Investment Companies Research 22 February 2022

For FCA purposes this is a Marketing Communication

Infrastructure
Bluefield Solar Income Fund * – Interim results: 9.61% Total Return; increased dividend target
● Strong earnings: BSIF has reported a strong set of interim results which once again show case the benefits of its high-quality
portfolio with one of the highest proportions of regulated revenues. 62% of revenues came from subsidies, while the sale of electricity
accounted for 38%. Underlying earnings pre amortisation totalled £21.4m (4.31p) and £12.7m (2.6p) post debt repayments of £8.6m
(1.7p). Combined with 2.67p of reserves brought forward from prior periods, total funds available for distribution of 5.24p. During the
period, BSIF declared dividends of 2.03p.

● Increase in Dividend: BSIF had been targeting a full year dividend for the year ending 30 June 2022 of 8.12p but in light of a
continued strong revenue performance, the board have increased the target to 8.16p (from 8.12p), representing an attractive yield
of 6.7%. BSIF retains its position as the sector’s highest dividend distributor on a per share basis.

● Impressive NAV performance: NAV at 31 December of 122.96p, an increase of 4.9% since 30 September (117.18p) and 6.1%
since 30 June (115.83p). The uplift was driven by higher short term power prices, and inflation captured in the model. Including
dividends paid NAV total return over H1 was an impressive 9.61% (6.7% in Q4), and 9.34% pa since IPO in 2013.

● Portfolio performance: Irradiation during H1 was c.2.9% below expectations which, combined with planned annual and general
maintenance during Q2 resulted in total generation being 3.6% behind forecasts. Availability for the 6-month period was in line with
expectations at 98.3%. Wind assets saw generation of 11.3GW, 21.9% below expectations reflecting national wind speeds
significantly below long-term averages. Total Revenue for the period was £33.03m, equivalent to £53.98k/MWp., close to forecasts,
reflecting more favourable fixed PPA agreements which commenced during the period. Operational Costs for the 6-month period to
31 December 21 were c.£8.5m.

● Portfolio activity: Since 30 June 2021 to date, BSIF has invested £134m including its first small scale onshore wind portfolio for
£63m (with potential to rise to £95m on repowering) as well as the company’s first co-located solar and battery storage project.
Management notes that the onshore solar and wind acquisitions benefit from high proportions of regulated revenue, with an average
remaining weighted duration of 13 years, further enhancing the portfolio’s positive correlation to inflation. Planning consent was
achieved in December 2021 for an unsubsidised 31MWp PV plant, taking BSIF to 100MWp of consented PV projects, whilst its
proprietary pipeline of solar and battery developments grew to c.800MWp.

● The portfolio currently comprises 106 operational Solar PV plants (65 large scale sites, 39 micro sites and 2 roof top sites) with a
total capacity of 613MW, and 109 small scale onshore wind turbines with a capacity of 12.6MW. Over 90% of total revenue from the
wind portfolio is derived from subsidies with the remaining revenue received from power sales sold under 15-year power purchase
agreements with Power NI. Non solar investments currently represent 7% of GAV, within the 25% investment limit.

● Portfolio valuation: As at 31 December, the directors valuation of the BSIF portfolio was £785.7m incorporating an EV of £861.2m,
equating to £1.30m/MW for solar assets, an increase from £1.26m/MW assumed at 30 June. Management comment that competition
for operational assets remains fierce, with transactions in the market ranging from £1.20m/MW to £1.4m/MW. The BSIF valuation
sits towards the middle of this range, which arguably looks conservative given the quality of the assets and high proportion of
regulated income streams. The equity discount rate remained unchanged at 6.0%, although the valuation incorporates a higher
inflation assumption from the previously assumed 3.0% to reflect the latest aggregate forecasts, as well as the transition to CPI post
2030. BSIF now assume inflation of 6.4% to June 2022, 3.4% in 2023 and 3% to 2029 before falling to 2.25%. This has boosted
NAV by 3.7p over H1, reflecting the high proportion of inflation linked subsidies in the portfolio.

● Reflecting ongoing planning success in respect of asset life extensions, the valuation assumes a 30-40 year life on 490MW. In
valuing the additional cashflows, the board make prudent assumptions on performance and maintenance reserves, as well as
applying a discount rate of 7.5% for periods over 30 years. As at 31 Dec, the weighted average life of the portfolio was 29.4 years.

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 Investment Companies Research 22 February 2022

Figure 1: Portfolio valuation

800
780 72.6
32.3
760
740 (41.2) 24.9
720 (12.9) 15.4
£m

700
785.6
680
660 725.9
640 694.5
620
600
Jun 21 Valuation

Acqns

Cash receipts

Rebased valuation

O&M updates

Power curve (incl PPAs)

Inflation forecast

Portfolio return

Dec 21 Valuation
cost inflation,
Degradation,
Source: Company & Numis Securities Research

● Successful PPA strategy: BSIF seek to fix power price contracts for periods between 12 and 36 months with the majority of
contracts continuing to be struck for a minimum of 18 months. Its flexible PPA strategy has allowed the fund to manage the timing
of power price fixes to avoid the lows in April 2020, and take advantage of rising power prices during 2021. Post July 2021 BSIF
has struck contracts at an average price of £71.34MW and an average of £115.26/MW in the early months of 2022. As a result, the
weighted average contracted price per MWh across the portfolio has risen to £51.8MWh as at 31 December 2021, which compares
with £51.6MWh for contracts starting post 30 June 2021. BSIF has price confidence of 100% over its power and subsidy revenues
and 92% to December 2022.

● Power prices forecasts: Medium to long term power price predictions as provided by third party consultants have been lowered
(from predictions in June 2020 and December 2020) as forecasters continue to believe that, despite rising demand for electricity,
pricing will be suppressed by falling commodity prices and increased renewable generation post-2030. The blended forecast of
three consultants (released October and December 2021) used within the latest Directors’ Valuation imply a compound annual
growth rate, in real terms from 2022, to 2050, of -3.06% pa. The reflect key updates in respect of assumed electricity demand rising
from 308TWh in 2022 to 484TWh by 2050; short-term gas prices continue to rise, driving material increases in near term wholesale
power prices; and increased renewable deployment in the UK (notably by 2030 c.33GWp of Offshore wind, c.19GWp of Onshore
Wind and c.19GWp of solar) and in Europe.

● Strong pipeline: BSIF currently has a pipeline of future opportunities totalling over 900MWp, with 100MWp in ready to build solar
projects, a development pipeline of 627MWp and battery storage projects totalling 179MW. The board believes the fund is well
placed to sustain growth and give active support to the de-carbonisation of UK electricity and the UK Government’s net-zero
ambitions. It will continue to ensure that these potential new projects are capable of enhancing dividends by a judicious use of debt
and equity financing.

● Gearing: BSIF currently has c.£402.9m of debt representing c.40% of GAV (44% as at 30 June 21); comfortably in line with the
35% - 45% range. BSIF has the optionality to add a further £100m of gearing. Long term, amortising debt with Aviva totals £154.6m
with a blended all in cost of 2.4% and the average DSCR remains close to 3.0x. BSIF is currently £90m drawn on its £100m RCF.
In addition to its long term debt and RCF, BSIF also has a three year term loan with NatWest of £110m which is 75% hedged with
a 17 year swap at 0.3%, and a small project loan of £9.3m secured on project Durrants.

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 Investment Companies Research 22 February 2022

● Market commentary: According to Bloomberg New Energy Finance (BNEF), 732MWp of subsidised projects changed hands during
2021 compared with 300MW in 2019. Estimates from Solar Power Media indicate that there are over 37GWp of large-scale solar
projects in the development/ready-to-build phase as at the end of December 2021, a 117% increase on the 17GWp reported in June
2021.

● ESG highlights: BSIF has continued to enhance its disclosure in respect of ESG. Estimated figures based on forecast generation
data for the period 1 July 2021 – 30 June 2022 highlight that the BSIF portfolio will generate over 600m Kw of energy, providing
power for over 200,000 homes and saving over 128000 tonnes of CO2. BSIF will pay over £153,000 to community benefit schemes.
The board continue to develop the ESG strategy along with external consultants to fulfil its requirements under Article 8 SFDR and
to ensure alignment against the EU taxonomy. It will provide a more detailed update in the annual report to 30 June 2022.

● Numis view: We believe the latest results provide further evidence that BSIF’s approach to its balance sheet, power hedging
(avoiding lows and capturing higher prices for future periods) and acquisition and growth strategy combine to deliver high quality
earnings despite the volatile power price backdrop of recent years. The fund has consistently outperformed on its dividend target,
and driven NAV growth through strong operational management of the portfolio to deliver some impressive returns since IPO. During
the period, the manager has been successfully executing on its expanded mandate and has compiled a pipeline which should
facilitate further portfolio growth, without diluting the existing high quality asset base.

● In our view, the share price undervalues BSIF’s strong differentiators compared with its solar peers, and the broad generation peer
group. The current 6.7% yield, underpinned by 100% pricing confidence to 30 June 2022 (92% to Dec 2022), is very attractive in
our view and compares with the sector average yield of 5.7%, with pricing certainty and dividend cover often at much lower levels
than BSIF. We are keen to see management continue to execute its proprietary pipeline which should provide scope for further high
quality additions to the portfolio, sustaining an already impressive performance track record.

Figure 2: Q4 NAV/NAV Total Return Sector Ratings

8.0% 20% 8.0%

7.0% 7.0%
15%
6.0% 6.0%

10% 5.0%
5.0%
4.0%
4.0%
5% 3.0%
3.0%
2.0%
0%
2.0%
1.0%
1.0%
-5% 0.0%
FSFL

RNEW

DORE

BSIF

AERI

NESF

ORIT

USF

UKW

GRP

JLEN

TRIG

0.0%
NESF AERI JLEN ORIT UKW GRP FSFL BSIF

Q4 NAV Q4 NAV TR Historic NAV Yield

Source: Company & Numis Securities Research Source: Company & Numis Securities Research

* Denotes that this company is a corporate broking client of Numis Securities.

Note: all prices, NAVs and discounts as at close of business at 21 February 2022 unless otherwise stated.

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The research analysts who prepared this report was Colette Ord,

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independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of such research. Important

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 Investment Companies Research 22 February 2022

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Team Contact Details

Contact Direct Dial Email
Ewan Lovett-Turner 020 7260 1254 e.lovett.turner@numis.com
Colette Ord 020 7260 1290 c.ord@numis.com
Priyesh Parmar 020 7260 1648 p.parmar@numis.com
Andrew Rees 020 7260 1217 a.rees@numis.com
Gavin Trodd 020 7260 1472 g.trodd@numis.com

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