JLEN Environmental Assets says that its NAV at the end of March 2022 was 115.3p, up 14.6% from the value at end December 2021. Higher power prices added 13.4p to the NAV and inflation added 2.6p.
- NAV at 31 December 100.7p
- Less dividends paid in the quarter (1.7p)
- Power prices (excluding assets previously held at acquisition cost) 5.0p
- Power prices (assets previously held at acquisition cost) 8.4p
- Inflation 2.6p
- Discount rate changes 1.0p
- Other movements (0.7p)
- NAV at 31 March 115.3p
Short term wholesale electricty and gas prices have increased dramatically over the last 12 months. Electricity prices for the current Summer ’22 season almost tripled from April 2021 to March 2022. Gas prices were even more volatile with an increase of more than five times from April 2021 to the peak during March 2022, before falling back in April 2022 to a level still more than three times higher than a year earlier. Increases in prices across the wind, solar and anaerobic digestion assets, including from the effect of replacing expiring Power Purchase Agreements (PPAs) with new fixed price arrangements, have increased the NAV by 5.0p.
In addition to this, a further 8.4p has been generated from changes in electricity price assumptions at two bio-energy projects that were previously held at acquisition cost in the 31 December 2021 valuation. These assets, ETA Energy-from-Waste in Italy and Cramlington biomass CHP in the UK, were acquired in the summer of 2021, prior to the subsequent significant increases in prices that have been seen in gas and electricity markets. Both are baseload generators of power and had limited fixed price contracts in place at the time of acquisition, making them well-placed to benefit from recent rises. [This was the real surprise in these figures].
JLEN’s policy is to reflect contractual fixed price arrangements, where they exist, and short term market forward prices for the next two years where they do not. After the initial two-year period, the project cash flows assume future electricity and gas prices in line with a blended curve informed by the central forecasts from three established market consultants, adjusted for project-specific arrangements and price cannibalisation as required. At the valuation date, the extent of generation subject to fixes is as follows:
|wdt_ID||Technology||Summer 2022||Winter 2022|
|4||Anaerobic Digestion - electric||100%||100%|
|5||Anaerobic digestion - gas||73%||76%|
On an equivalent MWh basis across the electricity and gas generating assets, the portfolio is 76% fixed for Summer ’22, 64% fixed for Winter ’22 and 47% fixed for Summer ’23. When considered together with the high proportion of revenues that are derived from subsidies and long term contracts, JLEN has a high degree of confidence over revenues, subject to operational performance.
The portfolio valuation includes actual inflation prior to the valuation date. RPI inflation (being the key index referenced in subsidy and contractual mechanisms in JLEN’s portfolio) is then assumed to be 5% for the remainder of 2022, before reverting to JLEN’s established assumption of 3% until 2030, dropping to 2.25% thereafter. The combination of higher actual and near term inflation has added 2.6p to the NAV. [The inflation estimate for 2022 could be conservative, and it will be interesting to see how this pans out. The end April RPI figure is due out tomorrow, but inflation-adjustments are applied once a year (in April, based on RPI at end December).]
Discount rates have been reduced for onshore wind projects in line with observed market benchmarks. The discount rate for JLEN’s investment in low-carbon refuelling infrastructure has also been reduced as the rollout of new sites has continued satisfactorily. A risk premium has been added to the discount rate for Cramlington, as this asset is the most sensitive to changes in near term electricity prices. It is expected that the premium will be removed progressively as uncertainty around actual prices captured reduces. Cramlington currently has 50% of merchant revenues fixed for the current Summer ’22 season.
The net effect of changes to discount rates is to increase the NAV by 1.0p.
During the financial year to 31 March 2022, energy generated from the renewables portfolio was 6% below target. Low wind resource was a primary driver of this as the UK experienced its lowest wind speeds for 20 years over the summer months of 2021 [this has been flagged as an issue by a number of other renewable energy generators]. The anaerobic digestion and solar portfolios did better than expected. The waste and bioenergy sub-sector, which is now the second largest contributor to generation on the portfolio, was also below target and the investment manager has been working on installing upgrades to improve resilience and value enhancements where identified, particularly on the newly acquired assets.
The waste and wastewater concession-based projects continue to deliver distributions in line with expectations and have performed well against contractual targets.
The portfolio of compressed natural gas (CNG) refuelling stations acquired in December 2021 performed extremely well over the financial year and 16% more CNG was dispensed than was targeted for the year. Two further refuelling stations were successfully completed over the year, giving a total of eight stations with another station due to be completed later this year.
Over the course of the year, JLEN has continued to grow its portfolio by acquiring three new assets. This includes two assets which further diversify the portfolio into biomass CHP and energy-from-waste and two investments into battery storage assets. At the year end, the battery assets, one CNG refuelling station and certain investments in European renewables projects, held through JLEN’s commitment to Foresight Energy Infrastructure Partners (FEIP), are in construction and are valued at cost.
The last of the quarterly 1.7p dividends for the financial year ended 31 March 2022 has been declared. The new dividend target for the Marcch 2023 financial year is 7.14p, up 5%.