ASX-listed New Energy Solar, one of Australia’s only dedicated solar energy investment funds, has launched a strategic review of its operations, with the company possibly putting its Australian solar farms up for sale to help address the lagging market value of its portfolio.
The company announced the review via a statement to the ASX on Tuesday, saying that it would consider the performance of its portfolio of solar projects, including the option of offloading any underperforming assets, or to find ways to better communicate the true underlying value of the portfolio.
The company currently operates the 55.9MW Manildra solar farm and the 110.9MW Beryl solar farms in Australia, along with a bigger portfolio in the US. But it has taken write downs on the value of its assets due to the falls in wholesale prices, but it says the market is not reflecting the true value of its investment.
New Energy Solar securities are currently trading at around 86 cents, which the company says is well below the net asset value of the company’s project portfolio. In its latest unaudited estimate, the company said that it held $1.27 worth of assets per share.
New Energy Solar’s head of investor relations Fleur Jouault told RenewEconomy said the strategic review of the company’s portfolio would seek to identify how New Energy Solar can maximise the value of the business for its security holders, and to ensure that the company’s security price was better aligned with the business’ value.
Jouault said that the company believes that it has established a high-quality portfolio of solar projects, two of which rank amongst Australia’s best performing projects, and that the unique nature of the New Energy Solar entity meant that it had been harder for some retail investors to assess its underlying value.
New Energy Solar operates as one of Australia’s only dedicated solar energy ‘yieldco’ companies, where it manages a portfolio of solar projects that have secured long-term offtake agreements and aims to deliver steady dividends to security holders.
While such structures are more common overseas, including in Europe and Northern America, they are comparatively rare in Australia, and Australian investors may be less familiar with the investment structure.
The company is currently in the process of negotiating the sale of a 50 per cent stake in the 200MW Mount Signal 2 solar farm, which is located in the Imperial Valley of southern California and completed construction in December last year, but also ran into technical issues.
“The broader process announced today will consider all opportunities including consideration of interest in the Australian assets, as well as the optimal capital structure for [New Energy Solar],” the company said in a statement.
“The [board of New Energy Solar] note that the strategic review may conclude that NEW’s current mix of assets is likely to deliver the best value for security holders over time and may not result in a recommendation to pursue any specific transaction or initiatives.”
The company operates a 772MW portfolio of large-scale solar projects, located across Australia and the United States, including more than 150MW of solar capacity in New South Wales with the Manildra and Beryl solar farms.
Following the impacts of Covid-19, which have seen wholesale electricity prices fall across both the Australian and United States markets due to falling demand, the company wrote-down the value of its portfolio following revisions to the valuations of its solar portfolio, as it was required to adjust long-term forecasts of wholesale electricity prices.
While the company reported a loss in the last financial year due to the revised valuations, it said that it remained optimistic about the ongoing opportunities in the solar energy market and that it had secured long-term off-take agreements across its project portfolio that should ensure future revenues remain stable.