TIDMNESF
RNS Number : 4959Q
NextEnergy Solar Fund Limited
21 February 2023
LEI: 213800ZPHCBDDSQH5447
21 February 2023
NextEnergy Solar Fund Limited
("NESF" or the "Company")
Unaudited Quarterly Net Asset Value and Operational Update
NextEnergy Solar Fund, the specialist solar+ fund, with a
combined installed power capacity of 865MW, announces its unaudited
Net Asset Value as at 31 December 2022, and its latest operational
update.
Financial Highlights
-- Net Asset Value ("NAV") per ordinary share of 120.9p (30 September 2022: 122.9p).
-- Ordinary shareholders' NAV of GBP713m (30 September 2022: GBP724.7m).
-- Third interim dividend of 1.88p per ordinary share for the
quarter ended 31 December 2022 (31 December 2021: 1.79p).
-- Forecast cash dividend cover of approximately 1.5x for
FY22/23 based on high visibility of future cash flows (FY21/22:
1.2x).
-- Total dividends paid of 5.64p per ordinary share in respect
of the nine months ended 31 December 2022 (31
December 2021: 5.37p).
-- Target dividend of 7.52p per ordinary share for the year
ended 31 March 2023 (a year-on-year increase of 5%, above the 4.1%
calculated Retail Price Index ("RPI") rise for the 2021 calendar
year).
-- Total Gearing (including preference shares) of 43% (30 September 2022: 42%).
Portfolio & Operational Highlights
-- Total installed capacity of 865MW(1) (30 September 2022: 865MW).
-- 99 operating solar assets (30 September 2022: 99).
-- Portfolio generation outperformance of +6.2% against budget
for nine months ended 31 December 2022 (31 December 2021: +0.4%),
translating into additional revenues of c.GBP5.4m (31 December
2021: GBP0.2m).
Footnote:
(1) Excludes share in private infrastructure solar fund
(NextPower III ESG). Inclusion of NESF's share of NextPower III
would increase capacity by 23MW to 888MW.
Updates to NAV assumptions
The Company has made the following key updates to its valuation
assumptions for the 31 December 2022 NAV calculation:
-- An increase to the unlevered discount rate by 0.5% in response to market conditions.
-- Updated inflation assumptions to reflect the latest available third-party inflation data.
-- Updated power price forecasts capturing the latest available
third-party advisor long-term power curves.
-- Removal of the discounts applied to the unhedged portion of
the portfolio power prices, replaced by the expected impact of the
UK government's proposed electricity generator levy ("EGL"), based
on draft legislation as published.
Full details are disclosed in the relevant sections below.
NAV and Portfolio Movements
NAV bridge:
NAV p/share NAV
At 30 September 2022 122.9p GBP724.7m
------------ ---------
Pref shares dividend (0.4p) (2.4m)
------------ ---------
Ordinary shares cash
dividend (1.8p) (10.8m)
------------ ---------
Income from investments 1.9p 11.4m
------------ ---------
Change in fair value
of investments (1.3p) (7.9m)
------------ ---------
Net operating costs (0.4p) (2.1m)
------------ ---------
At 31 December 2022 120.9p GBP713m
------------ ---------
Portfolio valuation bridge:
Portfolio valuation
At 30 September 2022 GBP889.1m
--------------------
New assets at cost 61.2m
--------------------
RCF drawdown (12.2m)
--------------------
Operating result 13.4m
--------------------
Distribution to the Fund (11.4m)
--------------------
Change in power price forecast including
electricity generator levy (EGL) (1.6m)
--------------------
Change in inflation 7.0m
--------------------
Change in discount rate (20.0m)
--------------------
Movement in residual value and balance of
DCF valuation (29.8m)
--------------------
At 31 December 2022 GBP895.7m
--------------------
Inflation Linkage and Updates
Approximately 50% of the Company's revenues are made up of
government-backed subsidies via ROCs and FITs. This component of
revenue increases in line with RPI, whilst the remaining revenues
in the portfolio are generated through the sale of budgeted power
generation into the market.
The Company has taken a consistent approach to inflation
assumptions, using third-party, independent inflation data from the
HM Treasury Forecasts and long-term implied rates from the Bank of
England for its UK assets. For international assets, IMF forecasts
are used.
Inflation rate (UK RPI) assumptions
31 December 2022 30 September 2022
2023 11.60% 12.40%
----------------- -----------------
2024 7.00% 5.90%
----------------- -----------------
2025 4.20% 3.60%
----------------- -----------------
2026 3.90% 3.40%
----------------- -----------------
2027 3.80% 3.90%
----------------- -----------------
2028-2030 unchanged 3.00%
----------------- -----------------
2030 onwards unchanged 2.25%
----------------- -----------------
Discount Rate Assumptions
The Bank of England has implemented substantial further
increases to its base rate. In response to these market conditions,
the Company has increased its unlevered discount rate by 0.5%. The
below table reflects the discount rate assumptions for the 31
December 2022 NAV calculation:
31 December 2022 30 September 2022
UK unlevered 6.75% 6.25%
----------------- -----------------
UK levered 7.45-7.75% 6.95-7.25%
----------------- -----------------
Italy unlevered (1) 8.25% 7.75%
----------------- -----------------
Subsidy-free (uncontracted)
(2) 7.75% 7.25%
----------------- -----------------
Life extensions (3) 7.75% 7.25%
----------------- -----------------
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.
Electricity Generator Levy
The UK Government announced its initial publication of the
Electricity Generator Levy ("EGL") on 17 November 2022, in the run
up to the Company's interim results announcement on 21 November
2022. The Company has fully priced in the impact of the EGL into
the 31 December 2022 NAV calculation. As a result of this, the
Company has removed the temporary discounts it applied to the
unhedged portion of the portfolio power prices in the 30 September
2022 NAV calculation. As the Company has now captured the impact of
the EGL, which was in line with expectations, the Company expects
there to be no further impact on future NAV calculations.
Power Sales Strategy
To manage the sale of power into the electricity market,
NextEnergy Capital, The Company's investment adviser, continues to
utilise its specialist 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 underpinning dividend
cover for the current financial year. Given the high degree of
contracted revenues in future years, the Company is confident in
its ability to continue to provide investors with a well-covered
dividend going forward.
In addition to NESF's budgeted revenues from ROCs and FITs
(c.50%), the Company's hedging positions (covering 716MW UK
portfolio) as at 31 December 2022 were:
Financial Year UK budgeted generation Average fix price
hedged
2022/23 94% GBP88MWh
----------------------- ------------------
2023/24 74% GBP73MWh
----------------------- ------------------
2024/25 44% GBP90MWh
----------------------- ------------------
2025/26 13% GBP147MWh
----------------------- ------------------
Future Pipeline
The Company has exclusivity over, or owns the project rights
for, the majority of its pipeline of c.GBP500m domestic and
international assets across the solar and energy storage space.
This includes ownership of the development rights for a
high-quality 250MW lithium-ion battery storage project in the East
of England, which when approved and constructed will be one of the
UK's largest operational standalone battery storage assets.
Available Capital
The Company has access to capital to pursue its secured FY23/24
pipeline, including energising a 36MW solar plant and bringing
online a 50MW battery storage project. Out of the total GBP205m
immediate Revolving Credit Facilities available to the Company,
c.GBP42m remains undrawn and available for deployment as of 31
December 2022. The Company also has c.GBP2m immediate cash balance
available at Fund level (this is separate from the cash currently
held at Holdco/SPV level). In addition, the Company actively
assesses capital deployment options as part of ongoing optimisation
of the composition of the portfolio.
The Company's investment policy allows a maximum of 50% total
debt to Gross Asset Value limit, which if required would provide
the Company with further flexibility of c.GBP128m to convert the
Company's attractive pipeline into NAV accretive and cash
generating assets to further strengthen and grow the portfolio.
Energy Storage Strategy
Energy storage is a complementary technology to the existing
large solar portfolio, providing access to complementary revenues
and additional opportunities to derive value from the Company's
existing grid connections. Energy storage offers multiple
diversification benefits whilst providing attractive returns. The
market environment continues to be favourable for the Company to
increase its allocation to energy storage within the portfolio. The
Company is confident in its ability to successfully deliver energy
storage and continues to benefit from its investment adviser's
experience and track record in securing import capacity and in
realising operational assets.
NextEnergy Capital, the Company's investment adviser, has
consulted with investors to seek support to increase the Company's
investment policy energy storage limit from 10% of Gross Asset
Value, up to 25%, which will allow the Company to fully capture the
energy storage growth opportunities already backed by a secured
strategic pipeline of assets. The investor consultation has been
constructive, and a further update will be provided to the market
in the near term.
Kevin Lyon, Chairman of NextEnergy Solar Fund Limited,
commented:
"NESF continues to offer investors an attractive dividend which
has increased every year since the Company listed on the London
Stock Exchange in 2014. NESF's risk management and power sales
strategy provides a high proportion of contracted revenues by
locking in stable income generation, this provides a high degree of
comfort on the Company's forecasted dividend cover, which is
approximately 1.5x for this financial year.
The Company's future pipeline remains opportunity-rich, with
energy storage projects offering extremely exciting growth
prospects as the Company looks to capture synergies between its
large solar portfolio and additional energy storage. NESF continues
to maintain a risk profile that will allow the Company to pay a
growing, covered dividend to our shareholders into the future."
Michael Bonte-Friedheim, CEO of NextEnergy Group said:
"NESF continues to deliver excellent financial and operational
performance from its portfolio with electricity generation
performance significantly above budget, extending our continuous
outperformance track record since the Company's IPO in 2014. NESF
offers investors an attractive return from its large existing
operational solar portfolio. It also presents an excellent
opportunity for growth, by delivering future attractive energy
storage assets which will provide further revenue, technology, and
geographic diversification to the portfolio. We look forward to
updating the market further as we continue to successfully execute
our strategy."
Footnote:
(1) A solar+ fund invests primarily in utility scale solar
assets, alongside complementary ancillary technologies, like energy
storage.
For further information:
NextEnergy Group 020 3746 0700
Michael Bonte-Friedheim ir@nextenergysolarfund.com
Aldo Beolchini
Ross Grier
Peter Hamid (Investor Relations)
RBC Capital Markets 020 7653 4000
Matthew Coakes
Kathryn Deegan
Cenkos Securities 020 7397 8900
James King
William Talkington
Camarco 020 3781 8334
Owen Roberts
Eddie Livingstone-Learmonth
Ocorian Administration (Guernsey) Limited 014 8174 2642
Kevin Smith
Notes to Editors(1) :
About NextEnergy Solar Fund
NESF is a specialist solar(+) fund listed on the premium segment
of the London Stock Exchange and is a constituent of the FTSE250.
NESF'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.
NESF currently has a diversified portfolio comprising of the
following:
Solar PV:
-- 99 operating solar assets across the UK and Italy (primarily
on agricultural, industrial, and commercial sites)
-- A 50MW co-investment into a Spanish solar project alongside
NextPower III ESG, currently under construction
-- A 210MW co-investment into a Portuguese solar project
alongside NextPower III ESG, currently under construction
-- A UK solar project under construction (Whitecross 36MW)
-- A ready-to-build UK solar project (Hatherden 50MW)
-- A $50m commitment into NextPower III ESG (a private solar
infrastructure fund providing exposure to both operating and under
construction, international solar assets)
Energy Storage:
Joint Venture Partnership with Eelpower:
-- A 50MW standalone battery storage project in Fife, Scotland,
currently under construction (part of a GBP300m joint venture with
Eelpower)
-- A portfolio of 250MW pre-construction standalone battery
storage projects in the East of England
Co-located programme:
-- First site identified for a 6MW co-located battery storage
project at North Norfolk Solar Farm and discussions are ongoing
with the local distribution network operator to confirm an
energisation date.
The NESF portfolio has a combined installed power capacity of
865MW (excluding NextPower III MW on an equivalent look-through
basis). NESF 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 2022, the Company had an unaudited gross asset
value of GBP1,252m
For further information on NESF please visit www.
nextenergysolarfund.com
Commitment to ESG
NESF is committed to ESG principles and responsible investment
which make a meaningful contribution to reducing CO2 emissions
through the generation of clean solar power. NESF will only select
investments that meet the requirements of NEC Group's Sustainable
Investment Policy. Based on this policy, NESF benefits from NEC's
rigorous ESG due diligence on each investment. NESF is committed to
reporting on its ESG performance in accordance with the UN
Sustainable Development Goals framework and the EU Sustainable
Finance Disclosure Regulation.
NESF has been awarded the London Stock Exchange's Green Economy
Mark and has been designated a Guernsey Green Fund by the Guernsey
Financial Services Commission.
Article 9
NESF is classified under Article 9 of the EU Sustainable Finance
Disclosure Regulation and EU Taxonomy Regulation.
NESF's sustainability-related disclosures in the financial
services sector in accordance with Regulation (EU) 2019/2088 can be
accessed on the ESG section of both the NESF website (
nextenergysolarfund.com/esg/ ) & NEC Group website (
nextenergycapital.com/sustainability/transparency-and-reporting/
).
About NextEnergy Group
NESF 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
NextEnergy Capital ("NEC") comprises the Group's investment
management activities. To date, NEC has invested in over 350
individual solar plants for a capacity in excess of 2.4GW across it
institutional funds. www.nextenergycapital.com
-- NextEnergy Solar Fund ("NESF") is a specialist solar(+)
fund, which is listed on the premium segment of the London
Stock Exchange. It currently has an installed capacity of
865MW spread among 99 individual operating assets in the
UK and Italy, comprising an unaudited gross asset value of
GBP1,258m. NESF is one of the largest listed solar and energy
storage investment companies in the world.
-- NextPower II ("NPII") a private fund made up of 105 individual
operating solar power plants and an installed capacity of
149MW, focused on consolidating the substantial, highly fragmented
Italian solar market. NPII was successfully divested in January
2022, a 2016 vintage vehicle that generated net IRRs in excess
of its gross target of 10-12%.
-- NextPower III ESG ("NPIII") is a private fund exclusively
focused on the international solar infrastructure sector,
principally targeting projects in carefully selected OECD
countries, including the US, Portugal, Spain, Chile, Poland,
and Italy. NPIII is a fund that provides a positive social
and environmental impact to the countries it has and will
invest into. NPIII completed its fundraise with a total of
$896m, including a separately managed account. The target
of the fund was $750m.
-- NextPower UK ESG ("NPUK") is a private unlevered fund investing
in greenfield subsidy-free solar projects, with PPA's, in
the UK. NPUK ESG is a 10-year closed-ended private fund launched
in December 2021 targeting GBP500m. To date, NPUK has raised
total commitments of GBP487m, with the UK Infrastructure
Bank providing cornerstone match-funding for up to GBP250m.
-- NextPower V ESG ("NPV") is a private contracted OECD solar
strategy that offers investors the opportunity to earn strong
risk-adjusted returns from the solar PV infrastructure asset
class with a highly experienced team and a track record of
success in OECD-based solar deployment. The strategy will
primarily invest in OECD solar assets and adjacent technologies
(e.g. battery storage) in the target markets. NPV ESG is
targeting $1.5bn in size with a $2bn ceiling.
WiseEnergy (R)
WiseEnergy(R) is NextEnergy Group's operating asset manager.
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 1,350 utility-scale solar power plants with an installed
capacity in excess of 1.8GW. WiseEnergy clients comprise leading
banks and equity financiers in the energy and infrastructure
sector.
www.wise-energy.com
Starlight
Starlight is NextEnergy Group's development company that is
active in the development phase of solar projects. It 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 31 December 2022, being
the latest date in respect of which NESF has published financial
information
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