Quarterly Net Asset Value and Operational Update

NextEnergy Solar Fund Limited

15 May 2024

 

LEI: 213800ZPHCBDDSQH5447

15 May 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 Q4 Net Asset Value ("NAV") and operational update for the period ended 31 March 2024.

Key Highlights

Financial:

·     NAV per ordinary share of 104.7p (31 December 2023: 107.7p).

·     Ordinary shareholders' NAV of £618.6m (31 December 2023: £636.4m).

·     Total gearing (including preference shares) of 46.4% (31 December 2023: 45.7%).

·     Financial debt gearing (excluding preference shares) of 29.3% (31 December 2023: 28.8%).

·     Weighted average cost of capital of 6.4% (31 December 2023: 6.4%).

·     Weighted average cost of debt of 4.5% including preference shares (31 December 2023: 4.4%).

·     Weighted average discount rate across the portfolio of 8.1%¹ (31 December 2023: 8.0%).

Dividend:

·     Total dividends declared of 8.35p per ordinary share for the twelve months ended 31 March 2024 (31 March 2023: 7.52p).

·     Dividend cover for the twelve months ended 31 March 2024 was 1.3x (31 March 2023: 1.4x).

·     Announced target dividend of 8.43p per ordinary share for the year ending 31 March 2025.

·     Attractive high dividend yield of c.11%, as at closing share price on 14 May 2024.

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

·     Total ordinary dividends declared since IPO of £345m or 67.8p per ordinary share.

Portfolio:

·     Maiden 50MW standalone energy storage asset ("Camilla") achieved commercial operation.

·     Energised two international solar co-investments totalling 260MW² alongside NextPower III ESG ("Santarém and Agenor").

·     Increased portfolio size to 103 operating assets (31 December 2023: 100).

·     Reached 1GW installed capacity milestone with 1,015MW³ (31 December 2023: 933MW²). 

·     Remaining weighted asset life of 25.9⁴ years (31 December 2023: 26.1 years).

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 energy storage assets, international co-investments and NextPower III.

Strategic Highlights:

Capital Recycling Programme Update:

·     Following the successful completion of the first 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 246MW of subsidy-free assets comprising the Capital Recycling Programme:

Solar Asset	Status	Installed Capacity	Asset Type	Location
Hatherden	Complete	60MW	Ready-to-build	Hampshire, UK
Whitecross	Third-party process	36MW	Operational	Lincolnshire, UK
Staughton	Third-party process	50MW	Operational	Bedfordshire, UK
The Grange	Third-party process	50MW	Operational	Nottinghamshire, UK
South Lowfield	Third-party process	50MW	Operational	Yorkshire, UK

Capital Structure:

·     The Company's financial debt is currently £337.9m which represents a gearing of 29.3% of Gross Asset Value ("GAV") (31 December 2023: 28.8%).  The Company also includes non-amortising preference shares as part of the debt structure and therefore values the total gearing of the Company at 46.4% of GAV (31 December 2023: 45.7%).

·     Of the Company's total debt⁵, 68% remains at a fixed rate of interest (including the preference shares) and 32% is a floating rate at attractive margins as above (SONIA + 1.20% to 1.50%).

·     From the Company's two short-term Revolving Credit Facilities ("RCFs"):

o  The Company refinanced its existing £135m RCF with AIB Group and NatWest which was previously due to expire in June 2024.  The new facility is available until June 2026 and provides two additional 12-month extension options at the Company's sole discretion to bring the maturity date up to June 2028.  The RCF continues to benefit from attractive terms with a margin of 120bps over SONIA (Sterling Overnight Index Average).  The banking consortium consists of the Company's existing counterparties AIB Group and NatWest in addition to a new counterparty, Lloyds.

o  The Company also extended its existing £70m RCF with Santander (previously due to expire in June 2024). The £70m RCF with Santander is now available until June 2025 and benefits from improved terms with a margin of 150bps over SONIA (previously 160bps over SONIA).

·    The refreshed RCFs demonstrate the appetite of the Company's banking partners to provide debt to the Company at attractive terms and underline the Company's belief that debt remains readily available to it as a leading specialist in the solar energy and energy storage sector.

·     Breakdown of total debt (including preference shares) as at 31 March 2024:

 

Footnote:

5.     Excluding NextPower III look through debt totalling £12.6m as of 31 March 2024.

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

"We are pleased to deliver strategic progress and financial resilience over the period.  NextEnergy Solar Fund reached the significant milestone of increasing total installed net capacity above 1GW by energising its first standalone energy storage asset alongside an additional two international solar co-investments, that added international diversification to the portfolio.  The Board remains committed to managing the discount, paying down short-term debt, and pursuing attractive growth opportunities, including potential share buybacks."

Michael Bonte-Friedheim, CEO of NextEnergy Group said:

"NextEnergy Solar Fund continues to progress against its strategic objectives whilst maintaining a disciplined approach to capital allocation.  The Capital Recycling Programme is progressing as planned, following the successful sale of Hatherden in the first phase, with further updates to follow in due course.  We remain confident in NextEnergy Solar Fund's diversified and well-placed portfolio to capitalise on market opportunities and deliver attractive returns to shareholders."

Updates to Net Asset Value ("NAV") assumptions

The Company has made the following updates to its valuation assumptions for the 31 March 2024 NAV calculation:

·     Introduced new discount rate assumptions to account for the Company's operating 50MW energy storage asset, in line with energy storage investment company peers.

·   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 December 2023	107.7p	£636.4m
Time value	1.2p	£6.8m
Project actuals	(0.6p)	(£3.4m)
Power price forecasts	(2.7p)	(£16.0m)
Changes in short-term inflation	0.3p	£1.8m
Revaluation of new assets	1.6p	£9.2m
Revaluation of NextPower III ESG	0.7p	£4.3m
Cash dividends paid	(2.5p)	(£14.7m)
Capital movements (no net NAV impact):
-       New assets at cost	0.7p	£3.9m
-       Repayment of RCF using cash on hand	(0.3p)	(£1.9m)
-       Cash used to fund investments and repayment of RCF	(0.4p)	(£2.0m)
Other movements in residual value	(1.0p)	(£5.8m)
At 31 March 2024	104.7p	£618.6m

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 short-term (2024-2029) UK power price forecasts provided by Consultants, mainly as a result of lower commodity prices (particularly gas, which is down c.30-40%), influenced by above-average gas storage levels, milder weather across winter 2023/24 and sustained reductions in demand.

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

·     The revaluation of new assets accounts for assets as they become operational and moved from holding them at cost to fair value.  This includes the standalone energy storage asset and the two international solar co-investments.

·     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.

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	31 March 2024	31 December 2023
2024/25	3.10%	3.90%
2025/26	2.90%	2.20%
2026/27	2.90%	2.60%
2027/28	3.50%	3.30%
2028/29	3.60%	3.00%
2029/30	3.00%	3.00%
2030/31 onwards	2.25%	2.25%

Discount Rate Assumptions

The Company has not made any changes to its discount rate assumptions across its solar assets during the latest quarter.  The Company has introduced new discount rate assumptions to capture its first energy storage asset which commenced commercial operations in March 2024.  The Company's weighted average discount rate at 31 March 2024 therefore increased slightly to 8.1% (31 December 2023: 8.0%) to reflect its new operational energy storage asset Camilla.  The below table reflects the discount rate assumptions breakdown used for 31 March 2024 NAV calculation:

		31 March 2024	Movement
Solar	UK unlevered	7.50%	unchanged
	UK levered	8.20 - 8.50%	unchanged
	Italy unlevered6	9.00%	unchanged
	Subsidy-free (uncontracted)7	8.50%	unchanged
	Life extensions8	8.50%	unchanged
Energy Storage	Uncontracted	10.00%	New
	Contracted	7.00%	New

 Footnotes:

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

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

8.     1.0% risk premium to 7.50% for cash flows after 30 years where leases have been extended.

Power Curve Assumptions

31 March 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 visibility of cash flows. 

In addition to NextEnergy Solar Fund's budgeted revenues from government subsidies ("ROCs and FITs") which account for c.50% of the Company's revenues, the remaining c.50% of revenues are actively hedged using short-term PPAs.  The Company's UK hedging covers 80% of the total portfolio (716MW) as at 10 May 2024.

UK hedging summary	FY2024/25	FY2025/26	FY2026/27
Generation hedged	82%	29%	0%
Power price hedged	£80.9MWh	£101.4MWh	n/a

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. 100% of REGOs generated for the 2023-24 compliance year have been sold at an average price of £2.6/MWh. 92% of expected REGOs for the 2024-25 compliance year have been sold at £3.80/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.£49.3m remains undrawn and available for deployment as at 31 March 2024.   The Company has c.£8.9m immediate cash balance available at Company level as at 31 March 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. 

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 premium segment 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 31 March 2024, the Company had an unaudited gross asset value of £1,155m.  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 400 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 31 March 2024, being the latest date in respect of which NextEnergy Solar Fund has published financial information

 

END