US Solar Fund has announced results for the year ended 31 December 2023. The company’s NAV fell sharply over the year from 96 cents to 78 cents (roughly a 20% fall).
You might have thought that the biggest negative impact on the results would have been the increase in interest rates feeding through into a higher discount rate (applied to future cash flows to calculate the NAV). However, the biggest negative was actually an uplift in estimated operating costs.
- Improvements in macroeconomic assumptions +$6.4m
- Higher forecast power prices (“changes in the merchant curve”) +$28.5m
- New Renewable Energy Certificates (RECs) +$7.9m
- Higher discount rates -$36.7m
- Higher operating cost assumptions (higher inflation) -$41.9m
- Dividend payments -$18.7m
The full-year dividend of 5.66 cents per share was covered 0.95x. However, adjusting this to reflect likely ongoing net revenue, the dividend cover falls to 0.50x.
The main impact on future ongoing revenue was the sale of the company’s interest in its Mount Signal 2 project, but inflation is also an important factor.
Outside of these figures, it was a turbulent year for the fund, culminating in it appointing a new investment manager.
[QD comment: In October 2022, the fund blindsided us by pressing the self destruct button. While it failed to go off, the move led to the loss of the manager and the company’s prize asset. All of this was happening against a backdrop of high inflation and volatile power prices. The company seems to have ended 2023 on a more stable footing but the lack of dividend cover and clamour for action on the discount means that the future is still clouded.]
Operational Highlights
- Portfolio of 41 operating solar assets with a total capacity of 443MWDC, following sale of 50% share of Mount Signal 2 during 2023 (31 December 2022: 543MWDC)
- Total generation of 816GWh including MS2, and 715GWh for the ongoing portfolio (excluding MS2)
- Electricity generated by USF’s portfolio equates to 480,900 tCO2e emissions displaced (31 December 2022: 618,000 tCO2e) and 104,500 equivalent US cars removed from the road (31 December 2022: 134,000)
- Overall generation (excluding MS2) of 7.2% below budget, of which 2.0% attributable to below forecast solar irradiance, and 5.2% attributable to below forecast plant availability, unscheduled outages and other non-irradiance related factors
- Moving forward, the manager intends to implement a disciplined approach to asset management focused on decreasing unplanned outages and using generation data to inform operation & maintenance priorities
- Portfolio weighted average power purchase agreement (PPA) term of 11.9 years (31 December 2022: 13.8 years). All PPA counterparties are investment-grade (Average offtaker credit rating of BBB+)
- Sale of RECs for Oregon projects agreed, contributing $7.9m to NAV and additional operational cash and dividend coverage for 2024 onwards
- Sale of 50% stake in Mount Signal 2 completed, with approximately $29m of remaining proceeds following revolving credit facility repayment and tax equity buy-out settlements
Capital management and outlook
- The board and manager are currently analysing options available to it to return capital to shareholders (including through a share buyback) and refinancing of the company’s existing debt as a means to optimise the company’s capital structure and improve the operational cash flows. A further update on the outcome of this options analysis will be provided by the end of April 2024
- The company’s operating solar assets remain well-located, within host states which remain committed to renewable energy targets and progressive policies which are compatible with renewable generation
- The outlook remains positive as utilities and corporates continue to aim to meet their renewable energy objectives in line with state mandated targets and corporate sustainability objectives
USF : US Solar limps into 2024 after perfect storm in 2023