US Solar (USF) announced interim results to 30 June 2020, with its NAV at the period-end coming in at $192.9m – a 0.8% decrease from 31 December 2019. USF, which launched in April 2019, said that as at the period-end, more than 60% (now almost 70%) of its projects were operating and the remaining projects in very late-stage construction.
‘443MWDC portfolio capacity across 41 projects’
USF’s portfolio comprises 443MWDC of capacity across 41 projects in four states, with a variety of investment-grade off-takers S&P rated A to BBB+. Portfolio revenues are 100% contracted at fixed or escalating prices for a weighted average of 15.3 years. USF has effectively committed all the funds raised in the IPO and the portfolio and its operating assets are performing well and the remaining three in-construction assets are progressing to target timelines. USF expects the full portfolio to be complete by year-end.
‘Subsidy roll-off expected to have limited impact on the industry’s growth’
In her outlook comments, USF’s chair, Gill Nott, said the following: “At the start of the year, the US federal solar subsidy, the Investment Tax Credit (ITC) had its first scheduled step down from 30% to 26%. Of the total 41 projects in the current portfolio, there were seven projects that were not yet completed at 30 June 2020, all of which have met safe harbouring conditions to qualify for the 30% ITC. Four of these have since been completed. Importantly, the industry continued strong growth as this occurred, installing 3.6GWDC, a 42% increase year-over-year for installations and the largest Q1 for solar photovoltaic (PV) on record. Growth is also expected in the years to come as the subsidy continues to roll-off before settling at 10% in 2022. Without the subsidy, solar remains extremely cost-competitive throughout much of the US, so the subsidy roll-off is expected to have limited impact on the industry’s growth.
During the period, the global COVID-19 pandemic continued spreading and the US has struggled to contain the virus. Despite the widespread economic impact of the disruption caused by the virus, the US solar market has fared well during the period. Operations and construction of solar assets were both largely deemed essential services and allowed to continue with little or no interruption. Indications of further growth of the industry also remain strong. Wood Mackenzie’s projections for US utility-scale solar installations from 2020 to 2025 decreased by only 0.5GWDC to 82.7GWDC including COVID-19 impacts. As solar is the most cost-effective new-build source of power generation in much of the US, the outlook for solar in the US remains positive.
COVID-19 mitigation strategies have also resulted in a reduction in electricity demand in the US, creating the possibility of curtailment. When demand is reduced, utilities can choose to reduce their electricity supply across a variety of sources. USF is protected from curtailment through its PPAs which either do not permit or strictly limit, economic curtailment. No USF assets have received curtailment instructions and, at current levels of demand, are unlikely to do so.
For the second quarter, the Financial Times reported that 176 UK companies had cancelled their dividend and 30 more had reduced distributions paid to investors. This accounts for about three-quarters of companies that typically pay a dividend. Although USF is not immune to COVID-19 and broader market impacts, USF’s PPAs are for 100% of electricity generated for 10 to 25 years, USF’s revenues and dividend are relatively well-protected even in volatile markets.
Given general market volatility and the challenges of the COVID-19 pandemic, we believe that USF’s core business is resilient and that the Company is well-positioned for future growth. After the period end, 38 of the 41 projects acquired are now operational and are generating revenue for the fund, with the remaining three expected to be completed on time and budget during Q3 and Q4 2020. The Board is pleased with the progress made committing the IPO proceeds and working toward a fully operating portfolio to support the full 5.5% (annualised and based on issue price of $1.00) dividend in 2021 as targeted at IPO.”
USF: Nearly 70% of US Solar’s projects now operational