Bluefield Solar - Final Results

Bluefield Solar (BSIF) was added to my SIPP portfolio in March 2019. It's initial focus was purely on solar power in the UK but last year 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.

In June, the company announced a deal to acquire 109 small-scale onshore wind turbines for £63 million located throughout the UK. 90% have government subsidies and the remainder will be exposed to fluctuating power prices. BSIF have tapped investors for a further £105m to fund the purchase with an offer of shares at 118p which represented a premium of 8%.

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.

Results

The company has today issued full year results to end June (link via Investegate). Underlying earnings per share reduced by 3.9% to 9.16p and the share price total return including dividends fell by -3.8% due to a 10% fall in the share price from 135p at the start of the period. There has been a corresponding drop in the premium to net assets - 18% last year but now around 8%.

The company pays quarterly dividends and will pay out a total of 8.0p for the year which gives a yield of 6.5% based on the current share price of 123p. However, the board have now de-linked dividend increases from RPI.

The total annualised return for shareholders since launch in 2013 has been 75%.

Chairman John Rennocks said: "We are pleased with the strong earnings performance in the period despite covering a particularly challenging time for the energy markets due to the turbulence caused by Covid 19. We were pleased to deliver a sector leading dividend of 8p per share, post debt amortisation to shareholders while the Net Asset Value also held up well which we believe will support the share price going forward. The robust nature of the earnings from the portfolio during the pandemic highlights the durability and defensive nature of the Company's investment strategy. We look forward to updating the market on further attractive investment opportunities in due course."

Storage

The ability to store excess renewable energy will be the key to a full transition on the UKs 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.

Energy Pricing

The recent rise in wholesale energy prices should be good for the Company's model over the coming year. The average contracted price for the coming year from June 2021 is £61.7/MWh compared to just £48.2/MWh over the past year mainly due to Covid. Solar+storage and wind+storage can replace the baseload capacity previously provided by coal and now by gas. An increase in storage capacity will be essential to manage and smooth out the intermittent nature of renewable energy - the wind doesn't always blow and the sun doesn't always shine.

BSIF have now increased the life expectancy of its solar assets from 25 years to 40 years. Unfortunately, so far, this has not resulted in a boost to NAV which one might have expected to see.

Share price & NAV(red line) past 12 months

Conclusion

Obviously a disappointing year for this fund and the renewables sector generally. However, the longer term prospects remain bright and the government have recently announced its ambition to make the UK grid fossil free by 2035 which should support increased funding and opportunities for wind and PV solar.

A further focus on decarbonisation will come from the COP 26 gathering next month where global leaders will lay out their plans to limit global warming to 1.5C and set out how they aim to reach net zero emissions by 2050.

Over the past year I have been reducing my weighting to the renewable infrastructure sector and have therefore sold several holdings and reduced my holding in Bluefield Solar from 5% to just 2% of my 'green' portfolio. However I plan to continue to hold this lower weighting in the hope of a better performance from Bluefield going forward.

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!