Foresight Solar Fund basked in last year’s sunshine to report significant growth in 2018, but the coming years look set for a “more opportunistic approach”, the fund said today.
Foresight put legacy performance issues behind it to report total generation 5% above budget for the year, boosted by soaring irradiance throughout the course of 2018.
Those performance statistics sent the fund’s profit after tax to £56 million, a 60% year-on-year increase, resulting in surging net asset value growth and a 4% increase in dividend per share for the period to 6.58p.
However the fund, which added nearly 250MW of generating capacity to its stable last year, will be taking a “more opportunistic approach” to secondary market acquisitions in the years ahead as it sets its sights on optimisation and refinancing its current portfolio.
That more selective approach to acquisitions is being triggered by a richly competitive environment for secondary assets in the UK, caused by a retraction of subsidies and an increased investor appetite for subsidy-backed assets throughout Europe.
While Foresight said its investment manager continues to review opportunities in the region, its predominant focus will now switch to one of asset optimisation, with the potential returns apparent to Foresight more than most.
The fund has experienced well documented difficulties with a number of assets it acquired from defunct solar developer SunEdison, issues which have plagued those sites’ performance throughout recent years.
However those issues have now been rectified with the “long-term performance of the sites in mind”. As a result, solar farms including Castle Eaton, High Penn, Highfields and Pitworthy experienced relative performances gains of around 10% year-on-year.
This, coupled with irradiation levels being 6.4% above investment cases in 2018, sent electricity production to almost 5% ahead of expectations for the year.
The case for subsidy-free and co-location
As investment opportunities in the secondary market have dwindled, a handful of funds have spoken of their interest in either acquiring or building out assets on a subsidy-free basis. NextEnergy Solar Fund is perhaps the most advanced of these, while Bluefield Solar Income Fund said last week it expects its patience in the market to pay off as the advent of grid-parity solar accelerates.
Foresight today said subsidy-free assets were becoming “increasingly viable”, although the fund still views the UK market as “early stage” due to the country’s irradiation profiles and comparative immaturity of the long-term corporate PPA market.
“The potential in this market area, however, is rapidly developing and the Investment Manager will continue to closely track developments,” the company said.
Speaking to Solar Power Portal today, Foresight partner Ricardo Pineiro said that in his fund’s view, it may yet be another year or two before it is in a position to make its first unsubsidised investment in the UK solar market, while other jurisdictions – particularly the Iberian markets in which Foresight already has a foothold – could see activity within the next 12 months.
A similar reticence is being shown in the battery storage arena, with Pineiro commenting that others investing in the space have perhaps been premature. Foresight’s wider Group does hold two battery storage assets, however these both benefit from four-year Enhanced Frequency Response contracts, the likes of which National Grid has already ruled out awarding again.
Foresight is instead more interested in the co-located battery storage field and is preparing a number of potential investments which will make use of existing grid connections and improve the merchant performance of existing solar farms.