The Renewables Infrastructure Group (TRIG) has announced its annual results for the year ended 31 December 2022. The company’s chairman, Richard Morse, says that the results have been the strongest in TRIG’s history since its IPO and that this has been against a challenging macro-economic backdrop, demonstrating the inherent quality of the TRIG’s portfolio and management.
Morse also says that TRIG’s diversified portfolio remains resilient against a backdrop of higher inflation and interest rates, benefiting from strong inflation correlation and elevated power prices. InfraRed, as Investment Manager, and RES, as Operations Manager, have continued to enhance TRIG’s portfolio both organically through value enhancement initiatives, including the construction of 378MW of new generation capacity, and also through acquisitions, with investments made into operating assets during the year totalling 297MW of generation capacity.
Key highlights from the results are as follows:
Strong earnings and NAV performance:
- Earnings per ordinary share of 21.5p (2021: 10p)
- NAV per ordinary share of 134.6p as at 31 December 2022 (2021: 119.3p)
- Portfolio valuation of £3,737m as at 31 December 2022 (2021: £2,726m)
- An NAV total return for 2022 of 18.9%
Healthy operational cash generation:
- 2022 dividend target of 6.84p/share delivered and 2023 dividend target3 set at 7.18p/share, a 5% increase
- Dividend cover of 1.55x (2021: 1.12x), or 2.6x before the repayment of project level debt which was £174m during the year
- Strong reinvestment cashflows
- £694m of investments made
- A renewed Revolving Credit Facility, extended to £750m
A diversified, 2.8GW portfolio of renewables assets:
- Portfolio generated 5,376GWh of electricity in the year (2021: 4,125GWh)
- 9m tonnes of CO2 avoided in 2022
- 6m homes (equivalent) powered with renewable electricity
Increases in interest rates during the year and the impact of the UK mini-budget have led to a sustained period of share prices trading at discounts to Net Asset Values across real assets investments companies. Specifically for the energy sub-sector, governments’ interventions have also weighed on investor sentiment. In this context, TRIG’s diverse portfolio, which has been stress-tested through the pandemic and the more recent energy crisis, ensures that the Company is strategically well positioned in 2023 to continue to enhance value for shareholders and contribute to greater energy security and faster decarbonisation.
Financial performance
TRIG’s NAV as at 31 December 2022 was 134.6p per share, an increase of 15.3p per share in the year. Earnings for 2022 were 21.5p per share. The material drivers of this strong financial performance in the year were:
- The Managers’ ongoing delivery of active asset management to maximise operational performance and additive investments, providing greater geographic and technological diversification.
- Increases in wholesale power prices and inflation, which feed into the Company’s revenues and portfolio valuation.
These were, to some extent, offset by:
- An increase in valuation discount rates of 50bps on a weighted average basis across the portfolio. The long-term, inflation-correlated and lower risk, sustainable nature of renewables infrastructure underpins the demand for assets.
- Intervention by governments across Europe in the electricity generation sector, in particular the UK Government’s Electricity Generator Levy and the European Council mandated cap on inframarginal (non-gas) generator revenues, which were announced in November 2022 and September 2022, respectively.
Strong inflation linkage
TRIG says that, over the next ten years 63% of its forecast revenues are directly linked to inflation through subsidy support mechanisms, with the majority of remaining revenues indirectly linked to inflation due to the relationship between power prices and inflation indices, providing strong inflation protection. TRIG comments that the combination of a high degree of fixed revenues, strong inflation correlation and power price forecasts that fully incorporate government interventions, serve to reduce the risks arising from a volatile macro outlook.
TRIG says that it has limited interest rate and refinancing risk. Interest rates on debt across the portfolio investments are substantially fixed. The Company has no structural short-to-medium term debt and interest paid on the Group’s revolving credit facility (“RCF”) is linked to overnight interest rates. At the time of publication, the RCF is £413m drawn, with substantial headroom compared to its enlarged £750m committed capacity, and matures in December 2025.
Forecast cash flows from the portfolio indicate that the majority of these drawings can be repaid from re-investment cash flows over the RCF term.
Dividends – 5% increase in target for 2023
TRIG says that strong achieved power prices and close-to-budget asset availability, tempered by below-budget generation, have contributed to strong dividend cover in 2022. After operating and finance costs, net cash flow covered the cash dividend 1.5 times, or 2.6 times before repayment of project-level debt.
TRIG has set its dividend target for 2023 at 7.18p per share, an increase of 5.0% on the 2022 total dividend. TRIG has delivered five projects from reinvested excess cash flows including Arenosas, El Yarte and Blary Hill in 2022, and continues to fund construction commitments at the Ranasjö and Salsjö onshore wind farms in Sweden from revenues generated by the portfolio.
Investment activity
TRIG’s largest investment during the period was a 10% stake in the 1.2GW Hornsea One offshore wind farm in the UK. The Group also made an incremental investment in the Merkur offshore wind farm in Germany. Each of TRIG’s six offshore wind projects benefits from protected cash flows for the term of their government support arrangements, which reduces the sensitivity of their equity returns to changes in power price levels. These investments help to facilitate the addition of unsubsidised, higher-returning projects into the portfolio, such as the March 2022 acquisition of a 49% stake in the Valdesolar solar park in Spain, whilst maintaining the portfolio’s overall power price sensitivity.
TRIG says that construction and development assets offer a source of higher risk-adjusted returns too. In 2022, TRIG acquired four development-stage battery storage sites, which will provide c. 700MWh / 350MW flexible capacity once built. Flexible capacity, which includes battery storage, is critical to the energy transition and complements TRIG’s renewable generation assets as it responds, and financially benefits from, the intermittency of renewables and electricity price volatility. At the period end, construction and development exposure represented 8% of the total portfolio.
Portfolio performance
Overall portfolio electricity generation in the year was 5% below budget due to lower than expected weather resource in some geographies and downtime resulting from both enhancement activities and unscheduled maintenance.
78MW of generation capacity was constructed during the year at Haut Vannier and Blary Hill onshore wind farms, with Blary Hill in Scotland fully funded from re-investment proceeds. 301MW of capacity is currently being commissioned, with Grönhult onshore wind farm and the Cadiz solar projects well progressed and close to construction completion; both are in the final commissioning stages and exporting electricity. A further 471MW of capacity is in construction or development.