The subsidy-free fund has secured backing from pension funds and other institutional investors and plans to invest in new-build utility scale solar infrastructure projects across the UK
UK-based renewable energy investors NextEnergy Capital (NEC) have raised £327m (€379m) for the NextPower UK ESG, their fourth solar energy focused fund.
The fund, which is the first subsidy-free private solar fund in the UK, has attracted capital commitments from institutional investors including the UK Infrastructure Bank (UKIB), LGPS Central Limited, Merseyside Pension Fund and Brunel Pension Partnership.
The fund, which launched in December 2021, has a fundraising target of £500m which NEC said it hoped to exceed by the end of the year with a hard cap of £1bn and a fundraising period of two years from first close.
The fund manager plans to invest in some 60 unsubsidised new-build utility scale solar infrastructure projects across the UK over a 10-year period, which they say will generate around two gigawatts of power, doubling the amount of subsidy-free solar power that exists in the UK today. According to NEC, this is enough clean electricity to power the equivalent of nearly 500,000 households or offset nearly 200,000 carbon-emitting cars on the road each year.
Responding to questions from Impact Investor, Shane Swords, managing director and head of investor relations at NEC, said investment in non-subsidised solar was an important milestone as it demonstrated “how the levelized cost of electricity for solar has fallen significantly,” adding that “subsidies are no longer needed, and as a leader in the UK solar sector, we are very proud to have launched this fund.”
Swords said that NEC was developing its own proprietary pipeline of projects for the fund, which included two seed assets already in operation at sites in Llanwern, South Wales, and Strensham, Worcestershire with a combined installed capacity of 115MW. The company explained that this created a significant advantage for investors by largely removing bid and pipeline risk for the fund. The Llanwern plant is the largest operating solar power plant in the UK.
The fund manager said they are able to target strong investor returns – IRR of 9-11% and an annual yield of 4.5-6.5% – by creating long-term stable cashflows through a contracted revenue model and robust, credit-worthy Power Purchase Agreements (PPAs), which provide UK purchasers with power price certainty whilst allowing them to achieve and manage their carbon footprint and sustainability goals.
Swords explained: “The PPAs are structured with a fixed price being paid to the solar project from the purchaser. The purchaser is thus contractually acquiring renewable energy
, and helping their sustainability goals.”
Asked how projects such as these would affect current skyrocketing energy prices in the UK, he added: “These projects are very important for reducing carbon emissions, but also for reducing the UK’s reliance on importing electricity, which in time should help the current situation.”
The UKIB, the fund’s cornerstone investor, said it would invest up to £250m to match funding from third party investors.
Commenting on the decision to invest in the fund, UKBI’s CEO John Flint said: “Investment in subsidy-free solar is vital in order to realise our net-zero ambitions and I am pleased that just eight months after we announced finance for Llanwern and Strensham, we’re part of the first close of this fund as a cornerstone investor. That means more solar plants will come online across the country, providing greater capacity to power homes and businesses in a sustainable, renewable way.”
The fund manager clarified that they were targeting both UK and international institutional investors, with further investors currently in due diligence.
Sustainable impact, biodiversity and community engagement
NEC said that it would only select investments that ensured sustainable growth could be delivered over the long term and that biodiversity and community engagement considerations formed part of this process.
Swords added: “NEC promotes biodiversity across its portfolio of sites, including wildflower meadow planting, building bug hotels and engaging with local communities and schools around renewable education.”
The company has also recently hired an environmental impact manager to help NEC’s funds create a 25-year environmental plan across its asset base, which Swords said “will help to create and drive biodiversity and community engagement targets, which can be measured with tangible metrics”.