NextEnergy Solar Fund (LON:NESF) outlined a “strategic reset” at its Strategic Seminar, setting out a plan designed to address a persistent share price discount to net asset value (NAV), stabilize NAV through reinvestment, and position the fund for longer-term growth in solar and energy storage.
Chair Tony Quinlan said the board’s strategic review concluded that “now is the time for change,” citing a multi-year period in which NESF and peers have traded at sustained discounts to NAV, restricting the ability to raise equity for growth and contributing to NAV erosion. Quinlan said that without reinvestment, NAV naturally declines over time as the portfolio continues to distribute cash.
Dividend policy reset tied to free cash flow
Investment Director Stephen Rosser said the new policy is expected to generate approximately £40 million of investable cash over the next five years, while maintaining what management described as a “healthy” and “attractive” dividend that remains cash covered. Rosser also said NESF back-tested the payout policy over the past three financial years (April 2022 to March 2025) and stated it would have produced a dividend range of 7.2p to 8.2p each year.
During the Q&A, management said it evaluated multiple payout scenarios and selected 75% as a balance between supporting total returns and generating sufficient capital to fund the strategy’s capital allocation priorities.
Capital recycling expansion and NEIII realizations
A second element of the reset is an expanded capital recycling program. NESF said it has identified up to 120 megawatts of assets for potential disposals over the next three years. Rosser said this would bring the cumulative total of recycled capacity to over 480 MW by 2030, including disposals already completed.
The fund also plans to realize its $50 million investment in the private fund NextEnergy III (NEIII) and related co-investments from 2027 onward, following the end of the holding period. Rosser described NEIII as a private OECD solar strategy with roughly 1.2 GW of capacity across 158 assets. He said NESF owns around 6% of NEIII and also holds direct co-investments: approximately 25% of a 50 MW project in Spain and about 14% of a 210 MW project in Portugal.
NESF reported that since announcing its initial capital recycling program in April 2023, it has recycled around £119 million at an average rate of 82 MW per year. Rosser said sales timing had been influenced by macro conditions in the M&A market, but added that the market is “starting to move again.” In the Q&A, he noted NESF had announced the conclusion of the fourth phase of the capital recycling program with the sale of a 100 MW portfolio.
Energy storage expansion and AGM vote
NESF said it plans to increase energy storage to up to 30% of portfolio gross asset value (GAV), from a current position where the portfolio is about 97% solar and 3% energy storage by technology. The company will seek shareholder approval at the AGM to raise the formal investment policy limit for energy storage from 10% to 30% of GAV.
Management argued storage can diversify revenues and reduce portfolio volatility due to complementary seasonality between solar generation and battery earnings. Rosser said analysis indicates a 70% solar / 30% storage mix offers what the company described as an “optimum risk-return profile.”
On deployment timing, management said it expects to reach the 30% storage threshold by 2030, with progress dependent in part on the pace of capital recycling. The team said it has not set a fixed split between standalone and co-located projects, emphasizing that it will depend on opportunities and return thresholds.
NESF highlighted co-location, including DC-coupled storage, as a way to leverage existing grid connections. A case study was presented for an 11 MW solar site in the East of England with potential repowering to 19 MW alongside a 5 MW, 4-hour DC-coupled battery, intended to shift energy from midday “clipping” into evening peak demand periods. The company also referenced its operational battery asset Camilla, a 50 MW one-hour system in southern Scotland, which it said has been among the top earning assets in its class since coming online and can be augmented to two-hour duration.
Repowering, cost actions, and leverage targets
Management described repowering as a key lever to increase output, extend asset life, and support NAV. Rosser said the investment adviser has conducted a bottom-up, asset-by-asset review to categorize assets for value creation or recycling. NESF outlined a phased repowering approach:
- 2026–2028: focus on asset health and inverter replacements, plus tactical upgrades and modest acquisitions.
- 2029–2034: assessments for earlier repowering of assets around 12–15 years old, including optional co-located storage.
- 2035 onward: full repowering toward end of subsidy life, leveraging extended land rights and “evergreen” grid connections, with larger-scale co-located storage.
As an example, Rosser described the Balhearty 5 MW solar plant in southern Scotland, rebuilt and re-energized in 2024 after storm damage. He said bifacial panels and string inverters increased expected yield by 3% while reducing footprint by over a third, and that the lease was extended during the rebuild.
NESF also cited ongoing operational improvements, including inverter replacements at 10 sites (62 MW) and plans for up to six more assets (65 MW) over two years. It said WiseEnergy asset management cost forecasts were reduced by 22.5%, resulting in a £7.4 million NAV increase, and that an O&M tender covering 576 MW delivered a 10% cost saving, or about £0.5 million per year.
On capital structure, NESF said it is targeting debt reduction to 40%–45% of GAV (below its policy limit of 50%) and expects long-term debt of about £144 million to amortize in line with subsidy lives. Management said preference shares remain an attractive capital source relative to SONIA, with refinancing or repayment optionality from 2030 and a potential conversion option for preference shareholders from 2036 based on NAV calculations.
Overall, NESF said it is targeting 9%–11% total returns, combining the new dividend policy with NAV growth initiatives, capital recycling, expanded energy storage, and a reduced discount to NAV.
About NextEnergy Solar Fund (LON:NESF)
NextEnergy Solar Fund is a specialist solar energy and energy storage investment company that is listed on the main market of the London Stock Exchange and is a FTSE 250 constituent.
NextEnergy Solar Fund’s investment objective is to provide ordinary shareholders with attractive risk-adjusted returns, principally in the form of regular dividends, by investing in a diversified portfolio of utility-scale solar energy and energy storage infrastructure assets. The majority of NESF’s long-term cash flows are inflation-linked via UK government subsidies.
As at 31 December 2024, the Company had an unaudited gross asset value of £1,071m.
