VH Global Sustainable Energy Opportunities off to a strong start in first final results – VH Global Sustainable Energy Opportunities (GSEO) has posted its annual results for the period from incorporation in October 2020 to 31 December 2021.
This was the company’s first financial period. Following incorporation on 30 October 2020, the company commenced operations on 2 February 2021 when it listed. Profit for the period before tax was £20.3m and earnings per share were 10.5p. GSEO’s net asset value as at 31 December was £323.9m or equivalent to 104p per ordinary share, representing a 4.2% increase from the previous quarter’s NAV. This increase was predominantly due to an uplift in the portfolio revaluation of the US terminals. Given the global nature of the portfolio, the forex movement in the final quarter of 2021 was negligible.
GSEO’s ongoing charges ratio reduced to 1.42%, reflecting the increased size of the investment portfolio. The board will continue to monitor the OCR closely as it seeks to grow the trust size and deliver value to shareholders.
The company announced an interim dividend on 1 November 2021 of 1.25p per Ordinary Share with respect to the period from IPO to 30 September 2021. Given the strength of the assets and underlying cashflows, this dividend exceeded the dividend target as set out at IPO to pay a minimum total dividend of 1p per Ordinary Share for the financial period ending 31 December 2021. Additionally, GSEO reaffirmed the annual dividend target of 5p per Ordinary Share for the year beginning 1 January 2022.
Going forward, the board anticipates paying quarterly dividends of 1.25p per share, in line with guidance provided to investors in the January 2021 prospectus.
Manager’s market outlook
The transformation in the energy market will continue to affect people across the globe on macro and micro levels and a reversal to the old norm can now be completely discarded. Countries’ commitments to tackling climate change and sustainability head on, technological advancements and intelligent solutions will continue to shape the way we power our economies for years to come. At Victory Hill, we firmly believe that we have only just started on the energy transition journey.
Sustainable energy investments will continue to be supported by favourable market conditions.
The ‘old’ energy industry is grappling with the increase in the cost of capital for extraction of fossil fuels by significantly reducing investments despite improved commodity prices. This paradox is creating a unique situation for a prolonged high commodity price cycle which is consistent with an energy transition landscape. Higher commodity prices will make their way into energy prices for end consumers, counter-balancing the downward pressure on energy prices caused by greater renewable energy penetration. In the meantime, governments will continue to implement initiatives to try to mitigate energy inflation’s impact on end users’ lives which will favour sustainable assets.
Commitments to tackling climate change are getting more and more robust. While governments are fluctuating around greater levels of commitment to lower levels, the private initiative remains relentlessly focused on developing solutions and capturing opportunities as they become available.
GSEO is at the forefront of the private capital participation in the energy transition with a global focus to enable sustainable energy projects with long-term equity capital. Our global approach means that our attention will be centred around different themes depending on the geography, as the energy transition means different approaches required in each market. “Think global, act local” is our approach.
In the UK, we will continue to focus on grid balancing initiatives. Through the autumn and winter of 2021 we have seen very low wind resources resulting in the UK network having to dispatch an unwanted amount of coal-fired power plants. This is a major setback with so much capacity being built for renewable sources. We will therefore continue to direct our investments in the UK towards addressing the unreliability of solar and wind with net zero flexible power solutions using high efficiency natural gas power plants. High efficiency means less natural gas as feedstock for each MWh to be produced. This will be crucial at a time when natural gas prices are expected to be high due to a combination of supply and demand factors and geopolitical tensions.
On the US and Mexico border, the need to keep the flow to clean up Mexican fuel will remain as strong as ever. The Mexican government will continue to push on the agenda to support state owned enterprises which control the fuel value chain and the power generation segment. These entities depend greatly on the ability to clean the domestic fuel to avoid environmental disaster of burning the indigenous fuel untreated.
In Brazil, the commitment to renewable energy penetration will continue to go from strength to strength. While the country goes into the usual political year paralysis, both sides of the political spectrum will continue to see favourably the great benefits of distributed generation solar PV plants. These plants will play a crucial role in supplying the Brazilian economy with clean and affordable energy at a time when electricity prices will continue to cause a lot of pain on Brazilian households. Like in all economies, inflation in Brazil will continue to be high, putting some pressure on the currency although also contributing to the inflation-linked revenues for our projects there.
In Australia, where power generation has a disproportionally high reliance on coal, power prices are expected to remain very volatile. High commodity prices, including coal, will make their way into power prices at peak hours, making the case for trading strategies using energy storage even more compelling.
In terms of currencies, as part of our investment criteria we always embed some cushion to absorb negative shocks on the exchange rates versus the GBP. Having said that, we do not anticipate major movements in the currencies we are exposed to, even under the current extreme geopolitical tensions. Of those currencies, the BRL is the most volatile and remains at historical lows, although this has been mostly a result of higher inflation in the last 10 years versus US and UK.
GSEO : VH Global Sustainable Energy Opportunities off to a strong start in first final results