3D four star fund Foresight Solar Fund: the 3D Investing perspective

During Good Money Week 2015 Blue & Green Tomorrow launched 3D Investing’s 5-Star rating system which allows advisers and investors to pick out the best of the best from the socially responsible investment universe. To find out more read the B&GT Guide to Sustainable Investment or visit 3Dinvesting.com. Today we take a look at Foresight Solar Fund.

This fund invests in large ground mounted Solar Assets in the UK, the majority of which are in the South of England.   Approximately 59% of the Company’s initial annual revenues are derived from green benefits such as Renewable Obligation Certificates, and these underpin an initial target yield of 6%.   Foresight has considerable experience in investing in solar infrastructure, through its VCTs, which have proved to be successful in generating the predicted dividend streams. Foresight has a dedicated Infrastructure team of 35 who have acquired over 65 solar PV assets globally equating to an installed capacity of over 650MW. The four star rating reflects the pure focus on the generation of solar energy and the transparent reporting.

Investment Strategy & Fund Composition

The Company seeks to provide investors with a sustainable and Retail Price Index (“RPI”) linked dividend together with the potential for capital growth over the long-term through investment in a diversified portfolio of UK ground based solar assets.

Investments outside the UK, and assets which are still under construction when acquired, will be limited to 25 per cent of the gross asset value of the Company, calculated at the time of investment.  The Company’s portfolio of 16 assets is fully operational.

Foresight Group have deliberately set out to execute a low risk strategy of avoiding construction and subsidy risk and have negotiated these terms accordingly with large and experienced contractors. This avoids unnecessary risk exposure for shareholders. In keeping with this strategy, 15 of the 16 assets within the portfolio were operational when acquired and subject to certain conditions having been achieved by the developer of the plant, including the assets being built to a specified performance standard and their successful connection to the Grid. Although construction risk can be managed depending on the balance sheet strength of the construction contractor, more difficult to manage is the risk of failing to meet the subsidy deadlines. The Company saw this as a particular risk ahead of the 31 March 2015 ROC deadline, which was a cliff edge deadline given the acceleration of the Contracts for Difference (“CfD”) mechanism for projects greater than 5MW after this date.

On 25 June 2015, the Company announced that it had signed a binding contract to acquire its first construction asset, the 30MW Copley asset in Nottinghamshire.  The Company believed that the enhanced returns from providing construction funding for Copley asset was justified given that the construction and connection timetable was significantly shorter than the “Grace Period” deadline of 31 March 2016. In November 2015, the Company confirmed that the construction of the asset had successfully completed and the asset had connected to the Grid.

Ethical Approach & Suitability

The investment company purely invests in solar PV power plants.

Suitable for most investors.

Social Impact

The portfolio is wholly invested in solar power plants, with a net generating capacity of 338 MW

SRI Capability & Management

There are no ethical criteria and no SRI research is conducted on the portfolio, but the current portfolio is totally invested in UK solar plants.

Risk Management

The fund is underpinned by predictable, index linked revenue streams and as such carries modest levels of risk.  There is a risk of retrospective Government policy changes that could very materially affect the share price, but this seems unlikely.  59% of the initial income is derived from Renewable Obligation Certificates, underpinning the target dividend levels.  The Company is able to gear the fund up to a level of 50% but the managers do not intend to borrow more than 40% of the gross asset value.  40% of the portfolio income is related to fixed price Power Purchase Agreements.  A discount rate of 7.5% is applied to future cash flows which is consistent with the sector.  The dividend is covered by a factor of 1.4.

Transparency

Full information is provided on each holding as shown in the example below.

Full profiles are provided on each holding

Financial Performance & Management

Foresight Group has proven expertise and now manages over £1 billion across nine solar funds.  This experience has enabled the company to source investments and to effectively manage the projects within tight timescales.  In total Foresight Group manages c. £1.6 billion, making it a substantial investor in infrastructural assets.

At IPO, the Fund targeted a 6 pence dividend which it achieved for its first full financial period ended 31 December 2014. The Company is now on track to deliver its first RPI linked dividend of 6.10 pence (6 pence inflated by RPI for 2014) for the period ended 31 December 2015.

A short-term acquisition facility of £150 million is currently in place and is being utilised to extend the gross asset value of the portfolio to around £435 million.   The current level of debt drawn down is around 24% of the gross asset value of the fund on which interest accrues at up to 2.25% over LIBOR.  Although the current portfolio is 100% invested in the UK, the Company can invest up to 25% outside Britain.

Thus far, operational performance has been ahead of expectations.

In accordance with the Financial Services and Markets Act 2000, Blue and Green Communications Limited does not provide regulated investment services of any kind, and is not authorised to do so. Nothing in this magazine and all parts herein constitutes or should be deemed to constitute advice, recommendation, invitation or inducement to buy, sell, subscribe for or underwrite any investment of any kind. Any specific investment-related queries or concerns should be directed to a fully qualified financial adviser.