NextEnergy hit by falling power price – NextEnergy Solar Fund says that, over the year ended 31 March 2020, its NAV fell from 110.9p to 99.0p. This translated into an NAV total return of -4.6%, which, when combined with a fall in the premium, left shareholders with a return of -7.8%.
NextEnergy met its dividend target of 6.87p (up from 6.65p), covering this with cash generated by the portfolio 1.2x. The new dividend target for this year is 7.05p.
Operational highlights included beating its budget for electricity generation by 4.7% and energising the UK’s largest subsidy-free solar plant at Staughton. It has others in the pipeline – for example, the company plans to finance, design, build, operate and own over 43MW of solar, the power generated from which will be sold directly to Anglian Water for a 25-year period through private wire agreements. On 14 May 2020, two subsidy-free projects under development, Strensham (40MW) & Llanwern (75MW), were sold for £11.5m. NextEnegy got all of its development costs back and made a profit in excess of its annualised target return of 7-9%. The plants were sold because falling power prices compromised the business case for retaining them within the portfolio.
NextEnergy’s solar plants generated enough power for 185,000 UK homes, saving 307,500 tonnes of CO2 emissions.
The main factor that weighed on the NAV was a reduction in forecast power prices. In the short-term, power prices have slumped as oil prices collapsed and electricity demand has been hit by COVID-19 lockdown measures. In April, UK demand for electricity was 15.3% below normal levels.
Subsidies cushion the impact of falling prices – 61.5% of the trust’s revenues come from subsidies today and these run off over the next 16.5 years.
Measures that the managers took included:
- extending the useful life of 17 more assets (20 more are planned);
- reducing operating costs through re-negotiating contractual terms and entering into new agreements;
- implementing technical improvements; and
- executing our electricity sales strategy to maximise revenue and reduce power price risk.
An additional £100m of preference shares were issued, with a coupon of 4.75%. the money was used to pay down other debt, finance Staughton’s construction and fund the acquisition of Ballygarvey solar farm.
Further expansion outside UK
12% of the portfolio is in Italy. There is a maximum limit of investment outside the UK of 15%. The board is asking shareholders to raise this to 30%. The manager sees better opportunities outside the UK but the focus will remain on OECD countries.
NESF : NextEnergy hit by falling power price