Rebounding power prices have driven Foresight Solar Fund’s results in the first half of 2021, with its net asset value (NAV) jumping to £596.4 million. This is a 2.3% increase on its 31 December 2020 results, where NAV sat at £582.2 million.
Over the first six months of 2021, wholesale power prices have been the highest since the fund’s inception. In its results, Foresight highlights that the average power price across its UK portfolio during the period, including fixed price arrangements, was £56.40/MWh compared with £45.38/MWh in the first half of 2020.
This represents an increase of 24% year‑on‑year, and builds on the growing prices seen across the last six months of 2020 – when prices grew from c.£22/MWh in May 2020 to c.£55/MWh by December 2020.
These higher prices have been driven predominantly by high prices in the gas market as low inventories, supply disruption from outages, strong demand from Asia and economic activity recovering to pre-COVID-19 levels have led to record high gas prices across Europe.
Foresight has looked to maximise the potential of these high prices by increasing the percentage of annual contracted revenues it has by entering new fixed price arrangements for specific portfolio assets for periods up to 2023. This will help avoid the volatility of the wholesale power market, providing stability in its cash flows.
The company’s forecasts suggest there will be a decrease in power prices in real terms in the long term of 1.3% per annum.
Foresight’s declared dividend for the period sits at 3.49 pence per share, in line with its 2021 target of 6.98 pence.
During the first six months of 2021, 56% of Foresights revenues came from subsidies, with the company receiving 1.42 ROC/MWh across the UK portfolio on average. The 2020-2021 FiT rate for Foresight’s Yardall asset was up to £74.30/MWh.
Going forwards Foresight is starting to look at contracted revenues as opposed to subsidies, given that the latter attracts lower returns, the company’s head of UK solar Ricardo Pineiro told Solar Power Portal today.
“It's not economically viable to continue to focus exclusively on subsidised assets,” he continued. “And that's why battery storage and subsidy free assets became attractive. But [we're] always keeping in mind that we need to keep a balanced portfolio in terms of contracted versus uncontracted revenues.”
The remaining 44% of revenue in the first six months of 2021 came from the sale of electricity, with contracted revenues for 2021 expected to increase to 75% due to an increase in fixed electricity price arrangements, then 74% in 2022 and 57% in 2023 during the period.
“Our strategy always has been to try to introduce an element of visibility on cash flows,” said Pineiro. “So we have a very specific, defined dividend policy. That means that we always try to limit the volatility of power prices to the cash flows.
“We are experiencing a period of record power prices, and we have been reviewing opportunities to fix a higher percentage of our electricity sales.”
A further element that will provide “portfolio-level” power price hedging for Foresight is moves to diversify its portfolio in terms of geography and technology.
The results also highlight the acquisition of the company’s first battery energy storage asset, a 50% equity stake Sandridge Battery Storage Limited, a 50MW lithium-ion battery storage system. This followed a decision by Foresight’s board in February to diversify its portfolio, and represents a total investment of up to £12.7 million from the company’s revolving credit facility.
Design works are still ongoing for the site, with construction scheduled to start in January 2022 and commercial operation to start in October 2022.
“At a portfolio level, what it offers is that element of price hedging that we don't have if we only invest in renewables. By having batteries added to the portfolio we will be able to trade electricity at different periods of the day. So in a way it is a tool to hedge our price exposure slightly differently.”
Given such benefits, Foresight is targeting further expansion in the storage sector with up to 10% of its gross asset value – or just north of £100 million – available for acquisition.
Foresight owns 50 solar assets representing a total installed capacity of 723MW in the UK, as well as 8 assets across Spain and Australia, giving it a total net peak capacity of 1,019GW.
The UK portfolio performed higher than expected during the period with electricity generation 3.4% above base case, thanks to good plant availability and irradiation 2.6% above base case. However, the company’s overall generation fell 2.3% below base case due to operational challenges at Foresight’s Australian assets.
“Looking forward, while we will remain focused on UK acquisitions, the board believes geographical diversification will benefit shareholders over the longer term and the Investment Manager, through its international reach, continues to review an attractive pipeline of solar and battery assets in the UK and internationally that can deliver growth opportunities,” said Alex Ohlsson, chairman of Foresight Solar Fund Limited.
“The Board of Foresight Solar, supported by the Investment Manager, will continue to aim to deliver its progressive dividend policy by optimising the operational performance of the portfolio and ongoing active power price management.”