Bluefield Solar (BSIF) was added to my SIPP portfolio in March 2019 and I topped up during the Covid sell-off earlier this year. It's initial focus was purely on solar power in the UK but in July the Company resolved to broaden its focus to include up to 25% in other forms of renewables such as wind and also energy storage and also expand overseas. They have recognised that storage of renewable energy will become a vital part of the transformation towards net zero emissions over the coming years and I certainly think this is a smart move.
I would think they will now be looking at onshore wind opportunities and storage which is a sensible move and should add value. Indeed, they have recruited an experienced professional in wind to become investment director so the direction of travel seems clear. It is currently one of the largest solar operations in Europe with net assets under management of around £436 million and generating 470MW of electricity is sufficient to power 150,000 homes.
Approximately 60% of solar assets are covered by the old subsidy scheme which provides a guaranteed return for 20 years from the date of connection to the grid. The other 40% have rolling power purchase agreements which generally last for 3 years and are then renewed.
The company has today issued full year results to end June (link via Investegate). Underlying earnings per share increased by 9.2% to 12.03p and the share price total return including dividends was just 4.7% which is quite a drop compared to the return of 19.1% last year.
The company pays quarterly dividends and will pay out a total of 7.9p for the year which gives a yield of 5.9% based on the current share price of 134p. However, the board have now de-linked dividend increases from RPI which suggests the falling energy prices have become a concern for the future.
The total annualised return for shareholders since launch in 2013 has been 8.7% p.a.
Chairman John Rennocks said:
"We have added consideration of a prudent level of non-solar renewable technologies following the approval of the change the asset mandate and are excited by the opportunities we are exploring in this extended pipeline.
We have also continued to actively assess secondary solar asset opportunities and were pleased to conclude the acquisition of 13.6MWp of assets earlier in the year and of 15 solar plants totalling 64.2MWp in August 2020. These investments, totalling £120 million, were financed from increased debt facilities, bringing our borrowings level to where the Board believes is appropriate in the range of 40-50% of GAV. We continue to actively explore other asset opportunities in our pipeline.
These acquisitions will underpin our objective to sustain market leading earnings and dividend payments in the years ahead. They enable us to build on the excellent asset performance which has contributed to our ability to convert high levels of irradiation into generation and revenues".
The ability to store excess renewable energy will be the key to a full transition on our path towards net zero by 2050. The government have recently relaxed the rules to encourage far more storage capacity which should be good for the likes of Bluefield. They have excess capacity and spare land which could lead to productive partnerships with storage providers subject to planning considerations.
According to forecasts from Bloomberg New Energy Finance, UK electricity prices are forecast to decline by 4% per year to around £19/MWh by 2040 from its current price of £45. These lower energy prices are having an impact on the company's net asset value. Obviously this has no impact on those assets which are covered by the long term ROCs and feed-in tariffs backed by the government but it will affect the subsidy-free assets.
The recent fall in wholesale energy prices has obviously put pressure on the Company's model and NAV has fallen. Solar+storage and wind+storage can replace the baseload capacity previously provided by coal and now by gas. Storage is essential to manage the intermittent nature of renewable energy - the wind doesn't always blow and the sun doesn't always shine...especially at night!
The trust's portfolio has been fairly stable for the past couple of years with 87 solar 'farms' located mainly across southern England. The UK governments subsidy for renewable infrastructure has now ceased (short-sighted imo) however, the cost of solar has fallen dramatically - 50% reduction over the past five years - and this should provide opportunities for growth.
The company are currently looking for opportunities to increase assets and a number of potential sites are currently under consideration to support the next phase of growth.
BSIF are in the process of increasing the life expectancy of its solar assets from 25 years to 40 years subject to planning. Successful negotiations have been completed on the majority of existing assets. The boost to asset appreciation over the past year means the discount has been maintained and the shares are currently trading at a premium to NAV of around 20%.
My holding in Bluefield Solar accounts for around 5% of my 'green' portfolio which has been gradually building over the past year. I feel comfortable with this and will continue to hold and roll up my quarterly dividends within my SIPP and ISA. I look forward to seeing how the management deal with expansion of the portfolio and whether debt increases but for now it can return to the bottom drawer.
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!