NextEnergy Solar Fund Ltd · LSE:NESF
NextEnergy Solar Fund — H1 FY2022/23 Earnings Presentation
53 slides from NextEnergy Solar Fund's earnings presentation, Nov 21, 2022
Slide 1: Interim Results Presentation
Investor Presentation Interim Results Presentation November 2022 Period ended 30 September 2022
Slide 2: Speakers & contents
Speakers & contents ▪ NextEnergy Group p.3 ▪ Financial highlights & Valuation p.4 ▪ Operational Update p.10 ▪ Market Environment p.13 Michael Bonte-Friedheim Group CEO & Founding Partner ▪ Portfolio Update p.15 NextEnergy Group ▪ Strategy Update p.17 ▪ Sustainability p.20 ▪ Outlook p.21 ▪ Q&A / Appe
Slide 3: Value add of NextEnergy Group
Introduction Value add of NextEnergy Group Investment Management Asset Management Development Incubator Foundation ▪ C.$3.0bn Solar AUM ▪ 1,350+ solar assets ▪ Green and brownfield ▪ Targeting startups ▪ International charity managed and/or project development focused on sustainability founded in 20
Slide 4: Key financial highlights, as at 30 September 2022
Financial highlights & Valuation Key financial highlights, as at 30 September 2022 ▪ +9.4p (c.8.3%) increase in Gross Asset Value Ordinary Shareholders’ NAV NAV per ordinary share NAV per ordinary share £724.7m 122.9p £1,258m during the 6 months ▪ +£56.2m increase in ordinary shareholders' NAV (31 M
Slide 5: Amended discount rate assumptions
Financial highlights & Valuation Amended discount rate assumptions ▪ Increased discount rate for unlevered operating UK solar assets by 0.5% to 6.25% (31 March 2022: 5.75%) ▪ Discount rate change is in line with the increases in discount rates observed by the Investment Adviser in the sector Discoun
Slide 6: Updated inflation assumptions
Financial highlights & Valuation Updated inflation assumptions ▪ The Company continues to use consistent inflation assumptions ▪ Applying third party, independent inflation data from the HM Treasury Forecasts and long-term implied rates from the Bank of England estimates for its UK assets ▪ For inte
Slide 7: Forecast power prices (real 2022)
Financial highlights & Valuation Forecast power prices (real 2022) ▪ Forward power prices significantly above Blended power curves (capture price) previous forecasts ▪ The Company’s current UK 20-year average power price forecast represents an increase of 15.9% compared to that used at the end of th
Slide 8: Amended power price methodology
Financial highlights & Valuation Amended power price methodology ▪ Given the recent volatility in power prices and, Power price discounts at the time of calculating the NAV, the possibility Time period Discounts applied to unhedged portion of portfolio power prices of a price cap or windfall tax on
Slide 9: NAV bridge: 6-month period
Financial highlights & Valuation NAV bridge: 6-month period ▪ The main contributors to the change in the Company's NAV NAV Bridge 31 March 2022 – 30 September 2022 over the quarter year were: ▪ An increase in power price forecast assumptions driven by an uplift in the short to medium term power curv
Slide 10: Track record of operating outperformance
Operational Update Track record of operating outperformance ▪ Consistently generated more electricity Power generation outperformance during Equating to additional revenue the six months ended 30 Sept 2022 than acquisition budget (+4.8% p.a. since IPO) +6.1% c.£4.9m ▪ The sustained portfolio outperf
Slide 11: Optimised capital structure
Operational Update Optimised capital structure RCF available for growth Gross Asset Value (GAV) c.£55m £700.0 £1,258m £136.2 £600.0 £54.8 RCF / Short term debt outstanding Total Gearing to GAV (1) c.£150m £500.0 Total Debt (£m) 42% £109.7 ▪ £135m RCF £400.0 £40.5 ▪ £70m RCF £5.9 £41.1 ▪ Macquarie In
Slide 12: Protecting future cash flows
Operational Update Protecting future cash flows ▪ Sustained high power price environment continues to offer attractive hedging Hedging position of budgeted generation on 50% revenue through sales desk(1) opportunities 2022/23 2023/24 2024/25 2025/26 ▪ NESF has a specialist energy sales desk that mit
Slide 13: Headwinds, mitigants and opportunities
Market Environment Headwinds, mitigants and opportunities Potential headwinds Mitigant in place Opportunity • Lock in short term PPA’s to increase revenue visibility Power price • In-house electricity sales team, led by highly • Expand into battery storage to enhance revenue in volatile power skille
Slide 14: Tailwinds, growth and value drivers
Market Environment Tailwinds, growth and value drivers Macro environment Direction of travel Effect on NESF PowerPrices: Power Prices: High short-term power prices, active hedging capturing higher prices Inflation:Increasing Inflation: Increasing inflation inflation environment, environment, large l
Slide 15: NESF portfolio
Portfolio Update NESF portfolio Portfolio Map Individual Operating Solar Assets 99 Commitment to NextPower III ESG(1) $50m Installed capacity (excluding NextPower III) 865MW Weighted average asset life Direct asset ownership and co-investments 85.1% UK Via NextPower III ESG commitment 27.0 years 10.
Slide 16: Portfolio growth & pipeline
Portfolio Update Portfolio growth & pipeline ▪ Solar PV ▪ Additional co- Completion of UK subsidy-free target + International expansion + investment opportunities ▪ X2 assets Via co-investments X2 assets Energy Storage ▪ Stand-alone batteries + Co-located batteries 300MW secured Retrofit programme I
Slide 17: Solar strategy delivering value
Strategy Update Solar strategy delivering value Solar PV UK subsidy-free target International expansion Co-investment opportunities ▪ 36MW subsidy free UK solar asset, ▪ $50m commitment into NextPower III ▪ 50MW Spanish solar co-investment currently in construction ESG, an international private sola
Slide 18: Energy storage strategy providing growth opportunities
Strategy Update Energy storage strategy providing growth opportunities Energy Storage Stand-alone batteries Co-located batteries ▪ £100m Joint Venture Partnership vehicle ("JVP") with ▪ Co-located battery retrofit programme introduced Eelpower across the current operating solar portfolio ▪ £200m Joi
Slide 19: Energy Storage Rationale
Energy Storage Rationale Existing large operating solar portfolio with grid connections ▪ 91 UK operating solar assets with existing grid connections , seeking input opportunities ▪ Energy Storage is a complementary hedge to NESFs existing solar portfolio Highly complementary technology to solar ▪ S
Slide 20: An impact ESG investment
Sustainability An impact ESG investment ▪ NESF is classified as Article 9 fund under NextEnergy Solar Fund – Green Impact Data Track Record EU SFDR and Taxonomy Metric Units FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021 FY2022 HY2023 ▪ Establishment of ESG Board Committee, GHG avoided ktCO2e 30.6
Slide 21: Going forward
Outlook Going forward Drive growth through Solar PV & Energy Storage strategy Investor returns backed by a large diversified operating portfolio Provide an attractive, growing dividend to shareholders Focus on adding NAV-accretive value to shareholders Continue to optimise the running of the existin
Slide 22: Q&A / Appendix
2. === NENTENERGY ‘SOLAR FUND 22
Slide 23: Key Facts
Appendix: Key facts Key Facts Fund Structure ▪ Guernsey-domiciled closed-end investment ▪ Launched in 2014 Issue / Listing ▪ Premium listing of ordinary shares on the London Stock Exchange ▪ Stock ticker code: NESF ▪ Board of Directors: 5 Independent Board Members ▪ Investment Manager: NextEnergy Ca
Slide 24: Note on recent windfall tax
Appendix: windfall tax Note on recent windfall tax ▪ Following the period end, the UK Government announced initial details of a windfall tax on low-carbon electricity generators in the UK, as part of its Autumn Statement on the 17 November 2022. Full details are expected to be clarified through the
Slide 25: NextEnergy Solar Fund board of directors
Appendix: Governance NextEnergy Solar Fund board of directors Kevin Lyon Patrick Firth Jo Peacegood Vic Holmes Josephine Bush Chairman Non-executive Director Non-executive Director Senior Independent Director Non-executive Director ▪ >30 years’ of ▪ >30 years' experience ▪ >20 years’ of ▪ >30 years’
Slide 26: NextEnergy Capital investment committee
Appendix: Governance NextEnergy Capital investment committee Michael Bonte- Giulia Guidi Ross Grier Aldo Beolchini Friedheim Founding Partner and Group Head of Environmental, Social UK Managing Director at Managing Partner and Chief CEO of NextEnergy Group and Governance (ESG) at NextEnergy Capital
Slide 27: NextEnergy Capital Investment Management board of directors
Appendix: Governance NextEnergy Capital Investment Management board of directors Joseph D’Mello Jeremy Thompson Charlotte Denton ▪ > 30 years’ of ▪ >30 years’ of multiple- ▪ >25 years’ experience experience as a sector experience in the global private chartered accountant. with a focus on client wea
Slide 28: Value accretive
Appendix: NESF introduction Value accretive Attractive dividend, targeting long term growth ▪ A specialist renewable energy investment company focused on solar and energy storage Strong inflation linked revenue ▪ Current operating portfolio includes 99 solar assets, in multiple jurisdictions, and 1
Slide 29: Revenue generation, as at 31 March 2022
Appendix: Operational highlights Revenue generation, as at 31 March 2022 EBITDA above budget Delta vs Year Ended 31 March 2022 Actual per MW(1) Budget per MW(1) Comments Budget +27.8% Solar Irradiation Conversion Factor(2) [A] [B] {kWh/m2) (%) 1,241 72.2% 1,200 73.4% +3.4% (1.6%) Actual irradiation
Slide 30: Summary statement of comprehensive income
Appendix: Financial Summary statement of comprehensive income Total net Income Six months Six months Year ended ended ended 31 March 2022 £85.6m 30 September 30 September (audited) Income Statement 2021 2021 (unaudited) (unaudited) £m £m £m (30 September 2021: £53.4m) Income 48.3 29.9 65.0 Earnings
Slide 31: NAV sensitivities (30 September 2022)
Appendix: Financial NAV sensitivities (30 September 2022) ▪ The sensitivity highlights the NAV per share percentage change in the portfolio valuation resulting from a change Discount rate (+/- 0.5%) (3.4)p (2.4%) 2.6% 3.6p in the underlying variables Power Price (-/+ 10%) (9.4)p (6.6%) 6.4% 9.1p ▪ I
Slide 32: Ordinary share dividends
Appendix: Financial Ordinary share dividends Dividend target achieved & 6 months ended Pre-scrip dividends 30 September 2022 £’000 £’000 dividend covered Cash income for year 1,2 48,273 8 years Net operating expenses for period Preference shares dividend (3,751) (4,763) Net cash income available for
Slide 33: Investment policy limits
Appendix: Valuation Investment policy limits ▪ The Company may also invest in standalone energy storage systems (not ancillary to or co- ▪ 0.7% of GAV currently Investment Objective Technological Limit located with solar PV assets owned by the Company) up to an aggregate limit of 10% of the invested
Slide 34: Portfolio breakdown
Appendix: Portfolio Portfolio breakdown By Subsidy/PPA1 By Installed Capacity1 By Revenue Type1 By Inverter Manufacturer1 By Solar Module Manufactuer1 By Location1
Slide 35: Active hedging strategy example
Appendix: Portfolio Active hedging strategy example Example: Hedging Strategy for Summer 2022 NESF consistently secures hedges above the ICE Forward Curve as well as the quarterly power price forecast for the period 100.0 % Hedged 100% 95.3 Table shows: 90.0 ICE Forward Curve for S22 90.4 90% 89.7 8
Slide 36: The Italian Solis portfolio
Appendix: Portfolio The Italian Solis portfolio ▪ High risk-adjusted returns (9.4% at Business Case: Solis Acquisition and Performance acquisition) ▪ Acquisition of eight solar plants in Italy in December 2017 for a total installed capacity of 34.5MW ▪ Positive contribution to dividend and total val
Slide 37: Long term debt repayment profile
Appendix: Capital Structure Long term debt repayment profile ▪ As at 30 September 2022, Apollo Repayment Profile c.£180m of the financial debt was £18 long-term fully amortising £16 £14 ▪ The charts show the precise £12 yearly repayment profile for both £10 (£'m) £8 long-term debt facilities (intere
Slide 38: Optimised capital structure - details
Appendix: Capital Structure Optimised capital structure - details Gross Asset Value (GAV) (2) 589.7m Ordinary Shares in issue, targeting a total dividend of 7.52p per ordinary Equity £1,258m ◼ share for the financial year ending 31 March 2023 Preference shares Preference shares ◼ Two £100m tranches
Slide 39: Financial debt outstanding (30 September 2022)
Appendix: Capital Structure Financial debt outstanding (30 September 2022) Financial debt gearing Total gearing No. of Termination Applicable 27% 42% power Loan to Facility Provider / Type Borrower Tranches Amount Outstanding (inc. options rate plants Value(2) Amount arranger (£m) to extend) secured
Slide 40: Preference shares
Appendix: Capital Structure Preference shares On 8 November 2018, the Shareholders approved the issuance of £200m of Preference Shares. The Company issued ▪ The issuance of £200m the first tranche of £100m in November 2018, and the second tranche of £100m Preference Shares were issued in preference
Slide 41: Batteries generate revenue from multiple sources
Appendix: Energy Storage Batteries generate revenue from multiple sources Capacity Market Merchant trade is the Embedded Export Tariff 5-10% Ancillary services offer backbone of a diversified Embedded strong near-term value. revenue stack. Benefits* GDUoS ▪ But, with new assets ▪ Wholesale markets a
Slide 42: Energy storage joint venture overview
Appendix: Energy Storage Energy storage joint venture overview Joint Venture Partnership 1 (“JVP1”) Joint Venture Partnership 2 (“JVP2”) JVP1 JVP2 £100m £200m Battery storage investment opportunities ▪ Owned 70% by NESF and 30% by Eelpower ▪ Owned 75% by NESF and 25% by Eelpower £300m ▪ The Company’
Slide 43: Eelpower partner selection
Appendix: Energy Storage Eelpower partner selection Eelpower background & track record ▪ Eelpower is a specialist in the UK battery market with a strong track record and extensive experience in the delivery, management, and optimisation of battery storage assets in the UK ▪ Eelpower will provide EPC
Slide 44: Energy storage co-location retrofit programme
Appendix: Energy Storage Energy storage co-location retrofit programme ▪ NESF has held two co-located battery assets since 2018 (Salcey Farm & Pierce Farm) Budget Grid ▪ Introduced co-located retrofit programme across the UK Import portfolio of 91 solar assets, with existing grid connections Availab
Slide 45: Now is the right time to deploy energy storage
Appendix: Energy Storage Now is the right time to deploy energy storage Previously Now ▪ Evolving, early-stage technologies ▪ Technology established and tested ▪ Prohibitive capex, long return horizons ▪ Capex and return horizons reducing ▪ Uncertain revenue streams ▪ Revenue proven by pathfinder sc
Slide 46: EU Taxonomy and Sustainable Finance Disclosure Regulation
Appendix: ESG EU Taxonomy and Sustainable Finance Disclosure Regulation ▪ The Sustainable Finance Disclosure Regulation (SFDR) is a European regulation introduced to improve transparency in the market for sustainable investment products, to prevent greenwashing and to increase transparency around su
Slide 47: Biodiversity and social enhancement
Appendix: ESG Biodiversity and social enhancement ▪ NESF benefits from a dedicated Biodiversity team to ensure that land management and native fauna and flora are being considered throughout the investment and ownership phases. Biodiversity looking forward 34 45% ✓ Continue to implement best practic
Slide 48: ESG integration into the NESF investment process
Appendix: ESG ESG integration into the NESF investment process ▪ ESG factors are considered throughout the investment process, from potential excluded activities during the project selection phase, to initial screening and full due diligence during the pre-acquisition phase ▪ ESG clauses are include
Slide 49: Solar growth potential
Appendix: Growth Drivers Solar growth potential ▪ It is expected that $900bn is World Grid-Connected Electricity Generation Build-up of Solar and Wind – Global Installed needed to be invested into by Power Station Type(3) Capacity(3) solar energy in Europe for the continent to reach its net zero tar
Slide 50: NextEnergy Solar Fund structure
Appendix: Structure NextEnergy Solar Fund structure
Slide 51: Value add of WiseEnergy
Appendix: Structure Value add of WiseEnergy WiseEnergy is NESF’s operating asset manager ▪ WiseEnergy is a global solar asset manager part of the NextEnergy Group, with over 11 years’ experience monitoring and delivering operating optimisation and outperformance. ▪ WiseEnergy oversees all elements o
Slide 52: The NextEnergy Foundation
Appendix: Structure The NextEnergy Foundation ▪ Founded in 2016, the USA ITALY UNITED KINGDOM Foundation’s mission is to alleviate poverty SYRIA through the nexus with INDIA clean energy access JORDAN AFGHANISTAN and emissions reductions PAKISTAN ▪ NESF’s investment NEPAL adviser, NextEnergy SIERRA
Slide 53: Important notice
Important notice This document is issued by NextEnergy Capital Limited (“NEC”), which is authorised and regulated by the UK Financial Conduct Authority (“FCA”) with registered number 471192. The contents of this document are strictly private and confidential and accordingly may not be published, rep
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