High power prices and inflation drive up ORIT’s asset value

Octopus Renewables Infrastructure Trust (ORIT) has achieved strong net asset value (NAV) growth across 2022 primarily due to rising inflation and high power prices.

The renewable investment arm of Octopus disclosed in its financial results, ending 31 December 2022, that its NAV increased by 12.3% to stand at £618 million – an increase on the £578 million recorded at the end of December 2021.

At the end of 2022, ORIT’s UK portfolio consisted of 96MW onshore wind operational or being constructed, 270MW of offshore wind operational, and 189MW of solar operational or under construction.

For the year, ORIT’s 8 operational solar sites produced around 122.7GWh renewable energy. This led to the portfolio overperforming year-on-year by 10.5% largely driven by high irradiance. This echoes Good Energy’s results, which outlined that 2022 saw “near record levels” of solar installations and had only been bettered by the highs of 2015.

ORIT’s portfolio generated revenues of £17.3 million, an 18% increase from the previous year when it stood at £14.2 million. This is due to both technical overperformance and high pricing, the Trust said.

Its next large-scale solar farm, a 67MW construction-ready project dubbed Breach Solar Farm, is expected to be completed in the second half of 2023 subject to a grid connection agreement and planning consent. It is hoped the Trust could add a 50MW/100MWh battery project co-located on the site.

“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,” said Phil Austin, chairman of Octopus Renewables Infrastructure Trust.

“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.”

The Trust’s operating income for the year was £77.9 million, giving rise to a profit for the period of £69.8 million. This was underpinned by EBITDA from the portfolio of operational assets totalling £76.3 million, arising from gross revenues of £112 million.

One of the biggest impacts on the portfolio had been the energy crisis, which although caused the firm’s NAV to increase, did impact the day-to-day operations of ORITs aspirations.

The linkage of power prices to gas prices under the current market system in the UK meant that day-ahead electricity prices saw a 72% increase in 2022 compared to 2021, and they were around four times pre‑pandemic levels, ORITs said.

Despite the levelling of prices and political uncertainty in the UK, ORITs believes that increasing construction costs, and price caps or windfall taxes mean that returns available to developers may come under pressure. This is likely to be an ongoing issue well into 2023 and beyond as the market looks to recover.