Power prices over the next few years could fall by 25% as a result of the coronavirus pandemic, according to some forecasts, forcing FTSE 250 investment trust The Renewables Infrastructure Group (TRIG) to cut its own estimates.
TRIG said today that the coronavirus pandemic has led to a reduction in demand for electricity and caused gas and carbon prices to fall. The repercussions are expected to continue over the near-term and impact the entire energy industry as Europe's economic activity slows to a crawl.
But investors have taken the news largely in their stride, with shares in the investment trust nudging just 1% lower to 123.6p, value the closed-end fund at a little more than £2bn.
TRIG also said that expectations for gas prices in the medium-term have continued to ease, due to expected softer demand and increased supply.
As a result, projected wholesale power prices for TRIG’s markets, on a blended basis, have reduced on average by 17% over the next five years, including a 25% reduction over 2020 and 2021, and by 5% from 2025 until 2050.
INDUSTRY-WIDE RETHINK
The trust’s share price fell 1.4% on the news to 123p, while other FTSE 250 trusts also fell with Greencoat UK Wind (UKW) down 2.8% to 133p. Foresight Solar (FSFL) was trading flat at 105p, as was John Laing Environment Assets (JLEN) at 110p.
However, TRIG said approximately 74% of the company’s revenues through to 31 December 2024, and more than 80% over the next two years, are fixed, providing strong levels of visibility on cashflows in the near-to-medium term.
It also reaffirmed its dividend guidance for the year, and still expects to pay a dividend of 6.76p for the year through December 2020.
WHAT ANALYSTS SAY
Analysts at Liberum said the high level of fixed cash flows through subsidy agreements and power purchase agreements (PPAs) gives TRIG ‘robust earnings visibility’ and will help underpin its dividend.
They added that the trust is ‘operating from a position of strength’ with a ‘robust’ balance sheet and a confident outlook on revenue generation in 2020.
The analysts also said TRIG and the majority of funds in the same sector use forecasts from two providers.
Only one other fund in the sector, Greencoat UK Wind, has reported an updated net asset value (NAV) since December 2019, when its NAV per share fell by 0.2p in the first quarter of this year and included a slight reduction in near-term price forecasts due to lower gas and carbon prices.
The Liberum analysts add that the latest forecasts received by TRIG are therefore likely to have come from the other major third-party provider, with the other funds in the sector likely to experience a similar adjustment to power price forecasts over the coming quarters.
