TIDMDORE
RNS Number : 6782M
Downing Renewables & Infrastructure
18 September 2023
18 September 2023
Downing Renewables & Infrastructure Trust PLC
Interim Report and Accounts
Downing Renewables & Infrastructure Trust plc ("DORE" or
"the Company") announces its interim results for the six months
ended 30 June 2023.
The Interim Report and Accounts can be found on the Company's
website at: https://www.doretrust.com/investor-relations .
Highlights
á Acquired a portfolio of operational solar PV assets located in
the UK for GBP12.6 million. The addition of the new portfolio will
increase the total number of DORE's managed solar assets to c.4,800
with a total annual average production of 100 GWh.
á Committed 9% of net asset value ("NAV") to non-energy
generating assets, significantly increasing the diversification
across technologies and revenues through:
o Signing an agreement to acquire the Company's first grid
services asset, Mersey Reactive Power, a UK-based, fully
operational 200 MVAr shunt reactor for GBP11.0 million. Completion
is subject to Ofgem approval.
o Post period end, acquiring a Swedish Electricity Distribution
System Operator for GBP7 million. This regulated electricity
distributor delivers 16-18 GWh per annum of electricity through
medium and low voltage lines to its c.1,500 domestic and business
customers in Stromsund, northern Sweden.
á Continued to grow the Swedish hydropower platform with two
accretive acquisitions, increasing the generation capacity by
4.4%.
á NAV as at 30 June 2023 of GBP217 million, equal to 118.0 pence
per ordinary share, down a marginal 0.6 pence per ordinary share
compared to the NAV as at 31 December 2022. The fall was driven
primarily by decreased power price forecasts.
á NAV total return of 6.0% for the 12 months to 30 June 2023 and 30.5% since IPO.
á Interim dividends per ordinary share of 2.595 pence paid
during the period and a further 1.345 pence per ordinary share
declared (but not accrued) relating to the three months to June
2023 to be paid in September 2023.
á The Portfolio generated 207 GWh of renewable energy during the
period, avoiding 97,461 tonnes of CO(2) e and powering the
equivalent of 153,146 UK homes' typical electricity demands for
this period.
Hugh Little, Chair, Downing Renewables & Infrastructure
Trust plc, commented:
"DORE has remained resilient in the first half of this year,
despite the continued market volatility. The Company has now fully
deployed all of its cash, with the acquisition of a Swedish
electricity distribution system operator and an agreement to buy
our first grid services asset further growing and diversifying the
portfolio. We believe DORE is well positioned to continue providing
its shareholders with attractive and sustainable long-term returns,
taking advantage of the global transition to net zero. We look
forward to providing further positive news in the second half of
the year."
Tom Williams, Partner, Head of Energy and Infrastructure at
Downing LLP, commented:
"The untapped potential of the existing portfolio continues to
represent a significant opportunity for value creation. We have
made excellent progress both towards entry into the lucrative
frequency markets through our digitalisation and optimisation
programme in the hydropower portfolio and also in securing grid
connections for new build battery projects on our existing land
holdings in Sweden."
Contact details:
Downing LLP - Investment Manager to the
Company
Tom Williams +44 (0)20 3954 9908
Singer Capital Markets - Sponsor, Joint
Corporate Broker
Robert Peel, Alaina Wong, Alex Emslie (Investment
Banking)
Sam Greatrex, Alan Geeves, James Waterlow,
William Gumpel (Sales) +44 (0)20 7496 3000
Winterflood Securities Limited - Joint
Corporate Broker +44 (0)20 3100 0000
Neil Morgan (Corporate Finance)
Darren Willis, Andrew Marshall (Sales)
TB Cardew - Public relations advisor to +44 (0)20 7930 0777
the Company
+44 (0)7738 724 630
Ed Orlebar /
Tania Wild +44 (0)7425 536 903
DORE@tbcardew.com
About Downing Renewables & Infrastructure Trust plc
(DORE)
DORE is a closed-end investment trust that aims to provide
investors with an attractive and sustainable level of income, with
an element of capital growth, by investing in a diversified
portfolio of renewable energy and infrastructure assets in the UK
and Northern Europe. DORE has been awarded the London Stock
Exchange's Green Economy Mark in recognition of its contribution to
the global 'Green Economy' and also in 2022 DORE won 'Renewables
Fund of the Year' at the Sustainable Investment Awards.
The Board classifies DORE as a sustainable fund with a core
objective of accelerating the transition to net zero through its
investments, compiling and operating a diversified portfolio of
renewable energy and infrastructure assets to help facilitate the
transition to a more sustainable future. The Company believes that
this directly contributes to climate change mitigation.
DORE's strategy, which focuses on diversification by geography,
technology, revenue and project stage, is designed to increase the
stability of revenues and the consistency of income to
shareholders. For further details please visit
www.doretrust.com
About Downing LLP
Downing is a responsible investment manager established in
London in 1986. We currently manage GBP1.8 billion of assets under
a broad range of investment mandates across our funds, investment
trusts and tax-efficient products. As a certified B Corporation, we
are focussed on creating a sustainable future, our key investment
areas are renewable energy, infrastructure, property and
healthcare.
Downing has c.60 professionals dedicated to renewable energy and
infrastructure and a proven track record in renewables. Since 2010,
Downing has made more than 175 investments and has c.GBP795 million
of assets under management in solar, wind, hydro and battery
storage technology.
This announcement is not for publication or distribution,
directly or indirectly, in or into the United States of America.
This announcement is not an offer of securities for sale into the
United States. The securities referred to herein have not been and
will not be registered under the U.S. Securities Act of 1933, as
amended, and may not be offered or sold in the United States,
except pursuant to an applicable exemption from registration. No
public offering of securities is being made in the United
States
For further details please visit www.downing.co.uk
Key Metrics
As at or for period As at or for year
ended 30 June 2023 ended 31 December
2022
Market capitalisation GBP184m GBP210m
-------------------- -------------------
Share price 100.0 pence 113.5 pence
-------------------- -------------------
Dividends with respect GBP5.0m GBP8.0m
to the period
-------------------- -------------------
Dividends with respect 2.69 pence 5.0 pence
to the period per ordinary
share
-------------------- -------------------
GAV 1 (,2) GBP319m GBP311m
-------------------- -------------------
NAV GBP217m GBP219m
-------------------- -------------------
NAV per share 118.0 pence 118.6 pence
-------------------- -------------------
NAV total return with
respect to the period(1,2,4) 1.6% 19.5%
-------------------- -------------------
Total Shareholder Return
with respect to the
period(1,2) -10.5% 15.1%
-------------------- -------------------
NAV total return since
inception(1,2,3) 30.5% 28.5%
-------------------- -------------------
Total Shareholder Return
since inception(1,3) 2.5% 21.1%
-------------------- -------------------
Weighted average discount
rate(1) 7.8% 7.7%
-------------------- -------------------
During the period, assets saved 97,460 tonnes of CO2 and powered
the equivalent of 153,146 UK homes' typical electricity demands for
this period.
Chairman's Statement
On behalf of the Board, I am pleased to present the Interim
report of the Company covering the period from 1 January 2023 to 30
June 2023 (the "Interim Report").
Acquisitions
In the Company's Annual Report I wrote how the Investment
Manager had continued to make great progress in deploying the
Company's funds in Q1 2023, completing the acquisition of two
additional operational hydropower plants in Sweden (with annual
generation of 8.3GWh), located on the Gilleran and Moalven rivers
in the SE2 electricity pricing zone, for GBP5.1 million.
In this period, the Investment Manager has continued to support
the Company's investment strategy to increase stability of revenues
and consistency of income to shareholders through its acquisition
of a portfolio of operational solar PV assets located in the UK for
GBP12.6 million. The 13.0 MWp portfolio of two ground-mounted sites
and approximately 1,600 commercial and residential installations
benefits from high levels of feed-in tariffs and renewable
obligation certificate subsidies. The new portfolio will increase
the total number of DORE's managed solar assets to c.4,800 with a
total annual average production of 100 GWh.
Diversification remains central to our strategy. During the
period we signed an agreement to acquire our first grid services
asset, Mersey Reactive Power. This acquisition demonstrates the
Company's commitment to constructing a diversified portfolio
designed to provide greater certainty of future revenues and
predictability of income to shareholders by increasing its access
to non-generational assets. The project, which has an expected
asset life of 40 years, supports the UK's electricity system in
voltage management, providing increased network resilience,
reducing costs to consumers and lowering carbon emissions by
providing an alternative to fossil fuels. Mersey Reactive Power has
an initial fixed priced, inflation-linked, availability-based
contract with National Grid ESO until 2031. The acquisition will
provide a new, long-term, revenue stream for DORE, one that is not
derived from the sale of power on the wholesale markets.
After the period end, DORE made its second acquisition in the
grid and grid stability services sector, a Swedish Electricity
Distribution System Operator, Blasjon Nat AB ("Blasjon"), for
c.GBP7 million. The Company is a regulated electricity distributor,
which delivers 16-18 GWh per annum of electricity through medium
and low voltage lines to its c.1,500 domestic and business
customers in Stromsund, northern Sweden.
Further details on the acquisitions during the period can be
found in the full Interim Report.
Debt Facilities
In the interests of capital efficiency and to enhance income
returns, long-term capital growth and capital flexibility, the
Company is permitted to maintain a conservative level of gearing.
To allow flexibility when making new investments, the Group can
draw on two separate loan facility agreements: a GBP40 million
Revolving Credit Facility ("RCF") with Santander UK plc at a
holding company level and a seven-year EUR 43.5 million limited
recourse debt facility with SEB at Downing Hydro AB.
The SEB debt benefits from swaps until the end of 2032, the
total costs of drawn debt being 2.3%. As at 30 June 2023, the
Santander facility was not drawn on, while EUR 27.4 million of the
SEB facility was utilised. Within the United Kingdom solar
portfolio there is a principal amount of GBP68.5 million lent by
Aviva and GBP10.1 million lent by institutional investors managed
by Vantage Infrastructure. Approximately 12% of the Aviva debt is
fixed at an interest rate of 3.37% and the interest rate is fixed
in real terms on the remaining balance at 0.5%. The Vantage
Infrastructure managed facility has an all-in fixed rate of
1.54%.
The Company has substantially deployed all of its remaining cash
and post period end has drawn down GBP8.5 million of the RCF to
fund the acquisition of Blasjon. A further GBP11m will be drawn at
completion of the Mersey Reactive Power acquisition.
Financial Results
During the period to 30 June 2023 the NAV per ordinary share
decreased from 118.6 pence at 31 December 2022 to 118.0 pence, an
decrease of 0.5% and representing total return of 1.6% including
dividends paid. The NAV total return from IPO to 30 June 2023 is
30.5%, when dividends paid of 9.85 pence per ordinary share are
included.
The Company made a profit for the period to 30 June 2023 of
GBP3.8 million, resulting in earnings per ordinary share of 2.90
pence.
Portfolio Performance
The 4,863 operating assets produced approximately 207GWh of
renewable electricity during the reporting period. The assets
continue to perform well, with operating profit for the 12 months
to June 2023 18% ahead of budget at GBP26.2million.
For the period between 1 January 2023 and 30 June 2023, energy
generation was ahead of expectations for the wind assets as a
result of strong availability and good wind speeds. Generation in
the hydropower and solar portfolios was below expectations because
of dry conditions and several ongoing technical performance
enhancement projects on the solar portfolio. The portfolio produced
an operating profit 8% lower than expected as a result of low power
prices in Sweden during spring 2023 and the lower generation
mentioned above.
Dividends
The Company's dividend in respect of the quarter to 31 December
2022 of 1.25 pence per share was announced and paid during the
period. The Board was also pleased to announce a target dividend of
5.38pps relating to the year to 31 December 2023, a 7.6% increase
from 2022. The first increased quarterly dividend of 1.345 pence
per share was paid in June 2023. I am pleased to report that a
further dividend of 1.345 pence per share has been announced and
will be paid on or around 29 September 2023 in respect of the
quarter to 30 June 2023.
Capital Structure
The Board continues to keep the Company's share price discount
under close review and is committed to buying back its own shares
when deemed appropriate. While share buy-backs will not necessarily
prevent the discount from widening, particularly in times of market
weakness or volatility, the Board believes that buybacks enhance
the NAV per share for remaining shareholders, provide some
additional market liquidity and help to mitigate discount
volatility which can damage shareholder returns.
During the six months to 30 June 2023, the Company has bought
back a total of 702,500 shares into treasury at a cost of GBP0.7
million. Since the period end, a further 815,000 shares have been
bought back into treasury at a cost of GBP0.6 million. As at 15
September 2023, the Company had 184,622,487 shares in issue
(including 1,567,500 shares held in treasury, which are available
to be resold at a premium to NAV per ordinary share if the
opportunity arises).The Company has purchased shares where it
believes this is in shareholders' interests, noting that share
buybacks represent an attractive opportunity to increase the
Company's investment exposure to the existing portfolio at rates of
return well in excess of the relevant discount rates.
Outlook
The Board is pleased with the recent deployment of GBP17.7
million in the three high-quality investments made in the period
and especially pleased with the progress made into the grid
services market. Both Mersey Reactive Power, a UK based shunt
reactor being signed in June and Blasjon, a Swedish Electricity
Distribution System Operator, committed or completed after period
end.
At a portfolio level, the Investment Manager's in-house asset
management team will continue its focus on delivering continued
positive operational performance, along with optimisation
initiatives where appropriate. The Investment Manager is making
strong progress exploring opportunities to maximise returns within
the hydro portfolio including options to integrate battery storage
and gain access to Sweden's growing Frequency Containment Reserve
("FCR") markets. The Company will continue to leverage the deep
expertise of the Investment Manager to deliver strong operational
performance while placing its sustainability goals at the centre of
its operational objectives.
Hugh W M Little
Chair
15 September 2023
Downing Renewables & Infrastructure Trust PLC
Portfolio Summary
At the period end the Company owned 197 MWp of hydropower, wind
and solar assets with an annual generation of around 414 GWh. The
portfolio is diversified across 4,863 individual installations and
across five different energy markets.
During the period the Group added an additional 14 MW of solar
and hydropower assets with an additional annual generation of 20
GWh.
The Company also signed agreements to purchase two
non-generational assets. A Swedish distribution network which
serves 1,500 domestic and business customers and an English 200
MVAr shunt reactor.
The Group currently has no exposure to any assets under
construction.
Portfolio composition by valuation, as at 30 June 2023
Technology by GAV
Hydro 42%
-------
Solar 47%
-------
Wind 9%
-------
Cash 2%
-------
Geographic Exposure by GAV
Sweden 51%
-----
Great Britain 38%
-----
Northern Ireland 9%
-----
Cash 2%
-----
Power Market Exposure by GAV
Sweden SE2 25%
-----
Sweden SE3 21%
-----
Sweden SE4 4%
-----
Great Britain 38%
-----
Northern Ireland 9%
-----
Cash 2%
-----
Portfolio composition post acquisitions of Mersey and
Blasjon:
Technology by GAV
Hydro 39%
----
Solar 44%
----
Wind 8%
----
Grid Services 6%
----
Cash 2%
----
Geographic Exposure by GAV
Sweden 51%
-----
Great Britain 39%
-----
Northern Ireland 8%
-----
Cash 2%
-----
Power Market Exposure by GAV
Sweden SE2 24%
-----
Sweden SE3 20%
-----
Sweden SE4 4%
-----
Great Britain 36%
-----
Northern Ireland 8%
-----
No Exposure 6%
-----
Cash 2%
-----
Investment Technology Date Location Power Market / Installed Expected
Acquired Subsidy capacity annual
(MW) generation
(GWh)
Ugsi Hydro Feb-21 Alvadalen, Sweden SE3 / n/a 1.8 9.9
-------------- ----------- ------------------- ------------------- ---------- ------------
Bathusstrommen Hydro Feb-21 Alvadalen, Sweden SE3 / n/a 3.5 10.3
-------------- ----------- ------------------- ------------------- ---------- ------------
Asteby Hydro Feb-21 Torsby, Sweden SE3 / n/a 0.7 2.8
-------------- ----------- ------------------- ------------------- ---------- ------------
Fensbol Hydro Feb-21 Torsby, Sweden SE3 / n/a 3 14.1
-------------- ----------- ------------------- ------------------- ---------- ------------
Rodbjorke Hydro Feb-21 Torsby, Sweden SE3 / n/a 3.3 14.9
-------------- ----------- ------------------- ------------------- ---------- ------------
Vals Hydro Feb-21 Torsby, Sweden SE3 / n/a 0.8 3.2
-------------- ----------- ------------------- ------------------- ---------- ------------
Torsby Hydro Feb-21 Torsby, Sweden SE3 / n/a 3.1 13.7
-------------- ----------- ------------------- ------------------- ---------- ------------
Tvarforsen Hydro Feb-21 Torsby, Sweden SE2 / n/a 9.5 37
-------------- ----------- ------------------- ------------------- ---------- ------------
Ground
Sutton Bridge mount solar Mar-21 Somerset, England UK / ROC 6.7 6.7
-------------- ----------- ------------------- ------------------- ---------- ------------
Ground
Andover Airfield mount solar Mar-21 Hampshire, England UK / ROC 4.3 4.1
-------------- ----------- ------------------- ------------------- ---------- ------------
Ground
Kingsland Barton mount solar Mar-21 Devon, England UK / ROC 6 5.8
-------------- ----------- ------------------- ------------------- ---------- ------------
Ground
Bourne Park mount solar Mar-21 Dorset, England UK / ROC 6 6.0
-------------- ----------- ------------------- ------------------- ---------- ------------
Ground East Sussex,
Laughton Levels mount solar Mar-21 England UK / ROC 8.3 8.8
-------------- ----------- ------------------- ------------------- ---------- ------------
Ground
Deeside mount solar Mar-21 Flintshire, Wales UK / FiT 3.8 3.4
-------------- ----------- ------------------- ------------------- ---------- ------------
Ground
Redbridge Farm mount solar Mar-21 Dorset, England UK / ROC 4.3 4.2
-------------- ----------- ------------------- ------------------- ---------- ------------
Ground
Iwood mount solar Mar-21 Somerset, England UK / ROC 9.6 9.3
-------------- ----------- ------------------- ------------------- ---------- ------------
Ground
New Rendy mount solar Mar-21 Somerset, England UK / ROC 4.8 4.7
-------------- ----------- ------------------- ------------------- ---------- ------------
Ground Carmarthenshire,
Redcourt mount solar Mar-21 Wales UK / ROC 3.2 3.1
-------------- ----------- ------------------- ------------------- ---------- ------------
Ground
Oakfield mount solar Mar-21 Hampshire, England UK / ROC 5 4.7
-------------- ----------- ------------------- ------------------- ---------- ------------
Ground
Kerriers mount solar Mar-21 Cornwall, England UK / ROC 10 9.7
-------------- ----------- ------------------- ------------------- ---------- ------------
Ground
RSPCA Llys Nini mount solar Mar-21 Swansea, Wales UK / ROC 0.9 0.9
-------------- ----------- ------------------- ------------------- ---------- ------------
Commercial Rooftop
portfolio Solar Mar-21 Various, England UK / FiT 0.3 0.0
-------------- ----------- ------------------- ------------------- ---------- ------------
Commercial Rooftop Various, England &
portfolio Solar Mar-21 Wales UK / ROC 5.2 4.0
-------------- ----------- ------------------- ------------------- ---------- ------------
Commercial Rooftop Various, N.
portfolio Solar Mar-21 Ireland SEM / NIROC 0.7 1.0
-------------- ----------- ------------------- ------------------- ---------- ------------
Rooftop Belfast, N.
Bombardier Solar Mar-21 Ireland SEM / ROC 3.6 2.8
-------------- ----------- ------------------- ------------------- ---------- ------------
Residential
Residential rooftop Various, N.
portfolio solar Mar-21 Ireland SEM / NIROC 13.1 9.6
-------------- ----------- ------------------- ------------------- ---------- ------------
Lemman Hydro Jan-22 Alvdalen, Sweden SE3 / n/a 0.6 2.5
-------------- ----------- ------------------- ------------------- ---------- ------------
Ryssa Ovre Hydro Jan-22 Mora, Sweden SE3 / n/a 0.7 2.6
-------------- ----------- ------------------- ------------------- ---------- ------------
Ryssa Nedre Hydro Jan-22 Mora, Sweden SE3 / n/a 0.6 2.4
-------------- ----------- ------------------- ------------------- ---------- ------------
Rots Ovre Hydro Jan-22 Alvdalen, Sweden SE3 / n/a 0.7 2.8
-------------- ----------- ------------------- ------------------- ---------- ------------
Rots Nedre Hydro Jan-22 Alvdalen, Sweden SE3 / n/a 0.4 1.4
-------------- ----------- ------------------- ------------------- ---------- ------------
Gabrielsberget Syd
Vind AB Wind Jan-22 Aspea, Sweden SE2 / n/a 46.0 107.9
-------------- ----------- ------------------- ------------------- ---------- ------------
Vallhaga Hydro Jan-22 Edsbyn, Sweden SE2 / n/a 2.5 12.9
-------------- ----------- ------------------- ------------------- ---------- ------------
Osterforsens
Kraftstation Hydro Jan-22 Edsbyn, Sweden SE2 / n/a 1.6 11.5
-------------- ----------- ------------------- ------------------- ---------- ------------
Bornforsen 1 Hydro Jan-22 Edsbyn, Sweden SE2 / n/a 0.7 2.9
-------------- ----------- ------------------- ------------------- ---------- ------------
Bornforsen 2 Hydro Jan-22 Edsbyn, Sweden SE2 / n/a 1.5 9.3
-------------- ----------- ------------------- ------------------- ---------- ------------
Fridafors Hydro May-22 Fridafors, Sweden SE4 / n/a 4.4 16.9
-------------- ----------- ------------------- ------------------- ---------- ------------
Summit Hydro Oct-22 Sweden SE3 /n/a 3.1 13.4
-------------- ----------- ------------------- ------------------- ---------- ------------
Summit Hydro Oct-22 Sweden SE2/ n/a 0.3 1.2
-------------- ----------- ------------------- ------------------- ---------- ------------
Hogforsen Hydro Feb-23 Sweden SE2/ n/a 0. 3 2.5
-------------- ----------- ------------------- ------------------- ---------- ------------
Gottne Hydro Feb-23 Sweden SE2/ n/a 0. 8 5.8
-------------- ----------- ------------------- ------------------- ---------- ------------
AEE Renewables UK
13 Solar Apr-23 Devon, England UK / ROC/FiT 5.5 5.4
-------------- ----------- ------------------- ------------------- ---------- ------------
Various, England
Gloucester Wind Solar Apr-23 and Wales UK / FiT 1. 1 1.0
-------------- ----------- ------------------- ------------------- ---------- --------------
Various, England
Hewas Solar Solar Apr-23 and Wales UK / FiT 2.0 1.7
-------------- ----------- ------------------- ------------------- ---------- --------------
Penhale Solar Solar Apr-23 Surrey, England UK / FiT 0.3 0.3
-------------- ----------- ------------------- ------------------- ---------- --------------
Priory Farm Solar
Farm Solar Apr-23 Suffolk, England UK / ROC 3.2 2.4
-------------- ----------- ------------------- ------------------- ---------- --------------
Various, England
St Colomb Solar Solar Apr-23 and Scotland UK / FiT 0.8 0.6
-------------- ----------- ------------------- ------------------- ---------- --------------
TOTAL AS AT 30 JUNE 2023: 198.6 402.1
------------------- ---------- ------------
Post balance sheet date acquisitions and commitments:
Investment Technology Date Location Power Installed Expected
Acquired Market capacity annual
/ Subsidy (MW) generation
(GWh)
Mersey Grid Services June-23 United Kingdom United n/a n/a
Kingdom
--------------- ----------- ---------------- ------------ ---------- ------------
Blue Sea Grid Services July-23 Sweden SE2 n/a n/a
--------------- ----------- ---------------- ------------ ---------- ------------
TOTAL AS AT THE DATE OF THIS REPORT: 198.6 402.1
------------ ---------- ------------
Investment Manager's Report
Introduction
The first half of 2023 has been busy but rewarding, with the
Company making three new investments during the period, spending
GBP17.7 million. The assets acquired during and after the period
end further underpins the Company's commitment to pursuing a highly
diversified investment strategy. The investments provide new,
long-term, revenue streams including revenues not derived from the
sale of power on the wholesale markets. The Company also increased
its Revolving Credit Facility from GBP25 million to GBP40
million.
Acquisitions
During the first half of the year, we have continued to grow our
portfolio and have made four acquisitions in the hydropower, solar
and grid services sectors. This comprises two additional Swedish
hydropower portfolios to complement the Company's existing
portfolio and a portfolio of Solar PV assets located in the UK. The
Company further diversified its energy market exposure by signing
an agreement to acquire its first grid services asset, a 200 MVAr
UK-based shunt reactor. After period end, the Company acquired a
Swedish grid services company.
Solar - Occasum Project
In April 2023, the Group acquired a portfolio of operational
solar PV assets located in the UK for a cash consideration of
GBP12.6 million. The 13.0 MWp portfolio of two ground-mounted sites
and approximately 1,600 commercial and residential installations
benefits from high levels of feed-in tariffs and renewable
obligation certificate subsidies. Due to the revenue profile of
these assets, this acquisition increases the percentage of revenue
from subsidies from 51% to 54% across our solar portfolio.
The new portfolio will increase the total number of DORE's
managed solar assets to c.4,800 with a total annual average
production of 100 GWh.
DORE will remain unaffected by the UK's Electricity Generator
Levy ("EGL") following this acquisition, with the Company having
significant headroom in the EGL's annual allowance.
Hydro - Downing Hydro AB ("DHAB")
DHAB is the vehicle through which the Group acquires and owns
its portfolio of hydropower plants.
In February 2023, the Group acquired a 2.5 GWh hydropower plant
in Hogforsen, on the Gilleran river, a tributary to the Indalsalven
river. The plant was commissioned in 1915 and in 2011, the plant
underwent a major renovation, including replacement of generator,
turbine and control system.
In March 2023, the group acquired a 6 GWh hydropower plant in
the municipality of Gottne, located on the Moalven river. The plant
underwent a major refurbishment in 2015.
The acquisitions increase the total number of DORE's managed
Swedish hydropower plants to 28 with a total annual average
production of 197 GWh. The new hydropower plants will be integrated
into the existing portfolio and will continue to support DORE's
highly diversified investment strategy, designed to increase the
stability of revenues and consistency of income to
shareholders.
The acquisitions were accretive to NAV due to operational and
capital efficiencies as a result of the integration of the assets
into the Company's platform. During the period, a GBP0.3 million
increase in NAV was recognised as the new investments were revalued
throughout the period.
A framework agreement is in place with Axpo (a leading Swiss
energy company) which allows DHAB to lock in energy prices. DHAB
has hedged positions in line with DORE's risk management strategy.
The hydropower assets do not attract material government subsidy
payments.
Grid Services - Blasjon Nat AB (Post Period end)
In July, DORE acquired a Swedish Electricity Distribution System
Operator ("DSO"), Blasjon Nat AB ("Blasjon"), for GBP7.3 million.
The Company has acquired 100% of the share capital in Blasjan, a
regulated electricity distributor, which delivers 16-18 GWh per
annum of electricity through medium and low voltage lines to its
c.1,500 domestic and business customers in Stromsund, northern
Sweden.
An Electricity DSO is a critical entity within the electricity
supply chain that plays a vital role in the efficient and reliable
distribution of electrical power to end-users. The electricity
distribution system is the part of the power grid responsible for
delivering electricity from the transmission system to consumers,
businesses, and industries at lower voltage levels.
Blasjon's grid network is 436km in length and comprises overhead
lines, three primary and 161 secondary substations. Blasjon
operates a licensed monopoly in a highly regulated environment and
generates consistent and predictable cashflows that are not
directly exposed to energy price fluctuations. This reduces DORE's
risk exposure to movements in electricity market prices and
increases the Company's revenue diversification. Long term revenues
under the regulatory regime are linked to inflation and interest
rates. Grid networks are operating businesses with very long-life
assets.
This is DORE's second acquisition in the grid and grid stability
services sector, and will further support the Company's strategy of
constructing a diversified portfolio by increasing the stability of
revenues and consistency of income to shareholders. Blasjon will
account for 3.5% of the Company's revenues, providing a steady
revenue stream throughout the year without being affected by
seasonal variations.
Grid Services - Mersey Reactive Power
In June, the Group signed an agreement to acquire Mersey
Reactive Power, a UK-based, fully operational 200 Megavoltamperes
reactive ("MVAr") shunt reactor for a cash consideration of
c.GBP11.0 million. It is located in Frodsham, Merseyside.
Completion is subject to Ofgem approval.
This grid services asset became operational in May 2022 and was
the first project to go live as part of the National Grid's
Stability Pathfinder initiative. The project, which has an expected
asset life of 40 years, supports the UK's electricity system in
voltage management, providing increased network resilience,
reducing costs to consumers and lowering carbon emissions. Mersey
Reactive Power further reinforces the Company's commitment to
providing stable revenue through an initial fixed priced,
inflation-linked, availability-based contract with National Grid
ESO until 2031.
Traditionally, reactive power services have been provided by
large fossil fuel plants, but to support the transition to low and
zero carbon energy, new sources and providers of reactive power are
needed. The Mersey region has been identified as a key problem area
for reactive power and as fossil fuel generation assets continue to
be decommissioned across the network, reactive power will become
more expensive.
In power transmission systems, the interplay between real power
and reactive power is crucial for maintaining voltage stability.
Real power is the power that does practical work, such as running
motors or powering appliances. Reactive power is required to
maintain voltage levels in the system and support the flow of real
power.
Mersey Reactive Power supports the balancing of real and
reactive power through a shunt reactor, a piece of electrical
equipment used in high-voltage electricity transmission systems. It
is a passive device, meaning it does not generate electricity
itself but rather helps in regulating the flow of electricity on
the power grid. In power transmission systems, when long
transmission lines are not adequately loaded, they may experience
overvoltage conditions. Overvoltage can damage equipment and lead
to inefficiencies in the transmission network. A shunt reactor is
designed to absorb and consume reactive power, which helps in
maintaining the voltage levels within an acceptable range.
When the transmission line is lightly loaded or has excess
capacitive reactive power, the shunt reactor draws in this reactive
power. By doing so, it lowers the voltage levels, preventing
overvoltage issues. Conversely, when the load increases, and the
system requires more reactive power, the shunt reactor can reduce
its absorption, allowing more reactive power to flow through the
line and support the voltage levels.
The acquisition will provide a new, long-term, revenue stream
for DORE, one that is not derived from the sale of power on the
wholesale markets. It demonstrates the Company's continued
commitment to pursuing a highly diversified investment strategy.
DORE will continue to seek similar opportunities in the grid
services sector, constructing a portfolio designed to increase the
stability of revenues and consistency of income to
shareholders.
Mersey offers a higher than average returns profile compared to
other core renewables assets. The investment is materially
de-risked by a nine-year, availability based, fully index-linked
High Voltage Pathfinder Contract ("Pathfinder Contract") from
National Grid.
Market Development and Opportunities
The outlook for the Company is very encouraging. The existing
assets continue to operate well and five new acquisitions have been
signed in 2023, including the Company's first grid services assets.
The Investment Manager is progressing a significant pipeline of
opportunities across technologies, geographies and sectors
including wind, solar, hydropower, utilities , battery storage and
ancillary markets and continues to work to finalise a series of
investments that would see the RCF fully utilised. The main
geographical focus of the opportunities in progress is the Nordic
region and the UK, with certain further opportunities across
Northern Europe.
Within the hydro portfolio, the Investment Manager is
investigating thoroughly opportunities to maximise revenues and
returns, including gaining access to the attractive Swedish
Frequency Regulation Markets, by installing add-on equipment and
software to the existing hydropower stations and / or the potential
integration of battery storage assets on land already owned by the
Company.
FCR is a type of ancillary service provided by power system
operators to maintain the grid frequency within the standard range.
If the frequency deviates from this value, it can cause significant
issues and even blackouts. The combination of an increasingly
centralised operation system across the hydro portfolio and
software and hardware upgrades will enable the Company to regulate
its power production to such an extent that it can bid for FCR
contracts. The Company is targeting initial participation in this
market in Q4 2023.
The Company has a significant landbank alongside its hydropower
plants that make suitable locations for battery installations and
is well positioned for a reduced cost of entry to the FCR and Fast
Frequency Reserve ("FFR") markets. Limited supply in the FCR / FFR
markets combined with increased underlying demand as a result of an
increased share of intermittent generation in the electricity
system has resulted in high FFR and FCR prices, making the market
particularly attractive. Batteries, especially large-scale energy
storage systems, play a crucial role in modern power systems due to
their ability to store and release electricity quickly. This makes
them valuable assets for providing FCR and FFR services to the
grid.
Portfolio Performance
The 4,863 operating assets produced approximately 207GWh of
renewable electricity during the reporting period.
The assets continue to operate well, with operating profit for
the 12 months to June 2023 18% ahead of budget. Portfolio
generation for the 12-month period was 7.5% under expectations,
driven by low natural resource in the wind and hydropower
portfolios, and technical performance enhancement projects in the
Solar portfolio.
Asset Generation Vs Budget 6 Months to June 2023
Actual Production Expected Production
(MWh) (MWh)
Hydro 96,630.65 101,497.90
------------------ --------------------
Solar 52,776.55 55,818.93
------------------ --------------------
Wind 57,339.11 53,734.00
------------------ --------------------
For the period of operations from 1 January 2023 to 30 June
2023, generation was ahead of expectations for the wind assets as a
result of strong availability and good wind speeds, but slightly
lower than expected in the solar and hydropower portfolios.
The solar portfolio performed slightly below expectations,
generating 53GWh. The solar portfolio experienced good irradiation
levels throughout the period at 4.6% above expectations. The
deviation between irradiation and generation was due to several
technical performance enhancement projects at some of the older
ground mounted sites. These projects, alongside the Asset ManagerÕs
dynamic spare parts strategy continue to be addressed by the Asset
Manager. A full update on this strategy can be found in the full
Interim Report.
The hydropower portfolio performed well from an operational
perspective, however precipitation in Sweden was 5% below the
long-term average leading to a lower-than-expected generation
figure of 96 GWh.
Operating profit was lower than expected as a result of low
power prices in Sweden during spring 2023, which impacted both the
wind and hydropower portfolios. As previously reported, the
hydropower portfolio strategically holds water in reservoirs for
release at times when power prices are higher. However, during the
period this became difficult due to low inflow and the need to
maintain a regulatory minimum release of water from the reservoirs.
As detailed under 'Ancilliary Services Projects', Downing is
exploring several options to enhance the flexibility and revenue
options for the Swedish portfolio to optimise the portfolio's
participation in the power market and reduce the direct impact of
such periods of low power prices.
Asset Operating Profit Vs Budget for 6 month period to 30 June
2023
Actual Operating Expected Operating
Profit (GBPm) Profit (GBPm)
Hydro 2,409,263 4,507,731
----------------- -------------------
Solar 9,696,816 8,652,643
----------------- -------------------
Wind 845,329 959,726
----------------- -------------------
Portfolio and Asset Management
Downing has invested significantly in an in-house asset
management team capable of providing a full scope service to a wide
range of generation, grid and storage technologies. Established in
2019, the team totals 26 and includes expertise across power
markets, engineering, data analytics, finance and commercial
management.
Health and Safety
The health and safety of contractors and the public is a
fundamental part of asset management processes. Throughout the
period, a range of workstreams were carried out by the Asset
Manager in line with the Company's approach to Health and Safety
management.
In order to ensure a comprehensive approach to Health and Safety
management, the Asset Manager has engaged a third-party expert to
provide health and safety support to assess systems in place and
revise existing processes where applicable.
A rolling programme of Health and Safety audits continues across
the portfolio. These audits are based on a two-tier approach, where
risks and procedures are audited at the site level and also the
operator level. Downing has a process of continuous assessment and
feedback of site and operator practices, ensuring effective
management systems are in place and adhered to.
Finally, IT systems are used to thoroughly track all incidents.
As well as these systems enabling performance measurement and trend
analysis, they also ensure the effective communication, escalation,
and management of incidents.
Optimisation
During the period, the Asset Manager continued to develop and
implement performance and proprietary data optimisation and power
pricing strategies, the latter enhancing Downing's data driven
approach to asset management.
The digitalisation pilot project on the Swedish hydropower sites
has progressed well. Onsite remote monitoring was installed at the
pilot project sites and successfully connected to a central system
that can be used to operate the sites and store the data. Work
continued to automate and optimise a production planning and
dispatch strategy for the assets, which has previously been
calculated manually. This involves incorporating real time data
from the sites and their corresponding water reservoirs along with
price forecasts and meteorological forecasts to produce automated,
site specific dispatch plans. A project is also underway to
calibrate the model using historical telemetry data, with a
simulation of the tool expected to start next quarter.
The Asset Manager has been working with a specialist artificial
intelligence company to create an interface that produces
predictive component failure analysis and identification of likely
short and long term maintenance costs for ground mounted solar
sites. A report showing the Mean-Time-To-Failure for inverters has
been developed which gives insight, based on historical incidents,
into when the inverter is likely to fail. There will be further
development that aims to include a greater variety of parameters
into the model that will provide further insights into the
correlation of anomalies and incidents so that maintenance could be
scheduled prior to component failures.
During the period, the Asset Manager has continued to enhance
existing spare parts strategies, with the aim of reducing downtime
and maintaining asset performance given prolonged equipment lead
times. The strategy considers all technologies within the DORE
portfolio and aims to utilise opportunities of cross compatibility
across the portfolio.
During the period, the Asset Manager also completed a successful
O&M tender and takeover process for 13 ground mount solar
assets, transitioning to new contracts with RES and including
additional maintenance stipulations and performance guarantees.
Ancillary Services
A number of ancillary service projects have commenced during the
period. These services present opportunities for additional revenue
streams for the assets in Sweden, as well as supporting the
relevant local grid in balancing supply and demand.
FCR and manual Frequency Restoration Reserve ("mFRR") are
services required by the grid when there is an imbalance of
electricity between supply and demand, at which point assets are
asked to power down or power up. Downing has been exploring these
markets and is expecting to participate with the Swedish hydropower
plants in Q4 2023. To participate in these markets, the Asset
Manager is currently upgrading hardware and software on site to
enable additional functionality such as remote switch off/on.
The Asset Manager is also in the process of assessing which
Swedish hydropower sites could be suitable for the installation of
battery energy storage systems ("BESS"). This involves reviewing
space requirements, grid connections and IT infrastructure.
Installing BESS will enable the assets to participate in additional
frequency regulation markets such as Fast Frequency Reserve
("FFR"), presenting additional revenue stream opportunities for the
portfolio.
Financing and Capital Structure
The Company and its subsidiaries ("the Group") adopts a prudent
approach to leverage. Its objective is that each asset will be
financed appropriately for the nature of its underlying cashflows
and their expected volatility. Long-term debt may be used where
appropriate at the SPV level to facilitate acquisitions,
refinancing, capital expenditure or construction of assets.
Total long-term structural debt will not exceed 50% of the
prevailing Gross Asset Value. At 30 June 2023, including project
level financing, the Group's leverage stood at 32%. All third party
debt is held by the Company's subsidiaries.
In addition, the Company and/or its subsidiaries may also make
use of short-term debt, such as a revolving credit facility, to
assist with the acquisition of suitable opportunities as and when
they become available.
Revolving Credit Facility
The Group has access to a loan agreement through its main
subsidiary DORE Hold Co with Santander UK plc. The RCF is available
until December 2025, with the possibility to be extended for a
further year. On 26 January 2023, the Company announced that the
RCF had been increased from GBP25m to GBP40m further facilitating
the execution capabilities of the Company's pipeline.
The terms of the RCF now includes a 'Green Projects' initiative,
operating under the Loan Market Association's ("LMA") Green Loan
Principles, a framework of market standards and guidelines that
provides a consistent methodology for use across the green loan
market.
Under the 'Green Projects' criteria, the RCF can only be used in
connection with assets that present environmental benefits and
appropriate green credentials. Additional monitoring and reporting
obligations on the environmental benefits delivered by such assets
will be required, which comfortably aligns with DORE's current
investment strategy as an Article 9 fund.
The RCF has the additional benefit of being able to be drawn in
both GBP and EUR (with the ability to also make use of funds in
other currencies) and is priced at the Sterling Overnight Index
Average ("SONIA") plus 2.25% per annum. The Group will make use of
the RCF mainly to fund the acquisition of additional assets.
Post period end the Company has drawn down GBP8.5 million of the
RCF to fund the acquisition of Blasjon, and a further GBP11m will
be drawn at completion of Mersey Reactive Power.
Refinancing of Hydropower Assets
In early 2022, DHAB entered into a seven-year bullet repayment
EUR 43.5 million debt facility with SEB, a leading corporate bank
in the Nordics. As of 30 June 2023, DHAB had utilised EUR 27.4m of
the facilities, predominately as source of funding for acquiring
further hydropower plants in Sweden during 2022. The remainder of
the undrawn facility is predominately available to fund future
capital expenditure requirements and further acquisitions. The
total cost of the drawn debt is 2.3%. DHAB benefits from interest
rate swaps until the end of 2032.
UK Solar Portfolio
Medium term amortising debt (September 2034 maturity) is in
place for the United Kingdom solar portfolio and, as at 30 June
2023, comprised outstanding principal amounts of GBP68.5 million
lent by Aviva and GBP10.1m lent by institutional investors managed
by Vantage Infrastructure.
Approximately 12% of the Aviva debt is fixed at an interest rate
of 3.37%. The interest rate is fixed in real terms on the remaining
balance at 0.5%. The debt service of this larger debt tranche is
inflation-adjusted, with indexation tracking UK RPI. The Vantage
Infrastructure managed facility has an all in fixed rate of
1.54%.
A summary of the debt across the portfolio can be found in the
table below:
30 June 2023 31 December 2022
Hydro Wind Solar Working Total Hydro Wind Solar Working Total
capital capital
------ ----- ------ --------- ------ ------ ----- ------ --------- ------
Equity
value
(GBPm) 110.6 27.7 71.9 6.8 217.0 103.0 26.4 62.6 26.9 218.9
------ ----- ------ --------- ------ ------ ----- ------ --------- ------
Debt
(GBPm) 23.5 0.0 78.9 0.0 102.4 23.0 0.0 68.5 0.0 91.5
------ ----- ------ --------- ------ ------ ----- ------ --------- ------
GAV
(GBPm) 134.1 27.7 150.8 6.8 319.4 130.6 25.6 133.7 20.5 310.4
------ ----- ------ --------- ------ ------ ----- ------ --------- ------
Foreign Exchange
The Group's generation assets in Sweden earn revenues in EUR and
in cur some operational costs in SEK. Assets in the UK operate
entirely in sterling.
The Group, together with its foreign exchange advisor, has
developed and implemented its foreign exchange risk management
policy in line with the June 2022 Prospectus. The policy targets
hedging expected short to medium-term distributions (up to five
years) from the portfolio of assets, that are not denominated in
GBP on a 'linear reducing basis', whereby a high proportion of
expected distributions in year one are hedged and the proportion of
expected distributions that are hedged reduces in a linear fashion
over the following four years. This is a rolling programme and each
year further hedges are expected to be put in place to maintain the
profile.
In total, 39% of the Group's forecast EUR dividend receipts from
SPVs out to December 2027 were hedged as at the reporting date.
Dividend Hedging
% hedged of forecast distributions
2023 84
-----------------------------------
2024 96
-----------------------------------
2025 15
-----------------------------------
2026 19
-----------------------------------
2027 0
-----------------------------------
Power markets and exposure
Through its portfolio companies, the Group adopts a medium to
long-term power price hedging policy for its generation assets,
providing an extra degree of certainty over the cash flows for the
hedged periods. The fixed price generation position for the
portfolio as of 30 June 2023 is set out in the chart below, showing
the impact of the combination of subsidy and fixed income from
power sales. The hedging positions are continuously reviewed to
ensure an appropriate position is maintained and new hedges are
taken out as appropriate.
The invasion of Ukraine continues to have a major impact on
power prices throughout Europe and the UK as European gas supply is
dominated by Russia. The UK gas and UK power markets are likely to
remain volatile if the uncertainty about the Russian gas supply
continues. The Company has taken steps to reduce its exposure to
this volatility, due to its high level of fixed pricing over the
short to medium term.
Including the acquisitions of Mersey and Blasjon, the Company
has increased its percentage of fixed revenues, reducing the
percentage of revenue exposed to power markets.
United Kingdom
Weather and LNG gas supply dominated the evolution of forward
power prices in the UK in H1 2023. Wind generation reached record
highs in the beginning of the quarter which, combined with milder
weather, lower demand and rising imports pushed power prices to
levels below those at the start of the Ukraine crisis over the
course of the quarter. Industrial action in France, North Sea gas
outages, news about continued cracks in French nuclear power plants
and cold spells in Q1 resulted in various brief uplifts, but
overall the forward power prices followed a downward trend in H1,
although the market recovered somewhat at the end of Q2.
Nordics
The Nordic power market was dominated by the falling gas and
power prices on the continent in H1 2023. A cold spell resulting in
a (temporary) increased demand and the delayed spring flood
resulted in bullish news in Q1. Warmer weather than usual combined
with the delayed spring flood turned into hydro inflows which were
twice as high as the seasonal average, this resulted in a downward
pressure at the beginning of Q2. The market recovered again at the
end of Q2 when the hydro inflows eased off. The variability in the
wind generation added to the volatility on the spot market.
Dividends
The Board has declared the Company's interim dividend of 1.345
pence per share, equivalent to GBP2.5 million, in respect of the
three months to 30 June 2023. Once paid, this will bring total
dividends paid in respect of the first half of the financial year
to 2.595 pence per share. This dividend is not reflected in the
accounts to 30 June 2023.
In the Annual Report to December 2022, the Company announced
that it would increase its dividend guidance to target 5.38 pence
per share for the 12 months to December 2023, a 7.6% increase from
2022. The increased dividend is expected to be fully covered by
income from the current portfolio.
The Company has chosen to designate part of each interim
dividend as an interest distribution for UK tax purposes.
Shareholders in receipt of such a dividend will be treated for UK
tax purposes as though they have received a payment of interest in
respect of the interest distribution element of this dividend. This
will result in a reduction in the corporation tax payable by the
Company.
Dividends paid during the financial year to 31 December 2023 are
as follows:
For the Period Dividend No. of Total Dividend Interest Dividend
Paid Shares (pence per Element (pence Element (pence
share) per share) per share)
December 2022 March 2023 184,622,487 1.25 0.875 0.375
------------ ------------ --------------- ---------------- ----------------
March 2023 June 2023 184,587,487 1.345 0.875 0.470
------------ ------------ --------------- ---------------- ----------------
September
June 2023 2023 183,919,987 1.345 1.076 0.269
------------ ------------ --------------- ---------------- ----------------
Total 3.94 2.826 1.114
------------ --------------- ---------------- ----------------
The Company intends to pay dividends on a quarterly basis, with
dividends typically declared in respect of the quarterly periods
ending March, June, September and December. Payment of the relevant
dividend declared is expected be made within three months of the
relevant quarter end.
Valuation of the portfolio
Net asset value
The Company's NAV decreased during the period from GBP218.9
million to GBP217.0 million as at 30 June 2023, equivalent to a
decrease of 0.6 pence per share from 118.6 pence per share to 118.0
pence per share. The NAV decrease was driven by long term power
price forecasts, and an update to discount rates.
The table below shows the movement in NAV during the period,
with each step explained further below.
H1'23 Nav Bridge by Movement
Opening NAV 1-Jan-23 218.9
----------------------------------------
Management Fee (1.0)
----------------------------------------
Other Costs & Charges (1.9)
----------------------------------------
Performance 7.2
----------------------------------------
Power Curve (9.5)
----------------------------------------
FX 6.2
----------------------------------------
Inflation 1.4
----------------------------------------
Acquisitions (net) 0.7
----------------------------------------
Other 0.3
----------------------------------------
Discount Rate (0.5)
----------------------------------------
Dividend (4.8)
----------------------------------------
Closing NAV 30-Jun-23 217.0
----------------------------------------
Opening
Represents the audited NAV at 31 December 2022.
Management Fee
Fees charged to the Company by the Investment Manager.
Other costs and charges
Charges incurred by the Company, and its immediate subsidiary
DORE Hold Co, in its normal operations. No transaction costs are
included.
Performance
Represents the balance sheet variance at the portfolio company
level representing higher cashflows than anticipated in the short
term.
Power Prices
The Company uses long-term, power price forecasts from third
party consultants for the purposes of asset valuations. In both the
UK and Sweden, an equal blend is taken from the most recent central
case forecasts from two leading consultants, along with forward
pricing for the first three years. In Sweden, an additional third
power price forecast is blended into the curve. Where fixed price
arrangements are in place, the financial model will reflect this
price for the relevant time frame. The impact of our short-term
power hedging strategy is also included in this step.
Foreign Exchange
Cashflows from assets that are generated in a non-sterling
currency are converted in each period they are earned using the
actual hedges in place, with the residual amounts converted at the
relevant exchange rate.
The relevant exchange rate is taken from a forward curve
provided by the Company's foreign exchange advisors for ten years,
at which point the exchange rate is held constant due to the
impracticalities of hedging currency further into the future.
Inflation
Since IPO, the Group has used a near-term annual inflation
forecast of 2.25% until December 2023, and a medium-term forecast
of 2.75% rising to 3.0% from 2024 for the purposes of UK asset
valuations. From 2030 onwards, this forecast reduces to 2.25%
because of the RPI reform announced by the UK Government in
2021.
Given the recent increases in inflation throughout 2022 and
2023, the UK inflation forecast for the remainder of 2023 has been
increased to an annualised 8.0%.
For the Swedish asset valuations, the Company previously used a
near-term inflation forecast of 4.0% and a medium to long-term
inflation forecast of 2.0%, which is reflective of the Swedish
central bank's target inflation rate.
Again, given the recent increases in inflation throughout 2022
and 2023, the Sweden inflation forecast for the remainder of 2023
has been increased to an annualised 8%.
All models are updated quarterly to reflect actual inflation to
date.
Other
Reflects changes to operational contracts (such as insurance),
the cost of debt in the future, and other minor changes.
Discount Rates
Discount rates used for the purpose of the valuation process are
representative of the Investment Manager's and the Board's
assessment of the rate of return in the market for assets with
similar characteristics and risk profile. The discount rate of the
solar assets has been increased to a weighted average 8.0% from
7.8% to reflect the current market transactions.
Discount rates for the levered solar and hydropower portfolios
are 8%. The Company has an unlevered wind asset in Sweden which has
a discount rate of 6.5%. The increased discount rates applied to
the solar portfolio have resulted in a slightly increased weighted
average discount rate from 7.7% to 7.8%.
Dividends
Distributions paid by the Company in the period.
Key Valuation Assumptions
Asset life
Where land is leased from an external landlord, the operational
life assumed for the purposes of the asset valuations is valued at
the earlier of planning or lease expiry.
Where a project has an indefinite life, the land it is located
on is owned and there are no constraints regarding planning and
asset valuations are based on a perpetual life. This is the basis
for the valuation of the hydropower assets.
The asset life assumed for each of the ground mounted solar
sites was set taking into consideration the length of the
respective planning consent and term of leasing agreement in place
at the time of acquisition. On a capacity-weighted basis this
results in an average asset life of close to 25 years. There is an
ongoing process underway to extend planning and lease terms to
allow the assets to operate for longer than initially expected.
This project is expected to increase the weighted useful life of
the ground mount portfolio to 27.8 years.
Portfolio Valuation sensitivities
The NAV of the Company comprises the sum of the discounted value
of future cash flows of the underlying investments in solar, wind
and hydropower assets (being the portfolio valuation), the cash
balances of the Company and its holding Company and the other
assets and liabilities of the Group.
The portfolio valuation is the largest component of the NAV and
the key sensitivities to this valuation are considered to be
discount rate and the principal assumptions used in respect of
future revenues and costs.
A broad range of assumptions are used in the Company's valuation
models. These assumptions are based on long-term forecasts and are
generally not affected by short-term fluctuations in inputs,
whether economic or technical.
The Investment Manager exercises its judgement and uses its
experience in assessing the expected future cash flows from each
investment.
The impact of changes in the key drivers of the valuation are
set out below.
Sensitivities
Negative directional Positive directional
change to assumption change to assumption
(pence per share) (pence per share)
---------------------- ----------------------
FX (+/- 5%) (4.41) 4.87
---------------------- ----------------------
Inflation (+/- 1%) (6.17) 6.92
---------------------- ----------------------
Power Prices (+/-
10%) (10.86) 10.85
---------------------- ----------------------
Generation (+/- 5%) (9.90) 9.94
---------------------- ----------------------
Discount Rate (+/-
1%) 11.72 (9.78)
---------------------- ----------------------
Discount Rate
The weighted average discount rate of the portfolio at 30 June
2023 was 7.8%.
The Investment Manager considers a variance of plus or minus
0.5% to be a reasonable range of alternative assumptions for
discount rates.
Generation
For the solar assets, our underlying assumption set assumes the
P50 level of electricity output based on reports by technical
advisors. The P50 output is the estimated annual amount of
electricity generation that has a 50% probability of being exceeded
and a 50% probability of being underachieved.
For hydropower assets, the expected annual average production is
applied to the valuation, similar to the P50 assumption applied to
solar and wind assets. Given the long operational record of the
hydropower assets, the annual production forecast is derived from
historic datasets also taking into consideration the effect of
climate change in the future and validated by technical
advisors.
The generation sensitivities use a variance of plus or minus 5%
applied to the generation for each year of the asset life.
Power Prices
The power price sensitivity assumes a 10% increase or decrease
in power prices relative to the base case for each year of the
asset life.
While power markets can experience volatility in excess of
+/-10% on a short-term basis, the sensitivity is intended to
provide insight into the effect on the NAV of persistently higher
or lower power prices over the whole life of the portfolio, which
is a more severe downside scenario.
Inflation
The Company's i nflation assumptions are set out above. A
long-term inflation sensitivity of plus and minus 1% is
presented.
Foreign Exchange
The Company's foreign exchange policy is set out above. A
sensitivity of plus and minus 10% is applied to any non-hedged
cashflows derived from non-sterling assets for each year of the
asset life. The Company will also try to ensure sufficient
near-term distributions from any non-sterling investments are
hedged.
National Storage Mechanism
A copy of the Interim Report will be submitted shortly to the
National Storage Mechanism ("NSM") and will be available for
inspection at the NSM, which is situated at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism .
LEI Number: 2138004JHBJ7RHDYDR62
For further information, please contact: Link Company Matters
Limited, +44 (0)7596 599436
Name of authorised official of issuer responsible for making
notification: Link Company Matters Limited, Company Secretary
1 These are alternative performance measures.
(2) A measure of total asset value including debt held in
unconsolidated subsidiaries.
(3) Total returns in sterling, including dividend
reinvested.
(4) Based on NAV at IPO of GBP0.98/share.
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END
IR BCGDCUGBDGXU
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