NAV & Valuation Assumptions

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 30 June 2023 NAV calculation:

• An increase to the unlevered discount rate of 75% in response to increases to short-term base interest rates, long-term risk-free rates and macro-economic outlook.
• Updated inflation assumptions to reflect the latest available third-party inflation data from HM Treasury Forecasts and long-term implied rates from the Bank of England for its UK assets. For international assets, IMF forecasts are used.
• Updated power price forecasts capturing the latest available third-party advisor long-term power curves.

The updated NAV assumptions are disclosed in the relevant sections below.

 

NAV Bridge

	NAV p/share	NAV
At 31 March 2023	114.3p	£674.4m
New assets at cost	0.8p	£4.7m
RCF drawdown, used to fund investments	(0.3p)	(£2.0m)
Cash on hand, used to fund investments	(0.5p)	(£2.7m)
Time value	2.5p	£15.2m
Project actuals	0.1p	£0.4m
Power price forecasts, net of EGL	(0.3p)	(£2.0m)
Changes in short-term inflation	0.7p	3.9m
Discount rate changes	(4.7p)	(£27.4m)
Cash dividends paid	(2.2p)	(£13.2m)
Other movements in residual value1	(1.1p)	(£6.2m)
At 30 June 2023	109.3p	£645.1m

 

Footnotes:

(1) Other movements in residual value includes changes in FX rates, Fund Opex and other non-material movements.  

Discount Rate Assumptions

The Company has increased its unlevered discount rate assumption by 0.75% during the quarter to reflect the Bank of England’s implemented increases to its base rate and changes to long-term UK Gilt yields.  The Company’s weighted average discount rate at the 30 June 2023 is 8.0%.  The below table reflects the discount rate assumptions breakdown used for the 30 June 2023 NAV calculation:

 

	30 June 2023	31 March 2023
UK unlevered	7.50%	6.75%
UK levered	8.20 – 8.50%	7.45 -7.75%
Italy unlevered 1	9.00%	8.25%
Subsidy-free (uncontracted) 2	8.50%	7.75%
Life extensions 3	8.50%	7.75%

 

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 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 continues to take a consistent approach to its inflation assumptions, using external third-party, independent inflation data from 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

Calendar Year	30 June 2023	31 March 2023
2023/24	6.30%	4.90%
2024/25	3.50%	3.40%
2025/26	2.60%	3.30%
2026/27	3.00%	3.20%
2027/28	3.40%	3.70%
2028/29 – 2029/30	unchanged	3.00%
2030/31 onwards	unchanged	2.25%