Windfall tax sees Octopus Renewables’ portfolio NAV decrease by £10.6 million

The UK’s newly introduced Electricity Generator Levy has seen Octopus Renewables’ net asset value (NAV) on its renewable energy portfolio decrease by £10.6 million as of 31 December 2023.

The impact of the UK Government intervention measures resulted in a valuation decrease of £10.6 million. This accounts to a decrease of around 1.9 pence per ordinary share (pps).

The Autumn Statement introduced the highly controversial 45% windfall tax on all electricity generators, something that had been condemned by the generation industry. Overall taxation is much higher, as it will not be deductible from profits subject to Corporation Tax, meaning that in effect the rate is 70%.

Britain’s coal-fired and gas-fired power stations are not subject to the windfall tax, and oil and gas producers pay a lower rate of 35% – a small increase from the 25% rate introduced in May through the Energy Profits Levy.

Highlighted within the Octopus Renewables financial results, the taxation clearly is having an impact on the portfolio. Similar measures have also been introduced across Europe thus seeing further decreases in NAV across the continent.

Despite the impact of the windfall tax, the firm’s unaudited NAV, as of 31 December 2022 on a cum-income basis, increased to £618.3 million or 109.4pps – higher than the previous result as of 30 September 2022 which stood at £612.1 million or 108.3pps.

Inflation rates within the UK have had an impact on the valuation of Octopus Renewables’ assets. This has seen an increase in valuation of around £23.7 million or 4.2pps. Despite this, the firm stated it benefits from “significant levels of inflation protection via revenues from government support schemes”.

Discount rates have also had a major impact on the UK portfolio with the discount rates having risen further than in the rest of Europe. The increases to these discount rates resulted in a decrease of £29.6 million in the portfolio valuation or a decrease in 5.2pps.

Several firms have been declaring the result of the new windfall tax on their renewable generation portfolios. For example, Bluefield Solar Fund has estimated that the impact of such legislation as well as the impact of removing the power price levy would see a 3.0pps reduction to 141.4pps across their assets. As stated via its Autumn Statement update and Development update, the company’s NAV as of 30 September 2022 stood at £884 million or 144.6pps.

Solar and energy storage specialist fund NextEnergy Solar Fund (NESF) published its interim results as of 30 September 2022, which also suggested that the new windfall tax would have a limited impact for its portfolio given its diversification.