Foresight Solar Fund Ltd's (LSE:FSFL, FRA:1F5) Toby Virno talked with Proactive about the UK government's latest statutory notices for the next Contracts for Difference (CFD) allocation round and what they mean for renewable energy investors and Foresight Solar's long-term strategy.
Virno explains how the latest announcements establish the timetable, budget and rules for the UK's clean power auctions, while also outlining how the CFD mechanism works. He describes CFDs as 20-year agreements between renewable generators and the UK government that provide revenue certainty through fixed strike prices, helping to reduce financing costs and encourage investment in renewable energy projects.
Discussing the opportunity for Foresight Solar, Virno says the latest allocation rounds create an attractive pipeline of new investment opportunities. As existing operational assets mature and legacy support schemes expire, the company sees potential to recycle capital into newer Greenfield solar projects backed by long-term contracted revenues.
Proactive: Toby, good to speak with you. The UK government released statutory notices for the latest allocation round of Contracts for Difference this Monday. What does that mean in practice?
Toby Virno: The statutory notices set out the structure and timeline for the UK's clean power auctions for Contracts for Difference. They include the key auction dates, budget allocations and the rules developers and project owners must follow to secure government-backed contracts for renewable generation projects such as solar and wind.
Proactive: Can you explain what a Contract for Difference is and why the UK uses them?
Toby Virno: A Contract for Difference, or CFD, is a 20-year agreement between a renewable generator and the UK government. It guarantees a fixed strike price for electricity generated. If market prices fall below the strike price, generators receive a top-up. If prices rise above it, generators repay the difference. The scheme provides revenue certainty, lowers financing costs, encourages investment and has played a significant role in expanding UK renewable energy capacity since its introduction in 2014.
Proactive: What opportunities does Foresight Solar see following the latest allocation round?
Toby Virno: The latest allocation rounds present a significant opportunity. As existing operational assets approach the end of their support schemes, contracted revenues naturally decline. Investing in new Greenfield CFD-backed projects allows Foresight Solar to refresh its portfolio with younger assets that offer long-term contracted revenues, improved revenue visibility and opportunities to generate value by developing projects through construction into operation.
Proactive: How does this fit into Foresight Solar's long-term strategy?
Toby Virno: CFD-backed assets provide long-term contracted revenues, annual CPI-linked indexation, reduced exposure to wholesale power price volatility and improved access to project finance. Recycling capital into these projects will help enhance the quality and visibility of future revenues while supporting sustainable dividends alongside modest long-term growth.
Proactive: Toby, thank you very much for your time.
