Octopus Renewables Infrastructure Trust to focus on increased diversification after strong H1

Community energy joint venture between Octopus and Midcounties Co-op rebranded as Younity

ORIT currently has eight solar assets in operation around the UK. Image: Octopus Renewables.

Octopus Renewables Infrastructure Trust (ORIT) saw its gross asset value (GAV) continue to grow, as it looks optimistically towards future renewables growth post-pandemic.

In the company’s H1 2021 financial results, it detailed how its GAV has grown to £447 million, a 1.3% increase on its since 31 December 2020 results. Similarly its net asset value (NAV) total return since IPO was up by 3.9% during the period, from 2.4% in December.

Its NAV per ordinary share was at 97.31p, a decrease of 1% over the first six months of the year, and its total shareholder return also down slightly to +9.1% compared with +15.9% in December.

ORIT’s NAV was £341 million, down from £344 million, with the total value of all its investments at £452 million. These were calculated prior to the company’s successful fundraise in July.

“While COVID-19 has continued to impact populations and economies around the world, there are green shoots of recovery in each of the company’s target markets, which may accelerate regulatory reform in electricity market,” said Philip Austin MBE, ORIT chairman.

“This increase in economic activity has exacerbated labour shortages and supply chain disruptions, leading to an inflationary environment which we continue to monitor. Growing demand for gas has also led to very strong power prices in each of the markets in which the company operates.”

Despite an overall strong set of results, the company’s UK solar portfolio saw output 2.9% below budget despite higher than forecast irradiance. During the six month period it produced 59.8GWh from the portfolio.

This was largely due to downtime at one site, Abbots Ripton, in Q1 2021 where an overheating issue with a brand of invertors used on site led to maintenance periods. ORIT knew there was a need to repair or replace some switchgear and inverter brands when it acquired the portfolio, and has now completed 90% of this work.

“Our management team has spent a huge amount of time and effort working through the works needed to get that kit performing where it should be, or in some cases, replace it,” the company’s investment director David Bird told Solar Power Portal today. “So our availability in the first six months of this year was much better than the same period in the previous year.”

Indeed production losses were down by 48% in Q2 2021 on the previous year. This was aided by the implementation of the company’s asset management strategy, working with O&M partners to minimise response times, Bird added.

The UK portfolio generated £7.4 million over the first six months of 2021, with this 2.6% below budget. Operational expenditure meanwhile was £1.6 million, 1.6% above budget due to legal fees incurred in obtaining asset life extensions.

For the first six months of 2021, EBITDA was £5.9 million, 4% down on budget for the period.

As well as its 123MW of UK solar assets, ORIT has continued to diversify its assets including announcing in July – just after the results period – that it has acquired a portfolio of five solar PV sites in Ireland from Statkraft Ireland. These are expected to have an installed capacity of up to 250MW when they are fully operational in H2 2022.

The total consideration for this acquisition is expected to be between approximately €138 million and €145 million (approximately £119 million to £125 million).

Bird highlighted the benefit of the Renewable Electricity Support Scheme (RESS) for the investment, although he did note that given the size of the Irish market the company is likely to focus on other regions in the near term for further diversification.

“The RESS is definitely a big factor in what makes that particular investment attractive,” he said. “Ireland hasn’t seen as much solar as the UK has, and the renewables sector there has been dominated by wind. So we like the scheme, we think it’s attractive, we think it will help as a wave of solar is kicking off out there.”

By acquiring a project with subsidies in place, ORIT can hedge against further turbulency in power prices, such as those seen in recent weeks. The company currently has 23 operational assets, one under construction and five conditional acquisition assets, which will give it 315MW of capacity once fully constructed. Of these, 36% are located in the UK and 68% are solar assets.

Currently, 91% of the company’s assets benefit from fixed revenue streams, which are set till December 2023. Over the next 15 years a high number of these will continued to benefit from fixed revenues either from subsidies or power agreements, helping to hedge against market volatility.

“We’re comfortable with our hedging strategy,” said Bird. “We like having a mixture of some subsidised and merchant assets in there. So in the Nordic market, for example, we think it’s good to be able to have some merchant exposure. We take a sort of a case by case and fairly flexible approach, so we don’t have to have every single asset locked out for a period of years.”

Power prices are forecast to stay strong in the near term driven by the rebound from COVID-19, before softening from 2026 onwards. Average prices are expected to be £42.78 from 2021-25, said ORIT, and £39.12 from 2026-50.

Further diversification of its portfolio forms one of the key pillars of ORIT’s strategy in the coming months and years. This includes both geographical range and technological, looking at markets like Finland and Poland as well as assessing the possibility of batteries.

“We’ve had a few storage transactions that we’ve looked at and we continue to look at that,” said Bird. “Offshore wind is one that we are looking at as well, we’ve got this 20% allocation we can do outside solar and onshore wind, and those are the sorts of things we might look at doing with that.”

In early July, ORIT raised £150 million through an oversubscribed fundraise, the proceeds of which will be used to help expand and diversify its portfolio. This build out will be undertaken as part of the supplier Octopus Energy, after ORIT – which sat within the Octopus Group anyway – was acquired by the supplier in March.

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