Saturday, 16 March 2019

Foresight Solar IT - New Addition

Spurred on after reading 'The Uninhabitable Earth' and inspired by the school strikes for climate last week, I decided to make another addition to the renewable energy section of my portfolio. Admittedly it's probably not doing much for the environment as I am merely acquiring the shares that someone else is selling but the other side of this coin is that the money for the purchase comes from the sale of less ethical investments. Also there is an undoubted 'feel-good' factor in holding investments which are making a positive contribution in the fight for climate which is not to be under-estimated.

Foresight Solar (FSFL) is an investment trust which hold a diverse portfolio of 54 PV assets mainly in the UK but now also in Australia. All assets benefit from government backed subsidies - mainly renewable obligations in the UK.

It has increased in size three-fold since raising £150m at launch in October 2013, mainly via several placings of new shares for acquisitions. It is now the largest provider of solar in the sector, providing the equivalent clean electricity to power 223,000 homes in 2018. During the past 5 years it has generated an average total return of 6.8% p.a. for shareholders. This is mainly in the form of dividends - currently 5.9% based on my purchase price of 114p.

Large fund managers such as BlackRock, Newton, Baillie Gifford and Legal & General have significant holdings in the investment trust.

Results

They have recently published full year results for 2018 (link via Investegate). Profits have increased by 60% to £56m (2017 £35.1m) and net asset have increased to 111.2p per share (2017 107p).

The trust has paid dividends of 6.58p and has a target of 6.76p for the coming year - an increase of 2.7%.

Electricity generation was higher than expected due to the exceptional sunny weather in the UK. In September the capacity for renewables surpasses fossil fuels for the first time and over the past 5 years renewables have trippled whilst capacity for fossil fuels has fallen by 1/3rd due to the decommissionong of old coal-fired power stations. The UK market is expected to need an additional 50GW (minimum) of solar installations over the coming 30 years if the government is to meet its climate change targets.

(click image to enlarge)

The trust is responsible for generating over 5% of the UKs solar generation and saving half million tonnes of CO2 entering the atmosphere.

Likewise in Australia, the government are committed to meeting its obligations under the 2015 Paris Agreement and in recent years there has been significant growth in wind and solar installations which is not surprising given the abundance of natural resources. Australia is currently on track to meet its Paris emissions reduction target by 2025. This is a remarkable transition from coal and oil to clean energy and the net cost is zero as expensive fossil fuels are replaced by much cheaper wind and solar PV. (Further reading)

The trust is looking to further diversify and grow its portfolio over the coming year and will look at opportunities in western Europe as well as potential battery storage to co-locate with existing installations.

As with most trusts in the sector, FSFL shares trade at a premium to net assets, currently around 6%. Ongoing charges are 1.18%.
 
3 year performance v Bluefield Solar (blue line)
(click to enlarge)

Commenting on the Company's results, Alex Ohlsson, Chairman of Foresight Solar Fund Limited said: 
"The period under review was one of significant progress for Foresight Solar Fund, with good progress against our operational objectives and the acquisition of 31 assets over the year, funded through two oversubscribed placings. Following these acquisitions, FSFL is now the largest UKlisted dedicated solar energy investment company by installed capacity. We also continued to focus on portfolio optimisation which, assisted by higher levels of irradiation, led to our UK portfolio outperforming our budget by 4.9%.

Following on from the significant portfolio growth in 2018, FSFL intends to take a more opportunistic approach towards secondary market acquisitions. We will focus on optimising our recently-acquired assets, improving the capital structure through a third-party debt refinancing and continuing to deliver strong operational performance across the portfolio. We look forward to a further year of progress."

Having made quite a few purchases of UK renewable energy investments in the past few weeks, I think it is probably time to let these bed in and see how they perform. There may well be opportunities to top-up some holdings later in the year as the sector expands and there are more share placings.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation - always DYOR!

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