Australian Ethical Infrastructure Debt Fund
Fund outlook and market commentary
For the first quarter of the financial year, the wholesale class of the Australian Ethical Infrastructure Debt Fund (the Fund) returned 1.7% net of fees, compared to the benchmark return of 1.1 %. This represents an outperformance of +0.6% (or +2.7% 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 quarter. Credit margins have remained reasonably steady over this quarter, with the credit position of all loans remaining strong.
The Fund has a specific objective of supporting Australian projects that generate positive, measurable social and environmental impact alongside a financial return. In the previous 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.
Average electricity prices for the quarter were $118/MWh, which was lower than the previous quarter, but higher than the running 12-month average. Prices in September were lower than in July and August, as warmer weather (which reduced heating needs) led to operational demand approaching its lowest level of the year. Notably, minimum operational demand in NSW fell to its lowest level, at 3,281 MW. These low demand levels coincided with high rooftop solar generation periods and the curtailment of large-scale solar farms.
Spot prices for Large-scale Generation Certificates (LGC)2 remain stable at $42/LGC, while forward prices have edged downward as the market anticipates that the growth in LGC supply will outpace demand, driven by increasing voluntary surrenders by corporates.
The above market conditions broadly result in the merchant power generators in the portfolio, for example the Leeton and Fivebough solar farms in the Photon Energy Portfolio, having generated lower revenue than in the prior quarter, however all assets continue to meet their covenant requirements.
Infrastructure Debt Fund Performance
As at 30 September 2024
| fund | RBA Cash | Excess Returns | |
|---|---|---|---|
| 1 month | 0.6% | 0.4% | 0.3% |
| 3 months | 1.7% | 1.1% | 0.6% |
| 6 months | 3.6% | 2.2% | 1.5% |
| 1 year p.a. | N/A | N/A | N/A |
| since inception | 4.7% | 2.9% | 1.8% |
New investments
- During the quarter, the Fund acquired a stake in the Boco Rock Wind Farm senior debt facility. Boco Rock Wind Farm is a 67 turbine, 113MW wind farm located in the Snowy Monaro Regional Council (40km southeast of Jindabyne), New South Wales with about 10 years of operating history. The wind farm has a quality long-term power purchase agreement (PPA) offtake with Energy Australia that covers 100% of generation through to 2029. This offtake provides a significant hedge against merchant exposure in the portfolio and provides geographical diversification benefits to the portfolio as the only wind farm in NSW.
- As noted in the last quarterly update, the Fund also provided senior debt financing for Green Tech Limited’s (GTL Renewables) residential PPA portfolio in early July. This quarter GTL Renewables funded 85 new residential PPA systems in addition to its existing 2,000+ PPA in the portfolio.
| Investment statistics | Portfolio loans | Duration (yrs) | Effective maturity (yrs) |
|---|---|---|---|
| Current portfolio | 15 | 0.5 yrs | 2.7 yrs |
Project updates
- The portfolio continues to perform within 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 Q4 2024.
- One of the small solar farms in the portfolio has been experiencing issues with its power plant controller, limiting the project’s ability to dispatch at full capacity. The issue is currently being investigated and is expected to be rectified in the coming month.
- Finally, as noted in the last quarterly update, a small grass fire had occurred at one of the solar farms resulting in the disconnection of one inverter. We remain confident the damage will be fixed with the lost power generation small relative to the overall project revenues, and therefore no concern from a credit standpoint.
During the quarter, the Fund acquired a stake in the Boco Rock Wind Farm senior debt facility. Boco Rock Wind Farm is a 67 turbine, 113MW wind farm located in the Snowy Monaro Regional Council, 40km southeast of Jindabyne, New South Wales.
The portfolio continues to perform within 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 Q4 2024.
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.
- 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).
Portfolio holding weights
| Investment | Weight (%) |
|---|---|
| Boco Rock Wind Farm | 14% |
| Bright Energy Investment Portfolio | 14% |
| Yarranlea Solar Farm | 11% |
| Sentient Solar Asset Fund Portfolio | 10% |
| RELA | 8% |
| Energy Trade | 8% |
| Dulacca Wind Farm | 6% |
| GTL Renewables | 6% |
| Ark Energy NT Solar Portfolio | 5% |
| Royal Womens Hospital | 5% |
| Photon Energy Portfolio | 3% |
| Cash | 3% |
| AE Income Fund | 2% |
| Bouldercombe Battery | 2% |
| Darwin Convention Centre | 2% |
| Capital Battery | 1% |
| New South Wales Schools 2 | 0% |
| Other/td> | 0% |
1 Assuming the average residential customer consumes 5.5MWh of electricity a year.
2 LGCs are tradable certificates created for eligible large-scale renewable energy power stations which are sold or traded to entities with liabilities under the Australian government’s Renewable Energy Target, such as electricity retailers.
Interests in the Australian Ethical Infrastructure Debt Fund is issued by Australian Ethical Investment Ltd (ABN 47 003 188 930, AFSL 229949), as trustee of the Australian Ethical Infrastructure Debt Fund.
The information 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 (PDS) and Target Market Determination (TMD) 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 document 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, the 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.