Octopus Renewables Infrastructure (ORIT ) has signed a deal with Iceland Foods to supply solar power to 150 of its stores.

The £545m investor in wind and solar assets has entered into a 10-year ‘power purchase agreement’ (PPA) for the electricity generated by its Breach solar farm in Cambridgeshire, which the investment trust expects to become operational in the fourth quarter of this year, having bought the site in 2022.

The recipient of the electricity will be Iceland Foods, which has 900 stores specialising in freezer foods in the UK, and another 40 stores across Europe, as well as a global export business.

The Breach solar farm will deliver 64 gigawatt hours (GWh) of energy each year to power 150 Iceland stores, equal to 14% of Iceland Foods’ energy needs in the UK.

The board of the trust said Iceland Foods would provide ‘investment grade credit support’ for the PPA despite the retail chain despite its debt falling into distressed territory last year. Ratings agency Moody’s downgraded the group after it fell to a pre-tax loss of £4.1m in 2021, cutting its rating from B2 to B3 – six notches below investment grade – with energy costs being one of the concerns flagged by the ratings group, alongside rising inflation and a consumer squeeze.

However, this year looks much brighter and Moody’s last month reported a ‘significant improvement’ at the group, which saw revenues fall just short of £3bn in the nine months to December 2022. Moody’s forecast Iceland’s earnings to grow around £115m by the end of the financial year this month, which will improve its chances for a £750m refinancing and reduces pressure on the credit rating.

The deal with the frozen food giant will increase the percentage of ORIT’s revenues that are fixed over the two years to 31 December 2024 to 71%, and the percentage of forecast revenues which are index-linked over the next 10 years to 31 December 2032 to 56%. The deal, which will be accretive to net asset value, will bolster dividend cover over coming years, helping support the current yield of 5.4%.

Phil Austin, the trust’s chair, said the deal showed ‘the vital role that renewables play in accelerating businesses’ transitions to net zero’.

ORIT also reported that Cumberhead, its 50MW wind farm under construction in Scotland, which has a PPA with Kimberly Clark, the Huggies and Andrex personal care group, recently participated in auctions for the UK capacity market, which provides payments to new electricity generators that are not participating in the government’s contracts for difference scheme.

The participation in the auction has seen Cumberhead awarded capacity market contracts that will pay ORIT inflation-linked revenue starting at over £200,000 a year, from 2026 until 2041, as well as a single-year contract for 2023/24 valued at £200,000.

The contract wins are more than double the assumptions used in the fund’s fourth quarter valuations, meaning the contracts are now expected to have a positive impact of £1m on the company’s 31 March NAV.