New investment trust targets $250m to invest in US solar opportunity
A new investment trust is about to join the stock market offering investors with a pure play on the expanding US solar sector.
US Solar Fund aims to pay a 5.5% yield and a total return of 7.5% from 31 March 2020 or when all of its assets are operational. Ahead of this time it expects to pay a dividend yield of between 2% and 3%.
The company is hoping to raise $250m alongside its stock market listing, with trading in the shares scheduled to commence on 20 March and the net initial proceeds likely to be invested within the first six to nine months.
The focus will be on states in America’s South West where there is the most consistent sunshine. Revenue will come from selling the electricity generated by its plants to investment-grade customers through power purchase agreements in excess of 10 years.
The investment manager behind the fund is NESM, which already runs Australia-listed New Energy Solar. Its chief executive John Martin tells Shares the US has a rapidly growing solar space. ‘The thing we like about solar in the US is that it is already cheaper than coal and nuclear without subsidies,’ he says.
This is a crucial point as, perhaps unsurprisingly given the position of the current White House administration, several of the federal subsidies for solar energy are due to roll off from 2020.
The investment trust will principally target construction-ready or in-construction solar projects. These will be developments where all the necessary planning approvals are in place.
Martin is hopeful that the team can leverage existing relationships to acquire assets off-market but if or when the company does engage in competitive bids it expects to be up against private equity or utilities and not pension funds who are happy to buy already-operational assets at a very low yield.
The trust will not be active at the other end of the spectrum and take on development risk as Martin explains: ‘Development projects can be spectacularly risky mainly thanks to the difficulty in getting planning approval.
‘When it goes well people can make a lot of money but there have been examples in the last few years where a lot of money has been lost. It is too risky for the return,’ he says.
As well as delivering consistent income, Martin says the assets could enjoy a valuation uplift as they move from construction to the operational phase.