Fund Profile

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by US Solar Fund. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

Overview
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Overview

US Solar Fund (USF) invests in solar power assets across the United States, aiming to generate a progressive dividend of 5.5% of the IPO price now it is fully invested. All 41 assets bought with the IPO proceeds – totalling 443MW – are now operational, meaning USF is in a strong position to be able to deliver this dividend in 2021, covered by cash generated by the portfolio. The dividend is paid quarterly and would represent a yield of 5.2% on the current share price.

USF is managed by solar specialist New Energy Solar Manager (NESM). Although USF was launched in 2019, NESM has been managing solar assets for many years, launching its first fund in Australia in 2015. NESM’s strategy involves buying assets which are operational or under construction and bringing them into operation. NESM aims to use its internal asset management team to help generate a total return of at least 7.5% per annum over the life of the assets.

As we discuss in the Management section, NESM’s experience and connections are important advantages in the US, where tax equity investors typically partner with institutional investors to take advantage of the subsidy regime. The US solar market is c. 6.5x larger than the UK’s, and is expected to grow to multiples of its current size (see the Portfolio section).

As discussed in the Dividend section, a key element of the approach is signing long-term power purchase agreements (PPAs) with investment-grade counterparties. USF’s production is 100% contracted for a weighted average of 15 years (as of 30/09/2020), meaning that the income supporting the dividend is extremely stable (although it is in dollars, so UK investors take currency risk).

Analyst's View

We think USF’s long-term contracted cash flows are an extremely attractive feature. Cash flows are fixed for a weighted average period of 15 years, longer than is typical for the other solar funds in the AIC Renewable Energy Infrastructure sector. This should help ensure the dividend, which would be 5.2% on the current share price, can be maintained and raised in line with USF’s target of 1.5% to 2% on average (although for sterling investors there will always be dollar exposure to take into consideration). We note that there is also potential for capital growth given USF uses a significantly higher discount rate than its peers. Some of this, but certainly not all, can be explained by higher interest rates in the US versus the UK. Were USF’s discount rate to fall closer towards the peer group average it could lead to capital gains.

Investing in the US solar market also seems attractive to us. The US market for solar is already c. 6.5x larger than the UK’s, and is forecast to grow extremely rapidly. This means USF should be able to develop a full pipeline of attractive assets rapidly. As the primary driver of renewables in the US is cost rather than climate-related aspects, solar penetration has lagged the UK. However, it is now one of the cheapest energy sources to construct and generates more jobs than fossil fuels. There is therefore a cross-party consensus in favour of expansion.

bull bear
High visibility on income due to long-term fixed power price agreements with investment-grade counterparties
Income is paid in dollars, so will vary for sterling investors
Diversification and scale possible thanks to size of US market and pipeline for growth
The yield is currently lower than the solar fund peers
Expertise of manager affords advantage in doing deals and profiting from all areas of the market
Higher levels of gearing (target of 100% on a NAV basis) relative to UK peers means NAV sensitive to valuation assumptions
Continue to Portfolio

Fund History

24 Mar 2022 Results analysis: US Solar Fund
USF offers a high dividend from cashflows fixed far into the future…
09 Mar 2022 Private markets: A closer look at infrastructure and renewables
We examine the £27bn listed Infrastructure and Renewable Energy Infrastructure sectors…
02 Feb 2022 Fund Analysis
USF offers a high and dependable yield from a portfolio with a strong ESG rationale…
01 Dec 2021 How to protect your portfolio from inflation
We highlight trusts which could appeal in an environment where 'transient' inflation is here to stay...
20 Sep 2021 Results analysis: US Solar Fund
USF is now paying cash-covered dividends in line with its fully operational target of 5.5 cents per share...
10 Jun 2021 Green is good!
2021 will see billions dedicated to sustainable initiatives, which brings with it a host of possible investment opportunities...
12 May 2021 Riders on the storm
We look at the yields in the alternatives space and how they have been affected by the pandemic…
16 Mar 2021 Results analysis: US Solar Fund
We look at the recent results announcement from USF, and how the trust is poised to offer both high levels of income and capital growth in 2021…
17 Feb 2021 Jungle Fever
Soaring interest in ESG has exciting implications, but risks pushing some stocks to distinctly unsustainable valuations...
10 Dec 2020 Fund Analysis
USF’s portfolio is now fully operational and the trust is on track to commence the targeted 5.5 cent dividend in 2021…
16 Sep 2020 Results analysis: US Solar Fund
US Solar Fund has made significant progress with its portfolio and expects dividends to be fully covered by operational cashflow from now on…
09 Sep 2020 Time to switch horses?
We look at what returns are likely from equity markets in the coming decade and identify which alternatives could offer similar or greater returns for lower levels of risk…
10 Jun 2020 Fund Analysis
USFP invests and operates solar power projects in North America...
View all

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