The Board of Octopus Renewables Infrastructure Trust plc announces that the unaudited Net Asset Value ("NAV") of the Company as at 30 June 2023 on a cum-income basis was £608.2 million or 107.67 pence per Ordinary Share (31 March 2023: £608.5 million or 107.73 pence per Ordinary Share).
Power Prices and Green Certificates
In the period since 31 March 2023, forecast wholesale power prices across the UK and Europe have decreased in the short to medium term, with average longer-term forecasts increasing versus those used in the prior quarter. Green certificates (Renewable Energy Guarantees of Origin ("REGOs") in the UK and Guarantees of Origin ("GoOs") in European markets) are sold by generators to guarantee that purchased electricity is from a 'green' source. Prices for green certificates have seen a significant increase over the past few years which had not previously been reflected in the valuations but this has now been updated in line with third-party forecasts. Further detail on the price forecasts used in the valuations of the Company's portfolio of assets will be included in the Interim Report covering the six months ended 30 June 2023.
ORIT benefits from a high proportion of fixed or contracted revenue (78% over the 24-month period to 30 June 2025, as at 30 June 2023), which limits ORIT's exposure to variability in short-term pricing to some assets located in Sweden, Finland and the UK. Assets located outside these jurisdictions (France, Germany, Ireland and Poland) benefit either from 100% fixed pricing over the 2023 to 2025 period and beyond or are subject to prices capped at levels below the forecast market prices.
The net valuation impact of updating for recent power price and green certificate forecasts was an increase of +£27.0 million or +4.8 pence per Ordinary Share.
Inflation and FX
Since the end of Q1 2023, short-term inflation assumptions have remained broadly stable across the European markets where the Company's portfolio of assets is located, with the exception of Poland where inflation has continued to increase. In the UK, inflation forecasts have softened with consensus reports, as at May 2023, reporting decreases versus the prior forecast period. Updating the most recent inflation forecasts1 resulted in a net decrease in the valuation of £1.9 million.
The Company benefits from significant levels of inflation protection via revenue from government support schemes in the UK, France and Poland, with approximately 58% of the revenue forecast to be received by the Company's current portfolio of assets in the ten years ending 30 June 2034 now explicitly inflation-linked.
During the quarter, sterling appreciated against the euro, leading to a negative valuation impact of £5.3 million. The Investment Manager regularly reviews the level of euro exposure and utilises hedges, with the objective of minimising variability in shorter term cash flows. After the impact of currency hedges held at Company level are taken into account, the loss on foreign exchange reduces to £1.2 million.
The combined impact of inflation and foreign exchange movements was a valuation decrease of £3.1 million or 0.5 pence per Ordinary Share.
Discount rates
In line with the higher interest rate environment in the UK where interest rates, including long-term expectations, have increased over the past 6 months, the Board and the Investment Manager consider it appropriate to reflect a further increase of 0.5% in the discount rates applied to UK assets. The increase to the UK discount rates resulted in a valuation decrease of -£14.6 million or -2.6 pence per Ordinary Share. No changes to non-UK discount rates have been made, reflecting the more stable long term rate expectations in those markets.
This increase in UK discount rates was partially offset by the reduction in the risk premium applied to assets in construction as they meet specific milestones, resulting in a weighted average levered equity discount rate implied across the portfolio of 7.7%.
Other movements
A decrease of £1.5 million was recorded from other valuation movements.
This reflects the net present value of future cashflows being brought forward from 31 March 2023 to 30 June 2023, offset by the Company's operating and transaction costs, and net performance in the underlying portfolios.
Construction at the c.67MW Breach Solar Farm in Cambridgeshire, UK is progressing well with Civil Works completed by 30 June 2023, and is expected to achieve operational status on schedule during Q4 2023. Progress against construction milestones has resulted in a valuation gain of +£0.3 million or +0.1 pence per Ordinary Share in the quarter through reduction in the risk premium applied to the discount rate.
Dividend
The interim dividend (-£8.2 million or -1.45 pence per Ordinary Share) in respect of Q1 2023 was also paid in the quarter, in-line with the Company's stated dividend target for the financial year from 1 January 2023 to 31 December 2023 of 5.79 pence per ordinary share2
