NESF gears up for subsidy-free solar with 60MW buy

The fund has also agreed deals for a further 17MW, bringing its total portfolio to over 500MW of capacity.

London-listed NextEnergy Solar Fund has made initial moves into the subsidy-free UK solar market, although it warned such a sector could still take two years to take shape.

The fund has bought four projects under development with a planned combined capacity of 59.8MW. Three of the four assets acquired have all the permissions in place to begin construction, while the fourth is awaiting confirmation of its planning permission.

Crucially, NESF said these projects will not benefit from subsidies after the UK’s Renewables Obligation scheme came to a close earlier this year, marking its first foray into subsidy-free sites. The firm said the projects will instead produce revenues by selling the electricity into the market or through individual power purchase agreements.

However, NESF insisted current market conditions were not conducive enough to begin construction of the assets. Explaining that it will only do so once returns “are sufficiently attractive”, it said it will work with the projects’ unnamed vendor to extend the timeframe of the construction permits until the maximum point, potentially stretching them by another two years.

“The company's investment advisor expects subsidy-free solar plants to become financially viable in the UK over the next 12- to 24-month period as investment values and operating costs continue to decline significantly,” the fund stated. “NextEnergy Capital is at present working with suppliers to drive investment values and operating costs down to sustainable levels.”

While the price of the acquisition of the four projects was undisclosed, NESF said the deal’s value is less than 0.25 percent of the fund’s £466.6 million ($592.9 million; €528.5 million) net asset value, placing it at less than £1.2 million.

NESF’s estimate of when subsidy-free solar projects in the UK might be economically viable chimes with the analysis of others in the industry. Developer Hive Energy has proposed the largest project without subsidies, a 40MW site in south England, although it said construction would be unlikely to start before next year at the earliest.
Subsidy-free solar exists in more mature European markets such as Spain and Italy.

Meanwhile, NESF has also secured the acquisition of three operating solar plants each with a capacity of 4.9MW and benefitting from the 1.2 ROC banding of the subsidy system. Many solar projects have been limited to 4.9MW recently to ensure qualification for the scheme.

The fund also added a 1.7MW site to its portfolio, which now totals 483MW – excluding the sites under development – although a “significant portion” of the plant’s profits will be directed towards the local community in Essex where it is based.