TIDMORIT
RNS Number : 5509U
Octopus Renewables Infra Trust PLC
29 March 2023
LEI: 213800B81BFJKWM2JV13
29 March 2023
OCTOPUS RENEWABLES INFRASTRUCTURE TRUST PLC
Final Results to 31 December 2022
Strong FY performance with double digit NAV total return and
significant increase in FY 2023 dividend target(2)
Octopus Renewables Infrastructure Trust plc ("ORIT" or the
"Company") announces its audited results for the year from 1
January 2022 to 31 December 2022 ("FY 2022").
Financial Highlights
As at 31 December As at 31 December
2022 2021
(audited) (audited)
------------------------------------- ------------------ ------------------
NAV per Ordinary Share (p) 109.44 102.26
Ordinary Share price (p) 100.00 110.8
Dividends declared per Ordinary
Share (p)(2) 5.24 5.00
Net asset value (GBP million) 618 578
Gross asset value (GBP million)(1,3) 1,073 738
Total value of all investments
(GBP million) 1,304 878
NAV total return in the year +12.3% +9.3%
Ongoing charges ratio(1) 1.12% 1.15%
-- Achieved strong NAV growth of +12.3% (2021: +9.3%). The NAV
growth was driven primarily by rising inflation and power price
assumptions, offset by an increase in the average discount rate
applied in the portfolio valuations.
-- Robust total shareholder return in the period from IPO in
December 2019 of +12.1% (2021: +17.7%).
-- Strong NAV total return in the period since IPO in December
2019 of +25.9% (2021: +12.1%)(1) .
-- Total shareholder return in FY 2022 of -4.8% (2021: +1.6%)(6) .
-- A valuation increase of GBP10.7 million resulted from the
unwinding of construction risk premium and development gain.
-- Strong dividend cover of 1.77x during FY2022 has been
supported by the acquisition of operational portfolios as well as
the successful completion of construction assets(4) .
-- In July 2022, the Company extended its RCF facility, through
the accordion feature, bringing the total committed facility to
GBP246 million.
Operational Highlights
-- The Company completed eight transactions during the period,
including into a new country, Germany, committing over GBP350
million of capital on a GAV basis, across onshore and offshore
wind, solar and battery storage, in both construction and
operational assets, in addition to two developer investments.
-- At the SPV level, the Company's operational portfolio
generated 1,005 GWh (2021: 348 GWh) of electricity, generating
revenue of GBP112.0 million (2021: GBP38.5m), 4.5% ahead of
target.
-- 68% of forecast operational revenue in 2023 and 2024 is
already fixed (31 December 2022: 50%), the increase driven by the
acquisition of the Leeskow onshore wind farm (Germany), adding a
new country to the portfolio, and investment into Lincs offshore
wind farm (GB).
-- As at 31 December 2022, the portfolio comprised 36(7) assets
across seven countries (UK, France, Ireland, Finland, Poland,
Sweden and Germany) and three technologies, as well as developer
investments. Total capacity, excluding conditional acquisitions, of
662 MW(7) (2021: 494 MW).
-- Once fully invested, the portfolio has the potential to power
the equivalent of 522,000 homes with clean energy, an estimated
580,000 tonnes of carbon emissions avoided, up from 337,000 homes
and 364,000 tonnes of carbon in 2021, respectively.
-- During the year under review, the Company committed to its
first battery storage investment, a 50% stake in the 12MW, Woburn
Road battery construction project in Bedfordshire, UK, growing the
portfolio's technology diversification.
-- ORIT currently has 117MW of new renewable generation capacity
at the construction-ready or in-construction stage.
-- In November 2022, ORIT was promoted to the FTSE250,
demonstrating the strong progress made since IPO in December
2019.
Post Period End
-- Target dividend for FY 2023 increased to 5.79p for FY 2023(2)
, an increase of 10.5% over FY 2022 and in line with the Consumer
Price Index (CPI), marking the second consecutive year the Company
has increased its dividend target in line with inflation. ORIT's
operational portfolio is forecast to generate significant cash
flows (after debt service) in excess of the target dividend for FY
2023(4) . The expected dividend cover for FY2023(4) is forecast to
be 1.7x, and the average expected annual dividend cover over a
5-year period to 31 December 2027(4) is also 1.7x. Cash flows
generated by fixed or contracted sources (e.g. PPAs, CFDs, ROCs and
FITs) are estimated to cover expected dividends by 1.1x over the
same period(5) .
-- Extended and increased the Group's RCF, with the total
committed multi-currency facility increasing to GBP271 million at a
lower margin of 2.0% above SONIA(9) . The RCF also has an
uncommitted accordion feature allowing the facility to be increased
in size by up to a further GBP150 million.
-- ORIT successfully signed a 10-year PPA over the electricity
to be generated at the Breach Solar Farm, a c.67 MW solar PV
project in Cambridgeshire, UK. The solar farm will cover 14% of
Iceland Foods' electricity needs for its UK stores. This will
reduce Iceland's emissions by nearly 22,955 tonnes of CO2 a
year.
Phil Austin, Chairman of Octopus Renewables Infrastructure Trust
plc, commented:
"ORIT has achieved another strong performance with double digit
NAV growth and delivering a 1.77x covered dividend, despite 2022
being a turbulent year in the energy sector, against a challenging
macroeconomic backdrop.
We are delighted with the Company's operational performance this
year, driven by our Investment Manager, whose over 100 strong team
actively manage the portfolio, including successfully bringing a
number of high-quality renewable energy assets through construction
into operation and negotiating optimal energy pricing strategies,
as well as developing our ongoing pipeline.
During the period, the Company made an investment in a new
country in Europe, added a new technology to the portfolio and
completed eight significant transactions, increasing ORIT's
contribution to the green energy transition.
In a world where energy security and decarbonisation continue to
rise to the top of the agenda globally, ORIT's fundamental
objective is to help companies and countries transition to net zero
whilst ensuring an attractive level of returns for our
shareholders. We remain well positioned to take advantage of
opportunities that will create a genuinely positive impact and
deliver an attractive, growing dividend."
Results presentation today
There will be a presentation for sell side analysts at 9.00 a.m.
today, 29 March 2023. Please contact Buchanan for details on
octopus@buchanan.uk.com
For further information please contact:
Octopus Energy Generation (Investment Manager) Via Buchanan
Chris Gaydon, David Bird
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, Hannah Ratcliff, George Beale 020 7466 5000
Apex Listed Companies Services (UK) Limited (Company
Secretary) 020 3327 9720
Notes:
1. These are alternative performance measures. Definitions of
these and other performance measures used by the Company, together
with how these measures have been calculated, are set out in the
Annual Report.
2. 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.
3. A measure of total asset value including debt held in
unconsolidated subsidiaries, but excluding any outstanding equity
or debt commitments.
4. Dividend cover is calculated on the basis of actual (in
respect of FY 2022) 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. Dividend cover is calculated on the basis of expected net
operational cash flows from the portfolio excluding uncontracted
revenues (e.g. power sales linked to prevailing market prices) and
after debt service and Company and intermediate holding company
expenses.
6. Total Shareholder return since IPO stated in sterling,
including dividends reinvested, from 9 December 2019 to 31 December
2022.
7. Excludes conditional acquisitions.
8. The increase of 10.5% over FY 2022's dividend target is in
line with the increase to the Consumer Price Index (CPI) for the 12
months to 31 December 2022. For FY 2023, the Company has elected to
increase the target in line with CPI, rather than the lower
CPIH.
9. Or the equivalent reference rate for other currencies.
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 ("OEGEN") is driving the renewable
energy agenda by building green power for the future. Its
London-based, leading 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 12-year track record
with approximately GBP6 billion of assets under management (AUM)
(as of January 2023) across 12 countries and total 3.2GW. These
renewable projects generate enough green energy to power 2 million
homes every year, the equivalent of taking over 800,000 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.
ORIT is managed by one of the largest renewable energy investors
in Europe, Octopus Energy Generation (the "Investment
Manager").
Highlights
As at 31 December 2022
-4.8% +12.3% 5.24p +12.1%
Total shareholder Total shareholder
return NAV total return Dividend per Ordinary return
in the year (1 2 since IPO (3.8% per
in the year (1 3) 3) Share for FY 2022
2021: (+1.6%) 2021: (+9.3%) FY 2021: (5.0p) annum) (1 3)
2021: (+17.7%, 8.3%
per annum)
+25.9% 109.4p GBP618m GBP1,073m
NAV total return NAV per Ordinary Net Asset Value ("NAV") Gross Asset Value
since IPO (7.8% Share (2) (2) ("GAV") (1 4)
per annum) (1 2 3) increased by 6.9% 2021: (GBP578m) increased by 45% since
2021: (+12.1%, 5.7% since 2021: (102.26p) 2021: (GBP738m)
per annum)
GBP1,304m 1,740GWh 580k 522k
Total value of all Potential Renewable Estimated tonnes Equivalent homes
investments (1 5) Electricity (6) of carbon avoided powered by clean
2021: (GBP878m) 2021: (1,168 GWh) (6) energy (6)
2021: (364k) 2021: (337k)
Alternative Performance Measures ("APMs")
The financial information and performance data highlighted in
footnote 1 are the APMs of the Company. Definitions of these APMs
together with how these measures have been calculated can be found
in the Annual Report.
(1) These are alternative performance measures
(2) The Net Asset Value (NAV) as at 31 December 2022 is
calculated on the basis of 564,927,536 Ordinary Shares in issue
(3) Total returns in sterling, including dividends reinvested
(4) A measure of total asset value including debt held in unconsolidated subsidiaries
(5) Total asset value including total debt and equity commitments
(6) All metrics are calculated based on an estimated annual
production of the whole portfolio once fully constructed and
exclude conditional acquisitions
Key milestones during 2022
1
February 2022
19MW Polish onshore wind farm fully operational
2
April 2022
Commitment into development platform focussed on Finland
3
April 2022
Acquisition of 7.75% interest in 270MW UK operational offshore
wind farm
4
June 2022
Acquisition of 67MW ready-to-build solar PV project in
Cambridgeshire, UK
5
June 2022
Conditional acquisition of 50% stake in ready-to-build battery
storage project in Bedfordshire, UK
6
July 2022
Extended the RCF to a total facility of GBP246m
7
September 2022
Increased interest in 270MW UK offshore wind farm from 7.75% to
15.5%
8
October 2022
Acquisition of 34.6MW operational onshore wind farm in
Germany
9
November 2022
24MW French onshore wind farm operational
10
November 2022
Acquired 51% stake in 46MW operational onshore wind farm in
Scotland, UK
11
November 2022
Promoted to the FTSE 250, 3 years after IPO
12
December 2022
Acquired further interest in Irish based developer, Simply
Blue
13
January 2023
Completed the acquisition of a 50% stake in a the ready-to-build
battery storage project in Bedfordshire, UK
14
February 2023
Increased the RCF to a total facility of GBP271m and extended
term for a further 3 years
15
March 2023
Secured 10 year PPA for 67MW UK solar PV project currently under
construction
Portfolio at a glance
Avg. asset
Capacity life remaining
Technology Country Sites (MW)* (years) Status Key information
-------------- -------- ----- -------- --------------- ------------- ---------------------
Fully operational
Onshore wind Sweden 1 48 28.5 Operational as of June 2021
Fully operational
as of November
France 1 24 29.9 Operational 2021
Expected to be
Construction, operational in
UK 1 50 30.0 12 turbines Q1 2023
Fully operational
1 23 28.5 Operational as of June 2021
Polish CfD from
Poland 2 59 28.7 Operational Q3 2023
Germany 1 35 29.7 Operational German CfD
Fully operational
Finland 2 71 28.8 Operational as of Q1 2022
Offshore wind UK 1 42 21.0 Operational ROC Subsidised
Solar PV UK 8 123 25.4 Operational ROC Subsidised
Expected to be
operational in
1 67 40.0 Construction H2 2023
France 14 120 29.2 Operational FiT Subsidised
Expected to be
Conditional operational in
Spain 4 175 35.0 acquisition 2024
First 200MW expected
Conditional to be operational
Ireland 5 243 40.0 acquisition by Q3 2023
Developers Ireland n/a n/a n/a n/a Floating offshore
wind
UK n/a n/a n/a n/a Onshore wind
Finland n/a n/a n/a n/a Onshore wind/Solar
PV
Conditional Acquisition completed
Battery UK 1 6 35 acquisition in January 2023
-------------- -------- ----- -------- --------------- ------------- ---------------------
* Pro-rated by ownership
Total number of assets 36(7)
Total capacity 663(7) MW
(7) Excludes conditional acquisitions
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 2022 (the "Annual Report").
2022 was a turbulent year in the energy sector, as Russia's
invasion of Ukraine drove dramatic increases in power prices, which
were already high, and led to government action across Europe to
cap prices or impose taxes on generators. The high inflation
resulting from rising energy prices has driven central banks to
raise interest rates to levels not seen since 2008, which has fed
through to asset valuations via increased discount rates. Despite
this, the Company has delivered strong NAV growth during the
period, as well as successfully bringing projects through
construction into operation, and increasing dividend cover
accordingly. In a world where energy security and decarbonisation
are increasingly important, the Company remains well positioned to
take advantage of opportunities that will create a positive
impact.
Investment Activity
During 2022 the Company committed over GBP350 million of capital
on a gross asset value basis through eight transactions, increasing
the size of the portfolio to 662MW of operational and
in-construction renewable projects, with a gross asset value of
GBP1,073 million. Should the conditional acquisition of the Irish
solar portfolio complete as expected in 2023, the portfolio will
stand at over 900MW of capacity, with a gross asset value of
approximately GBP1.3 billion. The Company also has the option to
acquire a portfolio of solar sites in Spain with expected
additional capacity of 175MW.
The investments during the year added to the strong
technological diversification within the Company's portfolio of
assets. This included our first battery storage investment, a 50%
stake in the 12MW, Woburn Road battery construction project in
Bedfordshire, UK, and our first offshore wind investment, a 15.5%
stake in the 270MW operational Lincs offshore wind farm, located
off the east coast of England. The portfolio also saw the addition
of a new country, with the acquisition of the 35MW operational
Leeskow onshore wind farm in Germany.
The other new investments in 2022 were the acquisition of a 51%
stake in the 46MW operational Crossdykes wind farm in Scotland, the
acquisition of the 67MW ready-to-build Breach solar farm in
Cambridgeshire, UK, and an investment of up to EUR3.5 million
(c.GBP2.9m) into Nordic Renewables Limited, a developer focused on
renewable energy assets in Finland. The Company also invested an
additional EUR6.25 million (c.GBP5.5m) into the Simply Blue Group,
with a further EUR6.25 million expected to be provided during 2023;
and increased its commitment to the Irish solar conditional
acquisition to reflect the greater value associated with a
long-term fixed price PPA now in place for the sites.
At a General Meeting held on 28 July 2022, Shareholders approved
a change to the Company's investment policy to include offshore
wind farms in the Company's core investment focus, in addition to
onshore wind farms and solar PV parks. The change allows the
Company slightly greater flexibility to make additional offshore
wind farm investments as part of the Company's diversified
portfolio of Renewable Energy Assets.
Results
During the year NAV per share increased from 102.3p to 109.4p.
In combination with the dividends paid during the year this gave
rise to a NAV total return of 12.3%.
The NAV growth was driven primarily by rising inflation and
power price assumptions, offset by an increase in the average
discount rate applied in the portfolio valuations. The Company's
prudent approach to valuations, including significant haircuts to
forward power prices in the June and September valuations, meant
that the dramatic volatility in power prices seen throughout the
year did not lead to a corresponding level of NAV volatility. In
particular the haircuts applied as part of the September valuations
meant that inclusion of the UK's Electricity Generator Levy and the
various EU price caps did not lead to a net fall in valuations at
year end.
Total shareholder return for the year was minus 4.8%, as share
price falls across the sector and beyond following the mini-budget
in September and the corresponding increase in bond yields
outweighed the dividends paid during the year.
The Company's operating income for the year was GBP77.9 million,
giving rise to a profit for the period of GBP69.8 million. This was
underpinned by EBITDA from the portfolio of operational assets
totalling GBP 76.3 million, arising from gross revenues of GBP112
million.
Dividend
The Board declared dividends of 5.24p per Ordinary Share in
respect of the year, achieving the target announced in February
2022. The fourth and final interim dividend of 1.31p per Ordinary
Share was paid in February 2023. The total dividends of GBP29.6
million paid in respect of the year were 1.73 times covered by the
cash generated in the portfolio of assets, after deducting holding
company costs and debt service, including principal repayments on
the fully amortising debt held within the portfolio of assets.
In line with the Company's progressive dividend policy, the
Board announced an increase in the target dividend to 5.79p per
Ordinary Share for 2023, an increase of 10.5%. This increase marks
the second consecutive year the Company has increased its dividend
target in line with inflation. For 2023, the Company has elected to
increase the target in line with CPI, rather than the lower CPIH.
The 2023 dividend target is expected to be fully covered by
cashflows generated from the Company's operating portfolios.
Portfolio Performance
During the period the Company's assets generated 1,005GWh of
electricity, an increase of 189% compared with the prior year. This
increase was driven by the successful transition of the Kuslin,
Krzecin and Cerisou projects into operation during the period,
representing 83MW of new generation capacity, as well as the
acquisition of the operational Lincs, Crossdykes and Leeskow wind
farms. Generation was 7% below budget, principally driven by lower
than average wind speeds in northern Europe.
Construction gains of GBP10.7 million were recognised during the
year, including from the Cumberhead wind farm in Scotland, which
had four turbines erected by the end of the period. The 12th and
final turbine was installed in early March 2023, and the project is
in the late stages of commissioning. In addition a development gain
of GBP4.1 million was recognised following the second investment
into the Simply Blue Group, reflecting the strong progress of the
business since the initial investment, with the pipeline under
development of 10GW. Following the end of the period Simply Blue
received their first maritime consent, for the 100MW Erebus project
off the coast of Wales.
Once fully constructed, ORIT's portfolio is expected to generate
sufficient electricity to power 522,000 homes. This generation will
avoid CO2 emissions of approximately 580,000 tonnes per annum, the
equivalent of planting 2.9 million trees.
Outlook
Within the investment trust universe, most renewable
infrastructure companies are now trading at discounts to NAV,
restricting the ability of the Company and its peers to fund
acquisitions through new equity issuance. However the Company's
Investment Strategy includes a focus on funding assets at the
construction ready stage to allow the opportunity for capital
growth, and this is also core to our Impact Strategy. In order to
ensure we can continue to access such opportunities, the Board and
the Investment Manager will therefore consider opportunistic
disposals where appropriate to recycle the capital into new
construction projects.
This aligns with the drive from governments across the Company's
target geographies to accelerate the deployment of new renewable
generation and related energy transition projects. Russia's
aggression in Ukraine is continuing, reinforcing the need for
Europe and the UK to reduce reliance on fossil fuels to preserve
energy security. Energy prices remain high and are forecast to do
so for several years, even though prices have now fallen from the
peaks of 2022. Decarbonisation remains an urgent priority, as
extreme weather events continue to increase in frequency.
Wind and solar generation represent a key part of the solution
to all three of energy security, energy affordability and
decarbonisation. Furthermore, the strong support for renewable and
energy transition investments in the US as part of the Inflation
Reduction Act is leading to a response from Europe to increase
their backing for new clean infrastructure, in order to ensure the
industry remains competitive. The tailwinds behind the sector
therefore remain as strong as ever, and the Company is well
positioned to play a significant part in capturing those
opportunities, creating positive impact whilst delivering an
attractive growing dividend to investors, alongside continued
capital growth.
Strategic Report
The Directors present the Strategic Report for the year ended 31
December 2022 in the Annual Report.
Business Model, Objectives and KPIs
Business Model
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. 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.
As at 31 December 2022, the Company owns a portfolio of 36
Renewable Energy Assets (including three developer investments)
totalling 662MW, 545MW of which is operational capacity and 117MW
relates to assets under construction. Long-term structural debt is
in place for the French solar portfolio and, as at 31 December
2022, this comprised outstanding principal amounts of EUR113
million provided by Allied Irish Banks, Société Générale and La
Banque Postale. Cerisou Wind Farm has a EUR43.2 million fully
amortising facility, provided by Société Générale, for the funding
of the construction and commissioning of the project. The Polish
wind farms have facilities in place with EBRD and Bayern LB, used
to fund construction. The acquisition of the 15.5% ownership
interest in the Lincs Offshore Wind Farm came with a long-term
facility (GBP82.3 million remaining as at 31 December 2022)
provided by a consortium of seven international commercial lenders
and the acquisition of Leeskow Wind Farm in September 2022 included
four existing long-term debt facilities of up to EUR61.2 million
with Deutsche Kreditbank AG. Short-term debt financing is available
through a GBP246 million Revolving Credit Facility ("RCF") held at
ORIT Holdings II Limited (an intermediate holding company) and a
GBP50 million short-term facility held at ORIT Lincs Holdings
Limited (a portfolio-level holding company). As at 31 December
2022, GBP77 million was drawn down on the RCF and GBP50 million was
drawn on the short-term facility.
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.
The Company has an independent board of non-executive directors
and 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.
As an investment trust, the Company does not have any employees
and is reliant on third-party service providers for its operational
requirements. Likewise, the project companies do not have any
employees and services 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. Simply Blue Holdings Limited, a portfolio-level
holdings company, does have employees and has its own policies and
procedures in place to maintain similarly high standards.
Figure 1: Company operating model
Shareholders
------------------ ----------------------------------- -----------------------------------------------------------
Independent Board Octopus Renewables Infrastructure Company Service Providers
of Directors Trust plc,
Day to day Listed on the LSE Main Market
management
subcontracted
AIFM
Octopus AIF
Management
Investment Manager * Broker: Peel Hunt
Octopus Energy
Generation
* Fund Administrator and Company Secretary: Apex Listed
Companies Services
* Depository: BNP Paribas
* Registrar: Computershare
* Auditors: PWC
* PR Advisor: Buchanan
* Tax Advisor: BDO
* Legal: Gowlings WLG
Debt Providers ORIT Holdings ll Ltd Key
Revolving Equity
Credit Facility Debt
Services
ORIT Holdings Ltd ORIT UK
Acquisitions
Ltd
Debt Providers Non-UK SPVs UK SPVs Asset Service Providers
Short-term * External Asset Managers
Facility
Asset level Debt
* Operations & Maintenance ("O&M") contractors
* Engineering, Procurement and Construction ("EPC")
contractors
* Specialist consultants
Portfolio investments held in
SPVs*
------------------ ----------------------------------- -----------------------------------------------------------
* Some investments in SPVs may be held indirectly through portfolio-level holding companies
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 Monitoring
commentary activities
---------------------------------------------------------- ------------------ ------------------ ------------------
Sustainable level 5.24p The dividend of The Board
of income returns dividend declared 5.24p was fully monitors
* Provide investors with a dividend of 5.24 pence per for the year, in covered by dividend cover
Ordinary Share for FY22 line with target operational and
GBP76.3m cashflows at the ratios at each
EBITDA from SPV level less quarterly
* Generated from strong operational cashflows operational costs Board meeting
assets at the plc and against
intermediate the targets and
holding company makes
level. determinations
The Company's on the dividends
dividend to be paid.
target is rising The Investment
by 10.5% to 5.79 Manager
pence per actively manages
Ordinary operational
Share for FY23 performance
(in of assets on an
line with CPI) ongoing basis
and with
is expected to be actions taken to
progressive resolve and
thereafter.(8 mitigate
9) operational
While output was issues.
lower than Financial
expectations performance
for the year, of assets is
EBITDA reviewed
from operational monthly by the
assets was 6% Investment
above Manager. Any
budget, material
principally issues would be
as a result of highlighted to
higher the
power prices Board without
achieved delay.
in Poland. Operational and
financial
performance
is reviewed
quarterly
by the Board.
---------------------------------------------------------- ------------------ ------------------ ------------------
(8) 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
(9) 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 Monitoring
commentary activities
------------------------------------------------------------ ------------------ ----------------- -----------------
Capital preservation 109.4p There was strong The Board
with element of NAV per Ordinary growth of the monitors
growth Share value both the NAV and
* Provide investors with a net total shareholder return 12.1%, 3.8% per of the portfolio share price
of 7% to 8%(10) per annum over the medium to annum driven by high performance
long-term Total shareholder wholesale and compares
return since IPO energy price with
25.9%, 7.8% per forecasts other similar
* Generated through a diversified portfolio including annum and de-risking investment
construction and development assets NAV total return of trusts. A review
since IPO construction of performance
4 (10) new assets. is
* Cost control and prudent financial management acquisitions The acquisitions undertaken at
delivering 167MW in the year each
(10) of capacity include quarterly Board
including onshore ORIT's first meeting and the
and offshore offshore reasons for
wind, wind farm and relative
solar, battery under and over
construction storage project performance
and operational along with its against various
assets, together first comparators is
with a new investment in discussed.
developer Germany, The Investment
investments, all increasing the Manager
diversified diversifications evaluates and
across of ORIT's selects
2 new countries portfolio. investment
1.12% The ongoing opportunities
Ongoing charges charges to deliver
ratio ratio has against
0.54% decreased the investment
Transaction costs to 1.12% (FY strategy
as percentage of 2021: and policy.
committed 1.15%). Company
acquisition Transaction level budgets
spend costs are
incurred on approved
acquisitions annually
in the period by the Board and
were actual spend is
in line with reviewed
expectations quarterly.
in the latest Transaction
KID budgets
of 0.5%. are approved by
the Board and
potential
abort exposure
is
carefully
monitored.
------------------------------------------------------------ ------------------ ----------------- -----------------
(10) Excludes conditional acquisition.
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 GBP1,304m committed into renewables
portfolio of Renewable Energy 1,740GWh of potential annual renewable energy
Assets, mitigating the risk of generation, 669GWh of which will be additional
losses through robust governance generation from constructing assets(11)
structures, rigorous due diligence, 36 assets
risk analysis and asset optimisation Financial return metrics are shown in the
activities to deliver investment Financial Objectives table.
return resilience
------------------------------------- -------------------------------------------------
Planet:
Consider environmental factors 580k equivalent tCO(2) avoided(12)
to mitigate risks associated 8.48t CO(2) e per MW estimated carbon intensity
with the construction and operation (direct and indirect)
of assets, enhancing environmental 11.52t CO(2) e/GBPm weighted average carbon
potential where possible intensity
886t CO(2) e emissions offset (all direct
emissions)
100% investments qualify as sustainable in
line with EU Taxonomy(13)
87% generating sites on renewable import
tariffs
------------------------------------- -------------------------------------------------
People:
Evaluate social considerations 0 RIDDORs or equivalent relating to injuries
to mitigate risks and promote on people (14)
a 'Just Transition' to clean 396 students benefitting from first social
energy initiative
------------------------------------- -------------------------------------------------
Further information on our Impact Strategy and performance
against our Impact Objectives can be found in the Impact Report
section of the strategic report as included the Annual Report and
the Company's Impact Strategy published on our website here:
www.octopusrenewablesinfrastructure.com/investors/
(11) Metric calculated based on an estimated annual production
of the construction portfolio once fully constructed.
(12) 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.
(13) 100% of investments are significantly contributing to climate change mitigation.
(14) 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. In the period
there was 1 reported RIDDOR associated with technical
equipment.
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
Octopus Energy Generation, 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.
Since 2010, Octopus Energy Generation has, on behalf of its
clients, invested in a diverse portfolio of assets with a capacity
of over 3GW and is now the largest commercial solar investor in
Europe and a leading UK investor in onshore wind, with assets under
management valued at c.GBP5.0 billion. Of those investments c.
GBP2.4 billion has been invested in solar and wind assets at
construction stage. Octopus Energy Generation has over 100
employees in the UK across five teams: Investments and Development;
Fund Management, Finance & Operations; Asset Management; and
Risk and Compliance. Octopus Energy Generation is the trading name
of Octopus Renewables Limited.
GBP5.0bn OEGEN Assets under Management as at 31 December
2022
The Investment Manager has established a robust investment and
due diligence process to ensure that each of the investments
acquired by ORIT complies with the Company's investment policy and
its impact metrics that include Performance, Planet and People
objectives. This includes an assessment against the Company's ESG
Policy to ensure consideration is given to the wider stakeholder
impacts and risks inherent in the Company's investments and
decision making.
Whilst ORIT benefits from the breadth of the Investment
Manager's whole team of over 100 professionals and a range of
external professional advisors, within the Investment Manager,
Chris Gaydon and David Bird are the named Fund Managers for
ORIT.
"ORIT has continued to add high quality assets to its diverse
portfolio during 2022, with over 900MW* of capacity now operational
or in construction. As governments seek to stimulate acceleration
of the energy transition, we look forward to bringing more green
generation onto the system in the coming years."
Chris Gaydon
Investment Director
Chris joined Octopus Energy Generation as an investment director
in 2015, is a long-standing member of the OEGEN's Investment
Committee and a director of several of OEGEN's wind and solar
special purpose vehicles.
Chris originated and led one of the largest wind farm portfolio
acquisitions in the UK valued at c.GBP320 million and led the
transaction team that delivered over GBP1 billion of debt and
equity transactions. 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.
"2022 was a dramatic year in the energy sector and in financial
markets, however ORIT's portfolio has proven resilient, delivering
NAV total return of 12.3% in the year. We have successfully
completed construction on the Cerisou, Krzecin and Kuslin wind
farms, with Cumberhead commencing operations after period end."
David Bird
Investment Director
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 Octopus Energy Generation'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.
* Including the conditional acquisition of the Irish solar assets
Investments
8 GBP205m GBP1,304m
Investments made Total allocated capital to Total value of all investments
during the year (new investments includes future
construction) commitments
Company Developments in 2022
During the year, the Company announced eight investments
including its first investments in offshore wind and battery
storage. Shareholders also approved an amendment to the Investment
Policy to include investments into offshore wind as part of the
Company's core wind investment allocation.
In April 2022 the Company announced that it had committed to
invest up to EUR3.5 million (c. GBP2.9m) to set up and fund Nordic
Renewables Limited, a new development platform focused on renewable
energy assets in Finland. Nordic Renewables Limited will initially
target the development over the next 3-5 years of onshore wind
farms and solar PV assets in Finland with a potential combined
capacity of approximately 400MW.
Later in April 2022 the Company announced that it had entered
into an agreement to acquire a 7.75% ownership interest in the
Lincs Offshore Wind Farm, a 270MW operational wind farm located off
the east coast of England. Lincs Offshore Wind Farm benefits from
the UK's ROC regime, receiving 2 ROCs per megawatt hour of
electricity generation during the first 20 years of operation. This
acquisition completed in May 2022.
In June 2022 the Company announced that it had acquired the
Breach Solar Farm, a c.67MW ready-to-build solar PV project in
Cambridgeshire, UK, from AGR Renewables. The total cost of
acquisition and construction of the solar PV project is expected to
be approximately GBP50 million. The acquisition also gives the
Company the right to construct a battery storage project which is
expected to be ready-to-build later in 2023, with a capacity of
50MW/100MWh.
In June 2022, the Company agreed to amend the terms of its
conditional acquisition of five solar PV sites in Ireland, to
permit the sites to enter into a long-term fixed price PPA with an
AAA-rated Offtaker. The higher price received under the PPA is
expected to lead to an increase in purchase consideration to
between approximately EUR169 million and EUR193 million
(approximately GBP144m and GBP165m respectively).
Also in June 2022, the Company announced that it had entered
into an agreement to acquire a 50% stake in a 12MW/24MWh
ready-to-build battery storage project in Bedfordshire, UK, from
Gridsource. The acquisition completed post period end once the
lease agreement for the project site came into effect in January
2023 and was made alongside another Octopus Managed Fund. The
consideration for the Company's share of future construction costs
is expected to be approximately GBP4 million.
At a General Meeting held on 28 July 2022, shareholders approved
a change to the Company's investment policy to include offshore
wind farms in the Company's core investment focus, in addition to
onshore wind farms and solar PV parks. The change moves offshore
wind from the non-core technology allocation, which is limited to
20% of Gross Asset Value, to the core wind allocation, which is
expected, over the long-term, to make up less than 60% of the total
value of all investments. The change allows the Company slightly
greater flexibility to make additional offshore wind farm
investments as part of the Company's diversified portfolio of
Renewable Energy Assets.
In July 2022, the Company extended its revolving credit facility
("RCF") by utilising the accordion feature, bringing the total
committed facility to GBP246 million. ORIT's increased RCF was
entered into under the same terms as the existing facility.
In August 2022, the Company entered into an agreement to acquire
a 51% ownership interest in the Crossdykes Onshore Wind Farm
("Crossdykes"). The remaining 49% is being acquired by another
Octopus Managed Fund. Crossdykes, located in southern Scotland, was
developed by Muirhall Energy and has been operational since June
2021. It is amongst the largest unsubsidised wind farms in
operation in the UK, with a total capacity of 46MW, made up of 10
Nordex turbines. The wind farm currently benefits from fixed
pricing through its PPA until March 2025. Completion of the
acquisition occurred in November 2022 once all regulatory consents
were received.
In September 2022, the Company acquired a further 7.75%
ownership interest in the Lincs Offshore Wind Farm, from a fund
managed by Macquarie Asset Management. This follow-on investment
adds to the original 7.75% stake in this wind farm that ORIT
acquired earlier this year.
Also in September 2022, the Company agreed to acquire the
Leeskow Onshore Wind Farm, a 34.6MW operational wind farm located
in Brandenburg, north-east Germany. Leeskow Onshore Wind Farm
benefits from a government backed floor price for twenty years
under the German EEG regime and is therefore not exposed to
movements in or caps of wholesale power prices in the short to
medium-term. Leeskow Onshore Wind Farm has existing long-term debt
funding with fixed interest rates. Completion of the acquisition
occurred in October 2022.
In connection with the Lincs and Leeskow acquisitions, a
subsidiary of ORIT entered into a GBP50 million debt facility with
existing lender NatWest in September 2022.
In November 2022, the Company invested an additional EUR6.25
million (c.GBP5.5m) into Simply Blue Holdings Limited, the parent
company of the Simply Blue Group ("SBG"), an Irish developer of
predominantly floating offshore wind projects. Following this
investment, ORIT's ownership interest in SBG has increased to
c.15.5%. The Company also agreed to provide a further investment of
up to EUR6.25m which is expected to be drawn in 2023, and which
would increase ORIT's ownership interest to c.19%.
Portfolio Breakdown (as at 31 December 2022)
The Company's portfolio of assets is not segmented by
technology, phase or jurisdiction for the Company's reporting
purposes.
Capacity Start of Remaining Stake
Technology Country Site name (MW) Phase operations asset life %
----------- ------------- ----------------- -------- ------------ ----------- ----------- -----
Onshore
wind UK Cumberhead 50 Construction - 30 100%
----------- ------------- ----------------- -------- ------------ ----------- ----------- -----
France Cerisou 24 Operational 15/11/2022 30 100%
------------- ----------------------------- -------- ------------ ----------- ----------- -----
Sweden Ljungbyholm 48 Operational 30/06/2021 28 100%
------------- ----------------------------- -------- ------------ ----------- ----------- -----
Poland Krzecin 19 Operational 08/02/2022 28 100%
------------- ----------------------------- -------- ------------ ----------- ----------- -----
Kuslin 40 Operational 31/12/2022 29 100%
------------------------------------------- -------- ------------ ----------- ----------- -----
Finland Saunamaa 28 Operational 28/08/2021 29 100%
------------- ----------------------------- -------- ------------ ----------- ----------- -----
Suolokangas 43 Operational 29/12/2021 29 100%
------------------------------------------- -------- ------------ ----------- ----------- -----
Germany Leeskow 35 Operational 30/09/2022 30 100%
------------- ----------------------------- -------- ------------ ----------- ----------- -----
UK Crossdykes 46 Operational 30/06/2021 28 51%
------------- ----------------------------- -------- ------------ ----------- ----------- -----
Offshore
wind UK Lincs 270 Operational 31/10/2013 26 15.5%
----------- ------------- ----------------- -------- ------------ ----------- ----------- -----
Solar UK Wilburton 2 19 Operational 29/03/2014 21 100%
----------- ------------- ----------------- -------- ------------ ----------- ----------- -----
Abbots Ripton 25 Operational 28/03/2014 31 100%
------------------------------------------- -------- ------------ ----------- ----------- -----
Ermine Street 32 Operational 29/07/2014 22 100%
------------------------------------------- -------- ------------ ----------- ----------- -----
Penhale 4 Operational 08/03/2013 30 100%
------------------------------------------- -------- ------------ ----------- ----------- -----
Chisbon 12 Operational 03/05/2015 28 100%
------------------------------------------- -------- ------------ ----------- ----------- -----
Westerfield 13 Operational 25/03/2015 22 100%
------------------------------------------- -------- ------------ ----------- ----------- -----
Wiggin Hill 11 Operational 10/03/2015 17 100%
------------------------------------------- -------- ------------ ----------- ----------- -----
Ottringham 6 Operational 07/08/2013 32 100%
------------------------------------------- -------- ------------ ----------- ----------- -----
Breach 67 Construction - 40 100%
------------------------------------------- -------- ------------ ----------- ----------- -----
France Charleval 6 Operational 26/03/2013 30 100%
------------- ----------------------------- -------- ------------ ----------- ----------- -----
Cuges 7 Operational 17/04/2013 30 100%
------------------------------------------- -------- ------------ ----------- ----------- -----
Istres 8 Operational 18/06/2013 30 100%
------------------------------------------- -------- ------------ ----------- ----------- -----
La Verdière 6 Operational 27/06/2013 30 100%
------------------------------------------- -------- ------------ ----------- ----------- -----
Brignoles 5 Operational 26/06/2013 30 100%
------------------------------------------- -------- ------------ ----------- ----------- -----
Saint Antonin
du Var 8 Operational 28/11/2013 31 100%
------------------------------------------- -------- ------------ ----------- ----------- -----
Chalmoux 10 Operational 01/08/2013 31 100%
------------------------------------------- -------- ------------ ----------- ----------- -----
lovi 1 6 Operational 17/07/2014 32 100%
------------------------------------------- -------- ------------ ----------- ----------- -----
lovi 3 6 Operational 17/07/2014 32 100%
------------------------------------------- -------- ------------ ----------- ----------- -----
Fontienne 10 Operational 02/07/2015 32 100%
------------------------------------------- -------- ------------ ----------- ----------- -----
Ollieres 1 12 Operational 19/03/2015 32 100%
------------------------------------------- -------- ------------ ----------- ----------- -----
Ollieres 2 11 Operational 19/03/2015 32 100%
------------------------------------------- -------- ------------ ----------- ----------- -----
Arsac 2 12 Operational 05/03/2015 19 100%
------------------------------------------- -------- ------------ ----------- ----------- -----
Arsac 5 12 Operational 30/01/2015 19 100%
------------------------------------------- -------- ------------ ----------- ----------- -----
Conditional
Ireland Ireland 1 56 acquisition - 40 100%
------------- ----------------------------- -------- ------------ ----------- ----------- -----
Conditional
Ireland 2 68 acquisition - 40 100%
------------------------------------------- -------- ------------ ----------- ----------- -----
Conditional
Ireland 3 47 acquisition - 40 100%
------------------------------------------- -------- ------------ ----------- ----------- -----
Conditional
Ireland 4 30 acquisition - 40 100%
------------------------------------------- -------- ------------ ----------- ----------- -----
Conditional
Ireland 5 42 acquisition - 40 100%
------------------------------------------- -------- ------------ ----------- ----------- -----
Conditional
Spain Spain 1 44 acquisition - 35 100%
------------- ----------------------------- -------- ------------ ----------- ----------- -----
Conditional
Spain 2 44 acquisition - 35 100%
------------------------------------------- -------- ------------ ----------- ----------- -----
Conditional
Spain 3 44 acquisition - 35 100%
------------------------------------------- -------- ------------ ----------- ----------- -----
Conditional
Spain 4 44 acquisition - 35 100%
------------------------------------------- -------- ------------ ----------- ----------- -----
Developer UK (HQ) Wind2 - Developer - - 25%
----------- ------------- ----------------- -------- ------------ ----------- ----------- -----
Ireland (HQ) Simply Blue - Developer - - 15.5%
------------- ----------------------------- -------- ------------ ----------- ----------- -----
Finland (HQ) Norgen - Developer - - 50%
------------- ----------------------------- -------- ------------ ----------- ----------- -----
Conditional
Battery UK Woburn Road 12 acquisition - 35 50%
----------- ------------- ----------------- -------- ------------ ----------- ----------- -----
Portfolio composition broken down by total invested basis in
accordance with the Company's investment policy (including the
amounts committed to the conditional acquisitions of the Spanish
and Irish solar PV assets and Woburn Road Battery.(15)
(15) Portfolio composition on a total invested basis in line
with the Company's investment policy (including the amount
committed to the conditional acquisition of the Spanish and Irish
solar PV assets and Woburn Road Battery) as at 31 December 2022.
The investments are valued on an unlevered basis and including
amounts committed but not yet incurred.
Country
UK: 37%
France: 14%
Ireland: 11%
Finland: 11%
Poland: 9%
Sweden: 7%
Germany: 6%
Spain: 3%
Developer: 2%
Technology
Onshore wind: 46%
Solar: 39%
Offshore wind: 13%
Developer: 2%
Battery: 0.2%
Asset phase
Operational: 86%
Construction: 12%
Developer: 2%
Portfolio composition broken down by MW of installed capacity on
a current invested basis (and therefore exclude the Spanish and
Irish solar PV assets and Woburn Road Battery).(16)
(16) Portfolio composition by MW on a current invested basis
(and therefore exclude the amount committed to the conditional
acquisition of the Spanish and Irish solar PV assets and Woburn
Road Battery) as at 31 December 2022.
Country
UK: 46%
France: 22%
Finland: 11%
Poland: 9%
Sweden: 7%
Germany: 5%
Technology
Onshore wind: 47%
Solar: 47%
Offshore wind: 6%
Asset phase
Operational: 82%
Construction: 18%
Portfolio Performance
Technical and Financial Performance
In the financial year ending 31 December 2022, the Company's
operational portfolio generated 1,005GWh of electricity, 7% below
budget largely due to low wind speeds and grid curtailment
impacting the performance of the Company's wind assets. Revenues of
GBP112.0 million were generated in the year (2021: GBP38.5m), 4.5%
above expectations, as high power prices partially offset the
impact of reduced output, leading to total EBITDA generated across
ORIT's operational portfolio of GBP76.3 million (2021:
GBP29.9m).
1,005GWh GBP112.0m GBP35.7m GBP76.3m
Output ( 2021: 348GWh) Revenue +4.5% vs budget Opex +1% vs
budget EBITDA +6% vs budget
UK Solar
Output for the 8 site, 123MW UK operational solar portfolio was
122.7GWh for the year. The portfolio over performed by 10.5%
against budget, largely driven by higher irradiance. Generation was
1.3GWh higher than in the same period in the previous year,
equating to a 12% increase in renewable energy generated.
The portfolio generated revenues of GBP17.3 million (2021:
GBP14.2m), a 18% increase to budget due to both the technical
overperformance and high pricing. Operational expenditure for the
year totalled GBP3.6 million (2021: GBP3.1m), 1.8% above budget
primarily the result of increased electricity consumption costs and
additional surveillance costs following a CCTV upgrade across the
portfolio. EBITDA for the UK portfolio for the year ending 31
December 2022 was GBP13.7 million (2021: GBP11.1m), 22.7% up on
budget for the year.
French Solar
Performance of the 14 site, 120MW French operational solar
portfolio was in line with budget, with the portfolio producing
170GWh for the year. Irradiance was 4% above budget, however output
was impacted by lower than expected availability across three sites
(partly covered by contractual recoveries for lost revenue) and
underperformance at one site, the 8MW Saint-Antonin-du-Var, where a
number of panels were disconnected during the year due to a
technical fault. The rectification costs associated with this issue
are expected to be covered by manufacturer warranties.
The portfolio generated revenues of EUR19.3 million (2021:
EUR18.7m) in line with the budget for the year. Operational
expenditure for the period totalled EUR5.5 million (2021: EUR4.9m),
2.7% less than budget primarily due to compensation received to
cover the availability losses at the three underperforming sites,
resulting in EBITDA of EUR13.8 million (2021: EUR13.8m), 1% above
budget.
Saunamaa and Suolakangas Wind Farms (Finland)
The assets completed the commissioning phase during Q1 2022 and
are operating under a long-term operations and maintenance
agreement with Vestas, the turbine supplier. Output for the period
was 252.1GWh, 8% below budget driven primarily by wind speeds (5%
down on budget) and lower than expected availability across the
sites. Losses in relation to these availability issues are expected
to be covered by the warranties in the Vestas contracts.
Revenues for the Saunamaa and Suolakangas wind farms totalled
EUR22.0 million (2021(17) : EUR7.3m) for the year, a 2% increase to
budget, driven largely by high pricing despite output being below
expectations. Operational expenditure totalled EUR3.3 million
(2021(17) : EUR1.4m), a 16% increase to the budget, largely due to
increased electricity consumption costs. EBITDA for the year was in
line with budget and totalled EUR18.7 million (2021(17) :
EUR6.2m).
(17) 2021 comparatives for a 6 month period from locked box date of 1 July 2021
Lincs (UK)
On 26 April 2022 the Company agreed to acquire a 7.75% ownership
stake in Lincs offshore wind farm, and the acquisition was
completed in early May. The Company acquired an additional 7.75%
ownership interest in Lincs offshore wind farm in September 2022,
increasing the stake in the asset to 15.5%. Lincs is located off
the east coast of England and has produced 954.6GWh of electricity
since the locked box date of 31 December 2021. Production over the
year was 3.7% below budget due to an outage on the main cable in
July and unexpected component replacements required on a few
turbines over the summer.
In 2022, Lincs wind farm generated GBP54.0 million of revenue
and EBITDA of GBP14.2 million for ORIT in line with investment case
as high price indexation offset lower output.
Crossdykes (UK)
In September 2022, the Company acquired a 51% ownership interest
in the Crossdykes Onshore Wind Farm, a 46MW operational wind farm
in southern Scotland. The asset generated 112.7GWh since 31
December 2021, the locked box date of the transaction, 22% below
investment case expectations. This is largely because the site was
curtailed off during the year under the Balancing Mechanism
administered by NGESO and will be compensated for lost
production.
Since the locked box date, Crossdykes Onshore Wind Farm has
generated revenues of GBP13.5 million, in line with investment case
expectations after including Balancing Mechanism revenues. EBITDA
was GBP9.8 million for the year, 7% below investment case due to
higher than expected operating expenditure, primarily due to
fluctuations in network charges such as BSUoS and TNUoS.
Ljungbyholm Wind Farm (Sweden)
Output at the Ljungbyholm wind farm was 10% below budget with
the wind farm producing 134.8GWh of electricity during the year.
The site had budgeted for 150GWh, however wind speeds were down by
10.5%.
Ljungbyholm wind farm generated revenues of EUR11.4 million
(2021: EUR6.3m), 51% below budget. This is as a result of the power
prices captured in the Swedish market being significantly below
those budgeted with actual power prices achieved averaging at 84
EUR/MWh versus budgeted prices of 156 EUR/MWh. The FY22 budget was
based on forward prices which proved to be much higher than the
market out-turn price over the same period. During the year the
site benefited from the corporate PPA with an innovative structure
executed in late 2021, that allows for the asset to benefit from
higher market prices while providing a degree of revenue certainty.
See the Annual Report for further details.
Operational expenditure totalled EUR1.3 million (2021: EUR1.2m),
36% under budget largely due to lower variable costs associated
with the decreased revenue, and EBITDA for the year was EUR10.2
million (2021: EUR5.1m), 52% below budget.
Krzecin and Kuslin Wind Farms (Poland)
Construction of the Krzecin Wind Farm in the north-west of
Poland and the Kuslin Wind Farm in western Poland commenced in Q4
2020, with the Krzecin Wind Farm achieving operational status
during Q1 2022 and the Kuslin Wind Farm becoming operational in
September 2022(18) .
Since achieving operational status, the Krzecin and Kuslin wind
farms generated 92.1GWh, 10.9% below budget in the year to 31
December 2022, driven largely by lower wind speeds. Over the same
period the wind farms generated revenues of PLN 71.2 million, 33%
above budget and driven by high power prices. Over the year,
average power prices of PLN 756/MWh were achieved compared to
budget prices of PLN 512/MWh. Operational expenditure for the
period totalled PLN 7.6 million, 25% favourable to the budget,
mainly due to operating costs not incurred whilst the sites
remained under construction. As a result, EBITDA for year was 46%
above budget totalling PLN 63.6 million.
(18) Full commercial operations under the construction contracts
occurred in December 2022, following completion of all required
tests.
Leeskow (Germany)
Leeskow was acquired towards the end of the year, representing
the Company's first investment in Germany. Since the locked box
date of 30 June 2022, the asset produced a total of 16.6GWh,
compared to a budgeted 28.4GWh. This is partly due to the fact that
the site was commissioned slightly later than planned (3.2GWh),
site curtailment in the period (1.1GWh) and lower than expected
wind speeds (7.5GWh). The team is collaborating with the newly
onboarded asset manager to reduce curtailment on site, following a
change in German legislation to boost wind energy production in
response to the European energy security crisis.
Since the locked box date, Leeskow onshore wind farm has
generated EUR1.4 million of revenue and EBITDA of EUR0.8 million,
55% below investment case predominantly as a result of the reduced
output.
Cerisou Wind Farm (France)
Construction at Cerisou Wind Farm started in August 2021 and
completed in line with expected timelines, with the site generating
its first revenues in Q3 2022 and becoming fully operational in Q4
2022. The 24MW wind farm, made up of 8 turbines, has now formally
entered the French Contract for Difference ("CfD") regime under
which it will receive fixed, index-linked revenues for twenty
years.
Since achieving operational status the French wind portfolio
generated an output of 12 GWh, 12% below budget due to technical
underperformance. Three turbines experienced outages as a result of
recabling, and converter/hub issues. This downtime is covered by
the availability warranty in the O&M contract. Despite this,
Cerisou Wind Farm generated revenues of EUR1.8 million, 6% above
budget for the year as output generated before the CfD started on
1(st) November 2022 sold at higher than forecast market prices.
Operational expenditure for the period totalled EUR0.3 million, 8%
favourable to budget mainly the result of certain site works being
pushed back into next year, resulting in EBITDA of EUR1.5 million,
9% above budget.
Cumberhead Wind Farm (UK)
Construction at the onshore wind farm project in Scotland
commenced in January 2022. All major civil works are complete and
all turbines are now erected, with site energisation achieved in
December 2022. All 12 turbines are expected to be energised and
producing energy by 31 March 2023 with full commercial operations
expected to be achieved in Q2 2023 once all testing is complete.
The Group has entered into a 10-year fixed price virtual PPA with
Kimberley Clark Limited and a physical PPA with EDF.
Breach Solar Farm (UK)
The total investment in the 67MW construction ready solar farm
is c.GBP50 million which will be disbursed as the construction
progresses. Construction began in November 2022 and is expected to
complete in H2 2023. Subject to updates to the grid connection
agreement and planning consent, the site has the potential to add a
50MW/100MWh battery project co-located to the solar project.
Revenues
Figure 3 presents the Company's forecast revenues, categorised
by price structure, through to 2050. 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 GB,
France, Germany and Poland.
Comparing with 12 months prior, despite a commodities market
which has surged following Russia's invasion of Ukraine, the
Investment Manager has increased ORIT's proportion of near-term
forecast fixed revenues. The acquisitions of the Leeskow onshore
wind farm (Germany) and investment into Lincs offshore wind farm
(GB) have positively contributed to this outcome. In addition to
this, the Investment Manager's active approach to hedging has
secured further fixed revenues, most notably for hedges executed
for the Saunamaa and Suolokangas (Finland) wind farms, whose PPA
has been structured in a way that enables a flexible approach to
hedging the assets' wholesale power price exposure.
As at 31 December 2022, 68% of ORIT's forecast revenues over the
period to 31 December 2024 (2021: 50% to 31 December 2023) are
fixed. Fixed-price revenues arise from either subsidies, such as
ROCs or power prices fixed under PPAs.
Furthermore, approximately 53% of the revenues forecast in the
period to 31 December 2032 are now explicitly inflation linked
(with reference to UK RPI, French inflation and Polish CPI). This
high proportion of inflation-backed revenues provides a natural
hedge to the Company from rising interest (and discount) rates.
Figure 4: Fixed vs Unfixed revenues: period to 31 Dec 24
Fixed: 68%
Variable: 32%
Market Outlook
The energy generation industry as a whole continues to navigate
through a challenging period, with the effects of the
Russia-Ukraine war looking set to continue for some time and
beyond. The most obvious impacts have been supply chain problems,
rising inflation, upwards pressure on interest rates and abnormally
high power prices (which are clearly inter--related). The intrinsic
linkage of power prices to gas prices under the current market
system in the UK has meant that day-ahead electricity prices saw a
72% increase in 2022 compared to 2021, and they were around four
times pre--pandemic levels. European prices have also been
abnormally high. In the long-term we are likely to see system
re--designs in order to remove the linkage between gas and power
prices for renewable generators, but for now short-term solutions
have been put in place through price caps (in Europe) and the
Electricity Generator Levy (in the UK). Whilst these measures
reduce the returns available to investors and asset owners, the
finalisation of their details gives the market clarity in this area
after a period of uncertainty in Q4 2022. As a result, we expect
the slow-down in transaction activity seen towards the end of 2022
to recede, and for a broad increase in investor activity to emerge
as we move through the coming months.
Following three prime ministers in 2022, the political
uncertainty in the UK has calmed and the future now looks brighter
for the development of new projects: solar looks to have escaped a
risk of changes to land-classification rules that would have
hampered planning permissions, the long-standing ban on onshore
wind is expected to be lifted, and Contracts for Difference ("CfD")
auction frequency has been increased to once per year starting in
2023. We can therefore expect healthy development and construction
pipelines to emerge which will provide a home for capital looking
for new renewable generation projects.
Whilst there is now more certainty on revenues, high inflation
rates (expected to remain for some time) mean increasing
construction costs, and price caps or windfall taxes mean that
returns available to developers may come under pressure. To
compound this, the increases in base interest rates have led to
higher discount rates for projects. However, we expect project
valuations to be supported by a healthy amount of competition for
assets from investors seeking attractive projects. Grid access
challenges have become increasingly prevalent across several
geographies. We are seeing projects coming to market with grid
connection dates in the late 2020s and beyond, due to aging
networks and the need for capacity upgrades, and at this stage
there is little clarity on how and when this will be resolved.
Newer technologies are gathering further momentum, especially
the growing trend for battery storage, but also hydrogen and
floating offshore wind, which saw its first CfD contract awarded in
2022.
In Europe there has been much focus on responding to the US
Inflation Reduction Act, in order to ensure the continued
competitiveness of European industry throughout the energy
transition. The EU had already earmarked billions of Euros of
funding, including through REPowerEU, but has now responded to the
Inflation Reduction Act with measures to give member states more
freedom to support industry, and to accelerate permitting and
access to funding for relevant projects.
Power prices
2022 has been another extraordinary year for electricity
markets. The market was already stressed at the start of the year
due to the ongoing impacts from strong post-covid demand for LNG
from Asia, and droughts in China and Brazil compounding this
effect.
Over time, Europe's economy has grown heavily reliant on the
supply of cheap Russian gas. Flows on the Nord Stream pipeline had
been reduced since mid-2021, and Russia's invasion of Ukraine in
February 2022 caused markets to react dramatically to expected
Western sanctions and the resulting accelerated reductions in
supply. Power prices and volatility surged as a result.
To compound things, the discovery of corrosion and micro-cracks
across France's aging nuclear fleet triggered a series of
inspections across the fleet. This sent nuclear output to a 30 year
low and European power prices even higher. Usually Europe's largest
exporter of power, the nuclear outages turned France into a net
importer, no longer able to play the same role in stabilising power
prices for neighbouring markets, such as GB.
As wholesale prices continued to increase, late summer saw
dramatic events as liquidity in power markets fell sharply as a
result of rapid increases in the cost of meeting margin calls and
posting collateral for trades. The market then became dominated by
utilities managing their margin call exposure rather than following
market fundamentals.
Weather also continued to play an important role, with droughts
impacting Nordic and Alpine hydroelectricity production across the
summer and autumn, exacerbating the crisis. The winter months then
saw unexpectedly mild weather bring prices down from the highs seen
earlier in the year.
Russia's invasion of Ukraine is likely to leave long-lasting
effects on energy markets. Government responses and market
intervention will also be a key determinant of outcomes, with the
UK and the EU considering longer term reforms. Whatever the precise
outcome however, one thing which remains clear is that the
tailwinds behind renewable generation are as strong as ever. With
wind and solar being the cheapest form of electricity generation,
and inherently domestic, renewables offer the solution not only to
decarbonisation, but also to the current affordability and energy
security crises.
Counterparty Risk
As detailed in the 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. 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. The graphs
below illustrate the Company's exposure to offtakers and O&M
providers as at 31 December 2022.
Offtaker by GAV (19,20)
CPPA (Various): 27%
EDF: 18%
British Gas: 13%
Esti Energi: 11%
NEXT: 9%
Npower/Axpo: 7%
Alpix: 6%
N/A: 4%
OE: 4%
O&M by GAV
Nordex: 25%
Vestas: 17%
Orsted: 13%
Statkraft: 11%
Engie: 10%
PSH: 6%
Res: 5%
N/A: 4%
SGRE: 4%
Goldbeck: 3%
BayWa 1%
(19) Graph details the current offtaker weighted by overall GAV.
The NPV will vary over the lifetime.
(20) Sites sell ROCs and power to NPower but also have a price-fixing arrangement with Axpo.
Financing
More favourable debt terms tend to be available for assets with
government-backed fixed revenues in stable jurisdictions. Borrowing
in euros, secured against assets whose revenue is euro denominated,
provides a natural hedge against foreign exchange movements.
Therefore, the Investment Manager has prioritised securing
long-term structural debt against the non-Sterling assets.
The acquisition of the 15.5% ownership interest in the Lincs
Offshore Wind Farm came with leverage of 56%. This long--term,
non-recourse debt is provided by a consortium of seven
international commercial lenders and is expected to stay in place
until 2033 when the ROC revenues expire.
In August 2022, the Company extended its revolving credit
facility ("RCF") by utilising the accordion feature, bringing the
total committed facility to GBP246 million. ORIT's increased RCF
was entered into under the same terms as the existing facility. In
addition, in September 2022, the Company's subsidiary ORIT Lincs
Holdings Limited, entered into a new GBP50 million short-term
facility with NatWest, maturing in November 2023.
The acquisition of Leeskow Wind Farm in September 2022 included
four existing long-term debt facilities of up to EUR61.2 million
with Deutsche Kreditbank AG. These 20-year facilities have a
weighted average fixed interest rate of 1.27% and were
substantially fully drawn as at 31 December 2022 with the final
amount remaining to be drawn in 2023.
Post period end the Company's direct subsidiary ORIT Holdings II
Limited secured an amendment and extension to the existing RCF from
a group of four lenders with the total committed facility
increasing to GBP271 million. The three-year multi currency
facility is provided by National Australia Bank, NatWest, Santander
and Allied Irish Bank and has an interest margin of 2.0% and
commitment fees of 0.7%. The RCF includes an additional uncommitted
accordion, allowing the facility to be increased by up to GBP150
million without requiring the consent of any existing lenders not
participating in the increase.
Short Term Long Term
------------ ---------- ---------- ---------- --------- ----------- ------------- --------- ------------
UK Offshore
Asset HoldCo HoldCo FR Solar FR Wind IRE Solar POL Wind GER Wind Wind
------------ ---------- ---------- ---------- --------- ----------- ------------- --------- ------------
Debt Terms
------------ ---------- ---------- ---------- --------- ----------- ------------- --------- ------------
Currency GBP or EUR GBP or EUR EUR EUR EUR PLN EUR GBP
------------ ---------- ---------- ---------- --------- ----------- ------------- --------- ------------
Term loan GBP 271.0m GBP 50.0m EUR 125.7m EUR 43.2m EUR 91.0m PLN 318.8m EUR 61.0m GBP 110.5m
------------ ---------- ---------- ---------- --------- ----------- ------------- --------- ------------
Drawn at
signing
date GBP 95.6m GBP 50.0m EUR 113.4m EUR 43.2m - PLN 282.3m EUR 59.3m GBP 82.3m
------------ ---------- ---------- ---------- --------- ----------- ------------- --------- ------------
Drawn at
signing
date GBPm GBP 95.6m GBP 50.0m GBP 100.6m GBP 38.3m - GBP 53.3m GBP 52.6m GBP 82.3m
------------ ---------- ---------- ---------- --------- ----------- ------------- --------- ------------
Initial
Term (yrs) 3 1 18 20 20 18 18 15
------------ ---------- ---------- ---------- --------- ----------- ------------- --------- ------------
Expiry
Date Nov-23 Nov-23 Dec-38 Sep-42 Jun-42 Aug-38 Mar-41 Sep-32
------------ ---------- ---------- ---------- --------- ----------- ------------- --------- ------------
Facility
date Nov-20 Sep-22 Jan-21 Apr-21 Jul-21 Sep-21 Sep-22 Dec-17
------------ ---------- ---------- ---------- --------- ----------- ------------- --------- ------------
Construction: 2017 - 2022:
Y1-5 1.30% 2.65% 1.45%;
---------- ---------- ---------- --------- ----------- ------------- --------- ------------
CfD period: 0.83% - 2023 - 2027:
Margin 2.0% 2.50% 1.25% 1.30% Y6-10 1.40% 2.65% 1.75% 1.65%
---------- ---------- ---------- --------- ----------- ------------- --------- ------------
Post CfD
period: 2028 - 2032:
Y10+ 1.65% 2.85% 1.85%
------------ ---------- ---------- ---------- --------- ----------- ------------- --------- ------------
Variable
interest
% SONIA SONIA EURIBOR EURIBOR EURIBOR WIBOR EURIBOR SONIA
------------ ---------- ---------- ---------- --------- ----------- ------------- --------- ------------
Hedging
------------ ---------- ---------- ---------- --------- ----------- ------------- --------- ------------
% hedged - - 85% 90% n/a 75% 100% 85%
------------ ---------- ---------- ---------- --------- ----------- ------------- --------- ------------
Swap rate n/a n/a -0.12% 0.51% n/a 2.03% 0.12% 1.27%
------------ ---------- ---------- ---------- --------- ----------- ------------- --------- ------------
Portfolio Valuation
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. As such the sensitivities
also do not capture any potential benefit of a portfolio effect
through non-correlation of technologies or energy markets.
The fair value of the Company's portfolio of assets as at 31
December 2022 was GBP743.7 million, reflecting acquisitions and
capital injections during the year of GBP209.7 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'
other liabilities of GBP125.4 million, the total portfolio value as
at 31 December 2022 is GBP618.3 million or 109.4 pence per Ordinary
Share.
Year ended
31 December 2022
(GBPm)
---------------------------------- ------------------
Investment value at 31 December
2021 483.5
---------------------------------- ------------------
Acquisitions in the year 209.7
---------------------------------- ------------------
Distributions paid out of the
portfolio of assets (40.1)
---------------------------------- ------------------
Changes in economic assumptions 75.5
---------------------------------- ------------------
Changes in wholesale energy price
forecasts 27.9
---------------------------------- ------------------
Construction and risk premium
and development gain 10.7
---------------------------------- ------------------
Change in discount rates (54.5)
---------------------------------- ------------------
Balance of portfolio return 31.0
---------------------------------- ------------------
Fair value of the portfolio
of assets 743.7
---------------------------------- ------------------
ORIT and intermediate holding
company net assets (125.4)
---------------------------------- ------------------
Audited net asset value 618.3
---------------------------------- ------------------
Investments in the year
During the year, the Company made several investments across
wind and solar technologies.
In April, the Company agreed to provide up to EUR3.5 million (c.
GBP2.9m) of funding into a new development platform, Nordic
Renewables Limited, focused on onshore wind farms and solar PV
assets in Finland.
The Company acquired Breach Solar Farm in June, committing a
total of GBP50 million to fund the acquisition and construction of
the asset. The transaction also gives the Company the right to
construct a battery storage project in the UK, with a capacity of
50MW/100MWh.
In June, the Company acquired a 7.75% stake in the Lincs
Offshore Wind Farm, located off the east coast of England. In
September, the Company acquired a further 7.75% stake.
In October, the Company acquired Leeskow Onshore Wind Farm from
German developer UKA. The site benefits from the government backed
floor price for twenty years under the German EEG regime.
In November, the Company acquired 51% ownership in Crossdykes
Onshore Wind Farm in Scotland. Investment costs have totalled
approximately GBP41 million. The remaining 49% was acquired by a
fund managed by the Octopus Energy Group.
In November, the Company invested a further EUR6.25 million
(GBP5.5m) into a developer of sustainable marine projects focused
on floating offshore wind, Simply Blue Holdings Limited. The amount
is expected to be drawn in 2023 and will increase the Company's
stake to c.19%.
Following the end of the period, after agreeing the lease for
the site, the Company completed the acquisition of a 50% stake in a
12MW/24MWh ready-to-build battery storage project in Bedfordshire,
UK.
Elsewhere in the portfolio, capital injections and construction
payments of GBP40.1 million were made in relation to the Cumberhead
wind farm in the UK.
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 2022.
Economic assumptions
The main economic assumptions used in the portfolio valuation
are inflation rates, interest rates, foreign exchange rates and tax
rates.
Since the end of 31 December 2021, inflation forecasts for 2022
and 2023 have increased significantly across the markets where the
Company's portfolio of assets is located, resulting in a valuation
uplift of GBP60.0 million. The inflation inputs used to calculate
the NAV per Ordinary Share as at 31 December 2022 have been sourced
from: (i) recent consensus UK inflation forecasts published by Her
Majesty's Treasury (November 2022); and (ii) inflation forecasts
for European countries published by the European Commission
(November 2022).
Per the enactment of the Finance Act 2021, the rate of UK
corporation tax is set to increase from 19% to 25% with effect from
April 2023. The calculation of the audited NAV as 31 December 2022
was based on an assumption that this increased rate remained in
place for three years, before trending down by 1% per year until
reduced to the current level of 19% long-term. The change in
assumption to a flat UK corporation tax rate of 25% from April 2023
for the lifetime of the portfolio reduced NAV by approximately
GBP4.8 million or 0.8 pence per Ordinary Share.
During the year, sterling depreciated against the euro by 5.3%,
leading to a positive valuation impact of GBP20.2 million.
Euro-denominated investments comprised 59% of the portfolio at the
year end. 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
gain on foreign exchange reduces to GBP9.5 million.
Power prices
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 three independent
and widely used market consultants' technology-specific capture
price forecasts for each asset.
Further detailed in the Market Outlook section, commodity prices
have increased dramatically in 2022 as a result of Russia's
invasion of Ukraine, sending price forecasts higher in the near and
medium-term. In the longer-term, elevated commodities price
forecasts exert upwards pressure on power price forecasts. This is
partially offset by the downwards pressure exerted by increased
renewable build-out forecasts, as governments react to the ongoing
gas crisis with heightened decarbonisation ambitions.
During H2 2022, governments announced plans to mitigate the
effect of rising energy prices on consumers and businesses,
including through price caps, windfall taxes or generation levies.
Key announcements affecting renewable energy generators include the
European Commission's proposal to introduce revenue caps of
EUR180/MWh or lower and the UK Government proposal for a "cost-plus
revenue limit" on renewable energy companies. At the time of
determining the Q3 NAV there was significant uncertainty
surrounding both the level of mitigation measures that would be
introduced by governing bodies as well as ambiguity regarding the
practical application of such measures. As a result, the Board and
Investment Manager considered it appropriate to include a material
discount to power market forwards of approximately 70% in 2022,
reducing to 50% by 2025, in the valuation as at 30 September
2022.
During Q4 2022, governments across the UK and Europe confirmed
their approach to tackle and resolve the impact of rapidly
increasing energy prices and these policies have been incorporated
into the valuation as at 31 December 2022 and therefore, the
material discounts to prevailing market forwards, which were
incorporated into the Q3 valuations predominantly in anticipation
of these changes have been reduced significantly. The net impact of
applying the government measures and removing the conservative
discounts between Q3 and Q4 was NAV accretive.
Application of the Electricity Generator Levy or "EGL" for the
UK and the emergency measure price cap in Poland, resulted in a
decrease in the valuations in these countries as at 31 December
2022 when compared to the Q3 NAV. The assets in ORIT's portfolio
located in France, Germany, Ireland, Sweden and Finland are not
expected to be impacted by these caps due either to being exempt
via enrolment in government-backed initiatives, such as CfD or FiT
schemes, because the revenue that is subject to price cap rules is
fixed at levels below the announced cap, or because the transaction
structure does not include exposure to revenues above the level of
the government scheme.
Whilst government announcements over energy policies are now
clearer, given volatility in power prices exhibited over 2022 and
the general downward trend in pricing over Q4, the Board and the
Investment Manager still consider it appropriate to include a
modest discount to the prevailing forward prices of 20% over the
2023 to 2025 period, in addition to the normal discounts to reflect
the lower prices typically captured by wind and solar
generators.
Overall, the net impact of these updates has led to a GBP27.9
million increase in the value of the portfolio as at 31 December
2022.
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
2023 to 2050 are shown in the graph above. 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 GBP/MWh using the FX spot rate as at 31 December 2022. On
average, the graph shows Power only GWP of GBP74.47/MWh in the
period 2023-2027 and GBP41.55/MWh in the period 2028-2050.
Construction risk premium and development gain
Total construction risk premium and development gain realised
during the year amounted to +GBP10.7 million. A valuation increase
of GBP6.6 million resulted from the unwind of the remaining
construction risk premium included in the discount rate applied to
the Kuslin and Krzecin wind farms in Poland and the Cerisou wind
farm in France, as well as a portion of the premium included for
the Cumberhead wind farm in the UK, recognising the significant
construction progress made by the end of the period.
As at 31 December, the Kuslin, Krzecin and Cerisou wind farms
are now fully operational. For the remaining portfolio under
construction (Cumberhead wind farm and Breach solar farm), it is
estimated that further value will be crystallised as the projects
becomes substantially de-risked through the completion of
construction milestones.
Following ORIT's follow-on investment into SBG, an Irish
developer of floating offshore wind, ORIT's ownership interest has
increased to c.15.5%. The follow-on investment was calculated based
on an increased valuation of the Company, implying a development
gain on ORIT's original stake of GBP4.1 million.
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. The weighted average discount rate as
at 31 December 2022 is 7.5%, an increase of 0.7% since 31 December
2021.
The increase in discount rate over the course of the year,
reflects that, whilst bond yields have fallen since the highs of
September 2022, they remain significantly higher than they were at
the start of 2022. Competition for renewable assets has remained
high, dampening the extent to which benchmark rate rises have fed
through into asset discount rates. Nevertheless, the Board and the
Investment Manager consider it appropriate to reflect an increase
in the discount rates applied to certain assets, particularly those
in the UK and Poland where rates have risen further than in the
rest of Europe. The increases to these discount rates resulted in a
decrease of -GBP54.5 million in the portfolio valuation, or -9.6
pence per Ordinary Share.
Balance of portfolio return
This refers to the balance of valuation movements in the year
excluding the factors noted above and represents a net increase of
GBP27.9 million.
Of this, GBP35.4 million reflects the net present value of
future cashflows being brought forward from 31 December 2021 to 31
December 2022. A net uplift of GBP1.0 million was recognised due to
financial and technical performance during the period not captured
in the movements due to changes in power price and macroeconomic
assumptions during the period, and a further GBP3.7 million
resulted from the implementation of power purchase agreements or
decisions to exercise options in existing power price agreements to
fix prices for a given period.
31-Dec-21 30-Jun-22 31-Dec-22
------------------------ --------- --------- ---------
UK Assets
------------------------ --------- --------- ---------
Leveraged IRR 5.8% 5.9% 485.4
------------------------ --------- --------- ---------
Gross Asset Value (GAV) 174 256 440
------------------------ --------- --------- ---------
Leveraged %GAV 0% 15% 19%
------------------------ --------- --------- ---------
European Assets
------------------------ --------- --------- ---------
Leveraged IRR 7.2% 6.8% 7.5%
------------------------ --------- --------- ---------
Gross Asset Value (GAV) 564 568 633
------------------------ --------- --------- ---------
Leveraged %GAV 28% 32% 40%
------------------------ --------- --------- ---------
Total Portfolio
------------------------ --------- --------- ---------
Leveraged IRR 6.8% 6.5% 7.5%
------------------------ --------- --------- ---------
Gross Asset Value (GAV) 738 824 1,073
------------------------ --------- --------- ---------
Leverage %GAV 22% 24% 31%
------------------------ --------- --------- ---------
Leveraged %GAV (plc) 22% 24% 42%
------------------------ --------- --------- ---------
The valuation uplift was partially offset by increased capital
expenditure related to the construction of Cumberhead wind farm
(total expenditure is still within initial forecast including
contingency) and lost revenues due to minor construction delays at
the Cumberhead and Kuslin wind farm. The impact of these
adjustments resulted in a decrease in valuation of GBP5.0 million.
Recoveries are currently under negotiation with the relevant
contractors, with some of this impact expected to be recaptured in
future valuation cycles.
The remaining GBP4.1 million decrease related to minor
assumption updates across the portfolio, including a decrease of
GBP2.4 million related to an increase in forecast decommissioning
costs.
Portfolio valuation sensitivities
The sensitivities are based on the existing portfolio of assets
as at 31 December 2022 as well as 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 non-correlation of technologies or
energy markets.
Discount rate
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. A 50bps increase in the levered cost
of equity of the portfolio equates to an increase in the implied
WACC of 0.29%, holding the cost of debt and leverage %
constant.
The weighted average discount rate as at 31 December 2022 is
7.5% (2021: 6.8%).
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.
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.
Inflation
The sensitivity assumes a 0.5% increase or decrease in inflation
relative to the base case for each year of the asset life.
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 2022, 59% of the NAV is euro
denominated. Hedges are in place for all non-sterling construction
payments as well as forecast cash generation from all Euro based
investments for the first three years of operations. The
sensitivity highlighted in Figure 6 shows the impact on NAV per
Ordinary 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 2022 are set out in the 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.
Basis of accounting
The Company applies IFRS 10 and Investment Entities: Amendments
to IFRS 10, IFRS 12 and IAS 28, which state that investment
entities should measure all of their subsidiaries that are
themselves investment entities at fair value. The Company accounts
for its interest in its wholly owned direct subsidiary, ORIT
Holdings II Limited as an investment at fair value through profit
or loss.
The primary impact of this application, in comparison to
consolidating subsidiaries, is that the cash balances, the working
capital balances and borrowings in the intermediate holding
companies are presented as part of the Company's fair value of
investments.
Results as at/for the year ended 31 December
2022 2021
GBPm GBPm
------------------------------------ ------- -------
Net asset value 618.3 577.7
------------------------------------ ------- -------
Fair value of Company's investments 608.8 485.4
------------------------------------ ------- -------
Net assets per share 109.44p 102.26p
------------------------------------ ------- -------
Investment income from portfolio 40.3 31.8
------------------------------------ ------- -------
Gains on fair value of investments 37.6 8.6
------------------------------------ ------- -------
Profit for the year 69.8 34.8
------------------------------------ ------- -------
Net assets
Net assets have increased from GBP577.7 million at 31 December
2021 to GBP618.3 million at 31 December 2022 principally driven by
changes in wholesale energy price forecasts and macro-economic
assumptions such as inflation and FX.
The net assets comprise the fair value of the Company's
investments of GBP608.8 million (2021: GBP485.4m) and the Company's
cash balance of GBP10.6 million (2021: GBP93.9m), offset by GBP1.1
million (2021: GBP1.6m) of Company net liabilities.
Included in the fair value of the Company's investments are
liabilities of GBP135.0 million (2021: assets of GBP1.9m) held in
the intermediate holding companies. These comprise cash of GBP4.5
million (2021: GBP1.3m) and amortised transaction costs associated
with bank loans of GBP2.0 million (2021: GBP1.4m), offset by the
principal and interest outstanding on the bank loans of GBP128.0
million (2021: GBPnil), the negative mark-to-market value of the FX
hedges taken out to minimise the volatility of cashflows associated
with non-UK portfolios of GBP8.0 million (2021: GBP2.3m asset) and
other liabilities of GBP5.5 million (2021: GBP3.1m) predominantly
relating to accrued transaction costs not yet paid and outstanding
VAT liabilities.
Results as at 31 December
2022 2021
GBPm GBPm
-------------------------------------------------------------- ------- ------
Fair value of portfolio of assets 743.7 483.5
Cash held in intermediate holding companies 4.5 1.3
Bank loans and accrued interest held in the intermediate
holding companies (128.0) -
Fair value of other net (liabilities) /assets in intermediate
holding companies (11.4) 0.6
-------------------------------------------------------------- ------- ------
Fair value of Company's investments 608.8 485.4
-------------------------------------------------------------- ------- ------
Company's cash 10.6 93.9
Company's other liabilities (1.1) (1.6)
-------------------------------------------------------------- ------- ------
Net asset value as at 31 December 618.3 577.7
-------------------------------------------------------------- ------- ------
Number of shares 564.9 564.9
-------------------------------------------------------------- ------- ------
Net asset value per share (pence) 109.44 102.26
-------------------------------------------------------------- ------- ------
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 2022, the Company's
operating income was GBP77.9 million (2021: GBP40.4m), including
interest income of GBP23.1 million (2021: GBP12.7m), dividends
received of GBP17.3 million (2021: GBP19.2m) and net gains on the
movement of fair value of investments of GBP37.6 million (2021:
GBP8.6m). The operating expenses included in the statement of
comprehensive income for the year were GBP8.1 million (2021:
GBP5.6m). These comprise GBP5.7 million Investment Manager fees
(2021: GBP4.1m), transaction and abort costs of GBP1.3 million
(2021: GBPnil) and other operating expenses of GBP1.1 million
(2021: GBP1.5m). 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 2022, the ratio was
1.12% (2021: 1.15%).
Dividends
During the year, interim dividends totalling GBP29.3 million
were paid (1.25p per share paid in respect of the quarter to 31
December 2021 in March 2022 and 1.31p per share paid in respect of
the first three quarters of 2022 in May 2022, August 2022 and
November 2022 respectively).
Post year end, a further interim dividend of 1.31p per share was
paid on 24 February 2023 in respect of the quarter ending 31
December 2022 to shareholders recorded on the register on 10
February 2023. As such, dividends totalling GBP29.6 million have
been paid in respect of the 12-month period under review.
For the year ending 31 December 2022, the portfolio of assets
generated operational cash flows of GBP76.3 million, paid interest
of GBP4.0 million and made repayments of GBP10.2 million on
external debt. Company and intermediate holding company expenses
for the year totalled GBP9.6 million (after commitment fees and
interest payable on the RCF and the short-term facility) and
therefore total net cash flows from operating activities for the
year were GBP52.5 million, leading to an operational dividend cover
of 1.77x the total dividend payable for the year.
The strong dividend cover of 1.77x during FY22 has been
supported by the acquisition of operational portfolios as well as
the successful completion of construction assets(1) . ORIT's
operational portfolio is forecast to generate significant cash
flows (after debt service) in excess of the target dividend of 5.79
pence per ordinary share for FY23(21) . The average expected annual
dividend cover over a 5-year period to 31 December 2027 is 1.7x(21)
. Cash flows generated by fixed or contracted sources (e.g. PPAs,
CFDs, ROCs and FITs) are estimated to cover expected dividends by
1.1x over the same period(22) .(23)
(21) Dividend cover is calculated on the basis of actual (in
respect of FY22) 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.
(22) Dividend cover is calculated on the basis of expected net
operational cash flows from the portfolio excluding uncontracted
revenues (e.g. power sales linked to prevailing market prices) and
after debt service and Company and intermediate holding company
expenses.
(23) The dividend target stated is a targets only and not a
profit forecast. There can be no assurance that the target 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. 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 this target and should
decide for themselves whether or not the target dividend is
reasonable or achievable. Investors should note that references to
"dividends" 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.
Dividend cover - operational cash flows (portfolio level)
Year ended 31 December
2022 2021
GBPm GBPm
-------------------------------------------------------------- ----- -----
Operational cash flows
UK Solar 13.7 11.1
French Solar 11.7 11.9
Swedish Wind 8.8 4.4
Finnish Wind 15.9 5.3
Polish Wind 12.1 -
French Wind 1.3 -
German Wind(22) 0.7 -
UK Wind(23) 5.0 -
UK Offshore Wind(24) 7.1 -
-------------------------------------------------------------- ----- -----
76.3 32.7
Interest payable on external debt
French Solar (1.1) (1.1)
Polish Wind (2.1) -
French Wind (0.4) -
German Wind (0.4) -
-------------------------------------------------------------- ----- -----
Operational cash flow pre debt amortisation 72.3 31.6
Company and intermediate holding company level expenses(25) (9.6) (5.3)
-------------------------------------------------------------- ----- -----
Net cash flow from operating activities pre debt amortisation 62.7 26.3
Dividends paid in respect of year 29.6 23.8
-------------------------------------------------------------- ----- -----
Portfolio level operational cash flow dividend cover pre
debt amortisation 2.1x 1.1x
-------------------------------------------------------------- ----- -----
External debt amortisation
French Solar (9.0) (2.1)
Polish Wind (1.2) -
-------------------------------------------------------------- ----- -----
Net cash flow from operating activities 52.5 24.2
Dividends paid in respect of year 29.6 23.8
-------------------------------------------------------------- ----- -----
Portfolio level operational cash flow dividend cover 1.77x 1.02x
-------------------------------------------------------------- ----- -----
(24) Includes all operational cash generated from 30 June 2022
(the locked-box date)
(25) Includes all operational cash generated from 31 December
2021 (the locked-box date)
(26) As a minority interest this includes equity cash flows
(after interest and amortisation) generated from 31 December 2021
(the locked-box date)
(27) Includes crystalised FX gains recognised in the Company and
intermediate holding companies
Company level dividend cover ratios are also shown below.
Dividend cover - P&L (Company level)
2022 2021
GBPm GBPm
---------------------------------------------- ------ -----
Profit for the year 69.8 34.8
Adjustments for:
Unrealised gains on fair value of investments (37.6) (8.6)
---------------------------------------------- ------ -----
Realised profit for the year 32.2 26.2
Dividends paid in respect of year 29.6 23.8
---------------------------------------------- ------ -----
Company level P&L dividend cover 1.09 1.10x
---------------------------------------------- ------ -----
Dividend cover - operational cash flows (Company level)
2022 2021
GBPm GBPm
--------------------------------------------------- ------ ------
Profit for the year 69.8 34.8
Adjustments for:
Unrealised gains on fair value of investments (37.6) (8.6)
Transaction costs 0.4 -
Investment income (40.3) (31.8)
Changes in working capital (0.5) (0.3)
--------------------------------------------------- ------ ------
(8.2) (5.9)
Distributions received from investments 38.1 26.2
--------------------------------------------------- ------ ------
Net cash flow from operating activities 29.9 20.3
--------------------------------------------------- ------ ------
Dividends paid in respect of year 29.6 23.8
--------------------------------------------------- ------ ------
Company level operational cash flow dividend cover 1.01x 0.85x
--------------------------------------------------- ------ ------
Impact Report
As at 31 December 2022
GBP1,304m 1,740GWh 522k
Total value of sustainable Potential Renewable Electricity Equivalent homes powered
investments - 100% of all by clean energy (25)
investments
2021: (GBP878m) 2021: (1,168GWh) 2021: (337k)
580k 2.9m 318k
Equivalent cars off the
Estimated tonnes of carbon Equivalent new trees required road required to avoid same
avoided(26) to avoid same carbon (27) carbon (28)
2021: (364k) 2021: (1.8m) 2021: (200k)
All metrics are calculated based on an estimated annual
production of the whole portfolio once fully constructed (excluding
conditional acquisitions).
(28) Homes powered is based on latest regional average household
consumption in the region of production
(29) Carbon avoided is calculated using the International
Financial Institution's approach for harmonised GHG accounting
(30) Trees equivalent is based on UK Woodland and Peatland
carbon statistics
(31) Equivalent cars is calculated using a factor for displaced
cars derived for the UK government GHG Conversion Factors for
Company reporting.
Foreword
In a year of unprecedented climate disasters and energy security
risks ignited by Russia's war in Ukraine, the urgent need to
accelerate the sustainable energy transition is ever clearer.
Positively, 2022 saw a record-setting $1.1 trillion of investment
into low-carbon energy technologies and, for the first time, solar
and wind power overtook fossil fuel gas as Europe's main source of
electricity generation(29) . Pivoting investment towards low-carbon
industries and technologies is critical for addressing the
challenges ahead, but an annual funding gap remains. The magnitude
of investment required is still over three times the capital that
was invested in 2022 and that gap needs to be closed to achieve a
pathway consistent with net zero.
A radical transformation of the current energy sector is also
key in mitigating the threats of climate change and energy
security. Our Investment Manager is part of an Energy Group with a
unique perspective and resources to support this necessary
disruption. The knowledge, expertise, resource and ambition is
applied to enable the convergence of renewable generation with
storage whilst also championing electrification and demand side
management. Bringing this together with ORIT's capital securely
positions ORIT to enable investors to contribute to these
objectives.
To fulfil ORIT's mission to accelerate the net zero transition,
the Board and Investment Manager have continued to build on ORIT's
diversified portfolio of Renewable Energy Assets. A key step to
ensuring a "Just Transition" is to consider environmental and
social impacts throughout the whole lifecycle of a project. By
increasing investments in development and construction phase
projects, ORIT is not only adding new renewable capacity to the
grid and helping countries meet their net zero targets, but also
ensuring that responsible investment practices are implemented at
the earliest possible stage of an asset's lifetime.
ESG is embedded into all aspects of the investment process, and
the strategy captures ORIT's desire to incorporate biodiversity and
social benefits alongside its investments. This year, the
Investment Manager continued to monitor the ESG risks faced by the
sector and ORIT's portfolio, ensuring robust mitigation measures
were in place. This included measures to protect ORIT's solar
supply chain from human rights risks through the adoption of a new
procurement policy and through collaboration with industry bodies
and expert auditing parties. ORIT has been classified as a dark
green (Article 9) fund under the new Sustainable Finance Disclosure
Regulation ("SFDR") and all investments are considered 100% EU
Taxonomy-aligned, further demonstrating the ambition of its
sustainable investment objective.
Under the backdrop of global climate concerns, ensuring ORIT's
resilience to future climate changes is of the utmost importance.
ORIT undertook in-depth climate risk assessments over the last year
to better understand potential physical and transition risks - and
opportunities - across its portfolio, the results of which are
discussed in this year's enhanced Task Force on Climate-related
Disclosures ("TCFD") report. ORIT welcomes the addition of future
regulatory disclosures that support "anti-greenwashing" efforts
such as the Taskforce for Nature Related Disclosures and the UK's
Sustainable Disclosure Requirements ("SDR").
The IEA's 2022 World Energy Outlook distinguishes technologies
accelerating the transition as the solution to the energy and
climate crises(30) . Noting the clear contribution that ORIT
provides to various global goals coupled with the reinforced
assurances from ORIT's ESG disclosures, ORIT's stakeholders can be
certain of ORIT's critical role within this transition.
Phil Austin MBE
Chair
(32) https://www.weforum.org/agenda/2023/02/low-carbon-investment-record-2022/
(33) https://www.iea.org/reports/world-energy-outlook-2022/key-findings
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 and invest directly into a portfolio of Renewable
Energy Assets which generates a yield through renewable energy
generation. The renewable energy generated 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 ability to invest in Renewable Energy Assets is a powerful
tool, which not only enables people to invest in line with their
values, but also drives necessary change, facilitating the
transition to a more sustainable future. More information on this
"Theory of Change" can be found in the Company's Impact Strategy,
published separately on the Company's website
https://octopusrenewablesinfrastructure.com/.
The Impact Strategy considers all of ORIT's culture, values and
activities through three lenses: Performance, Planet and People -
to ensure that our activities integrate ESG risks and bring to life
additional impact opportunities. The Impact Strategy defines ESG
and Impact as:
-- ESG - a vital risk management approach across Environmental,
Social and Governance factors to identify and mitigate a range of
potential issues to protect, and hopefully enhance, the long-term
value of our investments
-- Impact - what an investment does to the environment or
society. Our aim is to minimise our principal adverse impacts and
to seek opportunities to enhance positive impacts where
possible.
The Company makes long-term investments that require a long-term
view to be taken both in initial investment decisions and in
subsequent asset management; adopting lasting and sustainable
business practices. Beyond the core objective of accelerating the
transition to net zero, ORIT seeks to generate additional impact
through Performance, Planet and People impact initiatives.
More details and background information related to the Company's
Impact Strategy including information on our four impact themes of
Stakeholder engagement, Equality and wellbeing, Innovation and
Sustainable momentum can be found in the separately published
Impact Strategy.
Stewardship and Engagement
"Stewardship is the responsible allocation, management and
oversight of capital to create long-term value for clients and
beneficiaries leading to sustainable benefits for the economy, the
environment and society." (31)
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. In these
cases, rights do not need to be "exercised" as the Investment
Manager directly controls the Investee Companies' strategy,
financial and non-financial performance, risk, capital structures,
social and environmental impact, corporate governance as well as
the appointment of third party operators of the assets. As well as
decision making oversight, the Investment Manager carries out
service reviews on each material third-party service provider.
Where service providers fail to meet the standards set,
particularly with regard to HSE, ORIT will use its contractual
rights to first look to improve the service provision, and if that
is unsuccessful, terminate the 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 their influence to
monitor and support investee companies on relevant matters to
galvanise other shareholders in line with ORIT's ESG Policies.
Regardless of the percentage of ownership, it is the Company's
aim to provide investment specific active stewardship. ORIT always
exercises its shareholder rights in relation to approval rights and
investment reserved matters. Regular reporting data is provided to
the ORIT Board on investee performance, including any environmental
or social issues or risks. The Investment Manager also engages on
market wide industry specific risks alongside different
stakeholders in the market to drive towards positive stewardship
outcomes.
The initiatives and case studies presented in the Impact Report
provides examples of the application of the Engagement and
Stewardship policy.
The Investment Manager's full Engagement and Stewardship Policy
can be viewed here: https://octopusrenewablesinfrastructure.com
(34) UK Stewardship Code 2020's definition to Stewardship
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.
GBP1,304m 1,740GWh 36
Total value of sustainable of potential annual renewable Assets
investments - 100% investments energy generation, 669MWh of which
committed into renewables has and will be additional generation
(32) from construction assets (33)
Delivering the investment objective
The Board views the Impact Strategy as integral to the delivery
of the core investment objective, and not as a cost to the Company.
ESG processes and policies are a prudent risk management tool that
improve the financial performance of the Company while reducing
risks. The ultimate aim is to increase capacity to produce green
power and maximise the green electrons produced by the operational
portfolio.
Integration into the investment cycle
Every investment the Company makes is assessed against our
Performance, Planet and People framework through an ESG scoring
matrix. This ensures that our investments adhere to ORIT's ESG
Policy and minimum scoring threshold for investment approval, which
all transactions met in the year.
(35) Total asset value including total debt and equity
commitments
(36) Metric calculated based on an estimated annual production
of the construction portfolio once fully constructed (excluding
conditional acquisitions).
The Investment Manager considers ESG risks at each stage of the
investment cycle through this ESG scoring matrix. It is used as a
tool to drive ESG engagement and ensure that ESG risks are promptly
identified, appropriately investigated, and carefully mitigated
where necessary.
Materiality of risks included in the ESG matrix is determined
using guidance from the Sustainability Accounting Standards Board
("SASB") framework that identifies financially material ESG risks
by asset class. The ESG Risk Matrix contains sections on Planet
(environmental factors, such as biodiversity, water and waste) and
People (social and employee matters, human rights, anti-corruption
and anti-bribery matters). It aims to ensure that any potential
adverse impacts are mitigated such that the investment is
sustainable. At the post-completion stage, the Investment Manager
carries out an onboarding process to ensure that its Asset
Management team continue to oversee any residual ESG risks.
Anti-bribery and corruption
It is the Company's policy to conduct all of its business in an
honest and ethical manner. The Company takes a zero-tolerance
approach to bribery and corruption and is committed to acting
professionally, fairly and with integrity in all its business
dealings and relationships wherever it operates.
Service Providers (including Directors of the Company):
1. Must not promise, offer, give, request, agree to receive or
accept a financial or other advantage in return for favourable
treatment, to influence a business outcome or to gain any business
advantage on behalf of themselves or of the Company.
2. Must follow all the anti-bribery and corruption laws to which
the Company and Company Directors/Service Providers are
subject.
3. Are liable to disciplinary action, dismissal, legal
proceedings and possibly imprisonment if they are involved in
bribery and corruption. Appropriate action will be taken against
those who fail to comply.
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 and conduct due diligence as appropriate as part of
completing the ESG Matrix. Anti-bribery, equal opportunities,
modern slavery, whistle blowing policies and supplier code of
conducts are all reviewed as part of this process.
Further information in relation to Conflicts of Interest can be
found within the Corporate Governance Statement of the Annual
Report.
Regulatory Disclosures
Task Force on Climate-related Financial Disclosures
ORIT is a supporter of the recommendations of the Task Force on
Climate-related Financial Disclosures. Whilst ORIT is not yet in
scope to make mandatory TCFD-aligned disclosures, the Company has
voluntarily began to make TCFD--aligned disclosures as it believes
that the effects of climate change should become routinely
considered in business and investment decisions.
The TCFD disclosures can be found in the Risk and Risk
Management Statement section of the Annual Report .
Sustainable Finance Disclosure Regulation ("SFDR")
ORIT is classified as an Article 9 product under the EU SFDR
regulation.
Please refer to the Annual Report and to the ORIT website for
ORIT's SFDR disclosures.
Future regulatory disclosures
A number of other regulatory frameworks aimed at increasing
transparency in environmental and social factors are in
development. This includes the Taskforce for Nature Related
Financial Disclosures ("TNFD"), the UK's Sustainable Disclosure
Requirements ("SDR") and the Task Force for Inequality Related
Financial Disclosures ("TIFD"). The Investment Manager is keeping
up with recent consultations and continues to evaluate likely
impacts for ORIT's investments. ORIT's Impact Strategy is already
well positioned to support the aims of the TNFD. The TNFD will
provide a framework for corporates and financial institutions to
assess, manage and report on their dependencies and impacts on
nature's ecological services, helping redirect global financial
flows towards nature-positive outcomes. ORIT's existing
consideration of potential biodiversity impact and its desire to
maximise biodiversity through additional initiatives at its sites
speaks clearly to ORIT's ambition to use space intelligently to
protect ecological services. ORIT's existing partnership with SUGi
exhibits how ORIT's goal of protecting biodiversity extends beyond
the borders of its sites.
The Company supports "anti-greenwashing" efforts and expects to
start making the necessary disclosures in relation to SDR from 30
June 2024. The Company will assess the appropriate label to
associate itself with once finalised (in mid--2023). Whilst the SDR
and SFDR disclosures will need to be separate, we expect the
Company to be well positioned to start adopting the regime.
The Company is also aware of the UK Green Taxonomy disclosures.
The UK Government has established a Green Technical Advisory Group
("GTAG") to advise on the development of the UK Green Taxonomy.
Once developed it is likely that SDR will take this into
consideration.
Performance initiatives
Delivering investment performance is fundamental to the 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.
Projects
Our Investment Manager works with key partners to mitigate
production risks and maximise performance of ORIT's operational
assets. Production losses are investigated through a root cause
analysis, delivering appropriate actions that improve technical
performance. This active management approach has mitigated
potential performance risks for ORIT over this period.
Project Outcome
-------------------------------------------- -----------------------------------------------
Transformer and Inverter refurbishments: A refurbished module was creatively
Application of an effective interim sourced through refurbishment of equipment
solution and a resourceful use of existing at a solar site where it was no longer
parts to reduce carbon footprint and required. This was utilised at Ottringham
CAPEX in context of high inflation after an inverter module failure, avoiding
and global supply chain constraints. a prolonged outage as the manufacturer
was unable to ship parts to the UK.
Similarly, a transformer at Ermine
Street was refurbished whilst using
a hired part in the interim to ensure
continued contribution of green electrons
to the grid.
These actions successfully prevented
months of business interruption at
both sites (4 months at Ottringham
which is equivalent to a 6% loss of
generation and revenue, and 6 months
at Ermine which is equivalent to 3%
loss at Ermine) and enabled the reduction
of the sites' carbon footprint by minimising
waste materials and eliminating the
need for copper extraction.
Sustainable Momentum
-------------------------------------------- -----------------------------------------------
Innovative Drones: Using innovative Early identification of stress areas
drone technology, heat mapping of all allows the Investment Manager to ensure
the UK solar sites was conducted to that preventative measures are put
identify areas of stress on the solar in place to optimise performance of
panels which can cause inefficiencies. the modules and mitigate losses.
Innovation
-------------------------------------------- -----------------------------------------------
Proactive Switchgear improvements: This preventative measure reduces the
A proactive initiative to upgrade the health and safety risk associated with
switchgear across multiple sites is potentially faulty switchgear and optimises
42% complete, with the remaining 58% the efficiency of generation.
scheduled for completion in Q1. Equality and Wellbeing
Innovation
-------------------------------------------- -----------------------------------------------
Settlement reached for Finnish Wind This settlement provides enhanced protection
Foundations: successful negotiations to the project SPV with not only the
with foundation contractor on warranty 5-year warranty expected on civil work,
and bond cover for turbine foundations. but an additional bond covering the
foundations for 8 years.
Stakeholder Engagement
-------------------------------------------- -----------------------------------------------
Doubling wind: The Investment Manager ORIT has made a significant number
strengthened ORIT's wind portfolio of wind acquisitions over the period.
with wind acquisitions, construction The number of operational wind sites
management and operational management. on the ORIT portfolio has more than
doubled from last year, increasing
from 4 sites to 9 resulting in a 348MW
operational wind portfolio.
Wind asset construction significantly
progressed over the period. Turbines
are now erected at Cumberhead, with
full operations expected end of March
2023.
ORIT entered the offshore wind market,
with a minority stake in the 270MW
Lincs Wind Farm and expanded its geographical
footprint managing 59MW of operational
wind farms in Poland.
-------------------------------------------- -----------------------------------------------
Curtailment reduction at Leeskow wind The proposal has been made in response
farm: A proposal has been made to reduce to the German government's policies
curtailment on site in collaboration to strengthen energy security following
with the German authorities. the Ukraine invasion. The site is expected
to benefit from an increase in performance
and therefore revenue once the curtailment
is lifted.
Stakeholder Engagement
Sustainable Momentum
-------------------------------------------- -----------------------------------------------
PPA innovation: Creation of bespoke The Investment Manager developed a
PPA structure for Saunamaa and Suolokangas bespoke PPA structure which enables
onshore wind farms (Finland) and an hedging to take place periodically
innovative PPA structure for Ljungbyholm across the contract tenor, rather than
onshore wind farm (Sweden). having to decide whether or not to
hedge at the point of contract signature.
We estimate that the bespoke PPA structure
delivered a 16% uplift in the assets'
2022 fixed price revenues.
The Investment Manager originated and
executed a corporate PPA with an innovative
structure for its Ljungbyholm wind
farm. The structure allows the asset
to benefit from higher market prices
while providing a degree of revenue
certainty. Compared with if Ljungbyholm
had entered into a vanilla fixed price
corporate PPA, we estimate that this
contract structure delivered a revenue
uplift across 2022 of 139%(34) .
Innovation
-------------------------------------------- -----------------------------------------------
(37) Calculated based on third-party estimates of Swedish
onshore wind CPPA prices at the time that Ljungbyholm's CPPA was
signed.
Case Study:
Additionality with investment into Simply Blue Group
ORIT first invested in Simply Blue Group ("SBG") in August 2021
for a c.12% stake and following the latest investment, ORIT's
ownership interest in SBG has increased to c.15.5%. The Company
also agreed to provide a further investment of up to EUR6.25
million which is expected to be drawn in 2023 which would increase
ORIT's ownership interest to c.19%. SBG is the leading developer
for floating offshore wind. SBG's goal is to develop floating wind
projects that will make a valuable contribution to Europe's
electricity demand, making the most of the huge offshore wind
potential there is across the global oceans to help create a clean,
sustainable future for everyone.
Offshore wind has become a favoured form of renewable energy
generation. It is expected to produce 7% - 11% of the EU's
electricity demand by 2030. Up to 45% of this energy is identified
as coming from floating wind. Floating wind foundations are
normally used in deep waters where fixed foundations are no longer
economically feasible. Space for fixed foundations is scarce in
many countries (including the UK) as development of fixed wind
projects has been occurring for the last 15 years. Floating
offshore sites also benefit from high wind potentials allowing for
greater wind energy production.
Investment into the development of these projects allows regions
across Europe to maximise the financial benefit of its strong
offshore wind resources and to generate long-term jobs for its
local communities, while contributing to European and the UK
governments' net zero targets.
Since ORIT's investment, SBG has been able to make huge strides
towards harnessing the wind potential across Europe. With ORIT's
initial investment in August 2021, SBG was able to increase its
specialist team by 50% and enter new markets in Poland, Spain,
Portugal, Sweden, Finland, and Italy. With a second investment in
November 2022 SBG was able to continue to grow its global pipeline
of projects to 10GW. More general support from the Investment
Manager has helped to develop SBG's capabilities and shape future
decisions.
Additionality is a concept within renewable energy that refers
to organisations directly adding new capacity for renewable energy
to the national grid. Organisations can achieve additionality by
committing to and investing in green power generators in a way that
allows them to fund new renewable power generation(35)
(38) https://www.igniteenergy.co.uk/news/additionalityand-ppas
Impact tracker
Who? How much? What? Impact Theme
Environment 10 GW in pipeline Invested to receive a Equality and
(United Kingdom, 50% increase in 15.5% stake in their business, Wellbeing
Ireland, Sweden, team helping them to drive Sustainable
US, Spain, 6 new markets into new markets and grow Momentum
Portugal, Finland the team. Stakeholder
and Italy) Engagement
Case Study:
Strengthening ORIT's Climate Resilience
Climate change and the effort to mitigate it is impacting every
aspect of our economy. Whilst renewable energy is a solution to
help address climate change, renewable energy sites and businesses
are not themselves exempt from the potential physical impacts of
climate change. Climate change impacts can be categorised as
physical climate risks or transitional climate risks.
-- Physical hazards can have immediate impacts, defined as
"acute". An example is severe weather event damaging
infrastructure. Changes can also develop over longer time horizons,
defined as "chronic", and these impacts vary in their intensity and
frequency. An example is changing weather patterns affecting
long-term asset performance.
-- Transitional climate risks are those relating to business
risks that follow societal and economic shifts toward a low--carbon
and more climate-friendly future. Examples are changes in
government policies and tax to accelerate the transition to net
zero.
As part of ORIT's TCFD disclosure requirements and a wider
Investment Manager-led exercise to better understand ORIT's climate
change resilience, the Investment Manager engaged on a joint
project with one of ORIT's energy market advisors, Baringa, to
investigate the potential impacts of climate change to renewable
energy companies.
European countries boast favourable energy policies for
renewable energy projects. Alongside supporting financial
mechanisms and leading technological innovation, transition
measures are opportunities rather than risks for renewable energy
companies. The financial risks and opportunities arising from
policy measures targeting mitigation of climate change, for
example, high CO(2) market price, low-carbon generation mix, are
already accounted for in the wholesale energy price curves of our
advisors and therefore considered in our asset valuations.
Physical impacts of climate change are less defined in these
models for different climate scenarios. In this project, Baringa
were engaged to carry out a scenario analysis research project on
the financial impacts of physical climate change impacts, with a
particular focus on wind generators, considering the potential
impacts of (i) physical climate change on power price and (ii) on
generation.
(i) Physical climate impact on power price:
The study concluded that the impact of physical changes in
climate on long-term EU power price forecasts is relatively small
compared to other drivers of power price.
Physical changes in climate may impact power price by affecting
energy production and consumption. For example, an increase in
precipitation and temperature in the UK may affect the energy
demand for heating and the efficiency of certain energy generation
technologies. Whilst these impacts are possible, the overall
direction of impact remains uncertain with both upward and downward
potential impacts on power prices. Power prices can also be
impacted by other factors such as commodity prices for natural gas
and CO(2) emissions allowances.
To understand the relative significance of climate change as a
driver of power price, Baringa compared the impact of year-to-year
variations in weather with the impact of projected changes in
commodity prices to power market revenues.
Baringa created economic models for Poland, France, Great
Britain and Ireland to investigate this further. The results show
that in 2035, commodity prices impact annual revenue +/- 32%
compared to year-to-year variations in weather having a +/- 5%
impact on annual revenue.
By 2050, the impact of commodity prices is reduced to +/- 9%,
whereas the growing share of weather-dependent generation has
increased the impact of weather to +/- 12%. This means that in the
long-term, power price is not driven directly by the gas price but
by the cost of the renewable generation that replaces it.
Considering the lifetime of ORIT's assets, the most material
drivers on power price remain the commodity prices that are already
considered in existing power price curves and our valuation models.
Further consideration of this risk should be evaluated when
assessing extending the life of assets or investment decisions in
future years where asset lives push beyond 2050 where physical
climate risks could have a more material impact on forecast power
prices.
(ii) Physical climate impact on generation:
Given the immaterial overall impact of climate on forecast power
prices, the main factor to consider that could have a material
financial impact within ORIT's own investments is asset generation
P50 assumptions that are used in valuations. Baringa used climate
models to quantify the expected changes in average annual yield for
GB and EU wind.(36)
Method:
-- 11 combinations of climate models (using a mixture of both
regional climate and global circulation models)
-- 3 combinations of climate models
-- Time horizon: 1990 to 2050
-- Scenario comparison: RCP2.6 vs RCP8.5
-- @100m altitude, 3hr temporal granularity
(39) RCP refers to the Representative Concentration Pathway - a
greenhouse gas concentration (not emissions) trajectory adopted by
the IPCC
Results
Finding 1:
-- In Great Britain there is no trend in wind speed, either
upwards or downwards, indicating rapidity of climate change is not
a driving trend.
-- Power yield - assuming a cubed relationship between wind
speed and yield - confirms the stable outlook projected in the IPCC
Special Report of +/-7%
-- Similar results found in other EU countries.
Results
Finding 2:
-- The number of years with significantly higher and lower
yields than normal increases in the future projections, meaning
that the variability of annual output for wind generation is
expected to increase
-- With a stable average output, there is no direct financial
impact of this observation Similar results found in other EU
countries.
High Level Conclusion: There is a risk that variability may
impact in-year generation and ability to capture price forecasts.
This may result in overperformance and underperformance over
short-term time horizons. However, average annual wind generator
yield is not negatively impacted by climate change in a way that is
material to the valuation of wind generation assets in the
countries where the fund operates. Therefore, current valuation
methods based on historical P50s are still a good predictor of
long-term production and continue to be valid.
The disclosure of financial risks and opportunities relating to
climate change form part of ORIT's TCFD disclosures in the Annual
Report .
UN SDG specific contributions
9. Industry, Innovation and Infrastructure
9.2 & 9.4 - Promote sustainable industrialization and
upgrade/ retrofit infrastructure to make them sustainable:
Investment into development, operational and construction assets
have helped support jobs. Site upgrades and works have
significantly reduced production losses, actively supporting the
production of more green power and helping ORIT's assets perform
more efficiently.
13. Climate Action
13.1 - Strengthen resilience and adaptive capacity to climate
related hazards and natural disasters:
Technical due diligence carried out on all new investments.
Biodiversity and habitat management plans proposed for most sites
as planning requirement. Physical climate change risks considered
and mitigated (e.g. flood risk mitigation strategy) and transition
risks forecasted (e.g. low power price scenarios).
17. Partnership for the Goals
17.17 - Encourage and promote effective partnerships, building
on the experience and resourcing strategies of partnerships:
Shared knowledge with key counterparties to ensure continued
compliance with the ESG policy and drive improvements to ESG land
management practices.
www.un.org/sustainabledevelopment/
Planet
Impact Objective: Consider environmental factors to mitigate
risks associated with the construction and operation of assets,
enhancing environmental potential where possible.
580k 8.48t 886t
Equivalent tCO(2) avoided(37) CO(2) e per MW estimated carbon CO(2) e emissions offset
intensity (direct and indirect) (all direct emissions)
100% 87% 0
investments qualify as Generating sites on renewable Environmental incidents
sustainable in line with import tariffs
EU Taxonomy(38)
Maximise our 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.
Investing in Renewable Energy Assets enables investors to engage
with and generate returns from this transition to a cleaner future
and directly support climate change ambitions.
On admission to the London Stock Exchange ("LSE"), ORIT was
awarded the LSE's Green Economy Mark, recognising the Company as a
significant contributor to the transition to a zero-carbon economy.
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.
(40) 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.
(41) 100% of investments are significantly contributing to climate change mitigation.
Whilst the Company's positive contribution has been recognised,
ORIT commits to being transparent, measuring and reporting both
positive and negative impacts on the planet. By reflecting on
potential negative impacts rather than ignoring them, the Company
can create meaningful targets for improvement and maximise the
positive impact of investments. As part of this approach, ORIT will
review and adopt relevant industry standards alongside initiatives
to reduce its own carbon footprint.
Carbon measurement and reporting
Electricity generated by wind and solar resources prevents
harmful emissions from other sources such as coal powered
electricity. However, there are still emissions incurred in the
manufacturing and transportation of the solar panels and wind
turbines through the supply chain.
In 2022 the Investment Manager on behalf of the Company engaged
with Altruistiq to help calculate and validate the Greenhouse Gas
("GHG") emissions footprint for ORIT.
The Company has quantified and reported organisational GHG
emissions in alignment with the World Resources Institute's
Greenhouse Gas Protocol 'Corporate Accounting and Reporting
Standard' and 'Corporate Value Chain (Scope 3) Standard'. This
approach consolidates the organisational boundary according to the
operational control approach. The GHG sources that constituted the
Company's operational boundary for the reporting year are:
-- Scope 1: No relevant emissions sources apart from fugitive emissions
-- Scope 2: Purchased electricity - market-based
-- Scope 3: Purchased Goods and Services, Investments, Business
Travel, Waste and Fuel-and-Energy-Related Activities ("FERA")
Given the nature of the Company, ORIT's Scope 1 emissions are
negligible. Scope 2 emissions account for 11.27% of ORIT's total
emissions footprint. The majority of the Scope 2 emissions come
from one single asset (Kuslin wind farm) that was consuming large
amounts of electricity as a result of ongoing construction that was
finished in August(39) . Kuslin's contribution to Scope 2 emissions
is compounded by the carbon intensive nature of the Polish grid.
Now operational, Kuslin will consume less electricity and will help
reduce the carbon intensity of the grid through the provision of
green electrons. ORIT has offset its direct Scope 1 and Scope 2
emissions. See the Annual Report for more details.
Scope Emissions (t % of Total
CO(2) e)
---------------------------------------------- ------------ ----------
1 - Direct Emissions (fugitive emissions) 0.59 0.01%
2 - Indirect Emissions (Purchased electricity
- market-based)(40) 885.24 11.27%
---------------------------------------------- ------------ ----------
The Scope 3 Categories that were identified and calculated
account for 88.72% of the total emissions footprint:
Emissions (t
Scope 3 Category CO(2) e) % of Total
--------------------------------- ------------ ----------
Fuel & Energy Related Activities 3,730.9 47.5
--------------------------------- ------------ ----------
Purchased Goods and Services 1,823.6 23.2
--------------------------------- ------------ ----------
Business Travel 761.4 9.7
--------------------------------- ------------ ----------
Investments 648.0 8.3
--------------------------------- ------------ ----------
Waste 4.0 0.1
--------------------------------- ------------ ----------
Absolute emissions for ORIT will continue to increase as it
invests into more assets. The increase in "Fuel and Energy Related
Activities" category is a result of the stationary combustion
required during the period to power construction-related equipment
at ORIT's construction assets.
ORIT's overall carbon intensity was calculated to be 8.48 tCO(2)
e per MW. ORIT's weighted average carbon intensity ("WACI") for the
period was calculated to be 11.52 tCO(2) e/GBPm revenue(41) .
(42) Kuslin's electricity consumption contributes to 91% of the
Scope 2 emissions (10.2% of ORIT's overall footprint).
(43) A market-based approach was used to calculate purchased
electricity emissions and this is the figure reported as Scope 2.
Location-based purchased electricity emissions were calculated to
be 1,026.9t CO(2) e. Total energy consumption for Scope 2 was
calculated to be 4,293MWh.
(44) A market-based approach as used to calculate the WACI. The
WACI using a location-based approach is equal to 15.65 tCO(2)
e/GBPm revenue.
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").
2022 2021 2020
----------------------------- ----------------------------- -----------------------------
UK Emissions Non-UK UK Emissions Non-UK UK Emissions Non-UK
Emissions Emissions Emissions
------------------------ ------------ --------------- ------------ --------------- ------------ ---------------
Scope 1 (tCO(2) e) 0.0 0.6 0.0 0.0 0.0 0.0
-------- --------------- ------------ --------------- ------------ --------------- ------------ ---------------
Market based
Scope 2 (tCO(2) e) 0 885.2 0.0 5.0 0.0 18.5
Location based (tCO(2)
e) 190.4 836.5 192.2 62.4 220.0 68.1
Energy consumption (MWh) 1,568.4 2,724.9 905.2 1,150.5 943.6 1,287.9
------------------------ ------------ --------------- ------------ --------------- ------------ ---------------
Scope 3 (tCO(2) e) 5,706.4 1,261.4 710.9 1,500.7 1,209.2 1,561.3
-------- --------------- ------------ --------------- ------------ --------------- ------------ ---------------
ORIT recognises the challenges in measuring its GHG emissions
for all sites and activities.
-- Quality and availability of data collected for conversion
calculations can significantly impact accuracy of final emissions
output. For example, during the period the availability of data
relating to Scope 3 category "Purchased goods and services" was
low.
-- The specificity of the emission factors used to convert data
into related emissions can also impact validity of final emissions
output.
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 investment manager defines the different data points used
as:
1) "Real data"
a. "Actual activity data". This is real activity data received
directly from counterparties on activities. undertaken during the
period, for example, litres of fuel used for transport.
b. "Actual spend data". Real spend data received, for example,
money spent on fuel use for transport.
2) "Estimated activity data". Estimated activity data received
directly from counterparties on activities undertaken during the
period, for example estimated litres of fuel used for
transport.
3) "Proxy data". This is data calculated by applying intensity
metrics calculated from other similar solar or wind sites.
a. "Proxy activity data". For example, litres of fuel used for
transport calculated by use of an intensity metric for fuel use
from another site.
b. "Proxy spend data". For example, money spent on fuel use for
transport calculated by use of an intensity metric for money spent
from another site.
The table below shows the split between the defined categories
of data:
Real data Estimated activity data Proxy data
(22.5% total) (52.5% total) (25% total)
---------------------------- ----------------------- ------------------------
Actual activity data = 18.9% 52.5% Proxy activity data = 8%
---------------------------- ----------------------- ------------------------
Actual spend data = 3.6% Proxy spend data = 17%
---------------------------- ----------------------- ------------------------
Quality of data provided
22.5% of total data used to calculate the carbon footprint of
ORIT was "real data". The Investment Manager has high confidence in
the quality of the estimated activity data given the extensive
engagement undertaken with ORIT's suppliers to understand how the
estimates were finalised. Consequently, together with real data,
the investment manager has a high confidence in 75% of the data
points provided.
The remaining 25% of the data points were provided as proxy data
calculated from intensity metrics from other similar sites. Whilst
a recognised approach, assets of a similar size and the same phase
can still have large differences in the scale of its operations.
Consequently, the Investment Manager has low confidence in the
quality of the proxy data used to calculate these emissions.
There is higher confidence in the quality of data for Scope 1
and Scope 2 emission figures compared to the Company's indirect
Scope 3 emissions that arise primarily from the Company's supply
chain. One of the considerable challenges facing every industry and
business is the visibility and quantification of supply chain
emissions, which may require transparency across different regions
and countries. Given the difficulties to capture all emissions, the
Investment Manager is pursuing a more iterative approach to improve
the accuracy of its Scope 3 reporting by collecting more granular
and accurate data for emission hotspots. The Investment Manager
will continue to develop and refine the methodology to capture
these emissions working with external asset managers and O&M
contractors and reduce the reliance on estimated activity data and
proxy data. Improved data quality is likely to impact the share of
categories in Scope 3. However, it is expected the split of
proportions between Scope 1, 2 and 3 will remain largely
similar.
Accuracy of carbon conversions
There are also differences in the levels of confidence held in
the accuracy of carbon emission factors, specifically between the
conversion factors used on activity-based data and spend-based
data. Spend-to-emission conversion factors are considered to be
least accurate and as the Investment Manager determined, the least
conservative. (See below case study for more information).
During the period 20.6% of total data was spend based data. This
included both real spend data and proxy spend data.
Case study comparing activity-data and spend-data
The Investment Manager compared two different approaches for
calculating Scope 3 emissions to determine which was the most
accurate and most conservative.
-- The first approach (the "activity first based approach")
considered all activity data first before resorting to spend data
for activities where activity data was not available. Activity data
used emission factors specific to the stated activity to calculate
emissions and the residual spend data used spend-to-emission
factors.
-- The second approach (the "spend-based only approach") only
considered the spend data provided from the asset's financial year
end accounts and used spend-to-emission conversion factors.
It was found that there was significant variation between the
two approaches across all sites, with a trend of the spend--based
approach under-reporting emissions compared to the activity-based
approach. The Investment Manager determined that Scope 3 emissions
should be reported in line with the activity first-based approach
rather than the spend--based approach. This conclusion was made
because of the lack of specific spend-to-emission conversion
factors that likely impacted accuracy of the conversions and the
lower total emissions calculated under a spend-based approach that
suggested it was the least conservative approach.
The Investment Manager will continue to engage with external
asset managers and O&M contractors and reduce the reliance on
spend data.
Carbon reduction
As the ORIT portfolio grows, it is the Company's aim to reduce
its emissions through stakeholder engagement and proactive
management of its assets, especially for sites under
construction.
The carbon intensity metric reported for ORIT has increased
since last period but remains in line with the reported intensity
of 2020.
2022 2021 2020
--------------- --------------- --------------
8.48 tCO(2) /MW 5.23 tCO(2) /MW 9.6 tCO(2) /MW
--------------- --------------- --------------
These changes 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 increase in carbon intensity from last year can be attributed
to the higher proportion of construction assets held by ORIT
throughout the year compared to last year. 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.
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.
The Company's chosen route for offsetting is through the
purchase of verified carbon units. ORIT's direct emissions were
much higher in 2022 compared to previous years given the high
electricity consumption at Kuslin wind farm and the high carbon
intensity of the Polish grid.
This year, ORIT has purchased a total of 886 carbon units. This
is equivalent to offsetting ORIT's Scope 1 and Scope 2 emissions of
885.24 tonnes of CO(2) .
Securing ORIT's future carbon offsets
ORIT has purchased 400 tonnes worth of carbon in "Pending
Issuance Units". 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" and also to support new
woodland creation in the UK.
A Woodland Carbon Unit ("WCU") is a tonne of CO(2) e 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.
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.
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 400 tonnes worth of CO(2) over the next 32 years. The units
are derived from a "Forest Carbon" project in Acheilidh, Tain,
Highlands. The new native broadleaf woodland is expected to deliver
all 400 tonnes of carbon by 2055 and 75% of its carbon units by
2050. It is expected that Scope 2 emissions will significantly
reduce next period, as the Investment Manager ensures renewable
energy tariffs for ORIT's assets. Given ORIT's projected low annual
direct carbon emissions, the Board expect these 400 units to help
ORIT's Scope 1 and Scope 2 emissions to meet a 2050 net zero
target. 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.
EU Taxonomy for Sustainable Finance
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.
An initial analysis of ORIT's investments against the EU
taxonomy classification suggests that 100% of assets directly
contribute to or enable climate change mitigation.
-- All of ORIT's operational and construction portfolio directly
contribute to climate change mitigation according to the EU
Taxonomy's criteria; "Construction or operation of electricity
generation facilities that produce electricity from wind power or
from using solar photovoltaic (PV) technology."
-- ORIT's investments into development platforms and development
projects (investments into Simply Blue, NorGen and Wind2 pipelines)
are considered enabling activities under the regulation. They
contribute to the "Installation, maintenance and repair of
renewable energy technologies" through their provision of
architectural services, engineering services, drafting services,
building inspection services and surveying and mapping services
involved in the development of their renewable energy projects.
The Investment Manager has undertaken due diligence to confirm
that all of ORIT's investments are in line with the "Do No
Significant Harm" ("DNSH") technical screening criteria for Climate
Change Adaptation, Circular Economy, and Biodiversity. This due
diligence is part of the minimum requirements criteria set out in
the ESG scoring matrix. Environmental objectives for Water and
Pollution Prevention were categorised as not applicable under the
EU Taxonomy criteria for ORIT's investments.
Climate Change Adaptation
Under the criteria for DNSH to climate adaptation, investee
companies are required to identify their material climate risks by
performing a climate risk and vulnerability assessment. Companies
are also encouraged to create adaptation plans which identify
solutions, prioritising those that mitigate the most material
risks. ORIT's approach to climate risks is laid out in its TCFD
disclosure in the Annual Report .
None of the adaptation solutions implemented or proposed would
be expected to adversely affect the adaptation efforts or the level
of resilience to physical climate risks of other people, of nature,
of cultural heritage, of assets and of other economic activities.
The adaptation solutions are also not expected to conflict with
local, sectoral, regional or national adaptation strategies and
plans. Overall, the renewable energy generated via ORIT's
investments is expected to positively contribute to these
adaptation strategies and plans through increased clean energy use
and decreased reliance on emissions-based electricity
generation.
Biodiversity
Under the criteria for DNSH to biodiversity, investee companies
are required to demonstrate protection and restoration of
biodiversity and ecosystems. This involves confirmation that; an
environmental impact assessment or screening has been completed,
that required mitigation and compensation measures suggested have
been implemented and, for areas located in or near biodiversity
sensitive areas, that an appropriate assessment and mitigation plan
has been conducted with necessary mitigations implemented.
Where applicable, all of ORIT's investments adhere to this
criteria. ORIT considers potential adverse impact on biodiversity
as a key ESG risk during the investment cycle, and projects are
required to evidence environmental screening, an impact assessment
and a habitat management plan to pass minimum ESG criteria. The
Investment Manager works closely with ORIT's asset managers to
improve the biodiversity capital of its sites, for example through
the development of best guidance criteria for land management and
also the delivery of additional biodiversity initiatives that go
above the proposed mitigation measures (e.g., wildflower meadows
and pond formation).
Circular Economy
The lifetime of ORIT's investments is expected to be long
(average lifetime of assets in the portfolio is 29 years). It is
typical for renewable energy projects to have a decommissioning
plan in place that encompasses the disposal and recycling of the
waste materials. Many of ORIT's assets' materials can already be
re-used and recycled using current technologies.
For example, the materials that represent the biggest part by
weight of a wind turbine are concrete, steel, and other metals.
Concrete can be crushed into aggregate and re-used in-construction
projects. The steel and other metals in wind turbines are
recyclable and can be re-used domestically within Europe. Whilst
ORIT's investments already align with the generic criteria for DNSH
to the transition to circular economy, we do expect the
recyclability of these parts to increase over the coming years as
more research is conducted on the sustainable disposal of renewable
energy technologies.
The Investment Manager can also confirm that all investments are
in line with the minimum safeguards criteria.
The energy sector (like every other sector) could be subject to
human rights abuse that needs to be mitigated and the Investment
Manager ensures appropriate due diligence is performed, and that
human rights, equality, anti-bribery and corruption, taxation, and
fair competition policies and/or processes are in place for
portfolio companies and service providers alongside the Investment
Manager's own policies and processes. This ensures that investments
are aligned with the OECD Guidelines for Multinational Enterprises
and the UN Guiding Principles on Business and Human Rights,
including the principles and rights set out in the eight
fundamental conventions identified in the Declaration of the
International Labour Organisation on fundamental Principles and
Rights at Work and the International Bill of Human Rights. This is
primarily achieved by only working with suppliers who align to a
supplier code of conduct.
All of ORIT's investee companies align to a supplier code of
conduct and we can confirm for each investee company that:
-- there is no clear indication that the investee company does
not adequately implement human rights due diligence resulting in
human rights abuses (the Company nor its top management has not
been convicted on a breach of human rights due diligence laws, the
Company has not been approached by an OECD NCP or been involved in
an allegation on the Business and Human Rights Resource Centre
digital platform).
-- the Company has not been finally convicted for tax evasion or
for breaking competition laws.
-- the senior management of investee companies have not been finally convicted of bribery.
Alignment Overview:
Revenues GBP111.5m 100% Aligned 0% Not Aligned 0% Not Eligible
CapEx GBP209.7m 100% Aligned 0% Not Aligned 0% Not Eligible
OpEx GBP35.0m 100% Aligned 0% Not Aligned 0% Not Eligible
Planet initiatives
Maximising the Company's positive contribution to the
environment is core to the Impact Strategy. Planet initiatives
contribute to solutions to combat climate change. Projects
undertaken in the period are outlined in the table below.
Project Outcome
---------------------------------------------------------------------- ----------------------------------------------
Land Management: Enhanced engagement A key focus area that the Investment
with Landowners as well as Asset Managers Manager tasked the Asset Manager
and Operations & Maintenance (O&M) of the UK solar sites with was the
contractors to ensure continued improvements enhancement of their engagement with
to ESG land management practices. the Landowners of ORIT's sites. Improved
Stakeholder management with the Landowners
has many benefits including; the
avoidance of lease issues, access
to local knowledge of the site for
management, the promotion of local
economy and jobs through their involvement
in site management and also increased
landowner engagement on the biodiversity
enhancement projects that ORIT proposes.
Please see case study for more information.
Stakeholder Engagement
---------------------------------------------------------------------- ----------------------------------------------
Rewilding: Continued partnership with Following on from 2 successful projects
SUGi, an organisation that "brings in 2021, ORIT has funded another
people closer to nature" by planting pocket forest in France (Agora Forest),
richly biodiverse pocket forests. More and a further two in Cornwall bringing
information on ORIT's partnership can ORIT's pocket forests to a total
be found here: of 5. Please see case study for more
https://www.sugiproject.com/partnerships/octopus-renewables information.
Sustainable Momentum
Stakeholder Management
Innovation
---------------------------------------------------------------------- ----------------------------------------------
Conservation and local youth partnership: In September, an educational and
Ecologist company in charge of ORIT's biodiversity programme started at
solar farm's reptilian shelters partnered ORIT's French Solar site, Cuges--les-Pins
with a local youth organisation to in partnership with AGIR ecologique
teach them about biodiversity. (the organisation currently responsible
for the maintenance of the 5 reptile
shelters on site) and ADDAP13 (an
association focused on economic integration
of excluded young people into society).
Cuges-des-pins has 5 reptilian shelters.
The local youth association ADDAP13
volunteered some of its members to
learn about and participate in the
maintenance of the reptile shelters.
A group (6 teenagers and 2 supervisors)
accompanied a member of AGIR écologique
to refurbish the reptile shelters
and the plant 30 shrubs on site.
ORIT plans to continue to volunteer
its sites for these types of educative
experiences on biodiversity conservation
management.
Innovation
---------------------------------------------------------------------- ----------------------------------------------
Case Study:
Propagating pocket forests with SUGi
The Investment Manager continues to develop its partnership with
SUGi to plant pocket forests across Europe and the UK. SUGi helps
deliver ecological restoration projects around the world. SUGi
"Forest Makers" follow a Japanese technique called the Miyawaki
Method to create ultra-dense, biodiverse forests of native species.
SUGi has a strong community focus, involving organisations, schools
and communities in the planting and maintenance of the projects.
Their biophilic approach brings nature closer to people, helping to
educate communities of the importance of biodiversity and inspiring
the next generation to take a more active stance in its
restoration.
ORIT has now planted a total of 5 pocket forests made up of 63
different species of trees across the UK and in France. With over
7,725 new trees planted, ORIT is making significant contributions
in restoring biodiversity in these biodiversity--barren areas.
Through this initiative ORIT is channelling capital into nature
related projects and ensuring that opportunities are taken to use
space more intelligently to maximise ecological benefit.
This case study re-visits some of the forests planted last year
(Castle Green Forest II, UK and Rion Des Landes College, France)
and introduces the new "Agora" pocket forest planted in
Bezange-La-Petite in France and the two pocket forests planted in
Cornwall, UK.
Castle Green Forest II Project:
An urban forest to mitigate pollution and bring biodiversity
1,400 400 24 160cm
Trees Square meters Native species Average of tallest
3 trees
Field Notes
"This forest is doing well at 1 years old, having adapted well
to the exposed conditions in the park, and is bringing a visible
change to this former biodiversity desert. The sounds of bugs and
birds can be heard as you stand by the forest, a welcome
counterbalance to the busy traffic of the Ripple road nearby."
Rion Des Landes College Project:
Cultivating greenery and tranquillity for children in a treeless
environment.
600 200 29 125cm
Trees Square meters Native species Average of tallest
3 trees
Field Notes
This forest is thriving at 1 year old - both in terms of its
growth and its impact on the Rion des Landes College community. The
pocket forest has an exceptional survival rate of 98%, particularly
considering the summer heatwave and drought of this year. The
tallest species is currently the chestnut tree (Castanea sativa).
Flat mushrooms are growing around one of the hazeltrees (Corylus
avellana), a sign of important initial fungal colonisation in the
soil. 180 children at the school have been involved in the
maintenance of the forest.
Agora Forest, Bezange-La-Petitie:
Reviving a pocket in a vast sea of agriculture.
The Agora Forest was planted over 3 days on the edge of
Bezange-La-Petite, reviving a pocket of land that had become a
biodiversity desert surrounded by intensively-managed agricultural
land.
4,500 trees were planted over 1,500 sqm, involving 180 local
volunteers of which 115 were children. It was a true 'community'
planting; volunteers of all ages attended. Many local families got
involved, as did the local school who sent four classes out to
plant. There was a BBQ and hot drinks organised by a local team,
which contributed to the community feel and made it a particularly
joyful event.
30 native species were planted including the small-leaved lime
(Tilia cordata), field maple (Acer campestre) and silver birch
(Betula pendula). Agora Forest will be a vibrant community hub;
including pathways and seating areas so that locals, young and old,
can socialise, learn and enjoy the restorative benefits of nature.
Agora Forest aims to set an example for other communities in the
region, both urban and rural, highlighting the immense
environmental, health, social and wellbeing benefits of such a
project.
Trevisker Forest and St Kew's Forest, Cornwall:
Restoring endangered temperate rainforests.
Trevisker Forest and St Kew's Forest will provide outdoor
classrooms for the children of Trevisker and St Kew's Primary,
small schools in rural Cornwall. The projects create critical
pockets of temperate rainforest, a now fragmented and rare
ecosystem that once predominated along the west coast of the UK. It
thrived thanks to the Gulf Stream, which provides mild, damp
conditions that are ideal for rainforest biodiversity to flourish.
These forests will forge a connection between hundreds of school
children and nature, supporting their wellbeing along with that of
the planet.
1,225 trees were planted over 350 sqm, involving 180 local
children from the schools. It was a great hands-on opportunity for
the school children to learn more about plant growth and the
benefits they provide to human communities.
Impact tracking
Who? How much? What? Impact Theme
1 Planet 5 forests 63 native species Sustainable momentum
London, UK 495 children planted using the Innovation
Cornwall, UK 7,725 trees Miyawaki method Stakeholder Engagement
Rion Des Landes, France 2,450 square meters Pollution mitigation
Bezange-La-Petite, Biodiversity enhancement
France Education
Case Study:
Stakeholder Management Landowner case study
The Investment Manager treats maintaining good Landowner
relationships on sites under their management as a top priority. As
ORIT's Asset Managers to its UK solar portfolio, Quintas Energy's
Land & Property team have been tasked with enhancing Landowner
engagement on sites in 2022. The objective of this engagement was
to improve communication between site stakeholders, to benefit from
Landowner's local knowledge for site management and to engage them
on upcoming biodiversity enhancement schemes.
We are pleased to report that Quintas have successfully
established working relationships with the landowners on ORIT
sites, including Penhale, Chisbon, Wiggin Hill, Ottringham and
Ermine Street. Several site meetings with the landowners have been
conducted through the course of the year with positive results. A
good example of successfully enhancing the relationship with the
Landowner is Chisbon. Quintas have had two formal meetings with the
Landowner followed by phone calls and email exchanges. The
Landowner has permitted bees to be located on site, assisting with
appropriately locating the hives and now in 2023, wishes to become
involved in further biodiversity enhancement projects. As the
landowner is also the grounds maintenance contractor on the site,
he will be key in ensuring the management and future success of
site initiatives. The benefits of having a working partnership with
Landowners are plentiful enabling "multi-use" of sites and this has
been fostered through dedicated resource as part of the ORIT's fund
daily asset management service.
Who? How much? What? Impact Theme
ORIT Landowners 5 solar sites Enhanced Stakeholder
Landowner Engagement
relationship and
improved site
management
UN SDG specific contributions
www.un.org/sustainabledevelopment/
7 Affordable and clean 7. Affordable and clean energy
energy 7.2 & 7a - Increase renewable energy in the mix and
stimulate investments into the renewable sector:
Provided renewable energy to the grid and provided
renewable investment opportunities. Construction underway
to add renewable energy capacity.
-------------------------- --------------------------------------------------------------
12 Responsible Consumption 12. Responsible Consumption & Production
and Production 2.4 & 12.2 - Promote proportion of areas under sustainable
agricultural practices and promote sustainable management
and efficient use of natural resources:
Partnerships with landowners, local beekeepers and
local shepherds to take advantage of the empty spaces
of solar farms for their agricultural use and to optimize
biodiversity on site.
-------------------------- --------------------------------------------------------------
15 Life on Land 15. Life on Land
15.1 & 15.5 Conserve ecosystems and threatened species
and take action to reduce the loss of biodiversity
and degradation of habitats:
Threatened and non-threatened species monitored through
ecological surveys and biodiversity plans. Additional
biodiversity initiatives implemented beyond planning
requirement. Biodiverse pocket forests planted in partnership
with SUGi to restore native biodiversity in urban areas
and biodiversity-barren areas.
-------------------------- --------------------------------------------------------------
www.un.org/sustainabledevelopment/
People
Impact Objective: Evaluate social considerations to mitigate
risks and promote a 'Just Transition' to clean energy.
396 7,536 1
direct beneficiaries from RIDDORS (or equivalent)
Students benefitting the projects funded through
from social initiatives the BizGive platform.
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
-- Social licence
-- Local employment
-- Diversity and inclusion
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
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.
Lost time injuries Minor equipment
RIDDORs (>7 days) Near misses Personal injuries damage incidents
------- ------------------ ----------- ----------------- -----------------
1 0 12 2 11
------- ------------------ ----------- ----------------- -----------------
In the period of this annual report, there were zero lost time
injuries (> 7 days), two personal injuries and one RIDDOR across
the portfolio. The first personal injury related to an operative
working on the Cumberhead wind construction site in Scotland using
a remote-control crane who tripped on a load awaiting lifting and
cut his knee. The injury was minor and was first aid treated on
site and he returned to work.
The second personal injury related to an operative working on
the Lincs offshore wind project (in which ORIT holds a minority
stake). The injured party was working on a turbine, caught his foot
and fell, cutting his knee. The injury was minor, and the affected
person was able to return to work. The RIDDOR related to the
statutory reporting of a 'dangerous occurrence'; an electrical fire
caused by a short-circuit in an inverter leading to the generating
station Abbots Ripton Solar Farm to come offline for >24h.
Nobody was hurt and there has been no follow-up from the HSE.
Furthermore, there were 12 near misses, 11 incidents causing
minor equipment damage only and 0 environmental incidents. All
incidents have been satisfactorily closed out and where appropriate
lessons learned. Each incident generated an incident report which
was audited and closed by the appropriate director.
Promoting a "Just Transition"
Just Transition refers to the movement that encourages wider and
fairer distribution of benefits as the world switches to clean
energy.
ORIT actively engages with local communities, workers and
customers and favours investments where there are opportunities to
give fair access to affordable green energy, to share benefits with
the community and to create local jobs. ORIT aims to give local
communities a voice on projects in support of creating a Just
Transition.
Workers - Job Creation
ORIT's partners and subcontractors commit to standards promoting
equal opportunities, ensuring workplace best practice standards are
upheld and encouraging diversity and inclusion. By doing so, ORIT
aims to increase social economic distribution and equity throughout
the job opportunities it creates. The Investment Manager engages
key counterparties to understand what schemes they already have in
place, and encourages the use of local labour (roughly within 30km
radii of sites) on construction sites.
Community - Engagement and giving a voice
ORIT has committed to demonstrating a tangible benefit to the
local communities of each of its portfolios. The Investment Manager
is exploring other ways to give communities nearby a say in the
transition. This may be through sharing profits via community
benefit schemes, creating educational opportunities for local
schools via workshops and site visits or providing funding for
local charities that are fulfilling a need in the local area. As
the portfolio continues to grow, ORIT's impact partnerships will
help ORIT reach and create lasting impact for a broader range of
beneficiaries. Applicability of community initiatives will be
determined on a portfolio-by-portfolio basis. By engaging
communities and local stakeholders early on, ORIT is also ensuring
that social licence is generated for our investments, in particular
where the Company looks to extend the years an asset can operate
for.
Customers - Affordable green energy
ORIT provides clear benefits to wider society through the
provision of cheaper, cleaner energy to the grid. This will help
reduce energy bills and also improve energy security in the
countries where ORIT's assets are located. In the past year, ORIT's
assets have helped power an equivalent of 270,500 homes.
This year, ORIT has also focused on providing additional support
via fuel poverty charities and organisations, to help individuals
suffering under fuel poverty. See case study for more
information.
ORIT also supports projects that improve socio-economic
distribution and equity more widely through the organisations it
partners with through BizGive. For example, ORIT is working with
Generation to deliver Green Retrofit Workshops. Generation is a
charity that runs employment programmes to prepare, place, and
support people into life-changing careers that would otherwise be
inaccessible to them.
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
third-party providers approach to diversity and inclusion and
suggesting ways to improve this where possible.
The Company's Board is made up of a complementary mixture of
backgrounds with a gender composition of an equal 50/50 split
between men and women, in line with the view that gender diversity
delivers better company performance than if the Board was dominated
by one gender. The Board is seeking to appoint a fifth Director to
the Board to bring a senior operational perspective and to improve
its ethnic representation. The Board is committed to ensuring that
its composition reflects ethnic diversity, and it is looking to
make meaningful progress on this front through this appointment. It
welcomes applications from everyone regardless of age, gender,
ethnicity, sexual orientation, belief or disability. All
appointments will be made on merit, following a fair and
transparent process.
The Investment Manager shares ORIT's values and places diversity
and inclusion at the heart of them, and this is demonstrated
through the initiatives implemented. The Investment Manager
provides directors to the underlying subsidiary companies and
ensures diversity is considered when appointing them.
Further detail can be found in the Impact Strategy.
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.
Projects
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.
Project Outcome
--------------------------------- ------------------------------------------------------
Social Supply Chain Analysis: The Investment Manager has developed a strong
Developing robust methodology Modern Slavery Policy and Panel procurement
to mitigate supply chain policy to help mitigate the risks of modern
modern slavery risk. slavery in the global solar supply chain. See
case study for more information
Equality & Wellbeing
--------------------------------- ------------------------------------------------------
Local Community Education Preparatory work is underway for more site visits
Initiatives: ORIT continues and workshops for communities. These projects
its partnership with Earth are expected to be carried out in the Spring
Energy Education and the and Summer months of 2023.
Good Bee Company to deliver Stakeholder Management
school visits, workshops Equality & Wellbeing
and webinars.
--------------------------------- ------------------------------------------------------
Fuel Poverty: Fighting ORIT has supported charities and organisations
fuel poverty through investment that provide vulnerable people with fuel poverty
into renewables and partnership support. See case study for more information.
with fuel poverty charities. Sustainable Momentum
Innovation
Stakeholder Management
Stakeholder Engagement
--------------------------------- ------------------------------------------------------
Just Transition through ORIT has granted a total of GBP70k to charities
BizGive organisations: further and community interest groups that have applied
collaboration, engagement for funding on ORIT's BizGive Programme. Projects
and impact, aligned to the supported drive STEM learning, climate action,
UN's SDG framework and ORIT's biodiversity conservation, and community renewables.
impact objectives. Innovation
Equality & Wellbeing
--------------------------------- ------------------------------------------------------
Case Study:
Tackling fuel poverty in times of crisis
Rising gas prices, low incomes and energy-inefficient homes are
leading more and more people across Europe into the grip of fuel
poverty. As society navigates through these challenging times, ORIT
is well positioned to contribute to solutions. By channelling
capital towards sustainable outcomes that mitigate climate change
ORIT is also contributing to European energy security, and to
preventing future energy crises resulting from reliance on
unsustainable global fossil fuel markets. As laid out in ORIT's
Impact Strategy, ORIT also incorporates social benefits in all its
investments. Given the challenging back drop of the energy crisis,
the ORIT Board decided to commit a significant proportion of its
additional impact fund to support charities focused on tackling
fuel poverty during the period.
Green Doctors, Groundwork:
ORIT has made a donation of GBP12.5k to Green Doctors to help
upskill some of their project officers to "Green Doctors" across
England and Wales, particularly in North East, North West, West
Midlands, South Wales and London. Green Doctors offer free and
impartial energy advice across the UK to help residents reduce
their energy bills, improve their wellbeing, and save energy for
example through draught proofing.
The increase in cost of living and energy price cap are deeply
affecting vulnerable households, and Groundwork continues to move
quickly to meet this demand. ORIT's funding has also been allocated
to facilitate more senior upskilling for experienced Green Doctors
so that they can deliver full retrofitting assessment and
coordination. ORIT is helping to create lasting positive impact in
these regions, with this funding supporting the upskilling of
around 12 Green Doctors--each delivering an upwards of 500 visits a
year. On average the households they visit save GBP350 a year. With
the average annual shortfall that places a household into fuel
poverty being GBP333, the Green Doctor service is effectively
lifting thousands of households out of fuel poverty every year.
Energie Solidaire:
ORIT has made a EUR12.5k donation to Energie Solidaire's
Endowment Fund. Energie Solidaire supports local associations
across France who in turn try to lift the most vulnerable
households out of fuel poverty. The organisation's commitment
committee selects the charity groups that are likely to make the
most impact and works with them over a couple of years. Typical
charities selected to take part include those that carry out minor
renovation projects on energy inefficient homes and provide energy
advice. ORIT's donation will be distributed to the charities by
Energie Solidaire in the coming year.
Zink Energy Advice and Support:
ORIT has made a GBP2,900 donation to Zink. Zink is a community
organisation that provides services to people and families in the
rural Highpeak and Derbyshire Dales areas of the UK. Their holistic
approach to supporting people towards better futures focuses on
long-term resolutions rather than short-term quick fixes. Their
services are tailored to the specific needs of the individual and
can range from the provision of emergency food parcels to access to
energy advice workers, work coaches and wellbeing activities.
ORIT's contribution has gone towards the delivery of 160 energy
advice appointments, providing 160 individuals with the tools they
need to step out of energy poverty. A portion of these individuals
may seek further help from Zink's work coaches, food banks and
wellbeing services but it is expected that 140 issues will be
resolved in the long-term, removing the demand of Zinc's emergency
food parcels.
Home Energy for New Scots, The Welcoming:
ORIT has made a GBP9,524 donation to The Welcoming's "Home
Energy for New Scots Project". This project aims to tackle and
prevent fuel poverty and associated risks by providing energy
advice and support to "New Scots" (refugees, asylum seekers and
migrants) in Edinburgh. The Welcoming currently has over 1500
registered members who regularly attend activities - with an
average of 160 new registrations every month. Their service users
come from all over the world with the top 7 nationalities being:
Syrian, Ukrainian, Afghan, Chinese, Sudanese, Polish and Spanish.
Upon arrival in Edinburgh, they face significant language, cultural
and financial barriers to social and economic integration. ORIT's
donation has been allocated to support over 6 months' worth of
weekly energy advice surgeries and one-to-one appointments, helping
project participants to control their energy consumption, access
financial support and adopt behavioural changes that will improve
the energy efficiency of their homes.
To all the staff and volunteers at Zink, I just want to let you
know how grateful I am to you all for all your hard work and help
you have given me since I started coming to Zink over six months
ago. I just wished I'd started coming sooner. Some people don't
realise how lucky we are to have Zink to fall back on in bad
times."
A Zink Energy Advice and Service client
Impact tracker
Who? How much? What? Impact Theme
People in fuel poverty, GBP25k Energy advice Sustainable momentum
refugees, asylum seekers EUR 12.5k Renovation works Innovation
and migrants Fuel poverty packages Stakeholder Engagement
Wellbeing services
Long-term support
Case Study:
Human Rights in the Supply Chain
ORIT is committed to acting ethically and with integrity in all
its business dealings and relationships. ORIT recognises its
responsibility specifically with regard to its supply chain and the
Investment Manager is dedicated to taking the necessary steps to
engage with and influence its supply chain to prevent any potential
risks relating to human rights.
The solar sector could present a significant risk due to its
connections to forced labour violations at the polysilicon level of
its supply chain. The lack of traceability and transparency at this
level of the global supply chain and the surrounding geopolitical
challenges has lead the Investment Manager to develop a tailored
risk management strategy to mitigate risks and build a more
resilient supply chain for ORIT. The Investment Manager's goal is
to eliminate this risk through increased transparency in the supply
chain enabling evidence-based purchasing decisions and through
actively engaging, lobbying, and driving change in the solar
industry. As an investor and working with development and
construction partners, ORIT believes that this approach will help
influence what is considered acceptable in the industry and lead to
meaningful improvements in global solar supply chain
sustainability.
Investment manager actions for mitigating human right risks:
-- The Investment Manager has put in place a strengthened due
diligence framework made up of ESG-related policies, supplier code
of conducts and due diligence questionnaires to help ensure all
activities and business conducted in ORIT's supply chain seek to be
in line with international labour standards(42) . More information
can be found in the Investment Manager's "Modern Slavery
Statement".
-- The Investment Manager has worked with an external auditing
partner (Clean Energy Associates) to develop a new procurement
policy and an allow/deny list for equipment suppliers. The policy
requires suppliers to provide written confirmations statements as
well as evidence (for example through audits) that their business
practices do not support forced labour. As co-authors of the Solar
Energy Industries Association's ("SEIA") Traceability Protocol,
Clean Energy Associates is well placed to carry out ORIT's auditing
requirements.
-- The Investment Manager is working to promote collective
action from the industry by working on collaborative initiatives to
increase traceability and responsible production of solar products.
Given the systemic nature of the issue, efforts from industry
bodies, regulators, expert advisors, NGOs as well as from ORIT's
suppliers will be required to fully address the risks. The
Investment Manager has been a long-term supporter of and sponsor of
Solar Energy UK's and Solar Power Europe's Solar Stewardship
Initiative, formally launched to the public in October 2022. This
initiative works with stakeholder input from across the sector to
establish new and improved standards for the solar supply
chain.
For more information see:
https://a.storyblok.com/f/154679/x/f6a5ac9c32/oegen_modern_slavery_statement_092022.pdf
https://www.cea3.com/traceability-audits-for-pv-energy-storage
https://solarstewardshipinitiative.org/
(45) For example the labour standards laid out in the UN Global
Compact, the UN Guiding Principles for Business and Human Rights
and the OECD Guidelines for Multinational Enterprises.
UN SDG specific contributions
4 Quality Education 4. Quality Education
4.1 & 4.7 - Provide free, quality education leading
to relevant and effective learning outcomes that
can also promote sustainable development:
Partnership with the Good Bee Company and Earth
Energy Education to provide free education programmes
and site visits to local schools. Funding of multiple
charities through BizGive supporting projects that
drive STEM learning, climate action, biodiversity
conservation, and community renewables.
-------------------------- -------------------------------------------------------
8 Decent Work and Economic 8. Decent Work and Economic Growth
Growth 8.5 - Provide full and productive employment and
decent work for all:
Extensive Health and Safety measures ensures employees
are not exposed to risk. Supply chain analysis
and strengthened policies to ensure labour rights
upheld across ORIT's suppliers.
-------------------------- -------------------------------------------------------
www.un.org/sustainabledevelopment/
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, 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 twice
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 Board effectiveness and
compensation, contractor default and trading at a discount to NAV.
The Audit and Risk Committee has also deemed that the risks
associated with the UK Trade Deal are no longer significant to
classify as a principal risk to the Company.
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 The revenue and expenditure Inflation and interest rate
and interest of the Company's investments assumptions are reviewed and
rates are frequently partially index-linked monitored regularly by the AIFM
and therefore any discrepancy and the Investment Manager in
with the Company's inflation the valuation process. Assumptions
expectations could impact positively are set by the Valuations Consistency
or negatively on the Company's Group and valuations approved
cashflows. by the AIFM.
Changes in interest rates may It is expected that a natural
affect the valuation of the hedge may occur where higher
investment portfolio by impacting interest rates are also accompanied
the valuation discount rate by higher inflation rates due
and could also impact returns to subsidies being inflation
on cash deposits and the cost linked.
of borrowing. The Company can utilise interest
In the event that actual inflation rate swaps or fixed rate financing
differs from forecasts or projected to mitigate interest rate risks.
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.
----------------- ---------------------------------------- -----------------------------------------
Foreign currency The Company's functional currency The principal mitigation is
is Sterling, but some of the through the Company's hedging
Group's investments are based policy which seeks to minimise
in countries whose local currency the volatility of cash flows
is not Sterling. in non -- GBP currencies. The
Therefore, changes in foreign RCF can also be drawn in multiple
currency exchange rates may currencies to allow the matching
affect the value of the investments of debt and the underlying assets.
due to adverse changes in currencies. 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 The Company's investments in The Company holds a diversified
policy changes Renewable Energy Assets are portfolio of Renewable Energy
remunerated by both government Assets and so it is unlikely
support schemes and private that all assets will be impacted
PPAs - the terms of these may equally by a change in legislation.
be impacted by government changes There is also strong public
or policy or even terminated demand for support of the renewables
in certain circumstances. This market to hit "net zero" carbon
would adversely impact the emission targets.
value of the Company's investments.
----------------- ---------------------------------------- -----------------------------------------
Geopolitical Events in Ukraine and the impact The Investment Manager undertakes
risks of sanctions placed on Russia extensive due diligence on all
and affiliated countries may counterparties prior to conducting
impact the target returns of business with them and will
the Company. fully comply with all sanctions.
The Company engages third-party As part of this review, all
contractors to oversee the counterparty due diligence has
day to day operations of the been reviewed and confirmed
assets. If any of these contractors that the Group's current counterparties
are impacted by the events are not materially impacted
in Russia and Ukraine, or by by recent events or by the new
the current sanctions imposed sanctions.
on Russia, this may impact The Investment Manager will
the performance of the assets, remain agile to the changing
and ultimately the target returns geopolitical environment and
of the Company. will continue to evolve and
Assets located in nearby jurisdictions reassess appropriate mitigation
may be impacted by the conflict. strategies.
The conflict may lead to increased Mitigations for power prices
volatility of power prices as well as for cyber security
and hence valuations. Heightened are described below.
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.
----------------- ---------------------------------------- -----------------------------------------
Risks associated Climate related risks relate The Investment Manager is actively
with climate to transition risks and physical engaging with third party advisors
change risks. on how climate related risks
The prominent transition risk are being modelled in long-term
relates to oversupply of renewables power price forecasts. There
over time, which may cause are likely to be opportunities
downward pressure on long-term associated with the transition
power price forecasts setting to a low carbon future including
lower capture prices, including growth in the market, government
the risks associated with periods interventions and technology
of negative power prices and advancements that could counterbalance
power price volatility. This the transition risks of climate
could ultimately lead to a change on the Company.
shortfall in anticipated revenues The Board and the Investment
to the Company. Manager periodically assess
The prominent physical risks the Company's portfolio of assets
relate to long -- term changes for potential transition risks
to weather patterns, which within the jurisdictions that
could cause a material adverse it currently operates. The Investment
change to an asset's energy Manager works with third-party
yield from that expected at asset managers to ensure an
the time of investment. appropriate level of equipment
Physical risks associated with spares to minimise downtime
acute and chronic temperature associated with damaged equipment.
change could lead to flooding, There is growing demand for
storms, and high winds. This consistent, comparable, reliable,
could damage equipment and and clear climate related financial
force operational downtime disclosure from many participants
resulting in reduced revenue in financial markets. The Board,
capability and profitability AIFM and Investment Manager
of the portfolio of assets. have included TCFD as part of
the Company's 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 The Company has an experienced
pipeline may impact the ability Investment Manager with good
to commit and deploy capital presence and strong relationships
into suitable opportunities in the renewables market. The
in the expected time frame. investment mandate is diversified
Competition in the infrastructure giving a broad landscape of
market remains strong which opportunities.
could limit the ability of The Board and Investment Manager
the Company to acquire assets oversee the investment pipeline
in line with target returns and abort exposure and frequently
or incur abort costs where monitor its progress in relation
transactions are unsuccessful. to Company targets.
Both deployment risks could
ultimately impact shareholder
returns.
-------------------- ------------------------------------------ ------------------------------------------
Reliance on The Board has contractually Each contract was entered into
third-party delegated to third-party service after full and proper consideration
service providers providers day to day management of the quality and cost of services
of the Company. A deterioration offered, including the financial
in the performance of any of control systems in operation
the key service providers including in so far as they relate to
the Investment Manager, AIFM the affairs of the Company.
and Administrator could have All of the above services are
an impact on the Company's subject to ongoing oversight
performance and there is a by the Board and, where applicable,
risk that the Company may not the AIFM and the performance
be able to find appropriate of the key service providers
replacements should the engagement is reviewed on a regular basis.
with the service providers The Board, through the Management
be terminated. 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 The Investment Manager has significant
of assets is based on financial experience in the valuation
projections and estimations of renewable assets and conducts
of future results. Actual results a quarterly valuations process.
may vary significantly from The AIFM has a valuations committee
the projections, which may separate to the Investment Manager
reduce the profitability of to provide valuations consistency
the Company leading to reduced on macro assumptions and to
returns to shareholders. 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 ESG is embedded in the investment
such as slave labour in the cycle with a formal ESG matrix
supply chain, health and safety, including a minimum target ESG
unfair advantage, bribery, score required for approval
corruption and environmental of any new investments. Ongoing
damage. If the Company fails operational and construction
to adhere to its public commitments ESG risk management is reviewed
as stated in its ESG Policy periodically by the Investment
and Impact Strategy, this could Manager, who work closely with
result in shareholder dissatisfaction service providers on ESG and
and adversely affect the reputation impact standards reporting.
of the Company. ESG Policy signed off and reviewed
by the Board.
-------------------- ------------------------------------------ ------------------------------------------
Conflicts The appointment of the AIFM The AIFM and Investment Manager
of interest is on a nonexclusive basis have clear conflicts of interest
and each of the AIFM and Investment and allocation policies in place.
Manager manages other accounts, Transactions where there may
vehicles and funds pursuing be potential conflicts of interest
similar investment strategies are overseen by the Investment
to that of the Company. This Manager's conflicts committee,
has the potential to give rise an independent fairness opinion
to conflicts of interest. on valuation is commissioned,
Board and counterparties conflicts. 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 Inappropriate or inadequate The Broker and Investment Manager
and compensation Board composition left unidentified were involved in the initial
through a poor Board evaluation selection of the Board. The
process could lead to poor Nomination Committee is responsible
decision making and adversely for ongoing monitoring of Board
affect the reputation of the composition. Board effectiveness
Company or result in a financial is also reviewed externally
loss. every 3 years.
Board compensation structures External benchmark surveys are
may encourage risk taking that undertaken on Board remuneration
is not aligned to Company strategy via the Remuneration Committee
and risk appetite or may lead and ratified at the Annual General
to an inability to retain knowledgeable Meeting.
Board members.
-------------------- ------------------------------------------ ------------------------------------------
Trading at The Ordinary Shares may trade The Company's Broker monitors
a discount at a discount to NAV and shareholders the market situation and reports
to NAV may be unable to realise their regularly on the status, along
investments through the secondary with demographics and changes
market at NAV which could lead in shareholder register. Regular
to a loss of market confidence shareholder communications and
in the Board and/or Investment marketing roadshows undertaken
Manager. to ensure updated information
A failure to adapt to changing is available to the market/shareholders.
investor demands could reduce The Board has put in place a
the demand for shares and widen discount control policy and
the discount further. 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.
-------------------- ------------------------------------------ ------------------------------------------
Cyber security Attempts may be made to access Cyber security policies and
the IT systems and data used procedures implemented by key
by the Investment Manager, service providers are reported
Administrator and other service to the Board and AIFM periodically
providers through a cyber-attack to ensure conformity. The Investment
or malicious breaches of confidentiality Manager has a robust 3 lines
that could impact the Company of defence risk model in place
reputation or result in financial in place to implement, check
loss. 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 The Investment Manager has a
Company's investments may be specific Energy Markets Team
adversely impacted by changes that monitors energy price forecasts
in the prevailing market prices and puts in place mitigating
of electricity and prices achievable strategies. This could be through
for off-taker contracts. There the use of short-term PPA contracts
is a risk that the actual prices to fix the electricity prices
received vary significantly where possible, or to hedge
from the model assumptions, the exposure of fluctuating
leading to a shortfall in anticipated electricity prices through derivative
revenues to the Company. 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 The Investment Manager monitors
associated with the risk of construction carefully and reports
inaccurate assessment of a frequently to the Board and
construction opportunity, delays AIFM. The Investment Manager
or disruptions which are outside undertakes extensive due diligence
the Company's control, changes on construction opportunities
in market conditions, and the and has in place clear approval
inability of contractors to processes for any material construction
perform their contractual commitments cost overruns and contingency
could impact Company performance. spend.
------------------ --------------------------------------- -----------------------------------------
Development Development project risks associated The Company's maximum exposure
with delays, increases in costs to development is limited to
or ultimate failure to deliver 5% of GAV.
the expected assets to construction The Investment Manager monitors
ready status. 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 Circumstances may arise that The Company's experienced Investment
risks, including adversely affect the performance Manager oversees and manages
production of the relevant renewable energy asset and site level issues.
and HSE risks asset. These include health Third-party O&M contractors
and safety, grid connection, are engaged to carry out regular
material damage or degradation, preventative maintenance and
equipment failures and environmental a level of spares is maintained
risks. 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 In the current economic climate, The Company and the Investment
default risk there is also an increased Manager will seek to mitigate
risk that service providers the Company's exposure to contract
default on their contractual default risk through carrying
obligations or suffer an insolvency out qualitative and quantitative
event. 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 Failure to comply with any The Board monitors compliance
with FCA, Listing relevant regulatory rules including and regulatory information provided
Rules, UK AIFM Section 1158 of the Corporation by the Company Secretary, the
Directive, Tax Act, the rules of the FCA, AIFM and Investment Manager
MAR and investment including the Listing Rules on a quarterly basis and the
trust eligibility and the Prospectus Rules, Companies assessment of regulatory risks
conditions Act 2006, MAR, UK AIFM Directive, forms part of the Board's risk
Accounting Standards, GDPR management framework. All parties
and any other relevant regulations are appropriately qualified
could result in financial penalties, professionals and ensure that
loss of investment trust status, they keep informed with any
legal proceedings against the developments or updates to the
Company and/or its Directors legislation.
or reputational damage.
-------------------- -------------------------------------- -------------------------------------
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 The Board monitors debt covenants,
with borrowing The Company's investment policy gearing limits appropriate to
can impact involves the use of long-term the Company and reviews any
on Company and short-term debt. The use debt facilities before financial
performance of leverage may increase the close. Portfolio allocations
volatility of the Net Asset are monitored on an ongoing
Value, may significantly increase basis by the AIFM to ensure
the Company's investment risk compliance with borrowing policy
and could lead to an inability and limits stated in the investment
to meet financial obligations. policy.
The Company may be unable to The Company has the ability
obtain borrowing facilities to enter into hedging transactions
at appropriate levels impacting in relation to interest rates
returns. for the purpose of efficient
Risks include refinancing risk, portfolio management to protect
covenant breaches, poor management the Company from fluctuations
of assets and liabilities, of interest rates. Read more
over-gearing and possible enhanced above in interest rate, currency
loss on poor performing assets. and power price risks.
----------------- ------------------------------------ -------------------------------------
The Board are of the opinion that these are the principal risks,
but mindful of their obligations under the changes made to the AIC
Code of Corporate Governance issued in February 2019, the Board has
also considered emerging risks which may impact the forthcoming
six-month period. There are no additional risks to note as a result
of this review.
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
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.
Governance
Oversight and management of climate-related risks and
opportunities is integrated within the Governance framework of the
Company, illustrated in the diagram below.
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
28 March 2023
Financial Statements
Statement of Comprehensive Income
Year ended 31 December Year ended 31 December
2022 2021
---------------------------- ----------------------------
Revenue Capital Total Revenue Capital Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------- ----- -------- -------- -------- -------- -------- --------
Investment income 4 40,307 - 40,307 31,829 - 31,829
Movement in fair value
of investments 9 - 37,603 37,603 - 8,561 8,561
----------------------- ----- -------- -------- -------- -------- -------- --------
Total net income 40,307 37,603 77,910 31,829 8,561 40,390
------------------------------ -------- -------- -------- -------- -------- --------
Investment management
fees 5 (4,284) (1,428) (5,712) (3,108) (1,036) (4,144)
Other expenses 5 (1,132) (1,280) (2,412) (851) (584) (1,435)
Net finance income 51 - 51 5 - 5
Net foreign exchange
losses - (1) (1) - (27) (27)
------------------------------ -------- -------- -------- -------- -------- --------
Profit before taxation 34,942 34,894 69,836 27,875 6,914 34,789
------------------------------ -------- -------- -------- -------- -------- --------
Taxation 6 (515) 515 - 312 (312) -
----------------------- ----- -------- -------- -------- -------- -------- --------
Profit and total
comprehensive income
for the year 34,427 35,409 69,836 28,187 6,602 34,789
------------------------------ -------- -------- -------- -------- -------- --------
Earnings per Ordinary
share (pence) - basic
and diluted 8 6.09p 6.27p 12.36p 6.65p 1.55p 8.20p
----------------------- ----- -------- -------- -------- -------- -------- --------
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
2022 2021
Note GBP'000 GBP'000
--------------------------------------------- ---- ------------ ------------
Non-current assets
Investments at fair value through profit
or loss 9 608,799 485,417
--------------------------------------------- ---- ------------ ------------
Current assets
--------------------------------------------- ---- ------------ ------------
Trade and other receivables 10 775 450
Cash and cash equivalents 10,603 93,946
--------------------------------------------- ---- ------------ ------------
11,378 94,396
--------------------------------------------- ---- ------------ ------------
Current liabilities: amounts falling due
within one year
Trade and other payables 11 (1,917) (2,124)
--------------------------------------------- ---- ------------ ------------
(1,917) (2,124)
--------------------------------------------- ---- ------------ ------------
Net current assets 9,461 92,272
--------------------------------------------- ---- ------------ ------------
Net assets 618,260 577,689
--------------------------------------------- ---- ------------ ------------
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 37,915 2,506
Revenue reserve 17,913 12,751
--------------------------------------------- ---- ------------ ------------
Equity attributable to owners of the Company 618,260 577,689
--------------------------------------------- ---- ------------ ------------
Net assets per Ordinary Share (pence) 14 109.44p 102.26p
--------------------------------------------- ---- ------------ ------------
The financial statements in the Annual Report were approved by
the Board of Directors and authorised for issue on 28 March 2023
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 2022
Share
Share premium Special Revenue Capital Total shareholders'
capital account reserve reserve reserve funds
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
---------------------------------------- -------- -------- -------- -------- -------- -------------------
Year ended 31 December 2021
Share
Share premium Special Revenue Capital Total shareholders'
capital account reserve reserve reserve funds
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- ---- -------- -------- -------- -------- -------- -------------------
Opening equity as at 1
January 2021 3,500 - 339,500 5,023 (4,096) 343,927
Profit and total comprehensive
income for the year - - - 28,187 6,602 34,789
Shares issued in the year 12 2,149 221,763 - - - 223,912
Share issue costs - (4,480) - - - (4,480)
Dividends paid 7 - - - (20,459) - (20,459)
------------------------------- ---- -------- -------- -------- -------- -------- -------------------
Closing equity as at 31
December 2021 5,649 217,283 339,500 12,751 2,506 577,689
------------------------------- ---- -------- -------- -------- -------- -------- -------------------
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
Year ended Year ended
31 December 31 December
2022 2021
Note GBP'000 GBP'000
-------------------------------------------------- ----- ------------ ------------
Operating activities cash flows
Profit before taxation 69,836 34,789
Adjustments for:
Movement in fair value of investments 9 (37,603) (8,561)
Investment income from investments 4 (40,307) (31,829)
Share issue abort costs 404 -
--------------------------------------------------------- ------------ ------------
Operating cash flow before movements in
working capital (7,670) (5,601)
Changes in working capital:
Increase in trade and other receivables (325) (323)
(Decrease)/increase in trade payables (207) 59
Distributions from investments 9 38,108 26,169
-------------------------------------------------- ----- ------------ ------------
Net cash flow generated from operating activities 29,906 20,304
--------------------------------------------------------- ------------ ------------
Investing activities cash flows
Costs associated with acquiring the portfolio
of assets 9 (83,580) (212,516)
-------------------------------------------------- ----- ------------ ------------
Net cash flow used in investing activities (83,580) (212,516)
--------------------------------------------------------- ------------ ------------
Financing activities cash flows
Dividends paid to Ordinary Shareholders 7 (29,265) (20,459)
Proceeds from issue of share capital during
the year - 223,912
Costs in relation to issue of shares (404) (4,480)
--------------------------------------------------------- ------------ ------------
Net cash flow (used in)/generated from financing
activities (29,669) 198,973
--------------------------------------------------------- ------------ ------------
Net (decrease)/increase in cash and cash
equivalents (83,343) 6,761
--------------------------------------------------------- ------------ ------------
Cash and cash equivalents at start of year 93,946 87,185
--------------------------------------------------------- ------------ ------------
Cash and Cash equivalents at end of year 10,603 93,946
--------------------------------------------------------- ------------ ------------
The accompanying notes are an integral part of these financial
statements.
Notes to the Financial Statements
For the year ended 31 December 2022
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 2022 and comprise
only the results of the Company, as all of its subsidiaries are
measured at fair value following the amendment to IFRS 10 as
disclosed in Note 2. The comparatives shown in these financial
statements refer to the year ended 31 December 2021.
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 "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. During the
year, Apex Group plc acquired Sanne Fund Services (UK) Limited and
subsequently the name of the Company's Administrator and Company
Secretary changed from Sanne Fund Services (UK) Limited to Apex
Listed Companies Services (UK) Limited.
2. Basis of preparation
These financial statements have been prepared in accordance with
UK-adopted international accounting standards and the applicable
requirements of the Companies Act 2006. On 31 December 2020, IFRSs
as adopted by the European Union at that date were brought into UK
law and became UK-adopted international accounting standards, with
future changes being subject to endorsement by the UK Endorsement
Board. The Company transitioned to UK-adopted international
accounting standards in its financial statements on 1 January 2021.
There was no impact or change in accounting policies from the
transition.
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 GBP11 million as at 31 December 2022 (2021:
GBP94m) and available headroom on its revolving credit facility
("RCF") of GBP169 million (2021: GBP150m). The Company's net assets
at 31 December 2022 were GBP618 million (2021: GBP578m) and total
expenses for the year ended 31 December 2022 were GBP8.0 million
(2021: GBP5.6m), which represented approximately 1.3% (2021: 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 not expected to be breached, 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 expires in November 2023. Post year end, the
Company's intermediate holding company successfully refinanced its
RCF to an increased facility of GBP270.8 million and extended its
term to February 2026. The covenants of the RCF have been tested
and are not expected to be breached, even in downside scenarios.
Plausible downside scenarios include a decrease in wholesale energy
prices, or a decrease in output. 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 three 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 2023. 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 relevant 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.
Amendment to IAS 12 - Deferred tax related to assets and
liabilities arising from a single transaction
In May 2021, the IASB issued amendments that require companies
to recognise deferred tax on transactions that, on initial
recognition, give rise to equal amounts of taxable and deductible
temporary differences. The amendments are effective for annual
reporting periods beginning on or after 1 January 2023.
Amendment to IFRS 16 - Leases on sale and leaseback
In September 2022 the IASBs issued amendments for companies to
include requirements for sale and leaseback transactions in IFRS 16
to explain how an entity accounts for a sale and leaseback after
the date of the transaction.
Amendment to IAS 1 - Non current liabilities with covenants
In November 2022 the IASBs issued amendments for companies to
clarify how conditions with which an entity must comply within
twelve months after the reporting period affect the classification
of a liability.
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 IAS 39
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 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.
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 investment income 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 period end are reported at the rates of exchange
prevailing at the period 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 Year ended 31 December
2022 2021
---------------------------- ----------------------------
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ -------- -------- -------- -------- -------- --------
Dividend income from
investments 17,250 - 17,250 19,169 - 19,169
Interest income from
investments 23,057 - 23,057 12,660 - 12,660
------------------------ -------- -------- -------- -------- -------- --------
Total investment income 40,307 - 40,307 31,829 - 31,829
------------------------ -------- -------- -------- -------- -------- --------
5. Operating expenses
Year ended 31 December Year ended 31 December
2022 2021
---------------------------- ----------------------------
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------------------ -------- -------- -------- -------- -------- --------
Investment management
fees 4,284 1,428 5,712 3,108 1,036 4,144
Directors' fees 186 - 186 141 - 141
Company's auditors' fees:
- in respect of audit
services 190 - 190 86 - 86
* in respect of audit-related assurance services - - - - - -
Other operating expenses 756 1,280 2,036 624 584 1,208
------------------------------------------------------ -------- -------- -------- -------- -------- --------
Total operating expenses 5,416 2,708 8,124 3,959 1,620 5,579
------------------------------------------------------ -------- -------- -------- -------- -------- --------
Further details on the Investment Manager's agreement have been
provided in Note 17.
In addition to the fees disclosed above, GBP210,100 (2021:
GBP88,000) 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
GBP1,280,000 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 Year ended 31 December
2022 2021
---------------------------- ----------------------------
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ -------- -------- -------- -------- -------- --------
Corporation tax 515 (515) - 312 (312) -
------------------------ -------- -------- -------- -------- -------- --------
Tax charge/(credit) for
the year 515 (515) - 312 (312) -
------------------------ -------- -------- -------- -------- -------- --------
(b) Factors affecting total tax charge/(credit) for the
year:
The effective UK corporation tax rate applicable to the Company
for the period is 19% (2021: 19%). The tax charge/(credit) 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 Year ended 31 December
2022 2021
---------------------------- ----------------------------
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- -------- -------- -------- -------- -------- --------
Profit/(loss) before taxation 34,942 34,894 69,836 27,875 6,914 34,789
--------------------------------- -------- -------- -------- -------- -------- --------
Corporation tax at 19% 6,639 6,630 13,269 5,296 1,314 6,610
Effects of:
Expenses not deductible for
tax purposes - (7,145) (7,145) - (1,626) (1,626)
Income not taxable (3,278) - (3,278) (3,642) - (3,642)
Dividends designated as interest
distributions (2,852) - (2,852) (1,342) - (1,342)
Movement in deferred tax
not recognised 6 - 6 - - -
--------------------------------- -------- -------- -------- -------- -------- --------
Total tax charge/(credit)
for the year 515 (515) - 312 (312) -
--------------------------------- -------- -------- -------- -------- -------- --------
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 GBP8,117
(2021: GBP882) based on the excess unutilised operating expenses of
GBP32,470 (2021: GBP3,528) at the prospective UK corporation tax
rate of 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 Year ended 31 December
2022 2021
----------------------------- -----------------------------
Pence per Revenue Pence per Revenue
Ordinary reserve Total Ordinary reserve Total
Share GBP'000 GBP'000 Share GBP'000 GBP'000
----------------------------- --------- -------- -------- --------- -------- --------
Q4 2021 Dividend - paid
4 March 2022 (2021: 5 March
2021) 1.25 7,062 7,062 1.06 3,710 3,710
Q1 2022 Dividend - paid
27 May 2022 (2021: 7 June
2021) 1.31 7,401 7,401 1.25 4,375 4,375
Q2 2022 Dividend - paid
26 August 2022 (2021: 27
August 2021) 1.31 7,401 7,401 1.25 6,187 6,187
Q3 2022 Dividend - paid
25 November 2022 (2021:
26 November 2021) 1.31 7,401 7,401 1.25 6,187 6,187
----------------------------- --------- -------- -------- --------- -------- --------
Total 5.18 29,265 29,265 4.81 20,459 20,459
----------------------------- --------- -------- -------- --------- -------- --------
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 Year ended 31 December
2022 2021
------------------------------ -----------------------------
Pence per Revenue Pence per Revenue
Ordinary reserve Total Ordinary reserve Total
Share GBP'000 GBP'000 Share GBP'000 GBP'000
---------------------------- --------- -------- -------- --------- -------- --------
Q1 2022 Dividend - paid
27 May 2022 (2021: 7 June
2021) 1.31 7,401 7,401 1.25 4,375 4,375
Q2 2022 Dividend - paid
26 August 2022 (2021: 27
August 2021) 1.31 7,401 7,401 1.25 6,187 6,187
Q3 2022 Dividend - paid
25 November 2022 (2021:
26 November 2021) 1.31 7,401 7,401 1.25 6,187 6,187
Q4 2022 Dividend - paid
24 February 2023 (2021:
17 February 2022) 1.31 7,401 7,401 1.25 7,062 7,062
---------------------------- --------- -------- -------- --------- -------- --------
Total 5.24 29,604 29,604 5.00 23,811 23,811
---------------------------- --------- -------- -------- --------- -------- --------
On 31 January 2023 the Company declared an interim dividend of
1.31p per Ordinary Share in respect of the three months to 31
December 2022, a total of GBP7.4 million. The ex-dividend date was
9 February 2023, the record date was 10 February 2023, and the
dividend was paid on 24 February 2023.
8. Earnings per Ordinary Share
Earnings per Ordinary Share is calculated by dividing the profit
attributable to equity shareholders of the Company by the weighted
average number of Ordinary Shares in issue during the year/period
as follows:
Year ended 31 December Year ended 31 December
2022 2021
-------------------------- --------------------------
Revenue Capital Total Revenue Capital Total
------------------------------- -------- ------- ------- -------- ------- -------
Profit attributable to the
equity holders of the Company
(GBP'000) 34,427 35,409 69,836 28,817 6,602 34,789
Weighted average number
of Ordinary Shares in issue
(000) 564,928 564,928 564,928 424,089 424,089 424,089
------------------------------- -------- ------- ------- -------- ------- -------
Earnings per Ordinary Share
(pence) - basic and diluted 6.09p 6.27p 12.36p 6.65p 1.55p 8.20p
------------------------------- -------- ------- ------- -------- ------- -------
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
2022 2021
GBP'000 GBP'000
---------------------------------------------- ------------ ------------
Opening balance 485,417 258,680
Portfolio of assets acquired 79,194 207,487
Additional investment in intermediate holding
companies 4,386 5,029
Distributions received from investments (38,108) (26,169)
Investment income 40,307 31,829
Movement in fair value of investments 37,603 8,561
---------------------------------------------- ------------ ------------
Total investments at the end of the year 608,799 485,417
---------------------------------------------- ------------ ------------
The additional investment in the intermediate holding companies
include acquisition costs associated with the purchase of the
portfolio of assets totalling GBP3.2 million (2021: GBP2.2m), which
have been expensed to the profit and loss in these companies and
GBP1.2 million (2021: GBPnil) of other expenses paid by the Company
on behalf of the intermediate holding companies. In the prior year,
this cost included an amount of GBP1.2 million associated with the
RCF in ORIT Holdings II Limited and an additional investment of
GBP1.6 million following the completion of asset life extensions on
the UK Solar portfolio.
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
2022 2021
GBP'000 GBP'000
-------------------------------------------------- ------------ ------------
Opening balance 485,417 258,680
Portfolio of assets acquired 209,666 209,965
Distributions received (40,129) (26,668)
Movement in fair value 88,760 41,554
-------------------------------------------------- ------------ ------------
Fair value of portfolio of assets at the end
of the year 743,714 483,531
-------------------------------------------------- ------------ ------------
Cash held in intermediate holding companies 4,509 1,293
Bank loans held in intermediate holding companies (127,200)
Fair value of other net (liabilities)/assets in
intermediate holding companies (12,224) 593
-------------------------------------------------- ------------ ------------
Fair value of Company's investments at the end
of the year 608,799 485,417
-------------------------------------------------- ------------ ------------
c) Investment gains in the year
Year ended Year ended
31 December 31 December
2022 2021
GBP'000 GBP'000
-------------------------------------- ------------ ------------
Movement in fair value of investments 37,603 8,561
-------------------------------------- ------------ ------------
Gains on investments 37,603 8,561
-------------------------------------- ------------ ------------
Of the total distributions received from investments, GBP10.7
million (2021: GBP7.9m) relates to income originated from the
Company's UK investments and GBP29.4 million (2021: GBP18.3m)
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 2022.
The Directors have satisfied themselves as to the methodology
used, the discount rates applied and the valuation. All 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 5.5% to 9.6%.
The following assumptions were used in the discounted cash flow
valuations:
As at 31 December 2022 As at 31 December 2021
------------------------------ ---------------------------- ----------------------------
UK - long-term inflation 6.7% during 2023, declining 3.00% to April 2030; 2.25%
rate to 3.00% in 2027 and then thereafter.
to 2.25% from 2030 onwards.
UK - corporation tax rate 19.00% to April 2023; 25.00% 19.00% to April 2023; 25.00%
thereafter. for next three years; and
then reducing by 1.00%
annually until 19.00%.
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% 2.5%
Poland - corporation tax
rate 19.00% 19.00%
Finland - long-term inflation
rate 2.00% 2.00%
Finland - corporation tax
rate 20.00% 20.00%
Euro/sterling exchange rate 1.1277 1.1907
Zloty/sterling exchange rate 5.3009 5.4702
Energy yield assumptions P50 case P50 case
------------------------------ ---------------------------- ----------------------------
As at 31 December 2022, the fair value of the Crossdykes onshore
wind farm in the UK and the Leeskow onshore wind farm in Germany is
deemed approximate to cost given the close proximity of these
acquisitions to the year end.
The fair value of the investments in development assets held
through joint venture arrangements by ORIT JV Holdings 2 Limited
and ORIT JV Holdings 3 Limited is also deemed to be equal to cost
due to the nature of these investments.
Other key assumptions include:
Power Price Forecasts
The power price forecasts used in the valuations are based on
market forward prices in the near-term, followed by an equal blend
of up to three independent and widely used market expert
consultants' relevant technology-specific capture price forecasts
for each asset. Whilst government announcements over energy
policies are now clearer, given volatility in power prices
exhibited over 2022 and the general downward trend in pricing over
Q4, the Board and the Investment Manager still consider it
appropriate to include a modest discount to the prevailing forward
prices of 20% over the 2023 to 2025 period, in addition to the
normal discounts to reflect the lower prices typically captured by
wind and solar generators.
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 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.
Please see details of the valuation process outlined in the
Annual Report.
10. Trade and other receivables
As at 31 December As at 31 December
2022 2021
GBP'000 GBP'000
---------------------------- ----------------- -----------------
Accrued interest receivable - 1
Other receivables 775 449
---------------------------- ----------------- -----------------
Total 775 450
---------------------------- ----------------- -----------------
11. Trade and other payables
As at 31 December As at 31 December
2022 2021
GBP'000 GBP'000
----------------- ----------------- -----------------
Accrued expenses 1,917 2,124
----------------- ----------------- -----------------
Total 1,917 2,124
----------------- ----------------- -----------------
12. Share capital
Year ended 31 December Year ended 31 December
2022 2021
-------------------------- --------------------------
Nominal value Nominal
Number of of shares Number of value of
Allotted, issued and fully paid: shares (GBP) shares shares (GBP)
------------------------------------- ----------- ------------- ----------- -------------
Opening balance 564,927,536 5,649,275 350,000,000 3,500,000
------------------------------------- ----------- ------------- ----------- -------------
Allotted following admission
to LSE
Share issue raised pursuant to
the Placing, Open Offer, Offer
for Subscription and Intermediaries
Offer - - 144,927,536 1,449,275
Share issue raised pursuant to
the Placing and the REX Retail
Offer - - 70,000,000 700,000
Closing balance 564,927,536 5,649,275 564,927,536 5,649,275
------------------------------------- ----------- ------------- ----------- -------------
On 9 July 2021 the Company issued 144,927,536 shares at an issue
price 103.5 pence, raising gross proceeds of approximately GBP150
million pursuant to the Placing, Open Offer, Offer for Subscription
and Intermediaries Offer.
On 7 December 2021 the Company issued 70,000,000 shares at an
issue price 105.5 pence, raising gross proceeds of approximately
GBP73.9 million pursuant to the Placing and REX Retail Offer.
As at 31 December 2022, the Company had total share premium of
GBP217,283,000 (2021: GBP217,283,000).
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 GBP339,500,000, which can be
utilised to fund distributions by way of dividends to the Company's
shareholders.
14. Net asset per Ordinary Share (pence)
As at 31 December As at 31 December
2022 2021
------------------------------------------- ----------------- -----------------
Total shareholders' equity (GBP'000) 618,260 577,689
Number of Ordinary Shares in issue ('000) 564,928 564,928
------------------------------------------- ----------------- -----------------
Net asset value per Ordinary Share (pence) 109.44p 102.26p
------------------------------------------- ----------------- -----------------
15. Financial instruments by category
As at 31 December 2022
-----------------------------------------------
Financial
assets at Financial
Financial fair value liabilities
assets at through at
amortised profit or amortised
cost loss cost Total
GBP'000 GBP'000 GBP'000 GBP'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 tables above of the total figure of GBP608,799,000
for financial assets at fair value through profit or loss,
GBP506,482,000 relates to the face value of debt investments.
As at 31 December 2021
-----------------------------------------------------------
Financial
assets at Financial
Financial fair value liabilities at
assets at through amortised
amortised cost profit or loss cost Total
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------------- --------------- --------------- --------------- --------
Non-current assets
Investments at fair value through profit or loss - 485,417 - 485,417
Current assets
Trade and other receivables 450 - - 450
Cash and cash equivalents 93,946 - - 93,946
------------------------------------------------- --------------- --------------- --------------- --------
Total assets 94,396 485,417 - 579,813
------------------------------------------------- --------------- --------------- --------------- --------
Current liabilities
Trade and other payables - - (2,124) (2,124)
------------------------------------------------- --------------- --------------- --------------- --------
Total liabilities - - (2,124) (2,124)
------------------------------------------------- --------------- --------------- --------------- --------
Net assets 94,396 485,417 (2,124) 577,689
------------------------------------------------- --------------- --------------- --------------- --------
As explained in Note 3a, the Company values its investments as a
whole. In the table above of the total figure of GBP485,417,000 for
financial assets at fair value through profit or loss,
GBP421,203,000 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 2022
----------------------------------
Level 1 Level 2 Level 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- ------- ------- ------- -------
Financial assets
Investments at fair value through
profit or loss - - 608,799 608,799
---------------------------------- ------- ------- ------- -------
Total financial assets - - 608,799 608,799
---------------------------------- ------- ------- ------- -------
As at 31 December 2021
----------------------------------
Level 1 Level 2 Level 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- ------- ------- ------- -------
Financial assets
Investments at fair value through
profit or loss - - 485,417 485,417
---------------------------------- ------- ------- ------- -------
Total financial assets - - 485,417 485,417
---------------------------------- ------- ------- ------- -------
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 GBP5.0 million (2021: GBP1.7m) 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
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 0.5% in the discount rate (levered cost of
equity) would cause a decrease in total portfolio value of 6.9p per
Ordinary Share and a decrease of 0.5% in the discount rate would
cause an increase in total portfolio value of 7.4p per Ordinary
Share.
Inflation rate
The sensitivity of the investments to movement in inflation
rates is as follows:
A decrease of 0.5% in inflation rates would cause a decrease in
total portfolio value of 6.0p per Ordinary Share and an increase of
0.5% in inflation rates would cause an increase in total portfolio
value of 6.5p per Ordinary Share.
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 13.7p per Ordinary Share and an increase
of 10% in power price would cause an increase in the total
portfolio value of 13.6p per Ordinary Share.
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
23.6p per Ordinary Share and 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 22.4p per Ordinary Share.
Foreign exchange
The sensitivity of the investments to movement in FX rates is as
follows:
An increase of 10% in FX rates would cause a decrease in total
portfolio value of 2.1p per Ordinary Share and a decrease of 10% in
inflation rates would cause an increase in total portfolio value of
2.1p per Ordinary Share.
Of the portfolio as at 31 December 2022, 59% (2021: 46%) 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 minimise the
volatility of cash flows in non-GBP currencies over the short to
medium-term through its foreign exchange hedging policy; which
requires a minimum of 50% of all forecasted distributions
denominated in foreign currencies to be hedged over 5 years in
order to give the Company some certainty over the future cashflows
and reduce its exposure to foreign exchange risk. The Company also
has the ability to hedge a portion of value thereafter so as to
limit volatility of the Company's NAV to foreign exchange risk.
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-denominated investments
which at 31 December 2022 comprised 48% (2021: 53%) of the
portfolio by value on an invested basis and 53% (2021: 54%) of the
portfolio by value on a committed basis; and zloty-denominated
investments which at 31 December 2022 comprised 11% (2021: 11%) of
the portfolio by value on an invested basis and 9% (2021: 9%) of
the portfolio by value on a committed basis. 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 2022
-------------------------------
Interest Non-interest
bearing bearing Total
Assets GBP'000 GBP'000 GBP'000
----------------------------------------- -------- ------------ -------
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)
----------------------------------------- -------- ------------ -------
As at 31 December 2021
-------------------------------
Interest Non-interest
bearing bearing Total
Assets GBP'000 GBP'000 GBP'000
----------------------------------------- -------- ------------ -------
Cash and cash equivalents 64,963 28,983 93,946
Trade and other receivables - 450 450
Investments at fair value through profit
or loss 421,203 64,214 485,417
----------------------------------------- -------- ------------ -------
Total assets 486,166 93,647 579,813
----------------------------------------- -------- ------------ -------
Liabilities
Trade and other payables - (2,124) (2,124)
----------------------------------------- -------- ------------ -------
Total liabilities - (2,124) (2,124)
----------------------------------------- -------- ------------ -------
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 in the 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 2022 was to
Goldbeck Solar Limited on Breach Solar representing 6% of the
portfolio by value (2021: Nordex SE on the Cumberhead project:
6%).
The Company'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 2022
was EDF who provided PPAs to projects in respect of 18% of the
portfolio by value (2021: 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 is accounted for as a derivative option 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 2022
----------------------------------------
Less than More than
1 5
year 1-5 years years Total
GBP'000 GBP'000 GBP'000 GBP'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
---------------------------------- --------- --------- --------- -------
31 December 2021
----------------------------------------
Less than More than
1 5
year 1-5 years years Total
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- --------- --------- --------- -------
Assets
Investments at fair value through
profit or loss - - 485,417 485,417
Trade and other receivables 450 - - 450
Cash and cash equivalents 93,946 - - 93,946
---------------------------------- --------- --------- --------- -------
Liabilities
Trade and other payables (2,124) - - (2,124)
---------------------------------- --------- --------- --------- -------
92,272 - 485,417 577,689
---------------------------------- --------- --------- --------- -------
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 GBP618,260,000 (2021: GBP
577,689,000).
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
GBP246 million revolving credit facility with Banco de Sabadell,
Intesa Sanpaolo, National Australia Bank, NatWest and Santander.
The facility was GBP77.2 million drawn at 31 December 2022 (2021:
GBPnil).
The Board, with the assistance of the Investment Manager,
monitors and reviews the Company's capital on an ongoing basis.
-- Share capital represents the 1p 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 GBP23,057,000 (2021:
GBP12,660,000) was earned, in respect of the long-term
interest--bearing loan between the Company and its subsidiaries. At
the period 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 GBP500 million and 0.85% per
annum of Net Asset Value in excess of GBP500 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 GBP5,712,000 (2021: GBP4,144,000), of which
GBP1,451,000 (2021: GBP1,364,000) remained payable at the year end
date.
Directors
The Company is governed by a Board of Directors (the "Board"),
all of whom are independent and non-executive. During the period,
the Board received fees for their services of GBP186,000 (2021:
GBP141,000) and were paid GBP7,900 (2021: GBP2,700) in expenses. As
at the period 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 Ordinary Ordinary
as at date of Shares as at Shares as at
this report 31 December 2022 31 December 2021
------------------ --------------- ----------------- -----------------
Philip Austin MBE 165,518 165,518* 108,867*
------------------ --------------- ----------------- -----------------
James Cameron 65,306 65,306 65,306
------------------ --------------- ----------------- -----------------
Elaina Elzinga - - -
------------------ --------------- ----------------- -----------------
Audrey McNair 51,383 51,383 51,383
------------------ --------------- ----------------- -----------------
* with effect from 23 November 2021, Mr. Austin's shares have
been held jointly with Mrs. J Austin, a PCA of Mr. Austin
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 are listed
below:
Place of Registered Ownership
Name Category business Office* interest
------------------------------------------------- ------------------------- --------- ----------- -----------
Limited Intermediate
ORIT Holdings Holdings UK A 100%
------------------------------------------------- ------------------------- --------- ----------- -----------
ORIT Holdings II 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%
------------------------------------------------- ------------------------- --------- ----------- -----------
Copernicus Windpark Sp. Z.o.o Project company Poland G 100%
------------------------------------------------- ------------------------- --------- ----------- -----------
Forthewind Sp. Z.o.o Project company Poland G 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 15.5%
------------------------------------------------- ------------------------- --------- ----------- -----------
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%
------------------------------------------------- ------------------------- --------- ----------- -----------
Wind 2 Project 4 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 67%
------------------------------------------------- ------------------------- --------- ----------- -----------
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 GmbH & Co. KG Project company Germany M 100%
------------------------------------------------- ------------------------- --------- ----------- -----------
Umweltgerechte Energie 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%
------------------------------------------------- ------------------------- --------- ----------- ------
* Registered offices:
A - 6th Floor, 33 Holborn, London, EC1N 2HT, England
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 - Wojska Polskiego 24-26, 75-712 Koszalin,
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
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 2022, the Company has guarantees in respect of
the future investment obligations associated with the Breach Solar
plant totalling GBP41.5 million (2021: GBPnil).
As at 31 December 2022 the Company's subsidiaries had future
investment obligations totalling GBP111.2 million (2021: GBP141.7m)
relating to its wind farms currently undergoing construction and
its conditional acquisitions in Spain and Ireland. The intermediate
holding companies have provided guarantees in respect of these
commitments.
20. Contingent acquisition
On 30 September 2020 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 solar PV
assets located in southern Spain. The purchase price will be based
on the MWp of the portfolio and will only become payable once the
assets become ready to build. With the exception of the initial
payment, no other assets or liabilities have been recognised in
respect of this transaction as at 31 December 2022. If the
conditions of the sale are not satisfied, the initial payment of
GBP1.8 million is fully refundable and backed by a Bank
Guarantee.
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. Completion of the acquisition is conditional
upon four of the sites becoming fully operational, which is
expected to occur in H2 2023. Total consideration for the
acquisition is expected to be between approximately EUR169 million
and EUR193 million (approximately GBP144m to GBP165m) which will,
apart from any deferred consideration in respect of the fifth site,
be payable on completion. The Company has secured a fully
amortising debt facility of up to EUR88 million (approximately
GBP76m) from Allied Irish Banks plc and La Banque Postale to part
finance the acquisition of the operational sites. A derivative
asset of GBP3.3 million (2021: GBPnil) has been recognised in
respect of this transaction as at 31 December 2022 in an
intermediate holding company. Post year end, the Company has
committed to the fifth site.
On 17 June 2022, an intermediate holding company, ORIT Holdings
Limited, entered into an agreement to acquire a 50% stake in a
12MW/24MWh ready-to-build battery storage project in Bedfordshire,
UK, from Gridsource. The acquisition was made alongside another
Octopus Managed Fund and completed post period end in January 2023
conditional upon the lease agreement for the project site coming
into effect.
21. Post period end events
On 20 January 2023, and having agreed the lease for the site,
the Company has completed the acquisition of a 50% stake in a
12MW/24MWh ready-to-build battery storage project in Bedfordshire,
UK. The consideration for the acquisition and the Company's share
of future construction costs is expected to be approximately GBP4
million.
On 31 January 2023 the Company declared an interim dividend in
respect of the three months ended 31 December 2022 of 1.31p per
Ordinary Share for GBP7.4 million based on a record date of 10
February 2023 and ex-dividend date of 9 February 2023 and the
number of Ordinary Shares in issue being 564,927,536. This dividend
was paid on 24 March 2023.
On 27 February 2023 the Company announced that ORIT Holdings II
Limited had refinanced and increased its multi--currency RCF. The
committed GBP270.8m RCF (which was previously GBP150.0m committed,
pre-accordion) has a three year term to 24 February 2026 and can be
drawn in GBP, EUR, AUD and USD. The RCF has an interest rate of
2.0% above SONIA (or equivalent reference rate for other
currencies) and an improved margin compared with the previous
facility's margin of 2.3%. It also has an uncommitted accordion
feature allowing the facility to be increased in size by up to a
further GBP150m. The facility has been provided by a group of four
lenders: National Australia Bank, NatWest, Santander and Allied
Irish Banks.
On 2 March 2023, the contingent acquisition in the portfolio of
Spanish PV assets was re-negotiated. From this date, the Company no
longer has an obligation to acquire the assets once they reach
ready to build status, but instead has the option to acquire
them.
There are no other events after the balance sheet date which are
required to be disclosed.
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:
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 31 December
2022 2021
------ ----------- -----------
GBPmillion GBPmillion
---------- ------ ----------- -----------
NAV a 618.3 577.7
Debt b 454.3 160.5
---------- ------- ----------- -----------
Total GAV a + b 1,072.6 738.2
---------- ------- ----------- -----------
Total value of all investments
A measure of committed asset value including total debt and
equity commitments
As at As at
31 December 2022 31 December 2021
------------ ---------------- ----------------
GBPmillion GBPmillion
------------------------------------------- ------------ ---------------- ----------------
GAV a 1,072.6 738.2
Commitments on existing portfolio b 68.3 38.2
Commitments on conditional acquisitions c 177.0 206.6
------------------------------------------- ------------- ---------------- ----------------
Total value of all assets plus commitments (a+b+c) = d 1,317.9 983.0
------------------------------------------- ------------- ---------------- ----------------
Less Company and holding company assets e (1.7) (94.2)
Less asset level cash f (15.5) (11.2)
------------------------------------------- ------------- ---------------- ----------------
Total value of all investments d - e - f 1,304.2 877.6
------------------------------------------- ------------- ---------------- ----------------
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 paid out by the Company into the Ordinary
Shares of the Company on the ex-dividend date.
31 December 2022 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 -- 1.8
Dividends paid since IPO -
pence c 12.11 12.11
---------------------------------- ------------------- ----------- ------
Total return (b+c+d)÷a)-1 12.1% 25.9%
---------------------------------- ------------------- ----------- ------
Annualised total return 3.8% 7.8%
------------------------------------------------------- ----------- ------
31 December 2021 Share price NAV
---------------------------------- ------------------ ----------- ------
Value at IPO (10 December 2019)
- pence a 100.00 98.00
Value at 31 December 2021 -
pence b 110.80 102.26
Benefits of reinvesting dividends
- pence d 0.06 0.62
Dividends paid since IPO -
pence c 6.93 6.93
---------------------------------- ------------------- ----------- ------
Total return (b+c+d)÷a)-1 17.7% 12.1%
---------------------------------- ------------------- ----------- ------
Annualised total return 8.3% 5.7%
------------------------------------------------------- ----------- ------
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 2022 Share price NAV
---------------------------------- ------------------- ----------- ------
Value at 1 January 2022 - pence a 110.80 102.26
Value at 31 December 2022 -pence b 100.00 109.44
Benefits of reinvesting dividends
- pence d 0.35 0.26
Dividends paid in the year
- pence c 5.18 5.18
---------------------------------- -------------------- ----------- ------
Total return (b+c+d) ÷a)-1 -4.8% 12.3%
---------------------------------- -------------------- ----------- ------
31 December 2021 Share price NAV
---------------------------------- ------------------- ----------- ------
Value at 1 January 2021 - pence a 113.80 98.26
Value at 31 December 2021 -pence b 110.80 102.26
Benefits of reinvesting dividends
- pence d 0.05 0.37
Dividends paid in the year
- pence c 4.81 4.81
---------------------------------- -------------------- ----------- ------
Total return (b+c+d)÷a)-1 1.6% 9.3%
---------------------------------- -------------------- ----------- ------
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 2022 31 December 2021
------------------------------- ------------- ---------------- ----------------
NAV per Ordinary Share - pence a 109.44 102.26
Share price - pence b 100.00 110.80
------------------------------- -------------- ---------------- ----------------
(Discount)/Premium (b÷a)-1 (8.6%) 8.4%
------------------------------- -------------- ---------------- ----------------
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 31 December
2022 2021
GBP'000 GBP'000
---------------------- ----------- ----------- -----------
Average NAV a 611,342 437,480
Annualised expenses b 6,844 5,022
---------------------- ------------ ----------- -----------
Ongoing charges ratio (b÷a) 1.12% 1.15%
---------------------- ------------ ----------- -----------
FINANCIAL INFORMATION
This announcement does not constitute the Company's statutory
accounts. The financial information for 2022 is derived from the
statutory accounts for 2022, which will be delivered to the
registrar of companies. The statutory accounts for 2021 have been
delivered to the registrar of companies. The auditors have reported
on the 2021 and 2022 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 2022 was
approved on 28 March 2023. 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 16 June
2023 at 10.00 a.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 14 June 2022.
29 March 2023
For further information contact:
Secretary and registered office:
Apex Listed Companies Services (UK) Limited
6th Floor, 125 London Wall, London, EC2Y 5AS
Tel: 020 3327 9720
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END
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