REG - NextEnergy Solar Fnd - Quarterly Net Asset Value & Operational Update

NextEnergy Solar FundAnnouncement

29/02/2024 07:15

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RNS Number : 8743E  NextEnergy Solar Fund Limited  29 February 2024

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 933MW(1) (30 September 2023:
933MW(1)).

·     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 debt(2) 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 unlevered(3)              unchanged         unchanged          9.00%
 Subsidy-free (uncontracted)(4)  unchanged         unchanged          8.50%
 Life extensions(5)              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                          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 742642

 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, 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
(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: 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 (http://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 (http://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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