NextEnergy Solar Fund Ltd (LSE:NESF) has reported a 7.2% increase in its quarterly unaudited net asset value (NAV) to 121.7p per ordinary share, a record high for the investment and asset manager.
"Today's reported NAV is the highest that NESF has ever released and it is encouraging to see that NESF's share price has started to strengthen in line with peers,” Kevin Lyon, chairman of NESF said in a quarterly NAV and operational update. “We believe the current share price continues to offer investors an attractive entry point to a compelling investment opportunity. The team at NextEnergy Capital continue to work hard to deliver NESF's outstanding performance and exciting future growth pipeline."
The company also reported a £48.7 million increase in ordinary shareholders' NAV to £717.2 million as of June 30, 2022, up from £668.5 million as of March 31, 2022, while its gearing - including preference shares - was 40%, down from 42%.
NextEnergy confirmed an interim dividend of 1.88p per share, up from 1.79p at the interim stage in 2021 and said it has set a full-year 2022/2023 target dividend of 7.52p per share at an estimated dividend cover of between 1.3 times and 1.5 times for the year.
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The company said the main contributors to the increase in its NAV were an increase in power price forecast assumptions (+6.2p per ordinary share) driven by an uplift in the short to medium-term power forecasts provided by the company's three independent advisers and Power Purchase Agreements (PPAs), updated short-term inflation assumptions (+4.7p per ordinary share), operating result net distributions to fund (+3.0p per ordinary) and the upward revaluation of the NextPower III ESG (NPIII ESG) investment (+0.4p per ordinary share).
Portfolio & operational highlights for the quarter to June 31, 2022:
- Total installed capacity of 865 MW (March 31, 2022: 865 MW).
- 100 fully operating solar assets (March 31, 2022: 99 assets).
- Portfolio generation outperformance of +4.5% for the quarter ended June 2022, translating into additional revenues of around £2.0 million.
Approximately 50% of the company's revenues are made up of government-backed subsidies via ROCs and FITs, and this component of revenue increases in-line with RPI inflation, whilst the remaining revenues in the portfolio are generated through the sale of budgeted power generation into the market. This portion of revenues continues to benefit from the sustained high power price environment and increases the unsubsidised revenue portion of the portfolio, it noted.
The company said it continues to be consistent in its inflation assumption approach, using third-party, independent inflation data from the HM Treasury Forecasts and long-term implied rates from the Bank of England for its UK assets. For international assets, IMF forecasts are used.
To manage the sale of power into the market, NextEnergy Capital has a 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 allowing optimum weighted average price by forward-hedging above forecast prices. Aggregating the amount of revenue derived from subsidies and the power hedges, the company said it has a high degree of comfort around forward revenue projections and strengthening dividend cover for the current financial year.
The company said NextEnergy Capital's power sales desk continues to successfully manage risk and opportunistically secure power prices higher than forecasts in line with NESF's power sales strategy. In addition to NESF's budgeted revenues from ROCs and FITs, the company's hedging positions (covering 716 MW UK portfolio) as of June 15, 2022, were:
- 2022/23: 85% of UK budgeted generation, (average fix price of £78 MWh).
- 2023/24: 74% of UK budgeted generation, (average fix price of £73 MWh).
- 2024/25: 42% of UK budgeted generation, (average fix price of £86 MWh).
- 2025/26: 2% of UK budgeted generation, (average fix price of £118 MWh).
The company pointed out that it has exclusivity over or owns the project rights for the vast majority of an attractive pipeline of £350 million of domestic and international assets across the solar and battery space.
The company noted that it has capital to pursue its short-term immediate pipeline, including bringing online a secured battery storage project and completing the construction of its post-subsidy solar assets. Out of a total £145 million of Revolving Credit Facilities (RCF) available to the company, £48 milion remains undrawn and available for deployment as of June 30, 2022.
Looking ahead, NESF said the UK power market continues to experience sustained high prices. Prevailing market conditions around the supply of gas continue to look challenging given continuing macroeconomic and geo-political events, highlighting the importance of energy security, it added.
Against this backdrop, NESF noted that it offers strong diversification and protection for investors in their portfolios, in conjunction with helping accelerate Net Zero ambitions following COP26 through the construction of new solar power plants in the UK.
Michael Bonte-Friedheim, CEO of NextEnergy Group said: "I am very pleased to be able to report the third consecutive NAV uplift that NESF has released; 12 months ago NESF reported an unaudited NAV per ordinary share of 98.7p, today NESF announced 121.7p, an increase of c.23%. NESF continues to provide investors with an attractive income return protected against inflation, as well as providing an investment opportunity which makes a real difference in the fight against climate change."
The company noted that its June 30, 2022, factsheet is now available on the company's website: https://www.nextenergysolarfund.com/
NextEnergy Solar Fund is a specialist solar and energy storage climate impact fund. The company is structured as a renewable energy investment company listed on the premium segment of the London Stock Exchange that invests in utility-scale solar power plants and energy storage. The company 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.
Contact the author at jon.hopkins@proactiveinvestors.com