Foresight Solar Fund Limited (FSFL) Earnings Call Transcript & Summary

2022 was another positive year for Foresight Solar. We benefited from elevated power prices and high inflation, performed well in the U.K. and saw our Spanish portfolio become fully operational. As a result, we are reporting a strong set of financials. Power prices, inflation and post-construction uplift drove impressive performance, with total shareholder return for the year of almost 25% and total NAV return of 24%. NAV per share increased to nearly 17% to 126.5p. We are pleased to confirm a total dividend of 7.12p per share for 2022, in line with our target. We finished the year with dividend cover of 1.74x, supported by attractive price hedges and higher merchant power prices. Looking ahead, the company declared a target dividend of 7.55p per share for 2023, an increase of 6% compared with the previous year. Importantly, the 2023 target dividend is expected to be at least 1.5x cover just from cash generated in the period. Assuming current forecasts, a similar level of cover is expected for 2024 and 2025. Operationally, our portfolio performance was impressive throughout the year, generating more electricity than forecast. It was enough clean energy to power almost 400,000 homes. In the U.K., generation was 8.6% above budget, driven by consistently higher levels of irradiation and good asset availability. In Australia, the portfolio performed well, but it wasn't enough to mitigate the impact of La Niña, which caused above-average rainfall and low irradiation. As a result, energy production in the country was 12.5% below budget for the year. In Spain, our solar portfolio is now fully operational following an energization of the 26-megawatt Virgen del Carmen project in October. We have also made good progress on our diversification strategy, expanding our portfolio of battery storage assets. And following the AGM decision in June, we are now able to allocate capital to development-stage solar and battery assets. Solar farms are a vital part of a low-carbon economy, and batteries are a perfect complement to solar power, given their ability to balance the inherently intermittent nature of renewables. In the second half of 2022, we are pleased to acquire the 50% stakes in the Clayfords and the Lunanhead battery storage assets. After the year-end, we negotiated exclusively for the full rights to a further 50-megawatt battery storage project, which, once completed, will bring the fund's total battery capacity to 125 megawatts across 4 sites. Moving forward, where possible, we will be looking to develop batteries with longer durations, reflecting the more favorable pricing dynamics and their ability to take advantages of arbitrage opportunities. Most of our existing sites already allow for that possibility and have the potential to generate an immediate financial benefit. Across Europe, the deployments of solar projects should accelerate over the coming years. Many countries are aiming to deploy significant levels of solar power to meet net zero commitments. In the U.K., a record 4 gigawatts of new solar capacity was approved last year, which means more projects should reach the ready-to-build stage. We have visibility of a strong pipeline of opportunities that are expected to be yield-accretive and have the potential to organically grow the NAV. As well as a battery pipeline, we have preferential rights to more than 600 megawatts of U.K. solar projects. We're also progressing discussions on the right to several development-stage portfolios. Most notably, we're in advanced negotiations to buy the full rights to a development-stage portfolio in Spain of over 400 megawatts. The transaction is well progressed and is expected to close in the first half of 2023. The potential to capture the full upside of this type of investment, together with our successful track record in bringing assets through construction makes this an appealing proposition to recycle capital and generate growth. Political and regulatory uncertainty meant 2022 was a tumultuous one for LNG markets. And we welcome the clarity that emerged late in the year. Despite the uncertainty, there remains significant opportunity in the fund's core solar and battery markets as governments transition to lower-carbon economies and focus on securing domestic energy supply. These fundamentals, together with an attractive yield, our exciting pipeline of opportunities and the fund's growth potential mean that Foresight Solar is strongly positioned for 2023 and the following years.