REG - NextEnergy Solar Fnd - Interim Results & Capital Recycling Update

NextEnergy Solar FundAnnouncement

22/11/2023 07:15

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RNS Number : 2078U  NextEnergy Solar Fund Limited  22 November 2023

LEI: 213800ZPHCBDDSQH5447

22 November 2023

NextEnergy Solar Fund Limited

("NESF" or the "Company")

 

 

 Interim Results & Capital Recycling Update

 

NextEnergy Solar Fund, a leading specialist investor in solar energy and
energy storage, announces it has today published its interim results for the
period ended 30 September 2023.

 

Key Highlights

 

Financial:

·     NAV per ordinary share of 108.3p (31 March 2023: 114.3p).

·     Ordinary shareholders' NAV of £640m (31 March 2023: £674.4m).

·     Earnings per ordinary share of (2.0p)(1) (31 March 2023: 8.2p).

·     Total gearing (including preference shares) of 46.4% (31 March
2023: 44.6%).

·     Financial debt gearing (excluding preference shares) of 29.8% (31
March 2023: 28.4%).

·     Weighted average cost of capital of 6.3% (31 March 2023: 5.7%).

·     Weighted average discount rate of 8.0% (31 March 2023: 7.3%).

 

Dividend:

·     Dividend of 4.18p per ordinary share for the period ended 30
September 2023 (30 September 2022: 3.76p).

·     Target dividend of 8.35p per ordinary share for the year ended 31
March 2024 (a year-on-year increase of 11%).

·     Forecasted target dividend cover remains c.1.3x for the financial
year ending 31 March 2024.

·     Total dividends declared since IPO of £318m or 63.7p per share.

 

Portfolio:

·     Energised Whitecross, a 36MW solar farm located in Lincolnshire.

·     100 operating solar assets (31 March 2023: 99).

·     Total installed capacity of 933MW(2) (31 March 2023: 889MW(1)).

·     Remaining weighted asset life of 26.4 years (31 March 2023: 26.3
years).

 

Operational, ESG and Sustainability:

·     Portfolio generation in line with budget for the period ended 30
September 2023 although has been impacted by Distribution Network Operators
("DNOs")(3) outages which remain elevated due to backlogs (30 September 2022:
6.1%).  Without DNO outages, portfolio generation for the period would have
been c.3.4% above budget.

·     Generated 599GWh of clean electricity during the period,
contributing to the avoidance of 252,500 tonnes of CO(2)e emission (30
September 2022: 639GWh, 266,500 tonnes of CO(2)e).

·     Powered an equivalent 334,200 UK homes for one year (30 September
2022: 354,300).

·     The Company released its 2023 standalone ESG and Sustainability
report in the period, available here
(https://www.nextenergysolarfund.com/wp-content/uploads/2023/07/NESF_Sustainability-and-ESG-Report.pdf)
.

 

Footnotes:

1.    Driven by the net change in fair value of investments for the period.

2.    Includes share in private equity vehicle (NextPower III). NESF's
6.21% share of NextPower III on a look through equivalent basis has an
operational capacity of 33MW (31 March 2023: 24MW).

3.    Distribution Network Operators complete rolling programmes of
preventative maintenance and upgrade works. This ensures stability of the
energy supplied to consumers and expansion of the networks, which contributes
to the grids ability to connect more distributed generation and improve the
UKs energy security. In order to keep their staff safe, they often need to
de-energise power lines to complete these works.

Strategic Highlights

 

Capital Recycling Programme:

·     Post period end, the Company is pleased to announce the completion
of the first phase of its Capital Recycling Programme by successfully
completing the sale of Hatherden, a 60MW ready to build solar project, for
£15.2m, of which £8.7m is consideration for the acquisition and £6.5m is
the reimbursement of invested capital (the "Transaction").

·     The Transaction:

o  The Transaction is NAV accretive to shareholders and will generate an
estimated uplift of 1.27p, which will be reflected in the Company's NAV per
share as at 31 December 2023.  The Transaction represents a 100% premium to
its holding value (2.0x Multiple on Invested Capital) and an attractive 57%
IRR.

o  Hatherden, located in Hampshire, UK, was developed as part of the
Company's self-developed project pipeline and consists of a 60MW ready to
build solar project and the development rights for a 7MW co-located energy
storage project.

o  The accretive value of the Transaction demonstrates how the Company
maximised value throughout the development of Hatherden, including various
initiatives ranging from securing an import connection and associated rights
for installation of the 7MW co-located energy storage project, increasing the
installed capacity of the project from 50MW to 60MW through technical
optimisation, and securing a Contract for Difference ("CfD") contract under
Auction Round 4 for 100% of its generation capacity.

·     Use of proceeds:

o  The proceeds from the Transaction will be immediately used to reduce the
Company's drawn short-term debt via its Revolving Credit Facilities ("RCF").

·     The purchaser:

o  The purchaser, NextPower UK ESG Fund, is a 10-year closed-ended private
fund managed by NextEnergy Capital.  It is a private unlevered Fund investing
in new-build solar projects in the UK.  NextPower UK HoldCo Limited is under
the common control of the wider NextEnergy Group along with NextEnergy Capital
Limited (Investment Adviser to NESF) and NextEnergy Capital IM Limited
(Investment Manager to NESF) and as such is a related party of the Company.

o  Due to the sale of Hatherden being classified as a smaller related party
transaction under the FCA's Listing Rules, the Board appointed Deloitte to
undertake an independent valuation.  The Board also obtained a written
confirmation from the Company's Sponsor ("Cavendish"), that the Transaction
was fair and reasonable as afar as the shareholders are concerned as required
under Listing Rule 11.1.10R.

o  All related-party disposals are at the Board's discretion and, in the case
of any related party transaction, the FCA's Listing Rules must be adhered to.
There are no exclusivity arrangements in place between NESF and any member of
the NextEnergy Group in relation to the Transaction or future disposals.  The
Transaction constitutes a smaller related party transaction as set out in
Listing Rule 11.1.10R.

·     The Company continues to progress a competitive sales process for
the remaining phases of the Capital Recycling Programme.  Further updates
will be made to the market in due course.

 

Energy Storage:

·     The Company's first standalone 50MW energy storage asset in
Scotland, known as Camilla, is expected to be energised in 2024. As such, the
Company will not consider proposing an amendment to its investment policy in
energy storage from 10% of the Company's Gross Asset Value until Camilla is
energised and generating revenues.

·     The Company regards UK energy storage as a highly complementary
asset class to the existing solar portfolio that will provide multiple
diversification benefits for shareholders over the medium

term.

·     The Company will continue to maintain its disciplined approach to
capital allocation to ensure investment activity is accretive and in line with
the Company's strategy.

 

 

Helen Mahy, Chair of NextEnergy Solar Fund Limited, commented:

"In my first report since taking over as Chair in August, I am pleased to
announce another period of steady progress in the face of a series of
geopolitical and macroeconomic challenges.  In addition, your Board is taking
decisive action to help narrow the discount that the shares trade on in
relation to the value of its underlying assets, and today we are announcing
the first step in that strategy, with the sale of the Hatherden solar project
to release funds and reduce borrowings.  We believe that this and the
successful completion of our overall Capital Recycling Programme will put NESF
in an even stronger condition to deliver long-term stable returns to
shareholders, whilst making a significant contribution to Britain's
decarbonised future."

 

Michael Bonte-Friedheim, CEO of NextEnergy Group said:

"NextEnergy Solar Fund has built up an excellent portfolio of high value
renewable energy assets. We continue to manage this portfolio to deliver
optimal returns for shareholders, whilst continuing to look for opportunities
to develop it further."

 

Half Year Report

The Company's Half Year Report is now available on the Reports &
Publications section of the Company's website:
https://www.nextenergysolarfund.com/reports-and-publications/
(https://www.nextenergysolarfund.com/reports-and-publications/) .

 

A copy of the Half Year Report has also been submitted to the FCA's National
Storage Mechanism (https://data.fca.org.uk/#/nsm/nationalstoragemechanism) .

 

Interim Results Presentation

The Company will stream its interim results presentation via the London Stock
Exchange Spark Live platform, where it is accessible to all investors and
analysts.

 

The presentation will be hosted by:

·      Helen Mahy CBE (Chair, NextEnergy Solar Fund)

·      Ross Grier (Chief Operating Officer & Head of UK
Investments, NextEnergy Capital, Investment Adviser)

·      Stephen Rosser (Investment Director & UK Legal Counsel,
NextEnergy Capital, Investment Adviser)

 

Presentation details:

·      Time: 11:00am (GMT)

·      Date: Wednesday 22 November 2023

·      Registration and Webcast link:  NextEnergy Solar Fund Interim
Results Presentation
(https://www.lsegissuerservices.com/spark/NextEnergySolarFundLtd/events/5bcfe9cc-129b-4180-8477-debf9e756001)

 

A recording of the presentation will be made available on the Company's
website shortly after the event.

 

Updates to Net Asset Value ("NAV") assumptions

The Company has made the following updates to its valuation assumptions for
the 30 September 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(1)

                                         NAV p/share  NAV
 At 31 March 2023                        114.3p       £674.4m
 New assets at cost                      2.5p         £14.6m
 RCF drawdown, used to fund investments  (1.9p)       (£11.0m)
 Cash on hand, used to fund investments  (0.6p)       (£3.6m)
 Time value                              4.8p         £28.4m
 Project actuals                         (0.2p)       (£1.0m)
 Power price forecasts                   (2.3p)       (£12.9m)
 Changes in short-term inflation         1.3p         £7.6m
 Revaluation of new assets               0.3p         £1.6m
 Discount rate changes                   (4.6p)       (£27.3m)
 Cash dividends paid                     (4.7p)       (£27.7m)
 Other movements in residual value(2)    (0.6p)       (£3.1m)
 At 30 September 2023                    108.3p       £640.0m

Footnotes:

1.    The movement in the NAV over the six-month period was driven
primarily by the following factors:

·     The increase in discount rate for unlevered operating UK solar
assets. As announced on 17 August 2023, during the period, the Company
increased the discount rate for unlevered operating UK solar assets by 0.75%
to 7.50% The resulting weighted average discount rate for the Company's
portfolio was 8.0% (31 March 2023: 7.3%).

·     A decrease in short-term (2023-2027) UK power price forecasts
provided by Consultants, being on average 13.2% lower than assumptions at 31
March 2023.

·     The upward revision in short-term inflation forecasts (see below).

·     Revaluation of new assets in the Company's portfolio.

·     The operating results achieved by the Company's solar assets.

·     The dividends declared and operating costs incurred during the
year.

2.    Other movements in residual value includes 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      30 September 2023  30 June 2023  31 March 2023
 2023/24            6.80%              6.30%         4.90%
 2024/25            3.90%              3.50%         3.40%
 2025/26            2.80%              2.60%         3.30%
 2026/27            2.70%              3.00%         3.20%
 2027/28            3.30%              3.40%         3.70%
 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 30
September 2023 remains 8.0%.  The below table reflects the discount rate
assumptions breakdown used for the 30 September 2023 NAV calculation:

 

                                   30 September 2023  30 June 2023  31 March 2023
 UK unlevered                      unchanged          7.50%         6.75%
 UK levered                        unchanged          8.20 - 8.50%  7.45 -7.75%
 Italy unlevered (1)               unchanged          9.00%         8.25%
 Subsidy-free (uncontracted) (2)   unchanged          8.50%         7.75%
 Life extensions (3)               unchanged          8.50%         7.75%

 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.

 

Power Curve Assumptions

30 September 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. This approach
allows mitigation of any delay in response from the three independent market
forecasters ("Consultants") used by the Company in publishing quarterly or ad
hoc updates following any significant market development.

 

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.

 

The power price forecasts used also include a 'solar capture' discount which
reflects the difference between the prices available in the market in the
daylight hours of operation of a solar asset versus the baseload prices
included in the power price estimates. This solar capture discount is provided
by the Consultants on the basis of a typical load profile of a solar asset and
is reviewed as frequently as the baseload power price forecasts. The
application of such a discount is prudent as it results in a lower long-term
price being assumed for the energy generated by NESF's portfolio.

 

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.

 

To manage the sale of power into the electricity market, the Company utilises
its investment adviser's in-house 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.

 

In addition to NESF's budgeted revenues from ROCs and FITs (c.50%), the
Company's UK hedging covers 80% of the total portfolio (716MW) as at 6
November 2023.

 

 UK hedging summary  FY2023/24  FY2024/25  FY2025/26
 Generation hedged   94%        44%        13%
 Power price hedged  £79.2      £91.4      £147.2

 

 

Available Capital

Out of the total £205m immediate Revolving Credit Facilities available to the
Company, c.£27.7m remains undrawn and available for deployment as at 30
September 2023.  The £15.2m cash proceeds from the Hatherden transaction
will be used to reduce the Group's £177m of short-term debt levels.  The
Company also has c.£4.8m immediate cash balance available at Fund level as at
30 September 2023 (this is separate from the cash currently held at Holdco/SPV
level).

 

Capital Structure

The financial debt, together with the preference shares, represented a total
gearing level of 46.4%

(31 March 2023: 44.6%), which is below the maximum limit of 50% in the
Company's Investment Policy.

 

% Fixed vs Floating Debt:

 

NESF Debt Structure Chart:

 

 

 Total Gearing:

 

 

Footnotes:

1.    NESF has 326MW under long-term debt financing, 326MW under short-term
debt financing and 250MW without debt financing (excludes NPIII look through
debt).

2.    Loan to Value defined as 'Debt outstanding / GAV'.

3.    Long-term debt is fully amortised over the period secured assets
receive subsidies (ROCs and others).

4.    Applicable rate represents the swap rate.

5.    Represents the "real" outstanding debt balance. The "nominal"
outstanding debt balances are included in the debt balances provided in Note
23b to the interim results financial statements.

6.    The total combined short and long-term debt in relation to NESF's
commitment into NPIII (on a look through equivalent basis).

 

At 30 September 2023, the Company's subsidiaries (including NPIII) had
financial debt outstanding of £356m (31 March 2023: £345m), on a
look-through basis.  No covenant breaches have occurred during the period.

 

Future Pipeline

The Company has exclusivity over, or owns the project rights for, the majority
of its pipeline of c.£500m domestic and international solar and energy
storage assets.

 

 

 For further information:

 NextEnergy Capital                          020 3746 0700

 Michael Bonte-Friedheim                     ir@nextenergysolarfund.com
 Ross Grier
 Stephen Rosser
 Peter Hamid (Investor Relations)

                                             020 7653 4000

 RBC Capital Markets
 Matthew Coakes
 Elizabeth Evans

 Kathryn Deegan

 Cavendish                                   020 7397 1909
 James King
 William Talkington

                                             020 7379 5151

 H/Advisors Maitland
 Neil Bennett
 Finlay Donaldson

                                             01481 74 2642

 Ocorian Administration (Guernsey) Limited
 Kevin Smith

 

 

Notes to Editors(1):

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 (including NextPower III MW on an equivalent look-through basis)
generating enough renewable energy to power the equivalent of 334,197 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 30
September 2023, the Company had an unaudited gross asset value of £1,194m.
For further information please visit www.nextenergysolarfund.com
(http://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: Has over 16 years specialist solar expertise
having invested in over 375 individual solar plants across the world.
NextEnergy Capital currently manages four institutional funds with a total
capacity in excess of 2.4GW+ and funds under management of $3.9bn.
www.nextenergycapital.com (http://www.nextenergycapital.com/)

·      WiseEnergy®:  Provides solar asset management, monitoring and
technical due diligence services to over 1,300 utility-scale solar power
plants with an installed capacity in excess of 1.6GW.  WiseEnergy clients
comprise leading banks and equity financiers in the energy and infrastructure
sector.  www.wise-energy.com (http://www.wise-energy.com)

·    Starlight: 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 30 September 2023, being the latest
date in respect of which NextEnergy Solar Fund has published financial
information

 

 

 

 

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