NAV & Valuation Assumptions

Net Asset Value (30 September 2023)

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 updates to its valuation assumptions for the 30 September 2023 NAV calculation:

  • 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 Bridge1

  NAV p/share NAV
At 31 March 2023 114.3p £674.4m
New assets at cost 2.5p £14.6m
RCF drawdown, used to fund investments (1.9p) (£11.0m)
Cash on hand, used to fund investments (0.6p) (£3.6m)
Time value 4.8p £28.4m
Project actuals (0.2p) (£1.0m)
Power price forecasts (2.3p) (£12.9m)
Changes in short-term inflation 1.3p £7.6m
Revaluation of new assets 0.3p £1.6m
Discount rate changes (4.6p) (£27.3m)
Cash dividends paid (4.7p) (£27.7m)
Other movements in residual value2 (0.6p) (£3.1m)
At 30 September 2023 108.3p £640.0m

Footnotes:

  1. The movement in the NAV over the six-month period was driven primarily by the following factors:
  • The increase in discount rate for unlevered operating UK solar assets. As announced on 17 August 2023, during the period, the Company increased the discount rate for unlevered operating UK solar assets by 0.75% to 7.50% The resulting weighted average discount rate for the Company’s portfolio was 8.0% (31 March 2023: 7.3%).
  • A decrease in short-term (2023-2027) UK power price forecasts provided by Consultants, being on average 13.2% lower than assumptions at 31 March 2023.
  • The upward revision in short-term inflation forecasts (see below).
  • Revaluation of new assets in the Company’s portfolio.
  • The operating results achieved by the Company’s solar assets.
  • The dividends declared and operating costs incurred during the year.
  1. Other movements in residual value includes changes in FX rates, Fund Opex and other non-material movements.

 

Discount Rate (as at 30 September 2023)

Discount Rate Assumptions

The Company has not made any changes to its discount rate assumptions during the latest quarter.  The Company’s weighted average discount rate at the 30 September 2023 remains 8.0%.  The below table reflects the discount rate assumptions breakdown used for the 30 September 2023 NAV calculation:

 

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

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.  Long-term assumptions are aligned with market consensus including transition to CPI from 2030.

Inflation Rate (UK RPI) Assumptions

Calendar Year 30 September 2023 30 June 2023 31 March 2023
2023/24 6.80% 6.30% 4.90%
2024/25 3.90% 3.50% 3.40%
2025/26 2.80% 2.60% 3.30%
2026/27 2.70% 3.00% 3.20%
2027/28 3.30% 3.40% 3.70%
2028/29 – 2029/30 unchanged unchanged 3.00%
2030/31 onwards unchanged unchanged 2.25%