Last checked at 
21 Feb 2023 07:00
LEI: 213800ZPHCBDDSQH5447
21 February 2023
NextEnergy Solar Fund Limited
("NESF" or the "Company")
Unaudited Quarterly Net Asset Value and Operational Update
NextEnergy Solar Fund, the specialist solar+ fund, with a combined installed power capacity of 865MW, announces its unaudited Net Asset Value as at 31 December 2022, and its latest operational update.
Financial Highlights
· Net Asset Value ("NAV") per ordinary share of 120.9p (30 September 2022: 122.9p).
· Ordinary shareholders' NAV of £713m (30 September 2022: £724.7m).
· Third interim dividend of 1.88p per ordinary share for the quarter ended 31 December 2022 (31 December 2021: 1.79p).
· Forecast cash dividend cover of approximately 1.5x for FY22/23 based on high visibility of future cash flows (FY21/22: 1.2x).
· Total dividends paid of 5.64p per ordinary share in respect of the nine months ended 31 December 2022 (31
December 2021: 5.37p).
· Target dividend of 7.52p per ordinary share for the year ended 31 March 2023 (a year-on-year increase of 5%, above the 4.1% calculated Retail Price Index ("RPI") rise for the 2021 calendar year).
· Total Gearing (including preference shares) of 43% (30 September 2022: 42%).
Portfolio & Operational Highlights
· Total installed capacity of 865MW1 (30 September 2022: 865MW).
· 99 operating solar assets (30 September 2022: 99).
· Portfolio generation outperformance of +6.2% against budget for nine months ended 31 December 2022 (31 December 2021: +0.4%), translating into additional revenues of c.£5.4m (31 December 2021: £0.2m).
Footnote:
(1) Excludes share in private infrastructure solar fund (NextPower III ESG). Inclusion of NESF's share of NextPower III would increase capacity by 23MW to 888MW.
Updates to NAV assumptions
The Company has made the following key updates to its valuation assumptions for the 31 December 2022 NAV calculation:
· An increase to the unlevered discount rate by 0.5% in response to market conditions.
· Updated inflation assumptions to reflect the latest available third-party inflation data.
· Updated power price forecasts capturing the latest available third-party advisor long-term power curves.
· Removal of the discounts applied to the unhedged portion of the portfolio power prices, replaced by the expected impact of the UK government's proposed electricity generator levy ("EGL"), based on draft legislation as published.
Full details are disclosed in the relevant sections below.
NAV and Portfolio Movements
NAV bridge:
| NAV p/share | NAV |
At 30 September 2022 | 122.9p | £724.7m |
Pref shares dividend | (0.4p) | (2.4m) |
Ordinary shares cash dividend | (1.8p) | (10.8m) |
Income from investments | 1.9p | 11.4m |
Change in fair value of investments | (1.3p) | (7.9m) |
Net operating costs | (0.4p) | (2.1m) |
At 31 December 2022 | 120.9p | £713m |
Portfolio valuation bridge:
| Portfolio valuation |
At 30 September 2022 | £889.1m |
New assets at cost | 61.2m |
RCF drawdown | (12.2m) |
Operating result | 13.4m |
Distribution to the Fund | (11.4m) |
Change in power price forecast including electricity generator levy (EGL) | (1.6m) |
Change in inflation | 7.0m |
Change in discount rate | (20.0m) |
Movement in residual value and balance of DCF valuation | (29.8m) |
At 31 December 2022 | £895.7m |
Inflation Linkage and Updates
Approximately 50% of the Company's revenues are made up of government-backed subsidies via ROCs and FITs. This component of revenue increases in line with RPI, whilst the remaining revenues in the portfolio are generated through the sale of budgeted power generation into the market.
The Company has taken a consistent approach to inflation assumptions, using third-party, independent inflation data from the HM Treasury Forecasts and long-term implied rates from the Bank of England for its UK assets. For international assets, IMF forecasts are used.
Inflation rate (UK RPI) assumptions
| 31 December 2022 | 30 September 2022 |
2023 | 11.60% | 12.40% |
2024 | 7.00% | 5.90% |
2025 | 4.20% | 3.60% |
2026 | 3.90% | 3.40% |
2027 | 3.80% | 3.90% |
2028-2030 | unchanged | 3.00% |
2030 onwards | unchanged | 2.25% |
Discount Rate Assumptions
The Bank of England has implemented substantial further increases to its base rate. In response to these market conditions, the Company has increased its unlevered discount rate by 0.5%. The below table reflects the discount rate assumptions for the 31 December 2022 NAV calculation:
31 December 2022 | 30 September 2022 | |
UK unlevered | 6.75% | 6.25% |
UK levered | 7.45-7.75% | 6.95-7.25% |
Italy unlevered 1 | 8.25% | 7.75% |
Subsidy-free (uncontracted) 2 | 7.75% | 7.25% |
Life extensions 3 | 7.75% | 7.25% |
Footnotes:
(1) Unlevered discount rate for Italian operating assets implying 1.50% country risk premium.
(2) Unlevered discount rate for subsidy-free uncontracted operating assets implying 1.0% risk premium.
(3) 1.0% risk premium for cash flows after 30 years where leases have been extended.
Electricity Generator Levy
The UK Government announced its initial publication of the Electricity Generator Levy ("EGL") on 17 November 2022, in the run up to the Company's interim results announcement on 21 November 2022. The Company has fully priced in the impact of the EGL into the 31 December 2022 NAV calculation. As a result of this, the Company has removed the temporary discounts it applied to the unhedged portion of the portfolio power prices in the 30 September 2022 NAV calculation. As the Company has now captured the impact of the EGL, which was in line with expectations, the Company expects there to be no further impact on future NAV calculations.
Power Sales Strategy
To manage the sale of power into the electricity market, NextEnergy Capital, The Company's investment adviser, continues to utilise its specialist power sales desk. This team actively manages the Company's power price contracting strategy and activities. In the current environment, the power sales desk has enabled the Company to mitigate market price volatility whilst incrementally growing weighted average prices through forward hedging above forecast prices. Aggregating the amount of revenue derived from subsidies and the power hedges, the Company has a high degree of comfort around forward revenue projections underpinning dividend cover for the current financial year. Given the high degree of contracted revenues in future years, the Company is confident in its ability to continue to provide investors with a well-covered dividend going forward.
In addition to NESF's budgeted revenues from ROCs and FITs (c.50%), the Company's hedging positions (covering 716MW UK portfolio) as at 31 December 2022 were:
Financial Year | UK budgeted generation hedged | Average fix price |
2022/23 | 94% | £88MWh |
2023/24 | 74% | £73MWh |
2024/25 | 44% | £90MWh |
2025/26 | 13% | £147MWh |
Future Pipeline
The Company has exclusivity over, or owns the project rights for, the majority of its pipeline of c.£500m domestic and international assets across the solar and energy storage space. This includes ownership of the development rights for a high-quality 250MW lithium-ion battery storage project in the East of England, which when approved and constructed will be one of the UK's largest operational standalone battery storage assets.
Available Capital
The Company has access to capital to pursue its secured FY23/24 pipeline, including energising a 36MW solar plant and bringing online a 50MW battery storage project. Out of the total £205m immediate Revolving Credit Facilities available to the Company, c.£42m remains undrawn and available for deployment as of 31 December 2022. The Company also has c.£2m immediate cash balance available at Fund level (this is separate from the cash currently held at Holdco/SPV level). In addition, the Company actively assesses capital deployment options as part of ongoing optimisation of the composition of the portfolio.
The Company's investment policy allows a maximum of 50% total debt to Gross Asset Value limit, which if required would provide the Company with further flexibility of c.£128m to convert the Company's attractive pipeline into NAV accretive and cash generating assets to further strengthen and grow the portfolio.
Energy Storage Strategy
Energy storage is a complementary technology to the existing large solar portfolio, providing access to complementary revenues and additional opportunities to derive value from the Company's existing grid connections. Energy storage offers multiple diversification benefits whilst providing attractive returns. The market environment continues to be favourable for the Company to increase its allocation to energy storage within the portfolio. The Company is confident in its ability to successfully deliver energy storage and continues to benefit from its investment adviser's experience and track record in securing import capacity and in realising operational assets.
NextEnergy Capital, the Company's investment adviser, has consulted with investors to seek support to increase the Company's investment policy energy storage limit from 10% of Gross Asset Value, up to 25%, which will allow the Company to fully capture the energy storage growth opportunities already backed by a secured strategic pipeline of assets. The investor consultation has been constructive, and a further update will be provided to the market in the near term.
Kevin Lyon, Chairman of NextEnergy Solar Fund Limited, commented:
"NESF continues to offer investors an attractive dividend which has increased every year since the Company listed on the London Stock Exchange in 2014. NESF's risk management and power sales strategy provides a high proportion of contracted revenues by locking in stable income generation, this provides a high degree of comfort on the Company's forecasted dividend cover, which is approximately 1.5x for this financial year.
The Company's future pipeline remains opportunity-rich, with energy storage projects offering extremely exciting growth prospects as the Company looks to capture synergies between its large solar portfolio and additional energy storage. NESF continues to maintain a risk profile that will allow the Company to pay a growing, covered dividend to our shareholders into the future."
Michael Bonte-Friedheim, CEO of NextEnergy Group said:
"NESF continues to deliver excellent financial and operational performance from its portfolio with electricity generation performance significantly above budget, extending our continuous outperformance track record since the Company's IPO in 2014. NESF offers investors an attractive return from its large existing operational solar portfolio. It also presents an excellent opportunity for growth, by delivering future attractive energy storage assets which will provide further revenue, technology, and geographic diversification to the portfolio. We look forward to updating the market further as we continue to successfully execute our strategy."
Footnote:
(1) A solar+ fund invests primarily in utility scale solar assets, alongside complementary ancillary technologies, like energy storage.
For further information:
NextEnergy Group Michael Bonte-Friedheim |
020 3746 0700 ir@nextenergysolarfund.com |
Aldo Beolchini | |
Ross Grier | |
Peter Hamid (Investor Relations)
| |
RBC Capital Markets |
020 7653 4000 |
Matthew Coakes | |
Kathryn Deegan
| |
Cenkos Securities | 020 7397 8900 |
James King | |
William Talkington
| |
Camarco |
020 3781 8334 |
Owen Roberts | |
Eddie Livingstone-Learmonth | |
Ocorian Administration (Guernsey) Limited |
014 8174 2642 |
Kevin Smith |
Notes to Editors1:
About NextEnergy Solar Fund
NESF is a specialist solar+ fund listed on the premium segment of the London Stock Exchange and is a constituent of the FTSE250. NESF's investment objective is to provide ordinary shareholders with attractive risk-adjusted returns, principally in the form of regular dividends, by investing in a diversified portfolio of utility-scale solar energy and energy storage infrastructure assets. The majority of NESF's long-term cash flows are inflation-linked via UK government subsidies.
NESF currently has a diversified portfolio comprising of the following:
Solar PV:
· 99 operating solar assets across the UK and Italy (primarily on agricultural, industrial, and commercial sites)
· A 50MW co-investment into a Spanish solar project alongside NextPower III ESG, currently under construction
· A 210MW co-investment into a Portuguese solar project alongside NextPower III ESG, currently under construction
· A UK solar project under construction (Whitecross 36MW)
· A ready-to-build UK solar project (Hatherden 50MW)
· A $50m commitment into NextPower III ESG (a private solar infrastructure fund providing exposure to both operating and under construction, international solar assets)
Energy Storage:
Joint Venture Partnership with Eelpower:
· A 50MW standalone battery storage project in Fife, Scotland, currently under construction (part of a £300m joint venture with Eelpower)
· A portfolio of 250MW pre-construction standalone battery storage projects in the East of England
Co-located programme:
· First site identified for a 6MW co-located battery storage project at North Norfolk Solar Farm and discussions are ongoing with the local distribution network operator to confirm an energisation date.
The NESF portfolio has a combined installed power capacity of 865MW (excluding NextPower III MW on an equivalent look-through basis). NESF may invest up to 30% of its gross asset value in non-UK OECD countries, 15% in solar-focused private infrastructure funds, and 10% in energy storage assets.
As at 31 December 2022, the Company had an unaudited gross asset value of £1,252m
For further information on NESF please visit www.nextenergysolarfund.com
Commitment to ESG
NESF is committed to ESG principles and responsible investment which make a meaningful contribution to reducing CO2 emissions through the generation of clean solar power. NESF will only select investments that meet the requirements of NEC Group's Sustainable Investment Policy. Based on this policy, NESF benefits from NEC's rigorous ESG due diligence on each investment. NESF is committed to reporting on its ESG performance in accordance with the UN Sustainable Development Goals framework and the EU Sustainable Finance Disclosure Regulation.
NESF has been awarded the London Stock Exchange's Green Economy Mark and has been designated a Guernsey Green Fund by the Guernsey Financial Services Commission.
Article 9
NESF is classified under Article 9 of the EU Sustainable Finance Disclosure Regulation and EU Taxonomy Regulation.
NESF's sustainability-related disclosures in the financial services sector in accordance with Regulation (EU) 2019/2088 can be accessed on the ESG section of both the NESF website (nextenergysolarfund.com/esg/) & NEC Group website (nextenergycapital.com/sustainability/transparency-and-reporting/).
About NextEnergy Group
NESF is managed by NextEnergy Capital, part of the NextEnergy Group. NextEnergy Group was founded in 2007 to become a leading market participant in the international solar sector. Since its inception, it has been active in the development, construction, and ownership of solar assets across multiple jurisdictions. NextEnergy Group operates via its three business units: NextEnergy Capital (Investment Management), WiseEnergy (Operating Asset Management), and Starlight (Asset Development).
NextEnergy Capital
NextEnergy Capital ("NEC") comprises the Group's investment management activities. To date, NEC has invested in over 350 individual solar plants for a capacity in excess of 2.4GW across it institutional funds. www.nextenergycapital.com
● | NextEnergy Solar Fund ("NESF") is a specialist solar+ fund, which is listed on the premium segment of the London Stock Exchange. It currently has an installed capacity of 865MW spread among 99 individual operating assets in the UK and Italy, comprising an unaudited gross asset value of £1,258m. NESF is one of the largest listed solar and energy storage investment companies in the world. |
● | NextPower II ("NPII") a private fund made up of 105 individual operating solar power plants and an installed capacity of 149MW, focused on consolidating the substantial, highly fragmented Italian solar market. NPII was successfully divested in January 2022, a 2016 vintage vehicle that generated net IRRs in excess of its gross target of 10-12%. |
● | NextPower III ESG ("NPIII") is a private fund exclusively focused on the international solar infrastructure sector, principally targeting projects in carefully selected OECD countries, including the US, Portugal, Spain, Chile, Poland, and Italy. NPIII is a fund that provides a positive social and environmental impact to the countries it has and will invest into. NPIII completed its fundraise with a total of $896m, including a separately managed account. The target of the fund was $750m. |
● | NextPower UK ESG ("NPUK") is a private unlevered fund investing in greenfield subsidy-free solar projects, with PPA's, in the UK. NPUK ESG is a 10-year closed-ended private fund launched in December 2021 targeting £500m. To date, NPUK has raised total commitments of £487m, with the UK Infrastructure Bank providing cornerstone match-funding for up to £250m.
|
● | NextPower V ESG ("NPV") is a private contracted OECD solar strategy that offers investors the opportunity to earn strong risk-adjusted returns from the solar PV infrastructure asset class with a highly experienced team and a track record of success in OECD-based solar deployment. The strategy will primarily invest in OECD solar assets and adjacent technologies (e.g. battery storage) in the target markets. NPV ESG is targeting $1.5bn in size with a $2bn ceiling. |
WiseEnergy®
WiseEnergy® is NextEnergy Group's operating asset manager. WiseEnergy is a leading specialist operating asset manager in the solar sector. Since its founding, WiseEnergy has provided solar asset management, monitoring, and technical due diligence services to over 1,350 utility-scale solar power plants with an installed capacity in excess of 1.8GW. WiseEnergy clients comprise leading banks and equity financiers in the energy and infrastructure sector.
www.wise-energy.com
Starlight
Starlight is NextEnergy Group's development company that is active in the development phase of solar projects. It has developed over 100 utility-scale projects internationally and continues to progress a large pipeline of c.10GW of both green and brownfield project developments across global geographies.
Notes:
1: All financial data is unaudited at 31 December 2022, being the latest date in respect of which NESF has published financial information