NextEnergy Solar Fund has announced results for the year ending 31 March 2017.
Highlights
- Investment portfolio of 48 solar PV plants for a total of c.483MW installed capacity in operation. NextEnergy Solar Fund is the largest listed solar energy fund on the London Stock Exchange in terms of both installed solar capacity and market capitalisation.
- Significant operating asset outperformance – Energy generated from the portfolio amounted to 394GWh, 3.3% above budget (despite solar irradiation lower by 0.3%).
- Launch of a 350m shares placing programme and completion of equity issuances for a total of £310.8m under the tap issuance programme at the date of distribution of this report.
- NAV per share grew from 98.5p to 104.9p over the year mainly due to operating outperformance, changes in power price forecast, higher RPI inflation expectations and a change in discount rates
- Equity discount rate lowered by 0.25% to 7.25% for unlevered assets. Risk premium for levered assets unchanged at between 0.7% to 1.0%.
- Total Shareholder Return and NAV Total Return during the year were 21.1% and 14.4% respectively (annualised returns since IPO 3 years ago were 9.1% and 7.2% respectively).
- Refinanced their Revolving Credit Facility through a £150m long term debt financing with differentiating features accretive to NAV and dividend cover.
- Income was £35.3m with a cash dividend cover of 1.2x. Reported profit for the year was £49.8m and earnings per share were 13.81p.
- On track to pay target dividend of 6.31p for the year. Targeting a 6.42p dividend distribution for the next year ending 31 March 2018.
- Strong pipeline of acquisition targets in negotiation and further UK solar opportunities under consideration for over 269MW.
- Proposed amendment to investment policy to allow up to 15% of Gross Asset Value to be invested in solar assets outside of the UK.
At the year end, the total NAV was £478.6m, equivalent to 104.9p per share (March 2016: NAV of £273.8m, 98.5p per share). This 6.5% growth in NAV per share over the year was mainly driven by an improved outlook for UK energy prices, sustained operating outperformance, higher RPI inflation expectations and a minor reduction in discount rates. New assets acquired or completed added to NAV.
The chairman, Kevin Lyon, said: “Even without considering the new capacity installed at the very end of Q1 2017, there is a significant secondary market opportunity with a total 4.2GW of assets assumed to be held by non-long term investors that could be acquired in due course. For this reason, we expect to continue issuing equity under the current Placing Programme during the next financial year to finance our attractive and growing pipeline of acquisition targets.
In addition, the Investment Adviser is reviewing several prospects, currently at an early stage of development but that could represent an opportunity to grow the Company’s portfolio with value accretive acquisitions in line with its current risk profile and investment policy. NESF has recently acquired all the necessary project rights in respect of 4 sites for a total capacity of 60MW that could be built in the next 12 to 24 months.
We also continue to review the opportunity to add new technologies to our current portfolio with the objective of increasing returns and mitigating risk exposure. We have not yet implemented such new technologies on any of our sites, but expect this to happen over the next 12 to 18 months, if not earlier.
Another growth avenue under analysis is the ability to add new capacity to our existing sites, where our grid access and other permits allow. This new capacity can benefit from the existing significant investment made in grid connection infrastructure, but would not qualify for the ROC regime from which the existing plant benefits. Such incremental investments will be considered when they are financially remunerative with limited market exposure.
Internationalisation represents a further attractive avenue for the Company’s growth. The growth in installed solar capacity in other developed markets continues at a rapid pace, and we intend to take advantage of attractive acquisition opportunities in markets where the regulatory structures are well defined and targets offer sound financial returns. We have proposed a special resolution at the next AGM to amend the investment policy of NESF to allow investments in OECD countries other than the UK for up to 15% of GAV.
In parallel, we will continue to focus on maximising the operating performance of the assets currently owned and exploring further value-enhancing opportunities around the existing portfolio.
The regulatory and political backdrop is also evolving significantly. The UK is on track on its decision to leave the European Union, having triggered Article 50 of the Treaty on European Union on 29 March 2017. While the impact of Brexit on the Company and on the renewable energy sector is still at this point unclear, we believe it will have limited, if any, impact on the UK’s climate change policies or the regulation of the sector. We will continue to monitor any Brexit effects on power prices, sector regulation and growth opportunities carefully.”