UK solar fund returns weighed down by Australian projects and network issues

The first half returns from the UK investment fund Foresight Solar has been weighed down by the performance of the four Australian assets in its portfolio, even though they finally operated at full capacity after several years of construction and connection delays and other issues.

Foresight owns a 48.5 per cent stake in the Bannerton solar farm in Victoria, 49 per cent stakes in the Longreach and Oakey 1 solar farms in Queensland, and all of the Oakey 2 solar farm.

It also has a portfolio of more than 50 solar farms, mostly in the UK and totalling more than 540MW, where it was sunnier than usual in the first half, leading to a 3.4 per cent lift in output over base case expectations.

But not-so-sunny conditions in Australia, particularly at Oakey 2, and negative pricing events it blamed largely on network upgrades, reduced the output of the Australia solar farms well below expectations, down 17 per cent from the base case, and dragged production from the overall portfolio to 2.3 per cent below expectations.

“The performance of the Australian assets has continued to improve period on period despite the lower than expected generation during the first six months of 2021,” the company said.

“When network-related events are excluded, the majority of the Australian assets are presenting technical performance levels in line with expectations.”

The Foresight portfolio over the past few years has been hit by a range of events, including two storms at the 55MW (SC) Oakey 2 solar farm – backed by the Clean Energy Finance Corporation – that led to a $12.5 million writedown.

Bannerton was among five solar projects in the West Murray region of the grid that had their output by 50 per cent for more than seven months over 2019/20 due to voltage issues in the Victoria grid, and Longreach also suffered constraints from issues at the local substation.

“In the case of Oakey 2, the asset was also affected by irradiation levels below base case during the period,” the company said in the latest report. “The project continues to export at 100% of its nominal capacity and has progressed its staged commissioning process. The project is expected to be fully commissioned in late 2021.”

Foresight said its share of the output from the four Australian solar farms was 111,767MWh over the first six months, where it earned an average power price, including fixed price arrangements, of A$45/MWh.

It also received an average of $32.05 for the LGCs (large scale generation certificates), thanks in part to a deal to sell LGCs from Bannerton and Oakey 2 at a fixed price to Origin Energy until 2030, removing market volatility.

That made for total revenue of $4.9 million from power sales, $2.5 million from LGCs, total revenue of $7.9 million and an operating profit of $5 million from its Australia solar portfolio.

Foresight also reported a £4 million gain in the value of Bannerton, due to a favourable loan refinancing, and it expects a 4 to 7 per cent improvement in transmission losses (marginal loss factors) over the coming years.

On the Australian policy environment, Foresight noted that over the past few years, Australian regulators had been considering numerous changes to the regulatory framework as well as to the network operational mechanisms.

“Some of the changes are expected to be delayed and potentially omitted as regulators and Ministers focus on economic growth and jobs,” it says.

“The Investment Manager is actively engaging in the regulatory dialogue through meetings with the regulators, written submissions and participation in industry groups and closely monitoring proposed regulatory changes.”

It also noted the explosion at Callide coal power station in Queensland in May, which caused outages across multiple transmission lines and independent generators, and significant power price volatility.

“The impact of the incident has renewed criticism regarding the lack of reliability of coal-fired power generators and calls from experts for additional renewable generation and battery storage,” it noted.