NextEnergy Solar (NESF), the 17%-yielding renewables fund on a 40% share price discount, is to update investors on its strategic review on 11 March. 

NESF said the review being overseen by new chair Tony Quinlan was “progressing well” as it reported a further 3.9p, or 4.4%, fall in net asset value (NAV) per share to 84.9p in the last quarter mainly caused by a another fall in power price forecasts. 

The overall net asset value of its 101 operating projects stood at £488.4m at 31 December, down £22.5m from £510.9m at 30 September, with a fall in inflation, revaluations in co-investments and lower battery storage revenues also contributing to the decline.

As previously announced, the government’s switch from RPI to CPI inflation on the renewables obligation certificate (ROC) and feed-in-tariff (FIT) subsidies the company receives will knock 2p off NAV per share. This would reduce the 31 December figure to 82.9p, although it will not be reflected until the 31 March NAV as the change occurs in April.

The NAV also reflects the 2.11p per share quarterly dividend which puts the company on track to deliver the full-year target of 8.43p expected to be covered 1.1 to 1.3 times by earnings after debt repayments.

Quinlan said: “NESF’s portfolio continues to demonstrate its underlying resilience during what has traditionally been a seasonally softer period for solar generation. Despite lower winter irradiation and the impact of revised power price forecasts on our NAV, the company remains on track to deliver its full-year dividend target of 8.43p per ordinary share. The government’s recent confirmation to shift ROC and FIT inflation indexation from RPI to CPI has introduced an additional headwind; however, with clarity now emerging, we are confident that NESF is well positioned to navigate this transition through the strength of its diversified portfolio and disciplined capital management approach.”

NESF’s total borrowing of £486.3m, which includes £198.6m of preference shares, remains high at 49.9% of gross assets, just below a 50% limit.

The preference share part of the debt continues to exceed a 50% gearing limit with the prefs accounting for 60.1% of NESF’s market value, currently £291m. This reflects the weak share price and the “continued challenges in the equity market” but has no operational impact with the company confident that planned disposals would reduce the gearing ratio through repaying some of its £151.9m short-term borrowing.

To date NESF has raised £72.5m from disposals, which have added 2.76p to NAV per share, with two solar assets totalling 100MW currently up for sale.

Ross Grier, chief investment officer of NESF’s fund manager NextEnergy Capital, said: “Although the sector faces near‑term pressure from power price adjustments and shifting inflation expectations, long‑term fundamentals remain robust, supported by growing demand for secure clean energy and the critical role solar plays in the UK’s energy transition.” 

Quinlan said the board “remains focused” on delivering long-term value to shareholders, who approved its continuation last August, and promised a “comprehensive update” next month. 

Winterflood said the NAV fall followed similar reductions as a result of lower power prices at Greencoat UK Wind (UKW) and The Renewables Infrastructure Group (TRIG) with lower inflation impacting Greencoat UK Wind (UKW). Analyst Ashley Thomas said NESF’s reiteration of the full-year dividend and expected dividend cover was “reassuring”, but was generally cautious on the sustainability of the dividend policies of UK-listed solar funds with Bluefield (BSIF) and Foresight (FSFL) yielding 12%-13%.

NESF will present its update at 10.30am on 11 March at the London Stock Exchange. Investors can register for the event or watch it online. A video recording will also be made.

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