Quarterly Net Asset Value and Operational Update

NextEnergy Solar Fund Limited

12 May 2023

 

 LEI: 213800ZPHCBDDSQH5447

12 May 2023

NextEnergy Solar Fund Limited

("NESF" or the "Company")

Unaudited Quarterly Net Asset Value and Operational Update

NextEnergy Solar Fund, the specialist solar+ fund, announces its unaudited Net Asset Value as at 31 March 2023, and its latest operational update.

Financial Highlights

·     11% dividend target increase to 8.35p per ordinary share for the financial year ending 31 March 2024.

·     Forecasted target dividend cover of 1.3x-1.5x for the financial year ending 31 March 2024 based on high visibility of future cash flows.

·     Total dividend of 7.52p per ordinary share declared for the financial year ended 31 March 2023.

·     Total dividends declared since IPO of £305.8m or 55.72p per share.

·     Net Asset Value ("NAV") per ordinary share of 114.3p.

·     Ordinary shareholders' NAV of £674.4m.

·     Total gearing (including preference shares) of 45%. 

Portfolio & Operational Highlights

·     Total installed capacity of 865MW. 

·     99 operating solar assets.

·     Portfolio generation outperformance of +3.8% against budget for twelve months ended 31 March 2023, translating into additional revenues of c.£4.8m.

·     Capital Recycling Programme announced on 27 April 2023, aiming to capture significant value from the divestment of a 236MW portfolio of subsidy-free UK solar assets, the proceeds from which will be used to:

o  Reduce gearing;

o  Invest in future long-term growth opportunities; and

o  Buy back shares

Dividend Target

The Board of NESF has approved a dividend target of 8.35p per ordinary share for the financial year ending 31 March 2024, representing an 11% increase from the previous year's dividend of 7.52p per ordinary share.  The dividend target is forecasted to be 1.3x-1.5x covered, supported by the high degree of visibility of the Company's revenues.  The dividend target increase is not dependent on completion of the Company's recently announced Capital Recycling Programme and dividend cover forecasts do not assume revenues from, or sale proceeds connected with, the Capital Recycling Programme.

NAV Correction

As part of the Company's continual improvement of internal systems, the Company identified that the reporting module within its accounting software included an excess of working capital.  This created an omission of certain VAT payable accounts from the report which feeds into the calculation of the Company's NAV.

This resulted in an overstatement of NAV of £15.9m at 31 December 2022 and the Company has made a correcting adjustment of (2.7p) per share or (£15.9m) to the Company's 31 March 2023 unaudited NAV.  This has no impact on the cash flow generated by the business or on its dividend cover.  The Company continues to work closely with external advisers on its programme to strengthen controls, processes, and reporting.

The Company has corrected relevant quarterly unaudited NAVs for the period 31 March 2022 to 31 March 2023 which are included in the table below. 

NAV Correction Table:

The Company has laid out below the changes to the NAVs for the period 31 March 2022 to 31 March 2023.

	As previously reported		Correction		Difference
	NAV (£m)	NAV (p/share)	NAV (£m)	NAV (p/share)	NAV (£m)	NAV (p/share)
31 Mar 22	£668.5m	113.5p	£660.9m	112.2p	(£7.6m)	(1.3p)
30 Jun 22	£717.2m	121.7p	£704.3m	119.5p	(£12.9m)	(2.2p)
30 Sep 22	£724.7m	122.9p	£711.1m	120.6p	(£13.6m)	(2.3p)
31 Dec 22	£713.0m	120.9p	£697.1m	118.2p	(£15.9m)	(2.7p)
31 Mar 23	£674.4m	114.3p	£674.4m	114.3p	(£0m)	(0)

NAV Bridge

	NAV p/share	NAV
At 31 December 2022 (as originally announced)	120.9p	£713.0m
Pref shares dividend	(0.4p)	(2.3m)
Ordinary shares cash dividend	(1.8p)	(10.7m)
Income from investments	3.2p	19.3m
Change in fair value of investments	(7.2p)	(42.5m)
Net operating costs	(0.4p)	(2.4m)
At 31 March 2023	114.3p	£674.4m

Portfolio Movements

	Valuation
At 31 December 2022 (as originally announced)	£895.7m
New assets at cost	4.8m
RCF drawdown	(4.0m)
Operating result	7.3m
Intercompany transfers1	(19.3m)
Power price forecasts2	15.6m
Change in short-term inflation3	(19.7m)
Breakdown of other movements in residual value4:
-       Balance of DCF valuation	(8.3m)
-       Correction of VAT input error	(15.9m)
-       FX movements	(1.8m)
At 31 March 2023	£854.4m

Footnotes:

(1)   Intercompany transfers offset the cash generated by the Company's solar farms that has been distributed to the Fund during the quarter.

(2)   Future power price assumptions have been updated to reflect an improvement in the long-term power curves provided by the Company's three independent power curve providers.

(3)   A softening of inflation assumptions from external, third-party data providers.

(4)   Other movements in residual value represents the net movement across a number of accounting categories that influence the valuation.  It includes accounting provisions (e.g. in respect of expected electricity grid outages), and other non-material movements. 

Inflation Linkage and Updates

The Company continues to take a consistent approach to its inflation assumptions, using external third-party, independent inflation data from HM Treasury Forecasts and long-term implied rates from the Bank of England for its UK assets.  For international assets, IMF forecasts are used.

Inflation Rate (UK RPI) Assumptions

Calendar Year	31 March 2023	31 December 2022
2023/24	4.90%	7.00%
2024/25	3.40%	4.20%
2025/26	3.30%	3.90%
2026/27	3.20%	3.80%
2027/28	3.70%	3.00%
2028/29 -2029/30	unchanged	3.00%
2030/31 onwards	unchanged	2.25%

Discount Rate Assumptions

The Company has not made any changes to its discount rate assumptions for the quarter. The Bank of England implemented further increases to its base rate during the quarter and, as at 31 March 2023, the base rate was 4.25%.  The below table reflects the discount rate assumptions breakdown used for the 31 March 2023 NAV calculation:

	31 March 2023	31 December 2022
UK unlevered	unchanged	6.75%
UK levered	unchanged	7.45-7.75%
Italy unlevered 1	unchanged	8.25%
Subsidy-free (uncontracted) 2	unchanged	7.75%
Life extensions 3	unchanged	7.75%

Footnotes:

(1) Unlevered discount rate for Italian operating assets implying 1.50% country risk premium.

(2) Unlevered discount rate for subsidy-free uncontracted operating assets implying 1.0% risk premium.

(3) 1.0% risk premium for cash flows after 30 years where leases have been extended.

Capital Recycling Strategy

The Company announced its Capital Recycling Programme (the "Programme") on 27 April 2023 to accelerate the next phase of the Company's growth. Through the Programme, the Company aims to capture value from the divestment of a 236MW portfolio of subsidy-free UK solar assets, the proceeds from which will be used to:

·     Reduce gearing: reduce current drawings of the Company's revolving credit facilities ("RCF");

·     Invest in future long-term growth opportunities: provide flexibility to capture higher returning investment opportunities in the future, such as energy storage; and

·     Buyback shares: establish a share buyback programme in the future if the share price continues to trade at a material discount to the Company's net asset value per share.

To capture the significant value of these solar assets, NESF has initiated this Programme to divest a portfolio of five subsidy-free assets (Hatherden, Whitecross, Staughton, The Grange, and South Lowfield) and has launched a sales process to find buyers for these assets, over the coming months.  The Programme will deliver NAV accretive returns by realising the value generated through these investments. The Company will retain two operational subsidy-free assets and remains committed to its remaining subsidy-free solar pipeline.

Energy Storage Strategy

The Company continues to actively engage with investors around its ambition to increase the Company's energy storage investment policy limit from 10% of Gross Asset Value up to 25%, where conversations remain positive and supportive.  A further update will be provided to the market over the coming months.

Energy storage is a complementary technology to the existing large solar portfolio. It provides access to additional and diversified opportunities to derive value delivering attractive returns.  The market environment continues to be favourable for the Company to increase its allocation to energy storage within the portfolio.  The Company is confident in its ability to successfully deliver energy storage and continues to benefit from its investment adviser's experience and track record in securing import capacity and in realising operational assets and unlocking optionality in existing solar assets.  

Power Sales Strategy

To manage the sale of power into the electricity market, the Company utilises its investment adviser's specialist power sales desk.  This team actively manages the Company's power price contracting strategy and activities.  In the current environment, the power sales desk has enabled the Company to mitigate market price volatility whilst incrementally growing weighted average prices through forward hedging above forecast prices.  Aggregating the amount of revenue derived from subsidies and the power hedges, the Company has a high degree of comfort around forward revenue projections underpinning dividend cover for the current financial year.  Given the high degree of contracted revenues in future years, the Company is confident in its ability to continue to provide investors with a well-covered dividend going forward.

In addition to NESF's budgeted revenues from ROCs and FITs (c.50%), the Company's hedging positions (covering its 716MW UK portfolio) as at 31 March 2023 were:

Financial Year	UK budgeted generation hedged	Average fix price
2023/24	88%	£79MWh
2024/25	44%	£91MWh
2025/26	13%	£147MWh

Available Capital

Out of the total £205m immediate Revolving Credit Facilities available to the Company, c.£39m remains undrawn and available for deployment as at 31 March 2023.  The Company also has c.£14m immediate cash balance available at Fund level (this is separate from the cash currently held at Holdco/SPV level).  In addition, the Company actively assesses capital deployment options as part of ongoing optimisation of the composition of the portfolio.  

Future Pipeline

The Company has exclusivity over, or owns the project rights for, the majority of its pipeline of c.£500m domestic and international solar and energy storage assets.  This includes ownership of the development rights for a high-quality 250MW lithium-ion battery storage project in the East of England, which when approved and constructed will be one of the UK's largest operational standalone battery storage assets.

Kevin Lyon, Chairman of NextEnergy Solar Fund Limited, commented:

"This quarter has been one of key strategic importance for the Company.  We announced several value accretive programmes to provide growth, value, and stability for shareholders.  We were the first fund in the renewable investment company space to announce a capital recycling programme, aimed at reducing gearing, securing future growth optionality, and providing flexibility for a share buyback programme.  The Company identified an issue with automated reports produced by the accounting software which was quickly addressed and shared with the market today.  Transparency remains a key theme for the Board as we continue to engage and listen to our shareholders.  The Company has an exciting future ahead of it and offers excellent value to shareholders, evidenced by the Board's decision to increase the dividend target by 11%, one of the largest increases in the sector."

Michael Bonte-Friedheim, CEO of NextEnergy Group said:

"NextEnergy Solar Fund has made significant strides this quarter as it repositions itself for the continued evolution of the portfolio and its next wave of future growth.  The Company continues to use a consistent approach when calculating its Net Asset Value, and where possible, incorporates external, independent third-party data, ensuring a fair and transparent approach.  This quarter has seen future inflation assumptions falling significantly, and the Company's Net Asset Value has reflected this.  We believe that the Company's current inflation assumptions are conservative, with the latest publicly available HM Treasury and Bank of England estimates being substantially lower than previous quarters.  The Company remains well placed relative to sector peers to deliver strong returns to investors.  I am particularly pleased that NESF is able to increase its target dividend by 11%, underpinned by its projected dividend cover of 1.3x to 1.5x for the financial year."

For further information: NextEnergy Capital Michael Bonte-Friedheim	020 3746 0700 [e-mail]
Ross Grier
Stephen Rosser
Peter Hamid (Investor Relations)
RBC Capital Markets	020 7653 4000
Matthew Coakes
Elizabeth Evans Kathryn Deegan
Cenkos Securities	020 7397 8900
James King
William Talkington
Camarco	020 3781 8334
Owen Roberts
Eddie Livingstone-Learmonth
Ocorian Administration (Guernsey) Limited	014 8174 2642
Kevin Smith

Notes to Editors¹:

About NextEnergy Solar Fund

NESF is a specialist solar+ fund listed on the premium segment of the London Stock Exchange and is a constituent of the FTSE 250.  NESF's investment objective is to provide ordinary shareholders with attractive risk-adjusted returns, principally in the form of regular dividends, by investing in a diversified portfolio of utility-scale solar energy and energy storage infrastructure assets.  The majority of NESF's long-term cash flows are inflation-linked via UK government subsidies. 

The NESF portfolio has a combined installed power capacity of 865MW (excluding NextPower III MW on an equivalent look-through basis).  NESF may invest up to 30% of its gross asset value in non-UK OECD countries, 15% in solar-focused private infrastructure funds, and 10% in energy storage assets.  As at 31 March 2023, the Company had an unaudited gross asset value of £1,218m.  For further information on NESF please visit www.nextenergysolarfund.com

Article 9 Fund

NESF is classified under Article 9 of the EU Sustainable Finance Disclosure Regulation and EU Taxonomy Regulation.  NESF's sustainability-related disclosures in the financial services sector in accordance with Regulation (EU) 2019/2088 can be accessed on the ESG section of both the NESF & NEC website.

About NextEnergy Group

NESF is managed by NextEnergy Capital, part of the NextEnergy Group.  NextEnergy Group was founded in 2007 to become a leading market participant in the international solar sector.  Since its inception, it has been active in the development, construction, and ownership of solar assets across multiple jurisdictions.  NextEnergy Group operates via its three business units: NextEnergy Capital (Investment Management), WiseEnergy (Operating Asset Management), and Starlight (Asset Development).

·      NextEnergy Capital: Has over 16 years specialist solar expertise having invested in over 350 individual solar plants across the world.  NextEnergy Capital currently manages four institutional funds with a total capacity in excess of 2.4GW+ and has asset under management of $3.3bn.  www.nextenergycapital.com  

·      WiseEnergy®:  Provides solar asset management, monitoring and technical due diligence services to over 1,350 utility-scale solar power plants with an installed capacity in excess of 1.8GW.  WiseEnergy clients comprise leading banks and equity financiers in the energy and infrastructure sector.  www.wise-energy.com

·    Starlight: Has developed over 100 utility-scale projects internationally and continues to progress a large pipeline of c.10GW of both green and brownfield project developments across global geographies.

Notes:

^1: All financial data is unaudited at 31 March 2023, being the latest date in respect of which NESF has published financial information

 

END