Greencoat UK Wind H1 2026 Earnings Call Transcript

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Provided by Quartr
July 30, 2026

Key Takeaways

  • Positive Sentiment: Strong first-half performance: Net cash generation rose 36% year over year to £222 million, supported by generation 4.9% above budget and higher realized power prices. Dividend cover was 1.9x, and management expects to reach the top end of full-year cash-generation guidance with at least 1.7x dividend cover.
  • Positive Sentiment: UK Wind said its self-funding model leaves roughly £250 million available for investment, including £73 million of additional cash on the balance sheet after dividends, debt repayment, and buybacks. Management forecasts approximately £1 billion of excess cash for reinvestment from 2027–2031 while maintaining CPI-linked dividends.
  • Neutral Sentiment: The company refinanced £200 million of term debt with six- to eight-year maturities and repaid £54 million during the period, but gearing remained above its self-imposed limit at 41.7%. Management expects natural debt amortization and asset growth to return gearing below 40%, while noting that refinancing support from lenders remains strong.
  • Positive Sentiment: Management sees substantial reinvestment opportunities across its 49-asset portfolio, including additional stakes, life extensions, upgrades, repowering, and new construction or late-stage development projects. It expects to allocate roughly £500 million–£600 million over the next three years, while maintaining investment discipline and avoiding a strategic shift into other technologies.
  • Neutral Sentiment: Power-price volatility and merchant exposure remain important variables; the company hedged about 1.5 TWh year to date and is targeting an approximate 50/50 blend of fixed and floating revenues. Management also flagged uncertainty around long-term wind-resource impacts from climate change and acknowledged that repowering economics will vary significantly by site.
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Earnings Conference Call
Greencoat UK Wind H1 2026
00:00 / 00:00

Transcript Sections

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Matt Ridley
Partner at Schroders Greencoat

Welcome to our 14th half year results presentation. Thank you for joining us online today. First, some housekeeping. We'll run for around 20 or 25 minutes, and we'll allow some time for Q&A at the end. John Musk will moderate that, and the operator will explain how to lodge a question. There's a disclaimer at the end of the presentation, which we draw your attention to, but encourage you to read on your own time. Steve and I will now take you through the results. Before we do so, I wanted to give an overview of the areas that we'll cover and make some remarks about the market and the sector. The first half of 2026 has shown the strengths of UK Wind's business model. Operational performance has been robust with generation 4.9% ahead of budget.

Matt Ridley
Partner at Schroders Greencoat

Cash generation has been strong, and we've benefited from favorable power prices. Dividend cover was 1.9x, and we've continued to strengthen the balance sheet through refinancing, which Steve will take you through, and further repayment of debt. Most importantly, the company continues to generate surplus cash beyond the needs of its dividend, as it has done over life. In today's market, we think that's an important distinction, and let me explain why. In our last two sets of results, we highlighted the imbalance between the number of listed renewable infrastructure vehicles and the level of investor demand for the sector. We suggested that further rationalization was likely, and since then, we've seen that taking place through asset sales, strategic reviews, and other corporate activity across the sector. As those developments unfold, the distinction between business models has become clearer.

Matt Ridley
Partner at Schroders Greencoat

We believe the strongest propositions combine three characteristics: an attractive investor proposition at meaningful scale, a self-sustaining model that generates excess cash for reinvestment, and low execution risk. Increasingly, investors are distinguishing between companies that already possess those attributes and those that need a transformational pivot or access to external capital, significant asset rotation, or other features to get there. Those features often come with significant execution risk. In our view, UK Wind has a relatively advantaged position in that landscape. We already own a large portfolio of operational assets generating cash flow today. We already have scale. We already able to fund investment organically. We've generated GBP 1.1 billion to reinvest alongside paying GBP 1.5 billion in dividends to our shareholders. UK Wind has a clear pathway to enhancing its future shareholder cash flows without relying on external equity or a transformational pivot or undue execution risk.

Matt Ridley
Partner at Schroders Greencoat

Put simply, we feel that many in our sector have quite a lot to do, and in some cases with quite some risk, to achieve outcomes that we already have today. That matters because the opportunity ahead, for us at least, is significant. Electrification continues to grow in the U.K., and that demand will more than likely be met by a lot of deployment of renewables, especially wind. We also see increasingly opportunities within our own portfolio for us to invest in. Businesses that have capital to deploy existing operational assets and the ability to fund investment organically are particularly well-placed to benefit from that environment. We'll come back to those themes later in the presentation, but the key point is a simple one. UK Wind remains a self-sustaining proposition, capable of funding both distributions and reinvestment from internally generated cash flow.

Matt Ridley
Partner at Schroders Greencoat

To the results, which Steve will talk through.

Steve Lilley
Founding Partner at Schroders Greencoat

Thanks, Matt. I'll talk through the financial and operational performance of the business in this first half year period. It's been a very positive start to the period, with GBP 222 million of net cash generation, which is a 36% increase on last year. That's predominantly been driven by above-budget wind speeds and also some higher power prices received. Dividend cover has been 1.9x, a very solid result. Actually, with the cash already received during July, the dividend is more than covered for the whole year period, which I think is a great result for shareholders. NAV growth has been modest but stable, and we have a portfolio IRR of 11.5%, levered IRR. That implies a net return to shareholders of above 10.5% after taking into account our fee structure of 0.8%. Where does that leave us for the rest of the year?

Steve Lilley
Founding Partner at Schroders Greencoat

In terms of our guidance on the next slide, this positive start to the period means that we can be happy to say that we're on course to be at the top end of our guidance for net cash generation and the dividend to be on course to be at least 1.7x. We think that's a really good result for the business and leaves us with a significant amount of cash to deploy over the coming months. About that cash, onto net cash generation. U.K. Wind always has been and always will be a high-margin business. That means revenues are really important. That's good news because in this half year period, revenues have been very, very strong with a 15% increase from this time last year.

Steve Lilley
Founding Partner at Schroders Greencoat

Again, that's predominantly driven by higher-than-budgeted power generation, where we have seen a reversal of the trend from -14% this time last year to +4.9%. Higher realized power prices have also played their part. Just picking out a couple of other points on this graph would be to look at the tax position. It looks like we've paid more tax in this period, and from a cash point of view, we have. Actually, that's just a result of some payments that should have been made later last year, but actually fell into early this year as well. The other point to note here is that you're starting to see the change in our fee structure to be on the lower of market cap and NAV starting to take account in terms of the cash savings to shareholders with a significant reduction in the fee paid to the investment manager.

Steve Lilley
Founding Partner at Schroders Greencoat

Moving on, we've generated GBP 222 million net cash this year, and that's part of the GBP 2.6 billion worth of cash that we have generated for shareholders since IPO. Firstly, a quick observation. UK Wind has a structurally high dividend cover. That allows us to have the cash available to allocate in order to grow the business going forward. If we compare this to lower dividend cover models, we don't have to go and sell assets. We don't have to place more debt. We don't have to raise equity in order to have the cash available to allocate to grow the business. We think that's a substantial advantage to the UK Wind business model. What do we do with the GBP 222 million? Firstly, we paid GBP 114 million in dividends over this first half year period, and we've repaid GBP 54 million of debt as well.

Steve Lilley
Founding Partner at Schroders Greencoat

You can see here on the chart on the right-hand side, we've also made some share buybacks, and that basically marks the culmination of our GBP 200 million share buyback scheme. We have in place a new share buyback program, we'll be using that more tactically rather than an enduring mechanism going forward. All in all, this means that we have an extra GBP 73 million worth of cash on the balance sheet to allocate over the coming months. As we mentioned, a very solid 1.9 dividend cover for the period and GBP 60 million more net cash generation compared to this time last year. The key point to really pull out on this graph is that within the business, we have around quarter of a billion pounds worth of cash to allocate going forwards.

Steve Lilley
Founding Partner at Schroders Greencoat

We think this puts us in a really strong position to evaluate some of the investment opportunities that we see in the marketplace in which Matt will touch on later on. Moving on to the dividend track record. Early this year, we announced our 13th consecutive increase in dividend by inflation by 3.4%, which marks CPI to GBP 0.107 per share. This sustained increase in dividends makes us one of a handful of FTSE 250 companies to achieve such a feat over this time period. We're really proud of that record. In addition, we have what we believe is to be a clear and unambiguous dividend policy. We increase it with inflation on an annual basis. Shareholders can rely on that statement.

Steve Lilley
Founding Partner at Schroders Greencoat

In terms of what we pay to shareholders since IPO, in terms of dividends, we paid GBP 1.5 billion, and the historic dividend cover ratio has been 1.7x. Over the next five years, from 2027 to 2031, we forecast a 1.8 dividends time cover, and that will give us an additional GBP 1 billion worth of cash to allocate to grow the business. Again, we think that puts us in a very strong position going forward. In terms of the net asset value, it's been a stable period for NAV, as we've mentioned. We're very pleased to see that, we look forward to hopefully having NAV growth in the future.

Steve Lilley
Founding Partner at Schroders Greencoat

Looking at the graph on the left-hand side, what you can see here, which is part of the UK Wind business model, is that the net cash generation has exceeded the depreciation in dividends in the period, i.e., we've generated cash in excess of the way that we're paying out dividends and the business is depreciating. It's a really key factor for the UK Wind business model. Looking to the right-hand side of the chart that you can see, the key points to pick out would be inflation and discount rates. Quickly on discount rates, we increased these earlier in the year, and we believe that appropriately reflects the rate and risk climate for UK Wind assets. In terms of inflation, during the course of this period, we've seen a spike in inflation, predominantly due to the hostilities in the Middle East.

Steve Lilley
Founding Partner at Schroders Greencoat

As we finalized the period on the 30th of June, a ceasefire had been in place for around 20 days. Obviously, with the news over the last couple of weeks and even this morning, that ceasefire seems to have ended. That is likely, and we agree with many market commentators, to feed through to higher power prices, which eventually will feed through to higher inflation later in the year. Moving on to power prices, just to recap the way that we come up with our power price forecast. Over the first two years, we use the futures market. That's the actual price that people are buying and selling power in the marketplace. You can't get a better proxy than that. After that, we bring in a long-term curve from our expert market consultant. That also blends in futures pricing in the front end.

Steve Lilley
Founding Partner at Schroders Greencoat

That means that it's not just a model. As you can see in the short term, power price is slightly elevated for the reasons we've already discussed. In the long term, there's not a real significant difference, and you can see that power prices are decreasing in real terms. Now, a quick reflection. Over the last four years, we've seen two significant disruptions to power markets with Russia's invasion of Ukraine and the current hostilities in the Middle East. That makes us wonder whether that's a rather structural feature of the power markets rather than just episodic. If you were to believe that, and you look at our smooth curve here from the 2030s onwards, you wonder whether that's appropriate. Or put another way, will there be further price spikes in the future which a business like UK Wind can take advantage of?

Steve Lilley
Founding Partner at Schroders Greencoat

Another point to point out on power prices is the active asset management that we've been undertaking. During the first half of this year, we've hedged around 1 TWh of power for around about one year. That's about 20% of our annual merchant volume. That leaves us with fixed revenues for the rest of the year of around 66%. Actually, during the course of July, we've gone further, and we've fixed another 0.5 TWh or around 10% of the annual volume of our merchant risk during that period. Again, you can expect to see more of that from UK Wind as we look to continually take advantage of positions in the marketplace and manage the merchant risk on behalf of our shareholders.

Steve Lilley
Founding Partner at Schroders Greencoat

Last point to point out on this chart is something we always publish, which is the dividend cover sensitivity. We think this is really important to give shareholders confidence in the dividend going forward. You can see here that even down to prices such as GBP 30 per MWh, which are way below where prices are today, and way below where the future prices are forecast to be, the dividend is more than fully covered. Onto wind resource, this is perhaps the most pleasing or encouraging point of the whole half year presentation today. It really feels like there has been a reversion to the mean. We've been saying it for some time, and you can see it in the numbers here. We've been above budget this first half year period, 4.9%. Actually over the last 12 months, we've been above budget as well.

Steve Lilley
Founding Partner at Schroders Greencoat

Of course, you can see the results of net cash generation that that brings. We are very pleased with that position. In terms of availability, we are slightly below budget. We had a couple of offshore wind farms where availability was restricted, mainly because of high winds, which meant we couldn't get out to fix the faults that were there, and also an inter-cable fault within a turbine, within a wind farm, which took a while to diagnose, procure the appropriate cables, and then fix. All of those issues are now sorted. Moving on to the balance sheet, a reminder of the structure. We have about 10% of the debt associated with our revolving credit facility, 20% associated with Hornsea One and amortizing debt profile there, and the rest is evenly spaced term debt with maturities that are spaced over the coming years.

Steve Lilley
Founding Partner at Schroders Greencoat

We believe helps de-risk the proposition both in terms of the liquidity and rate climate when we come to refinancing. We like this structure because it gives us low cost, high optionality debt, and allows us to decide how and where to allocate capital. Key highlight of the balance sheet management this half year period is we've refinanced GBP 200 million of our term debt that was due to expire later this year. We've managed to place six, seven, eight-year maturities to replace that, all within the existing lending group, which we think is really positive that within our existing lender group, there is very strong support for UK Wind and its credit. Indeed, we are in discussions at the moment to refinance a further GBP 150 million due to expire in May next year, again within the existing lending group.

Steve Lilley
Founding Partner at Schroders Greencoat

You can expect to see more news on that towards the end of Q3 or early Q4. We've also repaid GBP 54 million worth of debt. That brings a total repaid or debt principal reduction over the last 18 months to GBP 222 million, again, showing the prudent allocation of the balance sheet on behalf of our shareholders. Gearing stands at 41.7%, which is slightly above our self-imposed limit of 40%. A quick note to say about that imposes no restrictions on UK Wind at all, other than that we cannot draw more debt, which is something we wouldn't look to do in the circumstances anyway. We can see a clear glide path back to below 40% with the natural amortization of Hornsea One's debt, along with growing the gross asset value by reinvesting excess cash flow into new assets as well.

Steve Lilley
Founding Partner at Schroders Greencoat

That wraps up the financial and operational performance. I'll now hand back to Matt, who will go into some more detail in his opening remarks before we move on to Q&A.

Matt Ridley
Partner at Schroders Greencoat

Thanks, Steve. I thought it'd be a good idea just to look at the criteria that we spoke about at the beginning of this meeting, then just look at how UK Wind relates to that. First of all, just a reminder of UK Wind's business model. It's a very simple model. It's been operational for 13 years. It's proven, and it works for us. Buy wind farms, 49 of them, generate electricity, and that generates net cash for our shareholders, GBP 2.6 billion so far, more than our present market cap. GBP 1.5 billion of that has gone out to our investors by way of dividend, and GBP 1.1 billion has been available for us to reinvest. All of this comes from an existing operational asset base. In effect, excess cash flow arrives by design, not coincidence.

Matt Ridley
Partner at Schroders Greencoat

When we think about accelerants to the capital that you can allocate, these are really accelerants for us. Those are asset sales and capital raising. They're accelerants. They're not existential requirements for us to have capital to allocate in the first place. Just before turning to how we look at capital allocation, just a look at the next five years. This is, of course, based on assumptions, and we've got a range there. If you look at our expected net cash generation over the next five years, the middle of the range is around GBP 2.3 billion. Again, roughly our market cap. After paying a further CPI-linked dividend over those years of GBP 1.3 billion, that'll leave us with roughly GBP 1 billion, let's say, as the middle of that range to reinvest back in the business.

Matt Ridley
Partner at Schroders Greencoat

I think the question for us really becomes not whether we will have capital to allocate, but how we will allocate it when it arrives. To look at capital allocation. First, as always, as it has been since the beginning of UK Wind, the dividend, which has given us 13 years of increase by inflation or better. In our view, an attractive dividend in today's world is not enough. Just having that feature alone just isn't enough. A sustainable dividend requires further reinvestment, and we'll look at that in a minute. That's why excess cash generation was part of our design. The return from this business is far more important than the dividend yield. Look, we have self-sustaining cash flows in our view.

Matt Ridley
Partner at Schroders Greencoat

We just have to think about how we allocate that, and we'll look at, in a minute, the market opportunity that we have. I think you also need to think about when people are allocating capital, what risk are they taking? Fundamentally, if the pathway is for Steve and I to reinvest in assets that we already understand in a growing market, we're basically just doing what we've been doing for the rest of our careers. It doesn't require an undue amount of risk. It just requires the usual investment discipline. Just to underline the importance of reinvestment. It's no secret that the assets that we own are finite. We think our assets will last for 30 years, and at the end of that, in our model, we don't value them at anything.

Matt Ridley
Partner at Schroders Greencoat

If you don't reinvest in that portfolio, then over time, the amount of free cash flow, and this is shown in the chart on the slide that you can see there, it'll reduce over time. We don't think that's any kind of secret. If you reinvest, you get a vastly different outcome. Again, this is why we were designed this way. All the blue bar on this chart does is assume that the cash that we generate each year that isn't used to pay our dividend is then reinvested back in the business at the average portfolio discount rate. Nothing particularly exciting or racy about that. We've included the payment of the dividend and the reinvestment of excess cash flow beyond that. The risk of reinvestment comes back to what I said earlier.

Matt Ridley
Partner at Schroders Greencoat

It comes back to, are there enough opportunities in the market? Are we well-placed to execute? Investing in wind farms for Steve and I doesn't require any sort of transformational pivot or reimagining of strategy or career. It's basically what we've been doing for most of our working careers. Just to look at the opportunity for reinvestment, and we've covered this in detail in many of our past results presentation. Electrification in the U.K. continues at pace. Depending on which forecast you take, you're going to need another 50%-100% of electrons over the next 20 to 30 years. It's vast. It's a huge amount. As you can see from the charts on this page, wind is going to do the heavy lifting.

Matt Ridley
Partner at Schroders Greencoat

It's scalable, it's deployable, it will probably actually be more than 75% of the new electrons that are created. That's a market that's going to go from our estimate, around GBP 100 billion of asset value today to about GBP 200 billion probably in the next five years. When you grade against that, a GBP 1 billion that we estimate we could have to reinvest over the next five years, we obviously don't need to capture a significant percentage of the market to be able to deploy the money that we have to reinvest. We have opportunities within our own portfolio. We have 49 assets.

Matt Ridley
Partner at Schroders Greencoat

There are a variety of things that we feel that we can invest in there that could include the ability to extend those assets over life or ultimately to prepare some of them for repowering, although, as we've said before, that isn't a one-size-fits-all answer. Really, there's plenty of opportunity for us to reinvest in. Then it's just about Steve and I applying judgment and discipline in an area that we're very well founded in. Just to bring that to a conclusion before we open up to some Q&A. We've spoken at length before about the sector, the rationalization that's ongoing, the retirement of paper in this sector, corporate actions, and so on and so forth. We think that is fundamentally healthy for this sector.

Matt Ridley
Partner at Schroders Greencoat

Against that backdrop, we feel that successful propositions are going to have an attractive investor proposition at scale, a self-funding model, and low execution risk. We think those characteristics matter more than ever in today's market. Crucially, these aren't characteristics that we're trying to create for UK Wind. They're characteristics that were part of our design and that we've shown we can deliver on over the 13 years that we've had since IPO. We believe investors are increasingly making that distinction, and that's why we believe that UK Wind occupies a relatively advantaged position in the sector. Thank you for your attention for the last 20 odd minutes. We're now going to open up the line to Q&A, which John will moderate.

Operator

Thank you. If you would like to ask a question, please press star one on your telephone keypad. We'll pause for just a moment to allow everyone an opportunity to signal for a question. We'll take our first questions from Joseph Pepper from RBC Capital Markets. Your line is open. Please go ahead.

Joseph Pepper
Joseph Pepper
Analyst at RBC Capital Markets

Morning, everybody. Thanks a lot for the presentation. Just three from me, please. You spoke about escape for reinvestment and well, I suppose ultimately reducing gearing through NAV growth, but the any excess cash that goes towards reinvestment rather than debt repayment, it will ultimately slow the de-gearing profile, even if the denominator is increasing. Just curious to know how we should think about what you really see as a stable state for the gearing profile for UK Wind in the long term, and then also how quickly we should expect it to decline from here. Then on the second one linked to that, I suppose, on reinvestment. But in terms of the opportunity, it'd be great to just get your latest thoughts in terms of where you see the best returns are across construction, operational, and also reinvestment in current assets.

Joseph Pepper
Joseph Pepper
Analyst at RBC Capital Markets

Finally, perhaps slightly more of a medium-term question, but just thinking about the opportunity for repowering and the end of asset lives, in terms of the latest thinking, in terms of the IRR potential. For instance, I think you've seen some projects from France that have struggled to repower due to no availability of new small turbines, then there's also been planning issues blocking larger projects. Whether you think the government needs to step in at all to potentially incentivize repowering projects in coming years, or you think the economics are tracked on a standalone basis. Thanks.

Matt Ridley
Partner at Schroders Greencoat

Thanks for your questions, Joe. I think we've got them all down. I wonder, Steve, you'd like to talk a little bit first about the pathway to de-gearing and the importance of keeping the cash in the business and growing the gross asset value. Perhaps then I can address your questions about opportunity investments and repowering specifically.

Steve Lilley
Founding Partner at Schroders Greencoat

Sure. In terms of the pathway to de-gearing, as I mentioned earlier, Hornsea One has an amortizing profile. There's already sort of an inherent process to de-gear the business that exists. It's around about GBP 45 million a year, give or take, depending upon the year, because the profile is already sculpted. There's that natural sort of level baseline of de-gearing there. With the excess cash that we're generating, we've talked about during the presentation, using that to grow the gross asset value is the other pathway, which we see as best fitting the strategy to de-gear the business. That also has the benefit of that it's a growth business, and we believe that's going to help retain our current shareholders and attract new shareholders into the register who want to be part of this growing marketplace.

Matt Ridley
Partner at Schroders Greencoat

Thanks, Steve. Just to add to that, we haven't been prescriptive about a target date and a target range. The reason for that is it depends pretty much on what the gross asset value is, as much as the debt that you repay. We've repaid GBP 222 million, as Steve said, over the last 18 months. Unfortunately, because in the last year our NAV declined, that amplified the % gearing ratio. In absolute terms, our debt's reducing significantly. I think a sustainable pathway for the business is to get back below 40% and mid-30s-40% as sort of an ongoing range seems appropriate for the assets that we have.

Matt Ridley
Partner at Schroders Greencoat

Certainly in private markets, you can see businesses geared far more heavily than that. We're certain that if we did change, which we've no plans to do, our self-imposed gearing limitation, the debt would be there, evidenced by the strength of our refinancing recently.

Steve Lilley
Founding Partner at Schroders Greencoat

Perhaps just one further point on the refinancing that we concluded earlier this year, and that we hope to do a further refinancing. We have significant support from our current lender base. The level of gearing that we have, whilst we do want to reduce it, as Matt just explained, we have low anxiety about our ability to refinance going forward. We have significant support from our existing lender group.

Matt Ridley
Partner at Schroders Greencoat

Joe, to your question around the opportunities that we see in the market. As you know, the sort of range of things that we can invest in are construction opportunities. We have done that previously. Standard operational assets, and perhaps, as this emerges a bit more, older assets that have the potential for repowering. Frankly, how we look at all of those assets is with discipline and portfolio fit in mind. There isn't any one particular answer as to what's the right opportunities, how well it's priced, and how competitive the market is. As you can see from our results, we've been quite busy appraising new investment opportunities. We haven't concluded anything yet. That's an expression of discipline rather than lack of opportunity. I'd expect you'd be able to hear more from us on that in the next quarter.

Matt Ridley
Partner at Schroders Greencoat

When it comes to repowering itself, I think the first thing to say is that you can't assume that it works for every site, because it won't. There are some sites where you've mentioned some of the challenges that you've experienced in other jurisdictions, perhaps. It's about what you're trying to do. A relatively small wind farm that isn't in a particularly windy area, that perhaps the economics worked because there was a good subsidy regime at the time, and that's unlikely to be economically competitive when it reaches its life. The other thing to remember is that when you have an asset that suits repowering, you're already valuing the cash flows that stand between you and the date that you repower it. You have to do a calculus of when it makes most economic sense.

Matt Ridley
Partner at Schroders Greencoat

That said, what one can do is secure the option for repowering through negotiating land leases and ultimately by submitting planning applications. This is an area where we think it makes sense for us to invest in the near future.

Steve Lilley
Founding Partner at Schroders Greencoat

Maybe just to conclude on that, Joe, you asked around whether the government needs to step in in terms of helping projects to be repowered. We've been in discussions with the government even over the last couple of weeks, where this is actually on their mind, both in terms of helping assets to life extend, but also in terms of repowering as well. I think the government has this on its radar, and we believe that if the government are sensible, which we believe they will be, there will be appropriate support for both life extension and repowering of projects going forward.

Joseph Pepper
Joseph Pepper
Analyst at RBC Capital Markets

That's very clear. Thanks, both.

Operator

Thank you. We are now taking our next questions from Conor Finn from Barclays. Your line is open. Please go ahead.

Conor Finn
Conor Finn
Analyst at Barclays

Morning, all. A couple from me, please. Firstly, a question on the debt. Obviously, you've done the refinancing the period. The margin has gone up slightly. I guess the question is, what are banks saying around kind of appetite for lending, maybe say for longer-term facilities, where obviously there's going to be, say, maybe increased merchant risk when these facilities come to maturity? Secondly, on the dividend, if you go back to the time of launch, obviously you were paying, say, closer to, say, 6% to NAV at that time. Over kind of the period since then, it's grown to 8%. I guess what question would you be comfortable with that kind of rising to further?

Matt Ridley
Partner at Schroders Greencoat

Thanks, Conor. Maybe Steve, if you want to address the debt point.

Steve Lilley
Founding Partner at Schroders Greencoat

Yeah.

Matt Ridley
Partner at Schroders Greencoat

I can come back to the dividend.

Steve Lilley
Founding Partner at Schroders Greencoat

Yeah, sure. As I mentioned earlier, we've refinanced this current maturity of GBP 200 million with our existing lending group. We actually have banks knocking on our doors wishing to join that lending group, but we're very happy with the current lending group that we have. Margins have gone up very, very slightly. The overall cost of debt has gone up, but that's more a reflection of where swap rates are, which isn't a measure of the business's risk. It's just where rates are at the moment. In terms of the way that they're looking at the longer term and their exposure to merchant revenues, I think they're comfortable where the business are now. It also plays into what we were talking around reinvestment. Reinvestment is key to this, and managing that merchant exposure is also key as well.

Steve Lilley
Founding Partner at Schroders Greencoat

We've also got many tools in order to manage merchant exposure. We talked about some of them earlier today. We've hedged a terawatt hour and a half over the course of this year-to-date, significantly reducing merchant exposure. There are other mechanisms as well. We can put in place longer-term fixes through ISDA. We can enter into corporate PPAs, of which we have several in the portfolio. You might well see us do more as current PPAs expire. There's also, of course, reinvestment into new assets with a CFD for 15 or 20 years, which again helps manage that merchant risk in order to make sure that we've got the lenders to carry on lending like this.

Steve Lilley
Founding Partner at Schroders Greencoat

We have low anxiety around the position we are at the moment. We think we've got all the tools available in order to manage a merchant risk over the short, medium, and long term.

Matt Ridley
Partner at Schroders Greencoat

To your points on dividends, Conor. You're right to observe where our dividend is as a percentage of NAV, the expression of our forward comfort in that can be found in the numbers and the dividend cover sensitivity that we have. We're very comfortable with that dividend. This is why reinvestment is crucial, right? Reinvesting back in the business sensibly will grow the future cash flows that will support a dividend at this level.

Conor Finn
Conor Finn
Analyst at Barclays

Thank you.

Operator

Thank you. As a reminder, if you would like to ask question, please signal by pressing star one on your telephone keypad. We'll take our next questions from Iain Scouller from Canaccord. Your line is open. Please go ahead.

Iain Scouller
Iain Scouller
Analyst at Canaccord

Good morning. I've got three, if I may. Firstly, just on inflation, can you give us a bit more color on that? Because that was obviously quite a big gain. I mean, how much of it was from the reporting period, how much is related to the future forecasts? Secondly, on the NAV bridge, there's a negative GBP 0.01 for other. Can you give us a bit of a breakdown on that? Thirdly, I mean, obviously, debt remains high. I didn't see any comment on potential disposals. Can you give us your thoughts on that?

Matt Ridley
Partner at Schroders Greencoat

Yeah. Happy to, Iain. Thank you. I'm happy to talk about inflation. Steve, maybe if you want to address the point on the other line on NAV, we can come to debt and disposals. When it comes to inflation, to directly answer your question, Iain, this all comes from the next two years of inflation pricing, the movement. You'll note that in Q1, our inflation assumption went up, and in Q2 it went down. The net is still up. How do we price that? Well, we look at an RPI swap index. That's the swap that's traded frequently. We get that quote from elsewhere in our building, and we then moderate that to get to a CPI and CPIH inflation expectation. We have not changed our expectations for inflation for 2028 onwards, and they're all published in the half-year results.

Matt Ridley
Partner at Schroders Greencoat

Simply, the drop from Q2 versus Q1 in inflation is an expression of where expectations for inflation for the next six to 12 months stood on the 30th of June. As Steve mentioned earlier, that was a more benign environment. There was a ceasefire. Power prices had come down significantly, and they're a driver of inflation. This is really just a mark to market. There's no subjectivity in what we've applied. It's entirely objective. As Steve suggested earlier, that's likely to pick back up if we see the power prices at levels that they are today sustained, and that will feed through into inflation. That's really a matter for us to address when we get to the next valuation cycle.

Steve Lilley
Founding Partner at Schroders Greencoat

In terms of the GBP 0.01 of other costs, we're constantly looking at our assumptions over the medium and long term and looking to refine those. This reflects the ongoing review of where we're seeing contracts, where we're seeing the market. It's principally to do with long-term assumptions around operational costs for the business that we use data that we see in the marketplace, but also try to bring in forecast as well. We think it's a marginal increase. We think it's prudent, and we think it's the right thing to do in terms of the NAV bridge.

Matt Ridley
Partner at Schroders Greencoat

When it comes to debt, Iain, I think there's two things to look at, right? There's the gearing percentage, which is certainly a valid metric to look at, and then the absolute amount of debt on the business. The latter has gone down significantly over the past 18 months, as Steve mentioned. I think the other thing to think about the gearing is, it's a self-imposed limit. As we've said before, banks are quite happy to lend more. I think you raised a good point around disclosure on what that means from a financing perspective, and we've put that in our half-year results. It frankly has no consequence or bearing. In fact, our lenders see us as less geared than the 41.7% because they exclude Hornsea One as a project, both equity and debt. As the lenders see us, we're far less geared.

Matt Ridley
Partner at Schroders Greencoat

We don't have, as Steve said, anxiety either about the level of debt that we have at the moment or the ability to refinance that in the future, as demonstrated by this year's refinancing. When it comes to disposals, we don't see the need to sell assets to retire debt. As we said, we have a pathway over time for debt to reduce below our self-imposed limit. Even when it does, we're not particularly planning to borrow a lot more because we can sustain and fund our business through organic cash flow. That's our approach.

Steve Lilley
Founding Partner at Schroders Greencoat

Frankly, the money that we have is better invested in operational wind farms than it is reducing gearing. It serves a better return for our shareholders.

Matt Ridley
Partner at Schroders Greencoat

Optically, we have GBP 240 million on the balance sheet. Obviously, not all of that's usable. Some of that is SPV working capital and remains so. We could optically have repaid some of the RCF and taken gearing down. Actually, the cost of that is pretty marginal to have the RCF drawn because we're earning interest on the cash that we have in the bank. We're really only paying the margin on the RCF. Having the optionality to then have the cash to make the kind of quality investments that Steve and I are looking at, we feel is a better approach from a treasury management perspective.

Iain Scouller
Iain Scouller
Analyst at Canaccord

Okay. Thank you.

Steve Lilley
Founding Partner at Schroders Greencoat

Thanks, Iain.

Operator

Thank you. It appears there are no further questions from the conference call. I'd like to hand back to John for webcast questions. Please go ahead.

John Musk
Head of Investor Relations at Schroders Greencoat

Thank you. We do have a number of questions online, and I will try and group them together. A couple here on power prices. Firstly, energy prices have risen strongly in July post period end. How can you help us look at how this will impact cash flows and NAV? Is there a rule of thumb to use? Secondly, how much merchant power price exposure would you be comfortable with hedging in aggregate? You used to be, or you used to talk about a 50/50 mix of fixed and merchant. Would you be happy to go much higher than that?

Matt Ridley
Partner at Schroders Greencoat

Thanks, John. Steve, do you want to talk about a good rule of thumb for power prices?

Steve Lilley
Founding Partner at Schroders Greencoat

Yeah, sure. The question is absolutely right, that we have seen an increase in power prices since we marked this NAV at the end of June due to the resumption of hostilities in the Middle East, the unfortunate resumption of hostilities in the Middle East. In terms of a rule of thumb, if you look at the dividend cover table on slide 11, it shows sort of what GBP 10 per MWh does onto the dividend cover, and it's roughly just over 0.1x, give or take. That's probably a good enough rule of thumb to think about that. If we were to mark the NAV as of yesterday's power prices, it would be around about GBP 0.02 higher per share. There's a lot of chop in the power prices at the moment as well.

Steve Lilley
Founding Partner at Schroders Greencoat

I think you need to just monitor where things look in terms of the way that we've fixed some of those prices. We've already locked some of those in. Some of them remain merchant, and Matt can talk more about that now in terms of our long-term view of how we manage that.

Matt Ridley
Partner at Schroders Greencoat

Thanks, Steve. Overall, our desired blend of fixed and floating cash flows on a DCF basis remains around the 50/50 mark. It obviously varies depending on what's happening to power prices. If power prices go up appreciably, as they have in the last six months, you naturally look as if you have more floating revenues than fixed. You haven't done anything. That's just the way that it breaks down. We look at the hedging activities that we've entered into from a couple of perspectives. One, if there's a decent price that's available that we can take advantage of, that allows us to secure dividend cover for the year and is sensible, is NAV accretive, dividend cover accretive, then that makes a lot of sense, and that's what Steve and I have been up to.

Matt Ridley
Partner at Schroders Greencoat

As Steve said, there's 1.5 TWh there that have been hedged since the beginning of the year. If you look forward, really, again, it's about balancing the revenue composition through reinvestment. Again, I think we'll probably look to the 50/50 ratio. If the circumstances are right in terms of near-term power price hedging, we could go above that. If you increasingly think about hedging as a way of looking at your next two years of exposure, you can continually refresh that over time. Fundamentally, our approach hasn't significantly changed. Our ability to be tactical and secure dividend cover on a short-term basis is something that we'll continue doing.

John Musk
Head of Investor Relations at Schroders Greencoat

We have a linked question here as well. Sorry. Are you seeing any change in demand from corporates looking to secure renewable power through PPAs, particularly from energy-intensive industries and data center operators?

Matt Ridley
Partner at Schroders Greencoat

Thanks, John. Not significantly at present is the answer. I think there are a couple of push and pull and barrier factors. The first is that traditionally, those in the tech industry prefer to have brand-new projects to put long-term corporate PPAs against. That feeds into the argument around additionality, as in this project now exists because of our PPA. When you have a portfolio of wind farms, none of which are new, that option is a bit less available to you. That said, we do have a number of corporate PPAs with retailers and others. There is still a market for us that we see as good. I guess the countervail to the desire to have typically younger or construction projects is that this isn't the only route to market that a developer has, right?

Matt Ridley
Partner at Schroders Greencoat

You've got a pretty attractive Allocation Round six, seven, and eight to come. I think you might start to see, although I'm obviously not in charge of corporate power procurement at any of these companies, you might start to see some erosion of the idea of additionality when it comes to PPAs. Given that we have significant scale, we've got roughly 2 GW and 6 TWh a year, that could be good for us. We are exploring further corporate PPAs to add to those that we already have in our book.

Steve Lilley
Founding Partner at Schroders Greencoat

I think it'd be fair to say that whilst there's not been a pickup in demand that we've particularly noticed in the corporate and industrial demand for PPAs, there is a steady state of demand out there in the U.K., that's only going to grow with the rise of data centers as the question correctly pulled up. There are a significant number of data centers in planning across the country, that's only going to lead to a rise to power and opportunities for companies like UK Wind to take advantage of. You only need to look over to Ireland and look at the significant growth and demand from data centers for power over there, where it's more than 20% of the annual power demand goes to data centers nowadays. That's a significant growth opportunity for UK PLC and for UK Wind in particular.

John Musk
Head of Investor Relations at Schroders Greencoat

Okay, moving on to some questions on investments. Can you give some more specific color and examples on the opportunity set you are reviewing, whether that be by technology or development stage? How big a check would you write to fund them over the next three years? Adding one more into the mix there, have you considered investing into batteries on-site or off-site, to enable further revenue from generation during periods of low demand?

Matt Ridley
Partner at Schroders Greencoat

Thanks, John. Steve, do you want to talk about the things we're appraising and how we're thinking about it?

Steve Lilley
Founding Partner at Schroders Greencoat

Yeah, sure. As I think we've already tried to outline, there's a whole sort of host of opportunities that exist. Within our own portfolio of 49 wind farms, there's opportunities to buy further stakes, there's opportunities for extensions, there's opportunity to look at repowering, there's opportunity for upgrades as well. We're constantly looking at that portfolio, and there's definitely a significant opportunity there for us. Sort of adjacent to that is the growth in the marketplace that we're seeing. We have Allocation Round 6 and 7 that are out there, and we're talking to developers at the moment who are looking to sell such assets. Allocation Round 8 is coming up later in the year. Again, that will create a huge amount of new opportunity for us. They would be construction or very late-stage development projects that we'd be looking to invest in.

Steve Lilley
Founding Partner at Schroders Greencoat

What we really want is a blend. We don't want to go all into one or the other. We want a blend of opportunities there and invest that cash as well. You asked about the check for the next three years. We've talked around having almost a quarter of a billion pounds on the balance sheet today, and over the next five years, from 2027 to 2031, an extra GBP 1 billion. That's roughly equal. You're talking around over the next three years, something like half a billion to GBP 600 million of cash flow that would be available to invest in such opportunities. Again, we'd like to blend that across all the opportunity sets that we see to make sure that we've got the appropriate mix of investment for UK Wind and its shareholders.

Matt Ridley
Partner at Schroders Greencoat

When it comes to technology, UK Wind is still UK Wind. As Steve said, there's an abundant market for us to invest in without style drift or without changing technology. I think when it comes to how one thinks about, from a portfolio construction perspective, the involvement of other technologies, I think you first have to look at what does it add to what you already have, to your proposition. If it's a hedge in some way, that could be appealing. If there were a technology that was completely anti-correlated to wind in terms of its capture price and its generating profile, that would be attractive. In our view, there isn't. Solar is not that. When you look at batteries, this is a question that we face frequently.

Matt Ridley
Partner at Schroders Greencoat

I think from a high level, it's easy to think that batteries just make money when it's very windy, and that's when wind loses value because power prices are lower, because there's a lot of wind on the system. When you actually dig a little deeper, actually, there's almost no correlation between battery revenues projected both now and over the long term from a merchant trading perspective and wind revenues. This is characterized by when wind prices and capture prices are lower, it's typically for a very long period of time. The best revenue opportunities for batteries is where there's a scarcity or a shortage of supply and a pretty significant intraday gap between the bottom and the top. Those two don't really align with wind capture risk for us. I think to answer the question, does that hedge our portfolio in some way?

Matt Ridley
Partner at Schroders Greencoat

We don't believe that it does. The question becomes, is it just a good thing to invest in? Again, we look at this and say, well, I don't have any sort of conceptual problem with batteries. I think the grid is a better place for having them. There's also a lot of wind that we can invest in. I think the exception I would carve out is this can change over time. Secondly, batteries can make sense for any generator where they help to liberate a constraint that exists, because that is genuinely lost economics that you can't get to market. In our view, neither of those conditions prevail today.

Steve Lilley
Founding Partner at Schroders Greencoat

Maybe just another way of summing that up, we think that the risk-return balance of wind investments is better than the risk-return balance that we get from other technologies as well. Therefore, that's where we see today where we should allocate our capital.

John Musk
Head of Investor Relations at Schroders Greencoat

One more on a similar subject in terms of reinvestment. Does the commitment to CPI-linked dividends over the coming years, even as ROCs roll off, mean that you are more inclined to explore reinvestment in CFD assets?

Matt Ridley
Partner at Schroders Greencoat

To give a very short answer, yes. One can also engineer core PPAs that have an element of inflation inclusion. I think if you think about the opportunities that Steve mentioned, the broad stack of operational assets already have CFDs, they have CPI linkage. The new projects that are being created are typically, you've got AR6, AR7, and AR8 to come, having 15 to 20 years of CPI linkage. If ultimately, noting that, of course, it's a way to actually repower an asset in the U.K., the outcome there would likely be participation in some version of an auction round at the time, which I would expect would carry inflation too. Yes is the answer.

John Musk
Head of Investor Relations at Schroders Greencoat

Okay. Noting we're getting towards the end of time. I've got a couple more questions. I'll do them separately. The first one, there has been some political interference over the past year. How is engagement going with the revised government? In particular, what are your thoughts around the proposed Wholesale CFD and how that may impact the risk-return of the portfolio?

Matt Ridley
Partner at Schroders Greencoat

Thank you. It's obviously early days for the Burnham government, and you have seen a cabinet reshuffle. I think crucially, when it comes to looking at DESNZ, you now have a minister in place who's been in that department for a decent period of time, and that's definitely constructive. If you think about what that means for near-term policy, the things that we have on the table are Wholesale CFDs, which I'll come to in more detail in a second. You have the RO fixed price certificate review, and you have Reformed National Market. I expect they'll carry on broadly within the timeframe that they're envisaged to. I feel generally no reason to believe that the new regime is going to be fundamentally different from the old regime when it comes to the way they look at power.

Matt Ridley
Partner at Schroders Greencoat

I think if you need any example of how renewables help with the cost of living, you should look at markets that haven't had disproportionately high power prices since the outbreak of the conflict in the Middle East. Spain, for example, notably high renewable penetration, low dependency on marginal gas. When it comes to the Wholesale CFD itself, this was, just to remind everybody, one of the five ideas that featured in the original Review of Electricity Market Arrangements. It was discarded. We and others have spoken extensively to government to put that back on the table because we feel it can do two things if it's properly implemented. First, if properly implemented, you could get a fixed price for the sale of your power over a decent period of time to give further certainty to dividend cover and have another mechanism for fixing power prices.

Matt Ridley
Partner at Schroders Greencoat

That certainly would be a good thing for investors to have another tool to do that. On the other side, it's obvious that we would take a lower fixed price for removing the risk of power prices. That can be a benefit to consumers. This is why we believe that if it's implemented well, a Wholesale CFD is a win for both investors and consumers. Moreover, it demonstrates a message that I think has gotten lost over time, that renewables can actually help and do help and have helped in the peak pricing periods that we've had over the last four years.

Steve Lilley
Founding Partner at Schroders Greencoat

New build renewables remain the cheapest form of new generation that will be needed to meet the rising demand over the coming years. Onshore wind closed in the last Allocation Round, just over GBP 70 per MWh. If you compare that to new build gas, it's around GBP 140 a MWh. If you want to have low cost new generation on the system, onshore wind is where it's going to be at. Offshore wind as well. I think that's where the government will look at, and they will look to continue Allocation Round 8, as they've already said that they're going to commit to. We're pretty confident that there will be no wholesale change. As Matt mentioned, Miatta Fahnbulleh, who's now in charge as Secretary of State for DESNZ.

Steve Lilley
Founding Partner at Schroders Greencoat

We think that she is going to continue that process for the renewable energy industry.

John Musk
Head of Investor Relations at Schroders Greencoat

Okay, thank you. Let's make this the last question, and then if you have any concluding comments. Congratulations on a good set of results and pleasing to see a recovery in wind. Could you say a bit more about wind resource versus forecasted modeled resource over the past few years and any thoughts around climate change?

Matt Ridley
Partner at Schroders Greencoat

Do you want to talk about the wind?

Steve Lilley
Founding Partner at Schroders Greencoat

Yeah, sure

Matt Ridley
Partner at Schroders Greencoat

Over the past couple of years?

Steve Lilley
Founding Partner at Schroders Greencoat

Yep, sure. As we've said consistently, there is an inter-annual variability of wind speeds, and you do have periods where wind is below and above the average. The last few years have seen below average wind speeds, but the last 12 months, as we mentioned earlier, have been pretty much on budget in terms of the wind speed to long-term average, and UK Wind has been above budget over the last 12 months. In this first half year, we've been 4.9% above budget. This is really quite normal in terms of wind speed generations. We're not surprised by this. We hope it continues, of course, but this is really quite normal. In terms of climate change itself, we have looked into trying to forecast what climate change could potentially do to wind speeds over the medium and long term.

Steve Lilley
Founding Partner at Schroders Greencoat

We engaged a third-party consultant who's an expert in this last year, and we looked at a bunch of different climate models under different temperature scenarios. Effectively, the climate models come up with results which are so uncertain with such high error bars, it's difficult to draw anything conclusive today. We do believe that those climate models are going to get more and more accurate. This is not something that we've put in the drawer, and we won't look at again. We will continue to look at this. As climate models improve, we think that we will be able to look at things in a more accurate way. It's worth noting that at the moment that under certain temperature conditions, as it rises, there's not a perfect correlation with wind speed. At certain temperature increases, wind speeds can go down.

Steve Lilley
Founding Partner at Schroders Greencoat

Certain other temperature increases, wind speeds go up. That doesn't give us enough certainty in order to be able to say, this is what it's going to look like in the medium and long term. We will remain close to that, and we'll keep the shareholders informed with our thinking and results that come up as we look at this over the coming months and years.

Matt Ridley
Partner at Schroders Greencoat

No, I agree with that. Look, it's something that we're obviously very interested in, and we'll keep a close eye on. As yet, the data, the modeling, there's too much uncertainty to make any conclusions. Positively, though, as Steve said, wind resource is up over the past year for us, and that is part of the cycle of wind over the long term. I'll bring us to a close now. I just wanted to conclude by thanking you for your attention during our presentation and for some very thoughtful questions. For those of you who would like to see us on the roadshow, you can contact our brokers to do that. We're around for the next two weeks. There's no holiday for us. If you have any further questions or things you wish you've asked, John's contact details are on the presentation.

Matt Ridley
Partner at Schroders Greencoat

If you send your questions through, we'll endeavor to answer them in good time. Thank you for your time.

Steve Lilley
Founding Partner at Schroders Greencoat

Thank you

Analysts
    • Matt Ridley
      Partner at Schroders Greencoat
    • Steve Lilley
      Founding Partner at Schroders Greencoat
    • Joseph Pepper
      Analyst at RBC Capital Markets
    • Conor Finn
      Analyst at Barclays
    • Iain Scouller
      Analyst at Canaccord
    • John Musk
      Head of Investor Relations at Schroders Greencoat
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