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

Good afternoon, and welcome to the Renewables Infrastructure Group Limited Interim Results Investor Presentation. [Operator Instructions] Before we begin, we'd like to submit the following poll. I'd now like to hand you over to the Renewables Infrastructure Group team.

I'm Richard Crawford, Fund Manager of TRIG and senior representative at the InfraRed team. TRIG's performance in the first half of 2023 has been robust, characterized by high levels of cash flow generation, good progress on construction projects and a continued delivery of the company's dividend. Taking each of these in turn, resilient portfolio performance. The portfolio generated a very healthy operational cash flow in H1 of GBP 264 million, reflecting the higher power price environment and inflation-linked government subsidies. The company's NAV per share at 30th of June was 132.2p, decreasing by 2.4p in the period. This overall result was primarily driven by an increase in the portfolio weighted average discount rate to 7.9%, but with value increases from active management, such as securing attractive power price fixes and increases in inflation assumptions. This results in a portfolio valuation of GBP 3.7 billion, representing the largest diversified renewables portfolio in the investment company sector. Strategic investment activity, key to the company's investment strategy is its capital structure. We have repaid GBP 119 million of project debt in the 6 months, more on this crucial component of our capital allocation approach later. We have progressed our construction projects in Sweden and Spain, where we have spent GBP 65 million in the period and commissioned 301 megawatts of capacity. This takes a total of our completed construction assets to over 20% of the company is generating capacity. Construction and development activity remains a key element of active management that can deliver capital growth for shareholders. Sustainable dividend, this robust financial performance and strategic investment activity continues to support the company's ability to provide a sustainable dividend. The dividend in the period was covered 1.7x by net cash generation that is to say after the repayment of debt. This figure would be 3x if the company were not amortizing its debt in a structurally disciplined manner. And the company is well on track to deliver its 7.18p per share dividend target, which now offers a higher than usual 6% dividend yield to prospective investors. Now on this slide, we lay out the key themes in the period that are driving increased returns for the company. The company benefits from resilient cash flows. We can say this with confidence against the uncertain economic backdrop for 3 key reasons: the company's cash flows are positively exposed to inflation. Over 50% of the expected revenues over the next 10 years are directly linked to inflation. The company has low cost exposure to changes in interest rates, and this is a key feature of the company's capital structure. Project level debt has fixed interest rates, which means that interest cost on this debt is not increasing. And another key feature of the company's capital structure is that we amortize debt at projects in line with subsidiary periods. We do not have the debt associated with projects that do not have fixed revenues. This disciplined approach to debt means TRIG's balance sheet is robust and de-gears on a structural basis over time. Now we're also highly focused on delivering shareholder value through active management. These are initiatives undertaken by InfraRed and RES to outperform TRIG's base case expectation for financial performance. In the period, we've achieved this through entering into attractive revenue price fixes such as a corporate PPA signed at Blary Hill, taking Grönhult onshore wind project in Sweden through construction and improving the amount of energy we are producing at selected sites through technical enhancements to turbine blades. So we take this active management very seriously and see it as a key lever to deliver shareholder value. Finally, portfolio optimization. Our investment strategy includes diversifying across several technologies and jurisdictions with an asset base that spread from North Sweden to Southern Spain. We now expect the portfolio overall to deliver higher returns supported by positive inflation correlation, elevated power prices, but also higher returns on our battery storage developments. Overall, these themes continue to support our investment strategy and offer investors a rare pure-play diversified Renewables Infrastructure investment. On this slide, we lay out the significant benefits we can expect from higher power prices and inflationary increases compared to 18 months ago. Our latest forecast, we expect the portfolio to generate 22% more revenue over the life of the project compared to 18 months ago as shown on the graph. This, of course, has a significant financial impact which has been recognized in 2 ways. The net asset value of the company has increased by 13p per share over the 18 months. That's an increase of 11% and the portfolio discount rate has increased by 130 bps to 7.9%, reflecting an increased expected return in our base case. We are focused on outperforming the base case, which is now 7.9%. Additional cash generation will enable further active investments. Active management will enhance the returns from existing investments. Also, when calibrating TRIGs' return, this should be done in the context of its positive inflation correlation, which we'll look at on the next slide. On inflation, we have increased our long-term assumptions in the U.K., where inflation looks to be more entrenched. The chart on the left-hand side shows our revised inflation expectations for U.K. RPI as a solid line, starting at 3.5% for 2024, reducing to a long-term assumption of 2.5% from 2030. Now the dotted line on the chart shows what the U.K. government debt market is implying for the same measure. So we continue to be prudent in our assumptions. Importantly, TRIG's return is positively correlated to inflation and offers a real return. That is to say it offers a return that we expect to be well in excess of inflation. If we break down the yield available from a U.K. 20-year government bond at current rates, it offers a real return of about 1%, as shown within the first bar on the chart. TRIG offers investors a return of in excess of 5% over our portfolio-wide inflation assumption, which includes our European assets as showed within the second part. And we believe this spread is appropriate and offers good value. As I have said, we aim to outperform this return and to deliver capital growth in the base case assumptions, giving both a growing income and a growing capital base. And with the joint team of a specialist infrastructure investment manager in InfraRed and a highly accomplished operations manager in RES with unparalleled experience, we believe that trigger is uniquely well placed to offer the prospect of income and capital growth from the renewables infrastructure sector. I will now hand you over to Phil, who will take you through the financial results for the half year.

Thank you, Richard. I'm Phil George, and I carry out the CFO role for TRIG. I'll take you through the financial highlights and the valuation movements for H1 '23. Cash flows in the period have been strong, reflecting the inflation-linked subsidies in the high power price environment. The portfolio valuation has reduced slightly. This includes the impact of reflecting increased valuation discount rates, partially offset by the positive valuation impact of increased inflation. Being an investment company, this valuation movement reduces earnings, which in the 6 months are plus 1.1p, which means after dividends paid in the period of 3.5p that NAV has reduced by 2.4p per share, to 132.2p. Stepping through the valuation bridge, which shows a trail and the opening valuation of GBP 3,737 million to the closing valuation of GBP 3,671 million. And starting from the left, investments of GBP 65 million have been made in the period, funding our construction projects, being the Ranasjö and Salsjö, Grönhult wind farm in Sweden and our 4 new solar farms and Cadiz in Spain. Grönhult and Cadiz projects are now operational. We have had strong cash flows up from the investments in the period, leading to dividend cover of 1.7x for the 6 months or 3x if calculated before repayment of project level debt across the portfolio. After adjusting portfolio value, for the GBP 65 million of investments made and cash distributions from the portfolio of GBP 171 million the rebased portfolio value is GBP 3,631 million. And the rest of the bridge represents the operating income shown in the profit and loss account, and we're now going to cover each of these in the following slides. Turning to the slide on power price forecasts. The overall movement in power price forecast, net of the impact of government windfall taxes in the U.K. and the EU has had a negative valuation impact of GBP 86 million. Overall power prices remain high versus historic norms prior to the reduction in the use of Russian gas. Forecast expected to take several years of gas and power prices to normalize as new gas supply comes online. Having said that, and as you can see from the graph on the top right of the slide, there has been a significant reduction in power price forecast over the near and medium term since those included in the valuation 6 months ago. Following a relatively mild winter, and lower demand for gas, leading to higher-than-expected gas storage levels. On the chart, the dotted line shows the power curve from 18 months ago. And whilst pricing has reduced over 6 months, it remains high versus historic norms. The valuation impact of reduced to forecast power prices is mitigated by the impact of government windfall taxes. At the end of last year, government implemented taxes on income above higher wholesale power price thresholds at rates of between 70% and 100%. As a result, the majority of the impact of prices reducing will flow through to reducing windfall tax payments. Longer-term power price forecasts remain largely unchanged. We have additional power demand from electrification and forecast use of green hydrogen generally counterbalancing increases in the assumed build-out of intermittent renewables. And as before, when incorporating power price forecast into our valuation, we take into account the power price forwards at the valuation date. At this point, near-term forwards were below the forecast projections, and so we adopted these more cautious figures. We then apply a discount to the forwards of around 20% to allow for price volatility and also to reflect the renewables tend on average to capture a discount to the market price. And before I leave this slide, we continue to provide data on our average assumed wholesale power prices. And the donut show the proportion of our forecast revenues that are fixed per megawatt hour and exposed to merchant pricing of a short, medium and long-term horizons. The point to note is the high proportion, which is fixed, 68% over the next 10 years, for instance, providing protection against variation in power prices and good inflation linkage. Discount rates and inflation are addressed on the next slide. At the 30th of June, reflecting the higher returns environment and particularly the increase in government gilt rates in the U.K., we have again increased the discount rates used to value the portfolio. We applied an average increase of 0.5% across the portfolio, of 0.8% applied to U.K. investments and 0.3% to non-U.K. investments, recognizing the higher long-term government bond yields in the U.K. versus EU countries. Increasing discount rates has reduced the valuation overall by GBP 142 million. Alongside the discount rate increases applied at December '22, this leads to overall increases in applicable discount rates over the last 12 months of 1.6% in the U.K. and 0.6% in Europe. The overall portfolio weighted average discount rate has increased during the half year 7.2% to 7.9%. And this reflects a 50 bps increase in the discount rates and changes in the portfolio age and mix including higher returning battery assets. Applying a blend of U.K. and EU risk free rates, reflecting the portfolio composition. These to a weighted average risk-free rate of around 3.7% of an implied risk buffer from the portfolio return to the risk free rate above 4%. The company carries out an independent valuation exercise each year and also commissions a review the valuation discount rates. Independent value as again confirmed the discount rates used in the valuation are appropriate. Moving to inflation with over half of the projected portfolio revenues over the next 10 years being directed linked to inflation, and most of the balance being indirectly linked through wholesale power revenues, TRIG's income is highly correlated to inflation. Changes to actual and forecast inflation have added GBP 97 million to the valuation. And actual inflation this year so far has been higher than forecast at our last valuation on a weighted average basis by around 1.8% in the U.K. and 1% in the EU. Inflation for 2024 is also expected to be a little higher. We've adjusted our valuation accordingly. These adjustments have added 0.75% to the 2024 inflation we have applied. We have increased the long-term assumption of the U.K. inflation to 2.5% for CPI and increased RPI to 2030 also, reflecting the market expectation of stickier and higher inflation in the U.K. The U.K. longer-term inflation increase is equivalent to a weighted average increase of around 35 basis points when considering wholesale power prices, RPI and CPI. And we've left long-term EU rates unchanged. On the bridge, we show the movement in foreign exchange on our euro-denominated assets. Sterling has strengthened 3% against the euro in the period, resulting a loss before hedge offset of GBP 45 million, as shown in the bridge and this reduces to a loss after hedges, which are held at a company level of GBP 26 million. And the final item on the bridge portfolio return for the 6 months is GBP 216 million, represents a 5.9% increase of the rebased valuation of the portfolio. This is appreciably ahead of the expected return represented by the opening portfolio discount rate of 7.2% per annum or 3.6% for half a year. Portfolio return includes the impact of actual generation, which was lower than budget with low wind speeds in the period. It also includes several value-enhancing items that together benefit NAV by around 6p. This slide bridges the NAV per share between the start and end of the half year and analyzes the movement split between the macro items we've already covered, the impact of low wind speeds in the period and NAV gains made from active management, which we will address on the next slide. The point to emphasize here is the positive impact of this active management on the NAV, which totaled some 6.4p per share. Going into some items within active management, we have asset-specific value enhancements, including entering into a corporate PPA at the Blary wind farm for 10 years at an attractive fixed price. We have price fixes at several other projects, including Valdesolar in Spain and some of our U.K. solar wind projects. And value has been realized as we release construction phase discount rate premia as construction projects move into operations and are derisked. The French government has ceased its action against the older solar projects feeding tariffs that they had intended to significantly reduce. Following successful appeals against our action and initiation of international arbitration from parties including TRIG, which has allowed for the release of the provision made here. And finally, we have realized a good upside in relation to guarantee of origin income, where RES have actively managed this income stream, including reviewing PPA contracts, and, in many cases, negotiating a higher price on power offtakers. The market price of the certificates in both the U.K. and the EU has also continued to increase in the period. We have assumed a significant discount is applied to the current and forward prices of these certificates in our valuation, and we've seen future prices reduced quite quickly to a lower level. That brings me to the end of the valuation items. And I shall now hand over to Minesh to talk about our approach to capital allocation.

Thank you, Phil. As Richard and Phil have each highlighted, we have had strong cash generation. Operational cash flows in the first half of 2023 totaled GBP 264 million. That is 3x the GBP 87 million dividends paid to shareholders. GBP 119 million was used to repay project level debt principal, which, as a reminder, is amortizing within the subsidy period to no refinancing risk and fixed rate. The repayment of project level debt is business as usual for us and core to our investment philosophy. Servicing debt interest is included in the operational cash flows. GBP 65 million was spent on construction and development activities in the period, which was funded GBP 54 million from organic excess cash flows and GBP 11 million from the revolving credit facility. So strong operational cash flows, healthy dividend cover and a focus on balance sheet management. A bit more on debt within the group. The majority of our debt is at project level. Our project level gearing is 37% and continues to trend downwards. It is being repaid to the tune of GBP 200 million per annum, meaning, as the charts show, will be repaid within the blue subsidy fixed revenue period. The average interest rate on our portfolio debt is 3.6%, and it is fixed rate, leaving the group's cash flows with low sensitivity to changes in deposit and borrowing interest rates. We also have a revolving credit facility, which we used to complete the build of the 4 Cadiz solar projects and the Grönhult Wind project. That were all commissioned into operations in the period. It is also funding our ongoing construction activities. The expected cost to finish the construction of the Ranasjö and Salsjö wind farms and to build our development stage Ryton and Drakelow battery storage projects is GBP 146 million spread over the next 2 years. And we expect excess cash flows over the same period to exceed this construction spend. Summarizing our current approach to capital allocation, our priority is balance sheet management. That is continuing to reduce project level debt, which is business as usual and reducing borrowing on the revolving credit facility. When appraising the use of excess cash flows, which in the first instance, is organic cash flows and may also include divestment proceeds, we consider and compare reducing borrowings and new investment activities. We also naturally consider share buybacks when benchmarking new investment activities and thinking about capital allocation. As we fulfill our priority of balance sheet management by repaying project level debt and reducing our CF borrowings, this will position the company well to make new accretive investments, particularly higher returning development and construction stage investments. This may include those that are organically generated such as repowering or expanding existing sites. Turning to our portfolio in more detail and looking at areas for capital growth. First, the portfolio. The portfolio remains largely unchanged from December 2022. We have good geographic diversification with a significant proportion, 40% of our portfolio outside the U.K. in Europe. The portfolio remains dominated by wind investment with 14% in solar and 4% in flexible capacity, specifically battery storage. Over time, we particularly like to see a greater proportion of both solar and flexible capacity in the portfolio. Our development and construction percentage is 7% of the portfolio, following 300 megawatts of new generation capacity being commissioned in the period and 165 megawatts of battery storage projects being added to this measure. And finally, as you can see on the right-hand side, our largest single investment remains less than 10% of the portfolio, continuing our approach of low single asset concentration and good portfolio diversification. We often talk about active management. Here, we unpack what that means and link it to opportunities for capital growth. First, the management of the portfolio profile. This is the mix of investments in the portfolio, seeking to add investments selectively and [ incretively ] to enhance returns or diversification. We also regularly screen the portfolio for divestment candidates. When thinking about investments and divestments, we think about whether we are the owner best place to maximize value. Second, the development and construction. This is building new generation capacity or enhancing or repowering existing capacity. Consistent with our 25% development construction limit, we see this as our investment focus. They increased the portfolio's expected returns and create opportunities to deliver capital and earnings growth. Finally, value enhancements. These are both energy yield and revenue enhancements. And with that, I'll hand over to Chris to provide an update on our development, construction and value enhancement activities.

Hello, I'm Chris Sweetman, Operations Director, to talk through the operational highlights in the period. We'll start with the development and construction pipeline. The Cadiz solar sites in Spain and Grönhult onshore wind farm in Sweden are now both fully operational. The Ranasjö and Salsjö construction in Sweden is progressing well. First turbines are now erected. We tip highs of 200 meters and a rating of 6.2 megawatts each, reflecting the increased scale of the newer turbines and sites. We've progressed the development of the battery storage projects with construction due to commence on the first of the 4 recently acquired projects in the second half of the year, utilizing RES' long experience in storage development, construction and operation. We're also progressing repowering opportunities in France with good connection, now secured at Cloud and are beginning to assess the repowering potential of sites in Northern Ireland. There may also be opportunities to enhance existing sites. For example, expanding or adding storage capacity or exploring the potential to add wind turbines to solar sites in Spain. Moving now to the operational portfolio. During the period, we generated 2.9 terawatt hours, equivalent to 1.7 million homes powered. That's a 7% increase from the same period in 2022. The portfolio of 90 projects are spread across the weather systems and markets of Western Europe. These are in onshore wind, offshore wind, solar and batteries using a wide range of equipment suppliers across many different models, limiting our exposure to any one turbine type. The newly constructed Cadiz Spanish solar sites an Grönhult Swedish wind farm had further diversification to the portfolio with more to come. The portfolio performed well commercially whilst at slightly lower pricing than in the same period last year. Electricity prices remain elevated compared to the long-term average. Alongside the index-linked feeding tariffs, which benefit from the high inflation rate environment. Safety remains a high priority at all of our assets, where it is actively managed to reduce the risk of accidents. Generation is 9% below budget in the period, which you can see split out by region in the table. Generation was reduced by poor wind, particularly across the U.K., Ireland and Sweden coupled with grid outages and some maintenance activities, offset by good weather resource in France and the solar portfolio. Ultimately, the low GB wind speeds were mitigated by the other geographies and technologies in the portfolio. You can see in the graph how the weighted average wind and solar radiation varies over time in each of the regions compared to the long-term mean. These long-term averages are based on a period of 20 years. And so variances are to be expected in a shorter period. You can still fundamentally see the weighted average dash line smoothing out the regions, delivering a better result and will be available with concentrated geographical deployment in a single technology. Notable events in the period include proactive leading-edge protection works on Merkur blade to minimize long-term wear to the blades with the cost borne by the manufacturer and compensation for loss generation. End of warranty inspections were performed on multiple assets as they approach the warranty end date, typically at year 5. These targeted works help identify any activities to be performed at the turbine manufacturers cost with availability warranties in place helping to preserve long-term asset integrity. Turning to value enhancements. Proactive management of TRIG's portfolio by the managers continues to preserve and enhance the value of the portfolio in a wide range of different areas. I'll now take you through a few of them. Our focus on energy yield enhancements continues following a successful blade and hardware trial on [ Hilary Tower ] in 2022, a phased rollout to a number of other GB onshore wind farms is scheduled over the summer. RES developed refinements to the turbine control system and now also planned [ Hilary Tower ] to ensure that the new aerodynamic properties of the players are maximized. As Phil touched on earlier, we continue to actively manage the revenue contracts across the portfolio for best value. In addition to signing our first corporate power purchase agreement at Blary, we've capitalized on the increased value of REGOS and guarantees of origin achieved by negotiations for existing contracts and the implementation of new contracts. We continue to utilize TRIG's portfolio purchasing power to secure competitive contracts, most notably on operations and maintenance, which is typically one of the biggest cost items. In the period, we secured a material saving, improving upon the investment case at one of our offshore wind projects through extensive negotiations and close collaboration with our co-investors. TRIG's sustainability report was issued in May is available on our website, demonstrating our commitment to sustainability and engagement with stakeholders. It sets out how we're working to mitigate adverse climate change, reserve our natural environment, positively impact the communities we work in and maintain ethics and integrity in governments. It also provides lots of information on the various sustainability regulations that we adhere to, such as SFTR and EU taxonomy as well as our commitment to the science-based targets initiative to actively reduce emissions, considered to be the gold standard of voluntary sustainability frameworks. So please do take a look at it. I'll now hand back to Richard.

Thank you, Chris. In this concluding slide, I want to reflect on some key themes which have emerged in what has been a tumultuous period starting 18 months ago. These are energy transition, inflation correlation returns and active management. Firstly, energy transition. The Russian invasion of Ukraine 18 months ago has turned energy supply to Western Europe on its head. This has ratcheted up the importance of renewable to energy security as well as the decarbonization. This increase in the necessity of renewables is a positive for us as governments address the challenges of cost inflation, slowing down deployment and market design with renewables as the dominant energy source. The power price environment is materially higher as a result, and we can see it together with the indexation of subsidies, clearly flowing through into TRIG's cash generation. In 2022, our gross dividend cover was 2.6x. And in this period, it is 3x. This means in 18 months, we have generated operational cash flow approaching GBP 700 million, and we have used it to repay project debt of nearly GBP 300 million, paid dividends of GBP 250 million and reinvest into portfolio equity nearly GBP 150 million. And the second key theme over the last 18 months has been the increase in return requirements as inflation has reared up and taken hold. We have increased our valuation discount rate by an average of 1% and 1.6% in the U.K. And notwithstanding this, due to our inflation correlation and low exposure to interest rates on borrowings as well as the power price environment, we have a NAV per share, which has increased since the start of 2022 by 11%. So in NAV terms, and investment in TRIG is proving to be highly resilient. And finally, active management. I want to stress the importance of this and the difference it can make. As managers, we work tirelessly to extract value from the portfolio. And I hope you have seen the emphasis we have put on this during the presentation, adding 0.06p per share in the half year. When investing, we are focused on enhancing returns. That means development and construction activity and increasing portfolio diversification such as our battery investments as well as unlocking value from life extensions, repowering and co-location opportunities, all of which we are working on in the background. And we are excited about the opportunities for operating assets, especially increasing energy yield on some by applying the latest aerodynamic thinking to older blade designs. We see further value enhancement coming from this. In conclusion, TRIG's returns when looked at in real terms remain attractive. We have a diversified portfolio, mitigating risk, we have inflation correlation and we have low exposure to interest rate costs and cautious balance sheet management with systematic repayment of project debt. This makes TRIG a differentiated and we believe compelling investment proposition. Now that concludes the presentation, and we thank you for listening. We will now take your questions.

[Operator Instructions] I would then just like to hand over to Hugo to share, host the Q&A. Hugo, Can I just please ask you to read out the questions where appropriate to do so and directing to the member of the team and I'll pick up from you at the end.

Good afternoon. I'm Hugo Atkins from the listed investor Relations team here at InfraRed. And firstly, thank you for sending in your questions, which cover a range of different topics. And I'd like to start with one for Minesh, which is, are there any plans to diversify into tidal power and off-peak energy storage, such as cryogenic storage or the use of off-peak energy to create hydrogen.

Yes. Thank you, Hugo, and thank you, everyone, for tuning in this afternoon. Our investment policy is quite broad within the renewable space, and we have good diversification within our portfolio, onshore wind, offshore wind, solar and flexible capacity. I think within the flexible capacity piece of the portfolio, which we're looking to grow from its current 4% of the portfolio, maybe up to 10%, maybe a bit more of the portfolio. It really complements the renewables generation nicely. I think there's scope within that to expand. For us in the first instance, that means battery storage, which can respond to price signals. It may also include hydroelectric generation, particularly pump storage, which is effectively longer duration batteries. The technologies, the person who submitted the question has alluded to, there's more technology risk in those, not yet clear how they can achieve scale. So whilst both InfraRed and RES-wide organizations monitor emerging technologies, these would be rather nascent for TRIG to consider at this time.

And then the next one here is for Chris, which is how reliable are your weather predictions given the climate change?

Yes, no, good question. [indiscernible] in-house metrologist along with lots of other people who form solar and wind analysis. And what they do is they then review whenever there's a published data from the likes of IPCC and to make sure that we fully understand what the longer-term implications of those publications are. They typically work on a 20 and a 50-year time scale. So reasonably long, but it does mean that we've got a good understanding of the themes and the trend, and it does vary both positive and negative in different regions and different technologies. But then at a more project-focused level, we are looking at the performance of each project on a quarterly basis. We compare the actual production gains budget, of course, but then we're also recalculating the budget at a high level, just to understand what variations are covered. And if we start seeing a bit of a theme, we can then trigger a more detailed project specific evaluation of the yield and yet that then identifies that there has been a shift, we can formally change the budget in the next financial year. So we always keep our budget the same throughout the year until we've conducted a formal process. And so when we go within that new financial year, when we change the budget, we will also, of course, reflect that within the valuation models to got that consistency. And like I said, some are positive, some are negative. But the vast majority of the portfolio is absolutely stable and it's a rarity to be honest, that we are actually finding we have reason to change the yield.

And then the next one for Phil is you have a 68% output price fixed. How are the contracts structured to benefit from price inflation?

Okay. So that's the measure over the next 10 years, 68% of our forecast revenues are our fixed per megawatt hour. And that means that in most cases, the subsidy, we also have price fixes in there and also a corporate power purchase agreement. The subsidies are in the main index. They're indexed in the U.K., the rock, which are applying to older solar and wind farms are indexed by RPI contract for difference, which is the subsidy or price fix arrangement with the U.K. government for offshore wind in the main, got one onshore wind farm with that arrangement that incomes index as CPI. And we have some projects in France that are linked to French CPI. The German subsidies on our German offshore wind farms are not indexed. But nevertheless, it's the fixed income stream and the corporate power purchase agreement has got a fixed escalator rather than the index to inflation. So we've got a range of different types and the inflation feed through because you get for CPI, for instance, in each year, beginning in April, you've divided January by the January before. And so you can see that the income lift up by that lift each year, and it can take a year or something for that -- for high inflation to flow through your revenues, which are then will incrementally for every year into the future. And so that way around, we find that higher inflation leads to higher revenues incrementally each year for the rest of the term of those subsidies.

And back to the Minesh. How do you balance adjusting growth and is the current market showing any opportunities for attractive acquisitions. And I think on that note it's worth tying into a separate question that we've had around how triggers differentiated positively versus other similar investment trust.

So in respect to balancing debt and growth in the current market triggers, as you've heard in the presentation, had its best half year and in terms comes to cash generation. And therefore, there's clear question as to what to do with that cash priority in this macroeconomic environment is to reduce our overall borrowings. We systematically repay project level debt to tune of GBP 119 million in the period. That is fixed rate. It's amortizing within the subsidy period across the projects. So we're repaying that to the tune of about GBP 200 million a year business as usual. Thereafter, we're using the cash to fund our existing construction and development commitments and then also to repay drawings under the RCF. I think over time, and Phil touched on this, our construction commitments are about GBP 150 million over the next 1.5 years, our expected excess cash flows over the same period are expected to exceed this. So over time, we can see RCF borrowings coming down. We may also selectively dispose, divest investments, and that could also help reduce RCF borrowings. What that will help us then to do is position us well to take advantage of potential new investment opportunities that as one of the questions alluded to, may inevitably come out of these markets. I think the example given by the person asking the question, it was over level operators that may be the case and where opportunities arise. Our focus when we do turn to new investments will be higher returning opportunities, likely construction and development stage opportunities.

And you touched on a few different things there. And on the last point, we've had a question around proposals to attract more U.K. pension funds into real assets and competition for assets, if that was the case. Do you feel that there would be more buyers for the existing portfolio of assets and just an elaboration on that.

Yes. Look, before I come to that, let me just answer the question on how TRIG is differentiated, and then I'll comment on the pension fund question. I'd say TRIG is differentiated in 4 ways. Firstly, the managers that TRIG has and we have 2 managers, InfraRed and RES. At InfraRed, we've been investing in infrastructure for over 25 years. RES have been in renewables for 40 years, really the founding fathers of renewables, so both deep experience in this sector, both in the operation of assets that are running, but also the construction and the development stages is built into our DNA. Secondly is the diversification of the portfolio being across Europe, also being across technology that helps to manage risk across the portfolio, in particular, the key risks around political and regulatory power prices and weather systems. Thirdly, the capital structure, most of our debt is at project level, like I said, fixed rate in amortizing, therefore, no refinancing risk in the project level of debt and our RCF already spoken about our plans to reduce borrowings under that. And then finally, that we can and do construction and development activities within TRIG. Those are both fantastic opportunities to leverage the experience of the managers and deliver capital growth as well. So just summarizing there kind of the differentiation between TRIG and others in the peer group. Moving then on to the question around attracting investment from U.K. pension funds. TRIG has investors that are U.K. pension funds. We think the structure of TRIG lends itself well to U.K. pension funds, savers, pensioners, investing into infrastructure. The underlying investments are illiquid, but TRIG itself and its shares have good liquidity and allow investors to get in and out of positions. So our view is the promotion of the investment company structure as a great way to get exposure to renewables. Hopefully, pension funds will continue to be attracted to the sector. We are seeing larger pension funds. It's some of the Canadian pension funds, for example, investing directly into renewable energy assets, the pool of buyers who are attracted to renewables, it can include investment companies, pension funds, utilities, sustain some of the oil majors as well. There's quite a wide range of people looking at this sector for different reasons, but all kind of focused around these key themes of energy security, energy transition really being important factors to drive investment into renewables.

And then just one to fill around foreign exchange exposure, which is what percentage of your revenue is generated in different currencies like Euro, Sterling and Swedish krona were specifically identified in the question?

Yes. Okay. So the proportion of our valuation, which is in the U.K., 58%. From 58% to 42%, and the 42% is spread across Ireland, Spain, France, Germany and Sweden. In relation to Sweden, the wind farms we have in Sweden get most all their income from the sale of power. So wholesale power income and very little bit from the Swedish subsidies. And the power income in the Nord Pool area, which is all Scandinavia and Lithuania, Latvia, Estonia, Denmark, those countries. It's expressed in euros. So the price is actually received in euros. So we don't really have any krona exposure. So we can retreat Sweden as those assets as euro assets. In relation to the euro assets, we have quite a lot of currency hedging. We benefit through our revolving credit facility. We're having pretty good foreign exchange lines, and we get good pricing from our banks. We've got 10 banks. So we can choose to monitor the most competitive. And so we sell euros by sterling 4 years out. We spread it across several years so that if our market-to-market payments on their expiry. We don't have to pay money as they come in and out of the money, we only pay as they mature, but it means that we can spread those payments if we see a big move in currency and the moves are generally fairly mild, and we can plan for the cash movements. We have enough hedges on to cover 80%. Well, I forget, 75% of our valuation so that gives us a good value hedge, and it also means we've got security over the money coming in because we have already prefixed how much sterling we get for the euros that we're expecting to get up. So we've got quite efficient hedging arrangements. And in fact, at the moment, the difference in interest rates between the U.K. and Europe means we get very good rates, forward rates on selling those euros and get quite a lot of sterling back and that gives us a bit of a return pick up on those foreign assets as well.

Perfect. And then I know we've covered a fair amount of topics, and I think it'd be quite good just to tie things off with the final question around plans to reduce in our discount. So I think I'll hand over to Minesh in this instance, if he can just give a sort of closing summary of some of the things we've discussed and then tie up the Q&A.

Thank you, Hugo. Yes, a pertinent question and one that is front of our mind. I think the first thing to say is with these results, hopefully, you can see our continuing confidence in the NAV. We've presented here kind of, in particular, over the last 18 months, big picture that our expected revenues looking forward are up more than 20% compared to 18 months ago, and that's reflected both in an increase in the net asset value of the company over about 18 months by around 10% as well as an increase in expected returns over that same period by 130 bps. So an improvement there in the cash flows. And I hope you've seen that come through. I think the other thing that's really important is the analysis we've put out comparing the return expectations versus, say, fixed income asset classes, on bond yields in particular the real return, the real return on government bonds being 1% versus over 5% from TRIG through the discount rate assumption. So 2 key factors there that really help underpin our confidence in the NAV looking forward. And our hope is that through communicating these results that will help bring confidence into the share price as well.

Thanks, Minesh and thanks, Phil and Chris as well for your answers, too. And that concludes the Q&A from our side. Now I'll hand back the call.

That's great. I'd like to thank you all for addressing those questions from investors call. Any further questions do come through, the team will have the ability to review those. And will post responses where appropriate to do so on the Investor Meet company platform. Can I please ask investors not to close the session, should be automatically redirected to provide your feedback in order the team can better understand your views and expectations. It's going to take a few moments to complete and is greatly valued by the company. On behalf of the management team of the Renewables Infrastructure Group Limited. I'd like to thank you for attending today's presentation, and good afternoon to you all.