An evolving mandate: Bluefield Partner’s James Armstrong discusses its move beyond solar

James Armstrong, managing partner of Bluefield Partners. Image: Bluefield Partners.

In June, Bluefield Solar Income Fund announced it was going to broaden its scope, to take advantage of ‘attractive opportunities’ in renewables.

Solar Power Portal caught up with James Armstrong, managing partner of Bluefield Partners, the investment adviser of Bluefield Solar Income Fund, about the move, which technologies the company will focus on and the impact Contract for Difference (CfD) auctions could have.

 

Could you tell me a little about the decision to broaden Bluefield’s mandate?

First of all the evolution - which is what it is - in the mandate is something that is trying to best position ourselves to be a renewable income fund in the UK market, and you'll notice the mandate hasn't changed in that we haven't broadened it outside of the UK.

But we had to ask, how do we continue to grow the company and to serve our shareholders in providing attractive levels of income? We looked at all different types of options and I suppose really the fundamental thing is that we remain overwhelmingly a solar power business, we continue to believe that the best technology, in terms of predictability, forecastability, and the simplest of all the renewable technologies is solar.

What we wanted to do was to take that foundation and build on it, so we're still Bluefield Solar Income Fund, we're not the Bluefield Renewables Fund and that's because not less than 75% of the fund going forwards is going to be invested into solar.

 

And what changes are being made?

So the first thing is a continued ambition to look at acquiring solar assets, including investing into development activities. Which I think is quite a big statement, because we think that there is going to be fairly significant growth in the renewables market going forward, and part of that in terms of the DNA of Bluefield is that we've always been very focused on going in at a very early stage. We built the company funding through construction, and this mandate change actually enables us also to have an element of capital investment that is going into development, so those would be self-developed and working with third party developers.

That's a very key ambition for us and it's also a statement of confidence in the future growth of the UK solar market because we think we are going to see another phase of growth in terms of the UK solar market, and that's been underpinned by the mandate change.

 

Why have you decided to branch out into other technologies as well?

What we've said is that within that 25%, which has got the allocation for other technologies, we've kept it very very focused on technologies that are in our view complimentary to solar. So primarily in terms of the renewable technologies we're talking about onshore wind.

When wind is generating typically it is complimentary to solar so they pair very well together, so that supports smoothing of earnings. In terms of a risk profile, it's also pretty similar to solar, so it's not moving to the more complex renewable technologies, we're talking about technologies - wind and hydro – that are the closest to solar. So that for us is very comfortable in terms of being our very defensive objective of delivering income.

Then the final piece of the puzzle if you like, is our ability to invest into storage. Storage is the key element that needs to be integrated into the renewables market to enable them to be as close to baseload as they can, to get some control over the intermittency and to make it more valuable to consumers.

That is obviously a very key play, and we're doing a lot of work and have been behind the scenes, working with third party advisory groups, spending a lot of time and a lot of money looking into it.

We think there are some very interesting opportunities that are going to come down the path - they're not ready just yet, so we don't expect to be investing into the storage market in the immediate future just because we think there are challenges around how the revenue stack is going to work.

 

How significant was the reintroduction of the CfD's for making this decision both for onshore wind and for looking at self-developed solar?

This has been about a year in the planning, so we've been working on the basis that there wouldn't be any support. We've been thinking about how we work those investments into a subsidised portfolio, and we felt that they looked attractive on that basis, on a return basis.

But the CfD market is going to be very significant, particularly for businesses like Bluefield, because the way that we've created our fund - which is relatively unique, certainly in the public markets - is that we have worked historically with developers, we've worked with the contractors, the EPCs who have built that portfolio and we've funded through construction, that's how we've built the Bluefield Solar Income Fund. And so having that sort of development/EPC movement again for us is very important, it's the market that we are set up to work in.

Bluefield’s business is again relatively unique, because we have an investment business but we also have a very very experienced technical team, so whenever we've doing a deal, the assessment and the evaluation we make are made on an investment and technical basis and we have the inhouse capabilities to cover that. If you then say to your question about looking at CfD auction development, then obviously that's where our internal capabilities are even more highlighted, and become even stronger.

So I think on either level we're very excited about the next phase of growth for the solar market. It is a great positive statement if the CfD comes through, but I would say that there haven't been any particular recent words about how t2021 is going to look and all of the auction process.

I think also it is one of the consequences of COVID-19 that governments are going to have to invest to try and build their way out of what is a very serious economic situation, and one of the ways of doing that is infrastructure. Probably the most popular - certainly with the general public - ways of doing that will be renewables and obviously solar fits right square bang into the middle of that because it's the most popular of all the renewable technologies if you believe the straw polls.

So I think again we're likely to see a net benefit because it's going to create the necessity to accelerate decarbonistaion, and I think that's something that we're very well placed to try and work and develop over the coming years.