Greencoat Uk Wind Plc (UKW) Earnings Call Transcript & Summary

Good afternoon. I hope you can all hear me clearly. I'm Lucinda Riches, the Chairman of Greencoat UK Wind plc. On behalf of my Board colleagues and the investment manager, I thank you for joining us today. Before we begin, a few housekeeping points about the schedule today. The main session will run to 2:30 and will include some time for your questions. A break for refreshments will then follow, and we'll resume at 2:50 with 2 further sessions First, a conversation of repowering, moderated by my Board colleague, Jim Smith and then a panel on U.K. the power market composed of my fellow directors and another representative of the Investment Manager. We will end then with some concluding remarks, and I invite you please to stay for refreshments afterwards, if you any additional Q&A, we'll all be around. So to begin, many of you have been investors in U.K. wind for a long time, and thank you for that. Others are newer to the company. So welcome, but all of you will recognize that a great deal has changed since the company listed in 2013. The U.K. electricity market has changed. The cost of capital has changed and the opportunities open to renewable infrastructure investors have changed. Throughout that period, U.K. Wind has continued to increase its dividends with inflation, generated substantial cash flow and reinvested GBP 1.1 billion back into the portfolio. The shareholder experience over the last few years has not been easy. Change in power prices low wind resource and rising got yields have created volatility across the listed renewable sector. Our model has remained resilient and has continued to generate robust cash flows and has given the company optionality to invest in its future. That matters, we think, because we believe investors are increasingly distinguishing between businesses on 3 key characteristics. On scale, on the ability to self-fund growth and on the credible route to deliver it. We believe that U.K. win by design already has all of these 3 things. So today, we're not here to talk about changing the financial proposition. U.K. wind will continue to target a well-covered inflation-linked dividend with long-term value created through disciplined reinvestment in the U.K. wind market. What has changed is the range of ways to deliver this. When the company was launched, reinvestment largely meant buying operating wind farms. Today, there are more ways to put capital at work within U.K. wind. investing in assets under construction, extending the lives of operating wind farms and repowering of older sites. We believe a good part of that opportunity sits in the portfolio we already own. Each of these opportunities broadens the sources of return available to U.K. wind. Together, they allow us to build a durable portfolio with longer asset lives, a broader mix of return drivers and more options to contract revenues. The Board, working very closely with the manager has spent a lot of great deal of time ahead of today, evaluating the opportunity set as we see it. We have looked broadly. We have looked at other technologies. We have looked at other geographies, and we've tested these opportunities against the same standard, the risk-adjusted return for our shareholders. and whether it sits within our skill set. Our conclusion is that the most attractive opportunities are already in our expertise and within U.K. wind. We, of course, remain open-minded, but that is where we are and see the best value today. So over the next 45 minutes or so, Matt and Steve managers will take you through the broader opportunity set, the capabilities to execute it and what it means for our portfolio's cash flow over the next several years. Thank you.

Let me just skip through to you, I think you've seen the agenda. You know what's happening today. [Indiscernible] has described that well. Let's get started. So as Lucinda said, today is very much about evolving how we deliver U.K. wind rather than fundamentally changing its investor proposition. And that's recognizing that there's a much broader opportunity set than [Indiscernible] listed in 2013. So Steve and I are going to walk through U.K. Wind's businesses, its advantages. The expanded opportunity set that we see, the scale of those opportunities and how we're positioned we are to execute and ultimately, what that means for shareholders in the portfolio. We'll go for about 40 minutes or so, and there will be ample time for Q&A afterwards. If you'd like to log a question in the room, raise your hand, we have a microphone. If you're online, there should be a portal that allows you to do that. So perhaps just to start with the reminder of U.K.'s business model, that will be familiar to most of you, but it's worth restating. So U.K. Wind was designed from first principles to be a simpler model with a focused exposure to the U.K. wind market, delivering inflation-linked dividends and additional self-generated capital to reinvest back in the business. It gives us the aim of keeping capital in real terms over the long term. So how has that delivered? We own a high-quality portfolio of U.K. wind farms. They generate more cash than we need to pay the dividend, and that's what gives us the organically generated capital to invest. And since IPO, we've generated about GBP 2.6 billion in net cash generation. So that's money that we have something to do with to allocate. GBP 1.5 billion of that has gone to inflation linked dividends to shareholders, and GBP 1.1 billion has gone back into the portfolio. And over that period of time, U.K. Wind has also matured as a business. So remember, the sort of first phase of this which you can probably see better on the slides and on the screen. But the first phase is proof of concept, where U.K. was the first of its kind to list in the U.K., the first renewable devoted investment trust. So the first period of time was around proving that the concept works and that it can deliver. The second phase is building scale. So by generating, raising and allocating capital wisely, the business grew appreciably to the end of 2023. And at that point, it provided about 2% of all of the U.K.'s electricity. U.K. window about 6-ton of all U.K. wind farms, and it powers over 2 million homes. And that's also been a market that itself was growing at the time and it's still forecast to continue growing. We'll talk about that part later. And as Lucinda referenced, the last period is more about resilience. And we recognize it's been a challenging period for shareholders. But fundamentally, if you look at U.K. Wind's business model, here's what it could do. We can still increase the dividend in line with inflation, and we have. We still generated excess capital to reinvest back in the business. We could comfortably refinance our debt as we've proven consistently over time. We can also recycle assets and also allocate capital more flexibly to suit the needs of the time. And lastly, it was also a period of time where the Board and the manager demonstrated a strong alignment with the shareholder experience by being the first to lower fees to the lower of net asset value in market. For me, this is what a durable model looks like. And it's a function of design. So again, this will be very familiar to many of you. Own operating wind farms, generate electricity, generate cash, GBP 1.5 billion in dividends. We're one of a handful of FTSE 250 companies to continue paying an increasing dividend every year since IPO. But beyond that, crucially, GBP 1.1 billion to reinvest back in the business. And we see reinvestment as the crucial feature going forward. Well, why is that? Well, it's no secret that unless you can do something with these assets at the end of their lives, they do come to an end. Now that part, we're going to talk about a bit later in more detail. They're fundamentally depreciating assets. So what does this chart show? This shows that over time, if you don't reinvest in your portfolio, you just own the assets that we presently own, didn't generate anything more than your dividend. Fundamentally, the net cash generation, the cash available to shareholders is going to decline over time. So in other companies that have lower dividend cover or 1.1x dividend cover and no other routes to raise capital, be that drawing debt has been repaid, issuing equity or finding third-party equity. That is what those investors are. That by design is not what U.K. Wind is. And we'll show you some more detailed charts on this later that represent where we're heading as a business with the new investment teams that we have. So fundamentally, by reinvesting and generating that excess capital from our portfolio, we can add to the cash flows to shareholders over time. That's how you support a growing dividend. And we increasingly believe that shareholders are recognizing the characteristics that are going to define the successful companies in this sector. So first, scale. Scale gives you relevance. Scale also gives shareholders liquidity. It also fits inside model portfolios. It's a really important factor. The second is to be a self-sustaining business. So that's GBP 1.1 billion back into the business thus far and GBP 0.9 billion to GBP 1.4 billion over the next 5 years to reinvest back in the business, and also the ability to execute on an attractive market opportunity. We're in a market that's growing. It's forecast to double in the next decade. This is a significant market in which we can provide attractive returns. And we increasingly see investors recognizing the distinction that, that provides and distinguishing between companies that are trying to create these characteristics and companies that are already possessed the U.K. Wind is already there by design. That's one of the advantages that we have. So what does that mean for, say, the next 5 years, a chart that again is familiar to many of you. So EBITDA of GBP 3.3 billion to GBP 4 billion. If you pick the midpoint, that's roughly 1.5x our market cap today, GBP 2.2 billion to GBP 2.7 billion of net cash generation. The midpoint is basically our market capitalization. And then after paying a dividend that is going to increase in line with inflation over the next 5 years, that's GBP 0.9 billion to GBP 1.4 billion to reinvest back in the business. So the question, therefore, isn't whether U.K. Wind will generate capital to invest back in the business, the question is what to do with it. So before we dive into the broader sources of return. Historically, U.K. wind has delivered its returns and continue to do so by buying operational generative assets that generate cash, more cash than we need for the dividend, and that creates the virtuous circle. And that's a perfectly fine way to deliver U.K. Wind. But what we're recognizing today and indeed in the work that we've done over many months with the Board is that there's a broader opportunity set available to us and that, that is attractive. So what is that? So operational assets, really there is the baseline. You think about construction assets, I think it doesn't warrant that much explanation. These are assets that are not yet operational, but they will be. And risk-wise here, what we're talking about is projects that are going to get built. It's just a question of when and how much it's going to cost, not a digital risk that they won't exist. Life extension. We have a standard asset life of 30 years. Technically, many of our sites will last longer than that. So there's work that we can do to generate additional capital and cash flow for the portfolio in opportunities that already live inside our portfolio today. And lastly, repowering. So at the end of the journey, ultimately, is there some new sites that you can create out of the things that you already possess. And the grid is a very important part of that. That's typically an enduring connection, and you'll hear a lot more about that today. That's well as a separate session on that, that Jim will lead. So how do we think about these investment opportunities and their characteristics. So I guess when it comes to thinking about portfolio composition, the first thing to observe is that no one of them is any particularly better than the other, but they all offer different things. So what are the things that we think about. So principally, what yields will we get from this asset. We're fundamentally a dividend-paying business. So to not think about that would obviously be daft. What effect does that have on the net asset value of the business over the long term? What kind of returns can we get? That's obviously important. You don't invest with the right returns, you will not deliver your investment proposition to shareholders. And lastly, revenue profile. There are a number of different ways to manage the revenue in the company. And you'll hear some more about those later and there's a separate session this afternoon on the power markets and policy [Indiscernible] promise will be interesting. Another way to manage your revenue profile is to buy the assets that you want to compose together the blend that you're looking for. So these are the characteristics that we're looking at these new investment opportunities across. And I guess just first as a baseline, operational assets familiar to everyone who understands U.K. Wind and the sector more generally. You have a decent cash yield from day 1, they're operating. As we showed earlier, these assets are depreciating unless you can do something with them at the end of their lives, be it extend them or repower them and that won't work for every asset. Base case returns so we can compare the risk-adjusted returns of the other investment opportunities that we have. So our portfolio levered average rate of return. And the revenue profile is variable, you could choose to buy an asset that's largely fixed in cash flow composition or one that's entirely merchant, and we've done both. So that's there more as a baseline. And also to say that nothing about today makes operational assets unattractive. There are always going to be the core of our portfolio. And indeed, the end destination of the things that we're doing today is to create operational assets. We just feel there's value to be created along the way. So construction assets. So as I said, these are assets that are going to get built. They'll have planning, land, grid and route to market. It's really a question of managing the risk of when they get built and how much it's going to cost. Anyone who's done home improvements now that those are the 2 ingredients to think about enterprise. So what do you pay away for a construction asset? Well, you have to build it. So during that period of time, you're not earning any return. There's a period where there's zero cash return to you. On a portfolio basis, that's manageable. We'll look at that in a minute. The NAV effect. So if you spend 100 building a wind farm, if you've done your job well, then at the end of that journey, when it's operational, it should be worth a lot more than that. I mean not 300, but some decent function of it. So fundamentally, these are assets that appreciate in value. they'll then start to decline. Initially, they can add to the net asset value of the business. How much risk and rewards do we think about? So there's a range there. One could buy a construction project where it's fully wrapped by somebody else. They're taking the risk of timing, they're taking the rest of costs. The other end of the spectrum, those are your problems to deal with. And the job that Steven I have with the Board is to measure the right return we should expect for those risks. That's the calibration exercise. And what kind of revenue are you buying? Well, typically assets that are being built today are about to be built beneficiaries of contracts with differences, so 15 to 20 years of CPI-linked income. So these are typically going to be highly fixed by nature. So life extension. This is probably -- this is the clearest example of creating value from things that we already own and things that we already understand. So these are assets where we've operated in for a decent period of time. You understand the wind regime, you understand the land you understand the local environment. There's a lot that you already know. So how do they behave from a portfolio composition perspective. So if you're thinking of life extending something, it's already an operational asset. So it's already yielding you cash. If we pretend for a second that it's a wind farm that is, say, 20 years old, it's got 10 years left and that comes a little bit back to the acquisition that we announced this morning. Then if you can add another 5 years of cash at the back end, then that's obviously going to appreciate the that has value. So it's appreciating in the beginning. And depending on how much cash versus the cash you already own you're adding, there's an uplift in the returns that you're getting, Why? Well, you've just created some new revenue and it's not desperately costly to do so. What do you do with those hours that you've created, you could choose to contract them on a short-term basis and a medium-term basis or a long-term basis. There are lots of options. That's why we've written a variable. And lastly, repowering. So that goes 1 step further. So creating a new wind farm out of an old wind farm, there's inevitably a period of time where you have to take down the old wind farm, but the new one up, so it's a bit like construction. You lose some revenue at the beginning. But what you're gaining is typically a far more productive site with larger turbines that better harvests the wind resource available at that side. It's obviously additive to the net asset value because you've just created a brand-new 30-year asset out of one that you had are written down to close to zero. So it's usually additive. The returns will depend on the quality of the site that you can contact out of the ingredients you inherit. And what would the cash flow look like, as I said, most new sites today are being built under long-term allocation around contracts for differences. So likely highly and fixed. So bringing these all together, the way that we look at these is complementary building blocks for a portfolio. No one of them is particularly better than the other necessarily, and it could change over time. You see points in the markets where certain operational assets trade at really at prices that are really attractive in times when they don't. The point is this gives us the choice of where to allocate capital dynamically over time. And as you'll see later, improve the durability of U.K. Wind's returns. And I'll just bring that to life a little bit with some, I guess, deliberately kind of cartoonish examples. So what this is showing is we invest in a pound in a construction asset, what happens. Then we'll look at repowering and then we'll compare it to an operational asset. So as I said, there's a period of time where there's no yield on your investment. Why were you building a wind farm? It could be 12 months, 18 months, 24, 36, it depends on the complexity. There's a period of time where there's new yields. So if your entire portfolio was this, it wouldn't very well work for us with it, right? You wouldn't have the cash to pay our dividend in the near term. This is not the entire portfolio. This is an example as a building block of how we can compose together the cash flows to deliver [Indiscernible] outcomes. And as I said earlier, you spend your money over time, but ultimately, at the end of the journey, you have an asset that's more valuable than the one that you paid in this case, 4. Why were you taking risk, you're compensated for that? And if you had a rule, I don't -- you draw a line and you would see that it really sort of delays the depreciation. So that pound is still worth on out until about 10 years or so. That's quite different with a mature operational asset. So let's think about buying an operational asset and repowering it. And again, you'll hear a lot more about how to do that today and the risks and how we judge them. So at the beginning of owning an operational asset, we've assumed here, it's only got 5 or 6 years left. Well, this NAV is going to go down to zero, because you run out of the cash flows that you've bought. That's obvious. The compensation is in the near term, new yield is pretty high. If you've got 5 years left, roughly 20% of your peer because you're degrading the asset value as you go. So you have a decent period of yield, but you have your NAV running off. So on the way that you do it is you would line up your repowering ahead of that moment because these things take years involves planning, the involves working with the grid, you may need extra land, you line that up so that you then have a shorter period as possible of taking down the on-site and putting the new one up. And what does that give you? Well, it's kind of like a construction exercise, right, a period where you don't have any yield, then a pretty steady yield after that and a big increase in the asset value, why you just created a valuable asset. So if you think about how you could compose these things together, that is what this slide is trying to show again. It's in a deliberately cartoonish way. We've spoken about construction assets, meaning that you don't have a yield for a period of time, that's completely manageable if you compose it with the right set of assets. So it struggles around a bit, but more or less it isn't particularly different to only an operational asset from a yield perspective. And I think on a NAV perspective, with a broader investment portfolio, you can see that there are opportunities to add value, and that in itself defrays the depreciation of standard operational assets. That's what this can provide. So I'll just summarize and then allow Steve to come up. So a good question would be, well, why are you doing this? Operational assets are completely fine way to continue delivering U.K. Wind's proposition. But as we've just demonstrated, with the right composition and good risk management or a broader set of investments, you can alter portfolio outcomes for the long term. And that's what we're in business for. We're a long-term business that thinks over decades of horizons. That's what this can offer. So to summarize, described how U.K. Wind is advantaged as a business with scale, self-generated capital a large target market. And increasingly, we see that investors are distinguishing between businesses that possess these characteristics and those that are trying to create them. with any number of risks, changes in strategy, you given is already there. That is what U.K. wind is by design. We now have more ways to deploy. It's much better to have 4 ways to get there than one you can get there with one, having 4 ways that you can allocate dynamically across at different moments of time depending on the relative attraction for us as portfolio managers is a very attractive feature of what this provides us with. And what does that give you a more durable portfolio, more ways to add value for shareholders and fundamentally, longer life assets with more options as to how you can contract the cash flows of the business. So Steve is going to build on that and show you the market size, our ability to execute in these areas and then what it means fundamentally for shareholders in terms of cash flow over the long term.

So thanks, Matt, and good afternoon, everyone. So as Matt said, I'm going to talk around some broader detail on the toolkit that we have and what this means for U.K. wind and its performance metrics going forward. But firstly, I just wanted to recap on what we've learned so far today. So Lucinda said earlier, we've done a thorough market review of all the options available for U.K. Wind. We've looked at different technologies. We've looked at different geographies, and we've looked up and down the value chain as well. And we've concluded that the best risk-adjusted return opportunities for U.K. Wind remain in wind in the U.K. Our financial discipline remains unchanged. We're going to keep our approach to gearing. It's worked in the past, we're able to refinance and it's going to work in the future. We're going to prioritize a well-covered dividend, and of course, the inflation linkage will remain. And we have clear hurdles for investment. The move with this broader toolkit will be scaled gradually. It's going to be funded out of self-generated capital, which means that we will be growing slowly into this new world for U.K. Wind. And naturally, we're going to remain selective in terms of those new opportunities to make sure that the risk-adjusted returns work for every single opportunity that we pursue and that it complement the overall portfolio. So Matt talked around a broader talk it earlier on and why that's attractive to us giving us a more durable proposition for the U.K. wind and at least 3 questions. Firstly, do we have the capability to execute this [Indiscernible]. Secondly, what are those opportunities in practice? And what does the market actually look like? And thirdly, how will we allocate capital between those different opportunities? So the first question is, can we do this? Do we have the capability. So Matt and I have spent many years working in this field and personally have worked on over 70 projects delivering 1.8 gigawatts of renewable energy capacity. We think that's pretty significant. We have a wider team as well within U.K. Wind who's also worked on these types of opportunities, that span the full life cycle of renewables from greenfield development all the way through to approaching construction into construction and then actually at the back end and even some repowering as well. Me personally, I spent a significant part of my 20-year career working on development and construction opportunities. That includes buying pipeline, selling pipeline, looking for routes to market, a paying for CFDs through competitive auctions, and also looking at construction as well, as you can imagine. Indeed, my last role, I was leading the development and construction activities for a pan-European developer. So it's fair to say I've got a bit of experience in this field and maybe even some scars to bear as well. I'll look to bring those to U.K. Wind. In addition, the manager showed as GreenCo has a huge amount of experience here. We've invested in over 9 different technologies and deployed GBP 2.3 billion of capital into development and construction. We have an in-house development team dedicated to working on development and construction. And we're currently building hydrogen projects, battery projects, solar projects and, of course, wind projects. So we think that really gives us the credibility to be able to go and execute on this new tool kit. It's more of a hygiene factor. But having said that, the next thing is to talk around what these new opportunities look like. So I'm going to try and give you a bit more depth and color on that. So construction assets. We've talked a bit about this already. So since 2013, in the U.K., the majority of renewables have been procured for what called contracts or differences they do those allocation rounds and they end up with 15- or 20-year contracts inflation linked. Obviously, that matches our dividends. We think this is really attractive. Indeed, allocation is around 5 to 7 where projects have been allocated at the moment of around 3.8 gigawatts of supported onshore wind projects. So we think the size of that opportunity is especially attractive to us, and which means that's why we're going to be focusing on onshore wind in terms of construction. And we've been actively originating opportunities this year. The team have been working very hard and the relationships that we have with the utilities and developers really make sure that we see the vast majority of pipeline out there, and in some cases, even bilateral deals as well. So we've worked on about 350 megawatts so far. Currently only got about 100 megawatts left in the pipeline. And the reason for that differential is that we haven't always seen risk being priced right. And we're not willing to move our discipline there. And so we're happy to pass on opportunities where we don't see the right risk-adjusted returns. Matt also talked around the difference in terms of premium PC compared to the operational base case, 50 to 200 basis points. That might seem like quite a large range, but that's because not all construction projects are the same. You can have a fully wrapped construction project where price and time and all the risk is taken by the counterparty, you'd expect to earn a lower return. On the other end of the scale, there can be specific issues that you have there. You might not have a time guarantee, you might not have a cost guarantee. And for that, you're taking more risk. And therefore, you would expect to be able to earn a better return. Our job is to make sure we price that risk correctly. We believe we've got the experience. We explained it already. And after we price that risk, it's then about execution. So moving on, life extension. So this is the lowest cost form for value creation for U.K. Wind. Matt mentioned it earlier, around about 300 to 500 bps extra on IRRs for projects is really, really significant. And it's a growing market. By 2030, more than 5.4 gigawatts of capacity -- wind capacity in the U.K. will be 20 years or older. And naturally, each year thereafter, there's going to be more coming into the pipeline. So that gives us a great steady flow of opportunities. We believe U.K. Wind is also a natural home for such assets. The yield high and we have the dividend, they match really, really nicely. And we've got the skills to optimize and manage these assets in-house already, managing 49 wind farms already. So from a technical and commercial point of view, we think we're second to none. We also don't even need to look to the wider market. Both Lucinda and Matt mentioned it earlier, we have opportunities in our portfolio. We think we've got more than 20 projects or more than 800 megawatts of capacity that could be suitable for life extension. And as you can imagine, we're busy working on that, thinking about the real estate, thinking about the planning and thinking about how we're going to maintain those turbines for the long term. In terms of what that means financially, if we extend all of those assets by 5 years, it would add about 4p to NAV, and you might be thinking all that. That seems a bit modest. Where is the real value? Well, the real value is actually much longer term because our assets are on average 10 years old, that additional 5 years is in 15 or 20 years' time. So you discount it back to date, it's much less. Therefore, it's probably more interesting to think about in terms of additional cash flows. So if we again extend those assets by 5 years, it would add about GBP 100 million on average per annum to cash flows during the 2040s, really future purifying the business for the very, very long term. And actually, in terms of modern projects that we're seeing, both in construction and elsewhere, almost all projects now are being designed on a 35-year basis. That's what the planning is coming with. That's what the leases are therefore, and that's indeed what the turbine manufacturers are operating as well. So in terms of a technical risk and from a planning risk, we think the barriers are relatively low. So next on to repowering. So the first question is, what is repowering and that's effectively building a brand-new wind farm on the current land that you have. It's typically going to be with more modern technology, many bigger turbines, typically fewer mostly because of their restrictions in terms of grid. But what we'll see is a higher output something like 25% to 40% extra output as these turbines are much higher with larger swept area, that's the area of the turbines where they can harness the wind, leading to a better utilization of the group connection. And of the 5.4 gigawatts of wind capacity that will be 20 years or older by 2030, 4 gigawatts is onshore capacity. And again, that's where our focus is going to be because the market is so attractive. And again, there'll be a steady stream of opportunities there for us. We mentioned -- Matt mentioned this morning, we announced that we acquired the extra 20% in what we call the [ Willow ] portfolio internally. That's a combination of 5 wind farms that we acquired from [ EDF ] earlier this week. And that is a real live example where we can apply both end-of-life extension and repowering, and we'll come on to that in more detail later on. So we think repowering is really success really interesting for us. And we've actually secured repowering rights across other of our wind farms as well. That's going out with the land owner and securing the real estate as well. And that's something that we have a target list, and we're working through with our team on a daily basis. It's important to note, though, that not all of these will be successful. There might be planning issues, there might be real estate issues, there could be issues with the economics as well. but we believe in building this optionality for U.K. Wind in the future. And we understand what the characteristics are of what makes a successful site or not, and we'll be able to execute on that. So finally, in terms of the broader toolkit operational assets, this remains the core part of what U.K. wind does. And it's a really key pillar for us. And it's a hugely active market. So each year, there's around 2 to 3 gigawatts of publicly traded wind farms out there. So it's a massive opportunity for us. And again, the relationships that U.K. Wind has built over the past 13 years mean that we see the vast majority of this pipeline. We've looked at a number of assets this year. We're not always seeing the value at the moment. So we're not actively perceiving that. One of the benefits of this broader toolkit means that we can go after the best risk adjusted returns at any one time, and we will continue to do that. And the principle will remain the same. We're looking for that pricing. We're looking for portfolio fit. So we're looking at things like where the location is, what the turbine type is, what the revenue stream is and also having an eye on maybe in the future, can we look at asset life and/or repowering. So together, this toolkit gives us -- not an obligation to buy, but the opportunity to look at a wider range of opportunities for U.K. Wind. Let's quickly turn our attention to revenue management. And I appreciate this is quite a busy slide, and maybe not everyone can read it from where you're sitting. So I'll try my best to take you through it. The first thing to say is that U.K. Wind's merchant to fix exposure is a deliberate choice. It's been the case since IPO, and it remains unchanged today. And we're not going to change it going forward. But what is changing is our ability to be able to shape those cash flows, both in the short, medium and long term. Now the current portfolio has an inherent profile in terms of its fixed to merchant exposure. You'll see at the top there, we're about over 60% fixed over the next 5 years. And over the long term, we're about 50-50 by [Indiscernible]. Now if we did nothing, it's going to get more and more merchant over time. But of course, that's not an active manager is going to do. And there are many levers which we have, which we can manage this risk with. So new investments into contracts with difference, 15- or 20-year inflation-linked contracts. Corporate PPAs maybe even a wholesale CFD might come available at some point. And then that over the shorter term, we've also got physical hedges and financial hedges as well. And together, that helps shape the cash flows that we have really underpin the dividend. And that reinvestment is really, really key for this because those CFDs can really help marry up against some of our older assets and make sure that we have the right ratio going forward. So capital allocation choices are absolutely key. And then in that shorter term, we've been very active over the last 12 months. We've hedged around 3 terawatt hours of power during 2026, 2027 and the early part of 2028. And we're not trying to predict power prices, but what we're trying to do is give certainty to our dividend. We're also very active in the corporate PPA market as well. We have some corporate PPAs in our book, and we're running a tender process at the moment for exactly that. But it's also important to note that merchant exposure should be balanced. 2022 and indeed this year has shown some upside for U.K. Wind. So finding that right balance is absolutely crucial, and we'll go into that in more detail on Session 3 later on. But the key point to take away with all this slide is that we have many levers to manage our merchant risk in the short, medium and long term. So the next question is, how are we going to allocate our capital? All these opportunities only really work if we choose well, and we want each pound to compete. So the 3 criteria we're looking at, you can see them on the screen here. Return to risk-adjusted return against the operational base case. We talked through earlier on about some of the differences there, and we can see across construction assets, life extension and repowering. And we'll always be calibrating that to the operational core of the business. Cash flow. What is the effect on short, medium and long-term dividend cover. It's a crucial factor for many of our investors. Linked to that is how much of the cash flow for new investments is fixed or the ability to fix that cash flow. And finally, portfolio impact, what's the impact on NAV. We talked earlier on that you can have assets that depreciate, you can even have assets that appreciate in the short term. We've also got to think about asset age as well, as well as the overall effect on the concentration and/or diversification in our portfolio. Therefore, it's really important to triangulate all of these opportunities to make sure we're pursuing the right one. This is all underpinned by discipline as well. The Board are involved, obviously, in every single investment decision, but also much earlier in the process when we're looking at opportunities as well. It's a key facet that we make sure that we're looking at the right opportunities, the whole way through the opportunity set. You'll note here and later on, we're not setting a specific target for the different allocation buckets or the different toolkit. And that's a deliberate choice. We want to make sure that at any point in time, we can make the right decision to go after the right investment with the right risk-adjusted returns rather than having predetermined buckets to fill. We think that's the best way of creating and managing value for U.K. wind and our shareholders. So in summary, in this section, we believe we've got the credibility. We've got a really attractive toolkit in terms of opportunities, and we've got a very defined criteria for allocating capital along with numerous levers to manage our revenue management. So what does this mean? And what does it mean specifically for the performance metrics? So we've talked about today how the investment proposition is not changing, and how a broader toolkit gives us more durable delivery. But what does that really, really mean? So what I'm going to run through now is some allocation scenarios, how we're going to allocate our self-generated capital. You're going to see one where there's no reinvestment. It's not realistic. It's a bit of a spot, it's not a realistic opportunity. Second, where it's all invested into operational assets. And then thirdly, using the tool kit. He's obviously all illustrative. So here on the screen here, you can see the same chart which Matt showed this morning early one. The only difference here is that we've added in the fixed cash flows as well, which is the darker green stack at the bottom. Now these are finite life assets. So as you can see, over time, the cash flows do diminish. And there's fixed cash flows down here towards the end of the 2030s is the rocks and CFDs and corporate PPAs start to roll off the fixed cash flows disappear. Note here that there's no revenue management. So in reality, if this was the case, which isn't realistic, if there was a case, we would be able to better that situation. But this just isn't a realistic opportunity. This is assuming that all the cash that we generate, we do not think with, we don't even stick it in an account and earn some interest. We just forget about it. We wanted to show this to show the value that we can create by allocating the capital sensibly going forward. So what would it look like if all of that self-generated capital was put into operational assets. It's a totally different story. As you can see here with the blue stacks on top, we're able to grow our cash flows in the medium and long term, and we can add significant fixed cash flows too. The [Indiscernible] CFD still expire and it leaves us by the end of this chart, assuming no revenue management, so there's no fixing. There's no corporate PPAs, nothing like that. with around 30% of our cash flow is fixed. In this scenario, the NAV grows and asset age slowly increases. That's on the qualification that the way that we've assumed that these assets would be bought when they're 10 years old, you could actually buy earlier, younger assets and manage the asset age more actively. So this works. It's a totally deliverable proposition, but we can do better. And that's using the broader tool kit. For these purposes here, we just simply put 1/3, 1/3, 1/3 in terms of the allocation buckets. So 1/3 into operational assets, 1/3 into construction assets and 1/3 into repowering opportunities. Here, the cash flows grow again, but faster. In the short term, it's relatively similar. It's a bit of a cash drag from the assets put into construction. But in the long term, we're able to augment those cash flows. And by this, we're also naturally able to maintain the 50% target. See the blue stack in the middle, that's all the Fit cash flows. So without any revenue management, we can achieve the 50%. Asset age is maintained. And because of the value enhancement that we have through some of these high-returning products, we are able to grow NAV faster. It's important to note that none of these charts here have shown anything on end-of-life extension. And as I mentioned to you earlier, that can be a significant upside for the business. So in summary, this broader toolkit enhances our overall performance whilst maintaining short-term dividend cover. It's a very important factor for us and delivering an enhanced NAV growth for our shareholders. So bringing this all together, the investment proposition is unchanged. We'll say it again. We want to well-covered dividend inflation linked with reinvestment into U.K. wind opportunities to preserve the capital in real terms. It's the delivery of that proposition, which is evolving. And here, you can see some performance metrics, of which we care about when we're making these investments. So the optionality, we're able as you can see here, to look for different ways of investing our cash. We've talked about these already. With this broader talk it, we can naturally maintain the asset life, the age of the asset life in our portfolio. We can also maintain the fixed revenue profile without any revenue management at all. And finally, we're able to enhance the NAV growth for our shareholders. So we're really excited about this proposition. And with that, I'll hand back to Matt.

Thanks, Steve. So really, before we move to Q&A, just to summarize, what would like you to take away from this session. So we already feel that U.K. Wind is an advantaged position because of its design. It has scale, it's self-funding. We have a target market that we can invest in at attractive returns. And those characteristics together are the ones that I think are going to distinguish the businesses and succeed in this market from those that don't. And the characteristics we already possess by design we have the we need do nothing more to get there. And we described to you today a range of different investment opportunities that we have, that we've worked very hard on with the Board and thought about deeply. That gives us multiple ways to get there. As Steve said, this will be a dynamic allocation over time to respect which opportunity at any given moment looks the most attractive to us and how that impacts the portfolio? And what does it deliver us an even more durable portfolio, longer-term cash flow flows more ability to fix cash flows, more tools to do that and, frankly, more ways to add value. So look, we're excited. U.K. Wind is already a market-leading business. What we're doing today is explaining the ways that we're going to use to make it even better. So thank you for your attention through the 42 or so minutes. You've been very patient. It's time now to hear some questions. So John, if I invite you up, you can lead us through questions and Steve and I will stay on the stage, you take them.

So I thank everyone. They should be roaming mics and there is the ability to ask questions online, but we'll definitely start in the room. We've got about 15 minutes before we head to coffee and collect [Indiscernible].

Just 3 from me, please. Can you give some color on the pricing differences, the risk factors you talked about in terms of the 250 megawatts you've walked away from market-wise. And second of all, can you give any color in the cash flow scenarios illustrations that you've given? Has there been any change to the expected dividend cover range within those? So are you dropping that down a little given how the market's changed. And again, just in terms of the other key factors on those cash flow assumptions, what's your realistic view of -- or your current curve for the power price in those numbers, please?

Yes, sure. So in terms of some specific, if you can hear me, specific reasons why on those construction assets, we didn't meet the pricing expectations. As I said earlier, not all construction assets are the same. There are -- there's a whole host of risks in these particular examples, there's ones around grid. So maybe the planning for the grid isn't completely there. or they don't have like a certainty in terms of that grid date, we would see that as a bit of a risk. Not in terms of you won't get there, but there's a timing issue there as well. And if that risk is pushed onto us, we'd expect to be able to price that in. There's capital out there that. I overlook that risk, I'll see it differently compared to us. There's also other aspects in terms of the way that they look at energy yield as well. We all know that energy yield is an important facet of wind assets. And sometimes people are willing to be more aggressive in terms of their views on that. We're not willing to sacrifice our positions on where we see the long-term yield targets are going to be. And then there's probably also things around that there's a bunch of pent-up capital out there that's really trying to chase these assets, [Indiscernible] especially our attractive 20-year linked inflation contracts. And there's people going after them as well and maybe just willing to bid at a cost of capital that we're not willing to go down to. And this is one of the benefits of the broader [Indiscernible] is that we have the ability to say, okay, well, we won't go there. We're going to find this other opportunity as well. And we've also got relationships with the vast majority of every major developer here in the U.K. And so we're able then just going to find other pipeline out there. And we don't feel constrained at all by pipeline. It's more around finding the right risk-adjusted returns for the business. [Indiscernible] So none of them have actually closed. So it might well be that they come back to market at some time. This is all the next slides we've largely been doing this year. And we're not aware of any of those deals actually closing. So they could come back.

So as Steve said, it's about discipline. I'd rather wait a little bit and invest wisely, because you're going to own that into the future. And we've both seen enough construction projects. Jim certainly seen [Indiscernible] as well. So you know what you're looking for, you know how to price it. And if the market is telling us that for these particular projects, and there are still 100 megawatts that we're looking at, that does work for us that the price isn't the price somebody else is willing to take more risk than we offer the price, then that's completely fine. You also asked a second question, Colette, on the portfolio cash flow returns over time. So those are just assuming our current NAV assumptions, nothing new, nothing heroic. And as Steve said, that even excludes the possibility of extending life of existing assets. If you did see that, it would happen, of course, later because a few of our assets are 25 years old, more of assets in the 20-, 25-year-old range. And if you wanted to think about what that means in terms of dividend cover going forward, we didn't put a line on the chart we could have. That shows that if you take our current dividend liability of roughly GBP 230 million and times it by your expectation of CPI, you maintain pretty decent level looking dividend cover. So the 1.7, 1.8 kind of range that we've been guiding to for the next 5 years. And it's one of the key criteria for our capital allocation policy as well is to think about what it does, what the investments do to dividend cover.

We have 2 questions each, and then we'll try to get around the room -- or 1 or 2.

I only have one [Indiscernible] You had -- Steve, you had Slide 34, showing the runoff. Obviously, the cash flows decrease over time as the assets age, but we're also going to get more dividends in the near term because there's going to be no reinvestment. I'm not advocating for this. This is more of the curiosity. What does the sort of PV of that look like if you just paid back every penny compared to the other scenarios where you are reinvesting in the different ways.

So you mean if we paid back everything back to shareholders?

Yes. 100% of that.

So in terms of we have that exact number here in front of us, if we were to -- at the moment, we're forecasting we've got about GBP 200 million of extra cash or self-generated capital each year for the next 5 years. And so if we're paying you an 8% dividend this year on NAV, then it's almost equivalent to that. So something like 14%, 15% in terms of returns, it could be each and every year. But that has very limited longevity because if you're not reinvesting back into the portfolio, you can even do that for a certain period of time, and it's effectively winding down the business.

It would just be -- as Steve has said, you get a yield that would just decrease over time, but the present value of that is in effect what our net asset value is. It would just be the shape of it as it comes out to you. So that in effect is a wind down.

So another way of looking at it is your NAV doesn't include any optionality for these other [Indiscernible]?

No, we don't bake into our NAV that we are going to generate cash and then do something good with it. On a yearly basis, you do expect that you're going to have the net cash generation that comes off of the portfolio, but the future allocation decision as to what that earns in terms of return, be it any of the investments we described today or other methods of capital allocation, that's outside of the NAV.

If we go to Ashley next and then Ian afterwards.

[Indiscernible]. Just on the 50 to 200 bps construction premium. I think occupancy Renewables last year, I think they were suggesting they were sort of finding or could see sort of 50 to 100 bps on construction premium. And actually in the sort of recent ARV solar acquisition, it's been structured to be conditional to avoid the long-stop date risk. So sort of just wondering, I guess, AR5, given maturity has got that greater long stop date risk. And as you said, AR 7, sort of there's a lot of demand for it given the longer tenure. So do you think we would actually be landing with construction premium over 100 bps. Do you think that's still that opportunity?

Yes, we do. So just to make sure we're using the right currencies. So that's our levered return. So obviously, the range will be lower and smaller on an unlevered basis. I think there's a bit of a differentiation also with solar in terms of construction risk typically. There are, of course, can be some digital issues with solar. But typically, your program and componentry is a bit more straightforward wind there are more components to bring together and more prospects of the delay. So there are more risk-seeking opportunities out there the wind that we see, and you could see 200 basis points of additional return. But for Steve and I to underwrite that, we're going to have to be pretty comfortable that's world price risk, and that is the entire exercise. What is at this moment, the best thing to do is it to have a slightly shallower increase in returns from construction because you can understand the program, you can see that the risk isn't really there. If there's far more risk, we're going to have to price that judiciously. That is our job. And as Steve said, we've seen as scars been there, brought the hats in the movie. We've done a lot of this. And fundamentally, what you're relying on here is our scale and the scale of our platform with us [Indiscernible] assess prices risk well and then deliver execution.

And maybe just to make the comparison to solar is that in the wind in the U.K., it's pretty rare to find an EPC wrap on your construction in solar, it's relatively common. And because of that, there's just a natural ability to find extra returns in wind because most developers either don't wrap it or they want to sell the beginning of construction as well. So construction risk does get passed on to the long-term investor.

[Indiscernible] Ian next.

It's Ian Schuler from Canaccord. I was wondering if you could talk a bit about your assumptions on the cost of land. I expect quite many of the landowners will be looking for higher payments in the future. particularly given the success of the renewables industry over the last few years? And how can you mitigate that?

So a good and fair question, Ian. So the fundamental components of extending the life of your asset if you don't already have sufficient lease term or getting a new 30-year lease [Indiscernible] that for repowering is land is one of the key ingredients grid. You normally have that. planning, you have to seek that route to market. you can arrange that land. And that can be anywhere from simple, easy to deal with land owner. You already have a long-term relationship to the opposite end of the spectrum for complexity, which is suddenly represented by an agent, multiple things that you can do with the land, multiple ways to try and architect value out of these renewable folks that turn up in the other side of the kitchen table. We've dealt with all kinds. We've, in fact, recently dealt with a competitive tender for life extension land at one of our sites and managed to win that. There are, in some respects, some advantages that you can bring is the existing land as an existing tenant, they know you, they have a relationship with you. They generally can see that you're a reasonable person. And you can also factor and capitalize some of the rent that they're presently receiving today in exchange for a sort of easier part in the future. So this is -- we've done a lot of this. It is an area of complexity and you need some skills, but we feel well equip to do that.

Maybe just a couple of additional points here. So firstly, a grid sits with the SPV normally. And so that's quite an important bargaining to all because if landowner wants to use someone else, I need to go back to the [Indiscernible] know the problem of grid here in the U.K. And secondly, sometimes you won't be able to reach an agreement on real estate with a land owner if it doesn't work. And that means that not all of these opportunities will come to fruition. We're very transparent about that. We're lucky that we've got 49 assets and hopefully, we'll be able to require some more over the coming months and years to give us further opportunity there. So that even when we don't get there on real estate, we'll have other opportunities there in order to get there.

I know we haven't got loads of time, but we'll do a couple more and apologies, we'll probably have to come back to the questions online separately. So if we got [Indiscernible].

[Indiscernible] a quick one for me. Just in terms of portfolio size into the 2030s. So I guess, in terms of cash yield on the existing portfolio because of the rocks be particularly higher. So as you get into sort of building out the reinvestment cash flows over time, how much bigger would the portfolio have to be in terms of, let's say, going from 2 gigawatts net installed to date to a higher level, presumably what sort of level might that be?

I guess we haven't really calculated that as a gigawatt figure because we're looking dynamically at the opportunities. And as Steve said in the charts that we've shown, we've used sort of 1/3, 1/3, 1/3. So you also have to factor into account that by the mid 2030s some of your assets are retiring unless you do something with them. So we don't have those figures to hand. We'll be happy to follow up with them afterwards. But fundamentally, I think if I'm getting to maybe where you're looking on this, we don't have to buy a significant proportion of the market or be particularly successful in buying things to spend the GBP 250 million we have a year on the range of opportunities that Steve is showing. There's probably across what we're doing, GBP 5 million, GBP 6 billion, GBP 7 billion of opportunity per year, and some of that's already ours. So I think the path to execution is good and what the ultimate outcome is in terms of gigawatt hours will be a function of where we spend the money exactly.

Do we have any more questions in the room? We got Alex, sorry, and then we'll have to call it a day after this one, and then we're obviously around later in the day and can take questions separately.

Just 2 for me, please. Just firstly, on the EUR 0.9 billion to EUR 1.4 billion. If you could just give us an idea of what assumptions underpin either end of those ranges and how it compares to your base case. And then secondly, you've talked about a lot of levers to get you back into that sort of 50-50 split merchant contracted. I'd be interested to understand how flexible you are to going above that on the contracted side if the government offers you the opportunity to do so next year through voluntary CFDs?

Sure. Yes. So in terms of that range from [ 0.9 to 1.4 ] basically we sensitized wind speeds and power prices to come that are major risks, as you all know, and we sensitize those on a realistic basis of what the downside and upside case could be, and that sets the range. It's just as simple as that.

And it's the same guiding factor that we've used for the expressions of this year's dividend cover, so a sensible range either way up or down in terms of renewed power prices. So when it comes to the balance of fixed and floating cash flows, as you see, investing is one way to manage that, absolutely. And I think you also -- particularly when you think about things like the wholesale CFD, you need to really know where it's going to land, right? So we haven't seen that yet. It is, we understand being worked on. It depends on the kind of pricing that you can expect to get from it the tenor as to whether that's an attractive route. The good news is there are plenty of different routes. You've seen us do a lot more short-term hedging. What is the right number going forward? 50-50 is an inviable rule. It could be 55, 45 or the other way around. And in fact, today, because merchant power prices are higher. And even though we've hedged, we're slightly more merchants than we are fixed. The way to look at it is where we're seeking fixed revenues, are we seeking them at a price that justifies the givens and return that you get from otherwise only merchant revenues. That's how we also look at hedging in the short term. Is this at this particular moment a good way to secure near-term dividend cover at a reasonable cost. And that is exactly what we discussed and you'll hear a bit about this afternoon with Nick, [Indiscernible] James and myself, our approach to how we're thinking about power markets, and the structure of U.K. Winds book. Yes. And maybe just to say we're supportive of the government and the wholesale CFD. And if it's well designed, we think it can be very positive the renewable sector as a whole and U.K. Wind and it just gives us another lever on which to manage our fixed to merchant ratio. So we're really positive about it.

So thank you, everyone. Thank you, Matt and Steve, will take -- it's going to be 20 minutes, we might be slightly shorter than 20 minutes. We'll take a quick break, get coffees and then we're back here for 2 sessions this afternoon on repowering and power markets. Thank you. [Break]

Welcome back. As a reminder, the second part of the Capital Markets event is going to function of 2 sessions. The first around extending asset life and around repowering and then one around the future power markets. And just as a reminder, after these sessions finished, we have some further refreshments for you. So please do join us for that and some and formal Q&A as well. So in this session, I'm going to outline our approach to repowering some of the thinking around it. And then I'm going to be joined by Jim Smith, who's one of our nonexecutive directors, and Pablo Hernandez, who heads up U.K. Winds technical asset management team for a fireside chat, followed by some Q&A as well. So firstly, I thought it would be good just to recap why this is interesting for us. Scale. Scale is really, really important. I mentioned earlier on, there'll be 4 gigawatts of onshore wind by 2030, that will be 20 years or older. So a really exciting opportunity at scale for us. There's also possibilities to hybridize those projects as well in due course, even if now we don't believe it's compelling opportunity. And what does it bring for U.K. Wind? So it brings in extra cash flows and NAV growth. Why that NAV growth? One of the things that you can get from repowered project is bigger wind turbines. So you can get further output. And that's because you can use take old technology that might be limited to 100, maybe 140 meters of tip height up to 200, sometimes even 250 meters of tip height. That's significant increase in output, something like 25% to 40%. You might even be able to secure some extra good capacity, which means that the overall project could increase in size as well. Repowering also comes with CFDs, we talked about earlier on, which gives us those fixed cash flows. So we think it's a really exciting opportunity for us. So what is the decision-making process look like, and we'll go into a bit more of that later on. But the 3 decisions effectively are you decommission your asset, you extend asset life or you repower. And typically, you're going to want to extend asset life for as long as possible because the cost of extend asset life are typically quite minimal, and it comes with pretty high cash yields. And you don't then still give up your opportunity in terms of repowering. We mentioned earlier on, we've got around 800 megawatts or more of assets where we think there's an opportunity to extend asset life. And we talked about some of the financials or what that looked like as well. And this isn't theoretical. This is something that we're working on in the future, something we're working on now. The Willow portfolio, which we announced this morning is something where we can talk about in more detail in a few moments. But first, we thought it'd just be good to outline what this looks like in practice. Effectively, extending asset life and repowering are 2 return profiles. Matt showed that to you earlier on. So on the left-hand side of this chart here, we've further broken it down in to operate the existing asset, develop the opportunity to repowering, then construct that repowering opportunity and then you've got your repowered project. And those first 2, the operation of the existing asset and the development of the repowering opportunity effectively coexist. It takes a time to actually secure that repowering and you'll be doing that during the existing asset life. After you then secured your planning consent for your repowering, you'll then build that project, which is pretty much like a normal construction project but you need to bake in the decommissioning of the existing project at all. And finally, you end up with that fully repowered project. Now on the right-hand side of the slide here, I just wanted to highlight some of the work that this envisages. We had some questions earlier on around real estate. It's a significant part of what you need to do when you're developing repowering. You need to think about planning constraints as well and where you are on grid and you need to use that in order to understand what the new layout for your new project can be. And it's a bit of an iterative process, and you need to be able to understand what the factors are to give you the best chance of being able to secure repowering. You need to think about your wind and what the layout actually looks like, knowing the actual asset like we do actually helps because you know what the wins fees look like. You know where to put your turbines. What it might mean in terms of turbine choice as well. So after you've done that, you've then got your repowering consent. So what do you do then a preconstruction works. And there's a lot of things around preconstruction, but the biggest element of that is going to be procurement. And it's not just buying your wind turbines. It's also procuring all the necessary civils and electrical infrastructure and then making sure it all works together. There's no point buying your turbines and turning up and not having a road or some way to erect them. You've got to have the symbols there and you also then got to have the electrical infrastructure too. And that leads us on to construction. And if you planned your preconstruction really well, your construction has a much better chance of succeeding. That preconstruction phase is really, really, really important. And at the end of this, you have your repowered asset with, hopefully, a CFD and extra 30 or 35 years of asset life. So we thought we'd just bring it to life a little bit with the Willow transaction that we acquired this morning. So firstly, you need to actually own the asset to be able to extend its life or repair it, obviously. Probably worth noting here that for this Willow transaction, we didn't pay anything for life extension or NAV. It's just on the cash flows of the current project. So life extension and repowering is pure upside to us. So next, we'll look to operate. Now we know the assets very, very well. But actually having full control of that really that to commercially optimize everything you're doing in terms of the turbine contracts, O&M contracts in terms of what you're doing with your land in terms of potentially even corporate PPA, and these assets tend to have a higher cash yield as well. So they're really attractive from a dividend point of view. And now the really interesting part, life extension. So as I mentioned earlier, you're probably going to want to extend life for as long as possible because the cost of us are relatively minimal, and the upside is fairly significant. And there are 3 facets you really need to think about, real estate, planning and whether your turbines can actually operate for that period of time. Now we've got the skills internally to be able to achieve all of those things and understand what needs to be done. And we're working on this actively for Willow, but also other sites at the moment. So you can expect in due course for us to be able to give you further updates. And what does this mean, though, in terms of numbers? So if we were to extend this almost 100-megawatt portfolio by 5 years, it would give us more than 400 bps on the IRR. That's a huge increase because it's 5 years of extra cash flows for a project that has about 11 years left. It's really, really significant. And actually, it adds about 15% to the current NAV as well. So these are significant numbers there. And if we can repeat this time and again across our portfolio, there's a really great opportunity there to add significant value for U.K. wind and its shareholders. So finally, on to repowering. So after you've run your asset for as long as possible, you're going to want to repower it where you possibly can. And then this particular opportunity, we're going to partner [Indiscernible] we really like that as an opportunity. We've got a great relationship with them. They run the assets very well. They also were one of the original developers of these assets as well. So they know the landscape very well, and they've got a huge amount of expertise in development. So we really like that partnership there. This is already part of the deal actually when we acquired the original 80% back in 2017. And we think that these assets are attractive for repowering because we know the sites. We know them well. From a planning point of view, we've identified no red flags. We believe from a real estate point of view, we'll be able to secure everything that we need. And whilst on these sites, in particular, the wind regime is relatively modest with newer turbines, we'll be able to a bigger turbines, which we'll be able to get more out of the same area of land and more out of our grid connection too. And again, we talked about some of the returns you can potentially see compared to an operational asset here of around about 200 to 400 bps extra. So a really attractive opportunity there for us. So with that, I'd like to invite Pablo and Jim to the stage, and we'll have a fireside chat.

So Steve Pablo. I guess the choreography of life extension and repowering is quite important here and getting it right. So could we put a little bit more color on the process that you'll go through to determine the optimum time to repower just how life extension might play into that?

Yes, sure. So I mean, the overarching consideration there is when do the economics of repowering become more compelling than extending the asset life. And as we've already talked about, in most cases, it's going to be to extend asset life. And at something like the Willow portfolio, we've got great turbines. We know how they operate. we've got a scale there, which means it's really attractive to be able to find spare parts and have the labor needed in terms of technicians, et cetera. So asset life is going to be where -- extending the asset life is going to be where we're focusing. They also come with a high yield and there's relatively little cost to extend. But that's only to a certain point. At some point, the availability is going to dip and you won't be able to at a reasonable cost, maintain that availability. And that's a point where you'll start to think about repowering. Now repowering obviously has a significant CapEx requirement, something like 1.2 million to, say, 1.6 million a megawatt, depending upon what your group costs are and exactly what turbine types you have. And for a period of time, as we explained earlier on, there will be no yield. So you need to weigh that up in terms of the impact of the overall portfolio. And ideally, you're going to want to overlap the building of the new project, the repower project onto the existing project. And whilst that won't always be possible, in many cases, there will be some things you can do, some of the access works, maybe some of the roads and maybe in some of the hard standings for the new turbines, especially if they're in different locations. There's also other factors that might come into play here. So is there an availability of the CFD, what's your real estate deal. We talked about that a bit today. Is there a grid opportunity as well. And the other sort of crucial factor to really understand is that you have to run repowering in conjunction with the consent anyway for the repowering in conjunction with your existing asset life. It can typically take a 3 to 7 years, sometimes longer to secure a repowering consent. So you can't wait until we get to the end of asset life and then suddenly think about repairing, you need to think about it very early on, probably in the early 20s of an asset life -- and even then, there's some uncertainty, if you get something really early, you've then got 5 years to implement your consent. Sometimes it's less than that. So you would want to take advantage of that, and that might end up incentivizing you to repower earlier than you otherwise would, you just need to find that balance.

And I think as well, like you're saying, basically, all of these questions will have a different answer for each asset. So obviously, repowering will not be a one-size-fits-all opportunity. So what we're doing is assess each asset based on its own merits, spending little development cost at a time, and there were certain. So like Steve presented before, the [Indiscernible] portfolio is a great example where we have [Indiscernible] in 1 to 2 years. We still will have 10 years of operational lifetime before the 30-year target that we have. And we can see already from the assessment the potential of extending for Extra Life and also the repowering.

And just in assessing that residual life, what are the key areas of the wind farm that -- or the focus in establishing what you think the residual life is?

In a way, I think that obviously, the assets as they age, you'll see an increase on the failure rates and the components, both small and large will probably higher risk of failure, and that will drive the availability down and also the cost of repairing those up. This obviously will be gradual, and we expect it to be in from 30 because we have for the previous assessments. But we will also have 30 years of operational data. We will also know exactly the technology. We'll know how well to remedy some of these issues and also how to prepare and modify our strategy and otherwise in order to mitigate all of these risk going forward.

Yes. And you mentioned technology. So I mean, clearly, these wind farms that the oldest ones now over 20 years or approaching 20 years in turbine technologies moved on considerably since then. Obviously, the obvious thing being scaled, but -- what are the -- you've touched a little bit, Steve, on the potential additional output from a given site. What are the other sort of benefits of this new technology that you see that will feed into the valuation.

So if I could answer that, I think in order to assess the potential benefit of our repowering assets, we probably need to understand well the restrictions that comes with the repowering. So these are mainly assess 3 factors. This is great planning, and we'll also look at the land. So starting from the planning perspective, the most important thing to assess is the visual impact. This is driven by the size of the turbines. So all we want to bring bigger turbines, but there might be a limit as to how big we can build them because of this. By simply bringing the new technology into an existing wind farm. We can expect, like Steve mentioned before, 25% to 40% increase in output. This is because we bring in longer blades, so we can capture more energy at the same [Indiscernible], but also they can operate at lower and higher wind speeds. So overall, the capacity factor for the site will go up. And in addition to the visual impact, we will also assess noise and shadow liter. But overall, planning will limit the potential scope of our repowering assets. And then if you look at the grid, it could be simple. If we assume we reporting based on the same installed capacity, if that's the case, then will bring the new turbines and you can expect already an increase in output. If you are able to increase the grid capacity and obviously, you'll assume a higher value of the repowering. And this could be done in the face way where you can repower the current installed capacity and then a subsequent wind farm extension or more ideally, you have the planning, the June grid connection extended before you lay out the design of the wind farm and you build all of this together. And perhaps other benefits would be having all the wind data for so many years. It will help with the accuracy of [Indiscernible] that have been a significant factor over the years. You can optimize the layout of the wind farm you can also even. It will also help selecting which turbine to install. So that's was quite important. And finally, I think on the availability side of things by bringing a new contract and a new turbine. You expect a higher availability because obviously, we've just said the availability will be dipping. So during a high availability. This will also be warranted by the O&M contractor, and we can also shift some of these operational risk to the [Indiscernible] contractor. And in that way, we can manage as well the portfolio risk, which is a great advantage.

And is there any sort of benefit, if you like, of bringing repowering forward maybe earlier than you might otherwise expect because on the face of it, it would seem that life extension is the obvious first place to visit. But are there any situations where it would actually make sense to bring repowering forward, even though there might be some residual life left in the wind farm?

I mean sometimes that might happen. It might just be for factors out of your control, like I said earlier, if you get that consent earlier than you expected, you don't want to lose that significant value. Now of course, you could apply to extend the time to implement that consent, but you wouldn't want to reduce that. So in an idea where it's going to be idiosyncratic per site, and you just need to weigh up all the different factors at any point in time to make sure that you're just making the right decision in terms of the opportunity set you have in front of you? And we heard earlier about how we're going to continue as a business to focus on. When you come to repower site, have you thought about potentially doing dual technology on site colocation? So we have, and we will continue to do so. I mean, probably the most obvious co-location or technology might be batteries. And it's something that, as you know, Jim, the Board and the manager have reviewed in detail in terms of our view on batteries and whether there's a hybridization opportunity with our current portfolio and new projects as well. And at the moment, we believe that it's not something that we want to pursue, and that's principally for 3 reasons. So the firstly is that the yield profile of wind is quite different to solar, which is where you see much of the hybridization opportunities. So wind tends to be operational for Windy for 24, 48, 72 hours at a time, solar, obviously, we all know when the sun rises and the sunsets and when solar is going to be generating. And around that mid-day peak is a great opportunity each and every day for a battery to charge. And those batteries required to charge and discharge every single day in order to make the economics work. Without that, the economics just don't stack up from a battery point of view. So there's not so that natural -- they're not natural bed fellows wind and batteries. Secondly, we've looked at the revenues as well and correlated those and try to see whether from a hedging point of view, batteries could help in terms of the certainty of dividend covered for U.K. wind. And what we've seen is that top revenue days for batteries don't have any correlation at all with the revenues that we get out of our wind farms as well. So whilst there's diversification there, there's no real hedge. And the last point is probably the most important one is that we just don't see the risk-adjusted returns being attractive for batteries. We maybe can get 100 basis points extra, but the risk those revenues, especially as more and more batteries come on to the market and things like EVs are there as well. We just don't see that it's a risk-adjusted return that we want to take at the moment. Now things can and maybe do change. [Indiscernible] as a manager, we've got significant experience in batteries. And for other products, we are investing in batteries and indeed building them as well. So it's not now because of the technology, it's now because it doesn't fit the product that U.K. Wind offers.

And we've heard about life extension as an upside to our NAV post 30-year design life. What would you need to see in place before you would actually start to think we can now add this to our NAV.

Yes. It's a good question. So I think the facets with Pablo talked about somewhat earlier on. So firstly, you need to have your land effectively or real estate deals. If you don't have the land, you haven't got the project. Secondly, is the planning. You need to be able to go and make sure you've got the planning to be able to recognize the value. And the last point is around turbines and your ability to actually operate the turbines during that either life extension to actually put that into your valuation. It's sometimes difficult to do that. Sometimes it's quite obvious. The Willow portfolio has the assembly and turbines, which operate very well. We've got very high availability. We'd have a very high confidence that once we secure these other facets, we will be able to operate for that longer period of time. Other turbines might be different. And we lean on our engineering team and technical team to really understand what is possible there.