar (9.0) (2.1)
Polish Wind (1.2) -
Net cash flow from operating activities 52.5 24.2
Dividends paid in respect of year 29.6 23.8
Portfolio level operational cash flow dividend cover 1.77x 1.02x
(24) Includes all operational cash generated from 30 June 2022 (the locked-box
date)
(25) Includes all operational cash generated from 31 December 2021 (the
locked-box date)
(26) As a minority interest this includes equity cash flows (after interest
and amortisation) generated from 31 December 2021 (the locked-box date)
(27 ) Includes crystalised FX gains recognised in the Company and
intermediate holding companies
Company level dividend cover ratios are also shown below.
Dividend cover - P&L (Company level)
2022 2021
£m £m
Profit for the year 69.8 34.8
Adjustments for:
Unrealised gains on fair value of investments (37.6) (8.6)
Realised profit for the year 32.2 26.2
Dividends paid in respect of year 29.6 23.8
Company level P&L dividend cover 1.09 1.10x
Dividend cover - operational cash flows (Company level)
2022 2021
£m £m
Profit for the year 69.8 34.8
Adjustments for:
Unrealised gains on fair value of investments (37.6) (8.6)
Transaction costs 0.4 -
Investment income (40.3) (31.8)
Changes in working capital (0.5) (0.3)
(8.2) (5.9)
Distributions received from investments 38.1 26.2
Net cash flow from operating activities 29.9 20.3
Dividends paid in respect of year 29.6 23.8
Company level operational cash flow dividend cover 1.01x 0.85x
Impact Report
As at 31 December 2022
£1,304m 1,740GWh 522k
Total value of sustainable investments - 100% of all investments Potential Renewable Electricity Equivalent homes powered by clean energy(25)
2021: (£878m) 2021: (1,168GWh) 2021: (337k)
580k 2.9m 318k
Estimated tonnes of carbon Equivalent new trees required to avoid same carbon(27) Equivalent cars off the road required to avoid same carbon(28)
avoided(26)
2021: (364k) 2021: (1.8m) 2021: (200k)
All metrics are calculated based on an estimated annual production of the
whole portfolio once fully constructed (excluding conditional acquisitions).
(28) Homes powered is based on latest regional average household consumption
in the region of production
(29) Carbon avoided is calculated using the International Financial
Institution's approach for harmonised GHG accounting
(30) Trees equivalent is based on UK Woodland and Peatland carbon statistics
(31) Equivalent cars is calculated using a factor for displaced cars derived
for the UK government GHG Conversion Factors for Company reporting.
Foreword
In a year of unprecedented climate disasters and energy security risks ignited
by Russia's war in Ukraine, the urgent need to accelerate the sustainable
energy transition is ever clearer. Positively, 2022 saw a record-setting $1.1
trillion of investment into low-carbon energy technologies and, for the first
time, solar and wind power overtook fossil fuel gas as Europe's main source of
electricity generation(29). Pivoting investment towards low-carbon industries
and technologies is critical for addressing the challenges ahead, but an
annual funding gap remains. The magnitude of investment required is still over
three times the capital that was invested in 2022 and that gap needs to be
closed to achieve a pathway consistent with net zero.
A radical transformation of the current energy sector is also key in
mitigating the threats of climate change and energy security. Our Investment
Manager is part of an Energy Group with a unique perspective and resources to
support this necessary disruption. The knowledge, expertise, resource and
ambition is applied to enable the convergence of renewable generation with
storage whilst also championing electrification and demand side management.
Bringing this together with ORIT's capital securely positions ORIT to enable
investors to contribute to these objectives.
To fulfil ORIT's mission to accelerate the net zero transition, the Board and
Investment Manager have continued to build on ORIT's diversified portfolio of
Renewable Energy Assets. A key step to ensuring a "Just Transition" is to
consider environmental and social impacts throughout the whole lifecycle of a
project. By increasing investments in development and construction phase
projects, ORIT is not only adding new renewable capacity to the grid and
helping countries meet their net zero targets, but also ensuring that
responsible investment practices are implemented at the earliest possible
stage of an asset's lifetime.
ESG is embedded into all aspects of the investment process, and the strategy
captures ORIT's desire to incorporate biodiversity and social benefits
alongside its investments. This year, the Investment Manager continued to
monitor the ESG risks faced by the sector and ORIT's portfolio, ensuring
robust mitigation measures were in place. This included measures to protect
ORIT's solar supply chain from human rights risks through the adoption of a
new procurement policy and through collaboration with industry bodies and
expert auditing parties. ORIT has been classified as a dark green (Article 9)
fund under the new Sustainable Finance Disclosure Regulation ("SFDR") and all
investments are considered 100% EU Taxonomy-aligned, further demonstrating the
ambition of its sustainable investment objective.
Under the backdrop of global climate concerns, ensuring ORIT's resilience to
future climate changes is of the utmost importance. ORIT undertook in-depth
climate risk assessments over the last year to better understand potential
physical and transition risks - and opportunities - across its portfolio, the
results of which are discussed in this year's enhanced Task Force on
Climate-related Disclosures ("TCFD") report. ORIT welcomes the addition of
future regulatory disclosures that support "anti-greenwashing" efforts such as
the Taskforce for Nature Related Disclosures and the UK's Sustainable
Disclosure Requirements ("SDR").
The IEA's 2022 World Energy Outlook distinguishes technologies accelerating
the transition as the solution to the energy and climate crises(30). Noting
the clear contribution that ORIT provides to various global goals coupled with
the reinforced assurances from ORIT's ESG disclosures, ORIT's stakeholders can
be certain of ORIT's critical role within this transition.
Phil Austin MBE
Chair
(32)
https://www.weforum.org/agenda/2023/02/low-carbon-investment-record-2022/
(https://www.weforum.org/agenda/2023/02/low-carbon-investment-record-2022/)
(33)
https://www.iea.org/reports/world-energy-outlook-2022/key-findings
Impact Strategy
ORIT is an impact fund with a core impact objective to accelerate the
transition to net zero through its investments, building and operating a
diversified portfolio of Renewable Energy Assets.
ORIT enables individuals and institutions to engage with the energy transition
and invest directly into a portfolio of Renewable Energy Assets which
generates a yield through renewable energy generation. The renewable energy
generated supports the transition to net zero by replacing unsustainable
energy sources with clean power. This intended outcome is the Company's core
impact objective.
The ability to invest in Renewable Energy Assets is a powerful tool, which not
only enables people to invest in line with their values, but also drives
necessary change, facilitating the transition to a more sustainable future.
More information on this "Theory of Change" can be found in the Company's
Impact Strategy, published separately on the Company's website
https://octopusrenewablesinfrastructure.com/.
The Impact Strategy considers all of ORIT's culture, values and activities
through three lenses: Performance, Planet and People - to ensure that our
activities integrate ESG risks and bring to life additional impact
opportunities. The Impact Strategy defines ESG and Impact as:
• ESG - a vital risk management approach across Environmental,
Social and Governance factors to identify and mitigate a range of potential
issues to protect, and hopefully enhance, the long-term value of our
investments
• Impact - what an investment does to the environment or society.
Our aim is to minimise our principal adverse impacts and to seek opportunities
to enhance positive impacts where possible.
The Company makes long-term investments that require a long-term view to be
taken both in initial investment decisions and in subsequent asset management;
adopting lasting and sustainable business practices. Beyond the core objective
of accelerating the transition to net zero, ORIT seeks to generate additional
impact through Performance, Planet and People impact initiatives.
More details and background information related to the Company's Impact
Strategy including information on our four impact themes of Stakeholder
engagement, Equality and wellbeing, Innovation and Sustainable momentum can be
found in the separately published Impact Strategy.
Stewardship and Engagement
"Stewardship is the responsible allocation, management and oversight of
capital to create long-term value for clients and beneficiaries leading to
sustainable benefits for the economy, the environment and society."(31)
The Investment Manager manages ORIT's investments in line with its Engagement
and Stewardship Policy. Where ORIT has 100% ownership stakes, the Investment
Manager has direct control of the underlying assets, usually through
directorship services. In these cases, rights do not need to be "exercised" as
the Investment Manager directly controls the Investee Companies' strategy,
financial and non-financial performance, risk, capital structures, social and
environmental impact, corporate governance as well as the appointment of third
party operators of the assets. As well as decision making oversight, the
Investment Manager carries out service reviews on each material third-party
service provider. Where service providers fail to meet the standards set,
particularly with regard to HSE, ORIT will use its contractual rights to first
look to improve the service provision, and if that is unsuccessful, terminate
the service provider.
In circumstances where ORIT does not hold a controlling interest in the
relevant Investee Company, the Investment Manager will secure shareholder
rights through contractual and other arrangements, to, inter alia, ensure that
the renewable energy asset or portfolio company is operated and managed in a
manner that is consistent with ORIT's investment and ESG Policy. The
Investment Manager will always take up portfolio investment Board seats,
attend Board meetings and will directly use their influence to monitor and
support investee companies on relevant matters to galvanise other shareholders
in line with ORIT's ESG Policies.
Regardless of the percentage of ownership, it is the Company's aim to provide
investment specific active stewardship. ORIT always exercises its shareholder
rights in relation to approval rights and investment reserved matters. Regular
reporting data is provided to the ORIT Board on investee performance,
including any environmental or social issues or risks. The Investment Manager
also engages on market wide industry specific risks alongside different
stakeholders in the market to drive towards positive stewardship outcomes.
The initiatives and case studies presented in the Impact Report provides
examples of the application of the Engagement and Stewardship policy.
The Investment Manager's full Engagement and Stewardship Policy can be viewed
here: https://octopusrenewablesinfrastructure.com
(34) UK Stewardship Code 2020's definition to Stewardship
Performance
Impact Objective: Build and operate a diversified portfolio of Renewable
Energy Assets, mitigating the risk of losses through robust governance
structures, rigorous due diligence, risk analysis and asset optimisation
activities to deliver investment return resilience and the maximum amount of
green energy.
£1,304m 1,740GWh 36
Total value of sustainable investments - 100% investments committed into of potential annual renewable energy generation, 669MWh of which has and will Assets
renewables(32) be additional generation from construction assets(33)
Delivering the investment objective
The Board views the Impact Strategy as integral to the delivery of the core
investment objective, and not as a cost to the Company. ESG processes and
policies are a prudent risk management tool that improve the financial
performance of the Company while reducing risks. The ultimate aim is to
increase capacity to produce green power and maximise the green electrons
produced by the operational portfolio.
Integration into the investment cycle
Every investment the Company makes is assessed against our Performance, Planet
and People framework through an ESG scoring matrix. This ensures that our
investments adhere to ORIT's ESG Policy and minimum scoring threshold for
investment approval, which all transactions met in the year.
(35) Total asset value including total debt and equity commitments
(36) Metric calculated based on an estimated annual production of the
construction portfolio once fully constructed (excluding conditional
acquisitions).
The Investment Manager considers ESG risks at each stage of the investment
cycle through this ESG scoring matrix. It is used as a tool to drive ESG
engagement and ensure that ESG risks are promptly identified, appropriately
investigated, and carefully mitigated where necessary.
Materiality of risks included in the ESG matrix is determined using guidance
from the Sustainability Accounting Standards Board ("SASB") framework that
identifies financially material ESG risks by asset class. The ESG Risk Matrix
contains sections on Planet (environmental factors, such as biodiversity,
water and waste) and People (social and employee matters, human rights,
anti-corruption and anti-bribery matters). It aims to ensure that any
potential adverse impacts are mitigated such that the investment is
sustainable. At the post-completion stage, the Investment Manager carries out
an onboarding process to ensure that its Asset Management team continue to
oversee any residual ESG risks.
Anti-bribery and corruption
It is the Company's policy to conduct all of its business in an honest and
ethical manner. The Company takes a zero-tolerance approach to bribery and
corruption and is committed to acting professionally, fairly and with
integrity in all its business dealings and relationships wherever it operates.
Service Providers (including Directors of the Company):
1. Must not promise, offer, give, request, agree to receive or accept a
financial or other advantage in return for favourable treatment, to influence
a business outcome or to gain any business advantage on behalf of themselves
or of the Company.
2. Must follow all the anti-bribery and corruption laws to which the
Company and Company Directors/Service Providers are subject.
3. Are liable to disciplinary action, dismissal, legal proceedings and
possibly imprisonment if they are involved in bribery and corruption.
Appropriate action will be taken against those who fail to comply.
The Company has obtained a copy of the Investment Manager's, Company
Secretary's, Administrator's and Broker's anti-bribery policies and procedures
and is satisfied that these are adequate for the purposes of the Company. The
Investment Manager seeks to ensure asset level service providers have
appropriate policies in place and conduct due diligence as appropriate as part
of completing the ESG Matrix. Anti-bribery, equal opportunities, modern
slavery, whistle blowing policies and supplier code of conducts are all
reviewed as part of this process.
Further information in relation to Conflicts of Interest can be found within
the Corporate Governance Statement of the Annual Report.
Regulatory Disclosures
Task Force on Climate-related Financial Disclosures
ORIT is a supporter of the recommendations of the Task Force on
Climate-related Financial Disclosures. Whilst ORIT is not yet in scope to make
mandatory TCFD-aligned disclosures, the Company has voluntarily began to make
TCFD‑aligned disclosures as it believes that the effects of climate change
should become routinely considered in business and investment decisions.
The TCFD disclosures can be found in the Risk and Risk Management Statement
section of the Annual Report .
Sustainable Finance Disclosure Regulation ("SFDR")
ORIT is classified as an Article 9 product under the EU SFDR regulation.
Please refer to the Annual Report and to the ORIT website for ORIT's SFDR
disclosures.
Future regulatory disclosures
A number of other regulatory frameworks aimed at increasing transparency in
environmental and social factors are in development. This includes the
Taskforce for Nature Related Financial Disclosures ("TNFD"), the UK's
Sustainable Disclosure Requirements ("SDR") and the Task Force for Inequality
Related Financial Disclosures ("TIFD"). The Investment Manager is keeping up
with recent consultations and continues to evaluate likely impacts for ORIT's
investments. ORIT's Impact Strategy is already well positioned to support the
aims of the TNFD. The TNFD will provide a framework for corporates and
financial institutions to assess, manage and report on their dependencies and
impacts on nature's ecological services, helping redirect global financial
flows towards nature-positive outcomes. ORIT's existing consideration of
potential biodiversity impact and its desire to maximise biodiversity through
additional initiatives at its sites speaks clearly to ORIT's ambition to use
space intelligently to protect ecological services. ORIT's existing
partnership with SUGi exhibits how ORIT's goal of protecting biodiversity
extends beyond the borders of its sites.
The Company supports "anti-greenwashing" efforts and expects to start making
the necessary disclosures in relation to SDR from 30 June 2024. The Company
will assess the appropriate label to associate itself with once finalised (in
mid‑2023). Whilst the SDR and SFDR disclosures will need to be separate, we
expect the Company to be well positioned to start adopting the regime.
The Company is also aware of the UK Green Taxonomy disclosures. The UK
Government has established a Green Technical Advisory Group ("GTAG") to advise
on the development of the UK Green Taxonomy. Once developed it is likely that
SDR will take this into consideration.
Performance initiatives
Delivering investment performance is fundamental to the Impact Strategy, to
supporting the transition to net zero and to being an impact fund. Asset
optimisation initiatives and robust ESG risk management aim to improve
financial resilience and overall performance of the Company, maximising the
amount of green electricity the Company generates.
Projects
Our Investment Manager works with key partners to mitigate production risks
and maximise performance of ORIT's operational assets. Production losses are
investigated through a root cause analysis, delivering appropriate actions
that improve technical performance. This active management approach has
mitigated potential performance risks for ORIT over this period.
Project Outcome
Transformer and Inverter refurbishments: Application of an effective interim A refurbished module was creatively sourced through refurbishment of equipment
solution and a resourceful use of existing parts to reduce carbon footprint at a solar site where it was no longer required. This was utilised at
and CAPEX in context of high inflation and global supply chain constraints. Ottringham after an inverter module failure, avoiding a prolonged outage as
the manufacturer was unable to ship parts to the UK. Similarly, a transformer
at Ermine Street was refurbished whilst using a hired part in the interim to
ensure continued contribution of green electrons to the grid.
These actions successfully prevented months of business interruption at both
sites (4 months at Ottringham which is equivalent to a 6% loss of generation
and revenue, and 6 months at Ermine which is equivalent to 3% loss at
Ermine) and enabled the reduction of the sites' carbon footprint by minimising
waste materials and eliminating the need for copper extraction.
Sustainable Momentum
Innovative Drones: Using innovative drone technology, heat mapping of all the Early identification of stress areas allows the Investment Manager to ensure
UK solar sites was conducted to identify areas of stress on the solar panels that preventative measures are put in place to optimise performance of the
which can cause inefficiencies. modules and mitigate losses.
Innovation
Proactive Switchgear improvements: A proactive initiative to upgrade the This preventative measure reduces the health and safety risk associated with
switchgear across multiple sites is 42% complete, with the remaining potentially faulty switchgear and optimises the efficiency of generation.
58% scheduled for completion in Q1.
Equality and Wellbeing
Innovation
Settlement reached for Finnish Wind Foundations: successful negotiations with This settlement provides enhanced protection to the project SPV with not only
foundation contractor on warranty and bond cover for turbine foundations. the 5-year warranty expected on civil work, but an additional bond covering
the foundations for 8 years.
Stakeholder Engagement
Doubling wind: The Investment Manager strengthened ORIT's wind portfolio with ORIT has made a significant number of wind acquisitions over the period. The
wind acquisitions, construction management and operational management. number of operational wind sites on the ORIT portfolio has more than doubled
from last year, increasing from 4 sites to 9 resulting in a 348MW operational
wind portfolio.
Wind asset construction significantly progressed over the period. Turbines are
now erected at Cumberhead, with full operations expected end of March 2023.
ORIT entered the offshore wind market, with a minority stake in the 270MW
Lincs Wind Farm and expanded its geographical footprint managing 59MW of
operational wind farms in Poland.
Curtailment reduction at Leeskow wind farm: A proposal has been made to reduce The proposal has been made in response to the German government's policies to
curtailment on site in collaboration with the German authorities. strengthen energy security following the Ukraine invasion. The site is
expected to benefit from an increase in performance and therefore revenue once
the curtailment is lifted.
Stakeholder Engagement
Sustainable Momentum
PPA innovation: Creation of bespoke PPA structure for Saunamaa and Suolokangas The Investment Manager developed a bespoke PPA structure which enables hedging
onshore wind farms (Finland) and an innovative PPA structure for Ljungbyholm to take place periodically across the contract tenor, rather than having to
onshore wind farm (Sweden). decide whether or not to hedge at the point of contract signature. We estimate
that the bespoke PPA structure delivered a 16% uplift in the assets' 2022
fixed price revenues.
The Investment Manager originated and executed a corporate PPA with an
innovative structure for its Ljungbyholm wind farm. The structure allows the
asset to benefit from higher market prices while providing a degree of revenue
certainty. Compared with if Ljungbyholm had entered into a vanilla fixed price
corporate PPA, we estimate that this contract structure delivered a revenue
uplift across 2022 of 139%(34).
Innovation
(37) Calculated based on third-party estimates of Swedish onshore wind
CPPA prices at the time that Ljungbyholm's CPPA was signed.
Case Study:
Additionality with investment into Simply Blue Group
ORIT first invested in Simply Blue Group ("SBG") in August 2021 for a c.12%
stake and following the latest investment, ORIT's ownership interest in SBG
has increased to c.15.5%. The Company also agreed to provide a further
investment of up to €6.25 million which is expected to be drawn in 2023
which would increase ORIT's ownership interest to c.19%. SBG is the leading
developer for floating offshore wind. SBG's goal is to develop floating wind
projects that will make a valuable contribution to Europe's electricity
demand, making the most of the huge offshore wind potential there is across
the global oceans to help create a clean, sustainable future for everyone.
Offshore wind has become a favoured form of renewable energy generation. It is
expected to produce 7% - 11% of the EU's electricity demand by 2030. Up to 45%
of this energy is identified as coming from floating wind. Floating wind
foundations are normally used in deep waters where fixed foundations are no
longer economically feasible. Space for fixed foundations is scarce in many
countries (including the UK) as development of fixed wind projects has been
occurring for the last 15 years. Floating offshore sites also benefit from
high wind potentials allowing for greater wind energy production.
Investment into the development of these projects allows regions across Europe
to maximise the financial benefit of its strong offshore wind resources and to
generate long-term jobs for its local communities, while contributing to
European and the UK governments' net zero targets.
Since ORIT's investment, SBG has been able to make huge strides towards
harnessing the wind potential across Europe. With ORIT's initial investment in
August 2021, SBG was able to increase its specialist team by 50% and enter new
markets in Poland, Spain, Portugal, Sweden, Finland, and Italy. With a second
investment in November 2022 SBG was able to continue to grow its global
pipeline of projects to 10GW. More general support from the Investment Manager
has helped to develop SBG's capabilities and shape future decisions.
Additionality is a concept within renewable energy that refers to
organisations directly adding new capacity for renewable energy to the
national grid. Organisations can achieve additionality by committing to and
investing in green power generators in a way that allows them to fund new
renewable power generation(35)
(38) https://www.igniteenergy.co.uk/news/additionalityand-ppas
Impact tracker
Who? How much? What? Impact Theme
Environment 10 GW in pipeline Invested to receive a 15.5% stake in their business, helping them to drive Equality and
into new markets and grow the team.
(United Kingdom, 50% increase in team Wellbeing
Ireland, Sweden, 6 new markets Sustainable
US, Spain, Momentum
Portugal, Finland Stakeholder
and Italy) Engagement
Case Study:
Strengthening ORIT's Climate Resilience
Climate change and the effort to mitigate it is impacting every aspect of our
economy. Whilst renewable energy is a solution to help address climate change,
renewable energy sites and businesses are not themselves exempt from the
potential physical impacts of climate change. Climate change impacts can be
categorised as physical climate risks or transitional climate risks.
· Physical hazards can have immediate impacts, defined as "acute".
An example is severe weather event damaging infrastructure. Changes can also
develop over longer time horizons, defined as "chronic", and these impacts
vary in their intensity and frequency. An example is changing weather patterns
affecting long-term asset performance.
· Transitional climate risks are those relating to business risks
that follow societal and economic shifts toward a low‑carbon and more
climate-friendly future. Examples are changes in government policies and tax
to accelerate the transition to net zero.
As part of ORIT's TCFD disclosure requirements and a wider Investment
Manager-led exercise to better understand ORIT's climate change resilience,
the Investment Manager engaged on a joint project with one of ORIT's energy
market advisors, Baringa, to investigate the potential impacts of climate
change to renewable energy companies.
European countries boast favourable energy policies for renewable energy
projects. Alongside supporting financial mechanisms and leading technological
innovation, transition measures are opportunities rather than risks for
renewable energy companies. The financial risks and opportunities arising from
policy measures targeting mitigation of climate change, for example, high
CO(2) market price, low-carbon generation mix, are already accounted for in
the wholesale energy price curves of our advisors and therefore considered in
our asset valuations.
Physical impacts of climate change are less defined in these models for
different climate scenarios. In this project, Baringa were engaged to carry
out a scenario analysis research project on the financial impacts of physical
climate change impacts, with a particular focus on wind generators,
considering the potential impacts of (i) physical climate change on power
price and (ii) on generation.
(i) Physical climate impact on power price:
The study concluded that the impact of physical changes in climate on
long-term EU power price forecasts is relatively small compared to other
drivers of power price.
Physical changes in climate may impact power price by affecting energy
production and consumption. For example, an increase in precipitation and
temperature in the UK may affect the energy demand for heating and the
efficiency of certain energy generation technologies. Whilst these impacts are
possible, the overall direction of impact remains uncertain with both upward
and downward potential impacts on power prices. Power prices can also be
impacted by other factors such as commodity prices for natural gas and CO(2)
emissions allowances.
To understand the relative significance of climate change as a driver of power
price, Baringa compared the impact of year-to-year variations in weather with
the impact of projected changes in commodity prices to power market revenues.
Baringa created economic models for Poland, France, Great Britain and Ireland
to investigate this further. The results show that in 2035, commodity prices
impact annual revenue +/- 32% compared to year-to-year variations in weather
having a +/- 5% impact on annual revenue.
By 2050, the impact of commodity prices is reduced to +/- 9%, whereas the
growing share of weather-dependent generation has increased the impact of
weather to +/- 12%. This means that in the long-term, power price is not
driven directly by the gas price but by the cost of the renewable generation
that replaces it.
Considering the lifetime of ORIT's assets, the most material drivers on power
price remain the commodity prices that are already considered in existing
power price curves and our valuation models. Further consideration of this
risk should be evaluated when assessing extending the life of assets or
investment decisions in future years where asset lives push beyond 2050 where
physical climate risks could have a more material impact on forecast power
prices.
(ii) Physical climate impact on generation:
Given the immaterial overall impact of climate on forecast power prices, the
main factor to consider that could have a material financial impact within
ORIT's own investments is asset generation P50 assumptions that are used in
valuations. Baringa used climate models to quantify the expected changes in
average annual yield for GB and EU wind.(36)
Method:
· 11 combinations of climate models (using a mixture of both
regional climate and global circulation models)
· 3 combinations of climate models
· Time horizon: 1990 to 2050
· Scenario comparison: RCP2.6 vs RCP8.5
· @100m altitude, 3hr temporal granularity
(39) RCP refers to the Representative Concentration Pathway - a
greenhouse gas concentration (not emissions) trajectory adopted by the IPCC
Results
Finding 1:
· In Great Britain there is no trend in wind speed, either upwards
or downwards, indicating rapidity of climate change is not a driving trend.
· Power yield - assuming a cubed relationship between wind speed
and yield - confirms the stable outlook projected in the IPCC Special Report
of +/-7%
· Similar results found in other EU countries.
Results
Finding 2:
· The number of years with significantly higher and lower yields
than normal increases in the future projections, meaning that the variability
of annual output for wind generation is expected to increase
· With a stable average output, there is no direct financial impact
of this observation Similar results found in other EU countries.
High Level Conclusion: There is a risk that variability may impact in-year
generation and ability to capture price forecasts. This may result in
overperformance and underperformance over short-term time horizons. However,
average annual wind generator yield is not negatively impacted by climate
change in a way that is material to the valuation of wind generation assets in
the countries where the fund operates. Therefore, current valuation methods
based on historical P50s are still a good predictor of long-term production
and continue to be valid.
The disclosure of financial risks and opportunities relating to climate change
form part of ORIT's TCFD disclosures in the Annual Report .
UN SDG specific contributions
9. Industry, Innovation and Infrastructure
9.2 & 9.4 - Promote sustainable industrialization and upgrade/ retrofit
infrastructure to make them sustainable:
Investment into development, operational and construction assets have helped
support jobs. Site upgrades and works have significantly reduced production
losses, actively supporting the production of more green power and helping
ORIT's assets perform more efficiently.
13. Climate Action
13.1 - Strengthen resilience and adaptive capacity to climate related hazards
and natural disasters:
Technical due diligence carried out on all new investments. Biodiversity and
habitat management plans proposed for most sites as planning requirement.
Physical climate change risks considered and mitigated (e.g. flood risk
mitigation strategy) and transition risks forecasted (e.g. low power price
scenarios).
17. Partnership for the Goals
17.17 - Encourage and promote effective partnerships, building on the
experience and resourcing strategies of partnerships:
Shared knowledge with key counterparties to ensure continued compliance with
the ESG policy and drive improvements to ESG land management practices.
www.un.org/sustainabledevelopment/
Planet
Impact Objective: Consider environmental factors to mitigate risks associated
with the construction and operation of assets, enhancing environmental
potential where possible.
580k 8.48t 886t
Equivalent tCO(2) avoided(37) CO(2)e per MW estimated carbon intensity (direct and indirect) CO(2)e emissions offset (all direct emissions)
100% 87% 0
investments qualify as sustainable in line with EU Taxonomy(38) Generating sites on renewable import tariffs Environmental incidents
Maximise our positive environmental impact
ORIT recognises the critical role that renewable energy plays in meeting net
zero emissions targets, with an inherently positive impact on the environment.
Investing in Renewable Energy Assets enables investors to engage with and
generate returns from this transition to a cleaner future and directly support
climate change ambitions.
On admission to the London Stock Exchange ("LSE"), ORIT was awarded the LSE's
Green Economy Mark, recognising the Company as a significant contributor to
the transition to a zero-carbon economy. The Green Economy Mark identifies
London-listed companies and funds that generate between 50% and 100% of total
annual revenues from products and services that contribute to the global green
economy.
(40) Metrics based on an estimated annual production of the whole
portfolio once fully constructed. Carbon avoided is calculated using the
International Financial Institution's approach for harmonised GHG accounting.
(41) 100% of investments are significantly contributing to climate
change mitigation.
Whilst the Company's positive contribution has been recognised, ORIT commits
to being transparent, measuring and reporting both positive and negative
impacts on the planet. By reflecting on potential negative impacts rather than
ignoring them, the Company can create meaningful targets for improvement and
maximise the positive impact of investments. As part of this approach, ORIT
will review and adopt relevant industry standards alongside initiatives to
reduce its own carbon footprint.
Carbon measurement and reporting
Electricity generated by wind and solar resources prevents harmful emissions
from other sources such as coal powered electricity. However, there are still
emissions incurred in the manufacturing and transportation of the solar panels
and wind turbines through the supply chain.
In 2022 the Investment Manager on behalf of the Company engaged with
Altruistiq to help calculate and validate the Greenhouse Gas ("GHG") emissions
footprint for ORIT.
The Company has quantified and reported organisational GHG emissions in
alignment with the World Resources Institute's Greenhouse Gas Protocol
'Corporate Accounting and Reporting Standard' and 'Corporate Value Chain
(Scope 3) Standard'. This approach consolidates the organisational boundary
according to the operational control approach. The GHG sources that
constituted the Company's operational boundary for the reporting year are:
· Scope 1: No relevant emissions sources apart from fugitive
emissions
· Scope 2: Purchased electricity - market-based
· Scope 3: Purchased Goods and Services, Investments, Business
Travel, Waste and Fuel-and-Energy-Related Activities ("FERA")
Given the nature of the Company, ORIT's Scope 1 emissions are negligible.
Scope 2 emissions account for 11.27% of ORIT's total emissions footprint. The
majority of the Scope 2 emissions come from one single asset (Kuslin wind
farm) that was consuming large amounts of electricity as a result of ongoing
construction that was finished in August(39). Kuslin's contribution to Scope 2
emissions is compounded by the carbon intensive nature of the Polish grid. Now
operational, Kuslin will consume less electricity and will help reduce the
carbon intensity of the grid through the provision of green electrons. ORIT
has offset its direct Scope 1 and Scope 2 emissions. See the Annual Report for
more details.
Scope Emissions (t CO(2)e) % of Total
1 - Direct Emissions (fugitive emissions) 0.59 0.01%
2 - Indirect Emissions (Purchased electricity - market-based)(40) 885.24 11.27%
The Scope 3 Categories that were identified and calculated account for 88.72%
of the total emissions footprint:
Scope 3 Category Emissions (t CO(2)e) % of Total
Fuel & Energy Related Activities 3,730.9 47.5
Purchased Goods and Services 1,823.6 23.2
Business Travel 761.4 9.7
Investments 648.0 8.3
Waste 4.0 0.1
Absolute emissions for ORIT will continue to increase as it invests into more
assets. The increase in "Fuel and Energy Related Activities" category is a
result of the stationary combustion required during the period to power
construction-related equipment at ORIT's construction assets.
ORIT's overall carbon intensity was calculated to be 8.48 tCO(2)e per MW.
ORIT's weighted average carbon intensity ("WACI") for the period was
calculated to be 11.52 tCO(2)e/£m revenue(41).
(42 ) Kuslin's electricity consumption contributes to 91% of the
Scope 2 emissions (10.2% of ORIT's overall footprint).
(43) A market-based approach was used to calculate purchased
electricity emissions and this is the figure reported as Scope 2.
Location-based purchased electricity emissions were calculated to be 1,026.9t
CO(2)e. Total energy consumption for Scope 2 was calculated to be 4,293MWh.
(44) A market-based approach as used to calculate the WACI. The WACI
using a location-based approach is equal to 15.65 tCO(2)e/£m revenue.
The following table separates ORIT's carbon emissions into UK and non-UK based
emissions in line with the Streamlined Energy and Carbon Reporting framework
("SECR").
2022 2021 2020
UK Emissions Non-UK Emissions UK Emissions Non-UK Emissions UK Emissions Non-UK Emissions
Scope 1 (tCO(2)e) 0.0 0.6 0.0 0.0 0.0 0.0
Scope 2 Market based (tCO(2)e) 0 885.2 0.0 5.0 0.0 18.5
Location based (tCO(2)e) 190.4 836.5 192.2 62.4 220.0 68.1
Energy consumption (MWh) 1,568.4 2,724.9 905.2 1,150.5 943.6 1,287.9
Scope 3 (tCO(2)e) 5,706.4 1,261.4 710.9 1,500.7 1,209.2 1,561.3
ORIT recognises the challenges in measuring its GHG emissions for all sites
and activities.
· Quality and availability of data collected for conversion
calculations can significantly impact accuracy of final emissions output. For
example, during the period the availability of data relating to Scope 3
category "Purchased goods and services" was low.
· The specificity of the emission factors used to convert data into
related emissions can also impact validity of final emissions output.
The Investment Manager has disclosed the different categories of data points
used to calculate the Company's carbon footprint to transparently convey both
the quality and accuracy of the carbon footprint reported.
The investment manager defines the different data points used as:
1) "Real data"
a. "Actual activity data". This is real activity data received directly
from counterparties on activities. undertaken during the period, for example,
litres of fuel used for transport.
b. "Actual spend data". Real spend data received, for example, money spent
on fuel use for transport.
2) "Estimated activity data". Estimated activity data received directly
from counterparties on activities undertaken during the period, for example
estimated litres of fuel used for transport.
3) "Proxy data". This is data calculated by applying intensity metrics
calculated from other similar solar or wind sites.
a. "Proxy activity data". For example, litres of fuel used for transport
calculated by use of an intensity metric for fuel use from another site.
b. "Proxy spend data". For example, money spent on fuel use for transport
calculated by use of an intensity metric for money spent from another site.
The table below shows the split between the defined categories of data:
Real data Estimated activity data Proxy data
(22.5% total) (52.5% total) (25% total)
Actual activity data = 18.9% 52.5% Proxy activity data = 8%
Actual spend data = 3.6% Proxy spend data = 17%
Quality of data provided
22.5% of total data used to calculate the carbon footprint of ORIT was "real
data". The Investment Manager has high confidence in the quality of the
estimated activity data given the extensive engagement undertaken with ORIT's
suppliers to understand how the estimates were finalised. Consequently,
together with real data, the investment manager has a high confidence in 75%
of the data points provided.
The remaining 25% of the data points were provided as proxy data calculated
from intensity metrics from other similar sites. Whilst a recognised approach,
assets of a similar size and the same phase can still have large differences
in the scale of its operations. Consequently, the Investment Manager has low
confidence in the quality of the proxy data used to calculate these emissions.
There is higher confidence in the quality of data for Scope 1 and Scope 2
emission figures compared to the Company's indirect Scope 3 emissions that
arise primarily from the Company's supply chain. One of the considerable
challenges facing every industry and business is the visibility and
quantification of supply chain emissions, which may require transparency
across different regions and countries. Given the difficulties to capture all
emissions, the Investment Manager is pursuing a more iterative approach to
improve the accuracy of its Scope 3 reporting by collecting more granular and
accurate data for emission hotspots. The Investment Manager will continue to
develop and refine the methodology to capture these emissions working with
external asset managers and O&M contractors and reduce the reliance on
estimated activity data and proxy data. Improved data quality is likely to
impact the share of categories in Scope 3. However, it is expected the split
of proportions between Scope 1, 2 and 3 will remain largely similar.
Accuracy of carbon conversions
There are also differences in the levels of confidence held in the accuracy of
carbon emission factors, specifically between the conversion factors used on
activity-based data and spend-based data. Spend-to-emission conversion factors
are considered to be least accurate and as the Investment Manager determined,
the least conservative. (See below case study for more information).
During the period 20.6% of total data was spend based data. This included both
real spend data and proxy spend data.
Case study comparing activity-data and spend-data
The Investment Manager compared two different approaches for calculating Scope
3 emissions to determine which was the most accurate and most conservative.
· The first approach (the "activity first based approach")
considered all activity data first before resorting to spend data for
activities where activity data was not available. Activity data used emission
factors specific to the stated activity to calculate emissions and the
residual spend data used spend-to-emission factors.
· The second approach (the "spend-based only approach") only
considered the spend data provided from the asset's financial year end
accounts and used spend-to-emission conversion factors.
It was found that there was significant variation between the two approaches
across all sites, with a trend of the spend‑based approach under-reporting
emissions compared to the activity-based approach. The Investment Manager
determined that Scope 3 emissions should be reported in line with the activity
first-based approach rather than the spend‑based approach. This conclusion
was made because of the lack of specific spend-to-emission conversion factors
that likely impacted accuracy of the conversions and the lower total emissions
calculated under a spend-based approach that suggested it was the least
conservative approach.
The Investment Manager will continue to engage with external asset managers
and O&M contractors and reduce the reliance on spend data.
Carbon reduction
As the ORIT portfolio grows, it is the Company's aim to reduce its emissions
through stakeholder engagement and proactive management of its assets,
especially for sites under construction.
The carbon intensity metric reported for ORIT has increased since last period
but remains in line with the reported intensity of 2020.
2022 2021 2020
8.48 tCO(2)/MW 5.23 tCO(2)/MW 9.6 tCO(2)/MW
These changes are dependent on factors such as the operational and
construction split of assets, whereby construction assets typically display
higher carbon footprints than operational assets. The increase in carbon
intensity from last year can be attributed to the higher proportion of
construction assets held by ORIT throughout the year compared to last year. It
is also important to note that even within construction projects of a similar
size, there may be still large variations in related carbon emissions. Factors
such as foundation type, location and supplier can have very significant
implications on an asset's footprint.
Carbon offsetting
Whilst carbon reduction remains the priority in ORIT's carbon strategy, ORIT
does still commit to offsetting any residual direct emissions relating to its
Scope 1 and 2 emissions.
The Company's chosen route for offsetting is through the purchase of verified
carbon units. ORIT's direct emissions were much higher in 2022 compared to
previous years given the high electricity consumption at Kuslin wind farm and
the high carbon intensity of the Polish grid.
This year, ORIT has purchased a total of 886 carbon units. This is equivalent
to offsetting ORIT's Scope 1 and Scope 2 emissions of 885.24 tonnes of CO(2).
Securing ORIT's future carbon offsets
ORIT has purchased 400 tonnes worth of carbon in "Pending Issuance Units".
These units have been secured both to future-proof ORIT's carbon units in
light of increasing prices and low availability of "Woodland Carbon Units" and
also to support new woodland creation in the UK.
A Woodland Carbon Unit ("WCU") is a tonne of CO(2)e which has been sequestered
in a Woodland Carbon Code-verified woodland. It has been independently
verified, is guaranteed to be there, and can be used by companies to report
against emissions or to use in claims of carbon neutrality or Net Zero
emissions.
A Pending Issuance Unit ("PIU") is effectively a 'promise to deliver' a
Woodland Carbon Unit in future, based on predicted sequestration. It is not
'guaranteed' and cannot be used to report against UK-based emissions until
verified. However, it allows companies to plan to compensate for future
emissions or make credible statements in support of woodland creation.
Supporting the planting of new UK woodland helps plant new trees today, but
these woodlands do not deliver "offset" credits immediately. Only once the
woodland biomass has grown sufficiently will its carbon credits be verified
and converted from ex-ante PIUs to ex-post WCUs. Only then can only then be
used as official offsets.
In recognition of the carbon impact of ORIT's operations, ORIT has decided to
invest in a UK woodland carbon project that will capture 400 tonnes worth of
CO(2) over the next 32 years. The units are derived from a "Forest Carbon"
project in Acheilidh, Tain, Highlands. The new native broadleaf woodland is
expected to deliver all 400 tonnes of carbon by 2055 and 75% of its carbon
units by 2050. It is expected that Scope 2 emissions will significantly reduce
next period, as the Investment Manager ensures renewable energy tariffs for
ORIT's assets. Given ORIT's projected low annual direct carbon emissions, the
Board expect these 400 units to help ORIT's Scope 1 and Scope 2 emissions to
meet a 2050 net zero target. The Board will reassess if the purchase of
additional PIUs will be necessary on a year-to-year basis.
The growing trees will also provide wider co-benefits beyond climate
mitigation, including water quality improvements, habitat creation,
employment, and cleaner air. Through ORIT's support for UK woodland creation,
the Company is helping the country to meet its long-term international climate
targets in a way that also benefits wider society.
EU Taxonomy for Sustainable Finance
The EU Taxonomy is a classification system for sustainable activities designed
to help investors identify "green" environmentally friendly activities. This
is aimed to demonstrate investments that are sustainable; ones that make a
substantial contribution to climate change mitigation or adaptation, while
avoiding significant harm to other environmental objectives and complying with
minimum safeguarding standards.
An initial analysis of ORIT's investments against the EU taxonomy
classification suggests that 100% of assets directly contribute to or enable
climate change mitigation.
· All of ORIT's operational and construction portfolio directly
contribute to climate change mitigation according to the EU Taxonomy's
criteria; "Construction or operation of electricity generation facilities that
produce electricity from wind power or from using solar photovoltaic (PV)
technology."
· ORIT's investments into development platforms and development
projects (investments into Simply Blue, NorGen and Wind2 pipelines) are
considered enabling activities under the regulation. They contribute to the
"Installation, maintenance and repair of renewable energy technologies"
through their provision of architectural services, engineering services,
drafting services, building inspection services and surveying and mapping
services involved in the development of their renewable energy projects.
The Investment Manager has undertaken due diligence to confirm that all of
ORIT's investments are in line with the "Do No Significant Harm" ("DNSH")
technical screening criteria for Climate Change Adaptation, Circular Economy,
and Biodiversity. This due diligence is part of the minimum requirements
criteria set out in the ESG scoring matrix. Environmental objectives for Water
and Pollution Prevention were categorised as not applicable under the EU
Taxonomy criteria for ORIT's investments.
Climate Change Adaptation
Under the criteria for DNSH to climate adaptation, investee companies are
required to identify their material climate risks by performing a climate risk
and vulnerability assessment. Companies are also encouraged to create
adaptation plans which identify solutions, prioritising those that mitigate
the most material risks. ORIT's approach to climate risks is laid out in its
TCFD disclosure in the Annual Report .
None of the adaptation solutions implemented or proposed would be expected to
adversely affect the adaptation efforts or the level of resilience to physical
climate risks of other people, of nature, of cultural heritage, of assets and
of other economic activities. The adaptation solutions are also not expected
to conflict with local, sectoral, regional or national adaptation strategies
and plans. Overall, the renewable energy generated via ORIT's investments is
expected to positively contribute to these adaptation strategies and plans
through increased clean energy use and decreased reliance on emissions-based
electricity generation.
Biodiversity
Under the criteria for DNSH to biodiversity, investee companies are required
to demonstrate protection and restoration of biodiversity and ecosystems. This
involves confirmation that; an environmental impact assessment or screening
has been completed, that required mitigation and compensation measures
suggested have been implemented and, for areas located in or near biodiversity
sensitive areas, that an appropriate assessment and mitigation plan has been
conducted with necessary mitigations implemented.
Where applicable, all of ORIT's investments adhere to this criteria. ORIT
considers potential adverse impact on biodiversity as a key ESG risk during
the investment cycle, and projects are required to evidence environmental
screening, an impact assessment and a habitat management plan to pass minimum
ESG criteria. The Investment Manager works closely with ORIT's asset managers
to improve the biodiversity capital of its sites, for example through the
development of best guidance criteria for land management and also the
delivery of additional biodiversity initiatives that go above the proposed
mitigation measures (e.g., wildflower meadows and pond formation).
Circular Economy
The lifetime of ORIT's investments is expected to be long (average lifetime of
assets in the portfolio is 29 years). It is typical for renewable energy
projects to have a decommissioning plan in place that encompasses the disposal
and recycling of the waste materials. Many of ORIT's assets' materials can
already be re-used and recycled using current technologies.
For example, the materials that represent the biggest part by weight of a wind
turbine are concrete, steel, and other metals. Concrete can be crushed into
aggregate and re-used in-construction projects. The steel and other metals in
wind turbines are recyclable and can be re-used domestically within Europe.
Whilst ORIT's investments already align with the generic criteria for DNSH to
the transition to circular economy, we do expect the recyclability of these
parts to increase over the coming years as more research is conducted on the
sustainable disposal of renewable energy technologies.
The Investment Manager can also confirm that all investments are in line with
the minimum safeguards criteria.
The energy sector (like every other sector) could be subject to human rights
abuse that needs to be mitigated and the Investment Manager ensures
appropriate due diligence is performed, and that human rights, equality,
anti-bribery and corruption, taxation, and fair competition policies and/or
processes are in place for portfolio companies and service providers alongside
the Investment Manager's own policies and processes. This ensures that
investments are aligned with the OECD Guidelines for Multinational Enterprises
and the UN Guiding Principles on Business and Human Rights, including the
principles and rights set out in the eight fundamental conventions identified
in the Declaration of the International Labour Organisation on fundamental
Principles and Rights at Work and the International Bill of Human Rights. This
is primarily achieved by only working with suppliers who align to a supplier
code of conduct.
All of ORIT's investee companies align to a supplier code of conduct and we
can confirm for each investee company that:
· there is no clear indication that the investee company does not
adequately implement human rights due diligence resulting in human rights
abuses (the Company nor its top management has not been convicted on a breach
of human rights due diligence laws, the Company has not been approached by an
OECD NCP or been involved in an allegation on the Business and Human Rights
Resource Centre digital platform).
· the Company has not been finally convicted for tax evasion or for
breaking competition laws.
· the senior management of investee companies have not been finally
convicted of bribery.
Alignment Overview:
Revenues £111.5m 100% Aligned 0% Not Aligned 0% Not Eligible
CapEx £209.7m 100% Aligned 0% Not Aligned 0% Not Eligible
OpEx £35.0m 100% Aligned 0% Not Aligned 0% Not Eligible
Planet initiatives
Maximising the Company's positive contribution to the environment is core to
the Impact Strategy. Planet initiatives contribute to solutions to combat
climate change. Projects undertaken in the period are outlined in the table
below.
Project Outcome
Land Management: Enhanced engagement with Landowners as well as Asset Managers A key focus area that the Investment Manager tasked the Asset Manager of the
and Operations & Maintenance (O&M) contractors to ensure continued UK solar sites with was the enhancement of their engagement with the
improvements to ESG land management practices. Landowners of ORIT's sites. Improved Stakeholder management with the
Landowners has many benefits including; the avoidance of lease issues, access
to local knowledge of the site for management, the promotion of local economy
and jobs through their involvement in site management and also increased
landowner engagement on the biodiversity enhancement projects that ORIT
proposes. Please see case study for more information.
Stakeholder Engagement
Rewilding: Continued partnership with SUGi, an organisation that "brings Following on from 2 successful projects in 2021, ORIT has funded another
people closer to nature" by planting richly biodiverse pocket forests. More pocket forest in France (Agora Forest), and a further two in Cornwall
information on ORIT's partnership can be found here: bringing ORIT's pocket forests to a total of 5. Please see case study for more
https://www.sugiproject.com/partnerships/octopus-renewables information.
Sustainable Momentum
Stakeholder Management
Innovation
Conservation and local youth partnership: Ecologist company in charge of In September, an educational and biodiversity programme started at ORIT's
ORIT's solar farm's reptilian shelters partnered with a local youth French Solar site, Cuges‑les-Pins in partnership with AGIR ecologique (the
organisation to teach them about biodiversity. organisation currently responsible for the maintenance of the 5 reptile
shelters on site) and ADDAP13 (an association focused on economic integration
of excluded young people into society). Cuges-des-pins has 5 reptilian
shelters.
The local youth association ADDAP13 volunteered some of its members to learn
about and participate in the maintenance of the reptile shelters. A group
(6 teenagers and 2 supervisors) accompanied a member of AGIR écologique to
refurbish the reptile shelters and the plant 30 shrubs on site. ORIT plans to
continue to volunteer its sites for these types of educative experiences on
biodiversity conservation management.
Innovation
Case Study:
Propagating pocket forests with SUGi
The Investment Manager continues to develop its partnership with SUGi to plant
pocket forests across Europe and the UK. SUGi helps deliver ecological
restoration projects around the world. SUGi "Forest Makers" follow a Japanese
technique called the Miyawaki Method to create ultra-dense, biodiverse forests
of native species. SUGi has a strong community focus, involving organisations,
schools and communities in the planting and maintenance of the projects. Their
biophilic approach brings nature closer to people, helping to educate
communities of the importance of biodiversity and inspiring the next
generation to take a more active stance in its restoration.
ORIT has now planted a total of 5 pocket forests made up of 63 different
species of trees across the UK and in France. With over 7,725 new trees
planted, ORIT is making significant contributions in restoring biodiversity in
these biodiversity‑barren areas. Through this initiative ORIT is channelling
capital into nature related projects and ensuring that opportunities are taken
to use space more intelligently to maximise ecological benefit.
This case study re-visits some of the forests planted last year (Castle Green
Forest II, UK and Rion Des Landes College, France) and introduces the new
"Agora" pocket forest planted in Bezange-La-Petite in France and the two
pocket forests planted in Cornwall, UK.
Castle Green Forest II Project:
An urban forest to mitigate pollution and bring biodiversity
1,400 400 24 160cm
Trees Square meters Native species Average of tallest 3 trees
Field Notes
"This forest is doing well at 1 years old, having adapted well to the exposed
conditions in the park, and is bringing a visible change to this former
biodiversity desert. The sounds of bugs and birds can be heard as you stand by
the forest, a welcome counterbalance to the busy traffic of the Ripple road
nearby."
Rion Des Landes College Project:
Cultivating greenery and tranquillity for children in a treeless environment.
600 200 29 125cm
Trees Square meters Native species Average of tallest 3 trees
Field Notes
This forest is thriving at 1 year old - both in terms of its growth and its
impact on the Rion des Landes College community. The pocket forest has an
exceptional survival rate of 98%, particularly considering the summer heatwave
and drought of this year. The tallest species is currently the chestnut tree
(Castanea sativa). Flat mushrooms are growing around one of the hazeltrees
(Corylus avellana), a sign of important initial fungal colonisation in the
soil. 180 children at the school have been involved in the maintenance of the
forest.
Agora Forest, Bezange-La-Petitie:
Reviving a pocket in a vast sea of agriculture.
The Agora Forest was planted over 3 days on the edge of Bezange-La-Petite,
reviving a pocket of land that had become a biodiversity desert surrounded by
intensively-managed agricultural land.
4,500 trees were planted over 1,500 sqm, involving 180 local volunteers of
which 115 were children. It was a true 'community' planting; volunteers of all
ages attended. Many local families got involved, as did the local school who
sent four classes out to plant. There was a BBQ and hot drinks organised by a
local team, which contributed to the community feel and made it a particularly
joyful event.
30 native species were planted including the small-leaved lime (Tilia
cordata), field maple (Acer campestre) and silver birch (Betula pendula).
Agora Forest will be a vibrant community hub; including pathways and seating
areas so that locals, young and old, can socialise, learn and enjoy the
restorative benefits of nature. Agora Forest aims to set an example for other
communities in the region, both urban and rural, highlighting the immense
environmental, health, social and wellbeing benefits of such a project.
Trevisker Forest and St Kew's Forest, Cornwall:
Restoring endangered temperate rainforests.
Trevisker Forest and St Kew's Forest will provide outdoor classrooms for the
children of Trevisker and St Kew's Primary, small schools in rural Cornwall.
The projects create critical pockets of temperate rainforest, a now fragmented
and rare ecosystem that once predominated along the west coast of the UK. It
thrived thanks to the Gulf Stream, which provides mild, damp conditions that
are ideal for rainforest biodiversity to flourish. These forests will forge a
connection between hundreds of school children and nature, supporting their
wellbeing along with that of the planet.
1,225 trees were planted over 350 sqm, involving 180 local children from the
schools. It was a great hands-on opportunity for the school children to learn
more about plant growth and the benefits they provide to human communities.
Impact tracking
Who? How much? What? Impact Theme
1 Planet 5 forests 63 native species planted using the Miyawaki method Sustainable momentum
London, UK 495 children Pollution mitigation Innovation
Cornwall, UK 7,725 trees Biodiversity enhancement Stakeholder Engagement
Rion Des Landes, France 2,450 square meters Education
Bezange-La-Petite, France
Case Study:
Stakeholder Management Landowner case study
The Investment Manager treats maintaining good Landowner relationships on
sites under their management as a top priority. As ORIT's Asset Managers to
its UK solar portfolio, Quintas Energy's Land & Property team have been
tasked with enhancing Landowner engagement on sites in 2022. The objective of
this engagement was to improve communication between site stakeholders, to
benefit from Landowner's local knowledge for site management and to engage
them on upcoming biodiversity enhancement schemes.
We are pleased to report that Quintas have successfully established working
relationships with the landowners on ORIT sites, including Penhale, Chisbon,
Wiggin Hill, Ottringham and Ermine Street. Several site meetings with the
landowners have been conducted through the course of the year with positive
results. A good example of successfully enhancing the relationship with the
Landowner is Chisbon. Quintas have had two formal meetings with the Landowner
followed by phone calls and email exchanges. The Landowner has permitted bees
to be located on site, assisting with appropriately locating the hives and now
in 2023, wishes to become involved in further biodiversity enhancement
projects. As the landowner is also the grounds maintenance contractor on the
site, he will be key in ensuring the management and future success of site
initiatives. The benefits of having a working partnership with Landowners are
plentiful enabling "multi-use" of sites and this has been fostered through
dedicated resource as part of the ORIT's fund daily asset management service.
Who? How much? What? Impact Theme
ORIT Landowners 5 solar sites Enhanced Stakeholder
Landowner Engagement
relationship and
improved site
management
UN SDG specific contributions
www.un.org/sustainabledevelopment/
7 Affordable and clean energy 7. Affordable and clean energy
7.2 & 7a - Increase renewable energy in the mix and stimulate investments
into the renewable sector:
Provided renewable energy to the grid and provided renewable investment
opportunities. Construction underway to add renewable energy capacity.
12 Responsible Consumption and Production 12. Responsible Consumption & Production
2.4 & 12.2 - Promote proportion of areas under sustainable agricultural
practices and promote sustainable management and efficient use of natural
resources:
Partnerships with landowners, local beekeepers and local shepherds to take
advantage of the empty spaces of solar farms for their agricultural use and to
optimize biodiversity on site.
15 Life on Land 15. Life on Land
15.1 & 15.5 Conserve ecosystems and threatened species and take action to
reduce the loss of biodiversity and degradation of habitats:
Threatened and non-threatened species monitored through ecological surveys and
biodiversity plans. Additional biodiversity initiatives implemented beyond
planning requirement. Biodiverse pocket forests planted in partnership with
SUGi to restore native biodiversity in urban areas and biodiversity-barren
areas.
www.un.org/sustainabledevelopment/
People
Impact Objective: Evaluate social considerations to mitigate risks and promote
a 'Just Transition' to clean energy.
396 7,536 1
Students benefitting from social initiatives direct beneficiaries from the projects funded through the BizGive platform. RIDDORS (or equivalent)
Managing our impact on society
Investing in renewable energy has natural positive impacts on people and for
the wider society by benefitting the economy. By channelling capital towards
"homegrown renewables" ORIT is also contributing to energy security,
preventing future energy crises resulting from reliance on unsustainable
global fossil fuel markets.
It is also vital the Company mitigates any possible negative impacts and risks
to people as the Company invests, constructs, and operates our portfolio of
renewable assets. ORIT has clear policies and governance structures to achieve
this. Some social factors that ORIT and our Investment Manager consider to be
the most important during due diligence and ongoing monitoring of assets
include:
· Health and safety
· Social licence
· Local employment
· Diversity and inclusion
Health and Safety Approach
ORIT recognises its health and safety responsibilities and keeping people safe
remains its highest priority. ORIT has put arrangements in place with its
Investment Manager to ensure that health and safety risks are managed
effectively.
Our Investment Manager employs specialist HSE consultants and additionally has
employed a Head of Health and Safety to ensure that health and safety
procedures are embedded into our model of investing and managing assets.
This integration is achieved through:
· Technical Compliance Standards
· Diligence and benchmarking of contractors
· Audits and ongoing oversight
· Continuous Improvement
Our Investment Manager actively tracks and monitors various accident and
incident classifications from events where there is a statutory requirement to
report to the UK Health & Safety Executive (RIDDORs) or other local
government bodies. This includes incidents classified as accidents, near
misses, dangerous occurrences, and general safety observations.
RIDDORs Lost time injuries Near misses Personal injuries Minor equipment damage incidents
(>7 days)
1 0 12 2 11
In the period of this annual report, there were zero lost time injuries (>
7 days), two personal injuries and one RIDDOR across the portfolio. The first
personal injury related to an operative working on the Cumberhead wind
construction site in Scotland using a remote-control crane who tripped on a
load awaiting lifting and cut his knee. The injury was minor and was first aid
treated on site and he returned to work.
The second personal injury related to an operative working on the Lincs
offshore wind project (in which ORIT holds a minority stake). The injured
party was working on a turbine, caught his foot and fell, cutting his knee.
The injury was minor, and the affected person was able to return to work. The
RIDDOR related to the statutory reporting of a 'dangerous occurrence'; an
electrical fire caused by a short-circuit in an inverter leading to the
generating station Abbots Ripton Solar Farm to come offline for >24h.
Nobody was hurt and there has been no follow-up from the HSE.
Furthermore, there were 12 near misses, 11 incidents causing minor equipment
damage only and 0 environmental incidents. All incidents have been
satisfactorily closed out and where appropriate lessons learned. Each incident
generated an incident report which was audited and closed by the appropriate
director.
Promoting a "Just Transition"
Just Transition refers to the movement that encourages wider and fairer
distribution of benefits as the world switches to clean energy.
ORIT actively engages with local communities, workers and customers and
favours investments where there are opportunities to give fair access to
affordable green energy, to share benefits with the community and to create
local jobs. ORIT aims to give local communities a voice on projects in support
of creating a Just Transition.
Workers - Job Creation
ORIT's partners and subcontractors commit to standards promoting equal
opportunities, ensuring workplace best practice standards are upheld and
encouraging diversity and inclusion. By doing so, ORIT aims to increase social
economic distribution and equity throughout the job opportunities it creates.
The Investment Manager engages key counterparties to understand what schemes
they already have in place, and encourages the use of local labour (roughly
within 30km radii of sites) on construction sites.
Community - Engagement and giving a voice
ORIT has committed to demonstrating a tangible benefit to the local
communities of each of its portfolios. The Investment Manager is exploring
other ways to give communities nearby a say in the transition. This may be
through sharing profits via community benefit schemes, creating educational
opportunities for local schools via workshops and site visits or providing
funding for local charities that are fulfilling a need in the local area. As
the portfolio continues to grow, ORIT's impact partnerships will help ORIT
reach and create lasting impact for a broader range of beneficiaries.
Applicability of community initiatives will be determined on a
portfolio-by-portfolio basis. By engaging communities and local stakeholders
early on, ORIT is also ensuring that social licence is generated for our
investments, in particular where the Company looks to extend the years an
asset can operate for.
Customers - Affordable green energy
ORIT provides clear benefits to wider society through the provision of
cheaper, cleaner energy to the grid. This will help reduce energy bills and
also improve energy security in the countries where ORIT's assets are located.
In the past year, ORIT's assets have helped power an equivalent of 270,500
homes.
This year, ORIT has also focused on providing additional support via fuel
poverty charities and organisations, to help individuals suffering under fuel
poverty. See case study for more information.
ORIT also supports projects that improve socio-economic distribution and
equity more widely through the organisations it partners with through BizGive.
For example, ORIT is working with Generation to deliver Green Retrofit
Workshops. Generation is a charity that runs employment programmes to prepare,
place, and support people into life-changing careers that would otherwise be
inaccessible to them.
Diversity and Inclusion
Equality and wellbeing are fundamental to ORIT's impact ambitions. This is
reflected in our Company policies and in the way that the Company operates
externally, through understanding third-party providers approach to diversity
and inclusion and suggesting ways to improve this where possible.
The Company's Board is made up of a complementary mixture of backgrounds with
a gender composition of an equal 50/50 split between men and women, in line
with the view that gender diversity delivers better company performance than
if the Board was dominated by one gender. The Board is seeking to appoint a
fifth Director to the Board to bring a senior operational perspective and to
improve its ethnic representation. The Board is committed to ensuring that its
composition reflects ethnic diversity, and it is looking to make meaningful
progress on this front through this appointment. It welcomes applications from
everyone regardless of age, gender, ethnicity, sexual orientation, belief or
disability. All appointments will be made on merit, following a fair and
transparent process.
The Investment Manager shares ORIT's values and places diversity and inclusion
at the heart of them, and this is demonstrated through the initiatives
implemented. The Investment Manager provides directors to the underlying
subsidiary companies and ensures diversity is considered when appointing them.
Further detail can be found in the Impact Strategy.
People initiatives
Alongside keeping people safe, ORIT considers its potential impact on people.
People initiatives contribute to solutions to engage communities and promote a
"Just Transition" to clean energy.
Projects
ORIT exhibits a variety of social considerations across its assets and beyond,
utilising the experience and approach developed by our Investment Manager to
maximise benefits.
Project Outcome
Social Supply Chain Analysis: Developing robust methodology to mitigate supply The Investment Manager has developed a strong Modern Slavery Policy and Panel
chain modern slavery risk. procurement policy to help mitigate the risks of modern slavery in the global
solar supply chain. See case study for more information
Equality & Wellbeing
Local Community Education Initiatives: ORIT continues its partnership with Preparatory work is underway for more site visits and workshops for
Earth Energy Education and the Good Bee Company to deliver school visits, communities. These projects are expected to be carried out in the Spring and
workshops and webinars. Summer months of 2023.
Stakeholder Management
Equality & Wellbeing
Fuel Poverty: Fighting fuel poverty through investment into renewables and ORIT has supported charities and organisations that provide vulnerable people
partnership with fuel poverty charities. with fuel poverty support. See case study for more information.
Sustainable Momentum
Innovation
Stakeholder Management
Stakeholder Engagement
Just Transition through BizGive organisations: further collaboration, ORIT has granted a total of £70k to charities and community interest groups
engagement and impact, aligned to the UN's SDG framework and ORIT's impact that have applied for funding on ORIT's BizGive Programme. Projects supported
objectives. drive STEM learning, climate action, biodiversity conservation, and community
renewables.
Innovation
Equality & Wellbeing
Case Study:
Tackling fuel poverty in times of crisis
Rising gas prices, low incomes and energy-inefficient homes are leading more
and more people across Europe into the grip of fuel poverty. As society
navigates through these challenging times, ORIT is well positioned to
contribute to solutions. By channelling capital towards sustainable outcomes
that mitigate climate change ORIT is also contributing to European energy
security, and to preventing future energy crises resulting from reliance on
unsustainable global fossil fuel markets. As laid out in ORIT's Impact
Strategy, ORIT also incorporates social benefits in all its investments. Given
the challenging back drop of the energy crisis, the ORIT Board decided to
commit a significant proportion of its additional impact fund to support
charities focused on tackling fuel poverty during the period.
Green Doctors, Groundwork:
ORIT has made a donation of £12.5k to Green Doctors to help upskill some of
their project officers to "Green Doctors" across England and Wales,
particularly in North East, North West, West Midlands, South Wales and London.
Green Doctors offer free and impartial energy advice across the UK to help
residents reduce their energy bills, improve their wellbeing, and save energy
for example through draught proofing.
The increase in cost of living and energy price cap are deeply affecting
vulnerable households, and Groundwork continues to move quickly to meet this
demand. ORIT's funding has also been allocated to facilitate more senior
upskilling for experienced Green Doctors so that they can deliver full
retrofitting assessment and coordination. ORIT is helping to create lasting
positive impact in these regions, with this funding supporting the upskilling
of around 12 Green Doctors‑each delivering an upwards of 500 visits a year.
On average the households they visit save £350 a year. With the average
annual shortfall that places a household into fuel poverty being £333, the
Green Doctor service is effectively lifting thousands of households out of
fuel poverty every year.
Energie Solidaire:
ORIT has made a €12.5k donation to Energie Solidaire's Endowment Fund.
Energie Solidaire supports local associations across France who in turn try to
lift the most vulnerable households out of fuel poverty. The organisation's
commitment committee selects the charity groups that are likely to make the
most impact and works with them over a couple of years. Typical charities
selected to take part include those that carry out minor renovation projects
on energy inefficient homes and provide energy advice. ORIT's donation will be
distributed to the charities by Energie Solidaire in the coming year.
Zink Energy Advice and Support:
ORIT has made a £2,900 donation to Zink. Zink is a community organisation
that provides services to people and families in the rural Highpeak and
Derbyshire Dales areas of the UK. Their holistic approach to supporting people
towards better futures focuses on long-term resolutions rather than short-term
quick fixes. Their services are tailored to the specific needs of the
individual and can range from the provision of emergency food parcels to
access to energy advice workers, work coaches and wellbeing activities. ORIT's
contribution has gone towards the delivery of 160 energy advice appointments,
providing 160 individuals with the tools they need to step out of energy
poverty. A portion of these individuals may seek further help from Zink's work
coaches, food banks and wellbeing services but it is expected that 140 issues
will be resolved in the long-term, removing the demand of Zinc's emergency
food parcels.
Home Energy for New Scots, The Welcoming:
ORIT has made a £9,524 donation to The Welcoming's "Home Energy for New Scots
Project". This project aims to tackle and prevent fuel poverty and associated
risks by providing energy advice and support to "New Scots" (refugees, asylum
seekers and migrants) in Edinburgh. The Welcoming currently has over 1500
registered members who regularly attend activities - with an average of 160
new registrations every month. Their service users come from all over the
world with the top 7 nationalities being: Syrian, Ukrainian, Afghan, Chinese,
Sudanese, Polish and Spanish. Upon arrival in Edinburgh, they face significant
language, cultural and financial barriers to social and economic integration.
ORIT's donation has been allocated to support over 6 months' worth of weekly
energy advice surgeries and one-to-one appointments, helping project
participants to control their energy consumption, access financial support and
adopt behavioural changes that will improve the energy efficiency of their
homes.
To all the staff and volunteers at Zink, I just want to let you know how
grateful I am to you all for all your hard work and help you have given me
since I started coming to Zink over six months ago. I just wished I'd started
coming sooner. Some people don't realise how lucky we are to have Zink to fall
back on in bad times."
A Zink Energy Advice and Service client
Impact tracker
Who? How much? What? Impact Theme
People in fuel poverty, refugees, asylum seekers £25k Energy advice Sustainable momentum
and migrants
€ 12.5k Renovation works Innovation
Fuel poverty packages Stakeholder Engagement
Wellbeing services
Long-term support
Case Study:
Human Rights in the Supply Chain
ORIT is committed to acting ethically and with integrity in all its business
dealings and relationships. ORIT recognises its responsibility specifically
with regard to its supply chain and the Investment Manager is dedicated to
taking the necessary steps to engage with and influence its supply chain to
prevent any potential risks relating to human rights.
The solar sector could present a significant risk due to its connections to
forced labour violations at the polysilicon level of its supply chain. The
lack of traceability and transparency at this level of the global supply chain
and the surrounding geopolitical challenges has lead the Investment Manager to
develop a tailored risk management strategy to mitigate risks and build a more
resilient supply chain for ORIT. The Investment Manager's goal is to eliminate
this risk through increased transparency in the supply chain enabling
evidence-based purchasing decisions and through actively engaging, lobbying,
and driving change in the solar industry. As an investor and working with
development and construction partners, ORIT believes that this approach will
help influence what is considered acceptable in the industry and lead to
meaningful improvements in global solar supply chain sustainability.
Investment manager actions for mitigating human right risks:
• The Investment Manager has put in place a strengthened due
diligence framework made up of ESG-related policies, supplier code of conducts
and due diligence questionnaires to help ensure all activities and business
conducted in ORIT's supply chain seek to be in line with international labour
standards(42). More information can be found in the Investment Manager's
"Modern Slavery Statement".
• The Investment Manager has worked with an external auditing
partner (Clean Energy Associates) to develop a new procurement policy and an
allow/deny list for equipment suppliers. The policy requires suppliers to
provide written confirmations statements as well as evidence (for example
through audits) that their business practices do not support forced labour. As
co-authors of the Solar Energy Industries Association's ("SEIA") Traceability
Protocol, Clean Energy Associates is well placed to carry out ORIT's auditing
requirements.
• The Investment Manager is working to promote collective action
from the industry by working on collaborative initiatives to increase
traceability and responsible production of solar products. Given the systemic
nature of the issue, efforts from industry bodies, regulators, expert
advisors, NGOs as well as from ORIT's suppliers will be required to fully
address the risks. The Investment Manager has been a long-term supporter of
and sponsor of Solar Energy UK's and Solar Power Europe's Solar Stewardship
Initiative, formally launched to the public in October 2022. This initiative
works with stakeholder input from across the sector to establish new and
improved standards for the solar supply chain.
For more information see:
https://a.storyblok.com/f/154679/x/f6a5ac9c32/oegen_modern_slavery_statement_092022.pdf
https://www.cea3.com/traceability-audits-for-pv-energy-storage
(https://www.cea3.com/traceability-audits-for-pv-energy-storage)
https://solarstewardshipinitiative.org/
(45) For example the labour standards laid out in the UN Global
Compact, the UN Guiding Principles for Business and Human Rights and the OECD
Guidelines for Multinational Enterprises.
UN SDG specific contributions
4 Quality Education 4. Quality Education
4.1 & 4.7 - Provide free, quality education leading to relevant and
effective learning outcomes that can also promote sustainable development:
Partnership with the Good Bee Company and Earth Energy Education to provide
free education programmes and site visits to local schools. Funding of
multiple charities through BizGive supporting projects that drive STEM
learning, climate action, biodiversity conservation, and community renewables.
8 Decent Work and Economic Growth 8. Decent Work and Economic Growth
8.5 - Provide full and productive employment and decent work for all:
Extensive Health and Safety measures ensures employees are not exposed to
risk. Supply chain analysis and strengthened policies to ensure labour rights
upheld across ORIT's suppliers.
www.un.org/sustainabledevelopment/
Risk and Risk Management
Risk Appetite
The Board is ultimately responsible for defining the level and types of risk
that the Company considers appropriate. In the context of the Company's
strategy, risk appetite is aligned to the Investment Policy and this provides
the framework for how capital will be deployed to meet the Company's
investment objective. The limits set out in the Investment Policy represent
the amount of risk the Company is willing to take and the constraints that the
Board determines that the Investment Manager must adhere to on behalf of the
Company. This covers the principal risks the Company faces including, amongst
other things, the level of exposure to power prices, financing risks and
investment risks. Beyond this, risk limits and tolerances are monitored and
set by the AIFM as part of the AIFM's risk management services. These are
documented in the AIFM's Risk Management Policy for the Company covering
credit, liquidity, counterparty, operational and market risks. Adherence to
these risk limits is reported regularly to the Board through the quarterly
AIFM risk management report.
Principal risks and uncertainties
The Company has carried out a robust assessment of its principal and emerging
risks and the procedures in place to identify any emerging risks are described
below.
Procedures to identify principal or emerging risks:
Well managed risks are key to generating long-term shareholder returns. The
purpose of the risk management framework and policies adopted by the Company
is to identify risks and enable the Board to respond to risks with mitigating
actions to reduce the potential impacts should the risk materialise.
The Board regularly reviews the Company's risk matrix, with a focus on
ensuring appropriate controls are in place to mitigate each risk. The
experience and knowledge of the Board is important, as is advice received from
the Company's service providers.
The following is a description of the procedures for identifying principal
risks that each service provider highlights to the Board on a regular basis.
1. Alternative Investment Fund Manager ("AIFM"): The Company has appointed
Octopus AIF Management Limited to be the Alternative Investment Fund Manager
of the Company (the "AIFM") for the purposes of UK AIFM Directive.
Accordingly, the AIFM is responsible for the portfolio management of the
Company and for exercising the risk management function in respect of the
Company. As part of this the AIFM has put in place a Risk Management Policy
which includes stress testing procedures and risk limits. As part of this risk
management function, the AIFM maintains a register of identified risks
including emerging risks likely to impact the Company. This is updated
quarterly following discussions with the Investment Manager and highlighted to
the Board.
2. Investment Manager: Portfolio Management has been delegated by the AIFM
to the Investment Manager. There is a comprehensive due diligence process in
place to ensure that potential investments are screened against the Company's
objectives, and that financial and economic analysis is conducted alongside a
full risk analysis. Any potential transaction must be granted approval in
principle ("AIP") by the Octopus Energy Generation Investment Committee
("OEGEN IC") and the due diligence budget signed off by the Board. Once due
diligence and negotiations of final terms are substantially complete, the
final proposal including the risk analysis will be presented to OEGEN IC for a
decision on whether the Company should proceed with investment, subject to
approval from the Board. The Investment Manager also provides a report to the
Board at least quarterly on asset level risks, industry trends, insight to
future challenges in the renewable sector including the regulatory, political
and economic changes likely to impact the renewables sector.
3. Broker: The Broker provides regular updates to the Board on Company
performance advice specific to the Company's sector, competitors and the
investment company market whilst working with the Board and Investment Manager
to communicate with shareholders.
4. Company secretary and auditors: Brief the Board on forthcoming
legislation/regulatory change that might impact on the Company. The auditors
also have specific briefings at least annually.
Procedure for oversight
The Audit and Risk Committee undertakes a review at least twice a year of the
Company's risk matrix and a formal review of the risk procedures and controls
in place at the AIFM and other key service providers to ensure that emerging
(as well as known) risks are adequately identified and - so far as practicable
- mitigated.
During the year, the Audit and Risk Committee have added additional principal
risks covering Board effectiveness and compensation, contractor default and
trading at a discount to NAV. The Audit and Risk Committee has also deemed
that the risks associated with the UK Trade Deal are no longer significant to
classify as a principal risk to the Company.
Principal risks
The Board considers the following to be the principal and other risks faced by
the Company along with the potential impact of these risks and the steps taken
to mitigate them.
Economic, political and climate risks - income and value of the Company's
investments may be affected by future changes in the economic and political
environment, alongside risks associated with climate change.
Risk Potential Impact Mitigation
Inflation and interest rates The revenue and expenditure of the Company's investments are frequently Inflation and interest rate assumptions are reviewed and monitored regularly
partially index-linked and therefore any discrepancy with the Company's by the AIFM and the Investment Manager in the valuation process. Assumptions
inflation expectations could impact positively or negatively on the Company's are set by the Valuations Consistency Group and valuations approved by the
cashflows. AIFM.
Changes in interest rates may affect the valuation of the investment portfolio It is expected that a natural hedge may occur where higher interest rates are
by impacting the valuation discount rate and could also impact returns on cash also accompanied by higher inflation rates due to subsidies being inflation
deposits and the cost of borrowing. linked.
In the event that actual inflation differs from forecasts or projected levels, The Company can utilise interest rate swaps or fixed rate financing to
the profitability of the Company may be impaired leading to reduced returns to mitigate interest rate risks.
shareholders.
Increased inflation and a higher cost of living can adversely impact investor
appetite.
Foreign currency The Company's functional currency is Sterling, but some of the Group's The principal mitigation is through the Company's hedging policy which seeks
investments are based in countries whose local currency is not Sterling. to minimise the volatility of cash flows in non‑GBP currencies. The RCF can
also be drawn in multiple currencies to allow the matching of debt and the
Therefore, changes in foreign currency exchange rates may affect the value of underlying assets.
the investments due to adverse changes in currencies.
The Investment Manager monitors foreign exchange exposures using short and
long-term cash flow forecasts.
The Company's portfolio concentrations and currency holdings are monitored
regularly by the Board, the AIFM and the Investment Manager.
All FX hedges are held within the intermediate holding companies.
Government policy changes The Company's investments in Renewable Energy Assets are remunerated by both The Company holds a diversified portfolio of Renewable Energy Assets and so it
government support schemes and private PPAs - the terms of these may be is unlikely that all assets will be impacted equally by a change in
impacted by government changes or policy or even terminated in certain legislation.
circumstances. This would adversely impact the value of the Company's
investments. There is also strong public demand for support of the renewables market to hit
"net zero" carbon emission targets.
Geopolitical risks Events in Ukraine and the impact of sanctions placed on Russia and affiliated The Investment Manager undertakes extensive due diligence on all
countries may impact the target returns of the Company. counterparties prior to conducting business with them and will fully comply
with all sanctions. As part of this review, all counterparty due diligence has
The Company engages third-party contractors to oversee the day to day been reviewed and confirmed that the Group's current counterparties are not
operations of the assets. If any of these contractors are impacted by the materially impacted by recent events or by the new sanctions.
events in Russia and Ukraine, or by the current sanctions imposed on Russia,
this may impact the performance of the assets, and ultimately the target The Investment Manager will remain agile to the changing geopolitical
returns of the Company. environment and will continue to evolve and reassess appropriate mitigation
strategies.
Assets located in nearby jurisdictions may be impacted by the conflict.
Mitigations for power prices as well as for cyber security are described
The conflict may lead to increased volatility of power prices and hence below.
valuations. Heightened power prices may lead to an increased risk of political
intervention to regulate prices or impose windfall taxes.
The conflict may lead to an increased risk of cyber attacks.
Risks associated with climate change Climate related risks relate to transition risks and physical risks. The Investment Manager is actively engaging with third party advisors on how
climate related risks are being modelled in long-term power price forecasts.
The prominent transition risk relates to oversupply of renewables over time, There are likely to be opportunities associated with the transition to a low
which may cause downward pressure on long-term power price forecasts setting carbon future including growth in the market, government interventions and
lower capture prices, including the risks associated with periods of negative technology advancements that could counterbalance the transition risks of
power prices and power price volatility. This could ultimately lead to a climate change on the Company.
shortfall in anticipated revenues to the Company.
The Board and the Investment Manager periodically assess the Company's
The prominent physical risks relate to long‑term changes to weather portfolio of assets for potential transition risks within the jurisdictions
patterns, which could cause a material adverse change to an asset's energy that it currently operates. The Investment Manager works with third-party
yield from that expected at the time of investment. asset managers to ensure an appropriate level of equipment spares to minimise
downtime associated with damaged equipment.
Physical risks associated with acute and chronic temperature change could lead
to flooding, storms, and high winds. This could damage equipment and force There is growing demand for consistent, comparable, reliable, and clear
operational downtime resulting in reduced revenue capability and profitability climate related financial disclosure from many participants in financial
of the portfolio of assets. markets. The Board, AIFM and Investment Manager have included TCFD as part of
the Company's Impact Strategy.
Company: operational risks - risk that target returns and Company objectives
are not met over the longer term.
Risk Potential Impact Mitigation
Deployment A deterioration of the investment pipeline may impact the ability to commit The Company has an experienced Investment Manager with good presence and
and deploy capital into suitable opportunities in the expected time frame. strong relationships in the renewables market. The investment mandate is
Competition in the infrastructure market remains strong which could limit the diversified giving a broad landscape of opportunities.
ability of the Company to acquire assets in line with target returns or incur
abort costs where transactions are unsuccessful. The Board and Investment Manager oversee the investment pipeline and abort
exposure and frequently monitor its progress in relation to Company targets.
Both deployment risks could ultimately impact shareholder returns.
Reliance on third-party service providers The Board has contractually delegated to third-party service providers day to Each contract was entered into after full and proper consideration of the
day management of the Company. A deterioration in the performance of any of quality and cost of services offered, including the financial control systems
the key service providers including the Investment Manager, AIFM and in operation in so far as they relate to the affairs of the Company. All of
Administrator could have an impact on the Company's performance and there is a the above services are subject to ongoing oversight by the Board and, where
risk that the Company may not be able to find appropriate replacements should applicable, the AIFM and the performance of the key service providers is
the engagement with the service providers be terminated. reviewed on a regular basis. The Board, through the Management Engagement
Committee monitors key personnel risks as part of its oversight of the AIFM
and Investment Manager and the Company's key service providers report
periodically to the Board on their control procedures.
Valuations Valuation of the portfolio of assets is based on financial projections and The Investment Manager has significant experience in the valuation of
estimations of future results. Actual results may vary significantly from the renewable assets and conducts a quarterly valuations process.
projections, which may reduce the profitability of the Company leading to
reduced returns to shareholders. The AIFM has a valuations committee separate to the Investment Manager to
provide valuations consistency on macro assumptions and to provide oversight
and challenge to the valuations.
The Board and AIFM review the valuations provided quarterly and they are
audited annually.
Dividend cover and ratios monitored by the Investment Manager and reported to
the AIFM.
ESG policy Material ESG risks may arise such as slave labour in the supply chain, health ESG is embedded in the investment cycle with a formal ESG matrix including a
and safety, unfair advantage, bribery, corruption and environmental damage. If minimum target ESG score required for approval of any new investments. Ongoing
the Company fails to adhere to its public commitments as stated in its ESG operational and construction ESG risk management is reviewed periodically by
Policy and Impact Strategy, this could result in shareholder dissatisfaction the Investment Manager, who work closely with service providers on ESG and
and adversely affect the reputation of the Company. impact standards reporting.
ESG Policy signed off and reviewed by the Board.
Conflicts of interest The appointment of the AIFM is on a nonexclusive basis and each of the AIFM The AIFM and Investment Manager have clear conflicts of interest and
and Investment Manager manages other accounts, vehicles and funds pursuing allocation policies in place. Transactions where there may be potential
similar investment strategies to that of the Company. This has the potential conflicts of interest are overseen by the Investment Manager's conflicts
to give rise to conflicts of interest. committee, an independent fairness opinion on valuation is commissioned, and
as with all transactions, the Board has final approval rights. The Board, AIFM
Board and counterparties conflicts. and Investment Manager are responsible for establishing and regularly
reviewing procedures to identify, manage, monitor and disclose conflicts of
interests relating to the activities of the Company. These procedures are more
fully described in the Company's prospectus dated 10 June 2021.
Conflict of interest policies in place both at Board level and under the
Listing Rules.
Board effectiveness and compensation Inappropriate or inadequate Board composition left unidentified through a poor The Broker and Investment Manager were involved in the initial selection of
Board evaluation process could lead to poor decision making and adversely the Board. The Nomination Committee is responsible for ongoing monitoring of
affect the reputation of the Company or result in a financial loss. Board composition. Board effectiveness is also reviewed externally every
3 years.
Board compensation structures may encourage risk taking that is not aligned to
Company strategy and risk appetite or may lead to an inability to retain External benchmark surveys are undertaken on Board remuneration via the
knowledgeable Board members. Remuneration Committee and ratified at the Annual General Meeting.
Trading at a discount to NAV The Ordinary Shares may trade at a discount to NAV and shareholders may be The Company's Broker monitors the market situation and reports regularly on
unable to realise their investments through the secondary market at NAV which the status, along with demographics and changes in shareholder register.
could lead to a loss of market confidence in the Board and/or Investment Regular shareholder communications and marketing roadshows undertaken to
Manager. ensure updated information is available to the market/shareholders. The Board
has put in place a discount control policy and has the option of a share
A failure to adapt to changing investor demands could reduce the demand for buyback if the Board believes it to be in shareholders' interests as a means
shares and widen the discount further. of correcting any imbalance between the supply of and demand for the Ordinary
Shares. The Company also has the ability to hold treasury shares to mitigate
this risk.
Cyber security Attempts may be made to access the IT systems and data used by the Investment Cyber security policies and procedures implemented by key service providers
Manager, Administrator and other service providers through a cyber-attack or are reported to the Board and AIFM periodically to ensure conformity. The
malicious breaches of confidentiality that could impact the Company reputation Investment Manager has a robust 3 lines of defence risk model in place in
or result in financial loss. place to implement, check and audit technology controls. Thorough third-party
due diligence is carried out on all suppliers engaged to service the Company.
All providers have processes in place to identify cyber security risks and
apply and monitor appropriate risk plans.
Portfolio of assets: operational risks - risk that the portfolio underperforms
and, as a result, the target returns, and Company objectives are not met over
the longer-term.
Risk Potential Impact Mitigation
Power prices The income and value of the Company's investments may be adversely impacted by The Investment Manager has a specific Energy Markets Team that monitors energy
changes in the prevailing market prices of electricity and prices achievable price forecasts and puts in place mitigating strategies. This could be through
for off-taker contracts. There is a risk that the actual prices received vary the use of short-term PPA contracts to fix the electricity prices where
significantly from the model assumptions, leading to a shortfall in possible, or to hedge the exposure of fluctuating electricity prices through
anticipated revenues to the Company. derivative instruments. Model assumptions are based on quarterly reports from
a number of independent established market consultants to inform on the
electricity prices over the longer-term.
Construction Construction project risks associated with the risk of inaccurate assessment The Investment Manager monitors construction carefully and reports frequently
of a construction opportunity, delays or disruptions which are outside the to the Board and AIFM. The Investment Manager undertakes extensive due
Company's control, changes in market conditions, and the inability of diligence on construction opportunities and has in place clear approval
contractors to perform their contractual commitments could impact Company processes for any material construction cost overruns and contingency spend.
performance.
Development Development project risks associated with delays, increases in costs or The Company's maximum exposure to development is limited to 5% of GAV.
ultimate failure to deliver the expected assets to construction ready status.
The Investment Manager monitors progress of development projects carefully and
ensures all costs are managed appropriately. A clear approval processes is in
place for any material project cost overruns and contingency spend. Cost and
progress analysis of development projects is reported frequently to the Board
and AIFM. The Investment Manager also monitors exposure to any one developer
to ensure this is kept within reasonable limits.
Asset-specific risks, including production and HSE risks Circumstances may arise that adversely affect the performance of the relevant The Company's experienced Investment Manager oversees and manages asset and
renewable energy asset. These include health and safety, grid connection, site level issues. Third-party O&M contractors are engaged to carry out
material damage or degradation, equipment failures and environmental risks. regular preventative maintenance and a level of spares is maintained from
diversified manufacturers. The Investment Manager uses established
relationships with relevant DNOs and works closely with them to maintain grid
connection.
A SH&E Director is employed by the Investment Manager to oversee and
advise on the HSE system for renewable assets. The Company has in place
insurance to cover certain losses and damage.
Contractor default risk In the current economic climate, there is also an increased risk that service The Company and the Investment Manager will seek to mitigate the Company's
providers default on their contractual obligations or suffer an insolvency exposure to contract default risk through carrying out qualitative and
event. quantitative due diligence on counterparties.
Compliance and regulatory risks - failure to comply with relevant regulatory
changes, tax rules and obligations may result in reputational damage to the
Company or have a negative financial impact.
Risk Potential Impact Mitigation
Noncompliance with FCA, Listing Rules, UK AIFM Directive, MAR and investment Failure to comply with any relevant regulatory rules including Section 1158 of The Board monitors compliance and regulatory information provided by the
trust eligibility conditions the Corporation Tax Act, the rules of the FCA, including the Listing Rules and Company Secretary, the AIFM and Investment Manager on a quarterly basis and
the Prospectus Rules, Companies Act 2006, MAR, UK AIFM Directive, Accounting the assessment of regulatory risks forms part of the Board's risk management
Standards, GDPR and any other relevant regulations could result in financial framework. All parties are appropriately qualified professionals and ensure
penalties, loss of investment trust status, legal proceedings against the that they keep informed with any developments or updates to the legislation.
Company and/or its Directors or reputational damage.
Financial risks - various types of risk associated with financing and
liquidity. Further financial risks are detailed in Note 16 of the financial
statements.
Risk Potential Impact Mitigation
Risks associated with borrowing can impact on Company performance The Company's investment policy involves the use of long-term and short-term The Board monitors debt covenants, gearing limits appropriate to the Company
debt. The use of leverage may increase the volatility of the Net Asset Value, and reviews any debt facilities before financial close. Portfolio
may significantly increase the Company's investment risk and could lead to an allocations are monitored on an ongoing basis by the AIFM to ensure compliance
inability to meet financial obligations. with borrowing policy and limits stated in the investment policy.
The Company may be unable to obtain borrowing facilities at appropriate levels The Company has the ability to enter into hedging transactions in relation to
impacting returns. interest rates for the purpose of efficient portfolio management to protect
the Company from fluctuations of interest rates. Read more above in interest
Risks include refinancing risk, covenant breaches, poor management of assets rate, currency and power price risks.
and liabilities, over-gearing and possible enhanced loss on poor performing
assets.
The Board are of the opinion that these are the principal risks, but mindful
of their obligations under the changes made to the AIC Code of Corporate
Governance issued in February 2019, the Board has also considered emerging
risks which may impact the forthcoming six-month period. There are no
additional risks to note as a result of this review.
Task Force on Climate-related Financial Disclosures ("TCFD")
The TCFD, established in December 2015 by the Financial Stability Board, was
tasked with reviewing how the financial sector could take account of climate
related issues. In 2017, the TCFD published its recommendations for consistent
climate-related financial risk disclosures across Governance, Strategy, Risk
Management, and Targets & Metrics. Eleven recommendations across these
four pillars were prescribed for companies to provide information to
investors, lenders, insurers, and other stakeholders. The TCFD recommends that
all organisations provide climate-related disclosures in their annual report
and accounts, providing a framework to help companies assess the risks and
opportunities associated with climate change.
Following this, the Financial Conduct Authority ("FCA") issued a rule,
effective for periods beginning on or after January 2021, for UK premium
listed companies to start to report against the TCFD, with other companies to
follow. Whilst not currently mandated to make a TCFD disclosure, being
excluded as an Investment Trust, ORIT supports the TCFD's aims and objectives
and has decided to voluntarily report in line to adopt best practice
disclosures. Material climate-related financial disclosures can help support
investment decisions as we move towards a low-carbon economy. The Company is
acutely aware of the risks of climate change and through its investment
mandate, believes it is well placed to contribute to solutions and harness the
opportunities that arise from a transition to net zero. However, no company is
isolated from climate change, and the disclosures below outline the
climate-related risks ORIT faces.
Statement of Compliance
The Company is pleased to confirm that it has included climate-related
financial disclosures aligned with the four recommendations and the eleven
recommended disclosures provided in the TCFD's 2021 report 'Implementing the
Recommendations of the Task Force on Climate-related Financial Disclosures',
which included additional guidance for Asset Owners and Asset Managers.
Governance
Oversight and management of climate-related risks and opportunities is
integrated within the Governance framework of the Company, illustrated in the
diagram below.
Statement of Directors' Responsibilities
Statement of Directors' responsibilities in respect of the financial
statements
The Directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable law and regulation.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the directors have prepared the financial
statements in accordance with UK-adopted international accounting standards.
Under company law, Directors must not approve the financial statements unless
they are satisfied that they give a true and fair view of the state of affairs
of the Company and of the profit or loss of the Company for that period. In
preparing the financial statements, the Directors are required to:
• select suitable accounting policies and then apply them
consistently;
• state whether applicable UK-adopted international accounting
standards have been followed, subject to any material departures disclosed and
explained in the financial statements;
• make judgements and accounting estimates that are reasonable and
prudent; and
• prepare the financial statements on the going concern basis unless
it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and detection of fraud
and other irregularities.
The Directors are also responsible for keeping adequate accounting records
that are sufficient to show and explain the Company's transactions and
disclose with reasonable accuracy at any time the financial position of the
Company and enable them to ensure that the financial statements and the
Directors' Remuneration Report comply with the Companies Act 2006.
The Directors are responsible for the maintenance and integrity of the
Company's website. Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from legislation in other
jurisdictions.
Directors' confirmations
Each of the Directors, whose names and functions are listed in the Corporate
Governance Statement confirm that, to the best of their knowledge:
• the Company financial statements, which have been prepared in
accordance with UK-adopted international accounting standards, give a true and
fair view of the assets, liabilities, financial position and profit of the
Company; and
• the Directors' Report includes a fair review of the development
and performance of the business and the position of the Company, together with
a description of the principal risks and uncertainties that it faces.
For and on behalf of the Board
Philip Austin MBE
Chair
28 March 2023
Financial Statements
Statement of Comprehensive Income
Year ended 31 December 2022 Year ended 31 December 2021
Note Revenue Capital Total Revenue Capital Total
£'000
£'000
£'000
£'000
£'000
£'000
Investment income 4 40,307 - 40,307 31,829 - 31,829
Movement in fair value of investments 9 - 37,603 37,603 - 8,561 8,561
Total net income 40,307 37,603 77,910 31,829 8,561 40,390
Investment management fees 5 (4,284) (1,428) (5,712) (3,108) (1,036) (4,144)
Other expenses 5 (1,132) (1,280) (2,412) (851) (584) (1,435)
Net finance income 51 - 51 5 - 5
Net foreign exchange losses - (1) (1) - (27) (27)
Profit before taxation 34,942 34,894 69,836 27,875 6,914 34,789
Taxation 6 (515) 515 - 312 (312) -
Profit and total comprehensive income for the year 34,427 35,409 69,836 28,187 6,602 34,789
Earnings per Ordinary share (pence) - basic and diluted 8 6.09p 6.27p 12.36p 6.65p 1.55p 8.20p
The 'Total' column of this statement is the profit and loss account of the
Company and the 'Revenue' and 'Capital' columns represent supplementary
information prepared under guidance issued by the Association of Investment
Companies. All expenses are presented as revenue items except 25% of the
investment management fee, which is charged as a capital item within the
Statement of Comprehensive Income. Costs incurred on aborted transactions and
investment acquisitions are charged as capital items within the Statement of
Comprehensive Income.
All revenue and capital items in the above statement derive from continuing
operations.
The accompanying notes are an integral part of these financial statements.
Statement of Financial Position
Note As at As at
31 December
31 December
2022 2021
£'000
£'000
Non-current assets
Investments at fair value through profit or loss 9 608,799 485,417
Current assets
Trade and other receivables 10 775 450
Cash and cash equivalents 10,603 93,946
11,378 94,396
Current liabilities: amounts falling due within one year
Trade and other payables 11 (1,917) (2,124)
(1,917) (2,124)
Net current assets 9,461 92,272
Net assets 618,260 577,689
Capital and reserves
Share capital 12 5,649 5,649
Share premium account 12 217,283 217,283
Special reserve 13 339,500 339,500
Capital reserve 37,915 2,506
Revenue reserve 17,913 12,751
Equity attributable to owners of the Company 618,260 577,689
Net assets per Ordinary Share (pence) 14 109.44p 102.26p
The financial statements in the Annual Report were approved by the Board of
Directors and authorised for issue on 28 March 2023 and were signed on its
behalf by:
Philip Austin MBE
Chair
The accompanying notes are an integral part of these financial statements.
Incorporated in England and Wales with registered number 12257608
Statement of Changes in Equity
Year ended 31 December 2022
Note Share Share premium account Special reserve Revenue reserve Capital reserve Total shareholders' funds
capital
£'000
£'000
£'000
£'000
£'000
£'000
Opening equity as at 1 January 2022 5,649 217,283 339,500 12,751 2,506 577,689
Profit and total comprehensive income for the year - - - 34,427 35,409 69,836
Dividends paid 7 - - - (29,265) - (29,265)
Closing equity as at 31 December 2022 5,649 217,283 339,500 17,913 37,915 618,260
Year ended 31 December 2021
Note Share Share premium account Special reserve Revenue reserve Capital reserve Total shareholders' funds
capital
£'000
£'000
£'000
£'000
£'000
£'000
Opening equity as at 1 January 2021 3,500 - 339,500 5,023 (4,096) 343,927
Profit and total comprehensive income for the year - - - 28,187 6,602 34,789
Shares issued in the year 12 2,149 221,763 - - - 223,912
Share issue costs - (4,480) - - - (4,480)
Dividends paid 7 - - - (20,459) - (20,459)
Closing equity as at 31 December 2021 5,649 217,283 339,500 12,751 2,506 577,689
The Company's distributable reserve consists of the special reserve, capital
reserve attributable to realised gains and revenue reserve.
The accompanying notes are an integral part of these financial statements.
The issued capital and reserves are fully attributable to the shareholders of
the Company.
Statement of Cash Flows
Note Year ended Year ended
31 December 2022 31 December 2021
£'000
£'000
Operating activities cash flows
Profit before taxation 69,836 34,789
Adjustments for:
Movement in fair value of investments 9 (37,603) (8,561)
Investment income from investments 4 (40,307) (31,829)
Share issue abort costs 404 -
Operating cash flow before movements in working capital (7,670) (5,601)
Changes in working capital:
Increase in trade and other receivables (325) (323)
(Decrease)/increase in trade payables (207) 59
Distributions from investments 9 38,108 26,169
Net cash flow generated from operating activities 29,906 20,304
Investing activities cash flows
Costs associated with acquiring the portfolio of assets 9 (83,580) (212,516)
Net cash flow used in investing activities (83,580) (212,516)
Financing activities cash flows
Dividends paid to Ordinary Shareholders 7 (29,265) (20,459)
Proceeds from issue of share capital during the year - 223,912
Costs in relation to issue of shares (404) (4,480)
Net cash flow (used in)/generated from financing activities (29,669) 198,973
Net (decrease)/increase in cash and cash equivalents (83,343) 6,761
Cash and cash equivalents at start of year 93,946 87,185
Cash and Cash equivalents at end of year 10,603 93,946
The accompanying notes are an integral part of these financial statements.
Notes to the Financial Statements
For the year ended 31 December 2022
1. General information
Octopus Renewables Infrastructure Trust plc ("ORIT" or the "Company") is a
Public Company Limited by Ordinary Shares incorporated in England and Wales on
11 October 2019 with registered number 12257608. The Company is a closed-ended
investment company with an indefinite life. The Company commenced its
operations on 10 December 2019 when the Company's Ordinary Shares were
admitted to trading on the premium segment of the main market of the London
Stock Exchange. The Directors intend, at all times, to conduct the affairs of
the Company as to enable it to qualify as an investment trust for the purposes
of section 1158 of the Corporation Tax Act 2010, as amended.
The registered office and principal place of business of the Company is 6th
Floor, 125 London Wall, London, EC2Y 5AS.
The Company's investment objective is to provide investors with an attractive
and sustainable level of income returns, with an element of capital growth, by
investing in a diversified portfolio of Renewable Energy Assets in Europe and
Australia.
The audited financial statements of the Company (the "financial statements")
are for the year ended 31 December 2022 and comprise only the results of the
Company, as all of its subsidiaries are measured at fair value following the
amendment to IFRS 10 as disclosed in Note 2. The comparatives shown in these
financial statements refer to the year ended 31 December 2021.
The Company has appointed Octopus AIF Management Limited to be the alternative
investment fund manager of the Company (the "AIFM") for the purposes of
Directive 2011/61/EU of the European Parliament and of the Council on
Alternative Investment Fund Managers. Accordingly, the AIFM is responsible for
the portfolio management of the Company and for exercising the risk management
function in respect of the Company. The AIFM has delegated portfolio
management services to Octopus Renewables Limited (trading as Octopus Energy
Generation), the Company's Investment Manager (the "Investment Manager").
Apex Listed Companies Services (UK) Limited (the "Administrator") provides
administrative and company secretarial services to the Company under the terms
of the Administration Agreement between the Company and the Administrator.
During the year, Apex Group plc acquired Sanne Fund Services (UK) Limited and
subsequently the name of the Company's Administrator and Company Secretary
changed from Sanne Fund Services (UK) Limited to Apex Listed Companies
Services (UK) Limited.
2. Basis of preparation
These financial statements have been prepared in accordance with UK-adopted
international accounting standards and the applicable requirements of the
Companies Act 2006. On 31 December 2020, IFRSs as adopted by the European
Union at that date were brought into UK law and became UK-adopted
international accounting standards, with future changes being subject to
endorsement by the UK Endorsement Board. The Company transitioned to
UK-adopted international accounting standards in its financial statements on 1
January 2021. There was no impact or change in accounting policies from the
transition.
The financial statements have also been prepared as far as is relevant and
applicable to the Company in accordance with the Statement of Recommended
Practice: Financial Statements of Investment Trust Companies and Venture
Capital Trusts ("SORP") issued in July 2022 by the Association of Investment
Companies ("AIC").
The financial statements are prepared on the historical cost basis, except for
the revaluation of investments measured at fair value through profit or loss.
The principal accounting policies adopted are set out below. These policies
are consistently applied.
The financial statements are presented in Sterling, which is the Company's
functional currency and are rounded to the nearest thousand, unless otherwise
stated. They have been prepared on the basis of the accounting policies,
significant judgements, key assumptions and estimates as set out below.
Going concern
The Directors, in their consideration of going concern, have reviewed
comprehensive cash flow forecasts prepared by the Company's Investment Manager
which are based on market data and believe, based on those forecasts, the
assessment of the Company's subsidiary's banking facilities and the assessment
of the principal risks described in this report, that it is appropriate to
prepare the financial statements of the Company on the going concern basis.
In arriving at their conclusion that the Company has adequate financial
resources, the Directors were mindful that the Group had unrestricted cash of
£11 million as at 31 December 2022 (2021: £94m) and available headroom on
its revolving credit facility ("RCF") of £169 million (2021: £150m). The
Company's net assets at 31 December 2022 were £618 million (2021: £578m) and
total expenses for the year ended 31 December 2022 were £8.0 million (2021:
£5.6m), which represented approximately 1.3% (2021: 1.3%) of average net
assets during the year. At the date of approval of this document, based on the
aggregate of investments and cash held, the Company has substantial operating
expenses cover.
The Company receives revenue in the form of dividends and interest from its
portfolio of assets. These revenues are derived from the sale of electricity
through power purchase agreements in place with large and reputable providers
of electricity to the market. A prolonged and deep market decline could lead
to falling values to the underlying business or interruptions to cashflow,
however the Directors do not foresee any immediate material risk to the
Company's investment portfolio and income from underlying assets. The
Directors are also satisfied and are comfortable that the Company would
continue to remain viable under downside scenarios, including a decline in
long-term power price forecasts.
In instances where underlying investments have external debt finance, the
covenants associated with these facilities have been tested and are not
expected to be breached, even in downside scenarios.
The major cash outflows of the Company are the payment of dividends,
commitments payable for construction projects and contingent acquisitions and
the repayment of the short-term facility which expires in November 2023. Post
year end, the Company's intermediate holding company successfully refinanced
its RCF to an increased facility of £270.8 million and extended its term to
February 2026. The covenants of the RCF have been tested and are not expected
to be breached, even in downside scenarios. Plausible downside scenarios
include a decrease in wholesale energy prices, or a decrease in output. While
in some downside scenarios, the headroom available on the RCF will be lower,
the Directors remain confident that the Company has sufficient cash balances,
and headroom in the RCF held by an intermediate holding company in order to
fund the commitments detailed in note 19 to the financial statements, should
they become payable.
Having performed the assessment of going concern, the Directors considered it
appropriate to prepare the financial statements of the Company on a going
concern basis. The Company has sufficient financial resources and liquidity
and is well placed to manage business risks in the current economic
environment and can continue operations for a period of at least 12 months
from the date of these financial statements.
Critical accounting judgements, estimates and assumptions
The preparation of the financial statements requires management to make
judgements, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets, liabilities, income
and expenses. Actual results may differ from these estimates. Estimates and
underlying assumptions are reviewed regularly on an on-going basis. Revisions
to accounting estimates are recognised in the period in which the estimates
are revised and in any future periods affected. Significant estimates,
judgements and assumptions for the period are set out as follows:
Key estimation and uncertainty: Fair value estimation for investments at fair
value
The Company's investments at fair value are not traded in active markets. Fair
value is calculated by discounting at an appropriate discount rate future cash
flows expected to be received by the Company's intermediate holdings. The
discounted cashflow models use observable data, to the extent practicable.
However, the key inputs require management to make estimates. Changes in
assumptions about these factors could affect the reported fair value of
investments.
The discount rates used in the valuation exercise represent 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. The discount rates are
reviewed quarterly and updated, where appropriate, to reflect changes in the
market and in the project risk characteristics.
Unless fixed under PPAs or otherwise hedged, the power prices used in the
valuations are based on market forward prices in the near term, followed by an
equal blend of up to three independent and widely used market consultants'
technology-specific capture price forecasts for each asset. Power prices are
updated quarterly in line with the release of updated forecasts. There is an
inherent uncertainty in future wholesale electricity price projection.
Electricity output is based on specifically commissioned yield assessments
prepared by technical advisors. Each asset's valuation assumes a "P50" level
of electricity output, which is the estimated annual amount of electricity
generation that has a 50% probability of being exceeded - both in any single
year and over the long‑term - and a 50% probability of being underachieved.
The P50 provides an expected level of generation over the long-term.
Short to medium-term inflation assumptions used in the valuations are based on
third party forecasts. In the longer-term, an assumption is made that
inflation will increase at a long-term rate. The estimates and assumptions
that are used in the calculation of the fair value of investments is disclosed
in Note 9.
The impact of physical and transition risks associated with climate change is
assessed on a project by project basis and factored into the underlying cash
flows as appropriate. Further details can be found in the Impact Report.
Further considerations on currency risks, interest rate risks, power price
risks, credit risks, and liquidity risks are detailed in Note 16.
Key judgement: Equity and debt investment in ORIT Holdings II Limited
The Company classifies its investments based on its business model for
managing those financial assets and the contractual cash flow characteristics
of the financial assets. The portfolio of assets is managed, and performance
is evaluated on a fair value basis.
The Company is primarily focused on fair value information and uses that
information to assess the assets' performance and to make decisions. The
Company has not taken the option to irrevocably designate any equity
securities as fair value through other comprehensive income. The contractual
cash flows of the Company's debt securities are solely principal and interest,
however, these securities are not held for the purpose of collecting
contractual cash flows. The collection of contractual cash flows is only
incidental to achieving the Company's business model's objective.
Consequently, all investments are measured at fair value through profit or
loss.
The Company considers the equity and loan investments to share the same
investment characteristics and risks and they are therefore treated as a
single unit of account for fair value purposes (IFRS 13) and a single class
for financial instrument disclosure purposes (IFRS 9). As a result, the
evaluation of the performance of the Company's investments is done for the
entire portfolio on a fair value basis, as is the reporting to the key
management personnel and to the investors. In this case, all equity,
derivatives and debt investments form part of the same portfolio for which the
performance is evaluated on a fair value basis together and reported to the
key management personnel in its entirety.
Key judgement: Basis of non-consolidation
The Company has adopted the amendments to IFRS 10 which states that investment
entities should measure all of their subsidiaries that are themselves
investment entities at fair value (in accordance with IFRS 9 Financial
Instruments: Recognition and Measurement, and IFRS 13 Fair Value Measurement).
Under the definition of an investment entity, the Company should satisfy all
three of the following tests:
i. the Company obtains funds from one or more investors for the purpose
of providing those investors with investment management services;
ii. the Company commits to its investors that its business purpose is to
invest funds solely for returns from capital appreciation, investment income,
or both; and
iii. the Company measures and evaluates the performance of substantially
all of its investments on a fair value basis.
In assessing whether the Company meet the definition of an investment entity
set out in IFRS 10 the Directors note that:
i. the Company has multiple investors and obtains funds from a diverse
group of shareholders who would otherwise not have access individually to
invest in renewable energy infrastructure investments due to high barriers to
entry and capital requirements;
ii. the Company intends to hold its investments for the remainder of
their useful lives for the purpose of capital appreciation and investment
income. The portfolio of assets are expected to generate renewable energy
output for 30 to 40 years from their relevant commercial operation date and
the Directors believe the Company is able to generate returns to the investors
during that period; and
iii. the Company measures and evaluates the performance of all of its
investments on a fair value basis which is the most relevant for investors in
the Company. Management use fair value information as a primary measurement to
evaluate the performance of all of the investments and in decision making.
The Directors are of the opinion that the Company meets all the typical
characteristics of an investment entity and therefore meets the definition set
out in IFRS 10. The Directors are satisfied that investment entity accounting
treatment appropriately reflects the Company's activities as an investment
trust.
The Directors have also satisfied themselves that the Company's wholly owned
direct subsidiary, ORIT Holdings II Limited, meets the characteristics of an
investment entity. ORIT Holdings II Limited has one investor, ORIT, however,
in substance ORIT Holdings II Limited is investing the funds of the investors
of ORIT on its behalf and is effectively performing investment management
services on behalf of many unrelated beneficiary investors.
Being investment entities, ORIT and its wholly owned direct subsidiary, ORIT
Holdings II Limited are measured at fair value as opposed to being
consolidated on a line-by-line basis, meaning their cash, debt and working
capital balances are included in the fair value of investments rather than the
Group's current assets.
The Directors believe the treatment outlines above provides the most relevant
information to investors.
New standards, interpretations and amendments
A number of new standards, amendments to standards are effective for the
annual periods beginning after 1 January 2023. None of these are expected to
have a significant effect on the measurement of the amounts recognised in the
financial statements of the Company. The Company intends to adopt the
standards and interpretations in the reporting period when they become
effective and the Board does not anticipate that the adoption of these
standards and interpretations in future periods will materially impact the
Company's financial results in the period of initial application although
there may be revised presentations to the financial statements and additional
disclosures.
New standards and amendments issued but not yet effective
The relevant new and amended standards and interpretations that are issued,
but not yet effective, up to the date of issuance of the Company's financial
statements are disclosed below. These standards are not expected to have a
material impact on the entity in future reporting periods and on foreseeable
future transactions.
Amendment to IAS 12 - Deferred tax related to assets and liabilities arising
from a single transaction
In May 2021, the IASB issued amendments that require companies to recognise
deferred tax on transactions that, on initial recognition, give rise to equal
amounts of taxable and deductible temporary differences. The amendments are
effective for annual reporting periods beginning on or after 1 January 2023.
Amendment to IFRS 16 - Leases on sale and leaseback
In September 2022 the IASBs issued amendments for companies to include
requirements for sale and leaseback transactions in IFRS 16 to explain how an
entity accounts for a sale and leaseback after the date of the transaction.
Amendment to IAS 1 - Non current liabilities with covenants
In November 2022 the IASBs issued amendments for companies to clarify how
conditions with which an entity must comply within twelve months after the
reporting period affect the classification of a liability.
3. Significant accounting policies
a) Financial instruments
Financial assets and financial liabilities are recognised on the Company's
Statement of Financial Position when the Company becomes a party to the
contractual provisions of the instrument. Financial assets are derecognised
when the contractual rights to the cash flows from the instrument expire or
the asset is transferred, and the transfer qualifies for derecognition in
accordance with IAS 39 Financial Instruments: Recognition and Measurement.
Financial assets
As an investment entity, the Company is required to measure its investments
its wholly owned direct subsidiaries at FVTPL. As explained in note 2, the
Company has made a judgement to fair value both the equity and debt investment
in its subsidiary together. Subsequent to initial recognition, the Company
measures its investments on a combined basis at fair value in accordance with
IFRS 9 Financial Instruments: Recognition and Measurement and IFRS 13 Fair
Value Measurement.
Trade receivables, loans and other receivables that are non-derivative
financial assets and that have fixed or determinable payments that are not
quoted in an active market are classified as financial assets at amortised
cost. These assets are measured at amortised cost using the effective interest
method, less allowance for expected credit losses. The Company has assessed
IFRS 9's expected credit loss model and does not consider any material impact
on these financial statements.
They are included in current assets, except where maturities are greater than
12 months after the year end date in which case they are classified as
non-current assets.
Regular purchases and sales of investments are recognised on the trade date -
the date on which the Company commits to purchase or sell the investment.
Financial assets at FVTPL are initially recognised at fair value. Transaction
costs are expensed as incurred within the Statement of Comprehensive Income.
Financial assets are derecognised when the rights to receive cash flows from
the investments have expired or the Company has transferred substantially all
risks and rewards of ownership.
Subsequent to initial recognition, all financial assets and financial
liabilities at FVTPL are measured at fair value.
Gains and losses arising from changes in the fair value of the 'financial
assets at FVTPL' category are presented in the Statement of Comprehensive
Income within investment income in the period in which they arise.
Income from financial assets at FVTPL is recognised in the Statement of
Comprehensive Income within investment income when the Company's right to
receive payments is established.
Financial liabilities and equity
Debt and equity instruments are classified as either financial liabilities or
as equity in accordance with the substance of the contractual arrangement.
The Company's financial liabilities include trade and other payables and other
short-term monetary liabilities which are initially recognised at fair value
and subsequently measured at amortised cost using the effective interest rate
method.
Financial liabilities are initially measured at fair value, net of transaction
costs. Financial liabilities are subsequently measured at amortised cost using
the effective interest method, with interest expense recognised on an
effective interest rate method.
The Company derecognises financial liabilities when, and only when, the
Company's obligations are discharged, cancelled or they expire.
Ordinary shares are classified as equity. An equity instrument is any contract
that evidences a residual interest in the assets of an entity after deducting
all of its liabilities. Equity instruments issued by the Company are
recognised at the proceeds received, net of direct issue costs. Direct issue
costs are charged against the value of ordinary share premium.
b) Taxation
Investment trusts which have approval under Section 1158 of the Corporation
Tax Act 2010 are not liable for taxation on capital gains. The Company has
successfully applied and has been granted approval as an Investment Trust by
HMRC.
Irrecoverable withholding tax is recognised on any overseas income on an
accrual basis using the applicable rate of taxation for the country of origin.
The underlying intermediate holding companies and project companies in which
the Company invests provide for and pay taxation at the appropriate rates in
the countries in which they operate. This is taken into account when assessing
the value of the subsidiaries.
c) Segmental reporting
The Board is of the opinion that the Company is engaged in a single segment of
business, being investment in renewable energy infrastructure assets to
generate investment returns whilst preserving capital. The financial
information used by the Board to manage the Company presents the business as a
single segment.
d) Investment income
Investment income comprises interest income and dividend income received from
the Company's subsidiaries. Interest income is recognised in the Statement of
Comprehensive Income using the effective interest method. Dividend income is
recognised when the Company's entitlement to receive payment is established.
e) Expenses
All expenses are accounted for on an accrual basis. In respect of the analysis
between revenue and capital items presented within the Statement of
Comprehensive Income, all expenses are presented as revenue items except as
follows:
Investment Management fees
As per the Company's investment objective, it is expected that income returns
will make up the majority of ORIT's long-term return. Therefore, based on the
estimated split of future returns (which cannot be guaranteed), 25% of the
investment management fee is charged as a capital item within the Statement of
Comprehensive Income.
Abort costs
Costs incurred on aborted transactions are charged as capital items within the
Statement of Comprehensive Income.
f) Foreign currency
Functional currency and presentation currency
The financial statements are presented in Pounds Sterling which is the
Company's functional and presentation currency. The Board of Directors
considers Sterling the currency that most faithfully represents the economic
effect of the underlying transactions, events and conditions. Sterling is the
currency in which the Company measures its performance and reports its
results, as well as the currency in which it receives subscriptions from its
investors.
Transactions and balances
Transactions denominated in foreign currencies are translated into Sterling at
actual exchange rates as at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies at the period end are reported
at the rates of exchange prevailing at the period end. Any gain or loss
arising from a change in exchange rates subsequent to the date of the
transaction is included as an exchange gain or loss to capital or revenue in
the Statement of Comprehensive Income as appropriate. Foreign exchange
movements on investments are included in the Capital account of the Statement
of Comprehensive Income.
g) Cash and Cash Equivalents
Cash and cash equivalents includes deposits held with banks and other
short-term deposits with original maturities of three months or less. It is a
highly liquid investment and readily convertible to a known amount of cash,
and carries an insignificant risk of changes in value.
h) Dividends payable
Dividends payable to equity shareholders are recognised in the financial
statements when they have been approved by shareholders and become a liability
of the Company. Interim dividends payable are recognised in the period in
which they are paid.
4. Investment income
Year ended 31 December 2022 Year ended 31 December 2021
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Dividend income from investments 17,250 - 17,250 19,169 - 19,169
Interest income from investments 23,057 - 23,057 12,660 - 12,660
Total investment income 40,307 - 40,307 31,829 - 31,829
5. Operating expenses
Year ended 31 December 2022 Year ended 31 December 2021
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment management fees 4,284 1,428 5,712 3,108 1,036 4,144
Directors' fees 186 - 186 141 - 141
Company's auditors' fees:
- in respect of audit services 190 - 190 86 - 86
- in respect of audit-related assurance services - - - - - -
Other operating expenses 756 1,280 2,036 624 584 1,208
Total operating expenses 5,416 2,708 8,124 3,959 1,620 5,579
Further details on the Investment Manager's agreement have been provided in
Note 17.
In addition to the fees disclosed above, £210,100 (2021: £88,000) is payable
to the Company's auditors in respect of audit services provided to
unconsolidated subsidiaries and therefore is not included within the Company's
expenses above.
Included within other operating costs is an amount of £1,280,000 relating to
transaction costs associated with the acquisition of portfolio of assets and
abort costs.
The Company has no employees. Full detail on Directors' fees is provided in
Note 17. The Directors' fees exclude employer's national insurance
contribution which is included as appropriate in other operating expenses.
There were no other emoluments.
6. Taxation
(a) Analysis of charge/(credit) in the year
Year ended 31 December 2022 Year ended 31 December 2021
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Corporation tax 515 (515) - 312 (312) -
Tax charge/(credit) for the year 515 (515) - 312 (312) -
(b) Factors affecting total tax charge/(credit) for the year:
The effective UK corporation tax rate applicable to the Company for the period
is 19% (2021: 19%). The tax charge/(credit) differs from the charge/(credit)
resulting from applying the standard rate of UK corporation tax for an
investment trust company. The differences are explained below:
Year ended 31 December 2022 Year ended 31 December 2021
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Profit/(loss) before taxation 34,942 34,894 69,836 27,875 6,914 34,789
Corporation tax at 19% 6,639 6,630 13,269 5,296 1,314 6,610
Effects of:
Expenses not deductible for tax purposes - (7,145) (7,145) - (1,626) (1,626)
Income not taxable (3,278) - (3,278) (3,642) - (3,642)
Dividends designated as interest distributions (2,852) - (2,852) (1,342) - (1,342)
Movement in deferred tax not recognised 6 - 6 - - -
Total tax charge/(credit) for the year 515 (515) - 312 (312) -
The Directors are of the opinion that the Company has complied with the
requirements for maintaining investment trust status for the purposes of
section 1158 of the Corporation Tax Act 2010. This allows certain capital
profits of the Company to be exempt from UK tax. Additionally, the Company may
designate dividends wholly or partly as interest distributions for UK tax
purposes. Interest distributions are treated as tax deductions against taxable
income of the Company so that investors do not suffer double taxation on their
returns.
The financial statements do not directly include the tax charges for any of
the Company's intermediate holding companies or subsidiaries as these are held
at fair value. Each of these companies are subject to taxes in the countries
in which they operate.
The Company has an unrecognised deferred tax asset of £8,117 (2021: £882)
based on the excess unutilised operating expenses of £32,470 (2021: £3,528)
at the prospective UK corporation tax rate of 19%. A deferred tax asset has
not been recognised in respect of these operating expenses and will be
recoverable only to the extent that the Company has sufficient future taxable
revenue.
7. Dividends
The dividends reflected in the financial statements for the year are as
follows:
Year ended 31 December 2022 Year ended 31 December 2021
Pence per Revenue Total Pence per Revenue Total
Ordinary reserve £'000 Ordinary reserve £'000
Share £'000 Share £'000
Q4 2021 Dividend - paid 4 March 2022 (2021: 5 March 2021) 1.25 7,062 7,062 1.06 3,710 3,710
Q1 2022 Dividend - paid 27 May 2022 (2021: 7 June 2021) 1.31 7,401 7,401 1.25 4,375 4,375
Q2 2022 Dividend - paid 26 August 2022 (2021: 27 August 2021) 1.31 7,401 7,401 1.25 6,187 6,187
Q3 2022 Dividend - paid 25 November 2022 (2021: 26 November 2021) 1.31 7,401 7,401 1.25 6,187 6,187
Total 5.18 29,265 29,265 4.81 20,459 20,459
The dividend relating to the year/period, which is the basis on which the
requirements of Section 1159 of the Corporation Tax Act 2010 are considered is
detailed below:
Year ended 31 December 2022 Year ended 31 December 2021
Pence per Revenue Total Pence per Revenue Total
Ordinary reserve £'000 Ordinary reserve £'000
Share £'000 Share £'000
Q1 2022 Dividend - paid 27 May 2022 (2021: 7 June 2021) 1.31 7,401 7,401 1.25 4,375 4,375
Q2 2022 Dividend - paid 26 August 2022 (2021: 27 August 2021) 1.31 7,401 7,401 1.25 6,187 6,187
Q3 2022 Dividend - paid 25 November 2022 (2021: 26 November 2021) 1.31 7,401 7,401 1.25 6,187 6,187
Q4 2022 Dividend - paid 24 February 2023 (2021: 17 February 2022) 1.31 7,401 7,401 1.25 7,062 7,062
Total 5.24 29,604 29,604 5.00 23,811 23,811
On 31 January 2023 the Company declared an interim dividend of 1.31p per
Ordinary Share in respect of the three months to 31 December 2022, a total of
£7.4 million. The ex-dividend date was 9 February 2023, the record date was
10 February 2023, and the dividend was paid on 24 February 2023.
8. Earnings per Ordinary Share
Earnings per Ordinary Share is calculated by dividing the profit attributable
to equity shareholders of the Company by the weighted average number of
Ordinary Shares in issue during the year/period as follows:
Year ended 31 December 2022 Year ended 31 December 2021
Revenue Capital Total Revenue Capital Total
Profit attributable to the equity holders of the Company (£'000) 34,427 35,409 69,836 28,817 6,602 34,789
Weighted average number of Ordinary Shares in issue (000) 564,928 564,928 564,928 424,089 424,089 424,089
Earnings per Ordinary Share (pence) - basic and diluted 6.09p 6.27p 12.36p 6.65p 1.55p 8.20p
There is no difference between the weighted average Ordinary or diluted number
of Shares.
9. Investments at fair value through profit or loss
As set out in Note 2, the Company accounts for its interest in its wholly
owned direct subsidiary as an investment at fair value through profit or loss.
a) Summary of valuation
Year ended Year ended
31 December 31 December
2022 2021
£'000 £'000
Opening balance 485,417 258,680
Portfolio of assets acquired 79,194 207,487
Additional investment in intermediate holding companies 4,386 5,029
Distributions received from investments (38,108) (26,169)
Investment income 40,307 31,829
Movement in fair value of investments 37,603 8,561
Total investments at the end of the year 608,799 485,417
The additional investment in the intermediate holding companies include
acquisition costs associated with the purchase of the portfolio of assets
totalling £3.2 million (2021: £2.2m), which have been expensed to the profit
and loss in these companies and £1.2 million (2021: £nil) of other expenses
paid by the Company on behalf of the intermediate holding companies. In the
prior year, this cost included an amount of £1.2 million associated with the
RCF in ORIT Holdings II Limited and an additional investment of £1.6 million
following the completion of asset life extensions on the UK Solar portfolio.
b) Reconciliation of movement in fair value of the Company's investments
The table below shows the movement in the fair value of the Company's
investments. These assets are held through intermediate holding companies.
Year ended Year ended
31 December 31 December
2022 2021
£'000 £'000
Opening balance 485,417 258,680
Portfolio of assets acquired 209,666 209,965
Distributions received (40,129) (26,668)
Movement in fair value 88,760 41,554
Fair value of portfolio of assets at the end of the year 743,714 483,531
Cash held in intermediate holding companies 4,509 1,293
Bank loans held in intermediate holding companies (127,200)
Fair value of other net (liabilities)/assets in intermediate holding companies (12,224) 593
Fair value of Company's investments at the end of the year 608,799 485,417
c) Investment gains in the year
Year ended Year ended
31 December 31 December
2022 2021
£'000 £'000
Movement in fair value of investments 37,603 8,561
Gains on investments 37,603 8,561
Of the total distributions received from investments, £10.7 million (2021:
£7.9m) relates to income originated from the Company's UK investments and
£29.4 million (2021: £18.3m) relates to income originated from its European
investments.
Fair value of portfolio of assets
The Investment Manager has carried out fair market valuations of the
investments as at 31 December 2022.
The Directors have satisfied themselves as to the methodology used, the
discount rates applied and the valuation. All investments are in renewable
energy assets and are valued using a discounted cash flow methodology. As
explained in note 3a, the equity and debt instruments are valued as a whole.
This is done using a blended discount rate and the value attributed to debt
investments represents their face value, with the residual value attributed to
equity investments. The weighted average costs of capital applied to the
portfolio of assets ranges from 5.5% to 9.6%.
The following assumptions were used in the discounted cash flow valuations:
As at 31 December 2022 As at 31 December 2021
UK - long-term inflation rate 6.7% during 2023, declining to 3.00% in 2027 and then to 2.25% from 2030 3.00% to April 2030; 2.25% thereafter.
onwards.
UK - corporation tax rate 19.00% to April 2023; 25.00% thereafter. 19.00% to April 2023; 25.00% for next three years; and then reducing by 1.00%
annually until 19.00%.
Sweden - long-term inflation rate 2.00% 2.00%
Sweden - corporation tax rate 20.60% 20.60%
France - long-term inflation rate 2.00% 2.00%
France - corporation tax rate 25.00% 25.00%
Poland - long-term inflation rate 2.50% 2.5%
Poland - corporation tax rate 19.00% 19.00%
Finland - long-term inflation rate 2.00% 2.00%
Finland - corporation tax rate 20.00% 20.00%
Euro/sterling exchange rate 1.1277 1.1907
Zloty/sterling exchange rate 5.3009 5.4702
Energy yield assumptions P50 case P50 case
As at 31 December 2022, the fair value of the Crossdykes onshore wind farm in
the UK and the Leeskow onshore wind farm in Germany is deemed approximate to
cost given the close proximity of these acquisitions to the year end.
The fair value of the investments in development assets held through joint
venture arrangements by ORIT JV Holdings 2 Limited and ORIT JV Holdings 3
Limited is also deemed to be equal to cost due to the nature of these
investments.
Other key assumptions include:
Power Price Forecasts
The power price forecasts used in the valuations are based on market forward
prices in the near-term, followed by an equal blend of up to three independent
and widely used market expert consultants' relevant technology-specific
capture price forecasts for each asset. Whilst government announcements over
energy policies are now clearer, given volatility in power prices exhibited
over 2022 and the general downward trend in pricing over Q4, the Board and the
Investment Manager still consider it appropriate to include a modest discount
to the prevailing forward prices of 20% over the 2023 to 2025 period, in
addition to the normal discounts to reflect the lower prices typically
captured by wind and solar generators.
Asset Lives
The length of the period of operations assumed in the valuation is determined
on an asset-by-asset basis taking into account the lease agreements, permits
or planning permissions in place as well as any extension rights, renewal
regimes or wider policy considerations, together with the technical
characteristics of the asset.
Decommissioning Costs
Where applicable, the present value of the estimated costs to restore the land
back to its original use are included in the valuations as a cash outflow at
the end of the asset life.
Fair value of intermediate holding companies
The assets in the intermediate holding companies substantially comprise
working capital balances, therefore the Directors consider the fair value to
be equal to the book values.
The sensitivity to unobservable inputs is based on management's expectation of
reasonable possible shifts in these inputs. The valuation sensitivity of each
assumption is shown in Note 15.
Please see details of the valuation process outlined in the Annual Report.
10. Trade and other receivables
As at 31 December 2022 As at 31 December 2021
£'000
£'000
Accrued interest receivable - 1
Other receivables 775 449
Total 775 450
11. Trade and other payables
As at 31 December 2022 As at 31 December 2021
£'000
£'000
Accrued expenses 1,917 2,124
Total 1,917 2,124
12. Share capital
Year ended 31 December 2022 Year ended 31 December 2021
Allotted, issued and fully paid: Number of Nominal value of shares (£) Number of Nominal value of shares (£)
shares
shares
Opening balance 564,927,536 5,649,275 350,000,000 3,500,000
Allotted following admission to LSE
Share issue raised pursuant to the Placing, Open Offer, Offer for Subscription - - 144,927,536 1,449,275
and Intermediaries Offer
Share issue raised pursuant to the Placing and the REX Retail Offer - - 70,000,000 700,000
Closing balance 564,927,536 5,649,275 564,927,536 5,649,275
On 9 July 2021 the Company issued 144,927,536 shares at an issue price 103.5
pence, raising gross proceeds of approximately £150 million pursuant to the
Placing, Open Offer, Offer for Subscription and Intermediaries Offer.
On 7 December 2021 the Company issued 70,000,000 shares at an issue price
105.5 pence, raising gross proceeds of approximately £73.9 million pursuant
to the Placing and REX Retail Offer.
As at 31 December 2022, the Company had total share premium of £217,283,000
(2021: £217,283,000).
13. Special reserve
As indicated in the Company's prospectus dated 19 November 2019, following
admission of the Company's Ordinary Shares to trading on the London Stock
Exchange, the Directors applied to the Court and obtained a judgement on
18 February 2020 to cancel the amount standing to the credit of the share
premium account of the Company.
As stated by the Institute of Chartered Accountants in England and Wales
("ICAEW") and the Institute of Chartered Accountants in Scotland ("ICAS") in
the technical release TECH 02/17BL, The Companies (Reduction of Share Capital)
Order 2008 SI 2008/1915 ("the Order") specifies the cases in which a reserve
arising from a reduction in a company's capital (i.e., share capital, share
premium account, capital redemption reserve or redenomination reserve) is to
be treated as a realised profit as a matter of law. The Order also disapplies
the general prohibition in section 654 on the distribution of a reserve
arising from a reduction of capital. The Order provides that if a limited
company having a share capital reduces its capital and the reduction is
confirmed by order of court, the reserve arising from the reduction is treated
as a realised profit unless the court orders otherwise.
The amount of the share premium account cancelled and credited to the
Company's Special reserve is £339,500,000, which can be utilised to fund
distributions by way of dividends to the Company's shareholders.
14. Net asset per Ordinary Share (pence)
As at 31 December 2022 As at 31 December 2021
Total shareholders' equity (£'000) 618,260 577,689
Number of Ordinary Shares in issue ('000) 564,928 564,928
Net asset value per Ordinary Share (pence) 109.44p 102.26p
15. Financial instruments by category
As at 31 December 2022
Financial Financial Financial Total
assets at
amortised cost assets at liabilities at £'000
£'000 fair value amortised
through
cost
profit or loss
£'000
£'000
Non-current assets
Investments at fair value through profit or loss - 608,799 - 608,799
Current assets
Trade and other receivables 775 - - 775
Cash and cash equivalents 10,603 - - 10,603
Total assets 11,378 608,799 - 620,177
Current liabilities
Trade and other payables - - (1,917) (1,917)
Total liabilities - - (1,917) (1,917)
Net assets 11,378 608,799 (1,917) 618,260
As explained in Note 3a, the Company values its investments as a whole. In the
tables above of the total figure of £608,799,000 for financial assets at fair
value through profit or loss, £506,482,000 relates to the face value of debt
investments.
As at 31 December 2021
Financial Financial Financial Total
assets at
amortised cost assets at liabilities at £'000
£'000 fair value amortised
through
cost
profit or loss
£'000
£'000
Non-current assets
Investments at fair value through profit or loss - 485,417 - 485,417
Current assets
Trade and other receivables 450 - - 450
Cash and cash equivalents 93,946 - - 93,946
Total assets 94,396 485,417 - 579,813
Current liabilities
Trade and other payables - - (2,124) (2,124)
Total liabilities - - (2,124) (2,124)
Net assets 94,396 485,417 (2,124) 577,689
As explained in Note 3a, the Company values its investments as a whole. In the
table above of the total figure of £485,417,000 for financial assets at fair
value through profit or loss, £421,203,000 relates to the face value of debt
investments.
In the tables above, the fair value of the financial instruments that are
measured at amortised cost do not materially differ from their carrying
values.
IFRS 13 requires the Company to classify its investments in a fair value
hierarchy that reflects the significance of the inputs used in making the
measurements. IFRS 13 establishes a fair value hierarchy that prioritises the
inputs to valuation techniques used to measure fair value. The three levels of
fair value hierarchy under IFRS 13 are as follows:
Level 1: fair value measurements are those derived from quoted prices
(unadjusted) in active markets for identical assets or liabilities
Level 2: fair value measurements are those derived from inputs other than
quoted prices included within Level 1 that are observable for the asset or
liability, either directly (i.e., as prices) or indirectly (i.e., derived from
prices)
Level 3: fair value measurements are those derived from valuation techniques
that include inputs to the asset or liability that are not based on observable
market data (unobservable inputs)
As at 31 December 2022
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Financial assets
Investments at fair value through profit or loss - - 608,799 608,799
Total financial assets - - 608,799 608,799
As at 31 December 2021
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Financial assets
Investments at fair value through profit or loss - - 485,417 485,417
Total financial assets - - 485,417 485,417
There were no Level 1 or Level 2 assets or liabilities during the year. There
were no transfers between Level 1 and 2, Level 1 and 3 or Level 2 and 3 during
the year.
Included within investments at fair value through profit or loss is an amount
of £5.0 million (2021: £1.7m) relating to two derivative options (associated
with the conditional acquisitions in Spain and Ireland) recognised in an
intermediate holding company.
Reconciliation of Level 3 fair value measurement of financial assets and
liabilities
An analysis of the movement between opening to closing balances of the
investments at fair value through profit or loss (all classified as Level 3)
is given in Note 9.
The fair value of the investments at fair value through profit or loss
includes the use of Level 3 inputs. Refer to Note 9 for details on the
valuation methodology.
Valuation Sensitivities
Discount rate
The discount rate is considered the most significant unobservable input
through which an increase or decrease would have a material impact on the fair
value of the investments at fair value through profit or loss.
An increase of 0.5% in the discount rate (levered cost of equity) would cause
a decrease in total portfolio value of 6.9p per Ordinary Share and a decrease
of 0.5% in the discount rate would cause an increase in total portfolio value
of 7.4p per Ordinary Share.
Inflation rate
The sensitivity of the investments to movement in inflation rates is as
follows:
A decrease of 0.5% in inflation rates would cause a decrease in total
portfolio value of 6.0p per Ordinary Share and an increase of 0.5% in
inflation rates would cause an increase in total portfolio value of 6.5p per
Ordinary Share.
Power price
Wind and solar assets are subject to movements in power prices. The
sensitivities of the investments to movement in power prices are as follows:
A decrease of 10% in power price would cause a decrease in the total portfolio
value of 13.7p per Ordinary Share and an increase of 10% in power price would
cause an increase in the total portfolio value of 13.6p per Ordinary Share.
Generation
Wind and solar assets are subject to power generation risks. The sensitivities
of the investments to movement in level of power output are as follows:
The fair value of the investments is based on a "P50" level of power output
being the expected level of generation over the long-term. An assumed "P90"
level of power output (i.e. a level of generation that is below the "P50",
with a 90% probability of being exceeded) would cause a decrease in the total
portfolio value of 23.6p per Ordinary Share and an assumed "P10" level of
power output (i.e. a level of generation that is above the "P50", with a 10%
probability of being achieved) would cause an increase in the total portfolio
value of 22.4p per Ordinary Share.
Foreign exchange
The sensitivity of the investments to movement in FX rates is as follows:
An increase of 10% in FX rates would cause a decrease in total portfolio value
of 2.1p per Ordinary Share and a decrease of 10% in inflation rates would
cause an increase in total portfolio value of 2.1p per Ordinary Share.
Of the portfolio as at 31 December 2022, 59% (2021: 46%) of the NAV is
denominated in non-sterling currencies.
16. Financial risk management
The Company's activities expose it to a variety of financial risks; including
foreign currency risk, interest rate risk, power price risk, credit risk and
liquidity risk. The Board of Directors has overall responsibility for
overseeing the management of financial risks, however the review and
management of financial risks are delegated to the AIFM. Each risk and its
management are summarised below.
(i) Currency risk
Foreign currency risk is defined as the risk that the fair values of future
cashflows will fluctuate because of changes in foreign exchange rates. The
Company seeks to minimise the volatility of cash flows in non-GBP currencies
over the short to medium-term through its foreign exchange hedging policy;
which requires a minimum of 50% of all forecasted distributions denominated in
foreign currencies to be hedged over 5 years in order to give the Company some
certainty over the future cashflows and reduce its exposure to foreign
exchange risk. The Company also has the ability to hedge a portion of value
thereafter so as to limit volatility of the Company's NAV to foreign exchange
risk.
The portfolio of assets in which the Company invests all conduct their
business and pay interest, dividends and principal in sterling, with the
exception of the euro-denominated investments which at 31 December 2022
comprised 48% (2021: 53%) of the portfolio by value on an invested basis and
53% (2021: 54%) of the portfolio by value on a committed basis; and
zloty-denominated investments which at 31 December 2022 comprised 11% (2021:
11%) of the portfolio by value on an invested basis and 9% (2021: 9%) of the
portfolio by value on a committed basis. The valuation sensitivity to FX rates
is shown in Note 15.
(ii) Interest rate risk
The Company's interest rate risk on interest bearing financial assets is
limited to interest earned on cash and loan investments into project
companies, which yield interest at a fixed rate. The portfolio's cashflows are
continually monitored and reforecast, both over the near future and the
long-term, to analyse the cash flow returns from investments.
The Group may use borrowings to finance the acquisition of investments and the
forecasts are used to monitor the impact of changes in borrowing rates against
cash flow returns from investments as increases in borrowing rates will reduce
net interest margins. The Group's policy is to ensure that interest rates are
sufficiently hedged to protect the Group's net interest margins from
significant fluctuations when entering into material medium/ long-term
borrowings. This includes engaging in interest rate swaps or other interest
rate derivative contracts.
The Company's interest and non-interest bearing assets and liabilities are
summarised below:
As at 31 December 2022
Interest Non-interest
bearing bearing Total
Assets £'000 £'000 £'000
Cash and cash equivalents - 10,603 10,603
Trade and other receivables - 775 775
Investments at fair value through profit or loss 506,482 102,317 608,799
Total assets 506,482 113,695 620,177
Liabilities
Trade and other payables - (1,917) (1,917)
Total liabilities - (1,917) (1,917)
As at 31 December 2021
Interest Non-interest
bearing bearing Total
Assets £'000 £'000 £'000
Cash and cash equivalents 64,963 28,983 93,946
Trade and other receivables - 450 450
Investments at fair value through profit or loss 421,203 64,214 485,417
Total assets 486,166 93,647 579,813
Liabilities
Trade and other payables - (2,124) (2,124)
Total liabilities - (2,124) (2,124)
In the tables above, the interest bearing asset value for investments at fair
value through profit or loss relates to the face value of debt investments.
(iii) Power Price risk
The wholesale market price of electricity and gas is volatile and is affected
by a variety of factors, including market demand for electricity and gas, the
generation mix of power plants, government support for various forms of power
generation, as well as fluctuations in the market prices of commodities and
foreign exchange. Whilst some of the Company's renewable energy projects
benefit from fixed prices, others have revenue which is in part based on
wholesale electricity and gas prices. The Investment Manager continually
monitors energy price forecast and aims to put in place mitigating strategies,
such as hedging arrangements or fixed PPA contracts to reduce the exposure of
the Company to this risk.
Further information on the impact of power prices over the year is provided in
the Portfolio Valuation section of the Investment Manager's report in the
Annual Report .
(iv) Credit risks
Credit risk is the risk that a counterparty of the Group will be unable or
unwilling to meet a commitment that it has entered into with the Group. The
credit standing of subcontractors is reviewed, and the risk of default
estimated for each significant counterparty position. Monitoring is on-going,
and year end positions are reported to the Board on a quarterly basis. The
Group's largest credit risk exposure to a project at 31 December 2022 was to
Goldbeck Solar Limited on Breach Solar representing 6% of the portfolio by
value (2021: Nordex SE on the Cumberhead project: 6%).
The Company's investments enter into Power Price Agreements ("PPA") with a
range of providers through which electricity is sold. The largest PPA provider
to the portfolio at 31 December 2022 was EDF who provided PPAs to projects in
respect of 18% of the portfolio by value (2021: Npower: 18%).
Credit risk also arises from cash and cash equivalents, derivative financial
instruments and deposits with banks and financial institutions. The Company
and its subsidiaries mitigate their risk on cash investments and derivative
transactions by only transacting with major international financial
institutions with high credit ratings assigned by international credit rating
agencies.
The Company has assessed IFRS 9's expected credit loss model and does not
consider any material impact on these financial statements. No trade and other
receivables balances are credit-impaired at the reporting date.
The Company's commitment in respect of its conditional acquisition is
accounted for as a derivative option in an intermediate holding company.
(v) Liquidity risks
Liquidity risk is the risk that the Group may not be able to meet its
financial obligations as they fall due. The AIFM and the Board continuously
monitor forecast and actual cashflows from operating, financing, and investing
activities to consider payment of dividends, repayment of trade and other
payables or funding further investing activities. The Group ensures it
maintains adequate reserves, banking facilities and reserve borrowing
facilities by continuously monitoring forecast and actual cash flows and
matching the maturity profiles of financial assets and liabilities.
The Group's investments are generally in private companies, in which there is
no listed market and therefore such investment would take time to realise, and
there is no assurance that the valuations placed on the investments would be
achieved from any such sale process.
Financial assets and liabilities by maturity at the year are shown below:
31 December 2022
Less than 1 More than 5
year 1-5 years years Total
£'000 £'000 £'000 £'000
Assets
Investments at fair value through profit
or loss - - 608,799 608,799
Trade and other receivables 775 - - 775
Cash and cash equivalents 10,603 - - 10,603
Liabilities
Trade and other payables (1,917) - - (1,917)
9,461 - 608,799 618,260
31 December 2021
Less than 1 More than 5
year 1-5 years years Total
£'000 £'000 £'000 £'000
Assets
Investments at fair value through profit or loss - - 485,417 485,417
Trade and other receivables 450 - - 450
Cash and cash equivalents 93,946 - - 93,946
Liabilities
Trade and other payables (2,124) - - (2,124)
92,272 - 485,417 577,689
Capital management
The Company's capital management objective is to ensure that the Company will
be able to continue as a going concern while maximising the return to equity
shareholders. The Company's investment objective is to provide investors with
an attractive and sustainable level of income returns, with an element of
capital growth, by investing in a diversified portfolio of Renewable Energy
Assets in the UK, Europe and Australia.
The Company considers its capital to comprise ordinary share capital, special
reserve and retained earnings. The Company is not subject to any externally
imposed capital requirements. The Company's total share capital and reserves
shown in the Statement of Financial Position are £618,260,000 (2021: £
577,689,000).
The Company has implemented an efficient financing structure that enables it
to manage its capital effectively. The Company's capital structure comprises
equity only (refer to the statement of changes in equity).
The Company's direct subsidiary, ORIT Holdings II Limited, has a £246 million
revolving credit facility with Banco de Sabadell, Intesa Sanpaolo, National
Australia Bank, NatWest and Santander. The facility was £77.2 million drawn
at 31 December 2022 (2021: £nil).
The Board, with the assistance of the Investment Manager, monitors and reviews
the Company's capital on an ongoing basis.
· Share capital represents the 1p nominal value of the issued share
capital.
· The share premium account arose from the net proceeds of issuing
new shares.
· The capital reserve reflects any increases and decreases in the
fair value of investments which have been recognised in the capital column of
the Statement of Comprehensive Income.
17. Related party transactions
During the year, interest totalling £23,057,000 (2021: £12,660,000) was
earned, in respect of the long-term interest‑bearing loan between the
Company and its subsidiaries. At the period end, no interest earned was
outstanding.
AIFM and Investment Manager
The Company has appointed Octopus AIF Management Limited to be the Alternative
Investment Fund Manager of the Company (the "AIFM") for the purposes of
Directive 2011/61/EU of the European Parliament and of the Council on
Alternative Investment Fund Managers. Accordingly, the AIFM is responsible for
the portfolio management of the Company and for exercising the risk management
function in respect of the Company. The AIFM has delegated portfolio
management services to Octopus Renewables Limited (trading as Octopus Energy
Generation), the Company's Investment Manager.
The AIFM is entitled to a management fee of 0.95% per annum of Net Asset Value
of the Company up to £500 million and 0.85% per annum of Net Asset Value in
excess of £500 million, payable quarterly in arrears. No performance fee or
asset level fees are payable to the AIFM under the Management Agreement.
During the year, the Investment management fee charged to the Company by the
AIFM was £5,712,000 (2021: £4,144,000), of which £1,451,000 (2021:
£1,364,000) remained payable at the year end date.
Directors
The Company is governed by a Board of Directors (the "Board"), all of whom are
independent and non-executive. During the period, the Board received fees for
their services of £186,000 (2021: £141,000) and were paid £7,900 (2021:
£2,700) in expenses. As at the period end, there were no outstanding fees
payable to the Board.
The Directors had the following shareholdings in the Company, all of which
were beneficially owned.
Ordinary Shares Ordinary Ordinary
as at date of
Shares as at
Shares as at
this report
31 December 2022
31 December 2021
Philip Austin MBE 165,518 165,518* 108,867*
James Cameron 65,306 65,306 65,306
Elaina Elzinga - - -
Audrey McNair 51,383 51,383 51,383
* with effect from 23 November 2021, Mr. Austin's shares have been held
jointly with Mrs. J Austin, a PCA of Mr. Austin
18. Subsidiaries, joint ventures and associates
As a result of applying Investment Entities (Amendments to IFRS 10, IFRS 12
and IAS 27), no subsidiaries have been consolidated in these financial
statements. The Company's subsidiaries are listed below:
Place of Registered Ownership
Name Category business Office* interest
ORIT Holdings Limited Intermediate Holdings UK A 100%
ORIT Holdings II Limited Intermediate Holdings UK A 100%
ORIT UK Acquisitions Limited Intermediate Holdings UK A 100%
Abbots Ripton Solar Energy Limited Project company UK A 100%
Chisbon Solar Farm Limited Project company UK A 100%
Jura Solar Limited Project company UK A 100%
Mingay Farm Limited Project company UK A 100%
NGE Limited Project company UK A 100%
Sun Green Energy Limited Project company UK A 100%
Westerfield Solar Limited Project company UK A 100%
Wincelle Solar Limited Project company UK A 100%
Heather Wind AB Project company Sweden B 100%
Solstice 1A GmbH Portfolio-level Holdings Germany C 100%
SolaireCharleval SAS Project company France D 100%
SolaireIstres SAS Project company France D 100%
SolaireCuges-Les-Pins SAS Project company France D 100%
SolaireChalmoux SAS Project company France D 100%
SolaireLaVerdiere SAS Project company France D 100%
SolaireBrignoles SAS Project company France D 100%
SolaireSaint-Antonin-du-Var SAS Project company France D 100%
Centrale Photovoltaique de IOVI 1 SAS Project company France D 100%
Centrale Photovoltaique de IOVI 3 SAS Project company France D 100%
Arsac 2 SAS Project company France D 100%
Arsac 5 SAS Project company France D 100%
SolaireFontienne SAS Project company France D 100%
SolaireOllieres SAS Project company France D 100%
Eylsia SAS Portfolio-level Holdings France E 100%
CEPE Cerisou Project company France F 100%
Cumberhead Wind Energy Limited Project company UK A 100%
ORIT Irish Holdings 2 Limited Portfolio-level Holdings UK A 100%
ORIT Irish Holdings Limited Portfolio-level Holdings UK A 100%
Copernicus Windpark Sp. Z.o.o Project company Poland G 100%
Forthewind Sp. Z.o.o Project company Poland G 100%
Nordic Power Development Limited Portfolio-level Holdings UK A 100%
Saunamaa Wind Farm Oy Project company Finland H 100%
Vöyrinkangas Wind Farm Oy Project company Finland H 100%
ORI JV Holdings Limited Portfolio-level Holdings UK A 50%
ORI JV Holdings 2 Limited Portfolio-level Holdings UK A 50%
Simply Blue Energy Holdings Limited Portfolio-level Holdings Ireland I 15.5%
South Kilbraur Wind Farm Limited Project company UK J 25%
Windburn Wind Farm Limited Project company UK J 25%
Wind 2 Project 2 Limited Project company UK J 25%
Wind 2 Project 5 Limited Project company UK J 25%
Wind 2 Project 3 Limited Project company UK J 25%
Kirkton Wind Farm Limited Project company UK J 25%
Bwlch Gwyn Wind Farm Limited Project company UK J 25%
Wind 2 Project 6 Limited Project company UK J 25%
Wind 2 Project 4 Limited Project company UK J 25%
ORI JV Holdings 3 Limited Portfolio-level Holdings UK A 50%
Nordic Renewables Limited Portfolio-level Holdings UK A 50%
Nordic Renewables Holdings 1 Limited Portfolio-level Holdings UK A 50%
ORI JV Holdings 4 Limited Portfolio-level Holdings UK A 50%
ORI JV Holdings 5 Limited Portfolio-level Holdings UK A 51%
ORI JV Holdings 5 Holdco Limited Portfolio-level Holdings UK A 51%
ORI JV Holdings 6 Limited Portfolio-level Holdings UK A 50%
ORIT Lincs Holdco Limited Portfolio-level Holdings UK A 100%
ORI Lincs Holdings Limited Portfolio-level Holdings UK A 67%
Clyde SPV Limited Portfolio-level Holdings UK K 50%
Blota Germany GmbH Portfolio-level Holdings Germany L 100%
Blota GP GmbH Portfolio-level Holdings Germany L 100%
UKA Windenergie Leeskow GmbH Portfolio-level Holdings Germany M 100%
UGE Leeskow GmbH & Co. KG Project company Germany M 100%
Umweltgerechte Energie Infrastrukturgesellschaft Leeskow mbH & Co. KG Project company Germany M 100%
Burwell 11 Solar Limited Project company UK A 100%
Crossdykes WF Limited Project company UK N 51%
UK Green Investment Lyle Limited Portfolio-level Holdings UK K 50%
Lincs Wind Farm (Holding) Limited Portfolio-level Holdings UK O 15.5%
Lincs Wind Farm Limited Project company UK P 15.5%
* Registered offices:
A - 6th Floor, 33 Holborn, London, EC1N 2HT, England
B - Lilla Nygatan 1, 111 28 Stockholm, Sweden
C - Maximilianstraße, 3580539 München, Germany
D - 52 Rue de la Victoire 75009, Paris, France
E - 4 Rue de Marivaux, 75002 Paris, France
F - Z.I de Courtine, 330 rue du Mourelet, 84000. Avignon, France
G - Wojska Polskiego 24-26, 75-712 Koszalin,
H - Teknobulevardi 3-5, 01530 Vantaa, Finland
I - Woodbine Hill, Kinsalebeg, Youghal, Co. Cork, Ireland
J - Wind 2 Office, 2 Walker Street, Edinburgh, Scotland, EH3 7LB
K - 8 White Oak Square, London Road, Swanley, Kent, United Kingdom, BR8
7AG
L - c/o Ashurst LLP, OpernTurm, Bockenheimer Landstraße 2-4, 60306
Frankfurt
M - Dorfstraße 20a, 18276 Lohmen
N - 58 Morrison Street, Edinburgh, United Kingdom, EH3 8BP
O - 5 Howick Place, London, United Kingdom, SW1P 1WG
P - 13 Queens Road, Aberdeen, Scotland, AB15 4YL
As shown in Annual Report, ORIT Holdings II Limited is the only direct
subsidiary of the Company. All other subsidiaries are held indirectly.
19. Guarantees and other commitments
The Company guarantees the foreign exchange hedges entered into by its
intermediate holding companies to enable it to minimise its exposure to
changes in underlying foreign exchange rates.
As at 31 December 2022, the Company has guarantees in respect of the future
investment obligations associated with the Breach Solar plant totalling £41.5
million (2021: £nil).
As at 31 December 2022 the Company's subsidiaries had future investment
obligations totalling £111.2 million (2021: £141.7m) relating to its wind
farms currently undergoing construction and its conditional acquisitions in
Spain and Ireland. The intermediate holding companies have provided guarantees
in respect of these commitments.
20. Contingent acquisition
On 30 September 2020 an intermediate holding company, ORIT Holdings Limited,
entered into a Share Purchase Agreement ("SPA") for the acquisition of a 100%
interest in a portfolio of solar PV assets located in southern Spain. The
purchase price will be based on the MWp of the portfolio and will only become
payable once the assets become ready to build. With the exception of the
initial payment, no other assets or liabilities have been recognised in
respect of this transaction as at 31 December 2022. If the conditions of the
sale are not satisfied, the initial payment of £1.8 million is fully
refundable and backed by a Bank Guarantee.
On 26 July 2021 an intermediate holding company, ORIT Holdings Limited,
entered into a Share Purchase Agreement ("SPA") for the acquisition of a 100%
interest in a portfolio of five solar PV assets in Ireland. Completion of the
acquisition is conditional upon four of the sites becoming fully operational,
which is expected to occur in H2 2023. Total consideration for the acquisition
is expected to be between approximately €169 million and €193 million
(approximately £144m to £165m) which will, apart from any deferred
consideration in respect of the fifth site, be payable on completion. The
Company has secured a fully amortising debt facility of up to €88 million
(approximately £76m) from Allied Irish Banks plc and La Banque Postale to
part finance the acquisition of the operational sites. A derivative asset of
£3.3 million (2021: £nil) has been recognised in respect of this transaction
as at 31 December 2022 in an intermediate holding company. Post year end, the
Company has committed to the fifth site.
On 17 June 2022, an intermediate holding company, ORIT Holdings Limited,
entered into an agreement to acquire a 50% stake in a 12MW/24MWh
ready-to-build battery storage project in Bedfordshire, UK, from Gridsource.
The acquisition was made alongside another Octopus Managed Fund and completed
post period end in January 2023 conditional upon the lease agreement for the
project site coming into effect.
21. Post period end events
On 20 January 2023, and having agreed the lease for the site, the Company has
completed the acquisition of a 50% stake in a 12MW/24MWh ready-to-build
battery storage project in Bedfordshire, UK. The consideration for the
acquisition and the Company's share of future construction costs is expected
to be approximately £4 million.
On 31 January 2023 the Company declared an interim dividend in respect of the
three months ended 31 December 2022 of 1.31p per Ordinary Share for £7.4
million based on a record date of 10 February 2023 and ex-dividend date of
9 February 2023 and the number of Ordinary Shares in issue being 564,927,536.
This dividend was paid on 24 March 2023.
On 27 February 2023 the Company announced that ORIT Holdings II Limited had
refinanced and increased its multi‑currency RCF. The committed £270.8m RCF
(which was previously £150.0m committed, pre-accordion) has a three year term
to 24 February 2026 and can be drawn in GBP, EUR, AUD and USD. The RCF has an
interest rate of 2.0% above SONIA (or equivalent reference rate for other
currencies) and an improved margin compared with the previous facility's
margin of 2.3%. It also has an uncommitted accordion feature allowing the
facility to be increased in size by up to a further £150m. The facility has
been provided by a group of four lenders: National Australia Bank, NatWest,
Santander and Allied Irish Banks.
On 2 March 2023, the contingent acquisition in the portfolio of Spanish PV
assets was re-negotiated. From this date, the Company no longer has an
obligation to acquire the assets once they reach ready to build status, but
instead has the option to acquire them.
There are no other events after the balance sheet date which are required to
be disclosed.
Other Information
Alternative Performance Measures
In reporting financial information, the Company presents alternative
performance measures, "APMs", which are not defined or specified under the
requirements of IFRS. The Company believes that these APMs, which are not
considered to be a substitute for or superior to IFRS measures, provide
stakeholders with additional helpful information on the performance of the
Company. The APMs presented in this report are shown below:
Gross asset value (GAV)
The Company's gross assets comprise the net asset values of the Company's
Ordinary Shares and the debt held in unconsolidated subsidiaries
As at As at
31 December 2022 31 December 2021
£million £million
NAV a 618.3 577.7
Debt b 454.3 160.5
Total GAV a + b 1,072.6 738.2
Total value of all investments
A measure of committed asset value including total debt and equity commitments
As at As at
31 December 2022 31 December 2021
£million £million
GAV a 1,072.6 738.2
Commitments on existing portfolio b 68.3 38.2
Commitments on conditional acquisitions c 177.0 206.6
Total value of all assets plus commitments (a+b+c) = d 1,317.9 983.0
Less Company and holding company assets e (1.7) (94.2)
Less asset level cash f (15.5) (11.2)
Total value of all investments d - e - f 1,304.2 877.6
Total return since IPO
A measure of performance since IPO that includes both income and capital
returns. This takes into account capital gains and reinvestment of dividends
paid out by the Company into the Ordinary Shares of the Company on the
ex-dividend date.
31 December 2022 Share price NAV
Value at IPO (10 December 2019) - pence a 100.00 98.00
Value at 31 December 2022 - pence b 100.00 109.44
Benefits of reinvesting dividends - pence d ‑ 1.8
Dividends paid since IPO - pence c 12.11 12.11
Total return (b+c+d)÷a)-1 12.1% 25.9%
Annualised total return 3.8% 7.8%
31 December 2021 Share price NAV
Value at IPO (10 December 2019) - pence a 100.00 98.00
Value at 31 December 2021 - pence b 110.80 102.26
Benefits of reinvesting dividends - pence d 0.06 0.62
Dividends paid since IPO - pence c 6.93 6.93
Total return (b+c+d)÷a)-1 17.7% 12.1%
Annualised total return 8.3% 5.7%
Total return for the year
A measure of performance for the year that includes both income and capital
returns. This takes into account capital gains and reinvestment of dividends
paid out by the Company into the Ordinary Shares of the Company on the
ex-dividend date.
31 December 2022 Share price NAV
Value at 1 January 2022 - pence a 110.80 102.26
Value at 31 December 2022 -pence b 100.00 109.44
Benefits of reinvesting dividends - pence d 0.35 0.26
Dividends paid in the year - pence c 5.18 5.18
Total return (b+c+d) ÷a)-1 -4.8% 12.3%
31 December 2021 Share price NAV
Value at 1 January 2021 - pence a 113.80 98.26
Value at 31 December 2021 -pence b 110.80 102.26
Benefits of reinvesting dividends - pence d 0.05 0.37
Dividends paid in the year - pence c 4.81 4.81
Total return (b+c+d)÷a)-1 1.6% 9.3%
Discount)/Premium to NAV
The amount, expressed as a percentage, by which the share price is less or
more than the NAV per Ordinary Share.
As at As at
31 December 2022 31 December 2021
NAV per Ordinary Share - pence a 109.44 102.26
Share price - pence b 100.00 110.80
(Discount)/Premium (b÷a)-1 (8.6%) 8.4%
Ongoing charges ratio
A measure, expressed as a percentage of average net assets, of the regular,
recurring annual costs of running the Company per Ordinary Share. This has
been calculated and disclosed in accordance with the AIC methodology.
Year ended Year ended
31 December 2022 31 December 2021
£'000 £'000
Average NAV a 611,342 437,480
Annualised expenses b 6,844 5,022
Ongoing charges ratio (b÷a) 1.12% 1.15%
FINANCIAL INFORMATION
This announcement does not constitute the Company's statutory accounts. The
financial information for 2022 is derived from the statutory accounts for
2022, which will be delivered to the registrar of companies. The statutory
accounts for 2021 have been delivered to the registrar of companies. The
auditors have reported on the 2021 and 2022 accounts; their reports were
unqualified and did not include a statement under Section 498(2) or (3) of the
Companies Act 2006.
The Annual Report for the year ended 31 December 2022 was approved on 28 March
2023. The full Annual Report can be accessed via the Company's website
at: https://octopusrenewablesinfrastructure.com/investors/
(https://octopusrenewablesinfrastructure.com/investors/)
The Annual Report will be submitted to the National Storage Mechanism and will
shortly be available for inspection
at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism)
This announcement contains regulated information under the Disclosure Guidance
and Transparency Rules of the FCA.
ANNUAL GENERAL MEETING ("AGM")
The AGM of Octopus Renewables Infrastructure Trust plc will be held at 6th
Floor, 125 London Wall, London, EC2Y 5AS on 16 June 2023 at 10.00 a.m.
Even if shareholders intend to attend the AGM, all shareholders are encouraged
to cast their vote by proxy and to appoint the "Chair of the Meeting" as their
proxy. Details of how to vote, either electronically, by proxy form or through
CREST, can be found in the Notes to the Notice of AGM in the Annual Report.
Shareholders are invited to send any questions for the Board or the Investment
Manager in advance by email to oritcosec@apexfs.group by close of business
on 14 June 2022.
29 March 2023
For further information contact:
Secretary and registered office:
Apex Listed Companies Services (UK) Limited
6th Floor, 125 London Wall, London, EC2Y 5AS
Tel: 020 3327 9720
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. END FR UKURROOUOURR