Why INPP is backing Britain’s new nuclear power station

The listed infrastructure fund told Citywire the high-profile nuclear investment will deliver a 6% yield from day one, with the potential for more once Sizewell C is completed.

Income received from the Sizewell C nuclear project should enable International Public Partnerships (INPP ) to provide investors with an additional five years of covered dividends.

On Tuesday, INPP announced it had been selected as a preferred bidder for the Sizewell C nuclear project, with a £250m investment planned over the next five years.

This investment has raised INPP’s forecasts for a ‘progressive and covered’ dividend from 20 years to 25 years, according to Jamie Hossain, a senior investment director at Amber Infrastructure who works on INPP’s investment team. He described Sizewell C as a ‘hugely exciting opportunity for the fund’.

‘Once financial close has been achieved and “revenue commencement” occurs, which is expected in the fourth quarter, INPP will begin to receive or earn a yield from day one,’ he told Citywire.

‘So we don’t need to wait until the asset has reached construction completion, we will receive a yield from day one. And indeed, once we get through construction, we are forecasting the yield from the investment to really step up.’

He pointed to a 6% yield from day one and noted that once the Suffolk-based nuclear plant becomes operational the ‘yield cap is effectively lifted’, which is why it will increase.

Income won’t be the only thing that increases once operations start at Sizewell C, Hossain also expects to see net asset value (NAV) growth coming through.

‘As we approach those higher distributions and as construction is de-risked, we can really see some accretive NAV growth to the portfolio, which we think is a really important and beneficial feature for the fund,’ he added.

Under the Regulated Asset Base (RAB) model, INPP’s investment will benefit from a UK government support package and license arrangements granted by Ofgem, which provide ‘enhanced investor protections’ to insulate INPP from any serious construction cost overruns or delays.

INPP will invest in the project alongside the UK government, the Nuclear Liabilities Fund, La Caisse (the Quebec-based pension fund investor previously known as CDPQ), EDF, and British Gas-owner Centrica. The new plant will be capable of producing around 3.2GW of baseload low-carbon electricity.

INPP’s shares rose 1.5% to 126.6p on Tuesday following the announcement.

The investment trust closed that evening on a 12.8% discount and yields 6.8%. Over the past three years, INPP’s shares are down 7.9%, including dividends reinvested, which compares to a 5.8% fall by the average fund in the AIC’s Infrastructure sector.