Bluefield Solar Income Fund (BSIF) has published its annual results for the year ended 30 June 2024, during which it provided NAV and share price total returns of -0.83% and -4.67% respectively. The fall in the NAV reflected lower long term electricity prices and lower inflation expectations. Underlying earnings per share, pre-debt amortisation, were 15.51p per share, down from 17. 72p per share for the prior year. BSIF paid a total dividend of 8.8p per share, in line with its target, up from an actual dividend of 8.6p for the year prior. Dividends were covered 1.36x by earnings. BSIF’s operating performance, which saw generation fall by 3%, was hampered by two factors: a number of planned outages as inverters were replaced by newer and more reliable designs and the weather, which saw irradiation levels some 4.3% below expectations. However, BSIF’s income rose 3.1%, despite spot electricity prices falling due to both contracts that it struck earlier and the high proportion of regulated and inflation-linked revenues it benefits from.

BSIF’s shares traded at a persistent discount to NAV, the closing price on 30 June 2024 being 19% below the NAV (30 June 2023: 14% discount). At the year end, BSIF’s total outstanding debt stood at £607m, with leverage at 43% of GAV (30 June 2023: 41% of GAV).

BSIF generated 810,602 MWh of renewable energy during the year (2023: 836,231 MWh), powered the equivalent of 300,000 UK homes (2023: 288,000) and avoided 167,800 tonnes of CO2e emissions (2023: 173,000). The company also undertook a second physical scenario analysis to examine the potential impacts of changing wind speeds on its wind portfolio, developed near-term net zero targets, covering the company’s scope 1, 2 and 3 emissions, and developed a nature framework, aligned with the recommendations of the Task Force on Nature-related Financial Disclosures.

GLIL Partnership – the most important development

BSIF chairman says that the most important development for BSIF is its broad partnership with GLIL Infrastructure that was announced in December 2023. Phase One, which saw BSIF and GLIL co-invest in the acquisition of a 247MW portfolio of UK solar assets, and Phase Two, which saw BSIF sell to GLIL a 50% stake in one of its existing portfolios of operating solar assets, have completed. Phase 2 provided BSIF with capital to invest in new developments and allowed it to reduce its floating rate debt.

Discount and share buybacks

In light of the discount at which BSIF’s shares have been trading, the board announced a share buyback programme in February 2024. Between the beginning of March and 30 June 2024, BSIF bought back over 9m of its own shares at a cost of approximately £9.4m. Buying at a discount to NAV is NAV accretive for remaining shareholders and added 0.4p per share to BSIF net asset value per share. Since its financial year end, BSIF has continued to buy back shares and as at 26 September had repurchased over 14m shares with the discount standing at approximately 18%.

Mauxhall Farm and Yelvertoft energised

Although BSIF did not complete any new solar projects during the year, two of its largest solar investments – Mauxhall Farm (44.4MW) and Yelvertoft (48.4MW) – were energised at the end of July 2024 and the beginning of August 2024, respectively. BSIF’s total generating capacity currently stands at 883MW, comprising 824.7MW of solar and 58.3MW of wind (this includes its 50% share in the assets which were the subject of Phase Two of its strategic partnership with GLIL).

BSIF says that work on its development pipeline continued, with planning consents being secured on 223MW of solar projects and 90MW of battery projects, while the wider pipeline grew to 954MW of solar and 603MW of battery storage.

Underlying earnings and dividends

The underlying earnings for the year, before amortisation of long-term debt, were £94.6m, or 15.5pps, and underlying earnings available for distribution, post debt repayments of £30.1m (4.9pps), were £64.5.m (10.6pps). As such, BSIF comfortably covered its total dividend of 8.80pps for the year.

BSIF declared a fourth interim dividend of 2.20pps, bringing the total dividend for the year to 8.80pps and the yield on its share price – based on a share price of 106.40pps on 26 September 2024 – is 8.3%. The board has set a target dividend for the year ended 30 June 2025 of not less than 8.90pps. It comments that this extends BSIF’s record of progressive increases, and reflects the board’s intention to repay borrowings and continue a programme of share buybacks, while also investing in the development of our pipeline to generate and store electric energy.

Valuation and discount rate

BSIF says that there has been considerable activity in the secondary market for renewable electricity projects. It adds that demand for solar portfolios remains strong, providing ample evidence to validate the asset values adopted by BSIF. Prices seen in the market over the past two years range between £1.20m/MW and £1.45m/MW and over 1GW of operational capacity has been brought to market in the year.

BSIF comments that some of this activity involves BSIF as a seller of operating solar investments; by entering into its partnership, GLIL acquired a 50% stake in a selection of BSIF’s solar assets in Phase Two of the strategic partnership, for a price which values the 112MW portfolio at circa £140m. It says that the financial assumptions underlying this transaction are consistent with those used by the company in publishing its latest NAV of 129.75pps as at 30 June 2024. The portfolio discount rate is unchanged at 8% for the valuation and the enterprise value of the company’s operational portfolio is £1,136.5m, representing £1.24m/MW for the solar assets (30 June 2023: £1.35m/MW).

Inflation

UK inflation has abated in the past year; in June 2023 RPI inflation was running at 10.7%, whereas this fell to 2.9% for June 2024. On a CPI basis, the figures were 7.9% and 2.0%, respectively. Sterling interest rates, however, have been slower to fall. In August 2024 the Bank of England reduced Base Rate by just 0.25%, to 5.00%, and the UK 5 year gilt rate is now below 4%, down from approximately 4.5% one year ago. BSIF is a net beneficiary of inflation, since its regulated income is index-linked, boosting the revenues it receives from ROCs and FiTs faster than the increase in its operating costs. Most of its debt is fixed at the historically low interest rates which prevailed until 2022 and lower interest rates assist BSIF by reducing the cost of the revolving credit facility.

Power prices

Spot electricity prices have softened considerably in the year, but BSIF’s PPA strategy of fixing power prices for between one and three years in advance has allowed it to benefit from power contracts which are insulating it from short term price weakness. The average weighted prices for these contracts were £149/MWh for June 2024 (June 2023: £230/MWh).

Capital allocation and gearing

BSIF’s shares trading at a significant discount, it continues to buy back shares on a regular basis and, since the commencement of this programme in February, total buybacks now exceed 14m shares, all held in treasury. At the same time, BSIF has been steadily reducing the balance on its RCF and it is the board’s intention, within the constraints of the resources available to the company, to persevere with both programmes.