REG - NextEnergy Solar Fnd - Full Year Results for year ended 31 March 2024

NextEnergy Solar FundAnnouncement

19/06/2024 07:00

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RNS Number : 9590S  NextEnergy Solar Fund Limited  19 June 2024

LEI: 213800ZPHCBDDSQH5447

19 June 2024

NextEnergy Solar Fund Limited

("NESF" or the "Company")

 

 

Full Year Results for year ended 31 March 2024

 

NextEnergy Solar Fund, a leading specialist investor in solar energy and
energy storage, is pleased to announce it has today published its full year
results and annual report as at year ended 31 March 2024.

 

Key Highlights:

 

Financial:

·     NAV per ordinary share of 104.7p (31 March 2023: 114.3p).

·     Ordinary shareholders' NAV of £618.6m (31 March 2023: £674.4m).

·     Income generated of c.£80m (31 March 2023: c.£79m)

·     Financial debt gearing (excluding preference shares) of 29.3% (31
March 2023: 28.4%).

·     Total gearing (including preference shares) of 46.4% (31 March
2023: 44.6%).

·     Weighted average cost of capital of 6.4% (31 March 2023: 5.7%).

·     Weighted average cost of debt of 4.5% including preference shares
(31 March 2023: 3.9%).

·     Weighted average discount rate across the portfolio of 8.1% (1) (31
March 2023: 7.3%).

 

Dividend:

·    11% increase in total dividends paid 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).

·     Increased target dividend to 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 17 June 2024.

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

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

 

Portfolio:

·   Reached 1GW installed capacity milestone with 1,015MW (1,2,3) of total
installed capacity (31 March 2023: 889MW (2,3)).

·     Increased portfolio size to 103 operating assets (31 March 2023:
99).

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

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

·     Energised Whitecross, a 35.22MW solar asset in the UK.

·     Remaining weighted asset life of 26.6 years (31 March 2023: 26.3
years).

ESG & Sustainability:

·   Maintained Article 9 Fund classification under the EU Sustainable
Finance Disclosure Regulation and EU Taxonomy Regulation.

·   Generated 852GWh of clean electricity during the period, contributing
to the avoidance of 279.3KtCO(2) emissions (31 March 2023: 899GWh, 363KtCO(2)
emissions).

·    Released third standalone sustainability report, available here
(https://www.nextenergysolarfund.com/esg/esg-reports-and-publications/) ,
focused on three principal sustainability topics: climate, nature and
social-related issues.

·     Powered an equivalent 301,000 homes for one year (31 March 2023:
242,000).

·   Adopted the Taskforce on Nature-related Financial Disclosures ("TNFD")
to go above and beyond the Company's sustainability reporting requirements,
alongside commitment to disclose under the new TNFD framework.

·   Adopted the International Sustainability Standards Board ("ISSB")
standards S1 and S2, which covers and expands on the Taskforce for
Climate-related Financial Disclosures guidance, through a dedicated ISSB
aligned Sustainability and ESG Report.

 

Capital Structure:

·   Refinanced all revolving credit facilities at attractive margins
demonstrating the appetite of the Company's banking partners to provide debt
to the Company at attractive terms.

·     The Company's financial debt (excluding preference shares) is
currently £338m 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 debt(4), 68% remains at a fixed rate of
interest (including the preference shares) and 32% is a floating rate at
attractive margins (SONIA + 1.20% to 1.50%).

 

Capital Recycling Programme:

·    Completed the first phase of the Capital Recycling Programme with
the sale of Hatherden, a 60MW ready-to-build solar project, for £15.2m,
representing a 100% premium to its holding value (2.0x Multiple on Invested
Capital) and an attractive 57% IRR.

·     Post period end, the Company completed the second phase of the
Capital Recycling Programme with the sale of Whitecross a 35.22MW operating
solar asset for £27m (the "Transaction") to a third-party, Downing LLP.

·    The Transaction represents a 1.3x Multiple on Invested Capital, an
attractive 14% unlevered IRR, and a 14% premium to the holding value as at 31
March 2024.

·    The Transaction is Net Asset Value ("NAV") accretive to shareholders
and will generate an estimated uplift of 0.57p which will be reflected in the
Company's NAV per share as at 30 June 2024.

·    The Investment Manager ("NEC") secured potential for further
consideration of £1m payable in the event the project benefits from planned
changes to network charging before 31 December 2028, bringing the total
transaction value to £28m.

·    The total transaction value including this further consideration
represents a 1.3x Multiple on Invested Capital, an attractive 15% unlevered
IRR, and a 18% premium to the holding value as at 31 March 2024.  It would
also generate an estimated uplift of 0.70p if reflected in the Company's NAV
per share as at 30 June 2024.

·     Proceeds from both phases of the Capital Recycling Programme were
used to repay the Company's short-term debt facilities.

·    Subsequent phases are progressing positively through exclusive
negotiations with selected third-party bidders. The Company will provide
further updates in due course.

 

Share Buyback Programme:

·     Post period end, the Board announced it approved an initial Share
Buyback Programme of up to £20 million.

 

Annual Report:

 

The Company's Annual Report for the year ended 31 March 2024 is now available
on the Reports & Publications section of the Company's website here
(https://www.nextenergysolarfund.com/reports-and-publications/) .

(https://www.nextenergysolarfund.com/reports-and-publications/)

 

A copy of the Annual Report has also been submitted to the FCA's National
Storage Mechanism (https://data.fca.org.uk/#/nsm/nationalstoragemechanism) .

 

Full Year Results Presentation:

 

A presentation will be held this morning at 9:00am (BST) at the London Stock
Exchange, 10 Paternoster Square, London, EC4M 7LS.  To register to attend in
person please contact ir@nextenergysolarfund.com.  The Company will also
livestream the presentation via webcast for investors followed by a Q&A
session.

 

The presentation will be hosted by:

·     Helen Mahy (Chairwoman, NextEnergy Solar Fund)

·     Ross Grier (Chief Operating Officer and Head of UK Investment,
Investment Adviser)

·     Stephen Rosser (Investment Director & UK Legal Counsel,
Investment Adviser)

 

Presentation details and registration link:

·     Time: 9:00am (BST)

·     Date: Wednesday 19 June 2024

·     Registration and Webcast link: NextEnergy Solar Fund Full Year
Results Presentation
(https://www.lsegissuerservices.com/spark/NextEnergySolarFundLtd/events/277d55d0-e324-4139-9bd5-d4234d3319f9)

 

A recording of the presentation will be made available on the Company's
website shortly after the event.

 

 

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

"I am pleased to present the tenth Full Year Results for NESF and my first
Annual Report as Chairwoman.  The continued macroeconomic backdrop has
presented challenges to the sector, but I am encouraged that the Company has
continued to show resilience having achieved multiple key milestones
throughout this financial year.

 

The Company has made solid progress with its Capital Recycling Programme,
which started with the sale of Hatherden a 60MW ready-to-build solar project,
in November 2023. Since year end, NESF has successfully delivered the second
phase of its Capital Recycling Programme and realised attractive value for
shareholders from the sale of Whitecross, a 35.22MW operating solar asset.
 At the same time, the Company has maintained strict discipline across its
capital structure and continues to look at active ways to narrow the discount
in the share price compared to the Company's Net Asset Value, including
implementing a £20 million Share Buyback Programme.

 

NESF recently celebrated its ten-year anniversary since listing on the London
Stock Exchange back in April 2014, a significant milestone that underpins and
demonstrates the value of the Company's long-term growth and vision."

 

Michael Bonte-Friedheim, CEO & Founder of NextEnergy Group, said:

"Over the year, NESF accomplished several impressive milestones. These
included the energisation of four new assets totalling 345MW, reaching over
1GW of net operating capacity, paying a fully covered full-year dividend of
8.35p per ordinary share, and achieving excellent returns for shareholders
from our phased Capital Recycling Programme which has delivered significant
value. With the recent announcement of an increase in dividend target to
8.43p, NESF is currently offering a dividend yield of approximately 11%, which
stands as one of the highest in the sector and FTSE 350.

 

NESF has been a key contributor to the UK's progress towards its Net Zero
targets to date and is well positioned to continue to be in the future.  The
majority of NESF's operating assets are located across the UK and have been
essential in increasing domestic renewable energy generation and helping
strengthen the UK's energy security and independence."

 

 

12-Month NAV Bridge Breakdown:

( )

                                                                   NAV p/share  NAV
 At 31 March 2023                                                  114.3p       £674.4m
 Time value                                                        8.0p         £47.1m
 Project actuals                                                   (1.5p)       (£8.8m)
 Power price forecasts                                             (7.8p)       (£45.5m)
 Changes in short-term inflation                                   4.5p         £26.9m
 Revaluation of new assets                                         1.7p         £10.8m
 Revaluation of NextPower III ESG                                  0.9p         £5.1m
 Cash dividends paid                                               (9.6p)       (£57.0m)
 Sale of Hatherden                                                 1.3p         £7.5m
 Discount rate changes                                             (4.6p)       (£27.4m)
 Capital movements (no net NAV impact):
 -       New assets at cost                                        4.5p         £26.7m
 -       Repayment of RCF using cash on hand                       0.1p         £0.6m
 -       Cash used to fund investments and repayment of RCF        (4.6p)       (£27.3m)
 Other movements in residual value                                 (2.5p)       (£14.5m)
 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, the two international solar co-investments

      and Whitecross.

·    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 March 2023
 2024/25          3.10%          3.40%
 2025/26          2.90%          3.30%
 2026/27          2.90%          3.20%
 2027/28          3.50%          3.70%
 2028/29          3.60%          3.00%
 2029/30          3.00%          3.00%
 2030/31 onwards  2.25%          2.25%

 

Discount Rate Assumptions

 

                                                 31 March 2024  31 March 2023
 Solar           UK unlevered                    7.50%          6.75%
                 UK levered                      8.20 - 8.50%   7.45-7.75%
                 Italy unlevered(5)              9.00%          8.25%
                 Subsidy-free (uncontracted)(6)  8.50%          7.75%
                 Life extensions(7)              8.50%          7.75%
 Energy Storage  Uncontracted                    10.00%         n/a
                 Contracted                      7.00%          n/a

 

 

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 the
visibility of cash flows.

 

Forecasted Total Revenue Breakdown (8,9,10,11):

 

 

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.£40m
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.

 

 

Footnote:

1.   Includes new operating energy storage asset Camilla.

2.   NextEnergy Solar Fund 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 NextEnergy Solar
Fund's investment in NextPower III, a private international infrastructure
solar fund where it 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.    Excluding NextPower III look through debt totalling £12.6m as of 31
March 2024.

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

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

7.    1.0% risk premium to 7.50% for cash flows after 30 years where leases
have been extended.

8.    Fixed revenues include subsidy income.

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

10.  NextEnergy Solar Fund minimises its merchant exposure through its active
rolling PPA programme. The programme locks in PPA's in the liquid market to
ensure maximum contracted revenues are achieved

11.  Fixed prices (£/MWh) covers 85% (861MW) of the total portfolio as at 6
June 2024.

 

 

 

 For further information:

 NextEnergy Capital                          020 3746 0700

 Michael Bonte-Friedheim                     ir@nextenergysolarfund.com
 Ross Grier
 Stephen Rosser
 Peter Hamid (Investor Relations)

                                             020 7653 4000

 RBC Capital Markets
 Matthew Coakes
 Elizabeth Evans

 Kathryn Deegan

 Cavendish                                   020 7397 1909
 James King
 William Talkington

                                             020 7379 5151

 H/Advisors Maitland
 Neil Bennett
 Finlay Donaldson

                                             01481 742642

 Ocorian Administration (Guernsey) Limited
 Kevin Smith

 

 

Notes to Editors(1):

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 audited gross asset value of
£1,155m.  More information is available at www.nextenergysolarfund.com
(https://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
(https://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
(https://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
(https://www.starlight-energy.com/)

 

Notes:

(1:) All financial data is audited at 31 March 2024, being the latest date in
respect of which NextEnergy Solar Fund has published financial information

 

 

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