Octopus Renewables - Q4 2022 Factsheet and Net Asset Value
31/01/2023 07:00
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RNS Number : 3296O Octopus Renewables Infra Trust PLC 31 January 2023
31 January 2023
LEI: 213800B81BFJKWM2JV13
Octopus Renewables Infrastructure Trust plc
("ORIT" or the "Company")
Q4 2022 Factsheet and Net Asset Value
The Board of Octopus Renewables Infrastructure Trust plc announces that the
unaudited net asset value ("NAV") of the Company as at 31 December 2022 on a
cum-income basis increased to £618.3 million or 109.4 pence per Ordinary
Share (30 September 2022: £612.1 million or 108.3 pence per Ordinary Share).
Pence per Ordinary Share
NAV as at 30-Sep-22 108.3p
Power Prices (incl. regulatory updates) +1.8p
Inflation +4.2p
Discount rates -5.2p
Unwinding of construction and development risk premium +0.9p
Other movements +0.8p
Q3 dividend -1.3p
NAV as at 31-Dec-22* 109.4p
*Totals may not sum exactly due to rounding
Power Prices
As set out in the announcement on 15 December 2022, governments across the UK
and Europe have confirmed their approach to tackle and resolve the impact of
rapidly increasing energy prices on consumers and businesses, through price
caps, windfall taxes or generation levies. These policies have been
incorporated into the Q4 2022 valuations and therefore, the material discounts
to prevailing market forwards (c. 70% in Q4 2022, decreasing to 50% in 2025)
which were incorporated into the Q3 valuations predominantly in anticipation
of these changes have been reduced significantly.
During the period to 31 December 2022, forward power prices in all relevant
jurisdictions (UK, France, Sweden, Finland, Poland) trended downwards, after
consecutive periods of rapidly increasing power prices. For example, in the
UK, between 30 September 2022 and 31 December 2022, forecast Summer 2023
prices (10-day average) decreased from over £300/MWh to c. £250/MWh and
Winter 2023 prices (10-day average) decreased from c.£350/MWh to under
£200/MWh. As a result, the Board and the Investment Manager consider it
appropriate to retain a reduced discount to the prevailing forward prices of
20% over the 2023 to 2025 period in the Q4 2022 valuations, in addition to the
normal discounts to reflect the lower prices typically captured by wind and
solar generators. This adjustment should limit the potential impact in future
periods of continued falls in pricing since the period end.
The gross impact of updating for forward prices at 31 December 2022, and
reducing the level of discount applied, results in a valuation increase of
+£12.5 million or +2.2 pence per Ordinary Share.
For the period beyond 2025, the 31 December 2022 valuation includes an equal
blend of up to three independent and widely used market consultants'
technology-specific capture price forecasts for each asset. The impact of
updating for the most recent forecasts received before the valuation date
resulted in a valuation impact of +£8.1 million or +1.4 pence per Ordinary
Share. For certain assets which were acquired during the quarter ended 30
September 2022 and so held at cost in the valuations at that date, the total
valuation movement from updates to power pricing includes two consecutive
quarters of updated forecasts.
The impact of the aforementioned government intervention measures resulted in
a valuation decrease of -£10.6 million or -1.9 pence per Ordinary Share and
are outlined below. Please refer to the notes for further detail on each
policy.
· UK(1): Applying the Electricity Generator Levy or "EGL" to revenues
based on the above assumptions has led to a reduction in the NAV.
· Poland(2): The impact of this price cap on the Company's two Polish
wind farms is limited to the period up to 30 September 2023, after which time
the wind farms will start to receive the 15 year CfD. The impact of the
345PLN/MWh price cap for the period to 30 September 2023 decreased the NAV as
at 31 December 2022.
· Sweden(3): Revenue that is subject to price cap rules is forecast to
be generated at levels below the announced cap, therefore no impact is
expected on the NAV.
· Finland(4): The windfall tax announced for Finnish generators is not
expected to have an adverse impact on the Company's wind farms in Finland.
· France, Germany, Ireland(5): The assets in ORIT's portfolio 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.
The combined impact of all Q4 2022 power price adjustments including updated
short-term (including reduced discounts) and long-term pricing and the impact
of Government announcements is +£10.0 million or +1.8 pence per Ordinary
Share.
The Company has sought to manage power price volatility by ensuring a balanced
portfolio between fixed and variable revenues by entering into new short-term
fixes, where the pricing available has been favourable compared with
forecasts, in order to provide protection against extreme near-term power
price fluctuations. As at 31 December 2022, 68% of ORIT's forecast revenue
over the 24-month period to 31 December 2024 is now fixed (64% over the
24-month period to 30 September 2024 as at 30 September 2022).
Inflation
Since the end of Q3 2022, short-term inflation assumptions have increased
further across the markets where the Company's portfolio of assets is located,
resulting in an increase in valuation of +£23.7 million or +4.2 pence per
Ordinary Share. The 31 December 2022 valuation includes (i) recent consensus
UK inflation forecasts published by HM Treasury in November 2022; and (ii)
inflation forecasts for the relevant European countries published by the
European Commission in November 2022. The Company benefits from significant
levels of inflation protection via revenues from government support schemes in
the UK, France and Poland, with approximately 53% of the revenues forecast to
be received by the Company's current portfolio of assets in the ten years
ending 31 December 2033 now explicitly inflation-linked. The total valuation
movement from updates to inflation includes a multiple quarter impact for
assets that have been revalued on a discounted cash flow basis for the first
time since acquisition.
Discount rates
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 a further
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
-£29.6 million in the portfolio valuation, or -5.2 pence per Ordinary Share.
This movement corresponds to an increase of c.0.3% in the weighted average
levered equity discount rate implied across the portfolio, from 7.2% to 7.5%.
Country Levered IRR Leverage %GAV Levered IRR (31 December 2022) Leverage %GAV Change in levered IRR
(30 September) (30 September 2022) (31 December 2022)
UK assets 6.9% 23% 7.5% 19% +0.6%
EU assets 7.4% 36% 7.5% 40% +0.1%
Total portfolio 7.2% 28% 7.5% 31% +0.3%
Total plc 37% 42%
Construction and Development
Total construction and development gain realised during the quarter amounted
to +£4.8 million or +0.9 pence per Ordinary Share.
In September 2022, civil works at the Cumberhead wind farm in the UK were
completed and as at 31 December 2022, 8 out of 12 turbines had been erected.
Progress against construction milestones has resulted in a valuation gain of
+£0.7 million in the quarter through reduction in the risk premium applied to
the discount rate.
All of the Company's assets currently under construction are expected to
achieve operational status by the end of Q4 2023. To date, the ORIT portfolio
has delivered construction gains of approximately +£12.2 million or +2.2
pence per Ordinary Share.
During December 2022, ORIT invested an additional €6.25 million (c.£5.5
million) into Simply Blue Holdings Limited ("SBG"). ORIT first invested in SBG
in August 2021 for a c.12% stake - and following this latest investment,
ORIT's ownership interest in SBG 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 or 0.7
pence per Ordinary Share.
Other movements
A gain of +£4.7 million or +0.8 pence per Ordinary Share was recorded from
other valuation movements, including movements in FX (incorporating the impact
of hedging), the expected return on investments, offset by Company operating
costs and transaction costs.
The interim dividend (-£7.4 million or -1.3 pence per Ordinary Share) in
respect of Q3 2022 was also paid in the quarter.
Portfolio Update
Following the end of the period, 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. Procurement of the
battery equipment is currently ongoing with construction expected to commence
later in 2023.
Factsheet
The Company's Q4 2022 factsheet is available to download at:
https://octopusrenewablesinfrastructure.com/investors/
(https://octopusrenewablesinfrastructure.com/investors/)
Notes
1. UK: On 17 November 2022, as part of the Autumn Statement, the
Chancellor of the Exchequer announced the introduction of a new levy on excess
profits produced by electricity generators. The EGL will apply from 1 January
2023 until 31 March 2028 and will be set at a rate of 45%. The EGL will target
revenue from power sales that exceed an indexed benchmark price of £75/MWh,
with each corporate group entitled to an allowance under which the first £10
million per annum is not taxable. Revenue earned from Renewable Obligation
Certificates, Renewable Energy Guarantee of Origin certificates or Contracts
for Difference will be exempt.
2. Poland: From 4 November 2022, the Polish Government has
implemented an emergency measure price cap on electricity generators, with a
cap of 345PLN/MWh (approximately £65/MWh) for wind assets not receiving a
CfD. The price cap will be applied from 1 December 2022 to 31 December 2023
and is based on CfD reference prices for each technology.
3. Sweden: On 13 December 2022, the Swedish government presented a
proposal for a 90% tax on power sales above the equivalent of €180/MWh, in
line with the EU maximum.
4. Finland: On 2 December 2022 the Finnish Government launched a
consultation on a windfall tax to be applied in 2023 only to excess profits of
certain electricity generators. The proposed tax would be set at a rate of 30%
and apply to net income above a threshold of a 10% return on equity. The tax
is not expected to have a material impact on the Company, as capital
investment allowances are expected to reduce the net income of the Finnish
entities to below the threshold.
5. Varying levels of price caps from €100/MWh to €130/MWh have
been announced in France, Germany and Ireland.
6. "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 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.
For further information please contact:
Octopus Energy Generation (Investment Manager) Via Buchanan
Matt Setchell, 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 to editors
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 £5.0 billion of assets under management (AUM) (as of 30
September 2022) across 10 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/)
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