Octopus Renewables
Infrastructure Trust plc
Final Results to 31 December
2023
Resilient performance with
positive NAV total return and significant increase in FY 2024
dividend target1
Octopus Renewables Infrastructure
Trust plc ("ORIT" or the
"Company") is pleased to
announce its audited results for the 12 months ended 31 December
2023 ("FY
2023").
Financial Highlights
|
As at 31 December
2023
(audited)
|
As at 31 December
2022
(audited)
|
NAV per Ordinary Share
(p)
|
106.04
|
109.44
|
Ordinary Share price
(p)
|
90.00
|
100.00
|
Dividends declared per Ordinary
Share (p)
|
5.79
|
5.24
|
Dividend
Cover
|
1.18x
|
1.77x
|
Net asset value (£
million)
|
599
|
618
|
Gross asset value (£
million)2
|
980
|
1,073
|
Total value of all investments (£
million)
|
1,127
|
1,304
|
NAV total return in the
year
|
+2.1%
|
+12.4%
|
Ongoing charges ratio
|
1.16%
|
1.12%
|
· Positive NAV total return of +2.1% in FY 2023 (2022: +12.4%)
demonstrates robust performance, with a covered dividend for the
year and increased dividend guidance for FY 2024.
· NAV
decreased from £618 million to £599 million during FY 2023, driven
primarily by falling power price and inflation forecasts, together
with increases applied to discount rates.
· The
Company achieved a strong NAV total return in the period since IPO
in December 2019 of +28.6% (2022: +25.9%).
· Total shareholder return in FY 2023 was -4.4% (2022:
-5.4%)3, as share prices across the renewable
infrastructure sector continued to fall. Total shareholder return
in the period since IPO in December 2019 was +6.7% (2022:
+11.6%).
· Four
dividend payments totalling 5.79 pence per ordinary share for FY
2023, meeting the FY 2023 dividend target in full and representing
a 10.5% increase on FY 2022's dividend, in line with inflation
(CPI). The dividend was fully covered (1.18x) by
cashflows.4
Operational Highlights
· Three acquisitions completed during the period, totalling
c.£7 million:
o Investments into two new technologies: a battery storage
asset and a green hydrogen production development (both joint
ventures)
o An investment into a UK-focussed solar and storage developer
platform.
· Two
strategic disposals completed, as part of the capital recycling
programme. Together, generating a NAV uplift of 3.1 pence per
Ordinary Share, demonstrating the robustness of the Company's
valuations and the continued demand for these assets in the
market.
o Two Polish onshore wind farms totalling 59MW were sold for
£92 million, a 21% premium over the holding value of the wind farms
as at 30 September 2023, delivering an IRR of approximately 30%
over the lifetime of the investment.
o Strategic decision made to terminate an option to acquire
four Spanish solar assets (totalling 175MW) in exchange for a
termination payment to the vendor.
· The
Company's operational portfolio produced 1,110 GWh (2022: 1,005
GWh), 14% below target of 1,291 GWh, generating revenue
of £117.4 million (2022: £112.0 million), 16% below
target of £139.8 million. This is largely attributable to onshore
wind production being 20% below target (mainly due to low wind
speeds), combined with the impact of lower-than-expected power
prices.
· Including the generation and revenues from the Irish solar
assets which were acquired post year-end (see further in this
announcement) but from which the 2023 production accrues to ORIT,
total generation was 1,224 GWh and total revenues were £127.2
million.
· 81%
of forecast operational revenue for the two years following the
period end is already fixed (31 December 2022: 68%). Fixes include
a 10-year, inflation-linked corporate PPA with Iceland Foods for
the Breach solar farm, and 5-year PPAs for three of ORIT's UK solar
farms.
· As
at 31 December 2023, the portfolio comprised
375 assets (including developers)
across six countries
(UK, France, Ireland, Finland, Sweden and Germany)
and five technologies (solar, onshore wind, offshore wind, battery
storage and hydrogen production). Total asset capacity, excluding
conditional acquisitions, totalled 609MW5 (2022:
662MW).
· Once
fully operational, the portfolio has the potential to power the
equivalent of 384,000 homes with clean energy, with an estimated
400,000 tonnes of carbon emissions avoided.
· ORIT
currently has 73MW of new renewable generation capacity under
construction, through the Breach solar farm and Woburn Road battery
storage projects, which are expected to become operational in Q2
2024 and Q1 2025 respectively.
Post Period End
· The
target dividend for was increased to 6.02p for FY 20241,
an increase of 4.0% over FY 2023 and in line with inflation (CPI).
This is the third consecutive year the Company has increased its
dividend target in line with inflation. The FY 2024 dividend target
is expected to be fully covered by cashflows generated from the
Company's operating portfolio.4
· The
Company completed the acquisition of four
newly-constructed operational solar farms located close
to Dublin, Ireland, adding 199MW to the operational portfolio.
· Following the acquisition, ORIT's total capacity of
operational renewable energy assets reached 735MW.
Phil Austin, Chairman of Octopus Renewables Infrastructure
Trust plc, commented:
"ORIT has demonstrated resilience
in its FY 2023 performance despite a challenging backdrop both for
the asset class and the investment trust sector as a whole. The
Company generated a positive NAV total return and delivered a
dividend fully covered by operational cashflows, thanks in the main
to the high proportion of fixed revenues which bodes well for
future payments.
"The Company achieved successful
exits at attractive prices from its Polish wind assets and from its
Spanish solar option, as part of its capital recycling programme
which remains ongoing. It also increased its diversification
through expanding into two new technologies - a battery storage
asset and a green hydrogen production development
platform.
"The Company's assets generated
1,110GWh of electricity in FY 2023, an increase of 10% compared
with the previous year, but 14% below target. The generation
increase in 2023 was driven by the contribution from the first full
year of operations at Cerisou (France) and Crossdykes (UK) onshore
wind farms, in addition to the start of operations of Cumberhead
(UK) wind farm. This was offset by the reduced generation after the
sale of the Polish wind assets, and the fact that onshore wind
generation was 20% below target, largely due to low wind speeds
across Europe.
"Our Investment Manager has
delivered value enhancement through negotiating optimal energy
pricing strategies, and the portfolio now has high quality
corporate PPA partners in Kimberly-Clark, Iceland Foods and
Microsoft. The team continues to manage the final stages of the
Breach solar farm construction, which we expect to be able to
confirm completion of in Q2 this year.
"Despite the market challenges
experienced in the investment trust sector in recent months, the
fundamental driving forces behind clean energy investment are
stronger than ever, and we believe that ORIT is very well placed to
continue its contribution to the transition to net zero whilst
ensuring an attractive level of returns for our
shareholders."
Results presentation today
There will be a presentation for
sell side analysts at 9.00 a.m. today, 25 March 2024. Please
contact Buchanan for details
on octopus@buchanan.uk.com
For further information please contact:
Octopus Energy Generation (Investment
Manager)
Chris Gaydon, David
Bird
|
Via Buchanan
|
Peel Hunt (Broker)
Liz Yong, Luke Simpson, Huw Jeremy
(Investment Banking)
Alex Howe, Chris Bunstead, Ed
Welsby, Richard Harris, Michael Bateman (Sales)
|
020 7418 8900
|
Buchanan (Financial PR)
Charles Ryland, George Beale, Sam
Adams
octopus@buchanan.uk.com
|
020 7466 5000
|
Apex Listed Companies Services (UK) Limited (Company
Secretary)
|
020 3327 9720
|
Notes:
1. The
dividend target stated is a target only and not a profit forecast.
There can be no assurance that it will be met or that the Company
will make any distributions at all and it should not be taken as an
indication of the Company's expected future results. Accordingly,
potential investors should not place any reliance on this target in
deciding whether or not to invest in the Company and should decide
for themselves whether or not the target dividend is reasonable or
achievable. Investors should note that references to "dividends"
and "distributions" are intended to cover both dividend income and
income which is designated as an interest distribution
for UK tax purposes and therefore subject to the interest
streaming regime applicable to investment trusts.
2. A
measure of total asset value including debt held in unconsolidated
subsidiaries, but excluding any outstanding equity or debt
commitments.
3. Total
Shareholder return since IPO stated in sterling, including
dividends reinvested, from 9 December 2019 to 31 December
2023.
4.
Dividend cover is calculated on the basis of actual (in respect of
FY 2023) and expected (in respect of subsequent financial years)
total net operational cash flows from the portfolio after debt
service and Company and intermediate holding company
expenses.
5.
Excludes conditional acquisitions, and excludes
the Polish wind assets that were sold during the period.
About Octopus Renewables Infrastructure
Trust
Octopus Renewables Infrastructure
Trust ("ORIT") is a closed-ended investment company incorporated in
England and Wales focused on providing investors with an attractive
and sustainable level of income returns, with an element of capital
growth, by investing in a diversified portfolio of renewable energy
assets in Europe and Australia. ORIT's investment manager is
Octopus Energy Generation.
Further details can be found
at www.octopusrenewablesinfrastructure.com
About Octopus Energy Generation
Octopus Energy Generation is
driving the renewable energy agenda by building green power for the
future. Its specialist renewable energy fund management team
invests in renewable energy assets and broader projects helping the
energy transition, across operational, construction and development
stages. The team was set up in 2010 based on the belief that
investors can play a vital role in accelerating the shift to a
future powered by renewable energy. It has a 13-year track record
with approximately £6.7 billion of assets under management (AUM)
(as of 31 December 2023) across 19 countries and total 3.7GW. These
renewable projects generate enough green energy to power 2.4
million homes every year, the equivalent of taking over 1.4 million
petrol cars off the road. Octopus Energy Generation is the trading
name of Octopus Renewables Limited.
Further details can be found
at www.octopusenergygeneration.com
About the Company
Octopus Renewables Infrastructure Trust plc ("ORIT" or the
"Company") is a closed-ended investment company incorporated in
England and Wales.
The Company's purpose and
investment objective is to provide investors with an attractive and
sustainable level of income returns, with an element of capital
growth, by investing in a diversified portfolio of Renewable Energy
Assets in Europe and Australia.
ORIT classifies itself as an
impact fund with a core impact objective of accelerating the
transition to net zero through its investments. ORIT's ordinary
shares were admitted to the Official List of the Financial Conduct
Authority and to trading on the premium listing segment of the main
market of the London Stock Exchange on 10 December 2019.
The IPO raised total gross
proceeds of £350 million, and subsequently the Company raised an
additional £224 million of equity in two oversubscribed
fundraisings held in July 2021 and December 2021. As a result, ORIT
has raised a total of £574 million to date.
ORIT is managed by one of the
largest renewable energy investors in Europe, Octopus Energy
Generation (the "Investment Manager").
Investment Strategy Overview
ORIT seeks to achieve its
objectives in four ways:
Diversification of Renewable Assets
|
Inclusion of Construction and Development
|
Active Construction and Asset Management
|
Embedding Impact into Investments
|
Why we are different
01 Expert management
Our Investment Manager's team of
over 135 renewable specialists brings unrivalled
expertise
02 Diversified Portfolio
We manage risk and volatility
through geographic diversification across Europe and the UK and
technological diversification
03 Added Value
We seek to enhance returns and
promote additionality through strategic construction
allocation
04 Unlocking Optionality
Our developer investments provide
access to a proprietary pipeline which we have the right, but not
the obligation to fund. This offers valuable optionality
05 Sustainable Investing
We prioritise Impact and ESG
factors across all our investments. ORIT is an SFDR Article 9
product, embodying sustainable practices
Highlights
For the year ended 31 December
2023
Financial highlights
-4.4%
Total shareholder return
in the year1,
2
(2022:
-5.4%3)
|
6.7%
Total shareholder return
since IPO (1.6% per annum)1, 2
(2022: +11.6%, 3.6% per
annum3)
|
2.1%
Net Asset Value ("NAV")
total return
in the year1, 2,
4
(2022:
+12.4%3)
|
28.6%
NAV total return since
IPO (6.4% per
annum)1, 2,
4
(2022: +25.9%, 7.8% per
annum)
|
|
|
|
|
£599m
NAV4
(2022: £618m)
|
106.0p
NAV per Ordinary Share4
(2022: 109.4p)
|
£980m
Gross Asset Value
("GAV")1,
5
(2022: £1,073m)
|
£1,127m
Total value of all
investments1,
6
(2022: £1,304m)
|
|
|
|
|
£508m
Market capitalisation
as at 31 December 2023
(As at 31 December
2022:
£565m)
|
5.79p
Dividend per Ordinary
Share for FY 2023 In line
with target
(FY 2022: 5.24p in line
with target)
|
1.18x
Dividend cover7
(2022: 1.77x)
|
10.5%
2023 dividend growth vs
2022
(2022 vs 2021: 4.8%)
|
|
|
|
|
39%
Total leverage8
(2022: 42%)
|
|
|
|
Alternative Performance Measures ("APMs")
The financial information and
performance data highlighted in footnote 1 below form
part of the APMs of the Company. Definitions of these APMs together
with how these measures have been calculated can be found in the
Company's Annual Report.
1 These are alternative
performance measures.
2 Total returns in sterling,
including dividends reinvested.
3 Restated from December
2022 KPI reported in the FY 2022 Annual Report.
4 The Net Asset Value as at 31
December 2023 is calculated on the basis of 564,927,536 Ordinary
Shares in issue.
5 A measure of total asset
value including debt held in unconsolidated
subsidiaries.
6 Total asset value including
total debt and equity commitments.
7 Dividend cover for FY 2023 is
calculated on the basis of actual total net operational cash flows
from the portfolio after debt service and Company and intermediate
holding company expenses.
8 Total debt drawn (short-term and
long-term) as a percentage of Gross Asset Value.
Operational and ESG highlights
379/41 (incl.
Irish solar assets)*
Number of assets as at 31 December 2023
|
5
Number of technologies10
|
6099MW/
808MW (incl. Irish solar
assets)*
Capacity owned as at 31 December 2023
|
|
|
|
1,312GWh/
1,427GWh (incl. Irish
solar assets)*
Renewable electricity generated in the
year11
|
366k/
402k (incl. Irish solar
assets)*
Equivalent tonnes of carbon avoided for the
year12
|
355k/
379k (incl. Irish solar
assets)*
Equivalent homes powered by clean energy for the
year13
|
|
|
|
1,569GWh
Potential annual renewable electricity generated once fully
operational14
(2022: 1,740GWh)
|
400k
Estimated annual equivalent tonnes of carbon avoided once
fully operational12,
14
(2022: 580k)
|
384k
Estimated annual equivalent homes
powered by clean energy once fully
operational13,
14
(2022: 522k)
|
*
Includes 4 Irish solar assets acquired post
year-end
Note: Renewable electricity
generated in the year, equivalent tonnes of carbon avoided for the
year and equivalent homes powered by clean energy for the year are
new for the 2023 reporting period.
9 Excludes: i) Polish wind
assets which were sold during FY 2023; ii) the Spanish solar
assets, the option over which was terminated in FY 2023; iii) the
Irish solar assets which were subject to conditional acquisition at
31 December 2023 and were acquired shortly after year end. Each
developer investment is counted as a single asset.
10 Including technologies for
operational and construction stage assets and technologies covered
through developer investments: onshore wind, offshore wind, solar,
battery storage and hydrogen.
11 Calculated using renewable energy
generated by the investment portfolio during the reporting period,
proportioned by equity ownership. It includes generation from the
Polish wind assets up to the 30th June 2023 locked box
date that was applied in the sale transaction.
12 Calculated using the 2021
International Financial Institution's approach for Common Default
Grid Emission factors
see.https://unfccc.int/sites/default/files/resource/IFITWG_Methodological_approach_to_common_dataset.pdf.
Reference updated in January 2024 from 2019 to 2021 to reflect most
recent emission factors available. Includes generation from the
Polish wind assets up to the 30th June 2023 locked
box date that was applied in the sale transaction.
13 Equivalent homes powered by clean
energy are calculated based on most recent average household
electricity usage values provided by Ofgem (UK) and Odyssee (EU).
References and methodology updated in January 2024. Includes
generation from the Polish wind assets up to the
30th June 2023 locked box date that was applied in
the sale transaction.
14 All metrics are calculated based on
an estimated annual renewable energy generation of the investment
portfolio once fully operational (including Irish conditional
acquisition and excluding the exited assets in Poland and Spain)
and on the basis of ORIT's equity stake. Metric is based on "P50"
yield assumptions for the next available full operational year,
including degradation that occurs naturally over the assets'
lifetimes. Equivalent tonnes of carbon avoided are calculated using
the 2021 International Financial Institution's approach for Common
Default Grid Emission factors
(https://unfccc.int/sites/default/files/resource/IFITWG_Methodological_approach_to_common_dataset.pdf).
Reference updated in January 2024 from 2019 to 2021 to reflect most
recent emission factors available. Equivalent homes powered by
clean energy are calculated based on most recent average household
electricity usage values provided by Ofgem (UK) and Odyssee (EU).
References and methodology updated in January 2024.
Highlights
Company Results Summary
|
FY23
|
FY22
|
FY21
|
Oct-19
to
Dec-2015
|
Share Price as at 31-Dec
|
90.0p
|
100.0p
|
110.8p
|
113.8p
|
Profit and total comprehensive income for the
year
|
£12.7m
|
£69.8m
|
£34.8m
|
£8.3m
|
Earnings per share
|
2.24p
|
12.36p
|
8.20p
|
2.75p
|
NAV
|
£599.0m
|
£618.3m
|
£577.7m
|
£343.9m
|
NAV per share
|
106.0p
|
109.4p
|
102.3p
|
98.3p
|
Total declared dividend per share
|
5.79p
|
5.24p
|
5.0p
|
3.18p
|
Declared dividends per share since IPO
|
19.21p
|
13.42p
|
8.18p
|
3.18p
|
Total shareholder return in the year
|
-4.4%
|
-5.4%
|
1.7%
|
7.8%
|
Total shareholder return since IPO
|
6.7%
|
11.6%
|
17.7%
|
16.0%
|
NAV total return in the year
|
2.1%
|
12.4%
|
9.3%
|
2.5%
|
NAV total return since IPO
|
28.6%
|
25.9%
|
12.1%
|
2.4%
|
15First accounting period from launch to 31 December
2020.
Key milestones during 2023
1
January 2023
Completed the acquisition of a 50%
stake in Woburn Road, a 12MW/24MWh ready-to-build battery storage
project in Bedfordshire, UK
2
February 2023
Refinanced and increased the
multi-currency RCF to £270.8m at an improved margin of 2.0%,
extending maturity to February 2026
3
March 2023
Secured a 10-year inflation-linked
fixed price PPA for 67MW Breach solar project in the UK, Breach
Solar Farm, which is currently under construction
4
April 2023
Invested into HYRO Energy Limited,
("HYRO") a new joint venture between ORIT, Sky (a private fund
managed by Octopus Energy Generation) and renewable energy company,
RES, to develop green hydrogen electrolysis projects
5
June 2023
Appointment of Sarim Sheikh as an
Independent Non-Executive Director of the Company with effect from
1 June 2023
6
July 2023
Agreed to invest in a new
development business, focused on creating new ground-mounted solar
and co-located battery assets in the UK, with exclusive development
services from BLC Energy Limited ("BLCe")
7
September 2023
Announcement of the Cumberhead
Wind Farm Community Benefits Fund's first-round awardees for social
initiatives in the Coalburn and Lesmahagow areas (50% of the
Community Fund). The Community Fund is worth a total of £250,000
per year for 30 years
8
December 2023
HYRO developer platform secures a
CfD from the Department for Energy Security and Net Zero for a 15MW
hydrogen electrolyser project
9
December 2023
Completed the sale of the two wind
farms in Poland to an affiliate of the Polish-based listed
multi-energy company, Orlen S.A.
10
December 2023
Launch of a voluntary Community
Benefits Fund around the two onshore wind farms in Southwest
Finland, Saunamaa and Suolakangas, to support the local
community
11
December 2023
Successful exit from option to
acquire 175MW of ready-to-build solar projects in Spain at above
holding value
12
Post-year end
Completed the acquisition of four
newly-constructed solar farms in Ireland totalling 199MW, referred
to as the Ballymacarney solar complex. A fifth (extension) site
called Harlockstown is currently under construction
Portfolio at a glance
Geographical overview
Total number of
assets16
37
Total
capacity16
609 MW
16 Excludes: i) Polish wind assets
which were sold during FY2023; ii) the Spanish solar assets, the
option over which was terminated in FY2023; iii) the Irish
solar assets which were subject to conditional acquisition at 31
December 2023 and were acquired shortly after year end. Each
developer investment is counted as a single asset.
Portfolio overview
Technology
|
Country
|
Sites
|
Capacity
(MW)17
|
Average asset
life remaining
(years)
|
Status
|
Key
information
|
Onshore wind
|
Sweden
|
1
|
48
|
27.5
|
Operational
|
Corporate PPA
|
|
France
|
1
|
24
|
28.9
|
Operational
|
French
CfD
|
|
UK
|
1
|
50
|
29.2
|
Operational
|
Corporate PPA
|
|
UK
|
1
|
23
|
27.5
|
Operational
|
Fixed
pricing until end of 2025
|
|
Germany
|
1
|
35
|
28.7
|
Operational
|
German
CfD
|
|
Finland
|
2
|
71
|
27.8
|
Operational
|
Fixed
pricing until end of 2025
|
Offshore wind
|
UK
|
1
|
42
|
25.0
|
Operational
|
ROC
Subsidised
|
Solar
|
UK
|
8
|
123
|
24.4
|
Operational
|
ROC
Subsidised
|
|
UK
|
1
|
67
|
40.0
|
Construction
|
Expected
to be operational
in Q2 2024
|
|
France
|
14
|
120
|
28.4
|
Operational
|
FiT
Subsidised
|
|
Ireland
|
4
|
199
|
40.0
|
Acquired
post-year end
|
1st 4
assets operational since Q4 202318
|
|
Ireland
|
1
|
42
|
40.0
|
Conditional Acquisition
|
Fifth
site expected to be
operational in Q3 2024
|
Battery
|
UK
|
1
|
6
|
35.0
|
Construction
|
Expected
to be operational
in Q1 2025
|
Developers
|
Ireland
|
n/a
|
n/a
|
n/a
|
Developer
|
Floating
offshore wind
|
|
UK
|
n/a
|
n/a
|
n/a
|
Development pipeline
|
Onshore
wind
|
|
UK
|
n/a
|
n/a
|
n/a
|
Developer
|
Hydrogen
|
|
UK
|
n/a
|
n/a
|
n/a
|
Exclusive development services
agreement
|
Solar/co-located battery storage
|
|
Finland
|
n/a
|
n/a
|
n/a
|
Exclusive development services
agreement
|
Onshore
wind/Solar
|
|
17 Pro-rated by ownership.
18 199MW of construction have been
completed while under conditional acquisition status; ORIT has
actively provided oversight of the construction.
Chair's Statement
Philip Austin MBE
Chair,
Octopus Renewables Infrastructure
Trust plc
On behalf of the Board, I am
pleased to present this annual report for Octopus Renewables
Infrastructure Trust plc for the year ended 31 December 2023 (the
"Annual Report").
2023 was another interesting year
in both the energy markets and investment trust sector. Whilst the
argument for investing in renewable energy is more compelling than
ever given the renewed spotlight on energy security, affordability
and the alignment to global efforts to combat climate change, we
realise that the Company's share price over the year will have been
disappointing to shareholders. Discounts to Net Asset Value have
continued to widen following the end of the year, and the Board is
deeply aware of the need both to ensure a sound approach to capital
allocation and to manage the discount. To date the proceeds of
asset disposals have been used by the Company to reduce the level
of short-term borrowings within the Group; with further sales
proceeds expected to be received during 2024, the Board will
consider all options for further capital allocation, including
share buy-backs, depending on the prevailing market conditions at
the time.
The difficult macroeconomic
conditions which included falling power prices and a relatively
poor year for wind speeds in much of Europe have contributed to a
more challenging year for portfolio performance. Nevertheless, we
believe that ORIT's diversified portfolio, having a high proportion
of fixed price revenues in the near term and strong inflation
linkage, showed relative strength over the year. The Company has
succeeded in delivering its target dividend for the year of 5.79
pence per Ordinary Share and we have also announced an increase in
the Company's target dividend for 2024, marking the third
consecutive year the Company has increased its dividend target in
line with inflation.
In addition to the investment
activities, we strengthened the Board of Directors through the
recruitment of Sarim Sheikh, an experienced renewables
professional. We also re-designed and launched an improved website
that better serves our investors and other stakeholders, and also
delivered a well-received, inaugural Capital Markets Day in which
we highlighted the Company's strategic objectives and the strength
and depth of our team.
I have set out below some of our
other notable achievements.
Investment Activity and Capital Recycling
During the year, the Company
completed the acquisition of its 50% share in the 12MW/24MWh Woburn
Road battery storage construction project19, alongside
another OEGEN-managed private fund, Sky. The Company also added two
exciting new UK-focussed development companies to the portfolio: a
vehicle serviced by BLC Energy ('BLCe'), which develops
ground-mounted solar and co-located battery storage; and HYRO, a
joint venture between ORIT, Sky and the developer, RES, which will
develop green electrolysis projects for industrial hydrogen supply.
These acquisitions now mean that developer investments represent
3.6% of the Company's portfolio (on a total value of all
investments basis) as at 31 December 2023.
19 The Woburn Road transaction was
signed in June 2022 and completed in January 2023.
ORIT's investment objective
includes delivering an element of capital growth to investors, and
successfully managing assets through construction is one key way in
which this growth can be achieved. However by early 2023, over 90%
of ORIT's portfolio was operational on a total value of all
investments basis, and the Company therefore commenced a strategic
capital recycling programme. Releasing capital from operational
assets will allow the company to repay short‑term debt and
potentially reallocate capital to construction or development stage
investments, or other uses which could deliver greater NAV
accretion compared to remaining invested in a fully operational
portfolio. In December the Company completed the sale of its two
Polish onshore wind farms totalling 59MW, delivering an IRR of
approximately 30% over the lifetime of ORIT's investment. In
addition, after having renegotiated the contingent acquisition of
the four Spanish solar assets (totalling 175MW) in March 2023 to no
longer having an obligation but, instead, an option to acquire the
assets once they reach ready-to-build status, ORIT made the
strategic decision to terminate that option and negotiated a
termination payment from the vendor. Together, these transactions
generated a 3.1 pence per Ordinary share NAV uplift demonstrating
the robustness of the Company's valuations and the continued demand
for these assets in the market. Further details are provided in the
capital recycling programme section of the Company's Annual Report.
ORIT is seeing good progress in other capital recycling activities
which are expected to be completed during 2024.
Revenue Management
We have continued to utilise
Octopus Energy Generation's expertise to fix revenues with high
quality counterparties at an appropriate level for the portfolio.
Breach Solar Farm was acquired in 2022 without any fixed revenue
arrangement, but in January 2023 ORIT successfully entered into an
inflation-linked PPA with Iceland Foods to power c.14% of the
electricity requirements of their total UK estate of c.1,000
stores. The contract increased the portfolio's overall fixed
revenue percentage on a two-year look-forward basis by 3 percentage
points, and gave rise to a NAV uplift of 1.9% compared to the
merchant power price case. The Iceland Foods PPA now sits alongside
other corporate offtake arrangements in the portfolio with Owens
Corning (at Ljungbyholm wind farm), Kimberley Clark (at Cumberhead
wind farm) and Microsoft (at the Ballymacarney solar
complex).
Construction
In Q1 2023 the Company completed
the construction of the 50MW Cumberhead onshore wind farm, the
largest project in ORIT's onshore wind portfolio. ORIT has also
provided oversight of the construction of the 199MW, four-site
Ballymacarney solar complex in Ireland, which became fully
operational in 2023 and was subsequently acquired in February 2024.
As at 31 December 2023, 73MW of capacity (by pro-rata ownership)
was still in construction at the 67MW Breach solar farm and
12MW/24MWh (50% stake) Woburn Road battery storage site. In
addition to this, the Company is monitoring the construction of the
42MW Harlockstown extension to the Ballymacarney solar complex in
Ireland which is nearing completion, with this site expected to be
acquired in Q3 2024 following commencement of full
operations.
Portfolio Performance
During 2023 the Company's assets
generated 1,110GWh of electricity, an increase of 10% compared with
the previous year, but 14% below budget. The generation increase in
2023, compared to 2022, was driven by the contribution from the
first full year of operations at Cerisou (France) and Crossdykes
(UK) onshore wind assets, in addition to the start of operations of
Cumberhead wind farm which completed its construction in March
2023. This was offset by the reduced generation after the sale of
the Polish wind assets, and the fact that onshore wind generation
was 20% below budget, largely due to low wind speeds. Production
from solar and offshore wind assets was roughly in line with
expectations. Combined with the impact of declining power prices,
the lower wind speeds meant that as a whole the EBITDA for 2023 was
24% below budget. A full breakdown of the portfolio's performance
is included in the Company's Annual Report.
Results
During the year NAV fell from
£618.3 million (109.4 pence per Ordinary share) to £599.0 million
(106.0 pence per Ordinary share). However, in combination with the
dividends paid during the year, the Company delivered a NAV total
return of 2.1%. The decrease in NAV over the year was driven
primarily by falling power price and inflation forecasts, coupled
with increases applied to discount rates. We have materially
mitigated the impact of power price reduction forecasts through
building a portfolio with a high proportion of fixed power revenues
(as at 31 December 2023, 81% of ORIT's revenues for the two years
to 31 December 2025 were fixed price in nature).
Total shareholder return for the
year was -4.4%, as share prices across the sector continued to fall
against a backdrop of high inflation and high interest rates -
though we would highlight that the Company's share price maintained
a narrower discount to NAV compared to most of its peers across the
majority of the year.
The Company's operating income for
the year was £19.7 million (inclusive of -£23.0 million movement in
fair value of investments), giving rise to a profit for the year of
£12.7 million. This was underpinned by EBITDA from the portfolio of
operational assets totalling £73.8 million, arising from gross
revenues of £117.4 million.
Dividends
The Company made four dividend
payments totalling 5.79 pence per ordinary share for the financial
year to 31 December 2023, meeting its FY 2023 dividend target in
full and representing a 10.5% increase on FY 2022's dividend, in
line with inflation. The dividend is fully covered by cashflows
arising from the Company's portfolio of assets. As announced on
18 January 2024, and in line with the Company's dividend
policy, the target for the financial year from 1 January 2024 to
31 December 2024 is 6.02 pence per Ordinary Share. This
increase of 4.0% over FY 2023's dividend is in line with the
increase to the Consumer Price Index (CPI) for the 12 months to 31
December 2023, and marks the third consecutive year the Company has
chosen to increase its dividend target in line with inflation. The
FY 2024 dividend target is expected to be fully covered by
cashflows generated from the Company's operating
portfolio.
Impact highlights
In 2023, ORIT continued its
commitment to its ESG & Impact Strategy, achieving a total
portfolio impact of 366,400 tCO2e avoided, directly
contributing to global climate change mitigation. Once the
construction projects mentioned earlier are complete, ORIT's
portfolio is expected to generate sufficient electricity to power
384,000 homes. This generation will avoid CO2 emissions
of approximately 400 kilo-tonnes per annum, the equivalent of
planting 2 million trees.
The year also saw ORIT allocate
over £300,000 from its annual impact budget, supporting initiatives
with Impact Partners such as SUGi, the Good Bee Company, Earth
Energy Education, and BizGive. This budget is in addition to the
c.£600,000 agreed as community benefit funds for some of ORIT's
assets. The impact budget supported the delivery of a number of
educational workshops, job programmes, forest plantings and
more.
Outlook
Despite the market challenges
experienced in the investment trust sector during 2023 which have
persisted into 2024, the fundamental driving forces behind clean
energy investment are stronger than ever. The successful exit of
the Polish assets has shown that the Company's valuations are
robust, and if, as appears likely, the interest rate cycle has
neared its peak, we would expect the merits of investing in a
high-quality, diversified portfolio of renewable energy assets
delivering attractive income to come to the fore once
more.
Finally, at the end of 2023, ORIT
announced its desire to explore a combination with Aquila European
Renewables plc. The Board and I believe that a larger, more liquid
combined vehicle would benefit both sets of shareholders and help
address some of the continuing challenges in the investment trust
sector. Whether or not such a combination proceeds, we will
continue to review the options available to the Company to best
enable it to deliver on our investment objective, mindful of the
need to act in the interests of shareholders as a whole.
Strategic Report
The Directors present the
Strategic Report for the year ended 31 December 2023 in the
Company's Annual Report.
Operating Model, Objectives and KPIs
Structure and operating model
Key facets of the Company are as
follows, which should be read together with the structural
representation in the Company's Annual Report.
Listed investment trust: Octopus Renewables Infrastructure Trust plc was incorporated
on 11 October 2019 as a public company limited by shares. The
Company intends to carry on business as an investment trust within
the meaning of section 1158 of the Corporation Tax Act 2010 and was
listed on the premium segment of the main market of the London
Stock Exchange on 10 December 2019.
Return objective to shareholders: The Company's investment objective is to provide investors
with an attractive and sustainable level of income returns, with an
element of capital growth, by investing in a diversified portfolio
of Renewable Energy Assets in Europe and Australia. Investment into
the Ordinary Shares of the Company is designed to be suitable for
institutional investors and professionally advised private
investors. Such an investment may also be suitable for investors
who are financially sophisticated, non-advised private investors
who are capable of evaluating the risks and merits of such an
investment and who have sufficient resources to bear any loss which
may result from such an investment.
ORIT's entities: The Company
holds and manages its investments through a parent holding company,
ORIT Holdings II Limited and two holding company subsidiaries, ORIT
Holdings Limited and ORIT UK Acquisitions Limited (together the
"intermediate holding companies"), which in turn hold investments
via a number of Special Purpose Vehicles ("SPVs"). The
jurisdictions in which the SPVs are incorporated is typically
determined by the location of the assets, and further
portfolio-level holding companies may be used to facilitate debt
financings or other commercial objectives.
Board of Directors: The
Company has an independent board of non-executive directors,
responsible for the determination of the Company's investment
policy and strategy. It has overall responsibility for the
Company's activities including the review of investment activity
and performance and the control and supervision of the Company's
service providers, and is also responsible for the final investment
decisions.
Investment Manager: The
Company has appointed Octopus AIF Management Limited ("OAIFM") as
its Alternative Investment Fund Manager ("AIFM") to provide
portfolio and risk management services to the Company. The AIFM has
delegated the provision of portfolio management services to the
Investment Manager, Octopus Renewables Limited, whose trading name
is Octopus Energy Generation ("OEGEN"). OEGEN has day to day
portfolio management responsibilities. Further information on the
Investment Manager is provided in the Investment Manager's
Report.
Third-party providers: As an
investment trust, the Company does not have any employees and is
reliant on its third-party service providers for some of its
operational and service requirements. Likewise, the project company
SPVs generally do not have any employees and services to those
entities (and, sometimes, the holding companies) are also provided
through third-party providers. Each service provider has an
established track record and has in place suitable policies and
procedures to ensure they maintain high standards of business
conduct and corporate governance.
Key dates: The Company has a
31 December financial year end and announces half-year results in
September and full-year results in March. The Company pays
dividends quarterly, targeting payments in February, May, August
and November each year.
Company structure and operating model
·
Octopus AIF Management
|
Shareholders
|
|
Independent Board of Non-Executive
Directors
|
Octopus Renewables
Infrastructure Trust plc, Listed on the premium segment of the
Main Market of the LSE
|
Company Service Providers
· Broker: Peel Hunt
· Fund
Administrator and Company Secretary: Apex Listed Companies
Services
· Depository: BNP
Paribas
· Registrar: Computershare
· Auditor: PwC
· PR
Advisor: Buchanan
· Tax Advisor: BDO
· Legal: Gowling
WLG
|
|
|
AIFM |
|
Investment Manager
Octopus Energy
Generation
|
Debt Providers
Revolving
Credit Facility
|
ORIT Holdings ll
Ltd
|
|
|
ORIT Holdings
Ltd
|
ORIT UK
Acquisitions Ltd
|
|
Debt Providers
Short-Term
Facility20
Asset level Debt
|
Non-UK
SPVs
|
UK SPVs
|
Asset Service Providers
· External Asset Managers
· Operations & Maintenance ("O&M")
contractors
· Engineering, Procurement and Construction ("EPC")
contractors
· Specialist consultants
|
|
Portfolio investments held in SPVs21
|
|
20 Repaid during the year.
21 Some investments in SPVs may be held
indirectly through portfolio-level holding companies
Investment and asset management process
Origination
Initial phase to identify and
secure investment opportunities, involving comprehensive market
research, deal sourcing through industry connections, initial
screening to assess potential investments, rigorous due diligence
to uncover risks and validate the investment's viability, and
finally, negotiation to agree on terms and secure the
investment.
Investment
Structuring the investment to
balance risk and return, including setting up financial vehicles
like SPVs, arranging financing, and optimising tax benefits, while
aligning with the Company's strategic goals and regulatory
requirements.
Development - Construction (Optional)
As part of its Investment Policy,
ORIT can invest at the development or construction stage of the
renewable assets. This may include project planning, securing
necessary permits, managing the construction process, and ensuring
the asset is built to specification and ready for
operation.
Asset Management & Value Creation
The Company manages operational
assets to maximise performance and value. This involves operational
oversight, regular maintenance, and strategic initiatives to
enhance efficiency and profitability and increase the asset's value
over time. In addition, the Investment Manager looks to enhance
revenue strategies through appropriate PPA structuring and
origination.
Ongoing Portfolio Optimisation and Capital
Allocation
The Company evaluates its assets
regularly, taking into account market conditions, asset
performance, operating cash flows and diversification across the
portfolio. Where appropriate the Company may initiate sales of
certain assets as part of its capital recycling
programme.
The Company considers capital
management and allocation on an ongoing basis, including share
buy-backs, depending on the prevailing market conditions at the
time.
Objectives and KPIs
The Company's objective is to
provide investors with an attractive and sustainable level of
income returns, with an element of capital growth, by investing in
a diversified portfolio of Renewable Energy Assets in Europe and
Australia.
Financial Objectives
Objective
|
KPI
|
Performance commentary
|
Monitoring activities
|
Sustainable level of income returns
· Provide investors with a dividend of 5.79 pence per Ordinary
Share for FY23, generated from operational cashflows
|
5.79p
dividend declared for the year per
Ordinary Share, in line with target
19.21p
total dividends declared per
Ordinary Share since inception
£73.8m
2023 EBITDA from underlying
operational assets
1.18x
Operational dividend
cover
|
Since inception the Company has
declared a total dividend of 19.21 pence per Ordinary Share,
following a progressive dividend policy; each year fully covered by
operational cashflows.
The 2023 dividend of 5.79p per
Ordinary Share, a 10.5% increase on the 2022 dividend in line with
CPI, was fully covered by operational cashflows at the SPV level
less costs at the plc and intermediate holding company
levels.
For FY 2024, the Company's
dividend target is rising by 4.0% (in line with CPI) to 6.02 pence
per Ordinary Share.22,23
EBITDA from operational assets was
24% below budget with the slight increased output compared with the
prior year offset by declining power prices across
Europe.
|
The Board monitors dividend cover
and ratios at each quarterly Board meeting against the targets and
makes determinations on the dividends to be paid.
The Investment Manager actively
manages operational performance of assets on an ongoing basis with
actions taken to resolve and mitigate operational
issues.
Financial performance of assets is
reviewed monthly by the Investment Manager.
Operational and financial
performance is reviewed quarterly by the Board.
Any material issues would be
highlighted to the Board without delay.
|
22
Investors should note that references to
"dividends" and "distributions" are intended to cover both dividend
income and income which is designated as an interest distribution
for UK tax purposes and therefore subject to the interest streaming
regime applicable to investment trusts.
23
The dividend and return targets stated are
targets only and not profit forecasts. There can be no assurance
that these targets will be met, or that the Company will make any
distributions at all, and they should not be taken as an indication
of the Company's expected future results. The Company's actual
returns will depend upon a number of factors, including but not
limited to the Company's net income and level of ongoing charges.
Accordingly, potential investors should not place any reliance on
these targets and should decide for themselves whether or not the
target dividend and target net total shareholder return are
reasonable or achievable.
Objective
|
KPI
|
Performance commentary
|
Monitoring activities
|
Capital preservation with element of growth
· Provide investors with a net total shareholder return of
7% to 8% per annum over the medium to long-term
· Generated through a diversified portfolio including
construction and development assets
· Cost
control and prudent financial management
|
106.0p
NAV per Ordinary Share at 31 Dec
2023
6.7% total, 1.6% annualised total shareholder return since IPO
-4.4% total shareholder
return in FY2023
28.6% total, 6.4% annualised
NAV total return since
IPO
2.1% NAV total return in the
year
5 technologies (including
hydrogen via developer investment)
6 countries across
Europe24
3 new
acquisitions25 during FY 2023 across battery storage and
developer investments, and one post-year end with completion of the
Ballymacarney Irish solar complex acquisition
50MW of new capacity
connected to the grid (Cumberhead), plus 199MW of operational Irish
solar acquired post year end.
3.1p per Ordinary share NAV
uplift from capital recycling programme activities
1.16%
Ongoing charges ratio
0.3%
Transaction costs as percentage of
NAV
|
Decrease in NAV driven by falling
power price and inflation forecasts, and increases applied to
discount rates.
The acquisitions in the year
include ORIT's first battery storage project along with two
investments in developer platforms including the first in hydrogen
projects through the HYRO platform, increasing the diversification
of ORIT's portfolio.
In the year ORIT initiated its
capital recycling programme with the sale of its two onshore wind
farms in Poland and opted to terminate its option to acquire the
solar projects in Spain.
Minor increase in the ongoing
charges ratio to 1.16% (FY 2022: 1.12%), however the result is
better than expected figure of 1.18% as published in the latest
KID.
Transaction costs incurred on
acquisitions and sales in the year were below expectations at 0.3%,
compared to the latest KID indication of 0.5%.
|
The Board monitors both the NAV
and share price performance and compares with other similar
investment trusts. A review of performance is undertaken at each
quarterly Board meeting and the reasons for relative under and over
performance against various comparators is discussed. The
Investment Manager evaluates and selects investment opportunities
to deliver against the investment strategy and policy. Company
level budgets are approved annually by the Board and actual spend
is reviewed quarterly. Transaction budgets are approved by the
Board and potential abort exposure is carefully
monitored.
|
24 Including Ireland acquisition
post-year end.
25 Battery storage project (Woburn
Road) transaction was signed in 2022 and completed in
2023.
Impact Objectives
Our core impact objective is to
accelerate the transition to net zero through our investments,
building and operating a diversified portfolio of Renewable Energy
Assets to help facilitate the transition to a more sustainable
future. Our investments are long-term and therefore require a
long-term view to be taken both in the initial investment decisions
and in the subsequent asset management, adopting long-term and
sustainable business practices.
Objective
|
KPI
|
Performance:
Build and operate a diversified
portfolio of Renewable Energy Assets, mitigating the risk of losses
through robust governance structures, rigorous due diligence, risk
analysis and asset optimisation activities to deliver investment
return resilience
|
£1,127 million committed into
renewables26
1,569GWh of potential annual
renewable energy generation, 105GWh of which will be additional
generation from constructing assets27
37 assets
Financial return metrics are shown
in the Financial Objectives table
|
Planet:
Consider environmental factors to
mitigate risks associated with the construction and operation of
assets, enhancing environmental potential where possible
|
400k tCO2e
avoided28
55.47 tCO2e per MW estimated carbon intensity (direct and indirect)
3.74 tCO2e/£m weighted average carbon intensity
553t worth of carbon
purchased in Pending Issuance Units
100% investments qualify as
sustainable in line with EU Taxonomy29
93% generating sites on
renewable import tariffs
|
People:
Evaluate social considerations to
mitigate risks and promote a 'Just Transition' to clean
energy
|
0
RIDDORs or equivalent relating to
injuries on people30
7,827 students benefitting
from social initiatives
>£600,000 per year of
community benefit funds
>£300,000 impact budget in
2023
|
Further information on our ESG
& Impact Strategy and performance against our Impact Objectives
can be found in the ESG & Impact section of the Strategic
Report and the Company's ESG & Impact Strategy published on our
website www.octopusrenewablesinfrastructure.com/investors/
26
Amount shown is the total value of all
investments, which excludes the amount committed to assets which
have subsequently been sold, and also includes the impact of
valuation movements since commitment.
27
Metric calculated based on an estimated annual
production of the construction portfolio once fully constructed
(including the Irish solar sites acquired post year
end).
28
Metrics based on an estimated annual production
of the whole portfolio once fully constructed. Carbon avoided is
calculated using the International Financial Institution's approach
for harmonised GHG accounting.
29
100% of investments are significantly
contributing to climate change mitigation.
30
RIDDOR stands for the Reporting of Injuries,
Diseases and Dangerous Occurrences Regulations 2013 and these are
reportable incidents to the UK Health and Safety
Executive.
Investment Strategy and Policy
Investment Strategy
The Company will seek to achieve
its objectives in four ways:
Diversification: The
Company's Investment Policy includes a broad mandate to invest
across different renewable technologies and in different
geographies, reducing concentration of risk in particular to power
markets, regulatory change or weather conditions as well as
allowing the Company to access investments from a large set of
opportunities originated by the Investment Manager.
Inclusion of construction and development:
The Company has a diversified portfolio of
operational assets, which generate income, supporting the Company's
dividend. Also investing into Renewable Energy Assets at the
construction ready stage allows the opportunity for greater capital
growth through the successful management of construction risks and
delivery of the asset into operations, as well as increasing the
ability to influence social and environmental benefits. Investments
into development stage Renewable Energy Assets are limited to 5% of
GAV and allows the Company access to a wider range of renewable
energy asset investment opportunities.
Active construction and asset management:
The Company, via the Investment Manager, takes an
active role in ensuring site safety, in managing construction risks
and in seeking to enhance the value of the portfolio through
maximising generation, optimising the price received for
generation, dynamic risk management and controlling costs as well
as longer term value enhancements such as equipment upgrades or
life extension.
Embedding impact into investments: As an Impact Fund the Company ensures that social and
environmental benefits are considered and maximised alongside
financial returns, both at the time of initial investment and
throughout the ongoing management of the portfolio.
Investment Policy
The Company will seek to achieve
its investment objective through investment in renewable energy
assets in Europe and Australia, comprising (i) predominantly assets
which generate electricity from renewable energy sources, with a
particular focus on onshore and offshore wind farms and
photovoltaic solar ("solar PV") parks, and (ii) non-generation
renewable energy related assets and businesses (together "Renewable
Energy Assets").
The Company may invest in
operational, in-construction, construction ready or development
Renewable Energy Assets. In-construction or construction ready
Renewable Energy Assets are assets that have in place the required
grid access rights, land consents, planning and regulatory
consents. Development Renewable Energy Assets comprise projects
that do not yet have in place the required grid access rights, land
consents, planning and regulatory consents, as well as investments
into development pipelines and developers ("Development Renewable
Energy Assets").
The Company intends to invest both
in a geographically and technologically diversified spread of
Renewable Energy Assets and, over the long-term, it is expected
that investments: (i) located in the UK will represent less than 50
per cent. of the total value of all investments, (ii) in any single
country other than the UK will represent no more than 40 per cent.
of the total value of all investments, (iii) in onshore or
offshore wind farms will not exceed 60 per cent. of the total value
of all investments, and (iv) in solar PV parks will not exceed 60
per cent. of the total value of all investments. For the purposes
of this paragraph, investments shall (i) be valued on an unlevered
basis, (ii) include amounts committed but not yet incurred and
(iii) include Cash and Cash Equivalents to the extent not already
included in the value of investments or amounts committed but
not yet incurred.
The Company may acquire a mix of
controlling and non-controlling interests in Renewable Energy
Assets and may use a range of investment instruments in the
pursuit of its investment objective, including but not limited to
equity and debt investments. A controlling interest is one where
the Company's equity interest in the Renewable Energy Asset is in
excess of 50 per cent.
In circumstances where the Company
does not hold a controlling interest in the relevant investment,
the Company will secure its shareholder rights through contractual
and other arrangements, to, inter alia, ensure that the Renewable
Energy Asset is operated and managed in a manner that is consistent
with the Company's investment policy.
Investments may be made into
Development Renewable Energy Assets, which may be developers,
portfolios and/or pipelines of Development Renewable Energy Assets,
where the relevant investment: (i) includes limited exposure to
Renewable Energy Assets outside Europe and Australia, which at the
time of investment comprises both a minority of the assets in the
relevant developer, portfolio or pipeline by number and value and
is less than 1 per cent. of Gross Asset Value, and/or (ii) may
include indirect exposure to ancillary assets and/or businesses
unrelated to renewable energy whose value is de minimis as at the
time of investment. The Company may retain an interest in any such
assets and/or businesses following achievement of construction
ready status.
Investment Restrictions
The Company aims to achieve
diversification principally through investing in a range of
portfolio assets across a number of distinct geographies and a mix
of wind, solar and other technologies.
The Company will observe the following investment
restrictions when making investments:
· the
Company may invest up to 32.5 per cent. of Gross Asset Value in one
single asset, up to 27.5 per cent. of Gross Asset Value in a second
single asset, and the Company's investment in any other single
asset shall not exceed 20 per cent. of Gross Asset Value, in
each case calculated immediately following each
investment.
· the
Company's portfolio will comprise no fewer than ten Renewable
Energy Assets.
· no
more than 20 per cent. of Gross Asset Value, calculated immediately
following each investment, will be invested in Renewable
Energy Assets which are not onshore or offshore wind farms and
solar PV parks.
· no
more than 25 per cent. of Gross Asset Value, calculated immediately
following each investment, will be invested in assets in
relation to which the Company does not have a controlling
interest.
· no
more than 5 per cent. of Gross Asset Value, calculated immediately
following each investment, will be invested in Development
Renewable Energy Assets.
· the
Company will not invest in other UK listed closed-ended investment
companies.
· neither the Company nor any of its subsidiaries will conduct
any trading activity which is significant in the context
of the Group as a whole; and
· no
investments will be made in fossil fuel assets.
Compliance with the above
restrictions will be measured at the time of investment and
non-compliance resulting from changes in the price or value of
assets following investment will not be considered as a breach of
the investment restrictions.
In addition to the above
investment restrictions, following the Company becoming fully
invested and substantially fully geared (meaning for this purpose
borrowings by way of long-term structural debt of 35 per cent. of
Gross Asset Value) at the time of an investment or entry into an
agreement with an Offtaker, the aggregate value of the Company's
investments in Renewable Energy Assets under contract to any single
Offtaker will not exceed 40 per cent. of Gross Asset
Value.
The Company will hold its
investments through one or more special purpose vehicles owned in
whole or in part by the Company either directly or indirectly which
will be used as the project company for the acquisition and holding
of a Renewable Energy Asset (an "SPV") and the investment
restrictions will be applied on a look-through basis.
For the purposes of the investment
policy, "Gross Asset Value" means the aggregate of (i) the fair
value of the Company's underlying investments (whether or not
subsidiaries), valued on an unlevered basis, (ii) the Company's
proportionate share of the cash balances and cash equivalents of
assets and non-subsidiary companies in which the Company holds an
interest and (iii) other relevant assets and liabilities of the
Company (including cash) valued at fair value (other than
third-party borrowings) to the extent not included in (i) or (ii)
above.
Borrowing Policy
The Company may make use of
long-term limited recourse debt to facilitate the acquisition or
construction of Renewable Energy Assets to provide leverage for
those specific investments. The Company may also take on long-term
structural debt provided that at the time of drawing down (or
acquiring) any new long-term structural debt (including limited
recourse debt), total long-term structural debt will not exceed 40
per cent. of Gross Asset Value immediately following drawing down
(or acquiring) such debt. For the avoidance of doubt, in
calculating gearing, no account will be taken of any investment in
Renewable Energy Assets that are made by the Company by way of a
debt investment.
In addition, the Company may make
use of short-term debt, such as a revolving credit facility, to
assist with the acquisition or construction of suitable
opportunities as and when they become available. Such short-term
debt will be subject to a separate gearing limit so as not to
exceed 25 per cent. of Gross Asset Value immediately following
drawing down (or acquiring) any such short-term debt.
The Company may employ gearing at
the level of an SPV, any intermediate subsidiary of the Company or
the Company itself, and the limits on total long-term structural
debt and short-term debt shall apply on a consolidated basis across
the Company, the SPVs and any such intermediate holding entities
(but will not count any intra-Group debt).
In circumstances where these
aforementioned limits are exceeded as a result of gearing of one or
more Renewable Energy Assets in which the Company has a
non-controlling interest, the borrowing restrictions will not be
deemed to be breached. However, in such circumstances, the matter
will be brought to the attention of the Board who will determine
the appropriate course of action.
Currency and Hedging Policy
The Company can enter into hedging
transactions for the purpose of efficient portfolio management. In
particular, the Company may engage in currency, inflation, interest
rates, electricity prices and commodity prices (including, but not
limited to, steel and gas) hedging. Any such hedging transactions
will not be undertaken for speculative purposes.
Cash Management
The Company may hold cash on
deposit and may invest in cash equivalent investments, which may
include short-term investments in money market type funds ("Cash
and Cash Equivalents").
There is no restriction on the
amount of Cash and Cash Equivalents that the Company may hold and
there may be times when it is appropriate for the Company to have a
significant Cash and Cash Equivalents position. For the avoidance
of doubt, the restrictions set out above in relation to investing
in UK listed closed-ended investment companies do not apply to
money market type funds.
Changes to and Compliance with the Investment
Policy
Any material changes to the
Company's investment policy set out above will require the approval
of shareholders by way of an ordinary resolution at a general
meeting and the approval of the FCA.
In the event of a breach of the
investment guidelines and the investment restrictions set out
above, the AIFM shall inform the Board upon becoming aware of the
same and if the Board considers the breach to be material,
notification will be made to a Regulatory Information
Service.
Investment Manager's Report
Investment Manager: Octopus Energy
Generation.
Octopus Energy Generation (trading
name of Octopus Renewables Limited), part of the Octopus Energy
Group, is a specialist clean energy investment manager with a
mission to accelerate the transition to a future powered by
renewable energy.
£6.7bn
OEGEN AUM as at 31 December
202331
19 countries
invested in since
201031
>3.7GW
capacity managed
£2.7bn
Solar & wind
construction31
>135
Renewable Energy
Professionals
31 Assets under management defined as
the sum of Gross Asset Value and capital committed to existing
investments and signed (yet to be completed) deals and excludes
capital available, yet to be deployed. Number of countries includes
countries of assets under management, countries in which asset
investments have been exited, countries of head offices of
developer company investments, and countries of presence for OEGEN
origination teams. Solar & wind construction defined as total
committed costs of assets either currently in construction or
constructed under OEGEN management. Some of these assets are now
operational within the portfolio.
Fund Managers
Chris Gaydon
Investment Director 20+ years of
experience
Chris joined Octopus Energy
Generation as an investment director in 2015 and is a long-standing
member of the OEGEN's Investment Committee and Leadership Team
which has led the growth in OEGEN's fund management business.
Having previously led OEGEN's Investment Team, Chris now focuses on
the origination of acquisition opportunities and fundraising, as
well as strategic investments in related sectors.
Prior to joining the Octopus
Group, Chris was a business development director at Falck
Renewables where he had a range of roles, including in M&A and
leading greenfield development in France and Poland. Chris holds a
Bachelor of Commerce (Finance) degree and a Bachelor of Engineering
(Chemical) degree from the University of Sydney.
"This year has seen the team perform well in the face of
challenging market conditions. Construction projects have either
reached completion or are making significant progress, and an
attractive PPA was secured at Breach solar farm, boosting the
proportion of fixed revenue in the portfolio. In addition, we have
expanded into new technologies through our inaugural investment
into battery storage as well as via a small investment into
hydrogen through the HYRO development platform. We also made a
strategic decision to opt out of the conditional solar acquisition
option in Spain, in line with ORIT's capital allocation
strategy."
David Bird
Investment Director 15+ years of
experience
David is an investment director
who joined the Octopus Energy Generation team in 2014 and works
full-time on fund management for ORIT. As well as working in the
transaction team leading acquisitions and project finance debt
raising in the UK, France and Ireland, David has previously led the
team responsible for the management of OEGEN's bioenergy
investments and has represented Octopus Energy Generation on a
number of industry panels convened by Ofgem, the GB energy
regulator.
Prior to joining the Octopus
Group, David was a director at Walbrook Capital, a boutique
investment manager with a particular focus on renewables. He is a
chartered accountant having qualified at EY, and holds a Masters in
Mathematics from Oxford University.
"This year marked the initiation of ORIT's capital recycling
programme and it is gratifying to witness the successful conclusion
of the programme's first disposal in the sale of the two wind farms
in Poland. The transaction demonstrated the market's interest in
ORIT's assets, corroborated our conservative valuations, and proved
our ability to add value through the construction process. The
majority of the proceeds from this sale enabled us to pay off
short-term debt. We look forward to reporting further results from
the capital recycling programme in due course.
At the end of 2023 ORIT also announced to the market its
ambition to drive a combination with Aquila European Renewables
plc, which we believe would be an attractive proposition for
investors."
Investments and capital recycling programme
3
Investments made during the
year32
Completion of Irish solar assets
acquisition post‑year end
|
£7m
Total allocated capital to
new investments
(includes future
commitments)
|
£97m
Total proceeds from
capital recycling
initiatives during the year
|
£1,127m
Total value of all
investments
|
Company Developments in 2023
Acquisitions
12MW/24MWh
Woburn Road, ready to build
battery storage in the UK
50% stake
1st battery project investment
|
HYRO JV platform
UK hydrogen developer
platform
25% stake
1st hydrogen investment
|
Developer platform serviced
by BLCe
UK solar and co-located
batteries
100% stake
|
199MW Irish Solar
Post-year end acquisition of four
newly constructed solar sites near Dublin
100% stake
|
Divestments
+2.8
pence per
Ordinary Share
NAV uplift
Sale of two operational
Polish wind farms
(59MW)
|
+0.3
pence per Ordinary Share
NAV uplift
Exit of Spanish solar projects
option (175MW)
|
Further capital recycling projects ongoing
|
|
Debt management
39% leverage
(as % of GAV)
As at 31-Dec 2023, vs 42% 31-Dec
2022
|
RCF refinancing
Increased size to £270.8m and
extended maturity to February 2026, reduced margin to 2%
|
Repaid short-term facility
|
|
32 Includes the investment into the
battery storage asset Woburn Road which closed within the year in
January 2023, with the initial commitment having been made during
2022.
Revenue management
Signing of Breach solar PPA with Iceland
Foods
1.9% NAV uplift vs merchant power
price case
Forecast £55 million in fixed
price revenues33 across the 10-year tenor of the PPA,
increasing the fixed proportion of forecast revenues from the
group's operational assets on a 2-year look-forward basis by
3 percentage points
|
Start of Cumberhead wind PPA with Kimberly
Clark
Offtake agreement is forecast to
generate £75 million of fixed price revenues across the 10-year
tenor of the PPA
|
Hedging of UK solar revenues
PPA with Total Energies for 5
years forecast to generate £14.8 million fixed revenues, and fixed
price CfD for 3 years generating £11.2 million fixed
revenues.
Together these increase the
proportion of fixed forecast revenues from the group's operating
assets on a 2-year look-forward basis by 4 percentage
points.
|
Construction
50MW
Construction completed at
Cumberhead wind farm
|
199MW
Construction completed at
Ballymacarney Irish solar complex, under ORIT's
oversight
|
73MW
73MW in construction in portfolio
(pro-rata by ownership)
|
42MW
Construction of the fifth site at
the Ballymacarney solar complex is underway. The site will be
acquired once operational
|
Impact highlights
£300,000
Impact budget
|
£600,000
Funding for local communities for
specific projects
|
|
|
33 This figure and the equivalent
figure for the Cumberhead CPPA are calculated based on P50
production, the fixed price and inflation assumptions.
Capital recycling programme
As announced in 2023, ORIT
launched a capital recycling programme through which the Company
intends to sell a number of assets. Recycling assets in this way
also allows the Company to react to changing market conditions, for
example rising debt costs (because ORIT can use proceeds to pay
down short-term debt), and gives the Company further options for
capital allocation.
The assets included in the
recycling programme have been selected such that the portfolio
remains balanced, and in order that the Company is able to deliver
on its objectives. Whilst the recycling programme is ongoing, ORIT
has completed the following components:
+2.8 pence per Ordinary Share NAV uplift
vs holding value at 30-Sep
2023
c.30% IRR
over the lifetime of ORIT's
investment
Sale of Polish wind assets
In December 2023 ORIT completed
the sale of the Krzecin and Kuslin wind farms (totalling 59MW) in
Poland to an affiliate of the Polish-based listed multienergy
company, Orlen S.A., realising net proceeds of approximately £92
million (7% of Total value of all Investments at 30 September 2023)
- a 21% premium over the holding value of the assets at the time of
sale. The sale resulted in a +2.8 pence per Ordinary Share uplift
over the holding NAV prior to the disposal and the realisation of
an IRR of around 30% over the lifetime of ORIT's investment. ORIT
acquired these assets when they were in the construction phase in
October 2021, before managing the construction and bringing the
wind farms into operation in 2022. The exit of these assets at a
NAV-accretive value demonstrates ORIT's ability to add value
through managing construction risk, and also underlines the
Company's conservative valuation approach.
+0.3 pence per Ordinary Share NAV uplift
vs holding value at 30-Sep
2023
+0.5 pence per Ordinary Share total NAV
uplift
over lifetime of
investment
Exit of Spanish solar projects
ORIT elected to terminate its
option to acquire 175MW of ready-to-build solar projects in Spain.
Agreements were signed in December 2023, but cash delivery from the
counterparty completed in January 2024.
We had originally entered into a
conditional acquisition agreement over the sites in 2020. However,
having reassessed the projects on a risk-adjusted basis and taking
into account the Company's approach to capital allocation, exiting
the option at a value above the holding value was a more attractive
proposition than committing to the construction. In doing so, ORIT
realised a net gain of £3.0 million over the €2.0 million (c.£1.7
million) initial deposit, or approximately £1.5 million over
the £3.2 million holding valuation prior to exit.
Further initiatives of the capital
recycling programme remain in progress and are expected to conclude
in 2024.
Portfolio Breakdown (as at 31
December 2023, including construction assets)
The Company's portfolio of assets
and are not segmented by technology, phase or jurisdiction for the
Company's reporting purposes.
|
|
|
Whole
site
|
|
|
Remaining
|
|
|
|
|
capacity
|
|
Start
of
|
asset
life
|
|
Technology
|
Country
|
Site name
|
(MW)
|
Phase
|
operations
|
(years)
|
Stake
%
|
Onshore wind
|
UK
|
Cumberhead
|
50
|
Construction
|
31/03/2023
|
29
|
100%
|
France
|
Cerisou
|
24
|
Operational
|
15/11/2022
|
29
|
100%
|
Sweden
|
Ljungbyholm
|
48
|
Operational
|
30/06/2021
|
27
|
100%
|
Finland
|
Saunamaa
|
34
|
Operational
|
28/08/2021
|
28
|
100%
|
Suolokangas
|
38
|
Operational
|
29/12/2021
|
28
|
100%
|
|
Germany
|
Leeskow
|
35
|
Operational
|
30/09/2022
|
29
|
100%
|
|
UK
|
Crossdykes
|
46
|
Operational
|
30/06/2021
|
27
|
51%
|
Offshore wind
|
UK
|
Lincs
|
270
|
Operational
|
31/10/2013
|
25
|
15.5%
|
Solar
|
UK
|
Wilburton 2 (Mingay)
|
19
|
Operational
|
29/03/2014
|
20
|
100%
|
Abbots Ripton
|
25
|
Operational
|
28/03/2014
|
30
|
100%
|
Ermine Street
|
32
|
Operational
|
29/07/2014
|
21
|
100%
|
Penhale
|
4
|
Operational
|
08/03/2013
|
29
|
100%
|
Chisbon
|
12
|
Operational
|
03/05/2015
|
27
|
100%
|
Westerfield
|
13
|
Operational
|
25/03/2015
|
21
|
100%
|
Wiggin Hill
|
11
|
Operational
|
10/03/2015
|
16
|
100%
|
Ottringham
|
6
|
Operational
|
07/08/2013
|
31
|
100%
|
Breach
|
67
|
Construction
|
-
|
40
|
100%
|
France
|
Charleval
|
6
|
Operational
|
26/03/2013
|
29
|
100%
|
Cuges
|
7
|
Operational
|
17/04/2013
|
29
|
100%
|
Istres
|
8
|
Operational
|
18/06/2013
|
29
|
100%
|
La Verdière
|
6
|
Operational
|
27/06/2013
|
29
|
100%
|
Brignoles
|
5
|
Operational
|
26/06/2013
|
29
|
100%
|
Saint Antonin
du Var
|
8
|
Operational
|
28/11/2013
|
30
|
100%
|
Chalmoux
|
10
|
Operational
|
01/08/2013
|
30
|
100%
|
lovi 1
|
6
|
Operational
|
17/07/2014
|
31
|
100%
|
lovi 3
|
6
|
Operational
|
17/07/2014
|
31
|
100%
|
Fontienne
|
10
|
Operational
|
02/07/2015
|
31
|
100%
|
Ollieres 1
|
12
|
Operational
|
19/03/2015
|
31
|
100%
|
Ollieres 2
|
11
|
Operational
|
19/03/2015
|
31
|
100%
|
Arsac 2
|
12
|
Operational
|
05/03/2015
|
18
|
100%
|
Arsac 5
|
12
|
Operational
|
30/01/2015
|
18
|
100%
|
Ireland
|
Ballymacarney34
|
54
|
Acquired post year-end
|
18/12/2023
|
40
|
100%
|
Fidorfe34
|
68
|
Acquired post year-end
|
18/12/2023
|
40
|
100%
|
Muckerstown34
|
48
|
Acquired post year-end
|
18/12/2023
|
40
|
100%
|
Kilsallaghan34
|
29
|
Acquired post year-end
|
18/12/2023
|
40
|
100%
|
Harlockstown
|
42
|
Conditional acquisition
|
-
|
40
|
100%
|
Battery
|
UK
|
Woburn Road
|
12
|
Construction
|
-
|
35
|
50%
|
Developer
|
UK (HQ)
|
Wind 2
|
-
|
Developer
|
-
|
-
|
25%
|
|
UK (HQ)
|
HYRO
|
-
|
Developer
|
-
|
-
|
25%
|
|
Ireland (HQ)
|
Simply Blue
|
-
|
Developer
|
-
|
-
|
19%
|
|
Finland (HQ)
|
Norgen
|
-
|
Developer
|
-
|
-
|
50%
|
|
UK (HQ)
|
BLCe serviced platform
|
-
|
Developer
|
-
|
-
|
100%
|
34 Note that these four sites are
sometimes (in this report and elsewhere) collectively referred to
as 'the Ballymacarney solar complex'. The start of operations dates
for these sites relates to the full commercial operations date,
including completion of technical test etc. However, electricity
production started in May 2023 (initially small volumes, before
ramp-up) and revenues have been generated for the benefit of ORIT
since this time through the commissioning phase.
Portfolio Breakdown (as at 31
December 2023, including construction assets)
310MW/509MW
Across 23 solar plants/across 27
solar plants including 4 Irish solar farms
|
251MW
Across 7 onshore
wind farms
|
42MW
Across 1 offshore
wind farm
|
6MW
Across 1 battery
storage plant
|
5
Investments in
Developers
|
£1,127m
Total value of all
investments
Country
UK: 40%
Ireland: 17%
France: 16%
Finland: 11%
Germany: 6%
Sweden: 6%
Developer: 4%
Technology
Solar: 44%
Onshore wind: 39%
Offshore wind: 13%
Developer: 4%
Battery storage: 0.2%
Asset phase
Operational: 92%
(34% from assets acquired at
construction)
Construction: 6%
Developer: 4%
609MW
Capacity owned
Country
UK: 51%
France: 24%
Finland: 12%
Sweden: 8%
Germany: 6%
Technology
Solar: 51%
Onshore wind: 41%
Offshore wind: 7%
Battery storage: 3%
Asset phase
Operational: 88%
Construction: 12%
Portfolio performance
Operational portfolio technical and financial
performance
This section reports on the performance of the Company's
underlying operational investments. The metrics which form part of
the Alternative Performance Measures are detailed in the Company's
Annual Report.
For the financial year ending 31
December 2023, the Company's operational portfolio generated
1,110GWh of electricity (2022: 1,005GWh), -14% vs budget (-175GWh),
largely due to grid curtailments and lower wind speeds which
impacted performance across the onshore wind assets.
Revenues of £117.4 million were
achieved in the year (2022: £112.0m), -16% vs budget, as the
benefit of our increased output compared to 2022, was offset by
declining power prices across Europe. Opex of £43.6 million (2022:
£35.7m) was incurred in the year, 1% adverse to budget. The
resulting total EBITDA, across ORIT's operational portfolio, was
£73.8 million (2022: £76.3m), -24% vs budget.
2023 was the first full
operational year for the onshore wind assets Cerisou in France
(24MW), for which ORIT managed the construction, and Crossdykes in
the UK (23MW pro-rata for ORIT's stake), which ORIT acquired in
November 2022. Cumberhead in the UK completed construction works
and became fully operational from 31 March 2023. The two Polish
assets which were sold during the year to 31 December 2023 had a
locked box date for the transaction of 30 June 2023.
On 1 February 2024, we
successfully completed the acquisition of four newly constructed
solar farms located in Ireland and the pre-commissioning net
revenues, arising in 2023, have been secured for the benefit of
ORIT. The performance of these assets includes production and
revenues generated since May 2023 during the commissioning
phase.
Including the performance from the
Irish solar sites related to FY 2023, the portfolio generated
1,224GWh during 2023, with revenues of £127.2 million and EBITDA of
£82.3 million.
|
Output
|
Revenue
|
Opex
|
EBITDA
|
Operational portfolio
|
1,110GWh
-14% vs budget
+10% vs 2022
(2022: 1,005GWh)
|
£117.4m
-16% vs budget
+5% vs 2022
(2022: £112.0m)
|
£43.6m
1% adverse to budget
22% increase vs 2022
(2022: £35.7m)
|
£73.8m
-24% vs budget
-3% vs 2022
(2022: £76.3m)
|
|
|
|
|
|
Operational portfolio incl.
post-year end acquisition of Irish solar
|
1,224GWh
+10% vs above (115GWh)
+22% vs 2022
|
£127.2m
+8% vs above (£9.8 million)
+14% vs 2022
|
£44.9m
3% increase vs above
(£1.3 million)
26% increase vs 2022
|
£82.3m
+11% vs above (£8.5 million)
+9% vs 2022
|
|
|
|
|
|
Solar (excluding Irish
portfolio)
|
275GWh
-1% vs budget
(2022: 292GWh)
|
£35.2m
-2% vs budget
(2022: £33.7m)
|
£9.2m
3% adverse to
budget
(2022: £8.3m)
|
£26.0m
-2% vs budget
(2022: £25.4m)
|
|
|
|
|
|
Onshore wind
|
682GWh
-20% vs budget
(2022: 565GWh)
|
£42.7m
-34% vs budget
(2022: £51.3m)
|
£12.0m
4% favourable to
budget
(2022: £7.5m)
|
£30.7m
-42% vs budget
(2022: £43.8m)
|
|
|
|
|
|
Offshore wind
|
152GWh
-1% vs budget
(2022: 148GWh)
|
£39.5m
+2% vs budget
(2022: £27.0m)
|
£22.4m
6% adverse to
budget
(2022: £19.9m)
|
£17.0m
-2% vs budget
(2022: £7.1m)
|
Note: Totals may not add up due to
rounding
Solar
The operational solar portfolio
(22 sites across the UK and France35) generated 275GWh
during 2023, -1% vs budget (‑3GWh). Higher than expected irradiance
(+12GWh) across both portfolios was offset by marginal production
losses due to site efficiency across the entire portfolio (-5GWh),
as well as outages of -10GWh, of which -8GWh (80% of lost
production due to outages) was due to a fire at one site in France,
Saint-Antonin-du-Var ("SADV"). The overwhelming majority of the
revenue losses in 2023 due to the SADV fire are expected to be
recovered from insurance. Excluding the impact of the SADV fire,
the adjusted production of the portfolio would be 1% above budget
(+5GWh).
The solar portfolio generated
revenues of £35.2 million for 2023, -2% vs budget (£0.8 million).
23% of the variance to budget was due to under production (£0.2
million), the remaining 77% was due to movement in energy prices in
the UK portfolio (£0.6 million) which is exposed to merchant
prices (the French solar portfolio benefits from 100% fixed
revenues under feed-in-tariffs). Revenues arising under fixed price
contracts represented 84% of total revenue from the UK and French
solar portfolios for the year.
The portfolio realised an EBITDA
of £26.0 million, -2% vs budget (£0.5 million) as a consequence of
lower revenues, offset by savings on opex of 3% (£0.3 million) in
the French portfolio due to lower than expected O&M and
utilities costs. Total opex amounted to £9.2 million.
35 Excluding Irish assets.
Onshore wind
In 2023, ORIT's onshore wind
portfolio (9 sites across 6 countries in Europe, including the
Polish assets for the first 6 months to 30 June
202336) generated 682GWh of renewable electricity, -20%
(170 GWh) vs budget. This underperformance can be primarily
attributed to lower than projected wind speeds (48% of the budget
variance, 81GWh), with other main contributors being externally
imposed site curtailments due to negative pricing periods or
transmission grid constraints, (26% of the variance, 45GWh) and
slower than expected post-construction ramp-up at Cumberhead wind
farm (15% of the variance, 26GWh).
The projects benefit from various
compensation schemes which protect the portfolio from exposure to
externally imposed curtailments and from performance falling below
the contracted thresholds under their turbine, operating and
maintenance agreements. The portfolio received compensation for
51GWh of lost production, of which 20GWh has been received in the
year with the remainder yet to be paid. This results in an adjusted
production for the year of 734GWh (+8% vs actual production, -14%
vs budget).
The 50MW Cumberhead wind farm
became operational mid-way through the year. We had budgeted
production for 2023 to be 98GWh, whereas actual production was
59GWh. Of the 39GWh shortfall, 26GWh (67%) can be attributed to the
slower than expected ramp-up time for the site to reach full
operational capacity, compensation against these production losses
are under negotiation with the turbine supplier. Since November
2023, Cumberhead is part of the National Grid Balancing Mechanism
scheme, and received compensation towards 4GWh (11%) of curtailed
production. The remaining 13GWh (33%) variance to the budgeted
production was due to the low wind speeds experienced.
Other main contributors to the
reduced portfolio generation were the sites in Finland and Germany,
which suffered forced curtailment due to negative pricing periods,
resulting in a loss of 33GWh of production. This risk has been
actively managed by ORIT, securing compensation that is expected to
recover the equivalent of 27GWh.
The portfolio generated a total
revenue of £42.7 million for 2023, -34% vs budget (£22.4 million).
Lower than expected production accounted for 61% (£13.7 million) of
the revenue decrease. A decrease in average power prices vs budget
in the Nordic region accounted for the remaining 39% (£8.8 million)
with £8.2 million attributable to Ljungbyholm, Sweden. Across
France, Germany, Poland, and the UK, the average power prices
achieved were in line with, or higher than, budget after accounting
for revenues received for forced curtailment.
The portfolio realised an EBITDA
of £30.7 million, -42% vs budget (£22.0 million), as a consequence
of the lower revenues achieved by the portfolio. Overall opex
amounted to £12.0 million, 4% favourable to budget (£0.4 million
underspend).
36 The two Polish assets which were
sold during the year to 31 December 2023 had a locked box date for
the transaction of 30 June 2023.
Offshore wind
The offshore wind portfolio (made
up in entirety by ORIT's 15.5% stake of the Lincs asset), produced
152GWh in 2023, ‑1% vs budget (-2GWh). Favourable wind conditions
(+2GWh), were offset by lower availability due to a number of
generator repairs being required (-3GWh).
Lincs generated revenues of £39.5
million, +2% vs budget (£0.9 million). This was due to higher than
budgeted average pricing across the various income streams (£1.2
million), being partially offset by the lower production (£0.3
million).
EBITDA for 2023 totalled £17.0
million, -2% vs budget (£0.3 million), due to additional Opex
offsetting the revenue increase. Opex was £22.4 million, 6% adverse
to budget (£1.2 million), driven by increased O&M spend in the
year.
Asset management
Octopus Energy Generation actively
manages the assets and follows a proactive approach of identifying
and mitigating risks to secure long-term performance of its growing
and increasingly diverse global portfolio of renewable energy
assets.
Case studies: 2023 solar
asset management initiatives to deliver and manage global growth
and standardisation:
Scalable global asset management standards
|
Development of standards and best
practices to ensure consistent high standards of safety, asset
performance, regulatory compliance.
|
Example: During 2023, OEGEN
solar asset management team worked in partnership with Quintas
Energy on ORIT UK solar portfolio to develop the Octopus Solar
Standards ("OSS") platform, a scalable platform for managing risk
and deploying strategy on global renewable energy portfolios and
assuring the best overall return on investment for investors. The
platform has been successfully implemented on the UK fleet and
OEGEN is running a pilot project in 2024 for the French portfolio
alongside WPO (the asset manager).
|
Health,
safety and wellbeing
|
Ensuring health, safety &
wellbeing is one of OEGEN's key values. This is achieved by
promoting a positive safety culture through collaboration, sharing
best practices and implementing robust processes from tracking of
information to mitigating risk and investigating
incidents.
|
Example: OEGEN hosted a
H&S best practice full day seminar where all core
counterparties on ORIT's solar portfolio (operations and asset
managers) attended an in-person workshop focused on knowledge
sharing and building a safety culture alongside their peers from
other OEGEN-managed assets. The nine counterparties who attended
covered OEGEN's operations in solar across Europe as well as the
UK. The workshop was successful in sharing best practices and
identifying key areas for improvement with following on workstreams
taking place to help tackle industry challenges such as skills
shortages in renewables. This event has been considered as the
first of its kind and was highly rated by all the
participants.
|
Smart management of maturing assets
|
Maintaining performance of the
portfolio as it matures following a conservative and systematic
approach consisting of a bespoke component risk strategy and
standardisation solution for revamping. OEGEN carefully evaluates
considerations between deferring capital expenditure for as long as
feasible and implementing technical solutions to revamp the fleet
in due course. Expertise covers component risk assessment, asset
health monitoring, contingency planning, strategic spares
management and engineering capabilities.
|
Example: Following a small
fire at Saint-Antonin-du-Var where degradation of the back of the
panels had occurred, OEGEN negotiated replacement of the entire
site's panels and installation of these from the manufacturer. The
new panels will not only resolve the historic degradation but also
increase the installed capacity by 10%.
|
Supply chain resilience
|
Development of standards and best
practices to ensure consistent high standards of safety, asset
performance, regulatory compliance.
|
Example: The Investment
Manager team has been proactively managing the supply chain risk
across ORIT's UK solar portfolio and is the first player in the
market to have set up centralised spare parts platform with
incomparable levels of optimisation alongside RES. RES is
responsible for storing in a centralised warehouse an agreed stock
of critical components (not included as part of the on-site
spare parts) regularly required to be replaced and usually only
available on long-lead times. The components are dispatched to site
within 48 hours of order placement. This initiative has been
estimated to have saved c.£400k in 2023 through avoiding
interruption to operations.
|
Opportunistic improvements
|
Invest opportunistically in
technical or commercial solutions that could boost the performance
of the assets above the base case. The focus remains firmly on
mitigating downside risks and opportunistic improvements will be
pursued only where there is a compelling business case, and any
downside risks can be effectively mitigated.
|
Example: The Investment
Manager conducted a technical programme across ORIT's French solar
portfolio to improve grid reliability with a new technology
implemented between the site and the grid operator to allow rapid
communication and instant disconnections, which is expected to
result in a slight cost reduction for the portfolio.
|
Construction and development portfolio
Alongside operational assets
investments that drive predictable cashflows and support the
dividend, ORIT values investments in construction and development
assets in order to actively participate in increasing the supply of
renewable energy generation portion, drive a cleaner future and
deliver opportunities for capital growth for investors.
Construction
|
ORIT was set up with the ability
to invest in assets at the construction phase, leveraging the
specialist skills and track record of the Investment Manager in
this area.
Investing into construction
creates the opportunity to deliver Net Asset Value growth from the
reduction in discount rate which comes through successfully
managing construction risks. If managed well, it costs less to
acquire a ready-to-build project and fund the construction costs
than it does to acquire a fully operational project.
Investing at the construction
stage also delivers greater positive impact, as new clean
generation capacity is added to the power network.
|
Construction achievements
|
As at 31 December 2023, ORIT has
invested in 7 assets at construction of which 5 have been completed
(including the Polish wind farms exited during the year)
representing 181MW and resulting in a £14.8 million uplift to Net
Asset Value since inception.
Additionally, ORIT committed to 5
solar assets in construction in Ireland, subject to the sites
becoming operational. The first four sites, totalling 199MW, were
completed and brought into operation during 2023 with ORIT
acquiring them post year end. The fifth additional site is under
construction and expected to become operational and be acquired by
ORIT later this year. The Investment Manager has actively provided
oversight of the construction across these sites.
The key achievement during the
year was the completion the completion of the Cumberhead wind farm
construction of 50MW, the largest onshore windfarm asset of ORIT's
portfolio delivering a NAV uplift from December 2022 of +2.3 pence
per Ordinary Share. See the case study included within the Company's Annual Report.
|
181MW
constructed
199MW
construction oversight
Status
|
Technology
|
Country
|
Site name
|
Capacity (MW, pro-rata for
ORIT ownership)
|
Date of
acquisition
|
Date of
operations
|
Operational
|
Onshore wind
|
Sweden
|
Ljungbyholm
|
48
|
Mar-2020
|
Jun-2021
|
Operational
|
Onshore wind
|
France
|
Cerisou
|
24
|
Oct-2020
|
Nov-2022
|
Operational
|
Onshore wind
|
UK
|
Cumberhead
|
50
|
Sep-2021
|
Mar-2023
|
Exited
|
Onshore wind
|
Poland
|
Krzecin
|
19
|
Oct-2021
|
Feb-2022
|
Exited
|
Onshore wind
|
Poland
|
Kuslin
|
40
|
Oct-2021
|
Dec-2022
|
Construction
|
Solar
|
UK
|
Breach
|
67
|
Jun-2022
|
Expected Q2 2024
|
Construction
|
Battery Storage
|
UK
|
Woburn Road
|
6
|
Jan-2023
|
Expected Q1 2025
|
Operational, acquired post‑year
end
|
Solar
|
Ireland
|
Ballymacarney
|
54
|
n.a.
|
Dec-202337
|
Operational, acquired post‑year
end
|
Solar
|
Ireland
|
Kilsallaghan
|
29
|
n.a.
|
Dec-202337
|
Operational, acquired post‑year
end
|
Solar
|
Ireland
|
Muckerstown
|
48
|
n.a.
|
Dec-202337
|
Operational, acquired post‑year
end
|
Solar
|
Ireland
|
Fidorfe
|
68
|
n.a.
|
Dec-202337
|
Construction, acquired post‑year
end
|
Solar
|
Ireland
|
Harlockstown
|
42
|
n.a.
|
Expected Q3 2024
|
37 Note that these four sites are
sometimes (in this report and elsewhere) collectively referred to
as 'the Ballymacarney solar complex'. Sites passed all of their
final technical compliance requirements in December 2023, but
started exporting electricity from May 2023.
Construction case study: Cumberhead wind
farm
ORIT successfully built the
largest onshore windfarm of its portfolio, which operates on a
subsidy-free basis, having secured a PPA with a trusted partner,
and adds a genuine impact to the community through its community
benefits fund.
The 50MW, 12-turbine Cumberhead
wind farm provides an example of ORIT delivering a state-of-the-art
renewable energy asset. The project engages actively and
extensively with the local community, bringing tangible benefit to
people in its vicinity, and through a PPA with Kimberley-Clark it
is helping a large corporate organisation to decarbonise its
manufacturing activities. The wind farm provides a high quality
model for further deployment of subsidy-free, onshore wind which
does not rely on huge economies of scale for financial
viability.
Cumberhead produces clean energy
equivalent to the usage of over 69,000 homes and runs a £250,000
per year community benefits fund which will remain in place for the
lifetime of the asset, equivalent to a total £7.5 million of
funding to support an estimated 100+ community
initiatives.
The project is sited in one of the
best areas of Scotland for wind resource - some turbines benefit
from average wind speeds in excess of 9m/s - and has been exporting
electricity since March 2023. ORIT acquired Cumberhead as a
ready‑to-build project in September 2021, before managing its
construction, and the project is the largest onshore wind site in
the Company's portfolio, representing 20% of its total onshore wind
capacity at 31 December 2023.
Construction portfolio
As at 31 December 2023, the
portfolio contained 73MW (pro-rata by ownership stake) of
in-construction projects, and another conditionally-acquired 42MW
in Ireland remains in construction (the fifth 'add-on' solar site
to the Ballymacarney solar complex).
A
summary of the construction progress is set out
below:
Breach solar (67MW): The
on-site construction phase of the solar farm was successfully
completed by October 2023, and the site is now only awaiting its
connection to the National Grid substation. National Grid has been
delayed and the outage date to allow the connection works has been
pushed back to April 2024. Delays to grid connections at the hands
of network operators are not uncommon, and whilst frustrating in
that connection will be later than forecast, the project will not
be required to pay any penalties under the corporate PPA due to the
construction contingency time that was factored into the offtake
agreement.
Woburn Road battery storage (12MW/24MWh, with ORIT owning a
50% stake): This project is owned
50/50 alongside Sky, another OEGEN-managed fund. To date ORIT has
invested c.£0.4 million. ORIT has entered into an agreement with
Sky whereby Sky is covering the entirety of the construction costs
of c.£11 million until such time that ORIT elects to catch up. In
the event that ORIT opts not to do so, then ORIT's stake would
transfer to Sky.
Whilst the majority of on-site
work has yet to commence, the construction phase has seen
significant progress, with the signing of construction contracts
for the battery supply and installation, balance of plant and
connection works, as well as the O&M contract. These contracts
were put in place in parallel with the development of a battery ESG
procurement policy at OEGEN level.
Harlockstown solar (42MW): Near the four-site 199MW Ballymacarney solar complex in
Ireland (which became operational in 2023), a fifth 'add-on' site
of 42MW (Harlockstown) is currently under construction. Under a
similar arrangement to the first four sites, ORIT will acquire this
project once it becomes fully operational, which is currently
expected to occur during Q3 2024.
Developers portfolio
Investments in developers offer
future opportunities at construction-ready stage for ORIT to invest
in and support professionals who are actively contributing to
creating new capacity for clean energy sources. Investing in
developers provides valuable optionality for future expansion. ORIT
will have preferential access to fund construction-ready sites
arising from these development pipelines.
Developer investments overview
As at 31 December 2023, ORIT's
portfolio of developer investments comprises five companies -
representing 4% of total value of all investments - with a combined
pipeline of 33GW of renewable energy generation
projects.
· 19% stake
· Floating offshore wind
· UK
and Europe
|
ORIT first invested in
Simply Blue in August 2021
for a c.12% stake, with later increases of its stake to 15.5% and
then 19% through follow-on investments. ORIT invested alongside Sky
(a private fund managed by Octopus Energy Generation) through a
joint venture.
In 2023, Simply Blue achieved a
number of significant milestones in a challenging year for the
global offshore wind market, which has met headwinds from increased
capex and financing costs and resulting slowdown in development
activity. In particular, Simply Blue received marine consent for
its Erebus project in Wales, secured a development partnership with
EDF for its Irish projects, and secured Orsted as development
partner for Salamander project in Scotland.
|
· 25% stake
· Onshore wind
· UK
|
In December 2021, ORIT agreed to
provide up to £10 million in development funding for 9 newly formed
joint venture onshore wind farms for which Wind2 is providing development
services. ORIT's investment was through a joint venture with Sky
(see above).
In 2023, the Wind2 team made good
progress in the development of the projects. As at the end of 2023,
the projects under development totalled c. 900MW, with four
projects at pre-application stage, three in pre-scoping stage, and
one having submitted its planning application.
|
· 100% stake
· Solar and battery storage
· UK
|
ORIT entered into a development
services agreement with BLC
Energy to fund up to £2m for the development of solar and
battery storage projects in the UK, through a vehicle called Trio
Power Limited.
In 2023, the BLC Energy team
originated c.500MW pipeline, of which c.100MW has heads of terms
signed and grid applications submitted.
|
· 50% stake
· Solar and onshore wind
· Finland
|
In April 2022, ORIT co-invested
with Sky (see above) through a joint venture.
The Norgen development team had a
successful 2023, bringing seven new projects into the approved
development pipeline, including three solar projects totalling
428MW and four onshore wind projects totalling 237MW. This is in
addition to the two projects acquired under exclusivity terms
during the initial transaction. The committed funding has now all
been allocated to projects and Norgen is working through the
various stages of development to bring these projects to
ready-to-build stage.
|
· 25% stake
· Green hydrogen production
· UK
|
ORIT agreed to invest up to £5
million into HYRO Energy
Limited ("HYRO"), a JV between ORIT and Sky (see above) and
the global developer company, RES. HYRO has been established to
develop green electrolysis projects in England, Scotland and Wales
for industrial offtake/consumption, and one project has secured a
government-backed CfD.
|
Market outlook
|
Commentary
|
ORIT's position and opportunity
|
Clean energy transition: broad picture
|
Despite the current macroeconomic
environment (see below), there is deep opportunity for investment
in the clean energy transition. Russia's invasion of Ukraine put a
spotlight on energy security and has accelerated investment:
USD 659bn38 was invested in renewable power
generation globally in 2023, 11% higher in real terms than 2022,
and 27% higher than 2021. To reach net zero by 2050, the
International Energy Agency estimates that clean energy investment
- including in grids, energy efficiency and other sectors alongside
power generation - needs to increase from USD 1.8tn in 2023 to USD
4.5tn per year by 2030. Tailwinds are strong and gathering
momentum: COP28 saw a pledge signed by 118 countries to triple
renewables by 2030, and as a general rule public and political
support is present across geographies.
|
ORIT is very well placed to
capitalise on the investment and impact opportunity, given its
broad mandate across technologies and geographies, including
ability to invest in pre-construction assets and developers in
order to capture value across the entire life cycle and to
contribute new renewable capacity. OEGEN as its manager has
extensive links into numerous markets as well as a deep pool of
expertise in its team.
|
Macro-economic environment
|
We are still in a world of
elevated interest rates and high inflation, following the
post-pandemic rising demand and the supply impact caused by
Russia/Ukraine and other global events. This has hampered fund
raising for listed investment funds, but transactions in the
renewable energy sector have continued to take place. These include
the recent completion of three very large recent solar deals:
Schroders Greencoat-managed funds' purchase of the c.500MW Toucan
Energy UK solar portfolio, plus Lightsource bp's sales of a 294MW
Italian portfolio and a 247MW UK portfolio. Pricing has been
consistent with holding valuations, or even in excess of
expectations, as ORIT has been able to demonstrate first hand
through its sales of the Polish wind assets at a significant
premium to holding value.
For construction projects, the
macroeconomic conditions have not been helpful (causing high capex
and supply chain difficulties), and some developers may have been
holding back projects in order to wait for more opportune times to
sell. There has still been a flow of projects coming to market,
however, and this can be expected to expand as conditions improve
further.
|
Like our peers, higher discount
rates have put downward pressure on ORIT's NAV, and high interest
rates have driven share prices to trade at discounts to NAV. High
inflation is a double-edged sword: it is broadly a benefit to ORIT
given our relatively high proportion of inflation-linked revenues,
although it has - and will - also feed into higher construction
costs for future projects.
ORIT's forecast inflation-linked
revenues on a 10-year look forward basis have remained high: 51% as
at 31 December 2023 (vs 53% as at 31 December 2022). Breach solar
farm's inflation-linked CPPA contributed positively to this metric,
partially offsetting the sale of the Kuslin and Krzecin Polish
onshore wind farms which has meant that the projects'
inflation-linked CfD revenues no longer contribute to the
portfolio's inflation-linked revenues.
Overall we expect the supply of
ready-to-build projects to increase as governments seek to
accelerate permitting and grid connection processes, and developers
are required to sell projects to generate cash to fund future
pipeline.
|
Outlook in the UK
|
The general picture for investing
in the energy transition in the UK remains favourable,
notwithstanding some challenges and uncertainty as a general
election approaches.
After a disappointing 2023 CfD
auction (no offshore wind bids) owing to pricing parameters which
failed to account for inflation in equipment and construction
costs, the UK government responded with a more feasible set of
initial parameters for the 2024 round which were met favourably by
the industry. It remains to be seen whether the detailed budget
allocation allows sufficient new projects to come
forward.
Whilst grid backlogs remain,
concerted pressure from across industry resulted in an announcement
in the government's Autumn Statement outlining an action plan that
aims to release many gigawatts of capacity from the connections
queue and cut average connections delays from five years to six
months. This should flow through into allowing more projects to
reach ready-to-build status. Further measures have been announced
as part of the 2024 Spring Budget.
The same Autumn Statement also
removed the 45% Electricity Generator Levy for new projects, and
was seen favourably by the industry in contrast to Rishi Sunak's
announcement earlier in the year which watered-down several net
zero policies.
In March 2024 the UK Government
launched a second consultation on its Review of Electricity Market
Arrangements, which includes proposals to split the national
electricity market into a number of different price zones, similar
to existing arrangements in the Nordic markets.
|
The UK is ORIT's largest single
market (40% of total value of all investments at 31 December 2023),
and OEGEN is an experienced manager across all technologies here.
ORIT has also proven that it is not reliant on the CfD mechanism or
other revenue support schemes, and has demonstrated its ability to
source corporate PPAs which can provide long-term revenue
certainty.
In the event of market design
changes being implemented in the longer term (for example
locational zonal pricing), ORIT is well placed: its manager OEGEN
has successfully navigated policy and market changes many times
before, and has deep insight (especially through the wider Octopus
Energy group) regarding the latest thinking amongst policy and
decision makers.
ORIT's focus on diversification
reduces the risk associated with any one country's regulatory
changes.
|
Outlook in Europe
|
Europe benefits from the same
climate-related tailwinds as the UK, albeit with a range of levels
of policy and regulatory support across jurisdictions. There is
widespread development activity across Europe and there will
continue to be volumes of new projects to invest in, across various
technologies.
As in the UK, cost increases and
in some cases regulatory delays have increased the time expected
for offshore wind projects, particularly floating, to reach ready
to build stage. A number of strategic investors, particularly those
from oil and gas backgrounds, have refocused their business plans
to reduce the level of investment in green technologies.
|
ORIT and its manager hold deep
experience in numerous European energy markets (in Europe outside
of the UK, ORIT has investments in five countries, and OEGEN in
12). ORIT is well positioned to invest in assets across the value
chain, as well as in more developers who are exploiting
opportunities in these markets.
Offshore wind remains a key
technology in the energy system of the future, and floating
turbines will be required to meet deployment targets. ORIT will be
able to consider providing additional working capital to developers
to the extent necessary.
|
Power prices and green certificates
|
Electricity prices at the front
end of the forward curves (the next 2-3 years) have trended down
across 2023 showing day-ahead and forward prices in the markets
where ORIT has merchant exposure over this time. This decline is a
result of very high gas storage levels following a warm 2022/23
winter, coupled with drops in industrial gas and electricity
consumption and a French nuclear fleet whose availability is much
improved relative to its performance across 2022.
Across 2023, European power demand
fell by 3% as a result of the success of demand reduction
strategies as well as industrial response to high retail prices. Of
particular note is Germany, where demand fell 5% year-on-year,
driven by the demand reductions from its industrial
sector.
As a result of the above, followed
by the mild end to the year, gas storage levels stood at record
levels going into 2024, ensuring a bearish end to the year for the
European power market. Geopolitical events in the Middle East
continue to pose a supply risk to the market, but the fact that the
start of the conflict had such a limited impact on power prices
evidences the healthy position in which the market ended
2023.
Prices for the short-medium term
future are still expected to remain well above the long-term
(pre-Russia and pre-Covid) historic average, mainly due to i) the
dependence on international Liquified Natural Gas (LNG), the price
of which rose sharply following sanctions on imports from Russia;
ii) delays to the deployment of offshore wind, and iii) a
significant amount of price support arising from demand growth from
expanding electrification (cars, heating and industry) towards
2030.
During Q1 2024 near term power
prices on forward markets continued to fall, which is expected to
put downward pressure on valuations.
|
The Annual Report presents the
Company's forecast revenues, categorised by price structure,
through to 2050.
ORIT has a high proportion of
fixed revenues (81% for the two years up to 31 December 2025)
so is well protected from near- and medium-term price falls in
forward curves and advisor price forecasts. We take an active
approach to revenue risk management and will continue to do so as
the portfolio evolves. Fixed subsidies are a large contributor, but
we also look to secure fixed PPAs for power sales. In FY 2023, the
Breach PPA that was signed increased the portfolio's overall fixed
revenue percentage on a two-year look-forward basis by 3 percentage
points.
The portfolio's exposure to
wholesale power prices is limited due to fixed price PPAs (with
corporate and utility offtakers) which the Investment Manager has
originated, as well as government-backed subsidies across the UK,
France and Germany.
As at 31 December 2023, all of
ORIT's fixed revenues are fixed on a pay-as-produced basis, meaning
that unlike as is required for baseload hedges, ORIT is not exposed
to the risk of having to buy power on the market at expensive
prices to top up the solar or wind generation profile to a baseload
shape.
As at 31 December 2023, 50% of the
portfolio's value is derived from fixed price revenues, and 50% is
from variable price revenues. The portfolio's variable revenues are
concentrated in the medium and longer term forecast, meaning that
movement in wholesale power price forecasts will have a more muted
impact on portfolio-level NPV than would be the case if variable
revenues were distributed evenly across the modelled
horizon.
Compared to 12 months prior, the
proportion of ORIT's forecast fixed price revenues on a 24-month
look forward basis has increased from 68% to 81%. Key to this has
been the Investment Manager's continued proactivity with securing
hedges for a number of its assets, including a 10-year,
inflation-linked corporate PPA secured for the Breach solar farm.
Other factors which have increased this metric include 5-year PPAs
secured for three of ORIT's UK solar farms, 3-year PPAs secured for
another three of ORIT's UK solar farms, as well as the drop in
wholesale electricity price forecasts across the year. The
successful sale of the Kuslin and Krzecin Polish onshore wind farms
decreased ORIT's forecast fixed revenues deriving from
subsidies.
The proportion of ORIT's forecast
variable revenues increases in the medium-long-term as subsidies
and PPAs expire (noting that we will continue to actively hedge our
variable power revenues). In the late 2020s, ORIT's merchant
exposure derives primarily from GB and Finland, while into the
2030s and 2040s, GB is the market to which ORIT is most
exposed.
|
Investment Trust landscape
|
Share price discounts to NAV
across the investment trust world have remained wide, in parallel
with base interest rates (and gilt yields) remaining high. Across
the renewables investment trust sector, discounts to NAV of 10-25%
have been pervasive throughout 2023, and these have widened since
the end of the year. Fundraising has therefore not been possible,
and this will remain the case until interest rates have fallen and
share prices return to levels higher than NAV: something which
could take until the end of 2024 or longer. In the meantime, we
expect to see more asset sales as a means to recycle capital (the
Company sold its Polish wind assets in 2023), and others have also
embarked on a similar strategy this year. There is also the
possibility of consolidation amongst funds if the market
capitalisation of smaller funds continues to fall.
|
ORIT's discount to NAV has stayed
consistently shallower than most of its peers, throughout the year.
We have been proactive in asset recycling and we also announced at
the end of 2023 a carefully-considered strategic proposal to
combine with Aquila European Renewables plc
39
|
38 Source: From the International
Energy Agency report
https://www.iea.org/reports/world-energy-investment-2023/overview-and-key-findings
39 ORIT announced it is seeking to
combine with Aquila European Renewables plc ("AERI"), through a
scheme of reconstruction under which AERI would be liquidated and
AERI shareholders would receive new shares in ORIT in exchange for
their AERI shares. ORIT's Board believes there is a strong
rationale for the transaction for both sets of shareholders. There
can be no certainty that engagement will progress, that heads of
terms will be agreed or whether the proposed combination will take
place.
Timeline of current key activities
|
|
|
|
|
|
Report date 31 December
2023
|
|
|
Activity
|
MW pro-rata for ORIT's stake
|
Key information
|
H1 2023
|
H2 2023
|
H1 2024
|
H2 2024
|
H1 2025
|
Investments
|
Woburn Road
|
6MW
|
12MW/24MWh site
|
|
|
|
|
|
|
Harlockstown
(Ballymacarney)
|
42MW
|
Long-term PPA
|
|
|
|
|
|
|
HYRO
|
n.a.
|
Developer (hydrogen)
|
|
|
|
|
|
|
BLCe
|
n.a.
|
Developer (solar/co‑located
battery)
|
|
|
|
|
|
Construction
|
Cumberland
|
50MW
|
Corporate PPA
|
|
|
|
|
|
|
Breach
|
67MW
|
10y fixed CPPA
|
|
|
|
|
|
|
Woburn Road
|
6MW
|
12MW/24MWh site
|
|
|
|
|
|
|
Ballymacarney
(first 4 sites)
|
199MW
|
Long-term PPA
|
|
|
|
|
|
|
Harlockstown
(Ballymacarney)
|
42MW
|
Long-term PPA
|
|
|
|
|
|
Capital recycling programme
|
Polish wind sale
|
59MW
|
2 onshore wind sites
|
|
|
|
|
|
|
Spanish solar option
termination
|
175MW
|
175MW, construction
|
|
|
|
|
|
|
Further capital
recycling
|
|
Confidential, in
progress
|
|
|
|
|
|
|
Reinvestment of
proceeds
|
|
Short-term debt repayment and
other capital allocation opportunities
|
|
|
|
|
|
Counterparty risk
The Investment Manager monitors
this risk closely and carries out qualitative and quantitative due
diligence on counterparties before they are appointed and, where
possible, seeks to obtain extensive warranty protection on all
contracts. Exposure to counterparties is reviewed by the Investment
Manager on a quarterly basis. Information on the Company's exposure
to offtakers and O&M providers as at 31 December 2023 is
included in the Company's Annual Report.
As detailed within the Company's
Annual Report, reliance on third-party counterparties is a
principal risk to the Company. In the current economic climate,
there is an increased risk associated with service providers
defaulting on contractual obligations or suffering an insolvency
event, and this can impact the performance of the portfolio of
assets and ultimately the Company.
Offtaker by total value of all
investments 40
EDF: 25%
Microsoft: 17%
British Gas: 13%
Esti Energi: 11%
Npower/Axpo: 7%
Kimberly Clark: 7%
Alpix: 6%
Owens Corning: 6%
Octopus Energy: 4%
N/A: 4%
Having multiple offtakers offers
advantages such as risk diversification and offers local expertise
in ORIT's key geographical markets.
40 Npower/Axpo: Sites sell ROCs and
power to NPower but also have a price-fixing arrangement with
Axpo.
O&M providers by total value of all
investments
Nordex: 23%
Statkraft: 17%
Orsted: 13%
Engie: 11%
Vestas: 11%
PSH: 6%
RES: 5%
SGRE: 5%
Goldbeck: 4%
N/A: 4%
BayWa 1%
A diversified group of O&M
providers allows ORIT to leverage competitive pricing and
specialised expertise.
Financing and risk management
During the year total leverage
decreased from 42% to 39% 41 made up of 26% long-term
debt and 13% short-term RCF drawings. In December 2023, the £50
million short-term facility was repaid in full. Post-year end the
Company has increased its leverage to fund the acquisition of four
newly constructed solar farms located in Ireland. The total
acquisition cost of €160.6 million was in part financed using a
€80.6 million debt facility provided by Allied Irish Banks and La
Banque Postale and part financed by drawing down £66.2 million on
the RCF.
During February 2023, the Company
refinanced and increased its multi-currency RCF. The committed
£270.8 million RCF has a three-year term and can be drawn in GBP,
EUR, AUD and USD and has an interest rate of 2.0% above SONIA. It
also has an uncommitted accordion feature allowing the facility to
be increased in size by up to a further £150 million.
During the second half of 2023,
the Company used proceeds raised from the sale of Polish wind
assets and exit of Spanish solar project, to repay its £50 million
short-term facility with Natwest and partially repay its
outstanding RCF balance.
Should no further asset sales take
place, and all cash flows not required to pay the Company's costs
and continue growing the dividend were used to pay down debt, the
Company's gearing is expected to fall to around 20% of GAV over a
ten-year period.
41 Leverage has been calculated as a
percentage of GAV.
ORIT debt summary as at 31 December 2023:
|
Total
|
Short-Term
Debt
|
Long-Term
Debt
|
Debt as a % of GAV
|
39%
|
13%
|
26%
|
Committed debt as a % of Total value of all
investments
|
47%
|
17%
|
30%
|
%
Hedged
|
58%
|
0%
|
89%
|
Average cost of debt
|
3.9%
|
7.2%
|
2.1%
|
Average remaining term (years)
|
10.1
|
2.2
|
14.1
|
Summary of ORIT debt facilities as at 31 December
2023:
|
Short-Term
|
Long-Term
|
Asset
|
HoldCo
|
FR Solar
|
FR Wind
|
IRE
Solar42
|
GER Wind
|
UK Offshore
Wind
|
Debt Terms
|
|
|
|
|
|
|
Currency
|
GBP or
EUR
|
EUR
|
EUR
|
EUR
|
EUR
|
GBP
|
Term loan
|
£270.8m
|
€125.7m
|
€43.2m
|
€91.5m
|
€61.0m
|
£110.5m
|
Drawn at 31 December
2023
|
£130.0m
|
€102.9m
|
€42.9m
|
-
|
€57.5m
|
£75.5m
|
Drawn at 31 December 2023
£m
|
£130.0m
|
£89.2m
|
£37.2m
|
-
|
£49.8m
|
£75.5m
|
Initial Term (yrs)
|
3
|
18
|
20
|
20
|
18
|
15
|
Expiry Date
|
Feb-26
|
Dec-38
|
Sep-42
|
Jun-42
|
Mar-41
|
Sep-32
|
Facility date
|
Nov-20
|
Jan-21
|
Apr-21
|
Jul-21
|
Sep-22
|
Dec-17
|
Margin
|
|
|
|
Y1-5
1.30%
|
|
2017-2022: 1.45%;
|
|
2.0%
|
1.25%
|
1.30%
|
Y6-10
1.40%
|
0.83%-1.75%
|
2023-2027: 1.65%
|
|
|
|
|
Y10+
1.65%
|
|
2028-2032: 1.85%
|
Variable interest %
|
SONIA
|
EURIBOR
|
EURIBOR
|
EURIBOR
|
EURIBOR
|
SONIA
|
Hedging
|
|
|
|
|
|
|
% hedged
|
-
|
85%
|
90%
|
n/a
|
100%
|
85%
|
Swap rate
|
n/a
|
-0.12%
|
0.51%
|
n/a
|
0.12%
|
1.27%
|
42 Post-period end ORIT acquired four
Irish solar farms. The total acquisition cost of €161m was in part
financed using a €80.6m debt facility provided by Allied Irish
Banks and La Banque Postale. This facility is 100% hedged at an
interest rate of 3.07%.
As well as the interest rate
hedging associated with the Company's borrowings, foreign exchange
hedging has been implemented to limit the impact of exchange rate
movements on the cashflows and valuation of the Company. On an
unhedged basis, the value of the Company's portfolio of assets
declined by £6.1 million during the year as a result of foreign
exchange movements. However the value of the FX hedging instruments
increased by £4.0 million during the period, thereby offsetting
approximately two thirds of the underlying valuation
movement.
Portfolio Valuation
£599m
|
106.0p
|
£980m
|
£1,127m
|
Net Asset Value
|
NAV per Ordinary Share
|
Gross Asset Value
|
Total value of all investments
|
(2022: £618m)
|
(2022: 109.4p)
|
(2022: £1,073m)
|
(2022: £1,304m)
|
Regular valuations are undertaken
for the Company's portfolio of assets. The process follows
International Private Equity Valuation Guidelines using a
discounted cashflow ("DCF") methodology. DCF is deemed the most
appropriate methodology where a detailed projection of likely
future cash flows is possible. Due to the asset class, availability
of market data and the ability to project the asset's performance
over the forecast horizon, a DCF valuation is typically the basis
upon which renewable assets are traded in the market. Key
macroeconomic and fiscal assumptions for the valuations are set out
in Note 9 to the financial
statements.
Valuation bridge for the year
The fair value of the Company's
portfolio of assets as at 31 December 2023 was £706.0 million,
reflecting acquisitions and capital injections during the year of
£68.0 million and disposal proceeds of £97.2 million alongside
changes to economic, wholesale energy and asset specific
assumptions and the return on the portfolio net of distributions.
Including the Company's and its intermediate holding companies' net
liabilities of £106.9 million, the total net asset value as at
31 December 2023 is £599.0 million or 106.0 pence per Ordinary
Share.
1
Investments in the year
During the year, the Company
announced new investments including up to £5 million into HYRO
Energy Limited, a new joint venture between ORIT, Sky (a fund
managed by Octopus Energy Generation) and renewable energy company
RES. HYRO has been established to develop green hydrogen
electrolysis projects and intends to develop c.700MW of green
hydrogen electrolyser capacity by 2030.
The Company has also agreed to
invest up to £2 million into a development platform serviced by BLC
Energy limited, to set up and fund a new development business,
focused on creating new ground-mounted solar and co-located battery
storage assets in the UK. This new venture intends to target an
initial pipeline of over 350MW of projects and ORIT will have the
exclusive right to provide further funding to bring the initial
pipeline to ready-to-build status between 2025 and 2029.
Elsewhere in the portfolio
payments were made in relation to construction at the Cumberhead
Wind Farm and Breach Solar Farm. There were also payments made in
relation to the developer investments in line with existing
commitments to business plans.
2
Distributions paid out of the portfolio of assets
This relates to the amount of cash
paid out of the portfolio of assets and received by the Company or
its intermediate holding companies in the year ending 31 December
2023.
3
Asset Disposals and holding value movement
As previously mentioned, the
Company completed the disposal of the Krzecin and Kuslin onshore
wind farms in Poland and the ready-to-build solar project option
over Antequera in Spain. The net proceeds generated from the sales
(approximately £92.0 million for the Polish asset and £5.2 million
for the Spanish asset) have resulted in a positive impact on NAV of
approximately +2.8 pence per and +0.3 pence per Ordinary Share
respectively.
4
Economic assumptions
Over the course of 2023, inflation
forecasts have moderated compared to the prior year. Forecasts have
decreased on average in Europe while remaining broadly flat across
the UK. This has resulted in a net valuation decrease of
£4.8 million.
The inflation inputs used to
calculate the NAV per Ordinary Share as at 31 December 2023 has
been sourced from: (i) recent consensus UK inflation forecasts
published by His Majesty's Treasury (November 2023); and (ii)
inflation forecasts for European countries published by the
European Commission (November 2023).
During the year, sterling
appreciated against the euro by approximately 2.3%, leading to a
negative valuation impact of £6.1 million. Euro-denominated
investments comprised 52% of the portfolio at the year
end.
The combined impact of inflation
and foreign exchange movements represents a valuation decrease of
£10.8 million (excluding the impact of hedging).
The Investment Manager regularly
reviews the level of euro exposure and utilises hedges, with the
objective of minimising variability in shorter term cash flows.
After the impact of currency hedges held at Company level are taken
into account, the loss on foreign exchange reduces to £2.1
million.
5
Power prices and Green Certificates
Unless fixed under PPAs or
otherwise hedged, the power prices used in the valuations are based
on market forward prices in the near term, followed by an equal
blend of two independent and widely used market consultants'
technology-specific capture price forecasts for each
asset.
Europe's power market, while
remaining higher than historic norms, has seen a clear downward
trend across 2023. For further details, please see the "Power
Prices and Green Certificates" section within the Investment
Manager's Report.
ORIT's high proportion of
near-term fixed revenues means that its revenues have been
shielded, to a reasonable extent, from the fall in power prices,
particularly over the short to medium term.
Updating power price forecasts
during the year led to a valuation decrease of £31.4
million.
Green certificates (Renewable
Energy Guarantees of Origin ("REGOs") in the UK and Guarantees of
Origin ("GoOs") in European markets) are sold by generators to
guarantee that purchased electricity is from a 'green' source.
Prices for green certificates have been reflected in the valuations
and been updated in line with third-party forecasts. Overall,
updating green certificate forecasts has led to a net increase of
£25.5 million in the value of the portfolio as at 31 December
2023.
The net impact of updating power
price and green certificate forecasts was a £5.9 million decrease
in the value of the portfolio as at 31 December 2023. The power
prices used in the valuations as at December 2023 include the
relevant 'capture price' discount to baseload prices derived from
the independent market consultants forecasts, and do not include
any further discounts. The power prices used in the valuations as
at December 2022 had included additional prudential discounts in
the first few years of the forecasts, reflecting the elevated and
volatile nature of forward markets at that time.
Revenues
The portfolio's forecasted power
only generation weighted prices ("Power only GWP") and the
generation weighted prices including subsidies and additional
benefits ("Total GWP") for the period from 2024 to 2050 are shown
in the Company's Annual Report. The curves are blended across the
markets in which the portfolio's generation assets are located,
weighted by the portfolio generation mix and converted into £/MWh
using the FX spot rate as at 31 December 2023. On average, the
graph shows Power only GWP of £53.17/MWh in the period 2024-2028
and £40.57/MWh in the period 2029-2050. The decrease in the
power-only GWP, most notably seen in the near-term, comes as a
result of the electricity forwards markets which have fallen across
2023.
6
Construction risk premium
A valuation increase of £2.6
million resulted from the unwind of a portion of the construction
risk premium included in the discount rate applied to the
Cumberhead Wind Farm and the Breach Solar Farm, both in the UK,
recognising the significant construction progress made by the end
of the year. As at 31 December 2023, construction at the Cumberhead
Wind Farm was completed.
Breach Solar Farm has completed
construction however, the site is still awaiting a grid connection
from National Grid. It is expected that the remaining construction
risk premium will be unwound as the project becomes derisked
through the completion of its grid connection.
7
Change in discount rates
A range of discount rates are
applied in calculating the fair value of the investments,
considering the location, technology and lifecycle stage of each
asset as well as leverage and the split of fixed and variable
revenues.
Although a high-inflationary
environment remains in the UK and Europe and bond yields continue
to be elevated versus pre-2022 levels, competition for renewable
assets has remained high, dampening the extent to which benchmark
rate rises have fed through into asset discount rates. Although UK
and European bond yields have decreased since highs of mid-2023,
the Board and the Investment Manager considered it appropriate to
reflect an increase in the UK discount rates by 0.5% and European
discount rates by 0.25% during 2023. The change in discount rates
resulted in a decrease of -£21.3 million in the portfolio
valuation.
Despite increases to the discount
rates applied to ORIT's portfolio of assets, the weighted average
discount rate has decreased over the course of the year by 0.3% to
7.2% as at 31 December 2023. The primary reason for the decrease in
the overall blended rate is due to the derisking of the portfolio
through the Spanish and Polish disposals (which attracted a higher
discount rate due to their relative risk profiles) as well as
unwind of the construction risk premiums included in the discount
rates for construction assets. The increases in underlying discount
rates were also offset by a decrease in the underlying discount
rate reflecting the greater proportion of fixed cash flows arising
from entering into hedging arrangements across the portfolio of
assets.
The weighted average discount rate
does not include any contribution from the following, each of which
would be expected to increase the return achieved on the Company's
portfolio of assets: (i) the return expected on the Company's
investment into development stage assets, which are not valued on a
discounted cashflow basis; (ii) the return enhancement associated
with the Company's FX hedging programme; (iii) the increased return
associated with the additional leverage from the RCF.
|
31-Dec-23
|
31-Dec-22
|
UK Assets
|
|
|
Levered IRR
|
7.5%
|
7.5%
|
Gross Asset Value (GAV)
(£m)
|
491
|
440
|
Asset Leverage %GAV
|
17%
|
19%
|
European Assets
|
|
|
Levered IRR
|
6.9%
|
7.5%
|
Gross Asset Value (GAV)
(£m)
|
488
|
633
|
Asset Leverage %GAV
|
36%
|
40%
|
Total Portfolio
|
|
|
Levered IRR
|
7.2%
|
7.5%
|
Gross Asset Value (GAV)
(£m)
|
980
|
1,073
|
Asset Leverage %GAV
|
26%
|
30%
|
Fund Leverage %GAV
|
13%
|
13%
|
Total Leverage %GAV
|
39%
|
42%
|
8
Balance of portfolio return
This refers to the balance of
valuation movements in the year excluding the factors noted above
and represents an increase of £49.4 million.
Of this, £52.3 million reflects
the net present value of future cashflows being brought forward
from the valuation date used for the acquisitions to 31 December
2023.
£1.4 million of the increase
resulted from entering into fixed price arrangements such as a
10-year index-linked Power Purchase Agreement between Breach Solar
Farm and Iceland Foods Limited and 5-year fixed price Power
Purchase Agreements across part of the UK Solar portfolio with
Total Energies.
Also during the year, ORIT
benefitted from being awarded T-1 and T-4 Capacity Market contracts
at the Cumberhead site, and the signing of a 3-year direct
marketing agreement at Leeskow, resulting a combined uplift of £1.9
million.
Over the course of 2023, the
holding valuations of the options to buy the Irish solar portfolio
and build the Spanish solar farms increased by £4.6 million as the
probability of acquisition for the Irish portfolio and exit for the
Spanish portfolio became increasingly more certain.
These movements were partially
offset by financial and technical performance during the year
resulting in a net negative valuation impact of -£3.5 million. The
net performance of the underlying portfolio was slightly down on
average primarily due to low wind speeds. Additionally, a further
-£5.6 million decrease was recognised due to updating for an
updated wind yield assessment for the Ljungbyholm wind farm
following its first two years of operations.
The valuations were also updated
to reflect the delay in grid connection at Breach Solar Farm and
the delay in the operational start date for Cumberhead, resulting
in a combined valuation impact of -£2.9 million.
The remaining amount relates to
other smaller adjustments at the project company level, which
resulted in an increase of £1.1 million.
Portfolio valuation sensitivities
The Company's Annual Report shows
the impact of changes to the key input assumptions on NAV with the
x axis indicating the impact of the sensitivities on the NAV per
share. The sensitivities are based on the existing portfolio of
assets as at 31 December 2023. The Annual Report also includes cash
flows of conditional acquisitions, and as such may not be
representative of the sensitivities once the Company is fully
invested and geared.
For each of the sensitivities
shown, it is assumed that potential changes occur independently
with no effect on any other assumption. As such the sensitivities
also do not capture any potential benefit of a portfolio effect
through diversification.
1
Discount rate (levered cost of equity)
A range of discount rates are
applied in calculating the fair value of the investments,
considering the location, technology and lifecycle stage of each
asset as well as leverage and the split of fixed and variable
revenues.
2
Volumes
Each asset's valuation assumes a
"P50" level of electricity output based on yield assessments
prepared by technical advisors. The P50 output is the estimated
annual amount of electricity generation that has a 50% probability
of being exceeded - both in any single year and over the long-term
- and a 50% probability of being underachieved. The P50 provides an
expected level of generation over the long-term.
The P90 (90% probability of
exceedance over a 10-year period) and P10 (10% probability of
exceedance over a 10-year period) sensitivities reflect the future
variability of wind speed and solar irradiation and the associated
impact on output, along with the uncertainty associated with the
long-term data sources used to calculate the P50 forecast. The
sensitivities shown assume that the output of each asset in the
portfolio is in line with the P10 or P90 output forecast
respectively for each year of the asset life.
3
Power price curve
As described above the power price
forecasts for each asset are based on a number of inputs. The
sensitivity assumes a 10% increase or decrease in power prices
relative to the base case for each year of the asset
life.
4
Inflation
Sensitivity 1: The sensitivity
assumes a 0.5% increase or decrease in inflation relative to the
base case for each year of the asset life.
Sensitivity 2: The sensitivity
assumes a 2.0% increase or decrease in inflation during 2024/2025
relative to the base case of the asset.
5
Foreign exchange
The Company seeks to manage its
exposure to foreign exchange movements to ensure that (i) the
sterling value of known future construction commitments is fixed;
(ii) sufficient near term distributions from non-sterling
investments are hedged to maintain healthy dividend cover; (iii)
the volatility of the Company's NAV with respect to foreign
exchange movements is limited; and (iv) all settlements and
potential mark-to-market payments on instruments used to hedge
foreign exchange exposure are adequately covered by the Company's
cash balances and undrawn credit facilities.
Of the portfolio as at 31 December
2023, 52% of the NAV is euro denominated. Euro hedges are in place
for all construction payments as well as forecast cash generation
from all Euro based investments for the first three years of
operations. The sensitivity applied above shows the impact on NAV
per share of a +/- 10% movement in the GBP:EUR exchange
rate.
Financial Review
The financial statements of the
Company for the year ended 31 December 2023 are set out in the
Company's Annual Report. These financial statements have been
prepared in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006 and the
applicable legal requirements of the Companies Act 2006. In order
to continue providing useful and relevant information to its
investors, the financial statements also refer to the "intermediate
holding companies", which comprise the Company's wholly owned
subsidiary, ORIT Holdings II Limited and its indirectly held wholly
owned subsidiaries ORIT UK Acquisitions Limited and ORIT Holdings
Limited.
Net assets
Net assets have decreased from
£618.3 million as at 31 December 2022 to £599.0 million as at 31
December 2023, largely due to a decrease in the fair value of
portfolio of assets as described in the Portfolio Valuation section
above.
The net assets comprise the fair
value of the Company's investments of £592.1 million (2022:
£608.8m) and the Company's cash balance of £10.0 million (2022:
£10.6m), offset by £3.1 million (2022: £1.1m) of Company's other
net liabilities.
Included in the fair value of the
Company's investments are net liabilities of £113.9 million (2022:
liabilities of £135.0m) held in the intermediate holding companies.
These comprise assets of cash £13.2 million (2022: £4.5m), the
positive mark-to-market value of the FX hedges taken out to
minimise the volatility of cashflows associated with non-UK
portfolios of £2.3 million (2022: £8.0m), other debtors of £2.4
million (2022: nil) and offset by amortised transaction costs
associated with bank loans of £1.9 million (2022: £2.0m), the
principal and interest outstanding on the bank loans of £131.3
million (2022: £128.0m), and other liabilities of £2.4 million
(2022: £5.5m) predominantly relating to accrued transaction costs
not yet paid and outstanding VAT liabilities.
Results as at 31 December
|
2023
|
2022
|
|
£m
|
£m
|
Fair value of portfolio of
assets
|
706.0
|
743.7
|
Cash held in intermediate holding
companies
|
13.2
|
4.5
|
Bank loans and accrued interest
held in the intermediate holding companies
|
-131.3
|
-128.0
|
Fair value of other net
assets/(liabilities) in intermediate holding companies
|
4.2
|
-11.4
|
Fair value of Company's investments
|
592.1
|
608.8
|
Company's cash
|
10.0
|
10.6
|
Company's other net
liabilities
|
-3.1
|
-1.1
|
Net asset value as at 31 December
|
599.0
|
618.3
|
Number of shares
|
564.9
|
564.9
|
Net asset value per share (pence)
|
106.0
|
109.4
|
Income
In accordance with the Statement
of Recommended Practice: Financial Statements of Investment Trust
Companies and Venture Capital Trusts ("SORP") issued in July 2022
by the Association of Investment Companies ("AIC"), the statement
of comprehensive income differentiates between the 'revenue'
account and the 'capital' account, and the sum of both items equals
the Company's profit for the year. Items classified as capital in
nature either relate directly to the Company's investment portfolio
or are costs deemed attributable to the long‑term capital growth of the Company
(such as a portion of the Investment Manager's fee).
In the financial year ending 31
December 2023, the Company's operating income was £19.7 million
(2022: £77.9m), including interest income of £25.9 million (2022:
£23.1m), dividends received of £16.8 million (2022: £17.3m) and net
loss on the movement of fair value of investments of £23.0 million
(2022: £37.6m gains). The operating expenses included in the
statement of comprehensive income for the year were £7.1 million
(2022: £8.1m). These comprise £5.6 million Investment Manager fees
(2022: £5.7m), transaction and abort costs of £0.1 million (2022:
£1.3m) and other operating expenses of £1.4 million (2022: £1.1m).
The details on how the Investment Manager's fees are charged are
set out in Note 17 to the
financial statements.
Ongoing charges
The ongoing charges ratio ("OCR")
is a measure, expressed as a percentage of average net assets, of
the regular, recurring annual costs of running the Company. It has
been calculated and disclosed in accordance with the AIC
methodology, as annualised ongoing charges (i.e. excluding
acquisition costs and other non-recurring items) divided by the
average published undiluted Net Asset Value in the year. For the
year ended 31 December 2023, the ratio was 1.16% (2022:
1.12%).
Dividends
During the year, interim dividends
totalling £31.9 million were paid (1.31p per share paid in respect
of the quarter to 31 December 2022 in February 2023 (2022: March),
1.44p per share in respect of the first quarter of 2023 paid in
June 2023 (2022: May) and 1.45p per share paid in respect of the
second and third quarters of 2023 in September 2023 and December
2023 respectively (2022: August and November).
Post year end, a further interim
dividend of 1.45p per share was paid on 23 February 2024 in respect
of the quarter ending 31 December 2023 to shareholders recorded on
the register on 9 February 2024. As such, dividends totalling £32.7
million have been paid in respect of the year under review. These
dividends are fully covered from the operational cash flows of the
underlying portfolios.
Dividend cover - operational cash flows (portfolio
level)
Year ended 31 December
|
2023
£m
|
2022
£m
|
Operational cash flows
|
|
|
UK Solar
|
14.8
|
13.7
|
French Solar
|
11.2
|
11.7
|
Swedish Wind
|
4.4
|
8.8
|
Finnish Wind
|
7.1
|
15.9
|
Polish Wind
|
4.9
|
12.1
|
French Wind
|
3.1
|
1.3
|
German Wind
|
3.0
|
0.7
|
UK Wind
|
8.2
|
5.0
|
UK Offshore Wind
|
17.0
|
7.1
|
Irish Solar
|
8.5
|
-
|
|
82.2
|
76.3
|
SPV level taxes
|
|
|
French Solar, Finnish Wind, Polish
Wind, UK Offshore Wind43
|
-2.8
|
-
|
Interest payable on external debt
|
|
|
French Solar, Polish Wind, French
Wind, German Wind, UK Offshore Wind
|
-7.9
|
-4.0
|
Operational cash flow pre debt amortisation
|
71.5
|
72.3
|
Company and intermediate holding
company level expenses
|
-10.1
|
-7.0
|
Interest and fees payable on RCF
and short-term facility
|
-12.3
|
-2.6
|
Net cash flow from operating activities pre debt
amortisation
|
49.1
|
62.7
|
Dividends paid in respect of
year
|
32.7
|
29.6
|
Portfolio level operational cash flow dividend cover pre debt
amortisation
|
1.5x
|
2.1x
|
External debt amortisation
|
|
|
French Solar, Polish Wind, French
Wind, German Wind, UK Offshore Wind
|
-10.4
|
-10.2
|
Net cash flow from operating activities
|
38.7
|
52.5
|
Dividends paid in respect of
year
|
32.7
|
29.6
|
Portfolio level operational cash flow dividend
cover
|
1.18x
|
1.77x
|
43 Taxes falling due on operational
asset trading profits (e.g. Corporation Tax in the UK).
The headline dividend cover metric
only takes into account 6 months of operational cash flow from the
Polish wind farms following their sale in the second half of the
year.
Additionally the above metric does
not include any proceeds related to gains on either Spanish solar
and Polish wind sales (with the exception of any cash received or
paid as a result of breaking hedging arrangements). The dividend
cover metric below includes cash realised from sale proceeds in
excess of the previous holding values.
|
2023
|
2022
|
|
£m
|
£m
|
Net cash flow from operating activities
|
38.7
|
52.5
|
Gain on asset sales/exits (above
previous holding value)
|
11.1
|
-
|
Net cash flow from operating activities
|
49.8
|
52.5
|
Dividends paid in respect of
year
|
32.7
|
29.6
|
Portfolio level operational cash flow dividend
cover
|
1.52x
|
1.77x
|
Subject to the timing of potential
further asset sales, dividend cover in 2024 is expected to increase
compared with 2023 as Cumberhead wind farm and the first four sites
of the Irish Solar portfolio contribute a full year of operational
cash flow, and Breach solar farm commences operations. Cash
generated by the operations of ORIT's current portfolio, net of all
debt service including scheduled principal repayments, is expected
to be sufficient to cover the dividend over the next 5
years.
ESG & Impact
As at 31 December 2023
ESG & Impact Strategy
ORIT is an impact fund with a core
impact objective to accelerate the transition to net zero through
its investments, building and operating a diversified portfolio of
Renewable Energy Assets.
ORIT enables individuals and
institutions to engage with the energy transition. The renewable
energy generated from ORIT's portfolio of assets supports the
transition to net zero by replacing unsustainable energy sources
with clean power. This intended outcome is the Company's core
impact objective.
The ESG & Impact Strategy
considers all of ORIT's culture, values and activities through
three lenses: Performance,
Planet and People - to ensure that ORIT's
activities integrate ESG risks and bring to life additional impact
opportunities.
For a more in-depth understanding of ORIT's ESG & Impact
Strategy, encompassing definitions of ESG and Impact, along with
detailed insights into four impact themes (Stakeholder engagement,
Equality and wellbeing, Innovation, and Sustainable momentum),
please refer to the separately published ESG & Impact
Strategy.
Stewardship and Engagement
The Investment Manager manages
ORIT's investments in line with its Engagement and Stewardship
Policy. Where ORIT has 100% ownership stakes, the Investment
Manager has direct control of the underlying assets, usually
through directorship services. As well as decision making
oversight, the Investment Manager carries out service reviews on
each material third-party service provider. In circumstances where
ORIT does not hold a controlling interest in the relevant Investee
Company, the Investment Manager will secure shareholder rights
through contractual and other arrangements, to, inter alia, ensure
that the renewable energy asset or portfolio company is operated
and managed in a manner that is consistent with ORIT's investment
and ESG Policy. The Investment Manager will always take up
portfolio investment Board seats, attend Board meetings and will
directly use its influence to monitor and support investee
companies on relevant matters to galvanise other shareholders in
line with ORIT's ESG Policies.
ORIT aims for investment-specific
active stewardship, regardless of ownership percentage. The Company
consistently exercises shareholder rights, overseeing approval and
reserved matters. The ORIT Board receives regular reports on
investee performance, including environmental and social issues.
The Investment Manager collaborates on industry risks to drive
positive stewardship outcomes with various stakeholders.
The initiatives and case studies
presented in the ESG & Impact section of the Annual Report and
the separately published ESG & Impact Report provide examples
of the application of the Engagement and Stewardship
Policy.
The Investment Manager's full Engagement and Stewardship
Policy can be viewed: https://a.storyblok.com/f/154679/x/5eeb87e6d3/oegen-engagement-and-stewardship-policy-june-2023-vf.pdf
Performance
Impact Objective: Build and
operate a diversified portfolio of Renewable Energy Assets,
mitigating the risk of losses through robust governance structures,
rigorous due diligence, risk analysis and asset optimisation
activities to deliver investment return resilience and the maximum
amount of green energy.
£1,127m
|
37
|
Total value of sustainable investments -
|
Assets
|
100% investments committed into
|
(2022: 36 assets)
|
renewables44
|
|
(2022: £1,304m)
|
|
|
|
1,569GWh
|
1,312GWh
|
Potential annual renewable energy
|
Renewable energy generated in the year
|
generation, 105GWh of which will be
|
|
additional generation from construction
|
|
Assets45
|
|
(2022: 1,740GWh,
669GWh)
|
|
|
|
100%
|
UN SDGs46
|
Of investments adhere to ORIT's ESG Policy and all
transactions in the year met ORIT's minimum ESG matrix
threshold
|
|
44 Total asset value including total
debt and equity commitments.
45 Reductions observed between ORIT's
2022 vs. 2023 potential renewable energy production and equivalent
impact KPIs are driven in part by the sale of the Polish onshore
wind farms midway through 2023, and by a change in the methodology
for calculating potential generation, which now accounts for
expected degradation across the portfolio.
46 More detail on how ORIT has
contributed to these UN SDGs is included in the separately
published ORIT Impact Report.
Regulatory Disclosures
The TCFD disclosures can be found in the Risk and Risk
Management Statement section of the Annual
Report.
ORIT is classified as an Article 9 product under the EU
Sustainable Finance Disclosure Regulation ("SFDR") regulation.
Please refer to the Annual Report and to the ORIT website for
ORIT's SFDR disclosures.
The Investment Manager is keeping
up with recent developments in new regulatory frameworks aimed at
increasing transparency in environmental and social factors. This
includes the Taskforce for Nature-related Financial Disclosures
("TNFD") and the UK's Sustainable Disclosure Requirements
("SDR").
Recognising the complexity and the
depth of insight required to meet the TNFD standards, the
Investment Manager has concentrated on understanding both direct
operational dependencies and those within ORIT's supply chain.
Initial analysis indicates that primary dependencies likely to
significantly impact the portfolio's direct operations are
integrated into ORIT's current risk management frameworks (refer to
the Company's 2023 Interim Report). Furthermore, a summary of the
Investment Manager's analysis regarding supply chain dependencies
is detailed in the separately published ESG & Impact Report.
This foundational phase of research is essential for establishing a
solid base for comprehensive TNFD disclosure, an ambition ORIT is
dedicated to achieving.
The Company supports
"anti-greenwashing" efforts and expects to start making the
necessary disclosures in relation to SDR from 30 June 2024. An
initial review of the different investment labels and their
criteria, the Investment Manager expects ORIT to qualify for the
"Sustainability Focus" label. Products with these labels are those
that invest in assets that are environmentally and/or socially
sustainable, determined using robust and evidence-based standards.
An example the FCA gives in this category is a fund that invests in
assets that contribute to climate change mitigation or
adaptation.
Performance initiatives
Delivering investment performance
is fundamental to the ESG &
Impact Strategy, to supporting the transition to net-zero, and to
being an impact fund. Asset optimisation initiatives and robust ESG
risk management aim to improve financial resilience and overall
performance of the Company, maximising the amount of green
electricity the Company generates.
Our Investment Manager works with
key partners to mitigate production risks and maximise performance
of ORIT's operational assets. Examples of projects that contributed
to this objective are laid out in the separately published ORIT ESG
& Impact Report.
Case Study: Addressing and
mitigating ESG risks, including human rights risks within BESS
assets
Equality & Wellbeing
Stakeholder Engagement
ORIT is committed to acting
ethically and with integrity in all its business dealings and
relationships associated with its battery energy storage system
(BESS) assets. ORIT recognises its responsibility specifically
regarding its supply chain and operations, and the Investment
Manager is dedicated to taking the necessary steps to engage with
and influence its partners to prevent any adverse impacts and
mitigate against any risks related to ESG issues.
BESS assets will be vital to
achieving a green transition by facilitating greater access to
renewable energy and reducing the world's dependence on fossil
fuels. However, BESS supply chains still present significant ESG
risks that must be managed. The extraction and refining of raw
materials needed for battery applications has been connected to
adverse impacts, such as biodiversity loss, pollution, forced
labour, violations of Indigenous rights and corruption, while the
manufacturing and operation of BESS raises concerns around climate
change and safety. Moreover, poor visibility and lack of
transparency within battery supply chains makes it a challenge to
address these issues.
The presence of these impacts and
the risk that ORIT's activities may be contributing to them has led
the Investment Manager to develop and implement a tailored ESG
policy and processes for its BESS assets. The Investment Manager is
working in collaboration with Infyos, an ESG technology company
specialising in battery supply chains and sustainability, and will
use Infyos's software platform to manage, monitor and improve
ORIT's BESS ESG performance.
The policy ensures
1. Responsible
sourcing principles are firmly integrated into all investment
decisions
2. Assets are operated
to reduce their impact on biodiversity and climate
The Investment Manager is able to enact positive change
across the industry on behalf of ORIT through wider industry
collaboration and engagement
As part of the recently launched
BESS ESG Policy, the Investment Manager has:
· conducted a detailed risk assessment of its BESS assets and
their supply chain using Infyos's proprietary risk and supply chain
models to identify the most significant ESG risks on an ongoing
basis;
· strengthened its due diligence framework in line with
industry best practice, including the OECD Guidelines for
Multinational Enterprises and Guidance for Responsible Business
Conduct, to address and mitigate the most significant risks
identified above; and
· incorporated an in-depth assessment of supplier risk and ESG
performance, as well as bespoke mitigation actions plans, into the
project procurement and supplier management process via the Infyos
Platform to ensure all potential and actual impacts are identified,
avoided and/or addressed on an ongoing basis.
In addition, the Investment
Manager will:
· develop controls to ensure the assets are managed in a safe
and efficient manner to reduce their impact on biodiversity and the
environment, including at the end of life;
· digitally map its high-risk material supply chains using the
Infyos Platform to ensure more accurate and granular data related
to potential and actual impacts; and
· engage with industry bodies and suppliers to promote greater
transparency in the battery supply chain and integrate best
practice across the industry.
For more information on how ORIT
is addressing Human Rights risks, including modern slavery and
human trafficking, please refer to ORIT's Modern Slavery Statement
available on its website.
Impact tracker
Who?
BESS supply chain
|
How much?
ORIT's current BESS
assets:
6MW47
|
What?
New BESS
procurement policy
Alignment to
OECD Guidelines
for Multinational
Enterprises and
Guidance for
Responsible Business
Conduct
Reduced risk of
adverse impact in
ORIT supply chain
|
Impact Theme
Equality and
Wellbeing
Stakeholder
Engagement
|
47 Represents the capacity of ORIT's
existing BESS asset, Woburn Road.
Planet
Impact Objective: Consider
environmental factors to mitigate risks associated with the
construction and operation of assets, enhancing environmental
potential where possible.
400k
Estimated annual equivalent tCO2e avoided once
fully operational48
(2022: 580k)
|
55.47t
CO2e per MW estimated carbon
intensity (direct and indirect)
(2022: 8.48t)
|
553t
Worth of carbon purchased in
Pending Issuance Units
|
|
|
|
100%
Investments qualify as sustainable in line with EU
Taxonomy
(2022: 100%)
|
93%
Generating sites on renewable
import tariffs49
(2022: 87%)
|
4
Environmental incidents
(2022: 0)
|
|
|
|
UN SDGs
|
2.0m
|
203k
|
|
Equivalent new trees required to avoid same
carbon48
(2022: 2.9m)
|
Equivalent cars off the road required to avoid same
carbon48
(2022:318k)
|
Based on actual annual renewable
energy generation during the year
366k
|
1.8m
|
186k
|
Equivalent tCO2e avoided
|
Equivalent new trees required to avoid same
carbon
|
Equivalent cars off the road required to avoid same
carbon
|
.
Further information on the KPIs
can be found in the separately published ESG & Impact Report.
All KPIs with no reference to 2022 are new for the 2023 reporting
period.
48 Based on potential annual renewable
energy generation once fully operational.
49 As at 31 December 2023.
Maximising ORIT's positive environmental
impact
ORIT recognises the critical role that renewable energy plays
in meeting net zero emissions targets, with an inherently positive
impact on the environment. This is demonstrated by the equivalent
tCO2e avoided by the renewable energy generated during
the year.
Figures for carbon avoided use
country-specific grid intensity factors, which are updated on a
periodic basis to reflect the changing composition of the grid's
energy sources. Increasing renewable capacity on the grids in which
ORIT's assets are located has resulted in a reduction in the
tCO2e avoided per MWh of renewable energy
generated.
ORIT's LSE's Green Economy
Mark50 demonstrates the Company significant contribution
to the transition to a zero-carbon economy.
The Investment Manager can also confirm that 100% of ORIT's
assets directly contribute to or enable climate change mitigation
in line with the EU Taxonomy criteria. The EU Taxonomy is a classification system for sustainable
activities designed to help investors identify "green"
environmentally friendly activities. This is aimed to demonstrate
investments that are sustainable; ones that make a substantial
contribution to climate change mitigation or adaptation, while
avoiding significant harm to other environmental objectives and
complying with minimum safeguarding standards. The Company assesses
% of Taxonomy-aligned activities through turnover reflecting the
share of revenue from green activities of investee companies. More
information on the Investment Manager's screening and assessment
approach can be found in ORIT's ESG & Impact
Strategy.
Turnover £107.94 m
|
100% Aligned
|
0% Not Aligned
|
0% Not Eligible
|
As part of ORIT's approach to
maximise positive environmental impact, ORIT will review and adopt
relevant industry standards alongside initiatives to reduce its own
carbon footprint.
The four recorded environmental
incidents were minor. Three of the recorded incidents were in
relation to very small amounts of oil/fuel leakage. In each case,
the required mitigation response was deployed and the events had no
lasting negative impacts. The final environmental incident was in
relation to the discovery of a dead bat at one of ORIT's sites.
Following environmental monitoring of bat activity on site,
extended curtailment was implemented to ensure adequate
protection.
Carbon measurement and reporting
In 2023 the Investment Manager on
behalf of the Company engaged with Altruistiq to help calculate and
validate the Greenhouse Gas ("GHG") emissions footprint for ORIT.
ORIT has quantified and reported organisational GHG emissions in
line with the iCI and ERM Greenhouse Gas Accounting and Reporting
Guide for the Private Equity Sector (2022). This methodology was
developed to complement both the World Resources Institute's
Greenhouse Gas Protocol Standards and the Partnership for Carbon
Accounting Financials' Standard for the financial industry. This
approach consolidates the organisational boundary according to the
operational control approach. For more information on the carbon
footprint methodology and definitions for terms used in this
section, please refer to ORIT's ESG & Impact
Strategy.
The Company, as a legal entity,
has no direct employees, owned or leased real estate, or direct
assets, and therefore the Company has no Scope 1 or 2 emissions.
Scope 1 and 2 emissions for the portfolio arise mainly from on-site
fuel combustion and imported electricity. The majority of emissions
are Scope 3. For the portfolio, Scope 3 emissions largely stem from
purchased goods and services alongside indirect activities like
waste management, transportation, and travel. For the Company, they
relate to purchased services acquired, such as legal and investment
management services.
50 The Green Economy Mark identifies
London-listed companies and funds that generate between 50% and
100% of total annual revenues from products and services that
contribute to the global green economy.
Scope
|
Portfolio
Emissions
(tCO2e)
|
Company Emissions
(tCO2e)
|
Total Emissions
(tCO2e)
|
% of Total
|
1
- Direct Emissions
|
223.45
|
-
|
223.45
|
0.6
|
2
- Indirect Emissions (market-based)51
|
728.98
|
-
|
728.98
|
2.0
|
3
- Indirect Emissions
|
36,012.16
|
83.58
|
36,095.74
|
97.4
|
- Fuel & Energy Related
Activities
|
410.22
|
-
|
410.22
|
1.1
|
- Purchased Goods and
Services
|
34,687.11
|
83.58
|
34,770.69
|
93.9
|
- Travel and
Transport52
|
749.03
|
-
|
749.03
|
2.0
|
- Waste
|
165.80
|
-
|
165.80
|
0.4
|
Total
|
36,964.59
|
83.58
|
37,048.17
|
|
ORIT's overall carbon intensity
was calculated to be 55.47
tCO2e per MW.
ORIT's weighted average carbon
intensity ("WACI") for the year was calculated to be 3.74tCO2e/£m
revenue53.
The following table separates
ORIT's carbon emissions into UK and non-UK based emissions in line
with the Streamlined Energy and Carbon Reporting framework
("SECR").
|
|
2023
|
2022
|
2021
|
|
|
UK
Emissions
|
Non-UK
Emissions
|
UK
Emissions
|
Non-UK
Emissions
|
UK
Emissions
|
Non-UK
Emissions
|
Scope 1
|
tCO2e
|
218.0
|
5.4
|
0.0
|
0.6
|
0.0
|
0.0
|
Scope 2
|
Market based
tCO2e
|
126.5
|
602.5
|
0
|
885.2
|
0.0
|
5.0
|
|
Location based
tCO2e
|
342.1
|
471.3
|
190.4
|
836.5
|
192.2
|
62.4
|
|
Energy consumption
MWh54
|
11,221.7
|
2,550.1
|
1,568.4
|
2,724.9
|
905.2
|
1,150.5
|
Scope 3
|
tCO2e
|
29,262.2
|
6,749.9
|
5,706.4
|
1,261.4
|
710.9
|
1,500.7
|
51 Using a location-based approach,
ORIT's portfolio Scope 2 emissions equate to
813.39tCO2e.
52 This category includes upstream
transportation and distribution, employee commuting, business
travel and contractor travel.
53 A market-based approach as used to
calculate the WACI. The WACI using a location-based approach is
equal to 3.62tCO2e/£m revenue.
54 The uplift in energy consumption MWh
is partially due to greater capture of on-site fuel consumption
reported alongside electricity consumption.
The Investment Manager has
disclosed the different categories of data points used to calculate
the Company's carbon footprint to transparently convey both the
quality and accuracy of the carbon footprint reported. The table
below shows the split between the defined55 categories
of data:
Real data
|
Estimated data
|
Proxy data
|
(44% total)
|
(49% total)
|
(7% total)
|
Actual activity data =
9%
|
Estimated activity data =
40%
|
Proxy activity data =
7%
|
Actual spend data = 35%
|
Estimated spend data =
9%
|
Proxy spend data = 0%
|
In 2023, the Investment Manager
worked together with the ORIT's investee companies and carbon
consultant to create a bespoke template to support the reporting of
carbon-related data, and the attribution of more specific emission
factors for the calculation of emissions. It is positive to see
that these efforts have led to a marked improvement in the quality
of ORIT's carbon footprint in 2023.
Whilst the percentage of estimated
data has remained relatively consistent, "proxy" estimations have
decreased from 25% of total data in 2022, to 7% in 2023,
whilst "real data" has almost doubled year-on-year, from 22.5% to
44%. As such, the Investment Manager has high confidence in 93% of
the datapoints provided (compared to 75% in 2022).
Furthermore, whilst actual
activity data appears lower than expected at 9% of total data in
2023, this is in part due to greater capture of actual
service-related spend data during this reporting period, which
cannot be captured through weight- or volume-based data. The
Investment Manager is cognizant of the potential for bias in the
calculation of data quality, and will continue to refine the
methodology to present data quality in the most appropriate
format.
Carbon reduction
The Company's aim is to reduce its
emissions through stakeholder engagement and proactive management
of its assets. As the Company improves data quality, especially for
assets in construction, the Investment Manager will continue to
explore opportunities to reduce emissions associated with embodied
carbon.
The carbon intensity metric based
on the MW capacity of the portfolio has increased significantly
since 2022. Changes in the carbon intensity are dependent on
factors such as the operational and construction split of assets,
whereby construction assets typically display higher carbon
footprints than operational assets. The 2023 increase is primarily
driven by activities and purchases for the construction of
Cumberhead wind farm and Breach solar farm.
2023
|
2022
|
2021
|
55.47
tCO2e/MW
|
8.48
tCO2e/MW
|
5.23
tCO2e/MW
|
It is also important to note that
even within construction projects of a similar size, there may be
still large variations in related carbon emissions. Factors such as
foundation type, location and supplier can have very significant
implications on an asset's footprint. The Investment Manager
expects ORIT's carbon intensity per MW to reduce once the portfolio
is fully operational.
55 Please refer to ORIT's ESG &
Impact Strategy for definitions of these terms.
Carbon offsetting
Whilst carbon reduction remains
the priority in ORIT's carbon strategy, ORIT does still commit to
offsetting any residual direct emissions relating to its Scope 1
and 2 emissions.
Last year, ORIT purchased 400
tonnes worth of carbon in "Pending Issuance Units"56.
These units have been secured both to future-proof ORIT's carbon
units in light of increasing prices and low availability of
"Woodland Carbon Units"57 and also to support new
woodland creation in the UK. In 2023, the Investment Manager
purchased an additional 553 PUIs to cover the emissions relating to
ORIT's 2023 Scope 1 and 2 emissions.
Supporting the planting of new UK
woodland helps plant new trees today, but these woodlands do not
deliver "offset" credits immediately. Only once the woodland
biomass has grown sufficiently will its carbon credits be verified
and converted from ex-ante PIUs to ex-post WCUs. Only then can only
then be used as official offsets.
In recognition of the carbon
impact of ORIT's operations, ORIT has decided to invest in a UK
woodland carbon project that will capture 953 tonnes worth of
CO2 over the next 31 years. The units are derived from a
"Forest Carbon" project in Acheilidh, Tain, Highlands. The new
native broadleaf woodland is expected to deliver all 953 tonnes of
carbon by 2055 and 75% of its carbon units by 2050.
The Board will reassess if the
purchase of additional PIUs will be necessary on a year-to-year
basis.
The growing trees will also
provide wider co-benefits beyond climate mitigation, including
water quality improvements, habitat creation, employment, and
cleaner air. Through ORIT's support for UK woodland creation, the
Company is helping the country to meet its long-term international
climate targets in a way that also benefits wider society and
nature.
Planet initiatives
Maximising the Company's positive
contribution to the environment is core to the ESG & Impact
Strategy. Planet initiatives contribute to solutions to combat
climate change. Projects undertaken in the year are outlined in the
separately published ESG and Impact Report.
56 A Pending Issuance Unit ("PIU") is
effectively a 'promise to deliver' a Woodland Carbon Unit in
future, based on predicted sequestration. It is not 'guaranteed'
and cannot be used to report against UK-based emissions until
verified. However, it allows companies to plan to compensate for
future emissions or make credible statements in support of woodland
creation.
57 A Woodland Carbon Unit ("WCU") is a
tonne of CO2e which has been sequestered in a Woodland
Carbon Code-verified woodland. It has been independently verified,
is guaranteed to be there, and can be used by companies to report
against emissions or to use in claims of carbon neutrality or Net
Zero emissions.
Case Study: Empowering
communities for climate justice - Citizens UK Diversifying Climate
Leadership National Project
Sustainable Momentum
Stakeholder Engagement
ORIT engaged with Citizens UK, a
prominent community organising alliance, to deliver the
"Diversifying Climate Leadership National Project" with the aim of
addressing local climate issues and empowering a diverse range of
individuals underrepresented in the climate sector.
Through this project, ORIT and Citizens UK aimed to address
the following objectives as the initial scoping phase of their
broader climate justice campaign:
1. Local climate advocacy and
representation: Bring about change on local climate issues,
emphasising campaigns led by local communities to ensure
relevance.
2. Building power and addressing
inequalities: Seek commitments from various civil society
leaders from diverse backgrounds to build power and simultaneously
provide improved representation and perspective of local needs in
climate campaigns.
3. Empowering civil society leaders:
Deliver a training course for civil society leaders embedded into
local organisations, equipping them with the skills to lead
successful climate justice campaigns within their
communities.
The project was a huge success.
Citizens UK delivered a comprehensive 5-part training course,
attracting over 100 attendees from 5 regions in the first
session, fostering regional representation and diverse
participation.
Trained leaders initiated
impactful community organising, addressing key issues such as
housing repair, transport improvements and the revitalisation of
green spaces.
Following the completion of the
training, a National Climate Team consisting of 15 members was
formed, and the pivotal inclusion of "Climate Justice" into
Citizens UK's core agenda marked a significant achievement. This
outcome signifies that ORIT's pilot project successfully
facilitated the sustained emphasis on climate change as a central
issue within the priorities of Citizens UK.
For more information on the
project, please visit the Citizens
UK website58.
"New climate leader in
Greater Manchester, Rev Ian Rutherford: "I've always been
passionate about taking action on climate, but it's never really
been a priority at Citizens UK until now. The training I did has
galvanised local people to be ambitious for change and to do
something about it. There's not only more local climate campaigns
happening now but a dedicated national team. I'm really excited
about what we can achieve."
58
https://www.citizensuk.org/campaigns/climate-justice/
Impact tracking
Who?
|
How much?
|
What?
|
Impact Theme
|
Citizens UK 50,000
members.
|
5 regions
15 members of a National Climate
Team
|
Provided a grant to support the
delivery of 5-part training programme for local civil society
leaders, providing them with the necessary skills to deliver
effective climate justice initiatives in their communities. This
project's success also resulted in Citizens UK incorporating
"Climate Justice" as a key priority in their organisation's
agenda
|
Sustainable momentum
Stakeholder Engagement
|
People
Impact Objective: Evaluate
social considerations to mitigate risks and promote a 'Just
Transition' to clean energy.
7,827
|
7,849
|
0
|
Students benefitting from
|
Direct beneficiaries from the
|
RIDDORS (or equivalent)
|
social initiatives
|
projects funded through the
|
(2022: 1)
|
(2022: 396 students)
|
BizGive platform
|
|
|
(2022: 7,536)
|
|
|
|
|
169
|
UN SDGs
|
|
Estimated FTE jobs created
|
|
|
Managing our impact on society
Investing in renewable energy has
natural positive impacts on people and for the wider society by
benefitting the economy. By channelling capital towards "homegrown
renewables" ORIT is also contributing to energy security,
preventing future energy crises resulting from reliance on
unsustainable global fossil fuel markets.
It is also vital the Company
mitigates any possible negative impacts and risks to people as the
Company invests, constructs, and operates our portfolio of
renewable assets. ORIT has clear policies and governance structures
to achieve this. Some social factors that ORIT and our Investment
Manager consider to be the most important during due diligence and
ongoing monitoring of assets include:
· Health and safety
· Diversity and inclusion
· Promoting a Just Transition (workers, community and
customers)
ORIT also supports initiatives
that contribute to solutions to engage communities and promote a
"Just Transition" to clean energy (see "People Initiatives" section
below).
Health and safety approach
ORIT recognises its health and
safety responsibilities and keeping people safe remains its highest
priority. ORIT has put arrangements in place with its Investment
Manager to ensure that health and safety risks are managed
effectively.
Our Investment Manager employs
specialist HSE consultants and additionally has employed a Head of
Health and Safety to ensure that health and safety procedures are
embedded into our model of investing and managing
assets.
This integration is achieved
through:
· Technical Compliance Standards
· Diligence and benchmarking of contractors
· Audits and ongoing oversight
· Continuous Improvement
Where minority stakes in
businesses are held, the Investment Manager still tracks
performance via Board meeting attendance.
Our Investment Manager actively
tracks and monitors various accident and incident classifications
from events where there is a statutory requirement to report to the
UK Health & Safety Executive (RIDDORs) or other local
government bodies. This includes incidents classified as accidents,
near misses, dangerous occurrences, and general safety
observations. Where accidents occur on overseas assets that would
merit reporting as a RIDDOR if they were to occur in the UK, we
flag them as "RIDDOR-like" events. All notifications of HSE
incidents are investigated by the Investment Manager's in-house
asset management team and where necessary the third-party HSE
advisor and the Investment Manager ensure that out-sourced HSE
managers close out all incidents with root cause analysis and
establish lessons learned and where necessary change processes and
procedures. Where weaknesses in underlying procedures and systems
are identified, the HSE advisor works with businesses to implement
appropriate remedies.
RIDDORs
|
Lost time injuries
(>7 days)
|
Near
misses
|
Personal
injuries
|
Minor equipment damage
incidents
|
0
|
2
|
14
|
10
first aid
|
23
|
The organisation's safety
performance during the year has been positive, with no significant
risks to highlight. All incidents were investigated, and
appropriate actions were taken.
Diversity and inclusion
Equality and wellbeing are
fundamental to ORIT's impact ambitions. This is reflected in our
Company policies and in the way that the Company operates
externally, through understanding the approach that our third-party
providers take to diversity and inclusion, and suggesting ways to
improve this wherever possible.
The Investment Manager provides
directors to the underlying subsidiary companies and ensures
diversity is considered when appointing them.
Board
|
Investment Manager
|
The Company's Board is made up of
a complementary mixture of social backgrounds, gender diversity and
ethnicity. The Company' complies with the FCA's diversity targets
on the representation of women and ethnic minorities:
· At
least 40% of the board should be women.
· At
least one of the senior board positions or Senior Independent
Director (SID) should be a woman.
· At
least one member of the board should be from an ethnic minority
background excluding white ethnic groups (as set out in categories
used by the Office for National Statistics).
|
The Investment Manager shares
ORIT's values and places diversity and inclusion at the heart of
them, which is demonstrated through initiatives implemented in
2023. These initiatives include:
· Recruitment Enhancements: Established hiring guidelines and
unconscious bias training; diversified candidate pools through
broader job advertising and inclusive job descriptions.
· Workplace Attractiveness: Updated parental leave policies for
diverse family structures; proactive monitoring of gender pay
gaps.
· Promotion Process Reforms: Revised promotion process for
greater transparency and decision-making diversity at the team
level.
· Workplace Adjustments: Implemented necessary adjustments and
encouraged open communication for supporting diverse workplace
needs.
· Focus on Neurodiversity: Established a neurodiversity group,
planning manager training on neurodiversity for 2024.
· Internship Programs: Successful participation in the Octopus
Energy Equality Internship, leading to full-time roles for several
interns.
|
Promoting a "Just Transition"
A "Just Transition" refers to the
equitable distribution of benefits in the shift to clean energy.
ORIT actively engages with workers, local communities and
customers, focusing on job creation, community benefits and fair
access to green energy.
|
Strategy's aim:
|
Performance KPIs:
|
Workers - Job Creation
|
Enhance socio-economic distribution
and equity by supporting the creation of decent jobs through ORIT's
partners and subcontractors. This is achieved by their commitment
to adhere to standards of equal opportunities, workplace best
practices, diversity, and inclusion, coupled with a focus on
promoting local employment opportunities.
|
· 169
estimated FTE jobs supported
· 20%
local
|
Community - Engagement, Voice and Benefit
|
Empower local communities by
establishing avenues for benefits such as through community benefit
schemes, educational engagement with local schools via workshops
and site visits, and support of local charities. As ORIT's
portfolio expands, these impact partnerships are designed to create
a more significant and lasting impact across a diverse range of
beneficiaries. Applicability of community initiatives will be
determined on a portfolio-by-portfolio basis. Proactively engaging
with communities and stakeholders from the outset, ORIT aims to
secure social license for its investments, particularly in
extending the operational lifespan of its assets.
|
· Over
£600,000 per year of
community benefit funds
· 7,827
students benefitting from social
initiatives
· 7,849
direct beneficiaries from the projects funded
through the BizGive platform.
|
Customers - Affordable Green Energy
|
Deliver societal benefits by
supplying affordable, clean energy to the grid. This not only aims
to lower energy bills but also to enhance energy security in
regions with ORIT's assets.
|
· 354,880
Equivalent number of homes powered by ORIT's
assets59.
|
People initiatives
Alongside keeping people safe,
ORIT considers its potential impact on people. People initiatives
contribute to solutions to engage communities and promote a "Just
Transition" to clean energy. ORIT exhibits a variety of social
considerations across its assets and beyond, utilising the
experience and approach developed by our Investment Manager to
maximise benefits. Projects undertaken in the year are outlined in
the separately published ESG & Impact Report.
59 Metric based on actual production
generated by ORIT's assets during the year.
Case Study: Community
Benefits at ORIT's wind farms
Equality & Wellbeing
ORIT's wind farms collectively
stand to provide over £600,000 a year to its local communities as
part of their community benefit funds. At the heart of ORIT's
community benefit programme, Cumberhead and Crossdykes wind farms
stand out for their significant annual contributions, amounting to
£249,900 and £322,000 respectively. These funds are directed
towards a myriad of community-centric projects through open
grantmaking, which includes support for local education,
infrastructure, and environmental stewardship.
Cumberhead
With an annual provision of
£249,900, Cumberhead community benefit fund promises substantial
support over the site's 30-year lifespan. This fund will benefit
the communities within the South Lanarkshire Council area, with 50%
of the funds directly attributed to the Council's Renewable Energy
Fund and the remaining 50% available to community council areas of
Coalburn and Lesmahagow through bi-annual award rounds. September
2023 marked the fund's inaugural round, and the fund saw four
awardees from six applications, disbursing c£45,000, which
represents 40% of the year's allowance for Coalburn and
Lesmahagow.
The Cumberhead community benefit
fund beneficiaries highlight the fund's diverse impact:
· Three Valleys Women's Walking Football Club received funding
for equipment and professional coaching to support its aim of
encouraging women into physical activity, enhancing mental health,
and building supportive social networks.
· Lesmahagow Development Trust, awarded for infrastructure
improvements at the Fountain Community Centre, demonstrates the
fund's commitment to enhancing community facilities and
services.
· OutLET: Play Resource was supported to employ a new staff
member for its Youth Foresters Programmes, promoting youth
development and outdoor education.
· Coalburn Men's Shed received a grant towards running costs
and equipment, showcasing the fund's impact in promoting mental and
physical well-being through community engagement.
Crossdykes
The Crossdykes community benefit
fund contributes £7,000 per installed megawatt annually, directly
benefiting the surrounding communities within the council areas of
Eskdalemuir, Langholm, Ewes & Westerkirk, Lockerbie, Middlebie
& Waterbeck, and North Milk. This fund has three schemes to
address a wide array of community needs and has distributed
£348,000 in 2023 alone.
The Open Grant Funding Scheme is
dedicated to larger community projects across various sectors aimed
at enhancing community development and rural regeneration,
combating poverty, advancing education and health, and enriching
lives through the arts, heritage, culture, and science. It promotes
active participation in sports, improves living conditions through
recreational facilities, and supports environmental protection
efforts to combat climate change, benefit nature and animal
welfare. The fund provides relief for those affected by age,
ill-health, disability, or financial hardship, a holistic approach
to community support and sustainable development.
An example is the £30,000 grant
made to the D&G HandyVan project. This funding enabled the
charity, which aids vulnerable populations in Dumfries and Galloway
by providing home repairs and improvements, to extend its reach and
efficiency through the purchase of a new van. This purchase
underscores the project's commitment to aiding those in need while
contributing positively to climate action efforts. For more
details, see https://www.foundationscotland.org.uk/our-impact/case-studies/dg-handyvan-goes-electric-to-benefit-local-community
As well as the open grant scheme
the Community Council Small Grants Scheme allocates up to £5,000
per year to each community council within the benefit area,
enabling them to swiftly respond to smaller local needs.
The Education and Training
Bursaries scheme offer £2,000 annually to each of the five
community councils for distribution as bursaries, aimed at
improving access to education and training
opportunities.
Saunamaa and Suolakangas
ORIT extended this voluntary
initiative to its Saunamaa and Suolakangas wind farms in Finland in
December 2023, contributing €30,000 to support local projects, a
practice less common in Finland compared with the UK. These funds
will be distributed following the review and selection of
successful applicants by a community panel.
Together, these funding streams
provide a holistic and responsive framework for community
development. The extension of such initiatives to Finnish wind
farms underscores ORIT's commitment to community development beyond
the UK, promoting a model for renewable energy projects to
contribute positively to local communities globally.
Impact tracker
Who?
|
How much?
|
What?
|
Impact Theme
|
Communities near:
- Crossdykes
- Cumberhead
- Saunamaa and
Suolakangas
|
Annual commitments of:
- £322,000
- £249,900
- €30,000
|
- Funding that
supports local needs and priorities
- Shared benefits with
communities, providing a just transition
|
Equality &
Wellbeing
|
Risk and Risk Management
Risk Appetite
The Board is ultimately
responsible for defining the level and types of risk that the
Company considers appropriate. In the context of the Company's
strategy, risk appetite is aligned to the Investment Policy and
this provides the framework for how capital will be deployed to
meet the Company's investment objective. The limits set out in the
Investment Policy represent the amount of risk the Company is
willing to take and the constraints that the Board determines that
the Investment Manager must adhere to on behalf of the Company.
This covers the principal risks the Company faces including,
amongst other things, the level of exposure to power prices,
financing risks and investment risks. Beyond this, risk limits and
tolerances are monitored and set by the AIFM as part of the AIFM's
risk management services. These are documented in the AIFM's Risk
Management Policy for the Company covering credit, liquidity,
counterparty, operational and market risks. Adherence to these risk
limits is reported regularly to the Board through the quarterly
AIFM risk management report.
Principal risks and uncertainties
The Company has carried out a
robust assessment of its principal and emerging risks and the
procedures in place to identify any emerging risks are described
below.
Procedures to identify principal or emerging
risks:
Well managed risks are key to
generating long-term shareholder returns. The purpose of the risk
management framework and policies adopted by the Company is to
identify risks and enable the Board to respond to risks with
mitigating actions to reduce the potential impacts should the risk
materialise.
The Board regularly reviews the
Company's risk matrix, with a focus on ensuring appropriate
controls are in place to mitigate each risk. The experience and
knowledge of the Board is important, as is advice received from the
Company's service providers.
The following is a description of
the procedures for identifying principal risks that each service
provider highlights to the Board on a regular basis.
1. Alternative Investment Fund Manager
("AIFM"): The Company has appointed
Octopus AIF Management Limited to be the Alternative Investment
Fund Manager of the Company (the "AIFM") for the purposes of UK
AIFM Directive. Accordingly, the AIFM is responsible for the
portfolio management of the Company and for exercising the risk
management function in respect of the Company. As part of this the
AIFM has put in place a Risk Management Policy which includes
stress testing procedures and risk limits. As part of this risk
management function, the AIFM maintains a register of identified
risks including emerging risks likely to impact the Company. This
is updated quarterly following discussions with the Investment
Manager and highlighted to the Board.
2. Investment Manager: Portfolio Management has been delegated by the AIFM to the
Investment Manager. There is a comprehensive due diligence process
in place to ensure that potential investments are screened against
the Company's objectives, and that financial and economic analysis
is conducted alongside a full risk analysis. Any potential
transaction must be granted approval in principle ("AIP") by the
Octopus Energy Generation Investment Committee ("OEGEN IC") and the
due diligence budget signed off by the Board. Once due diligence
and negotiations of final terms are substantially complete, the
final proposal including the risk analysis will be presented to
OEGEN IC for a decision on whether the Company should proceed with
investment, subject to approval from the Board. The Investment
Manager also provides a report to the Board at least quarterly on
asset level risks, industry trends and insight to future challenges
in the renewable sector including the regulatory, political and
economic changes likely to impact the renewables sector.
3. Broker: The
Broker provides regular updates to the Board on Company performance
advice specific to the Company's sector, competitors and the
investment company market whilst working with the Board and
Investment Manager to communicate with shareholders.
4. Company secretary and auditors:
Brief the Board on forthcoming
legislation/regulatory change that might impact on the Company. The
auditors also have specific briefings at least annually.
Procedure for oversight
The Audit and Risk Committee
undertakes a review at least three times a year of the Company's
risk matrix and a formal review of the risk procedures and controls
in place at the AIFM and other key service providers to ensure that
emerging (as well as known) risks are adequately identified and -
so far as practicable - mitigated.
During the year, the Audit and
Risk Committee have added additional principal risks covering the
impact on Company performance of asset sales (and other capital
recycling) processes, and the impact on Company performance of
corporate M&A and other growth initiatives. The Company reviews
the risk matrix on a quarterly basis and revises risk scores as
appropriate.
Principal risks
The Board considers the following
to be the principal and other risks faced by the Company along with
the potential impact of these risks and the steps taken to mitigate
them.
Economic, political and climate risks
Income and value of the Company's
investments may be affected by future changes in the economic and
political environment, alongside risks associated with climate
change.
Risk
|
Potential Impact
|
Mitigation
|
Inflation and interest rates
|
The revenue and expenditure of the
Company's investments are frequently partially index-linked and
therefore any discrepancy with the Company's inflation expectations
could impact positively or negatively on the Company's
cashflows.
Changes in interest rates may
affect the valuation of the investment portfolio by impacting the
valuation discount rate and could also impact returns on cash
deposits and the cost of borrowing.
In the event that actual inflation
differs from forecasts or projected levels, the profitability of
the Company may be impaired leading to reduced returns to
shareholders.
Increased inflation and a higher
cost of living can adversely impact investor appetite.
|
Inflation and interest rate
assumptions are reviewed and monitored regularly by the AIFM and
the Investment Manager in the valuation process. Assumptions are
set by the Valuations Consistency Group and valuations approved by
the AIFM.
It is expected that a natural
hedge may occur where higher interest rates are also accompanied by
higher inflation rates due to subsidies being inflation
linked.
The Company can utilise interest
rate swaps or fixed rate financing to mitigate interest rate
risks.
|
Foreign currency
|
The Company's functional currency
is Sterling, but some of the Group's investments are based in
countries whose local currency is not Sterling.
Therefore, changes in foreign
currency exchange rates may affect the value of the investments due
to adverse changes in currencies.
|
The principal mitigation is
through the Company's hedging policy which seeks to minimise the
volatility of cash flows in non‑GBP currencies. The RCF can also be
drawn in multiple currencies to allow the matching of debt and the
underlying assets.
The Investment Manager monitors
foreign exchange exposures using short and long-term cash flow
forecasts.
The Company's portfolio
concentrations and currency holdings are monitored regularly by the
Board, the AIFM and the Investment Manager.
All FX hedges are held within the
intermediate holding companies.
|
Government policy changes
|
The Company's investments in
Renewable Energy Assets are remunerated by both government support
schemes and private PPAs - the terms of these may be impacted by
government changes or policy or even terminated in certain
circumstances. This would adversely impact the value of the
Company's investments.
|
The Company holds a diversified
portfolio of Renewable Energy Assets and so it is unlikely that all
assets will be impacted equally by a change in
legislation.
There is also strong public demand
for support of the renewables market to hit "net zero" carbon
emission targets.
|
Geopolitical risks
|
Events in Ukraine and the impact
of sanctions placed on Russia and affiliated countries may impact
the target returns of the Company.
The Company engages third-party
contractors to oversee the day-to-day operations of the assets. If
any of these contractors are impacted by the events in Russia and
Ukraine, or by the current sanctions imposed on Russia, this may
impact the performance of the assets, and ultimately the target
returns of the Company.
Assets located in nearby
jurisdictions may be impacted by the conflict.
The conflict may lead to increased
volatility of power prices and hence valuations. Heightened power
prices may lead to an increased risk of political intervention to
regulate prices or impose windfall taxes.
The conflict may lead to an
increased risk of cyber attacks.
|
The Investment Manager undertakes
extensive due diligence on all counterparties prior to conducting
business with them and will fully comply with all sanctions. As
part of this review, all counterparty due diligence has been
reviewed and confirmed that the Group's current counterparties are
not materially impacted by recent events or by the new
sanctions.
The Investment Manager will remain
agile to the changing geopolitical environment and will continue to
evolve and reassess appropriate mitigation strategies.
Mitigations for power prices as
well as for cyber security are described below.
|
Risks associated with climate change
|
Climate related risks relate to
transition risks and physical risks.
The prominent transition risk
relates to oversupply of renewables over time, which may cause
downward pressure on long-term power price forecasts setting lower
capture prices, including the risks associated with periods of
negative power prices and power price volatility. This could
ultimately lead to a shortfall in anticipated revenues to the
Company.
The prominent physical risks
relate to long‑term changes to weather patterns, which could cause
a material adverse change to an asset's energy yield from that
expected at the time of investment.
Physical risks associated with
acute and chronic temperature change could lead to flooding,
storms, and high winds. This could damage equipment and force
operational downtime resulting in reduced revenue capability and
profitability of the portfolio of assets.
|
The Investment Manager has engaged
with third party advisors on how climate related risks are being
modelled in long-term power price forecasts. There are likely to be
opportunities associated with the transition to a low carbon future
including growth in the market, government interventions and
technology advancements that could counterbalance the transition
risks of climate change on the Company.
The Board and the Investment
Manager periodically assess the Company's portfolio of assets for
potential transition risks within the jurisdictions that it
currently operates. The Investment Manager works with third-party
asset managers to ensure an appropriate level of equipment spares
to minimise downtime associated with damaged equipment.
There is growing demand for
consistent, comparable, reliable, and clear climate related
financial disclosure from many participants in financial markets.
The Board, AIFM and Investment Manager have included TCFD as part
of the Company's ESG & Impact Strategy.
|
Company: operational risks
Risk that target returns and
Company objectives are not met over the longer term.
Risk
|
Potential Impact
|
Mitigation
|
Deployment
|
A deterioration of the investment
pipeline may impact the ability to commit and deploy capital into
suitable opportunities in the expected time frame. Competition in
the infrastructure market remains strong which could limit the
ability of the Company to acquire assets in line with target
returns or incur abort costs where transactions are
unsuccessful.
Both deployment risks could
ultimately impact shareholder returns.
|
The Company has an experienced
Investment Manager with good presence and strong relationships in
the renewables market. The investment mandate is diversified giving
a broad landscape of opportunities.
The Board and Investment Manager
oversee the investment pipeline and abort exposure and frequently
monitor its progress in relation to Company targets. This risk
naturally reduces as the amount of capital to deploy falls. Low
levels of 'dry powder' currently and during 2023 have meant this
risk is and has been less relevant recently.
|
Capital recycling through asset sales
|
Selling assets could have an
impact on the ongoing dividend target and other investment policy
limits. It could also result in the loss of receipt of anticipated
cash flows impacting dividend cover.
Unsuccessful transactions could
also result in abort costs, and potentially also impact Company
reputation.
|
The Company has an experienced
Investment Manager within the sector and the Investment team has a
good understanding of the M&A market and investor landscape.
Certain assets have been identified by the Investment Manager as
being potentially available and appropriate for sale by the
Company.
The Investment Manager has an
Investment Committee to approve asset sales in principle and sign
off transaction budgets. These costs are reported to the board.
Reliance is placed on due diligence reports prepared by
professionals appointed by the Investment Manager and therefore the
Company could claim for losses if necessary.
|
Reliance on third-party service providers
|
The Board has contractually
delegated to third-party service providers day to day management of
the Company. A deterioration in the performance of any of the key
service providers including the Investment Manager, AIFM and
Administrator could have an impact on the Company's performance and
there is a risk that the Company may not be able to find
appropriate replacements should the engagement with the service
providers be terminated.
|
Each contract was entered into
after full and proper consideration of the quality and cost of
services offered, including the financial control systems in
operation in so far as they relate to the affairs of the Company.
All of the above services are subject to ongoing oversight by the
Board and, where applicable, the AIFM and the performance of the
key service providers is reviewed on a regular basis. The Board,
through the Management Engagement Committee monitors key personnel
risks as part of its oversight of the AIFM and Investment Manager
and the Company's key service providers report periodically to the
Board on their control procedures.
|
Valuations
|
Valuation of the portfolio of
assets is based on financial projections and estimations of future
results. Actual results may vary significantly from the
projections, which may reduce the profitability of the Company
leading to reduced returns to shareholders.
|
The Investment Manager has
significant experience in the valuation of renewable assets and
conducts a quarterly valuations process.
The AIFM has a valuations
committee separate to the Investment Manager to provide valuations
consistency on macro assumptions and to provide oversight and
challenge to the valuations.
The Board and AIFM review the
valuations provided quarterly and they are audited
annually.
Dividend cover and ratios
monitored by the Investment Manager and reported to the
AIFM.
|
ESG policy
|
Material ESG risks may arise such
as slave labour in the supply chain, health and safety, unfair
advantage, bribery, corruption and environmental damage. If the
Company fails to adhere to its public commitments as stated in its
ESG Policy and ESG & Impact Strategy, this could result in
shareholder dissatisfaction and adversely affect the reputation of
the Company.
|
ESG is embedded in the investment
cycle with a formal ESG matrix including a minimum target ESG score
required for approval of any new investments. Ongoing operational
and construction ESG risk management is reviewed periodically by
the Investment Manager, who work closely with service providers on
ESG and impact standards reporting.
ESG Policy signed off and reviewed
by the Board.
|
Conflicts of interest
|
The appointment of the AIFM is on
a non-exclusive basis and each of the AIFM and Investment Manager
manages other accounts, vehicles and funds pursuing similar
investment strategies to that of the Company. This has the
potential to give rise to conflicts of interest.
Board and counterparties
conflicts.
|
The AIFM and Investment Manager
have clear conflicts of interest and allocation policies in place.
Transactions where there may be potential conflicts of interest are
overseen by the Investment Manager's conflicts committee, an
independent fairness opinion on valuation is commissioned, and as
with all transactions, the Board has final approval rights. The
Board, AIFM and Investment Manager are responsible for establishing
and regularly reviewing procedures to identify, manage, monitor and
disclose conflicts of interests relating to the activities of the
Company. These procedures are more fully described in the Company's
prospectus dated 10 June 2021.
Conflict of interest policies in
place both at Board level and under the Listing Rules.
|
Board effectiveness and compensation
|
Inappropriate or inadequate Board
composition left unidentified through a poor Board evaluation
process could lead to poor decision making and adversely affect the
reputation of the Company or result in a financial loss.
Board compensation structures may
encourage risk taking that is not aligned to Company strategy and
risk appetite or may lead to an inability to retain knowledgeable
Board members.
|
The Broker and Investment Manager
were involved in the initial selection of the Board. The Nomination
Committee is responsible for ongoing monitoring of Board
composition. Board effectiveness is also reviewed externally every
3 years.
External benchmark surveys are
undertaken on Board remuneration via the Remuneration Committee and
ratified at the Annual General Meeting.
The FCA announced new rules for
listed companies in the UK in July 2022 to report on the diversity
of Boards and Executive Management, with new board targets on a
comply or explain basis. The Board composition now meets the FCA
criteria.
|
Trading at a discount to NAV
|
The Ordinary Shares may trade at a
discount to NAV and shareholders may be unable to realise their
investments through the secondary market at NAV which could lead to
a loss of market confidence in the Board and/or Investment
Manager.
A failure to adapt to changing
investor demands could reduce the demand for shares and widen the
discount further.
|
The Company's Broker monitors the
market situation and reports regularly on the status, along with
demographics and changes in shareholder register. Regular
shareholder communications and marketing roadshows undertaken to
ensure updated information is available to the market/shareholders.
The Board has put in place a discount control policy and has the
option of a share buyback if the Board believes it to be in
shareholders' interests as a means of correcting any imbalance
between the supply of and demand for the Ordinary Shares. The
Company also has the ability to hold treasury shares to mitigate
this risk.
|
Corporate M&A and other growth
initiatives
|
Unsuccessful corporate M&A
activity could impact Company reputation, and lead to abort costs
in the event of an unsuccessful transaction. External growth
activity is partially driven by external market factors.
|
The Company has an experienced
Investment Manager within the sector meaning that Investment team
has a good understanding of the M&A market and investor
landscape. In addition, the Company's broker provides independent
support for corporate M&A activity taking into account target
performance, investor sentiment and market conditions.
|
Cyber security
|
Attempts may be made to access the
IT systems and data used by the Investment Manager, Administrator
and other service providers through a cyber-attack or malicious
breaches of confidentiality that could impact the Company
reputation or result in financial loss.
|
Cyber security policies and
procedures implemented by key service providers are reported to the
Board and AIFM periodically to ensure conformity. The Investment
Manager has a robust 3 lines of defence risk model in place in
place to implement, check and audit technology controls. Thorough
third-party due diligence is carried out on all suppliers engaged
to service the Company. All providers have processes in place to
identify cyber security risks and apply and monitor appropriate
risk plans.
|
Portfolio of assets: operational risks
Risk that the portfolio
underperforms and, as a result, the target returns, and Company
objectives are not met over the longer-term.
Risk
|
Potential Impact
|
Mitigation
|
Power prices
|
The income and value of the
Company's investments may be adversely impacted by changes in the
prevailing market prices of electricity and prices achievable for
off-taker contracts. There is a risk that the actual prices
received vary significantly from the model assumptions, leading to
a shortfall in anticipated revenues to the Company.
|
The Investment Manager has a
specific Energy Markets Team that monitors energy price forecasts
and puts in place mitigating strategies. This could be through the
use of short-term PPA contracts to fix the electricity prices where
possible, or to hedge the exposure of fluctuating electricity
prices through derivative instruments. Model assumptions are based
on quarterly reports from a number of independent established
market consultants to inform on the electricity prices over the
longer-term.
|
Construction
|
Construction project risks
associated with the risk of inaccurate assessment of a construction
opportunity, delays or disruptions which are outside the Company's
control, changes in market conditions, and the inability of
contractors to perform their contractual commitments could impact
Company performance.
|
The Investment Manager monitors
construction carefully and reports frequently to the Board and
AIFM. The Investment Manager undertakes extensive due diligence on
construction opportunities and has in place clear approval
processes for any material construction cost overruns and
contingency spend.
|
Development
|
Development project risks
associated with delays, increases in costs or ultimate failure to
deliver the expected assets to construction ready
status.
|
The Company's maximum exposure to
development is limited to 5% of GAV.
The Investment Manager monitors
progress of development projects carefully and ensures all costs
are managed appropriately. A clear approval processes is in place
for any material project cost overruns and contingency spend. Cost
and progress analysis of development projects is reported
frequently to the Board and AIFM. The Investment Manager also
monitors exposure to any one developer to ensure this is kept
within reasonable limits.
|
Asset-specific risks, including production and HSE
risks
|
Circumstances may arise that
adversely affect the performance of the relevant renewable energy
asset. These include health and safety, grid connection, material
damage or degradation, equipment failures and environmental
risks.
|
The Company's experienced
Investment Manager oversees and manages asset and site level
issues. Third-party O&M contractors are engaged to carry out
regular preventative maintenance and a level of spares is
maintained from diversified manufacturers. The Investment Manager
uses established relationships with relevant DNOs and works closely
with them to maintain grid connection.
A SH&E Director is employed by
the Investment Manager to oversee and advise on the HSE system for
renewable assets. The Company has in place insurance to cover
certain losses and damage.
|
Contractor default risk
|
In the current economic climate,
there is also an increased risk that service providers default on
their contractual obligations or suffer an insolvency
event.
|
The Company and the Investment
Manager will seek to mitigate the Company's exposure to contract
default risk through carrying out qualitative and quantitative due
diligence on counterparties.
|
Compliance and regulatory risks
Failure to comply with relevant
regulatory changes, tax rules and obligations may result in
reputational damage to the Company or have a negative financial
impact.
Risk
|
Potential Impact
|
Mitigation
|
Noncompliance with FCA, Listing Rules, UK AIFM Directive, MAR
and investment trust eligibility conditions
|
Failure to comply with any relevant
regulatory rules including Section 1158 of the Corporation Tax Act,
the rules of the FCA, including the Listing Rules and the
Prospectus Rules, Companies Act 2006, MAR, UK AIFM Directive,
Accounting Standards, GDPR and any other relevant regulations could
result in financial penalties, loss of investment trust status,
legal proceedings against the Company and/or its Directors or
reputational damage.
|
The Board monitors compliance and
regulatory information provided by the Company Secretary, the AIFM
and Investment Manager on a quarterly basis and the assessment of
regulatory risks forms part of the Board's risk management
framework. All parties are appropriately qualified professionals
and ensure that they keep informed with any developments or updates
to the legislation.
|
Financial risks
Various types of risk associated
with financing and liquidity. Further financial risks are detailed
in Note 16 of the financial statements.
Risk
|
Potential Impact
|
Mitigation
|
Risks associated with borrowing can impact on Company
performance
|
The Company's investment policy
involves the use of long-term and short-term debt. The use of
leverage may increase the volatility of the Net Asset Value, may
significantly increase the Company's investment risk and could lead
to an inability to meet financial obligations.
The Company may be unable to obtain
borrowing facilities at appropriate levels impacting
returns.
Risks include refinancing risk,
covenant breaches, poor management of assets and liabilities,
over-gearing and possible enhanced loss on poor performing
assets.
|
The Board monitors debt covenants,
gearing limits appropriate to the Company and reviews any debt
facilities before financial close. Portfolio allocations are
monitored on an ongoing basis by the AIFM to ensure compliance with
borrowing policy and limits stated in the investment
policy.
The Company has the ability to
enter into hedging transactions in relation to interest rates for
the purpose of efficient portfolio management to protect the
Company from fluctuations of interest rates. Read more above in
interest rate, currency and power price risks.
|
Task Force on Climate-related Financial Disclosures
("TCFD")
The TCFD, established in December
2015 by the Financial Stability Board, was tasked with reviewing
how the financial sector could take account of climate related
issues. In 2017, the TCFD published its recommendations for
consistent climate-related financial risk disclosures across
Governance, Strategy, Risk Management, and Targets & Metrics.
Eleven recommendations across these four pillars were prescribed
for companies to provide information to investors, lenders,
insurers, and other stakeholders. The TCFD recommends that all
organisations provide climate-related disclosures in their annual
report and accounts, providing a framework to help companies assess
the risks and opportunities associated with climate
change.
Following this, the Financial
Conduct Authority ("FCA") issued a rule, effective for periods
beginning on or after January 2021, for UK premium listed companies
to start to report against the TCFD, with other companies to
follow. Whilst not currently mandated to make a TCFD disclosure,
being excluded as an Investment Trust, ORIT supports the TCFD's
aims and objectives and has decided to voluntarily report in line
to adopt best practice disclosures. Material climate-related
financial disclosures can help support investment decisions as we
move towards a low-carbon economy. The Company is acutely aware of
the risks of climate change and through its investment mandate,
believes it is well placed to contribute to solutions and harness
the opportunities that arise from a transition to net zero.
However, no company is isolated from climate change, and the
disclosures below outline the climate-related risks ORIT
faces.
Statement of Compliance
The Company is pleased to confirm
that it has included within its TCFD report climate-related
financial disclosures aligned with the four recommendations and the
eleven recommended disclosures provided in the TCFD's 2021 report
'Implementing the Recommendations of the Task Force on
Climate-related Financial Disclosures', which included additional
guidance for Asset Owners and Asset Managers.
Ensuring accountability and responsibility by board and
management
Oversight and management of
climate-related risks and opportunities is integrated within the
Governance framework of the Company.
The ORIT Board has full
responsibility for managing the Company. On behalf of the Company,
the Board has appointed Octopus AIF Management ("OAIFM") as the
Alternative Investment Fund Manager ("AIFM"). Whilst overall risk
management of the Company is retained by OAIFM, portfolio
management has been delegated to Octopus Energy Generation (OEGEN)
as the Investment Manager. Climate risk analysis and management
falls within the scope of portfolio management on a day-to-day
basis.
Section 172 of the Companies Act 2006
The Board as the governing body of
the Company, shapes the strategy and objectives and seeks to ensure
performance and long-term success by considering all its
stakeholders' interests.
During the year under review, the
Board believes that it has acted in good faith and fulfilled its
obligations under Section 172 of the Companies Act 2006 to promote
the success of the Company for the benefit of all shareholders
while also considering the interests of other stakeholders and the
environmental impact of the Company's operations.
As a closed-ended investment
company, the Company has no direct employees. However, the
Investment Manager assesses the impact of the Company's activities
on other stakeholders, in particular local communities,
sub-contractors and end customers, recognising that its investments
in Renewable Energy Assets make a positive contribution to the
transition to a cleaner future.
Section 172(1) Statements:
|
Reference
|
The likely consequences of any decision in the
long-term
|
The Board has set out long-term
objectives for the Company and targets a net total shareholder
return of 7% to 8% per annum over the medium to long-term. The
Board receives regular updates through weekly meetings with the
Investment Manager. Additionally Board members convene at least
four times a year to discuss matters related to items (a)-(f) of
section 172. Once a year, the Board collaborates with the
Investment Manager and other key advisers to evaluate the Company's
strategic position, including capital allocation and risk
management. Throughout the year, the Board actively considers
shareholders' views to inform its decision-making
process.
See also Operating Model,
Objectives and KPIs section, the Chair's Statement, and Stakeholder
Engagement section in the Company's Annual Report.
|
The interests of the Company's employees
|
As a closed-ended investment
company, the Company has no direct employees. However, the
Investment Manager assesses the impact of the Company's activities
on other stakeholders.
The Board monitors People related
KPI's on health and safety, diversity and inclusion collected
directly from contractors of the investee companies within the
investment portfolio, that are reported in the Company's
publications.
See also People reporting of the
Impact section within the Annual Report and find more details on
the separately published ESG & Impact Report. Additional KPIs
can be found in the Principle Adverse Impact statement on the
website.
|
The need to foster the Company's business relationships with
suppliers, customers and others
|
The Board recognises the
importance of fostering the Company's business relationships with
suppliers, customers, and other essential stakeholders for
preserving long‑term shareholder value and takes their respective interests
into consideration where relevant as part of the decision-making
process. The Board evaluates the performance of the service
providers annually through the Management Engagement
Committee.
See also Stakeholder Engagement
section and the Directors' Report, both contained in the Company's
Annual Report.
|
The impact of the Company's operations of the community and
environment
|
This aspect continues to be
integral to the Company's strategic ambitions through its core
impact initiative of accelerating the transition to net zero
through its investments, building and operating a diversified
portfolio of Renewable Energy Assets. Environmental and community
considerations, including the impact on nature, are specifically
embedded in the Company's Planet and People Impact objectives
respectively. The Board is responsible for the sign off of the
Company's ESG & Impact Policy and Strategy.
See also ESG & Impact section
of the Annual Report and the separately published ESG & Impact
Report and ESG & Impact Strategy document.
|
The desirability of the Company maintaining a reputation for
high standards of business conduct
|
The Board aims to meet or exceed
the standards expected of a listed company investing in Renewable
Energy Assets. This is achieved with the help of the Investment
Manager which is responsible for ensuring that the Company's
investments are managed to a high standard of business conduct. The
Company has obtained a copy of the Investment Manager's,
Company
Secretary's, Administrator's and
Broker's anti-bribery policies and procedures and is satisfied that
these are adequate for the purposes of the Company. The Investment
Manager seeks to ensure asset level service providers have
appropriate policies in place.
See also Stakeholder Engagement
section and Human Rights section, both contained in the Company's
Annual Report.
|
The need to act fairly as between members of the
Company
|
The Board aims to act fairly
between the Company's members, by seeking to ensure effective
communication is provided to all Shareholders. Reporting materials
are made available to the public and the Board encourages
Shareholders to attend the Annual General Meeting. Procedures and
policies are in place in case conflicts of interest
arise.
See also Stakeholder Engagement
section and Corporate Governance Statement, both contained within
the Company's Annual Report.
|
Stakeholder Engagement
Details of the Company's
engagement with key stakeholders is set out below.
The Board is aware of the need to
foster the Company's business relationships with suppliers,
customers and other key stakeholders through its stakeholder
management activities as described below. The Board believes that
positive relationships with each of the Company's stakeholders are
important to support the Company's long-term success. The table
below outlines the stakeholders that the Board has identified as
key, the specific engagement methods used and key activities within
the reporting period.
Stakeholders
|
How ORIT has communicated and engaged
|
Shareholders
|
The Board looks to attract
long-term investors in the Company and in doing so, it has sought
out regular opportunities to communicate with shareholders whether
from the regular reporting on the Company's activities and market
announcements and the website or specific initiatives.
Key communication methods
include:
· Annual and Interim reports
· Dedicated ORIT website
· Corporate LinkedIn Page
· Quarterly factsheets
· Investor roadshows and presentations
· Dialogue with shareholders
· Occasional events (Capital Market)
· Regular market announcements
· Annual General Meetings
· Dedicated email address for shareholder enquiries
· Proxy
voting guidelines
For example, Board members have
had opportunities to meet with key stakeholders during key Company
events in 2023 at the Capital Markets Day and the Cumberhead
Opening Event.
Separately, the Investment Manager
actively participates in roadshows to meet with the Company's key
shareholders after the release of the annual and interim results.
The Investment Manager also meets with shareholders on an ad hoc
basis following key announcements. Shareholders' views are
regularly collected throughout the year by the Investment Manager
and the Corporate Broker. Shareholders' views are considered by the
Board to assist the Board's decision-making process.
In 2023, the Company enhanced its
engagement with shareholders via its Consumer Duty Guide, its
rebranded website providing new content and a glossary, and the
launch of its corporate LinkedIn page.
The Board invites shareholders to
attend the forthcoming Annual General Meeting to be held on 19 June
2024 or to contact the Company through its dedicated email address
for shareholder enquiries.
|
AIFM and Investment Manager
|
The most significant service
provider for the Company's long-term success is the AIFM who has
engaged the Investment Manager for the purpose of providing
investment management services to the Company. The Board regularly
monitors the Company's investment performance in relation to its
objectives, investment policy and strategy. The Board receives and
reviews regular reports and presentations from both the AIFM and
Investment Manager and seeks to maintain regular contact to
maintain a constructive working relationship.
The Board receives regular reports
from the Investment Manager and maintains ongoing dialogue between
scheduled meetings. Representatives of the Investment Manager
attend Board meetings. The Investment Manager's remuneration is
based on the NAV of the Company which aligns their interests with
those of shareholders.
A description of the Investment
Manager's role, along with that of the AIFM, can be found in the
Directors' Report which is included in the Company's Annual
Report.
|
Company Service Providers
|
To build and maintain strong
working relationships, the Company's key service providers are
invited to attend quarterly Board meetings to present their
respective reports. This enables the Board to exercise effective
oversight of the Company's activities. The Board also has in place
a Management Engagement Committee that meets annually to review
service provider performance. Further information on the Management
Engagement Committee can be found in the Corporate Governance
Statement within the Company's Annual Report.
The Company's external auditors
attend at least two Audit and Risk Committee meeting per year. The
Chair of the Audit and Risk Committee maintains regular contact
with the auditors, Investment Manager and Administrator to ensure
that the audit process is undertaken effectively.
The Board has also spent time
engaging with the Company's key service providers outside of
scheduled Board meetings to develop its working relationship with
those service providers and ensure the smooth operational function
of the Company.
|
Asset Service Providers
|
The Investment Manager has an
experienced asset management team who actively manage asset level
service providers including third-party asset managers, Operations
& Maintenance ("O&M") contractors, Construction Managers,
Owners Engineers, suppliers, HSE contractors and
Landowners.
Communications with service
providers are managed across a variety of platforms to ensure focus
on day-to-day operational performance of the assets. The Investment
Manager undertakes quarterly meetings with external asset managers
to review performance against service provisions, weekly calls with
all operators and formal annual contract reviews. The Investment
Manager actively engages asset service providers to seek innovative
solutions to reduce the downtime of our assets. An example of this
is outlined within the Company's Annual Report.
Health and safety is a
business-critical function and our Investment Manager positively
influences the safety performance of our service providers by
monitoring accidents, incidents and unsafe conditions at
site.
Our Investment Manager actively
manages the investments in-construction assets through a risk
prevention oversight model and by maintaining strong relationships
with the Owners Engineering teams. There is daily communication
with the Owners Engineering teams during the critical stages of
construction.
|
Debt Providers
|
As at 31 December 2023, the
Company's wholly owned subsidiary, ORIT Holdings II Limited, had a
Revolving Credit Facility ("RCF") provided by a group of four
lenders, Allied Irish Banks, National Australia Bank, NatWest and
Santander. Regular communications with each lender alongside the
provision of data for formal semi-annual reporting and covenant
testing requirements is undertaken by the Investment Manager. The
RCF was extended and refinanced in February 2023. During the
period, the Company agreed an extension in the maturity date of its
subsidiary's £50 million short-term facility provided by NatWest to
align with expected receipt of proceeds from the Polish assets
sale. The facility was repaid in full in December 2023.
The Investment Manager ensures
that asset level debt providers are provided with data and
information in line with debt agreements and undertakes all
covenant testing requirements.
|
Community
|
ORIT actively engages and aims at
empowering local communities by establishing avenues for benefits
such as through community benefit schemes, educational engagement
with local schools via workshops and site visits, and support of
local charities.
See People section of the Impact
Report in the Company's Annual Report.
|
Philip Austin MBE
Chair,
Octopus Renewables Infrastructure
Trust plc
22 March 2024
Statement of Directors' Responsibilities
Statement of directors' responsibilities in respect of the
financial statements
The directors are responsible for
preparing the Annual Report and the financial statements in
accordance with applicable law and regulation.
Company law requires the directors
to prepare financial statements for each financial year. Under that
law the directors have prepared the financial statements in
accordance with UK-adopted international accounting
standards.
Under company law, directors must
not approve the financial statements unless they are satisfied that
they give a true and fair view of the state of affairs of the
company and of the profit or loss of the company for that period.
In preparing the financial statements, the directors are required
to:
· select suitable accounting policies and then apply them
consistently;
· state whether applicable UK-adopted international accounting
standards have been followed, subject to any material departures
disclosed and explained in the financial statements;
· make
judgements and accounting estimates that are reasonable and
prudent; and
· prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the company will
continue in business.
The directors are responsible for
safeguarding the assets of the company and hence for taking
reasonable steps for the prevention and detection of fraud and
other irregularities.
The directors are also responsible
for keeping adequate accounting records that are sufficient to show
and explain the company's transactions and disclose with reasonable
accuracy at any time the financial position of the company and
enable them to ensure that the financial statements and the
Directors' Remuneration Report comply with the Companies Act
2006.
The directors are responsible for
the maintenance and integrity of the company's website. Legislation
in the United Kingdom governing the preparation and dissemination
of financial statements may differ from legislation in other
jurisdictions.
Directors' confirmations
Each of the directors, whose names
and functions are listed in the Corporate Governance Statement
confirm that, to the best of their knowledge:
· the
company financial statements, which have been prepared in
accordance with UK-adopted international accounting standards, give
a true and fair view of the assets, liabilities, financial position
and profit of the company; and
· the
Directors' Report includes a fair review of the development and
performance of the business and the position of the company,
together with a description of the principal risks and
uncertainties that it faces.
For and on behalf of the
Board
Philip Austin MBE
Chair
22 March 2024
Financial Statements
Statement of Comprehensive Income
|
|
Year ended 31 December
2023
|
Year ended 31 December
2022
|
|
Note
|
Revenue
£'000
|
Capital
£'000
|
Total
£'000
|
Revenue
£'000
|
Capital
£'000
|
Total
£'000
|
Investment income
|
4
|
42,694
|
-
|
42,694
|
40,307
|
-
|
40,307
|
Movement in fair value of
investments
|
9
|
-
|
-22,976
|
-22,976
|
-
|
37,603
|
37,603
|
Total net income/(expense)
|
|
42,694
|
-22,976
|
19,718
|
40,307
|
37,603
|
77,910
|
Investment management
fees
|
5
|
-4,232
|
-1,411
|
-5,643
|
-4,284
|
-1,428
|
-5,712
|
Other expenses
|
5
|
-1,368
|
-107
|
-1,475
|
-1,132
|
-1,280
|
-2,412
|
Net finance income
|
|
126
|
-
|
126
|
51
|
-
|
51
|
Net foreign exchange
losses
|
|
-
|
-29
|
-29
|
-
|
-1
|
-1
|
Profit/(loss) before taxation
|
|
37,220
|
-24,523
|
12,697
|
34,942
|
34,894
|
69,836
|
Taxation
|
6
|
-364
|
364
|
-
|
-515
|
515
|
-
|
Profit/loss and total comprehensive income/(expense) for the
year
|
|
36,856
|
-24,159
|
12,697
|
34,427
|
35,409
|
69,836
|
Earnings per Ordinary Share
(pence) - basic and diluted
|
8
|
6.52p
|
-4.28p
|
2.24p
|
6.09p
|
6.27p
|
12.36p
|
The 'Total' column of this
statement is the profit and loss account of the Company and the
'Revenue' and 'Capital' columns represent supplementary information
prepared under guidance issued by the Association of Investment
Companies. All expenses are presented as revenue items except 25%
of the investment management fee, which is charged as a capital
item within the Statement of Comprehensive Income. Costs incurred
on aborted transactions and investment acquisitions are charged as
capital items within the Statement of Comprehensive
Income.
All revenue and capital items in
the above statement derive from continuing operations.
The accompanying notes are an
integral part of these financial statements.
Statement of Financial Position
|
|
As at
|
As at
|
|
|
31
December
|
31
December
|
|
|
2023
|
2022
|
|
Note
|
£'000
|
£'000
|
Non-current assets
|
|
|
|
Investments at fair value through
profit or loss
|
9
|
592,121
|
608,799
|
Current assets
|
|
|
|
Trade and other
receivables
|
10
|
143
|
775
|
Cash and cash
equivalents
|
|
10,012
|
10,603
|
|
|
10,155
|
11,378
|
Current liabilities: amounts falling due within one
year
|
|
|
|
Trade and other
payables
|
11
|
-3,237
|
-1,917
|
|
|
-3,237
|
-1,917
|
Net current assets
|
|
6,918
|
9,461
|
Net assets
|
|
599,039
|
618,260
|
Capital and reserves
|
|
|
|
Share capital
|
12
|
5,649
|
5,649
|
Share premium account
|
12
|
217,283
|
217,283
|
Special reserve
|
13
|
339,500
|
339,500
|
Capital reserve
|
|
13,756
|
37,915
|
Revenue reserve
|
|
22,851
|
17,913
|
Total shareholders' funds
|
|
599,039
|
618,260
|
Net assets per Ordinary Share
(pence)
|
14
|
106.04p
|
109.44p
|
The financial statements in the
Company's Annual Report were approved by the Board of Directors and
authorised for issue on 22 March 2024 and were signed on its behalf
by:
Philip Austin MBE
Chair
The accompanying notes are an
integral part of these financial statements.
Incorporated in England and Wales
with registered number 12257608
Statement of Changes in Equity
Year ended 31 December 2023
|
Note
|
Share
capital
£'000
|
Share premium account
£'000
|
Special reserve
£'000
|
Revenue reserve
£'000
|
Capital reserve
£'000
|
Total shareholders'
funds
£'000
|
Opening equity as at 1 January 2023
|
|
5,649
|
217,283
|
339,500
|
17,913
|
37,915
|
618,260
|
Profit/(loss) and total
comprehensive income/(expense) for the year
|
|
-
|
-
|
-
|
36,856
|
-24,159
|
12,697
|
Dividends paid
|
7
|
-
|
-
|
-
|
-31,918
|
-
|
-31,918
|
Closing equity as at 31 December 2023
|
|
5,649
|
217,283
|
339,500
|
22,851
|
13,756
|
599,039
|
Year ended 31 December 2022
|
Note
|
Share
capital
£'000
|
Share premium account
£'000
|
Special reserve
£'000
|
Revenue reserve
£'000
|
Capital reserve
£'000
|
Total shareholders'
funds
£'000
|
Opening equity as at 1 January 2022
|
|
5,649
|
217,283
|
339,500
|
12,751
|
2,506
|
577,689
|
Profit and total comprehensive
income for the year
|
|
-
|
-
|
-
|
34,427
|
35,409
|
69,836
|
Dividends paid
|
7
|
-
|
-
|
-
|
-29,265
|
-
|
-29,265
|
Closing equity as at 31 December 2022
|
|
5,649
|
217,283
|
339,500
|
17,913
|
37,915
|
618,260
|
The Company's distributable
reserve consists of the special reserve, capital reserve
attributable to realised gains and revenue reserve.
The accompanying notes are an
integral part of these financial statements.
The issued capital and reserves
are fully attributable to the shareholders of the
Company.
Statement of Cash Flows
|
Note
|
Year ended
31 December 2023
£'000
|
Year ended
31 December 2022
£'000
|
Operating activities cash flows
|
|
|
|
Profit before taxation
|
|
12,697
|
69,836
|
Adjustments for:
|
|
|
|
Movement in fair value of
investments
|
9
|
22,976
|
-37,603
|
Investment income from
investments
|
4
|
-42,694
|
-40,307
|
Share issue abort costs
|
|
-
|
404
|
Operating cash flow before movements in working
capital
|
|
-7,021
|
-7,670
|
Changes in working capital:
|
|
|
|
Decease/(increase) in trade and
other receivables
|
|
632
|
-325
|
Increase/(decrease) in trade
payables
|
|
1,320
|
-207
|
Distributions from
investments
|
9
|
41,979
|
38,108
|
Net cash flow generated from operating
activities
|
|
36,910
|
29,906
|
Investing activities cash flows
|
|
|
|
Costs associated with acquiring
the portfolio of assets
|
9
|
-5,583
|
-83,580
|
Net cash flow used in investing activities
|
|
-5,583
|
-83,580
|
Financing activities cash flows
|
|
|
|
Dividends paid to Ordinary
Shareholders
|
7
|
-31,918
|
-29,265
|
Costs in relation to issue of
shares
|
|
-
|
-404
|
Net cash flow used in financing activities
|
|
-31,918
|
-29,669
|
Net decrease in cash and cash equivalents
|
|
-591
|
-83,343
|
Cash and cash equivalents at start of year
|
|
10,603
|
93,946
|
Cash and Cash equivalents at end of year
|
|
10,012
|
10,603
|
The accompanying notes are an
integral part of these financial statements.
Notes to the Financial Statements
For the year ended 31 December 2023
1. General information
Octopus Renewables Infrastructure
Trust plc ("ORIT" or the "Company") is a Public Company Limited by
Ordinary Shares incorporated in England and Wales on 11
October 2019 with registered number 12257608. The Company is a
closed‑ended investment company with an indefinite life. The
Company commenced its operations on 10 December 2019 when the
Company's Ordinary Shares were admitted to trading on the premium
segment of the main market of the London Stock Exchange. The
Directors intend, at all times, to conduct the affairs of the
Company as to enable it to qualify as an investment trust for the
purposes of section 1158 of the Corporation Tax Act 2010, as
amended.
The registered office and
principal place of business of the Company is 6th Floor, 125 London
Wall, London, EC2Y 5AS.
The Company's investment objective
is to provide investors with an attractive and sustainable level of
income returns, with an element of capital growth, by investing in
a diversified portfolio of Renewable Energy Assets in Europe and
Australia.
The audited financial statements
of the Company (the "financial statements") are for the year ended
31 December 2023 and comprise only the results of the Company, as
all of its subsidiaries are measured at fair value in accordance
with IFRS 10. The comparatives shown in these financial statements
refer to the year ended 31 December 2022.
The Company has appointed Octopus
AIF Management Limited to be the alternative investment fund
manager of the Company (the "AIFM") for the purposes of the
Alternative Investment Fund Managers Regulations 2013 and the
Commission Delegated Regulation (EU) No 231/2013 of 19 December
2012 (as it applies in the UK by virtue of the European Union
(Withdrawal) Act 2018). Accordingly, the AIFM is responsible for
the portfolio management of the Company and for exercising the risk
management function in respect of the Company. The AIFM has
delegated portfolio management services to Octopus Renewables
Limited (trading as Octopus Energy Generation), the Company's
Investment Manager (the "Investment Manager").
Apex Listed Companies Services
(UK) Limited (the "Administrator") provides administrative and
company secretarial services to the Company under the terms of the
Administration Agreement between the Company and the
Administrator.
2. Basis of preparation
These financial statements have
been prepared in accordance with UK-adopted International
Accounting Standards and with the requirements of the Companies Act
2006 as applicable to companies reporting under those
standards.
The financial statements have also
been prepared as far as is relevant and applicable to the Company
in accordance with the Statement of Recommended Practice: Financial
Statements of Investment Trust Companies and Venture Capital Trusts
("SORP") issued in July 2022 by the Association of Investment
Companies ("AIC").
The financial statements are
prepared on the historical cost basis, except for the revaluation
of investments measured at fair value through profit or loss. The
principal accounting policies adopted are set out below. These
policies are consistently applied.
The financial statements are
presented in Sterling, which is the Company's functional currency
and are rounded to the nearest thousand, unless otherwise stated.
They have been prepared on the basis of the accounting policies,
significant judgements, key assumptions and estimates as set out
below.
Going concern
The Directors, in their
consideration of going concern, have reviewed comprehensive cash
flow forecasts prepared by the Company's Investment Manager which
are based on market data and believe, based on those forecasts, the
assessment of the Company's subsidiary's banking facilities and the
assessment of the principal risks described in this report, that it
is appropriate to prepare the financial statements of the Company
on the going concern basis.
In arriving at their conclusion
that the Company has adequate financial resources, the Directors
were mindful that the Group had unrestricted cash of £23 million as
at 31 December 2023 (2022: £11m) and available headroom on its
revolving credit facility ("RCF") of £141 million (2022: £169m).
The Company's net assets at 31 December 2023 were £599 million
(2022: £618m) and total expenses for the year ended 31 December
2023 were £7.1 million (2022: £8.0m), which represented
approximately 1.2% (2022:1.3%) of average net assets during the
year. At the date of approval of this document, based on the
aggregate of investments and cash held, the Company has substantial
operating expenses cover.
The Company receives revenue in
the form of dividends and interest from its portfolio of assets.
These revenues are derived from the sale of electricity through
power purchase agreements in place with large and reputable
providers of electricity to the market. A prolonged and deep market
decline could lead to falling values to the underlying business or
interruptions to cashflow, however the Directors do not foresee any
immediate material risk to the Company's investment portfolio and
income from underlying assets. The Directors are also satisfied and
are comfortable that the Company would continue to remain viable
under downside scenarios, including a decline in long-term power
price forecasts.
In instances where underlying
investments have external debt finance, the covenants associated
with these facilities have been tested and are expected to be
compliant, even in downside scenarios.
The major cash outflows of the
Company are the payment of dividends, commitments payable for
construction projects and contingent acquisitions and the
repayment of the short-term facility which was fully repaid at year
end. During the year, the Company's intermediate holding
company successfully refinanced its RCF to an increased facility of
£270.8 million and extended its term to February 2026. The
covenants of the RCF have been tested and are expected to be
compliant, even in downside scenarios. Plausible downside scenarios
include a decrease in wholesale energy prices, a decrease in output
and an increase in the discount rate applied to the underlying cash
flow forecasts. While in some downside scenarios, the headroom
available on the RCF will be lower, the Directors remain confident
that the Company has sufficient cash balances, and headroom in the
RCF held by an intermediate holding company in order to fund the
commitments detailed in note 19 to the financial statements, should
they become payable.
Having performed the assessment of
going concern, the Directors considered it appropriate to prepare
the financial statements of the Company on a going concern basis.
The Company has sufficient financial resources and liquidity and is
well placed to manage business risks in the current economic
environment and can continue operations for a period of
at least 12 months from the date of these financial
statements.
Critical accounting judgements, estimates and
assumptions
The preparation of the financial
statements requires management to make judgements, estimates and
assumptions that affect the application of accounting policies and
the reported amounts of assets, liabilities, income and expenses.
Actual results may differ from these estimates. Estimates and
underlying assumptions are reviewed regularly on an on-going basis.
Revisions to accounting estimates are recognised in the period in
which the estimates are revised and in any future periods affected.
Significant estimates, judgements and assumptions for the period
are set out as follows:
Key estimation and uncertainty: Fair value estimation for
investments at fair value
The Company's investments at fair
value are not traded in active markets. Fair value is calculated by
discounting at an appropriate discount rate future cash flows
expected to be received by the Company's intermediate holdings.
The discounted cashflow models use observable data, to the
extent practicable. However, the key inputs require management to
make estimates. Changes in assumptions about these factors could
affect the reported fair value of investments.
The discount rates used in the
valuation exercise represent 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
rates are reviewed quarterly and updated, where appropriate, to
reflect changes in the market and in the project risk
characteristics.
Unless fixed under PPAs or
otherwise hedged, the power prices used in the valuations are based
on market forward prices in the near term, followed by an equal
blend of up to two independent and widely used market consultants'
technology-specific capture price forecasts for each asset. Power
prices are updated quarterly in line with the release
of updated forecasts. There is an inherent uncertainty in
future wholesale electricity price projection.
Electricity output is based on
specifically commissioned yield assessments prepared by technical
advisors. Each asset's valuation assumes a "P50" level of
electricity output, which is the estimated annual amount of
electricity generation that has a 50% probability of being exceeded
- both in any single year and over the long‑term - and a 50% probability of
being underachieved. The P50 provides an expected level of
generation over the long-term.
Short to medium-term inflation
assumptions used in the valuations are based on third party
forecasts. In the longer-term, an assumption is made that inflation
will increase at a long-term rate. The estimates and assumptions
that are used in the calculation of the fair value of investments
is disclosed in Note 9.
The impact of physical and
transition risks associated with climate change is assessed on a
project by project basis and factored into the underlying cash
flows as appropriate. Further details can be found in the Impact
Report.
Further considerations on currency
risks, interest rate risks, power price risks, credit risks, and
liquidity risks are detailed in Note 16.
Key judgement: Equity and debt investment in ORIT Holdings II
Limited
The Company classifies its
investments based on its business model for managing those
financial assets and the contractual cash flow characteristics of
the financial assets. The portfolio of assets is managed, and
performance is evaluated on a fair value basis.
The Company is primarily focused
on fair value information and uses that information to assess the
assets' performance and to make decisions. The Company has not
taken the option to irrevocably designate any equity securities as
fair value through other comprehensive income. The contractual cash
flows of the Company's debt securities are solely principal and
interest, however, these securities are not held for the purpose of
collecting contractual cash flows. The collection of contractual
cash flows is only incidental to achieving the Company's business
model's objective. Consequently, all investments are measured at
fair value through profit or loss.
The Company considers the equity
and loan investments to share the same investment characteristics
and risks and they are therefore treated as a single unit of
account for fair value purposes (IFRS 13) and a single class for
financial instrument disclosure purposes (IFRS 9). As a result, the
evaluation of the performance of the Company's investments is done
for the entire portfolio on a fair value basis, as is the reporting
to the key management personnel and to the investors. In this case,
all equity, derivatives and debt investments form part of the same
portfolio for which the performance is evaluated on a fair value
basis together and reported to the key management personnel in its
entirety.
Key judgement: Basis of non-consolidation
The Company has adopted the
amendments to IFRS 10 which states that investment entities should
measure all of their subsidiaries that are themselves investment
entities at fair value (in accordance with IFRS 9 Financial
Instruments: Recognition and Measurement, and IFRS 13 Fair Value
Measurement).
Under the definition of an
investment entity, the Company should satisfy all three of the
following tests:
i. the Company
obtains funds from one or more investors for the purpose of
providing those investors with investment management
services;
ii. the Company
commits to its investors that its business purpose is to invest
funds solely for returns from capital appreciation, investment
income, or both; and
iii. the Company
measures and evaluates the performance of substantially all of its
investments on a fair value basis.
In assessing whether the Company
meet the definition of an investment entity set out in IFRS 10 the
Directors note that:
i. the Company
has multiple investors and obtains funds from a diverse group of
shareholders who would otherwise not have access individually to
invest in renewable energy infrastructure investments due to high
barriers to entry and capital requirements;
ii. the Company
intends to hold its investments for the remainder of their useful
lives for the purpose of capital appreciation and investment
income. The portfolio of assets are expected to generate renewable
energy output for 30 to 40 years from their relevant
commercial operation date and the Directors believe the Company is
able to generate returns to the investors during that period;
and
iii. the Company
measures and evaluates the performance of all of its investments on
a fair value basis which is the most relevant for investors in the
Company. Management use fair value information as a primary
measurement to evaluate the performance of all of the investments
and in decision making.
The Directors are of the opinion
that the Company meets all the typical characteristics of an
investment entity and therefore meets the definition set out in
IFRS 10. The Directors are satisfied that investment entity
accounting treatment appropriately reflects the Company's
activities as an investment trust.
The Directors have also satisfied
themselves that the Company's wholly owned direct subsidiary, ORIT
Holdings II Limited, meets the characteristics of an investment
entity. ORIT Holdings II Limited has one investor, ORIT, however,
in substance ORIT Holdings II Limited is investing the funds of the
investors of ORIT on its behalf and is effectively performing
investment management services on behalf of many unrelated
beneficiary investors.
Being investment entities, ORIT
and its wholly owned direct subsidiary, ORIT Holdings II Limited
are measured at fair value as opposed to being consolidated on a
line-by-line basis, meaning their cash, debt and working capital
balances are included in the fair value of investments rather than
the Group's current assets.
The Directors believe the
treatment outlines above provides the most relevant information to
investors.
New standards, interpretations and
amendments
A number of new standards,
amendments to standards are effective for the annual periods
beginning after 1 January 2024. None of these are expected to have
a significant effect on the measurement of the amounts recognised
in the financial statements of the Company. The Company intends to
adopt the standards and interpretations in the reporting period
when they become effective and the Board does not anticipate that
the adoption of these standards and interpretations in future
periods will materially impact the Company's financial results in
the period of initial application although there may be revised
presentations to the financial statements and additional
disclosures.
New standards and amendments issued but not yet
effective
The new and amended standards and
interpretations that are issued, but not yet effective, up to the
date of issuance of the Company's financial statements are
disclosed below. These standards are not expected to have a
material impact on the entity in future reporting periods and on
foreseeable future transactions.
Amendments to IAS 1 Presentation of Financial
Statements-Classification of Liabilities as Current or
Non‑current
The amendments to IAS 1 clarify
that the classification of liabilities as current or non-current is
based on rights that are in existence at the end of the reporting
period, specify that classification is unaffected by expectations
about whether an entity will exercise its right to defer settlement
of a liability, explain that rights are in existence if covenants
are complied with at the end of the reporting period, and introduce
a definition of 'settlement' to make clear that settlement refers
to the transfer to the counterparty of cash, equity instruments,
other assets or services. The amendments are applied
retrospectively for annual periods beginning on or after 1 January
2024, with early application permitted.
Amendments to IAS 1 Presentation of Financial
Statements-Non‑current Liabilities with
Covenants
The amendments specify that only
covenants that an entity is required to comply with on or before
the end of the reporting period affect the entity's right to defer
settlement of a liability for at least twelve months after the
reporting date (and therefore must be considered in assessing the
classification of the liability as current or noncurrent). Such
covenants affect whether the right exists at the end of the
reporting period, even if compliance with the covenant is assessed
only after the reporting date (e.g. a covenant based on the
entity's financial position at the reporting date that is assessed
for compliance only after the reporting date). The amendments are
applied retrospectively for annual reporting periods beginning on
or after 1 January 2024. Earlier application of the amendments is
permitted.
Amendments to IAS 7 Statement of Cash Flows and IFRS 7
Financial Instruments: Disclosures-Supplier Finance
Arrangements
The amendments add a disclosure
objective to IAS 7 stating that an entity is required to disclose
information about its supplier finance arrangements that enables
users of financial statements to assess the effects of those
arrangements on the entity's liabilities and cash flows. In
addition, IFRS 7 was amended to add supplier finance arrangements
as an example within the requirements to disclose information about
an entity's exposure to concentration of liquidity risk.
The amendments, which contain specific transition reliefs for
the first annual reporting period in which an entity applies
the amendments, are applicable for annual reporting periods
beginning on or after 1 January 2024. Earlier application is
permitted.
Amendments to IFRS 16: Lease Liability in a Sale and
Leaseback
The amendments to IFRS 16 add
subsequent measurement requirements for sale and leaseback
transactions that satisfy the requirements in IFRS 15 to be
accounted for as a sale. The amendments require the seller-lessee
to determine lease payments or revised lease payments such that the
seller-lessee does not recognise a gain or loss that relates to the
right of use retained by the seller-lessee, after the commencement
date. The amendments are effective for annual reporting periods
beginning on or after 1 January 2024. Earlier application is
permitted. If a seller-lessee applies the amendments for an earlier
period, it is required to disclose that fact.
3. Significant accounting policies
a) Financial instruments
Financial assets and financial
liabilities are recognised on the Company's Statement of Financial
Position when the Company becomes a party to the contractual
provisions of the instrument. Financial assets are derecognised
when the contractual rights to the cash flows from the instrument
expire or the asset is transferred, and the transfer qualifies for
derecognition in accordance with IFRS 9 Financial Instruments:
Recognition and Measurement.
Financial assets
As an investment entity, the
Company is required to measure its investments its wholly owned
direct subsidiaries at fair value through profit or loss ('FVTPL').
As explained in note 2, the Company has made a judgement to fair
value both the equity and debt investment in its subsidiary
together. Subsequent to initial recognition, the Company measures
its investments on a combined basis at fair value in accordance
with IFRS 9 Financial Instruments: Recognition and Measurement and
IFRS 13 Fair Value Measurement.
Trade receivables, loans and other
receivables that are non-derivative financial assets and that have
fixed or determinable payments that are not quoted in an active
market are classified as financial assets at amortised cost.
These assets are measured at amortised cost using the
effective interest method, less allowance for expected credit
losses. The Company has assessed IFRS 9's expected credit loss
model and does not consider any material impact on these
financial statements.
They are included in current
assets, except where maturities are greater than 12 months after
the year end date in which case they are classified as non-current
assets.
Regular purchases and sales of
investments are recognised on the trade date - the date on which
the Company commits to purchase or sell the investment. Financial
assets at FVTPL are initially recognised at fair value. Transaction
costs are expensed as incurred within the Statement of
Comprehensive Income. Financial assets are derecognised when the
rights to receive cash flows from the investments have expired or
the Company has transferred substantially all risks and rewards of
ownership.
Subsequent to initial recognition,
all financial assets and financial liabilities at FVTPL are
measured at fair value. For investments held at early stage or
at planning development stage, these are valued at cost and
assessed for any impairment.
Gains and losses arising from
changes in the fair value of the 'financial assets at FVTPL'
category are presented in the Statement of Comprehensive Income
within Movements in fair value of investments in the period in
which they arise.
Income from financial assets at
FVTPL is recognised in the Statement of Comprehensive Income within
investment income when the Company's right to receive payments is
established.
Financial liabilities and equity
Debt and equity instruments are
classified as either financial liabilities or as equity in
accordance with the substance of the contractual
arrangement.
The Company's financial
liabilities include trade and other payables and other short-term
monetary liabilities which are initially recognised at fair value
and subsequently measured at amortised cost using the effective
interest rate method.
Financial liabilities are
initially measured at fair value, net of transaction costs.
Financial liabilities are subsequently measured at amortised cost
using the effective interest method, with interest expense
recognised on an effective interest rate method.
The Company derecognises financial
liabilities when, and only when, the Company's obligations are
discharged, cancelled or they expire.
Ordinary Shares are classified as
equity. An equity instrument is any contract that evidences a
residual interest in the assets of an entity after deducting all of
its liabilities. Equity instruments issued by the Company are
recognised at the proceeds received, net of direct issue costs.
Direct issue costs are charged against the value of ordinary share
premium.
b) Taxation
Investment trusts which have
approval under Section 1158 of the Corporation Tax Act 2010 are not
liable for taxation on capital gains. The Company has successfully
applied and has been granted approval as an Investment Trust by
HMRC.
Irrecoverable withholding tax is
recognised on any overseas income on an accrual basis using the
applicable rate of taxation for the country of origin.
The underlying intermediate
holding companies and project companies in which the Company
invests provide for and pay taxation at the appropriate rates in
the countries in which they operate. This is taken into account
when assessing the value of the subsidiaries.
c) Segmental reporting
The Board is of the opinion that
the Company is engaged in a single segment of business, being
investment in renewable energy infrastructure assets to generate
investment returns whilst preserving capital. The financial
information used by the Board to manage the Company presents the
business as a single segment.
d) Investment income
Investment income comprises
interest income and dividend income received from the Company's
subsidiaries. Interest income is recognised in the Statement of
Comprehensive Income using the effective interest method. Dividend
income is recognised when the Company's entitlement to receive
payment is established.
e) Expenses
All expenses are accounted for on
an accrual basis. In respect of the analysis between revenue and
capital items presented within the Statement of Comprehensive
Income, all expenses are presented as revenue items except as
follows:
Investment Management fees
As per the Company's investment
objective, it is expected that income returns will make up the
majority of ORIT's long‑term return. Therefore, based on the estimated split of
future returns (which cannot be guaranteed), 25% of the investment
management fee is charged as a capital item within the Statement of
Comprehensive Income.
Abort costs
Costs incurred on aborted
transactions are charged as capital items within the Statement of
Comprehensive Income.
f) Foreign currency
Functional currency and presentation
currency
The financial statements are
presented in Pounds Sterling which is the Company's functional and
presentation currency. The Board of Directors considers Sterling
the currency that most faithfully represents the economic effect of
the underlying transactions, events and conditions. Sterling is the
currency in which the Company measures its performance and reports
its results, as well as the currency in which it receives
subscriptions from its investors.
Transactions and balances
Transactions denominated in
foreign currencies are translated into Sterling at actual exchange
rates as at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies at the year end are
reported at the rates of exchange prevailing at the year end. Any
gain or loss arising from a change in exchange rates subsequent to
the date of the transaction is included as an exchange gain or loss
to capital or revenue in the Statement of Comprehensive Income as
appropriate. Foreign exchange movements on investments are included
in the Capital account of the Statement of Comprehensive
Income.
g) Cash and Cash Equivalents
Cash and cash equivalents includes
deposits held with banks and other short-term deposits with
original maturities of three months or less. It is a highly liquid
investment and readily convertible to a known amount of cash, and
carries an insignificant risk of changes in value.
h) Dividends payable
Dividends payable to equity
shareholders are recognised in the financial statements when they
have been approved by shareholders and become a liability of the
Company. Interim dividends payable are recognised in the period in
which they are paid.
4. Investment income
|
Year ended 31 December
2023
|
Year ended 31 December
2022
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Dividend income from
investments
|
16,800
|
-
|
16,800
|
17,250
|
-
|
17,250
|
Interest income from
investments
|
25,894
|
-
|
25,894
|
23,057
|
-
|
23,057
|
Total investment income
|
42,694
|
-
|
42,694
|
40,307
|
-
|
40,307
|
5. Operating expenses
|
Year ended 31 December
2023
|
Year ended 31 December
2022
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Investment management
fees
|
4,232
|
1,411
|
5,643
|
4,284
|
1,428
|
5,712
|
Directors' fees
|
209
|
-
|
209
|
186
|
-
|
186
|
Company's auditors'
fees:
|
|
|
|
|
|
|
- in respect of audit
services
|
376
|
-
|
376
|
190
|
-
|
190
|
Other operating
expenses
|
783
|
107
|
890
|
756
|
1,280
|
2,036
|
Total operating expenses
|
5,600
|
1,518
|
7,118
|
5,416
|
2,708
|
8,124
|
Further details on the Investment
Manager's agreement have been provided in Note 17.
In addition to the fees disclosed
above, £163,500 (2022: £210,100) is payable to the Company's
auditors in respect of audit services provided to unconsolidated
subsidiaries and therefore is not included within the Company's
expenses above.
Included within other operating
costs is an amount of £107,000 (2022: £1.28m) relating to
transaction costs associated with the acquisition of portfolio of
assets and abort costs.
The Company has no employees. Full
detail on Directors' fees is provided in Note 17. The Directors'
fees exclude employer's national insurance contribution which is
included as appropriate in other operating expenses. There were no
other emoluments.
6. Taxation
(a) Analysis of charge/(credit) in the year
|
Year ended 31 December
2023
|
Year ended 31 December
2022
|
|
Revenue
£'000
|
Capital
£'000
|
Total
£'000
|
Revenue
£'000
|
Capital
£'000
|
Total
£'000
|
Corporation tax
|
364
|
-364
|
-
|
515
|
-515
|
-
|
Tax charge/(credit) for the year
|
364
|
-364
|
-
|
515
|
-515
|
-
|
(b) Factors affecting total tax charge/(credit) for the
year:
Per the enactment of the Finance
Act 2021, the rate of UK corporation tax was increased from 19% to
25% since April 2023. The effective UK corporation tax rate
applicable to the Company for the year is 23.5% (2022: 19%). The
tax charge/(credit) differs (2022: differs) from the
charge/(credit) resulting from applying the standard rate of UK
corporation tax for an investment trust company. The differences
are explained below:
|
Year ended 31 December
2023
|
Year ended 31 December
2022
|
|
Revenue
£'000
|
Capital
£'000
|
Total
£'000
|
Revenue
£'000
|
Capital
£'000
|
Total
£'000
|
Profit/(loss) before
taxation
|
37,220
|
-24,523
|
12,697
|
34,942
|
34,894
|
69,836
|
Corporation tax at 23.5% (2022:
19%)
|
8,747
|
-5,763
|
2,984
|
6,639
|
6,630
|
13,269
|
Effects of:
|
|
|
|
|
|
|
Expenses not deductible for tax
purposes
|
-
|
5,399
|
5,399
|
-
|
-7,145
|
-7,145
|
Income not taxable
|
-3,948
|
-
|
-3,948
|
-3,278
|
-
|
-3,278
|
Dividends designated as interest
distributions
|
-4,437
|
-
|
-4,437
|
-2,852
|
-
|
-2,852
|
Movement in deferred tax not
recognised
|
2
|
-
|
2
|
6
|
-
|
6
|
Total tax charge/(credit) for the year
|
364
|
-364
|
-
|
515
|
-515
|
-
|
The Directors are of the opinion
that the Company has complied with the requirements for maintaining
investment trust status for the purposes of section 1158 of the
Corporation Tax Act 2010. This allows certain capital profits of
the Company to be exempt from UK tax. Additionally, the Company may
designate dividends wholly or partly as interest distributions for
UK tax purposes. Interest distributions are treated as tax
deductions against taxable income of the Company so that investors
do not suffer double taxation on their returns.
The financial statements do not
directly include the tax charges for any of the Company's
intermediate holding companies or subsidiaries as these are held at
fair value. Each of these companies are subject to taxes in the
countries in which they operate.
The Company has an unrecognised
deferred tax asset of £10,071 (2022: £8,117) based on the excess
unutilised operating expenses of £40,284 (2022: £32,470) at the
prospective UK corporation tax rate of 25% (2022:19%). A deferred
tax asset has not been recognised in respect of these operating
expenses and will be recoverable only to the extent that the
Company has sufficient future taxable revenue.
7. Dividends
The dividends reflected in the
financial statements for the year are as follows:
|
Year ended 31 December
2023
|
Year ended 31 December
2022
|
|
Pence per Ordinary
Share
|
Revenue reserve
£'000
|
Total
£'000
|
Pence per Ordinary
Share
|
Revenue reserve
£'000
|
Total
£'000
|
Q4 2022 Dividend - paid 24
February 2023 (2022: 4 March 2022)
|
1.31
|
7,401
|
7,401
|
1.25
|
7,062
|
7,062
|
Q1 2023 Dividend - paid
2 June 2023 (2022: 27 May 2022)
|
1.44
|
8,135
|
8,135
|
1.31
|
7,401
|
7,401
|
Q2 2023 Dividend - paid
1 September 2023 (2022: 26 August 2022)
|
1.45
|
8,191
|
8,191
|
1.31
|
7,401
|
7,401
|
Q3 2023 Dividend - paid
1 December 2023 (2022: 25 November 2022)
|
1.45
|
8,191
|
8,191
|
1.31
|
7,401
|
7,401
|
Total
|
5.65
|
31,918
|
31,918
|
5.18
|
29,265
|
29,265
|
The dividend relating to the
year/period, which is the basis on which the requirements of
Section 1159 of the Corporation Tax Act 2010 are considered is
detailed below:
|
Year ended 31 December
2023
|
Year ended 31 December
2022
|
|
Pence per Ordinary
Share
|
Revenue reserve
£'000
|
Total
£'000
|
Pence per Ordinary
Share
|
Revenue reserve
£'000
|
Total
£'000
|
Q1 2023 Dividend - paid
2 June 2023 (2022: 27 May 2022)
|
1.44
|
8,135
|
8,135
|
1.31
|
7,401
|
7,401
|
Q2 2023 Dividend - paid
1 September 2023 (2022: 26 August 2022)
|
1.45
|
8,191
|
8,191
|
1.31
|
7,401
|
7,401
|
Q3 2023 Dividend - paid
1 December 2023 (2022: 25 November 2022)
|
1.45
|
8,191
|
8,191
|
1.31
|
7,401
|
7,401
|
Q4 2023 Dividend - paid
23 February 2024 (2022: 24 February 2023)
|
1.45
|
8,191
|
8,191
|
1.31
|
7,401
|
7,401
|
Total
|
5.79
|
32,708
|
32,708
|
5.24
|
29,604
|
29,604
|
On 29 January 2024 the Company
declared an interim dividend of 1.45p per Ordinary Share in respect
of the three months to 31 December 2023, a total of £8.2 million.
The ex-dividend date was 8 February 2024, the record date was
9 February 2024, and the dividend was paid on 23 February
2024.
8. Earnings per Ordinary Share
Earnings per Ordinary Share is
calculated by dividing the profit/(loss) attributable to equity
shareholders of the Company by the weighted average number of
Ordinary Shares in issue during the year as follows:
|
Year ended 31 December
2023
|
Year ended 31 December
2022
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
Profit/(loss) attributable to the
equity holders of the Company (£'000)
|
36,856
|
-24,159
|
12,697
|
34,427
|
35,409
|
69,836
|
Weighted average number of
Ordinary Shares in issue (000)
|
564,928
|
564,928
|
564,928
|
564,928
|
564,928
|
564,928
|
Earnings per Ordinary Share (pence) - basic and
diluted
|
6.52p
|
-4.28p
|
2.24p
|
6.09p
|
6.27p
|
12.36p
|
There is no difference between the
weighted average Ordinary or diluted number of Shares.
9. Investments at fair value through profit or
loss
As set out in Note 2, the Company
accounts for its interest in its wholly owned direct subsidiary as
an investment at fair value through profit or loss.
a) Summary of valuation
|
Year ended
|
Year ended
|
|
31
December
|
31
December
|
|
2023
|
2022
|
|
£'000
|
£'000
|
Opening balance
|
608,799
|
485,417
|
Portfolio of assets
acquired
|
-
|
79,194
|
Additional investment in
intermediate holding
|
|
|
companies
|
5,583
|
4,386
|
Distributions received from
investments
|
-41,979
|
-38,108
|
Investment income
|
42,694
|
40,307
|
Movement in fair value of
investments
|
-22,976
|
37,603
|
Total investments at the end of the year
|
592,121
|
608,799
|
The additional investment in the
intermediate holding companies include acquisition costs associated
with the purchase of the portfolio of assets totalling £2.1 million
(2022: £3.2m), which have been expensed to the profit and loss in
these companies and £3.4 million (2022: £1.2m) of other expenses
paid by the Company on behalf of the intermediate holding
companies.
b) Reconciliation of movement in fair value of the Company's
investments
The table below shows the movement
in the fair value of the Company's investments. These assets are
held through intermediate holding companies.
|
Year ended
|
Year ended
|
|
31
December
|
31
December
|
|
2023
|
2022
|
|
£'000
|
£'000
|
Opening balance
|
608,799
|
485,417
|
Portfolio of assets
acquired
|
65,224
|
209,666
|
Asset disposal
|
-91,817
|
-
|
Distributions received
|
-37,489
|
-40,129
|
Movement in fair value
|
161,253
|
88,760
|
Fair value of portfolio of assets at the end of the
year
|
705,970
|
743,714
|
|
Year ended
|
Year ended
|
|
31
December
|
31
December
|
|
2023
|
2022
|
|
£'000
|
£'000
|
Cash held in intermediate holding
companies
|
13,209
|
4,509
|
Bank loans held in intermediate
holding companies
|
-130,043
|
-127,200
|
Fair value of other net
assets/(liabilities) in intermediate holding companies
|
2,985
|
-12,224
|
Fair value of Company's investments at the end of the
year
|
592,121
|
608,799
|
On 6 December 2023, the Company
announced the completion of the sale of the Krzecin and Kuslin wind
farms (totalling 59MW) in Poland, realising net proceeds of
approximately £92 million (7% of Total value of all Investments at
30 September 2023) - a 21% premium over the holding value of
the assets at the time of sale. The disposal is for 100% of
ORIT's share.
c) Investment (loss)/gains in the year
|
Year ended
|
Year ended
|
|
31
December
|
31
December
|
|
2023
|
2022
|
|
£'000
|
£'000
|
Movement in fair value of
investments
|
-22,976
|
37,603
|
(Loss) / gains on investments
|
-22,976
|
37,603
|
Of the total distributions
received from investments, £23.9 million (2022: £10.7m) relates to
income originated from the Company's UK investments and £16.3
million (2022: £29.4m) relates to income originated from its
European investments.
Fair value of portfolio of assets
The Investment Manager has carried
out fair market valuations of the investments as at 31 December
2023.
The Directors have satisfied
themselves as to the methodology used, the discount rates applied
and the valuation. All operational investments are in
renewable energy assets and are valued using a discounted cash flow
methodology. As explained in note 3a, the equity and debt
instruments are valued as a whole. This is done using a blended
discount rate and the value attributed to debt investments
represents their face value, with the residual value attributed to
equity investments. The weighted average costs of capital applied
to the portfolio of assets ranges from 5.6% to 8.6%.
For development and early-stage assets, investment values are
held at cost or Price of Recent Investment.
The following assumptions were used in the discounted cash
flow valuations:
|
As at 31 December
2023
|
As at 31 December
2022
|
UK RPI (year-on-year)
|
3.7%
during 2024, declining to 3.00% in 2028 and then to 2.25% from 2030
onwards
|
6.7%
during 2023, declining to 3.00% in 2087 and then to 2.25% from 2030
onwards.
|
UK RPI (annual average)
|
4.4%
during 2024, declining to 3.00% in 2028 and then to 2.25% from 2030
onwards
|
9.8%
during 2023, declining to 3.00% in 2028 and then to 2.25% from 2030
onwards
|
UK - corporation tax
rate
|
25.00%
|
19.00%
to April 2023; 25.00% thereafter
|
Sweden - long-term inflation
rate
|
2.00%
|
2.00%
|
Sweden - corporation tax
rate
|
20.60%
|
20.60%
|
France - long-term inflation
rate
|
2.00%
|
2.00%
|
France - corporation tax
rate
|
25.00%
|
25.00%
|
Poland - long-term inflation
rate
|
-
|
2.50%
|
Poland - corporation tax
rate
|
-
|
19.00%
|
Finland - long-term inflation
rate
|
2.00%
|
2.00%
|
Finland - corporation tax
rate
|
20.00%
|
20.00%
|
Germany - long-term inflation
rate
|
2.00%
|
2.00%
|
Germany - corporation tax
rate
|
15.83%
|
15.83%
|
Euro/sterling exchange
rate
|
1.1539
|
1.1277
|
Zloty/sterling exchange
rate
|
-
|
5.3009
|
Energy yield
assumptions
|
P50
case
|
P50
case
|
Other key assumptions include:
Power Price Forecasts
Unless fixed under PPAs or
otherwise hedged, the power price forecasts used in the valuations
are based on market forward prices in the near-term, followed by an
equal blend of two independent and widely-used market expert
consultants' relevant technology-specific capture price forecasts
for each asset, see the Market Outlook section and the Portfolio
valuation section respectively within the Company's Annual
Report.
Asset Lives
The length of the period of
operations assumed in the valuation is determined on an
asset-by-asset basis taking into account the lease agreements,
permits or planning permissions in place as well as any extension
rights, renewal regimes or wider policy considerations, together
with the technical characteristics of the asset.
Decommissioning Costs
Where applicable, the present
value of the estimated costs to restore the land back to its
original use are included in the valuations as a cash outflow at
the end of the asset life.
Fair value of intermediate holding
companies
The other net assets in the
intermediate holding companies substantially comprise working
capital balances, therefore the Directors consider the fair value
to be equal to the book values. The sensitivity to unobservable
inputs is based on management's expectation of reasonable possible
shifts in these inputs.
The valuation sensitivity of each
assumption is shown in Note 15.
10. Trade and other receivables
|
As at
|
As at
|
|
31 December
2023
|
31 December
2022
|
|
£'000
|
£'000
|
Other receivables
|
143
|
775
|
Total
|
143
|
775
|
11. Trade and other payables
|
As at
|
As at
|
|
31 December
2023
|
31 December
2022
|
|
£'000
|
£'000
|
Accrued expenses
|
3,237
|
1,917
|
Total
|
3,237
|
1,917
|
12. Share capital
|
Year ended
31 December
2023
|
Year ended
31 December
2022
|
|
|
Nominal
|
|
Nominal
|
|
Number of
|
value of
|
Number of
|
value of
|
Allotted, issued and fully paid:
|
shares
|
shares (£)
|
shares
|
shares (£)
|
Opening balance
|
564,927,536
|
5,649,275
|
564,927,536
|
5,649,275
|
Allotted following admission to LSE
|
|
|
|
|
Share issuance
|
-
|
-
|
-
|
-
|
Closing balance
|
564,927,536
|
5,649,275
|
564,927,536
|
5,649,275
|
As at 31 December 2023, the
Company had total share premium of £217.3 million (2022:
£217.3m).
13. Special reserve
As indicated in the Company's
prospectus dated 19 November 2019, following admission of the
Company's Ordinary Shares to trading on the London Stock Exchange,
the Directors applied to the Court and obtained a judgement on
18 February 2020 to cancel the amount standing to the credit
of the share premium account of the Company.
As stated by the Institute of
Chartered Accountants in England and Wales ("ICAEW") and the
Institute of Chartered Accountants in Scotland ("ICAS") in the
technical release TECH 02/17BL, The Companies (Reduction of Share
Capital) Order 2008 SI 2008/1915 ("the Order") specifies the cases
in which a reserve arising from a reduction in a company's capital
(i.e., share capital, share premium account, capital redemption
reserve or redenomination reserve) is to be treated as a realised
profit as a matter of law. The Order also disapplies the general
prohibition in section 654 on the distribution of a reserve arising
from a reduction of capital. The Order provides that if a limited
company having a share capital reduces its capital and the
reduction is confirmed by order of court, the reserve arising from
the reduction is treated as a realised profit unless the
court orders otherwise.
The amount of the share premium
account cancelled and credited to the Company's Special reserve is
£339.5 million, which can be utilised to fund distributions by way
of dividends to the Company's shareholders.
14. Net assets per Ordinary Share (pence)
|
As at
31 December 2023
|
As at
31 December 2022
|
Total shareholders' equity
(£'000)
|
599,039
|
618,260
|
Number of Ordinary Shares in issue
('000)
|
564,928
|
564,928
|
Net asset value per Ordinary Share (pence)
|
106.04p
|
109.44p
|
15. Financial instruments by category
|
As at 31 December
2023
|
Financial
assets at
amortised
cost
£'000
|
Financial
assets at
fair value
through
profit or loss
£'000
|
Financial
liabilities at amortised
cost
£'000
|
Total
£'000
|
Non-current assets
|
|
|
|
|
Investments at fair value through
profit or loss
|
-
|
592,121
|
-
|
592,121
|
Current assets
|
|
|
|
|
Trade and other
receivables
|
143
|
-
|
-
|
143
|
Cash and cash
equivalents
|
10,012
|
-
|
-
|
10,012
|
Total assets
|
10,155
|
592,121
|
-
|
602,276
|
Current liabilities
|
|
|
|
|
Trade and other
payables
|
-
|
-
|
-3,237
|
-3,237
|
Total liabilities
|
-
|
-
|
-3,237
|
-3,237
|
Net assets
|
10,155
|
592,121
|
-3,237
|
599,039
|
As explained in Note 3a, the
Company values its investments as a whole. In the tables above of
the total figure of £592.1 million for financial assets at fair
value through profit or loss, £513.3 million relates to the face
value of debt investments. Investments at fair value through profit
and loss takes into account additions and disposals in the year,
see the section entitled Investments and Capital Recycling
Programme in the Company's Annual Report.
|
As at 31 December
2022
|
Financial
assets at
amortised
cost
£'000
|
Financial
assets at
fair value
through
profit or
loss
£'000
|
Financial
liabilities
at
amortised
cost
£'000
|
Total
£'000
|
Non-current assets
|
|
|
|
|
Investments at fair value through
profit or loss
|
-
|
608,799
|
-
|
608,799
|
Current assets
|
|
|
|
|
Trade and other
receivables
|
775
|
-
|
-
|
775
|
Cash and cash
equivalents
|
10,603
|
-
|
-
|
10,603
|
Total assets
|
11,378
|
608,799
|
-
|
620,177
|
Current liabilities
|
|
|
|
|
Trade and other
payables
|
-
|
-
|
-1,917
|
-1,917
|
Total liabilities
|
-
|
-
|
-1,917
|
-1,917
|
Net assets
|
11,378
|
608,799
|
-1,917
|
618,260
|
As explained in Note 3a, the
Company values its investments as a whole. In the table above of
the total figure of £608.8 million for financial assets at
fair value through profit or loss, £506.5 million relates to the
face value of debt investments.
In the tables above, the fair
value of the financial instruments that are measured at amortised
cost do not materially differ from their carrying
values.
IFRS 13 requires the Company to
classify its investments in a fair value hierarchy that reflects
the significance of the inputs used in making the measurements.
IFRS 13 establishes a fair value hierarchy that prioritises the
inputs to valuation techniques used to measure fair value. The
three levels of fair value hierarchy under IFRS 13 are as
follows:
Level 1: fair value
measurements are those derived from quoted prices (unadjusted) in
active markets for identical assets or liabilities
|
Level 2: fair value
measurements are those derived from inputs other than quoted prices
included within Level 1 that are observable for the asset or
liability, either directly (i.e., as prices) or indirectly
(i.e., derived from prices)
|
Level 3: fair value
measurements are those derived from valuation techniques that
include inputs to the asset or liability that are not based on
observable market data (unobservable inputs)
|
|
|
As at 31 December
2023
|
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|
£'000
|
£'000
|
£'000
|
£'000
|
Financial assets
|
|
|
|
|
Investments at fair value through
profit or loss
|
-
|
-
|
592,121
|
592,121
|
Total financial assets
|
-
|
-
|
592,121
|
592,121
|
|
As at 31 December
2022
|
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|
£'000
|
£'000
|
£'000
|
£'000
|
Financial assets
|
|
|
|
|
Investments at fair value through
profit or loss
|
-
|
-
|
608,799
|
608,799
|
Total financial assets
|
-
|
-
|
608,799
|
608,799
|
|
|
|
|
| |
There were no Level 1 or Level 2
assets or liabilities during the year. There were no transfers
between Level 1 and 2, Level 1 and 3 or Level 2 and 3 during the
year.
Included within investments at
fair value through profit or loss is an amount of £20 million in
relation to derivative option in Ireland associated with the
conditional acquisition in Ireland (2022: £5.0m relating to two
derivative options associated with the conditional acquisitions in
Spain and Ireland) recognised in an intermediate holding
company.
Reconciliation of Level 3 fair value measurement of financial
assets and liabilities
An analysis of the movement
between opening to closing balances of the investments at fair
value through profit or loss (all classified as Level 3) is given
in Note 9.
The fair value of the investments
at fair value through profit or loss includes the use of Level 3
inputs. Refer to Note 9 for details on the valuation
methodology.
Valuation Sensitivities (including conditional
acquisitions)
Discount rate
The discount rate is considered
the most significant unobservable input through which an increase
or decrease would have a material impact on the fair value of the
investments at fair value through profit or loss.
An increase of 0.50% in the
discount rate (levered cost of equity) would cause a decrease in
total portfolio value of 6.0p per Ordinary Share (5.6%
decrease) and a decrease of 0.50% in the discount rate would cause
an increase in total portfolio value of 6.5p per Ordinary Share
(6.1% increase).
Inflation rate
The sensitivity of the investments
to movement in inflation rates is as follows:
A decrease of 0.50% in inflation
rates would cause a decrease in total portfolio value of -4.4p per
Ordinary Share (4.2% decrease) and an increase in inflation rates
would cause an increase in total portfolio value of 4.8p per
Ordinary Share (4.5% increase).Power price
Wind and solar assets are subject
to movements in power prices. The sensitivities of the investments
to movement in power prices are as follows:
A decrease of 10% in power price
would cause a decrease in the total portfolio value of 9.7p per
Ordinary Share (9.2% decrease) and an increase of 10% in power
price would cause an increase in the total portfolio value of 9.7p
per Ordinary Share (9.1% increase).
Generation
Wind and solar assets are subject
to power generation risks. The sensitivities of the investments to
movement in level of power output are as follows:
The fair value of the investments
is based on a "P50" level of power output being the expected level
of generation over the long‑term. An assumed "P90" level of
power output (i.e. a level of generation that is below the "P50",
with a 90% probability of being exceeded) would cause a decrease in
the total portfolio value of -19.6p per Ordinary Share (18.5%
decrease). An assumed "P10" level of power output (i.e. a level of
generation that is above the "P50", with a 10% probability of being
achieved) would cause an increase in the total portfolio value of
19.0p per Ordinary Share (17.9% increase).
Foreign exchange
The sensitivity of the investments
to movement in FX rates is as follows:
An increase of 10% in FX rates
would cause an increase in total portfolio value of 1.3p per
Ordinary Share (1.2% increase) and a decrease of 10% in FX
rates would cause a decrease in total portfolio value of 1.3p per
Ordinary Share (1.2% decrease).
Of the portfolio as at 31 December
2023, 52% (2022: 59%) of the NAV is denominated in non-sterling
currencies.
16. Financial risk management
The Company's activities expose it
to a variety of financial risks; including foreign currency risk,
interest rate risk, power price risk, credit risk and liquidity
risk. The Board of Directors has overall responsibility for
overseeing the management of financial risks, however the review
and management of financial risks are delegated to the AIFM. Each
risk and its management are summarised below.
(i) Currency risk
Foreign currency risk is defined
as the risk that the fair values of future cashflows will fluctuate
because of changes in foreign exchange rates. The Company seeks to
manage its exposure to foreign exchange movements to ensure that
(i) the sterling value of known future construction
commitments is fixed; (ii) sufficient near term distributions from
nonsterling investments are hedged to maintain healthy dividend
cover; (iii) the volatility of the Company's NAV with respect to
foreign exchange movements is limited; and (iv) all settlements and
potential mark-to market payments on instruments used to hedge
foreign exchange exposure are adequately covered by the Company's
cash balances and undrawn credit facilities.
The portfolio of assets in which
the Company invests all conduct their business and pay interest,
dividends and principal in sterling, with the exception of the euro
and zloty-denominated investments which at 31 December 2023
comprised 46% (2022: 48%) and 0% (2022: 11%) of the total
value of all investments respectively. The valuation sensitivity to
FX rates is shown in Note 15.
(ii) Interest rate risk
The Company's interest rate risk
on interest bearing financial assets is limited to interest earned
on cash and loan investments into project companies, which yield
interest at a fixed rate. The portfolio's cashflows are continually
monitored and reforecast, both over the near future and the
long-term, to analyse the cash flow returns from
investments.
The Group may use borrowings to
finance the acquisition of investments and the forecasts are used
to monitor the impact of changes in borrowing rates against cash
flow returns from investments as increases in borrowing rates will
reduce net interest margins. The Group's policy is to ensure that
interest rates are sufficiently hedged to protect the Group's net
interest margins from significant fluctuations when entering into
material medium/ long-term borrowings. This includes engaging in
interest rate swaps or other interest rate derivative
contracts.
The Company's interest and
non-interest bearing assets and liabilities are summarised
below:
|
As at 31 December
2023
|
|
Interest
|
Non-interest
|
|
|
bearing
|
bearing
|
Total
|
|
£'000
|
£'000
|
£'000
|
Assets
|
|
|
|
Cash and cash
equivalents
|
-
|
10,012
|
10,012
|
Trade and other
receivables
|
-
|
143
|
143
|
Investments at fair value through
profit or loss
|
513,280
|
78,841
|
592,121
|
Total assets
|
513,280
|
88,996
|
602,276
|
Liabilities
|
|
|
|
Trade and other
payables
|
-
|
-3,237
|
-3,237
|
Total liabilities
|
-
|
-3,237
|
-3,237
|
|
|
|
|
As at 31 December
2022
|
|
Interest
|
Non-interest
|
|
|
bearing
|
bearing
|
Total
|
|
£'000
|
£'000
|
£'000
|
Assets
|
|
|
|
Cash and cash
equivalents
|
-
|
10,603
|
10,603
|
Trade and other
receivables
|
-
|
775
|
775
|
Investments at fair value through
profit or loss
|
506,482
|
102,317
|
608,799
|
Total assets
|
506,482
|
113,695
|
620,177
|
Liabilities
|
|
|
|
Trade and other
payables
|
-
|
-1,917
|
-1,917
|
Total liabilities
|
-
|
-1,917
|
-1,917
|
|
|
|
| |
In the tables above, the interest
bearing asset value for investments at fair value through profit or
loss relates to the face value of debt investments.
(iii) Power Price risk
The wholesale market price of
electricity and gas is volatile and is affected by a variety of
factors, including market demand for electricity and gas, the
generation mix of power plants, government support for various
forms of power generation, as well as fluctuations in the market
prices of commodities and foreign exchange. Whilst some of the
Company's renewable energy projects benefit from fixed prices,
others have revenue which is in part based on wholesale electricity
and gas prices. The Investment Manager continually monitors energy
price forecast and aims to put in place mitigating strategies, such
as hedging arrangements or fixed PPA contracts to reduce the
exposure of the Company to this risk.
Further information on the impact
of power prices over the year is provided in the Portfolio
Valuation section of the Investment Manager's report contained in
the Company's Annual Report.
(iv) Credit risks
Credit risk is the risk that a
counterparty of the Group will be unable or unwilling to meet a
commitment that it has entered into with the Group. The credit
standing of subcontractors is reviewed, and the risk of default
estimated for each significant counterparty position. Monitoring is
on-going, and year end positions are reported to the Board on a
quarterly basis. The Group's largest credit risk exposure to a
project at 31 December 2023 was to Goldbeck Solar Limited on Breach
Solar representing 1% of the portfolio by total value of all
investments (2022: 6%).
The Group 's investments enter
into Power Price Agreements ("PPA") with a range of providers
through which electricity is sold. The largest PPA provider to the
portfolio at 31 December 2023 was EDF who provided PPAs to projects
in respect of 25% of the portfolio by total value of all
investments (2022: Npower: 18%).
Credit risk also arises from cash
and cash equivalents, derivative financial instruments and deposits
with banks and financial institutions. The Company and its
subsidiaries mitigate their risk on cash investments and derivative
transactions by only transacting with major international financial
institutions with high credit ratings assigned by international
credit rating agencies.
The Company has assessed IFRS 9's
expected credit loss model and does not consider any material
impact on these financial statements. No trade and other
receivables balances are credit-impaired at the reporting
date.
The Company's commitment in
respect of its conditional acquisition in Ireland is accounted for
partly as a derivative option and partly for the pre commissioning
revenues in an intermediate holding company.
(v) Liquidity risks
Liquidity risk is the risk that
the Group may not be able to meet its financial obligations as they
fall due. The AIFM and the Board continuously monitor forecast and
actual cashflows from operating, financing, and investing
activities to consider payment of dividends, repayment of trade and
other payables or funding further investing activities. The Group
ensures it maintains adequate reserves, banking facilities and
reserve borrowing facilities by continuously monitoring forecast
and actual cash flows and matching the maturity profiles of
financial assets and liabilities.
The Group's investments are
generally in private companies, in which there is no listed market
and therefore such investment would take time to realise, and there
is no assurance that the valuations placed on the investments would
be achieved from any such sale process.
Financial assets and liabilities
by maturity at the year are shown below:
|
31 December
2023
|
|
Less than
|
|
More than
|
|
|
1 year
|
1-5 years
|
5 years
|
Total
|
|
£'000
|
£'000
|
£'000
|
£'000
|
Assets
|
|
|
|
|
Investments at fair value through
profit or loss
|
-
|
-
|
592,121
|
592,121
|
Trade and other
receivables
|
143
|
-
|
-
|
143
|
Cash and cash
equivalents
|
10,012
|
-
|
-
|
10,012
|
Liabilities
|
|
|
|
|
Trade and other
payables
|
-3,237
|
-
|
-
|
-3,237
|
|
6,918
|
-
|
592,121
|
599,039
|
|
31 December
2022
|
|
Less than
|
|
More than
|
|
|
1 year
|
1-5 years
|
5 years
|
Total
|
|
£'000
|
£'000
|
£'000
|
£'000
|
Assets
|
|
|
|
|
Investments at fair value through
profit or loss
|
-
|
-
|
608,799
|
608,799
|
Trade and other
receivables
|
775
|
-
|
-
|
775
|
Cash and cash
equivalents
|
10,603
|
-
|
-
|
10,603
|
Liabilities
|
|
|
|
|
Trade and other
payables
|
-1,917
|
-
|
-
|
-1,917
|
|
9,461
|
-
|
608,799
|
618,260
|
Capital management
The Company's capital management
objective is to ensure that the Company will be able to continue as
a going concern while maximising the return to equity shareholders.
The Company's investment objective is to provide investors with an
attractive and sustainable level of income returns, with an element
of capital growth, by investing in a diversified portfolio of
Renewable Energy Assets in the UK, Europe and Australia.
The Company considers its capital
to comprise ordinary share capital, special reserve and retained
earnings. The Company is not subject to any externally imposed
capital requirements. The Company's total share capital and
reserves shown in the Statement of Financial Position are £599.0
million (2022: £618.3m).
The Company has implemented an
efficient financing structure that enables it to manage its capital
effectively. The Company's capital structure comprises equity
only (refer to the statement of changes in equity).
The Company's direct subsidiary,
ORIT Holdings II Limited, has a £270.8 million revolving credit
facility with Allied Irish Banks, National Australia Bank, NatWest
and Santander. The facility was £130.0 million drawn at 31 December
2023 (2022: £77.2m).
The Board, with the assistance of
the Investment Manager, monitors and reviews the Company's capital
on an ongoing basis.
· Share
capital represents the 1 penny nominal value of the issued share
capital.
· The
share premium account arose from the net proceeds of issuing new
shares.
· The
capital reserve reflects any increases and decreases in the fair
value of investments which have been recognised in the capital
column of the Statement of Comprehensive Income.
17. Related party transactions
During the year, interest
totalling £25.9 million (2022: £23.1m) was earned, in respect of
the long-term interest-bearing loan between the Company and its
subsidiaries. At the year end, no interest earned was
outstanding.
AIFM and Investment Manager
The Company has appointed Octopus
AIF Management Limited to be the Alternative Investment Fund
Manager of the Company (the "AIFM") for the purposes of Directive
2011/61/EU of the European Parliament and of the Council on
Alternative Investment Fund Managers. Accordingly, the AIFM is
responsible for the portfolio management of the Company and for
exercising the risk management function in respect of the Company.
The AIFM has delegated portfolio management services to Octopus
Renewables Limited (trading as Octopus Energy Generation), the
Company's Investment Manager.
The AIFM is entitled to a
management fee of 0.95% per annum of Net Asset Value of the Company
up to £500 million and 0.85% per annum of Net Asset Value in excess
of £500 million, payable quarterly in arrears. No performance fee
or asset level fees are payable to the AIFM under the Management
Agreement.
During the year, the Investment
management fee charged to the Company by the AIFM was £5.64 million
(2022: £5.71m), of which £2.83 million (2022: £1.45m) remained
payable at the year end date.
During the year, the Company
entered into one transaction in the ordinary course of business
with Octopus Energy, part of the same group as the Investment
Manager. The transaction related to the signing of a 1-year
physical, indexed PPA for Ottringham solar farm in the UK. The
nominal value of the transaction was £1.7 million.
Directors
The Company is governed by a Board
of Directors (the "Board"), all of whom are independent and
non-executive. During the year, the Board received fees for their
services of £209,300 (2022: £186,000) and were paid £6,400 (2022:
£7,900) in expenses. As at the year end, there were no outstanding
fees payable to the Board.
The Directors had the following
shareholdings in the Company, all of which were beneficially
owned.
|
Ordinary
Shares as at date
of this report
|
Ordinary
Shares as at
31 December 2023
|
Ordinary
Shares as at
31 December 2022
|
Philip Austin
MBE60
|
165,518
|
165,518
|
165,518
|
James Cameron
|
65,306
|
65,306
|
65,306
|
Elaina Elzinga
|
-
|
-
|
-
|
Audrey
McNair61
|
50,437
|
50,437
|
51,383
|
Sarim Sheikh
|
-
|
-
|
-
|
60
With effect from 23 November 2021, Mr. Austin's
shares have been held jointly with Mrs. J Austin, a PCA of Mr.
Austin.
61
Ms McNair's husband holds 20,991 shares of the
total holding displayed in this table.
18. Subsidiaries, joint ventures and
associates
As a result of applying Investment
Entities (Amendments to IFRS 10, IFRS 12 and IAS 27), no
subsidiaries have been consolidated in these financial statements.
The Company's subsidiaries, joint ventures and associates are
listed below:
Name
|
Category
|
Place of
business
|
Registered
Office62
|
Ownership
interest
|
ORIT Holdings II
Limited
|
Direct Intermediate
Holdings
|
UK
|
A
|
100%
|
ORIT Holdings Limited
|
Intermediate Holdings
|
UK
|
A
|
100%
|
ORIT UK Acquisitions
Limited
|
Intermediate Holdings
|
UK
|
A
|
100%
|
Abbots Ripton Solar Energy
Limited
|
Project company
|
UK
|
A
|
100%
|
Chisbon Solar Farm
Limited
|
Project company
|
UK
|
A
|
100%
|
Jura Solar Limited
|
Project company
|
UK
|
A
|
100%
|
Mingay Farm Limited
|
Project company
|
UK
|
A
|
100%
|
NGE Limited
|
Project company
|
UK
|
A
|
100%
|
Sun Green Energy
Limited
|
Project company
|
UK
|
A
|
100%
|
Westerfield Solar
Limited
|
Project company
|
UK
|
A
|
100%
|
Wincelle Solar Limited
|
Project company
|
UK
|
A
|
100%
|
Heather Wind AB
|
Project company
|
Sweden
|
B
|
100%
|
Solstice 1A GmbH
|
Portfolio-level
Holdings
|
Germany
|
C
|
100%
|
SolaireCharleval SAS
|
Project company
|
France
|
D
|
100%
|
SolaireIstres SAS
|
Project company
|
France
|
D
|
100%
|
SolaireCuges-Les-Pins
SAS
|
Project company
|
France
|
D
|
100%
|
SolaireChalmoux SAS
|
Project company
|
France
|
D
|
100%
|
SolaireLaVerdiere SAS
|
Project company
|
France
|
D
|
100%
|
SolaireBrignoles SAS
|
Project company
|
France
|
D
|
100%
|
SolaireSaint-Antonin-du-Var
SAS
|
Project company
|
France
|
D
|
100%
|
Centrale Photovoltaique de IOVI 1
SAS
|
Project company
|
France
|
D
|
100%
|
Centrale Photovoltaique de IOVI 3
SAS
|
Project company
|
France
|
D
|
100%
|
Arsac 2 SAS
|
Project company
|
France
|
D
|
100%
|
Arsac 5 SAS
|
Project company
|
France
|
D
|
100%
|
SolaireFontienne SAS
|
Project company
|
France
|
D
|
100%
|
SolaireOllieres SAS
|
Project company
|
France
|
D
|
100%
|
Eylsia SAS
|
Portfolio-level
Holdings
|
France
|
E
|
100%
|
CEPE Cerisou
|
Project company
|
France
|
F
|
100%
|
Cumberhead Wind Energy
Limited
|
Project company
|
UK
|
A
|
100%
|
ORIT Irish Holdings 2
Limited
|
Portfolio-level
Holdings
|
UK
|
A
|
100%
|
ORIT Irish Holdings
Limited
|
Portfolio-level
Holdings
|
UK
|
A
|
100%
|
Nordic Power Development
Limited
|
Portfolio-level
Holdings
|
UK
|
A
|
100%
|
Saunamaa Wind Farm Oy
|
Project company
|
Finland
|
H
|
100%
|
Vöyrinkangas Wind Farm
Oy
|
Project company
|
Finland
|
H
|
100%
|
ORI JV Holdings Limited
|
Portfolio-level
Holdings
|
UK
|
A
|
50%
|
ORI JV Holdings 2
Limited
|
Portfolio-level
Holdings
|
UK
|
A
|
50%
|
Simply Blue Energy Holdings
Limited
|
Portfolio-level
Holdings
|
Ireland
|
I
|
19%
|
South Kilbraur Wind Farm
Limited
|
Project company
|
UK
|
J
|
25%
|
Windburn Wind Farm
Limited
|
Project company
|
UK
|
J
|
25%
|
Wind 2 Project 2
Limited
|
Project company
|
UK
|
J
|
25%
|
Wind 2 Project 5
Limited
|
Project company
|
UK
|
J
|
25%
|
Wind 2 Project 3
Limited
|
Project company
|
UK
|
J
|
25%
|
Kirkton Wind Farm
Limited
|
Project company
|
UK
|
J
|
25%
|
Bwlch Gwyn Wind Farm
Limited
|
Project company
|
UK
|
J
|
25%
|
Wind 2 Project 6
Limited
|
Project company
|
UK
|
J
|
25%
|
Lairdmannoch Energy Park
Limited
|
Project company
|
UK
|
J
|
25%
|
ORI JV Holdings 3
Limited
|
Portfolio-level
Holdings
|
UK
|
A
|
50%
|
Nordic Renewables
Limited
|
Portfolio-level
Holdings
|
UK
|
A
|
50%
|
Nordic Renewables Holdings 1
Limited
|
Portfolio-level
Holdings
|
UK
|
A
|
50%
|
ORI JV Holdings 4
Limited
|
Portfolio-level
Holdings
|
UK
|
A
|
50%
|
ORI JV Holdings 5
Limited
|
Portfolio-level
Holdings
|
UK
|
A
|
51%
|
ORI JV Holdings 5 Holdco
Limited
|
Portfolio-level
Holdings
|
UK
|
A
|
51%
|
ORI JV Holdings 6
Limited
|
Portfolio-level
Holdings
|
UK
|
A
|
50%
|
ORIT Lincs Holdco
Limited
|
Portfolio-level
Holdings
|
UK
|
A
|
100%
|
ORI Lincs Holdings
Limited
|
Portfolio-level
Holdings
|
UK
|
A
|
50%
|
Clyde SPV Limited
|
Portfolio-level
Holdings
|
UK
|
K
|
50%
|
Blota Germany GmbH
|
Portfolio-level
Holdings
|
Germany
|
L
|
100%
|
Blota GP GmbH
|
Portfolio-level
Holdings
|
Germany
|
L
|
100%
|
UKA Windenergie Leeskow
GmbH
|
Portfolio-level
Holdings
|
Germany
|
M
|
100%
|
UGE Leeskow Eins GmbH & Co. KG
Umweltgerechte Energie
|
Portfolio-level
Holdings
|
Germany
|
M
|
100%
|
Infrastrukturgesellschaft Leeskow
mbH & Co. KG
|
Project company
|
Germany
|
M
|
100%
|
Burwell 11 Solar
Limited
|
Project company
|
UK
|
A
|
100%
|
Crossdykes WF Limited
|
Project company
|
UK
|
N
|
51%
|
UK Green Investment Lyle
Limited
|
Portfolio-level
Holdings
|
UK
|
K
|
50%
|
Lincs Wind Farm (Holding)
Limited
|
Portfolio-level
Holdings
|
UK
|
O
|
15.5%
|
Lincs Wind Farm Limited
|
Project company
|
UK
|
P
|
15.5%
|
HYRO Energy Limited
|
Portfolio-level
Holdings
|
UK
|
Q
|
25%
|
Green Hydrogen 11
Limited
|
Project company
|
UK
|
Q
|
25%
|
Green Hydrogen 2
Limited
|
Project company
|
UK
|
Q
|
25%
|
Green Hydrogen 3
Limited
|
Project company
|
UK
|
Q
|
25%
|
Green Hydrogen 4
Limited
|
Project company
|
UK
|
Q
|
25%
|
Green Hydrogen 5
Limited
|
Project company
|
UK
|
Q
|
25%
|
Gridsource (Woburn Rd)
Limited
|
Project company
|
UK
|
A
|
50%
|
Haaponeva SPC Oy
|
Project company
|
Finland
|
G
|
50%
|
BHill SPC Oy
|
Project company
|
Finland
|
G
|
50%
|
Luola S SPC Oy
|
Project company
|
Finland
|
G
|
50%
|
Mikkeli S SPC Oy
|
Project company
|
Finland
|
G
|
50%
|
Eero S SPC Oy
|
Project company
|
Finland
|
G
|
50%
|
S Tuuli SPC Oy
|
Project company
|
Finland
|
G
|
50%
|
KNorgen SPC Oy
|
Project company
|
Finland
|
G
|
50%
|
Trio Power Limited
|
Portfolio-level
Holdings
|
UK
|
A
|
100%
|
62 Registered offices:
A - Uk House, 5th
Floor, 164-182 Oxford Street, London, United Kingdom, W1D
1NN
B - Lilla Nygatan 1,
111 28 Stockholm, Sweden
C - Maximilianstraße,
3580539 München, Germany
D - 52 Rue de la Victoire
75009, Paris, France
E - 4 Rue de Marivaux,
75002 Paris, France
F - Z.I de Courtine,
330 rue du Mourelet, 84000. Avignon, France
G - c/o Nordic Generation
Oy, Tekniikantie 14, 02150 ESPOO
H - Teknobulevardi 3-5,
01530 Vantaa, Finland
I - Woodbine
Hill, Kinsalebeg, Youghal, Co. Cork, Ireland
J - Wind 2 Office, 2
Walker Street, Edinburgh, Scotland, EH3 7LB
K - 8 White Oak
Square, London Road, Swanley, Kent, United Kingdom, BR8
7AG
L - c/o Ashurst LLP,
OpernTurm, Bockenheimer Landstraße 2-4, 60306 Frankfurt
M - Dorfstraße 20a, 18276
Lohmen
N - 58 Morrison Street,
Edinburgh, United Kingdom, EH3 8BP
O - 5 Howick Place, London,
United Kingdom, SW1P 1WG
P - 13 Queens Road,
Aberdeen, Scotland, AB15 4YL
Q - Beaufort Court, Egg Farm
Lane, Kings Langley, United Kingdom, WD4 8LR
As shown in Annual Report, ORIT
Holdings II Limited is the only direct subsidiary of the Company.
All other subsidiaries are held indirectly.
19. Guarantees and other commitments
The Company guarantees the foreign
exchange hedges entered into by its intermediate holding companies
to enable it to minimise its exposure to changes in underlying
foreign exchange rates.
As at 31 December 2023, the
Company has guarantees in respect of the future investment
obligations associated with the Breach Solar plant totalling £4.1
million (2022: £41.5m).
As at 31 December 2023 the
Company's subsidiaries had future investment obligations totalling
£175.6 million (2022: £111.2m) relating to its wind farms post
construction, solar farm in construction and its conditional
acquisitions in Ireland. The intermediate holding companies have
provided guarantees in respect of these commitments.
20. Contingent acquisition
On 26 July 2021 an intermediate
holding company, ORIT Holdings Limited, entered into a Share
Purchase Agreement ("SPA") for the acquisition of a 100% interest
in a portfolio of five solar PV assets in Ireland. As at 31
December 2023, the acquisition of the five sites were conditional
upon the sites becoming fully operational. The total consideration
for the five sites was estimated at €185‑€193 million (c. £160.6 million to
£167 million) which is payable on completion, apart from deferred
consideration in respect of the fifth site. The Company has secured
a fully amortising debt facility of up to €114 million (c.
£98.8 million) from Allied Irish Banks plc and La Banque Postale to
part finance the acquisition of the operational sites and a further
pre agreed debt facility up to €25.8 million to acquire the fifth
site. A derivative asset of £20 million (2022: £3.3m) has been
recognised in respect of this transaction as at 31 December 2023 in
an intermediate holding company.
21. Post-year end events
On 29 January 2024 the Company
declared an interim dividend in respect of the three months ended
31 December 2023 of 1.45 pence per Ordinary Share for £8.2 million
based on a record date of 9 February 2024 and ex-dividend date of
8 February 2024 and the number of Ordinary Shares in issue
being 564,927,536. This dividend was paid on
23 February 2024.
On 2 February 2024 the Company
announced that it has completed the conditional acquisition of four
newly-constructed solar farms located close to Dublin, Ireland
following the sites becoming operational in December 2023. The
solar complex totals 199MW and was acquired from Statkraft Ireland
Limited, which developed and constructed the projects under ORIT's
oversight. The total acquisition cost of €160.6 million was in part
financed using a €80.6 million drawdown from the debt facility
provided by Allied Irish Banks and La Banque Postale.
Other Information
Alternative Performance Measures
In reporting financial
information, the Company presents alternative performance measures,
"APMs", which are not defined or specified under the requirements
of IFRS. The Company believes that these APMs, which are not
considered to be a substitute for or superior to IFRS measures,
provide stakeholders with additional helpful information on the
performance of the Company. The APMs presented in this report are
shown below:
Performance of Company's underlying operational
investments
|
Output
|
Revenue
|
Opex
|
EBITDA
|
|
1,110GWh
|
£117.4
million
|
£43.6
million
|
£73.8
million
|
Operational portfolio
|
(2022:
1,005GWh)
|
(2022:
£112.0m)
|
(2022:
£35.7m)
|
(2022:
£76.3m)
|
|
275GWh
|
£35.2
million
|
£9.2
million
|
£26.0
million
|
Solar (excluding Irish
portfolio)
|
(2022:
292GWh)
|
(2022:
£33.7m)
|
(2022:
£8.3m)
|
(2022:
£25.4m)
|
|
682GWh
|
£42.7
million
|
£12.0
million
|
£30.7
million
|
Onshore wind
|
(2022:
565GWh)
|
(2022:
£51.3m)
|
(2022:
£7.5m)
|
(2022:
£43.8m)
|
|
152GWh
|
£39.5
million
|
£22.4
million
|
£17.0
million
|
Offshore wind
|
(2022:
148GWh)
|
(2022:
£27.0m)
|
(2022:
£19.9m)
|
(2022:
£7.1m)
|
Gross asset value (GAV)
The Company's gross assets
comprise the net asset values of the Company's Ordinary Shares and
the debt held in unconsolidated subsidiaries
|
|
As at
|
As at
|
|
|
31 December
2023
|
31 December
2022
|
|
|
£million
|
£million
|
NAV
|
a
|
599.0
|
618.3
|
Debt
|
b
|
381.3
|
454.3
|
Total GAV
|
a + b
|
980.3
|
1,072.6
|
Total value of all investments
A measure of committed asset value
including total debt and equity commitments
|
|
As at
|
As at
|
|
|
31 December
2023
|
31 December
2022
|
|
|
£million
|
£million
|
GAV
|
a
|
980.3
|
1,072.6
|
Commitments on existing
portfolio
|
b
|
19.1
|
68.3
|
Commitments on conditional
acquisitions
|
c
|
173.4
|
177.0
|
GAV before adjusting for cash available for
commitments
|
(a+b+c) =
d
|
1,172.8
|
1,317.9
|
Less Company and holding company
assets
|
e
|
-23.1
|
-1.7
|
Less asset level cash
|
f
|
-22.6
|
-15.5
|
Total value of all investments
|
d + e + f
|
1,127.1
|
1,304.2
|
Total return since IPO
A measure of performance since IPO
that includes both income and capital returns. This takes into
account capital gains and reinvestment of dividends (where
beneficial) paid out by the Company into the Ordinary Shares of the
Company on the ex-dividend date.
31 December 2023
|
|
Share
price
|
NAV
|
Value at IPO (10 December 2019) -
pence
|
a
|
100.00
|
98.00
|
Value at 31 December 2023 -
pence
|
b
|
90.00
|
106.04
|
Benefits of reinvesting dividends
- pence
|
d
|
-1.09
|
2.26
|
Dividends paid since IPO -
pence
|
c
|
17.76
|
17.76
|
Total return
|
[(b+c+d)÷a]-1
|
6.7%
|
28.6%
|
Annualised total return
|
|
1.6%
|
6.4%
|
31 December 202263
|
|
Share
price
|
NAV
|
Value at IPO (10 December 2019) -
pence
|
a
|
100.00
|
98.00
|
Value at 31 December 2022 -
pence
|
b
|
100.00
|
109.44
|
Benefits of reinvesting dividends
- pence
|
d
|
-0.52
|
1.8
|
Dividends paid since IPO -
pence
|
c
|
12.11
|
12.11
|
Total return
|
[(b+c+d)÷a]-1
|
11.6%
|
25.9%
|
Annualised total return
|
|
3.6%
|
7.8%
|
Total return for the year
A measure of performance for the
year that includes both income and capital returns. This takes into
account capital gains and reinvestment of dividends paid out by the
Company into the Ordinary Shares of the Company on the ex-dividend
date.
31 December 2023
|
|
Share
price
|
NAV
|
Value at 31 December 2022 -
pence
|
a
|
100.00
|
109.44
|
Dividends paid to 31 December 2022
- pence
|
b
|
12.11
|
12.11
|
Value plus dividends paid to 31
December 2022 - pence
|
a + b =
c
|
112.11
|
121.55
|
Value at 31 December 2023 -
pence
|
d
|
90.00
|
106.04
|
Benefits of reinvesting dividends
- pence
|
e
|
-0.57
|
0.35
|
Dividends paid in the year -
pence
|
f
|
5.65
|
5.65
|
Total return
|
[(b+d+e+f)
÷c]-1
|
-4.4%
|
2.1%
|
31 December 202263
|
|
Share
price
|
NAV
|
Value at 31 December 2021 -
pence
|
a
|
110.80
|
102.26
|
Dividends paid to 31 December 2021
- pence
|
b
|
|
|
Value plus dividends paid to 31
December 2021 - pence
|
a + b =
c
|
|
|
Value at 31 December 2022 -
pence
|
d
|
100.00
|
109.44
|
Benefits of reinvesting dividends
- pence
|
e
|
-0.76
|
1.25
|
Dividends paid in the year -
pence
|
f
|
5.18
|
5.18
|
Total return
|
[(b+d+e+f)÷c]-1
|
-5.4%
|
12.4%
|
63 Restated from December 2022 KPI reported in the FY22
Annual Report
(Discount)/Premium to NAV
The amount, expressed as a
percentage, by which the share price is less or more than the NAV
per Ordinary Share.
|
|
As at
|
As at
|
|
|
31 December
2023
|
31 December
2022
|
NAV per Ordinary Share -
pence
|
a
|
106.04
|
109.44
|
Share price - pence
|
b
|
90.00
|
100.00
|
(Discount)/Premium
|
(b÷a)-1
|
-15.1%
|
-8.6%
|
Ongoing charges ratio
A measure, expressed as a
percentage of average net assets, of the regular, recurring annual
costs of running the Company per Ordinary Share. This has been
calculated and disclosed in accordance with the AIC
methodology.
|
|
Year ended
|
Year ended
|
|
|
31 December
2023
|
31 December
2022
|
|
|
£'000
|
£'000
|
Average NAV
|
a
|
605,111
|
611,342
|
Annualised expenses
|
b
|
7,011
|
6,844
|
Ongoing charges ratio
|
(b÷a)
|
1.16%
|
1.12%
|
Financial Information
This announcement does not
constitute the Company's statutory accounts. The financial
information for 2023 is derived from the statutory financial
statements for 2023, which will be delivered to the Registrar of
Companies. The statutory accounts for 2022 have been delivered to
the Registrar of Companies. The auditors have reported on the 2022
and 2023 accounts; their reports were unqualified and did not
include a statement under Section 498(2) or (3) of the Companies
Act 2006.
The Annual Report for the year
ended 31 December 2023 was approved on 22 March 2024. The full
Annual Report can be accessed via the Company's website at:
https://octopusrenewablesinfrastructure.com/investors/
The Annual Report will be
submitted to the National Storage Mechanism and will shortly be
available for inspection at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
This announcement contains
regulated information under the Disclosure Guidance and
Transparency Rules of the FCA.
Annual General Meeting ("AGM")
The AGM of Octopus Renewables
Infrastructure Trust plc will be held at 6th Floor, 125
London Wall, London EC2Y 5AS on 19 June 2024 at
10:00a.m.
Even if shareholders intend to
attend the AGM, all shareholders are encouraged to cast their vote by proxy and to appoint the
"Chair of the Meeting" as their proxy. Details of how to vote,
either electronically, by proxy form or through CREST, can be found
in the Notes to the Notice of AGM in the Annual Report.
Shareholders are invited to send
any questions for the Board or the Investment Manager in advance by
email to oritcosec@apexfs.group
by close of business on 17 June 2024.
25 March 2024
END