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

Good morning, and welcome to the Foresight Solar Fund Limited 2024 Interim Results Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question it receives in the meeting itself. However, the company can review all the questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. And I would now like to hand you over to Managing Director, Ross Driver. Good morning to you.

Good morning. Thank you, and welcome, everyone, this morning to a run-through of our interim results. Just a quick agenda there on everything we're going to take you through. And you have this morning, myself, Ross Driver, MD, at Foresight Group joined by Toby Virno, and together we have the management team for Foresight Solar with Matheus in the background here, our IR Manager as well. Right. So if you kick off and go through the -- I should just say as we're starting off here, we are open to Q&A. We'll look to go through the presentation today, I see already a few questions have been submitted, and we'll try to get through as many of those as possible at the end of this presentation. But kicking off with the -- what we see as the key highlights from the first half of the year in H1 2024. It's really been around sort of 3 pillars as we see it for us. There's the continued focus on capital allocation, especially for investors as the stock does continue to trade at a discount to NAV. So on that, in terms of things that we've increased the buyback program by a further GBP 10 million up to GBP 50 million. Relatively, it is the largest buyback program in the growth sector across renewables trust, given the size of the fund and we're using that to provide liquidity and return money through to investors. On the divestment side, we are continuing to recycle capital, sell assets and look to also pay down the variable rate debt. And within the period in these results, we have now announced the plan to commence the sale of our Australian portfolio. It's something we've been thinking about and planning for a long time actually. And now feels like the right time to move forward with that. We'll touch on that in a little bit more detail. But at the same time, whilst looking to navigate through these challenging markets, and I've seen a couple of questions around that, we'll try to address at the end. We're also very much thinking around growth because we are starting to tentatively see some tailwinds out there that can support the sector in terms of lowering bank rates, new government here in the U.K. with the renewables agenda and pricing moving in the right ways. So we've also got -- looking at future growth, we've got currently just under 1 gigawatts of proprietary development pipeline that's generally focused in Spain. We're also going to be looking to add to that and build out further in the U.K. as well. On the operational front, probably not lost on many of you here in the U.K. that it wasn't the greatest first quarter of the year in terms of weather. It was very wet, in fact, one of the wettest periods on record for the U.K. and the wettest half year in the history of the fund since we've been operating for about nearly going on 11 years now. That did have an impact and poor weather does have an impact on performance for solar, actually, you don't need the sunniest of days to be operating. They do operate under the usual standard sort of cloudy days and mild drizzle that we experienced here in the U.K., but it was a particularly poor quarter there for radiation that we'll go on to talk about a little bit further. But notwithstanding that, I think it also goes to show the resilience of solar as an asset class because despite the poor weather, not only in the U.K. but also we got no respite in the other markets of Spain and Australia as well. We're only 6.5% behind budget for the year at GBP 74.5 million. And I think the point to that is if that's one of the worst periods that we've had on record that's not really such a big result in the downside in revenues received there. The impact of that on the dividend cover was minimal. We dropped from about 1.5x down to 1.4x and we're still looking very healthy in our targets for '25 as well. Distributions from the underlying assets themselves were only slightly down on expectations. And looking at it in terms of our focus more on a total shareholder return basis, the fund delivered just over 10% in total shareholder return over the last 12 months. And then on the outlook, yes, we're well on track by 8p per share target dividend for the year with a 1.4x net dividend covered for this year and then estimated cover of 1.3x for 2025. Any other point we just really point to on the opening slide there is we continue to feel that the valuation of our portfolio compared to data points in the market and other listed peers is conservative. It's for the U.K. portfolio about GBP 1.16 million per megawatt there, and we're pretty comfortable in that in terms of our -- in terms of valuations. All right. Move on to the next slide. Just a quick recap here. In terms of -- it's a very important focus for both ourselves and the Board is the capital allocation strategy. So just recapping on that. Actually, within the last 12 months to the midyear, we've actually repurchased now GBP 36 million worth of our own stock. We think that makes sense in terms of looking at it when your own stock has trailed between sort of 17% and 20% discount. It is a good investment to buy investment metrics to actually invest in your own shares, if you believe in them versus you would have to be making a similar level of IRR out of new investments for that. We've now -- the average purchase price of the shares that we bought back so far is 93.5p. We have recently been starting to trade above that as well now. And to the NAV that has also offered about 2p per share of NAV accretion over the period. Looking at dividends. We're currently operating on about an 8.5% yield on the current share price and a well-covered position, as we've mentioned. The divestment program, we -- about a year ago, we sold down 50% of the Lorca portfolio, and we've now moved forward with the sale of the Australian portfolio as well, which is 170 megawatts of solar that we've had for several years and also some BESS assets that we've developed in-house, we'll touch on in a few more minutes. On debt repayments, we're looking to delivering a number of options there to reduce that rate apart from just paying down in big chunks from disposal proceeds. We've also been looking to reduce the cost of interest rates. We have a multicurrency facility on our RCF that we benefit from. So we moved just under about GBP 50 million from sterling to Euribor to make some savings on the interest rates there that haven't flowed through into the numbers so far, but should give us about GBP 360,000 of savings for the second half of the year. Okay. I think if we're moving on to the next slide, yes, we will -- the headline announcement from these results was that we were commencing the process to sell the Australian portfolio. We have 4 assets out in Australia. And it's -- we're waiting for the right time to do this in terms of positioning the portfolio, the market conditions and overall protecting shareholder value out of this. In recent -- if we go back about sort of 12 to 18 months ago, there wasn't a lot of activity going on in the Australian market and real interest for solar at the time. We've sort of gone a bit from famine towards feast in terms of that, that's seeing a lot of transactions now in the space, but it's mainly around -- centered around development or operational solar with those developments with it, which is why that's something we've been working on. So we've been looking to -- there's been a few commercial matters regarding the portfolio we've been looking to work on, and also to restructure the debt there. I think this period of going through this has also allowed us not just to come into a healthier market into which to sell those assets into, but it also provided us the time to self-develop 2 BESS projects which are located on the existing sites of Oakey 2 and Bannerton and start to develop those in-house. They are still relatively early stage, but we do feel that they can add some value to the portfolio there. Overall, the portfolio of the asset itself, we think we've got some very unique and scarce features. The PPA on the 2 of the Queensland assets are at a fixed price of around $88 per megawatt hour, which -- and the solar 150 PPAs that we think are very scarce in the sort of contracts that you won't see again in the market in Australia, so they will be relatively attractive. And what we're saying at the moment is that the proceeds, we are starting a process now. We've given ourselves a time frame of into H1 2025 to complete this transaction working with advisers, but proceeds from that sale are predominantly intended to pay down the revolving credit facility. And also the long-term debt will reduce as part of that as well, given the project level debt on the portfolio. And it does also as well as just being a key part of our divestment program at the moment, it's also a strategic move from us now to refocus Foresight Solar on the home market of the U.K. and other key European markets, such as Spain, in terms of where we're building a presence there. We jump over, I'll hand over to Toby to talk through the development pipeline.

Brilliant. Thank you very much, Ross. And a very neat segue into the development strategy for FSFL. Following the sale of the Australian portfolio, the intention is to refocus on our core markets of U.K. and local European markets, primarily Spain, in the first instance. And we are laying the foundations for future growth by investing in FSFL's proprietary development pipeline in our core markets. What this strategy involves is deploying relatively modest sums of capital into acquiring development pipelines and then funding the ongoing development of those projects under a co-development model working with trusted local developers with which we have connections, both as Foresight Group as manager and also FSFL itself with existing projects in its portfolio. Now we covered the development strategy in quite some detail at the recent Capital Markets event in May. For any investors who weren't able to attend that event, we direct you to the company website where you can find links to the recordings of the presentation and the materials that were shown on that day. So you can see the targets and projected returns that we envisaged could be secured through the development strategy. What we instead want to dwell on today is to take an opportunity to dive into the outlook for our core markets of the U.K. and Spain. If we could move to the next slide, please, Matheus. Starting with Spain, it is one of the biggest utility scale solar markets in Europe, and it is set to continue to be with this ambitious target for decarbonization and solar build-out by 2030. And they are targeting circa 81 gigawatts of solar capacity by the end of the decade, which is a huge volume on top of what has already been deployed there. The revenue model for Spain is underpinned by a very mature corporate PPA market where you can sign up projects to long-term offtake agreements with strong credit counterparties for as long as 10, 15 years, either a fixed price or fixed with indexation. Foresight Solar already has a track record in securing such PPAs for our projects. And the case study really is that of Lorca, where we successfully realized 50% of our stake a little over a year ago, and that was having secured a long-term PPA and leveraged that with senior debt financing to optimize equity returns and then selling into a partner, co-investment partner at a very attractive exit multiple and delivering a great return for our investors. This is a case study that we very much wish to replicate as we look to bring through our first pipeline of solar projects in Spain of 467 megawatts with our development partner Cuerva. Touching on battery storage in Spain, and it is a very exciting market. This is principally due to the fundamental drivers of high forecast levels of renewable penetration. So lots of wind and solar that will be generating a lot of energy when the sun is shining and the wind is blowing. But then combined with that, a diminishing resource of baseload generation as they are committed to dialing down both nuclear and coal. And this means that there is a real necessity for storage in that market. And we have already taken our first steps into the Spanish BESS market by entering into a development framework agreement with Chelion Iberia to develop 400 megawatts of stand-alone battery storage assets there. That remains our focus for the Spanish market, bringing through as existing development pipelines and then opportunistically adding to that, leveraging the network of the Foresight Madrid office. If we move now to the U.K. markets, and this is the home market for the fund and one that we continue to see is very, very attractive as do many other developers. There's a very significant ream of development activity, both in solar and battery storage in the U.K. And we think that this is supported by a long-standing robust and relatively stable supportive regulatory framework for renewable developers and project operators. Our focus in the U.K. market is primarily on solar and the co-location model with BESS. We do hold currently a couple of battery storage projects, but we don't envisage adding to our standalone battery storage pipeline in the near term. We do believe that batteries will continue to play an important role in the U.K. market. But with the current development pipeline standing almost 10x in excess of National Grids targets, we think that the near-term opportunity is quite saturated and so our focus is primarily on the generation model. We believe that there's -- with the new government coming in, in the U.K., there is a sense of momentum and support for renewables. Ed Miliband is very early on, grabbed headlines by consenting large-scale solar projects, expanding the CfD budget by 50% and establishing or at least rebranding a number of public institutions to drive reform centrally. Whilst we'll reserve judgment on the latter until we see more details of actual policy as they come through later this year and into next, we do think that the expansion of the CfD budget was an incredibly positive step, and we would very much like to see further expansions of the CfD budget, particularly for solar in future auctions. And we think that is critical for the government to hit its target of trebling solar capacity by the end of the decade. As already mentioned, we think that the FSFL for the U.K. will be development in solar and co-located storage, and that is what we're working to add to our proprietary development pipeline at this moment in time. You wouldn't mind going over to the next slide, Matheus. I'll hand over to Ross to talk us through the NAV bridge.

Yes. So the -- this was actually released a little while ago, but just to go back across the detail. I mean, the main drivers for the period, which has been a reduction on an overall NAV basis has really been -- as we say, actuals coming through for the period, which was really driven by the poor weather and outages across the portfolio there. The other point in terms of looking at the power prices, actually within -- although they were falling in the first part of the period Q1, have now reversed a 5-period downtrend in Q2 to start coming back up. So while over the entire period, they have fallen, we have started to see those bottom out. And I think it's fair to say there probably is more risk to the upside in the -- now in those power prices on the downside than there was at the start of the year. We are still -- at the end of 2023, we're still dealing with power prices around about GBP 100 a megawatt hour. Those have come down now. It was a question of how far they were going to fall from those highs. And I think we're now trending back towards something that looks a bit more sustainable in the near term. Overall, that the -- again, going back to what levers have we been able to pull to try and arrest a lot of this fall in the NAV, the share buybacks have been able to increase again the pence per NAV by about 2p per share in terms of that. That's the main story for that period. Just diving in a little bit more in terms of valuations methodology. Inflation underpins a lot of our sort of inputs and costs here, especially the inflation to the subsidies such as the rock. So in the U.K., we think we've got -- these are RPI figures, CPI will be slightly lower than this, but converging by 2031. So we do think that those inflation assumptions are fairly prudent for the time being. In terms of discount rates and what we're valuing our assets on, just a few things to mention there. We don't -- there has been no change in the U.K. discount rate. We think those are fair given the transactions that we've seen take place in the market, what we as the wider Foresight Group have realized on assets in the last sort of 12 to 18 months. And if anything, hoping that we should be nearer the top of a rate cycle with the rates starting to come down and they may see some upside in the future. I think I'd just add to that, that ourselves and the board are not rushing to reduce discount rates in here, and we'll wait for those valuations to be proven out. There was quite a drop in the Spanish discount rates by about 100 bps there, as you could see. That's mainly been driven by the fact that we've held our Spanish portfolio equivalent to the sale value of Lorca for over 6 months now. We're still confident that we could sell other assets in that market at the same price, but it's a case of moving it back to a DCF-based valuation instead of just holding at a sale price. And therefore, we've reflected what we think is actually a true discount rate for assets in that location. I think it is fair to say that Euribor is slightly lower than the base rate here in the U.K. at the moment, and it doesn't make sense to hammer those valuations if we know that we can sell assets at those prices. On Australia, slight reduction there is really a bit of rebalancing between assets within the portfolio as well. And I think it's just fair to say that, that will continue to iterate as we get more details from that sale process throughout the rest of this year. Final other point was just around the pound per megawatt, you can see the evolution of the GBP 1 million per megawatt for the U.K. portfolio over the period. Just on to -- hand back to Toby.

Thanks, Ross. So we're looking at production now for the global portfolio and what is ostensibly a weather report for the opening period. As Ross mentioned, at the head of the call, it will come as a surprise to no one to hear that the first half of the year saw below budget radiance and solar resource here in the U.K. with one of the wettest periods since record began and certainly one of the wettest in the Fund's 10-year history. Within the U.K., what you might be surprised to hear is that the U.K. production was just 4.3% below budget in spite of this very, very wet weather that we've had. This is a testament really to the -- both the dependability of solar generation, day follows night, as we like to say, but also FSFL's prudent budgeting when it comes to both our cash flow costs and our valuation. For context, we have disclosed both in the interim report and then also here on the slides, the historic variance between actuals and budget for both solar radiance and production. And I think what you can see is a fairly balanced performance versus the budget with helpfully, the majority of the periods coming above budget, something we spoke about at the Capital Markets event, where we feel that our ability to operate the portfolio is amongst best-in-class and that comes through our positive production figures. Moving to Spain. And again, production was hampered by bad weather, but perhaps even more significantly was the phenomenon known as Calima, which was Sahara dust being blow northwards and we understand that in the first part of this year, this phenomenon was significantly stronger than it's been relative to the long-term average in recent years. We envisage that this is a one-off, and we'll return to a more base case going forward. And then finally, with Australia, some limited solar radiance but the bigger impacts came from curtailment in the form of economic curtailment, but also technical curtailment with some grid outages, most notably in the Victoria region for network upgrades and repairs. That brought total production there 14% below budget. Moving to the next slide, please. We're now going to take a look at our power price position, power price hedging position for the couple of years, and what can be seen in the chart is a relatively typical position for the fund with a 3-year outlook, where we are relatively well hedged in line with targeted levels, both this year and next and then gradually building that position of total contracted revenues through further price fixes and electricity price hedges in 2026 and onwards. What we would say is that we have been able to secure and continue to benefit from very attractive price fixes for both this year and next. And considerably have hedged at high levels than the historic long-term average for the funds, where we typically target total proportion of contracted revenues of circa 75%, and we're up in excess of 80% both this year and next. And we are gradually building the position in 2026. What we would say here is that we have seen a softening of power prices or we would probably describe it as a stabilization relative to recent volatile markets post the invasion of Ukraine and the European energy crisis. And the outlook for electricity prices in the U.K. is much more in line with the long-term average that's remained unchanged for quite a long time from the consultants that we subscribe to. What we are exploring in this period, opportunities to enhance the Fund's ability to hedge its power price exposure and are looking at a number of different avenues that we hope will increase liquidity to be able to manage our electricity sales price exposure further out and also with greater liquidity in nearer periods as well. That's all we can say on that for now, but something that we hope will continue to support a very robust dividend cover going forward. Just to reiterate that dividend cover for this year, as supported by these very strong levels of contracted revenues, we are still expecting 1.4x dividend cover by the end of the year. And looking into next based on current assumptions, we're expecting at least 1.3x dividend cover for 2025. Moving to the next slide, please. And I'll have a very quick touch on the gearing position of the fund as there is not much of a material note to update on versus the full year. The total debt balance has reduced slightly, but this is through the regular repayment of debt under our fully amortizing long-term portfolio facilities, which are fixed in full with regards to interest rates and will be -- are on fully amortizing repayment schedules. With regards to our floating of debt, the RCF, the balance remains largely the same at circa GBP 75 million. And however, as Ross mentioned earlier, we did do a currency conversion redrawing circa GBP 50 million into euros. And that is to take advantage of the spread between SONIA and Euribor and a saving on interest on that portion of circa 150 bps looking at forward rates in the market. And it also helpfully provides a natural hedge for the portfolio where we have euro-denominated holdings and means that we can hedge both our euro income and capital much more efficiently than done with financial instruments releasing collateral as a very balance sheet efficient transaction there. I'll hand back over to Ross now to talk through a slightly different topic, biodiversity net gain.

Thanks, Toby. Yes, this is just a bit of an insight into another area that we've been looking at a potential benefit to the fund. So the Environment Act from 2021 mandates all new infrastructure projects to deliver a minimum 10% biodiversity net gain. Those sort of projects that were unable to do that, and it's probably sort of things sort of in urban cities where it's harder to add that sort of biodiversity. We'll have to buy credits to compensate creating a market here that's similar to carbon credits. Now we've been working with for several years with our partner, the Eden project, to look at ways to enhance biodiversity across our portfolio. Anyway, I think looking at, one, we feel it's the right thing that we should be doing as custodians of these sites and the solar parks themselves, if you look around the edges almost within them in terms of wildflowers in terms of the hedge rows in terms of the additional space, but also the ability to -- for nature to thrive all over the solar park, have quite a bit of opportunity there. So we've done some baselining. We're looking to push forward through our in-house asset management team, all kinds of initiatives on this anyway to improve biodiversity across the portfolio and the 50 assets that we have here in the U.K. As part of this, we've also conducted a baselining to give an idea of if we were able to utilize some of that to actually create these biodiversity credits, where some of the biggest uplift from this in terms of units of those available could be, and we became effectively a bank of these credits to other developers. So the slide here from our report, just give us an idea of around a number of those high-yielding sites. There are numbers out there in terms of the sort of base numbers that government have given us steer from this. It's still a few years off. We think it would be a sort of competitive market in terms of looking to price off that. So we're putting -- subscribing too much value to it at the moment, but we could be coming through to saying that these credits could be worth into the tens of thousands of pounds each. So it's just to give a -- something that we're following very closely, particularly with our asset management and sustainability team in terms of how we're -- the fund is able to position itself well for this kind of opportunity going forward. So then yes, just going back on to the outlook and the summary. So really, overall, I think we feel that the portfolio showed strong resilience throughout especially what was the worst Q1 in recorded U.K. history, especially for the fund at the moment, strong availability going into Q2 and the active power price hedging contributed to revenue for the period only being about 6.5% below budget. Continued very much the Board and us as an investment manager very well aligned in terms of the focus on capital allocation, returning funds to shareholders between buybacks and the dividend program and a strong focus on lowering those debt costs. We absolutely know there will be at some point, and I can see one of the questions already that I'll touch on. There will be a tipping point at some point. So what we do want to make sure is that we've got optionality, as Toby was saying, with pipeline assets coming through and being developed. It may be at the time that the first ones come out, maybe don't have clear access to capital to build those out. But we could always sell those project rights into markets where we know that there is interest for them and recycle that capital back in. But I think we're hoping with some tailwinds, we're moving in the right direction here. And what we want to have when markets switch is the ability to have good solid projects to invest in that we've developed early and offer good accretive yields to investors. And then just touching on that, trying to be a bit -- there's a lot of still gloom and doom being talked around the economy that hopefully will start to change before too long. But we're saying we're starting to see interest -- first interest rate cuts in the U.K. and Europe over the summer. We've seen a big 50 big cut by the Fed. The Bank of England has not followed along yet but probably isn't far off it again with another before the end of the year. The power prices have started to stabilize following that shock of the invasion of Ukraine. And I think I would say that the support for renewables, the strong support from the new government in the U.K. to push forward the agenda of more build-out of renewable energy capacity and increasing the CfD budget by 50% pushing forward a number of big U.K. solar projects has shown a direction of travel for the new government. So we'll leave it there, and then we're happy to jump in and see if there's a few questions being posted there. So I'm happy to jump into those.

That's great Ross. Toby. Thank you very much indeed for your presentation. [Operator Instructions] And the company would now like to submit the following poll. [Operator Instructions]

That's absolutely fine. Thanks very much. So I think if we've run through these, and we'll try and cover them off together. Look, good question at the outset I can see here is how dependent is the share price on the ultra-low interest rates? Look, I'd say to that is we don't feel that they're going to go back to the levels of the last 10 years. So I think all of the renewable sector funds and even sort of listed infrastructure more generally, I think, were born in an era of low interest rates. There's been a real differential there. There was a real differential in terms of the yields that were available on the Listcos. All funds were pretty much seen as the Yieldcos there between what they were offering of, say, around 4% to 6% and then gilt rates that were effectively negative. That's why no investors were investing in gilts for the last decade. That's sort of fundamentally changed. We had the steepest hike here in U.K., U.S., other key markets in over 40 years. When you go back really to the oil crisis, the '70s and lingering into the '80s to see a move of that. So it has been a serious shift in the policy there. We're starting to see that recover. We don't feel that the interest rates need to come down to near 0 again in order for the whole entire asset price to become attractive again, but there needs to be enough of a differential there. I think in our view, we may see rates moderating to, say, between 3% and 4% over the next sort of 18 to 24 months. And we think there is starting to see -- we are starting to see investors coming back into the market. But it's a key reason why we're saying actually now we don't want to just rely on being a Yieldco and an income fund at all. We're also looking at that ability to offer a modest level of NAV growth and a growth element has to be a key part of this, which is why we're investing earlier stage in development assets to bring that through. So short answer to that is it doesn't have to go all the way debt down to sort of near 0 rates. But given everything else we're following clearly, a reduction in moderation in those rates to come down over the sort of in the coming period, I think we'll assist in terms of that. Just running through the others, we got a question here about our expected dividend cover for 2025 of 1.3x. What dividend are we assuming for that? Well, we do like to give out dividend cover. We are not giving forward dividend guidance on that. I think all I'll say is that we have increased our dividend by about 6% on average over the last -- well, both years, both the last couple of years. We're not going to be probably doing bumper inflation busting dividend increases this time around, but it is a progressive dividend, and we will expect it to increase for the next year as well, but we don't give out specific different guidance on that. It's probably quite easy for analysts to back solve what that is, though. Then a few words about the impetus for selling the Australian portfolio. How does it compare with European markets? Was the diversification not useful? Well, we do very much still believe in diversification for the fund. We do want to -- U.K. is our home market, and we hope will continue to be the main market for the fund, and we want to do more in the U.K. We also feel very strongly about Spain and there's other European markets as well. I think if we look at it in terms of Australia, it's just become more noncore to the fund. I think they are -- it hasn't been without its challenges. That's granted. It is a good market. I think it's a very -- going to be a very -- there's going to be a lot of change there over the forthcoming years, but then it could truly become a renewable energy superpower. This is a strategic -- I think it comes down to the fact as opposed to sort of waiting out for that and looking to put more money into Australia. We see actually better opportunities nearer to home. So I think the opportunity to divest of that portfolio, pay down the debt now and recycle capital in the future to the U.K., Spain and potentially other sort of well-developed European markets is attractive for us, and that's the sort of strategic move. We then got a couple...

Just to add to that, yes. So I think we definitely see a huge opportunity for further development in the U.K. and Spain. And again, we have very strong networks, both as a manager and with the operational portfolio of the fund. So the opportunity at this point in the rate cycle to divest Australia and recycle our capital into acquiring further development exposure in the U.K. and Spain, we see as being a really great use of capital to help drive growth for the future.

Yes. We've got a couple of questions about the U.K. BESS market in terms of operational expectations over the last 12 to 18 months. I think it's no secret that it's been a difficult market for U.K. BESS. It's not just the fall in the revenues but also the sort of skipping of BESS assets in the queue that's now being looking -- looked to address. I think one of the things we've asked how confident are you of generating expected returns going forward? There's a couple of -- we've got our first BESS asset that's due to come into operations in sort of early next year. The main reason, I think, long term, we still see the benefits in the BESS in the U.K. I think if anything so far, though, there's been quite a lot of oversupply in terms of there that is also putting pressure on the prices. So we'll probably take a pause in developing new assets for now in the U.K. BESS space. But in terms of being able to complete on the ones that we've already got, we're happy to take those forward. And I think we would say is that we think the returns are still there. And if anything, the revenues could be picking up in the next year or so. Toby, I don't know whether you've got anything you want to add on that? Or we've also got a question there specifically around other technologies for BESS, including medium term as well.

Well, we're just on the returns point. So I guess, just to touch on generation, the solar generation in the U.K. and returns going forward. We've got good confidence in the outlook there as we have done to date in terms of our valuation methodology and cash flow forecasting. We subscribe to a number of market-leading advisers. And we think that as we -- and we also very actively monitor power markets themselves. As we are leaving a period of extreme volatility in power prices, we think that the outlook for electricity price is much more stable going forward. There is a -- continues to be a bit of a balance and pulling -- opposing forces between sort of headlines with geopolitical tensions, but also fundamentals with very healthy levels of gas storage across the U.K. and Europe. But relative stability in terms of electricity price outlook, albeit with some peaks on an intraday basis. Then looking at different battery storage technologies. It's a very fast-evolving space, a number of different -- there's a vanadium flow battery that's referenced in the question. We're also seeing sodium batteries being developed. These already utility-scale applications for those elsewhere in Europe. And what I would say is that different battery technologies lend themselves to different scenarios depending on how long energy is being stored for, how regular batteries are being cycled, et cetera. I would also say that within the lithium space, given the scale that's been achieved globally, there continues to be a lot of innovation there just in the last couple of weeks, we've seen a doubling yet again of the power density that's achievable with lithium batteries, leading to further cost efficiencies and even greater economies generated by the high scale at which a mutual lithium battery has been rolled out globally. So we are not wedded to any one particular technology, but we will continue as a house and FSFL to review what is coming to the market.

Yes. That's great. Just running through the other questions, trying to get -- I think we should be able to get through most of these. Comment on discount NAV, how you expect that to evolve? I think sort of slightly linked to NAV appears to have been reducing year-on-year and when would you expect that to be reversed? I think if we look at the discount to NAV, I think the 2 biggest drivers in this that have been the swings of, one, I would say, is the hike in the base rates because all of a sudden that's affected asset prices globally. And so I think the one thing that will help -- and we are actually seeing this. I mean, we track the discount clearly to NAV of our share price and also all the peer group as well. I think we have seen those discounts start to reduce a bit as there has been an indication of rate cuts. Obviously, we're looking at everything that we can do relative to the peer group to stay at the forefront of that, including the buyback, paying down debt and other things. But the other side of it, I think, has been what is pumped up the NAV to an extent, and it depends on your valuation methodology has been the power prices, which surged to absolute highs over the last couple of years. And as we mentioned before, we think that they're really starting to normalize. So short of any other sort of major crises, such as the Russia-Ukraine conflict and others that are affecting the gas price there. We see that as a more normalized basis for the NAVs going forward. So I think we have these big shocks that come through. I think what we're looking for is a long-term investors, what we're looking for is outside of those how do we continue to add to the NAV in a more stabilized environment? We can't manage alone these kind of big shocks. But if we can look to offer 1p to 2p of regular uplift to the NAV through bringing through development projects selling them on or adding those and being able to mark down the valuations as they risk if we do that on a long-term day in, day out basis and year-on-year, then we will start to see that increase in NAV over time, but that's outside the course of sort of normal shocks in the market there. There was one more just in here on, we made a point around a greater focus on co-located battery storage affecting future returns. I think it's moving away from pure-play solar. It's not that we're moving away from pure-play solar, I think really as part of it, what we see is as the sort of sites get bigger that we're investing in here, it's more natural to have a level of co-located storage within them to help balance the grid. So it's just a factor of the projects are getting bigger and bigger. And there are potentially some synergies there and some savings on costs. I think Toby, anything to add to that one, particularly?

Not much else to add. I guess one of the key benefits of co-locating with battery storage as opposed to sort of connecting next door or adjacently is reduced losses by directly connecting to the batteries themselves. And being able to charge your batteries at times when you can sell your solar power for less than you would do, otherwise if you were to sell it later in the day. So the economics, the co-location continue to improve, particularly as there continues to be innovation in the space. And so we do view the co-located model, particularly for larger projects as being accretive going forward. But as Ross mentioned, very much not moving away from pure solar, and we are looking at a number of pure stand-alone solar opportunities as well in our pipeline.

Yes. Just there's one more I noticed on here. I wasn't trying to duck away from, but I think it was a good one to sort of wrap up with. It was the question around possibilities for combining other renewables trust to enhance valuation and reduce costs for M&A in the market? I think looking back on this, and there's only so much we can say clearly being a trust, but I think between ourselves and the board, we've very much been looking at all options to enhance shareholder value here. I think just looking in -- there hasn't really been much in the renewable space. It's different from the listed REIT space and others. There's probably a couple of reasons for that is, there's not maybe been as much variance between the discounts. So you've not got trusts that are trading on far tighter discounts than others being able to sort of show that benefit through to investors out of it. And actually, you need to be able to make synergies and savings within the returns versus the cost of doing these transactions, which are very, very significant as well. I would say that we do feel that our cost basis is very competitive versus the sector. So I just say, I wouldn't rule it out. You've seen a couple of moves tried in the market, they've not come off. So it is something we continue to consider and look at. Obviously, I can always say so much about it at the moment. I don't think there's structurally some more challenges to overcome there in the renewable space than there may be in others, where we have seen greater consolidation? I think hopefully, out of that, I think that's everything we're able to sort of say today.

That's great for us, Toby. Thank you for addressing all those questions from investors today. And of course, company can review all questions submitted today, and we'll publish those responses on Investor Meet Company platform. But before redirecting investors to provide you with their feedback, which I know is particularly important to the company. Ross, can please ask you for a few closing comments?

Yes. No. Thank you, everyone, for joining us this morning. I do think as we say there has been challenges in this market, impacts on NAV and share prices driven by macro factors and also the very volatile power prices. I think the key thing to take away to that is we don't want to sound like gloom coming through this, we do see some tailwinds coming out in the sector. There's lots of initiatives that we're working on here. And we look forward to sort of sharing those with you as we move forward, and you're also able to see some of those coming through in the hopefully reflected in the share price as well. Thank you very much.

Fantastic, Ross, Toby. Thank you once again for updating investors today. Could I please ask investors not to close this session as you'll now be automatically redirected to provide feedback in order that the Board can better understand your views and expectations. This will only take a few moments to complete and I'm sure will be greatly valued by the company. On behalf of the management team of Foresight Solar Fund Limited, we would like to thank you for attending today's presentation, and we wish you all a very good afternoon.