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

Good day, ladies and gentlemen, and welcome to Foresight Solar's interim results presentation. [Operator Instructions] I'd like to remind all participants that this call is being recorded. Questions will follow after the presentation. I will now hand over to Ross Driver to start the presentation.

Good morning, and thank you for the introduction. So it's Ross Driver here, Managing Director at Foresight Group and Fund Manager for Foresight Solar Fund, joined today by Toby Virno, Associate Director and part of the fund team and the infra team; David Goodwin, who's Finance Director for the fund; and Matheus Fierro, who is our IR lead here in the room. So just pushing forward, we'll go through to the summary of the first half of the year here and appreciating that there are a number of things that have already been released in the NAV update. So we'll focus on a few of those and add a bit more context around this in the case of the interim results. So I think key message for us here is that we continue, ourselves and the Board, to follow through on the capital allocation policy that we've got here. And there are 3 main pillars to that, which is buybacks, divestments and future -- modest capital, but into future growth of the fund. We've agreed to increase the buyback program by up to GBP 10 million -- up to GBP 50 million now, which is relatively the largest in the sector. And we have been buying back, as is noted, on a very regular basis in the market and returning capital to investors there. I think new in this update and update on the divestment is that we can now say we can commence a process for the divestment of the entire Australian portfolio. We'll talk a little bit more about that going forward and what we've been able to add to that and the timing considerations around it. And then on the future growth side, I think, again, that point, whilst we're looking to pay down debt and make the divestments, refocus the fund as well into sort of U.K. and Europe, we're not losing sight of the need for future growth in there, but it's been modest amount into a proprietary development pipeline that we will see coming through to build the future growth of the fund. In terms of portfolio performance for the year, well, key point of this, it was the wettest first half of the year on record for the fund in the 10 years that we've been operating. But I think actually, with results showing that revenue itself was only about 6.5% below budget at GBP 74.5 million, given that core performance that we'll jump into a little bit more on the radiation side, actually, it shows the resilience of solar. Because if that's one of our worst periods for input resource that we've had in the 10 years of the fund, it just shows that's probably about as bad as it gets from that side in terms of the radiation. So only 6% down there on generation and revenue. Hopefully, the Q3 is starting to look a bit brighter in that sense. Distributions from underlying assets, though noting that there's a bit of a time lag on these in terms of when we release cash up from the portfolios as we need to pay dividends, with only about GBP 1.5 million behind budget. And also looking on that, actually our total shareholder return over the last -- as we calculate it, over the last 12 months, it's just over 10% for the fund that we think compares favorably. I think that's also a view of some of the prudent assumptions that we have for the fund and the valuation. We'll just note that point, particularly on the U.K. valuation, our price per megawatt of GBP 1.16 million, we do think that, that's compares prudently towards other data points out there and transactions that we've seen in the market. Looking forward, I think we will continue to say that we're well hedged and covered. The dividend covered for this year, FY '24 has moderated slightly, which is predominantly down to the lower generation, but it suddenly moved down to about 1.4x, so very comfortably covered. And so we are comfortably on target for our dividend for this year. And also that we're -- on current assumptions, we're forecasting a 1.3x dividend cover for 2025 as well. I think those are the key highlights. Looking at, I think, just a recap as well on the next slide in terms of that, it is very important for ourselves and the Board in terms of the capital allocation strategy. And in terms of -- we are completely aligned in terms of that. I think just a few more data points in terms of this, in terms of what we've done. Share buyback, actually, over the last 12 months, there's been GBP 36 million repurchased there, which is why we've expanded it up to GBP 50 million now. The average price we are now getting back to, with a bit of probably with a few macroeconomic tailwinds, we are now getting back above the average purchase price of those shares, which were 93.5p. And to date, up to the last set of -- really, set of results at June, it's added 2p per share NAV accretion there. On the dividend payments on current share price, we're only at about an 8.5% yield. And again, those points of the improvement in the income over the next couple of years. I'll come on to this in a bit more detail in the next slide, but we have always stated, as you all have seen, that we have that planned divestment program of circa 200 megawatts. It's 200 megawatts plus a little bit now because actually, we're moving forward with the stated sale of Australia portfolio. It's 170 megawatts of power ownership in solar there. And we have also in-house developed 2 best projects there as well. They're still development stage, but they are up to around 122 megawatts of BESS on at least a 2-hour basis. The debt repayment, we will be looking to make the further divestments to sort of materially pay down the RCF variable rate debt, but there are other options that we've been looking at. I think one of the benefits of having a multi-currency facility is that we've been able to shift about GBP 45 million into euros and benefit from the -- the lower rates on Euribor or there, that is going to save us about GBP 350,000 through to the end of the year. So we're always looking at optimization there. And then obviously, the final point is around the proprietary pipeline that we continue to build out. So just jumping through in a little bit more detail around Australia. I know it's something that we talked about for quite a while. There has been a number of reasons why we waited until now to announce this, really. So the key one of them is positioning this portfolio within the market conditions. We went back a couple of years, there wasn't necessarily as much transaction volume going on in the Australian market for operational solar. That's changed, and there is now quite a bit of transaction volume taking place. So we are working with advisers to navigate through that, advisers that have run similar practice and helping us find the right time to put these assets out to the market. There's also been value enhancements, a number of commercial matters we've had to work through there. And as we've previously noted, looking at restructuring the debt. So it's all about looking to protect shareholder value in that and going to the market at the right time. I would say this is -- if there's a positive for that, it's also allowed us to self-develop these best projects pretty much from scratch internally with our local team and an enhanced team that we've got now out in Australia. There is currently no value attributed to those, really, short save of the very modest development costs and capital costs that we assumed in terms of that. But one of the main cost is in-house work. They are still development stage, but I think it's fair to say that actually most of the portfolio sales being brought to the market Australia now will include BESS alongside them in terms of helping to balance the curtailment that we see in the market. And it's also an interesting and attractive development opportunity for new investors to be able to come in and deploy capital into this as well. So this -- in terms of it, we do believe that our portfolio includes assets with some unique scarce and attractive features, i.e., the -- what we call the solar 150 PPAs on the Queensland assets on Q1, a long reach that have a price of about -- a guaranteed price of about $88 per megawatt when generating. That's pretty attractive compared to where the market price is at the moment. And then say, the timing of this, like we've given ourselves through to H1 2025, a bit of leeway on that. I think we'll be looking to kick off -- move the process forward to get indicative pricing back before the end of this year, but being realistic that the process will take through to 2025 to manage expectations. And as discussed with the Board, the intention, as we stand at the moment, on capital allocation will be to use that to pay down a significant chunk of the RCF when that comes through, but that's based on where things are in the market at the moment. I'll just hand over to Toby to talk through the -- I guess that -- or the exit -- upon the exit from the Australian market, there is, alongside that, a refocus of the fund on the home market here in the U.K. And also, like, the key market in Spain, but also in Continental Europe. So Toby, do you want to...

Yeah, sure. Thanks, Ross. So as Ross says, following the sale of the Australian portfolio, the intention is to refocus the portfolio on the U.K. and European markets. We're laying the foundation for future growth through investments in FSFL's proprietary development pipeline. And we've talked in some detail at the most recent capital markets event in May around the development strategy and our targets that we've set ourselves there to build a sustainable development pipeline of between 2 and 3 gigawatts. We're not going to dwell too long now on the rationale or target returns, but we'd remind those listening, too, that the materials are available at the Capital Markets event itself. What we instead wanted to do was to take the opportunity to dive into the outlook for the 2 core markets of the funds of the U.K. and Spain, where we're at and the activity is focused currently. So first, looking to Spain, it is one of the biggest utility scale solar markets in Europe. And this is set to continue with very ambitious targets of server capacity by the end of the decade. The revenue model for Spain is underpinned by quite a mature corporate PPA market, and that has facilitated quite high volumes already of unsubsidized solar capacity to be deployed. Foresight Solar has got a successful track record in delivering projects, securing PPAs and securing third-party financing to enhance equity returns. The key study for this is the part of realization of the local portfolio, which is something we are very much seeking to replicate with the little under 1 gigawatt pipeline that we have currently secured rights to within the market. Key to the deployment of further renewables in Spain, both wind and solar, is the deployment of further battery storage and flexible storage technologies. And this is due to the very low interconnection relatively that Spain has with the rest of the continent and internationally. And as you know, we have already secured pipelines in each of solar and battery storage. And we are working with our local Madrid office and the development team that are overseeing the structures with our development partners to secure capacity and deliver on these first projects. We also continue to leverage the network of Madrid office to originate new opportunities and we'll take advantage of those opportunistically going forward. Moving now to the U.K. And it continues, as a market, to attract significant volume of development activity. This is due to the broadly stable and supportive regulatory framework that the U.K. has seen to date. We view reform of the grid connection process as being positive. There's been a lot in the news and the press recently, a lot of coverage of this and also necessary to meet the targets that the government is setting itself. From an investor's perspective, we see ourselves as being enabling for development partners as a well finance party to progress projects and potentially jump the queue over projects that are otherwise stalled. And so otherwise, just kind of bridge the bottlenecking capacity in grid -- connections to the grid. We view CFDs as being critical to support the build-out of new solar capacity. And one of the best things that the new government has done is to immediately come in and increase the allocation for AR6 by 50%. We hope and feel that further increases in the CfD budget, the [ future of all the grounds ] will be critical to meeting deployment targets by the end of the decade. In general, there is a sense of momentum following the change in government, which is really welcome. And the [ bar graph ] headlines with early approval for NZ projects and ambitions to drive reform centrally through new public institutions. We ourselves are reserving judgment as to how effective Great British Energy and the newly rebranded national energy system operator will be in supporting an acceleration in solar until we hear more details of the policy. However, the focus is really positive, and we think the fact there's more experienced ministers in that area will hopefully provide greater visibility and progress. There's not been much insight yet from the new government on their start on RIMA. There was some discussion pre-election, but we're yet to hear anything post. There's been quite substantial lobbying of the new government since they've come to power from all sides. We are not expecting to receive any further formal update from the [indiscernible] until the New Year. But through speaking with industry bodies and through our own understanding, our expectation is that evolution of existing market mechanisms is the most constructive approach to driving future investments rather than revolution and wholesale reform of the way the market operates. But we would address the market, we'll wait for formal announcements later this year and into next. A key priority for the fund is to target U.K. development stage, several Opportunities, and principally, this is with a view to putting projects into the CfD regime and following the same co-development model as we have been following in Spain.

Thanks, Toby. I think just to add to that, in terms of the capital allocation as well, I'll just recap on that point to preempt any questions around this, is we do see the development pipelines as giving us optionality there. So I think we will very much see when those projects come through in the first -- hopefully in 2025 now. In terms of what the state of the markets, our capital allocation policy is, we have the opportunity to flip those rights to sell them. I think even -- although we've talked about the first stage of this 200 megawatts now Australia that we're looking to divest, there would be nothing stopping us selling down further chunks of either U.K. projects to then recycle into things such as CFD-backed projects or similarly, we've got optionality in Spain, sell down out of that to actually put into projects. So it's not that we realize it isn't going to be necessarily straight away to be able to raise money again anytime soon. So we're looking at options -- various options to bring that through once we've got these opportunities to take forward. I think if we're just jumping on to net asset value here, I don't think -- nothing here is particularly new, so just to recap, I mean, the main downside, really, throughout the first half of this year has really been down to power price forecasts. Project actuals come through all weather and lower generation there. It doesn't feel like we go to something of a bottom in terms of power prices. And we are -- it's something we'll come to touch. We are seeing more favorable pricing in the forward markets and what we can tap into going forward for the rest of this decade. I think the key thing really on those levers that we can actually pull ourselves is -- at least on a -- it's not on a NAV basis because it's bringing the overall NAV down, but on an as per share basis, the buyback has delivered that circa 2p of upside up there. Moving to the next slide, we just wanted to touch on a number of our sort of core assumptions here as well. In terms of -- we do see our inflation, that's RPI inflation there. [ CPI ] being slightly lower than that, actually is remaining quite prudent for the next period and especially in the long-term. On discount rates, they haven't changed from the U.K. We still believe that is a fair value in terms of where we've seen pricing on other transactions. For Spain, just worth noting that is -- it does look like quite a large drop in paper, but actually, it is actually even a reduction from where we were holding our assets at the sale value that we achieved the Lorca portfolio, and actually even bringing those valuations down slightly. We have no reason to believe that we wouldn't be able to -- if we were to say, sell the other half of the Lorca asset, that we wouldn't be able to achieve the same pricing at the moment. Euribor is coming down. So actually, we think that, that's is -- that, that reflects the sale price. In terms of Australia, we're just saying that we will continue to look at these. This is probably more of an adjustment between the portfolio and relative values of those assets. As we're working with advisers and getting more feedback coming through, there may be some movements around on that as we progress through the rest of the year. I think if we're just trying to firm that up, it will be driven by market pricing. In terms of that -- and, I think, the other side just goes to the -- on the valuation per megawatt. Toby, do you want to talk to...

Yes. So on to operational performance. And firstly, starting with the weather. It's will come as a surprise to no one to hear that the first half of the year saw below budget solar agents here in the U.K. As Ross touched on at the head of the presentation, what might come as a surprise is the fact that in spite of one of the wettest starts to the year on record, the U.K. portfolio was just 4.3% below budget, and this is really a testament to both the dependability of solar generation and the high level of confidence that we have in the budgetary forecast, but also FSFL's prudent approach to forecasting and [ understanding ]. For context, we have disclosed here in the presentation and in the results, the historic radiation and production variance. So you can see how that has moved since IPO. To give a feel for the business as being one of the core resource periods to date, but -- yes, still performing robustly in terms of financial results. Spanish production was similarly hampered by bad weather. Also significantly by the soiling of modules, caused by Saharan dust. The phenomenon known as Kalima was particularly strong in the first half of 2024, uncharacteristically so. And we see that as being more of a one-off or temporary impact. Whereas production in Australia was impacted yet again by high instances of economic curtailment and also grid outages in the case of the latter, most notably outages associated with upgrading the Victoria network. There's not much else to add on that. So if we can move to the next slide, we're going to cover a bit on power price hedging as a key strength of the portfolio, continues to be its contracted revenue position, particularly the remainder of 2024 and into 2025, where we have very high levels of fixed power price sales on top of the inflation-linked [ rough ] sales, which have been contracted revenues of in excess of 80% in both periods. As we build out our position for 2026 and beyond, we are actively pursuing additional options to enhance the fundability to hedge its power sales exposure, and then maybe more on that in due course. Whilst we're not offering dividend guidance, we, based on current assumptions, are happy to give a view as to the level of dividend cover to the end of this year and then also out into 2025. It has moderated slightly for this year, down from 1.5x to 1.4x, owing to below budget production. But then looking out to 2025, dividend cover of 1.3x is forecast, underpinned by that very strong contract revenue position, giving us a high degree of visibility and confidence in the ability to generate revenues and cash. Moving on to the next slide, please. And we now discuss the gearing position. There is not much of material notes in terms of movement since the full year, save for the regular repayments of the fully amortizing and long-term debt. Whilst the RCF drawings, which is our 1 floating rate exposure that we have, has not moved materially since the start of the year, as Ross mentioned earlier, we have taken advantage of the multicurrency nature of the facility and have converted a portion of the balance from sterling to euros. This is taking advantage of the circa 150 bps spread between SONIA and Euribor, but it also acts as a natural hedge for the funds, European-denominated -- euro-denominated holdings, and has meant that we've been able to more efficiently manage that hedge position and release collateral. And that is all, I think, we can say on gearing. So I'll hand over to Ross to talk about biodiversity now.

Yes, just something a little bit different in here. There's a case study in the interim report as well about biodiversity net gain and also biodiversity credits. You may be aware that the Environment Act in 2021 has actually mandated new infrastructure projects to deliver a minimum of 10% biodiversity net gain. Those that are unable to do so -- and you're probably thinking more sort of very urban -- some real estate development and things like that, where it's difficult to do this, will have to buy credits to compensate creating a market, which is expected to be similar to carbon credits. We've already been working for a few years now with our partner, The Eden Project, to look at biodiversity across our projects because it's -- well, it's the right thing to do anyway, and it keeps with our ethos. But there is this potential. And we've already done an exercise to look through some of the higher value projects where we know that there is a lot of biodiversity gain that we already have to demonstrate, and we're rolling this out across the entire portfolio to get an idea of what can be done. There is a lot there in terms of spaces around the solar projects in terms of the [ heteros ], the additional land where we are looking to enhance biodiversity across those projects. I think the key question is what does this mean for investors. There will be a market. Government has put out some guidance around what those biodiversity credits could be worth. I think we sort of take them there, sort of government guidance is -- will be marketed and exchange traded, but we could be looking at these running into the sort of tens of thousands of pounds per credit. So actually, when you look at the cost in the number of credits and units potentially available to from each of these sites, it could start becoming a meaningful amount for the likes of ourselves and others. So I think it's still got a bit of work to do in that area. The key thing is the market -- it will be market driven, it will come out in terms of supply and demand, but it generates what the pricing for those credits is. I think what we're flagging, at the moment, is that we do see significant potential across the portfolio in terms of being able to push this. And that's -- from that point, I'll just sort of bring it back in a summary in terms of this. So I think a few new things that we've mentioned here, I think the key takeaways for us are the resilience shown, especially given, by far, the worst Q1 that we've seen in our U.K. history and a very low H1 overall. Good availability during Q2 is really -- the active power price hedging has really brought that back. Again, the capital allocation distributions of just under GBP 39 million to shareholders between buybacks and dividends. Reducing the costs of the debt by doing other optimization on there, acknowledging that we will need to press ahead with further divestments to pay back down materially. And also preparing for future growth in terms of that. We're not losing sight of the fact that if we don't continue to at least have the options there in the future, that, that's will reduce the NAV over time. And then I think the tailwinds are sort of interesting, notwithstanding what we may gear in terms of interest rate cuts are the latest today from the Federal Bank of England, to borrow. You can see things still being quite choppy, but at least there's tailwinds coming through from there. The power prices appear to have stabilized sort of post the shock of Russia's invasion of Ukraine. And we do have a -- as Toby was referring to government that seems to be giving strong priority to push forward with renewables, solar, in particular, making some good noises so far. So I think if they put the right framework in place, sort of step out of the way to let the market deliver. We, in the U.K., at least we very much want to be part of that, continuing to build out the solar capacity in this country. So that's it from us. Hopefully, I haven't taken up too long. So I'm happy to hand over as much time as possible for questions. Matheus, do you want to guide us on?

Shall we start with questions in the room? Ian, please.

Good morning. Nice presentation. It's [ Ian Stewart ] from Stifel. I've got a couple. Firstly, just on PPAs. Can you give us a bit of indication as to your 2025 levels? And also, you've been writing new PPAs recently, given the relatively low pricing. The second question is on Spain. Discount rate, obviously down, I think cannibalization rates are going up. But what sort of percentage of the Spanish revenue is slopped in through corporate PPAs for this cannibalization?

No, it's fine. And I'm -- wasn't surprised by the question, but in -- so on the PPA -- when we talk about it, so we've got different options under that. Where we usually has historically talked about this is actually fixing under our existing PPAs. So it's the option to fix pricing. So I would say, actually, we were already very well hedged in terms of the fixes that we have for this year and next. I think the big question for everybody is going to be when these roll off, it's 2026 and beyond. So I think we are looking -- we adhered to in our -- noted when -- at our Capital Markets event, there are other options we have apart from the -- going to our standard sort of offtakers. Because I think it's fair to say the key thing to look at, a number of you have noted, is where the futures prices are there. And the other issue is we can fix out up to 5 years ahead with our current offtakers, but it stands with the liquidity as well. So the liquidity there isn't there in the price. It isn't there. We're not going to fix a lot if it's not going to offer us that dividend cover. We have different routes -- as Toby was alluding to slightly, we have different routes out to market to get improved pricing out of that. If you look at our wholesale pricing and forwards that, they're actually looking quite good. And around that, we are saying they're probably around GBP 60 per megawatt hour level works for us, and we can see routes through to that. I think we'll have to give an update a little bit further in the year, because there's something we're working on here to sort of fix out that position from '26 and beyond. So it's something, but it's different from the -- I'd just say it's different from the traditional route to offtakers. And in terms of your questions on Spain, yes, I've noted it in the notes. I think it's fair. In terms of the level of curtailment, we do make a note on here. I think given the forecast of the revenue providers are sitting around 40% to 50% on average, I'd say for our portfolio and this -- again, we'll be very specific. You've got the same thing in the U.K. I think it comes down to portfolio and location. So for the assets that we have, it hasn't reached that sort of average per year over that point at the moment, but it's something we're keeping a close eye on going forwards. I think the key thing out about. like a number of markets that we look at, is coming down to battery storage as well. Spain will need that -- build out a battery storage. We would very much like to be part of that as well. But actually, that will help alleviate these -- sorry, the solar discount pricing there. I think that on average, the assumptions that we've got in there are reasonable at the moment, but we'll continue to point to them based on what we do with the U.K. portfolio. We'll see what is coming through to the portfolio, but also what the consultants are seeing. And also, their assumptions are -- the key thing is their assumptions' around build-out. So I think they're probably closer and more realistic for Spain than they are from the U.K. at least to-date in terms of how much it's been going forward. Final point on your -- with our fixed price PPA. Yes, it's about 17%. That is fixed for the next 10 years. And then these -- on the now decent prices, prices did shoot up significantly over the last few years, but we're pretty happy with them. They're locked in. They've got to have another 8 years left on those, probably. And it also includes the geos going through that as well, so that fixes [ that ].

That's helpful. That -- just on the pipeline, on the Spanish side, what's the quantum of assets by megawatt that's kind of come sort of very early-stage next year? And then on the U.K. side, how would you bring the U.K. development pipeline into the funding practice? Is it something that's sitting in the wider Foresight Group with Jamie, Benny, et cetera?

No, fair point. I mean I won't be drawn on the exact megawatts. I think it would be good to see the first projects coming through 2025. That would hopefully be a sort of couple of medium-sized solar projects and the BESS will be driven by what we get to do in the markets. So I would say -- I just -- this is -- we are having to build this. We expect it to roll out over several years. It will take time to establish this. And development, is that going where things can move back-and-forth.

I think just to add to that, yes. So the sort of goal, as we talked about at the Capital Markets Day, is to build that sustainable kind of rolling pipeline and for that to be an ongoing feature of the farms. We are clearly in that transition in building that pipeline at the moment. And so yes, development is a multiyear game. It will be great if we can have some early successes. But yes, the principle being that we want to do something sustainable for the fund going forward. And that is a rolling pipeline that continues to then predictably churn out register of assets for summary clarity.

Yes. And in terms of the question around U.K., we've got various options on that. So I think one of the key [ persons ] here is -- the reason we're comfortable with this in the U.K. and looking to partner with developers is Foresight has -- you're right, Foresight does have existing relationships there and JVs. I think in terms of that, though, they are owned by funds. So the key thing for -- really, for us post JVs existed, we have first right over some of those assets. What we knew when we set this up, it is better for the fund to do this work itself and do those partnerships. Otherwise, really, to be fair, we -- are other funds have different investors and they have a developer. You'll probably be looking to pay a similar fee to what we would have been, [ running to build that asset ]. So we have good track record in working on those. Those have been very successful. There are a number of options around how we can put that in place. It would probably be a similar sort of set up to what we've done there in Spain in terms of -- I think looking to that 2 to 2.5, 2 to 3 gigawatts alone. It's getting in there, finding the right partner, finding the right projects that will come in over a period of time. And again, adding to that -- and I think -- Toby, do you want to add anything else? There's a number of sections that we've gotten...

Yes, having worked quite extensively in structuring some of the Foresight's development pipelines in the past and some of the partnerships with the other funds that are party to, key focus for us is finding the right parties to get into bed with. It's all about [ actuality ], and the strength of the pipeline is clearly a factor in that and their track record, but starting that and continuing the processes. But we typically take a relatively defensive position, given that we are not in development funds. This is a portion of our capital allocation there to drive pipeline and kind of use returns and generate capital growth as well. But we do typically take a slightly more defensive position there. That's how we're able to get the returns that we get, but then also mitigate some of the downside risks. So there's a number of infrastructures we can achieve that through, whether it's joint ventures, whether it's owning assets outright or have [ Energy SA ]. Really, it's about finding the right partners, and I make sure everyone's aligned to drive for best outcome.

Yes, just sort of picking up on that in terms of finding the right partner and coming back to what you touched on in terms of some of the market reforms that are ongoing that are particularly around the grid connection queue and in terms of some of the change or reforms in terms of products that don't have land rights, but maybe going to come back in the second Q. How do you see that if kind of those perform? Do you come in this year -- probably actually next year? How does that evolve the market for solar developers? Does it become more competitive to get access to those projects that actually do have planning commissions, grid connections and having those in place? And are you going to actually get -- see if there's going to be good, opportune time, to try and time your entry with those partnerships with developers...

No, definitely. So we are already seeing enhanced rights for people to be booted out the queue if they're not progressing with their projects. We have already announced in the forthcoming force, a lot of discussion around that vacating projects and dynamically moving people up and down the queue, depending on how quickly they're progressing. We're already seeing DNOs as early as November this year, placing requirements on developers to have land options in place like it's really a land option before we can apply for a greater capacity. And that's a very significant hurdle in terms of money out the door through lawyers, et cetera, compared to what was previously just a letter of intent or a letter support for that. So there's already movements in that direction. And for us, as funders and investors in the space, we think it's a positive, because we are turning up with capital and the intention to progress these projects. And so what we can offer developers is a part who's got experience of doing this and can enable them to kind of amplify their pipeline and give the best opportunity to bring their projects earlier in the connection queue. There's a lot of projects that are stranded out in the mid-2030s at the moment, but a lot of potential if you come and show the grid operator these future projects to accelerate them to start the next decade.

I think if you look at the number of the transactions that we've done in this development space, you are looking at those sort of projects coming in through from 2030 and beyond. And the developers that we are speaking to see a lot of potential to bring those forward. I mean you're right. I think there's a good time to be having that conversation, because hopefully, these reforms, we'll be basing them forward as opposed to going back, so there. And it's just quite -- I think there's an interesting comparison there between -- we'll see what those reforms mean and hopefully is starting to push things out of the grid queue that are not moving forward. Interesting comparison there, thus despite, which I think is a good one, you are required to put down grid bonds. So that's, let's say -- it's about 40,000 -- at least EUR 40,000, still to be -- might even be a bit more in there, to be confirmed in terms of the -- in terms of bonds that you need to put down, put your money where your mouth is as a developer. We see that as being really quite beneficial to us because we can bring along that financial firepower, even just between our seasonal actually surety bonds that we could look to put in place, but that helps the developers. And there's a real point to be a partner there with them to bring that sort of financial clout that we can and get itself into that position in the queue, which developers themselves are usually are quite -- unless their developers have now got a big partner behind them, they're usually quite lean operations. It's a people business. They're quite thin on capital. So that's where we think there's a really good tie up there, which is what we're doing in this plain.

Okay. I guess just kind of picking up on kind of market reforms and as you mentioned, your big funds of the CfD regime, you see that campaign, that structure is -- going forward. I wonder if you, like any crystal ball out, where you have any views on how the CfD regime, whether it needs to evolve kind of going forward, kind of compare we're sort of on pace to kind of put the capacity build-out to you versus sort of what key scenario. We've got, big, big needs. As always, there's going to -- make -- move it to [ YCLE ] -- [ C&E ] motion so -- and I wonder if you have any view on sort of how that market evolves.

Maybe -- so I can jump in as well. I think the -- what was a very quick move by the government to increase the solar up by over 50% initially was a good move in the first. And so I think it's starting to give clarity. We've seen another good price in terms of which the CfD cleared up, which is clearly supportive out of that. I think, to be able to offer a level of consistency or twice a yearly would be fantastic. We're expecting that in, that at least annualized and sort of some consistency for the next few years in terms of that. And if there is an ability to continue to increase [ part ] sizes, I think -- my personal view is that CfD has been a fantastic success in driving offshore wind in this country. And the other thing that's not mentioned quite regularly is that it's not a subsidy and the offshore wind projects will have paid back billions to treasury in the last few years. Obviously, the key thing is where that price is set, but it will drive the -- if the new government is intent on reaching those 2030 targets, putting in the CfD in place there, we think, will help achieve that. It's not going to be a one-end all. We think it also has a positive impact on corporate PPA pricing. And look, we've maintained options for looking CFDs, corporate PPAs that we know. I think it will make the pricing around that also move to be competitive and also an element of motions doing that. So we like a range of options because we do know that things that are driven by government can also be -- can also -- sort of sometimes, change in weather as well in terms of that. Toby, anything to add...

Only point to add really is that this is very ambitious target to triple sort of capacity by the end of the decade. That is going to be very challenging to achieve, and it does take a bit of push. So we think that the most constructive way to go about that is to look at increasing the CfD budget for the future rounds between now and then, whether or not it means further out or just communicating the budgetary increases remains to be seen. Looking to the longer term and RIMA, we think that kind of evolving or enhancing the existing CfD framework is probably more appropriate than some of the bigger wholesale changes that we'll potentially consider at the outset. So we think the CfD play a really important role. The corporate PPA market in the U.K. is still kind of fledgling. There have been some deals done, but the pool of bankable part is relatively shallow still. People looking at that. So the CfD has a really good role to play in terms of offering that contract revenues to finance projects.

Charlie?

Just on the biodiversity projects, thank you for bringing those up. Was the time line should investors be thinking about, is it a couple more years of development? And then you -- can you see a bit of evolution of value and then...

I think it could be a couple of years. I think it would be a couple of years, going, so like -- for actually, the market, to truly develop there. So I think the thing to look at is, look, we're just trying to flag this. There's potential at the moment. I wouldn't add too much on the numbers. If you look at the numbers for credits that are actually put out by government themselves, I can always point you in the direction of that. You have some quite -- what look like some very high numbers in there, depending on its heteros or even high preponderance on there. And in terms of improving that by the investment, I think we'll take a more conservative view of that. The most important thing to say is we do think there is something here, especially with the level of development. And what we do see is a good opportunity to be doing this. It's something that we were looking to do anyway across the portfolio or for an ESG and sustainability point of view. So being able to link those 2 up, do the right thing and make sure that our projects are meeting the biodiversity potential. If there is something that can come out of this over the next few years, I think it will be an evolution, of course, in history.

And how long do you think it will take for you, doing your baseline measurement worked out?

I think we can be in there on that -- I think we can there on that for next year.

It's worth noting that Foresight was already kind of leading the field in this sense through our major recovery blueprint as working with Eden projects and Natural England to drive exactly these types of initiatives. So I think we are very much on the front when it comes to this.

Okay. Operator, can you please move to the Zoom questions?

[Operator Instructions] We will take our first question from Markuz Jaffe at Peel Hunt.

Few questions from me. Do you disclose the Australian portfolio equity there? I just can't seem to find it. I'm not sure I missed it. Secondly, where can you see construction and development exposure getting to as a percentage of the portfolio with the kind of refreshed strategy? And then finally, could you just comment on -- you mentioned the optionality around potentially selling development rights in the future. How long do you think that could typically take?

Sure. I guess -- so firstly, on that we don't actually include a breakdown on an equity or NAV per jurisdiction on that. So we just say we're not putting out a specific number on the Australian portfolio at the moment. We'll continue to treat the discount rates and give further guidance on that as it becomes clearer, I think, in terms of NAV. All I'd say is we we're comfortable at the moment with where the NAV is on that given the information that we have. There is information there on sort of historic values and things such as that. I think all I'd say, kind of not being drawn too much on that because the process is a little bit out of our control and dependent on market circumstances probably much more than it is for the U.K., because I think it's very more project specific in Australia. I think what we're saying is that we do expect proceeds from that to be able to pay off a good chunk of the RCF once that is realized. In terms of the construction and development exposure, it's a fair point because we can always work to provide some further disclosure on this. The construction risk outstanding is now absolutely [ definitive ]. It's -- we are now down to a couple of million on the Sandridge BESS project in the U.K. That is effectively now built. We are just waiting for the grid to connect. It will probably be by Q1 next year. So there are quite -- on payments, about a couple of million on that. And really, in terms of -- we have put out -- we'll -- we can help to sort of guide you. We have put out, previously, I think, some disclosure around what we would be in for on the development pipelines. Off the top of my head, what we're saying with the Chilean BESS portfolio is really in our base case there, it's about EUR 2 million through to the end of 2026 in terms of the development monies attributable to that. That would obviously be -- beyond that, there would be further larger payments at the point that those projects get consented, but we see the trade-off really -- it's -- you're putting very minimal amounts of risk. Once those payments are -- payments are payable through to the developer, you have also got an asset that is worth value. And that asset will be worked several times what we'll have paid them in development fees. And it's a similar -- if I remember, it's a similar amount for the -- where the development pipeline -- with where we see that going currently. We'll check back on that one as well to give you -- see from what we disclosed so far in terms of what we think of that, we'll look to give some further disclosure around that going forward.

I think just stepping back at a high level and kind of future aspiration for development, we've got a cap in our investment policy of 5% of GAV for development. That sort of capital would go an awfully long way in terms of development where the investment requirements are much lower than building out projects, fairly. So I guess what we would say, and I think what we've emphasized before is that we don't really anticipate getting up to the extent of that limit in order to reach our initial targeted pipeline.

Yes. So on that, I mean, we are still single-digit million euros through for the next couple of years on that, it's fair to say. And then the optionality around it, I think -- and if you go back to our slide, what was it, Slide 8 in terms of looking at this. It will be very much driven by when these projects roll out and become available, say if we were to get one of the first projects to come through, would be a solar project in Spain. I think the big question for us in current market conditions, if that was to come out in the next, say, 12 months is, how would we fund that, how would we take that forward, which we would very much like to do to continue to expand the portfolio out there. But if it made sense, we know that there's a very active market out there, and we could sell those project rights for several times what we've already agreed. We own 100% of the rights. So instant potential upside to sell that off to another party. What we could also look to do is depending on where market conditions are at the moment, is also bringing a partner. I mean we've sold -- we've shown through the sell-down of the portfolio there, that there are sort of willing European participants that are looking for operational projects. We've still got some flexibility with the balance of the portfolio there. We can consider selling down some more of the assets. And we also have partners that would be willing to maybe co-invest with us to take some of those projects forward. So I think it's looking at the options. Really, I think if you're looking sort of into next year, again, that discussion for ourselves and the Board will take place given where things stand on [ all the ] capital allocation decision, but it still makes sense to paying down debt, still makes sense to be doing buybacks, versus, I think, just to round that off, we'd be saying we'd be looking at the returns that we think we could make out of that and what is the best route for capital, whether it's to sell or whether it's to build out [ on the hold ] to maturity [ bests ]. Hope that helps, Markuz.

[Operator Instructions] Our next question is from Conor Finn at Barclays.

So a quick question on the valuation of the Australian assets. Just want to get a sense of what gives you confidence on current generation assumptions given the poor track record there to date?

It's that question on a -- Conor, I think it really all comes down to tailwinds in the Australian market. And you've got market driving curtailment and technical curtailment. So I think in terms of that, I think it's fair to say that we have -- since setting up the portfolio, we have gone through quite a bit of pain on that versus original assumptions. Curtailment has been higher in the markets. There are a number of things coming through. So our assumptions, at the moment, for what curtailment will be in those for those projects is in line with what we're currently experiencing in terms of that. As we're speaking to advisers out there, investors and others in the Australian market have got a lot more comfortable with curtailment over the last couple of years. I think that's part that feeds into us looking to -- waiting until now to look to divest the portfolio. I think that is reflected in the number of deals and transactions that are now going on. So you need to have some sensible assumptions in there that are grounded in what has happened to date. So that would be the way that we're looking to divest of that portfolio. I think the other thing is, actually, there are some positive movements in the Australian market for new investors come through to take these projects forward, I would say, into Australia's ambitions for decarbonization. One of the key things that is -- there is the changes that need to be made to the grid that will be coming through later this decade and also the ramp down of coal. That has added so much baseload into the system, that has added to those negative pricing events. So those things are moving forward. I'd say not necessarily within the time line of our investment in those assets, but there is an attractive future case for the Australian market. Have you anything to...

No, I don't have anything else to add on that one.

It comes down to the assumptions that we've got. Anyway, Conor, I hope that helps.

There are no further questions on the webinar. I will now hand over to Ross Driver for closing remarks.

Well, thank you. I think there is a -- thank you for those here in the room and online this morning. I think there were probably a couple of new things and a few more insights into what's going on at the moment. But we do feel that hopefully, things could be, if -- we all are experiencing some rate cuts and a bit of a softening in the macroeconomic environment. That can only be helpful for the sector. But we're not relying on that on its own. There are a number of initiatives that we're doing there, particularly looking at shareholder and investor value. And also, there is more to come from that in terms of initiatives that we're looking at and we can, hopefully, update you on later in this year and early next. Thanks very much.

Thank you for joining today's call. We are no longer live. Have a nice day.