Release Date: September 18, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Foresight Solar Fund Ltd (LSE:FSFL, Financial) has increased its buyback program by GBP10 million, bringing it up to GBP50 million, which is the largest in the sector.
- The company is commencing the divestment process of its entire Australian portfolio, which is expected to pay down a significant chunk of the RCF variable rate debt.
- Despite poor solar irradiance in the first half of the year, the UK portfolio was only 4.3% below budget, demonstrating the resilience of solar generation.
- The company has a strong contracted revenue position, with over 80% of revenues for 2024 and 2025 being fixed or inflation-linked.
- Foresight Solar Fund Ltd (LSE:FSFL) is focusing on future growth through investment in its proprietary development pipeline, targeting a sustainable development pipeline of between two and three gigawatts.
Negative Points
- Revenue for the first half of the year was 6.5% below budget at GBP74.5 million due to lower solar irradiance.
- Distributions from underlying assets were GBP1.5 million behind budget, impacting cash flow for dividend payments.
- Dividend cover for FY24 has moderated slightly to 1.4 times, down from previous levels due to lower generation.
- The Australian portfolio has faced high instances of economic curtailment and grid outages, impacting performance.
- The company is exposed to market risks and uncertainties, particularly in the Australian market, which has seen higher curtailment rates than initially assumed.
Q & A Highlights
Q: Can you give us a bit of indication as to what your 2025 levels are and also have you been writing new PPAs recently given the relatively low pricing?
A: We are well hedged in terms of the fixes that we have for this year and next. The big question for everybody is going to be when these roll off, it's 2026 and beyond. We are looking at different routes to market to get improved pricing. The wholesale pricing and forward to that are looking quite good, around the GBP60 per hour level works for us.
Q: What percentage of the Spanish revenue is slotted in through corporate PPAs cannibalization?
A: The forecasts of the revenue providers are assuming around 40% to 50% on average. For our portfolio, it hasn't reached that average per year over that point at the moment, but it's something we're keeping a close eye on going forward. Spain will need that build other battery storage to alleviate these solid discount pricing.
Q: What's the quantum of assets by megawatt that's going to come ready to build stage next year?
A: We expect the first projects to come through in 2025, hopefully a couple of medium-sized solar projects. Development is a multi-year game, and we aim to build a sustainable rolling pipeline for the fund going forward.
Q: How would you bring UK development pipeline into the funding practice?
A: We have various options, including partnering with developers. Foresight has existing relationships in JVs, and we have first rights over some of those assets. We are comfortable with this approach and looking to partner with developers to progress projects.
Q: How do you see the market reforms around the grid connection queue evolving the market for solar developers?
A: Enhanced rights for people to be booted out in the queue if they're not progressing with their projects are already announced. For us as funders and investors, we think it's positive because we are turning up with capital and the intention to progress these projects.
Q: Do you have any views on how the CfD regime needs to evolve going forward?
A: Increasing the CfD budget for future rounds would be constructive. The CfD has been a fantastic success in driving offshore wind in the UK. Offering a level of consistency of twice yearly would be fantastic, but at least annualized and some consistency for the next few years would be beneficial.
Q: How long do you think it'll take before you done your baseline measurement for biodiversity projects?
A: We can be there on the next baseline measurement. Foresight was already leading the field in this sense through our nature recovery blueprint as working with Eden Project at Natural England.
Q: Do you disclose the Australian portfolio equity there?
A: We don't include a breakdown on the equity or jurisdiction on that. We are comfortable with where the NAV is on that given the information that we have. We expect proceeds from that to be able to pay off a good chunk of the RCF once that is realized.
Q: Where can you see construction and development exposure getting to as essential as the portfolio with the refresh strategy?
A: The construction risk outstanding is now down to a couple of million on the Sandridge project in the UK. For the development pipelines, it's about EUR2 million through to the end of 2026 in terms of the development money.
Q: Could you comment on the optionality around potentially selling development rights in the future?
A: It will be driven by when these projects roll out and become available. We could sell those project rights for several times what we've already agreed we own 100% of the rights. We could also consider bringing a partner or selling down some more of the assets.
Q: What gives you confidence on current generation assumptions for the Australian asset given the poor track record there to date?
A: Our assumptions for curtailment are in line with what we're currently experiencing. There are positive movements in the Australian market for new investors to come through to take these projects forward. The changes needed to the grid and the ramp down of coal will add to those negative pricing events.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
