Portfolio and Energy Policy Update
15 December 2022
LEI: 213800B81BFJKWM2JV13
Octopus Renewables Infrastructure Trust plc
("ORIT" or the "Company")
Portfolio and Energy Policy Update
Portfolio Update
The Board of Octopus Renewables Infrastructure Trust plc is pleased to announce the formal contractual completion of construction of the Cerisou Wind Farm in France has been achieved and the site is now fully operational. This onshore wind farm project was acquired from RES SAS, part of the RES Group, in October 2020 as a construction ready project. Project construction commenced in mid-2021 and the site started generating power during Q3 2022, in line with expected timelines. The 24MW wind farm, made up of 8 turbines, has now formally entered the French Contract for Difference regime under which it will receive fixed, index-linked revenues for twenty years.
Construction on the Cumberhead Wind Farm in Scotland has also been progressing well. As at the date of this announcement, seven of twelve turbines have been installed at the 50MW project, and the site has been connected to the electricity network. The project is expected to be commissioned in Q1 2023.
Following the recently announced follow-on investment into Simply Blue ("SBG"), an Irish developer of predominantly floating offshore wind projects, SBG has made the following key announcements:
- SBG has announced a Joint Venture - IberBlue Wind - with Proes Consultores and FF New Energy Ventures which aims to develop c. 2GW of floating offshore wind farms, primarily in Spain and Portugal.
- SBG has agreed to co-develop four commercial-scale offshore wind parks in the Baltic Sea with Eolus, a Nordic wind power developer. The four projects are currently in development and will collectively have the capacity to generate up to 40TWh of clean energy per annum in Sweden and Finland.
Energy Policy Updates and impact on NAV
The unaudited Net Asset Value ("NAV") as at 30 September 2022 of 108.3 pence per Ordinary Share was calculated using considerable discounts to the market pricing available at the time in relation to revenues that were not fixed, with discounts of approximately 70% in Q4 2022, decreasing to 50% in 2025. These adjustments reflected uncertainty over Government policy in the UK and Europe related to energy price caps and windfall taxes, as well as the normal discounts to reflect the lower prices typically captured by wind and solar generators.
Since the release of the 30 September 2022 NAV, there have been a number of announcements which reduce the uncertainty related to energy price caps and windfall taxes. The Investment Manager has estimated that the potential impact of the announcements by the UK, Polish and Swedish Governments, had they been included in the calculation of the Company's 30 September 2022 NAV, would in aggregate have been an increase of c. £11.1 million or +2.0 pence per Ordinary Share to £623.1 million or 110.3p per Ordinary Share*, based on the assumptions set out below.
· 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 Electricity Generator Levy or "EGL"). 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 a benchmark price of £75/MWh, with an allowance under which the first £10 million per annum is not taxable. Revenue earned from Renewable Obligation Certificates ("ROCs") or Contracts for Difference ("CfDs") will be exempt.
Had the Company's NAV at 30 September 2022 been calculated using only the normal c.7-10% discounts to baseload GB power market forward prices in 2023 to 2025, to reflect the lower prices typically captured by solar and wind generators in the UK, the NAV would have been increased by £15.8 million or +2.8 pence per Ordinary Share. Applying the EGL to these increased revenues would have led to a reduction in the NAV of £12.7 million or -2.2 pence per Ordinary Share. This net impact of reducing the forward price discounts and applying the EGL would have been an increase to the NAV of +£3.1 million or +0.6 pence per Ordinary Share in respect of UK assets.
· Poland: From 4 November 2022, the Polish Government has implemented an emergency measure price cap on electricity generators, with a cap of 295PLN/MWh (approximately € 61/MWh) for wind assets not receiving a CfD. The price cap will be applied from 1 December 2022 to 31 December 2023 and are based on CfD reference prices for each technology.
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. Had the NAV at 30 September 2022 been calculated using a price of €61/MWh, the NAV would have been reduced by -£7.3 million or -1.3 pence per Ordinary Share.
· 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. Had the Company's NAV as at 30 September 2022 been calculated using only the normal c.13-15% discounts to baseload SE4 (Sweden) power market forward prices in 2023 to 2025, to reflect the lower prices typically captured by wind generators in southern Sweden, the NAV would have been increased by £24.5 million or +4.3 pence per Ordinary Share. Applying the proposed 90% tax to these increased revenues would have led to a reduction in the NAV of £9.2 million or -1.6 pence per Ordinary Share. This net impact of reducing the forward price discounts and applying the proposed 90% tax would have been an increase to the NAV of +£15.3 million or +2.7 pence per Ordinary Share in respect of the Ljungbyholm wind farm in Sweden. It should be noted that forward pricing in Sweden and other markets remains volatile and there is no guarantee that these increased revenues will be achieved.
In addition to the UK, Poland and Sweden, the Company owns or is expected to acquire during 2023 operational projects in Finland, France, Germany and Ireland.
· 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 33% and apply to net income above a threshold of a 5% return on equity. It is not yet known which generators will be affected, or how the return on equity threshold will be calculated, however as annual EBITDA from the Company's Finnish assets is expected to be below £12 million in 2023, the tax is not expected to have a material impact on the Company.
· France, Germany, Ireland: Varying levels of price caps from €100/MWh to €130/MWh have been announced in France, Germany and Ireland. 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.
Consequently, no material impact to NAV is currently expected as a result of the regulatory updates announced (outlined above) in Finland, France, Germany and Ireland.
The overall expected impact of the changes is outlined in the table below.
|
|
Pence per ordinary share impact on unaudited Net Asset Value |
|
Unaudited Net Asset Value as at 30 September 2022 |
108.3 |
|
Reduction of discounts to UK forward power prices from 2023 - 2025 |
+2.8 |
|
Estimated impact of UK Electricity Generators Levy |
-2.2 |
|
Polish price cap |
-1.3 |
|
Reduction of discounts to Swedish forward power prices from 2023 - 2025 |
+4.3 |
|
Estimated impact of Swedish 90% tax |
-1.6 |
|
Net impact of announcements |
+2.0 |
|
Unaudited Net Asset Value as at 30 September 2022 including net impact of announcements |
110.3 |
Chris Gaydon, Investment Director at Octopus Energy Generation, commented:
"We are pleased to announce the timely completion of the Cerisou Wind Farm, adding a significant project to the income-producing portion of our portfolio, increasing our operational capacity to 544MW. Furthermore we are very pleased with progress in the construction and development part of the portfolio, with the Cumberhead project making significant progress and expected to be operational soon, and Simply Blue adding further diversification through additional floating offshore wind farm developments across Europe. By September 2023 we expect to have 862MW of generation in operation and contributing to ORIT's strong dividend cover, all of which is fully funded from existing resources."
"It is reassuring to have clearer visibility on the energy price caps and windfall levies across several key regions in which we operate, highlighting the conservative nature of our valuation approach, and the value of diversification across regulatory regimes. If the recent UK, Polish and Swedish government policies had been announced at the time of the September NAV it would have increased by c.£11.1 million, or +2.0 pence per share*."
For further information please contact:
|
Octopus Energy Generation (Investment Manager) Matt Setchell, Chris Gaydon, David Bird
|
Via Buchanan |
|
Peel Hunt (Broker) Liz Yong, Luke Simpson, Huw Jeremy (Investment Banking) Alex Howe, Chris Bunstead, Ed Welsby, Richard Harris, Michael Bateman (Sales)
|
020 7418 8900 |
|
Buchanan (Financial PR) Charles Ryland, Hannah Ratcliff, George Beale
|
020 7466 5000 |
|
Sanne Fund Services (UK) Limited (Company Secretary) |
020 3327 9720 |
Notes
* Investors should note that the implied unaudited NAV and NAV per Ordinary Share as at 30 September 2022 do not constitute an updated NAV. The next NAV and NAV per Ordinary Share, as at 31 December 2022, will be calculated in accordance with the Company's valuation policy and are expected to be announced in January 2023. Shareholders should note that the calculation of the NAV and the NAV per Ordinary Share as at 31 December 2022 will take account of the latest valuations of all of the Company's investments as at 31 December 2022. As such, this announcement does not constitute or describe an updated NAV of the Company or NAV per Ordinary Share.
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
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 billion of assets under management (as of 30 September 2022) across 11 countries and total 4.1GW. These renewable projects generate enough green energy to power 2 million homes every year, the equivalent of taking over 1 million 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
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