NextEnergy Solar Fund Limited (LON:NESF), a leading specialist investor in solar energy and energy storage, has announced it has published its interim results for the period ended 30 September 2024.
Key Highlights
Financial:
· Net Asset Value (“NAV”) per ordinary share of 97.8p (31 March 2024: 104.7p).
· Ordinary shareholders’ NAV of £572.2m (31 March 2024: £618.6m).
· Financial debt gearing (excluding preference shares) of 30.2% (31 March 2024: 29.3%).
· Total gearing (including preference shares) of 48.2% (31 March 2024: 46.4%).
· Weighted average cost of capital of 6.6% (31 March 2024: 6.4%).
· Weighted average cost of debt of 4.9% including preference shares (31 March 2024: 4.5%).
· Weighted average discount rate across the portfolio of 8.0% (31 March 2024: 8.1%).
· Income generated of c.£45m over the six-month period (30 September 2023: c.£50m).
Dividend:
· Total ordinary dividends paid since IPO of £370m or 72p per ordinary share.
· The Company remains on track to deliver its target dividend of 8.43p per ordinary share for the financial year ending 31 March 2025.
· Dividend cover for the six months ended 30 September 2024 was 1.5x (31 March 2024: 1.3x).
· Forecasted target dividend cover of 1.1x – 1.3x for the financial year ending 31 March 2025.
· As at 20 November 2024, the Company offers an attractive high dividend yield of c.11%.
Portfolio:
· 102 1 operating assets (31 March 2024: 103 1).
· Total installed capacity of 983MW 2, (31 March 2024: 1015MW 2,).
· Remaining weighted asset life of 25.6 years (31 March 2024: 26.6 years).
ESG & Sustainability:
· Removed an equivalent 46,167 cars off the road for the period (30 September 2023: 47,179).
· Generated 595GWh of clean electricity during the period, contributing to the avoidance of 193.9KtCO2 emissions (30 September 2023: 599GWh 3, 198.1 KtCO2 emissions).
· Maintained Article 9 Fund classification under the EU Sustainable Finance Disclosure Regulation and EU Taxonomy Regulation.
· Released its third standalone Sustainability and ESG report, focused on three principal sustainability topics: climate, nature and social-related issues.
· Adopted the Taskforce on Nature-related Financial Disclosures (TNFD) to go above and beyond the Company’s sustainability reporting requirements, alongside commitment to disclose under the new TNFD framework.
· Adopted the International Sustainability Standards Board (ISSB) standards S1 and S2, which covers and expands on the Taskforce for Climate-related Financial Disclosures guidance, through a dedicated ISSB aligned Sustainability and ESG Report.
Capital Structure:
· The Company’s financial debt (excluding preference shares) is currently £333.3m (31 March 2024: £338m) which represents gearing of 30.2% of Gross Asset Value (“GAV”) (31 March 2024: 29.3%). The Company also includes non-amortising preference shares as part of the debt structure and therefore values the total gearing of the Company at 48.2% of GAV (31 March 2023: 46.4%).
· Of the Company’s total debt 4, 70% remains at a fixed rate of interest (including the preference shares) and 30% is at a floating rate with attractive margins (SONIA + 1.20% to 1.50%).
· During the period, the Company refinanced all revolving credit facilities at attractive margins demonstrating the appetite of the Company’s banking partners to provide debt to the Company at attractive terms.
Capital Recycling Programme:
· During the period, the Company completed Phase II of its Capital Recycling Programme through the sale of Whitecross, a 35MW operational subsidy-free solar project for £27m, representing a 14% premium to its holding value as at 31 March 2024 (1.3x Multiple on Invested Capital).
· Post period end, the Company completed Phase III of its Capital Recycling Programme with the sale of Staughton, a 50MW operating subsidy-free solar asset for £30.3m, representing a 21.5% premium to its holding value as at 30 September 2024 (1.38x Multiple on Invested Capital).
· Phase III is NAV accretive to shareholders and will generate an estimated uplift of 0.92p per share which will be reflected in the Company’s NAV as at 31 December 2024.
· As at 20 November 2024 the Capital Recycling Programme has delivered:
o Three asset sales totalling c.145MW of capacity from the 245MW Programme.
o Raised £72.5m total capital.
o Added a total estimated Net Asset Value uplift of 2.76p per ordinary share.
· The remaining 100MW in the Programme is progressing through a competitive sales process to third-party buyers. The Company will publish further updates about Phase IV of the Programme in due course.
Share Buyback Programme:
· The Company continues with its sustained share buyback programme of up to £20m.
· As of 20 November 2024, 8.6m ordinary shares have been purchased for a total consideration of £6.8m and are currently being held in the Company’s treasury account.
Interim Report
The Company’s Interim Report for the period ended 30 September 2024 is now available on the Reports & Publications section of the Company’s website (https://www.nextenergysolarfund.com/reports-and-publications/)
A copy of the Interim Report has also been submitted to the FCA’s National Storage Mechanism.
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 (Chairwoman, NextEnergy Solar Fund)
· Ross Grier (Chief Operating Officer & Head of UK Investments, NextEnergy Capital, Investment Adviser)
· Stephen Rosser (Investment Director, NextEnergy Capital, Investment Adviser)
Presentation details:
· Time: 09:30am (GMT)
· Date: Thursday 21 November 2024
· Registration and Webcast link: NextEnergy Solar Fund Interim Results Presentation
A recording of the presentation will be made available on the Company’s website shortly after the event.
Helen Mahy, Chairwoman of NextEnergy Solar Fund Limited, commented:
“NESF has remained proactive through its capital recycling and buyback programmes over the period, both of which have made good progress. Shareholders signalled their confidence in NESF at its recent Annual General Meeting in August with c.94% of votes cast ‘Against’ discontinuing the Company in its current form, the strongest result in the renewable investment company sector this year and demonstrating that shareholders continue to support the Company’s ongoing strategy.”
“The Company remains committed to narrowing the ordinary share discount and is focused on delivering shareholder value now and long into the future. This includes currently offering shareholders an attractive dividend yield of approximately 11%.”
Ross Grier, COO and Head of UK Investments at NextEnergy Capital said:
“Despite recent macroeconomic pressures and capital outflows from UK equity markets, NextEnergy Solar Fund remains well placed to capitalise on the renewed momentum towards a low-carbon energy system which has been steadily accelerating since the general election in the UK in July this year. NESF’s carefully curated portfolio of 102 operational solar and energy storage assets provides a strong foundation for growth, both from within the existing portfolio and from new opportunities.
“The Company continues to deliver reliable returns to shareholders through well-covered quarterly dividends derived from strong cash flows. There is a lot to be positive about looking forward, with multiple political and macroeconomic tailwinds that we expect to benefit NESF, its shareholders, and the renewable energy sector as a whole. We continue to work hard alongside the Board of NESF to ensure the Company is in the best position possible to capitalise on the multiple opportunities ahead.”
Six-Month NAV Bridge Breakdown:
| NAV p/share | NAV | |
| At 31 March 2024 | 104.7p | £618.6m |
| Time value | 4.7p | £28.0m |
| Project actuals | (2.1p) | (£12.1m) |
| Power price forecasts | (3.0p) | (£17.8m) |
| Changes in short-term inflation | (0.1p) | (£0.7m) |
| Revaluation of NPIII investment | 0.1p | £0.5m |
| Cash dividends paid | (5.0p) | (£29.5m) |
| Sale of Whitecross | 0.6p | £3.3m |
| Share buyback | 0.2p | (£4.6m) |
| Capital movements (no net NAV impact) | ||
| – New assets at cost | 1.0p | £5.8m |
| – Repayment of RCF using cash on hand | 2.1p | £12.2m |
| – Cash on hand, used to fund investments | (3.1p) | (£18.0m) |
| Other movements in residual value | (2.3p) | (£13.5m) |
| At 30 September 2024 | 97.8p | £572.2m |
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 discounted cash flow.
· Shares purchased in the period as part of the Company’s Share Buyback Programme of up to £20m. The programme used £4.6m of cash on hand to purchase 5,642,709 ordinary shares in the period, resulting in an increase in the NAV per share of 0.2p.
· The sale of Whitecross, a 35MW operating solar asset for £27m, to a third-party private fund managed by Downing LLP.
· A decrease in short-term (2024-2029) UK power price forecasts provided by consultants, mainly as a result of falling gas prices and reduced short-term power demand expectations.
· The valuation incorporates revisions to short-term inflation forecasts from external third parties.
· The dividends paid during the period, including both ordinary and preference share dividend payments.
· Other movements in residual value include changes in FX rates, fund operating expenses, 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 2024 | 31 March 2024 |
| 2024/25 | 3.60% | 3.10% |
| 2025/26 | 2.90% | 2.90% |
| 2026/27 | 2.80% | 2.90% |
| 2027/28 | 3.20% | 3.50% |
| 2028/29 | 3.10% | 3.60% |
| 2029/30 | unchanged | 3.00% |
| 2030/31 onwards | unchanged | 2.25% |
Discount Rate Assumptions
| 30 September 2024 | 31 March 2024 | ||
| Solar | UK unlevered | unchanged | 7.50% |
| UK levered | unchanged | 8.20 – 8.50% | |
| Italy unlevered 5 | unchanged | 9.00% | |
| Subsidy-free (uncontracted) 6 | unchanged | 8.50% | |
| Life extensions 7 | unchanged | 8.50% – 9.50% | |
| Energy Storage | Uncontracted | unchanged | 10.00% |
| Contracted | unchanged | 7.00% |
Power Curve Assumptions
30 September 2024: Blended Power Curves (Capture Price)
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 (“PPA”) (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, PPAs 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 Purchase Agreement Strategy
NextEnergy Solar Fund continues to lock in PPAs 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 the visibility of cash flows.
Forecasted Total Revenue Breakdown 8:
Renewable Energy Guarantees of Origin (“REGOs”)
The Company sells REGOs bundled with power sales through existing PPAs 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 £2.6/MWh. 96% of expected REGOs sold for 2024-25 at £4.0/MWh and 37% for 2025/26 at £6.6. 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 Revolving Credit Facilities available to the Company, c.£51.6m remains undrawn and available for deployment as at 30 September 2024. The Company has c.£0.6m immediate cash balance available at Company level as at 30 September 2024 (this is separate from the cash currently held at Holdco/SPV level). Proceeds from Phase III of the Capital Recycling Programme have not yet been reflected in the above.
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. The Company will evaluate future investments into the pipeline relative to the returns available from all alternative capital uses including paying down debt and additional share buybacks.
Footnotes:
1. Includes operating energy storage asset Camilla and two co-investments (Santarém and Agenor), excludes the $50m commitment into a private international infrastructure solar fund equity vehicle, NextPower III LP (NPIII).
2. On a look-through MW equivalent basis, this includes investment in NextPower III LP, where it owns 6.21%. Ownership in the international co-investments (13.6% of Santarém (210MW in Portugal) and 24.5% of Agenor (50MW in Spain)), and 70% ownership of the Company’s standalone energy storage asset Camilla through its joint venture partnership.
3. 619GWh 30 September 2023 figure in the Interim Report encapsulates NPIII assets.
4. Excluding NextPower III LP and co-investment look through debt totalling £23.4m as of 30 September 2024.
5. Unlevered discount rate for Italian operating assets implying 1.50% country risk premium to 7.50%.
6. Unlevered discount rate for subsidy-free uncontracted operating assets implying 1.0% risk premium to 7.50%.
7. 1.0% risk premium to 7.50% for cash flows after 30 years where leases have been extended.
8. As at 30 September 2024, fixed revenues include subsidy income, figures are stated to the nearest 0.1% which may lead to rounding differences. NextEnergy Solar Fund minimises its merchant exposure through its active rolling PPA programme. The programme locks in PPAs in the liquid market to ensure maximum contracted revenues are achieved. Pie charts exclude Camilla, 50MW standalone energy storage asset. Fixed prices (£/MWh) covered 84% (826MW) of the total portfolio as at 30 September 2024. Excludes Solis portfolio.
Notes:
1: All financial data is unaudited at 30 September 2024, being the latest date in respect of which NextEnergy Solar Fund has published financial information.
