US Solar Fund says its NAV increased by 1% over the course of 2021 to $0.975. Dividends totaling 5.5 cents were declared for the year and these were covered 1.82x by cash. The company is targeting a dividend of 5.58 cents for 2022.
The statement says that the NAV uplift reflects the impact of useful life extensions for selected assets in the portfolio and an uplift in the valuation of USF’s interest in and option over MS2 (see below) which more than offset a softer average long-term electricity price outlook, tax and working capital adjustments, and model roll forward.
Mount Signal 2 (MS2) is a 200MWDC solar project in California. US Solar bought a 25% stake in the project during the year and has since decided to buy a further 25% stake. MS2 was built during 2018 and 2019 by Swinerton Renewable Energy, a leading US constructor, and has a 20-year PPA with Southern California Edison, that commenced in June 2020. Under the PPA, 100% of the electricity generated is sold at an annually escalating price. Southern California Edison (rated by S&P as BBB), is a subsidiary of Edison International. It serves a population of more than 15m people and is the primary electricity provider for central, southern and coastal California.
As of 31 December, the portfolio comprised 493MWDC across 42 fully operating projects in four states. All projects have investment grade PPAs for 100% of electricity generated, and the weighted average remaining PPA of portfolio is 14.4 years. Including the purchase of 25% of MS2 after the period, the portfolio totals 543MWDC.
The portfolio performed 3.9% below budget for the year (including reimbursed curtailment). 1.5% was due to lower-than-expected irradiance (less sunshine) and 2.4% due predominantly to the first half contractually allowable and expected curtailment (a restriction on exporting power to the grid) at MS2, isolated performance issues which have been largely resolved, unplanned outages and soiling (ash from wildfires perhaps, but the report also mentions snowfall).
The board and the investment manager are “conscious of the need to grow the company” [not sure what they mean by this – need to install more solar to combat climate change/need to increase assets under management for the manager?]. Hence, as well as continuing to originate opportunities in mature US state solar markets, the manager is actively broadening its focus within the existing mandate to include emerging US state solar markets, multi-offtake arrangements, distributed generation, and suitable co-investment opportunities.” At 31 December 2021, the pipeline of potential investments included 1.9GWDC of high-quality assets (including Tranche Two of MS2), with an aggregate value of approximately $2.2b in cash equity value and a weighted-average PPA term of 17.7 years.
USF : US Solar results show modest NAV uplift