Register Log-in Investor Type

News

Bluefield Solar pushing ahead with subsidy-free development

Bluefield Solar pushing ahead with subsidy-free development as it announces fairly solid results in what was a turbulent year.

Bluefield Solar has published its annual results covering the 12-month period ended 30 June 2021. At the year end the NAV was 115.83p down from 117.01p a year earlier. The share price fell from 134.5p to 121.4p. The chairman attributes this to a de-rating of the renewable generation sector following heavy share issuance, [although we feel that the negative impact of higher taxes and lower long-term power price forecasts has also played its part]. This equates to a total return for shareholders for the period of -3.8%.

The company declared dividends totalling 8.0p, in-line with its target. These were well-covered by underlying earnings after debt repayments of 9.2p.

Factors influencing the NAV

  • Asset life extensions – as at 30 June 2021, 490MWp (c.80% of the portfolio by capacity) was being valued on the basis of an additional 5 – 15 years of operational life, resulting in a weighted average life of the portfolio of 30.2 years (vs. 27.4 years in June 2020), reflecting both new acquisitions and asset life extensions. These added 2.7% to the NAV.
  • Discount rates – the equity discount rate of 6.00% was unchanged from 30 June 2020.
  • Corporation taxes – following the Spring Budget in 2021, the tax rate within the valuation has been increased from 19% to 25% from April 2023 for the remaining life of each asset. This took 2.0% off the NAV.
  • Power prices – these are discussed in more detail below but took 2.5% off the NAV. The directors’ valuation includes the latest power curves from three leading forecasters. 
  • Market transactions – as a result of the continued demand for subsidised solar assets, the range of values witnessed by the investment adviser and board for assets equivalent to those in the portfolio remains between £1.20m/MWp and £1.40m/MWp. Bluefield Solar’s operational portfolio is valued at an enterprise value of £770.1m, equivalent to £1.26m/MWp, at the lower end of that range.

Portfolio

As at 30 June 2021, the operational portfolio was comprised of 106 PV plants (consisting of 65 large scale sites, 39 micro sites and 2 roof top sites) with a total capacity of 613MWp. In August 2020, the company completed the acquisition of 15 solar plants totalling 64.2 MWp (a mixture of FiT and ROC assets with an average ROC of 1.8) and then, in January 2021, announced the acquisition of Bradenstoke Solar Farm, a 1.4 ROC, 70MWp ground mounted solar farm located in Wiltshire. Considerable progress has also been made with respect to the company’s solar and battery development activities.

At the time of writing the total pipeline currently stands at 593MWp of solar (with 81MWp currently in planning and a further c.254MWp close to submission) and 179MWp of battery projects (of which a co-located 19MWp project is in planning). 

In August 2021; the fund bought a portfolio of 109 operational wind turbines for approximately £63m. 

These investments, totalling c.£263m, were financed by successful equity raises in November 2020 of £45m and £105.1m in July 2021 as well as debt from an extended £100m RCF and a bespoke three-year £110m term loan from NatWest with an associated interest rate hedge. The group’s total outstanding debt has increased to c.£340.4m and its leverage level stands at c.37% of gross asset value, well within the range that the directors have previously outlined of between 35% – 45%.

Finally, planning consent was obtained in November 2020 for a subsidy-free plant, Yelvertoft Solar Farm, a 50MWp plant located in Northamptonshire. The option to construct the project has been exercised and Bluefield will update shareholders on construction timings for both this plant and the co-located 45MWp solar and 25MWp battery project in the coming months.

Power prices

From the historic lows seen in Q2 2020, as the UK Government placed the country into a nationwide lockdown in response to the COVID-19 pandemic, power prices rose steadily during the second half of 2020 (increasing from £24.18/MWh in April 2020 to £54.98MWh in December 2020). This increase in pricing has not only accelerated during H1 2021 across both day ahead (£79.21 per MWh in June 2021) and season ahead (Winter 21 baseload reached highs of £95.35 per MWh) and continues to rise at the time of writing. 

This increase in baseload pricing from December 2020 has been driven by a combination of factors; easing of national and international restrictions, rising carbon pricing (which returned to pre pandemic levels) and increasing gas prices as re-opening the global economy has coincided with extended outages in the UK on both nuclear and fossil-fuelled generating stations, as well below average winter temperatures. 

Bluefield has a flexible power purchase agreement (PPA) strategy. This meant it was able to manage the timing of power price fixes to avoid the lows in April 2020, before fixing selected asset tranches to take advantage of rising power prices during the second half of 2020 and first half of 2021. As such, the average contracted price for the portfolio achieved per MWh for contracts starting post 30 June 2021 of £61.7 per MWh is considerably higher than the average contracted price for the twelve month period to 30 June 2021 of £48.20 per MWh (vs. day ahead base load price of £58.02 per MWh for the same period).

Looking beyond the near term and out over the next 20 years, whilst de-carbonisation is expected to drive an increase in demand for electricity, medium to long term power price predictions have been lowered (from predictions in June 2020 and December 2020) as forecasters continue to predict that, despite rising demand for electricity, pricing will be suppressed by falling commodity prices and increased renewable generation post-2030.

Driving the rise in gas and power prices, which have continued to climb post period end, have been a series of interconnected factors. Firstly, the start of 2021 saw a particularly cold winter in Europe which in turn caused significant draw-down of European gas storage facilities. With domestic gas production from the North Sea falling and challenges with supply from Groningen, this increased the need to replenish gas reserves during Summer 21 from outside Europe. However, at the same time demand in Asia rose sharply and limited shipping capacity prevented further export of US gas to Asia and Europe – further pushing up already high European LNG prices. 

With higher gas prices resulting in a change to the gas-coal switching dynamics, demand for carbon emissions certificates have risen from coal generators which together with EU policy announcements, have pushed EU ETS carbon prices north of 60 €/tonne, with UK-ETS carbon pricing tracking accordingly. 

The impact of the drivers outlined above was a year-on-year increase of 50.6% between the UK day ahead market base load power price for the 12 months to 30 June 2020 of £35.66 per MWh to £53.71 per MWh for the 12 months to 30 June 2021.

Generation

Solar irradiation levels during the period were marginally lower than forecast (-0.8%) and 11.7% lower than the 2019/20 FY, which saw unusually high levels of irradiation. The generation yield was 938.9MWh for each MWp of installed capacity, 1.1% below expectations. With the higher than expected prices (+3.9%), total revenues were above expectations at £118.0k/MWp (+2.8%), and 15.6% below those recorded in FY 2019/20. The reduction compared to the previous year was due to the significantly higher irradiation recorded during that period.

The portfolio’s ‘availability’ (the total time the plant was operating, as a percentage of the maximum possible) was 97.6%, marginally lower than the forecasted level of 99% (2020: 97.4%). This was largely due to the rectification of failed equipment (for which insurance claims were submitted, where appropriate), and annual preventative maintenance activity. If high voltage equipment required replacing during the year, temporary units were sourced to ensure generation losses were minimalised until permanent replacement parts could be delivered and installed.

Bluefield Operations Limited, now provides O&M services on over 77% of the company’s solar farms. The impact of outages resulting from events within the control of the company (for example, periods when a plant, or part of a plant, were shut to conduct essential maintenance or repairs) accounted for a loss of 3.52% (2020: 2.84%) of total generation, equating to 19.17 GWh. The increase compared to the previous reporting year can in part be attributed to a revised formulae for calculating losses, which now includes all generation lost through the effects of clipping, inter-row shading and snow cover. 

Outages and curtailments which were outside the control of the company accounted for 1.75% (2020: 0.70%) of total generation, equating to 9.56 GWh.

BSIF : Bluefield Solar pushing ahead with subsidy-free development

Leave a Reply

Your email address will not be published. Required fields are marked *

Please review our cookie, privacy & data protection and terms and conditions policies and, if you accept, please select your place of residence and whether you are a private or professional investor.

You live in…

You are a…