Commitment Of US$50m In NextPower III LP And New Revolving Credit Facility
NextEnergy Solar Fund, the specialist solar power renewable energy investment company, is pleased to announce a commitment of US$50m to NextPower III LP (“NPIII”) and a new Revolving Credit Facility (“RCF”) of £100m.
NPIII provides the Company with an opportunity to efficiently access, inter alia, an established portfolio of operational and in-construction international assets. NESF's investment in NPIII will represent c.3.5% of NESF's GAV as at 31 March 2021 and will be funded by the Company's new RCF.
Investment in NPIII ESG
NPIII is a private ESG solar infrastructure fund established to invest in solar infrastructure projects primarily in OECD countries. Since its establishment in November 2018, it has built an attractive portfolio of operational, in-construction and pre-construction solar assets. It is diversified by geographic location, regulatory regime, technology provider and electricity offtake counterparty.
NPIII currently owns a solar asset portfolio of 394MW, of which 245MW are operational, with a further 453MW in acquisition under exclusivity.
NPIII benefits from NextEnergy Capital's ability to source and secure solar assets that deliver attractive risk-adjusted target returns. An investment into NPIII will also provide NESF with additional, off-market opportunities to co-invest with NPIII. This will involve NESF taking direct equity stakes in selected investment targets sourced by NPIII at attractive terms (on a no-fee, no-carry basis).
NPIII Fund Overview
• A global private solar infrastructure fund, launched in November 2018 with a ten-year life
o Long-term offtake agreements in place covering c.70% of electricity generated across the portfolio
o Targeting gross investor IRRs of 13-15%, with the existing portfolio outperforming target returns
• Managed by NextEnergy Capital
o Asset manager is WiseEnergy, NESF's asset manager
• 394MW solar assets in the US, India, Portugal, and Chile, of which 245MW are operational, 54MW under construction and 115MW pre-construction
• Total pipeline of c.1.6GW pipeline
o Of this, 453MW solar assets in exclusivity across Portugal, Chile, Poland and Spain
• Winner of the prestigious international award “Renewables Fund of the Year” in Environmental Finance's Sustainable Investment Awards 2020
• Capital raised to date of US$439m (including NESF's commitment), sourced primarily from blue-chip European institutional investors, with a target of US$750m and hard cap of $1bn by year-end 2021
o Investment period ends in 2023
NESF Investment Rationale
NPIII is an attractive investment opportunity for NESF:
• Increased geographical diversification: instant access to operating solar assets in new geographies
• Immediate incremental growth: capital deployment across a well-diversified portfolio of operational, in construction and pre-construction solar assets
• Strong financial returns in excess of NESF's minimum requirement and accretive to dividend cover
• Large pipeline: 1.6GW under exclusivity and under consideration, anticipated to drive further rapid capital deployment
• Opportunity for future co-investment: NESF can take direct stakes on attractive terms in opportunities sourced by NPIII, providing a potential return-enhancing portfolio benefit
• Diversification of revenue: NPIII's long-term PPAs range from seven to 25 years with high-quality off-takers and risk mitigation with respect to individual markets' power prices
• Potential of NAV appreciation: in construction and pre-construction projects have the potential to re-rate as they move into operations
• Attractive terms: Investment in an award-winning private solar fund with a strong track record since inception, alongside well-regarded institutional investors - whilst also benefiting from the additional savings from the absence of fees-on-fees due to commonality of the investment manager
• Strong ESG alignment: provides a positive social and environmental impact to the countries it has and will invest into
NPIII ESG Impact
• When NPIII is fully invested at US$750m across an installed capacity of c.2.5GW, it can expect to deliver an impact of estimated annual avoided emissions of 2,000 ktCO2e(2) each year, which on a conservative basis is the equivalent to providing energy for 1.3 million homes per year(3)
• NPIII is a fund that provides a positive social and environmental impact to the countries it invests in. The Sustainable Investment Policy is fully integrated into NPIII ESG's investment strategy
• NPIII's dedicated ESG team works with the Green Investment Group to provide independent ESG reporting to investors for all NPIII ESG investments. These reports can be found on the NextEnergy Capital website sustainability page, under transparency and reporting:
NPIII Investment Costs
NESF's investment manager NextEnergy Capital has agreed to rebate back to NESF its full investment management fee relating to NESF's commitment to NPIII. As a result, from the day of signing, NESF will reduce the basis upon which it calculates the investment management fees due to its Investment Manager by subtracting from the relevant NAV an amount equivalent to US$50m (during the NPIII investment period, and then the actual amount invested, after the end of the NPIII investment period). Separately, the terms and conditions of NESF's investment into NPIII are fully aligned to the terms and conditions of NPIII's other institutional investors.
NESF will also adopt a “look-through” approach and consider its pro-rata share of NPIII in reporting on its portfolio with regards to gearing, geographical distribution and other investment limits.
New Revolving Credit Facility (RCF)
NESF is pleased to announce it has signed a new Revolving Credit Facility which was secured on attractive terms with lenders NatWest and AIB. The new facility amounts to £100m (£75m committed + £25m accordion) with a 3-year duration and increases NESF's overall RCF facilities to £165m (not including the accordion) of which £54m is currently drawn.
The RCF provides NESF with cost-efficient funding to progress its investment strategy pipeline, with an agreed margin of 120bps over SONIA (“Sterling Overnight Index Average”).
Kevin Lyon, Chairman of NextEnergy Solar Fund commented:
“NESF's investment into NPIII is an exciting opportunity to immediately add international diversification, incremental growth and an attractive return profile to our portfolio. The board believes this commitment fits NESF's investment objective well and the future co-investment opportunities can offer a unique, return-enhancing portfolio benefit. NPIII's strong track record since its inception, its high-profile investor base and award-winning status provide us with further conviction around this investment. It also contributes to our portfolio's geographic diversification and risk mitigation with respect to individual markets' power prices. We look forward to updating shareholders further as our investment is deployed. The Board believes the new RCF to fund this commitment and further investments is the most cost-efficient funding strategy.”
(1) NESF investment policy limits:
• Technological Limit: The Company may also invest in standalone energy storage systems (not ancillary to or co-located with solar PV assets owned by the Company) up to an aggregate limit of 10% of the Gross Asset Value (calculated at the time of investment)
• Private Equity Limit: 15% of the Gross Asset Value may be invested in solar assets through private equity structures (calculated at the time of investment)
• Geographical Limit: The Company is permitted to invest up to 30% of GAV (at the time of investment) in OECD countries outside the UK. The Company may acquire an interest in solar PV assets located in non-OECD countries where those assets form part of a portfolio of solar PV assets in which the Company acquires an interest and where the Company's aggregate investment in any such assets is, at the time any such investment is made, not greater than 3% of the Gross Asset Value
• Development Limit: The Company mostly acquires operating solar assets, but it may also invest in solar assets that are under development (that is, at the stage of origination, project planning or construction) when acquired. Such assets in aggregate will not constitute (at the time of investment) more than 10% of GAV
• Single Asset Limit: No single investment by the Company in any one solar asset will constitute (at the time of investment) more than 30% of GAV. In addition, the four largest solar assets will not constitute (at the time of investment) more than 75% of GAV
• Gearing Level: Leverage of up to 50% of GAV
(2) Assumes: 80% of energy generation is in OECD countries; 20% of energy generation is in non-OECD countries; OECD country grid emission factor is the EU28 average; non-OECD grid emission factor is an average of India and Mexico grid emission factors; an average capacity factor of 20% is used to convert capacity (GW) into generation (GWh) which is an average value for the US where NEC has acquired assets.
(3) Assumptions based on average UK electricity consumption of 2.5MW per households per year.