Good morning, everyone, and thank you for joining us here in person, and those of you online as well. Just a couple of housekeeping points from me before we start, and before I hand over to TRIG's chairman, Richard Morse. Firstly, the presentation is planned to be about 30 minutes long, and after this, there'll be a Q&A session. If you're viewing online, then you should see a dialog box that allows you to submit questions, and we'll do our best to get around to everyone's questions. Now, there is a fire alarm test at 10:30 A.M., but hopefully we're done well before then. But if it, if we're not, and you hear one, then please do take it seriously. Follow the fire exit alarms, fire exit signs, and there should be a fire marshal in the main lobby area.
With that, I'll hand over to Richard Morse. Thank you.
Thank you, Mo. Good morning, everyone. A very warm welcome to TRIG's interim results presentation for the period ended 30th of June, 2024. I'm pleased to be joined by the leaders of the TRIG management teams, Minesh Shah, Phil George, and Chris Sweetman, who will be taking us through the results. We're also joined in the room by colleagues from InfraRed and RES. TRIG benefits from some 30 dedicated staff at InfraRed and RES, as well as being able to draw from the wider pool that both of those managers represent. You will hear today about the positive work the team has been undertaking to progress the company's strategy. This is a robust set of results.
In the period, we have reduced portfolio level borrowings, reduced borrowings under our revolving credit facility, delivered strong gross cash cover of the dividend, signed accretive disposals at scale, and reinforced the principles behind our approach to capital allocation, including the GBP 50 million buyback program, which begins today. With the board's support, the managers are committed to driving forward to deliver attractive shareholder returns through a mixture of floating rate debt reduction, progressive dividend, and our announced buyback program, and portfolio investments, where these meet the stringent investment criteria demanded by the prevailing conditions. With that, I'll hand over to Minesh.
Thank you, Richard. The fundamentals that underpin TRIG's investment proposition remain favorable. The twin themes of decarbonization and energy security, with renewables being core to progressing these across Europe, and our business model is built on three pillars. Firstly, responsible investment. This is both financial responsibility through a durable balance sheet, a resilient dividend, and rotating the portfolio where appropriate, as well as identifying and responding to sustainability opportunities and risks. Secondly, a balanced portfolio. Our portfolio is resilient because it is balanced, and we spread risk across European geographies, renewable technologies, revenue types, counterparties, and so on, and this gives us diversification at scale. And it allows us to pivot our investment activity to where we see greatest value. And finally, operational excellence.
Our management team draws from the investment expertise of InfraRed and the operational excellence of RES, and we are focused on driving operational performance using innovation and technology to enhance returns. So our approach has allowed us to successfully grow the portfolio of the company to over GBP three billion, and our 2.7-GW portfolio comprises of over 80 projects across six power markets and four renewable technologies. This portfolio is capable of powering some two million homes, and we continue to evolve the balance of the portfolio. Our disposals have all been in the wind sector, and we're seeking routes to build out our solar exposure. Importantly, we are not dependent on equity issuance to grow. We continue to grow from our own resources.
Our development stage investments provide us with a platform to grow organically, and our proprietary 1 GW 2030 development pipeline can be funded from retained cash, rotating the portfolio, and over time, debt capacity, without necessarily needing to return to equity markets. Now, turning to the reporting period, the key themes for the energy sector in the first half of this year have been political change that has given central banks cause, thus far, to be hawkish in their approach to interest rates, a mild and wet winter and spring that has significantly reduced power prices, and grid challenges. Now, against this backdrop, TRIG's performance has been solid, with a 1.1x net dividend cover, or 2.2x gross cover before the amortization of project level debt.
We reconfirm our dividend target for the year at GBP 0.0747 per share, and that represents over a 7% dividend yield off the current share price. Now we're expecting similar operational cash generation in the second half of the year, before increasing to a more normalized 1.2 times our net cover from 2025, with gross cash cover remaining in excess of two times going forward. Now, complementing our robust underlying performance has been a series of disposals as we've rotated out of GBP 200 million of our portfolio. This has been at a weighted average premium of 11% to carrying value, which really draws a stark contrast to the share price discount to NAV.
Now, the NAV itself is down 3% in the half year due to lower power prices and below budget generation, principally linked to a couple of cable outages. Phil and Chris will go into this in more detail shortly. Our retained cash and disposal proceeds were used to reduce floating rate debt by GBP 30 million in the period, as well as fund GBP 41 million of accretive investment activity. Project debt amortization in the period was GBP 103 million. Project gearing is 37%, which itself is moderate. Over the coming two years, 2024 and 2025, we have further scheduled repayments of GBP 400 million. It is the strength of the balance sheet that underpins both the GBP 50 million investment spend this year, as well as the commencement of a GBP 50 million buyback program.
Now, this next slide is new for us. It's a graphical representation of the sources and uses of cash across the group. A key message here is that with discipline, you can achieve all three. You can reduce gearing, you can fund growth, and you can deliver attractive shareholder returns. Cash from operations and disposals on the left-hand side are being allocated to reducing leverage within which the portfolio debt amortization is scheduled, deliver attractive shareholder returns, including starting a buyback program, and make accretive investments to fund future growth. Before I hand over to Phil, we'll briefly revisit the 1 GW 2030 development pipeline within TRIG. This is made up of new greenfield battery sites and repowering co-location and site expansions in the wind sector. We set this out at year-end as an engine for growth.
Taking projects through development, construction, and into operations can typically deliver double-digit returns, and we're really pleased to see the first project from this pipeline, the 78 MW Ryton battery project here in the U.K., enter construction. To crystallize development value, we may also seek to sell positions, like we did with the three Irish wind farms last year. And true to our disciplined approach to capital allocation, we will appraise investment decisions against alternative uses of capital, including buybacks. With that, I'll now hand over to Phil to take us through the NAV and the balance sheet in more detail.
Thank you, Minesh. I'll take you through the financial highlights and the valuation movements for H1 2024. The valuation of the investments, and therefore the net asset value, have declined in the period. The largest driver of this has been a reduction in near-term power revenue forecasts and below-budget generation. NAV at the thirtieth of June 2024 is GBP 1.234, with a portfolio value of GBP 3.4 billion. Being an investment company, the valuation movement reduces earnings, which in the period are minus GBP 0.006, which means after dividends paid in the period of GBP 0.037, the NAV is reduced by GBP 0.043 per share.
Dividend cover has been tighter than usual this period, as we flagged in February, the most significant cause being cable failures at two of our offshore wind farms. One of these failures is now fixed, and the other one is soon to be fixed with commercial protections in place. Dividend cover before project-level debt repayments in the period of GBP 103 million was 2.2 times. Dividend cover after those repayments was 1.1 times. We expect this level of dividend cover to improve to more normal levels of 1.2-1.3 times from 2025. Over the last 12 months, we've agreed the disposal of seven wind farms, all at good premium to our valuation, and the disposals above NAV provide good confidence in the company's portfolio valuation.
Stepping through the valuation bridge shows a trail from the opening valuation of GBP 350.9 million to the closing valuation of GBP 335.8 million. Now, starting from the left, investments of GBP 41 million have been made in the period, funding the end of construction works for the Ranasjo and Salsjö wind farms in Sweden, which are now operational, the start of construction of our first merchant battery project at Ryton, and our investment into FIG, our UK energy projects developer. GBP 51 million of cash proceeds were received from the sale of two Scottish wind farms, and the sales of Pallas and Gode are expected to complete in H2. And cash flows up from the projects in the period were GBP 125 million.
The rebased portfolio value is GBP 337.4 million, and the rest of the bridge represents the operating income shown in the profit and loss account. I'll be going into more detail on most of these items in the following slides, but briefly, power price forecasts have declined in the front end of the power curve, reducing NAV. Discount rates are unchanged. We increased these significantly during 2023 to reflect the higher returns environment, and we slightly trimmed our 2024 full year forecast U.K. inflation, which slightly reduces NAV. On the bridge, we show the movement in foreign exchange for our euro-denominated assets. Sterling has strengthened 2% against the euro, resulting in a loss before hedge offset of GBP 32 million. The company hedges FX outside of the portfolio, and the gains on these hedges almost entirely offset this loss.
The final item on the bridge portfolio return for the period is GBP 74 million. It represents an annualized 4.5% increase. This is behind the expected return, represented by the opening portfolio discount rate of 8.1%, and this reflects below-budget generation in the period, detracting from NAV by GBP 0.015, the majority of which resulted from the cable outages. Other items include disposal profits, reductions in origin certificate forecasts, and a provision against the battery projects purchased by TRIG in 2022. We'll have some more detail on these items in the following slides. This slide provides more detail on power price forecasts. Power price forecasts have declined a little in the near term, following a mild and wet winter. Near-term forecasts and power prices have improved a little from Q1- Q2, with gas prices increasing.
But nevertheless, overall, over the half year, they've reduced. In the medium to longer term, forecasts are a touch higher than before, albeit the overall impact is slightly negative to NAV. 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. The point to note is the high portion, which is fixed, two-thirds over the next 10 years, providing some protection against variation in power prices and good inflation linkage. This slide covers discount rates and inflation. On discount rates, the slide shows the risk-free rates or the benchmark government bond yields relative to the portfolio discount rate.
The overall portfolio weighted average discount rate has increased during the period to 8.3%, which mostly recognizes the addition of FIG Power at a materially higher discount rate than the average of the portfolio, as well as changes in portfolio mix with disposals and a small impact from the movement through time nearer to more merchant flows for projects with subsidies. Applying a blend of UK and EU risk-free rates, representing the portfolio composition, leads to a weighted average risk-free rate of 3.6%, with an implied risk buffer from the portfolio return to the risk-free rate of 4.7%. The company carries out an independent valuation exercise each year and also commissions a review of the valuation discount rates, and the independent valuer has confirmed the valuation is appropriate. This slide also includes inflation assumptions, which have changed only slightly from before.
We've assumed the full year 2024 outturn UK inflation comes in slightly lower than before, and hence trimmed RPI by 0.5% and CPI by 0.75% for 2024, and left all other inflation assumptions unchanged. This next slide covers some other items, including within the balanced portfolio return. Successful disposal activity in the period of sales signed year to date for four projects across three countries, has realized a gain of GBP 0.006 per share. Projections of origin certificates pricing have declined. A larger decline in relation to the EU certificates, GoOs, than the U.K. ones, REGOs, with unusually wet weather earlier in the year, having boosted origin supply from hydroelectric producers in Spain and Norway, in particular, depressing expected prices.
In the period, we've been capturing REGO prices of around 6 GBP per MWh and GoO prices of around 5 EUR. Finally, on this slide, we've made a small provision against the development premium paid in 2022 to purchase four development phase battery projects, one of which is now in construction and two are close to construction start. Projected battery revenues have declined since the projects were acquired almost two years ago, and having benchmarked these to the current market, we've applied a discount that has a NAV impact of GBP 0.003. This does not impact the FIG power business case. This slide bridges the NAV per share during the year and analyzes the movements between macro items, the impact of lower generation, and active management in the period, which has been focused on disposal activity.
This slide shows our focus on reducing the floating rate debt on our revolving credit facility. During the period, we've invested in construction spend on high-returning projects and delivered above valuation disposals, with the RCF balance reducing by GBP 30 million. We have further disposal proceeds expected to come in H2 from the sales of Pallas and the partial stake in Gode, which would reduce the RCF balance to around GBP 195 million, before the impact of our announced share buyback program, leading to a projected year-end balance of around GBP 220 million. We are working on further disposals and the refinancing opportunities, which will enable us to reduce RCF drawings to around GBP 100 million during 2025. My final slide looks at long-term debt at the portfolio level.
The vast majority of our debt is long-term, fixed rate, and amortizing during the revenue fix ... sorry, during the fixed revenue periods, as shown in the chart below. Long-term debt is repaying at the rate of around GBP 200 million per year. Our gearing level, at 37%, is moderate, and we have gearing headroom in our structure, with a good level of projects without gearing in place. That brings me to the end of the financial items, and I shall now hand over to Chris, who'll cover our operational performance.
Thanks, sir. Hello. I'm going to talk you through the operational highlights in the period. During the first half of the year, we generated nearly three TWh of renewable electricity. The 2.7-GW portfolio is capable of displacing 2.2 million tons of carbon emissions per annum and of powering 1.7 million homes. TRIG's portfolio of over 80 projects is spread across the weather systems and markets of Western Europe in onshore wind, offshore wind, solar and batteries, with a wide range of manufacturers and models, limiting our exposure to any one technology or counterparty. While electricity pricing has fallen since last year, it remains elevated compared to the long-term average, and REGO prices were strong. The portfolio benefits from a high proportion of index-linked revenue contracts.
Generation was 6.9% below budget in the period, which you can see split out by region within the table. Resource was mixed with better than average offshore wind and worse than average Scandinavia and solar. March and May were down across all projects. Two-thirds of the portfolio's generation shortfall related to third-party cable failures, which are used by two of our offshore wind farms in the U.K., without which the portfolio generation shortfall would have only been 3% below budget. One of these cables is now fixed, and the other is scheduled to be repaired in the second half of the year, with insurance in place. Spanish solar generation was impacted by excess rainfall, which increased run-of-river hydro generation, depressing prices and resulting in curtailments at Cádiz. New route to market agreements are now in place to compensate low pricing curtailments.
I'm going to take you through the construction progress in a few minutes, but I'll leave this slide by emphasizing that safety remains a top priority, with a seven-day lost time accident frequency rate per 100,000 hours, now down to 0.18, which is below industry benchmarks. Within the graph on this next slide, you can see how the weighted average wind and solar resource varies over time by region compared to the long-term mean. Long-term averages were over 20 years, and so variances are to be expected over the shorter period. You can still fundamentally see the weighted average, the dashed black line, smoothing out the regions, delivering a better result than would be available with concentrated geographical deployment in a single technology. You can see in the period how our offshore assets experienced higher resource than average and Scandinavian and solar lower.
How we manage our projects is key to delivering value, and with RES as Trigg's operations manager, we're uniquely positioned to benefit from their deep knowledge and capability. RES has been at the forefront of the renewables industry since inception over 40 years ago, with specialists across the globe that we use to ensure that our assets are performing their best and to deliver value enhancements. You can see here the maturing timeline of a sample of the ongoing enhancements. 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 account for varying energy yield uplifts and value creation, with small generation uplift in percentage terms still generating significant value.
Touching upon some of the highlights, at the full year, we spoke in detail about the AeroUp blade hardware to improve blade aerodynamics. The trial installation phase completed this summer at four sites with a total capacity of 59 MW, and the data collection has now commenced. Blade hardware installations are also well progressed at four joint venture projects, totaling 66 MW. TuneUp has been installed at the trial turbines at Hill of Towie, enabling the turbine controller to adjust the way the turbine operates to maximize the gains from the aerodynamic improvements from the blade hardware with very strong indicative results. Once validated, this will be rolled out across the remainder of the project later this year, as well as the wholly owned AeroUp turbines.
The wake steering trial at Altahullion in Northern Ireland has completed, with independent analysis confirming a 1.3% energy yield uplift. This pioneering enhancement increases production while also decreasing turbine loading, with wider application now under consideration. Together with TuneUp, the Altahullion uplift will total 3.4%. Solar inverter optimization trials are progressing in the UK to dynamically manage inverter temperatures to avoid overheating, thereby reducing downtime and inverter wear and tear. This next slide considers development and construction activities. Vanisio and Sal were fully operational and contractually taken over in April. These projects diversify TRIG's wind and regional price exposure to our other Swedish projects, jarvtjarn and Gronhult. The 78-MW two-hour Ryton battery project commenced construction in April. Progress is on schedule, with enabling groundworks complete and electrical works commenced in July. Energization is expected in late 2025.
Spennymoor is the next two-hour storage project, following the successful grid connection acceleration from 2021- 2026. This means it will progress just ahead of Drakelow that require some wider grid reinforcement works. Meanwhile, the first fixed storage projects are being progressed through their development milestones. Repowering works continue in France, with Cuxac securing a new inflation-linked tariff and a slight increase in site capacity up to 25 MW. The preferred turbine supplier has also been selected. Ultimately, we're looking forward to progressing the company's 1 GW development opportunities into construction by 2030. Minesh, back to you.
... Thanks, Chris. So I'll conclude today's presentation with a recap of the key strategic drivers for TRIG. Firstly, TRIG sits at the nexus of the energy transition, with investors' desire for resilient inflation-linked returns, delivered through both income and long-term capital growth. Second, this is being 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 to both investment and disposal decisions, and the 4 disposals so far this year have totaled nearly GBP 200 million at an average 10% premium to carrying value. This is in parallel with new investments being made at double-digit returns, so both sides of the coin enhancing return expectations. And finally, operational excellence.
It's core to our management team's mindset, seeking to achieve more from the portfolio that we have through commercial and technical enhancements. So today, we've continued to highlight the strong underlying performance of TRIG's portfolio, and with that, with a disciplined approach to investment management, it is possible to reduce gearing, deliver attractive shareholder returns, and invest accretively to progress the long-term strategy of the company. In doing so, we will continue to drive total returns going forward. Thank you for your time. And with that, I'll hand over to Mohammed to take us through the Q&A session.
Thanks, Minesh. We've had a number of questions come through online, but we'll take the questions in the room first. I'll hand it to the floor. Any questions from the room?
Good morning. It's Ian Scouller from Stifel. I was wondering if you could just give us a bit more color on some of the future opportunities you're seeing. I think you're talking about sort of 1 GW, potentially ready for construction by 2030. I think about two-thirds of that is battery. What other technologies are you seeing opportunities in? And just given the sort of returns that we're seeing to date in batteries and the lower projections, I mean, do you think you'll sort of scale back some of your ambition in that area, or are you keener than ever?
Thanks, Ian. So if we start with portfolio construction, our portfolio is roughly 60% U.K., 40% rest of Europe. We expect that percentage between there and 50/50 to remain going forward. The portfolio from a technology perspective is 80% wind, 15% solar, 5% flexible capacity. That really reflects wind has been the dominant technology in Europe thus far, and we've flagged a few times that we're looking to increase both our flexible capacity and our solar percentages. Flexible capacity from 5% up above 10% towards 15%. The pipeline that we have, about 600 MW in that 1 GW pipeline, will look to get us there. Solar, over time, we'd like to get from 15% up above 20%, towards 25%, and we're looking for routes to increasing that. You mentioned returns coming down.
I think the fact that we're investing at the development stage and then acquiring a proprietary portfolio and taking that through development, construction, and into operations can deliver the double-digit returns that will continue to enhance TRIG's return expectations going forward.
Okay, thank you.
Any other questions in the room?
Hi there, Thomas Martin. On the investment program, I think it's sort of smoothed out over time and extending over a longer period in terms of your committed spend. And you also spoke about the issues around grid access on one of the battery projects, something that's being accelerated. So is that smoothing of the investment program entirely related to the phasing of those battery projects? I think the total magnitude of spend might have been up a bit. Is there anything else new that's gone into those projects? Are costs higher than you thought they were going to be on those projects? Can you talk a bit about what's going on there, please? Thanks.
Costs are slightly higher, but not an awful lot higher. You're right, there's been a bit of a delay in the connection date for the second project, Drakelow. So that's pushed that one a bit further back. That's also a factor, I think, in the answer to Ian's question as well, is that I think that it will take some time to build out that pipeline of battery projects, and therefore you can switch on the way if you decide you've already got enough exposure or if you think that market's not going the way you'd like it to go. You're not committed to doing it all in one go. And we have other battery projects, spending more that look like they're coming forward, so may well fill in that gap.
And so we may well see that coming to FID decision during early next year. And if it did, there'd be around another GBP 50 million of commitments kind of going in that gap there. So we do want to build out those opportunities. We think they've got good returns and enhancing the portfolio. And we can fund that through rotation and through introducing a bit more debt in the portfolio against the ungeared projects. So we see sources for finance in that, on top of the cash flows we'd expect from the portfolio to exceed the dividends, and therefore, have some contribution to construction spend from that direction as well.
Great. Any other questions in the room before we turn to the online questions? No? Brilliant. Thank you. So we've had a number of questions around the topic of the market liquidity for secondary assets, and the health in general of the secondary market and what the disposal has done to date says about that. So Minesh, if you could come in on that.
Yeah. So I think since interest rates went up, we have been noticing that the secondary market is thinner. I think there's no getting away from that. But, you know, that means that maybe processes can take a bit longer. But I think it's credit to the team that they have, you know, identified buyers to secure the significant premium, you know, 10% premium to carrying value for the disposals that we've signed thus far to date. So there is capital out there looking to deploy into the sector, and we're able to crystallize this, to continue to improve returns and generate cash for these new investments that we're making at double-digit IRRs.
So on that, there was also a question about whether are double-digit IRRs the minimum hurdle rate now?
I think the crucial part of that question is now, in prevailing market conditions, clearly, you benchmark your uses of cash against the various alternatives. That includes buybacks, and buybacks setting a particularly high hurdle rate at the moment. So we'll continue to do that, and yes, that, at this point in time, implies a double-digit hurdle rate. The projects that we've taken FID decisions on meet that.
Great. Thank you, Minesh. Phil, for you, a couple on the gearing side. So firstly, given the growing scope in the power market for recontracting assets over the longer term and hence de-risking tail-end revenues, is there any scope for reducing project-level debt repayments in order to increase near-term cash generation?
I think there are increasing scope to swap merchant revenues for fixed revenues. We look at that in some detail, 'cause we don't want to take a large haircut to swap from one to the other. And sometimes that is what's offered. But other times, we can find really nicely accretive fixes, so we're quite discerning in what we're up to there. I think what's more likely is that we introduce fixes on the power side that give us more headroom for borrowing against projects which are currently ungeared than we slow down the repayments on the current gearing. That should give us headroom for building out more development projects.
I think on the battery side, we've seen a lot of talk of tolling agreements, and that's good. These are coming in. I think for TRIG in particular, our idea is that we can cope with the merchant revenues from batteries. It's a small proportion of revenues, and we see a nice hedge between those merchant revenues and the potential risks to renewables revenues in the U.K., with cannibalization increasing over time. So we want to keep that hedge, so I think we'd be reluctant to take the haircut on battery revenues by swapping those out to tolling agreements. But we'll obviously keep a close eye on that market, and we would do that if we thought it was a value-accretive move.
Thanks, Phil. So, another one on a related topic. You talk about gearing capacity in the future within the portfolio. Would you be looking to exclusively use project finance, or would you consider other types of financing for the portfolio?
We will consider other types of financing. It's been our usual and preference for project-level debt that is amortizing, and fixed rate. But I think, you would look at the options, but the project-level financing is our norm, and so that's the more obvious route to go.
Thanks, Phil. Then moving on to another key area of interest, and this is probably for both Chris and Phil, which is around the offshore wind cable outages and the nature and extent of the commercial protections in place.
Yeah. So typically, well, you need to prove that it's an insurable event, so we're quite clear about that on one of them, and the one which is still outstanding repair. And, you typically have an excess period, you know, in days, that has been exceeded. And so from that point onwards, you're still working as fast as possible to encourage the OFTO owner, 'cause we don't own these cables. They're owned, you know, in the U.K. by the, you know, the separate, you know, party that owns the OFTO, to encourage them to move as quickly as possible, and to make the repair. But it does put us in a...
Yeah, that insurance does put us in a good commercial, you know, position, you know, protecting the, the lost revenue. You know, clearly, 'cause we don't own the assets, we're not exposed to the, the underlying cost of repair either. That's for the third party... But sorry, just to be really complete, the, the revenue protection is up to the, yeah, the lost revenue. There's not some kind of haircut retake on the revenue either.
Brilliant, thank you. And following on from that, maybe Minesh, this is more for you, but, regarding the cable outages and variance in asset performance, are you comfortable with the concentration in the portfolio? Both Hornsea One and East Anglia One are top 10 assets.
Yeah, portfolio concentration has always been a key focus for us. Our top 10 assets are about half of the portfolio, and our largest asset is about 11%. As a historical rule of thumb, our largest asset has always been about 10, 11% as well, and that's really important to exactly this point. In a large portfolio, there are going to be some assets with challenges, and making sure you're not overexposed to any one is important. You know, we've had the two cable outages, and yet still delivered net dividend cover for the first half of the year, 1.1 times. Gross dividend cover, 2.2 times. That's a really resilient performance when you've had a couple of cable outages.
Thanks, Minesh. Then moving on to Phil, this one will be for you, but for REGO and GoO assumptions. Why have pricing assumptions of guarantee of origin certificates moved so materially within six months? Were forecasters overly bullish?
We think it's mostly driven by the unusually heavy rainfall in Spain and the high hydrology resource in Norway. And that has been an unusual feature. And those that track utilities will have seen that the revenues from hydroelectric producers has been much higher than normal. And I think that's been driving that down because the hydroelectric producers are able to sell their guarantees of origin certificates, and that's then produced a lot of surplus in the market. And I think that'll hang over for a year or two because the reservoirs will be fairly full as well.
Thanks, Phil. And then staying on the topic, we've had a question: Can you please outline the key drivers behind the increase in GoO revenue forecasts in the late 2020? So I think this is the 2025- 2030.
Because, it's in the long term, it's a reduction.
Yeah.
And I think that forecasters are considering the supply and demand, and the number was fairly low anyway, and now it's slightly lower. And that's been a driver of reduction of our REGO forecast as well. I think in the medium term, it's merely just returning to a more normalized level in the short run of that sort of free GO. So I didn't see a significant near-term GoO price being assumed.
Okay, and then sticking with the valuation, there's a question here, cannibalization assumptions, can you expand on which technologies and geographies suffer from higher and lower respective cannibalization rates?
Slide on that, don't we? I don't know if you can... So in there. Okay, the slide in the appendix on that, I don't have it to hand, but it does list out the significant... Oh, well done. What number is that? 30. 30. Oh, thank you, Luke. So, so we've got a... Well, most of them are similar, as in GB onshore wind, offshore wind, German offshore wind, Swedish onshore wind in the high teens or low twenties. The standout is Spanish solar at around 40%. And I think that's a commonly known aspect of Spanish solar. When we invested in it, we knew it was that sort of level of cannibalization, and our base case forecasts assume that.
All of the forecasts assume a significant amount of build-out of new renewables, and in many cases, especially Spanish solar and GB offshore wind, a lot more build-out than that, which leads to more cannibalization of those technologies. That might well in time, give us more opportunity for storage technology in those geographies as well.
Brilliant. Phil, another one for you. So what was the rationale in softening your target in reducing the RCF by the year end? I believe you previously communicated reducing the RCF to GBP 150 million, versus the GBP 220 million announced today.
So the rationale in softening the target, so previously, we announced 150 by year end, now it's looking like 220 by year end. Why? We may well outperform the 220 by the year end. That's based upon the disposals that are announced now. So, it's possible that we do achieve further disposals by then. We decided that disposals were going well enough that we shouldn't wait longer for a share buyback program, and that the opportunity now on that is good, and that the amount is manageable. So we're confident to carry on reducing that RCF. Sales, as Minesh observed, are taking longer than often than the would have been the case in a hotter market, but still getting through.
We don't want to rush disposals and have a weak negotiating position on those. But we are progressing well. I think we've progressed very well compared to pretty well any other fund in the sector. Which it will carry on doing that. So I think we're confidently going to carry on getting that RCF reduced, which gives us headroom for other potential investment opportunities and still deliver a buyback program alongside it.
Thanks, Phil. And then on the theme of investment opportunities, with the disposal of Gode and the issues around uncompensated grid outages, are you pulling back from Germany?
... significant market for renewables deployment. All the forecasts show that, and the commitment in Germany politically to building out renewables, to decarbonization, to energy security, remains across the political spectrum. So we see, going forward, Germany continue to be part of our portfolio, and we'll continue to assess investment opportunities in Germany.
Brilliant, thank you. Chris, one for you on yield enhancements. So we showed on slide 21, the yield enhancement program. Are the enhancements available to the entire portfolio? If not, what is the likely impact of potential improvements on a whole portfolio basis?
Bit of a mix. Some of the enhancements are very technology-specific. Yeah, we had the solar inverter optimization, and clearly, that just applies to, you know, the solar projects. And some of the enhancements are turbine model- or turbine manufacturer-specific. Sometimes you can have a similar enhancement on different platforms. So we're always looking for those as well, and have secured a number of them. And yeah, sometimes doing an enhancement, if it's a physical enhancement, if you're able to do that on a large turbine, that's clearly much more cost-effective than doing it on a large number of small turbines. So there's a bit of a, you know, a cost-benefit balance there.
Yeah, I think that's one of our fundamental strengths. We can, we can pick the best enhancement for the best, you know, for the right project, and so always apply it, rather than just trying to take a, you know, a more general approach and apply all of the enhancements to all sites.
The newer, larger turbines might have some of these enhancements in the first place, albeit in years to come. I'm sure we'll find further enhancements to apply to those.
Indeed. So we typically on the blade enhancements, those are more focused on sort of five to 10-year-old blades. And a lot of those improvements are already inbuilt, or substantially within the brand new turbine. So yeah, a bit of a mix. So it's just being targeted on our approach.
Great. Thank you, Chris. So, I think this is the final question we've got time for, and we will come back to those we haven't answered online. I've just seen a number come in now. But if I could direct this to you, Phil. So in terms of future commitments and the development assets, when do these move from being valued at cost to being valued on a DCF basis? Is there an additional risk premium within the relevant discount rate applied to assets that are still under construction, such pre-construction? Are you able to quantify this in a basis, in basis points?
Okay, so we're carrying the battery projects at cost. I think as you get close to the end of construction, you'll probably move to DCF. We are testing them all by DCF anyway, which is what led us to make a small provision against the battery projects. And we're looking at pretty high IRRs for those projects. And the IRRs are different depending on which battery curve, which battery revenue curve you assume, and there's quite a difference between those. And we're on a lower curve. But we're still nevertheless, you know, above 10, in towards the low teens.
So, but we would agree that as you move them through construction into operations, see yield compression, and I suspect that a battery once operational would have a discount rate of maybe nine or 10. So, you would see a bit of compression as you go through that. I don't know if that answered the whole question at all.
Yeah, I think it does. I think it does, Phil. Thank you. So with that, that draws the presentation to an end. Thank you for all the questions in the room. Thank you for the questions online. We will endeavor to come back to you as soon as we can on those we haven't managed to get to. But with that, thank you very much, everyone.
Thank you.