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Greencoat UK Wind held back by falling premium

Greencoat UK Wind held back by falling premium – Greencoat UK Wind has announced final results for the year to 31 December 2020. While the NAV increased from 119.7p to 120.4p (+0.6%) during the year, the return to shareholders was -6.2% as the premium fell. This may reflect share issuance but falling power prices have also weighed on the sector a little. 2020 highlights are:

  • Generation of 2,952GWh of zero carbon electricity, sufficient to power 1.2m homes and reducing carbon dioxide emissions by approximately 1.5m tonnes per annum.
  • Net cash generation of £145.2m.
  • Investments in Slieve Divena II, Walney and Humber Gateway increased the portfolio to 38 operating wind farm investments and net generating capacity to 1,173MW as at 31 December 2020.
  • Agreement to acquire Kype Muir Extension and South Kyle subsidy free wind farm projects, expected to become operational in 2022 and 2023 respectively, and
  • bought 50% of the Braes of Doune wind farm since the year end.
  • Issued shares to raise £400m (and a further £198m since the year end).
  • Total dividends of 7.1p per share and targeting 7.18p for 2021 (increased in line with inflation based on December 2020 RPI).
  • £1.1bn outstanding borrowings as at 31 December 2020, equivalent to 33 per cent of gross asset value.

Portfolio generation was 3% below budget. Power prices were also below budget, primarily reflecting low gas prices and low power demand as a result of the COVID-19 pandemic and associated lockdown, especially in the first half of the year. Nevertheless, dividends were covered by cash generated by 1.3x. Generation was affected by extremely high winds in February 2020. They say “not all of the higher wind resource was converted into generation”, which we take to mean that wind turbines were locked down to prevent damage.

During 2020 Greencoat UK Wind made investments and commitments totalling £1.3bn, of which approximately 70% was in wind farms subsidised under the old ROC regime. It says that, although it is starting to see attractive CFD and subsidy free assets within its significant acquisition pipeline, it expects that significant future investment will continue to be made in UK wind farms accredited under the ROC regime.

The base case weighted average discount rate used to value to fund’s future cash flows to produce the NAV was lowered from 7.5% to 6.9% over 2020. In part, this reflects a higher proportion of subsidies within the revenue mix (the offshore wind farms attractive higher subsidies). They are using an estimated 30-year average power price of £44.53 per MWh in the NAV calculation. The average price for the second half of 2020 was £41.98 per MWh.

UKW : Greencoat UK Wind held back by falling premium

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