A £176m hit from the government’s energy windfall tax failed to take the shine off the performance of Greencoat UK Wind (UKW ), which delivered record results last year and an inflation-matching 13% dividend rise on the back of soaring energy prices.

The £3.6bn investor in UK wind farms reported a surge in profits for 2022 to £953.9m from £363.2m in 2021. The investment trust had already reported a total increase in net asset value (NAV) of 31.3% for the year, a record year for the business, with a 9.1% return in the fourth quarter.

Half of the increase in NAV was attributed to strong cash generation and the other half to an increase in the portfolio valuation, which reflects higher power prices and higher inflation, although a higher discount rate offset gains by 0.8%.

The huge gains allowed the company to pay quarterly dividends totalling 7.72p, up 13.3% from 7.18p in 2021. In keeping with its policy to grow dividends in line with retail price index inflation, the board also announced a 13.4% increase in the dividend target for 2023 to 8.76p.

‘Net cash generation was £560m for the year, resulting in cover of 3.2 times on dividends paid, with high power prices more than offsetting the shortfall in portfolio generation,’ said Matthew Hose, an analyst at Jefferies, the trust’s joint broker.

‘Looking forward, spot power prices are currently £133/MWh, which although lower than the average of £204/MWh over 2022, and above the £75/MWh minimum threshold for the electricity generator levy, still points to strong cash generation in the current period, given a lack of power price hedging/fixing on the merchant revenues,’ he said.

Trust chair Shonaid Jemmett-Page said: ‘Throughout 2022, we discounted forecast power prices significantly given their volatility and also given the risk of government intervention.

‘As the details of the electricity generator levy are now known and forecast future power prices are now lower the discount that we are applying has been reduced appropriately. This approach has enabled us not just to maintain NAV from third quarter to fourth quarter, as our peers have mostly managed, but to increase it as the discount unwinds.’

Although the government hit renewable providers with a tax raid to ease household energy bills, its drive for net zero emissions is helpful for the company, she said.

‘Wind continues to be the most mature and widely deployed renewable energy technology in the UK – 27% of electricity generation in 2022 – with an offshore wind target of 50GW for 2030 being an important government target in the delivery of 2050 net zero emissions targets,’ said Jemmett-Page.

In 2022, the fund invested £1.1bn into Hornsea 1, one of the largest offshore wind farms in the world, increasing the proportion of offshore wind in the portfolio to 44%. The manager also invested £79m into Twentyshilling and Kype Muir Extensions, two subsidy-free wind farms.

Jemmett-Page said the fund expected to see a range of ‘largely offshore’, subsidy-free assets within ‘our significant acquisition pipeline alongside wind farms accredited under renewable obligation certificates.

Numis Securities analyst Gavin Trodd said UKW maintained its track record of delivering the strongest underlying investment returns of listed renewable funds since launch in 2013.

Despite the strong cash generation, Trodd said there was some concern at the £332m investment commitments UKW faced in the second quarter followed by £150m of debts that were due to be repaid in the third quarter. If £100m of current cash was used, it implied the fund would have to draw down around £432m from its credit facility. The share price discount has widened to 7% from 5% since the results last week.

Nevertheless, he retained a ‘trading buy’ on the 5.5%-yielder. ‘We agree with management that the potential returns of 9% per annum over time with inflation protection remain attractive.’

Renewables riding high

Like its stablemate, Greencoat Renewables (GRP ) has also profited from higher energy prices, with the Dublin-based investor in renewable energy infrastructure reporting a near doubling in pre-tax profit.

The euro-denominated fund reported a 92% jump in pre-tax profit from €71.1m in 2021 to €136.6m last year after wholesale electricity prices climbed 67% as the war in Ukraine put pressure on energy supply. The NAV increased 6.9% over the year, although this was already pre-announced.

The £1.1bn fund declared a dividend of 6.18 cents, up 2% on the distribution it paid in 2021.

The fund, which started life investing in Irish assets before expanding across continental Europe, said ‘the price at which the output from the revenue generating assets is sold is a factor of both wholesale electricity prices and the revenue received under various government support schemes’.

Chair Ronan Murphy said the past 12 months had witnessed ‘accelerated national deployment plans for renewables across the areas in which we invest, as governments recognise renewables as a source of energy security as well as environmental progress’.

To meet its net-zero targets, Europe needs to more than double its generating capacity by 2030, equal to a €500bn capital requirement by early 2030.

Murphy said the fund ‘can play an important role in this essential financing requirement’.

‘In addition to our geographical expansion, the group’s technology diversification should continue to grow, with offshore wind, solar and battery storage likely to increase as a proportion of the portfolio,’ said Murphy.