Australian Ethical Infrastructure Debt Fund
Fund outlook and market commentary
The Australian Ethical Infrastructure Debt Fund (the Fund) returned 1.7% net of fees this quarter, compared to the benchmark return of 1.0%, meaning an outperformance of +0.7% (or c. + 2.8% on an annualised basis). Performance was driven predominantly by income from underlying loans and securities, while the Fund’s RBA’s Cash Rate Target benchmark fell by 25bps to 4.1%. The Fund also saw several loans repay early, such as the Capital Battery, and Boco Rock Wind Farm, leading to elevated cash holdings at quarter end.
The Fund aims to support Australian projects that generate positive, measurable social and environmental impact alongside a financial return. Over the last 12 months to December 2024, assets within the portfolio generated 1.9 million gigawatt hours of clean energy and helped avoid 1.1 million tonnes of carbon emissions. This is the equivalent to powering more than 350,000 households over the period.1
Average electricity prices for the quarter were $84/MWh. Electricity prices were volatile over the quarter with prices the highest in February. Day time negative prices are becoming increasingly common, with pressures felt by merchant solar generators. Large scale Generation Certificate (LGC) prices also continue to face headwinds as new renewable supply comes online. Spot LGC prices continue to trade below $30/LGC and closed the quarter at $24/LGC, putting further pressure on merchant generators. However, across the existing portfolio, all loans continue to perform with no material credit issues, although coverage ratios have tightened amongst merchant renewable projects. It is worth remembering that merchant renewable loans have been sized conservatively at low loan-to-value ratios, designed with rapid deleveraging to ensure senior debt position is sufficiently protected during downturns.
Following quarter-end, global equity markets have been subject to significant volatility. However, the Fund’s infrastructure-focus means there has been no material change to underlying cashflows of the projects in the portfolio. A sustained widening in credit spreads may result in adverse mark-to-market movements across underlying loans. However, the portfolio (i) is well diversified, (ii) consists of individual loans that each have strong equity/cash flow buffers and (iii) has a low weighted average loan life (loans are maturing/refinancing consistently as the March quarter demonstrated). Credit spread widening would also represent an opportunity to deploy additional capital at higher yields and spreads on future loan opportunities.
The Fund has recently celebrated its one-year anniversary, with performance and deployment in line with its stated objectives. Given volatile equity markets and additional uncertainty across parts of the private credit sector, we continue to firmly believe that infrastructure debt plays an increasingly relevant role in portfolio construction – and the Fund’s resilience through the past year is a testament to this. We thank you for your continued support and shared values as we seek to support Australia’s transition towards Net Zero.
Infrastructure Debt Fund Performance
As at 31 March 2025
| fund | RBA Cash | Excess Returns | |
|---|---|---|---|
| 1 month | 0.6% | 0.3% | +0.3% |
| 3 months | 1.7% | 1.0% | +0.7% |
| 6 months | 5.3% | 3.2% | +2.1% |
| 1 year p.a. | 7.3% | 4.3% | +3.0% |
| since inception | 7.2% | 4.3% | +2.8% |
Past performance is not a reliable indicator of future performance.
New investments
- During the quarter, the Fund committed to providing a senior debt facility to support the construction of the Fulham Solar Hybrid Project. The project consists of a hybrid 107MW solar farm coupled with a 78MW two-hour battery energy storage system located in Fulham, Victoria, and is being developed by Octopus Australia, a specialist renewable energy developer and fund manager. It will be one of the first large DC-coupled hybrid battery/solar projects to join the National Electricity Market. The project has a unique revenue structure as it benefits from a Victorian Government 10-year VRET2 Support Agreement, which is effectively a fixed price-variable volume power purchase agreement. This will allow the project to sell a portion of solar generation (60% of the solar farm’s capacity) at a fixed price to give the project revenue certainty. The Fund’s senior debt facility will be a bridge facility, funding a portion of the construction costs alongside the equity contribution from funds managed by Octopus.
| Investment statistics | Portfolio loans | Duration (yrs) | Effective maturity (yrs) |
|---|---|---|---|
| Current portfolio | 14 | 0.3 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 the recently closed Fulham Solar Hybrid project and a sub-5 MW hybrid solar farm in the GGP portfolio.
- The portfolio also saw the refinancing of its existing senior debt facility for the Yarranlea Solar Farm. Operational since 2021, Yarranlea Solar Farm is a 34MW solar project located approximately 100km west of Brisbane and has an approximate yield of 273 GWh per annum. The refinancing sees us extend the term of an existing loan, allowing us to continue to lend against a project we have been involved with since 2021.
We committed to providing a senior debt facility to support the construction of the Fulham Solar Hybrid Project. a hybrid 107MW solar farm coupled with a 78MW two-hour battery energy storage system located in Fulham, Victoria.
Despite significant global equity market volatility, the Fund’s infrastructure-focus means there has been no material change to underlying cashflows of the projects in the portfolio.
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.
- 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.
- GGP Solar Hybrid 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.
- Fulham Solar Hybrid. A hybrid 107MW solar farm coupled with a 78MW two-hour battery energy storage system located in Fulham, Victoria.
Portfolio holding weights
| Investment | Weight (%) |
|---|---|
| AE Income Fund | 21% |
| Yarranlea Solar Farm | 15% |
| Bright Energy Investments Portfolio | 11% |
| Sentient Solar Asset Fund Portfolio | 9% |
| Green Square Energy Trust Portfolio | 8% |
| RELA | 7% |
| GTL Renewables | 5% |
| Dulacca Wind Farm | 4% |
| Ark Energy NT Solar Portfolio | 4% |
| GGP Solar Hybrid Portfolio | 4% |
| Royal Women's Hospital | 4% |
| Cash | 4% |
| Bouldercombe Battery | 3% |
| Darwin Convention Centre | 1% |
| Other | 1% |
| New South Wales Schools 2 | 0% |
| Fulham Solar Hybrid | 0% |
1 Assuming the average residential customer consumes 5.5MWh of electricity a year.
Disclaimer
Interests in the Australian Ethical Infrastructure Debt Fund ABN 78 283 158 021 (Fund ) Australian Ethical Managed Funds are issued by Australian Ethical Investment Ltd (ABN 47 003 188 930, AFSL 229949) as Trustee of the Fund. Australian Ethical has appointed Infradebt Pty Ltd ABN 54 162 814 495, AFSL 438 986 (Infradebt) as a Specialist Investment Manager for Australian infrastructure debt assets for the Fund.
The information contained within this document is for use only by Wholesale Clients as defined in section 761G and 761GA of the Corporations Act.
Before acting on the information, consider its appropriateness to your circumstances and read the Information Memorandum 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.