Power Curve Assumptions
30 September 2023:
For the UK portfolio, the Company uses multiple sources for UK power price forecasts. Where power has been sold at a fixed price under a Power Purchase Agreement (a hedge), these known prices are used. For periods where no PPA hedge is in place, short-term market forward prices are used. After two years, the Company integrates a rolling blended average of three leading independent energy market consultants’ long-term central case projections. This approach allows mitigation of any delay in response from the three independent market forecasters (“Consultants”) used by the Company in publishing quarterly or ad hoc updates following any significant market development.
For the Italian portfolio, Power Purchase Agreements (hedges) are used in the forecast where these have been secured. In the absence of hedges, a leading independent energy market consultant’s long-term projections are used to derive the power curve adopted in the valuation.
The power price forecasts used also include a ‘solar capture’ discount which reflects the difference between the prices available in the market in the daylight hours of operation of a solar asset versus the baseload prices included in the power price estimates. This solar capture discount is provided by the Consultants on the basis of a typical load profile of a solar asset and is reviewed as frequently as the baseload power price forecasts. The application of such a discount is prudent as it results in a lower long-term price being assumed for the energy generated by NESF’s portfolio.
Power Sales Strategy
NESF continues to lock in power price hedges over a rolling 36-month period. This proactive risk mitigation helps secure and underpin both dividend commitments and dividend cover, whilst reducing volatility and increasing visibility of cash flows.
To manage the sale of power into the electricity market, the Company utilises its investment adviser’s in-house power sales desk. This team actively manages the Company’s power price contracting strategy and activities. In the current environment, the power sales desk has enabled the Company to mitigate market price volatility whilst incrementally growing weighted average prices through forward hedging above forecast prices. Aggregating the amount of revenue derived from subsidies and the power hedges, the Company has a high degree of comfort around forward revenue projections.
In addition to NESF’s budgeted revenues from ROCs and FITs (c.50%), the Company’s UK hedging covers 80% of the total portfolio (716MW) as at 6 November 2023.
|UK hedging summary
|Power price hedged