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Deployment delays hit Atrato Onsite Energy

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Atrato Onsite Energy reports a fall in its NAV from 97.4p to 92.8p over the period from its IPO on 23 November 2021 to 30 September 2022.

Of the £150m that it raised, just £49.1m had been deployed by the period end. The board now says that the IPO proceeds may not be fully deployed until the second quarter of 2023.

The existing portfolio is comprised of 37 projects totalling 6.2.6MW, not all of it rooftop as originally intended (the largest investment is a 20MW ground-mounted site adjacent to the Nissan car factory, and the pipeline includes another 30MW ground-mounted site). Only about two thirds of that was operational at the period end, but all of it should be by the end of Q1 2023. Almost all of the power that these assets produce is sold through private wire connections secured under long term power purchase agreements (PPAs). That translates into 91% of revenue which is contracted under long-term PPA or subsidy, and 82% receiving contracted inflation or fixed annual uplifts. The weighted average life of Atrato Onsite’s PPAs is 19 years.

One reason why 100% is not sold under private wire arrangements is the problem that occurred with the Vale of Mowbray asset (customer went into administration).

Chair Juliet Davenport had this to say “several factors have slowed the pace of companies committing to long term PPAs. This includes the significant volatility in wholesale prices, which increased by 587% to its peak before subsequently falling by 58% by the end of the financial period, and other factors such as the company’s own cost of capital, together with regulatory uncertainty. Corporate decision making has been slow, particularly since the financial period end, and this has in turn slowed our initial pace of deployment. We appreciate that this means the IPO proceeds will not be fully deployed as originally planned.

However, there are encouraging signs of stability. Energy and financial markets have calmed in recent weeks and our customers are looking to accelerate their decision making with respect to long term commitments to renewable energy PPAs. This means the remaining capital can now be invested factoring in the higher cost of capital environment.”

[This sounds to us as though there was some initial push back from potential customers with respect to the prices that Atrato Onsite needed to charge to make its target return.]

The fund has used a 6.6% weighted average discount rate to value its future cash flows for the calculation of the NAV. It says that this discount rate is higher than the average unlevered discount rates observed in the UK renewables market pre-September 2022. The increase in the discount rate equated to a reduction in the NAV of 6.5p per share.

The other factors impacting on the NAV were:

  • Operating cash flow of 1.9p less net operating expenses of 1.0p, which means that the fund generated just 0.9p from operations.
  • From that 3.0p was paid out as dividend – so most of this came from capital.
  • The difference between the acquisition cost of projects and their value based on discounted cash flows added 3.3p to the NAV, but this was more than offset by the increase in discount rates referred to above. So the net move in the capital value of projects was -3.5p per share.

The company has already announced that it does not expect to be affected by the electricity generator levy – it does not meet the size threshold.

Unlike peers, Atrato Onsite has not disclosed what price it is getting paid for its energy.

[In recent weeks the fund’s shares have moved to trade on a 14% discount to NAV. Investors are rightly frustrated about the pace of deployment of IPO proceeds at some funds in the renewable energy infrastructure sector. At the time of publication, the shares appear to be up 3.9% on this morning’s news, suggesting that these results have allayed some fears. However, the next six months will be crucial for Atrato Onsite Energy. We think that failure to meet the extended deadline would be taken badly. In retrospect, it was perhaps a mistake to promise to pay dividends before the fund could generate meaningful cash flow. Investors should push back against funds that plan to do this in future.]

ROOF : Deployment delays hit Atrato Onsite Energy

 

 

 

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