Octopus Infrastructure (ORIT) and GCP Infrastructure (GCP) have sought to reassure investors about the “limited” potential impact of the government’s proposals to change the inflation measure used in legacy renewable obligation (RO) and feed-in-tariff (FIT) subsidies.
ORIT, a £300m investment trust whose shares labour under a 42% discount to net asset value and offer an 11% yield, said less than 30% of its forecast revenues in each of the next five years came from RO assets and it did not receive any UK FIT income.
The government has laid out two options for moving the indexation of RO and FIT payments from RPI to CPI.
The first a simple switch from one to the other next March, four years ahead of the original schedule, would knock 1.1p off ORIT’s net asset value (NAV) per share.
The second more radical proposal would see a temporary freeze in the RO buyout price at the 2025/2026 level from next April, followed by a gradual realignment with CPI. This would lower NAV per share by 3.9p.
This week ORIT said NAV per share fell 1p to 98.5p in the quarter to 30 September. Including dividends, ORIT’s assets have made an underlying total return of 6% in the past three years, rising to 33% over five years, according to Winterflood data.
Today it said fund managers Chris Gaydon and David Bird would continue to monitor the process closely and provide a further update once the consultation ended at the end of the month.
ORIT shares have fallen 6% since the consultation paper was published by the Department for Energy Security and Net Zero last Friday. This morning they were 0.3% firmer at 57p.
Shareholder returns, including dividends, have fallen 34% in the past three years as the infrastructure fund sector has derated in response to higher interest rates and gilt yields.
GCP objects
GCP Infrastructure, a £602m fund on a 30% discount and 10% yield, said the two proposals would see its NAV per share fall by a further 0.46p and 1.19p respectively.
A third quarter update today showed NAV per share slipped 0.74p to 101.4p in the three months to 30 September, held back by lower generation and the curtailment of some of its renewable projects combined with a sector-wide increase in discount valuation rates by its value Forvis Mazars.
“The company intends to respond to the consultation setting out objections to the proposals: long-term investors rely on a stable policy environment and the proposals, if implemented, would either deter future investment or increase the risk premium of future investment in projects that rely on long-term policy support,” it said.
Fixed price fears
Winterflood analyst Ashley Thomas said it was reassuring to see the relatively limited impact on both funds but said investors were concerned about the government’s reference to a further consultation on “fixed price certificates”.
“However, the broader concern for the UK renewable energy sub-sector is not just whether the impact is option 1 or option 2, but whether there are additional changes to come, eg, whether a consultation on the shift to fixed price certificates for ROCs [renewable obligation certificates] results in a change to the 10% headroom or whether there are changes to general carbon pricing,” he said.
TRIG lobbies
Minesh Shah, fund manager of The Renewables Infrastructure Group (TRIG) at Infrared Capital Partners, said the policy shift risked being counterproductive. “It could undermine investor confidence when private capital is critical to further the UK’s energy ambitions and fuel economic growth, while having an uncertain impact on household bills. We will be engaging with government to make our views heard over the coming weeks.”
TRIG’s diversified renewable and storage portfolio has relatively limited exposure with UK ROCs and FITs accounting for 16% and 1% respectively of revenues for 2025. In a third quarter update this week it said option one would would remove 0.6p off its 30 September NAV per share of 109.7p. Option two would lower it by 2.4p.
