Capital Recycling Programme
Background
Having assessed changes in the wider macroeconomic environment, the Company proactively announced its Capital Recycling Programme (the “Programme”) in April 2023. The Programme involved the phased divestment of a 246MW portfolio of UK subsidy-free solar consisting of five high-quality assets.
When considering the Programme, the Investment Adviser looked across NESF’s entire portfolio to identify where it could maximise shareholder value. The five assets selected for the Programme were the most suitable due to the market environment at the time, by noting that buyers for these types of assets and, therefore, demand were far greater than those for UK subsidised assets, and by being aware of other large subsided solar portfolios for sale in the market at the time. The buying environment was an important aspect to consider when running a competitive sales process to drive maximum value for shareholders. The Investment Adviser has also helped pioneer subsidy-free solar assets in the UK, including in the NESF portfolio. The assets in the Programme are therefore unique in the market given their size and age, which has added value and been attractive to potential third-party buyers.
Energy storage is a highly complementary technology to solar PV
The proceeds of the Programme will be used to:
Reduce Short-Term Debt: Pay down the NESF Group’s£166m of short-term debt levels through the RCFs, which are the only debt product in NESF’s capital structure that are not interest rate hedged. The reduction in gearing reduces the debt service burden, strengthens free cash flows, and further increases dividend cover;
Consider a Share Buyback Programme of up to £20m: Provide flexibility for the Board to commit to an ordinary share buyback programme if the share price continues to trade at a material discount to the Company’s NAV per ordinary share; and
Secure Future Value Accretive Investments: Continue to progress its attractive pipeline of solar PV and energy storage projects, a key component of NESF’s evolution and a vital part of society’s drive towards a decarbonised grid.
Progress Update
During the period the first phase of the Programme was completed through the divestment of Hatherden, a 60MW ready to build UK subsidy-free solar asset in Hampshire for £15.2m (NAV accretive of +1.27p per ordinary share). The accretive value of the transaction demonstrates how the Company maximised value throughout the development of Hatherden, including various initiatives ranging from securing an import connection and associated rights for installation of the 7MW co-located energy storage project, increasing the installed capacity of the project from 50MW to 60MW through technical optimisation, and securing a CfD under Auction Round 4 for 100% of its generation capacity.
Post year end, the Company completed Phase II of the Company’s Capital Recycling Programme through the divestment of Whitecross, a 35MW operational solar asset in Lincolnshire for £27m. The transaction is NAV accretive to shareholders and will generate an estimated NAV uplift of 0.57p, which will be reflected in the Company’s NAV per ordinary share as at 30 June 2024. The transaction represents a 14% premium to its holding value (1.3x Multiple on Invested Capital) and an attractive 14% IRR.
The Company continues to explore the possibility of additional capital recycling opportunities whilst it conducts a thorough analysis of each sub-section of its portfolio and how it could contribute to optimising shareholder return.
Further updates on the Programme will be made to the market in due course.