High power prices continue to drive up the value of solar assets in the UK, with this expected to continue at least throughout 2022.
DORE considers share raise as NAV jumps on the back of high power prices
Downing Renewables & Infrastructure Trust (DORE) this week announced that its net asset value (NAV) was £150.9 million or 110.1 pence per share (pps) for Q1 2022. This is up 6.4% on Q4 2021, when it sat at £141.8 million or 103.5pps.
The company’s NAV total return for the period was 7.6% - taking into account a 1.25pps dividend paid during the quarter – predominantly due to high power prices in the UK and beyond.
DORE saw its NAV jump £2.9 million on the back of forecast future power prices increases, or 2.1pps.
Increases in inflation also contributed to the increased value of the company’s assets, with its Retail Price Index for the quarter ending March 2022 in the UK hitting 1.8%. This is considerably in excess of its annualised valuation assumption of 2.75% for the third successive quarter, the company noted.
In light of this it has increased its inflation forecasts to 7.8%, up from 2.75% in the UK. Additionally the company has increased its inflation forecasts for its Swedish assets, from 1.8% to 4%.
“Given the continuing increases in power prices since the quarter end, we believe that the company will continue to benefit from the positive pricing tailwinds,” Hugh Little, chairman of DORE said.
“As recently announced, the company has a strong pipeline of assets and is considering the issue of new shares to raise additional capital to take advantage of this pipeline, which should enhance the diversity of DORE's portfolio."
The company’s NAV also benefitted in Q1 2022 from acquisitions, taking on two river-run hydro portfolios and an onshore wind project in Sweden.
Its operating portfolio surpassed expectation, contributing £0.5 million (0.4pps) of the NAV uplift. This was predominantly driven by its UK solar portfolio, with generation and operation profit both c.14% above budget.
Downing LLP is looking to expand its UK solar portfolio, extending its £30 million term loan facility with NatWest for a c.48MWp solar portfolio in England and Northern Ireland in April 2022.
In 2021, the company established a new renewable energy project development business focused on building a pipeline of solar, wind and battery storage projects in the UK. DORE also acquired a 96MWp portfolio of UK solar PV assets for £42 million.
DORE’s Q1 2022 NAV update is a swing from the same period in 2021, when the impact of low power prices in the UK were mitigated by its Swedish assets, with the company pointing to the benefits of diversification at the time.
The company’s power price forecasts for 2023 remain unchanged currently.
NextEnergy Solar Fund looks to lock in above forecast power prices
High power prices over the beginning of 2022 have also boosted NextEnergy Solar Fund’s NAV, which grew to £669 million, up from £615 million as of 31 December 2021.
This 8.7% increase boosted unaudited NAV per ordinary share to 113.5p, an increase of 9.1p. Increases in power price assumptions contributed +5.6p per ordinary share of this uplift, with high prices expected in the short and medium term. Power purchase agreements contributed a +0.8p per ordinary share uplift.
NAV was also boosted by increases in short-term inflation assumptions, which contributed +3.3p per ordinary share. The company’s long-term inflation assumptions remain unchanged at 2.25% from 2030 onwards.
Kevin Lyon, chairman of NextEnergy Solar Fund, said: “The announced 5% dividend target increase is a combination of the fund's strong progress and a market characterised by sustained higher power prices. We were also pleased to reveal the selection of the site of our first co-located battery storage site in Norfolk, UK, and to announce our co-investments in Spain and Portugal.”
Currently, 40% of NextEnergy Solar Fund’s revenue is from selling power into the short-term power market, and the remaining 60% from long term government subsidies. It hedges a substantial amount of its portfolio, giving it “exceptional comfort” around forward revenue projections, the company noted.
It is continuing to look to opportunistically lock in above forecast power prices as part of its electricity sales strategy. As such, 80% of its revenue is fixed for 2022/23 at £71MWh, 74% for 2023/24 at £73MWh and 42% for 2024/25 at £86MWh.
NextEnergy has previously spoken to Solar Power Portal about its focus on long-term corporate power purchase agreements, given the strong appetite from corporates and the reliable cashflows they provide.
The company is continuing to expand its portfolio of solar and storage projects in the UK, which currently sits at a total installed capacity of 865MW across 99 fully operating solar assets.
Construction of its 36MW subsidy free Whitecross solar farm in Lincolnshire began in April 2022, and work is continuing on grid connection and construction mobilisation at its 50MW Hatherden subsidy-free solar farm. These mark the completion of the company’s 150MW subsidy-free solar allocation.
Its first 50MW battery asset is now under construction, and is expected to be energised by early 2023. NextEnergy Solar Fund now also has a sufficient pipeline to complete its initial target spend of £100 million through its joint venture with Eelpower, with the companies looking to develop 250MW of assets.
The company also made its first step into the Spanish market in Q1 2022, as it looks to further diversify its portfolio with a co-investment transaction for a 25% stake in a 50MW project under construction in Cádiz.
DORE and NextEnergy Solar Fund are the latest solar companies in the UK to see their NAVs boosted by current high power prices. It follows similar updates from Bluefield Solar, Octopus Renewables Infrastructure Trust and Foresight Solar in recent weeks.
Power prices have been driven up to record highs over the beginning of 2022 due predominantly to surging gas prices. This trend began in 2021, but the market has become still more volatile due to the Russian invasion of Ukraine.