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Renewables Infrastructure Group notes material reduction in near term power price forecast

We have an update from Renewables Infrastructure Group (TRIG) this morning. The key points made are:

  • Power price forecasts reduced, with material impact from covid-19 in the near term, which if taken in isolation and excluding value enhancements, would imply a reduction in NAV per share of approximately 5p;
  • Excellent portfolio performance in Q1, with generation 22% above budget, and asset availability is being maintained in line with expectations; and
  • Dividend guidance of 6.76p for year ended 31 December 2020 reaffirmed

Covid-19 materially impacting power prices 

TRIG said the following, in an RNS release:

“Covid-19 is having a materially adverse impact on wholesale power prices as a result of reduced economic activity due to movement restrictions introduced across Europe. The global pandemic has led to a reduction in demand for electricity and caused gas and carbon prices to fall. These impacts are expected to continue over the near term impacting all power generators. In addition, expectations for gas prices in the medium-term have continued to ease, due to expected softer demand and increased supply.

As a result, the most recent power price forecasts received by the company used as part of its process to arrive at the portfolio valuation, show a material reduction in forecast prices in the near term as a result of covid-19, and a lesser reduction over the long term as a result of lower gas prices, compared with previous expectations.

Power price forecasts for each of the five jurisdictions across Europe in which the company operates show similar reductions.

Based on these forecasts, the projected wholesale power prices for TRIG’s markets, on a blended basis, have reduced on average by 17% over the next 5 years (including a 25% reduction over 2020 and 2021) and by 5% from 2025 until 2050. In the GB market, this corresponds to an average cannibalised capture price of c. £39 per MWh for the period 2020-2024 and £46 per MWh for the period 2025-2050 (in real prices).

Approximately 74% of the company’s revenues through to 31 December 2024 (and in excess of 80% over the next two years) are fixed, providing strong levels of visibility on cashflows in the near-to-medium term. The Company benefits from having projects in France and Germany with Feed in Tariffs and from fixes entered into for projects in other jurisdictions, as a result of the company’s diversification strategy.

These latest power price forecasts, if taken in isolation, would imply a reduction in NAV per share of approximately 5p.  The company’s last published NAV per share was 115p as at 31 December 2019.

A formal valuation exercise will be undertaken for the 30 June 2020 interim results which will take into account the latest available sets of power price forecast assumptions, as well as all other variables and mitigants that are applied in valuing the portfolio including the strong Q1 operational performance and value enhancements. The 30 June 2020 interim results are due to be announced in early August 2020.”

Operations

“The company’s operating portfolio continues to perform well.  Consistent with the out-performance noted for the partial quarter on the March Update Call, generation in the first quarter to 31 March 2020 was 22% above budget overall, with offshore wind farms and the assets in GB and Sweden performing particularly well. 

The operational portfolio has enjoyed good availability despite the operational challenges posed by covid-19, keeping within approximately 1% of the availability budget for March, which has been achieved through the pragmatic, solution-focussed approach adopted by the asset management and the operation and maintenance teams.

Activity at TRIG’s three construction investments (representing c. 8% of the portfolio by value) continue to be closely monitored: Venelle in France is partially commissioned with six operational turbines generating revenue, and the remaining 10 turbines delayed but anticipated to be operational this summer.  Solwaybank in Scotland is progressing well with commencement of operations still expected by the end of the year. Blary Hill in Scotland is expected to commence construction shortly as scheduled.

InfraRed and RES continue to prioritise safeguarding the health and welfare of their employees and contractors, as well as maximising the operational performance of the company’s portfolio.”

Dividends

“Notwithstanding that power prices will be lower than expected for 2020, the company’s projected dividend cash cover remains positive. The company has a strong funding position and reserves which gives further confidence.

The board reaffirms the dividend guidance of 6.76p for the year ending 31 December 2020. The ex-dividend date of the first quarterly interim dividend payment is 14 May 2020 with a payment date of 30 June 2020.”

TRIG: Renewables Infrastructure Group notes material reduction in near term power price forecast

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