Despite harvesting massive subsidies, aggressive accounting policies may contribute to the downfall of the Octopus Renewables Infrastructure Trust.

By David Turver

Introduction

While researching earlier articles on the offshore wind decommissioning timebomb, and the recent spate of wind operator’s profit warnings I had occasion to dig into the accounts of some of the funds offering exposure to renewable energy to retail investors. Eigen Values has the story.

There were some interesting findings from that research, so this is the first of two articles in a mini-series looking at at Octopus Renewables Infrastructure Trust (ORIT) and Greencoat UK Wind (UKW) whose share prices have been falling recently. Let’s dig in.

Share Price Performance

As we can see from Figure A, the share price has been in a long down trend since peaking in August 2022.

The share price has fallen despite paying £33.5m in dividends in 2024 and buying back £6.8m of its own shares. Share buybacks have been continuing in 2025 too.

According to their latest accounts, ORIT’s investment objective is to provide investors with an attractive and sustainable level of income returns with an element of capital growth. Dividends have risen from 3.18p/share in 2020 to 6.02p/share in 2024. But as we can see, capital growth has been lacking because the Net Asset Value (NAV) has been falling, but not as quickly as the share price.

The dividends are paid because the renewable assets that ORIT invests in harvest subsidies. At the end of 2024, ORIT had stakes in 41 different assets across five separate technologies including solar, batteries, hydrogen, onshore and offshore wind. The company’s portfolio is diversified geographically as well as across technologies.

Subsidy Harvesting

ORIT has a stake in the Lincs windfarm that has received Renewables Obligation Certificates (ROCs) worth a total of over £550m up to the end of 2024. ORIT only has a 15.5% stake in Lincs, so it will have received only a portion of the subsidies. ORIT also owns nine solar farms, of which eight are subsidised under the ROC scheme and have earned certificates worth ~£59m so far.

ORIT also owns the Cumberhead and Crossdykes onshore windfarms, which operate without direct subsidy. However, they are eligible for constraint payments. In other words, they get paid to turn off the turbines when there is more wind power than the grid can handle, or when supply exceeds demand. According to data from the Renewable Energy Foundation, these windfarms have received £7.9m in payments for what the Chief Executive of Octopus Group terms “wasted wind”. It does seem rather odd that Greg Jackson should be complaining about wasted wind when one of the Octopus investment companies is benefitting from the phenomenon.

ORIT Risks

Despite the seemingly strong and stable revenue arising from harvesting subsidies and collecting curtailment payments, there are several risks to the ORIT business model:

• Diminishing assets
• Rising discount rates
• Falling generation
• Optimistic asset life
• Power price risk
• Decommissioning liabilities
• Debt

Diminishing Assets

First, the gross value of the assets ORIT holds fell by £6.4m to £699.6m in 2024, however net assets fell by nearly £29m to £570m primarily because of an increase in debt of more than £21m to £151m. A declining asset base is not conducive increasing dividends or capital growth.

Rising Discount Rates

In common with other funds invested in renewables, ORIT’s assets are classed as Level 3. This means that asset values are calculated by management in the absence of observable market price data. They do not disclose the full methodology, but in effect, they calculate present value of the expected cashflows from the assets over the remainder of their lives. This figure is highly sensitive to several variables such as the discount rate, inflation, electricity generation, asset life and power price.

The discount rate is linked to long-term interest rates which have been rising recently. They disclose that a 0.5% increase in the discount rate would decrease the portfolio value by 5.3%. However, any decrease in valuation caused by an increasing discount rate might be offset by rising inflation which has also been edging up. They say that an increase in inflation of 0.5% would increase portfolio values by 3.9%.

Falling Generation

Of course the volume of electricity generated impacts the asset value. They disclose that a reduction from the P50 level to the P90 level (90% probability of being exceeded) would cause a 16.1% decrease in portfolio value. In 2024, they note the Lincs windfarm in which ORIT holds at 15.5% stake suffered from breakdowns and a decline in output of 4% compared to budget.

It is interesting is that RWE, Orsted, TRIG and Greencoat UK Wind have all issued profit warnings this year because of lower than expected wind generation. Six of ORIT’s top-10 investments are in wind projects in the UK, Finland, France and Germany so it is likely that ORIT’s wind assets have also suffered reduced generation. This is not yet evidence of a trend, but short term the asset value will likely have to be reduced.

Read the full story here.