Bluefield Solar Income Fund Limited (DRX) Earnings Call Transcript & Summary

Hello, and welcome to the Bluefield Solar Income Fund interim results call. [Operator Instructions] Just to remind you, this conference call is being recorded. Today, I'm pleased to present James Armstrong and Neil Wood. Please go ahead with your meeting.

Thank you very much. Good morning. Good to see everyone at Buchanan office and all those who have dialed in this morning. My name is James Armstrong, Managing Partner of Bluefield Partners. I'm joined by Neil Wood, Partner and Principal of the Bluefield Solar Income Fund. And we're delighted to -- for the interim results ending December '19 to deliver another very strong set of results. The presentation this morning we broke into 3 key parts. But the big area of focus for us as Bluefield Solar Income Fund is an income product, is the earnings figures where, again, we've delivered record earnings for the 6 months and have laid the foundation for a very strong full year set of results to end of June. So we move on to Page 1. Well, we're going to cover the 3 areas. First, the earnings, so the 6 months on review we've had record earnings. Indeed, if you took the calendar year for 2019, so the January to December, the company has generated earnings of close to 12p per share. So we've had incredibly strong earnings. And we expect to see, if this trend continues, to have another very, very strong earnings figure for the full financial year. And we'll talk about that in just a moment. Neil will talk about valuation. We've seen the net asset grow again to its highest level ever, which is just in excess of 120p per share. I have to say we could have reduced -- it's been driven by a number of factors that Neil will go into. We could have reduced the discount rate, since it's one of the drivers before, because there's been compelling evidence for about the last 3 years that asset prices have grown and grown and grown. Demand for U.K.-based solar assets and, more broadly, I'd say, renewable assets at the moment, with regulated revenues, is pretty insatiable. There is a number of factors that are driving this, but we're seeing this across -- very, very strong asset prices across the board. But that said, even on a NAV basis, Bluefield Solar still have a dividend yield of 6.5% and on a share price as at end of December of 5.6%. So we feel when you look at a business that has majority regulated revenues, proven portfolio -- operational portfolio, we think it remains a very attractive year and particularly with it being U.K. only. And then we're going to finish up just with the third part of the presentation, which would talk about a couple of areas which have been -- sort of in the -- sort of merit time for further discussion, which are around power forecasts and discount rates. So if we hop over to Page 2. So again, just to focus in on what the actual earnings have been and what we've done with those earnings. If you just take -- in terms of the matrix, if you just look at the -- obviously, the half year, to the left-hand side, so the 5.59p per share, I mean what that is really sort of demonstrating again, it's just a very, very high-performing portfolio. So I say for the 12 months, it's been close to 12p per share, so very strong. We paid down another big chunk of debt, which is largely the Aviva debt. And we've brought forward some of the reserves from last year, which, again, were the largest reserve that we've ever had. And so we actually have over 4p available for distribution. So we paid out, just as we've had, with regular quarterly dividends. And we've carried forward over 2p for the 6-months period, which is typically our biggest earnings period, the January to June. Okay. So how have we generated the earnings? So this will be fairly familiar, on Page 3, two real drivers. The portfolio, it just performed extremely well. So there is -- if you've heard this with narrative before from Bluefield team, there are a lot of people who are working day in and day out to actually make the portfolio perform well. So irradiation was a bit higher, but don't get sidetracked particularly by that. It was sort of lower than the record that we had obviously in the previous financial year. But the main thing is that you have to have a portfolio that could take advantage of those conditions. And again, it performed very well operationally. Generation was over 4% up. And then revenue, again, has been just close to 4% above expectations. And I think that's something, again, hopefully you are just seeing there is a very, very strong, regular pattern of performance, which just comes from a -- say, a very high-quality portfolio. And I think Neil will talk about this in the fact that we think that -- hopefully, that is something, as these assets age, that it's a relatively young portfolio, we're getting lease extensions. As it ages, you're going to see the benefit of that activity that we've undertaken from the point that we actually invested into these assets. And we think we'll see this being -- this trend continue. The other factor in terms of the earnings, if you go over to Page 4, is the power prices that we structured. We showed this chart before. If you look at the top half of Page 4, you've obviously got the dark line is the average weighted PPA price for -- that the Bluefield Solar Income Fund has struck since IPO, which sort of is relatively flat. And then you've got this sort of the much more sort of undulating gyration line, which is obviously the day forward baseload power price. It's -- I'm not going into that, so you're going to obviously go pass sort of higher deviation. If you look to the right-hand side, which we highlighted actually in our annual results, there was a bit of a -- there's quite a big spike in the second half of 2018. The power prices went up fairly precipitously. And we moved very, very fast, and we locked in power prices, which saw about 25% increase. And you can see, if you look -- obviously, you look at that line across, you see the blue line, which is where we fixed in the majority of the portfolio. And then you've seen obviously a tiering there, which has been well commented on in various sort of analyst reports about, of the power prices dropping, which is -- where we've seen this throughout the time since the IPO. The key thing there is we obviously managed to lock them in, but it didn't happen by chance. We spoke about it before. We designed this, we envisaged it at our IPO. So what we have is a very flexible capital structure. We're not beholden to a bank who says what you can do with your power strategy. It meant we could move very, very fast when we thought that there was a significant increase in power prices. And if you look to the bottom half of Page 4, you can see that we've obviously fixed those contracts out for the medium term. So we have almost complete visibility on what our revenues will be for the financial year and then a very, very high visibility of our forecast revenues for the following year. So that's where you get the certainty from the Board, it's where you get certainty from the management team about how we -- what we expect our earnings to be. So those are the key factors which I hope you guys [ would get ]. I'll hand over now to Neil, who will talk about valuations in detail.

Thanks, James. So before we get to the valuation, it's worth just pausing on the -- for the solar fund, and I'm conscious that we've been showing this for a number of reporting cycles. And basically, every one of you on the phone are no doubt very familiar with the detail. But I think it's worth reminding people of one really crucial points, and it's something James has alluded to already. And now whilst solar as a generating asset is more straightforward than other renewable technologies, like all operational equipment, its components, these things can and will start to fail. Now with most portfolio -- with most material portfolios across the U.K. now entering, on average, their fifth operating year, the quality of installation and the approach taken to both prevent and repair component failures in order to minimize the impact on the plant's operational effectiveness is inevitably going to become a key differentiator between portfolios and owners. And so for the company, this portfolio is on average now 5 to 6 years old. Testament to the quality of its installations and the approach to preventative and reactive maintenance is that generation outperformance was very closely aligned to higher-than-expected levels at irradiation. And the performance ratio of the portfolio, the measure of its effectiveness at converting irradiation into electricity, was a pleasing 79.8% over the 6 months to December 2019. If we move on to consolidated portfolio earnings. So with predictable levels of daylight and straightforward operational requirements, PV plants, if managed correctly, are perfectly tailored to deliver consistent levels of generation and earnings year in, year out. And so like the assets, the fund should, on a financial performance, be straightforward to reconcile to the portfolio's performance, to the distributions available and made to shareholders. The table and graph on this slide attempts to do just that, with the table highlighting the financial performance of the company and the graph representing the total funds available for shareholder distribution. And once again, the financial performance over the period has been ahead of expectations. Outperformance in generation has combined, as James mentioned, with above-market price fixes to deliver a portfolio income ahead of both expectations and the equivalent period to December '18. And one thing to particularly note is that contained within other revenue of GBP 2.9 million is the success of the Investment Adviser's 18-month program engaging with local authorities regarding Council Tax bandings, which has resulted in the receipt of circa GBP 1.5 million in rebates across the company's portfolio. Portfolio costs, so the operational costs within the underlying SPVs, have continued to be carefully managed with the increase against prior year as the result of planned preventative maintenance expenditure with respect to high-voltage equipment on a small number of sites, whilst recurring group operating costs have remained consistent with the prior year, albeit at a small amount of corporate tax that is now being paid. So deducting interest costs of GBP 2.3 million in relation to the company's 18-year fully amortizing loan with Aviva and its 3-year RCF with RBSI results in underlying earnings for the period pre-amortization of long-term debt of GBP 20.7 million or 5.59p per share. And as the chart below the table illustrates, the strong financial performance over the first half of the year means post-debt repayments of 2.17p per share and the first interim dividend of 1.95p per share, that the company is well placed to meet its full year target dividend of 7.9p per share. So if we go onto the valuation parameters. Now operational performance and earnings are crucial, but obviously, the directors' valuation is the most important number in respect of the company's period-end NAV. And since Bluefield Income Fund listed in 2013 alongside a number of other dedicated renewable investment trusts year-on-year, investor appetite for subsidized renewable assets has increased. And the discount rates applied in pricing these assets have fallen, as the bar chart illustrates. Now in the context of U.K. solar, subsidized assets continue to transact in the value range of GBP 1.3 million to GBP 1.4 million per megawatt. As investors' greater familiarity with solar as a lower-risk generating asset combined with increasing competition for non-correlated income from sustainable sources has resulted in market participants applying ever lower discount rates and extended life -- asset life assumptions in transactions. Thus, the directors' valuation is prepared on a willing-by-willing seller basis. It's crucial, it is a comparable reflection of precedent market activity and therefore benchmarked sensibly to current transaction values. Pipeline, a levered equity discount rate of 6.5%, the latest power curves from the company's 2 leading forecasters and increased asset life assumptions of 40 years across circa 200 megawatts of the portfolio, the directors' valuation as at the 31st of December of GBP 1.31 million per megawatt sensibly sits at the lower end of the value range to subsidize U.K. solar assets. And as James mentioned, whilst there is an argument that the discount rates applied could be lower than 6.5% given the pricing range seen in the market covers assets with predominantly higher levels of leverage and, thus, higher equity risk on the companies, the directors have decided against further compression at this time as they are comfortable a valuation of GBP 1.3 million per megawatt is the right benchmark for the company's portfolio as at the period end. And finally, as a last point on this slide, with over 200 megawatts of the company's portfolio now valued over an additional 15 years of operational life, it is important to outline that the directors continue to apply a discount rate of 8.5% for the final 10 years of operating life on these assets. And this change to circa 40% of the company's portfolio. The weighted average portfolio life is now 26.8 years, up from 24.2 years as at June '19. Moving on to NAV movements, again, a slide that all of you are familiar with, and it illustrates the correlation between NAV movement at the top graph and the numerical impact on the portfolio valuation in the bottom graph as a result of the core valuation assumptions discussed on the previous slide. So the NAV movement chart highlights that the absolute movement of GBP 11 million between June '19 and December '19 have been driven effectively by change in the fair value movement of the company's direct subsidiary Bluefield SIF Investments. As dividend's paid, income released to the company and net operational cost effects will cancel each other out. However, clearly, the most important number in the top graph is the slight decrease to the portfolio valuation of GBP 0.4 million. Now this portfolio valuation movement is essentially the interaction between a material change in long term our forecast, something that's been widely reported over the last few weeks, which has reduced the portfolio value by GBP 23.5 million or nearly 6.5p. But that's been offset by the positive effects of continuing success of the company's life extension program as a further 98 megawatts since June '19 have been moved to being valued to fund in extended life basis. And the uplift to GBP 23.5 million as a result of the discount rate being amended to ensure the valuation of the portfolio as a whole continues to prudently reflect market pricing. The graph is obviously book-ended by the negative movement of cash released from the portfolio of GBP 32.1 million, so that's cash paid from the SPVs to Bluefield SIF Investments, and the positive contribution of GBP 25.2 million for the balance of portfolio return, essentially the impact of 6 months unwinding of the discount rate. And finally, concluding the section on valuation over the page -- this page. So a negative chart of key assumptions and the impact of selecting them has on the directors' valuation as at the period end. And as expected, they highlight valuation returns are most impacted by long-term swings in overall energy yield, with power price movements of plus or minus 10% and discount rate changes of plus or minus 0.5% making up the second and third biggest change. I hand back to you, James.

Neil, thank you. So just to finish up. So I mean firstly, I will just talk about Page 10, to talk about ESG. I -- we've been talking about this internally. We can't -- so we haven't experienced a bigger theme. And when I say theme, this is a structural change in the way that shareholders, companies, governments, the general public expect the company to behave, and it's a fundamental shift. And just because you are an environmental fund doesn't mean that you don't have the responsibility to look at the S and the G. And I think that's something which don't -- for us, as the Bluefield Group, those who are from Bluefield Partners, Bluefield Services and Bluefield Operations, we provide, whether it's the financial or the operational expertise to the company is incredibly important. And it's sort of front and center in everything we're trying to do. And what you'll hear over the coming months are, in addition to obviously where you start from a fantastic point, so where there's carbon savings or the activities which are very good and have a sort of capital E in terms of what we do, it's about how we can obviously then address the -- and keep addressing the social and the government issues. So we've spoken about Meriel Lenfestey, who's been appointed as a Board director in Guernsey, who has been an excellent addition to Board, which is obviously moving away from 4 males here on the Board, and that's something which is fundamentally important as we move forward. Through all the initiatives that you'll hear about that the company is undertaking, which are based around the community initiatives and the activities which are on site, which is to increase site diversity. But I think the -- it is a very, very important part of Bluefield Solar Fund going forward. And I think it's going to be -- for you guys, obviously, it's something which is fundamentally the Board, for most of the companies, I guess, that you're going to be covering going forward. On Page 11, just to finish up. We've got 2 -- sorry, to end the presentation in terms of just highlighting a couple of topics which have been clearly -- have been discussed a bit, which is, firstly, on power forecasts and then on discount rates. So on Page 11, we think -- I mean the first point about this is that we think that for an income product that is centered around – should be centered around its earnings on an annual basis, and we've said this actually since IPO. So when -- I'll give you an example of what we spoke to our shareholders about at IPO. We didn't tell them the new -- what power prices are going to be in 2050. What we said to them was that we think we can create a product that -- and a fund that can -- that have the ability to generate really good operating income and that the job -- our job is to try and drive out those earnings year in, year out. And so I think a central analysis, and we've said this before, central analysis that focuses on what the power price is going to be in 2050, what it does is it -- it's to negate the responsibility from staff of the management team, which every day the management team should be trying to work out how they drive out their earnings on a quarter-by-quarter basis. And it's also a static assumption. If you think we're in the most dynamic transition period the energy market has probably ever seen, the idea that anyone knows what the energy markets are going to be doing in 5 years' time and the ability of batteries to come in and complement this technology, it's just a very dynamic situation. And we think -- so we think it's a sort of -- it's obviously something to put out there. But the central thing, if you look at all these forecasts, if you look on the left-hand side of Page 11, I didn't -- and that sort of demonstrates to me that that's not where power prices are going to be next week, let alone what they're going to see in 2050. But if you look on the right-hand side, which is where all the excitement has been, what that is, is if you look at the dark line, you've got -- that's the blended curve of 3 leading price forecasters who can't be named. And what you've got is that you see it sort of inflationary for sort of next decade or so, and then it kind of deters off. So that's a pretty typical central thesis. And then you've got -- where you have that sort of the gray line is where there's been a sort of, call it, publicized, sort of much, much more bearish view of what might have happened. If you actually look at any of these forecasts, in fact, what you do get anyway, is you get a very, very wide range of potential outcomes on a 20- or 30-year forecast, which we were always sort of quite sensible in it. Does anyone really know, when they look at asset class, what the value will be in 2040 or 2050? What would the value of this building be in 2050? That's why I imagine all of this would have a clean sort of wide range. And that's the same with these people probably having to get what Chinese demand for gas will be in 2038, which will then drive prices. But if you look at this, there is something actually which is sort of -- if you dig into these 2, what looked like completely contrasting outcomes and you look at what they're actually saying, they come to a very similar conclusion. So if you look at the gray line, which is -- and try to be bearish, those numbers don't make sense economically. So as an energy generator, you wouldn't bother -- it isn't different this time. You wouldn't bother building new capacity because you won't make a return on your investment. And this has been recognized. This is not something which is -- this isn't something that we have made. This is something that was recognized. And it's to do with the fact that there is a fear of cannibalization. So the whole industry starts switching stuff that's been rather well publicized. But you have a -- sort of a pressure against that is that there is a desperate urgency to decarbonize. And so what this group's sort of theory is, and they've moved to it and it comes out in their report, which wasn't -- hasn't been necessarily brought out by certain of those reports, is that their view is that there will be market intervention. And so price certainty will be created for renewable generators to incentivize companies to continue to generate and also to build new capacity because it's so urgent that we do that. And so what you get is that lower case doesn't apply because you've got to somehow incentivize capital to go into the market. And there's -- bear in mind, there is -- this isn't about a nice option to have. This is now generally being accepted if it has to happen. And so price certainty is one option. If you then go to some of the other forecasters, they look at it just through a different lens, which is that the market will decide. So their view is that you won't have a rational decision, and you won't rationally allocate capital into something that doesn't make you money. What you'll do is that you will have less capacity, and therefore, prices will be supported in energy with very simple sort of economic view, that's what will happen. And therefore, you get to very similar -- to know market better, you get to a similar point where you have higher prices because of supporting a reasonable rate of return. If you want sort of our view, we think that there will be more -- particularly in Europe, there will be more and more government intervention because I think that -- we think that there is a -- it's getting quite close to an anxiousness or panic about the fact that we have to do something. And we've got somehow decarbonized. And it's likely that you will see through a mechanism that we wouldn't -- we're not going to guess what we think the mechanism will be, but we think there'll be more incentives. And you're seeing it in Continental Europe more than there are in the U.K. But you're seeing a lot of policy measures, which will come out, even starting to convert these procedures. And there's still the worry actually that we'd need to somehow intervene in the energy markets to try and improve the position. So we actually think that -- on that, that we think there's a much closer relationship than the chart will actually say. The final point will be talking about the discount rates. That's on Page 12. Again, so just to give you, I suppose, a sort of view because we think there's been -- there's a lot of sort of talk about discount rate. And we think there's just a couple of observations which we think would be sort of helpful from the view of people that have been in the industry for quite a long time. And if you look on Page 12, what we've done there, we've shown from really when the industry started just only -- only in 2013, which is when we had most of the IPO, through to December '19, you can see, with the dark lines, of the Bluefield starting discount rates. And then you go across and you see the trend lines for some of the majority wind assets. And then you've got some of those that are more multi-tech. And what you see across there is that there is a reduction and lowering discount rates across the board, all technologies, which is -- it's not unique to the renewable sector. It's something which we've seen more generally in sort of real assets and infrastructure. Two things to sort of comment on. This is obviously another example of sort of the combined effect of almost sort of limitless liquidity, low interest rates. And also, we have another driver, which is ESG or whether it's a structural shift into renewables, and you're getting a lot of money coming into this. So there is a universal uplift in asset prices in renewables and in lowering the discount rates. And so what you're seeing is you're seeing as a trend. But what you are seeing, and this a big -- this is really the main point to bring out is that you're seeing a convergence of discount rates amongst different technologies. And this is the bit which we think is very different. The second point to raise about this is that this is where you see a trend or a position today which is not representative of historical norms in the renewables risk. So if you took a traditional view of risk of renewables, if you took it when -- say, when Bluefield IPO-ed in 2013, at that point, solar was considered to be the lowest risk technology. So you can have different countries, different leverage, but if you just take a project, which have no gearing and bigger countries, solar was typically carried the lowest discount rate. Why? Because it's the most predictable, which hopefully kind of Bluefield results improve over the last few years, the predictable feedstock, you've got a very low-risk technology, low-cost maintenance. It's really simple, no moving parts. And that means a certainty of revenues has always meant that carried a very low discount rate or the lowest discount rate. Onshore wind would have typically -- has typically been 100 to 200 basis points higher. It just reflects we've got high volatility in earnings and that you've got a slightly more complex technology. But it doesn't mean it's any worse. It just means you got -- you'll have a little bit more deviation from your average. And that's always carried a little bit more of a higher premium. So if you think of those 2 asset classes, solar and onshore wind, they pretty much stayed and set over the time. But if you look beyond those 2 core technologies, and those 2 do make up the vast majority of renewable technologies, how is the risk of being priced with other technologies? And if we give 2 examples, offshore wind, in the past decade, the U.K. government had it very hard to find anyone to finance U.K. Wind as an offshore wind. And as you can see, that is wrong. So the U.K. is great business. You've got offshore wind is with various -- it's a complex asset class. It's in the middle of the sea, but in unusual stuff. In the last few years, you have seen close to halving of discount rates, okay? So you've gone from double-digit, sort of low-teens returns for people. So the risk you're willing to take, you needed to get a 12% to 14% return, okay? People are now looking to bid because there's a huge -- now, it goes back to the huge amount of liquidity, people are willing to go for returns which are not that dissimilar. They're very, very close to onshore wind, and they're very close to solar for an offshore wind farm and anaerobic digestion. Okay, I've been in the industry for 14 years. It is a very, very complex, it's a great -- again, it makes -- it's a great part of the overall renewable solution. So we all believe in -- as a house, in renewables. So anaerobic digestion is a deeply, deeply complex business. Feedstock is just one thing which is -- there's loads -- you got lots to load, which [we're unable to store] for the anaerobic digestion part. You will have -- there'll be storage, okay? It's very unlike solar. It's very unlike onshore wind. But if you look at where discount rates are today, the pricing of the risk is very, very comparable. And we would just say that what you're getting at the moment is so very same, that when you're analyzing this, they're all the same. They're not -- we don't carry the same risk. And we would say, if you want a more simple kind of snapshot, we think that solar and onshore wind are priced prepared for it to sell, and are good value. And we would say that. But we do think that's right. And we think the other technologies possibly are looking for the expense. So that was our little chat or discussions on discount rates. And just to finish that, I think the -- so to finish where we started really, on Page 13, so the objective obviously is a little sterling income and the grid license to be -- continue to be that, underpinned by dividends. If you look at the bottom part of that, when you look at the total dividends paid, again, the backbone of what's been a very good total shareholder return over the past 6 years because obviously the absolute -- the backbone of that is that we paid out over 40p in dividends. And that's what we expect to continue to do, to have a very, very attractive dividend. And as I say, the dividend yield for a business which has majority regulated revenues, that's in a low-risk jurisdiction and low-risk technology, we think 5.6%, we think, still remains good value. So that is the end of the slide show. So then now we're going to open up for questions. We've got -- I think we can take questions on the phone as well, which we continue with some charge-off. [Getting in the room, first ], yes. Okay.

[indiscernible] I was just wondering [indiscernible]. I'm just wondering if you could sort of [indiscernible]. What are the technical achievements [indiscernible].

It's where I'm from.

[indiscernible]

Yes. So no, it's a great question. So I think -- so the -- so we employ 65 people just to look after the plant. So it's pretty heavy manned, and that's roughly 1/3, 1/3, 1/3. So what you've got is you have 1/3 that were looking at different responsibilities within the -- which is on the FCA side. So that's a huge recognizer, very traditional for fund management activity. So -- which is the awful job of getting the -- of reporting back the 65, what we're doing. But choosing across at the asset level, this is where we ask the question that if we have 2 businesses that are focused on, 1 is the technical asset management side, and 1 is the operational maintenance. So the first one is that if you just fill down what everyone is trying to do, it's actually trying to get the plants to generate and to be operational in the summer because you make your return between March and end of September, beginning of October. And so the activities are driven through a lot of either you have -- it starts with the monitoring screen and starts with a team of people, and there's a bank screens where they can monitor on a minute-by-minute basis the performance every single way of the -- every single service arm that we have across, which are the [indiscernible] making the bolt-ons we've got. So it starts with an early warning signal. So we built a bespoke technology which enables any sort of discrepancy or anything which is out of the ordinary, is able to be reported across, and it is literally across the room to the [ cat classes ] management team for each will have responsibility for a certain bit of the portfolio. And what they're doing is effective, and they're going to either -- it's either going to be preventative or they're going to enforce contracts. And the activities actually are -- a lot of it, it's quite --. It's got nuts and bolts things which requires quite a lot of labor. So it is the -- it is about chasing contractors. It's about enforcing contracts. It's about getting people on the site within 24 hours, which is as the contracts grew because the one thing that we have to do is that -- you know no one cares about all this stuff, it's just making sure that the results are that you're generating -- you have availability of the plants, and they're generating when we expect them to be, which is in summer. The other big activity, just to give you sort of specific activity that people work on, is that we have spent huge amount of times talking to the distribution network operators because one of the biggest challenges for renewables businesses is the fact that a [few people can] sort of -- I mean it relates with any renewables businesses, but it's particularly for solar companies, is that the DNOs like the maintenance often in the summer because it's when you have the lowest demand on the grid, which is exactly the time you don't want to spend. That's the time you -- and so we've used -- or our most senior director has spent -- what was it? At one stage, it was like full time he's just engaging with the DNOs to find out how we can work on the programs. And then we didn't have any [ fibers ] because when we started in 2013, you would be told, "We're going to switch your plants off next week." Now they don't do that. I mean this is part -- industry wide, by the way. It's not just Bluefield, but an industry-wide pushed to work to see fruits. So now if you want sort of surprises and you see people getting often earnings problems, it's because they're not managing -- That would be one huge area where you can just have someone to flick a switch and turn your plants off. So it starts at that sort of level. And it runs through every single aspects of -- and then the operation -- I mentioned these are people who have got white vans going around, electrical engineers, high-voltage engineers who are going on site and doing day-to-day maintenance. And if you look at our reports, one of the things we always bring out is the amount of hours these people spend on sites, spend reporting, spend monitoring on those sites. And that's -- in essence, that's what we do. It's kind of -- and if you want, in the summer, come out and meet them and hear what they do. Because -- sort of half a day spent with them, you will see why -- again, we always says [indiscernible]. It's a sort of -- it's just quite a lot of people who are very skilled, very dedicated. We're working on perhaps those who spends on sites.

In terms of management fee problems -- sort of, what factors in to service problems?

So that works on -- so the -- we have a -- the management fee is at the fund level, and then you've got certain provisions are all at the asset level, so there is different -- -- they are different fees. And so what we did, which we presented to the Board with angst for '15 -- 2015 as we said we were not happy with the service-level provision to the asset management, because you have disparate groups [ with that particular line ]. And we go towards a proposal which it's benchmarked against. So there's no provisional costs for those companies. And you can say, "We can do -- we can set up a business that's much more line focused." And so you have a -- the cost per megawatts for these services, which are at the asset level. And then that obviously sort of flows up. Neil, if you could take it offline, and he can show you that sort of works through the model. So it's very transparent. And it's actually no additional costs because it's been working -- it's going very, very well because they -- those teams are one of the key reasons that drive the asset's high performance, obviously.

In terms of management and [indiscernible].

They've got -- no. They have different offices, different management teams, common ownership, yes. So common ownership, but take it separate in terms of the asset. It's going very, very well. And every year, we have teams coming out to -- or people coming up to have a look at the [indiscernible] the works. Yes, it works very well. And hopefully, you can see the benefits. Okay, yes.

Can you talk about some operational performance of portfolios for which -- sort of asset-level extension, how many megawatts that you got from these results? Can you give a bit more color on your [indiscernible] right now. And [indiscernible].

Yes.

We can both...

I think the -- so we've been talking to some of the shareholders and the big shareholders about what they would like to do, and the essential -- sort of answer was that they are keen to sort of grow. So we're just -- we are with the Board looking at sort of ways we can do that. And the one thing I think we have demonstrated, hopefully, is that the secondary solar market for operational assets is quite competitive. And we pass over [indiscernible] to maybe around 98% of the stuff that we've seen in the last 3 years. We haven't bought -- we're not doing or either trying because of the instance that the asset prices will be high. So I think the -- so there is no completion to that. So obviously part of what will make up that market -- is going to be the unsubsidized market, but it needs to be the unsubsidized solar. And it needs to be part of an overall -- we have the highest level of regulated revenues and our shareholders recognize that. And there is a little bit of flexibility there, which we've spoken about before, and that applies to the other side of funds as well, where we're about -- we have about 20% higher regulated revenues. So that's certainly something that's we've been working on very intensively in that market we've spoken about before. We think it's a great market. And I think it works very well for Bluefield as a business because it's the development construction funding model. I mean -- and that's great. We are looking at other technologies. And we -- you probably [ guessed ] in my comments a few minutes ago, again, great -- or technologies is the same. And the other thing that we do like is that we do like the U.K. We think that's a great area to be in. And we think that there is a lot more to come in the U.K. renewables market, so -- but there are no decisions. But I think the central point is that the shareholder base -- the model, it's -- the model has worked very well. And the model can be applied in different ways, and that's what we're looking at. And that's what we're discussing with the Board at the moment.

And regarding with the negotiation, you've about that we got sort of functional abilities. What are [indiscernible]?

So the -- I guess the -- Energy market is difficult. As James has mentioned, you can pick up acquisitions as we've done, but the material shift in sizeable portfolios that happened a few years ago has been more -- very challenging, certainly for those in the -- yes, the listing [space], which has been the case across the -- our peers as well. Those in private space at the moment, they're a little bit better in recent times. But I guess the unsubsidized market is gradually arriving, and there are some new [indiscernible] opportunities that are coming to market. So some of that [ 500 ] discussions we're having with counterparties about projects, which could go into construction within the next 6 to 9 months. And then there is a reasonable amount of earlier pipeline that we're talking to a few groups over. Because one of the things that was a great success story as we finish, as James mentioned, in this [ field-out phase ] in 2013 to 2016 we're securing pipeline ahead of the market. And I think having the conversations because -- we've been doing with groups who are much closer to the development areas is crucial for us to building a base to then construct in the coming sort of 12 to 24 months, when -- where the market conditions, which we believe are supportive, now are likely to be probably even more supportive. So I think it's, as James mentioned, the [ 500 ] is a mix of secondaries and some primaries. And the regulatory base that the fund has from a revenue perspective puts it in a great position to evolve and build with the energy transition that's happening in the U.K.

So that's basically [secondary market?].

Yes.

Yes.

Yes. I mean I think there are secondary opportunities out there. The U.K. secondary market is a little bit more fragmented probably than, on average, people would suspect that it's mainly helped by large -- a few large houses, and [ friends with those ]. There is still reasonable amounts out there. I think the challenge at the moment, probably for everybody, is the pricing, that it's likely to change hands. And the return that we want to generate for our shareholders is going to make picking up material amounts challenging. That said, as we were talking about in the presentation, the portfolios are now 5 to 6 years old. I think, in the coming year or 2, there's going to be differentiators around the quality of those portfolios. And investing itself could present buying opportunities for those that are more experienced and, as James mentioned, willing to get down and work hard to manage and sweat the assets.

[indiscernible]

Yes, yes. We think the -- yes. So I think John noted this in -- that in the annual reports, about the fact we are at the low end of where we would probably want to be. So I think there is some scope for that. Well, I think both [indiscernible]. Both options work for me. And, again, -- as will everyone else in the sector, then -- or maybe with one exception, the cap is -- the growth cap is 50%. But we're not thinking about that. But I think we could see those movement -- a reasonable move up from the kind of low 30s [indiscernible]. So the -- it's certainly an option there.

[indiscernible]

Yes.

[indiscernible].

Yes, it's a good question. I suppose we'll just -- because it's a -- I don't think [it's a reflection,] it's an art. [ As I explained ] at the start, planning is there. And we have -- what we've done is we've just looked at circa 12 months where we may have introduced this third forecast. We're thinking it's very good. I mean it's the -- it's a name that you will be familiar with as well. And it's just been interesting to see their methodology. And I suppose it's almost like a sort of [ the ways in the past ]. It's where it's actually more beneficial to have this kind of central view of more forecasts than with fewer. I mean when John Rennocks did say, again, that the -- that it might be that, when you look at the 3 of them, whether it's around whether we have a sort of a particular view, methodology. And it might be that we pick 2 rather than 3, but that was really the logic to it. It's just to say -- because it's becoming such a sort of central point of people's discussions. And what would be the heart is you've got another very credible forecast which is put into the mix that makes it -- and again we're not talking about saying they're trying to wait and messing around with them. We were just -- we've always done 50-50 with our 2 forecasters. And the expectation if we take it off is that we have 1/3, 1/3, 1/3. So you just see this blend, an equal blend, between the 3 forecasts [indiscernible] it wasn't -- and there's nothing particularly sinister about what we think is going on. It's just that's a difficult [kind of year].

[indiscernible]

I guess, just to be clear, there's 2 forecasters that had been used in the December position. And it's looking forwards...

Which were the ones we've used in the past few years with that. They haven't changed.

[indiscernible]

Yes. That's right. We actually include that for you, just to give a good -- that was [of relative use in the class point ]. That's not the valuation. So, yes, this will be the 3 main forecasts.

[indiscernible]

[ Neil, would you take that?]?

I think it's -- well, firstly, [ they're overwhelming ], incredible assets. They've been doing a huge amount of...

[indiscernible].

My answer for that is in great guess, so I couldn't confirm or deny that. But they've been doing a huge amount in the state in the last 5 or 6 years. They've been around actually for about a decade. And I think, as James mentioned, that our price forecasting, it's there is a deviation as to how different outlook look at long-term actual costs. And we think it's beneficial to have as many of the credible counterparts out there as possible blended into the valuation of the portfolio...

[With that ] forecast [indiscernible] was blended...

Yes, yes.

Yes.

[indiscernible]

And I think that increasingly where there is -- across the board a disparity between the base load power projections and the renewables, power projections, so that's -- most of the forecasters will produce, which I know everyone is familiar with. They'll produce a base load power curve, and then they'll produce a solar and a wind power curve. And the impact of those technologies on base load pricing is a little bit different. So that's another forecaster which is blending their sort of long-term renewables or solar capture projections. And I think it's beneficial to get some more rounding position. It's not because the feeds that we've used for the last 4 or 5 years haven't continued to do a good job. It's just that the market is bigger now than it was when the fund listed, which held initially with one power curve. I mean it added the second in 2015, '16...

And it's also a substitute, I think, [ for kind of its kind ]. It's something that's much, much more important and therefore for people to analyze exactly as well.

[indiscernible]

[indiscernible].

So I guess the big shift is. And I think a few groups have come out and said that it's circa GBP 4 of megawatts hour difference. The big -- I guess the big change is that the shape of the curve has flattened in the central period. So historically, power prices have been generally going in only one way, and that's up. From the last few years, what's happened is there has been a sort of a bell curve, I guess, starting to emerge where there's been increases in the near term, followed by dramatic drop-offs in -- following 2013. And I think the shape of the December curve is not wholly dissimilar to the one that's in the presentation, which is it is some moderate rises in the near term but there's more of a flattening off. And then obviously that's tapering at the back end. I guess that's why the overall sort of compounded growth rate is equivalent to actually the June curve, because in general we're still starting and ending in a similar place. We're just seeing flatter period in the middle.