Q3 2022 Factsheet & Net Asset Value *REPLACEMENT*
The following amendment has been made to the 'Q3 2022 Factsheet and Net Asset Value' announcement released on 3 November 2022 at 7.00 a.m. under RNS No 1427F.
The gain recorded from other valuation movements was £3.8 million.
All other details remain unchanged.
The full amended text is shown below.
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 (30 June) |
Levered IRR (30 Sept) |
Leverage %GAV (30 Sept) |
Mvmt in levered IRR |
|
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 £3.8 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/
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 E nergy 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 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 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
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