USF and the COVID-19 Pandemic

As at 13 July 2020.

As the 2019 Novel Coronavirus (COVID-19) continues to spread, we are thinking of all our stakeholders across the globe and hope that everyone is staying healthy and comfortable. Our thoughts are with those suffering from the virus and we are very grateful to everyone working on the frontlines in healthcare and essential services.

In the initial stages of the outbreak, the governments of numerous countries and states implemented restrictions and controls to minimise the spread of COVID-19. Many countries have now begun to ease restrictions and to re-open economies. This is the case in the US where USF’s portfolio assets are operational and under construction.

We have made changes to our operations to further ensure the health and safety of the New Energy Solar Manager (Investment Manager) team and contractors working on our sites. We continue to assess the current and potential impact of the various COVID-19 measures implemented by government on USF’s investment strategy and operations.

  • USF’s Investment Strategy
    • Revenue: USF has long-term contracted cashflows across a diversified portfolio of solar plants. The IPO proceeds have been invested across five transactions, including 41 power plants in four states, totalling over 443 MWDC. Including Acquisition Five which has reached mechanical completion, more than 60% of USF’s assets are now operating. Its cashflows are 100% contracted with investment-grade off takers for an average remaining term of 15 years, decreasing the Fund’s exposure to near-term power price volatility.
  • Running USF and the Investment Manager
    • The Investment Management team continues to work well in the current circumstances. The New York office remains closed and the US team continues to work remotely. The Sydney office has implemented staggered access arrangements to enable staff to work from the office while adhering to social distancing guidelines. Already geographically diverse, our team members are no strangers to cross-border communication. We are in close regular contact with scheduled calls and use existing reporting and site monitoring processes and practices, including virtual communication and videoconferencing with remote site personnel, to ensure continuity of operations.
  • Operating Solar Plants
    • The Investment Manager has a capable and experienced internal asset management team that remotely streams and analyzes performance data from each of our operating plants. We also work closely with the third-party operations and maintenance providers who manage the day-to-day operations of our assets both from remote control centers and locally at the sites.
    • Only those facilities with generating capacity of more than 40 MWDC have dedicated on-site personnel for operations and maintenance. For smaller sites, qualified service personnel visit sites only as scheduled or when circumstances require maintenance at the site.
    • Thus far, governmental restrictions imposed in our operating regions have not resulted in interruptions or restrictions on the production and sale of electricity from USF’s solar power plants. In all regions, electricity generation including solar has been deemed an essential service. Therefore, even if the general population is mandated to stay at home, our plants continue to operate and service personnel would be permitted to travel to site to conduct work.
  • In-Construction Solar Plants
    • For assets in construction, key risks relate to the supply chain for plant equipment and the ability to keep workforces on the ground to continue construction.
      • The key supply chain risks revolve around equipment production and delivery interruption. Some solar industry manufacturers have halted operations under central and provincial governments’ guidance, raising concerns around delayed deliveries of key components, including modules, wiring components, and high voltage equipment.
        • Of the total 41 projects in the current portfolio, seven projects remain under construction, all of which have met safe harbour conditions to qualify for the ITC. To meet these conditions, equipment has been purchased ahead of 2020 and/or sufficient and suitable works have been carried out on site ahead of 2020.
        • Previously, the solar panel manufacturer for Acquisition One, our project in Utah, had advised that all modules would be manufactured within the continental US. Subsequently, the supply source has been diversified to include Malaysia and Vietnam. Over 40% of the solar panels have been delivered to site and the Investment Manager does not currently expect the new supply sources to impact plant completion timing. While most construction materials have already been delivered to site or are already in the US, procurement managers continue to closely track the delivery of remaining items sourced overseas and does not expect components to arrive later than scheduled.
        • Solar panels for the Acquisition Two Portfolio (six in-construction projects in North Carolina) have been imported into the US and are being stored in various warehouses close to the sites. The vast majority of the materials required for construction are either on site or have been procured from various international suppliers overseas. While delayed, a few items for two of the six construction sites are still scheduled to be delivered so as not to impact completion. The Investment Manager believes that USF’s in-construction assets are relatively well-positioned regarding supply chain concerns.
      • Labor: Construction remains on schedule for the in-construction assets. Given the global spread of COVID-19, work interruptions across industries remain. The Investment Manager continues to work with Engineering, Procurement and Construction contractors to assess and consider risk mitigation strategies at USF’s solar plants as specific issues develop.

With respect to the longer-term impact of COVID-19, there is a high degree of uncertainty, and accordingly, USF’s Investment Manager is taking a cautious approach. We are closely monitoring the changes in electricity and financial markets, developing scenarios and planning for a range of outcomes. Leading indicators we are monitoring include the following:

  • Electricity prices: COVID-19 restrictions of economic activity have contributed to both reduced demand for electricity and an oversupply of oil on global markets. These factors have resulted in reduced electricity prices in many markets. USF’s exposure to electricity prices is limited given its long-term power purchase agreements but protracted persistence of the impact of COVID-19 may have implications for long-term electricity markets.
  • Debt markets: Debt markets and debt providers are becoming increasingly cautious in response to the uncertainty of current and future economic conditions. USF’s assets are well-positioned regarding debt.
    • Construction finance is in place for Acquisition One and will convert to committed long-term financing upon operations
    • Acquisitions Two and Three are fully equity funded (i.e. unlevered)
    • Long-term financing is in place for Acquisition Four and refinancing will only proceed when satisfactory terms are available (existing debt does not mature until after 2030)
    • Debt was agreed and signed for Acquisition Five at the time of close

We will keep our stakeholders informed as the COVID-19 situation develops around the world. As always, thank you for your continued support and we wish you all health and comfort in the weeks ahead.

 

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