REG - Renew Infra Grp Ld - Announcement of Final Results <Origin Href="QuoteRef">TRIG.L</Origin> - Part 2
23/02/2016 07:23
- Part 2: For the preceding part double click ID:nRSW8156Pa
1.1 2011 Sunpower
*Marie Gallante France (Guadeloupe) 25% 0.5 2010 GE
Additional Solar PV Investments post 2015 year-end 21.4
Total Portfolio as at 22 February 2016 679.6
NOTE: New solar PV project investments made since 1 January 2015 are asterisked.
A Diversified Portfolio
by geography, jurisdiction, energy market, technology and revenue source
The TRIG portfolio comprises a diverse range of assets across different energy markets, regulatory jurisdictions,
generating technologies, revenue contracts and/or subsidy sources, as well as a variety of geographic areas with differing
meteorological conditions (affecting wind speeds and solar irradiation applicable to each of TRIG's projects), as
illustrated in the analysis below, as at 31 December 2015 and also as adjusted for the addition to the portfolio in January
2016 of the investment in the Akuo Energy French solar portfolio (valued at cost) 10 :
Portfolio by Jurisdiction (Electricity Market)
36 project investments 51 project investments
as at 31 December 2016 11 as at 22 February 2016 12
England (GB market) 33% 31%
Scotland (GB market) 52% 49%
Northern Ireland (SEM 13 ) 7% 6%
Republic of Ireland (SEM) 2% 2%
France 6% 12%
Total 100% 100%
Portfolio by Technology / Weather System
36 project investments 51 project investments
as at 31 December 2016 as at 22 February 2016
Onshore Wind (Atlantic) 14 68% 64%
Onshore Wind (Mediterranean) 6% 5%
Solar PV 27% 31%
Total 15 100% 100%
Portfolio by Project Revenue Type (based on 2016 modelled revenues)
36 project investments 51 project investments
as at 31 December 2016 as at 22 February 2016
Fixed power purchase agreements and feed-in tariffs 23% 29%
Renewable Obligation Certificates - Buyout 40% 37%
Renewable Obligation Certificates - Recycle, Embedded Benefits, Other 5% 5%
Power purchase agreements - market based with floor prices 14% 13%
Power purchase agreements - market based 18% 16%
Total 100% 100%
2.4 Business Model
Introduction
The Company is a Guernsey-registered investment company, with an independent board of directors and with its shares listed
on the London Stock Exchange. Through the group structure, the Company owns a portfolio of renewable energy infrastructure
investments in the UK, Ireland and France and is seeking to protect and enhance the income from and value of the existing
portfolio through active management and sourcing of new investments which enhance the diversity and scale of the portfolio,
utilising the expertise of market-leading Investment and Operations Managers appointed by the Company. The Company has a 31
December year-end, announces interim results in August and full year results in February. Having paid dividends
semi-annually since IPO in 2013, the Company proposes to pay dividends quarterly commencing from the dividend with respect
to the first quarter to 31 March 2016, payable in June 2016.
Group Structure
The Company is a self-managed Alternative Investment Fund under the European Union's Alternative Investment Fund Managers
Directive. The Company has a board of four independent non-executive directors whose role is to manage the governance of
the Company in the interests of shareholders and other stakeholders. In particular, the Board approves and monitors
adherence to the investment policy, determines risk appetite of the Group, sets Group policies and monitors the performance
of the Investment Manager, the Operations Manager and other key service providers. The Board meets a minimum of four times
per year for regular Board meetings and there are a number of ad hoc meetings dependent upon business need. In addition the
Board has four committees covering Audit, Nomination, Remuneration and Management Engagement.
The Board takes advice from the Investment Manager, InfraRed, as well as from the Operations Manager, RES, on matters
concerning the market, the portfolio and new investment opportunities. Day-to-day management of the Group's portfolio is
delegated to the Investment Manager and the Operations Manager, with investment decisions within agreed parameters
delegated to an Investment Committee constituted by senior members of the Investment Manager. The Company has management
agreements in place with the Investment Manager and the Operations Manager which can be terminated at 12 months' notice
from 29 July 2018.
The key roles of the Investment Manager and the Operations Manager are set out below:
Investment Manager (InfraRed)
· Monitoring financial performance against Group targets and forecasts
· Advising the Board on investment strategy and portfolio composition to achieve the desired target returns within the agreed risk appetite
· Sourcing, evaluating and implementing the pipeline of new investments for the portfolio
· Managing the investment cash flows from the Group's investments
· Minimising cash drag (having un-invested cash on the balance sheet) and improving cash efficiency generally
· Managing the process and analysis for semi-annual valuations of the Group's portfolio submitted to the Board for approval
· Ensuring good financial management of the Group, having regard to accounting, tax and debt covenants
· Hedging non-sterling investments
· Managing the Company's investor reporting and investor relations activities
Operations Manager (RES)
· Day-to-day monitoring and oversight of the operations of the Group's portfolio of investments
· Appointment of directors to each project company board
· Monitoring of service providers to project investment companies
· Facilitation of early resolution of operational issues as they arise, including performance and disputes
· Management of project-level financing including implementation and project-level debt covenants
· Management of power sales strategy including power purchase agreements
· Assisting on technical and commercial due diligence of projects being evaluated for acquisition by the Group
· Seeking of cost savings through contract variations and extensions
· Project level ESG co-ordination including community relations and compliance with regulations affecting project companies
Further details on the Investment Manager and the Operations Manager are set out in Section 2.1 and in Section 2.6 with
respect to fees. Dexion Capital (Guernsey) Limited provides Company Secretary and Administrator services.
Other key service providers to the TRIG Group include Canaccord Genuity Limited and Liberum Capital Limited as joint
brokers, Tulchan Communications LLP as financial public relations advisers, Carey Olsen as legal advisers as to Guernsey
law, Norton Rose Fulbright LLP as legal advisers as to English law, Capita Registrars (Guernsey) Limited as registrars,
Deloitte LLP as auditors, and National Australia Bank and Royal Bank of Scotland as lenders to the Group via the £150
million revolving acquisition facility.
The Board reviews the performance of all key service providers on an annual basis.
Making New Portfolio Investments
When seeking to acquire an investment, the proposition is subject to a two-stage process. It is considered and recommended
by the Advisory Committee which includes representatives of both the Investment Manager and the Operations Manager, and
then it is fully assessed by the Investment Committee of the Investment Manager which, for investments within the Manager's
delegated authority (with agreed limits set by the Board), gives the final approval before an investment may proceed. These
committees may meet on a number of occasions before an investment is acquired by the Group. Commercial and technical due
diligence is undertaken by the Investment Manager with support from the Operations Manager on aspects such as energy yield
assessment, off-take contract arrangements, maintenance and other operational costs. Third party legal and technical due
diligence is commissioned as appropriate to support the acquisition.
An important characteristic of the Group is that it is well-positioned to acquire assets from its Managers, in particular
RES in relation to which TRIG enjoys a right of first offer for onshore wind and solar assets developed in the UK and
Northern Europe. With no representatives from RES on the Investment Committee, decisions on acquisitions from RES under the
Company's Right of First Offer Agreement are taken at arms' length from the Operations Manager, while any acquisitions from
other funds managed by InfraRed would require prior unanimous recommendation by the Advisory Committee and also approval by
TRIG's independent board, together with an independent valuation, as well as utilising prudent internal conflict management
procedures established at InfraRed.
The Company is focused on owning operational, yielding projects although the Managers expect that there will be
opportunities where it will be advantageous for the Company to invest in projects prior to their completion and grid
connection. While the Company is currently invested in onshore wind and solar PV projects, there are investment
opportunities in other maturing generating technologies in the UK and Northern Europe, notably offshore wind, as well as
back-up power, storage or demand-side response infrastructure.
The Company's investment policy does not permit the cost of works on projects under development or construction (and not
yet operational) to which portfolio companies are exposed to exceed in aggregate 15% of overall portfolio value. At 31
December 2015 all construction was complete and all projects were operational.In respect of investments in portfolio
companies which have assets under development or construction (including the repowering of existing assets), the cost of
works on such assets under development or construction (and not yet operational) to which portfolio companies are exposed
may not in aggregate account for more than 15% of overall portfolio value, calculated at the time of investment or
commitment.
Given the strong pipeline of available assets, the characteristics of new investments are not expected to deviate
materially from the underlying risk and reward characteristics of the existing portfolio, and therefore the Managers do not
expect that new investment cash flows would be subject to risk or revenue dynamics which are substantially different from
the profile already established.
2.5 Investment Approach and Policy
Investment Approach
TRIG's investment approach is based on the following two factors:-
The renewables market opportunity:
o long-term public and political commitment in the UK and other countries in Northern Europe towards creating a cleaner,
more secure and sustainable energy mix;
o shortfall in power generation capacity due principally to the reduction in coal-fired and old nuclear generation
facilities;
o EU-wide renewables target requiring 20% of energy to be generated from renewable sources by 2020 as a milestone of a
longer-term de-carbonisation agenda, reinforced by further initiatives in connection with the United Nations COP 21
meetings in 2015;
o extensive opportunities for investment in the secondary market for generation assets as utilities and other developers
find it necessary to recycle their capital;
and:
The ability to construct a diversified portfolio across established, low-risk technologies, electricity markets, weather
systems and revenue types:
o diversification across predominantly operational assets providing a sustainable long-term investment proposition,
delivering stable income together with NAV resilience
o investing in established technologies, including wind and solar PV which dominate new power capacity installations in the
EU
- proven operational track record including predictable operating costs
- future potential for incremental improvements in design, scale and efficiency
o UK and Northern European focus - markets with a robust long-term energy demand outlook and a well-established
political/regulatory commitment to renewables
o variability of weather patterns across Europe adds to diversification provided by exposure to wind and solar energy
sources
o contracted revenues with utility counterparties and/or state subsidies provide stability of revenues in early years
before giving way to market power price exposure in later years
Investment Policy
In order to achieve its investment objective, the Company invests principally in operational assets which generate
electricity from renewable energy sources, with a particular focus on onshore wind farms and solar PV parks.
Investments will be made principally by way of equity and shareholder loans which will generally provide for 100% or
majority ownership of the assets by the holding entities. In circumstances where a minority equity interest is held in the
relevant portfolio company, the holding entities will secure their respective shareholder rights (including voting rights)
through shareholder agreements and other transaction documentation.
The Group aims to achieve diversification principally through investing in a range of portfolio assets across a number of
distinct geographies and a mix of renewable energy technologies.
Limits
Investments will be focused in the UK and Northern European countries (including France, Ireland, Germany and Scandinavia)
where the Directors, the Investment Manager and the Operations Manager believe there is a stable renewable energy
framework. Not more than 50% of the portfolio value (calculated at the time of investment) may be invested in projects that
are located in countries outside the UK.
Investments will be made in onshore wind farms and solar PV parks with the amount invested in other forms of energy
technologies (such as biomass or offshore wind) limited to 10% of the portfolio value, calculated at the time of
investment. (See "Material Amendments" below for a proposed change to this investment limit from 10% to 20%.)
In respect of investments in portfolio companies which have assets under development or construction (including the
repowering of existing assets), the cost of works on such assets under development or construction (and not yet
operational) to which portfolio companies are exposed may not in aggregate account for more than 15% of overall portfolio
value, calculated at the time of investment or commitment. 16
The Company will not invest more than 15%, in aggregate, of the value of its total assets in other investment companies or
investment trusts that are listed on the Official List maintained by the Financial Conduct Authority.
In order to ensure that the Group has a spread of investment risk, it is the Company's intention that no single asset will
account for more than 20% of the portfolio value, calculated at the time of investment.
The Group may enter into borrowing facilities in the short term principally to finance acquisitions. Such short-term
financing is limited to 30% of the portfolio value. It is intended that any facility used to finance acquisitions is likely
to be repaid, in normal market conditions, within a year through further equity fund raisings.
Wind farms and solar parks, typically with 25 year operating lives, held within portfolio companies generate long-term cash
flows that can support longer term project finance debt. Such debt is non-recourse and typically is fully amortising over a
10 to 15 year period. There is an additional gearing limit in respect of such non-recourse debt of 50% of the gross
portfolio value (being the total enterprise value of such portfolio companies), measured at the time the debt is drawn down
or acquired as part of an investment. The Company may, in order to secure advantageous borrowing terms, secure a project
finance facility over a group of portfolio companies.
Revenue
Generally, the Group will manage its revenue streams to moderate its revenue exposure to merchant power prices with
appropriate use of power purchase agreements, feed-in-tariffs and green certificates.
Hedging
The Group may enter into hedging transactions in relation to currency, interest rates and power prices for the purposes of
efficient portfolio management. The Group will not enter into derivative transactions for speculative purposes.
Cash Balances
Until the Company is fully invested and pending re-investment or distribution of cash receipts, cash received by the Group
will be invested in cash, cash equivalents, near cash instruments and money market instruments.
Origination of Further Investments
Each of the investments comprising the portfolio complies with the Company's investment policy and further investments will
only be acquired if they comply with the Company's investment policy. It is expected that further investments will include
operational onshore wind and solar PV investments that have been originated and developed by Renewable Energy Systems
Limited, the Company's Operations Manager. The Company will also review investment opportunities originated by third
parties, including from investment funds managed or advised by the Investment Manager or its affiliates.
As a key part of the Company's investment policy is to acquire assets that have been originated by the Company's Operations
Manager by exercising the Company's rights under the First Offer Agreement, the Company will not seek the approval of
shareholders for acquisitions of assets from the Operations Manager or members of its group in the ordinary course of its
investment policy. Pursuant to the First Offer Agreement, the Company has a contractual right of first offer, for so long
as the Operations Manager remains the operations manager of the Company in respect of the acquisition of investments in
onshore wind and solar PV projects which the Operations Manager wishes to dispose of and which are consistent with the
Company's investment policy. It is envisaged that the Operations Manager will periodically make available for sale further
interests in projects (although there is no guarantee that this will be the case). Investment approvals in relation to any
acquisitions of investments from the Operations Manager will be made by the Investment Manager through the Investment
Committee.
Furthermore, any proposed acquisition of assets by the Group from other funds managed by InfraRed (the Investment Manager)
that fall within the Company's investment policy will be subject to detailed procedures and arrangements established to
manage any potential conflicts of interest that may arise. In particular, any such acquisitions will be subject to approval
by the Directors (who are independent of the Investment Manager and the Operations Manager) and will also be subject to an
independent private valuation in accordance with valuation parameters agreed between the other InfraRed funds and the
Company.
Further investments will be subject to satisfactory due diligence and agreement on price which will be negotiated on an
arm's length basis and on normal commercial terms. It is anticipated that any further investments will be acquired out of
existing cash resources, borrowings, funds raised from the issue of new capital in the Company or a combination of all
three.
Repowering
The Company will have sole discretion to repower projects in its investment portfolio. For these purposes, repowering will
include the removal of substantially all of the old electricity generating equipment in relation to a project, and the
construction of new electricity generating equipment excluding, for the avoidance of doubt, repair, maintenance and
refurbishment of existing equipment. Where the Company determines to repower a project originally acquired from the
Operations Manager, the Operations Manager will have the first option to repower such assets in partnership with the
Company, whilst the Company will have the right to acquire the newly constructed assets on completion subject to
satisfactory due diligence and for a price determined in accordance with a pre-agreed valuation mechanism and on normal
commercial terms. Repowering expenditure will be treated as development or construction activity for the purpose of the 15%
development and construction limit described above, calculated at the time of investment.
Material Amendments
Material changes to the Company's investment policy may only be made with the approval of the shareholders by way of an
ordinary resolution and (for so long as the Ordinary Shares are listed on the Official List) in accordance with the Listing
Rules. The investment limits detailed above apply at the time of the acquisition of the relevant investment. The Company is
not required to dispose of any investment or to rebalance its investment portfolio as a result of a change in the
respective valuations of its assets. Non-material changes to the investment policy must be approved by the Board, taking
into account advice from the Investment Manager and the Operations Manager where appropriate.
As noted in the Chairman's Statement, the Board is intending to put to shareholders a proposal at the Annual General
Meeting in May 2016 to expand the investment policy of the Company such that up to 20% of its portfolio by value may be
invested in investments other than onshore wind and solar PV. This is in order to position the Company to be able to take
advantage of opportunities in related sectors which are increasingly being seen by the Investment Manager, including in
offshore wind, should the Board, as advised by the Investment Manager with input from the Operations Manager, consider the
prospective risk and reward appropriate. Such investments may also include other generating infrastructure or supporting
technology, such as back-up power generation, storage or demand-side response.
The proposed amendment will only be put to shareholders after the Company has obtained the Financial Conduct Authority's
prior approval of the change in accordance with the Listing Rules. Further details of the background to and reasons for the
proposed change will be set out in the notice of the Annual General Meeting to be held on 4 May 2016 which is expected to
be dispatched to shareholders in late March 2016.
2.6 Operational and Financial Review
Key Performance Indicators
The Company sets out below its Key Performance Indicators ("KPIs") which it utilises to track its performance over time
against its objectives.
Category KPI (Year to) (Year to) (Part year1 to)
31 December 31 December 31 December 2013
2015 2014
Financial Dividend per share (declared) 6.19p 6.08p 6p
(annualised)
Share price 102.3p 104.00p 102.25p
Net Asset Value per share 99.0p2 102.4p 101.5p
Total Shareholder Return3 + 4.4% + 7.5% -
for the year (share price basis)
(FTSE All Share:
(FTSE All Share:
+ 1.0%) + 1.2%)
Portfolio Value4 £712.3m £472.9m £300.6m
Year-on-year growth +51% +57% -
Number of projects 36 29 20
Market capitalisation £749.7m £432.1m £317.0m
Year-on-year growth +73% +36% -
Number of shares in issue 732.8m 415.5m 310.0m
Ongoing Charges Percentage 1.20% 1.25% 1.20%
(annualised)
Risk & Operations Largest single investment 12% 10% 16%
as % of portfolio by value
Largest ten investments 56% 65% 79%
as % of portfolio by value
Operating history (portfolio average, weighted by net capacity) 5.9 years 5.0 years 5.5 years
Electricity Production 1,344.3GWh 814.2GWh 344.6GWh
% increase +65% +136% (since 1 August 2013)
Average Revenue per MWh5 £78.6/MWh £84.0/MWh £84.9/MWh
1 For 2013, data is derived from the period from IPO on 29 July 2013 to 31 December 2013 unless otherwise stated.
2 NAV per share in 2015 was in particular affected by the removal, in the UK's 2015 Summer Budget, of the benefit to
renewables generators of selling Levy Exemption Certificates, effective 1 August 2015.
3 Total Shareholder Return ("TSR") measures the internal rate of return based on the share price at the beginning and end
of the financial year together with dividends per share reinvested in the Company. In both 2014 and 2015, TRIG outperformed
the FTSE-All Share index which achieved TSRs of 1.2% and 1.0% respectively.
4 There have been acquisitions in the year (with aggregate consideration of £255m) as set out in more detail later in this
section.
5 Average Revenue per MWh in 2015 was particularly affected by a range of factors, in particular the reduction in wholesale
power prices in the UK, the removal of revenue from the sale of Levy Exemption Certificates from 1 August 2015 in the UK,
reduced revenues from the ROC recycle element in 2015 and the inclusion mid-year of revenue contracts from the Fred. Olsen
portfolio (which are expected to step-up after a few years), partially offset by an increased contribution from solar
projects in the portfolio compared to 2014. The average for 2013 relates to portfolio revenues for the IPO portfolio
back-dated to May 2013 (when TRIG was incorporated) in order to provide as long as possible a period for the purposes of
comparison.
TRIG Portfolio Update
Portfolio Operating Performance
The Group's portfolio continues to perform closely in line with expectations.
In a year of meteorological conditions (2015 was recognised as the warmest globally on record, surpassing the record set in
2014), the UK and Northern Europe saw further variability in weather patterns in 2015, including unseasonable weather in
certain months. In spite of this, TRIG's portfolio performed well, exhibiting the benefits of a diversified portfolio.
During the year, the portfolio produced a total of 1,344 gigawatt hours (GWh) of electricity, an increase of 65% over the
production of 814GWh in 2014, reflecting the growth in the portfolio's generating capacity as well as an increase in the
proportion of generation from onshore wind, which has a significantly higher capacity factor than solar PV.
Overall production was 2.3% ahead of the P50 estimates for energy production assessed by TRIG prior to investment in each
project and reflected strong British Isles wind speeds during the year offset by weaker-than-expected UK sunshine and
French wind. The following table sets out the energy production performance of TRIG's portfolio by category for the year as
a whole against the respective P50 central estimates:
TRIG's Portfolio - Analysis of Production
Technology Region Electricity Performance Generating Capacity (MW)
Production vs. acquisition P50 estimates
(GWh)
2015 2015 2014 IPO to Dec 2015 Dec 2015
Onshore UK & Ireland 998.4 + 4% - 8% + 1% 458.8
Wind
France 217.0 - 4% - 5% - 3% 73.2
Solar PV UK & France 128.9 - 1% + 6% +5% 126.2
TOTAL PORTFOLIO 1,344.3 + 2% - 6% 0% 658.2
It should be noted that while solar PV is less productive in terms of its average capacity factor versus onshore wind, it
attracts a higher average subsidy and provides higher average revenue per MWh as well as having lower operating costs.
Solar projects also tend to trade at lower valuation discount rates than wind. In addition, the majority of the solar PV
projects in TRIG's portfolio are unlevered. This resulted in solar representing 27% of the total portfolio value at 31
December 2015 (or 31% following the investment in 15 French solar projects in January 2016).
Winter peaks in production correspond to when the wind is typically strongest. Typically, summer troughs in total expected
and actual portfolio production are created because, while solar is at its peak of production, the solar sector's lower
capacity factors compared to wind, together with its lower portfolio weighting, result in it not fully offsetting the
typically lower wind speeds experienced in the summer compared to the winter. In 2015, several months saw unusually low
wind speeds, including in particular September and October (which had better than expected sunshine), while May and
December saw exceptionally strong winds compared to seasonal averages. Solar irradiation as a whole for the year in the UK
(where the bulk of TRIG's solar projects are located) was slightly below the long-term average, with a strong first half
offset by a weaker second half.
The effects on TRIG's results of this variability are substantially reduced by the diversification across TRIG's portfolio,
with weak performance in one sector offset by better performance in another sector in any given period of time as a result
of geographical differences in weather systems and the different generating technologies (i.e. onshore wind and solar PV)
in the portfolio.
Availability for the portfolio as a whole was in line with expectations. A number of turbines required gearbox and
generator replacements or other equipment maintenance consistent with expected levels of maintenance and repair
requirements for a portfolio of this size. Some older sites had blade replacements performed as part of a remediation
programme stemming from a manufacturer defect, which was known about and provided for at the time of investment. Much of
the portfolio benefits from manufacturer availability warranties which help protect the owner from any extended downtime.
Condition monitoring - vibration data capture and analysis of key components - continued to be utilised across the majority
of the portfolio to help minimise downtime as well as the severity and cost of component failures.
Acquisitions
During the year, the Group invested in a further 7 projects (6 onshore wind and 1 solar PV) in the UK, for a total
consideration of approximately £255 million, bringing the total portfolio at the year-end to 36 projects and increasing
TRIG's total portfolio generating capacity by 219MW to 658MW.
(i) On 20 March 2015, TRIG acquired a 100% interest in an operational solar asset, Four Burrows, for consideration of
approximately £8.6 million. The park has 7.2MW of rated generating capacity and is located near Truro, Cornwall in
South-West England. The asset was acquired from RES, who developed and built the site, under TRIG's Right of First Offer
Agreement. The project uses Renesola PV panels and has been operational since January 2015. It has a 25-year operational
life. Operations and maintenance services are provided by RES who took over from Oskomera Solar Power Solutions during the
year, with a long-term power purchase agreement in place with an investment grade UK utility. The asset is accredited under
the renewables obligation regime at 1.4 ROCs per MWh. The project has no project-level debt.
(ii) On 25 June 2015, TRIG acquired a 49% equity interest in a portfolio holding company, Fred. Olsen Wind Limited,
which wholly owns six operating onshore wind farm project companies spread over four different locations in Scotland,
together with the provision by the Group of 100% of a mezzanine-level loan (fully amortising by January 2021) which
provides TRIG with additional cash flows ranking in priority to cash flows available to shareholders in Fred. Olsen Wind
Limited. The acquisition was from the projects' developer, Fred. Olsen Renewables Limited, which continues to own the
remaining 51%. The total consideration was approximately £246 million, subject to certain performance-based value
adjustments.
The following is a summary of the key data for the six projects (the "Projects") comprising the acquisition from Fred.
Olsen Renewables Limited, which have an aggregate generating capacity of 433MW (of which TRIG's 49% equity investment gives
it a 212MW "net capacity" share):-
Project Crystal Rig 1 Rothes 1 Paul's Hill Crystal Rig 2 Rothes 2 Mid Hill
Location East Lothian, Scotland Moray, Moray, East Lothian, Scotland Moray, Aberdeenshire, Scotland
Scotland Scotland Scotland
Commercial Operation Date (COD) Oct 2003 May 2005 May 2006 June 2010 June 2013 Jun/Nov 2014
Turbines 25 x Nordex 2.5MW N80 22x Siemens 2.3MW 28 x Siemens 2.3MW 60 x Siemens 2.3MW 18 x Siemens 33 x Siemens 2.3MW
2.3MW
Generating Capacity (MWs) 62.5 50.6 64.4 138.0 41.4 75.9
ROCs per MWh 1.0 1.0 1.0 1.0 1.0 0.9
PPA counterparty and expiry e.on e.on e.on EdF Statkraft Statkraft
May 2020 January 2020 January 2021 July 2017 March 2027 March 2027
The Projects were purchased with long-term project financing in place totaling approximately £330 million (or approximately
44% of the Projects' enterprise value). Work is underway to replace the power purchase agreement on Crystal Rig 2 prior to
its expiry in July 2017.
Operational, maintenance and management services to the Projects are provided by Fred. Olsen Renewables AS and its related
company Natural Power Services Limited ("NPSL") on arms-length market terms. RES, TRIG's Operations Manager, represents
TRIG on the board of the project companies and provides portfolio-level advice to TRIG in relation to the Projects. As a
significant minority equity partner in the Projects, TRIG has shareholder rights appropriate for investments of this nature
in addition to board representation.
(ii) Post balance sheet acquisition: Shortly after the 2015 financial year end, TRIG also announced (on 5 January 2016)
that it had exchanged contracts to invest E57 million (approx. £44 million at completion) in a portfolio of 15 French solar
ground-mounted and rooftop PV projects, alongside Akuo Energy Group, one of France's leading independent renewable energy
producers. The transaction was completed on 28 January 2016. The projects have aggregate gross generating capacity of
approximately 49MW and net generating capacity (pro rata to TRIG's equity interest) of 21.4MW. Nine of the projects are
ground-mounted and six are roof-mounted. The projects are located in mainland France, Corsica and two overseas departments
(all operating under French jurisdiction), with revenues wholly derived from French feed-in tariffs without exposure to
power price market fluctuations for an average of 16 years from acquisition. The transaction increases TRIG's solar PV
projects to approximately 31% of overall portfolio value.
The transaction comprises the purchase of a 49% equity interest in a portfolio holding company together with a
mezzanine-level loan. The consideration for the transaction was funded from the Group's acquisition facility with Royal
Bank of Scotland and National Australia Bank. RES, TRIG's portfolio Operations Manager, represents TRIG on the supervisory
board managing the portfolio. Akuo will continue to provide detailed day-to-day administration as well as operations and
maintenance through its directly employed teams across the projects. The projects, commissioned from December 2010 to May
2012, all benefit from power purchase agreements of up to 20 years with EDF, providing fixed, index-linked revenues per
MWh, and from broad geographical diversification between mainland France (3 projects, 17.9MW gross capacity), Corsica (4
projects, 14.0MW), La Réunion (6 projects, 12.4MW) and Guadeloupe (2 projects, 4.5MW) hosting 36%, 32%, 25% and 7% of net
capacity respectively (pro rata to TRIG's equity interests). The portfolio holding company has controlling equity interests
in the underlying projects of between 51% and 100%, investing alongside local parties in 10 of the projects. The projects
have been purchased each with long-term amortising project financing in place representing on average approximately 65% of
the projects' enterprise value and reflecting the predictability of the revenue streams available under French feed-in
tariffs.
As a result of this transaction, the TRIG portfolio's net generating capacity increased to approximately 680MW. The
portfolio is now comprised of 51 projects with approximately 69% of the projects by value being onshore wind and 31% being
solar PV, with the portion of non-UK projects in the portfolio increasing to approximately 14% by value.
Since IPO, TRIG has acquired projects from eight different vendors (or vendor groups), including from RES under the Right
of First Offer Agreement, demonstrating the breadth of opportunities available to the Company.
As TRIG continues to expand its portfolio, the emphasis of the Investment Manager will be on investing in a variety of
projects in the UK, France and Ireland, while also considering additional appropriate geographies for investment in
Northern Europe (maintaining a minimum investment of 50% of the portfolio by value in the UK, as set out in the Company's
investment policy). With the slowdown in potential UK opportunities expected in solar PV, in particular in the medium-term,
and with the increased predictability of income flows from other maturing technologies, such as offshore wind, TRIG will
review other technologies which may offer further geographical as well as technological diversification.
Financing
In February 2014, the Group entered into a three year £80 million revolving acquisition facility with Royal Bank of
Scotland and National Australia Bank to fund new acquisitions and to provide letters of credit for future investment
obligations should they be required. The facility was increased in February 2015 to £120 million and in June 2015 to £150
million, reflecting the growth of the portfolio and the pipeline of acquisitions available.
To enable the £246 million investment alongside Fred. Olsen Renewables made in June 2015, the facility was temporarily
increased to £204 million with the additional amount over £150 million being cancelled following repayment shortly after
being drawn.
This type of short-term financing is limited to 30% of the portfolio value. It is intended that any facility used to
finance acquisitions will be repaid, in normal market conditions, within a year through equity fundraisings.
The acquisition facility was drawn down to fund acquisitions twice in the year. The facility, which was £60.1 million drawn
at the start of the year and then further utilised to fund the £8.6 million acquisition of the Four Burrows solar park in
March 2015, was fully repaid with the proceeds of the £102.3 million equity fund raise in March 2015. The facility was then
drawn to £204 million to fund the Fred. Olsen investment in June 2015 that was also financed by £42 million of cash
balances provided by the March and April 2015 equity fund raises (£110 million combined total). The facility balance was
fully repaid by the July and November 2015 equity fund raises, which enabled repayments of £125 million and £79 million,
respectively. The facility was undrawn at 31 December 2015.
In January 2016, the revolving acquisition facility was £44 million drawn to fund the investment alongside Akuo Energy in
France.
During 2015, a total of £310.8 million of new equity capital was raised (net of costs) that alongside the reinvestment of
surplus investment income funded the repayments of the revolving acquisition facility of £272.7 million.
In addition to the revolving acquisition facility, the projects may have underlying project level debt. There is an
additional gearing limit in respect of such debt, which is non-recourse to TRIG, of 50% of the Gross Portfolio Value (being
the total enterprise value of such portfolio companies), measured at the time the debt is drawn down or acquired as part of
an investment. The Company may, in order to secure advantageous borrowing terms, secure a project finance facility over a
group of portfolio companies. The project-level gearing at 31 December 2015 across the portfolio was 38% (2014: 35%). The
increase in gearing has arisen as a result of the investment in Fred. Olsen Wind in June 2015 where the projects came with
existing long-term amortising project finance debt in place. Overall gearing may also change as a result of the purchase of
further investments with or without project-level debt within them. Long-term non-recourse project-level debt in the
portfolio has minimal refinancing risk and has generally been secured during the construction phase of the underlying
investments.
The composition of the portfolio is relevant in considering the appropriate level of gearing to deploy within a renewables
portfolio. In considering the Company's portfolio alongside others it may be noted that, in the opinion of the Managers:
· Certain of the Company's projects have no or very low power price risk during the subsidy period, when project debt
is often in place, because of the design of the subsidy arrangements. These include French feed-in tariff projects,
projects with long-term fixed price PPAs and, in due course, UK CfD projects. Of the TRIG portfolio, 19% by value falls
into this category (of which 12% are onshore wind projects and 7% are solar PV projects).
· In respect of other operational risks, the Company is invested in renewables technologies which are established and
do not, for example, rely on feedstock supplies or process engineering. The portfolio includes solar PV projects which
typically enjoy lower variation to their periodic cash flows than wind projects as well as onshore wind which has less
operational risk than offshore wind.
As at 31 December 2015, the Group had cash balances of £15.2 million, excluding cash held in investment project companies
as working capital or otherwise.
Foreign Exchange Hedging
At the year-end, 8% of the portfolio was located within France and the Republic of Ireland and hence is invested in
euro-denominated assets (this proportion reduced during 2015 as a result of significant UK acquisitions made during the
year). In January 2016, as a result of the investment in French solar parks alongside Akuo, the non-UK proportion increased
from 8% to 14%.
The Group enters into forward hedging contracts against its expected income from the euro-denominated investments'
distributions over the short term, currently approximately the next 18 months. In addition the Group enters into further
forward hedging contracts such that, when combined with the "income hedges", the overall level of hedge achieved in
relation to the euro-denominated assets is approximately 50%.
The Investment Manager keeps under review the level of euros hedged, with the objective of minimising variability in
shorter term cash flows with a balance between managing the sterling value of cash flow receipts and mark-to-market cash
outflows.
As well as addressing foreign exchange uncertainty on the conversion of the expected euro distributions from investments,
the hedge also provides a partial offset to foreign exchange movements in the portion of the portfolio value relating to
the euro-denominated assets.
The impact on NAV per share of a 10% movement in the euro exchange rate after the impact of hedges held by the Group
outside of the investment portfolio is 0.4p - this is explained in more detail in Section 2.7 (Valuation Sensitivities -
euro/sterling exchange rate). This impact increases to around 0.6p following the additional investment in euro-denominated
assets in January.
Analysis of Financial Results
Accounting
At 31 December 2015, the Group had investments in 36 projects. As an investment entity for IFRS reporting purposes, the
Company carries these investments at fair value.
Basis of preparation
As first adopted in the annual financial statements of the Company for the year ended 31 December 2014, IFRS 10 states that
investment entities should measure all of their subsidiaries that are themselves investment entities at fair value
following the issuance of 'Investment entities: Applying the Consolidation Exception - Amendments to IFRS 10, IFRS 12 and
IAS 28'. Being an investment entity, The Renewables Infrastructure Group (UK) Limited ("TRIG UK"), the Company's single
direct subsidiary through which investments are purchased, is measured at fair value as opposed to being consolidated on a
line-by-line basis, meaning its cash, debt and working capital balances are included as an aggregate number in the fair
value of investments rather than the Group's current assets. In order to provide shareholders with more transparency into
the Group's capacity for investment, ability to make distributions, its operating costs and gearing levels, the results
have been restated in the below pro forma tables. The pro forma tables show the Group's results for the year ended 31
December 2015 and the comparative period on a non-statutory "Expanded Basis", where TRIG UK is consolidated on a
line-by-line basis, compared to the Statutory IFRS financial statements (the "Statutory IFRS Basis").
The Directors consider the non-statutory Expanded Basis to be a more helpful basis for users of the accounts to understand
the performance and position of the Company because key balances of the Group including cash and debt balances carried in
TRIG UK and expenses incurred in TRIG UK are shown in full rather than being netted off. The necessary adjustments to get
from the Statutory IFRS Basis to the non-statutory Expanded Basis are shown below. Commentary is provided below on the
primary statements of TRIG on this basis.
Income statement
Summary income statement Year to 31 December 2015£'million Year to 31 December 2014£'million
Statutory IFRS Basis Adjustments1 Expanded Basis Statutory IFRS Basis Adjustments1 Expanded Basis
Operating income 15.9 11.4 27.3 23.1 7.0 30.1
Acquisition costs - (1.1) (1.1) - (1.5) (1.5)
Net operating income 15.9 10.3 26.2 23.1 5.5 28.6
Fund expenses (1.0) (6.2) (7.2) (0.8) (4.0) (4.8)
Foreign exchange gains 2.0 (0.1) 1.9 1.0 0.2 1.2
Finance costs 0.1 (4.0) (3.9) - (1.7) (1.7)
Profit before tax 17.0 - 17.0 23.3 - 23.3
EPS 3.0p 3.0p2 6.2p 6.2p
1. The following were incurred within TRIG UK; acquisition costs, the majority of expenses and acquisition facility fees
and interest. The income adjustment offsets these cost adjustments.
2. Calculated based on the weighted average number of shares during the year being approximately 565.2 million shares.
Expanded Basis versus Statutory IFRS Basis
The Statutory IFRS Basis nets off TRIG UK's costs, including overheads, management fees and acquisition costs against
income. Above we show the Expanded Basis, which included the expenses incurred within TRIG UK to enable users of the
accounts to fully understand the Group's costs. There is no difference in profit before tax or earnings per share between
the two bases.
Analysis of Expanded Basis financial results
Profit before tax for the year to 31 December 2015 was £17.0 million, generating earnings per share of 3.0p. These results
reflect the adverse impact of the 8 July 2015 UK Summer Budget ("UK Summer Budget"), in which the Chancellor announced the
removal of the Climate Change Levy exemption for renewably sourced electricity from August 2015 and a reduction in future
corporation tax rates to 19% from April 2017 and to 18% from April 2020, causing a net reduction of £20.2 million to TRIG's
portfolio value, translating to a 3.9p loss per share. Before the impact of the UK Summer Budget, profit before tax for the
year to 31 December 2015 was £37.2 million, generating earnings per share of 6.6p, which compares to £23.3 million and
earnings per share of 6.2p for the prior year to 31 December 2014.
The increases in net operating income (before applying the impact of the Summer Budget) and expenses in the year ended 31
December 2015 as compared to the previous year ended 31 December 2014 reflect the increase in the size of the portfolio.
Acquisition costs, the costs to purchase new investments, represent 0.37% (2014: 0.83%) of the cost of the assets acquired
and are set out below.
Year to 31 December 2015(£'million) Year to 31 December 2014(£'million)
Acquisition costs 1.1 1.5
Purchase of new investments 299.31 179.8
Acquisition costs as % of investments 0.37% 0.83%
1. Purchase of new investments balance adjusted to include E57.2 million which relates to the investment in the Akuo French
solar projects completed post balance sheet in January 2016 but with the acquisition costs for this investment having been
incurred in 2015.
Fund expenses of £7.2 million (2014: £4.8 million), includes all operating expenses and £6.1 million (2014: £3.8 million)
fees for the Investment and Operations Managers. Management fees are charged at 1% of Adjusted Portfolio Value as set out
in more detail in Note 18 to the financial statements.
Foreign exchange gains on hedges held outside the portfolio of £1.9 million (2014: £1.2 million) partially offset foreign
exchange losses incurred on the value of Euro-denominated investments in the portfolio of £3.0 million (2014: £3.2 million)
resulting from the weakening of the Euro. Portfolio value movements (included in operating income) are more fully described
in Section 2.7 of this Strategic Report. The net foreign exchange loss in the period is hence £1.1 million (2014: £2.0
million).
Finance costs relate to the interest and fees incurred relating to the Group's revolving acquisition facility and the
increase in the year compared to the previous year reflects the increase in the facility size to accommodate the investment
in Fred. Olsen Wind limited and the higher level of average drawings in the year..
Ongoing charges
Ongoing Charges (Expanded Basis) Year to 31 December 2015£'000s Year to 31 December 2014£'000s
Investment and Operations Management fees 6,090 3,827
Audit fees 99 73
Directors' fees and expenses 172 156
Other ongoing expenses 565 554
Total expenses 6,9261 4,6102
Average net asset value 576,136 370,273
Ongoing Charges Percentage (OCP) 1.20% 1.25%
1. Total expenses excludes £0.3 million of one-off professional fees incurred during the year.
2. Total expenses excludes £0.2 million of lost bid costs incurred during the year.
The Ongoing Charges Percentage is 1.20% (2014: 1.25%). The ongoing charges have been calculated in accordance with AIC
guidance and are defined 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 period. The Ongoing Charges Percentage has been
calculated on the Expanded Basis and therefore takes into consideration the expenses of TRIG UK as well as the Company's.
The reduction in OCP reflects portfolio growth during the year as the Group's expenses are spread over a larger capital
base. There is no performance fee paid to any service provider.
Balance sheet
Summary balance sheet As at 31 December 2015£'million As at 31 December
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