Australian Ethical Infrastructure Debt Fund
Fund outlook and market commentary
In the first full quarter since it’s February 2024 inception, the wholesale class of the Australian Ethical Infrastructure Debt Fund (the Fund) returned 1.8% net of fees for the quarter, compared to the benchmark return of 1.1%, an outperformance of 0.8%. On an annualized basis this represents 3.2% outperformance. Performance was driven predominantly by income from underlying loans and securities, while the RBA’s Cash Rate Target remained constant over the quarter. Credit margins have remained reasonably steady over this quarter, with the credit position of all loans remaining strong. Cash holdings were elevated at the quarter-end reporting date due to receipt of underlying loan interest payments, with the majority of this cash invested following the reporting date.
The Fund has a specific objective of supporting Australian projects that generate positive, measurable social and environmental impact alongside a financial return. During the quarter, assets within the portfolio generated 373,629 megawatt hours of clean energy and helped avoid 224,124 tonnes of carbon emissions. This is the equivalent to powering more than 270,000 households over the quarter1.
There has been a significant rebound of electricity prices during the quarter across the five states in the National Electricity Market (NEM), except Queensland. Prices rose 44% last quarter to $149/MWh, reflecting record low wind resources. The pain is most pronounced in in Victoria and South Australia, the states that have the highest reliance on wind dispatch, where prices have increased 99% and 77% respectively quarter on quarter. This has been to the benefit of merchant projects in the portfolio, such as the Leeton and Fivebough solar farms in the Photon Energy Portfolio, allowing for stronger balance sheets from which to pay out loan interest to the Fund.
The Fund is currently assessing several potential transactions including a wind farm project, a hybrid solar and battery project, a sub-5MW solar portfolio and multiple Battery Energy Storage System (BESS) projects. The wind farm project is currently under detailed due diligence with a target close date in late August.
Infrastructure Debt Fund Performance
As at 30 June 2024
| fund | RBA Cash | Excess Returns | |
|---|---|---|---|
| 1 month | 0.6% | 0.4% | 0.3% |
| 3 months | 1.8% | 1.1% | 0.8% |
| 6 months | N/A | N/A | N/A |
| 1 year p.a. | N/A | N/A | N/A |
| since inception | 2.9% | 1.8% | 1.1% |
New investments
- During the quarter, Sentient’s Solar Asset Fund portfolio facility (financing the Chinchilla, Swan Hill and Brigalow solar farms) was refinanced, extending the maturity of the loan by five years to 31 March 2030. The debt facility continues to deliver attractive risk-adjusted returns.
- Post-quarter, in early July, the Fund provided senior debt financing for Green Tech Limited’s (GTL Renewables) residential power purchase agreement (PPA) portfolio. GTL’s portfolio contains 2,000+ residential solar and battery PPAs systems located across the east coast of Australia. Under GTL’s PPA arrangements, GTL provides solar and battery equipment to households for a fixed monthly fee over 10 years, creating significant net cost savings on electricity for residential customers. Customers can also opt to participate in GTL’s Virtual Power Plant (VPP) program, allowing their home batteries to be used for load balancing and grid stabilisation services. The PPA program contributes to Australia’s grid decarbonisation at a household level.
| Investment statistics | Portfolio loans | Duration (yrs) | Effective maturity (yrs) |
|---|---|---|---|
| Current portfolio | 13 | 0.3 yrs | 1.8 yrs |
Project updates
- All projects in the portfolio continue to perform within expectations of the manager. One battery project is now in the final stages of commissioning. The project had a delay in commencing commissioning, but is now expected to be fully through commissioning in the next few months.
- The Dulacca Wind Farm has now formally entered the operations phase as it is fully operational. Revenue remained very strong as the project continued to dispatch into strong evening peak prices in Queensland. The project is operating well with no material issues to report.
- Finally, one of the solar farms in the portfolio experienced a small grass fire which caused some damage to cabling. It will result in one inverter being down reducing the operational capacity of the project by about 4% whilst repairs are undertaken. The project is insured. From a credit standpoint the manager has no concerns as the lost generation is small relative overall project revenues.
The Australian Ethical Infrastructure Debt Fund invests in projects like the Yarranlea Solar Farm, a 103MWac/134MWdc Single-Axis tracking PV project located in Yarranlea QLD, approximately 100km west of Brisbane.
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.
- Energy Trade. Embedded network operator predominantly based in NSW and ACT.
- 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.
- Photon Energy Portfolio. A portfolio of two solar farms in Leeton, New South Wales (Leeton Solar Farm 7 MW, Fivebough Solar Farm 7MW).
- 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.
Portfolio holding weights
| Investment | Weight (%) |
|---|---|
| Bright Energy Investment Portfolio | 16.0% |
| Yarranlea Solar Farm | 12.9% |
| Sentient Solar Asset Fund Portfolio | 11.7% |
| RELA | 9.7% |
| Energy Trade | 8.5% |
| Dulacca Wind Farm | 6.9% |
| AE Income Fund | 6.6% |
| Cash | 6.2% |
| Ark Energy NT Solar Portfolio | 6.2% |
| Royal Women's Hospital | 5.6% |
| Photon Energy Portfolio | 3.3% |
| Bouldercombe Battery | 2.6% |
| Darwin Convention Centre | 2.0% |
| Capital Battery | 1.3% |
| New South Wales Schools 2 | 0.5% |
| Interest Rate Hedging Derivatives | 0.1% |
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.
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.