The rising value of ‘green’ certificates proving electricity has come from a clean, non-carbon source has enabled Octopus Renewables Infrastructure (ORIT ) to avoid a second-quarter fall in asset value.

In common with other renewables funds, the £608m pan-European portfolio of wind, solar and battery storage projects has been under pressure from rising interest rates and gilt yields, which lift their discount valuation rates and depress net asset values (NAV).

In an update for the three months to 30 June yesterday the company duly booked a £14.6m reduction in valuation from lifting its discount rate on UK assets by 0.5%.

Although there was some offset from an increase in the value of its construction assets, changes to discount rates knocked 2.6p from NAV per share.

A softening in UK inflation forecasts, the pound’s rise against the euro, the payment of a quarterly dividend and other movements removed a further 2.25p per share, wiping 4.84p off NAV per share.  

However, ORIT was able to take a £27m or 4.8p per share gain from changes in power price forecasts (which decrease in the short term and rise in the long term) in combination with a surge in the value of its green certificates. These are called renewable energy guarantees of origin (Rego) in the UK and guarantees of origin (GoOs) in Europe.

Including these for the first time neutralised the other negatives and meant NAV per share dipped a negligible 0.06p to 107.67p in the second quarter.

‘Prices for green certificates have seen a significant increase over the past few years which had not previously been reflected in the valuations but this has now been updated in line with third-party forecasts,’ the company said, promising further detail in its half-year results.

‘We do not know why the “significant increase over the past few years” in prices of these certificates had not previously been reflected in valuations – perhaps this was being saved for a rainy day,’ Stifel analyst Will Crighton commented drily.

‘Likewise it would be interesting to know the rationale behind an increase in longer-term price forecasts, which we have not seen across the wider sector,’ he added, maintaining a ‘neutral’ stance on the shares which at 95.6p stood on a 12% discount to asset value.

Liberum’s Joseph Pepper was more positive, retaining a ‘buy’ with a 115p target price, liking ORIT’s high earnings cover for its 5.8% yielding dividend.

‘We highlighted in ORIT’s Q1 update that it had not yet included revised forecasts for renewable energy guarantee of origin (REGOs) certificates and as such, the revised assumptions bring it in line with some peers such as TRIG – where revised Rego assumptions added 1.2p (0.9%) to NAV in its Q1 2023 NAV update,’ he said in a note to investors.

Launched in December 2019, ORIT has generated an underlying three-year total return of 28% from its assets, according to Numis Securities data, although after the interest rate sell-off shareholders have seen a 5% drop in their stakes, including dividends.