NextEnergy Solar Fund – New focus on total returns

  • 11 March 2026
  • QuotedData
  • NextEnergy Solar Fund : NESF
  • James Carthew

New focus on total returns

Following the conclusion of its strategic review, the NESF board is proposing a reset of NESF’s objectives with a new focus on providing shareholders with both attractive income and capital growth. The aim will be to achieve long-term total returns of 9%-11%.

This year’s dividend target of 8.43p will be met. Going forward, the dividend will be set at 75% of operating free cashflows, post debt servicing and portfolio and fund operating expenses. The estimated dividend range for the financial year ended 31 March 2027 is 4.0p-4.6p.

Reducing the dividend should free up an estimated £40m over the next five years, which will be applied to strengthening the balance sheet (a target of 40%-45% loan-to-value) and funding new investments to support NAV growth. This includes repowering existing solar assets to enhance energy yields and the installation of co-located energy storage. The overall exposure to energy storage is targeted to rise to 30% of the portfolio.

NESF has completed its capital recycling programme with the sale of the Grange and South Lowfield solar farms for a total of £46.2m. The money is being used to reduce the outstanding balance on NESF’s revolving credit facility. A further 120MW of additional asset sales, and the realisations of NESF’s private solar fund investment and two co-investments (from 2027 onwards), will free up additional capital.

As we explain in this note, NESF found itself in a difficult situation. The strategic review did not draw out a bidder. The wide discount to NAV lowers its enterprise value which prevents it from buying back shares under the USS preference share covenant. NESF has demonstrated that asset sales to reduce debt are possible but until demand for mature assets picks up, this is no quick fix, which rules out a managed wind down. As NESF is in need of cash, cutting the dividend is the best option. The board and investment advisers believe they have exhausted all other avenues and have laid out, in great detail, how the money conserved within the business can deliver 9%-11% total returns.

A plan for the future

Reducing the dividend will allow NESF to rebuild its balance sheet

The board has concluded that NESF cannot continue as before. It feels that persistent wide discounts, even in the face of falling interest rates and a resolution to the cost disclosure issues that appeared to trigger that discount widening, are a sign that something must change.

Part of the price for that is a reduction in NESF’s dividend. However, the board believes the reward will be attractive long-term total returns for shareholders. Along the way, NESF will rebuild its balance sheet, aided by an ongoing programme of recycling mature investments.

Managed wind downs have been value destructive

Transitioning to an operating company is neither cost effective or value creating

In reaching its conclusion, the board talked to shareholders and independent advisers. It observed that managed wind downs have been value destructive, as funds have been forced sellers into a market where investors are favouring new investments over mature ones. Transitioning away from an investment company to an operating company was felt to be neither cost-effective nor value-creating. M&A seemed unlikely to produce value-enhancing synergies. A sale to a private investor was ruled out – we believe that no bidder came forward at an acceptable price. Gaining access to third-party capital might still be possible and could enhance NESF’s new value creation plan.

Targeting long-term total returns of 9%–11%

NESF’s new focus will be on providing shareholders with both attractive income and capital growth. The aim will be to achieve long-term total returns of 9%-11%.

Buybacks are not possible currently – see the paragraph on the USS covenant on page 7. However, once NESF is permitted to buy back shares, it will do so.