Octopus Renewables updates on portfolio and taxes

Octopus Renewables Infrastructure Trust says that construction work on its Cerisou Wind Farm in France has been completed and the site is now fully operational. This onshore wind farm project was acquired in October 2020, construction commenced in mid-2021, and the site started generating power during Q3 2022, in line with expected timelines. The 24MW wind farm, made up of 8 turbines, has now formally entered the French Contract for Difference regime under which it will receive fixed, index-linked revenues for twenty years.

Construction on the Cumberhead Wind Farm in Scotland has also been progressing well. As at the date of this announcement, seven of twelve turbines have been installed at the 50MW project, and the site has been connected to the electricity network. The project is expected to be commissioned in Q1 2023. 

Simply Blue, the Irish developer of predominantly floating offshore wind projects, has:

• announced a Joint Venture – IberBlue Wind – with Proes Consultores and FF New Energy Ventures which aims to develop c. 2GW of floating offshore wind farms, primarily in Spain and Portugal.
• agreed to co-develop four commercial-scale offshore wind parks in the Baltic Sea with Eolus, a Nordic wind power developer. The four projects are currently in development and will collectively have the capacity to generate up to 40TWh of clean energy per annum in Sweden and Finland.

Energy policy updates and impact on NAV

The 108.3p unaudited NAV as at 30 September 2022 was calculated using considerable discounts to the market pricing available at the time in relation to revenues that were not fixed, with discounts of approximately 70% in Q4 2022, decreasing to 50% in 2025. These adjustments reflected uncertainty over Government policy in the UK and Europe related to energy price caps and windfall taxes, as well as the normal discounts to reflect the lower prices typically captured by wind and solar generators.

Since the release of the 30 September 2022 NAV, there have been a number of announcements which reduce the uncertainty related to energy price caps and windfall taxes. The manager has estimated that the potential impact of the announcements by the UK, Polish and Swedish Governments, had they been included in the calculation of the NAV, would in aggregate have been an increase of about £11.1m or +2.0p per share to £623.1m or 110.3p, based on the assumptions set out below.

• UK: the electricity generator levy impact – had the NAV at 30 September 2022 been calculated using only the normal 7-10% discounts to baseload GB power market forward prices in 2023 to 2025, to reflect the lower prices typically captured by solar and wind generators in the UK, the NAV would have been £15.8m or 2.8p higher. Applying the levy would have reduced this by £12.7m or 2.2p. The net impact would have been +£3.1m or +0.6p in respect of UK assets.
• Poland: From 4 November 2022, the Polish Government has implemented an emergency measure price cap on electricity generators, with a cap of 295PLN/MWh (approximately €61/MWh) for wind assets not receiving a CfD. The price cap will be applied from 1 December 2022 to 31 December 2023 and are based on CfD reference prices for each technology. The impact of this price cap on the company’s two Polish wind farms is limited to the period up to 30 September 2023, after which time the wind farms will start to receive the 15-year CfD. Had the NAV at 30 September 2022 been calculated using a price of €61/MWh, the NAV would have been reduced by £7.3m or -1.3p.
• Sweden: On 13 December 2022, the Swedish government presented a proposal for a 90% tax on power sales above the equivalent of €180/MWh, in line with the EU maximum. Had the NAV as at 30 September 2022 been calculated using only the normal c.13-15% discounts to baseload SE4 (Sweden) power market forward prices in 2023 to 2025, to reflect the lower prices typically captured by wind generators in southern Sweden, the NAV would have been increased by £24.5m or +4.3p. Applying the proposed 90% tax to these increased revenues would have led to a reduction in the NAV of £9.2m or -1.6p. The net impact therefore would be +£15.3m or +2.7p. It should be noted that forward pricing in Sweden and other markets remains volatile and there is no guarantee that these increased revenues will be achieved.

In addition to the UK, Poland and Sweden, the Company owns or is expected to acquire during 2023 operational projects in Finland, France, Germany and Ireland.

• Finland: On 2 December 2022 the Finnish Government launched a consultation on a windfall tax to be applied in 2023 only to excess profits of certain electricity generators. The proposed tax would be set at a rate of 33% and apply to net income above a threshold of a 5% return on equity. It is not yet known which generators will be affected, or how the return on equity threshold will be calculated, however as annual EBITDA from the company’s Finnish assets is expected to be below £12m in 2023, the tax is not expected to have a material impact on Octopus Renewables.
• France, Germany, Ireland: Varying levels of price caps from €100/MWh to €130/MWh have been announced in France, Germany and Ireland. The assets in the portfolio are not expected to be impacted by these caps due either to being exempt via enrolment in Government-backed initiatives, such as CfD or FiT schemes, because the revenue that is subject to price cap rules is fixed at levels below the announced cap, or because the transaction structure does not include exposure to revenues above the level of the Government scheme.

The overall expected impact of the changes is outlined in the table below.

ORIT : Octopus Renewables updates on portfolio and taxes