The Australian solar portfolio of the UK-based Foresight Solar Fund delivered results well below expectations in 2020 as a result of storms, connection delays, grid constraints, a lack of sunshine, and falling power prices.
Foresight released its annual results on Tuesday. It is not alone in suffering from issues with its Australian solar portfolio, but  as one of the few listed entities that own renewable energy assets in Australia, it gives valuable insight into the operations of the often opaque local electricity market.
Foresight owns interests in four Australia solar farms, the 15MW Longreach (49 per cent), the 25MW Oakey 1 (49 per cent) and the wholly owned 55MW Oakey 2 in Queensland, and the 88MW Bannerton (49 per cent) in Victoria. (All figures above in AC rather than DC in table below). They account for around 15 per cent of its total portfolio.
The bottom line is that the portfolio of four solar farms in Australia delivered around 20 per cent less output than had been budgeted in 2020, while the UK assets did 8.4 per cent better.
The Australian shortfall is mostly as a result of the well-documented “oscillation” issues that affected Bannerton and four other solar farms in that region until the end of April last year.
Oakey 2 was also hit by storm damage and subsequent connection and commissioning delays, Longreach also suffered some reduced output due to local network constraints, and it seems that Bannerton and Oakey 2 were also affected by below budget solar “irradiation” (the amount the sound shines).
But the good news is that all these technical issues – apart from the sunshine, which is beyond its control – now appear largely resolved, with Oakey 2 reaching full output in late October, and Foresight landing a new fixed price contract with Origin Energy for the purchase of large scale generation certificates (LGCs) from Oakey and Bannerton that will deliver a higher price.
(One might speculate that Origin entered this deal to help make up some of the shortfall from the delay to the Stockyard Hill wind project, which will result in Origin paying a “penally price” this year with the hope of making good in a few years).
Foresight says the average LGC price secured by the portfolio assets in 2020 was $A39.2 per certificate. Power prices, however, fell significantly and are not expected to rise significantly until the 2030s as coal fired plants are retired and more expensive gas and flexible technologies set the price more frequently.
Even then, what it calls the “solar capture price discount” – the difference between the price obtained by solar plants generating mostly in the middle of the day and the average price – is forecast to widen as new capacity increases the expected timing imbalance between peak demand and renewable energy production.
This could be partially mitigated by an increase in storage and pumped hydro capacity, but the build out of State-backed renewable schemes will also put downward pressure on solar capture price in the short-to medium term.
Foresight says local constraints at Longreach were resolved by a retrofit of the grid transformer, and it has also been working with the tracker manufacturer to implement a new tracker algorithm, to increase energy yield in diffuse light conditions and early/late winter sun hours.
At Oakey 2, where a storm damaged 15 per cent of the site, the tracker structures have been reinforced and their control system redesigned to meet the design wind speed required for the site, and it received about $A6.4 million in insurance proceeds as compensation for revenue losses resulting from the delays in the construction caused by the storm events.
On the other hand, a move to assessing the value of its biggest Australian solar asset on a discount cash flow basis resulted in a “negative impact on valuation of approximately £7.7 million, mostly due to the adoption of a lower power price forecast compared to the forecast when it bought the project in 2017.
Again, this was partially offset by a new assessment that the effective life of the solar assets will be 30 years, rather than the 25 years assumed previously.
All told, the fall in the net asset value of its portfolio was £40 million – to £582 million from £628 million. It is not clear how much of this was due to the Australian portfolio, but power price falls were the biggest single item.
It’s probably because of this that Foresight’s near term expansion plans focus on southern Europe and the UK, where it intends to invest in “zero subsidy” solar plants (it as already bought two in Spain totalling 125MW) and battery storage, which it might add to nearly half of its portfolio of nearly 50 smaller solar plants in the UK.
“The Board believes that the addition of a limited number of batteries to the existing UK solar portfolio, along with greenfield co-location investments, will provide clear benefits to the Company’s investors, including an additional and diversified source of portfolio revenue with attractive risk/return characteristics,” it says.
