Nextenergy Solar Share Discussion Threads

[keith95] 17/2/2024 20:57

"Dividends won't perform unless energy prices pick up"

The last energy price/weather downturn outside of Covid was 2016 .. worthwhile reading the NESF annual report from that time:

"Both short- and medium-term electricity prices
moved downwards, as a result of, inter alia, lower-thanaverage winter temperatures, declining commodity
prices and regulatory developments. Electricity spot
prices fell from c.£40/MWh in March 2015 to c.£34/MWh
in March 2016 (UK baseload – day ahead). "

Concluding:

"Taking into account the current level of performance of
its portfolio, the Company expects to be able to meet its
long term dividend targets even in a scenario in which
power prices for the period to 2033 were to fall 40%
below current forecasts or where to remain flat at current
levels in nominal terms (ie. not increased even for
inflation)"

.. but won't stop markets taking prices down further of course.

[spoole5] 15/2/2024 08:47

Ex divi today, another opportunity to knock it further

[spectoacc] 14/2/2024 06:45

Only just, maybe support will hold.

Not a purchaser myself mind, but good luck those who are.

[masurenguy] 14/2/2024 00:39

Closed at an all time low and also circa 20% below the IPO price 10 years ago.

[gateside] 13/2/2024 18:06

NAV update was on 21st February last year

[marktime1231] 13/2/2024 16:41

Didn't they sort of admit at the last update there was no real external appetite?

[apollocreed1] 13/2/2024 01:26

NESF or FSFL? Seems that FSFL has less debt but NESF is on a larger discount.

[spectoacc] 08/2/2024 18:43

@chucko1 - some talk that Starmer's abandonment of Labour's £28bn pledge has affected them all.

[julietrades] 08/2/2024 18:13

The best ever decision that I made last year around November 17th, almost sold my holdings under conditions but I'm glad I took a different step which makes me see my portfolio looking amazingly joyous... as for ETH/ not gonna deal with that sluggish snail of a coin rather.. thanks to Mary though...

[chucko1] 08/2/2024 18:06

None of this addresses the very rapid fall of the share price Does it go beyond rates, as it has severely underperformed most other ITs and even REITs?

Is there some fear that it gets caught up in a windfall tax, something being mooted by Labour on account of the cessation in most part of the £28bn plan? (when I use the word "plan", it is merely what other people are claiming!) Just chucking it out there.

One of the bigger risks with these sorts of enterprises is governments sticking their oar in.

[spectoacc] 08/2/2024 15:43

All valid points, thanks all. My view is as it's been for a while - most investors in these sort of ITs aren't aware the assets are finite, the leases finite, and more capital will be needed in the future to renew.

But yes, some (think TRIG is the one particularly good for this) hold back earnings to invest each year.

Again tho - these vehicles shouldn't be valued like trading co's, they're finite and things like divi coverage mean something different when you need to invest to survive, rather than invest to grow.

But again - at least some of this is in the price.

[fordtin] 08/2/2024 15:01

It's worth reading the annual reports. Most of the concerns people post are covered,

For example;
"Asset life
The discounted cash flow methodology implemented in the portfolio valuation assumes a valuation time horizon capped to the current terms of the lease and planning permission on the properties where each individual solar asset is located. These leases have been typically entered into for a 25-year period from commissioning of the relevant solar asset (specific terms may vary). However, the useful operating life of the Company’s portfolio of solar assets is expected to be longer than 25 years. This is due to many factors, including:
• Solar assets with technology components similar to the ones deployed in the Company’s portfolio have been demonstrated to be capable of operating for over 45
years, with levels of the technical degradation lower than those assumed or guaranteed by the manufacturers.
Local planning authorities have already granted initial planning consents that do not expire and/or have granted permissions to extend initial consented periods;
• The Company owns rights to supply electricity into the grid through connection agreements that do not expire;
and
• Discounted cash flow valuation assumes a zero-terminal value at the end of the lease term for each asset or the end of the planning permission, whichever is the earlier"

[llef] 08/2/2024 15:00

erstwhile2, isn't it the case that most of the the long term debt is amortising, and designed to shrink to zero at the same time as the subsidies expire.

At which point, the costs will be substantially less than now, and shareholders will have an asset still producing electricity sold at the then prevailing rates.

I'd imagine the daily running costs of solar farms are not massive so the lack of subsidies would be matched by the lack of finance costs?

[chucko1] 08/2/2024 14:45

So, there is a thesis that the business model is to get a bunch of capital, rent some fields, install some panels and see what happens. The panels will eventually go kaput and one man and a dog will oversee the final panel in around 32 years. Cashflows are reasonably well known and your wealth is determined by the IRR function in Excel. As for subsidies, well, let's not worry about that as I am sure the shareholders will not be aware of this mere detail.

I see.

Except there is likely rather more to it than that. They expect to cover the dividend 1.3x for YE24 and I recall that to be around 1.4 for the next year. What happens to the excess that is not paid out? Well, they could consider maintaining and extending the life of the panels, or replace some (they do not all fail at the same time), or extend the lease on the land, or recycle capital by selling operating assets and purchasing development assets. In any event, there is some element of maintenance in the operating expenses, I would guess.

LG, my money would be on the dividends and otherwise distributions of the company to outlive your needs(?)

Although it was a few months ago that I last looked at this in detail, all of the above elements had a part to play! A rough calculation suggested that the current excess cashflow would support a perpetual existence absent of extraneous issues, albeit with growth only possible either slowly or inorganically.

In terms of the uncertainty of electricity prices, swaps of maturities up to 20 years are available. I am sure Morgan Stanley and others will broker a 30 year swap under certain circumstances of creditworthiness and enhancement. The liquidity of the contract would be low, and a seller might get better value by entering into shorter maturity swaps and rolling them - something I am sure would be under consideration.

[roddyb] 08/2/2024 14:15

The panels were always a depreciating asset, hence they are financed and the depreciation items on the balance sheet are adjusted accordingly. I suspect we run a "sinking fund" or other renewal fund, so the day they are taken down and replaced with the latest-latest, it won't affect our finances as we have provided for that eventuality each year over their economic lifespan.

Her is a question; do we own the freehold of the solar farms or do we have some dodgy lease leaving the freehold in the hands of companies that are friendly to our investment advisors?

[spectoacc] 08/2/2024 13:39

@yump - maybe, but I've been talking about it for a few years.

@Roddyb - ask the battery storage co's about electricity pricing.. But you make a fair point - albeit the likelihood is that increasingly less efficient panels will earn ever diminishing returns. If prices go up, there'll be investment in newer, better panels.

Ergo, depreciating asset.

[yump] 08/2/2024 13:31

A lot of these “issues” have been around for years. The only reason they are all appearing now is because firstly the interest rate rose, which caused price drops, then of course folk started looking for anything at all to worry about. Just the opposite of a bull run, where the smallest positives explain the price rise.

Self-fulfilling share price reaction. Until it isn’t.

[lord gnome] 08/2/2024 13:25

In ten years time I won't be around to worry. I want income now while I'm still alive to enjoy it.I would be interested to know which way electricity prices will go over the next ten years. We might not be needing subsidies.

[roddyb] 08/2/2024 13:25

That is quite a statement, "the subsidies run out and they make no more money as unsubsidised revenues will be then < costs"?

Is that true? It sounds like you are predicting in 10 years time, electricity will be so cheap that the costs of producing it from our aging farms will be higher than the unsubsidized cost?

I like to think that the wholesale price of electricity we have agreed in our long-term contracts is well below the free market wholesale rate currently. Once we are out of those restrictions we will agree contracts for higher rates?

The planning restrictions on new UK solar farms make our existing sites more valuable, albeit they will need new plant & machinery which will be amortised.

I am not saying you are blindingly wrong because Mr Market appears to be on your side - I just don't get it?

[marktime1231] 08/2/2024 13:25

Welcome dividend announcement. A pity NESF have stopped publishing quarterly trading and NAV updates. It would be nice to know where we stand given that the share price has dropped about a third over the year. Our fortunes still all depend on where we can get interest rates to ahead of debt refinancing.

[spectoacc] 08/2/2024 13:20

Absolutely. Or, the revenue keeps coming in until the point where the leases on the land (not owned by NESF) expire, and/or the assets themselves ie the panels need replacing.

It's true of a lot of the renewables ITs and they should be valued very differently to a trading co.