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

Good afternoon, ladies and gentlemen, and welcome to the Renewables Infrastructure Group Limited Investor Presentation. [Operator Instructions] Before we begin, I would like to submit the following poll. And if you could give that your kind attention, I'm sure the company would be most grateful. And I'd now like to hand you over to Head of Energy Income Funds, Richard Crawford. Good afternoon, sir.

Yes, hello, and good afternoon to all of the listeners. We really thank you for joining us on this presentation, which will take approximately half an hour and then [ ataxis ] will have time for questions after that. So this is introduction to the Renewables Infrastructure Group, and TRIG has 2 managers, Infrared and RES. And those speakers that you're going to see today will be a combination of both of the managers. Infrared leads the investment side of the business, and RES leads the operations side of the business. So I'm Richard Crawford. I'm a partner at Infrared and I lead the team that carries out the day-to-day management of TRIG. Now today, this morning, we reported very strong earnings and NAV performance for 2022. Our earnings were 21.5p per share. Now that contrasts with 10p in 2021, which itself was a healthy result. And our NAV increase over the year was 15.3p per share, taking us to 134.6p. Now these are very substantially the highest earnings and NAV increase that we have posted. Now also, we've achieved very healthy cash generation in the year, with dividend cover of 1.55x or 2.6x before the repayment of project debt, which we continue to amortize. And this amortization of the debt means that investors can be comfortable that this debt will be fully repaid during the period of our fixed revenues. The cash flow has supported reinvestment with nearly GBP 90 million being from cash generated, and we have made nearly GBP 175 million of project debt repayments. Now if you take our total investment activity in the year, that has accumulated to GBP 694 million, and this has been invested in new projects. These investments support the longevity of the NAV and also each investment adds either additional earnings visibility or technology diversification, and we will discuss these investments in more detail in a moment. We're also pleased with the support from our shareholders. In March '22 they subscribed for GBP 277 million of new equity, and this was despite the challenges thrown up by the then recent outbreak of war. And we've also recently announced our revolving credit facility renewal. We've expanded this from GBP 600 million to GBP 750 million, giving some GBP 350 million of headroom dividends. I'm pleased that we have again met our dividend target, having recently declared Q4's dividend. That will get paid at the end of March and will bring the total for 2022 up to 6.84p per share. And for 2023, we are increasing the dividend target by 5% to 7.18p per share. Now we are increasing by 5% after considering the level of inflation and also the cash flow generated in the year. But also we take into account, that there are windfall taxes being imposed by the government, and therefore, part of the inflationary pressure from energy prices is being captured by the governments and the need to maintain a sustainable dividend over the long term, whilst continuing with our considered approach to debt repayment. Now before we get on to more detail for 2022, for the benefit of those who are new to TRIG, I'll give you some background information to the company. We've built up a 2.8 gigawatt portfolio of renewable assets. These have a value of GBP 3.7 billion, and the objective is to generate sustainable returns for investors. It is also a portfolio that is defensively positioned in the current high inflation environment. And as you can see, if you look at the triangle on the slide, we focus on 3 elements: portfolio diversification, which we achieved through geographies, technologies, revenue sources, counterparties and so on. And we add projects to the portfolio to enhance the resilience, returns and portfolio life. We employ responsible investment practices with a focus on ESG and reporting transparency. And once assets have come into the portfolio, we seek to preserve and enhance value through proactive hands-on asset management. Now this approach has worked well. Our total NAV return, that is, dividends plus increase in NAV, is just over 9% on an annualized basis. And that is shown in the top half of the slide. year-on-year. The shares typically offer a yield which is in excess of 5% based on the target dividend. And we have a progressive dividend policy with dividends being paid quarterly. Now at the bottom of the slide, you can see that we have significantly outperformed the FTSE All-Share Index over nearly a decade. And you can also see in the lighter colored line, we have a low beta. Now part of the reason for this success is the defensive qualities of the portfolio. And this has been particularly evident in 2022 when good investment performance has been so difficult to achieve. And these defensive qualities include limited exposure to increasing interest rates. Now almost all of our project debt is fixed for its full duration without refinancing risk. We have good correlation to inflation. Over half of our income for the next 10 years is contractually linked to inflation. And of course, we have the sectors relevant not only to decarbonization, but also renewables' role in energy security, and now also affordability, are both clear. Now in 2022, we've made significant acquisitions, and these have added to the diversity of the portfolio. We made 2 investments in offshore wind. These increased the visibility of earnings due to the subsidy mechanisms they have through the CFD or the feed-in tariff mechanisms. We completed the construction of assets totaling 379 megawatts during 2022 and during this first quarter of '23. And this has included 4 new solar projects, aggregate 234 megawatts. This increases our solar portfolio by 80%. So now becoming a more meaningful part of the overall portfolio. And we secured the development rights to 4 battery projects. So these are utility-scale battery storage projects, in aggregate 350 megawatts for 2 hours' duration once fully built out. And this will build up this part of the portfolio, and the revenue streams from this kind of flexible generation is complementary to the intermittent generation that the wind farms and solar parks have. And we've had another year of strong portfolio performance, this time coming particularly from the high levels of power prices achieved and the inflationary increases flowing through into the government support mechanisms which are index-linked. So this has enabled the strong dividend cover, reinvestment and debt repayment that I have already mentioned. I'm now going to hand over to my colleague, Phil George, who will go through the results in more detail.

Thank you, Richard. I'm Phil George. I carry out the CFO role for TRIG, and I'll take you through the financial highlights and the valuation movements for 2022. We had high earnings in the year. EPS is 21.5p per share, which reflects strong cash flow performance in the year and significant valuation growth. The high EPS has led to a strong NAV growth after deducting the dividends paid. And the NAV is up 15.3p to 134.6p over the year. Key drivers increasing valuation have been our higher near and medium-term forecast power prices and high levels of inflation, which have been partially offset by the adverse impacts of increasing valuation discount rates and windfall taxes across Europe, particularly the electricity generator levy in the U.K. We've continued to grow and diversify the portfolio with GBP 694 million of new investments in the year, including financing of projects in construction, which has been supported by GBP 277 million of fundraising, reinvestments of strong cash flows from the investments and an extended and renewed revolving credit facility. Dividend cover has benefited from high power prices. The cash dividend cover for the year was 1.55x. And cash received from the investments is after projects have repaid GBP 174 million of project-level debt across the portfolio, which represents just over 1x dividends declared. The dividend cover if we would not reduce the debt principal will be 2.6x. With these results, we are increasing the dividend target for 2023 by 5% to 7.18p per share, which is a 5.3% yield versus the NAV. I'll now move on to the valuation bridge. And the bridge takes us from a value for the 31st December of GBP 2.7 billion to a value at 31st December of GBP 3.7 billion. And as mentioned, TRIG invested GBP 694 million in the year across different countries and technologies, which Minesh will go into more detail on later. And cash distributed in the period from the investments [ out to ] TRIG of GBP 280 million takes the rebase valuation to GBP 3.1 billion. And the rest of the bridge represents the operating income shown in the profit and loss account, which will take the value from GBP 3.1 billion to GBP 3.7 billion. And I'll start with the power price movement. The overall movement in the power price forecast, net of the impact of government interventions in the U.K. and the EU, had a positive valuation impact of GBP 266 million, which is an 8% growth in portfolio value. As you can see from the graph on the top right of the slide, there's been a significant increase in power price forecasts over the remainder of the 2020s, pretty much the same as before from the early 2030s onwards. The key driver of high electricity prices is the high price of gas, which have been elevated predominantly due to the Ukraine conflict and are expected to take many years for new supply to replace Russian gas and for price levels to return to previous norms. The different electricity markets we invest in have varying sensitivities to gas prices, depending on factors including their power generation mix and how much gas makes up of this, power supply and demand in their markets and interconnections between markets. The U.K., where the portfolio has the majority of its near-term power price exposure, is sensitive to the global set gas price. And when considering power price forecasts, we consider the near-term wholesale market forwards, which have become more stable in recent months and have reduced somewhat compared to prices in the late summer as anxiety over whether Europe will be able to source enough gas to meet this winter's demand has eased. At the year-end, near term forwards were below the forecasted projections. And so we adopted the forwards that were lower and reflected more accurate, recent data. And we apply a discount to those forwards around 15%, 15% at the year-end, reflecting that the renewables capture a discount to the market price, especially when prices are high. Around half of our portfolio does not have exposure to near-term power prices being received at fixed, often inflation-linked price income per megawatt hour. And these are predominantly our investments in offshore wind farms in the U.K. and Germany, and onshore wind farms in France. The longer end of the power price forecasts are broadly unchanged [ from before ]. Both renewables deployment and also the rate of electrification have been increased by the forecasters in the year, reflecting accelerating government policies across Europe. And looking forward, government policies across Europe in relation to electricity market design will be key to the long-term power price outlook. And before I leave this slide, we continue to provide data on our average power prices assumed. For the U.K., we provide this before and after the impact of the electricity generator levy. In the EU it's presented solely after windfall taxes. These are generally set at 90% or 100% levels. We also show the proportion of our revenue that is fixed per megawatt hour at the short-, medium- and long-term horizons. The next slide covers the government interventions that have been applied in a little more detail. The valuation impact of these interventions have mostly affected the valuation of our U.K. projects. And this is because the U.K. is where most of the portfolio's near-term merchant exposure is. The projects in Germany and France [ at ] fixed price per megawatt hour income and so were unaffected. And in Sweden and Spain, power prices assumed in our forecasts are below or capped at the threshold levels. But there is a small adverse impact on our Irish wind farms that are in the main merchant generators. We assume the interventions remain in place for a period for which power prices are forecast to be above the threshold levels, which is typically for years. A side effect of the interventions is that it reduces the sensitivity of valuation to near-term achieved power price levels with governments taking most or all of the power price income when it exceeds the threshold levels. Turning to the next slide, over half of the portfolio projected portfolio revenues over the next 10 years are directly linked to inflation. The significant levels of inflation we have seen and is forecast across all geographies that TRIG invest in, have added GBP 234 million to the portfolio valuation, and 80% of this uplift comes from the high actual inflation in 2022. Our long-term inflation assumptions in 2024 onwards remain at 2.75 for U.K. RPI and 2% for U.K. and European CPI, with slightly higher rates assumed for 2023. The slide also shows some sensitivities should inflation levels be higher or lower than assumed in our valuation. An increase in inflation levels of 0.5% per year assumed for the long term would, for instance, add 0.7% to portfolio returns. Valuation discount rates are addressed in the next slide. And in common with most market participants, we increased the discount rates used to value the portfolio in the second half of the year, reflecting a significant increase in the year in long-term government borrowing rates. We applied an average increase of 0.5% across the portfolio with 0.8% applied to U.K. investments and 0.3% to non-U.K. investments, recognizing the higher long-term government bond yield in the U.K. versus EU countries. The portfolio weighted average discount rate has increased from 6.6% to 7.2%, reflecting the 50 basis points increase in discount rates and also a small increase as projects move through their subsidy periods and their market-based income gets closer. Applying a blend of U.K. and EU risk-free rates reflecting the portfolio composition leads to a weighted average risk-free rate for our portfolio of 3.3%. And the risk buffer for the portfolio return to the risk-free rate remains reasonable at around 4%. We would note this strong inflation linkage is a key attraction for investors in renewables. 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. Moving on to foreign exchange. Sterling has weakened 5% against the euro in the year, resulting in a gain net of hedges of GBP 37 million. And the final item on the bridge, the balance of portfolio return for the year, is GBP 202 million, which represents a return of 6.4% at the rebased valuation, or 6.9% when adjusted for the timing of acquisitions, which is slightly ahead of the expected return represented by the opening portfolio discount rate of 6.6%. As ever, there's a lot of work that goes into delivering the portfolio's performance. I'll now hand over to Chris, who will talk about not only delivering the investment case, but also outperforming for our value enhancement activity.

I'm Chris Sweetman, Operations Director, to talk through the main operational features. During the year, we generated 5.4 terawatt hours, equivalent to 1.6 million homes. That's more than all the homes in Wales. This is a 30% increase compared to 2021, reflecting the increased portfolio size as well as higher resource. Portfolio now consists of 90 projects spread across weather systems and markets [ through ] Western Europe using a range of technologies and equipment suppliers, which with scale benefits have delivered a very strong commercial performance. Further diversification will follow in 2023 as the Cadiz Spanish solar [ power ] and Grönhult Swedish wind farm are completed in the first quarter of this year. The portfolio performed very well commercially, with high pricing more than offsetting a modest shortfall in generation. This reflects a range of revenue types, which includes sales into U.K. and European wholesale power markets, government contracts linked to inflation and income for providing good services. Generation is 5% below budget for the year, which you can see split out by region in the table. The portfolio diversification benefits are clear, with differing performance across the portfolio mitigating the overall position. Generation was reduced by poor weather resource in France and our offshore sites, coupled with grid outages and some maintenance activities. These were offset by good weather resource in the U.K., Ireland, Sweden, and for our solar portfolio. You can see in the graph how the weighted average wind and solar radiation has varied across the last 12 months by region compared to the long-term mean. The black dotted line shows the portfolio weighted average weather with some months higher or lower than others, but ultimately delivering a smoothing effect across the year and lower volatility year-to-year. Notable events in the year include the completion of Merkur's wind frame repairs, the cost of which was borne by the turbine manufacturer, along with compensation for lost generation. This January's availability and generation exceeded budget. Blary experienced some early noise issues, requiring curtailment that impacted production. [ British ] acoustic experts identified the cause through on-site noise assessments and engaged with the turbine manufacturer to address the matter, with the site now operating well. The solar portfolio, which has now more than doubled in size with the acquisition of Valdesolar, experienced good irradiation in GB and the earlier grid curtailment seen at Valdesolar has now been resolved. This region will increase notably in size again in 2023 with the addition of the 4 Cadiz projects. Sustainability remains core to TRIG's operations. 2022 operations have focused on framework adoption and leading best practice, recognizing TRIG's responsibility to act with care and integrity for the local community and environment. We [ report ] on the task force on climate-related disclosures, are a signatory to the Science-Based Targets Initiative and understand our wider regulatory commitments to collect and track data from across the portfolio, whilst also encouraging and supporting our joint venture partners to do likewise. We've now also updated our sustainability policy, which includes a biodiversity strategy and commitment to improving lifestyle circularity, with further updates to be shared within our sustainability report in May. Turning to value enhancements. Proactive management of TRIG's portfolio by the managers continues to preserve and enhance the value of the portfolio. A number of energy yield enhancements have been progressed in the year, notably a blade [ forniker ] trial, which produced a material yield uplift at [ Hiloftary ], with the technology deployed across the site following verification. British technical expertise was crucial in determining the yield impact, as standard verification methods were not suitable. Plans were in place for further sites to be trialed in 2023, building upon the experience gained from the initial trial at Altahullion. The collective control element of a [ wider ] yield enhancement project is close to concluding. Performed in collaboration with the National Renewable Energy Laboratory in the U.S., this is one of the first trials of its kind in the world, enabling neighboring turbines to communicate with each other to optimize yield. Power price management has continued to be a key focus in 2022. Turbulent market conditions reduced the liquidity of the price fixing market. Opportunities have been actively sought and new fixes selectively placed were beneficial. Early termination clauses in existing sales contracts have also been utilized to secure improved terms. And we've also engaged with offtakers to demonstrate increased RECO or renewable certificate [ allies ] to ensure we've paid market rates. TRIG's lowered portfolio offers scale benefits and operational efficiency, as seen in our U.K. NI tender of 7 O&M contracts in 2022. I'm pleased to report that we secured new fixed price tariffs on 2 of the French repowering projects, an important step in our ambition to derive additional value through repowering these older sites. Life extensions continue to progress with 4 further lease and permit extensions secured during the year, utilizing experienced wind and solar developers within the core RES business. In terms of sustainability, RES has produced a tailored biodiversity enhancement plans for specific measures to be performed on sites, which are well underway. A common theme through all of these activities is the accumulation and application of site and market data to best identify and optimize opportunities across the portfolio. A further key value driver secured by TRIG is taking projects through construction into operations, as we discuss on the next slide. You can see here that the onshore wind farms of Blary in Scotland and Vannier in France are now both fully operational. Grönhult onshore wind farm in Sweden and the 4 Cadiz solar projects in Spain have begun exporting electricity to the grid with full takeover expected at each site very shortly, largely on schedule. The Cadiz projects are an important milestone as TRIG's first large-scale solar construction projects. Ranasjö and Salsjö, [ may wing ] Swedish onshore wind farms, have their civil works well progressed ahead of turbine delivery later in the year. The battery storage development projects were acquired in the second half of the year, on which detailed design works have commenced ahead of procurement activities, scheduled to tie in with respective good collection time lines. I will now hand over to Minesh.

Many thanks, Chris. As Richard, Phil and Chris have each highlighted, we've had a very strong year in 2022, and we expect cash flows to continue in the near future even after the impact of windfall taxes. Operational cash flows, summed across the portfolio after taking into account the company's own expenses, were over GBP 420 million, which represents 2.6x cover of GBP 160 million dividends to shareholders. This left GBP 263 million for reinvestment, and this was roughly used 2/3 to reduce project company level debt and 1/3 invested in new generation capacity. And to [ provide a ] context, it means responsible capital management. Project debt repaid in line with subsidy periods with minimal interest rate risk and no refinancing risk. Further, the Blary Hill onshore wind farm in the U.K. and the Arenosas and El Yarte solar projects in the Cadiz portfolio in Spain were built from TRIG's reinvestment cash flows at return levels above the portfolio average. And TRIG's share of the Ranasjö and Salsjö wind farms in Sweden are also being funded from reinvestment cash flows. That's organic growth and demonstrates the additionality that TRIG brings to the decarbonization and energy security agendas. Moving on to acquisitions made in the year. We set out at our Capital Markets seminar last April, acquisition to focus on 4 themes: offshore wind to bring in government-supported inflation correlated revenues. Nordic wind for geographic diversification, Spanish solar for technological and geographic diversification and battery storage to complement the generation assets with flexible capacity. And many of the opportunities we look at are at the development and construction stages with return levels above the portfolio average. We have delivered against this strategy with a balanced portfolio of acquisitions in the year, including a milestone for the company with 4 battery storage projects at the development stage. And as Chris reported, we've made great progress across our assets in construction, and taking these together with the acquisitions in the year, we were GBP 399 million drawn at year-end against our GBP 750 million ESG-linked revolving credit facility. So good headroom there to build out our assets in development and construction and selectively pursue attractive investment opportunities. Now putting these assets in the context of the portfolio as a whole. As you can see on the right-hand side, our largest investment remains less than 10% of the portfolio, continuing our approach to low single asset concentration. Year-on-year, our geographic mix is largely unchanged. The U.K. remains just under 60% of our portfolio, and the spread across 5 other European countries provides good diversification. In our technology mix, we've added greater flexible capacity into the portfolio through our battery storage investments. These are complementary to renewables. By responding to price signals, they also provide grid support services and are core to the energy transition. And moving on to our construction exposure. Having delivered Blary Hill and Vannier onshore wind farms in the year, our construction exposure has reduced from 11% to 8%. That leaves plenty of headroom to progress the battery storage projects in the U.K. and repowering activities across 4 sites in France, as well as add further construction stage projects. Construction and development projects are a core part of our strategy. They allow us to enhance both shareholder value as well as provide additionality by creating new generation and flexible capacity. In summary, the portfolio is well diversified. And so our focus here remains on making disciplined accretive investments. Looking forward, the market opportunity remains significant. The energy trilemma; that is, decarbonization, energy affordability and energy security, are driving government policy to increase renewables rollout as well as electrification of energy demand. Within this, we remain confident on selecting good opportunities for TRIG. We have good visibility of these in Europe for TRIG, which stems from both the greenfield and [ secondary ] size of Infrared and RES's businesses and the global reach of our market relationships. And on this slide, you can see here the opportunity quantified. And you've heard us speak about reinvestment. It is important that energy sector investors continue to provide additionality by investing in new generation, both from cash flows that our own portfolios generate as well as mobilizing new capital into the sector. With that, I hand over to Richard for some concluding remarks.

Thank you, Minesh. So we've had very strong earnings and valuation gains in 2022, positively impacted by the higher power prices achieved and forecast, which Phil took you through. Government interventions now look to have settled down. And whilst we do have views that there has been some overreach, please note that these are fully allowed for within the valuation. And in addition, the reduction in power price sensitivity which is achieved, because when we forecast power prices to be above the tax thresholds, a lot of that goes to the government. And this is a situation for the next 3 years. We have increased our dividend target by 5% to 7.18p per share and with strong gross cash cover of 2.6x before debt repayment, we offer investors a prospect of an attractive dividend payout. We're pleased with the strategic developments we have made in the portfolio. These additions have increased income visibility with investments in Hornsea One and Merkur offshore wind farms. And Merkur, for those who have followed events over the last few years, is now back to near normal operations following the fix of the rear frame issue under warranty. We delivered 379 megawatts of construction projects in 2022 and including this quarter. And these should flow through into value once operations are demonstrated. And our diversified approach continues with the additions of solar and also battery development projects being secured. Now we look forward, and 2022 has shown that the variability of power prices is not in the consumer's interest. And we have seen further stress put onto government balance sheets as they subsidize consumers. So power supply remains in a precarious position, notwithstanding recent moderate respite from very high power prices due to the relatively warm and windy winter. We can, therefore, expect to see that the regulators will progress the somewhat overdue issue of separating out the cost of renewables generation from the cost of gas generation. And the challenges of supply cost and decarbonization mean that in this, the need for continued investment into renewables has never been stronger. We, therefore, go into these processes, such as [ VEMA ] in the U.K., that is the review of electricity market arrangements, with confidence that solutions will be found which work for both investors and for consumers alike. And we are involved in these consultations, and we are promoting the wider use of the CFD or contract-for-difference mechanism. This has been shown to work well in attracting investors into offshore wind in the U.K. where it is now working to reduce consumer bills. And finally, from a wider investment perspective with higher inflation and interest rates and a challenging economic backdrop, we believe renewables stand out as a real strength. And TRIG, with its diversified portfolio, its inflation correlation and its low exposure to interest rates is genuinely differentiated and is contributing towards decarbonization and energy security in Europe. So we believe TRIG remains a compelling investment proposition, a robust business model with 2 market-leading managers in Infrared and RES, sound board oversight, a highly supportive shareholder base, all underpinned with favorable sector fundamentals. And we thank you for listening to this presentation. I'm now going to ask Jake to steer us through the process for submitting questions.

Richard, that's great. Thank you very much for that. And Phil and Minesh and Chris as well. Thank you very much indeed for your presentation this afternoon. And if I may just ask you all just to bring back up your cameras, that would be great. [Operator Instructions] Just while the team take a few moments to review those questions that were submitted already, I would like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&A can be accessed via your investor dashboard. Richard, Phil, Minesh, Chris, as you can see, we have received a number of questions throughout your presentation this afternoon. And thank you to all of those on the call for taking the time to submit their questions. [ Hugo ], perhaps, if I may, just hand over to you now to chair the Q&A session with the team, and then I'll pick up from you at the end.

Perfect. Thank you, Jake. And once again, thank you to those of you online who have submitted plenty of questions. We'll endeavor to get through as many as we can, permitting time. And just to start with, there's been several questions on portfolio construction. So I'll lead with a question from Michael, who mentions that is he correct in thinking that all our investments are solely in Europe? If so, why is this? And do we have any intentions to enter into any new territories? So I think I'll hand over to Minesh in the first instance.

Yes, you are right in thinking our investments are solely in Europe. That seeks to balance, on one hand, you want good diversification and being across Europe provides geographic diversification from being all the way north of Sweden, down to the south of Spain and a number of geographies in between. That provides weather diversification, regulatory diversification, power markets diversification. And on the other side, you want to be able to build good scale in any one jurisdiction. That allows you to create economies of scale, operational efficiencies by being able to, for example, tender O&M contracts within a region, operational contracts that is, within a region and have people bidding at scale to achieve cost efficiencies. So we feel that Europe provides that good balance of being sufficiently spread for diversification, but also being able to build scale in particular countries.

Minesh. And just off the back of that, more on technological diversification. How do you see the split between wind and solar in the portfolio moving forward?

The balance in the portfolio, as you have seen in the slides, is weighted towards wind, and that really reflects the historical deployment of renewable technologies in Europe. We had quite a good amount of solar in the early days and then the U.K. stopped [ its post of ] these and stopped building that out. But what we're now seeing is solar being built, particularly on the Iberian Peninsula, without the need for government support. And that is creating opportunities to move back into solar. And we're also seeing the flexible capacity, so that's battery storage really, creating opportunities as well. And as I mentioned in the discussion, that battery storage is great in that it responds to the intermittency of renewables, can also provide grid support services and is core to the energy transition as well. As we see more solar, more batteries being deployed in Europe, we can expect this to form a greater portion of our portfolio. We still expect the dominant technology to be wind, but we're looking to bring more solar and more flexible capacity into the portfolio.

Brilliant. And I suppose taking some of that strategic thinking into a more actionable question from Steve, who mentions, what are the key criteria when looking at making new investments? And how are you finding the valuations of the opportunities? And I think I'll move to Richard in the first instance, but it would be good to hear Chris's thoughts as well on operational evaluation of opportunities also.

Yes. Thank you, Hugo. And thank you, Steve, for the question. I'm actually going to take the second half of the question first. How are we finding the valuations of these opportunities. This is interesting because clearly, interest rates have moved up, and we saw that in particular in the U.K., but it's not only in the U.K. In Europe as well, during the whole of last year, interest rates were going up. U.K., they went up more sharply in September and then came back a little bit and are converging more with Europe now. But also, we have -- so that suggests valuations are going down because we'd be applying a higher discount rate to the projects we're buying, and you've seen that we've increased discount rates and our valuation to reflect that. But at the same time, you've got higher power prices feeding through on some of the assets, and you've got inflation feeding through on other assets, depending on when we're selling the power into the market or whether we're receiving subsidies, which are linked to inflation. And those things together have tended to balance out. So we haven't really seen, in sort of pound note terms, actually a falling off on valuations. So you got 2 distinct movements. What do we look for when making an investment? Well, the first thing we do is we consider the portfolio, the shape of the portfolio, what do we want to add to the portfolio? And we're always looking to either increase the longevity of the portfolio. So if I tell you, for example, the average age of this portfolio when we launched 10 years ago was about 5 years. So still the average age of the portfolio is 5 years. Now it's because we've added a lot of assets, but we've added assets which are young, are fairly early on in operations or in construction, at the beginning of construction very often. And that has maintained the longevity of the portfolio, and that means we can carry on paying the dividends into the very much longer term. The other thing we then look at is the balance of the portfolio. And we want to balance between earnings visibility from the subsidies, which have the indexation linkage, but you have to pay more for, so you get a lower rate of return from those. And to combine that with the merchant cash flows, which gives us opportunities for enhancement of value at a higher return. But clearly, there's more risk within those cash flows. And we want a balance of the 2. We also want technological balance. We don't want to all be in 1 sector, and we want, in particular, country balance. And that is because the energy sector, we're in the regulated sector. It's heavily regulated. And therefore, if you've got all of your assets in a single country, you're exposed to the regulation changes in just that 1 country. So that just gives you a flavor at the portfolio level of what we're looking for. I'll ask Chris now to go on to a bit more detail at the project level.

Thank you, Richard. So from one of the things. So operationally, yes, we get involved right at the beginning. So during the acquisition process we're interacting with the Infrared deal teams, making sure that we understand the projects fully. We understand the contracts and make sure that they're priced in appropriately and any additional services which are outside of those contracts are also included within the bid price. We make sure we use the insights from RES's wider development, construction and operation portfolio and understanding and experience in feeding into those projects. And ultimately it all comes down to quality, making sure we've got -- we really understand the quality. We have good quality assets. You're building quality right from the start on these large capital upfront projects, understand the quality and make sure that you've been able to benefit from the long-term operation of them.

Brilliant. And just off the back of that as well, there's been a question from Nick about the preference for opportunities that we're looking at, would our preference be more towards building and developing our own assets or acquiring them through acquisitions? And equally, are there any tax benefits or incentives attached to either methods? And Minesh, if you want to take this one?

Yes, very happy to. Thank you, Hugo and thank you, Nick, for the question. I think it really depends from opportunity to opportunity and we're very careful to look at the balance of risk/reward as well as investors' expectations on the risks that we are taking in any 1 investment. We primarily look at more mature technologies, which means largely, we can look at the construction and even development stage and still be within that risk/reward profile. And often onshore wind, solar and battery storage, we will invest quite early on in construction, if not towards the back end of the development stage. Offshore wind is slightly larger scale, a slightly different risk profile. We typically there invest at the operational stage or late into construction, but very much seeking to have that balance. We do have a limit in our investment policy, 25% of portfolio value can be in assets in construction. And that's also important. Ultimately, the fund is paying income, and projects during construction are not generating cash until they're operational, and making sure that, that balance there is important. What construction and development stage projects do provide is, they're an opportunity for value enhancement and to continue to grow the NAV. If we are able to deliver those projects and derisk them through construction and operations, you get a rerating upwards of the asset valuation, and that flows through into earnings and the portfolio valuation. So a great opportunity there for -- to increase shareholder value as well as build new capacity. On the tax benefit point, no, not particularly. Greater tax benefits are associated with when we enter into a project.

Thanks, Minesh. And I'm aware we've obviously covered a fair amount on portfolio construction and there are still several other questions on that. But just to cover the financial aspects as well, there's been a few financials comments. And so one for Phil and the -- from Mark. Could you talk us through the decision to cancel the scrip dividend here? Is it not for the benefit of all shareholders for extra cash to be available for new energy project investment even at a modest discount to NAV?

Yes, I've got a lot of sympathy for that view. The advice we received was that we didn't have the authority to proceed with scrip dividends when the value is below the NAV. And we don't -- that would have been prohibited by the rules. I don't know if it's something that if we had preapproved for a shareholder vote, if it's something we could do, and that's something we could think about. I guess we're rather hoping that we would return to a premium. And I know we're at an ever so slight discount at the moment because we know that the scrip dividend is popular. So it's something we could look into, if it would be possible to include that in the voting. We need to -- we probably need to get some advice on whether that's -- how normal that is. I didn't realize that other trusts were doing it.

Perfect, Phil. And another question from Steve, and he mentions, what is the company's position and thoughts on share buybacks. It's good to see the increase in the dividend, but wondered if this was a consideration.

It's something we've talked about and discussed with the Board and with brokers and others. I guess the consideration is that where this cash is coming from. In our case, we have drawings on our credit facility. We're not anxious about those drawings because we've got a lot of headroom and a lot of time to pay off those drawings, and we can -- we could put longer-term debt into the portfolio as well, to repay it if we wanted to. But at the moment, the surplus cash we're using that's generated because the earnings or the projects are higher than the dividends we're paying out, that surplus cash is being used to build for the wind farms and to reduce balances under the revolving credit facility. So if we use some of that money instead to buy shares back, then that would be reducing that cash available and would be increasing our level of debt in the portfolio. So it's a trade-off. And again, I think that the view was that the discount to NAV was quite small, and that the impact of it is uncertain, so it may not necessarily produce a positive impact, but it's certainly something that we will come back to and consider again. And I note that some trusts are doing it. Some trusts are doing it and having a good impact, some trust are doing it, and it doesn't seem to make any difference to them.

It's probably true, isn't it Phil, to say that where trusts are doing it, I think it would be at a significantly higher discount of the share price to the NAV, which is when it becomes meaningfully accretive.

Yes.

So one question for Chris as well, say, this regards project spending more, the battery storage projects, which we announced in December '22. And could we please explain why the go-live day is not until 2031? Is there anything TRIG can do to bring this forward? Or are we reliant on National Grid?

It's a bit of both. Yes, we are reliant on National Grid, but yes, we can influence them. We're making use of the RES grid team, the relationships and the understanding they've got, to seek to accelerate it. There's no guarantees. But definitely, it's an area of significant focus, and we'll look to accelerate that as much as possible. I noted there was a wider part of the question as well in terms of colocation. We have looked at co-locating, so colocating a storage onto a solar project, for instance, or onto a wind project, and we have looked at it across the portfolio in the past. It can be complex. Unsurprisingly, there's a number of things we need to consider: preserving any existing subsidies, of course, we don't want to interfere or risk loss of some of those other pre-existing revenue streams. Also, the size has got to be well suited to it both from a fiscal land perspective, but also from a good connection. We have large export good connections. We don't have large import good connections normally. And generally, for a co-located storage, you would need a large import, a good connection too, which comes at a price. So we've looked at it, they're particularly good when you develop and build co-located sites at the same time rather than retrofitting it. But will -- it will remain on the agenda and things that we'll look out going forward.

Thanks, Chris. There's also been several questions on the electricity generator levies. So just to tie those together, specifically, there's been interest on the way that TRIG engages with government. And I think, Richard, it would be useful just if you took us through how TRIG looks to engage with the government on policies such as these and what the outlook is for intervention going forwards?

Yes, we do both in the U.K. and in Europe. Please just point out, this isn't purely a U.K. initiative. Power prices have been extraordinarily high as we know as consumers, and this has been this reaction from government, which in the case of the U.K. was sort of a bit stop-start but ended up where it did. So we have had quite a lot of discussions with the departments that have been setting out this new tax in the U.K. And we won some points, we didn't win other points. One of our frustrations was the lack of relief for investments. And I see one of the questions references this, that the oil and gas companies got, we specifically raised that point. Unfortunately, we weren't successful in winning anything for the renewables industry, which we think is disappointing. And just in particular, we are not in favor of the length of time that the windfall levy lasts for, it's suggested to be 5 years, and we're still discussing that, trying to trying to bring that down. It doesn't seem to us to be at all appropriate for it to be that long. What you have to remember about a levy is, it takes the upside, but it doesn't seek to share the downside, and we all know that power prices do vary over time. So one of the other conversations we're having with government is on the decoupling of renewables power prices from fossil fuel-driven power prices. So when electricity is coming from fossil fuels, usually it's gas in Europe. It gets set by the cost of gas and the cost of carbon, which is a tax applied to emitters like gas-fired power stations. And that then drives the price of power, which is also what renewables receives, which actually doesn't make a whole lot of sense when you think it through. Renewables has a completely different cost base, and gas and carbon are not in there. So what we're trying to discuss with government, and actually there's quite a lot of discussion going on with government seeing the merits of a point as well, is to introduce something similar to the CFD arrangement, that is the subsidies arrangement that we have successfully being deployed for new builds into existing generation. And also in the case of new build, the subsidies [ since ] the last 4 early arrangement, I should call it not subsidy, tends to last for 15 years and the wind farm might last for 30, so you've got the back end as well to consider. And we think that's the more sensible way of pricing power to reflecting the cost of build and a relatively modest running cost and rolling that up into some fixed price arrangement, which incidentally is exactly how the new Hinkley Point CFD -- sorry, nuclear power station is being financed over the long term. So that seems a sensible way forward and those discussions are ongoing.

Thank you very much for the thorough [ idity ]. And just one final question, just to squeeze in before the end for Minesh. Is investment in the U.S.A. being considered in view of the Inflation Reduction Act, as well as initiatives to further diversify the portfolio?

Yes. Thanks, Hugo and thanks for the question. I think we touched on earlier, our approach to thinking about diversification and the geographic reach of TRIG in Europe. You will have seen from the slides that the opportunity set in Europe is significant. And we're also beginning to see the European response to the Inflation Reduction Act, which is largely -- which is going to kind of encourage the rollout of renewables across Europe. And by Europe I mean the U.K. and the EU, as well as the electrification of demand, which will also help support the rollout of renewables. So for that reason and the comments earlier, we're comfortable with the remit of TRIG to be looking at Europe.

Thanks, Minesh. And thank you to all of the presenters for their thoughtful answers. And also thank you to all of the questions we've had in. Unfortunately, that's about all we've got time for today. So I'll just hand over to Jake to wrap things up.

Hugo, that's great. And thank you very much indeed, all of you, for being so generous with your time in addressing all of those questions that came in from investors this afternoon. And of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended, for you to review. If you have any additional response, of course, where it's appropriate to do so. Richard, perhaps before redirecting those on the call to provide you with their feedback, which I know is particularly important to yourself and the company. If I could please just ask you for a few closing comments to wrap up with, that would be great.

Yes. Thank you, Jake. Just to say, we're very pleased with the results that we've been able to present for 2022. We think the sector presents a terrific opportunity. And there is the prospect of us being able to continue with similar results going forward, whilst we're in this particularly difficult situation with the power prices. Over the longer term, obviously we would expect power prices to come down to more regular levels, but even then we were looking back, generating decent coverage over the dividend and our main objective when we set the dividend is to have something which is sustainable over the longer term. So we work very hard to try to achieve that, and obviously are very pleased to be doing things like this to get the messages and the attractions of the company across to people like yourselves. And as Jake said, very happy if people want to continue to submit questions. It's a complex area sometimes, renewables electricity sector. We're very happy to try and answer those. And we thank you again for your time this afternoon.

Richard. That's great. And thank you once again for updating investors this afternoon. Could I please ask investors not to close this session, as you'll now be automatically redirected for the opportunity to provide your feedback in order that the management team can better understand your views and expectations. It's going to take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of the Renewables Infrastructure Group Limited, we would like to thank you for attending today's presentation. That now concludes today's session. So good afternoon to you all.

Thank you.