As the coronavirus pandemic continues, power prices will tumble in the medium term, according to the Renewables Investment Group (TRIG).
In response to the reduced power price forecasts the investment company has said the material impact could be a reduction in NAV per share of approximately 5p.
The reduction in prices comes as a result of reduced economic activity largely due to the travel restrictions brought in in an effort to tackle the COVID-19 pandemic. This is coupled with reduced demand as industries have closed, leading to new record lows in the UK over the bank holiday weekend.
TRIG has seen similar reductions in power prices across all five of the European countries in which it operates, including the UK.
Blended together, the projected wholesale power prices in the markets the company operates in have reduced by 17% of average over the next five years. This includes as much as a 25% reduction over 2020 and 2021, and a 5% reduction from 2025 to 2050.
In the GB market this equates to a cannibalised capture price of c. £39 per MWh between 2020-2024, according to TRIG, and £46 per MWh price between 2025-2050.
TRIG has added that despite lower power prices, the dividend guidance of 6.76p for the year ending 31 December 2020 remains. Regarding the change to the NAV, as it falls from 115p per share as at 31 December 2019, a formal valuation exercise will be undertaken before the 30 June 2020 interim results.
However, around 74% of the company’s revenue is fixed up till 31 December 2024, strengthening cash flows in the medium term.
TRIG’s portfolio has continued to perform strongly, with generation in Q1 2020 22% above budget overall. This was particularly due to strong wind performance in the UK.
Despite operational challenges caused by COVID-19, it has kept within 1% of the availability budget for March. The company said that the “pragmatic, solution-focused approach adopted by the asset management and the operation and maintenance teams” was to thank for this.
Its construction projects are being closely monitored, but both its UK projects – the Solwaybank and Blary Hill wind farms – are expected to progress on schedule.
TRIG had a strong 2019, with a 50% increase in its portfolio size, generating 3,036GWh of electricity in the year. This was valued at £1,745 million, while TRIG’s profit before tax also grew to £162 million the company announced in its full year results.
As part of these results TRIG highlighted that it would be increasing it’s focus on battery storage going forwards, following on from its acquisition of Scotland’s first utility-scale battery storage facility in 2018.