The Renewables Infrastructure Group (TRIG) [LON:TRIG] published its results this morning (22nd February). The Guernsey-based, FTSE250 listed, closed-ended investment fund reported strong earnings and Net Asset Value (NAV) performance, with earnings per ordinary share up from 10p in 2021, to 21.5p for the year ended 31 December 2022.
TRIG is a London-listed investment company that focuses on renewable energy infrastructure. The company was established in 2013, and since then has invested in a diversified portfolio of renewable energy assets across the UK and Europe. The company’s investment strategy is to focus on assets that generate stable, long-term cash flows, which are backed by government subsidies and feed-in tariffs.
The fund’s NAV per ordinary share was 134.6p, up from 119.3p and the funds assets under management was up 37.1% year-on-year to GBP3.73bn. On the back of a good year, where 2022’s dividend target of 6.84p/share was achieved, management increased the dividend target by 5% to 7.18p/share for 2023. The upgrade in dividend target is a reflection of strong expected cashflow generation from fund’s portfolio.
The fund made GBP694m of investments and pushed its RCF (revolving credit facility) out to GBP750m.
Strongest historical performance
The fund’s chairman, Richard Morse, said in a statement this morning: “This has been an important year in the history of TRIG. The company’s results have been the strongest in its history since IPO [in July 2013 which raised GBP300m]. This is against a challenging macro-economic backdrop, demonstrating the inherent quality of the company’s portfolio and management.”
Renewable energy is becoming increasingly important as the world looks for ways to reduce its carbon footprint and tackle climate change. As such, investment in renewable energy infrastructure has become a popular area for investors looking for stable returns and long-term growth prospects. TRIG is one such investment opportunity.
Richard Crawford, partner and Head of Energy Income Funds for InfraRed Capital Partners, the fund’s investment manager, said: “TRIG has had a very strong financial result for the year, not only benefitting from high power prices, but also from strong correlation to inflation, limited cash exposure to interest rate increases and broad diversification.”
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Crawford continued: “These characteristics make the company’s assets highly attractive. With active portfolio and asset management, InfraRed and [Renewable Energy Systems Limited] RES [the fund’s operations manager] continue to execute the company’s differentiated strategy with strong progress made during the year in the priority areas of solar and flexible capacity.”
The fund is structured as a self-managed Alternative Investment Fund under the European Union’s Alternative Investment Fund Managers Directive. It is overseen by a board of six independent non-executive directors whose role is to manage the governance of the fund in the interests of shareholders and other stakeholders.
In particular, the board approves and monitors adherence to the investment policy, determines risk appetite of the group, sets group policy and monitors the performance of the investment manager, the operations manager and other key service providers.
Diversification
The company’s investment objective is to provide its shareholders with a sustainable and growing dividend stream while preserving the capital value of its portfolio. TRIG invests in a diversified portfolio of renewable energy infrastructure assets, including wind, solar, and energy storage projects. The company’s portfolio is spread across the UK, Europe, and North America. As of end-December 2022, TRIG had a 2.8GW portfolio of renewable assets that generated 5,376GWh of electricity in 2022 – up from 4,125GWh in 2021. This equated to 1.9 million tonnes of Carbon Dioxide avoided and powered the equivalent of 1.6 million homes.
The company has 85 projects and has invested in a diversified portfolio of wind and solar farms across six different European countries including the UK and at 1,395MW boasts the largest generating capacity of the London-listed renewables investment companies. TRIG’s investment portfolio consists of a wide range of renewable energy assets, including wind farms, solar parks, and battery storage facilities.
Revenue mix
The fund’s assets receive revenues from a mixture of government support and electricity sales. The majority of revenue comes from government subsidies, mostly index-linked, providing good revenue stability and portfolio diversity reduces risk of over-concentration in individual assets, power markets, regulatory frameworks and local weather patterns, improving the stability of returns to the fund’s shareholders.
Morse explained that the fund has grown significantly in value, while investing to increase portfolio diversification and earnings visibility. Despite the War in Ukraine the company completed a successful GBP277m equity issue in March 2022, to buy a 7.8% interest in the 1.2GW Hornsea One offshore wind farm and pay down drawings from the RCF.
Hornsea One, off the east coast of England is the world’s second largest offshore wind installation (until it was surpassed by its sister the 1.3GW Hornsea Two installation in August 2022) and comprises of 174 turbines over an area of 407sq.km. The installation will generate enough energy to power one million homes.
Debt refi
The fund also refinanced its RCF earlier this month. The new facility was expanded from GBP600m to GBP750m and made available in sterling and euro. The new facility will run to 31st December 2025 at an improved rate. TRIG has drawn down around GBP413m of the facility. The facility’s interest rate is linked to TRIG’s ESG performance and the company will incur a premium to, or reduction in, the margin and commitment fee based on performance against defined and stretching sustainability targets. The margin can vary between 180bps and 190bps over the prevailing base rate for sterling and euro borrowings, depending on TRIG’s performance against the agreed sustainability targets.
The consortium included: National Australia Bank, Royal Bank of Scotland International, ING, Sumitomo Mitsui Banking Corporation, Barclays, Lloyds, BNP Paribas, ABN Amro, Skandinaviska Enskilda Banken and Intesa SanPaolo.
Decarbonisation push
As policy makers in the UK and European Union grapple with rising costs for consumers and governments, TRIG is well placed to contribute to the decarbonisation, independence and affordability of Europe’s energy supply, especially given the last year’s energy crisis precipitated by Russia’s invasion of Ukraine.
The company completed the construction of Vannier and Blary Hill onshore windfarms during the year, with Grönhult onshore wind farm and the Cadiz solar portfolio now being commissioned. The fund’s policy to reinvest cashflows generated into construction projects is a key value driver for the fund and brings vitally needed additional renewables capacity.
TRIG’s investment strategy is focused around three key pillars: Diversification, Long-term contracts and active management.
TRIG aims to build a diversified portfolio of renewable energy infrastructure assets across different technologies, geographies, and counterparties. The company aims to spread its investments across different projects to minimize risk and ensure a stable and growing dividend stream for its shareholders.
The fund invests in renewable energy projects that have long-term power purchase agreements (PPAs) with creditworthy counterparties. These contracts provide revenue visibility and stability to the projects, which in turn, provides stable and predictable cash flows to TRIG.
TRIG actively manages its portfolio to maximize value for its shareholders. It has both investment and operational expertise from its sub-contracted managers, InfraRed and RES. The company works closely with its investment partners and service providers to ensure that its portfolio assets are managed and operated efficiently.
Wind fleet
Wind farms are the largest component of TRIG’s portfolio, accounting for around 56% of its total installed capacity at around 1,500MW. The company’s wind farms are located across the UK, France, and Ireland, and generate electricity through the use of wind turbines. Wind farms are a key component of renewable energy infrastructure, and TRIG has invested heavily in this sector due to the stable and long-term cash flows they generate.
TRIG’s solar parks are the second-largest component of its portfolio, accounting for around 28% of its total installed capacity at 600MW. The company’s solar parks are located across the UK and generate electricity through the use of solar panels. Solar parks are another key component of renewable energy infrastructure, and TRIG has invested heavily in this sector due to the stable and long-term cash flows they generate.
Battery storage facilities are a relatively new addition to TRIG’s portfolio, accounting for just 3% of its total installed capacity at just shy of 50MW. The company’s battery storage facilities are located in the UK and are used to store excess energy generated by wind and solar farms. Battery storage facilities are becoming increasingly important as renewable energy infrastructure grows, and TRIG has invested in this sector to position itself for future growth.
The fund is also exploring opportunities in biomass and hydro.
Consistent dividends
TRIG has performed well since it was established in 2013, with strong growth in both its share price and dividends. The company’s share price has increased from its initial public offering (IPO) price of 100p per share to its current price of around 130p per share, representing a total return of around 30%. In addition, TRIG has consistently paid a dividend since its IPO, with a current yield of around 5.5%.
TRIG opened trading today at 130.2p, and has offered a year-to-date return of 0.12%, a one-year return of 1.3% with its shares ranging between 112.6p and 148.6p over a 52-week period.
The company has a market cap of GBP3.2bn.
One of the key factors that have contributed to TRIG’s strong performance is its diversified portfolio of assets. By investing in a wide range of renewable energy infrastructure assets, the company has been able to generate stable and predictable cash flows, which have allowed it to pay consistent dividends to its shareholders. In addition, the company’s investment strategy of focusing on assets with long-term government subsidies and feed-in tariffs has provided additional stability to its cash flows.
Another factor that has contributed to TRIG’s performance is its focus on high-quality assets. The company’s management team has a strong track record in the renewable energy sector and has been able to identify and acquire assets that are of high quality and generate strong cash flows. This has allowed the company to maintain a high level of profitability and dividend payments, even during periods of market volatility.
Big assumptions
Kepler Trust Intelligence, an analyst recently wrote: “Whilst the long-term trajectory of TRIG’s NAV has, historically, been relatively stable, as we all know past performance is not necessarily a guide to the future. There are many inputs that influence TRIG’s NAV, but rarely have such big changes to assumptions been required over such a short period of time.”
The analyst continued: “As we highlighted in a recent note, TRIG is subject to the influence of three key variables on its NAV and returns: power prices, inflation and discount rates. Since then, the windfall tax has negatively affected the NAV, as have rising discount rates. However, the effect has been offset by the positive effect of inflation and higher short-term power prices.”
Kepler concluded: “Historically, TRIG has traded on a consistent premium to NAV, so the 4.5% discount to NAV may be a potential opportunity for long-term investors. In our view, the diversification and quality of cash flows underpinning the income component of TRIG’s returns continue to make it a useful complement to equity portfolios.”
The attraction of TRIG is that it operates in a sector that is growing in importance, and the need to generate electricity from renewables will only grow in the coming decades. TRIG’s focus on generating stable, long-term income through contracted revenues from energy sales is a viable strategy that should over time provide a sustainable and attractive yield to its investors by distributing dividends on a quarterly basis, paying a reliable stream of passive income.
The fund’s geographical diversification and mix of assets de-risks the potential impact of any adverse weather conditions in one country, which offers a buffer of comfort should the sun not shine, or wind not blow.
The alignment of the fund with the global trend towards decarbonization should provide long-term growth potential as more countries and companies transition towards renewable energy sources and the demand for renewable energy infrastructure should increase. However, it is important to note that investing in TRIG, like any investment, comes with risks. Factors such as fluctuations in energy prices, regulatory changes, and operational risks may affect the performance of TRIG’s investments.
