Greencoat UK Wind PLC (LSE:UKW) further sealed its position as the leading pure-play British wind power provider with the purchase of a stake in world's largest offshore wind farm today.
Already, the FTSE 250-listed investment trust was generating 5-6% of the UK wind market in terms of capacity value, generating around 1% of all UK electricity.
That was based on the company’s net generating capacity to 1.42 gigawatts (GW) as at the end of December 2021.
Today’s £400mln investment of a 12.5% stake in the Hornsea 1 offshore wind farm, which has a grid export capacity of 1,200MW, takes UKW’s net generating capacity to over 1.6GW.
Hornsea 1 is already operational and has a high load factor, also benefitting from a 15-year government contract-for-difference at a price of £175.25 per megawatt hour (MWh).
This follows £570mln of investments made in the past year in seven wind farms, with the Hornsea acquisition taking the total to 44 operating wind farm investments.
Three of these projects were the company’s first subsidy-free projects and one was, like Hornsea, a large CFD project.
As chief executive Stephen Lilley told Proactive earlier this year, UKW is set up to provide investors exposure to the power price and to provide some protection from inflation – two big themes of recent months.
UKW’s model aims to invest in wind farms at attractive rates of return, and over time use around two-thirds of cashflows to pay a dividend that rises with inflation each year, as well as re-investing the remaining third of cashflows in the capital base.
This model has allowed for a strong level of dividend cover that gives the company the ability to provide 'un-hedged' exposure to power prices, which Lilley says is something that investors seek out, while remaining confident of hitting the dividend target.
The dividend is linked to the retail price index, so in January when December’s RPI was revealed as having risen to 7.5%, the dividend automatically increased to match that, to 7.72p from 7.18p.
Through structuring the company in this manner, Lilley explained, it has been able to cope with slightly lower production or slightly lower power pricing.
“But because of that conservative structure we get into this year and we can cope with the twin themes of inflation and power pricing and deliver the product and start to differentiate away from some of our peers.”
As broker Kelper said in a recent note, UKW has been a significant beneficiary of the very high wholesale electricity prices currently being experienced, with excess cashflows at roughly twice the model rate and with a 5.2% increase in net asset value.
The target dividend for 2022 puts the shares on a yield of 5%.
Looking forward, chair Shonaid Jemmett-Page said: “We continue to see an attractive pipeline of projects, both onshore and offshore, and given the size and scale that the Company has attained over recent years, we remain strongly positioned to deliver more value-accretive acquisitions and extend our track record of strong shareholder returns.”