Octopus Renewables Infrastructure Trust (ORIT) has reported unaudited net asset value (NAV) of £612m at 30 September, slightly lower than a NAV of £628m, in the previous quarter, at 30 June.
Increased macro-economic volatility and a significant increase in base rates, benchmark bond yields and longer-term interest rate and inflation expectations, were responsible for the results in the most recent quarter, the company said.
Since the end of the second quarter of 2022, short-term inflation assumptions have increased further across the markets where the company’s portfolio of assets is located, resulting in an increase in valuation of £12m.
The 30 September 2022 valuation includes recent consensus UK inflation forecasts published by HM Treasury in August 2022 and inflation forecasts for the relevant European countries published by the European Commission in July 2022.
Approximately 53% of the revenues forecast to be received by Octopus Renewables Infrastructure Trust’s portfolio of assets in the 10 years ending 30 September 2032 is now explicitly inflation linked (with reference to UK RPI, French inflation and Polish CPI as applicable).
The Bank of England has raised short term reference rates by a total of 1% in the third quarter of 2022 alone (and 2% since the start of 2022) to combat rising inflation.
The yield on long-term gilts has also increased, putting upward pressure on discount rates.
Also during the quarter, the cost of securing long term debt has risen, which “particularly impacts” projects which would typically attract high levels of project finance debt, being those with fixed revenues.
Resultant increases to the discount rate applied to asset valuations resulted in a decrease of £29.7m.
Following increases in the power price observed over recent months, the company has fixed pricing on a significant portion of output for the remainder of 2024 and 2025 at the Saunamaa and Suolakangas wind farms in Finland.