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

Good afternoon, and welcome to the Greencoat UK Wind Plc Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to the management team. Matt, good afternoon, sir.

Thank you, Lily, and welcome to all of you who have chosen to join us today from myself, Matt, Steve and also John. So today, we're going to give a walk-through of the Capital Markets event that UK Wind held about 11 days ago. Steve and I are going to talk through UK Wind's businesses, its advantages, the expanded opportunity set that we see ahead of us, the scale of those opportunities and how we are well positioned to capitalize on them and then ultimately, what it means for shareholders in the portfolio. We expect to run for around 25 to 30 minutes, after which there will be ample time for questions. You should be able to submit those through the online portal, and we can see a few have already come through. So thank you for those. So I thought we would start with a reminder of UK Wind's business model, familiar to many of you, but worth restating. So what is UK Wind? What does it offer? So UK Wind was designed from first principles to deliver focused exposure to the U.K. wind market in a very simple business model that provides inflation and dividends as well as organically generated capital to reinvest back in the business. And that's delivered by owning a high-quality portfolio of U.K. wind farms, 49 of them. And those wind farms generate more cash than we need to pay the dividend. So what has that delivered since IPO in 2013? GBP 2.6 billion of net cash flow. That's the money that we have a choice as to what to do with it. And that's translated into GBP 1.5 billion of inflation-linked dividends. We're one of only a handful of companies in the FTSE 250 to have increased its dividend every year since listing. But crucially also GBP 1.1 billion reinvested back in the business. And UK Wind has also evolved as a business since IPO. And I guess I would separate this into three phases. So the first is the proof of concept. UK Wind was the first of its kind. There are already conventional infrastructure investment trusts, but no renewables. So UK Wind was the first, created the market and many have followed. So the first period of time was really about demonstrating that the model works, that we can acquire wind farms, that we can generate the dividends and also the excess cash. I guess the next phase, shown in that middle block on the chart that you can see is about scaling the business. So raising, generating and deploying capital wisely, the business grew appreciably to a peak size of around 2 gigawatts. And just to contextualize that, that's around 6% of all UK Wind capacity, powering over 2 million homes and providing around 2% of the U.K.'s electricity. So UK Wind grew in a market that was already growing and it grew appreciably over that period of time, and that is forecast to continue as well. There are a number of projects under construction now or ready to construct. That's a really significant part of the future market for us. And Steve is going to talk about that a bit later in the presentation. I guess I would characterize the most recent phase is demonstrating resilience. We covered this in the Capital Markets event in some detail. It was clearly a difficult period for our shareholders in terms of their experience, the shares tending to discount quite wide discounts at some point. But fundamentally, I think the thing to recognize is that whilst that was a challenging period for the business during that period, we were still able to pay our dividend and increase our dividend, generate excess cash to reinvest in the portfolio, comfortably refinance all of our debt. Recycle assets. We sold a number of assets. We also allocated capital flexibly. And importantly, we demonstrated alignment between the Board, the manager and investors. We were the first to change our fees to be based on market capitalization rather than net asset value. So to me, this is what a durable business model looks like. And that really is by design. I'm sure this picture will be familiar to many of you. So in essence, it shows how the UK Wind business model works, acquire wind farms, so 49 of them so far, generate electricity, convert that into cash. So that's the GBP 2.6 billion that I mentioned earlier, pay a dividend, GBP 1.5 billion to date and reinvest GBP 1.1 billion back in the portfolio. The point is that UK Wind's business model return is greater than its dividend. That crucially gives us cash to reinvest going forward. And we think that is fundamentally a differentiating proposition. So let's just show why reinvestment is important. So just to look at this chart for a second. What it shows is the current portfolio that exists today, assuming that we didn't generate any extra money beyond our dividend to reinvest. We didn't buy any new assets. We did nothing with that capital. It shows that the net cash generation, which is the money that we have a choice as to what to do with, would fall over time. And really, that's not meant to be regulatory or a secret. It's simply because wind farms, generally speaking, are fixed life assets, they depreciate down to zero at some point. And therefore, without reinvestments, the business proposition would become unsustainable as with the dividend. So this is why UK Wind was designed around reinvestment. If you are invested in a company that has finite life assets and a very small excess of dividend cover, so 1.1x or 1.2x, and that business doesn't have any ability to raise money in the equity capital markets or to draw debt that's repaid or to otherwise fund growth, then in essence, you own something like the green cash flows in that business. And we see investors making the distinction between businesses that can reinvest. So let's show what happens if you do reinvest and you do it well and you do it with discipline. You can, of course, grow the cash flow that's available to shareholders over time, and that's the very thing that supports the dividend that we continue to pay. Sensible reinvestment grows the cash flow into the future and the cash that we reinvest arrives by the design of UK's business model. And as I hinted at earlier, this is where we see investors increasingly making a distinction between the businesses that will flourish in the sector and those that won't. And I pull it back to really three characteristics that we've shown here. The first of all is scale. So scale gives you relevance. Scale allows your investors to have meaningful liquidity. And it allows you to fit into wealth managers model portfolios because they need a certain level of scale. These are really important characteristics for attracting shareholders. Scale, of course, on its own is nothing. You have to perform as well. And that's where having a business, the second thing that we think investors are increasingly focused on that self-generates capital is a crucial distinction. So I mentioned earlier, GBP 1.1 billion has been reinvested back in the business since IPO. Over the next 5 years, and we used a range here, we expect between GBP 900 million and GBP 1.4 billion to reinvest back in the business. So that allows us to avoid being a business that is just the green cash flows you showed earlier, and we can add to the blue cash flows that we showed. And lastly, you also need a market opportunity that's significant enough into which you can execute well at attractive returns. And wind is frankly, what Steve and I have been investing in for most of our careers. It's a large market, GBP 200 billion. It's going to grow appreciably. You can see it around. You can see it in the contract for differences design. So there's a big market. There are attractive returns to be had. So we increasingly see investors distinguishing between businesses that have these characteristics and those that are trying to create them, either by taking more risk or undergoing a transformational change. The point is that UK Wind already possesses these characteristics by design. It's not trying to create them. We already have them. So the question really isn't whether UK Wind will generate excess cash to reinvest back in the business. It's really a question of how much and then what do we do with it. And we've given you some guidance on how much. So what do we do with it? So our Capital Markets event focused on the broader sources of opportunity that we see in today's market. A lot has changed since 2013. In 2013, you had a relatively small UK Wind market, small but growing. You had relatively young assets that weren't yet mature. And you had a lot of consolidation yet to happen. That was a great opportunity for UK Wind of which you took advantage. But today, the world has changed. So fundamentally, we still see a very attractive opportunity to acquire the right operational assets. and doing just that is perfectly fine to sustain UK Wind's proposition. Today is not about changing that proposition or saying that operational assets cannot say it, they can. Rather, we are saying that in addition, there are other areas where we believe we can add value to the portfolio without taking undue risk. Construction assets. So wind farms that are yet to be built but have the ingredients to be built, life extension, so that is taking a wind farm that has 30 years to run, a 30-year life and adding some years at the end, if you can do that in the planning regime, within the lands that you have and you can do it safely from a technical perspective. And lastly, the very end stage of a project at present after 30 years, we assume economically that our wind farms are worth zero. But they actually possess a very valuable and increasingly scarce asset, which is a grid connection. So one can then start to progress repowering opportunities to take the benefit of that grid connection with a new bigger wind farm at the site, benefiting from the fact that planning has already existed for a wind farm over a period of time. So these are the opportunities that we see ahead of us. Steve is going to cover our capability in accessing them. But first of all, let's look at what we as portfolio managers see these opportunities adding to the portfolio. So when we think about portfolio construction, we're thinking about, well, what does an asset provide to us in terms of yield. We are a business that pays a dividend. We obviously couldn't invest in 100% in assets that don't have any yield. Otherwise, we couldn't pay the dividend unless we paid it out of capital. The next thing we think about is what does this investment do for our net asset value. So fundamentally, as we mentioned earlier, fixed life wind farms that run out after 30 years, they're depreciating assets. The value is going to fall over time. What kind of return, the third thing can we get from this asset? Our job is to assess risk, what is the risk reward of a particular investment. And lastly, what does a particular investment offer to our revenue profile. As our investors will know, on a present value basis, around 50% of our revenues are fixed in nature and 50% floating. There are many ways to manage revenue. Steve will cover some of them later, but a fundamental way to do it is to choose what you buy and the revenue structure that comes with it. So these are the four sort of portfolio considerations that we think about and grade these opportunities against. So just to show you what we think each of these offers. So if you look at operational assets, I think it's very clear and easy to understand as that is what UK Wind has been investing for the past 13 years. The yield from operational assets is good because they're already operational. They're kicking out the kind of cash flows that have supported our dividend and reinvestment to date. These assets are fundamentally depreciating. They are going to fall in value over time unless you can add something to their value at the end. Our average portfolio return on a levered basis is about 10% to 11%. So that really is put here more as a grading measure for the other opportunities to compete with. And lastly, one combined operational asset that has just floating revenues or that are just fixed or in between, and we've done all of those things in UK Wind's history. So let's just compare that to a construction asset. So to build an asset that doesn't yet exist, it obviously takes some time. There's a construction period depending on the nature of the asset, it could be 12 months, 18 months for more complex offshore wind farms, it could be 5 years. So there's a period of time where no yield is paid to the fund. So if we had 100% construction assets, that would obviously create a challenge for our dividend. It's not what we're suggesting here, but it's just an observation as to how those assets behave. Now what do they do to the net asset value of construction asset? Well, if you're taking risk that you're being paid for to build an asset, then if you're doing a job well, it should certainly be worth more at the end of that process than at the beginning, you are adding value by creating the wind farm. So these assets start by increasing over their cost and then shallowly decreasing over time. So that is an important factor for managing the asset value of the business. I mentioned risk earlier. Construction isn't risk-free. There are a range of risks that one could take. Steve will talk a bit more about our competency in these areas from a project that has everything pulled together, all the contracts signed completely ready to go to something that needs a bit more work. So there's a range of additional returns that one should expect to garner from building a wind farm versus buying one operation. And lastly, revenue profile. So typically, today, most assets are or are about to be constructed have the benefit of a contract for difference. So that is either a 15- or 20-year CPI-linked revenue stream. There are some merchant assets, but predominantly, these are fixed assets today. So buying construction assets is generally going to give us an opportunity to acquire more fixed revenue. So, life extension, I mentioned earlier, this is where you take an existing wind farm and you operate it for perhaps 5 more years than you presently budgeted. These are already yielding assets. So the yield part of the equation is well understood. And what would adding 5 years to an asset life, if you've done the work, what would it do to your net asset value? Well, if you pretend for a second, we have a wind farm and it's got, say, 10 years left. And then you add another 5 years back, that's obviously going to increase its value because you've now got 5 more years of discounted cash flow to put into your net asset value. So fundamentally, an extension appreciates the net asset value. Return-wise, it doesn't typically cost that much to extend an asset like this. You might pay more for a lease, you might have to put in a planning application. This is why you can see a decent enhancement of returns. So in my earlier example, 10 years of cash flow add 5 more, that adds quite a lot to your rate of return on that investment. And lastly, what about the revenue profile of life extension assets? While they're variable, they're typically merchant assets as they are post subsidy, but one can easily put in place a number of mechanisms to convert that cash flow either on a short or medium-term basis to fixed. Lastly, repowering. As I mentioned, repowering is really the end of the road for a wind farm. So if there's no possibility of extension or it's additive to repower earlier, then that is something to pursue. That is a new planning application, and it would obviously take a bit of time to take down the old one from and put the new one up. It's a bit like construction. So you might see a period where you don't have yield from that asset, but across the portfolio, that's manageable. On a net asset value basis, if you have an asset in your books worth zero after 30 years, and then you can convert that into a new 30-year asset, that's obviously additive to the net asset value of the business. Return-wise, again, an advancement on construction asset returns, you are taking some planning risk. You have to secure planning, and that should be well rewarded in terms of additional returns. And lastly, revenue profile, there are indeed repowering contracts for differences and other mechanisms to fix the revenue from [indiscernible]. So if you just look across the array that we have here, you can see that each of these investments can offer a number of different things. And one of the things that Steve and I like about this is that we have a choice as to what to do. So this today is really about giving us more choices rather than just choosing from operational assets. And when you start to compose together the outcomes that these assets can give you to a portfolio, what we've just done here is simply shown the journey of GBP 1 committed on a net asset value basis to the blend of the investments on the previous page, that's the fixed line on the top right chart. And then just compare that to buying operational assets, which, as I've said, is completely fine and there's no challenge to UK Wind's business model for doing that. What you'll see is that because a number of the investment types that we can make successfully add to net asset value, it really shallows the rate at which the net asset value of these fixed life assets starts to fall. You can see that by the fixed line being above the dotted line. So that is an additive outcome to net asset value. And then when one thinks about cash yield, as long as there isn't too much concentration in assets that are in construction, or are being repowered, then you can deliver pretty much a like-for-like equivalent in terms of yield. So there's no, if you like, on an overall portfolio basis, yield penalty. So fundamentally, what this shows is that we've got additional tools that we can use to benefit the portfolio, and they bring different things. So if I perhaps just summarize before Steve moves on to talk about the size of these opportunities, our capability and what it ultimately means for the portfolio. To come back, we believe that UK Wind possesses a number of inherent advantages with scale, its ability to self-sustain and a large target market in which we can execute well. We have more ways to deploy capital than one, and this is great. It gives Steve and I choice and a number of ways to add more value to the portfolio, creating longer-lived asset lives and even more durable returns. Steve?

Okay. Thanks, Matt. So I'm going to give you some more detail on this broader toolkit and what it means for UKW. And Matt's talked around this broader toolkit giving us more choice, more durable cash flows to deliver the same proposition that we always have. And we think that leaves three primary questions, which I'll go through. The first question is, do we have the capability to execute on this new toolkit? What are those opportunities in practice? And what are the criteria by which we will allocate capital going forward? So the first question, can we do this? So, Matt and I have personally been responsible for more than 70 projects over 1.8 gigawatts, which is almost the full capacity of UK Wind in our careers. And that spanned the whole life cycle from greenfield development through the planning process into construction and even repowering too. Me personally, I've spent more than 20 years in this field, dozens of projects and buying and selling pipeline, looking at routes to market, finding ways to sell your power, contracting for CfDs, working on construction projects. And then within the wider UK Wind team, we also have a number of people who have significant experience with that, too. And then in Schroders Greencoat, who is the manager to UK Wind as well, we also have significant experience. We've invested in more than nine different technologies. Over GBP 2 billion of capital has been allocated to development and construction activities. We have an in-house development and construction team who are currently building hydrogen projects, battery projects, solar projects and of course, wind projects. So we believe we really do have the capability to execute on this. This is rather a hygiene factor. We just want to make sure that our investors fully understand that we are competent to move into these new spheres for UK Wind. So now I just want to give you some greater depth on where we see these opportunities and what they really look like. So the first opportunity here you can see is construction. Now since 2013, the government have been procuring majority of their new renewables through what are called contracts or differences in what they call allocation rounds. And there every year or so, they have a number of megawatts, number of projects that they want to procure, and they've been steadily doing that. The ones that are relevant at the moment are allocations round 5 to 7 where there are still projects which have not reached the start of construction yet. Allocation round 8 is the latest CfD round, and that is ongoing at the moment with results expected early next year. And these contracts differences come with 15- to 20-year fixed price contracts as well. So they're attractive for UK Wind in that guys as well. And it's a big market. So just in allocation round 5 to 7, we have around 3.8 gigawatts of onshore opportunities, which is where our focus will be. And we've been actively originating in this sphere over the past 9 or 12 months and have seen a number of really exciting opportunities. And the relationships that UK Wind has had historically being active in the market since 2013 are really coming to the fore here. We know the development community. We know the utility community, and we're even seeing some bilateral deals as well. But not all construction projects are the same, as Matt outlined earlier, and we talked around the range of returns from being around 0.5% extra on your IRR to around 200 basis points or 2% extra on your IRR. And that's because not all construction projects are the same. There's different risks associated with those projects. So we really need to be able to understand how to price that risk as well. And as I hope I've outlined earlier, UK Wind, Matt and I, wider Schroders Greencoat team have the ability to price that risk well and then execute it. And that's our premium job. So that's what we'll be looking to do with construction. Moving on to life extensions. So here is where we see the lowest cost route to create some significant value for UK Wind. The market is very, very significant. Over 5 gigawatts of projects will be more than 20 years old by the end of the decade. So that's a significant opportunity for UK Wind to take advantage of going forward. And because the cost to have extra life going from 30 years to 31, 32, 33 or maybe longer, are relatively minimal. You need to agree in real estate, you need to get some planning permissions. You need to make sure that your turbines can operate. The cost compared to building a new project are low, the returns are relatively attractive. And we don't need to look any further than our own portfolio. We believe we've got more than 800 megawatts. So more than 1/3 of our portfolio is suitable for life extensions. And so we're currently working on that. And the types of orders of magnitude you can think about if we were to extend the life of these assets by 5 years, so from 30 to 35 years for all of these assets, it would add around about GBP 100 million of extra cash to the cash flows each year during 2040s. So we think that's quite a significantly attractive thing for us to be thinking about. Now not all of those will proceed. There will be technical. There will be planning. There might be real estate issues, but there's a significant opportunity for us within our own portfolio, but also to go out and acquire new projects with the ability to do this. And I've seen in the Q&A already, there's a reference to the deal we did with EDF, and that's the type of opportunity we will continue to look at going forward. So moving on to repowering. So what is repowering, let's just take a step back. So this is effectively building a new project on the same land. Typically, you're going to be using more modern technologies. So these will be larger turbines, but less number of them. And you would expect there to be a higher output, something like 25% to 40% extra output from a repower project. So there's something significant for us to be going after there. It also helps better utilize the grid as well. And the market here is also really exciting as well. So of the 5.4 gigawatts I mentioned of projects being 20 years or older by 2030, about 4 gigawatts of that is onshore wind. And again, that's where our attention is going to be to look to acquire those projects, look to do the relevant real estate planning work, go through the construction in order to have a brand-new project and really extend the life of our current portfolio and add significant value to us. And finally, on to operational projects. Now this is the core of the UK Wind business, been a key pillar in the past, and it will be a key pillar going forward as well. And ultimately, everything that we're doing is to create operational projects with the cash flow profiles that our investors know and understand. And it's a really active market, too. There's around about 2 to 3 gigawatts of assets that trade hands if you look at the publicly available information. And we're consistently seeing pipeline come to us as well. Again, those relationships with the development community and the utility community help us there. And so we're really making sure that we're looking at all of these different opportunities. And also even thinking about a standard project that might be only 5 or 10 years old, is that suitable for end-of-life extension? Is that suitable for repowering too? So together, this gives us not an obligation to buy, but just more choice in order to make the right investment decisions on behalf of our shareholders. But let's just turn our attention to revenue management. Now this slide here is quite busy. So I will try my best to walk us through it. But the key point to mention here, and Matt mentioned earlier on, since IPO, there's been a deliberate choice for the strategy around our ratio of fixed to floating revenues, and it's been 50-50 by net present value. That hasn't changed and isn't changing going forward. But what we have now with this broader toolkit are more ways to deliver that. So at present, we have an inherent profile in our current pipeline. And as you can imagine, if we do nothing, it just becomes more and more merchant over time as the subsidies and contracts are different start to expire. If we don't do something over time, we become more and more merchant. Now of course, we're not going to do that. And the extra levers that we have allows us to bring in different ways of managing our merchant revenue. So we've talked around CfDs. So investing into construction assets or repowering assets that have a 15- or 20-year CfD is a great way of managing our fixed to merchant ratios. We can look at corporate PPAs. So this is something we've been active in the past, and we're active in currently as well. So you might be seeing something like 5 to maybe 15 years fixed prices there. And then you've got what we've been doing more recently is actually entering the short-term hedges anywhere between 6 months to 3 years, either through physical hedges through the way that we currently sell our power through power purchase agreements at the moment or financial hedges that have the same or similar effect. And with these different levers, we have the ability to manage the short, medium and long-term merchant exposure for UK Wind. So moving on in terms of the way that we allocate our capital. We've got these extra choices, but they're only going to be good for us if we choose well. So that begs the question, how do we think about this? And we want to make sure that every pound of capital that we have works very, very hard and gives the best risk-adjusted return for our shareholders. And we think about this through three lenses. So firstly, there's the return. So what is that risk-adjusted return compared to operations? And does that make sense? And that's got to take into account not just the headline return, but what are the real risks that you're taking on compared to an operational project. Secondly, there's cash flow. So what's the effect on short, medium and long-term dividend cover? And is that fixed or merchant? We really need to think about how that works. Matt mentioned earlier, with the construction project, there's a period of time where you're building and there's no generation, so there's no revenue. So you obviously couldn't do everything into construction. So we need to think about how we blend that out in terms of the risk-adjusted returns with cash flow. And largely, what's the portfolio impact? Is there -- are there projects where we can have an appreciating NAV profile, which is what you can get from construction projects and even some development projects as well? And what does that do in terms of asset age, but also mix of the technology types and locations as well. So we're really trying to triangulate those three factors in order to make sure we're making the best investment decision at any one time. So we believe we've got the ability to execute. We've got a massive growing market, which is very exciting, and we have the capital allocation framework plus the levers to manage our merchant exposure as well. But what does that mean in terms of our performance metrics going forward. So what I'm going to show here, and we won't spend too much time if there is a video of the capital markets event, you can watch if you want to go into more detail. But you can see here three different scenarios. The first scenario is our current investment pipeline of projects where we do no reinvestment at all. That means we take the cash, we do nothing with it. We don't even put it in a bank account and earn interest. The second one is we do it all into operational projects, which is the previous strategy of UK Wind. And the third opportunity option here is actually using the broader toolkit as well. So on this first slide here, you can quite clearly see that the do nothing scenario means that the cash flows erode over time. These are fixed life assets. And as you can imagine, if you do nothing, they just get older in each and every year that goes along. This is obviously -- all of this is obviously illustrative. And this is not a realistic case either here because this is assuming we do nothing with that cash, which, of course, we will. And here, the assets get older, the NAV depreciates. And this is the problem that some people in the sector might have if you've got a really low dividend cover and you don't have that excess cash. UK Wind does have the excess cash. So we move on to the next slide, you can see that if we take that excess cash and we invest it into just operational projects, it's a completely different picture. The blue stacks on top here show what we can do to the overall cash flows of the business to grow them over time. And this has the effect of bringing in more and more fixed cash flows and growing that NAV over time as well. but we can do even better. And on the next slide, where we can use a broader toolkit, bringing in some construction projects, bringing in some repowering and life extensions and carrying on investing some into the operational assets, we're able to grow the NAV even faster. We're able to add further fixed cash flows without any revenue management at all, we can meet our target. And with the revenue management levers we talked about earlier, we can do better than that again. So we believe that this broader toolkit is a really exciting opportunity for us to be able to do even better than we have in the past and with a market which is growing too. And on this final penultimate slide, you can just see some of the sort of dashboard metrics here that we want to take advantage of going forward. So first point on the left, you can see the returns and the extra returns we can get out of these different opportunities that we have. with using the broader toolkit, we can also maintain the asset life broadly similar to where it is today, which means these finite life assets through reinvestment on average don't get older. We're able to naturally fix more cash flows as well with the optionality of those levers we talked about to have extra value there, and we can enhance NAV growth in the medium and long term as well. So on this final slide before we go to Q&A, I just wanted to quickly summarize where we are. And to start with, it all starts with the design. U.K. Wind has the scale and has the self-funding model with that high dividend cover that allows U.K. Wind to grow organically in a market that is also growing. And that sets a platform for UK Wind going forward. Today, we've outlined the broader toolkit that we have, giving us multiple ways to invest and allowing each pound to compete significantly with one another. And this gives us an even more durable portfolio than we even had before. It gives us longer duration cash flows. It gives us more opportunities. It gives us more fixed cash flows as well, and it allows us to maintain the age of the asset base as well. So thank you for your attention, and we'll now move on to Q&A.

That's great. Thank you very much for the presentation this afternoon. [Operator Instructions] I'd like to remind you that recording of this presentation, along with a copy of the slides and the published Q&A can be accessed via investor dashboard. And John, if I could just ask you to read out the questions and give responses where appropriate to do so, and I'll pick up from you at the end.

I think Matt's just trying to turn the lights back on here, but I will start with the questions, and I'll try and group them where possible because there are a lot of questions, so bear with me. Starting off on power prices, which is clearly topical. There's a couple of questions here. One, what implications to electricity prices do you see over the next couple of years from the ongoing situation in the Middle East? And then sort of countering that a little bit, there is a question saying, why hasn't the company benefited from higher power prices more?

Good questions. Thank you. And I think I've managed to successfully send the lights back on, but they may turn themselves off. So I hope you can see us clearly enough. Hopefully, you can hear us in any event. So I think the implications for the Middle East are twofold. So the longer this conflict has gone on, the further we've seen futures pricing, so the traded price in the market increase into further seasons. So at the very beginning, which was back in March of this year, really only it was prices for this year that were affected. And then after the resumption of hostilities in July, started to feed into 2027. And now with just the increasing period of time where there's no flow of molecules, you're starting to see it impact 2028 pricing. So I think there comes a point even which if there is an abundant cease fire and breakout piece and the start to the flow of molecules, so you'll still see the tail of this event for a period of time. So I think it's then a fair question as to, well, why is UK Wind not benefiting more. So those of you who have been invested for some time will remember that during the two peak years of the Russia-Ukraine conflict and the squeeze on prices there, UK Wind's dividend cover was 3.2x and 2.1x, respectively. Part of the reason is that for that period of time, prices were a lot higher than they've been manifest here. There were times when electricity was about GBP 400 or GBP 500 a megawatt hour. The highest projected price that we've seen in the next 12 months is about GBP 200 a megawatt hour. That's the first thing. The second thing is that during that period of time, but with a lag in effect, the government introduced something called the electricity generator levy. And what that did is to say that if you are generating revenue from selling merchant power and you don't have an input cost, i.e., a renewable generator, then above a certain price threshold, 45% of that goes to the government. In the last budget, that was increased to 55%. So today, we find ourselves where 55% of any revenue that we get from power sales alone above this year's limit of GBP 83 a megawatt hour goes to the government. So that's why there's a difference between this period of time and '22 and '23.

Okay. So moving on to some questions around dividend and dividend cover. Firstly, is the dividend cover for 2027 guidance based on the current forward curve or your long-term price forecast? And what would happen if prices return to pre-Middle East levels or pre the Middle East crisis levels? And I'll just read out a couple of others as well. On the dividend at the half year results, you mentioned that the whole year's dividend was nearly covered. How has this progressed since then? And one more, sorry. Do you have the flexibility to withhold dividends to some degree, to reinvest in new capabilities should that be NAV accretive. So three questions there between you on dividends.

Okay. Thanks, John. So in terms of that first question of where we were forecasting our dividend cover in the June results. So maybe just to take a step back. So the way that we forecast our power prices over the next 2 years, we take the futures market. So that's the power price that people are actually trading in the market. And that's very, very categoric and we look at that on a monthly basis. From 2 years onwards, we then bring in an external forecast who's then looking at the longer-term forecast of power prices as well. And they tend to -- that's more of a bottom-up analysis of what are all the different ways of generating electricity and what they cost and what demand is going to look like and how is that supply-demand balance work over time. And actually, they blend in some futures pricing as well in their short-term curve as well. So there's a bit of an overlap even after 2 years. So in terms of answering the question in terms of our dividend cover for 2026 is what we were talking around in June, we've talked around 1.7x or above. That's where we still see it being today because it was taking into account the futures market as of the end of June, which had some element of where we are today. Prices have ticked up a little bit, but it's mostly into 2027 and 2028 where we've seen those further increase in prices as well. If prices were to sort of go back to the pre-February levels, I think the medium, long-term dividend cover is going to be similar because we don't see an impact sort of 3 years on in terms of the current crisis in the Middle East. And in the short term, it will be back to what we were forecasting earlier in the year. So around about 1.7x, 1.8x.

There was a third question there around is it possible to withhold the dividend to allow for further accretive reinvestment? The answer is yes. I mean, capital allocation begins with the net cash generation that you have at hand. I think it would probably be unwise for us to do that given that a key tenet of EQ proposition is that increasing dividends in line with inflation. There's a technical matter it's possible, but I think we've been very clear about this being one of the key appeals of the business. So I wouldn't expect to see that change.

And we also have an illustrative GBP 200 million per year for the next 5 years above and beyond the dividend. That's a significant amount of cash, and it's by design. That's why we've got the high dividend cover. So we've already got a huge opportunity there to go and invest and take advantage of what we see as a very attractive market. There was one other point, which is -- I didn't quite get to cover, which was around the June results, we were talking around being almost covered for the dividend. Obviously, June, July, August aren't the windiest month typically and September is sort of erring into the winter season. So wind speed tend to be a bit higher. As you can imagine, the dividend would naturally be fully covered. Since then, there's a NAV update later in the week, and you'll be able to see more details there. But performance has continued as expected.

Okay. Thank you. So three more questions, sorry to do them all in three, but political risk, if we want to say that. So how do you think about political risk? And what is your view of the medium-term political risk? Linked to that, what would happen if a resurgent conservative party came to power in 2029 determined to slash government subsidies? And finally, could you say how you see government policy evolving given it has not been helpful to the renewable sector since the last election. So I'm not sure we need to precisely answer all three or group this together, but the political questions.

They strands of the same. I think the same thing and probably their answer has the same feedstock. So we obviously do think about political risk. We're well experienced in that as a manager and also as a Board. And I think there's no avoiding the fact that energy is political. All of life's essentials are in effect political. So really, it's not a surprise that energy is back in the spotlight and a debate. So how do we think about the risk over the medium term? And let me encompass in that the possibility of a conservative government, let's say. So I think that it comes back fundamentally to where are we trying to get to. So if we just put carbon aside for a second so that we can make it, if you like, an agnostic conversation. Fundamentally, the U.K. is on an electrification journey that is happening. The early aspects of it were certainly prompted by policy and subsidy. But where we are today is in a world where people are choosing to have electric vehicles. We're choosing to electrify transport emissions. And we are also consuming more and more electricity, if you think about data centers and the advent of that to come in the U.K., electrification is happening. The question then becomes over the medium term, if you believe that the number of electrons that we're going to need is going to increase, one should ask all political parties where they think those electrons are going to come from. If the answer is not renewables, you're immediately discarding the thing that can deliver quick and cost-effective power. So building a solar farm could take 6 months or 12 months or a farm 12 to 18 months, 24 months. And it's priced at a cost-effective measure where to call the current rounds of CfDs a subsidy is somewhat misleading, particularly given that the strike price, the price actually paid is only called into effect where power prices are lower than that strike price. Today, they are much higher. So in effect, there is presently a reverse subsidy for many subsidized schemes. Then the question becomes if not renewables, where. So it's not very quick to add more nuclear capacity. I think we've seen that. I think the best you can near term do is add life to existing nuclear fleet. And then to gas. So if one wanted to build a new gas powered plant in the U.K., it would invariably need some version of a subsidy or a capacity mechanism to guarantee its fund as a return that would start to look very much like a subsidy. And also, you would probably be waiting 5 or 6 years for a turbine such as the level of global demand. So against the backdrop of increasing need for electrons, the conventional approach, which may be favored by the conservatives and others, doesn't seem desperately deliverable or realistic. So I think that's how we think about this over the long term. We think about the system that we're evolving to. I think also just the last point on politics. We're just at a tipping point now where electricity prices are clearly high and Ofgem forecast that the minimum price is going to go up. A lot of the bill is fixed prices and fixed costs that in other countries just goes into taxation or is paid elsewhere. As you start to see the fixed costs stay relatively static and more throughput, i.e., more use of electrons, then the component that is the commodity aspect is going to dominate and its price will go down as renewables come down. The point being that the more you start to use electricity, the cheaper it's going to get over time. And if we just need to push through the next couple of years to see that, I think consumers will really start to see the benefit, particularly if this budget contains measures to remove some of the legacy costs and put them back into taxation, which in effect is what happens in many other European countries that the U.K. is continually compared to.

I think probably the only thing to add is I'm sure many of you have heard about it is the decoupling of electricity and gas prices. And I think that's where you might see some emerging policy both in this country and elsewhere where governments really look to do this. They've already got a mechanism to do that. It's called the CfD. It's what we've been talking about a lot today. And we can see them applying that to current or giving people the option anyway to apply that to current generation assets that aren't sitting under the CfD. And that has the ability of shielding both generators from merchant exposure, but also consumers from high power prices as well. So we expect that to be something to evolve over the coming weeks and months. And we think that's potentially a very good opportunity for UK Wind and another way that we can help manage our merchant exposure going forward. So if it's well structured, we'd be very supportive of that.

Okay. We've got -- still got a lot of questions here. So I'll move into ones around the investment opportunities, the broader to talk -- we've been speaking about and maybe we can almost do a little bit of rapid fire and get through a few of these one by one. So when a site is repowered, does the whole site shut down to complete the job? Or is it a gradual process shutting down one windmill at a time on the site to complete the repowering?

So it will depend on the exact site, but there is likely to be a period of time where the grid will be deenergized where you are decommissioning the current projects and current turbines as you build the new ones. And we will look to minimize that downtime. There's a lot of the civils and electrical infrastructure. So building the roads and the areas of land where the crane needs to go in order to erect the turbines, doing some of the enabling works for the cabling to come in, that can all be done at the same time the current project is operating. But when you start to take the current turbines down, depending upon the location of the new turbines are, there is likely to be a period of downtime. And of course, we'll be incentivized to minimize that where possible.

Okay. So next, what scope is there to build battery storage alongside the wind farms? Is this something you've considered? Why has it been ruled out?

There is scope from a technical perspective, and we have considered it the Capital Markets event and the work behind it. wasn't a brief interview with us and the Board. It was a detailed body of work. So why have we for now ruled that out, bearing in mind that we should need space to change our minds if the world around us changes. So fundamentally, if one were to think about making an investment from UK Wind, it first has to compete with the quality of investments that we can already make within UK Wind. That is our do. So looking at batteries from that perspective, one would be seeking some kind of negative correlation or diversifying hedging effect from making an investment that's not in wind. And looking as we did at the revenue profile of battery energy storage systems versus wind, the periods of time when wind earns the least because there's too much of it on the system do not overlay with the periods of time when batteries make the most money. Batteries presently and is forecast to continue to make most of their money when it's pretty sunny in the summer months, frankly. That gives them an opportunity to charge at cheap prices during the day and discharge back in the evening. There's no real overlay between the times when it's very, very windy and revenue opportunities for battery because when it's very windy, as you'll have noticed for the last 3 days, it tends to be windy for 3 days. That means that a battery that did charge during a period of low power price doesn't have an opportunity to discharge into a period of higher price because that period lasts a long time and batteries cannot store energy for more than a day without starting to erode. So we did a lot of work on this. We didn't see any hedging benefit from our portfolio. We just viewed it as a different bet. If a wind farm is a bet to the extent that it doesn't have a contract for difference on the absolute power price, batteries are a bet on the volatility of the power price. There's absolutely nothing wrong with making that investment in batteries if that's what we wanted to do. In fact, elsewhere in our business, Greencoat does do that in the right portfolios for the right clients. But to us, it didn't seem additive to UK Wind's return prospects, particularly when you look at the range of opportunities ahead of us that in our view are better risk-adjusted returns for UK Wind investors.