Sun-smart Aussie’s in OECD Americas with London Money?

New Energy Solar leverages the basics

By Paul Raftery

Congratulations to New Energy Solar (ASX:NEW) (https://www.newenergysolar.com.au/), working with Evans Dixon (ASX:ED1)( https://www.evansdixon.com.au/shareholder-centre/announcement - 12 April 2019) for what they have created on the London Stock Exchange – A USD Solar Energy Investment Fund – US Solar Fund plc. The fund is currently expected to be listed 16^th April, 2019, with USD 200m under management with the investor yield will improve as the fund grows. The fund will invest in “construction ready” projects. It is targeting an annual dividend yield of 5.5% and a total return after cost but before taxes of 7.5% pa. The management fee is 0.7% until $A 1.0 bn. It then will decline. The USD 200m was raised by Fidante Capital (see: https://www.pv-tech.org/news/fidante-capital-raises-us200-million-for-pv-infrastructure-fund).

Today NEW has a 80%:20% USA:AUS asset mix. NEW has invested $15m into the fund and will co-invest with the fund.

The fund is focused to where NEW has a track record, the USA, but the mandate allows the fund to invest in other OECD countries in the Americas (see  https://wcsecure.weblink.com.au/pdf/NEW/02095830.pdf.) In short the US Solar Fund plc can invest in Canada, Chile, Colombia, Mexico and the USA with Brazil, Argentina and Costa Rica within two years of joining (see http://www.oecd.org/about/membersandpartners/enlargement.htm)  . Tabatinga (see www.tabatingasg.com) is working in a number of these countries and we see this development as  exciting.

One must admit that the financial engineering is simple and the fees are what they are. What is impressive in that NEW has successfully delivered.

What is smart:

1)      It is driven by an Australian company with a strong focus and presence in the US market.

2)      Uses an Australian Responsible Entity (RE).

3)      Gives European investors something that they want – a European based fund which gives them a direct exposure to the solar energy sector in the USA in USD.

4)      The LGC regime encourages US utilities to enter into long-term offtake agreements (up to 25 years).

The US power market is different in a number of senses to the Australian market. First the US power markets are multi-state there is not a truly national market. Second, the price is driven by the gas generators and spot gas / spot power spread. Third, the individual States have policy positions and requirements. In may States the retailer needs to deliver LGC’s (Large-scale Generating Certificates). LGC’s come from either related company (i.e.; an integrated business) and / or are purchased. Whilst they now USD 33.75 MWh they were USD 80 in last July. When the average wholesale price is USD 44 MWh LGL’s and other fees have a considerable impact on income for solar and wind-power generators.

NEW has launched a successful model which others will no doubt copy but they will have a first mover’s advantage. I am certain that Tabatinga and others will be knocking on their door in North Sydney.

 

New Energy Solar's solar farm, Church Road, North Carolina, California (see : https://www.afr.com/news/policy/climate/new-energy-solar-raises-us200m-for-uk-fund-to-invest-in-us-solar-20190411-p51dcb)

Paul Raftery