The UK-focused renewables energy infrastructure fund, Bluefield Solar (BSIF), has reported interim results to 31 December 2019. The company has reported a total NAV return of 6.2% and a total market return of 7.0%.
The following extracts are taken from chairman John Rennocks’s report:
Introduction
“Although lower than the exceptional levels seen in the second half of 2018, irradiation was again higher than for an average year and this has been matched by solid operational performance of the portfolio, producing above target generation and revenue. In short, the results are strong: irradiation was 4.6% higher than expectations, increasing generation by 4.2% and total revenues by 4.5%.”
Key Events
“The company’s asset extension programme has continued to enjoy success, with 171.5MWp having achieved positive planning determinations on 15 year lease extensions, a further 34.1MWp currently in planning and awaiting final determination and an additional 10MWp ready to be submitted. We have continued to amortise our Aviva Investors long term financing and I am pleased to report the acquisition, in January 2020, of a 13.5MWp, 1.3 ROC tariff portfolio at attractive pricing. It was funded using the company’s short term credit facility.”
Power Prices – BSIF locked in higher power price for two years in September 2018
“Whilst power prices reached six year highs of £67/MWh in September 2018, the period to December 2019 has seen prices fall close to 10 year lows, at £39/MWh. The driving force behind this reduction in day ahead power prices and short term forecasts is considered to be the oversupply of liquified natural gas, which in turn has led to falling gas prices.
However, as the company was able to use its flexible PPA strategy to take advantage of strong power prices in September 2018, striking fixes for over two years on the majority of its portfolio, the average price achieved per MWh for the period to 31 December 2019, at £56/MWh, was considerably higher than both the average day ahead base load price of £41/MWh and the average price for the period to December 2018 (being £46/MWh).
Longer term forecasts have once again been lowered; the last increase in medium term forecast prices was in the curves released in December 2016, reflecting prices which are now more than 30% below expectations at the Company’s 2013 IPO, as falling gas prices in the near term have combined with expectations of increased renewable generation post-2030.
As the depth of available forecast data deepens and the assumptions around renewable penetration increase, the board took the decision in H1 2019 to subscribe, on a 12 month trial basis, to a third power price forecaster. Over this period the Board has been impressed with the quality of information received and so intends to blend this third power price curve into future Directors’ Valuation alongside, or perhaps as a replacement of, one of its existing forecasters.”
Non-Subsidised Opportunities – 2020 to see solar deployment gather pace and BSIF sees new opportunities
“The last six months has seen the emergence of a number of unsubsidised solar farms being constructed. Whilst the total capacity of these sites is small, it is likely that 2020 will see solar deployment gathering momentum.
As I have outlined before, this new market is well suited to the manager’s approach of working with developers and contractors in order to control the quality and scale of the new pipeline. Activity on both these areas is progressing well, with the Company involved in a select number of projects that are now at advanced stages of development.
Indeed, the opportunities for unsubsidised renewables in areas that are complementary to the portfolio the company has established are not exclusively limited to solar, so I look forward to updating shareholders in due course on this very exciting area.”
Conclusion
“The performance of the company over the first six months of this financial year has once again been highly pleasing. The valuation now reflects the lower end of the market conditions that have been with us for some time and the strong earnings for the period, if continued for the full year, should translate into a sector leading dividend. But, as I noted earlier, whilst we have again exploited higher than average irradiation due to the portfolio continuing to perform very well and we will continue to benefit from the power sales strategy that locked in very attractive power contracts, if wholesale electricity prices remain subdued it will at some stage restrict our ability to grow the dividend in line with RPI.
It is not an immediate concern and, indeed, the company is the highest dividend payer in its sector by a significant margin, a dividend that is covered by earnings and is post debt amortisation. The board is committed to continuing to be a high dividend payer but is also conscious of the desire of many shareholders to see the company grow again as we look to continue to play a material role in the evolution of the UK’s energy market. The board and the manager are currently evaluating how to manage these two priorities in the best interests of our shareholders, and I look forward to updating you on our conclusions.”
About BSIF
BSIF is a sterling income fund focused on acquiring and managing UK-based solar projects to generate renewable energy for periods of typically 25 years or longer. The company’s primary objective is to deliver to its shareholders stable, long term sterling income via quarterly dividends, which are linked to RPI. The majority of the group’s revenue streams are regulated and non-correlated to traditional markets. Bluefield Solar owns and operates one of the UK’s largest, diversified portfolios of solar assets with a combined installed power capacity in excess of 478 Megawatt peak (MWp).
BSIF: Bluefield Solar lower power price impact cushioned by fixed prices locked in 2018