Australian Ethical Infrastructure Debt Fund
Fund outlook and market commentary
Since its February 2024 inception, the wholesale class of the Australian Ethical Infrastructure Debt Fund (the Fund) returned 6.6% net of fees for the year, compared to the benchmark return of 4.0%, meaning an outperformance of +2.6% (or c. +2.8% on an annualised basis). Performance was driven predominantly by income from underlying loans and securities, while the RBA’s Cash Rate Target remained constant over the year. Credit margins have remained reasonably steady over the year, with the credit position of all loans remaining strong. Cash was elevated at year-end due to early loan repayments in the final quarter due to projects, such as Energy Trade (sold to a consortium led by Palisade Impact) and Photon Energy Portfolio (sold to Cleanpeak Energy), though much the proceeds of has been earmarked for re-deployment into upcoming opportunities (see New investments section).
The Fund has a specific objective of supporting Australian projects that generate positive, measurable social and environmental impact alongside a financial return. Over the last 9 months to September 2024, assets within the portfolio generated 1,384,114 megawatt hours of clean energy and helped avoid 805,295 tonnes of carbon emissions. This is the equivalent to powering more than 335,000 households over the period1.
Average electricity prices for the year were elevated at $104/MWh, compared to last year’s $75/MWh with the second half of the year seeing particularly high prices. Strong growth of low-cost renewable generation at the beginning of the year resulted in only moderate increases in pricing, though this was short-lived, with prices rising in the second quarter due to low wind resources, and transmission line outages. This continued into the third quarter, on top of very high winter electricity prices, which dissipated toward the end as weather conditions eased toward the end of the quarter. Above average temperatures in the December quarter led to increased demand and sustained higher electricity prices, especially in NSW and Queensland. Higher electricity prices throughout the year have been to the benefit of merchant projects in the portfolio, such as the Yarranlea Solar Farm, allowing for stronger balance sheets from which to pay out loan interest to the Fund.
Infrastructure Debt Fund Performance
As at 31 December 2024
| fund | RBA Cash | Excess Returns | |
|---|---|---|---|
| 1 month | 0.5% | 0.4% | 0.2% |
| 3 months | 1.8% | 1.1% | 0.8% |
| 6 months | 3.6% | 2.2% | 1.4% |
| 1 year p.a. | N/A | N/A | N/A |
| since inception | 6.6% | 4.0% | 2.6% |
New investments
- During the December quarter, the Fund committed to providing senior debt facilities to two new portfolios of renewable projects. The first commitment is a senior debt facility to GGP Energy Pty Ltd, a renewable energy developer based in South Australia. The company specialises in utility-scale hybrid solar and battery projects, rooftop and microgrids. The GGP portfolio includes three similarly sized hybrid solar and battery projects all located in South Australia at Elwomple, Mannum and South Hummocks. The Elwomple and Mannum projects have been operating since mid-2023 and mid 2024 respectively, and the South Hummocks project is currently in pre-construction phase. Combined, the portfolio has 15MWdc of solar capacity and 15MWh of battery capacity. The loan will be drawn in early 2025.
- The second commitment is to Green Squares Energy (GSE) Trust’s portfolio of renewable assets. GSE is an open-ended investment trust founded in Sydney in 2019. The fund’s assets consist of a portfolio of behind-the-meter solar Power Purchase Agreements (PPAs) which provide renewable energy solutions to commercial and industrial users across Australia. The Trust also owns two solar farms, the 3.6 MWac Chillamurra Solar Farm in Queensland and the 5.0 MWac Cosgrove Solar Farm in Victoria. The output from both solar farms is fully contracted to reputable counterparties. This loan will also be drawn in early 2025.
| Investment statistics | Portfolio loans | Duration (yrs) | Effective maturity (yrs) |
|---|---|---|---|
| Current portfolio | 15 | 0.4 yrs | 2.7 yrs |
Project updates
- The portfolio continues to perform within the manager’s expectations, with no credit downgrades or breaches of covenants to report. All projects within the portfolio are in the operating phase, except for one battery project, which has progressed in its commissioning program and is targeting completion in Q1 2025. As noted in the last update, one of the small solar farms in the portfolio that had been experiencing issues with its power plant controller, has now resolved the issue and continues to dispatch at full capacity of the solar farm.
The Fund made a commitment to Green Squares Energy (GSE) Trust’s portfolio of renewable assets, which owns two solar farms, the 3.6 MWac Chillamurra Solar Farm in Queensland and the 5.0 MWac Cosgrove Solar Farm in Victoria.
Performance was driven predominantly by income from underlying loans and securities, while the RBA’s Cash Rate Target remained constant over the year.
Investments in the portfolio
The Fund consists of a portfolio of loans including:
- Bright Energy Investment Portfolio. A portfolio of three renewable projects in the Western Australian (Greenough River Solar Farm 40MW, Warradarge Wind Farm 180MW, and Albany Grasmere Wind Farm 35.4MW).
- Yarranlea Solar Farm. A 134 MW solar farm in Yarrenlea, Queensland (50km west of Toowoomba).
- Sentient Solar Asset Fund Portfolio. A portfolio of three solar farms throughout Australia (Swan Hill Solar Farm 19.3 MW, Chinchilla Solar Farm 19.9MW and Brigalow Solar Farm 34.6MW).
- RELA. Portfolio of renewable concurrent leases in NSW and Queensland.
- Dulacca Wind Farm. A 181MWac wind farm in Drillham, Queensland (30km west of Miles).
- Ark Energy NT Solar Portfolio. A portfolio of five solar farms in the Northern Territory (Utene Solar Farm 4.1 MW, Yulara Solar Farm 1.8MW, TKLN Solar Farm - Lake Nash 272KWac, TKLN Solar Farm – Ti Tree 323KWac, TKLN Solar Farm – Kalkarindji 408KWac).
- Royal Women's Hospital. Australia’s first and largest specialist public hospital dedicated to improving the health and wellbeing of women and newborns, located in Parkville, Victoria.
- Bouldercombe Battery. A 50MW/100MWh stand-alone battery energy storage system in Rockhampton, Queensland.
- Darwin Convention Centre. The Northern Territory’s largest conference and event facility, catering for up to 1,200 delegates.
- Capital Battery. A project involving the construction of a 100MW/200MWh stand-alone battery energy storage system in Canberra, Australian Capital Territory.
- New South Wales Schools 2. A portfolio of ten schools across New South Wales. The schools include seven primary schools, two high schools and one special needs school.
- GTL Renewables. A portfolio of over 2,000 solar and battery power purchase agreement (PPA) systems located across the east coast of Australia. Under the PPA arrangements, solar and battery equipment is provided to households for a fixed monthly fee over 10 years, with the option for customers to make their home batteries available for grid load balancing and stabilisation services.
- Boco Rock Wind Farm. A 113MW wind farm in the Snowy Monaro Regional Council (40km southeast of Jindabyne).
- GGP Energy Portfolio. A portfolio of three hybrid solar and battery projects (two operating, one in pre-construction) with a combined solar capacity of 15MW and 15MWh of battery capacity.
- Green Square Energy Trust Portfolio. A portfolio of behind-the-meter solar PPAs with commercial and industrial users across Australia, as well as two solar farms, 3.6 MWac Chillamurra Solar Farm in Queensland and 5.0 MWac Cosgrove Solar Farm in Victoria.
Portfolio holding weights
| Investment | Weight (%) |
|---|---|
| AE Income Fund | 16% |
| Bright Energy Investment Portfolio | 14% |
| Boco Rock Wind Farm | 13% |
| Yarranlea Solar Farm | 10% |
| Sentient Solar Asset Fund Portfolio | 10% |
| RELA | 8% |
| GTL Renewables | 6% |
| Dulacca Wind Farm | 5% |
| Ark Energy NT Solar Portfolio | 5% |
| Royal Womens Hospital | 4% |
| Cash | 2% |
| Bouldercombe Battery | 2% |
| Darwin Convention Centre | 2% |
| Capital Battery | 1% |
| New South Wales Schools 2 | 0% |
| Other | 0% |
1 Assuming the average residential customer consumes 5.5MWh of electricity a year.
Disclaimer
Interests in the Australian Ethical Managed Funds are issued by Australian Ethical Investment Ltd (ABN 47 003 188 930, AFSL 229949), the Responsible Entity of the Australian Ethical Managed Funds.
The information in this summary is of a general nature and is not intended to provide you with financial advice or take into account your personal objectives, financial situation or needs. Before acting on the information, consider its appropriateness to your circumstances and read the Financial Services Guide, relevant product disclosure statement and Target Market Determination available on our website.
You may wish to seek financial advice from an authorised tax or financial adviser before making an investment decision. Past performance is not a reliable indicator of future performance.
Investing ethically and sustainably means that the investment universe will generally be more limited than non-ethical, non-sustainable portfolios in similar asset classes. This means that the portfolio(s) may not have exposure to specific assets which over or underperform over the investment cycle, and so the returns and volatility of the portfolio(s) may be higher or lower than non-ethical, non-sustainable portfolios over all investment time frames.
The information contained in this document is believed to be accurate at the time of compilation.
This commentary may contain material provided by third parties derived from sources believed to be accurate at its issue date. While such material is published with necessary permission, Australian Ethical accepts no responsibility for the accuracy or completeness of, nor does it endorse any such third party material. To the maximum extent permitted by law, we intend by this notice to exclude liability for this third party material.
The Australian Ethical Infrastructure Debt Fund is managed by specialist investment manager Infradebt who have agreed to be included in the commentary.