NAV & Valuation Assumptions

Net Asset Value

The Company’s NAV is calculated quarterly and based on the valuation of the investment portfolio provided by the Investment Adviser and the other assets and liabilities of the Company calculated by the Administrator. The NAV is reviewed and approved by the Investment Manager and the Board. All variables relating to the performance of the underlying assets are reviewed and incorporated in the process of identifying relevant drivers of the discounted cash flow valuation.

Updates to NAV assumptions

The Company has made the following key updates to its valuation assumptions for the 31 December 2022 NAV calculation:

  • An increase to the unlevered discount rate by 0.5% in response to market conditions.
  • Updated inflation assumptions to reflect the latest available third-party inflation data.
  • Updated power price forecasts capturing the latest available third-party advisor long-term power curves.
  • Removal of the discounts applied to the unhedged portion of the portfolio power prices, replaced by the expected impact of the UK government’s proposed electricity generator levy (“EGL”), based on draft legislation as published.

Full details are disclosed in the relevant sections below.

NAV bridge:

  NAV p/share NAV
At 30 September 2022 122.9p £724.7m
Pref shares dividend (0.4p) (2.4m)
Ordinary shares cash dividend (1.8p) (10.8m)
Income from investments 1.9p 11.4m
Change in fair value of investments (1.3p) (7.9m)
Net operating costs (0.4p) (2.1m)
At 31 December 2022 120.9p £713m

 

Portfolio valuation bridge:

  Portfolio valuation
At 30 September 2022 £889.1m
New assets at cost 61.2m
RCF drawdown (12.2m)
Operating result 13.4m
Distribution to the Fund (11.4m)
Change in power price forecast including electricity generator levy (EGL) (1.6m)
Change in inflation 7.0m
Change in discount rate (20.0m)
Movement in residual value and balance of DCF valuation (29.8m)
At 31 December 2022 £895.7m

 

Discount Rate (as at 31 December 2022)

Discount Rate Assumptions

The Bank of England has implemented substantial further increases to its base rate.  In response to these market conditions, the Company has increased its unlevered discount rate by 0.5%.  The below table reflects the discount rate assumptions for the 31 December 2022 NAV calculation:

 

Premium 31 December 2022 30 September 2022
UK unlevered n/a 6.75% 6.25%
UK levered 0.7-1.0% 7.45-7.75% 6.95-7.25%
Italy unlevered 1 1.5% 8.25% 7.75%
Subsidy-free (uncontracted) 2 1.0% 7.75% 7.25%
Life extensions 3 1.0% 7.75% 7.25%

 

Footnotes:

(1) Unlevered discount rate for Italian operating assets implying 1.50% country risk premium.

(2) Unlevered discount rate for subsidy-free uncontracted operating assets implying 1.0% risk premium.

(3) 1.0% risk premium for cash flows after 30 years where leases have been extended.

Inflation (as at 31 December 2022)

Inflation Linkage and Updates

Approximately 50% of the Company’s revenues are made up of government-backed subsidies via ROCs and FITs. This component of revenue increases in line with RPI, whilst the remaining revenues in the portfolio are generated through the sale of budgeted power generation into the market.

The Company has taken a consistent approach to inflation assumptions, using third-party, independent inflation data from the HM Treasury Forecasts and long-term implied rates from the Bank of England for its UK assets.  For international assets, IMF forecasts are used.

Inflation rate (UK RPI) assumptions

31 December 2022 30 September 2022 30 June 2022
2023 11.60% 12.40% 11.00%
2024 7.00% 5.90% 4.20%
2025 4.20% 3.60% 3.60%
2026 3.90% 3.40% 3.90%
2027 3.80% 3.90% 4.10%
2028-2030 unchanged unchanged 3.00%
2030 onwards unchanged unchanged 2.25%