Fundraising

NextEnergy ‘comfortable’ with leverage after UK solar deal

The London-listed solar fund paid £98m for a portfolio of five solar farms at a time when short-term investors are divesting their assets.

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London-listed NextEnergy Solar Fund (NESF) has agreed to purchase five UK solar farms for £98 million ($137 million; €122 million).

The solar farms generate a combined 84.2MWp and boost NESF’s total portfolio capacity to 414MW. The NewEnergy Capital (NEC) fund now has £480 million invested in 33 UK solar assets. NESF did not disclose who it bought the assets from, but chief executive Michael Bonte-Friedheim said it was a prominent UK solar developer.

The assets are spread across south and east England and include a 38.1MWp facility in Cambridgeshire, 18.9MWp in Lincolnshire, 19.1MWp in Dorset, 9MWp in Buckinghamshire and 8.2MWp in East Sussex. Bonte-Friedheim said WiseEnergy, NEC’s operating asset manager, will take control of the solar farms.

Matthew Hose, an analyst at global investment bank Jefferies, said the acquisition gave him “a degree of apprehension” in an analyst. He explained: “While this looks a well executed transaction, the increasing leverage, particularly at the fund level, gives us a degree of apprehension. As we have previously highlighted, the increasing leverage will increase exposure in the [net asset value] to various factor sensitivities – power prices, energy yields, inflation etc. NESF also has significant refinancing risk at the fund level.”

But Bonte-Friedheim said NESF is “comfortable” with the leverage it has in the UK solar market, with the fund’s debt limit at 50 percent of gross asset value (GAV) in debt. “With the debt that we’ve raised with this acquisition, our closing will have a debt-to-GAV of 44 percent, which is close to what we have been targeting and below, obviously, our maximum limit,” he said.

Bonte-Friedheim said NESF is able to get attractive returns at the moment because the UK solar market is “very active”, as short-term investors like engineering contractors and construction funds that built assets over the last two years divest their portfolios.

Outside the UK, though, the solar industry is not as predictable. Last June, NEC said it was planning to launch a fund targeting €500 million of Italian and Spanish solar investments. The new fund never got off the ground due to market volatility, according to Bonte-Friedheim.

Sister publication Low Carbon Energy Investor has learnt that NEC is not planning to relaunch the fundraise in the near future.