Quarterly Net Asset Value & Operational Update
LEI: 213800ZPHCBDDSQH5447
29 February 2024
NextEnergy Solar Fund Limited
("NESF" or the "Company")
Unaudited Quarterly Net Asset Value & Operational Update
NextEnergy Solar Fund, a leading specialist investor in solar energy and energy storage, announces its unaudited Q3 Net Asset Value ("NAV") and operational update for the period ended 31 December 2023, alongside an update to its first Standalone Energy Storage asset ("Camilla") and its Revolving Credit Facilities ("RCF").
Key Highlights
Financial:
· NAV per ordinary share of 107.7p (30 September 2023: 108.3p).
· Ordinary shareholders' NAV of £636.4m (30 September 2023: £640m).
· Total gearing (including preference shares) of 45.7% (30 September 2023: 46.4%).
· Financial debt gearing (excluding preference shares) of 28.8% (30 September 2023: 29.8%).
· Weighted average cost of capital of 6.4% (30 September 2023: 6.3%).
· Weighted average discount rate unchanged at 8.0% (30 September 2023: 8.0%).
Dividend:
· Total dividends declared of 6.26p per ordinary share for the nine months ended 31 December 2023 (31 December 2022: 5.64p).
· On track to achieve target dividend of 8.35p per ordinary share for the year ending 31 March 2024.
· Forecasted target dividend cover remains c.1.3x for the year ending 31 March 2024.
· Total dividends declared since IPO of £333m or 65.7p per share.
Portfolio:
· 100 operating solar assets (30 September 2023: 100).
· Total installed capacity of 933MW1 (30 September 2023: 933MW1).
· Remaining weighted asset life of 26.1 years (30 September 2023: 26.4 years).
Footnote:
1. Includes share in private OECD infrastructure solar fund ("NextPower III"). NESF's 6.21% share of NextPower III on a look-through equivalent basis has an operational capacity of 33MW.
Strategic Highlights:
Capital Recycling Programme:
· Following the successful completion of the first phase of its Capital Recycling Programme via the sale of Hatherden for £15.2m, delivering a 2.0x multiple on invested capital, the Company is making positive and steady progress through subsequent phases with selected third-party bidders.
· The Company expects the Capital Recycling Programme to be completed in two further phases (each comprising two assets) and further updates will be provided to the market in due course.
· The table below lists the 246MW of subsidy-free assets comprising the Capital Recycling Programme:
|
Subsidy-free solar asset |
Installed Capacity |
Status |
Location |
|
Hatherden (Sold) |
60MW |
Ready-to-build |
Hampshire, UK |
|
Whitecross |
36MW |
Operational |
Lincolnshire, UK |
|
Staughton |
50MW |
Operational |
Bedfordshire, UK |
|
The Grange |
50MW |
Operational |
Nottinghamshire, UK |
|
South Lowfield |
50MW |
Operational |
Yorkshire, UK |
Energy Storage:
· UK energy storage is an essential component of delivering Net Zero and the transition to a clean energy system. As an asset class, it remains highly complementary to the Company's existing solar portfolio on a standalone and co-located basis and will provide multiple diversification benefits for shareholders.
· The Company's first standalone energy storage asset in Scotland, known as Camilla, connected to the national grid in December 2023 and is progressing on-track through the final phases of commissioning with commercial operations expected to commence in March 2024. Camilla is a 50MW 1 hour lithium-ion battery located in Fife which has been pre-configured for augmentation to 2 hours.
· On 20 February 2024 National Grid ESO published the provisional results of its T-1 Capacity Market Auction for delivery in 2024/25. Camilla has successfully bid and secured a contract with a clearing price of £35.79/kW. The contract was secured with a derated capacity of 5.659MW and is expected to generate £202k (£4k/MW on a total capacity basis) of additional contracted revenue for the period 1 October 2024 through to the end of September 2025.
· The Company expects energy storage assets, such as Camilla, to deliver high single-digit returns to the portfolio primarily by accessing the deep wholesale energy and capacity markets. Ancillary services markets having saturated as expected, the Company maintains its prudent assumption that its energy storage assets will not derive revenues from provision of ancillary services, although recognises that other storage operators may make different assumptions.
· The Company's disciplined approach to capital allocation focuses on accretive investment activity, consistent with the Company's investment objective of providing ordinary shareholders with attractive risk-adjusted returns, principally in the form of regular dividends. Opportunities to create additional value for the portfolio, including from current and future energy storage projects such as Project Lion (250MW / 500MWh strategically located in East Anglia), are rigorously evaluated in line with this overarching objective.
Capital Structure:
· Total gearing reduced in the quarter to 45.7% (30 September 2023: 46.4%), within the stated range of the Company's Investment Policy. This reduction was driven by the cash proceeds (£15.2m) received from the sale of Hatherden as part of the Capital Recycling Programme.
· The Company is on track to refinance its RCF in advance of maturity in June 2024 and has been encouraged by progress in the discussions between existing and new lenders to provide these facilities to the Company.
· As a result, The Company expects the RCF to be refinanced on terms similar to the existing facilities and will provide a further update to the market in due course.
· From the Company's total debt2 of £523.1m, 69% remains at a fixed rate of interest (including the preference shares) and 31% is a floating rate at attractive margins (SONIA + 1.20% to 1.60%).
· As at 31 December 2023:
Footnote:
2. Excludes NextPower III look through debt totalling £13.1m as of 31 December 2023.
Helen Mahy, Chair of NextEnergy Solar Fund Limited, commented:
"NextEnergy Solar Fund is making progress against its strategic objectives, whilst maintaining a strong financial platform in a difficult industry environment. Our Capital Recycling Programme is proceeding as planned and we expect to update the market in short order. The Board remains committed to pay down debt, manage the discount through a potential share buyback programme, and invest in attractive growth propositions such as energy storage.
In the meantime, our existing portfolio is performing well and generating the cash to sustain our stated dividend policy and we continue to see enormous long-term opportunities for investment in solar energy and energy storage."
Michael Bonte-Friedheim, CEO of NextEnergy Group said:
"We are pleased with the overall progress made by NESF during this period, with positive updates on the development of our energy storage programme with the Company's first standalone asset in Scotland now being connected to the grid and progressing on track through its final commissioning phase. The development of such assets is expected to be very complementary to the existing portfolio by allowing access to the deep wholesale energy and capacity markets rather than saturated ancillary revenue streams.
We are confident with the ongoing operational performance of the portfolio and we remain well-placed to capitalise on future attractive investment opportunities in the UK solar energy and storage markets."
Updates to Net Asset Value ("NAV") assumptions
The Company has made the following updates to its valuation assumptions for the 31 December 2023 NAV calculation:
· Updated inflation assumptions to reflect the latest available third-party inflation data from HM Treasury Forecasts and long-term implied rates from the Bank of England for its UK assets. For international assets, IMF forecasts are used.
· Updated power price forecasts capturing the latest available third-party advisor long-term power curves.
The updated NAV assumptions are disclosed in the relevant sections below.
NAV Bridge
|
|
NAV p/share |
NAV |
|
At 30 September 2023 |
108.3p |
£640.0m |
|
Time value |
2.3p |
£13.5m |
|
Project actuals |
(0.7p) |
(£4.4m) |
|
Power price forecasts |
(3.0p) |
(£17.4m) |
|
Changes in short-term inflation |
2.6p |
£15.4m |
|
Sale of Hatherden |
1.3p |
£7.5m |
|
Cash dividends paid |
(2.5p) |
(£14.7m) |
|
Capital movements (no net NAV impact): |
|
|
|
- New assets at cost |
1.4p |
£8.1m |
|
- Repayment of RCF using cash on hand |
2.3p |
£13.5m |
|
- Cash used to fund investments and repayment of RCF |
(3.7p) |
(£21.6m) |
|
Other movements in residual value |
(0.6p) |
(£3.5m) |
|
At 31 December 2023 |
107.7p |
£636.4m |
The movement in the NAV over the period was driven primarily by the following factors:
· Increase due to time value, reflecting the change in the valuation as a result of changing the valuation date, prior to adjusting for any outflows of the Company. The increase in value is attributable to the unwinding of the discount applied to cash flows for the period when calculating the DCF.
· A decrease in short-term (2023-2027) UK power price forecasts provided by Consultants, mainly as a result of lower gas price futures, influenced by above-average gas storage levels and milder weather across winter 23/24.
· The valuation incorporates the published inflation figures for 2023 which have been reflected in the ROC price announced for 2024/25, and revisions to short-term inflation forecasts from external third parties.
· Completion of the first phase of the Capital Recycling Programme through the sale of Hatherden.
· The dividends declared and operating costs incurred during the year.
· Other movements in residual value include changes in FX rates, Fund Opex, and other non-material movements.
Inflation Linkage and Updates
The Company continues to take a consistent approach to its inflation assumptions, using external third-party, independent inflation data from HM Treasury Forecasts and long-term implied rates from the Bank of England for its UK assets. For international assets, IMF forecasts are used. Long-term assumptions are aligned with market consensus including transition to CPI from 2030.
Inflation Rate (UK RPI) Assumptions
|
Calendar Year |
31 December 2023 |
30 September 2023 |
30 June 2023 |
|
2023/24 |
9.70% |
6.80% |
6.30% |
|
2024/25 |
unchanged |
3.90% |
3.50% |
|
2025/26 |
2.20% |
2.80% |
2.60% |
|
2026/27 |
2.60% |
2.70% |
3.00% |
|
2027/28 |
unchanged |
3.30% |
3.40% |
|
2028/29 - 2029/30 |
unchanged |
unchanged |
3.00% |
|
2030/31 onwards |
unchanged |
unchanged |
2.25% |
Discount Rate Assumptions
The Company has not made any changes to its discount rate assumptions during the latest quarter. The Company's weighted average discount rate at the 31 December 2023 remains 8.0%. The below table reflects the discount rate assumptions breakdown used for the 31 December 2023 NAV calculation:
|
|
31 December 2023 |
30 September 2023 |
30 June 2023 |
|
UK unlevered |
unchanged |
unchanged |
7.50% |
|
UK levered |
unchanged |
unchanged |
8.20 - 8.50% |
|
Italy unlevered3 |
unchanged |
unchanged |
9.00% |
|
Subsidy-free (uncontracted)4 |
unchanged |
unchanged |
8.50% |
|
Life extensions5 |
unchanged |
unchanged |
8.50% |
Footnotes:
3. Unlevered discount rate for Italian operating assets implying 1.50% country risk premium.
4. Unlevered discount rate for subsidy-free uncontracted operating assets implying 1.0% risk premium.
5. 1.0% risk premium for cash flows after 30 years where leases have been extended.
Power Curve Assumptions
31 December 2023:
For the UK portfolio, the Company uses multiple sources for UK power price forecasts. Where power has been sold at a fixed price under a Power Purchase Agreement (a hedge), these known prices are used. For periods where no PPA hedge is in place, short-term market forward prices are used. After two years, the Company integrates a rolling blended average of three leading independent energy market consultants' long-term central case projections.
For the Italian portfolio, Power Purchase Agreements (hedges) are used in the forecast where these have been secured. In the absence of hedges, a leading independent energy market consultant's long-term projections are used to derive the power curve adopted in the valuation.
Power Sales
NESF continues to lock in power price hedges over a rolling 36-month period. This proactive risk mitigation helps secure and underpin both dividend commitments and dividend cover, whilst reducing volatility and increasing visibility of cash flows.
In addition to NESF's budgeted revenues from ROCs and FITs (c.50% of revenues), the Company's UK hedging covers 80% of the total portfolio (716MW) as at 20 February 2024.
|
UK hedging summary |
FY2023/24 |
FY2024/25 |
FY2025/26 |
|
Generation hedged |
98% |
74% |
29% |
|
Power price hedged |
£79.2MWh |
£84MWh |
£101.2MWh |
Renewable Energy Guarantees of Origin ("REGOs")
The Company sells REGOs bundled with power sales through existing power purchase agreements as well as unbundled via bilateral arrangements. Where REGOs have been sold at a fixed price, these known prices are used in the calculation of NAV. 100% of REGOs generated for the 2023-24 compliance year have been sold at an average price of £2.5/MWh. 85% of expected REGOs for the 2024/25 compliance year have been sold at £3.30/MWh. Unbundled, unsold REGO volumes of up to c.645GWh/annum are reflected in the NAV in line with third-party advisor forecasts (£5/MWh until March 2028 and then £1.5/MWh for the remaining life of the asset).
Available Capital
Out of the total £205m immediate RCF available to the Company, c.£41.2m remains undrawn and available for deployment as at 31 December 2023. Following the completion of the first phase of its Capital Recycling Programme, the proceeds were used to reduce the Company's outstanding RCF. The Company also has c.£2.6m immediate cash balance available at Company level as at 31 December 2023 (this is separate from the cash currently held at Holdco/SPV level).
Future Pipeline
The Company owns the project rights for, or has exclusivity over a pipeline of c.£500m domestic and international solar (>400MW), domestic energy storage assets (>250MW), and a right of first offer over qualifying projects developed or sourced by the Investment Manager and Investment Adviser.
|
For further information:
NextEnergy Capital Michael Bonte-Friedheim |
020 3746 0700 ir@nextenergysolarfund.com |
|
Ross Grier |
|
|
Stephen Rosser |
|
|
Peter Hamid (Investor Relations)
|
|
|
RBC Capital Markets |
020 7653 4000 |
|
Matthew Coakes |
|
|
Elizabeth Evans Kathryn Deegan
|
|
|
Cavendish |
020 7397 1909 |
|
James King |
|
|
William Talkington
|
|
|
H/Advisors Maitland |
020 7379 5151 |
|
Neil Bennett |
|
|
Finlay Donaldson |
|
|
|
|
|
Ocorian Administration (Guernsey) Limited |
01481 742642 |
|
Kevin Smith |
|
Notes to Editors1:
About NextEnergy Solar Fund
NextEnergy Solar Fund is a specialist solar energy and energy storage investment company that is listed on the premium segment of the London Stock Exchange and is a FTSE 250 constituent.
NextEnergy Solar Fund'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.
The NextEnergy Solar Fund portfolio has a combined installed power capacity of 933MW, generating enough renewable energy to power the equivalent of c.242,000 average UK home electricity needs for an entire year. The Fund 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 2023, the Company had an unaudited gross asset value of £1,173m. For further information please visit www.nextenergysolarfund.com
Article 9 Fund
NextEnergy Solar Fund is classified under Article 9 of the EU Sustainable Finance Disclosure Regulation and EU Taxonomy Regulation. NextEnergy Solar Fund's sustainability-related disclosures in the financial services sector are in accordance with Regulation (EU) 2019/2088 and can be accessed on the ESG section of both the NextEnergy Solar Fund and NextEnergy Capital website.
About NextEnergy Group
NextEnergy Solar Fund 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: Over 16 years of specialist solar expertise having invested in over 400 individual solar plants across the world. NextEnergy Capital currently manages four institutional funds with a total capacity in excess of 3GW+ and has assets under management of $3.9bn. www.nextenergycapital.com
· 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 1,450 utility-scale solar power plants with an installed capacity in excess of 1.8GW. www.wise-energy.com
· Starlight: 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 2023, being the latest date in respect of which NextEnergy Solar Fund has published financial information.
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