12th September 2025
We have a bugbear when it comes to how renewable infrastructure trusts report their net asset values (NAVs). They all use different assumptions!!!
Why?
The cynical answer is that it’s to confuse investors and make it harder for us to make easy comparisons of the respective NAVs.
The reality is that they do all try and come up with a fair, representative NAV that reflects the true value of the underlying portfolio, incorporating data from independent data providers and with the NAV being audited by an independent third party. But, by all approaching the problem independently they all end up having different assumptions that brings complexity when trying to compare the return prospects.
We came across an interesting piece of research this week from Ashley Thomas at broker Winterflood looking at Greencoat UK Wind (UKW). In it, he built a discounted cash flow (DCF) model for UKW using their published assumptions around the power price curve, inflation assumptions, and discount rates. He then also built a DCF model for UKW using peer The Renewable Infrastructure Trust’s published assumptions. The conclusion? Whilst the published assumptions were very different (for example UKW uses a more aggressive power price curve and inflation assumptions combined with a higher discount rate), Ashley ended up in almost exactly the same place with his DCF derived NAVs.
You can get a DCF to tell you anything you like – and a small change in some inputs can have a massive impact on the end result. Raise your long-term inflation assumptions by 0.5% a year? Bish, up goes your NAV. Increase your discount rate by 1%? Bash, down goes your NAV. Increase your power price curve assumption? Bosh, up goes the NAV.
With all those different moving parts, what is encouraging in this case is that the derived NAVs ended up in the same place. This is what we would expect – in this case both trusts are managing very similar assets (even owning parts of the same projects in some cases!) so they should be valued the same. Although a little thin on the ground, transactional evidence provides further comfort regarding the output of the respective valuation methodologies with both UKW and TRIG executing asset disposals this year either in line with, or above prevailing book value.
In a perfect world, we’d love to see uniform valuation assumptions across the sector. It would make comparisons easier and more intuitive and allow the sector to move away from bickering about ‘that trust’s power price assumptions are too aggressive’, ‘yes, but that trust’s discount rate is too low’.
If it all nets off and ends up in the same place anyway, why not just agree on a standard basis of inputs?
We accept that this is much easier said than done. Whilst many trusts have very similar assets, they will never be identical (different ages, manufacturers, locations which will impact the energy generation etc) and so a uniform approach, particularly to the discount rate, is difficult. However, we believe there are aspects of NAVs that could be uniform across sectors that would make it easier for investors to compare and are less controversial. For example, a standard use of power price curves would be an easy win. By reducing the number of moving parts across NAV calculations, we believe it would help improve investor sentiment towards sectors such as renewables which at the margin could contribute to discount narrowing.
With all the uncertainty linked to NAV calculations, we have welcomed the move from trusts across the alternatives universe to shift their fee structure from being fully NAV focused, to being at the least a combination of NAV and market capitalisation for the calculations. Having a fee structure that is at least partly impacted by market capitalisation helps reflect the uncertainty and range in asset valuation and aligns management teams with their shareholders’ experience.
Dan Cartridge – Fund Manager
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