Greencoat UK Wind H1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
July 30, 2025

Key Takeaways

  • Positive Sentiment: UK Wind’s share price is up 12% since last quarter and the company has implemented the sector’s first meaningful fee rebasing alongside a buyback programme extended to £200 million to help close the NAV discount.
  • Positive Sentiment: The sale of assets totalling £181 million at NAV this morning (and £222 million in eight months) will fund further buybacks, reduce gearing and preserve capital allocation optionality.
  • Positive Sentiment: Despite the first half having wind speeds 14% below budget, net cash generation reached £163 million and dividend cover remained a robust 1.4×, underlining portfolio resilience.
  • Positive Sentiment: Gearing is set to fall from 41.5% to below 40% once disposal proceeds are applied, while a 4.59% average debt cost supports attractive levered returns and manageable refinancing risk.
  • Neutral Sentiment: NAV fell by 7.8 pence—mainly due to a 7.3 pence hit from softer power price forecasts and swap mark-to-market—but 60% of future cash flows are fixed or inflation-linked, underpinning dividend security.
AI Generated. May Contain Errors.
Earnings Conference Call
Greencoat UK Wind H1 2025
00:00 / 00:00

There are 6 speakers on the call.

Operator

Good morning and welcome to our 12th half year results presentation. Thank you for joining us. We expect to run for around 30 to 35 minutes and to allow some time for Q and A at the end. Stephen and I will take you through the results shortly, but before we do, we wanted to make some remarks about the market backdrop and our response to it. It's encouraging to see share prices across the sector re-rating, with our share price up around 12% since the end of last quarter. There's further encouragement in that the sector is showing some signs of consolidation or exit to rebalance the supply of investment companies with today's demand. As of this morning, we remain at a significant discount to our NAV.

Operator

We wanted to reiterate that we and our board remain dissatisfied with where we are and we're fully aligned with shareholders to continue to improve the company's overall attractiveness against the market backdrop. We've always taken a long-term view in managing Greencoat UK Wind PLC and we're guided by taking actions that are in the best interest of our shareholders. Just to remind you, that includes being the first to agree an appropriate rebasing of our investment management fees, which is unmatched across the sector, being the first to start a material buyback program which has been extended to £200 million, and recognizing that as gilt yields rose, our return needs to adjust accordingly. We've also focused strongly on capital allocation and committed to appropriate asset disposals to fund it. We're pleased to announce this morning further disposals to continue funding our capital allocation program.

Operator

These disposals were once again at NAV, once more highlighting the disconnect between our share price and private market valuations of these assets. The sale of these assets, with a total value of £181 million, takes us to £222 million of realizations in the past eight months. We remain strategically opportunistic in assessing further disposals. The proceeds will support our buyback program, de-gearing, and in the medium term provide optionality to the business going forward. We remain active and committed to doing more to support the company's value proposition and to foster its re-rating. We'll now move into the results. Our half year results show resilience against the backdrop of some of the lowest observed wind speeds in the UK during the first half of this year.

Operator

Indeed, according to Desnes, the first quarter of the year was the least windy since 2010, and this was compounded by low wind speeds in April and May, with some recovery in June. This left us 14% below budget but still with robust dividend cover at 1.4x for the half year, demonstrating the resilience of the portfolio. NAV has also been impacted by under generation both cumulatively and in this period, and a softening of power price futures and forecasts. We'll address power prices in more detail later in this presentation. Gearing stands at 41.5% but is forecast to fall below 40% on completion of the disposals that we just mentioned, assuming all the cash is applied to repaying debt. The immediate increase in gearing reported in our results is partly a result of the decrease in NAV and movements in the markets of our swap valuations.

Operator

On to capital allocation, with the increase in dividends that we announced earlier this year, we've now paid £1.3 billion in dividends to our investors and reinvested £1 billion in the business. We expect to have further capital over the next five years of a similar magnitude to reinvest from future dividend cover. Our near-term capital allocation priorities remain clear and are supported by the disposal we've announced this morning. At the completion of the current program, we've bought back £132 million of shares, retiring around £10 million of forward dividends with an accretion to NAV. This and de-gearing are supported by the disposals that we announced in the medium term, and we'll look at this later in the presentation. We have to consider the appropriate allocation of our capital and grade it against the discount that we're trading at and the opportunities that we see in the market.

Operator

We do believe that opportunities do and will continue to exist that could compete with the value afforded by buybacks over the medium term, and we'll expand on this later in the presentation. The overall picture for the sector remains positive. We're starting to see a re-rating in share prices, and there's some progress on sector consolidation. We also now have certainty on government policy with regard to zonal pricing, which we'll touch on later. It's clear that wind continues to be the store to future UK renewable deployment. Allocation round 7 is in progress, and it's clear that wind will do the heavy lifting. Strike prices have now been published at an increase over allocation round 6 and the CfD term has been extended to 20 years from 15 years. We expect this will be supportive of the investment climate.

Operator

With the net return of 10% to shareholders at net asset value or 12% at the current share price, Greencoat UK Wind is well positioned to remain as the sector leader in terms of target returns, scale, fees, and the future investment landscape. Next, a reminder of the Greencoat UK Wind business model: it remains a simple business model. Buy wind farms, generate electricity, receive cash. With the cash we generate, we've now paid £1.3 billion of dividends to our investors, which is more than the size of some of the products in our sector. We've also increased our dividend by RPI or more in each of the 12 years since IPO, making us one of a handful of FTSE 250 companies who have done that since we IPO'd.

Operator

Crucially, our distinguishing feature is that we've also generated £1 billion of excess cash flow to reinvest in the portfolio by buying further projects, which supports our aim of preserving NAV in real terms. Looking at the balance of portfolio revenues, that remains on a discounted cash flow basis around 50/50 between fixed and floating. Over the next five years, 60% of our cash flow is fixed and explicitly linked to either RPI or CPI, which we think is valuable given the recent uptick in inflation. What I've just said about dividend cover and reinvestment is shown on the next slide, showing dividend cover of 1.8 times over the life of the product and the £1.3 billion of dividends and the £1 billion of reinvestment.

Operator

Also, a reminder of what we own: it's a diversified portfolio of 49 wind farms. It turns out that they're all in one zone as far as it matters. It's also a scale portfolio representing 6% of all UK wind assets, making us the leading financial owner of wind in the UK and the largest owner of UK wind assets in the field. There's further detail on the portfolio here, which I know is a slide that will be familiar to those who have followed the fund for a period of time. We've split it out across the regions that we operate in, asset types, turbine manufacturers, all of that. The only thing I'd tease out from here is age. The average age of the portfolio now is 9 years versus 5.5 years at IPO. Over 12 years, our assets haven't aged very much.

Operator

That just talks to the benefit of refreshing the portfolio with investment and recently, divestment. I'll now hand over to Steve to talk through financial performance for the half year.

Speaker 5

Okay, thank you, Matt. I'm going to talk through the financials. As Matt just said, the first thing to point out on the slide on dividend cover is we are comparing H1 2024 against H1 2025 and given the lack of additions to the portfolio over the last couple of years they're actually fairly comparable. What I'll try to do is highlight some of the differences. The first point is to mention that net cash generation was £163 million. This is despite the low wind speeds across the UK, which Matt has already mentioned, but also because of a softening of power prices over the first part of this year. Still, we have dividend cover of 1.4x, which shows the resilience of our business model.

Speaker 5

It's interesting to look at the net cash generation from 2024 because actually it's a similar number and you might be thinking, why is the number the same or similar to H1 2025 when it has had such low wind speeds over the first part of this year? The answer is availability. Availability this year has been very strong, which means that we've been able to capture the wind that we've received and turn that into power and therefore cash in order to show the strong revenue that we're showing here. Final point to mention on this slide is that we had a 20% higher dividend in 2024. That's largely because of an increase in the dividend that was paid in 2024 as a result of the very high power prices received during 2023 and 2022. Moving on to cash flow, the next slide, it's a pretty similar story before.

Speaker 5

Revenue is similar to last year, but with the lack of wind and lower power prices mean that we haven't. We've lost around £50 million there. EBITDA though is 75%, which is, we think, a pretty strong ratio. It's typical for these assets, which are very strongly cash generative. Just to tease out some of the other differences here, operating expenses, you'll see, are £12 million higher. That's principally as a result of higher inflation than we've seen this year and also because of some major component exchanges on some of our offshore wind farms. Tax is also slightly higher this year and that's largely a result of some catch ups in corporation tax from 2024 and a writing of the tax payments this year. You'll also notice that the SPV level debt amortization was slightly higher in 2024.

Speaker 5

The reason for that is that we received some one-off weight compensation payments which were used to repay debt. Final point on this slide is around management fees. As you will see here, the cash payment to the manager has been £1.8 million less during this period. That's on a cash basis. On a P&L basis, it's actually a £4.3 million difference, which shows that the changes that we made at the end of last year, which Matt's already referred to, are actually aligning us further with our shareholders and we believe that's a very important point for us going forward. Moving on to NAV, NAV is 7.8p down. This is primarily due to near and long term power prices softening, but also due to the mark to market on the swaps.

Speaker 5

The table and chart on the left hand side of this slide show this, but focus on the chart down the bottom left. As you'll see, net cash generation pretty much matches dividends and depreciation. This is because of the lower wind speeds and the softening of power prices during H1, but we still have this very resilient dividend cover of 1.4x. In terms of capital allocation, this half year we have bought 35 million shares at an average price of about 115p and that has added 0.6p to the NAV. In terms of some of the assumptions, we've already referred to power prices and we'll cover that in more detail on the next slide. That has led to a reduction in NAV of 7.3p. Inflation, we've seen it tick up and you'll see it here in the slide.

Speaker 5

If you look at RPI at the end of June, it was 4.4%. Mark to market, as we've already mentioned in terms of where we are in the swaps there, that's minus 1.4p. Onto power prices. The key thing to note about power prices is that they are a part of our strategy. Indeed, over the life of the fund, they've been part of the reason why we've managed to achieve 1.8x dividend cover, because they are part of the fund. We also believe that it's very important to publish transparently what our power prices are. You can see that in the top left hand side, the prices start today around £65 to £70 per megawatt hour and they trend down to around mid-£40s per megawatt hour before we apply a PPA discount as well as a capture rate or cannibalization, for some of you may know it.

Speaker 5

This as a result had led to a 7.3p reduction in NAV. We thought it'd be good to take a step back here just to recap on how we actually come up with our power price forecasts. In the very short term we use the futures market. This is where actual traded power is changing hands in the marketplace. We believe that is the best proxy for what we can expect to achieve in power prices over the short term, the medium and long term. We then use a third party market consultant who comes up with their power prices and we use that in order to forecast those medium and long term power prices.

Speaker 5

It's important to note that even that consultant in that medium term period blends in some of the future prices, so that there's always a view to not just a bottom up economic analysis, but also where power is changing hands in the marketplace. The next question is why are power prices down? In the short term, there's been some geopolitical headwinds which have resulted that the gas prices effectively are a bit lower at end of June compared to end of December last year. What would be interesting actually to see is that if we were to use power prices in the futures market this week, it would add almost £0.01 onto the NAV, which shows you there is some volatility there. In the medium term, power prices have been broadly stable and that's principally as a result of some project cancellations or potentially postponements.

Speaker 5

There's one particular project in allocation round 6 which gave back its contract a few months ago and I'm sure you'll know what I'm referring to. In the longer term, there's been a rebasing in here from 2023 to 2024 in terms of inflation and we're quite surprised to see that that hasn't resulted in a higher power price forecast from our consultant, especially given where inflation sits and the aforementioned allocation round 6 project which gave back its CfD because of the lack of power prices in the market. Also, it's interesting to note that under allocation round 7, the administrative strike prices for offshore and onshore wind have increased by 11% and 3% respectively, showing that the government shows that there is some pricing pressure for developers in the marketplace. Despite all that, the dividend cover is robust.

Speaker 5

If you look at the chart at the bottom left hand side, you'll see that down to almost £20 per megawatt hour, the dividend RPI linked is fully covered all the way through this period. Further, as Matt has already mentioned, but important to reiterate, there is £1 billion of excess cash flow that we can expect to be able to use for capital allocation over the coming years. We think that gives us some very interesting opportunities to maximize return for our shareholders. Finally, just another point to make. 60% of our cash flows between now and 2029 are fixed and with some linkage to CPI and/or RPI. Moving on to debt. Debt is additive, why our average cost of debt is 4.59% versus our unlevered discount rate of 9%.

Speaker 5

Therefore, that gap means that when we bring in leverage into the portfolio, there is a significant uplift in the overall returns we can offer our shareholders if that discount. If those debt numbers were to narrow, then you would start to question whether the debt is actually additive for the shareholders, given the risk that debt brings. For us, we're very, very relaxed. As of the end of June, we had a gearing level of 41.6%. With the disposal proceeds we've announced this morning, if we apply all of those to repaying debt, we would stand at 39.5%. In terms of the structure of the debt, you can see that in the top right-hand side of the text here. £2.26 billion of which £500 million is amortizing and relates to Hornsea One. The rest is RCF and term debt.

Speaker 5

We believe this is the best structure for us, giving us low-cost optionality and it is easy and flexible to change. Just as a side point, if we had no share buybacks over this last couple of years, that would mean there would be around about £100 million less on the gearing, which would be something like 1% lower gearing levels. That's not to say that the share buybacks are the wrong thing, it's just to show and highlight that capital allocation has trade-offs. We often get asked about refi risk and if you look at the chart at the top left, you can see some of the maturities and the coupons that we have in this structure.

Speaker 5

If we were to take as an example the next two maturities, which adds up to about £350 million of debt with a weighted average coupon 4.6%, and we were to think about refinancing it today, where we think rates are today, probably between 5%, 5.5%, and even if we took that top figure, 5.5%, we would end up with just £3.1 million a year in terms of extra interest costs, which we think are insignificant in terms of the overall size of our fund. Further, when we refied the £725 million last year, we had very, very strong support from our lenders. Indeed, we didn't need to go beyond the existing lender base, which shows how much they support us. Therefore, overall we're very comfortable with our debt structure and we believe it gives us the flexibility, along with the support from our lenders, to have a sustainable situation.

Speaker 5

I'll now pass over to Matt to talk about key themes before wrapping up and moving on to Q and A.

Operator

Thanks, Steve. Now that we've been through financial performance for the half year, I thought it better to just zoom out, not for the camera, but to a wider lens, just to look at the market context. We have a slide here on the developments in the UK wind market. I think the overall message is that wind remains the core renewable technology in all future system scenarios. You can see the scale of build out needed from the chart in the top left and that's material that's roughly three times the existing offshore capacity and almost twice the onshore capacity. For us, that's a really huge part of the market. That could be £170 billion of new assets to aim at. The market opportunity for us is frankly vast. We also have clarity on policy.

Operator

We've spoken to many of you about the review of electricity market arrangements and the government has now ruled out a zonal pricing mechanism. We and other generators in the sector felt that if you introduce a zonal market and you didn't do it in the right way, with the right commitments for owners of existing assets, that could lead to uncertainty in the investment community, which in turn could jeopardize the outcomes of Clean Power 2030. We're pleased to see that zonal market's been ruled out. There's more to do. National market reform is also something that we'll continue to engage with our peers and with government on to ensure that we get a good outcome for both consumers and investors. Overall, I'd say this policy development is positive for the investment climate in the UK for wind. We touched on allocation round 7 earlier.

Operator

As Steve mentioned, the strike prices are there, they've increased versus allocation round 6 and we know that the Contracts for Difference term for allocation round 7 assets will be 20 years instead of 15. There are some other important ingredients that of course we don't know, most notably the overall budget. We think that there's good basis to believe it could be an attractive auction round. I'd say overall recent policy developments are favorable for the investment climate for wind in the UK. I also thought it was worth just to zoom out and talk a little bit about the work that we do on a day-to-day basis on our assets. We touched on this in our capital markets day in May last year and I think it's such an important part of what we do that it's worth re-articulating.

Operator

There are three key limbs to the work we do on managing our assets. Generation, so maximizing the number of hours we get from our sites, both in the short term and also in the long run. Revenue, so optimizing what we get paid for the units we produce. Whilst, as Steve mentioned, it's less a part of the overall net cash flow factor, operating costs are important, far less sensitive than revenue. There's still quite a lot that you can do to drive efficiencies in terms of making sure that our sites are available to generate and getting the most out of them. Availability has been a strong feature of ours. Whilst we haven't had the wind that we would have hoped or expected, our availability has been really good despite some outages at some of our sites.

Operator

To talk about what we do in terms of improvement, there's a number of things that you can do to wind turbines, and many of you who follow this sector will be aware of these things. Physical upgrades is one, and you can see that in the bottom left there. It simply fixes two blades to allow you to capture more energy from the same amount of wind. There's also a lot of technological development in terms of the efficiency of how the turbines operate, and in particular, having them operate at higher wind speeds than originally projected without compromising the long term life of the assets does add a material amount to the wind that you can capture. We should also talk about longer term optionality. Whilst we've got a predominantly young portfolio, it's less than a third of the way through its life on average.

Operator

We have some older assets where we start to think about life extension, repowering, and not exclusive to older assets, but also site extension by perhaps adding turbines. There's no universal rule here. I think often repowering is spoken of as something that's going to work for every single site. We don't think that's the case. Before you can get to repowering, you also have to consider that if you do it before the end of an asset's useful life, you're giving away the cash flow you could get from generating, and you have to take that into account in the calculus of whether it works from a returns perspective. Frankly, not every site is suitable for repowering. If you have a smaller, older site, you're probably going to need quite a lot more land to develop a modern, bigger site.

Operator

You need to space out the turbines more, and you may not have the right size of grid connection to repower it. That said, there are some assets in our portfolio where we're starting to think about the longer term optionality of extending leases and perhaps in the future repowering. It's a side by side assessment. In the last year we've made quite a lot of progress on securing land rights and securing lease extensions across a number of our assets. We also continue to work quite hard on life extension of our assets just to get more out of the assets in terms of time as well as the revenue optimization that I mentioned earlier. Model failure rate of our turbines in their 30th year of operation is somewhere around 1 in 10,000 if you have the appropriate levels of forward maintenance.

Operator

That's something that we pay a great deal of attention to. There's scope for operability beyond that. Also, around existing sites that you have, you can see extension opportunities. It tends to be that the easiest place to get planning for a new wind farm is next to an existing wind farm. It has to be spaced out appropriately. You need land rights. We look across the portfolio and we see a number of extension opportunities and we'll continue to explore those. Frankly, all of this is about the day to day work that we do, but also thinking about the longer term and creating long term optionality at frankly not very much cost. That's the business that we're focused on with asset management. Capital allocation is obviously important in today's climate. The first thing to reiterate is dividends have always come first.

Operator

We've paid an RPI progressive dividend for the past 12 years, as we said before. Beyond that, we generated £1 billion to reinvest. We expect a similar amount over the next five years assuming at par performance. That's capital that we can use to allocate. We also have, of course, today the proceeds of the disposals we've announced, so £181 million. That supports our near term priority, which is the completion of our second £100 million tranche of buybacks as well as de-gearing. Beyond that, I think it's worth looking at capital allocation over the longer term. It's pretty easy to work out what you think the return is from buying your own shares back at a discount.

Operator

If you have a net return of just above 10% as our fund does on NAV, you buy your shares back at a 20% discount, you have 10 divided by one minus the other, you get to 12.5% return. That, on the face of it, looks fantastic in terms of investment opportunity. Presumably you like the assets that you're buying, you're rebuying in the same portfolio, otherwise you wouldn't own them. We think there's a piece missing from the economic calculus because every time you send a pound out of the company, you make the company smaller. Unless you've done something to your debt, then the next day it's exactly the same amount. I think it's worth reconsidering in the medium term what the returns from buybacks actually are.

Operator

They clearly have a place in supporting our share price and they've been useful to us and will continue with the rest of the program that we have for sure. If you take into account making an investment of a pound, that's 12.5% return, you also have to take into account paying roughly £0.40 off of debt for every pound that you spend. For us, that marginal rate of debt investment is around 6% around the cost of our RCF. When you merge together the returns of those two instruments, it isn't the 12% that you started with, it's more like 10%. Depending on your discount it could be as low as 9%. We've shown that in the chart at the bottom.

Operator

If you look at where the green line intersects with say buying an asset at a 10% IRR, as you trend in with discount, it starts to be more and more compelling to buy assets. All of this really is for the medium term. It's just a point that we wanted to land around how we consider the calculus of buybacks. We do think there will be investment opportunities. There's a lot of projects that are going to get built under allocation round 7. There'll be a lot of recycling of existing projects to allow the equity to build projects in allocation round 7. As I mentioned before, we have some interesting opportunities in our own portfolio. We look at this over the longer term and ask our shareholders just to think about the benefits of alternatives to buybacks.

Operator

Of course the benefit of reinvesting is that you get to keep the cash inside the company. That further supports an RPI progressive dividend and preservation of NAV in real terms. I've ended on returns there. I mean returns are really, that's what the attractiveness is or should be. Our portfolio levered discount rate is unchanged to 11%. At a 15% discount that would be 12%, 12.5% as we said before. If you look at the 10 year gilt today, it's 4.6%, 4.7%. Given that our investments also come with explicit inflation linkage on at least half our cash flows, and as we mentioned earlier, for 60% for the next five years, I think that's quite a valuable attribute to the fund given that we've seen an uptick in inflation over time. Last and by no means least, a word on ESG.

Operator

Sustainability and long term value creation, they go hand in hand. We've published our ESG report that's available for you to view on the website. We published it in April 2025, and you'll have all the details there of the good work that we do in communities, the amount of carbon that we abate, the homes that we power, and that's a really good read. It's there for you to look at, I think. We'll just end with a few closing remarks before we open up to Q&A. In summary, our dividend cover remained robust against very low wind speeds. We made quite a lot of progress on asset disposals, and we've been very clear on capital allocation. All that lands against the backdrop of, I think, legislative clarity and political support for wind.

Operator

We know there's a lot to do to improve the attractiveness of the company and we'll keep working on that very hard. We'll now hand over to our call operator to take questions from the conference call. After that, if there's time, we'll address any questions that have been submitted through the webinar portal.

Speaker 3

Thank you very much, sir. Ladies and gentlemen, if you'd like to ask an audio question, please press Star one on your telephone keypad and just make sure that your line is not muted. Our very first question is coming from Alex Weaver, calling from RBC. Please go ahead.

Speaker 3

Morning. Can you hear me?

Operator

Yes, thanks, Alex.

Speaker 3

Your line is open, sir.

Speaker 3

Perfect.

Speaker 5

Morning.

Speaker 5

Three questions from me, please. First one just on policy. The end of zonal pricing debate, clearly a big tick in the box. How are you thinking about reformed national pricing and how that may go? Do you have any indications at the moment about how that may look or the impact it may have? My second question is just a confirmation, really. Just can you confirm that you're happy on current P50 estimates following the revisions that you've already done and just confirming that you're happy with where you sit in terms of budgets? My third one is just following the conclusion of the recent disposals at NAV. Would you see any value in further disposals given the current discount? Thank you.

Operator

Thanks, Alex. Good to get not one, not two, but three questions out straight away. As it comes to policy, yes, the end of zonal, as we said, I think is a supportive move for the investment climate. As we said before, we and other generators made a very clear case to government around maintaining the attractiveness of this market and the landscape of certainty. I think that's been listened to and honored. That doesn't mean that the discussion is over. It's pretty clear that the other alternative review of electricity market arrangements is a reform national market. Frankly, I think a lot less work has been done on that given that the focus had been on zonal. We await detail to emerge, but when it does emerge we will be engaging with government on it as we have in the past.

Operator

I think the main risk is how you express locality in a reformed national market. That has to be at the core of what happens. That could happen through a rerating of network use of system charges, and that I think will be the thing for us to engage on. Anything to add to that, Steve?

Speaker 5

It is clear to see from the government's decision on zonal that they have respected the rights and protections of existing generators. I do believe that any changes that will come to national market reform would also follow those same principles as well. As Matt said, we'll be very involved in that directly, but also working with other stakeholders and peers across the industry to make sure government hears the needs and desires of shareholders. Whilst there is still some uncertainty, it's less than under zonal and we believe that government are very much aligned with supporting the current generators, but also making sure that the investment environment is attractive so that they can continue attracting the £40 billion a year that they need every single year between now and 2030 to meet their clean power 2030 marks.

Operator

Alex, your second question was on our P50s and our generating budgets. As we spent a great deal of time talking through this in January and in our results presentation in February, the exercise that we did in the run up to December was full and holistic across our portfolio, including working with a third-party consultant. We're happy with the work that we did. We think it was right, we think it was appropriate. We spoke in detail about the changes that we made. We're happy with those budgets. It's obviously frustrating that having reset that, the first half year that follows it leads to a period of underperformance from wind, but it is an exceptionally low wind speed period. I think that just to take the question head on, the question is always there, is this a trend? You do have periods of wind speed.

Operator

If you look back to the 1990s of over and under for five years, we're in a period of under wind speed. Whether that means that there's systemic change or something climactic happening, I think, frankly, is unknowable. It's something that we've started to explore as consultants, but it's pretty clear when you get into the analysis that it layers uncertainty on top of uncertainty. There's uncertainty in climate modeling, there's uncertainty in wind yield estimation. You put two together, there's frankly no real firm outcomes that we are able to draw. It's something that we're cognizant of, it's something that we'll be talking more about, but for now we're happy with where we are in P50s. Your last question, Alex, was on disposals.

Operator

Given where we are, given that we can sell our assets at NAV, as we've demonstrated repeatedly, I think, yes, there's a case for continuing to remain strategically opportunistic when it comes to disposing of further assets. We've set out pretty clearly what we think we could do in the medium term in terms of capital allocation. Our first priority, of course, is completing the share buyback program that we have, which we're well funded to do, and de-gearing, both of which we've mentioned in some detail today.

Speaker 5

We have an investor roadshow coming up where we'll speak with many of you, and we'd love to hear directly your views on this. We will engage with you over the coming weeks and months. Obviously, the capital allocation program will remain dynamic to the feedback and wishes of our shareholders.

Speaker 3

Thank you.

Speaker 3

Thank you.

Speaker 3

Thank you. Question, Alex. Our next question will be coming from Ian Schuyler of Stifel. Please go ahead. Your line is open, sir.

Speaker 3

Good morning. I've got a couple. Just firstly, on the power price and the 7p impact, can you just sort of split that out between what was below expectations during this period? I mean, I think you're saying you got a catch price of £77.65 against a market price of £88, and how much of it is related to sort of short term curve, longer term curve? The other one is just the 10% increase in the OpEx. You did sort of touch on that, but again, can you just give us a bit more detail around that, because that's quite a big move.

Operator

Thanks, Ian. I'll take the power price question, leave Steve to give a bit more detail on operating costs. Looking at the overall move in power prices, it's around 3p from the front end of the curve and 4p from the medium to longer term end. You can observe that front end part by looking at 2025 and 2026 futures back in December versus the 30th of June, which, as Steve said, that's when we cut our NAV. The 4p in the longer run is partly down to inflation expectations manifesting into real 2024 power prices and also a reset of gas and commodity prices. Those are the key ingredients that go into the forecasters' model short run.

Operator

As Steve said, if we were to redo our NAV as of last night, that front end part of the futures curve would lead the NAV back up by a penny or so. It's a moment in time. We obviously understand that it's not great for your power prices to go down. We do have that exposure. Over the long run, our model remains good, it's intact. Our business, our dividend cover going forward, still down to £20 a megawatt hour, is there and covered and still plenty of excess cash flow generation to expect. Steve, thank you.

Speaker 5

On OpEx, there are a couple of points I mentioned earlier around inflation and some extra component exchanges in our offshore assets. In terms of the inflation, the way that the contracts work, they're typically looking a year behind, and what we're seeing in the beginning of this year is the very high inflation that was experienced during 2023 and 2022 catching up in terms of the OpEx contract. As we all know, inflation was running into double-digit numbers, and that is now reflected in the costs that we see. In terms of the offshore component exchanges, these are specific programs that we had, they were budgeted so we knew about them and didn't come as a surprise. One of them was known when we actually acquired the asset as well.

Speaker 5

These are known figures that we were always planning to spend, and it's just part of the prudent management of operational wind farms.

Speaker 5

Thank you. If you stripped out that component exchange, what would the increase in OpEx be?

Speaker 5

Sorry, can you just repeat the question?

Speaker 5

If you stripped out the offshore component exchange, if you hadn't done that, what would the increase in OpEx have been?

Speaker 5

Okay, I don't have that exact number, Ian, but how about I get back to you separately if that's okay.

Speaker 5

Okay, thank you.

Speaker 3

Thank you. Next question will be coming from Adam Kelly of JP Morgan. Please go ahead.

Operator

Hi, good morning. I just wondered, with the sale of the Hornsea One Wind Farm stakeholders to another fund managed by the manager, was that externally marketed as well? Was that something that was considered in.

Operator

terms of looking at the valuation for that sale?

Operator

Related to that, it says in the statement, Schroders Greencoat's got £10 billion of AUM. What of that is private funds with a comparable mandate that could potentially acquire other assets from Greencoat UK Wind were it to sell? To what degree does that fund have cash available to buy assets? Thanks, Adam. As we've said, we've sold two interests of roughly 1% in Hornsea One. This is something that we had externally marketed for a period of time last year and we were pretty close to the altar of a transaction price agreed and for idiosyncratic reasons that didn't happen. That left us with, in effect, a whole load of external due diligence that could be relied upon that had already been prepared.

Operator

If you like, a shrink wrap transaction that then happens to align with inflows into two mandates in Schroders Greencoat that do have an overlapping investment mandate with Greencoat UK Wind. Just to be clear, Greencoat UK Wind retains its priority allocation of all wind investment and that's frankly how the marriage happened. We're obviously a regulated manager. We obviously understand how conflicts work and separation of function. We have a board, we have a private markets investment committee. We also had in this case external transaction valuation validation. I think we followed exactly the right process and we're very comfortable with it on that basis. To answer your broader question, yes, Schroders Greencoat has around £10 billion in assets under management.

Operator

It has in the past had quite a few mandates that could co-invest with Greencoat UK Wind and we've done that on several of our investments in Burbo Bank, London Array and others, for example. That part of our business has always been additive to how Greencoat UK Wind goes about deploying assets. This is the first sale that we've done to another mandate. There is some available capacity from some of the funds. I probably shouldn't mention which ones, so I won't. I think more broadly, looking forward, this transaction lended itself well to both the buyer and the seller. I wouldn't think that it's necessarily something that we'd go and repeat. It was a moment in time and it worked pretty well. We're not reliant on other money coming into Schroders Greencoat into other funds to conclude our divestment program.

Operator

Indeed, the other disclosures that we've done have been to third parties who have done their own diligence and made their own investment decisions.

Speaker 5

Maybe just one small point to add in terms of the sale to the Schroders Capital managed fund, there was an external valuation by an external provider, which helped provide that arm's length valuation. We were very comfortable with that. The buyer was very comfortable with that, and I think that should give our shareholders comfort too.

Operator

Thank you, sir.

Speaker 3

Ladies and gentlemen, as a reminder, if you have any questions or follow-up questions, please press star one at this time. We'll now move to Connor Finn. Colleague, remark. Please go ahead.

Speaker 3

Yes, talk through the process for the reassessment of the P50 numbers. I mean you obviously did it for the FY2024. You obviously referenced using third party consultants. One of the things that was referenced at the time was the addition of more recent years bringing the long term average down. Should we assume then if 2025 carries on as it has in the first half that there will be a further reassessment at the year end?

Operator

Thanks, Conor. Good and fair questions. There's no particular pattern of behavior between the type of assets that we operate. We have experienced more dispatch down in our Northern Ireland portfolio than we did last year, but that was already something that we budgeted for when we set our 2025 budget. Beyond that, I think there's no frank rhyme or reason. There are some sites that have had less than budget availabilities. You mentioned forward looking at energy yield and the work that we did in the run up to December last year. I'm happy to recover that. The process was to align the correlation period for all of our sites to the maximum data set available. When you acquire sites along the way, you acquire them in 2017, 2018, 2019. Their correlation reference set is a period of time going back roughly 20 years.

Operator

If you get to 2024, you've now got 26 years of data. We thought the right thing to do is to rebase all of our analyses. Using the on-site generation that we have and that track record, and then using the longer term 26-year data set as a correlative point and having that consistent across the portfolio, that's the work that we did. Given that, bringing in those additional years, just to use the cartoonish example, from 2017 onwards that's been a period of time where wind speeds have generally been a bit lower than long-term averages. You bring in a third of your time at lower than average and you add it to par, and then of course your overall average goes down.

Operator

That would be exactly true if we redid all of this analysis at the end of this year, and this year was, I don't know, pick a number, minus 10%, minus 15% in terms of generation from wind, but that would only be 1/27 of the data. That's the point about having the long term. If we did repeat that exercise, and we're not really proposing to, given that we did this fulsomely and holistically and with a third party, quite a lot of time and financial expense to do it, revisiting it after another year is probably not the right methodology, but users will be able to read across the relative difference that, say, -10% for one of 27 years can bring to the long-term average. I hope that helps, Conor.

Operator

Yes, thank you.

Speaker 3

Thank you. As we have no further audio questions at this time, we turn the call back over to the host for any webcast questions.

Operator

Thank you.

Operator

We do have some online questions here and I'll try and group them together where I can. Three questions here on capital allocation. It appears that Greencoat UK Wind PLC is missing a once in a lifetime opportunity to participate in wind build out plans for the UK. What are our plans to participate alongside that? How are we looking to grow in the future if we keep selling assets and reinvesting by buying back shares? Are we looking at new areas for investment including going into Europe? Finally, will you stop the buyback and use the cash to grow as neither the 8% dividend yield nor buyback seem to be rewarded?

Operator

Thanks, John. There are some good opportunities, I think, in the market now. If you think about just the magnitude of capital that's needed over the next two to five years to build out new assets, as we estimated, £150 billion to £170 billion, you could be 10% wrong and it's still a huge number. You need all of that equity and debt to be raised, but then probably to get there, some of the participants will need to sell other assets to have the equity in the first place. I think there is a decent buying opportunity, but we always have to look at the returns that we can generate from the capital that we have available to us.

Operator

Our near term priority has been to buy shares back and that has been additive to our NAV and to get both of those things we've spoken a lot about today. For now, the near term opportunities are there. Do I think that is suddenly going to evaporate if we're not in the market for buying assets for three, six, or nine months? No, I don't. I think the opportunity will be there and enduring given the magnitude of capital that's needed to say it's the government's desire for further wind build out.

Speaker 5

It's probably worth mentioning even the assets that are going to win in allocation round 7, none of them will reach FID the day afterwards. It will take a while for them to actually start construction and then become operational. Even if you just look at allocation round 7 in isolation, the investment opportunity for those assets will exist for anywhere between six months to five years in terms of going in at the very beginning or going in at COD. We think there's plenty of opportunity there. It comes back down to capital allocation. What is the best way that we can use the capital we have available to maximize the return for our shareholders? Matt touched on it earlier on and we'll talk about it in the investor meetings we have upcoming over the next couple of weeks and months.

Operator

I would probably take the next two questions together. They're kind of different versions of the same thing. How do you stop shrinking? Same as how do you start growing? We've set out here today the considerations that one should have in terms of medium-term capital allocation priorities. It's obviously dynamic to the share price, but we do see in the medium term there will be opportunities where it will make more sense to reinvest in the business and to buy back shares, unless, of course, our discount remains very, very wide. You can see that from the capital allocation chart as to where that money would go if we were reinvesting. There's an ocean of opportunity for us now, both within our own portfolio and externally.

Operator

We wouldn't have to extend our investment to Europe into a different currency and different market regimes to satisfy spending the capital that we could have. For now, it's Greencoat UK Wind, and that's how it remains.

Speaker 5

final question was around stopping those share buybacks as well. The clear direction is to continue with the share buyback program. We've announced that we wish to complete it, and that's the clear direction that we will follow over the coming months.

Speaker 5

The next group of questions are really around the dividend and how we present some of the numbers. There are three here. If you amortized your debt like peers, what would the dividend cover have been? Would it have been uncovered? Does the dividend cover sensitivity slide on page 11 assume that you generate in line with your P50s? What will happen to dividend cover when the ROCs gradually run off in the 2030s?

Operator

Thank you. We have set out very clearly many times what our approach is to debt and our debt structure. We are completely convinced, as is our board, that that is the right structure for a business of our size. If you think of the next set of maturities to be refinanced, Steve said the refinancing risk, we feel, is relatively low, and the cost of refinancing our debt today is relatively minimal. The flexibility that we have means that if we felt we wanted to, we could switch to amortizing debt. The impact that that would have on dividend cover depends upon the term over which you amortize the debt and the rate that you secure. It is also a bit like your mortgage. We are assuming that we are paying the amounts that we are paying in interest on all of our debt now forever.

Operator

If you amortize it, your first period payment has a little bit of principal in it and your second mortgage payment has a bit more. Over time, it is not quite as impactful as people would think. I would guide, depending on the rate you refinance at and the time that you stretch it over, 0.2 to 0.3 times on dividend cover probably is roughly the sensitivity that you would have.

Speaker 5

It is probably just worthwhile reiterating that almost a quarter of our debt is already amortizing in the sake of the £500 million, the £500 million that we have associated with Hornsea One.

Operator

Yes, there was a question also on dividend cover and our sensitivity to power prices. Does that assume that we generate a budget? Yes, it does. That falls out of the NAV. The NAV assumes that we generate a budget. Whether that is or isn't the right assumption we've addressed. We've answered Connor's question on the P50 work that we did on the entry volatility of wind. Like you, we're somewhat disappointed that the first half of this year has underperformed in terms of wind. Yes, it is based on our NAV model and dividend cover in terms of ROCs. This is why we publish out a reasonable period of time. It's not like tomorrow all of our subsea instruments end. It's not like there's zero we can do about it. We have the ability to trim and prune the portfolio.

Operator

We also have the ability to enter into fixed price PPAs. We're going exploring that on two of our largest assets now. We feel, and our lenders are comfortable with us having plenty of optionality to maintain the right revenue division over the time of these assets, and that.

Speaker 5

Trimming and pruning of the portfolio can include us going after May 7 assets which would have 20 year CfDs as well, which would presumably be very attractive for us. We're constantly looking at that, constantly looking at what is the optimal portfolio that we can hold in order to have that balance between fixed revenues and some upside from power prices too.

Speaker 5

A couple of very quick numbers questions. We talked about the cash flow in Q1, sorry, in the first half being down £50 million and 75% of that being due to wind. What was the other 25%? Can you say how many pence is in the NAV for REGOs following the update?

Operator

Do you want to take the first question, Stephen?

Speaker 5

As we've talked around, the vast majority of the reduction in budget that we've seen has been from wind speeds that we've experienced, and in fact the whole industry has experienced, not just in the UK, but across Europe. There's been 75% of that reduction. The other 25% is principally because of a softening of power prices during H1.

Operator

Another part of that power price is also the manifestation of REGOs. Just a word on REGOs. In 2023, they were trading at between £10 and £20 a megawatt hour. That's not something that if you're valuing your assets properly, you can afford to just ignore. We included REGOs and that was the right thing to do. The way that we value REGOs going forward is based on, again, a market consultant's projection. REGO prices have fallen materially over the last 18 months. It's partly driven by a lack of demand from consumers, both industrial and retail, for green tariffs in effect. That has led to the reduction that you've seen in this half year. On an enduring basis, REGOs are now almost a rounding error in valuation. There may be £1 a megawatt hour for a decent period of time.

Operator

On an NPV basis, it's 1.2, 1.3p, something like that. In effect, we don't expect to have much variability from REGOs going forward, given that they're not a significant part of the equivalence valuation today.

Operator

There's a quick question here on divestments. How come these all happen at net asset value, NAV? It seems coincidental. Shouldn't some of these be either at a higher or lower price?

Operator

It all depends how you approach the divestment process. We've been very clear on this. We felt that in a market where one could say it's perhaps a buyer's market for some things, the best way to form a transaction is to work with somebody bilaterally, to identify the thing that it is they are looking for to buy, to see if that aligns with what you'd like to sell. If you have high confidence in the person that you're working with, you then pretty quickly can get to a transaction where you've got a high degree of confidence. The easiest way to make that go forward is to say the price will be NAV. That's what we've done in all four of the divestments that we've had. We've agreed that that's the price. I think that's the better thing to do. It's led us to getting these things done.

Operator

I think in the future, if we look at divestments, we would consider a more externally marketed approach where, frankly, the price is an open discussion. Probably, yes. In the time that we've had to date to deliver what we've delivered, this was the best way to get things done. I'm entirely comfortable with the process and the outcome, as is our board.

Operator

Just the final two questions here on investments, capital allocation. Firstly, would you consider construction or development stage assets, especially in the context of the hurdle return versus buybacks? Secondly, are there any plans to co-locate battery storage on wind farms to enhance revenues and profitability per site?

Operator

Sure. Greencoat UK Wind PLC can invest in construction assets as a limitation, but it can. We haven't felt the need to to date, given that we felt the risk reward ratio was actually skewed in favor of owning operational assets, and construction premiums got really kind of chased away. You were forced to take a decent amount of risk for, frankly, not much reward. Both Steve and I have spent a lot of our careers investing in construction and development assets, so we know how it's done. Given the ocean of opportunity in our core market, we don't particularly see a need to go into those assets at the moment. A lot of the construction opportunities are going to be in offshore wind. I think there's quite a lot of risk there that you've seen in some of the listed companies in this space.

Operator

For now, there's enough opportunity in the things that we look at, and there's enough opportunity in the portfolio actually that I don't think we need yet to look at construction and development.

Speaker 5

No, I think that's right. I think the only probably point to mention is that we remain open minded to it, and if a great opportunity came along that really made sense in terms of investing construction, we would consider it. It's not something which we desperately think we need to pursue today.

Operator

Onto my favorite subject of batteries, we don't yet see the case for hybridization with battery storage of sites to include batteries at wind. I think it makes a lot more sense for solar. The generation pattern of wind when the wind blows is that it's windy for 24, 36, 72 hours. If the idea of a battery is to capture that arbitrage between lower power prices during windy periods of time and better power prices during less windy periods of time, you'd need quite a big battery to do that. Given that a decent part of the revenue stack for batteries is that optimization, is that trading, we don't yet see the case, but these things change. They're dynamic, right? It's something that we in the Board continue to reassess over time.

Operator

For now, I think it makes a lot more sense for solar, and batteries on a standalone basis are just nowhere near UK wind. I think if I'm right, that is all of the questions both on the conference call and the webinar answered. Thank you all for dialing in and for your thoughtful questions, and we look forward to seeing many of you on our roadshow in the next couple of weeks. Thanks for joining.

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