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

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

Good afternoon, and thank you, everyone, for joining. I'm Minesh Shah, Managing Director at InfraRed Capital Partners, the Investment Manager of the Renewables Infrastructure Group. I'm joined on today's webinar by Chris Sweetman, TRIG's Operations Director, who works for RES, TRIG's Operations Manager; and Hugo Atkins, Investor Relations Analyst from InfraRed Capital Partners as well. Today, we'll take you through the results and then -- of TRIG for the year ended 31 December 2023. And at the end, we'll have time for Q&A. So I'd like to start with a quick reminder of TRIG's core proposition, including its evolution to ensure that its proposition fits the market conditions. We enjoy favorable fundamentals, on one side, the decarbonization, energy security are essential themes driving enormous investment, and we embrace these fundamentals by focusing on mature European markets as strong regulatory framework. And this is unchanged. Underpinning all of this is what we turn responsible investment into assets which provide inflation correlated, attractive total returns. Now responsible investment includes maintaining a durable balance sheet, a sustainable dividend policy and making the best investment decisions. And we're in a difficult macro climate with higher interest rates and uncertain economic outlook. And this is, in particular, hit share prices of investment companies. Our strategy is fit for these markets, delivery of attractive total returns. Within that, however, our emphasis has shifted. We have a disposal program underway to reduce our floating rate borrowings under our revolving credit facility. And also those disposals can prove and outperform our net asset value and the valuations of those individual assets. We will still consider investments, but the bar is higher with regards to strategic and economic merit. Buybacks have been and remain under consideration, and new investments are measured against this when considering a return hurdle. We're focused on investments that can deliver future growth and are likely to be relatively modest in terms of capital outlay. We'll also think about the portfolio advantages and returns, when considering where they stack in the merit order as compared to buybacks. Now this is an evolution of our proposition reflecting the higher return environment that we existed and the scarcity of capital. And we have a balanced portfolio, and this diversifies risk. We have a broad agreement in our investment policy across geographies, technologies and revenue types. And the portfolio is well diversified and at scale, which provides shareholder liquidity. When adding investments, as we have for many years, we are doing it more in the development and construction end of the investment spectrum. And we've now added a platform in Fig Power, that is a 100% owned development expertise within TRIG, adding to our growth prospects. We then combine this with operational excellence, driving the best possible operational result from the assets that we have. And we use innovation in technology and commercial expertise to enhance the portfolio's returns and value. And the team of InfraRed and RES, as TRIG's managers, provide a unique and highly-specialized management team, with years of experience in renewables to deliver TRIG's investment proposition. So on this next slide, we have the portfolio, and it is a portfolio of scale, 2.8 gigawatt portfolio spanning over 80 projects, in 6 power markets for renewable technologies. We have significant opportunities to continue the growth of this portfolio by over 1/3 by 2030 through our own development pipeline, which scales 1 gigawatt. And that is across wind, solar and storage technologies, and I'll expand on this later. Importantly, also, we have the means to fund this ourselves without necessarily needing to return to equity markets through retained cash flows, disposal proceeds and potentially debt issuance as well. So moving on to the year of 2023. Healthy cash generation has been a strong theme in 2023 and underlying performance of the company was the strongest in its history, with pro forma portfolio EBITDA of GBP 610 million for the year and distributable cash flow of 11.4p per share. That is a 1.6x cover of the dividend paid to shareholders. On capital allocation, we continue our investments in development to construction projects and invested GBP 92 million in the year, with 300 megawatts of projects entering operations, as well as having disposed of 3 of our older wind farms, which contributed to a reduction of our floating rate revolving credit facility by GBP 34 million in the year. And we'll come back to capital allocation as well as our disposal program later in this presentation. The company's balance sheet remains very healthy. We continue to repay our fixed-cost project level debt, in line with its amortization profile, and we repaid GBP 219 million in the year, leaving structural gearing at 37% of EV. And we remain sharply focused on the sustainability of dividends. Strong underlying performance, as I said, gave 1.6x dividend cover. And if we consider gross cash cover, this increases to 2.8x before the repayment of project-level debt, in both those measures, the highest full year cash cover in the company's history. Looking forward and taking into account the outlook for near- and long-term cash flows, including the moderation of power prices and inflation expectations, the Board has set a dividend target for 2024 of 7.47p, and that's a 4% increase on the 2023 target. So I'll now take you through the financial highlights and valuation of the portfolio. The NAV at 31 December 2023 is 127.7p per share, with a portfolio valuation of GBP 3.5 billion. The valuation of the investments and the -- for the net asset value have declined, and this is due to increases in the valuation discount rate as well as reductions in power price forwards during the year. They're partially offset by the benefits of elevated inflation and value enhancement activity. And being an investment company, the valuation movement reduces earnings, which in the year were positive 0.2p per share, which means after dividends paid in the year of 7.1p per share, NAV reduced by 6.9p per share in the year. I was saying, underlying portfolio performance was strong and portfolio pro forma EBITDA was $610 million in the year, and I'll come back to this later in this section. Therefore, cash cover of the dividend, 2.8x before the repayment of project-level debt of GBP 219 million. After those repayments, 1.6x, as I said, the increase in the dividend, 4% year-on-year to 7.47p per share. So I'm going to next take us through the valuation bridge, which shows the opening balance of [ GBP 3.737 billion ] to the closing balance of GBP 3.509 billion. Starting with item one on the left-hand side, Investments of GBP 92 million funded the construction spend at the Ranasjö, Salsjö and Grönhult wind farms in Sweden and our 4 new solar farms in Cadiz in Spain. The Grönhult onshore wind farm in Sweden and the Cadiz solar projects are now operational and performing well, and preconstruction work started on our U.K. battery project, Ryton. Moving to Item 2, GBP 22 million of cash proceeds from the sale of 3 projects reduced portfolio value. The profit on disposal is included in the portfolio of return and supports the overall portfolio valuation. And we had strong cash flows up from investments in the year of GBP 334 million. That takes us to the rebased valuation of GBP 3.474 billion. Now the rest of the bridge represents the operating income that's shown in the P&L, and I'll go into each of these items in more detail shortly. But briefly, power price forecast forward have declined significantly at the front end of the power curve, reducing net asset value. During 2023, reflecting higher returns environment, we continue to increase the discount rate used to value the portfolio, which has adversely affected NAV. And then in respect of inflation, with over half of projected revenues over the next 10 years being directly linked to inflation, most of the balance being indirectly linked through wholesale power prices and TRIG's income is highly correlated to inflation, which means actual and forecast inflation have benefited the valuation in 2023. Now on the bridge, we show the movement in FX on our euro-denominated assets and Sterling has strengthened 2% against the euro. The loss shown on the bridge was offset by hedges that are at a group level of -- resulting in no loss as a result of FX. The final item on the bridge is the portfolio return. For the year, GBP 344 million represents a 10% increase on the rebased value of the portfolio. And this is appreciably ahead of the expected return from the portfolio represented by the discount rate, which was 7.2% at the start of the period, and 8.1% at 31st December 2023. Portfolio return includes the impact of actual generation, which was lower than budget as a result of slightly lower wind speeds in the year that Chris will expand on shortly, and it also includes several value-enhancing items that together benefited the NAV by about 7p, although adjustments to some energy yields also reduced the NAV by 2p, and we'll expand on each of these shortly. This next slide provides more detail on power price forecasts. Power prices have declined during 2023, driven predominantly by reducing gas prices, with gas stocks being elevated and a mild winter, reducing gas demand. The forwards for the next 3 years have reduced significantly over the year, and we overlay those on top of our power price forecast when determining our valuation. And we take a further discount to the forwards for cannibalization and power price volatility, and that discount at the balance sheet date was 15%. The long end of the power price forecast remains materially unchanged year-on-year. And we continue to provide data on our average assumed wholesale power prices, which you can see on the right-hand side of the chart. The doughnuts on the chart show the proportion of our forecast revenues that are fixed per megawatt hour generated and exposed to merchant prices over the short, medium and long-term horizons. The point to note here is we have a high proportion of fixed revenues in each time period, providing some protection against the variation in power prices and with good inflation linkage. Now before I leave this slide, it's worth noting that the power price forwards have continued to soften in early 2024 for the next 3 years, and are now around 20% lower than the position at year-end. We provided a sensitivity in our annual report that shows a 10% decline for the next 5 years could reduce the net asset value by 2.2p. So a 20% decline, all other things being equal, could have an expected impact, adverse impact, about 4p per share. On the next slide, we cover discount rates and then inflation. So in relation to discount rates, the table on this slide shows the risk-free rates of government bond yields relative to portfolio discount rate. The overall portfolio weighted average discount rate has increased in the year from 7.2% to 8.1%, which mainly reflects the average increase 80 bps increase in discount rates, but also the addition of higher-returning battery storage projects into the asset mix. We increased discount rates during 2023 by 1% in relation to U.K. investments, and 0.5% to non-U.K. investments. And this recognizes the higher long-term government bond yields in the U.K. versus the EU. Overall, portfolio discount rate has increased by 1.5% in the last 18 months, which over that time period represents [ 0.8% ] in the U.K. and 0.8% in Europe. Now applying a blend of U.K. and EU risk-free rates, reflecting the portfolio composition leads to a weighted average risk-free rate of around 3%, with an implied risk buffer from the portfolio return to the risk-free rate of around 5%. The company carries out an independent valuation exercise each year and also commissions a review of valuation discount rates, and the independent valuer has confirmed that the discount rates used in the valuation are appropriate. Moving on to inflation. We assume inflation continues to track down during 2024 before normalizing in 2025. And at the half year, we added 75 bps to expected 2024 inflation versus our assumptions at December 2022. At the half year, we also increased the long-term assumption for U.K. inflation to 2.5% for CPI, and an increase in RPI to 2030 as well, recognizing the market expectation of stickier and higher inflation in the U.K. versus the EU. And this slide shows the level of RPI assumed versus that implied by U.K. gilts on the right-hand side, which you can see is tracking appreciably above TRIG forecast levels. This next slide bridges the NAV per share during the year and analyzes the movements between macro items that we've already covered, the impact of lower wind speeds and energy yield budget changes in the year in the middle, and the NAV gains made by active management activities from InfraRed and RES on the right-hand side. Now the point to emphasize here is the positive impact of this active management on the company's NAV, some 6.8p per share uplift. And areas of active management have included the value realized as we release construction phase discount rate [ premium ] as construction projects move into operations and are derisked. The profit on disposal of the sale of 3 projects that we completed in the autumn, entering into a corporate PPA for the Blary Hill wind farm for 10 years at an attractive fixed price, power price fixes had several other projects, including Valdesolar in Spain and other U.K. solar and wind projects. And we've also realized good upsides in relation to guarantee of origin and REGO income, where RES have actively managed this income stream, including review of PPA contracts and in many cases, negotiated higher prices from power off-takers. Now whilst the market price of the certificates in both the U.K. and EU has been strong in 2023, we have assumed a significant discount is applied to the current and forward prices of these certificates and we assume future prices reduce quite quickly to a lower level. And finally, during 2023, the French government ceased its action against older solar projects' feed [ interest ] that they've intended to significantly reduce following the successful appeal against their actions and the initiation of international arbitration from parties, including TRIG, which has allowed for the release of the provision made here. Turning to cash flows and EBITDA. This year, we've added additional information about revenues from projects. Our share of revenues from projects across the 87 projects that TRIG owns is GBP 793 million in 2023, which was slightly down 2023 versus 2022 as average power prices were lower in '23 versus '22, offset by new projects moving from construction into operations. Now the operating cost are low proportion of revenues and the EBITDA ratio for 2023 was 77%. After deducting interest payable and project-level debt, tax payments and movements in working capital, cash flows at the project level for 2023 were GBP 558 million, higher than previous years as the higher power price revenues from 2022 convert into cash in 2023. And after GBP 219 million of project-level debt repayments, GBP 339 million was paid up to TRIG from the projects in 2023. Cash cover over the last 2 years has been very strong. Now looking forward, taking into account lower power price forecasts, we currently project dividend cover to be an average of around 1.2 to 1.3x, which is over 2x on a gross basis before the repayment of project level debt over the next 5 years. Note, we expect H1 2024 to be softer with some asset-specific factors affecting cash flows including German wind farms, reserving cash to meet changes in corporation tax payment timings, reduced income as repairs progress to cables at 2 of our U.K. offshore wind farms and the timing difference between disposals and the realization of the cash benefit. That brings me to the end of the financial items, and I shall now hand over to Chris, who will cover our operational performance.

Thank you, Minesh. I'll now take you through the operational highlights in the year. During the year, we generated 6 terawatt hours, that's an 11% increase on 2022. Portfolio of over 80 projects, spread across weather systems, markets of Europe, onshore wind, offshore wind, solar and storage with wide range of manufacturers and models. So what that does, it limits our exposure to any one technology or counterparty. Portfolio performed well commercially. Whilst electricity prices has fallen since last year remains elevated compared to the long-term average. REGO prices have increased and the index-linked feed and tariffs continue to benefit from the high inflation rate environment. Generation is 6% below budgets in the period, which you can see split out by region in the table. Generation was impacted by poor wind, particularly across the U.K. and Sweden, coupled with grid outages and some maintenance activities, partially offset by good weather results in France in solar. Ultimately, the lower U.K. onshore and Swedish wind speeds were partly mitigated by the other geographies and technologies in the portfolio. Within the development and construction pipeline, the Cadiz solar sites in Spain and Grönhult onshore wind farms in Sweden have now both been fully operational for the year. During this time, the additional diversification to the portfolio by technology and geography are being clear. Our Ranasjö and Salsjö in Sweden all turbines now [indiscernible] a grid connections energized and early generations commenced, with contractual takeover to follow shortly. We've made some good progress on the development of battery storage projects, with preliminary construction on the first of the 4 projects now starting, leveraging RES' long experience in storage development, construction and operation. Within French repowering, a good connection is now being secured at [indiscernible], in addition to executing on the land agreements for [indiscernible]. With powering assessments are also being performed at our site in Northern Ireland. We also continue to assess opportunities to enhance existing sites, such as expanding or adding storage capacity or exploring the potential to add wind turbines to solar sites in Spain. Safety remains top priority, of course, with a 7-day lost time accident frequency rate per 100,000 hours now down to 0.09%, reflecting the lower level of construction activity in 2023 compared to recent years. Proactive safety activities continue to receive a lot of attention, supporting and collaborating with asset managers across the portfolio on safety drills and near-miss reporting to reduce the risk and severity of any incidents. Turning to this next graph, you can see how the weighted average wind and solar resource 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 the short period. You can still fundamentally see the weighted average dashed line, smoothing out allegiance, delivering a better result that will be available with concentrated geographical deployment in a single technology. On this next slide, you can see how wind speeds have varied across Western Europe over 2023 compared to the prior 30 years, with the blue shading denoting a less wind and red denoting more wind. TRIG's sites are shown in the backdrops, and you can see the theme of our Northerly assets experiencing lower wind and our Southerly assets experiencing more wind in 2023. How we manage our projects is key to delivering value. With [indiscernible] TRIG's operations manager, we are uniquely positioned to benefit from RES' deep knowledge and capability. RES' has been at the forefront of the renewables industry for the last 40 years, and as specialists across the globe that we draw upon to ensure that our assets are performing their best. The wheel on the right depicts the categories of enhancements we pursue, with a structured approach to identifying, appraising and implementing value-add opportunities. Here, you can see a sample of the ongoing enhancement works. We typically adopt a phased approach, benefiting from RES' research and development on trial projects, which are then rolled out more widely as their performance is validated. Each project's potential upgrade is individually appraised on its own merit, to calculate varying energy yield uplifts and value creation, with a small generation uplift in percentage terms is still generating significant value on a large site. Let's look at a case study within the blade hardware group of enhancements. AeroUp is a package of innovative blade hardware and turbine controller upgrades, developed by RES. It's first trialed in 2021, on 2 turbines in the TRIG portfolio and since rolled out to all turbines at El Yarte following validation of a 5% energy yield uplift. We're now in the process of installing across 4 additional GB wind farms. First, RES performed detailed technical analysis for each project to determine the optimal combination of hardware upgrades. Prior to deployment, these configurations undergo our feasibility study, RES then manage the procurement and installation in one package. And once the hardware is installed, RES' unique TuneUp software increases the yield further by adjusting the turbine performance to match the changes made to the blade geometry. We take a phased approach with installation at 2 or 3 turbines on each site at first, which enables independent validation of the energy yield uplift, product of investment and deployment across the remaining turbines. New opportunities continue to be identified, and I look forward to rolling out new enhancements across the portfolio. I will now hand over to Minesh.

Thank you very much, Chris. So we'll now move on to capital allocation. Capital allocation is a key focus for us and central to each investment decision, I'm going to start with sources and uses of cash across the group. Now this schematic shows operational cash flows -- to a healthy during the period over GBP 502 million, reflecting strong achieved power prices and actual inflation in the period. This represents a gross cash cover of 2.8x the dividend paid to shareholders. GBP 219 million of project level debt was repaid in the period in line with portfolios' amortizing debt schedule, resulting in GBP 283 million or 11.4p per share of cash available for distribution, 1.6x dividend cover. In addition, we seek to provide shareholders with capital growth and reinvestment into the portfolio is essential. Of the GBP 105 million retained cash flows, we reinvested GBP 92 million into portfolio equity, chiefly comprising construction funding of the company's Swedish onshore wind farms. The remaining GBP 13 million together with GBP 21 million net divestment proceeds, we used to reduce drawings under the RCF by GBP 34 million. And looking ahead, we expect cash generation in the portfolio to moderate with power prices and inflation expectations reducing, on average, 1.2 to 1.3x cover over the next 5 years and a little lower in 2024. Now reducing floating rate, RCF, our revolving credit facility, is a near-term priority for the company, along with the completion of existing projects under construction and development and making selective accretive investments, which may include buybacks. The hurdle rate for new investments today is high. However, we remain alive to attractive situations, where we may be able to secure excellent value for the company and progress portfolio construction. At the end of the year, the RCF was drawn about GBP 364 million, and we project reducing this to around GBP 150 million this year, and that is net of accretive investments in Fig Power that we made 2 weeks ago, and construction commitments with the movement coming from divestment activities, which are in trend and the generation of excess portfolio cash flows. On this slide, we set out our approach to selecting divestment candidates, including impact on revenue, technology and geographic diversification as well as operational considerations. The 3 wind farms we sold in the autumn had a 26% premium over carrying value delivered additional value for shareholders underscored the portfolio valuation and highlighted the dislocation between public and private markets. We are actively working on divestments totaling around GBP 250 million. We have 3 divestment programs, processes underway at exclusive stage and 2 of these are advanced, and we hope to conclude on these in the coming weeks. On this next slide, we cover our structural gearing. As a reminder, our structural debt is fixed rate and amortizing within the term of the associated fixed revenue. This means no cash flow impact of higher interest rates nor refinancing risk in the vast majority of the debt across the group. Currently, portfolio gearing stands at 37% EV following GBP 219 million repaid in the year, and is projected to be 23% of EV by 2030 on the current portfolio. Now not all projects with fixed revenues are geared, and we can also convert merchant revenue into fixed revenue, for example, through corporate PPAs. This, alongside our repayment profile and steady de-gearing means that over the coming years, we expect there to be debt capacity within the portfolio to help fund future growth. Now in this next section, we highlight areas for capital growth, in particular, our development activity, which provides an engine for growth. And we expect it to be possible to fund these opportunities without necessarily needing to return to equity markets through organic retained cash flows, divestment proceeds and structural debt capacity. Within TRIG's investment portfolio, we have 1 gigawatt of development opportunities through to 2030. And around 40% of these have been organically created within our investment portfolio. And 2 weeks ago, we added Fig Power and its development pipeline to this. We will appraise each of these opportunities in turn as they are developed and considered by portfolio construction and our funding position, before deciding whether to undertake construction ourselves or sell projects prior to construction and crystallize the development premium at the time. This development pipeline comes on the back of some significant construction and development progress following the strategic direction we set in 2022, when we increased the investment policy limit. In 2023, we commissioned 300 megawatts of new capacity. The Twin Peaks projects in Sweden are expected to be commissioned in the coming months. We've started preconstruction work of the Ryton battery and up -- expect to start construction of the Drakelow battery in H2 this year. Each of these investments has been made at returns above the portfolio average. And as we mentioned earlier, new investment decisions are appraised against alternative uses of capital, with buybacks currently setting a higher hurdle rate on a risk-adjusted basis. Now focusing in on our new development platform, here we cover the strategic drivers behind our recent investment in Fig Power. Batteries enhanced revenue diversification by introducing a related, but different revenue profile, mainly trading on power price volatility. This means that they benefit from greater renewables penetration. They also attract a return premium for the greater volatility of the revenues, which means they are best suited to a diversified portfolio that can benefit from the higher returns and also absorb the more fallow periods. Our investment is in the U.K., which is the most developed and mature market for battery storage in Europe. And investing in the development stage is attractive as it can bring dedicated development capability into TRIG's portfolio and leverage the managers' deep experience. It also has the benefit of building and developing at cost, which reduces vintage risk and enables investors to capture the derisking premium for themselves rather than paying it out, meaning that the return expectations are significantly ahead of relevant return hurdles. As mentioned, whether we build the projects we develop ourselves will depend on portfolio construction and funding position at the time. We still would retain the option to sell projects realize the development premium and reinvest that back into the development platform. So having identified battery storage development as a key strategic pillar, we undertook an extensive exercise to find the right partner. We're very pleased to have acquired Fig Power, which has an experienced team, excellent track record and extensive pipeline. The development capital outlay is modest in the context of TRIG's portfolio overall. And the final point to highlight on this slide is the return expectations over 20% expected rate of return on development capital. So I'll conclude today's presentation with a recap of the key strategic drivers of TRIG. Firstly, TRIG sits at the nexus of the energy transition, decarbonization and energy security themes, with investors' desire for resilient inflation-correlated returns delivered through both income and long-term capital growth. Secondly, this is delivered by an experienced management team. We are actively managing both capital allocation and the investment portfolio. Third, maintaining and building upon the balance of the portfolio is key in both investment and divestment decisions. The 3 projects sold in the autumn were at a 26% premium to carrying value, in parallel with new investments being made at double-digit returns, with a proprietary pipeline. Both sides of the coin, enhancing the portfolio return expectation of above 8%. And finally, operational excellence is core to the management team's mindset, seeking to achieve more with the portfolio we have through commercial and technical enhancements. So today, we've highlighted the strong underlying performance of TRIG's portfolio, our approach to capital allocation as well as some of the exciting development opportunities and operational enhancements that the team is working on can drive total returns forward. Thank you for listening to the presentation. I'll now hand over for the Q&A session.

Perfect. Minesh, Chris, thank you very much for the presentation. [Operator Instructions] And at this point, if I could hand over to you just to try the Q&A, that would be great, and I'll pick up from you at the end.

Of course. Firstly, thank you to those of you who have -- in this, and thank you very much for the questions we've received so far, and please continue to submit them as we go through the Q&A session. And I'll jump right in with one question for Minesh, it say, this is around the current discount that the share price of TRIG is trading on to see net asset value. And the question plays as to how we view this discount.

Yes. Thank you for the question. It has been a challenging backdrop for the share price, particularly with tighter monetary policy. If monetary policy plays out as the market expects, we can hope for a more benign environment in the year ahead. And I think it's important to recognize that there is a dislocation between private and public market valuations. The sale that we undertook in the autumn, we're at a 26% premium to carrying value, and the sale processes that we have underway, we expect to complete them at or above portfolio evaluation, thereby underscoring the valuation of the company's portfolio. But the question is absolutely right. It has been a challenging environment for the share price. We are hoping that our activities around capital allocation and investment decisions demonstrate the return potential for TRIG and the strength of the company demonstrated in the increase in the dividend by 4% from last year to 7.47p for the year ahead.

And you touched on investment decisions there, which I think leads nicely to the next question, which is around the acquisition of Fig Power and the focus on battery storage. And the question is, how do you view the long-term profitability and regulatory landscape of battery storage in your key markets? And how significant a role of battery storage play in TRIG's portfolio in the next 5 years. And I think it would be interesting to get your perspective but then also, Chris' from an operational viewpoint around that, please?

Yes, absolutely. Let me start with the strategic context and portfolio construction, and then Chris, I hand over to you around profitability in the regulatory landscape. The strategic drivers are, as we outlined in the presentation, that batteries are highly complementary to our renewables portfolio. They benefit from greater renewables penetration in the electricity system because of the potential volatility of power prices from intermittent generation. Batteries also provide additional services that historically thermal generators have provided in an increasingly green system around frequency regulation, as well as providing capacity and performing a role in the balancing market. So really strong fundamental drivers there. But the revenues of batteries are more volatile. We saw very high revenues in 2022 and lower in 2023. We use -- we consider a range of forecasts as well as taking into account forwards on power prices, when preparing our investment case, and we're using the lower end of those forecasts. And even then, we expect to be able to build our batteries at double-digit returns. Currently, our investment is actually just in development capital, where we preserve the option whether to build these projects ourselves or sell them on. And on the development capital, we're expecting returns of over 20%. In terms of the context of the portfolio, our portfolio is 80% wind, 15% solar, 5% battery storage. Both battery storage and solar is somewhere where I'd like to see more, because the portfolio composition has come from wind being the dominant technology so far in Europe. Over the next 5 years or so, out to 2030, I would like to see battery storage over 10% up towards 15% of the portfolio. I'd also like to see battery storage over 20% up towards 25% of the portfolio. So actually 2 areas, where I'd like to see more in the portfolio, just to continue that journey of improving portfolio balance. Chris, maybe I can hand over to you in terms of the landscape for batteries.

Yes. Thank you. So as alluded to that there are different revenue streams, you could have seen Broxburn our wholly-owned battery in Scotland that's almost exclusively a [indiscernible] frequency service. Within this new portfolio, we look for the bulks of [ 80% or so ] it would be through our price obviously last year buying electricity at a low price and selling at a high. And so clearly, your profitability is reflected by the price volatility on the system, it's a fairly consistent pattern that we see during the peak periods at -- as people wake up in the morning 8 to 9 a.m. in the morning. And then again, as we start [indiscernible] 5 p.m. or so -- and so these batteries would be cycling sort of twice a day up to that sort of level. It's -- and so the profitability will evolve over time and through the year as different level and different types of generation are in place. And batteries are really important to ongoing deployment of renewables within the market. And the national grid recognizes that, RES' is being involved in batteries for a long time in the U.S. and in the U.K. and InfraRed have been as well and particularly in the U.K. with [indiscernible]. So there's lots of experience, both from construction but also -- and pushing the operation and in that revenue stream. So I think we're really well placed to profitably deploy batteries within the U.K. market and complementing, as Minesh said, complementing our wider GB wind portfolio.

And then beyond the battery storage, Minesh, are there other emerging technologies or sectors within renewable energy that we're considering for future investments?

I think it's important to say that where TRIG invest -- technology is usually quite mature. As Chris said, RES were pioneers in bringing battery storage from the U.S. to the U.K. for use at a utility group scale. So technology maturity is important. The other areas of flexible capacity, hydroelectricity might lend itself neatly slightly longer duration storage than batteries, that would complement the portfolio as well. Such assets are few and far between typically held by utilities and don't often come to market if there was one of those and that might be of interest. But more nascent technologies, we would look to see more development both on the technology side, as well as the revenue business model before TRIG might look at it. But that's where being able to leverage the manager's experience is hugely valuable for TRIG because both InfraRed through some of its private funds and RES on balance sheet are exploring new areas, green hydrogen is one example, but constantly thinking about where is the energy market headed. And through InfraRed and RES, we can then horizon scan as to planning TRIG's strategic future.

Great. And then Chris, this one is for you. So around low wind speeds over the U.K., Ireland and Scandinavia. Is this a trend that we expect to continue for the medium term or the foreseeable future?

In a word, no. We do expect variability. The -- one of the slides I showed, it showed for the last 10 years and by region, where those regions have performed above or below the long-term mean. And I think what's important to take from that graph is and therefore there's 2 things. One, which is particularly potent to this question is that you have different regions above and below the long-term average in each year. So it's not like you're getting a theme that's consistently Sweden or GB or such like, is consistently under or over in budget. We do expect on balance, 50-50, half of the time, a region will be above budget and half of the time it will be below budget. That's the whole purpose of the -- that long-term P50 budget that we use. And the second point to take is, as I made in the presentation, is the smoothing effect. This is the benefit of diversified portfolio. Through investing in lots of different countries, with a lot of what Minesh was referring to earlier around in terms of portfolio construction, you get a smoothing effect into a more balanced energy yield across your whole portfolio in a year than if you were in just a single region or technology. We do look longer term about the trends. We look at the IPCC reports as and when they come out, they tend to be quite long focused after they're looking at a 50-year horizon even. And then we look at those, we've got an in-house meteorologist within RES and really specialist discipline. There are over that sort of time frame, there were trends in one direction or other, but some are up. Others are down, but you're talking about relatively small percentage. So 1% maybe, over that type of time frame. Decrease in some. Increase in other. So we're not concerned at all in terms of the long-term energy yield within the portfolio. And so going on a little bit, but just very briefly, in terms of the energy yields that we use, we're looking at these on a quarterly basis. And so we reassessed the budget. We keep the budget fixed for the whole year, but we reassess it on a quarterly basis to identify, if there's a bit of a trend that it looks like a particular project is underperforming in particular, that's what we're concerned about, if your budget doesn't seem to be occurred. When we've got a 12-month view, so removing any seasonality component, if we see that there's any kind of meaningful deviation, we'll then look to do a more formal energy yield calculation. And if we see there's a shift there, which can't be explained by greater accuracy of a full assessment, then we'll look to adjust the energy yield to make sure that long term, we've got the right energy yield within the valuation of the portfolio.

Perfect. And then just jumping back to battery storage. We've had a question around battery funds, which have experienced problems with access to the grid, and Minesh, perhaps if you take this one, how can TRIG ensure that it takes advantages of power shortages?

So I think where the question is coming from is around connecting to the grid, and there has been a challenge in getting a slot effectively to connect your battery to the grid. The more advanced projects that we have, that we acquired a couple of years ago, they have grid connection offers. This is the right in the track [indiscernible] battery for next year and the year after -- and the build will be ready to connect to those. In the Fig Power portfolio, what was really attractive is the first 400 megawatts of their portfolio has grid connection offers between 2025 and 2032, which means as we progress the development, we know we can connect to the grid. It's then about whether we can move those connection dates forward as we are ready, perhaps before others to start building and in that case, create further value. Yes, they have larger pipelines, 1.3 gigawatts of exclusive land access, 2.3 gigawatts of proprietary relationships. But very much it's that first 400 megawatts that's important. After that, there'll be a larger attrition rate in terms of how much of those further gigawatts actually end up making it into the build phase.

Great. And that was the final question with hands raise, and if we have any more, we'll look for follow up after the call directly and yes, that concludes the Q&A and the presentation. And I'll hand back to Alexandre for any housekeeping.

Perfect. Minesh, Chris. Hugo, thank you very much for answering questions, it come from the investors. And of course, the company can review all the questions submitted today. I'm going publish those responses at our Investor meet company platform. But just before redirecting investors provide you their feedback question is particularly important to the company, Minesh, can I just ask you for a few closing comments?

Yes. So thank you very much. TRIG sits, as I say, at the nexus of the energy transition, decarbonization, energy security themes with investors' desire for resilient inflation-correlated returns. And hopefully, what we've shown you today is that TRIG is in a strong position to do this. We have a very strong operational performance in 2023. We are focused on capital allocation, and in parallel, has some really exciting development opportunities as well as operational enhancements that the management team is working on collectively to drive forward the total returns of the company. Thank you very much for your time this afternoon and your questions. We'll see you soon.

Perfect. Thank you once again for updating with us today. Can I please ask investors not to close the session, as you now should be automatically redirected 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 would be greatly valued by the company. On behalf of the management team of the Renewables Infrastructure Group Limited. We'd like to thank you for attending today's presentation, and good afternoon to you all.

Thank you.