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

Good day, ladies and gentlemen, and welcome to Foresight Solar Fund Full Year Results Presentation. [Operator Instructions] I would like to remind all participants that this call is being recorded. I will now hand over to Ross Driver, Managing Director at Foresight Group, to start the presentation.

Thank you, and good morning, everybody, and welcome to the annual results for Foresight Solar for 2024. As we are coming to you from our offices on the 23rd floor of The Shard, looking around the perfect blue skies outside, one may continue for 2025 and the rest of this year. I'm joined this morning by Toby Virno of the fund management team. We've got David Goodwin, our Finance Director; Matheus Fierro, our IR lead, and we've also got Cormac Eldon from our portfolio management team with us this morning.  So, if we slip onto the highlights for the year and talk through these, I think 2024, as opposed to what we're seeing this morning, was a tougher year for solar and renewable generation in general from the productivity side. The fund actually experienced the lowest number of sun hours in the U.K., pretty much that we have on record and definitely for the life of the fund. However, we also feel it demonstrates the resilience of the asset class despite that probably we'll come on to it being a sort of 1- in 10-year downside event. Revenues themselves, we only came out 7% below budget on production there. And it didn't really have a dent on the cash cover. We delivered our 8p per share target dividend, confirmed with a 1.4x cash cover for the year. So, resilience in a lower environment for solar irradiation this year.  One of the key points to note this morning is on the expanded divestment program. We'll go through the 2 points on that. We have got an ongoing, the Australian portfolio, that has commenced and is ongoing. We'll touch on that in a little bit more detail. Some parts of that have taken a little bit longer than expected, including getting some technical assumptions in on that. And we're now targeting a deal there for sort of Q3 2025. Ourselves and the Board have agreed, not direct related in any way to Australia, but the need to do more to sell down more further assets and also with a prioritised return of capital to investors here that we are going to enhance the sales by a further 75 megawatts at least of operational projects. We'll touch on that a little bit further in fact, but the priority for that will be a capital return to investors in the current market.  A broader focus on capital returns there; you'll see between the buybacks of around GBP 23 million and the dividends of about GBP 44 million for the year. We have returned Foresight Solar GBP 67 million to investors during 2024 with a specific focus on accelerating capital returns going forward. As has already been announced in along with the Q4 NAV, the manager is doing its part and has offered a revised fee structure out there based on the blend of the market cap and NAV, along with a reduction in the fee tiers as well that we think makes a competitive alignment with investors there. And we are, therefore, aligned in trying to drive down the discounts of the fund and improve that for everybody.  A key point here as well is the increasing development pipeline that we've got the proprietary pipeline there in Spain. We've now added another; we are bidding for a further 400 megawatts of BESS in Spain alongside the existing solar portfolio that we are bringing through. We expect the first project to come out of that later this year. As we start to see and hopefully realise that we have successfully acquired some capacity in the BESS market, that will also add to the development pipeline and also driving through the total shareholder return strategy. Outside of that, you'll note in the announcement this morning that the Board is also taking a proactive approach here in exploring all possible options for shareholders. We'll come on to this in a little bit more detail in the pack. What we can say as part of this is, as the manager, we are fully supporting the directors in the Board is drive to achieve the best possible outcome for investors here.  A number of metrics on the side there. I'll just touch briefly on the 1.25% increase in the dividend target to 8.1p for 2025, and we expect that, based on current assumptions, to be about 1.3x dividend cover. We talk about how the situation is looking following that in terms of power prices and the valuation of the U.K. portfolio at GBP 1.10 million per megawatt. That is an EV number, but we do think that, that is based on prudent assumptions that we'll come to. Toby, can we shed through operation?

Sure thing on to operational performance. We're going to start by looking at energy yields. So, forecast energy yield is a key valuation driver for any renewable generation assets. And it's one that doesn't always get its fair share of the spotlight, I think it's fair to say. In the annual report this time around, we're presenting the historic actual versus budget for both radiation and production for our U.K. portfolio that has grown over the last 11 years. We have exceeded our production budgets 8 times out of 11 since the IPO. And we think that this track record kind of underpins our confidence in our budgets going forward. We've presented a couple of plots here to kind of illustrate this. So you can see both the radiation and production plots on the left, variance versus budget and then also showing the interquartile range in the box plots on the right.  In both cases, these indicate that the average, both median and mean, sits comfortably above our assumed budgets. And again, this just underpins our confidence in our prudent assumptions that underpin our valuation. At a time where there's rightly a lot of focus on production budgets, we are very, very comfortable with our approach. If we move on to the next slide, please. And we look at the performance in the period. As Ross alluded to earlier, it was not a great year for solar resources. From this table, you can see that, that wasn't limited just to the U.K., with all geographies seeing below-budget radiance. Spain up the trend by actually overperforming in terms of generation, but unfortunately, not by enough to offset the underperformance from each of the U.K. and Australia.  Nonetheless, global production was still in excess of 1 terawatt hour. That's the equivalent to power more than 360,000 U.K. homes, which is a huge contribution to the decarbonisation of the U.K., with over 350 kilotons of CO2 being avoided. As ever, we present these figures, including downtime related to grid outages, and we only add back downtime where we have contractual compensation that we're going to receive. So, it is exactly as experienced. We move on to the next slide. We'll look at the revenue outlook for the global portfolio. And what we are trying to emphasise here is that we are continuing to proactively manage our electricity market price exposure, and we're gradually building our hedge positions years ahead. As the wholesale markets are normalising, as we start to roll out the periods where significantly higher price fixes were on offer during or post the invasion of Ukraine by Russia, you can see that we're starting to trend down to the kind of long-term policy goal of total contracted revenues of circa 75%, leaving an appropriate level of merchant exposure.  In the current year, 2025, we still remain very well contracted, and that gives a high degree of certainty in the delivery of our target dividend cover of 1.3x this year. The power fixing strategy state delivered a great result in terms of the realised prices in the U.K. for 2024 at GBP 91 per megawatt hour versus the hourly day-ahead average N2EX average of GBP 72 per megawatt hour. This shows the strength, I think, in our proactive hedging policy and approach to managing our position.  We can move on to the next slide. We're then taking a look at the gearing; financial gearing position for the fund. There's limited update in terms of the overall position versus the half year report aside from the regular amortization of portfolio level debt. There was a slight decrease in the overall RCF balance owing to FX movements on the euro drawings. In practice, we expect to materially pay down the RCF funded out proceeds from sales to complete later this year alongside other capital allocation priorities. A couple of things that we would highlight in this slide, we have enjoyed lower interest costs on the RCF following our translation to euro of the majority of that facility. That is naturally capital hedged with our euro-denominated holdings and Euribor currently at 2.4% versus SONIA at 4.5%. That really illustrates the saving that the fund is making on its RCF and means that, that facility isn't so costly for us and not that far above our long-term gearing weighted average cost of capital, which remains very, very competitive and is all fixed out for the duration of the tenure of those facilities. We are in the process of refinancing the RCF, and we will update further in due course. All I can say for now is that we're very pleased to see that there's strong continued support from the lender community for the sector, and we'll provide an update later this half of the year. On the left-hand side, we present something new this time, which shows the amortization of our debt alongside the gradual roll-off of ROCs from the portfolio. And as is sort of sensibly structured, you can see that the term of our long-term debt aligns to the term of our long-term contracted revenues, and that's both subsidy support regimes and also long-term fixed PPAs. And post that period, you can see then the fund benefits fully from the remaining revenue stack on an unlevered basis. We would highlight that this is a simple projection of the current portfolio and doesn't assume any reinvestment or recycling into new assets, which the company is actively targeting over the coming years to recycle out of our portfolio into other assets with similar revenue characteristics and extended asset lives. And I'll hand over to Ross now, who will take us through the NAV.

On the next slide, please. I think this has all been preannounced, so not a lot of surprises. I think the general overall trend for the year has been the power forecasts coming down from those elevated levels, but always seems to be a bit of a lag in terms of coming through from the power consultants and the fact that actuals have been in terms of near-term power prices have been falling throughout the year. It's fair to say we see them in the near term as having stabilized at the moment. Alluding to what Tony said, I think the most important thing now is the ability to lock into those power prices that are going to cover dividend cover over the coming years through to the end of the decade, and we see a route through to doing that throughout the various strings of our bone that we have now in terms of our ability to fix power prices. The key driver in the other direction, we have seen a small uplift in inflation there, but I think it's evident that the buyback program, whilst shrinking the overall fund on a sort of total NAV basis is accretive on a NAV per share basis. So that added 1.1p for the year. And overall, since we started that program has added 2.2p per share of NAV increase. Moving on to the next slide from there. So we do want to give, given the announcement this morning, we go, just give a sort of status update on the divestment program overall. We go back. First phase of that was completed with a 50% sell-down of Lorca back in November 2023 to prove the valuation, demonstrate appetite for quality Spanish assets over there. And I just say that our team in Madrid believe that, that market is still very buoyant with some high-quality assets that we're looking at. Phase 2 is ongoing and a bit of a touch into a bit more detail on what's going on with Australia. The reminder, it is the operational 170-megawatt solar portfolio and then the 122-megawatt equivalent of development stage BESS that we got there that is now taken forward to the point of pretty much being on the verge to ready to build. This has taken longer due to the delivery and review of third-party inputs. I think to give a little bit more color around that, the Australian market is quite different from how we would do things here in the U.K. or Europe because of the complexities of the grid, you will be looking to sort of obtain very site-specific yield assessments and also market consultant curves. I think it's fair to say that the optimization of those in order to sort of maintain value is taking longer to run through with those consultants. There is a lot going on in that market as well. But these are the last sort of points for us to be really feeding into that process as it involves to make sure that we are protecting value. So I think there's a real trade-off there between we want to get this done as quickly as possible. But at the same time, we need to make sure that those assets are optimized. And that is a discussion we continue to have with the Board to make sure we're striking the right balance there. Therefore, we are updating that it is a bit of a slip in the time frame, but we've moved from it from really being realistically happening in Q2 to now targeting doing a deal in Q3 2025. In terms of the original announcement on this because there has been some shift in the messaging, but the proceeds from that, so we've always said would be sort of factored into using it in accordance with the capital allocation policy and the mix of returning capital and debt reduction. So I'll come on to the announcement from this morning, agreed with the Board and ourselves is to target sales of a further 75 megawatts. We're not saying specifically where they are because we don't think that is helpful, but you can draw your own conclusions. There is only so many other operational projects that we have once you take Australia out of the equation. But in terms of that, there is a feeling here that really from speaking to our investors that a further return of capital is required at the moment. So this has been put forward these disposals that we will start the process of running in the, engaging on and bringing to market. The plan is for Q2 this year for proceeds from that really to be facilitating enhanced liquidity for shareholders, particularly those that are seeking it in the current market. I will provide further updates on that as we take that forward. I just hand back to you. The other piece that we do want investors to realize is what is happening with our growing pipeline.

Yes. No, absolutely. And we're happy to provide an update on the progress for our proprietary development pipeline. Midway through the period, we signed a framework agreement to pursue a further 400 megawatts of development in Spain. So that's targeting 400 megawatts of BESS projects. Our dedicated development management team out in Madrid is working with our development partners to apply for capacity for those projects as we speak, having already submitted quite a number of bids for capacity over the past couple of months. We'll provide further updates as that starts to roll through throughout this year, but it's a very promising start for that partnership with Chelion. And on the solar side and the development pipeline we have with Cuerva, we are expecting the first project, Project Muel to be fully consented later this year and having significantly progressed its environmental permit and awaiting its full construction permit. So that would be a great result and kind of first realisation possibly, but first successful development for the fund since the change in mandate a couple of years ago. So we look forward to providing further updates to the market in due course. Including our co-located base developments in Australia, FSFL is now just under 1 gigawatt of capacity under development, which is a good milestone to be reaching. We continue to look at opportunities to add to this pipeline through co-development structures. And these will deliver capital growth to supplement our strong yield from our operational portfolio, key markets that we're targeting. Clearly, the U.K. is an area we'd like to grow our development activity, but we keep watching brief both other opportunities in Spain and other geographies where Foresight has boots on the ground. I'll hand back over now to Ross to take us through some of the corporate action announcements this morning.

On Page 15, this is very much speaking on behalf of the company overall and the position that the Board and ourselves are aligned on here, very much the focus on capital allocation. The news this morning of the enhanced divestment program there coming through 75 megawatts plus and a real focus on proceeds from that to be used for accelerated capital return in those proceeds. Debt reduction, however, does remain an important consideration for the Board of sales program, and we will be looking to continue to pay down the RCF at the same time that we're very confident now that we're in the advanced stages of refinancing that RCF will probably a lower need at the moment. Existing capital returns, the buyback there, 24.5 million shares repurchased during the year, 1.1p per share uplift to NAV. Dividend, 44.7 paid out in the year, and the payout increasing 1.25% for 2025, still providing an attractive yield as we see it at the moment on current share price of around 10% and also just over a 7% yield on the current NAV. The divestments we've already covered. In terms of governance for the company, you'll see the renegotiated investment manager fee that gave us a 19% saving at the time. Obviously, that will flex because that is now based on the share price. But hopefully, improving share price is best for everyone in sales and the investors included. You also have noted the news around the succession plan for the Board with our future Chair and CID, both identified. We brought on 2 very strong, I think, in terms of Tony Roper and Paul Masterton there, who will be part of the leadership of the company going forward and already having a very proactive take on things themselves. I think the other key point to be putting out there is the number alongside the roadshow that we're kicking off today to get out and meet investors. The Board also wants to be known that they are open. The all wanting to be doing a broad shareholder governance tour as well for investors to speak directly to them and to hear their thoughts. And it's part of this broader shareholder engagement. I think it's been a broad outreach across the market in the current conditions to listen to the views and gather input from all investors across our portfolio. We've done a shareholder perception study that has given a lot of insight from that, but we want to continue those discussions with investors to find the best route through the current market condition. It is fair to say that we have a shareholder register where investors have some of their priorities differ, albeit that there is clarity coming through in terms of what the investors would like to see happen. And part of that is actually set out on the next slide that we come to. And again, my intention here is to put across the views of the Board and represent them fairly and how we as the investment manager are supporting that. So as part of this listening to shareholders in terms of the views on the current market, we've had over 50-plus meetings with investors during 2024, the shareholder, exception study and I think the key point here is that the Board will be actively engaged alongside us in continuing to discuss with shareholders following these year-end results and right through to the summer and the AGM. We do have some investors that would like to see a material liquidity event. We think that the further investments will go partway towards that. But there are many others who do want to continue in this sector who see the benefits of the strong attractive yield from these kind of funds, albeit may wish to see that in a larger, more liquid vehicle as well. So the clear message we are receiving is that further action is required on this front. I think the message that the Board would like to portray in terms of this is that they are very aware of this, and they are looking to take a very proactive approach to these transactions. The Chair has made the statement that the return of capital is necessary and not that it will shrink the entire sector. They believe that consolidation will play a key role in this, and that's a critical part of their strategic thinking. They're actively considering all options available to best provide the outcome that shareholders are looking for out of this. And for us as the investment manager, what does that mean? Well, look, I'd say in terms of what is announced today, we are fully aligned with the Board and supporting its approach in this, particularly on pushing forward those further divestments that we are now preparing. We are actively proactively supporting the Board in all its initiatives, including market inputs and options for them. Ultimately, the decision on how to take these things forward rest with the directors, but we are supportive in everything that they are doing. And I think the outlook there in terms of the fee discussion shows that we are aligned with the shareholders to drive that share price re-rating. You cover off the outlook slide?

Yes, now, definitely. And there's a few things to report actually this time around after a few periods of little progress with certain public consultations. And yes, there's been a bit of regulatory activity over the last 6 months. There's been a lot of press and reporting around grid reform, in particular, the connections reform process. CP Clean Power 2030 and 2035 plans have led to a need to tidy up the grid queue essentially. What this means in practice is that they are setting criteria where existing projects in the connection queue will be assessed, and that's known as Gate 2. But further just meeting the Gate 2 criteria, projects also need to fall in line with the strategic outlook for the U.K. And what both National Grid has done is to set target capacities of different technologies within different regions in the U.K., broadly aligning to D&O regions or regions of the transmission network. And what that means in practice is that when you're bringing through new development projects, you need to both have projects that are progressing quickly, but also connecting in the right parts of the country to support overall decarbonization targets. From a perspective, Foresight, we have limited exposure to sort of preconstruction assets currently, but our 2 best projects that we have joint holdings in are very well positioned and they're incredibly well progressed with a lot of the groundwork already done, and we expect their positions in the connection queue to be protected with the good work that our portfolio management team have been doing there. And then in terms of our wish to find development pipelines back, we are very on top of the sort of pipelines and the sort of partners that we want to be approaching when forming those relationships. So we'll continue to work on that and hope to provide further updates in due course. In terms of planning, new government is looking to drive further construction for critical infrastructure, and that includes renewable generation shortly coming to office. And [FSFL] put through a couple of significant exit projects that have been tied up for a little while. And we think that this is kind of further momentum in that direction being quite supportive of allowing projects such as renewable generation to overcome some of the barriers that have typically held them back. This is not without its challenges still as there continues to be resourcing issues within local planning offices across the country and those sorts of structural hurdles are not overcome overnight with changes in policy, but we think it's helpful, kind of direction of travel at least and again, supports the case for progressing development in the U.K. Finally, there are still some open consultations, which are still open. But there is an announcement that REMA expects to be coming to market with further news later in the summer. Direction of travel appears to be moving towards greater locational signaling possibly through zonal pricing, but we're going to reserve judgment until we see it written on the page. I think if it were to move to zonal pricing, there'd be a slight skew to the upside in terms of FSFL's portfolio given its location, which is all kind of south of England and Wales and close to demand centers. Clearly, the biggest threats are to generation assets in Scotland should that move to pricing. There is little or no update in terms of the transition to fixed price certificates for ROC projects, and we anticipate that that's somewhat on the back burner relative to the other more material markets movements through.

So just to run through the summary, I think in terms of portfolio performance overall, I think highly resilient despite the worst year for solar resource in the U.K. since we started in terms of that. I think hope you don't get P90 year is 1 in 10. So as long as we're not getting another one of those, we think our forecast and our yields remain robust in terms of that. The good availability of the portfolio and the value-accretive hedging strategy that we've got there, a strong dividend cover for this year and next and then how we see ourselves being able to fix going forward in what could be deemed a softer market, but we've now got these new tools at our disposal in terms of being able to fix power prices, and we're comfortable with that. On the corporate action side, it's there in black and white and to say it's further divestments to create liquidity for investors, or taking a proactive approach to the current market challenges and the investment manager working closely with them to support them in their decision-making, something that we feel we should be on the front foot of. There are industry tailwinds and both risks there, as Toby has pointed out. But actually, we do think that the overall direction of travel for solar in the U.K. and Europe as our core markets going forward, creating a total return strategy is a buoyant one, and we are still confident that it is the strategy that we outlined at the Capital Markets Day last year remains intact. So we'll pause there. That's the end of the presentation and open for questions. Iain, you're hot off the press. So happy to, I mean, team, if you can help us sort of, we'll go around the room, first of all, and then take any online.

I've got a couple for me. Firstly, on capital allocation because development pipeline, you're talking about repaying or giving some cash to shareholders and then you're talking about paying down debt. So can you give us some sort of clarity in terms of what the debt target is and by what sort of date? And then the second one is just looking back at Page 8, particularly on the PPAs, you obviously got about what, 30% of revenues and PPAs this year, maybe slightly higher. When were all of these PPAs put in place? And why are we falling to such a low level in 2026? Is it lack of debt in the market, pricing lower than you're prepared to fix that? Maybe just comment around that.

Sure. So if I maybe take, Toby, you can take the second part of that. But the first part, Iain, there is a, it's fair to say that the capital allocation approach remains really the 2 key areas of that are debt reduction and return of capital to investors. We do have [Technical Difficulty] that are going into the development pipeline, but they are modest. We're talking small-digit millions over the next year or so. But they do have the opportunity to give those much larger returns. And I think as we all know, we need, even in the challenging markets at the moment, we need to build for the future. If we're not, we don't have investments and upside coming forward, but the NAV will start to roll down. So that is building. I think investors get that where there's the opportunity to build up. In terms of taking those 2, I think there's been a lot of emphasis on debt reduction. That remains in place. If I had to say the intention would still be to materially reduce the RCF by the end of this year. But the message from at least certain shareholders in there, we are getting that a return of capital is equally important to them. So we've got to be driven and the Board has to be driven by the direct feedback receiving from investors there. Now it's sort of a little bit of a nuanced message, but I think the point is, is we've made announcements already about what we do in Australia. I think there's a specific announcement about this accelerated and additional sales today in terms of what that would be marked for, but very much a focus on both. Hopefully, that helps answer that question. Toby, do you want to pick up on the...

Yes, sure thing in terms of revenue outlook. So firstly, just when fixes were entered into for 2025 and 2026. So it's right and fair to say that a significant proportion of the fixes that we have for 2025 were entered into shortly kind of post invasion of Ukraine by Russia during the time with elevated power price outlook and frankly, some astonishing prices available that we rightly kind of filled our boots and fixed a significant chunk of capacity at that time. The logic being just coming out of COVID, prices were rock bottom, high-level logic was price can't sink much further, so we're going to leave greater merchant exposure available. Post Ukraine, it was clear unsustainably high pricing, let's fill above our policy target of 75% contracted revenues at just at these highly accretive levels, it made perfect sense to do so. What we're seeing is we now are moving out of that period when there was that liquidity available for those very, very high power prices; is actually a return to sort of a normalization of kind of market outlook of power prices. So returning down to, I guess, pre-Ukraine expectations in terms of long-term power prices. And that means for us a return to our kind of MO in terms of our power price management, which is to target total contracted revenues of circa 75%. So that includes subsidies and long-term contracted revenues with [ Bronx ] and long-term PPAs, but also fixing or hedging portions of our merchant price exposure. So we're at 69% for 2026 currently, and that's about where we typically have expected to be targeting in terms of normal run of business, say, for the last 5 years of significant volatility. Just a couple of comments on liquidity. So part of the action we've taken over the last year is to actually increase the number of revenues we've got for hedging our power price exposure. That was in response to PPA offtakers, traditional PPA offtakers for renewable projects, not offering us sufficient liquidity to allow us to be as proactive as we wanted to be in terms of managing our power price exposure. So we've engaged with further hedge counterparties, which are kind of pure financial in nature. And that gives us access to much deeper, more liquid markets, both in the kind of 2 years ahead, which is the effect of the policy, but also years further advance from that. And that allows us to more proactively build positions over time. It also allows us just to be a bit more nimble because through those hedge providers, we can actually capture spikes in volatility, accretive pricing on a very short notice basis. And we can chip away small amounts of capacity, or we can do more strategic hedges. So you'll see that post period, we have actually entered into new PPA price fixes for summer '25. And we've also entered into new baseload hedges covering winter, summer and winter '26. And those are both extremely advantageous prices relative to what was on offer on average over the last 12 months for PPA offtakers and really illustrates the benefits of this enhanced risk management tool set that we now have.

So I think it's fair to say prices we maybe weren't hedging as much because the power prices really softened. The message is we are back hedging power prices '26, '27 and looking to it.

Just 3 from me, I think, please. Just firstly, you mentioned on the Australia assets, obviously, had a review of delivery inputs. Should we be thinking about these already reflected in the Q4 NAV or presumably these are negative revisions, so is there a potential write-down coming in Q1 on the Australia assets? Then linked to that, I suppose, obviously going to push back the delivery of the asset sales slightly to Q3. Do you still see kind of strong demand for these assets and confident in that delivery kind of this year calendar-wise? And then just finally on Spanish battery storage, so 400 megawatts of development pipeline there. In terms of time line, how quickly do you think you get that to shovel ready? And would you expect to be able to bring all of that to shovel ready or quite speculative at this stage?

Yes. So all good questions. In terms of the pricing of the Australian portfolio itself, we're too early to say in those, in that time. Part of it is the assumptions that are going in there, but the bigger variable is absolutely indicative pricing that we'll get back from the market at that point as we start to get those bids in. I'll just say, honestly, answer is too early to say at this point. In terms of demand out there, we do have engagement from several dozen investors currently. There is a lot going on in the market. So part of it is navigating that, but we are definitely confident that we will be getting bids. I think the point that there is probably less certainty of where that bidding would come in. I think it is fair to say than, say, if we were selling from the U.K. market or the, just down to the pricing being very, very asset specific there. I mean it's a lot more generic if we were to take out part of the U.K. portfolio or the Spanish portfolio, and it will come down to the value that bidders see in those assets themselves. So that's why we're making the effort to focus on the optimization of it currently. And it's fair to say that the 400 megawatts, we've got to think about that as pipeline at the moment. We are bidding into it. So it will be down to what level of actual capacity we secure out of those bids. So it is more speculative at the moment. We have just under 400. That's the target. We have just under 400 bidding to the capacity markets at the moment, trying to secure that. We should see over, I think, over the next weeks or coming into the next quarter where we've been successful into that, but that is the target that we are looking to achieve between ourselves and our partner.

Just on the fixed price certificates consultation. Is the expectation that will be wrapped up into the REMA announcement in the summer? Or is it like sort of disappear because it's been 2 years of previous ….

It's a fair question that whether it would be, I mean, it's a separate consultation, whether it gets tidied up and cleared off some. I think we would hope to say that with the government direction of travel that they probably don't want to be going back and making necessary changes to that. The policy originally always envisaged that there was this option to move to fixed price certificates if the market wasn't supporting itself. I think we'd say that that's not necessarily reliant [indiscernible] at that time?

Yes. I mean when it was originally announced, they envisaged a transition to fixed price certificates, which has always been envisaged, but as early as 2027, and that's fast approaching. So they need to say something before 2027, I think, is the answer. Whether or not they do cover off of REMA, a way for them to do it, but I don't know if they will, to be honest. The kind of analysis from market consultants indicates that there's not actually a real requirement to transition to fixed price tickets until the 2030s because there should be price stability for the ROC assets with the volume that's still in the market all the way until that point. The only things that sort of threaten to upset the part there would be looking at, say, impact on consumer bills and that sort of thing from kind of green initiatives. And so clearly, looking at CfD is going to feature as part of REMA. And as part of that, they have to look at cost effectiveness to consumers. I mean there's a chance that they tie in the transition is part of that. But yes, that's just speculation at this stage. It's got entirely.

Just on the budget versus generation, to clarify, like it excludes the downtime that you already assumed for those assets?

So we have an assumption around a reasonable level of availability for assets along with the radiation resource and the technical performance of those assets. That all comes into our technical budget. Typically, we assume a level of unavailability because there will be a certain level of grid outages. There will be a certain level of planned maintenance under our operations and maintenance contracts. So that sets our budget. What we're saying here is that contrary to some others in the sector, we present our production figures fully representing the downtime from grid outages. We actually don't necessarily recognize them as being purely outside of our control because you can influence the grid operators, you can call them up and say, can you negotiate when they're doing certain works, can they do it overnight? Can we even contribute costs they do it overnight, so we don't lose generation. Can you do it in the winter, et cetera. So we present on that basis because we consider that part of management to help manage the grid operator. The only thing that we do add back is where we receive contractual compensation for downtime, for instance, LDs under our operating contracts.

And sorry, secondly, on the sort of pipeline, how are you looking to finance that? Is that through the capital recycling?

Pipeline at the moment just to run through all falls into the capital allocation as well. So say we to bring through the first project, solar project in Spain. We would have to make the same capital allocation decision discussion with the Board. Clearly, having the capital available to build these projects out at the moment is challenging unless we're finding different routes to bring that in. We would very much like to build these projects out, but the decision may be to put that into the mix, sell these projects that are ready to build, take that upside, prove the development strategy, prove the point that we can get returns out of that and recycle that capital back into the fund as well. The same would go for the BESS. We are not saying the Spanish BESS market is evolving. There's been some positive noises in terms of the capacity market over there and how that will develop. I'd say at the moment, this is more of a development play. And I think all that news coming out, we know that we've been able to get in there with our partner at an attractive entry point and the pricing that our Madrid office has seen for ready-to-build battery projects out there is several multiples of that. So we see an opportunity there. We are not saying even before we make a decision about building out BESS projects in Spain, I think we want to know more about the way that the capacity market is developing, but we do see a development opportunity there.

Yes. And that's point actually, just on the capacity market itself in Spain. So there isn't that regulatory regime established yet, but they are currently in consultation as to how capacity market to provide some contracted revenues for BESS projects in Spain will take shape. Those sorts of developments and that sort of increased certainty for investors is only going to boost the value of development price of these projects. It's important to note that projects like this, they achieve real value just on securing grid connections. Obviously, you then maximize value by taking it through planning, permitting, et cetera, then through construction if you were to choose to. But there are multiple exit points potentially along the train, which can lead to multiples. And so yes, it's quite a dynamic process for dedicated development management team out in Madrid are working very, very closely with our development partners to maximize that process.

And is it just as difficult to get grid connections in like the U.K.?

There's a difference in the...

It's very competitive, much -- even more...

Its Competitive, but you do have the difference is you have to put down grid bonds there as well. So there is grid bonds that we use surety bonding to do that, that has a very low cost of capital. But there is -- you do need to put some money down in order to secure those rights. That's one difference between the Spanish market and here. However, you're pretty much waiting for a sort of 3- to 4-month turnaround from applying for that until hearing back. So it's quite a short-term period in terms of putting that in place. Do we have any questions online.

[Operator Instructions]. We'll take our first question from Charles Murphy with Singer Capital Markets.

Can you talk about sort of transaction volumes and pricing evidence that you're seeing to support the sort of fair value valuations you're using for that? And then also, can you touch on the sort of sustainability of an 8% discount rate for GB Solar?

Well, I think if we talk about that, given an indication of where we think Australia is because that's going to be very much sort of market-led in terms of valuations we have there at the moment. They are informed by views from the consultants that we're working with and transactions that they're seeing in the market. I think if we touch on; Toby, do you want to touch on U.K. we touch on Spain as well transaction and the 8% discount.

Yes. So I think it's fair to say that there's not been as many market comparables for ROC solar sales in the U.K. in the last year before there are a few bigger transactions that we provide benchmarks for our portfolio. But generally, people are holding their ROC assets and enjoying yield recognizing value in those projects. There is significant volume, however, in Greenfield projects in the U.K; and as a manager, we have a lot of visibility over projects that are being developed by funds under our management and also those that come across our desks from other developers. And what we're seeing there is actually freshly consenticized anecdotally that are yet to secure a CfD, yet to structure financing, yet to structure construction agreement, trading at around sort of by 8.5%. And so for us, that kind of slim premium of 50 bps above our operational optimized ROC-backed portfolio where CfDs and ROC have got pretty comparable levels of contracted revenues. We just don't think that, that supports the argument for increasing discount rates for our ROC-backed assets. There's clearly demand for quality projects in the U.K. connect or are already connected to the grid to export. So whilst it's not a direct comparable, it's clearly a parallel market exposed to many of the same sorts of risks. And yes, we think that, that gives us confidence in our overall valuation, particularly when you view it on a pound per megawatt basis at GBP 1.1 million per megawatt, we see that as being a fair valuation for these projects.

Yes. And I think that's the point. The discount rate is part of it, the cash flow assumptions of the others. But we would say, look, we take a balanced view on that. Those numbers are comparable to others in the market, what are generally quite homogenous projects there if you look at the Southern Midlands in the U.K. I think the only point to add, Charles, on, if you said the Spanish market, just to complete things off as well, our pricing there is driven not just from the sales that we made previously because that's going on about 15 months now, but also from transactions that we are seeing and the appetite that we are seeing from investors to continue buying high-quality operating assets in Spain.

Our next question comes from Colette Ord with DB Numis.

A few from me, if I may, please. You've talked about a priority for 2025 being your access to a U.K. development pipeline and rotation into sort of CfD assets. You've also mentioned that strategic consideration consolidation is up there. In terms of accessing your U.K. pipeline, should we be linking those 2 statements together and looking for those that have those areas of pipeline already in place? That's the first one. Second one is a bit on the disclosure that you've given, which is more granular. It's good that you've given the link between EBITDA, cash flow up to the company. You've clipped some life cycle savings. So I just wanted to explore that a little bit in terms of those budgets and what that might mean? Is that a one-off that you've adjusted? Where have you saved there? Or are you just pushing that out further? The third one is on the development pipeline that you've got there, obviously, Spanish biased. Is there any valuation in the NAV already for that at all? Or can you give a sense for what you've spent already against that pipeline? Just if you can just give an idea on that. And then the final one, apologies, is just on the dividend cover point. Is there a power price level that you sort of need to be achieving over the next sort of 3 or 4 years or so? Can you give a sense of where, what your sort of base level of power price needs to be to keep you confident on your current distribution levels?

No, some good questions there, Colette. Thanks for those. I think just to start off in terms of the -- I'll start with the U.K. development pipeline. And I think obviously going to not say too much about consolidation, but I'd just say in terms of, look, that is not connected to that at all. We see a lot of opportunity out there in the market for U.K. development pipelines. I think with just the grid reorganization and balancing going on at the moment, we are being quite selective in terms of the partners that we are looking [indiscernible]. It's just a question of timing for us and the capabilities that we have fully in-house. So we do not feel that we need to enhance that. Toby, would you add anything to?

No, I think that's absolutely right. And we're being just very selective in terms of who we work with as a house, we structured numerous successful development partnerships on behalf of our private funds under management here in the U.K. and that's very much something that we're looking to replicate for the listed vehicle going forwards.

We meet with developers on a regular basis. We had some of them here last week. I think working through those is just getting greater clarity on which projects are going to be the most successful coming through in that market. So that the point on EBITDA and life cycle, like we got next to me here, we go through and refresh those life cycle budgets on an ongoing basis in terms of that. And I think it's fair to say we have, we do, it's another area where we like to maintain a bit of conservatism in that. So there is a point of rolling back in some of these as we go through and we further analyze. We prefer to be more on a conservative basis and then be able to, a bit of both, either reduce in certain areas or be able to push back and reprofile those expenditures as well. I think it's a fair as we're saying it, we would rather be, pushing back and making some savings rather than having to go the other way. So it's a bit of both in that regard, Colette. And the development pipeline in terms of how much, I think in Spain gave an indication of that. It is low-digit single millions at the moment, and there is no value uplift over and above what has been spent to date on the capital that's invested there, which is really [ Dx ] into the developers, sort of low prices there in terms of entry into the solar JV. There was the solar purchase of the assets there and the JV, there was no upfront cost, and it is a split of the development capital that we are just capitalizing in terms of that. So still low digit single millions of euros there. That's why we see when you get these through, there should be quite a bit of upside there on a relative basis towards the size of the capital. And that point on CID cover, we did put something out on this sort of around this time last year. Also, we talked about it at the Capital Markets Day as well. I think it is fair to say there's a range of pricing that we're seeing here and there's the traditional offtakers that are out there, but I think it has softened quite a bit in terms of what you're seeing for the next few years. There is also a bit of a step change in what we're seeing through some of these other products and a happy point in the medium in terms of that. I think for us is, look, on an average, just to give a bit of a ballpark, if we can see a route through into the 60s, GBP 60 and around there over the next few years, that is a comfortable place for us to be at with where we see our dividend growing at the moment. So that's sort of what we're targeting for, and we see a route through to being able to transact that.

The only thing I'd add to that -- sorry, Colette, do you want to go ahead?

No, you carry on. I've got a quick add-on, but you carry on.

No problem. I was just going to give a bit of context behind current kind of market price influences. So there was a bit of a rally in power prices leading up to the end of the year. But what we have seen is a softening of the market into the new year. That is driven in what is a very tight market, much by headlines as fundamentals with plenty going on in the geopolitical space. What's also interesting to note and say that doesn't immediately come across is the impact that speculative traders have had on the market just in the last few months. And the current weakness is actually driven by speculative investors exiting the market quite swiftly following the expectation of the EU relaxing the storage requirements this year that were put in place post the invasion of Ukraine by Russia. So it's actually the specs in this case that had an outsized impact. They don't normally have this level of impact on the market. And I think we're waiting for the market to sort of renormalize based around fundamentals in the next couple of months.

I had just a quick add-on just back on the life cycle savings bit, which I take your comment around trying to be conservative. But can you give an idea of which, what is it that has allowed you to unlock those? Which activities have you not needed to sort of provide for at this stage or take back from, which that would be just sort of good to get.

I'll hand over to my highly esteemed colleague here to the right just to give a bit of context on what sort of savings we have?

Yes, sure. So we've been monitoring the key components in the portfolio. And one of those elements is the inverters, and we've been seeing one specific manufacturer with higher levels of failure, which, and also a lack of support from the manufacturer on that. So we were exploring multiple avenues in terms of replace -- wholesale replacement of components and also additional repair of those inverters. And we've seen, one of the key elements here, we've seen an enhancement of repair providers and replacement providers in the U.K. in recent years, which has allowed us to not have to as aggressively move towards repowering projects, which are wholesale replacements and be able to balance that out over a sort of continued repair program in parallel with more targeted repowerings, so yes, we've been able to shift the profile a little bit in terms of how we look to replace some of the components in the portfolio.

Yes. So just to that, and Colette and the team here do run this on a pretty much quarterly basis now, don't you. But it was factoring in, I think this point on the inverters probably won't be lost on many around a lot of people in the market are talking about it. But Colette, to your point, we did reserve more in there thinking that we would need to change more of them now. What Cormac is saying is that the asset management team have found a more optimal way of doing that to see through to the sort of when we were expecting to replace them anyway. So it's probably releasing more of the contingency that we've built up in prior years.

Any more? There are no further questions on the webinar. I will now hand over to the management team for closing remarks.

Thank you very much. So I think we've summarized there the key points coming out of this. 2024 was a challenging year in many ways, both the generation and the lack of resource and the markets as well. I think on the one side of it, we see the solid robust nature of the portfolio here, the quality of the assets and the potential in the development pipelines. We can't step away from what's going on in the market. And the clear message coming out of today is that we are working with the Board and the directors to seek to address that and move forward. So that's what we'll leave you with today. Thank you all very much.

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