Shares in Foresight Solar Fund (FSFL) fell 3.4% to 112.5p after the renewable energy investment trust reported a fourth quarter fall in net asset value (NAV) following a ‘significant downward revision’ of UK power price forecasts.
With a spread of solar farm assets in the UK and Australia, Foresight Solar is a fund with environmentally-friendly credentials, although its high exposure to power prices can prove a hindrance.
ASSET GROWTH DIMS
As Shares explained here in October, the FTSE 250 investment trust makes money by selling power from its solar farms to electricity suppliers.
It is an increasing favourite with institutional investors, BlackRock, Baillie Gifford and Schroders (SDR) among them, who’ve warmed to its sustainability credentials. Wide asset diversification and a good track record of paying generous dividends that grow in line with UK inflation rates have also drawn investors to the trust over the past few years.
However, the shares are in negative territory today on the news NAV as at 31 December 2019 - the end of its fourth quarter - amounted to £626.9m or 103.6p per share. That was materially down from the £599.4m or 109.1p per share figures reported as of 30 September.
Despite Foresight Solar’s UK asset portfolio delivering a strong performance in 2019 with production 3.9% above budget, a ‘significant downward revision’ of UK power price forecasts has swiped roughly 5.5p from NAV.
Foresight, the investment trust’s investment manager, uses forward-looking power price assumptions to assess the likely future income of the fund’s assets for valuation purposes.
These assumptions are formed from a blended average of the forecasts provided by third party consultants and are updated on a quarterly basis for each market.
Also weighing down the fund’s NAV in Q4 were the results of Ofgem’s ‘Targeted Charging Review’, not to mention a revaluation of the Oakey 2 asset in Australia triggered by a commissioning date delay caused by ‘a weather incident’ at the end of January 2020.
‘These movements were partially offset by a revision in the levered discount rate applied to the company’s operating assets,’ stressed Foresight Solar Fund in today’s statement, ‘reflecting the competitive market for quality operational portfolios and relatively low interest rate environment, resulting in a positive impact on NAV per share of 2.2p.’
BRIGHT LONG-TERM FUTURE
While Foresight Solar Fund has disappointed the market short-term, its long-term prospects remain bright.
Thanks to increasing momentum behind renewable energy, building and running a solar farm in the UK is now becoming an economically viable thing to do without needing to rely on government handouts, something which could transform the industry and its growth potential going forward.
In addition to reviewing investment opportunities in UK subsidised solar markets, manager Foresight is closely monitoring the development of subsidy-free markets in Spain, Portugal and the UK.
This area has developed rapidly in Southern Europe, where a number of relevant transactions have been announced in Spain and Portugal.
