The Renewables Infrastructure Group Limited (TRIG) Earnings Call Transcript & Summary

Good morning, and welcome to TRIG's 2021 Full Year Results Presentation. I'm Helen Mahy, Chairman of TRIG, and I'm joined by the company's investment manager, InfraRed and Operations Manager RES. I'm pleased to present a strong set of results for TRIG. After another eventful year with COVID-19 and more recently, volatile commodity and financial markets, The Renewables asset class has proven again that it is stable and resilient. Whilst 2020 brought challenges of historically low electricity demand, 2021 saw very low levels of wind resource. In spite of these 2 distinct challenges, TRIG has flourished. This year, the company delivered strong earnings on the back of active portfolio management as well as higher power prices. Wind resource has been particularly low this year, especially in the U.K. This has moderated dividend cover. However, TRIG's strategy of geographic diversification has reduced the overall impact on the portfolio. This diversification has been further enhanced during the year, and as the company delivers projects through construction, we expect to see this diversification benefit become even more apparent. I'm also very pleased to report significant progress on our sustainability reporting. During 2021, we published TRIG's Second Sustainability Report, providing greater disclosure of the positive work done by the company and its managers. In 2021, we committed to setting science-based emissions reduction targets in accordance with SBTi and the business ambition for 1.5 degrees. Climate action is core to the company's purpose. We have also now evolved our TCFD disclosure and following sector-leading voluntary disclosure in our 2019 annual report, we now report against all 11 recommendations. Finally, we continue to progress the Board's succession plan, and I'm very pleased to welcome Erna-Maria Trixl to the TRIG Board, who joins us from the first of March. is an energy and infrastructure expert, who brings experience from leadership roles in the power industry across European geographies. Erna-Maria, joins John Whittle, our new Audit Committee Chair, as 2 appointments made during 2021. Both appointments will bring extensive and relevant experience to the Board as the original directors retire. I would also like to take this opportunity to thank Shelagh Mason, TRIG's Senior Independent Director for her invaluable services to the company since IPO as she retires from the Board. We all wish Shelagh the very best in her future endeavors. John Whittle will replace Shelagh as Senior Independent Director. Thank you for joining us, and you'll now hear from Minesh Shah from InfraRed.

Thank you, Helen. I'm Minesh Shah, Investment Director at InfraRed. I'll start with a quick recap. Our purpose is to generate sustainable returns, and we do this by having assembled a diversified portfolio of renewables infrastructure that contribute towards a net 0 carbon future. We deliver this through a business model shown by the triangle. The first side is portfolio diversification, which gives resilience to returns. A balanced portfolio is crucial to risk management. For example, our geographical diversification spreads, political, regulatory, power market and weather risk across 6 countries, spanning over 3,000 kilometers from Sweden in the Northeast to Spain in the Southwest. Value preservation and enhancement is key. Proactive asset management enables us to not only deliver but also outperform our base case assumptions. An example, being the on-budget construction delivery of Blary Hill, which was commissioned last week ahead of schedule. Chris and Jaz from RES will provide more detail on this later. And finally, responsible investment practices, including transparency and good governance are embedded in all we do, and you will hear about this from all of our speakers today. We have an independent Board of nonexecutive directors who bring broad experience and provide oversight of the 2 managers, InfraRed and RES. In InfraRed, you have a leading international infrastructure investment manager with a strong 25-year track record. And in RES, you have an operations manager that has been in the renewables market since its infancy, some 40 years ago. What TRIG provides investors is the renewables investment company with the most diversified and largest portfolio, an attractive dividend yield north of 5%, with competitive ongoing charges, particularly given the active management of the group by the 2 managers and good trading liquidity. Looking at this in the context of an 8-year track record, you can see steady net asset value or NAV growth. We have announced today a significant increase in NAV to 119.3p per share at 31 December, and Phil will expand on this further. This gives us an annualized NAV return of more than 8% for investors who have been with us since IPO. We are also growing the dividend. We met our 2021 dividend target as we have in each year. We are pleased to increase the dividend target for 2022 to 6.84p per share. It's a 1.2% increase, which balances higher short-term power prices and inflation with lower longer-term power price forecast and the coming increase in U.K. corporation tax. As ever, our focus is on maintaining a sustainable long-term position and our dividend is paid in quarterly equal installments. This has been accompanied by a steady and disciplined portfolio growth with investments over the last 3 years totaling approximately GBP 500 million per annum. We will come back to the acquisitions in the year and Richard will speak to the market outlook later. And finally, our total shareholder return, that is the combination of dividends paid and share price growth is above 9.5% annualized, since our launch in 2013, outperforming the FTSE All-Share by some margin, and our shares trade with a low beta compared to the wider market. I will now hand over to Phil to run through the 2021 results.

Thank you, Minesh. It's Phil George here, and I'm the Finance Director for TRIG. I'll take you through the financial highlights and the valuation movements for 2021. NAV is 119.3p, which is up 4p over the year with earnings of 10p per share. This reflects strong valuation growth, particularly in the second half of the year, with the most significant item being the substantial increase in achieved and near-term forecast power prices. We have continued to grow and diversify the portfolio of GBP 479 million of new investments, supported by GBP 440 million of fundraising. The 2022 dividend target is confirmed at 6.84p. Cash dividend cover for 2021 with the benefit of scrip take-up was 1.12x. And dividend cover for 2021 without the cash benefit scrip dividend take-up is 1.06x. Cash received from the investments is after the projects have repaid GBP 145 million, a project-level debt principal across the portfolio which represents 1x dividends declared. And hence, dividend cover, if we were not reducing the debt principle, will be 2.1x. I will now move on to the valuation bridge. The bridge takes us from a value at the 31st December, 2020, of GBP 2,213 million to a value at the 31st December, 2021, of GBP 2,726 million. And TRIG invested GBP 479 million in the year across different geographies and technologies, as Minesh will cover later. Cash distributed in the year from the investments up to TRIG of GBP 169 million, takes the rebase valuation to GBP 2,523 million. I will now go through the items comprising the rest of the bridge, which together represent the operating income shown in the profit and loss account, starting with a power price movement. Turning to the slide on power price forecasts. Power price forecasts have significantly increased in the near term, but slightly reduced in the longer term. The overall movement in the curve has had a positive valuation impact of GBP 117 million. On this slide, we've also included data on our average power prices assumed, which can be compared to others. We have carefully considered how to factor in the current high power price forwards into our valuation. The forward pricing is materially above the forecast projections for the next 2 to 3 years. And we have not assumed that all of this value can be captured. Overall, we've applied a 20% discount to the year-end forward's pricing and the valuation. And this is because, although we are fixing where we can and securing strong prices, not all income can be fixed, but prices have a high variability, and there is a risk to how long these very high prices will persist. The value shown in the blended power price curve are after having factored in cannibalization. The pies on the slide show the proportion of portfolio revenue with fixed income per megawatt hour and include the new investments. You can see we have a high level of fixed income over long time horizons with 70% of forecast income being fixed over the next 12 months and 66% over the next 10 years. In line with our strategy to deliver long-term sustainable yield, we continue to regularly fix an element of TRIG's wholesale power price income to reduce risk. In recent months, it has been possible to enter into fixes in GB at high levels with several being in the GBP 100 to GBP 200 per megawatt range. The next slide takes us through the factors that have pushed up power prices and power price projections in the near term and reduced forecasts over the longer term. Near-term power prices have increased, mainly as gas and carbon prices have increased. Globally, we have seen a commodities rally as economies have come out of lockdown. The long and cold winter of early 2021, increased demand for LNG globally and reduced gas stocks in Europe, pushing gas prices much higher. Carbon pricing has increased as the U.K. and EU policies tighten and the EU has reduced carbon allowances. Unusually low wind speeds in 2021 have meant low renewables production and hence, higher demand for gas and coal-fired power stations, pushing up demand for gas, in particular, and exposing the shortage in storage. Also, there is, of course, continuing global political uncertainty around Russia, which is a major supplier of gas to Europe. The chart on the top right of the slide, shows a strong growth in wholesale power prices during the year and the rally in gas, carbon prices driving this growth. The lower half of the slide comments on the movement of the medium to long end. Over the longer term, particularly in the U.K., as we described during last year, power price forecasters have increased the amount of U.K. offshore wind build-out assumed increasing renewables generation on the system, about commensurately increasing electricity demand has the impact of reducing expected power prices, and this has pushed the power curves lower from the late 2020s. Power price forecasters are influenced by several factors, as showed in schematic on the slide. Key ones being the expectations of the rollout rate of renewables, public policy, good growth of electricity demand as the energy system decarbonizes, and forecast commodity prices such as gas and carbon. Government policy developments will affect the pace of the energy transition, generally greater or faster renewables build-out to assumptions, reduce forecast power prices and mitigation is expected to come from increased electricity demand. On the energy supply side, in GB, the December 2021 power curves typically assume a little over 30 gigawatts of U.K. offshore wind is deployed by 2030, which is a substantial increase from the 12 gigawatts level today. Forecast assume the level of offshore wind deployed in U.K. waters continues to increase throughout the 2030s, reaching a U.K. [indiscernible] ambition of 40 gigawatts by 2040. In all markets, it is expected that electricity demand will increase as more end users expected to switch to electricity, such as transport and heating, albeit we and forecasters are waiting for more detailed policies from governments particularly in relation to the pace of the rollout of energy transition initiatives. That explains the power price movement in the valuation. And briefly returning to the bridge. I'll now explain the remaining items in the valuation bridge. This slide lists out the remaining items. We have reduced valuation discount rates used to value the portfolio during the year by 0.3%, which has benefited portfolio value by GBP 60 million. The renewables asset class remains in high demand and competition to secure new investments is strong, and we've continued to see discount rates tightening across geographies and technologies. The portfolio valuation discount rate has reduced over the year from 6.7% to 6.6%, which reflects a discount rate reduction, offset by the mix of acquisitions in the year that have, on average, been higher returning. And as you can see in the chart on the top right of the slide, notwithstanding that long-term interest rates are now rising gradually, there remains a large risk premium for the risk-free rate to the portfolio discount rate. The company carries out an independent valuation exercise each year and also commissions a review of the valuation discount rates. The independent valuer has confirmed the discount rates used in the valuation remain conservative, particularly when considering the caution adopted it during some of tricks of valuation assumptions. Moving to inflation. We have applied an increase to the short-term inflation assumption in the U.K. of plus 1% for 2022 and plus 0.75% for 2023, reflecting the current inflationary environment. This increase in inflation assumption has increased the valuation by GBP 38 million. Post 2023, TRIG inflation assumptions are unchanged before with CPI of 2%, an RPI of 2.75% until 2030, of RPI post 2030 of 2% being assumed. Moving on to FX. Sterling has strengthened 6% against the euro in this year. This resulted in a GBP 59 million valuation loss, which is offset by GBP 38 million of gains made on hedges, leading to a net foreign exchange loss for the company for the year of GBP 21 million. At the half year, we reported that we had amended the U.K. corporation tax assumption in the valuation, applying an increased rate of 25% U.K. corporation tax for all years from 2023. And this reduces the overall valuation by GBP 68 million. Also at the half year, we reported that we have provided GBP 29 million against our older French solar projects with high levels of feed-in tariff, reflecting the French government seeking to reduce the feed-in tariff levels on these projects. We have now commenced the process of appealing against the revised feed-in tariff levels. However, we can expect this process to take many months. And legal change roots may also be pursued. The final outcome here is hence uncertain and we have applied a 50% provision against the value in our portfolio relating to these affected projects. This is unchanged from the half year. The remaining exposure after the provision is about 1% of the portfolio. The final item on the bridge, the balance of portfolio return for the year is GBP 143 million, which represents a return of 5.7% for the year over the rebased valuation. The balance of portfolio return, mainly comprised the expected return reflecting the net present value of the cash flows brought forward by a year at 6.7% portfolio discount rate. The expected return was dampened by low wind speeds that have been partially offset by higher-than-budgeted achieved power prices. This had an adverse impact of around 2p per share. Active portfolio management activities, including the placing of inflation swaps and improved power price purchase management increased earnings by approximately 1p per share. And that completes the review of the valuation bridge, and I'll next move on to cover funding and investment commitments. TRIG has entered into 4 new investments in the year. TRIG has investment commitments totaling GBP 231 million, with just over half this commitment falling due during 2022. Investments in the year were funded initially from the RCF drawings and subsequently from 2 successful equity raises. The Blary Hill wind farm project, which completed construction last week, has been fully funded from reinvestment cash flows. At 31st December, the revolving acquisition facility was drawn GBP 73 million or GBP 231 million in commitments and the TRIG facility capacity is GBP 500 million. Our reporting not only covers our financial and operational performance, but also our sustainability impact. And this final slide in my section looks forward to future enhancements to our sustainability disclosure you can expect to see in the next year. Equally, we'll be pleased to hear from you as whether there are any particular topics you'd like us to cover. As we've done previously, we expect to publish our 2022 sustainability report in Q2. Thank you, and I'll now hand you over to Chris to update you on TRIG's operational performance.

Hello. I'm Chris Sweetman, Operations Director of TRIG, to talk about operational performance. During the year, we generated just over 4 terawatt hours, representing a 4% increase over 2020, reflecting a full year of 2 additional U.K. offshore projects. Production is 12.5% below budget, mainly due to less than expected wind across multiple regions for large parts of the year. You can see the split by region in the table. The portfolio diversification is still apparent with Sweden and solar performing in line with budget, lifting the portfolio result. Stepping through each onshore region, GB experienced the lowest year of wins since 2010, which was equivalent to the 1-year P90, that is a forecast yield with a 90% probability of being exceeded. Despite good availability overall in multiple windy months, the poor wins in January, April to September and December ultimately dominated the GB onshore region. France had a more varied year with the underperformance of Venelle and Epine depressing the region. Epine's budget has been decreased accordingly within the valuation and budget for future years. Also in France, repowering has now commenced on the 4 older wind sites with planning consents and new offtake arrangements underway. The old sites will continue to operate until they're decommissioning when the repowered projects are ready to construct in 2023 and beyond. Scandinavia significantly exceeded budget in many months across the period, capitalizing on the good winds that were available by having consistently high availability throughout the year. Ireland, historically poor grid downtime improved significantly with the second half of the year notably better now that EirGrid's Moneypoint substation is operating more normally and grid losses almost half of what they were in 2020. As such, it was poor winds that were the main cause of the shortfall against budget. Offshore, within GB, the low winds were the primary cause of the shortfall in production, most notably at Beatrice in Northern Scotland, with a pattern of production similar to the onshore region. German offshore experienced a more varied year with low winds a contributor, but multiple tenant grid outages also a clear feature. Merkur's challenges due to cracks on the rear frames which support the emergency evacuation platform were discussed at the half year. Ongoing production has been facilitated by an inspection and welding regime with commercial protections in place from the turbine manufacturer, which have been included within the reported performance. Our long-term solution is now being developed, which will be implemented in the coming months and is expected to be substantially complete by the end of the year, the costs of which are also for the turbine manufacturers account. Solar and storage production was broadly in line with budget throughout the year, with final ratification works largely completed, the benefits of which are already starting to be seen with improved availability and efficiency. This next graph shows how the weighted average wind and solar radiation has varied across the year by region compared to the long-term mean. Despite the low production overall, you can still see the geographic diversification between the regions on a month-to-month basis across the portfolio, with the black dotted line showing the portfolio weighted average. This portfolio effect smooths out the significant regional variance in wind resource each month from plus 40% to minus 70% compared to the long-term average. I'll now hand over to Jaz to talk about value enhancements.

Thanks, Chris. I'm Jaz Bains, Group Risk and Investment Director at RES. TRIG's approach to value enhancements is focused on 4 key aspects. We seek to increase the end yield from each assets, maximize associated revenue streams, reduce costs by seeking site-based commercial and financial cost savings whilst also extending asset lives through commercial and technical activities. During the year, there have been a number of particularly notable cost reductions achieved. Firstly, at Sheringham shore GB offshore wind project, new operating arrangements were made with the neighboring site sharing onshore and offshore resources to reduce overall costs whilst also improving the speed and safety of the access in the turbines. We also performed a multi-project operations and maintenance tender in the latter half of the year, leveraging TRIG Scale and technical diversity to obtain competitive bids from multiple service providers. This enables new reduced cost long-term contracts to be secured to maintain strong performance record. We continue to apply our balanced offtake strategy, which includes a blend of fixed and variable prices to optimize the value whilst managing volatility. We also entered the fixed price PPA auction process in Q4 for 4 projects, which is a good example of our ongoing review optimum routes to market. Examples of technical enhancements include working with an independent aerodynamic specialists to trial some novel blade furniture at 2 of our sites in Scotland to secure increases to Energy yields. Also working closely with turbine manufacturers to continue the rollout of software and hardware improvements across the portfolio to increase end yields and reduce the wear and tear on turbines. The wake steering project which is a market-leading innovation at our Altahullion project in Ireland is progressing well, with the first phase of installing the enhanced turbine control systems now complete. We are continuingly looking at life extension opportunities at our projects and are now evaluating the repowering of 4 of our projects in France. Looking forward, our approach to digitization, data management and analytics is one of the areas that will give us an edge over our competitors in terms of optimizing portfolio performance. Moving on to the projects we have in construction. From the slide, you can see the construction program for each project colored in green, the dark green showing how much of each program has been completed for each project, and I will run through the current status of each project. I am pleased to announce that Blary Hill completed ahead of schedule. At Vannier, turbines are being installed. Gronhult is progressing well with its foundations, whereas Ranasjo and Salsjo wind projects and the Cadiz Spanish solar projects are at the early stages of construction. Construction projects in a sustainable way is important to TRIG and that is why we engage with our contractors to factor in sustainable practices into their construction methods and having a positive impact on local communities and the natural habitat around our construction projects. An example of this is where the Swedish wind projects have used rock anchor foundations, thereby reducing the concrete usage by 50%. Also at TRIG U.K. construction projects, we have engaged with local businesses and have awarded circa GBP 10 million of contracts to local businesses around the wind farms. We are also mindful of the impact of construction to the natural habitat and have performed compensatory planting of over 90,000 trees at Solwaybank. I will now hand you over to Minesh.

Thank you, Jaz. Moving on to portfolio construction and investments. We completed 4 new investments in 2021. They were diversified across 3 geographies, 3 technologies and were balanced by revenue type. These were the product of InfraRed screening about 100 opportunities on behalf of TRIG and looking closely at some 25 of these. Our network and our sourcing of opportunities remains a significant differentiator and 3 of the 4 investments we added were a result of bilateral discussions. TRIG's portfolio has significant and increasing diversification. A major milestone for the company is our first investment in Spain in 4 solar projects. We have partnered with Statkraft and together we have spent a lot of time focusing on supply chain considerations. Spain now represents 6% of the portfolio and takes our solar investments to 13%. We expect that to grow with time. Investments outside of the GB market comprise 45% of the portfolio. Single asset concentration remains low with the largest asset representing just 9% of the portfolio and the top 10 being about half the portfolio. Finally, construction risk exposure at the balance sheet date was 11%. Worth noting that this does not include the Cadiz portfolio where the vendor retains construction risk. Once operational, our in-construction projects will increase the portfolio by over 400 megawatts or 20%. Whilst operational projects are at the core of TRIG's portfolio, construction projects provide an excellent opportunity for value enhancement and portfolio diversification. Richard will now provide some thoughts on the market and TRIG's approach to investments that are in construction.

Thank you, Minesh. I'm Richard Crawford in the infrastructure team at InfraRed and I take day-to-day lead for the management of TRIG. I'll start with the market opportunity. The rollout of renewables is core to Europe-wide public policy, and there is significant market opportunity across the geographies where TRIG currently has investments. These are shown on the map. Dark blue shows markets where investments are mostly subsidized and dark green, those which are mostly unsubsized. The map also shows countries where we are actively looking for projects and see similar risk profiles. These are in the lighter blue and green shades. And combining these markets offer significant opportunity. We estimate between EUR 80 billion and EUR 160 billion over the rest of this decade for secondary investors and diversification or within a region, which is focused and a world leader in decarbonization. We currently have a strong pipeline for TRIG with several opportunities within these markets. As part of our strategy to continue to find the best risk-adjusted returns for shareholders and diversify the portfolio, we believe it will be useful to revisit the construction and development investment limit, which has been 15% of the portfolio value since IPO, and we're consulting with shareholders on this. There are several reasons for this. The renewable sector has matured significantly in the nearly 9 years since our IPO, reducing the construction and ramp-up risks of renewable energy projects in established technologies. So we have increasingly seen opportunities being made available and finding their long-term secondary owners before they become operational. Indeed, 3 of the 4 investments and 7 of the 8 underlying projects TRIG acquired in 2021 were at the construction stage. As TRIG seeks to expand in sectors growing in maturity, such as battery storage or add to existing established sectors, such as the Nordics wind or Iberian solar. The 15% limit could act as a limitation on being able to make new investments and capturing the most attractive opportunities. Secondly, TRIG's diversified portfolio will over time offer opportunities to repower assets. By repowering, we mean capital investment to replace expired assets, effectively reconstructing the project with modern turbines, et cetera. But with lower risk compared with greenfield projects due to the operational side of the site. As Chris noted, we are already working on our first 4 repairs in France, and these opportunities would expand as other assets mature. Repairings are included within the limit. And thirdly, investing at an earlier stage in a project offers a higher return. It depends on the risk taken, but this can typically be a higher IRR of 50 to 100 bps on construction projects and more on development opportunities. TRIG has proven its ability to take on construction risk where we have already delivered 200 megawatts generation capacity across 9 projects. And crucially, we're able to capitalize on the track records of InfraRed and of RES. InfraRed has been making greenfield infrastructure investments since the 1990s and has delivered 70 greenfield projects. And RES has constructed or developed 22 gigawatts of renewable's capacity over its 40-year history. Finally, in considering the amount of the limit, note that the calculation includes the cost of all of the works committed to. So an asset at the start of construction when little has been drawn down counts the same as one towards the end of construction when most of the builders complete. Now 2 things arise from this. The limit needs to be set with reference to the peak as a new investment opportunity may overlap briefly with the end of the completing project and the amount of capital actually invested in pre-operational projects at any one time will be materially lower than the limit. Now taking all of this into account, we have in mind increasing the limit to 25%. As I say, during the course of this results roadshow, we will continue to consult with investors. We'll review to proposing an amendment to the construction limit at the company's 2022 AGM in May. Now some concluding thoughts on this presentation. 2021 has been a resilient year with strong NAV growth, positive dividend cover despite what has actually been the poorest weather resource in the company's history. We have met our 2021 dividend and increased the target for 2022 to 6.84p, which is north of a 5% yield on the prevailing share price. We recognize that shareholders' financial priority is the long-term sustainability of the company's dividend. In setting our dividend trajectory, we note the expectation for power prices to return to more normal levels in the next few years and the U.K. corporation tax increase that will come into effect, but also that our diversified portfolio gives resilience and the best chance of normal levels of generation. So portfolio diversification is core to the robustness of the company's cash flows and to ensure we can add the most favorable assets, as I have discussed, we are seeking views from shareholders on increasing the company's construction and development investment limit from 15% to 25%. And finally, the outlook is bright. The decarbonization agenda is being routinely underscored within policy initiatives in Europe and elsewhere. And it's pleasing to see some moves in public policy towards a whole economy approach taking on the electrification of more difficult areas such as space and water heating and industrial processes. And this is supportive for renewables, investors and future deployment. This backdrop continues to provide attractive opportunities for growth on which with our shareholders' continued support, we are well placed to take advantage. And that concludes our 2021 results presentation, and we thank you for listening.

So I'm pleased to say we already have a number of questions that have come in. So we'll take as many of these as we can. But please, if you do have any more questions, keep them coming, and we'll always deal with them separately by [ any mean ] if we're going to go around to them now. First, questions have come in from Ben, Investec. First one, could you please explain your approach to forecasting at the short end of the curve? And what is in your NAV product? Do you simply overlay forwards or take the independent forecasters curve? So Phil, would you take that one, please?

Sure. Okay. So at each valuation, we look at the forecasters curves, and we also look at the electricity price forwards. And in GB, for instance, we can see the electricity price forwards 2 to 3 years out. And the power price forecasts tell us that their process to develop their forecast takes them [ after ] about 6 weeks, and their process starts with them looking at the commodity price assumptions which factor in the commodity price forwards. And so by the time we are doing our valuation, their commodities forwards numbers are a couple of months old. And so we do quite often see a difference between their near-term power price forwards -- sorry, power price forecasts and the power price forwards for that short end. And particularly, at the moment, when in the recent weeks and months, we've seen a lot of volatility and strong growth in those forwards. So this year, the difference has been much more pronounced than normal, but it's usual for us to overlay the forecast with the power price forwards. But this time, we've carefully considered how to factor this in because the current high power -- the current forwards have been very high and quite volatile. So we've not assumed all of the power price forwards level at the year-end can be captured. Overall, we applied a 20% discount to the year-end forwards pricing and evaluation. And this is because, although we're fixing where we can and securing strong prices, not all of that income can be fixed and the prices have a high variability. So there's a risk about how long these very high prices will persist. So we took the impact of putting those forwards in, was around 2p on the NAV, but we didn't take all of the forwards that could have been put in. And so that probably would have been about another 2p had you taken the whole of that. We don't think that was the right approach.

Thank you, Phil. And another question from Ben. Given the proposal to increase the construction exposure, is this where you're seeing the best opportunities? Can we give a bit more color in terms of return expectations in the current environment? I think I'm going to ask Minesh to answer this one.

Thanks, Richard, and thanks, Ben, for your question. In certain regions and technologies, yes, this is where we're seeing excellent opportunities, particularly Nordic onshore wind, Spanish solar and battery storage, where the opportunities are increasingly being made available at the ready-to-build stage. And these all provide excellent diversification to the portfolio. What's key is proven construction techniques and working with the right counterparties like RES and Statkraft. And in terms of returns, we continue to see a 50 to 75 basis points premium for wind over solar. And construction provides a 25 to 100 basis points premium depending on the risk profile, the lower end where the vendor or the contractor retains many of the risks and the upper end where the project has multiple contracts and is bringing the construction together itself. Final point I'd make on this is construction development is an area where both managers have extensive experience. As Richard mentioned, at InfraRed, we've been investing at the construction and development phase for some 25 years now and RES have developing and building renewables for some 40 years. So well placed to continue in this.

Thank you, Minesh. We're going to stay on this subject for a couple of more questions. One from Ian Scouller from Stifel. What level of returns would you expect from development in construction assets compared with operational assets? I think you've answered that. But the second question, are you likely to invest in some of the new offshore projects, which have just been granted leasing rights around the U.K., perhaps when they're operational? And I'm going to give you the other question as well and that's from Nicolas Vaysselier, BNP Paribas Exane. What is your motivation for increasing the percentage of assets under development construction? Are you finding assets at attractive returns in the operational space? Or is it that we're now more comfortable with the risk associated with the construction assets going up and being willing to going up the curve. If you could deal with those 2, please.

Yes. Thanks very much. And thank you, Ian, and Nicolas, for your questions. I think, as Richard said, we answered the first half of Ian's question. On the second half in relation to new offshore projects, I think we look carefully at the risk/reward balance, in particular in the context of TRIG's overall risk profile. I think as you've identified, perhaps, we're near operational. But again, it's looking at what I mentioned earlier, the construction techniques, the counterparties and what risks are remaining, certainly, in the near term, the focus is on Nordic control winds, Spanish solar and battery storage, as I mentioned. In relation to Nicolas' question, look, I think -- as I mentioned, we are seeing attractive returns in the construction space, and we are increasingly seeing opportunities made available at the ready-to-build stage. I think that reflects the maturity, increasing maturity of the sector. Whether we're more comfortable with the risk now, I think, as I mentioned, the managers have extensive experience in this space. So we've been comfortable with the risk/reward profile for some time. This is really reflecting on where the opportunities are being made available to support portfolio construction and diversification and create an opportunity for further NAV growth.

Thank you, Minesh. Now I've got a couple of questions from Shonil Chande at Liberum. One on the subject of construction but coming from a different angle, can we give any indication on the amount of construction cost inflation we are seeing in new projects. And how are we managing completion and cost risk on construction projects? Jaz, would you take that one, please?

Sure, Richard. Thanks for the question, Shonil. Yes, we manage construction through the types of construction contracts that Minesh briefly mentioned, be they EPC fixed price contracts date certain or multi-contracts. When we look at the risk profile, we'll then look to see how we can fix the cost. We are seeing turbine manufacturers trying to pass on transportation and some commodity risk. We haven't got those in our existing contracts. In the newer contracts, we'd have to factor in some kind of contingency depending on the level of risk we take. But on the construction side, trying to manage the cost, we make sure that we have a RES owner's engineer on site, just making sure that the costs are in accordance with the contracts and not inflating in excess.

Thank you, Jaz. And the second question from Shonil. When do you think you might invest in more battery storage projects? And are they likely to be stand-alone or co-located? I'll take this one myself. We continue to look at battery storage projects and really beginning to see some of the trading histories that we wanted to give us comfort on the revenue lines. So I do think that this is likely become -- it's certainly a sector that we are interested in investing more as we identify the right projects. And as to the question whether we like it to be stand-alone or co-located, I think both are likely. We are actively looking at putting battery storage on some of our solar sites in the South of England at the moment, and we see good opportunities. But we're also seeing attractive opportunities in the market for larger stand-alone battery units. And as Minesh said, more likely to be at the construction stage. It seems to be where the market is finding its long-term owner in that sector, in particular, as we've said earlier. Now I have a question from Mark Webster at Acadian. And the question is, given the small dividend increase for 2022, by your medium-term expectations for now total return lower relative to the last few years? Well, I'll take this question as well. I think when we set our -- delivering the trajectory, our intention is to provide a progressive dividend, which we're able to maintain and whether cash flows allow increase over the longer term. And being able to sustain the level of dividend is very important to us. So please do not read across into our short-term expectations for net return. As you think the shorter-term expectations look very strong because we have got the higher power prices at the moment, some of which we're able to lock into on the forwards. So if we get good levels of weather resource during 2022, for example, and into 2023, I mean, that's very positive. We do have the certain headwinds coming, though, as we've mentioned in the presentation around, in particular, U.K. corporation tax going up significantly, and we have about half of our portfolio in the U.K. So that does have an effect on us. And we're always aware that longer term power prices will be variable, and we can't always rely on the higher power prices we're currently seeing. So we very much set the dividend to be sustainable over the long term. But what I would expect to see is good reinvestment from positive dividend coverage and that, of course, supporting longer-term returns from the company. And now we have a couple of questions from Alex Blackburne, S&P Global Market Intelligence. Thank you for your questions. First against a backdrop of rising power prices, rising equipment prices and rising logistic rates, does this inflationary pressure make merchant business models more attractive renewables at least in the short term to capture some of the upside from the power prices? And second, to what extent are you seeing these dynamics feed into the evaluation of projects and M&A deals values? Well, it's interesting question. Obviously, what we try to do within our portfolio is get a really good blend between the 2, and we're always attracted to investments, which have got good subsidies, especially where these are inflation-linked. But we do also have merchant projects within our portfolio, and we try to maintain a certain level of -- managed the level of price exposure that we have. Now yes, it's true to say, of course, in the shorter term, very high power prices do feed through very handsomely into the merchant project. So yes, that must be the case in the short term. Have we seen it feeding through into the M&A prices that we're seeing in the market? It must be coming through because these prices are so high at the moment. But it's probably a little early to comment. It's really over the last 3, 4 months that the prices have been particularly high, and we've still got projects that we're working on that we were pricing earlier than that. And at the moment, those prices are being sustained. So I think, yes, it must be through somewhat. But of course, these projects are based on long-term views, and that's far more influential than the next year or so. Now a question from Michael Blayney from Pendal Group. Are there many opportunities to develop co-located battery storage with existing assets? So this is an interesting area. I'm going to ask Chris Sweetman to take this one.

Thank you. On co-located assets, it's the grid import capacity which is crucial. Clearly, the existing portfolio is focused more on its export capabilities. We've reviewed the whole portfolio, identified a couple of suitable sites, one of which we're progressing at the moment. Whilst we do that, of course, it's essential that we protect the financial commercial position of the existing asset, the accreditation, et cetera. So those are all some of the things that we take into account when we perform this development.

Thank you, Chris. And another question for you from [indiscernible] Securities. Can you discuss the repowering of existing assets further in terms of asset life where typically is the breakdown for the CapEx required? Do you require new grid connections for the upscale power output, for example? Chris?

Thank you. The payback really varies by the regulatory environment, is ia rock system of a feed-in tariff. So that's what's driving the recovery of the CapEx. But typically, you're looking at 10 to 15 years, that sort of region and, of course, how windy the site is. So then in terms of the grid, it depends how you're going to repower it. If it's a very large site and you're looking to put much larger turbines on it, you're going to have an increased capacity overall. That will require additional good capacity. So you will need to go through a process with a local grid company to secure that capacity. There will be other sites where -- it will be a large site, but with small turbines. You will end up with a similar megawatts overall. And again, depending on what your existing grid connection contracts here, some of which are open-ended and others have time limits. You may be okay with your existing grid connection or you may want to see some changes to it. Invariably good companies will seek to impose additional requirements on new connections just as part of ensuring stability of supply.

Thank you, Chris. Now we have another question from [indiscernible]. It's back to the power price subject, but it's an important question, so I'm going to ask it. Could you talk through your power price hedging strategy in the current environment? And Phil, would you take this, please?

Yes, sure. So we've got 70% of our forecast income fixed per megawatt hour over the next 12 months and 66% over the next 10 years. This gives us stability to our returns but also exposure to the higher power prices that we're seeing now. The RES team are active in placing fixes and looking at options to fix across projects and PPAs across the portfolio. But not all projects -- not all the PPAs in the projects provide the options to fix. And in some cases, the offers we received from the PPA counterparties for fixes are below our target levels. So then we may opt to wait or fix later or leave the income for that PPA floating. And in some cases, that offtaker doesn't want all the income under a PPA fixed. That's more the income -- the more that the income is fixed and the greater the balancing our volume risk is. So it's not possible to fix all of the income. But we have a fixing program where we're trying to spread the placing of fixes over time. We don't want to put all the fixes at the same time, and we don't want to fix all of the income to retain some exposure we can't retain. We can't fix all of the income. But generally, we are keen to fixing where we can and when we're offering good pricing. And if we do that, it reduces the risk around the income and increases the certainty and quality of our income stream.

Thank you, Phil. I think it's now -- we've been going about 20 minutes on the questions. I think I'll stop it here. Thank you very much for all of your questions. I think we've covered all of the topics which have been raised. Where there are additional questions, please do feed them through. We will get back to you individually on them. And from all of us, we really thank you for dialing in to us today and look forward to seeing you all on the road show and so forth. Bye-bye from us all.