Greencoat UK Wind PLC (LSE:UKW) saw its net asset value (NAV) per share increase by 0.9% to 155p in the quarter-ending 30 September 2022, which represents a 2.2% NAV total return for Q3, and a 20.3% year-to-date NAV rise, noted analysts at City broker Liberum Capital.
They pointed out that an increase in the short-term inflation rate had a 8p-plus positive impact on the firm's NAV, outweighing a 7p negative effect of a 50 basis point (bps) increase in the discount rate to 8.2% (unlevered).
Power price assumptions were unchanged from Q2, with the company's manager taking the view for this reporting period that the increase in forward prices in Q3 was roughly balanced out by the government's intention to intervene, while generation was 22% below budget due to low wind levels.
Including the Q2 revision, the Liberum analysts noted that Greencoat UK Wind has adjusted its discount rate by more than 80 bps in total.
They said: "The decision to net out the Q2 power price curve is fair, in our view. With respect to the near-term inflation uplift, we note that UKW was assuming 3.5% for the 2023-2029 period, as at 30 June 2022 and we estimate it was previously assuming c.8% RPI for 2022."
The analysts added: "We await further clarity on the level, scope and duration of the government's 'revenue plus cost' intervention. With a new government in office, we may still see the Energy Prices Bill re-considered or re-purposed. Gas prices have moderated recently and we note concerns that unlike the Oil and Gas Windfall tax (Energy Profits Levy), the Energy Prices Bill presented does not include a capital allowance (up to 80% and running to 2025).
"There are other uncertainties around the Energy Prices Bill. For example, it specifically references England & Wales, and not Scotland, according to the legal firm Burges Salmon. C.47% of UKW's portfolio value is in Scotland, which may take a different view."
The Liberum analysts concluded: "It may take time to implement but the best long-term outcome for owners of projects with significant exposure to the RO subsidy framework, in our view, such as UKW, is a switch to a CfD."