logo-loader
viewGreencoat UK Wind PLC

Greencoat UK Wind makes sure-footed progress

Greencoat’s portfolio generated 1,457GWh of electricity over the past year or enough for 620,000 homes

turbine
Plenty of opportunities out there

Not many companies attribute healthy results to the speed of the wind, but it’s seriously important for Greencoat UK Wind PLC (LON:UKW)

The UK-focused renewable energy investor has stakes in 33 offshore and onshore wind farms and these make money by how much electricity they generate, so having the wind blow at the right speed is critical.

WATCH: Greencoat UK Wind to acquire Tom nan Clach wind farm in Scotland

Too low and it won’t produce any, even if the blades are turning. Too fast and the turbine will shut down to avoid damage.

Wind speed also has a geometric relationship with the power generated so it is critical to understand how a turbine performs at different speeds to run at its optimum.

Sensible approach

Greencoat has been sensible in its approach to developing the portfolio.

For instance, it spends a great deal of time measuring the output from the assets before they are acquired as it knows even minor under-performance can be costly over the long-term if you own a lot of wind turbines.

A simple thing, but not everyone is this rigorous.

Similarly, its hands-on approach means Greencoat has fewer outages than many of its rivals.

All of this has created a company that delivers a steady dividend stream.

Greencoat has already forecast a 6.76p payout for 2018, a 4.1% increase to match December’s RPI inflation number, which is one of its targets.

That gives a forward yield of yield of 5.25% at 124p.

Supportive fundamentals

The industry fundamentals, meanwhile, remain very supportive.

Green subsidies are here for the long-term and the regulatory environment is better understood by investors than it was at the time of Greencoat’s flotation.

But Greencoat’s latest acquisitions highlight  it is already preparing for life without subsidies.

The group is spending £126mln on a 13-turbine wind farm in northern Scotland.

READ: Greencoat UK Wind adds more capacity in Scotland with Douglas West purchase

It is acquiring Belltown Power’s 75% stake in Tom nan Clach, in Nairnshire.

Currently under development, the operation will be formally handed over to Greencoat next July, a month after its completion.

The Vestas V112 turbines are capable of generating 39.1 megawatts of electricity, while the load factor is expected to be 48%.

What is different is this deal is that rather than renewable obligation certifiates (ROCs)  a 15-year contract for difference (CFD) will fix the price.

If the price of electricity fall below the set, inflation-linked price of £91.14 per Mwh, Green coats gets paid the difference under the CFD and if it rises above, the company pays back the surplus.

Stephen Lilley, Greencoat’s chief executive, says it effectively mirrors the ROC arrangement where half of price is fixed by the ROC while the other half is variable.

Capacity now 910Mw

The purpose of CFD is to incentivise investments in new low-carbon electricity generation by providing predictability of future revenue streams.

 “We are starting to see attractive CFD and subsidy-free investment opportunities, of which Tom nan Clach is our first.

These opportunities will complement our core ROC investments and simple, low risk fund structure,” said Lilley.

In December, Greencoat also acquired the unbuilt Douglas West wind farm near Lanark in Scotland.

Construction is scheduled to start next year with a planned capacity of 45Mw when finished.

 Douglas West will be subsidy free and cost £45mln to construct, which will be paid out of UK Wind’s cash flow.

Once up and running Douglas West will increase Greencoat UK Wind’s generating capacity to 910Mw.

“Reflecting the overall shape of the market, we expect the majority of future investments will continue to be made from the £50bn pool of UK wind farms accredited under the ROC regime," said Lilley.

Quick facts: Greencoat UK Wind PLC

Price: 148 GBX

LSE:UKW
Market: LSE
Market Cap: £2.25 billion
Follow

Add related topics to MyProactive

Create your account: sign up and get ahead on news and events

NO INVESTMENT ADVICE

The Company is a publisher. You understand and agree that no content published on the Site constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is...

In exchange for publishing services rendered by the Company on behalf of Greencoat UK Wind PLC named herein, including the promotion by the Company of Greencoat UK Wind PLC in any Content on the Site, the Company...

FOR OUR FULL DISCLAIMER CLICK HERE

Watch

Greencoat UK Wind close to powering 1 mln UK homes as size of portfolio surges

Greencoat UK Wind’s (LON:UKW) manager Stephen Lilley was happy with the first half performance even though wind speeds were slightly lower than expected. The group bought four assets over the first half of the year worth £611mln, including its first deal for an asset without a ROC...

on 29/7/19

3 min read