Quarterly Net Asset Value & Operational Update

NextEnergy Solar Fund Limited

14 August 2024

 

LEI: 213800ZPHCBDDSQH5447

14 August 2024

NextEnergy Solar Fund Limited

("NESF" or the "Company")

 Unaudited Quarterly Net Asset Value & Operational Update

NextEnergy Solar Fund, a leading specialist investor in solar energy and energy storage, announces its unaudited Q1 Net Asset Value ("NAV") and operational update for the period ended 30 June 2024.

Key Highlights

Financial:

·     Unaudited NAV per ordinary share of 101.3p (31 March 2024: 104.7p).

·     Unaudited ordinary shareholders' NAV of £598.6m (31 March 2024: £618.6m).

·     Unaudited Gross Asset Value ("GAV") of £1,124m (31 March 2024: £1,155m).

·     Financial debt gearing (excluding preference shares) of 29.1% (31 March 2024: 29.3%).

·     Total gearing (including preference shares) of 46.7% (31 March 2024: 46.4%).

·     Weighted average cost of capital of 6.4% (31 March 2024: 6.4%).

·     Weighted average cost of debt of 4.5% including preference shares (31 March 2024: 4.5%).

·     Weighted average discount rate across the portfolio of 8.0% ¹ (31 March 2024: 8.1% ¹).

Dividend:

·     Attractive high dividend yield of c.10%, as at closing share price on 9 August 2024.

·   Total dividends declared of 2.10p per ordinary share for the Q1 period ended 30 June 2024 (30 June 2023: 2.08p).

·     Target dividend of 8.43p per ordinary share for the year ending 31 March 2025 (31 March 2024: 8.35p).

·     Forecasted target dividend cover of between 1.1x-1.3x for the year ending 31 March 2025.

·     Total ordinary dividends declared since IPO of £357m.

Portfolio:

·     Portfolio contains 102 ¹ operating assets following the planned capital recycling programme sale of Whitecross, a 36MW operating solar asset (31 March 2024: 103 ¹).

·     980MW ^2,3 of installed capacity (31 December 2023: 1,015MW ^2,3). 

·     Remaining weighted asset life of 25.9 ⁴ years (31 March 2024: 26.6 years).

Strategic & Discount Management Highlights

Capital Recycling Programme Update:

·   The Company has successfully delivered two phases of its Capital Recycling Programme at attractive premiums.

·    As at 30 June 2024 the Capital Recycling Programme has delivered:

o  Two asset sales totalling 95.22MW of installed capacity.

o  Raised £42.2m total capital.

o  Added 1.84pps to NAV.

o  Paid down £38.8m of the Company's short-term Revolving Credit Facilities.

·   Following the successful completion of the second phase of its Capital Recycling Programme, subsequent phases

     are progressing positively through exclusive negotiations with selected third-party bidders. The Company will

     provide further updates as they become available.

·   The table below lists the 245.22MW of subsidy-free assets comprising the Capital Recycling Programme:

Solar Asset	Status	Installed Capacity	Asset Type	Location	Price	NAV uplift	Premium	Unlevered IRR
Hatherden	Sold	60MW	Ready-to-build	Hampshire, UK	£15.2m	1.27pps	100%	57%
Whitecross	Sold	35.22MW	Operational	Lincolnshire, UK	£27.0m5	0.57pps5	14%5	14%5
Staughton	Third-party process	50MW	Operational	Bedfordshire, UK	n/a	n/a	n/a	n/a
The Grange	Third-party process	50MW	Operational	Nottinghamshire, UK	n/a	n/a	n/a	n/a
South Lowfield	Third-party process	50MW	Operational	Yorkshire, UK	n/a	n/a	n/a	n/a

Share Buyback Programme:

·    The Board announced an initial Share Buyback Programme of up to £20m on 18 June 2024.

·   As of 13 August 2024, 2,208,090 shares have been purchased and are currently being held in the Company's treasury account.

Capital Structure:

·   The Company's financial debt (excluding preference shares) is currently £327m which represents a gearing of

     29.1% of GAV (31 March 2024: 29.3%). 

·   The Company also includes non-amortising preference shares as part of the debt structure and therefore values

     the total gearing of the Company at 46.7% of GAV (31 March 2024: 46.4%).

·   Of the Company's total debt ⁶, 71% remains at a fixed rate of interest (including the preference shares) and 29%

     is a floating rate at attractive margins (SONIA + 1.20% to 1.50%).

·    Breakdown of total debt (including preference shares) as at 30 June 2024:

 

Helen Mahy, Chairwoman of NextEnergy Solar Fund Limited, commented:

"This has been a strong quarter for NESF as the Company continues to narrow its discount.  This has been achieved through careful management of the portfolio, including the successful sale of assets as part of our Capital Recycling Programme, and the initiation of the Company's Share Buyback Programme.  We believe there are tailwinds which will continue to drive the growth of the UK solar market and that NESF is well-positioned to capitalise on these to deliver continued shareholder value."

Michael Bonte-Friedheim, CEO of NextEnergy Group said:

"We are pleased with the progress that has been made during the quarter as NESF continues to represent an attractive investment opportunity for existing and new investors, especially with the successful completion of the second phase of our Capital Recycling Programme.  NESF continues to offer one of the highest yields for shareholders in the FTSE 350 and we are confident that the UK solar and energy storage markets stand to gain from the election of a new Labour government, which has prioritised renewable energy as the UK looks to meet its Net Zero targets."

Updates to Net Asset Value ("NAV") assumptions

The Company has made the following updates to its valuation assumptions for the 30 June 2024 NAV calculation:

·  Updated inflation assumptions to reflect the latest available third-party 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.

·     Updated power price forecasts capturing the latest available third-party advisor long-term power curves.

The updated NAV assumptions are disclosed in the relevant sections below.

NAV Bridge

	NAV p/share	NAV
At 31 March 2024	104.7p	£618.6m
Time value	2.5p	£14.7m
Project actuals	(1.7p)	(£9.4m)
Power price forecasts	(1.2p)	(£7.0m)
Changes in short-term inflation	0.4p	£2.5m
Sale of Whitecross	0.6p	£3.3m
Revaluation of NextPower III ESG	0.1p	£0.3m
Cash dividends paid	(2.5p)	(£14.7m)
Capital movements (no net NAV impact):
-       New assets at cost	0.1p	£0.9m
-       Repayment of RCF using cash on hand	3.7p	£21.8m
-       Cash used to fund investments and repayment of RCF	(3.8p)	(£22.7m)
Other movements in residual value	(1.6p)	(£9.7m)
At 30 June 2024	101.3p	£598.6m

The movement in the NAV over the period was driven primarily by the following factors:

·    Increase due to time value, reflecting the change in the valuation as a result of changing the valuation date, prior to adjusting for any outflows of the Company.  The increase in value is attributable to the unwinding of the discount applied to cash flows for the period when calculating the DCF.

·    A decrease in project actuals showing the difference between actual outturn vs budgeted forecasts, driven by below expected irradiation levels throughout the quarter.

·    Future near-term power price forecasts reflect recent higher gas prices (June 2024). Gas prices average 16% higher than the previous forecast, as stronger LNG demand from Asia over summer months and various supply outages tightened short-term market balance. Downward corrections in offshore wind and solar capacity in the short term also put upward pressure on prices.

·     In the medium-term, the power price forecast is consistent with previous quarters, with electricity prices falling as the deployment of renewables, particularly offshore wind, increases to reach the Government's target of 50GW of offshore wind, countervailing the upward pressure from higher commodity prices and electricity demand.

·    The trend for wholesale electricity prices in the long-term remains the same as previous quarters, with a slow decline expected due to increasing wind and solar capacities, driven by decarbonisation targets and a gentle decline in assumed costs.

·     BESS margins have declined in the short-term (2024-2028) in line with the decrease in wholesale power prices since Q3'23 (July - September 2023), largely due to declines in gas and carbon prices. This decline, driven by a well-supplied energy market following the initial shock from the Russian invasion of Ukraine, has reduced the size of energy trading opportunities available for battery storage projects.

·     The valuation incorporates revisions to short-term inflation forecasts from external third parties.

·     The sale of Whitecross as part of phase II of the Capital Recycling Programme.

·     The revaluation of NextPower III ESG.

·     The dividends declared and operating costs incurred during the year, this includes both ordinary and preference share dividend payments.

·   Other movements in residual value include changes in FX rates, fund operating expenses, and other non-material movements. Included here is a one-off extraordinary cost associated with the refinancing of the RCF facilities.

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.  Long-term assumptions are aligned with market consensus including transition to CPI from 2030.

Inflation Rate (UK RPI) Assumptions

Calendar Year	30 June 2024	31 March 2024
2024/25	3.40%	3.10%
2025/26	unchanged	2.90%
2026/27	3.10%	2.90%
2027/28	unchanged	3.50%
2028/29	3.50%	3.60%
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 during the latest quarter.  The Company's weighted average discount rate at 30 June 2024 was 8.0% ¹ (31 March 2024: 8.1% ¹).  The below table reflects the discount rate assumptions breakdown used for 30 June 2024 NAV calculation:

		30 June 2024	Movement
Solar	UK unlevered	7.50%	unchanged
	UK levered	8.20 - 8.50%	unchanged
	Italy unlevered 7	9.00%	unchanged
	Subsidy-free (uncontracted)8	8.50%	unchanged
	Life extensions 9	8.50%	unchanged
Energy Storage	Uncontracted	10.00%	unchanged
	Contracted	7.00%	unchanged

Power Curve Assumptions

30 June 2024:

For the UK portfolio, the Company uses multiple sources for UK power price forecasts. Where power has been sold at a fixed price under a Power Purchase Agreement ("PPA") (a hedge), these known prices are used. For periods where no PPA hedge is in place, short-term market forward prices are used. After two years, the Company integrates a rolling blended average of three leading independent energy market consultants' long-term central case projections.

For the Italian portfolio, PPAs are used in the forecast where these have been secured. In the absence of hedges, a leading independent energy market consultant's long-term projections are used to derive the power curve adopted in the valuation.

Power Purchase Agreement Strategy

NextEnergy Solar Fund continues to lock in PPAs over a rolling 36-month period. This proactive risk mitigation helps secure and underpin both dividend commitments and dividend cover, whilst reducing volatility and increasing the visibility of cash flows.

Forecasted Total Revenue Breakdown ^10,11,12,13:

Renewable Energy Guarantees of Origin ("REGOs")

The Company sells REGOs bundled with power sales through existing PPAs as well as unbundled via bilateral arrangements.  Where REGOs have been sold at a fixed price, these known prices are used in the calculation of NAV. 93% of REGOs generated for the 2024-25 compliance year have been sold at an average price of £3.9/MWh. 29% of expected REGOs for the 2025-26 compliance year have been sold at £6.9/MWh. Unbundled, unsold REGO volumes of up to c.645GWh/annum are reflected in the NAV in line with third-party advisor forecasts (£5/MWh until March 2028 and then £1.5/MWh for the remaining life of the asset).

Available Capital

Out of the total £205m immediate RCFs available to the Company, c.£61.2m remains undrawn and available for deployment as at 30 June 2024.   The Company has c.£3.8m immediate cash balance available at Company level as at 30 June 2024 (this is separate from the cash currently held at Holdco/SPV level).

Future Pipeline

The Company owns the project rights for, or has exclusivity over, a pipeline of c.£500m domestic and international solar (>400MW), domestic energy storage assets (>250MW), and a right of first offer over qualifying projects developed or sourced by the Investment Manager and Investment Adviser. 

Footnote:

1.   Includes energy storage asset Camilla.  Excludes NextPower III (a private international infrastructure solar fund) and the

      international co-investments.

2.   NESF owns 13.6% of Santarém (210MW in Portugal) and 24.5% of Agenor (50MW in Spain).

3.   On a look-through MW equivalent basis, this includes the investment in NextPower III where NESF owns 6.21%.

     Ownership in the international co-investments as above, and 70% ownership of the Company's maiden standalone energy storage asset Camilla through its joint venture partnership.

4.   Excludes international co-investments and NextPower III.

5.   Upon successful completion of the deferred consideration:

o  Price will rise from £27m to £28m.

o  NAV uplift will increase from 0.6p to 0.7p.

o  Premium will increase from 14% to 18%.

o  Unlevered IRR will increase from 14% to 15%.

6.   Excluding NextPower III look through debt totalling £12.1m as at 30 June 2024.

7.   Unlevered discount rate for Italian operating assets implying 1.50% country risk premium to 7.50%.

8.   Unlevered discount rate for subsidy-free uncontracted operating assets implying 1.0% risk premium to 7.50%.

9.   1.0% risk premium to 7.50% for cash flows after 30 years where leases have been extended.

10. Fixed revenues include subsidy income.

11. Figures are stated to the nearest 0.1% which may lead to rounding differences.

12. NextEnergy Solar Fund minimises its merchant exposure through its active rolling PPA programme. The programme locks

       in PPAs in the liquid market to ensure maximum contracted revenues are achieved.

13. Fixed prices (£/MWh) cover 85% (826 MW) of the total portfolio as at 6 August 2024.

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
Cavendish	020 7397 1909
James King
William Talkington
H/Advisors Maitland	020 7379 5151
Neil Bennett
Finlay Donaldson
Ocorian Administration (Guernsey) Limited	01481 742642
Kevin Smith

Notes to Editors¹:

About NextEnergy Solar Fund

NextEnergy Solar Fund is a specialist solar energy and energy storage investment company that is listed on the Main Market of the London Stock Exchange and is a FTSE 250 constituent.

NextEnergy Solar Fund'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.

As at 30 June 2024, the Company had an unaudited gross asset value of £1,124m.  For further information please visit www.nextenergysolarfund.com

Article 9 Fund

NextEnergy Solar Fund is classified under Article 9 of the EU Sustainable Finance Disclosure Regulation and EU Taxonomy Regulation.  NextEnergy Solar Fund's sustainability-related disclosures in the financial services sector are in accordance with Regulation (EU) 2019/2088 and can be accessed on the ESG section of both the NextEnergy Solar Fund and NextEnergy Capital websites.

About NextEnergy Group

NextEnergy Solar Fund 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 17 years of specialist solar expertise having invested in over 460 individual solar plants across the world.  NextEnergy Capital currently manages four institutional funds with a total capacity in excess of 3GW+ and has assets under management of $4.3bn.  More information is available at www.nextenergycapital.com   

·    WiseEnergy®:  is a leading specialist operating asset manager in the solar sector.  Since its founding, WiseEnergy has provided solar asset management, monitoring and technical due diligence services to over 1,500 utility-scale solar power plants with an installed capacity in excess of 2.5GW.  More information is available at 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.  More information is available at www.starlight-energy.com

Notes:

^1: All financial data is unaudited at 30 June 2024, being the latest date in respect of which NextEnergy Solar Fund has published financial information

 

END