The Board believes that TRIG is well-positioned with its diverse portfolio strategy and its experienced management, provided by InfraRed and RES, to benefit from the long-term returns available from renewables infrastructure as well as to mitigate and/or make adjustments for the risks it is most likely to confront in its industry.
While there are a range of factors monitored by the Managers, the Board considers that the key elements of risk impacting on the future performance of the operating assets in which the Company invets are (1) portfolio energy yield variablity; (2) movements in wholesale power prices and (3) adverse regulatory change.
(1) Portfolio energy yield:
This is the risk that portfolio electricity production consistently falls short of expectations. The board believes the variability encountered from the energy sources of wind and solar will be mitigated – both naturally by the tendency for weather conditions to even out over time and via the Company’s diversification policy, both by geography and technology.
(2) Wholesale electricity prices:
This is the risk that electricity prices will fall or that they will not increase as expected over the life of the portfolio.
The impact of any adverse movements in forecast wholesale power prices is partially mitigated by a majority of the Company’s project-level revenues over the next five years being derived from fixed power purchase agreements, feed-in tariffs, contact-for-difference mechanisms and renewable obligation certificates. An oversupply of fossil fuels tends to lead to a soft market in these commodities which in turn may reduce wholesale power prices as can an oversupply of generation with low marginal costs including renewables. Conversely, there is also the opportunity for future upside over the longer term once production and demand come into balance. The Company may also continue to invest in projects that provide fixed-type revenues, such as projects with feed-in tariffs or contract-for-difference mechanisms.
This is the risk of government and regulatory support for renewables changing and adversely affecting the performance of the portfolio.
As TRIG invests in predominantly operating assets (and with an allocation limit of 25% of portfolio value to pre-operational projects*), TRIG carries few risks associated with the planning and commissioning of projects. This is an important risk mitigant as governments seek to reduce costs as deployment targets approach realisation, and manage down the level of incentives available for potential new developments. The main government-related risk to TRIG is the enactment of regulations or tax changes that might affect income from existing electricity generating projects. The Company focuses on investment in markets where the Government shows long-term commitment to sustainable renewables support schemes, where these are relied upon.
For further details on risk factors, please refer to the Company’s prospectus publications and the Risks and Risk Management sections of the TRIG Annual Report and Accounts available here.
*Increased from 15 per cent. to 25 per cent. of the Portfolio Value following authorisation from shareholders at the Company’s 2022 Annual General Meeting on 27 May 2022.