REG - Octopus Renewables - Q3 2022 Factsheet and Net Asset Value

Octopus Renewables Infrastructure TrustAnnouncement

03/11/2022 07:00

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RNS Number : 1427F  Octopus Renewables Infra Trust PLC  03 November 2022

3 November 2022

 

LEI: 213800B81BFJKWM2JV13

 

Octopus Renewables Infrastructure Trust plc

("ORIT" or the "Company")

 

Q3 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 30 September 2022 on a
cum-income basis was £612.1 million or 108.3 pence per ordinary share (30
June 2022: £627.5 million or 111.1 pence per ordinary share).

 

Valuation

 

During the quarter, there has been increased macro-economic volatility and a
significant increase in base rates, benchmark bond yields and longer-term
interest rate and inflation expectations.

 

Since the end of Q2 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 £12.0 million. The 30 September 2022
valuation includes (i) recent consensus UK inflation forecasts published by
HM Treasury in August 2022; and (ii) inflation forecasts for the relevant
European countries published by the European Commission in July 2022.
Approximately 53% of the revenues forecast to be received by the Company's
current portfolio of assets in the ten years ending 30 September 2032 is now
explicitly inflation linked (with reference to UK RPI, French inflation and
Polish CPI as applicable).

 

The Bank of England has raised short term reference rates by a total of 1% in
Q3 2022 alone (and 2% since the start of 2022) to combat rising inflation. The
yield on long-term gilts has also increased, putting upward pressure on
discount rates. Also during the quarter, the cost of securing long term debt
has risen. This particularly impacts projects which would typically attract
high levels of project finance debt, being those with fixed revenues.
Resultant increases to the discount rate applied to asset valuations resulted
in a decrease of £29.7 million. This movement corresponds to an increase of
c.0.7% in the weighted average levered equity discount rate implied across the
portfolio, from 6.5% to 7.2%.

 

 Country          Levered IRR (30 June)  Leverage %GAV  Levered IRR (30 Sept)  Leverage %GAV  Mvmt in levered IRR

                                         (30 June)                             (30 Sept)
 UK assets        5.9%                   15%            6.9%                   30%            +1.0%
 EU assets        6.8%                   39%            7.4%                   50%            +0.6%
 Total portfolio  6.5%                   27%            7.2%                   37%            +0.7%

Following increases in the power price observed over recent months, the
Company has fixed pricing on a significant portion of output for the remainder
of 2024 and 2025 at the Saunamaa and Suolakangas wind farms in Finland. These
fixed power price agreements were secured at prices above forecast resulting
in a valuation uplift of +£1.8 million. As a result, as at 30 September 2022,
64% of ORIT's forecast revenue over the 24-month period to 30 September 2024
is now fixed (58% over the 24-month period to 30 June 2024 as at 30 June
2022). Following the post-period end acquisitions of Crossdykes wind farm in
the UK and Leeskow wind farm in Germany, the Company's proportion of revenues
that are fixed over the 24-month period to 30 September 2024 has increased
further to 67%.

During Q3 2022, forward power prices in all relevant jurisdictions increased
significantly, for example in the UK, December 2022 prices (10-day average)
increased from c.£350/MWh to over £550/MWh and December 2023 prices (10-day
average) increased from c.£200/MWh to over £350/MWh. Over the quarter,
liquidity in traded forward markets has fallen.

In addition, governments have announced plans to mitigate the effect of rising
energy prices on consumers, including via price caps and/or windfall taxes.
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. As mentioned above, the Company has sought to manage power price
volatility by entering into additional short-term power price fixes, where the
pricing available has been favourable compared with forecasts, in order to
provide protection against extreme near-term power price fluctuations.

As a result of these factors, the Board and the Investment Manager do not
consider the prevailing forward prices as at 30 September to be a reliable
reflection of the price likely to be received by renewable generators. As a
result, the AIFM and the Investment Manager have taken a cautious approach and
for assets where prices have not been fixed, valuations as at 30 September
2022 are based on material discounts to power market forwards. An average
discount to 30 September 2022 forward prices of approximately 70% has been
applied to Q4 2022, which reduces to 50% by 2025, therefore ORIT's forecast
capture price is significantly below the forward forecast for 2022 - 2025.
These prices are on average 16% lower than the prices used in the June 2022
valuations. The net impact of updating wholesale energy price forecasts was
-£5.1 million. Over the longer term, the forecasts to 2050 used in ORIT's
valuations do not assume extreme high pricing persists. Given these
adjustments, the recently reported €180/MWh cap on EU power prices for
renewable and some other generators is not expected to have a material impact
on the Company's forecast revenues or valuation.

In September, civil works at the Cumberhead wind farm in the UK were completed
and as at 30 September, construction at the Cerisou wind farm in France was
substantially complete. Progress with these construction projects resulted in
a valuation gain of £1.7 million in the quarter. All of the Company's assets
currently under construction are expected to achieve operational status by the
end of Q3 2023.

 

A gain of £1.3 million was recorded from other valuation movements, including
movements in FX (incorporating the impact of hedging), the expected return on
investments, dividends paid (-£7.4 million), Company operating costs and
transaction costs.

 

Sensitivities

The valuation sensitivities set out below are based on the existing portfolio
of assets as at 30 September 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.

 Sensitivity              Movement (p/share)
 Discount rate* +/- 0.5%  -6.8p       +7.3p
 Energy Yield P90/P10     -17.0p      +16.4p
 Power price -/+ 10%      -12.7p      +12.8p
 Inflation -/+ 0.5%       -7.6p       +8.1p
 FX +/- 10%               -2.8p       +2.8p

 

* 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. This
sensitivity above illustrates the impact of a plus or minus 0.5% movement in
the levered cost of equity applied in the valuation of each asset. A 50bps
increase in the levered cost of equity of the portfolio equates to an increase
in the implied WACC of 0.24%, holding the cost of debt and leverage %
constant. The weighted average discount rate as at 30 September 2022 is 7.2%
(30 June 2022: 6.5%).

Operational and Financial Performance

 

As at 30 September 2022, ORIT has drawn c. £91m of its short term borrowing
facilities and is 37.2% geared (total debt drawn as a % of gross asset value
("GAV"(1))).

 

The Company's operational portfolio produced 5.2% less than budget during the
quarter to 30 September. Whilst production for the solar portfolio was 2%
above budget, this was offset primarily due to lower than expected wind
speeds. Despite this, EBITDA for the operating portfolio was 9% above budget
driven by high power prices, primarily in Finland and Poland.

 

Following the end of the period, in October and November respectively, ORIT
completed conditional acquisitions made earlier in the year into the Leeskow
wind farm in Germany and the Crossdykes wind farm in the UK.

 

Factsheet

 

The Company's Q3 2022 factsheet is available to download at:

https://octopusrenewablesinfrastructure.com/investors/
(https://octopusrenewablesinfrastructure.com/investors/)

 

Notes

1.    "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

 Sanne Fund 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 £4.4 billion of assets under management (AUM) (as of 30 June
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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