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Renewables Infrastructure raising cash to expand in Europe

Renewables Infrastructure raising cash to expand in Europe – The Renewables Infrastructure Group (TRIG) is asking its shareholders to approve an increase in the maximum amount that it can invest in continental Europe – raising the bar from 50% of its portfolio to 65%. A meeting is being convened to approve the change. At the end of June 2019, TRIG had 45% of its assets in Europe.

At the same time, TRIG has announced a placing of shares to raise money to help fund this expansion into Europe. In March this year, shareholders approved the issuance of another 450m shares. So far, 265m have been issued, leaving a balance of 185m. The shares will be issued at a price of 123p per share. This represents a discount of 6.0 per cent. to the mid-market closing share price of 130.9p on 26 September 2019 and a premium of 7.0 per cent. to the last reported NAV of 115.0p (as at 30 June 2019).

Rationale

The company’s rationale for investing in mainland Europe is set out below:

” In the UK, new utility scale solar developments ceased being eligible for support in the form of renewable obligation certificates (ROCs) from March 2015, whilst new onshore wind energy projects ceased being eligible for ROCs from May 2016. The ROC scheme closed for all technologies in March 2017. A replacement support mechanism was introduced, called the Contract for Difference regime (CfD), in which, after limited initial Government support, new onshore wind and solar projects have not generally been able to participate.

As a consequence, going forward, under current policy the substantial majority of future subsidy-based renewables developments in the UK are likely to be in offshore wind, with the UK expected to add a further 15GW(1) of offshore wind by 2030 by way of a small number of increasingly large wind farms. The size of offshore projects in the UK means that the Company’s investments are likely to comprise minority interests; and given the limited deal flow in onshore wind and solar in the UK, when such projects do come to the secondary market, they may attract scarcity premia.

At the same time, mainland European renewables markets have continued to evolve. In the Northern European markets in which TRIG has invested, a number of countries (such as France, Ireland and Germany) still have robust support regimes for onshore wind and solar projects and deal flow remains significant. Elsewhere in mainland Europe, falling capital costs, favourable weather conditions and the availability of land space to allow large-scale renewables projects, have resulted in renewable energy assets being developed at attractive risk adjusted returns without recourse to subsidies. This can be evidenced by TRIG’s recent acquisitions of onshore wind projects in Scandinavia and by the development of solar projects in Iberia.

The cumulative effect of these factors is that the UK is expected to see more than 20GW(2) of growth to 2030, predominantly in offshore wind, while mainland European markets are expected to see more than 100GW(3) of renewables development, including more than 20GW2 of solar expected to be developed in Iberia and significant volumes of onshore wind across Northern Europe.

At the time of the Company’s IPO, the market for renewables was entirely subsidised and it was envisaged that UK ROCs would remain the bedrock of the portfolio. However, with the policy changes in the UK set out above, and the rapid evolution of subsidy-free projects in mainland Europe, the Investment Manager is now able to combine, on a portfolio basis, European projects with subsidies (such as Feed-in Tariffs and CfDs) with unsubsidised European projects to achieve returns at least in line with UK ROC projects, whilst maintaining key sensitivities at consistent levels on a portfolio basis.”

TRIG : Renewables Infrastructure raising cash to expand in Europe

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