Highlights for the period since 1 July 2014
Helen Mahy, Chairman of The Renewables Infrastructure Group Limited, said:
“A year on from IPO, TRIG is continuing its robust performance and the Company looks forward to further portfolio expansion and diversification. The Board appreciates the support of its shareholders who are attracted by TRIG’s delivery of stable dividend returns linked to inflation as well as the potential for capital growth from reinvestment of surplus cash flows.”
Richard Crawford, Director, Infrastructure of InfraRed Capital Partners, said:
“TRIG’s strategy of investing across multiple technologies and markets is proving itself with its large and diversified portfolio balancing production in a wide range of weather conditions. Looking ahead, we are well-positioned to source further projects for TRIG from a range of suitable opportunities in the onshore wind and solar PV segments.”
Portfolio – Acquisitions
In August TRIG acquired 100% interests in three large-scale ground-mounted fully operational solar PV generating projects, on agricultural sites in the South and East of England with an aggregate generating capacity of 56.6MW, for consideration of £73.7 million, subject to certain performance adjustments. All three projects have received ROC accreditation at 1.6 ROCs per MWh.
The projects do not have project-level debt, although in due course TRIG may introduce project-level debt and/or sell down a minority interest in the projects to optimise the capital structure and enhance overall returns to the Group.
These acquisitions, funded by the Group’s cash resources and utilising the revolving acquisition facility, bring the overall portfolio to 27 projects with approximately 398 MW generating capacity (the largest among UK listed investment companies) and approximately doubles TRIG’s solar PV capacity to 119 MW, now representing 39% of the portfolio by value.
Portfolio – Performance
In the third quarter portfolio performance was beneath long term average expectations, as a result of low wind in the British Isles where production was more than a fifth down on expectations. Solar performed strongly and, with further mitigation from the French wind portfolio, TRIG’s total production for the quarter was within 15% of long term average expectations and within 3% for the last four quarters as a whole.
A degree of variability in electricity production levels is to be expected from period to period and from site to site due to reliance on actual weather conditions. However, the benefits of diversification continue to be in evidence in TRIG’s production performance, with offsetting factors in terms of both geography and weather source.
There are no other material operating issues to report.
Portfolio – Valuation
A number of power forecasters have materially reduced their wholesale power price projections, based on a number of factors including the build-up of Liquefied Natural Gas (LNG) supply influencing gas prices and a lower expectation for carbon prices combined with a near term reduction in demand resulting from warmer-than-usual weather conditions in Europe over the last 12 months.
At the same time, there is evidence that strong demand for income-producing infrastructure assets, including renewable energy infrastructure projects as the secondary market matures, has resulted in a reduction in prevailing discount rates for operating projects which partially offsets the changes in power price forecasts.
The weighted average portfolio discount rate used to value the portfolio at 30 September 2014 was 9.1%, down from 9.6% at 30 June, resulting from a combination of lowering discount rates in the market and the addition of ungeared solar projects to the portfolio.
Netting off all factors contributing to the valuation – notably generation in the quarter, future power price expectations and market discount rates – the Investment Manager has calculated TRIG’s unaudited net asset value (NAV) per share at 30 September 2014 to be 100.2 pence. This represents an increase in NAV per share of 0.9 pence since 30 June 2014 after adjusting for the interim dividend of 3.0 pence per share paid in September.
Outlook – Acquisition Pipeline
The Investment Manager, InfraRed Capital Partners, continues to evaluate a selection of new investment opportunities for the Group from its pipeline of opportunities in both onshore wind and solar PV that meet the Company’s Investment Policy to create further scale and diversification of the portfolio. TRIG is in exclusive and advanced discussions currently to acquire further investments in several projects.
TRIG notes the recent announcements regarding the new UK Government programme for Contracts-for-Difference (CfD) intended to underpin a large portion of additional capacity in the UK renewables market, and replacing the programme for Renewables Obligation Certificates (ROCs) for new projects. The solar PV market is expected to be most affected by this in the year ahead, with any larger projects above 5 MW in capacity unable to be grid-connected by 31 March 2015 (and therefore unable to qualify for ROCs) having to compete for a limited budget of support under the CfD programme. While further large-scale ground-mounted projects may be successful in winning allocations under the CfD programme, some shift in volume of new delivered capacity towards smaller-scale and rooftop projects is likely. Further onshore wind projects are still expected to qualify for ROCs for new connections up to March 2017.
Elsewhere, and as referred to in the interim results, the Irish Single Electricity Market (SEM) is going through a period of re-design to bring it into line with the European Electricity Target Model by 2016. TRIG continues to monitor this for any potential effects on the SEM market. The Company also notes the further support given this month to the renewable energy market in France following the National Assembly’s consent to the text for France’s energy transition bill. France is currently targeting 32% of its energy consumption to be sourced from renewables by 2030. If passed into law in 2015, the bill is expected, among other enhancements, to ease approvals processes for new renewables developments including onshore wind.
Outlook – Equity Raising and Acquisition Facility
Given the exclusive discussions underway as well as TRIG’s broader acquisition pipeline, the Company is contemplating a further equity raising in the near term which may form part of a share issuance programme subject to shareholder approval. Further details on this fund-raising plan will be published in due course. In addition, TRIG is considering increasing the size of its acquisition facility, should this be required to facilitate acquisitions currently under review.
TRIG will announce its annual results for the year to 31 December 2014 in February 2015, together with its second interim dividend for year to 31 December 2014 which is targeted to be 3.08 pence per share, an increase over the first interim dividend for 2014 of 3.0 pence per share, incorporating an adjustment for inflation as expected.