16 November 2023

Foresight Solar Fund Limited

(the "Company", "Foresight Solar" or "FSFL")

Q3 2023 Net Asset Value and Divestment Update

Foresight Solar, a sustainability-focused fund investing in solar and battery storage assets in the UK and internationally, announces that its unaudited net asset value (NAV) was £706.9 million as at 30 September 2023 (30 June 2023: 726.6 million). This results in a NAV per Ordinary Share of 118.1 pence (30 June 2023: 119.9 pence per share).

Highlights:

·    Foresight Solar had record cash generation from underlying assets of £87.8 million to 30 September driven by favourable price fixes, despite production being slightly below budget.

·    The discount rate for UK levered solar assets increased by 50bps to 8.0%. Rates for the Australian and Spanish assets also increased by 25bps to 8.3% and 7.6%, respectively.

·    Following strong cash generation, FSFL paid down £10 million of its variable rate revolving credit facility (RCF) in the period.

·    Post-period, Foresight Solar sold 50% of its 99MW Lorca portfolio in Spain for €26.9 million, a 21% premium to third quarter holding value. Proceeds will be used to further reduce the RCF balance.

·    Mindful of the persisting discount to NAV the shares trade at, the Board has allocated a further £20 million to the share buyback programme, bringing it to a potential total of £40 million.

·    Global revenues are 85% contracted for 2024, insulating the Company from falling near-term power prices. Net dividend cover is forecast at 1.5x until at least 2025.

·    The Company remains on target to pay its full year dividend.

Summary of NAV key drivers for Q3 2023:

Yields on reference UK government bonds continued to edge higher during the third quarter alongside market expectations that interest rates will remain higher for longer. In response, Foresight Solar increased its discount rate for UK levered solar projects by 50bps to 8.0%. The Company also raised discount rates for its Australian and Spanish portfolios by 25bps, taking the weighted average discount rates (WADR) to 8.3% and 7.6%, respectively. The global portfolio's WADR is now 8.0%. Collectively, these adjustments resulted in a NAV reduction of 3.5 pence per share and mark the second consecutive quarter with an increase.

Prices for Renewable Energy Guarantees of Origin (REGOs) have consistently traded above the Company's estimates, which had remained conservative. Having locked in materially higher prices for the portfolio's green certificates in coming years, Foresight Solar has revised its pricing forecast to £5/MWh until 2028 and then £2/MWh for the remaining life of the assets. This resulted in a positive uplift to the NAV of 1.9 pence per share.

During the third quarter, UK power price forecasts continued to trend down, with the latest blended curves marginally below second quarter estimates. FSFL has prudently hedged its production into the next five years, minimising the downside impact. Forecast power prices for Australia were slightly higher for the quarter, whilst estimates for the Spanish market were modestly lower. In aggregate, this resulted in a NAV reduction of 0.8 pence per share.

FSFL's RPI inflation assumptions remain conservative at 6.5% for 2023. Considering the current trajectory and future expectations for RPI, the Company has raised its forecast for UK inflation to 3.5% in 2024, up from 3%, adding 0.4 pence per share to the NAV. Assumptions for between 2025 and 2030 (3%) and from 2031 onward (2.25%) are unchanged and remain prudent.

Foresight Solar continued repurchasing shares through its £20 million buyback programme, acquiring 7.5 million more to 30 September and delivering an additional 0.3 pence per share of NAV accretion to shareholders. Since the Company's buyback programme started this May, it has delivered a cumulative 0.4 pence per share uplift to net asset value.

Trading update

Higher-than-expected irradiation in the UK culminated in production above forecast during the period. This positive performance was countered by below-expectation generation in Australia and Spain, where economic curtailment and poor weather affected operations. Overall, electricity generated by the global portfolio was 1.7% below budget in the year to 30 September.

Divestment programme

Delivering on the first stage of its phased divestment programme, Foresight Solar sold a stake in the Lorca portfolio. A specialist fund advised by EB-SIM, the sustainable investment arm of Evangelische Bank, paid €26.9 million for a 50% share of the three Spanish solar farms, a 21% premium to their third quarter holding value. This represents an exit IRR of 12.1% on funds invested to date in the stake sold. The post-period deal demonstrates the appetite for these assets and provides a market-based proof point for the valuation at year end.

The Investment Manager continues to advance discussions on the next phases of the c.200MW divestment programme, which will continue into 2024.

Capital allocation

Following record cash generation in the year, Foresight Solar paid down £10 million of its variable rate RCF in the third quarter. The facility is now £105 million drawn, with £45 million available. The proceeds from the Lorca transaction will be fully used to pay down the RCF and, with additional repayments from free cash flow, reduce the balance to about £75 million.

The Board and the Investment Manager recognise there remains a wide disconnect between the Company's share price and the underlying portfolio value. The Directors have thus elected to allocate up to a further £20 million to Foresight Solar's ongoing share buyback programme, bringing its total to a potential £40 million, and aiming to deliver additional NAV accretion.

As disclosed at half-year, the Company expects the 50MW/50MWh Sandridge BESS to reach energisation in the first half of 2024. The majority of capital for the project is now fully committed and there are no contractual requirements from the Clayfords and Lunanhead BESS assets, which Foresight Solar plans to progress in due course. FSFL's only other contractual capital commitments relate to projects that reach read-to-build status under the Spanish development pipeline.

Power price hedging and dividend cover

The Investment Manager continues to forward-fix electricity sales at attractive rates under power purchase agreements and build on the proportion of contracted revenue for the medium term. In the UK, which accounted for 91% of revenue, price fixes averaged £101/MWh in the third quarter - compared to the average N2EX Day Ahead price of £78/MWh during the same period.

Overall, the proportion of contracted revenue for the global portfolio now stands at 85% for 2024, 77% for 2025 and 57% for 2026. The active hedging strategy has substantially insulated Foresight Solar from the fall in near-term merchant power prices. The Company remains on target to pay its full year dividend, and the revenue stability and solid cash distribution provide confidence in the targeted 1.5x net dividend cover until at least 2025.

Gearing

The Gross Asset Value (GAV) on 30 September 2023 was £1,196.0 million (30 June 2023: £1,236.8 million). The Company's total outstanding debt was £489.0 million, representing 40.9% of GAV (30 June 2023: 41.3%), comfortably within the 50% limit.

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