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.

Discount Rate (as at 30 September 2022)

Discount Rate Assumptions

The Bank of England have implemented substantial further increases to the base rate (1%) following the 0.5% increase between 31 March 2022 and 30 June 2022.  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 30 September 2022 NAV calculation:

 

Premium 30 September 2022 31 March 2022
UK unlevered n/a 6.25% 5.75%
UK levered 0.7-1.0% 6.95-7.25% 6.45-6.75%
Italy unlevered 1 1.5% 7.75% 7.25%
Subsidy-free (uncontracted) 2 1.0% 7.25% 6.75%
Life extensions 3 1.0% 7.25-8.25% 6.75-7.75%

 

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 September 2022)

Inflation Linkage and Updates

c.50% of the Company’s revenues are made up of government-backed subsidies via ROCs and FITs, and 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.  This portion of revenues continues to benefit from the sustained high power price environment and increases the unsubsidised revenue portion of the portfolio.

The Company continues to be consistent in its inflation assumption approach, 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

30 September 2022 30 June 2022 31 March 2022
2023 12.40% 11.00% 8.00%
2024 5.90% 4.20% 3.70%
2025 3.60% 3.60% 3.30%
2026 3.40% 3.90% 3.40%
2027 3.90% 4.10% 3.30%
2028-2030 3.00% 3.00% 3.00%
2030 onwards 2.25% 2.25% 2.25%