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

Good morning, ladies and gentlemen, and welcome to the Bluefield Solar Income Fund Limited Full Year Results Presentation for the year ending 30th of June 2021. [Operator Instructions] The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it's appropriate to do so. These will be available via your Investor Meet company dashboard. And we'll notify you by e-mail when they are ready for your review. I'd also like to remind you that this presentation is being recorded. Before we begin, we would like to submit the following poll. And if you would give that your kind of attention, we would be most grateful. And I'd now like to hand over to Neil Wood and James Armstrong. Good morning to you, both.

Good morning, Mike. Thanks very much. Yes, good morning. James Armstrong here, Managing Partner of Bluefield Partners, we're the investment adviser to the Bluefield Solar Income Fund; and joined by Neil, who's actually in our London office today, who is partner at Bluefield. And yes, we're delighted, thank you very much for joining us today. We're delighted to talk about the results for the company ending June 2021. What we'll do is we just go over to the first slide, but Neil and I will break this into [ parts ]. So the first part we'll have will be a summary of the year just gone. Then Neil will talk in the second section about the earnings and valuation. And then the third part, we'll talk about the future, really where we'll -- what we perceive to be the emerging opportunities for the fund and also some of the challenges that we're seeing. So in terms of jumping into the results, I'll give a bit of a summary to -- for those who are not so familiar with Bluefield Solar. So we were one of the first of the -- the second of the renewable companies to IPO in July 2013. So we've been going for over 8 years now. And in a sector, which has really grown, the U.K. and London, particularly should be given real credit for the investment company sector in the renewables market because it's now very, very large. It's now about -- when we IPO-ed, it was about GBP 150 million of money had been raised at that point. And it's now about 12 -- over GBP 12 billion. So it's growing very significantly, as has Bluefield Solar. But in an area for investors of increasingly complex fund strategies, we are really delighted with the outperformance of Bluefield Solar on an earnings and dividend basis in what remains a very simple and lower-risk investment strategy. So we invest primarily in the lowest risk renewable technologies. So that means we invest primarily in solar. And we also look to have the highest level of visibility in terms of our earnings. So what does that mean? We have assets which have high levels of regulated revenues, and we also have a very defensive power strategy, which has worked extremely well for the company in the past 8 years, which Neil will talk about as we go through. And then the third element is that we have a very active management strategy. The business is quite, in some ways, quite old-fashioned that way. It's a real -- we have a real focus on operational technical capability within the business. And that means that we have the ability to enhance and protect returns to investors. And what that's resulted in is, year in, year out, we have the highest covered dividend in the sector. We have the highest earnings. But coming from an asset class, which is U.K.-focused and with high levels of regulated revenue. At the moment, we're offering a dividend yield of about 6.5%, which from a very defensive portfolio, we think is good value for the shareholders. So if we go into the period highlights. So talking about that focus on dividends. So the 8p per share, as I said, equates to circa about 6.5% dividend yield, and it is covered by in-year earnings, and also post debt amortization. So we have an amortization schedule for our bank debt, which we think is important. And as I'll say, again, a fairly defensive approach in terms of our financing strategy. And that's all -- so that -- we've also carried forward over 2.5p per share. So all in, it was a very, very good earnings period for us. And against the backdrop of, obviously, COVID, it's been a very strong performance. NAV has held up very well. Neil will talk about that in some detail, but it's just slightly lower than it was 12 months ago in terms of the previous reporting period, but has held up particularly well, not least as we've taken into account some of the sort of headwinds like change to corporation tax. The period has been very, very busy. We've made 2 major solar acquisitions. These are operational regulated solar assets. So when we say regulated, they've got regulated -- circa 60% regulated revenues, and the balance is selling the pound. And there are 2 big acquisitions made, which are -- have sort of complemented the existing portfolio. We've got a big, big pipeline of solar development. So we've got over 700 megawatts of solar which is in development. So preplanning was 150 megawatts, which has got planning consent. And we've also -- a big area for investors and for the market generally is around ESG. And we spoke about having a materiality assessment to try and create some structure around the reporting of ESG to shareholders. And we have completed that as promised, a materiality assessment, which I'll talk about in just a few moments. And last but not least, we had a shareholder approval to invest into slightly broaden the mandate, which is to invest into wind and storage. And I'll talk about that in terms of why we broadened it. It means that we have an allocation of about 25% which can go into nonsolar technology. So it remains a minority, but it's an exciting development for the company and post period, we made our first acquisition to a portfolio of operational wind assets, which was very interesting. And Neil, again, will talk about that in just a few moments. The only sort of disappointment was the overall total return. The sector -- the renewable sector broadly had a bit of a re-rating over the past 12 months. And so the share prices were down from highest in previous periods. And so that meant that the total return was slightly lower. As I said, it's now offering a very interesting opportunity for investors when you think about the defensive nature of the revenues and the capital structure to be able to buy in at a very interesting yield of about 6.5%. Okay. So in terms of on the following page, we've got the operational highlights. Now for those of you who have watched Bluefield Solar over the past 8 years. This is that you'll have heard me say this before. But solar is a really predictable way of earning income, so of generating electricity and then earning income. The reason being -- this is fundamentally different to other renewables is it's a very, very low volatility. It's because it's daylight-hours driven. So the vast majority of our your earnings are going to come through the basis of the fact your power source comes on in the morning and turns off at night. And it's a very -- it's matched a very simple technology, no moving parts. And it's why Bluefield was set up 11 years ago in terms of the investment adviser because we recognize this characteristic if you're looking for a really stable income. So yet again, you've got that reading on the right-hand side, the radiation, that's less than 1% down over the 12 months, and that's based around long-term forecast about what the irradiation levels will be wherever the solar farm -- particularly solar farm is in the portfolio when you put that all together. Then generation was a little bit down. So we had some -- the portfolio performed extremely well. So it's very, very good converting the irradiation. So that was a little bit down on the forecast in some areas, nothing which was particularly concerning, but areas which we're working on over the winter works program. Now the interesting news, obviously, which is very top at the moment is the revenue side. So revenues for the period were up, and that is taking into account some of the uptick that we started to see from the lows in midyear 2020 when the pandemic was biting. The power market has obviously dropped and what we have is, and Neil will talk about this in detail so you can understand our power strategy, but we restrike the electricity that we're selling to the market, we restrike periodically. And we've seen, obviously, now that we're restriking contracts, they are achieving higher prices than within our forecast. And that entails really a bit of the story because we have a lot of the good news about higher power prices, and we'll come back to that. But the higher power prices that we're seeing at the moment haven't really been factored into our earnings and revenue generation for this reporting period. And so the benefit of those is really going to be seen by our shareholders in the coming months and years. So a few things we can pick up from that. But in terms of the real sort of snapshot of what we've done in terms of earnings and then what we've done with those, if you look at the highlights, the blue chart, which is for the period obviously 2021 underlying earnings of 11.34p per share. That's very close to our record earnings. If you just go to the right-hand side, with 12.03p, which was the previous financial year. Those 2 financial years, we have reported in our full financial years, which both take into account pandemic, and we have delivered very close -- well, record earnings last year and close to record ending this year. It shows the maturity, I think, of the business. It shows the robust nature of the revenue streams, obviously, you have these high levels of regulated revenues that we have in the portfolio, but also a very successful power sales strategy. And that has been a very good feature, and I think it shows a very, very solid operating model. We -- I mentioned a few moments ago, we amortize debt. So we paid down a whole bunch of our debt as we do each year, and we brought forward some reserves from the previous year. So we had over 11p, which was available for distribution. And then you've got a dividend of 8p per share. And then we've carried forward some, again, a record level actually of reserves. Now if you are trying this is -- if you're trying to work out, you're just seeing a simple subtraction. It won't quite tally because we've had shares issued in the period, so there's been a kind of reweighting, but that also kind of works through. So hopefully, it's a very good way of understanding what we're doing with the money. And Neil will actually give you a little bit of another look at that in terms of where those funds have come from, and how we've obviously used them. And as I said, the NAV has held up pretty well with some headwinds around sort of the long-term forecast power markets, but also say some negative changes to sort of tax rates, but overall, again, a very solid position. Okay. So on this slide, it's just about ESG, and it's obviously a very, very key part for every business. And just because we invest in renewables, doesn't mean we don't have to look at the S and the G part of that. But on the environmental side, obviously, there's a very -- obviously some very good stats. A nice, I suppose, a measure of what we are doing is on that house is powered, which is 187,000. And that is a -- that gives, if you do the kind of calculation of how many people that is serving. So we're actually powering a city the size now of Bristol with renewable energy, which is as we have a Bristol-based business, that's been a source of great pride to them. On a sort of sunny -- just to give you another context, on a sunny day in the afternoon in the summer, we are providing about 3% of the U.K.'s electricity, I mean those kind of peak times between sort of mid-day and 03:00 pm. So we're building that. And obviously, that's an important part of the decarbonization story in the U.K. Following on to that, well, I mentioned in my opening comments were about ESG. And how important it is, obviously, to everyone in the market and our shareholders. And one of the things we observed when looking at it ourselves and talking to shareholders was we found that it was very it's quite a difficult area to navigate through because it's changing a lot. It's -- there's a lot of information flowing around and it's quite difficult to work out what is important, well, there's modest -- anyway, so in order to address this, we undertook this materiality assessment over the past few months, which looked to with a third-party consultant, we looked to key topics. And then we having done that, we then went out and spoke to all the key stakeholders in the business, the shareholders, the Board, advisers, power sales, consultants, everyone who would be involved in the sort of in the periphery of the business, to look to identify, obviously, each of these 6 topics is important, but what really has needs sort of immediate active management that says there and some of which are sort of a lower priority. And it's identified half a dozen, which you can see on the -- as you go to the top right, there are human rights and health and safety and things which you probably think are quite sensible , but this has come from a very robust process, which has taken a number of months. And so the next step in terms of action, this is that we will look at addressing each of these issues with a strategy. And then obviously, we will report that to the market as we go through. So we hope that is creating some sort of sensible structure for investors and for the market to understand what we're making decisions around ESG. So with that, I will turn the page over and then I will hand over to Neil, who will talk about some of our recent acquisitions and then look at the valuation in a little bit of detail.

Thank you, James. So this slide is illustrating a number of key themes of our acquisitions over the last year. There's a bar chart at the bottom, which is showing the capacity and the value, and then there's donut charts on the right show any impact on the portfolio of those acquisitions. But I think really taking a step back, this slide is showing a tremendous period of acquisition activity for the fund. And really, it starts just before the period in question that we're talking about in Jan '20 where we purchased 13 megawatts of [indiscernible] and solar assets. That was followed up in the period by, as James has mentioned, 2 material solar acquisitions, which are shown on the bar chart in the bottom left, a 64-megawatt portfolio that we completed in August '20 and then a 70-megawatt stand-alone asset in Jan '21, that's England's largest solar farm. And then beyond those highly successful acquisitions, so over close to GBP 200 million in capital deployed into operating regulated revenue back solar. We then followed up after the period end with 2 material, first, a maiden investment into wind, onshore wind in a 12-megawatt portfolio of 109 single stick turbines are -- the attraction of that portfolio is that they are all backed by feed-in tariff schemes. And so the regulated revenue aspects of that wind portfolio is close to 92%. And then in August of this year, August '21, we completed a maiden acquisition into colocation where we purchased the project rights to a consented 45-megawatt solar and 25-megawatt battery project. And the key beyond the number of the acquisitions and the content investment that we've made into renewable assets, there are 2 fundamental points to take away from this. Firstly, is that -- the acquisitions during the period and then increasingly post year-end have been done on a highly selective basis. They've enhanced the revenue base of the fund, certainly from a regulatory perspective. And they've enhance the technology aspect as the wind acquisition has done. And I guess bringing that all together is the immediate repayment of faith that the shareholders showed in July '20, when they approved the change in mandate to -- for the fund to invest into, as James was saying, a 25% into complementary nonsolar technologies. And I think as a final point on this slide is, which is shown in narrative in the middle is that the revenue -- regulated revenue basis of the fund has moved up to over 65%, close to 68% at the time of acquisition of the wind portfolio. And that's fundamental for the business in giving it a fantastic platform as it assesses opportunities into the future and the very likely mix that they're form of unsubsidized so merchant revenue backed assets as well as likely corporate PPA-backed or CFD-backed assets. So it's a fantastic platform for the fund to continue to grow from. If we just move on to the next slide, please. Perfect. So as we go on to -- so the next section of the presentation covers earnings and valuation. And I think the first aspect of that is to look at what's happened in the power markets over the last 18 months, it's a key topic that's making a lot of headlines at the moment, including the 10:00 news on BBCOne. And so I guess it's worth pausing for a moment to just talk about the key themes that have happened. And it's been well documented. There's been volatility in the power markets, effectively starting at the point where the world first went into lockdown in March '20. At that point, there was an immediate effect of a dramatic drop in electricity demand, and that resulted in daylight prices falling to around GBP 24 per megawatt hour. There was then a rise steadily during the remaining quarters of 2020, and actually a brief moment where power was above pre-pandemic levels in December '20. But I guess the big story is this in -- as the economic recovery has gathered pace following sort of spring '21, lockdown measures have begun to ease. There's been a dramatic demand for gas, and that's driven in particular from Asia. And that's coupled with low storage levels in Europe following a cold winter in 2020. And that brought certainly into the U.K. market in Europe and in general concerns around gas levels ahead of winter 2021. And that's driving the rise, the significant right, you can see on the far right of the top chart. And this has all been compounded as well by low wind generation during summer '21. And of course, carbon pricing has risen as there's been a switch to a greater degree of thermal generation. And so power for winter '21 and into summer 2022 is continuing to be seen at record highs. I guess the -- that's fantastic for generators like ourselves, but of course, it does bring consequences for some of the energy supply companies as they're struggling to match rising wholesale prices with tariffs that they promised their customers. And unfortunately, this has obviously resulted in a number of newer and smaller energy suppliers entering administration. And I think it's important just to reference at this point that the company and the contracts that it has with its energy suppliers, they are over 80% with two of the largest energy companies in the world, and the remainder are with investment-grade counterparties. So the business and the fund is highly insulated from a risk of supply default. Sorry, just, James, just stay on this slide. So I guess the final bit to run over is that despite the dramatic level of volatility over the past year, one of the key elements for the business is the careful application of its rolling hedging strategy and for completeness, that's where, on average, 25% of the portfolio is fixed each quarter for typically 2 to 3 years. And what that's meant is that the average price achieved by the company over the period, which is shown in the bottom left and the graph has remained relatively stable. And I guess the impact of that is that, as James has outlined, the company has delivered close to record earnings through a period of significant market turbulence and it's done that without exposing shareholders to the risk attached to these highly volatile power markets. And I guess, looking into the future, this is -- James will outline a little bit more further on is that the flexibility of the hedging approach has meant that the company has also been capturing value from rising power markets during 2021. And between January '21 and to-date, we fixed over 312 megawatts and the average pricing for those fixes, which are starting throughout the latter of 2021 and then on into 2022, has been between GBP 61 per megawatt hour and GBP 68 per megawatt hour. And I guess in doing this, it's we've not only created revenue certainty, as shown by the chart in the bottom right, whereas at 30th of June 2021, 88% of the revenue for the 12-month period to June '22 has been secured, but we've also created value for shareholders in the coming financial year by fixing at levels that are above previous forecast estimates. If we move onto the next slide, so consolidated portfolio earnings. So this slide continues to build on themes that we have spoken to those that have followed us for many years a number of times, and that's that the company's financial performance continues to be built on the 3 central tenants, so a consistent portfolio operational performance, a power fixing strategy that smooths out market volatility, which we've just been talking about and obviously, prudent management of operational costs. But I think the key element of this slide is to be able to draw detail out for shareholders and analysts around the financial performance of the underlying businesses, so the operational assets through to the costs incurred by the funds and then how that relates to the dividends available for distribution ultimately to shareholders. And so I think rather than going through every line item in the table, it's worth pausing on a couple of 2 to 3 themes. And I guess the first is that the material acquisitions completed in the period of 64 megawatts and 70 megawatts of solar, respectively, have contributed a very pleasing net income benefit of GBP 5.1 million to the company. And that's the result of the timing of the acquisitions and the way they were structured. Outside of the acquisitions, what we're seeing is, as James has mentioned, is that the operating portfolio has had revenues just slightly ahead of budget. Costs, as we look down the table, have been effectively in line with expectations in prior year. If you are looking at the portfolio and project finance investment costs that rise from GBP 14 million to GBP 19 million as the result of the enlarged portfolio. So that's a very natural increase in operating costs. And then running through the table after we take off operating costs and interest costs attached to the financing that we have in place, you're left with underlying earnings of GBP 48.6 million. And as the bar chart at the bottom of the slide shows that then after taking off debt repayments in the period that James has mentioned, the dividends that we've declared and paid of 8p and then a correlating or a correction for new shares that we raised post period end in our GBP 150 million equity raise, you're left with 2.67p per share as a carryforward distribution for future periods. So it's been a very successful year on the earnings and finance front for the portfolio. So in the same way that earnings are crucial for distributions to shareholders, the other significant figure that makes up the annual accounts is the director's valuation. And obviously, that is the single most important number for the company's NAV. And I think what we've seen, and this slide is outlining in the bubble chart and also the bar chart at the bottom is that -- and as people on the call will be familiar, there's been since Bluefield Solar Income Fund as listed in -- there's been a significant increase in demand for renewable non-correlated sustainably generated income. They've been increasing familiarity with the sector and greater comfort with the technologies. And what that has effectively been a decompression in discount rates, and that's shown in the bar chart at the bottom where in the top left -- left-hand side of the chart running through to the right, you can see that discount rates have effectively been falling. Where we place our NAV and where we place the directors valuation is in relation to market activity, and we completed on a winning -- by a winning seller basis. And so for us, it's important that at the end of each period, we're able to accurately reflect its position against market transactions in the public chart. The top of the slide is doing that. So you can see the polo shaped dark blue dots where on a pound per megawatt basis, the directs valuation sits as of 30th of June 2021. And there are a number of assumptions that underpin that, firstly is the discount rate of 6%, which we've held flat with June 2020. We bought in the latest forecast the power curves. We used a blend of 3 leading forecasters. We have increased our inflation assumption by 1 year to 2025 at 3%. Thereafter, we are remaining at 2.75%. And then as James mentioned, there are there is an increase to tax assumptions where we've changed from 2023 -- or April 2023 at 19% to 25%, and that runs out for the life of the assets. And then we have -- as a reflection of success achieved within the company's extension program -- asset life extension program and respective to market assumptions that we're seeing in transactions, 80% of the portfolio is now valued on a 30- to 40-year asset life basis, which, on a weighted metric, is an average life portfolio of 3.2 years remaining as shown in the bottom right of the slide. So this slide is more for the numerical purists out there, and it's translating NAV movement in the period against portfolio valuation movements and NAV movement being the top graph and portfolio valuation movement being the bottom graph. I think again, rather than looking at each bar item in turn, it's important to just cover a couple of key themes. So one is, as James has mentioned, that the NAV has remained effectively flat between the periods, 117p in June '20 and 115.8p in June '21, so a marginal drop of about 1%. But that only tells part of the story because within that NAV movement is a change in valuation of the portfolio of about GBP 90 million. And that's inherently been driven by 3 key themes of which I've discussed a little bit on the previous slide, but ultimately, it's the inclusion of updated powerful cost curves, which whilst they've risen in the near term, quite significantly, they're continuing to show medium- and long-term deduction as a result of expectations of lower commodity prices and increased renewable deployment. And that's reduced the valuation a little bit. The tax change where we have -- as I was talking about and James has referenced, we've moved our long-term tax rate assumption after April 2023 to 25%. And those 2 negative impacts have been offset by the positive benefit of increasing the asset life on a further section of the portfolio. And as already alluded to, we are valuing 80% of the portfolio now between 30 and 40 years of asset life. And finally, to wrap up the section on -- yes, sorry, on to the next slide, please. And then finally, to wrap up the section on sensitivity analysis and valuations is the standard tornado chart showing the impact flexing key assumptions within the valuation make on the director's valuation. And I guess the -- perhaps an important point to make here is that in a world where inflation continues to rise, and that's obviously a big topic at the moment as well, that has a positive impact on the company, not just from an earnings but also a valuation perspective. And the reason behind that is simply the regulated revenue base that the company has -- will rise at a faster rate relative to the operational costs. So it's a net beneficiary in an inflationary environment. And that's the final bits of earnings evaluation.

Great. Thank you, Neil. So on to the final section of the future, what does the future hold? Well, I think we'll start from talking about the past because a lot of what we're going to do going forward is going to be based -- it's been very similar to what we've done in the past because it's been very successful. So if you look at the -- there's lots of charts, you can look at that. But in terms of the top left, I think, again, just repeating, this is about defensive income very, very predictable earnings. And if you look across the past 8 years, we had sort of our first year when we had IPO where we had a lower dividend and then we -- 7p per share and rising. And we covered by earnings, and they're obviously carrying a look forward. And we've announced -- it's very important, we've announced with the Board that there is an increase in the dividend to the current year, which is ending June '22, which is 8.12p per share. So a very strong -- there's not any track record, but there's also a clear distance in terms of our dividend relative to sectors. So it's one of the -- we think it's one of the most attractive dividends we've got in the infrastructure space, not just in renewables. So in terms of what the sort of the next steps will be? So we will continue to focus very heavily on solar. So we've broadened the mandate but we are going to focus on solar. So not less than 75% will be into solar. And as I say, we've got those points, which I spoke about in my opening comments, is that you have this very high level of predictability. You've got a simple technology, and then we've matched that to having very high levels of regulated income. So solar just by dint of the support mechanisms that it had historically has the highest regulated revenue. So you have that really stable backdrop. So we've got over 600 megawatts of operational solar, typically at the moment in the southern half of England and Wales. And we're building out the big news in terms of that solar development is that we're pushing a big portfolio of new build, which will come through really in terms of timing will be coming through at the end of '22, and then really starting to be built out in 2023 onwards. And so we're very much backing the next phase of growth for the U.K. solar market. Where we'll -- just as a point, what we're going to do with that portfolio in terms of the new developments is at the moment, we're anticipating a mix of 3 options really in terms of what we'll do with that. One will be subsidy free. So we're very comfortable with that in terms of our -- the DNA of the business and the way that we've driven out very high returns for shareholders historically is that we have a very active management strategy. We have construction engineers. We obviously have a development pipeline, which is proprietary. And we have the ability to -- we've demonstrated over a number of years, the ability to be able to really drive our good returns. And so -- and we're also starting -- it should be said, we're starting with at the moment with the highest level of regulated revenues in the sector. So we can feed in a portion of subsidy-free assets into the portfolio, which will increase diversity demonstrably we've demonstrated how we can drive out high earnings from those types of assets, but we'll still end up with either the same or the highest amount of regulated revenue in the sector. So we think that's a sensible option. But also beyond the first CFD options they're just starting actually with the various technologies they're going to see if the auctions not so much the immediate one that following auctions, we expect -- so to play a more significant part, and we would like to be a participant in that, and that will be a good balance we think between that and some of the subsea free assets. And also, we are looking and we will explore whether it will be appropriate for investors for our shareholders, whether we sell a portion as well. I mean, of that 770 MWp, I should say that not all of it will come through, anyone who has been involved with any type of development, all of those things will come through, of course, but it's a very good and very high-quality pipeline that we're dealing with. So that's part of the next phase. But we've also -- we've talked about this to the market before. There is also, why have we broadened the mandate when we've had so much success? And we thought about this very hard because we've broadened the mandate, we've got very good support from the shareholders over the summer last year is that we've looked at the market in terms of where there are other technologies that would be complementary to a solar portfolio. But also that are offering reasonable value on a risk-reward basis because one of the things we have said to the market before is that the renewable sector is -- and increasingly, you have this choice with 17 or 18 different funds is, you have a wide spectrum of funds, which are all underneath the umbrella of renewables. But the risk profile is becoming increasingly different because of different technologies, because of different geographies, because of different capital structures because of different debt structures. So what starts out being a really simple business in 2013, 2014 is increasingly complex for investors and for analysts. So where we have looked in terms of that broadening of the mandate was to look at technologies that we felt would complement the existing portfolio. So that's why we have -- we've made an acquisition into subsidized onshore wind. It's complementary in terms of geographies. Typically, our portfolio in the North, our portfolio of sales typically in the South, you have complementary generation. It's kind of winter to summer. And also, obviously, the gladiator deal that Neil spoke about has very, very high levels of regulatory revenue, which we like. So we've now got above 2/3 of regulated revenues in the portfolio. And those -- the pricing both for -- the pricing for subsidized wind, we think, remain pretty fair about particularly when you've got those kind of characteristics. We also obviously like the opportunity for subsea free so that, again, within a run only one gets even at higher returns. We think that fits well. Where there are challenges for people is where there is -- you kind of -- if you were thinking about these little circles, it's clearly the further you are over to the left, at the high left is where you don't want to be. And certainly, we're seeing when you've got technologies which have enormous complexity relative to something like solar, like something like anaerobic digesting, for example, investors should be demanding and actually receiving high returns. Indeed, something like batteries. Now we like batteries. The batteries need to deliver double-digit returns. And for investors, you need to see that you're getting that partly through yield and also that there is something being done accretively with the balance. So if you're -- if battery is going to deliver a 10% to 12% annual return project IRR, then our view is investors should get the benefit of that rather than just being put into a kind of 5% yield product. And so there is a big sort of -- for us, there's always been this sort of analysis in terms of where do we really see that there is fair value. And just because solar relatively offers a lower return, it should offer a lower return because it's far lower risk than other technologies, you -- it doesn't mean that it's mispriced. Okay. So in terms of the -- I'm very happy to come back on any of that, obviously, with questions at the end. In terms of a key differentiator for Bluefield, and one of the reasons we performed consistently well is in the area of this very, very granular operational management. So we try to illustrate it here on this page, which is that there are -- when you're thinking about a life cycle of an asset, we view this as that we will be lifetime owners of the assets. So that's how we've always -- since the get-go, that's how we've tried to sell Bluefield as a business. So there are complementary businesses or that are dealing with different parts of the value chain. So you start on the left-hand side, where you can control the development pipeline going through sort of investment and then what's often surprised people. And this is where it's very, very different from traditional fund management group because you've got Bluefield Services and Bluefield Operations where of the -- 66-odd people that are working day-to-day on the Bluefield Solar Income Fund. Over 50 at the moment, when we've got the, obviously, key development, are not involved in investment work. And so you've got this very heavy amount -- there are people doing -- involved in every aspect of the management and the optimization of the performance of the portfolio. And just to bring out a couple of things here, just 2 to 3 points is within the investment teams where Neil and the team and the investment team were going in to make an acquisition. Neil be accompanied by a portfolio team, who are obviously looking at the -- how the assets might work and also technical capability because we have an engineering team that are going on site immediately. So that allows us to be able to move very fast. We can make decisions very efficiently. But we also have a construction engineering business. So when we build out new capacity, we have people that go on site to observe the build-out of these assets because they only take about 3 months to build, they've got to operate for 30 years. So it's been a very -- and we've had that since IPO. Operation and maintenance, just to put out a few ideas. I mean, within the asset management business, where you've got the monitoring reporting, we have proprietary technology, they have something like 150,000 bits of data coming into a business every 15 minutes from the portfolio. So there's a lot of information which you have to kind of cut through to be able to translate it into some useful information. You've got operational maintenance. Since the end of 2019 or -- around 2019, they have -- that team has driven something like 750,000 miles to and from the portfolio. It's very, very active management. They're driven to the moon and back in terms and distance on looking at the portfolio, and they produced something like 20,000 on-site reports feeding back into the asset management business, which then gets pushed up to the investment teams to make sure that we are comfortable that we have all the information about the portfolio. That's why it works well. It's not a sort of mystery. There's no outcome to it. It's just a lot of hard work. Okay. Last couple of slides from me. I'm just going to, very briefly, talk about the sort of the good news coming down the line in respect of the power strategy. So Neil has mentioned, it's very defensive in nature, but we're obviously at the bottom of this chart here, you have slightly under place, we restruck quite a lot more and you got the blue dots, which are the restrikes when we have really contracted some of the power contracts at different -- within different assets. But what you can see, if you go to the right-hand side, as you can see, we're obviously tiering up where you've got that. We're tracking upwards the average weighted power price, which is obviously a reflection of the market. We have the ability to be able to be fairly flexible with that, and that obviously is beneficial for the -- for shareholders. If you go to the top right, where you've got GBP 49.88 per megawatt hour, that's fantastic. That was the average price of power contracts at the end of the financial year, June, which is a great performance considering the undulations of COVID. So we've written out, say, 2 full financial years. We've [ not renovated ] during the period of COVID through having very sensible defense contract strategy. But now the benefit of the higher strikes are there below is almost GBP 57 per megawatt hour for the new contracts, which will be coming on in 2022, you're going to see a big increase, which obviously hasn't been reflected in the earnings so far. And then we've got, as we always do, we have a big chunk of contracts which are going to roll over in 2022. So you're going to see, obviously, if the market remains inflated, let's be honest. But we think it needs to come down. It needs to be more sustainable than it is at the moment. But in terms of that market where you've got some inflationary pressure, then the company will be the beneficiary and the shareholders will be the beneficiary. Okay. So the final part, we just finish on the few sort of opportunities and challenges. So we'll start with some challenges and just going to the energy price inflation point. We've actually put it on both sides of this. Clearly, the situation that you've got at the moment is unsustainable. Apparently, we're going to be helped out by [ Putin ], that's great. But there needs to be a -- I think what we need to see, obviously, is that there is still very solid resolve in terms of long-term energy strategy because there is no alternative in terms of needing to decarbonize. But I think that the -- I mean, on the sort of the flip side of this because as you do have that second point in terms of challenges is that there has been widely reported that there's some concerns, particularly from sort of a note or a journal that was put out by Bloomberg New Energy Finance about what might happen to power prices in the 2030s, and about the cannibalization of returns you get, increased renewables and they sort of they eat themselves in terms of their returns. And -- it's a fundamentally different forecast to any of the actual forecasters we use. And whilst it's a very difficult science, to be honest, it's an art, as much as science, there is -- we don't buy that at all. And in fact, we think that there is the big -- there's some very big flaws in terms of the concerns about long-term power. And I think the good thing for shareholders today is that the valuations that you're seeing are baking in very, very significant drops from -- certainly from 2013. But particularly from sort of 2015, 2016 onwards, which have already been baked in. And so you've got very much a much lower and long-term forecast already. So I think there's a lot of caution already baked into those. A big issue which should be raised, which is not unique today to the solar industry, but is about supply chain, there has been issues around some of the labor practices in some -- from some regions about -- which are being addressed. We're a public signatory on the -- on our zero-tolerance view about sort of slave labor practices, but also working with some of the European and U.K. trade bodies in terms of looking at making sure that we're comfortable with the supply chain issues that are coming out of those countries. More as an immediate is also just supply chain inflation. And so there is for the first time that I have experienced in almost 15 years being in the solar industry, you're getting -- there has been over the summer a very significant supply chain inflation. And it's not clear at the moment how that will work out, although I'm a great believer in the solar industry's ability to create very cost-effective solutions, and it's been proven year in, year out. And the great thing about solar, as a technology, is it's very commoditized. And so one would believe if history is to go by that the industry will deal with that short -- there will be a shorter inflation from it. It's not an issue for this particular fund at the moment, we can not look into -- to buy modules. So on to the -- let's finish up on the opportunity. So I think the -- it has never been more sort of unified, the support from politically and also from the general public about the desire to decarbonize until you had this -- we've got the COP26, which is putting the current government in the spotlight to make some very bold statements, which they did on Monday, about saying that we need 100% renewable energy by 2035. And people are very ambitious about the 10-point plan. And obviously, the Bluefield solar business fits very neatly into that. So a very, very strong support broadly. There's also -- inflation is a big issue, and Neil touched on this, but there is -- in an inflationary environment, the company does well. You have a majority of -- revenues are directly to we have our capital structure, it's only the same probably for the sector, but we have our majority of the debt is fixed amortizing, which you've seen being paid down in some of the earlier charts. And so in an inflationary environment there's an earnings boost. So in that, I mean, obviously, we all wanted to sort of be modest or sense of inflation. But in that environment, you are going to benefit, which is good. And then the other bit which you just to finish on is obviously the flip side of sort of the energy price inflation is that we have been saying for a couple of years that -- and it's partly why it drove part of our mandate change is that the -- a consequence of the only forecast that we made when we were talking about the future of the sort of the power markets was that there would be they will be very volatile coming as you look to decarbonize the markets are likely to be volatile because if you're getting baseload taken off through policy and replacing it with intermittent generators like wind and like solar, although solar is obviously more stable, is that you have a -- you're going to have periods where you're going to have imbalances in the system. And what's happening at the moment is not really to do with that, per se, this is where you're coming out in a very unusual position and you've had very low supplies coming into a period as we all know. So this is slightly separate. But these structural imbalances are -- imbalances are likely to remain. And we are -- and we've said that for a while, and we think obviously that is going to drive public times higher -- higher prices but also more volatility, which is where we've obviously got the strategy around storage. So that -- both of those things will be beneficial for both generators and obviously for our storage strategy. So overall, as ever, there are -- hopefully there's a reason to be realistic of the position in terms of what we see as some of the challenges but also, I think, on balance, there are some very significant opportunities for the business, and we've got some very good news, which is obviously coming down the track in terms of our power strategy and the impact that will have on earnings. And so I would say that with that, Mark, I can hand back to you because we are...

[Operator Instructions] I'd like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&A can be accessed via your Investor Meet Company dashboard. And we will notify you by e-mail when they're ready for your review. I'd also like to remind you that your feedback is important to the company. And immediately after this presentation is ended, we will redirect you for the opportunity to provide feedback in order that the company can better understand your views and expectations. James, Neil, investors did have the ability to presubmit questions. And perhaps I could start off with the Q&A with those that we received. And it reads as follows: will you give more detail about the forward PPAs so that investors get more visibility on the amount of electricity hedged into the future? I know you touched on it a little bit, but perhaps you could just give any further clarity.

Yes. That's good. I mean I think if I just go back to the slides, I think Neil really spoke about that where, I mean, we as a business are largely hedged going into any period. So a great example would be the 23rd of March 2020 when we went into lockdown, and we had over -- 90% of our revenues were fixed contracted. So we have -- as Neil explained, we have a policy where you start with 65%, 66% regulated revenue. So that's dealt with. And then of the power sales strategy, you're looking at -- you've got a rolling process where we will be refixing contracts. I mean, you're looking -- I mean, if you want it, kind of if it was absolutely precise you'd be looking at doing circa 25% of the portfolio every 3 months, it's never quite as smooth at that. But what it does is it means that you never have a large exposure for the ups and the downs as well. And that's something which is very important in terms of this idea of giving a great deal of visibility to our shareholders about the revenues which are coming in. So on any one day, someone could bring up -- obviously, this needs to be in the public domain, of course, the answer, that they could bring up and they could ask what the level of contracted revenues we have? And that would -- we would typically be in that sort of level where we're going to have a very high level of fixes typically, circa 90%. There was one -- I could just answer, it will be two birds with one stone. There was a question about the duration of the contracts which -- yes, so there was a question from Dave. How long is the average energy contract and how that fits. What you do is that you typically bundle together, so we deal with very large suppliers, so it's just to repeat what Neil said, so we have very, very good counterparts in that big -- you'll aim very well, some counterparts. And we typically bundle the rocks and the electricity contracts, the power sale contract together and the range that we have, we have flexibility to do this in terms of -- because we -- of the capital structure, but we will typically have a shortage with really 6 months, but typically, it's 1 to 3 years is the contract. And what you're trying to do is you're trying to capture the forward curve, which is going to be going up and get as much value as you can for those contracts. And they have the suppliers. So those are taking those contracts will need to -- we just supply it to them. You have winter and summer prices and that's -- everything we produce, they take.

That's great, James, but perhaps I could just ask as you're saying, you've got a number of questions that have come in throughout the live event. So thank you to all of those investors that have taken time to do so. And perhaps if I just hand back to -- I'm mindful of your time, but feel free crack through these questions as you see fit. If I could ask you to read out the question and where appropriate, give a response, and then I'll pick up from you at the end.

Yes, Okay. So we will take them in order so that those who are very prompt in asking they get the benefit. So, [ Tim ], the -- do you think the recent power price surge will translate into long-term PPA in the future? Are your customers already discussing this? Neil, I'll hand over to you in terms of have you seen anything in talking to any of the PPA providers that they will change -- the contracts are going to change?

No is the simple answer on that one. I think the current view, certainly from the people we're talking to is that this power spike we're seeing is a short term, is as a result of a number of events coinciding at the same time, the expectation is that power will come back to more reasonable and sensible levels. Probably very likely the sort of blue line that -- is on the slide at the minute in the next 1 to 2 years. So we're not -- I don't think we're seeing a big structural shift, we're seeing a point-in-time effect.

Yes. And some are asking, some are hoping, I think, that possibly the power forecast as well adjust their long-term forecast, but I think that might be sort of wishful thinking, but you'll certainly see some sort of improvement in the short term. And then [ Timothy ], again, what is the current position in respect of Ofgem audits of your sites? Well, we're really very comfortable with this, [ Tim ]. I know there's been some issues with some companies. We have -- we're going through a usual process where we have some audits that are ongoing, but we did a third-party evaluation with our portfolio management team, which started over 18 months ago where we went through every single site, we've got over 100 in total, site by site. And did an evaluation and if there was any issues checking that we're missing documents, and we've got a clean bill of health across the health portfolio, which we're very pleased about. And so now we're just working through with Ofgem on any of those sites. But that's very much in hand -- very good question, but it's very much in hand. [ Sanjay H. ] has asked about the revenue cost ratio for solar versus wind on a per megawatt basis and which is more profitable and what is the strategy to optimize this balance? Are there other factors at play? So that's a big question. There are lots of factors at play in terms of your -- the geography, the technology you're using. So all I can say in terms of where you're getting -- I'll give you kind of a snapshot is that today, solar is cost competitive against any other technology, it is. And so -- and the best to are solar and wind in terms of your cost dynamic in terms of the revenue you can generate. And both are the most stable. You need -- it's quite a big answer in terms of the wants and the needs, as you see you have a number of factors that come in. But what I would say is that if you look at solar on that sort of cost reduction dynamic and where it is today in terms of the ability to deliver the most stable of this generation on a cost competitive basis. And I'm assuming here is what you're doing it on a subsidy-free basis, obviously, so you're just doing it like-for-like. So you have that sort of the -- sort of low cost of installation basis. Then I mean, solar and wind track each other pretty closely. And the only difference in solar being is that solar has a more predictable generation. So I'll go to [ Dave ] now. For any future battery storage technology, will you be considering [ DM ] flow batteries with the long-term benefits? I'll turn to lithium. Yes, significant. It's a very good question. So Neil has been look at that. Yes, I think that it's the moving -- I think, with anything with batteries, then it's really -- it's a great question, is that we were looking at all different technologies at the moment. We are, initially, still in terms of -- the modeling is looking at sort of lithium, the remain -- remains a very sensible option in terms of what we're trying to achieve with some of the stand-alone technologies -- stand-alone sites that we've got. But the market, [ Dave ], is moving very, very fast, and the technology is changing. And what -- at the moment, you're seeing very big cost reductions in the traditional battery space. But obviously, then the -- as a sector, it's going to be transformed in the next 5 to 10 years. And so we will -- what we need to make sure is that the type of battery solution that we have is fit for purpose and durable. And then if new technologies come along, then we'll obviously assess them. The interesting thing is that often new technologies are -- if you look at the kind of solar market, find it difficult to break through because of the bankability of them. But certainly as a market, one feels that there will be very good once it's going forward. [ Dave ], again is, can you comment on the useful life of the solar units in years? And then secondly, how is the end-of-life decommissioning accounted for and what is the quantum? Neil, do you want to just quickly answer that one?