Foresight Solar Fund - Q4 2022 Net Asset Value and Trading Update
08/02/2023 07:00
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RNS Number : 2392P Foresight Solar Fund Limited 08 February 2023
8 February 2023
Foresight Solar Fund Limited (the "Company" or "Foresight Solar")
Q4 2022 Net Asset Value and Trading Update
Foresight Solar Fund Limited, a fund investing in a diversified portfolio of
ground-based solar PV and battery storage assets in the UK and
internationally, announces that its unaudited net asset value (NAV) was
£771.5 million on 31 December 2022 (30 September 2022: £771.2 million). This
results in a NAV per Ordinary Share of 126.5 pence (30 September 2022: 126.4
pence per share).
Highlights:
● An uplift from the latest Spanish project reaching operation and higher than
expected short term inflation assumptions more than offset downward pressure
from lower power price forecasts and the UK Electricity Generator Levy.
● Electricity generated by the global portfolio was 2.3% above base case for the
full year (UK production was 8.6% higher than forecast, whilst Australia was
12.5% below).
● Strong operational performance and power price hedges resulted in 1.74x
dividend cover for FY22, with dividend cover for FY23 expected to be at least
1.50x.
● Near term pipeline of development-stage assets and battery storage projects
provides further potential to grow NAV during 2023.
Summary of NAV key drivers for Q4 2022:
Item p/share movement
NAV on 30 September 2022 126.4
Post-construction revaluation (Virgen del Carmen) +0.8
Inflation +4.2
Power forecasts -4.1
Electricity Generator Levy (EGL) -0.2
Project actuals +0.4
Other movements -1.0
NAV on 31 December 2022 126.5
In October, the 26MW Virgen del Carmen solar farm began exporting to the grid
in Spain. Post construction, the valuation of the project moved to a
discounted cash flow basis, at a discount rate of 7.50%, adding a further 0.8
pence per share to the NAV. This represents a project valuation, whilst the
overall NAV factors in the additional costs of bringing the asset to
commissioning following schedule delays. Following the Lorca portfolio
energising in August, which added 1.1p to the Q3 NAV, the Spanish portfolio of
125MW is now fully operational and is expected to make a significant
contribution to revenues in 2023. The country continues to be a strong focus
for the Company with attractive opportunities.
The NAV has been rebased to also incorporate higher actual 2022 inflation,
adding 0.9 pence per share, and the Investment Manager has updated its
short-term UK inflation forecast to 6.5% for 2023, adding a further 3.2 pence
per share. Together, this has resulted in a NAV increase of 4.2 pence per
share. The medium and long-term inflation assumptions remain unchanged at 3.0%
from 2024.
The final quarter of 2022 saw a moderation of UK power prices and, across the
Company's core markets, Q4 power curves generally reflected a fall in short
and medium-term pricing. Despite these changes, long-term forecasts remain
unchanged.
The clarity the UK Government provided on its Electricity Generator Levy (EGL)
allowed for a more reliable assessment of the tax's impact on forecast
revenues. As a reminder, in the third quarter, the Company applied a 50%
discount to baseload power price forecasts for FY 2023, stepping down to 10%
in FY 2027. That initial view was a close estimate, as the revised assessment
of the full effects of the EGL resulted in a downward adjustment of -0.2 pence
per share once the discounts were unwound. The overall impact is lower than
the Company initially assessed when it provided a specific update last
November because it incorporates mitigating factors from the draft
legislation, such as the introduction of inflation indexation to the benchmark
energy price from 2024.
Whilst questions remain about the efficacy of the EGL, the effect of the
proposed legislation on the Company's valuation is now fully priced in. Given
the high proportion of contracted revenue, the Company has a strong degree of
certainty on the level of additional tax that will need to be paid over the
next three years. After that period, power forecasts trend down toward the
£75/MWh benchmark price, thereby reducing the levy's impact.
Trading update
Electricity generated by the global portfolio was 2.3% above base case for the
full year. UK production, representing 75% of total generation for the period,
was 8.6% above budget due to a combination of strong irradiation and high
levels of availability throughout the year. Those factors, combined with
elevated power prices, resulted in revenues significantly above budget for the
year.
Good operational performance in Australia was not sufficient to mitigate the
lasting effects of La Niña, which continued to limit irradiation across the
country and led to generation 12.5% below forecast.
Power price hedging and dividend cover
During the period, the Investment Manager continued to monitor the market for
opportunities to forward-fix prices under power purchase agreements. The
proportion of contracted revenue for the global portfolio now stands at 79%
for 2023, 75% for 2024 and 66% for 2025.
Based on the strong operational performance and power price hedges, dividend
cover for FY22 is 1.74x. With existing forward price fixes and budgeted
production levels, dividend cover is expected to be at least 1.50x for FY23
and remain well above 1.0x until at least the end of FY25 - even after
accounting for the effects of the EGL.
Pipeline
The Company has visibility of a strong pipeline of opportunities that are
expected to be yield accretive and provide potential to organically grow the
NAV. Alongside the more than 600MW of UK solar projects over which the
Investment Manager has preferential rights, there is an extensive flow of BESS
opportunities from trusted partners.
Foresight Solar is also in advanced discussions with several developers in
Spain and in the UK to secure exclusive rights to pipelines of attractive
development-stage projects. The potential to capture the full upside of this
type of investment, allied to the Investment Manager's successful track record
in development portfolios, makes this an appealing proposition to recycle
capital.
Finally, the Company is currently in exclusive negotiations for the full
project rights to a further 50MWp ready-to-build battery storage project, with
a completion date targeted for Q1 2023. The Investment Manager is assessing
the feasibility of constructing this asset as a longer duration project, as
well as the potential for extending the duration of its other battery storage
assets yet to commence construction.
Gearing update
The Gross Asset Value (GAV), including Company and subsidiaries, on 31
December 2022, was £1,296.3 million (30 September 2022: £1,299.7 million).
The Company's total outstanding debt is £524.8 million, representing 40.5% of
GAV (30 September 2022: 40.7%), well within the 50% limit.
The total outstanding long-term debt of £409.6 million represents
approximately 31.6% of GAV of the Company and subsidiaries on 31 December
2022.
Dividend
The Company remains on target to deliver an annual dividend of 7.12 pence per
share for the year ending 31 December 2022. The Board's intention is to
declare the last interim dividend payment of 1.78 pence per share with the
annual report next month.
2022 full-year results date
The Company intends to publish its 2022 full-year results on 15 March 2023. A
Notice of Results announcement will be released in due course.
Foresight Group
Matheus Fierro +44 (0)20 3911 2318
(InstitutionalIR@ForesightGroup.eu)
Jefferies International Limited +44 (0)20 7029 8000
Gaudi Le Roux
William Brown
Harry Clements
Citigate Dewe Rogerson +44 (0)20 7638 9571
Toby Moore
Lucy Gibbs
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