NextEnergy Solar Fund (NESF) has published its interim results for the six months ended 30 September 2022. The period saw NESF’s NAV per share increase by 8.3% to 122.9p, up from 113.5p as at 31 March 2022. The main contributors to the increase in the NAV were an increase in power price forecast assumptions (+12.0p per ordinary share) driven by an uplift in the short to medium term power forecasts provided by the Company’s three independent advisers and Power Purchase Agreements (PPAs), 7.5p discount to forecasts applied in anticipation of windfall tax, updated short-term inflation assumptions (+7.5p per ordinary share), operating result net distributions to fund (+3.0p per ordinary share) and the upward revaluation of the NextPower III ESG (“NPIII ESG”) investment (+0.9p per ordinary share). NESF says that the methodology used to calculate its NAV takes into account the impact of the UK government’s recently announced windfall tax levy.
Earnings during the period were 13.1p per share; a 69.3% increase over the 7.74p per share earned in the same period during the prior year. NESF’s portfolio outperformed its generation budget for the period by 6.1%, which translated into additional revenues of around £4.9m.
Around 50% of NESF’s revenues are made up of government-backed subsidies via ROCs and FITs, and this component of revenue increases in-line with RPI, whilst the remaining revenues in the portfolio are generated through the sale of budgeted power generation into the market. NESF says that this portion of revenues continues to benefit from the sustained high power price environment and increases the unsubsidised revenue portion of the portfolio.
Key financial highlights
NESF has provided the following financial highlights for the period:
- +9.4p (c.8.3%) increase in Net Asset Value (“NAV”) per ordinary share to 122.9p over the six-month period (31 March 2022: 113.5p).
- +£56.2m increase in ordinary shareholders’ NAV to £724.7m (31 March 2022: £668.5m).
- Earnings per ordinary share of 13.1p (30 September 2021: 7.74p).
- Total Gearing (including preference shares) of 42% (31 March 2022: 42%).
- Second interim dividend of 1.88p per ordinary share for the quarter ended 30 September 2022 (30 September 2021: 1.79p).
- Estimated cash dividend cover of 1.3x – 1.5x for FY22/23 (31 March 2022: 1.2x).
- Total dividends paid of 3.76p per ordinary share in respect of the six months ended 30 September 2022 (30 September 2021: 3.58p).
- Target dividend of 7.52p per ordinary share for the year ended 31 March 2023 (a year-on-year increase of 5%, above the 4.1% calculated Retail Price Index (“RPI”) rise for the 2021 calendar year).
ESG Highlights
NESF has provided the following ESG highlights for the period:
- Released first standalone sustainability report, which highlights NESF’s contribution to biodiversity, climate change and ethical supply chains through its operations.
- Gained classification under Article 9 of the EU Sustainable Finance Disclosure Regulation and EU Taxonomy Regulation.
- Generated 639GWh of clean electricity during the six-month period, contributing to the avoidance of 266,500 tonnes of CO2e emission (30 September 2021: 539GWh, 229,000 tonnes of CO2e). Equivalent to:
- Powering 354,274 UK homes for the six-month period (30 September 2021: 299,000). The rough equivalent of powering Manchester and Newcastle combined.
- Removing 176,245 cars off the road for the six-month period (30 September 2021: 151,260 cars).
Portfolio and operational Highlights
- NESF has provided the following portfolio and operational highlights for the period:
- Total installed capacity of 865MW1 (31 March 2022: 865MW).
- 992 fully operating solar assets (31 March 2022: 99).
- Portfolio generation outperformance of +6.1% against budget for the period ended 30 September 2022 (30 September 2021: 1.1%), translating into additional revenues of c.£4.9m (30 September 2021: £0.9m).
- Secured a £60m increase to its existing £75m Revolving Credit Facility (“RCF”) with AIB Group (UK) p.l.c. & NatWest.
- Signed a two-year extension to its £70m RCF with Santander UK to fund the investment pipeline.
Energy Storage
- Advanced its position in the energy storage sector by increasing NESF’s strategic joint venture partnership with energy storage specialist EelPower to £300m in total via a 75% stake in a new £200m Joint Venture Partnership vehicle (“JVP2”).
- Started construction on the Company’s first 50MW battery storage project in Fife, Scotland (expected to be energised and grid-connected in the first half of 2023) through its pre-existing Joint Venture Partnership vehicle with EelPower (“JVP1”).
- Commenced a co-located battery retrofit programme, identifying potential sites across NESF’s current UK operating solar assets.
Private Solar Infrastructure Fund
- Signed its second international co-investment with NextPower III LP taking a 13.6% stake in a 210MW solar project currently under construction in Santarém, Portugal.
Solar PV
- Commenced construction works for Whitecross (36MW) and grid preparation works for Hatherden (50MW).
- Secured 15-year Contracts for Difference (“CfDs”) for 100% of the generating capacity of both new-build UK solar projects post-construction.
Portfolio & Operational Highlights following the period end
- Signed a £32.5m acquisition for the development rights for a high-quality 250MW lithium-ion battery storage project in the East of England via Joint Venture Partnership with a strategic partner.
Updates to NAV assumptions
NESF says that it has made the following updates to its valuation assumptions for the 30 September 2022 NAV calculation:
It has applied a significant discount to the power prices forecasts provided by its market consultants. This discount has been applied to the unhedged generation volumes to account for the possibility of a significant drop in market prices over the period or of the introduction of price caps or windfall taxes.
An increase to the unlevered discount rate by 0.5% in response to the increase in the risk-free rate.