NextEnergy casts CfD doubt as it publishes £150 million solar fund prospectus

NextEnergy Solar Fund Limited has released the prospectus for its imminent £150 million IPO and has stated that it expects to continue with the renewable obligation (RO) scheme until it expires.

The company will float on 27 March with 150 million shares at £1 each up for grabs to experienced investors.

The prospectus says that income will be derived from power purchase agreements (PPAs) and renewable obligation certificates (ROCs) but will continue to monitor the possibility of using the contracts for difference mechanism (CfD). Despite this, the company suggests it is unlikely to stop using the current ROC mechanism until it expires in 2017.

“The directors understand that the regulatory regime allows Investors the option to choose between FIT CfD and the enduring ROC regime and that this right will exist till 2017,” the prospectus reads. “The directors believe that investment is best suited to continuing with ROC based revenue arrangements and that this is likely to be the case through to 2017.”

The CfD system will offer a strike price, effectively a minimum price guarantee, over a 15 year period. If the price of wholesale electricity falls below that strike price, owners will have to refund the difference to the government.

“Though on the face of it a CfD regime may reduce the investor returns due to risk reduction; the long-term significant continued growth in the renewables sector will drive down costs as it has already done, with the maintenance of a 7.5 per cent. IRR market target over the long term.

“The Directors believe from their consideration of the EMR documentation and current DECC question and answer, the CfD will make little impact when introduced and that the 3 years leading up to the determination of ROC, the Company will secure significant market capacity ahead of any imposed change.”

The prospectus reveals that the company will focus its efforts on PV plants that are already in operation with no more than 10% of its assets to be in the development stage. A further 25% of uncompleted projects can be “forward-funded” through secured loans.

According to the company, it does not expect to act upon these options to invest in unfinished projects.

It will target sole ownership of its assets wherever possible.

The results of the IPO will be announced on 28 March.