TIDMNESF
RNS Number : 1673C
NextEnergy Solar Fund Limited
17 June 2021
LEI: 213800ZPHCBDDSQH5447
17 June 2021
NextEnergy Solar Fund Limited
("NESF" or the "Company")
Full Year Results for the year ended 31 March 2021
NextEnergy Solar Fund, the specialist solar power renewable
energy investment company, is pleased to announce its full year
results for the year ended 31 March 2021.
Key highlights
-- Despite unprecedented times, NESF delivered a solid set of
financial results, its target of 150MW of subsidy-free development
assets, and updated its investment policy to unlock growth
opportunities
-- Power price fluctuations were effectively managed through the
successful hedging strategy implementation and NESF consistently
generated electricity over budget:
o Electricity generation +6.2% above budget for year (2020:
+4.7%)
o Additional revenues of GBP7m delivered through hedging
strategy (2020: GBP9m)
-- Continued portfolio growth with 4 new high-quality assets
-- 2022 Target dividend increased in line with RPI to 7.16p per
ordinary share in respect of the year ended 31 March 2022, payable
quarterly
-- Electricity generated in the year equivalent to a saving of
317,600 tonnes of CO2(e) equivalent emissions and sufficient to
power 195,000 UK homes for an entire year
Forward looking strategy update
-- Focus on unlocking growth, expanding NESF portfolio into
international assets (up to 30% GAV), battery storage (up to 10%
GAV), and solar PE structures (up to 15% GAV).
-- Continue to manage risk, hedging further forward to enhance electricity sales strategy:
UK current hedging position as at 16 June 2021:
o 2021/22: 87% of budgeted generation hedged
o 2022/23: 63% of budgeted generation hedged
o 2023/24: 29% of budgeted generation hedged
-- Drive asset performance by continuing to achieve operational outperformance
-- To underpin this forward strategy, NESF is currently pursuing:
o 400MW pipeline of international solar assets, across North
America, Portugal, Spain and Italy
o 500MW pipeline of domestic battery storage assets to
complement NESF portfolio of solar assets and add revenue
diversification
Financial highlights
-- Net asset value per ordinary share of 98.9p (2020: 99.0p)
-- Total Group Revenue of portfolio GBP101m (2020: GBP108m)
-- EBITDA of portfolio GBP78m (2020: GBP86m)
-- Ordinary shareholder annualised total return since IPO of 6.1% (2020: 6.3%)
-- Gearing (including preference shares) of 43% (2020: 42%)
-- Cash income GBP59.5m (2020: GBP61.2m)
-- Cash dividend cover before scrip 1.1x (2020: 1.2x)
-- Increased ordinary shareholders' NAV of GBP581m (2020: GBP579m)
-- Achieved dividends per ordinary share of 7.05p (2020: 6.87p)
Operational highlights
-- Total capacity installed of 814MW (2020: 755MW)
-- 94 operating solar assets (2020: 90)
-- Successful energisation of High Garrett, a 8.5MW extension to
the 5MW ROC asset known as Kentishes acquired in 2016, was achieved
in October 2020.
ESG highlights
-- 195,000 UK homes powered for one year (2020: 189,000 UK homes)
-- 317,600 tonnes of CO2e emissions avoided (2020: 307,700 tonnes)
-- 738GWh clean electricity generated (2020: 712GWh)
-- 14 sites have completed to full Universal Biodiversity Management Plan (UBMP) level
-- Achieved compliance with the European Union Sustainable Finance Disclosure Regulation
-- Committed to making disclosures in accordance with Regulation
(EU) 2019/2088 on sustainability-related disclosures in the
financial services sector
Results presentation
There will be a webcast and conference call this morning at
9.00am hosted by:
-- Kevin Lyon (Chairman - NESF)
-- Michael Bonte-Friedheim (CEO - NextEnergy Capital, Investment Advisor)
-- Ross Grier (Managing Director - NextEnergy Capital, Investment Advisor)
To register for the webcast please use this link:
http://bit.ly/NESF_FY_webinar
The presentation will be followed by a Q&A session for
analysts. Questions may be submitted prior to the presentation via
email to ir@nextenergysolarfund.com or live during the event using
the webcast Q&A function. We will endeavour to answer submitted
questions during the Q&A section, if this is not possible due
to time constraints, we will follow up shortly after the
presentation.
A recording of the presentation will also be made available on
the NESF website shortly after the event.
Kevin Lyon, Chairman of NextEnergy Solar Fund commented:
"In a period dominated by the uncertainty and challenges brought
about by the Covid-19 pandemic, NESF has continued to perform well
and implement its strategy, resulting in portfolio growth and an
attractive dividend.
While the period saw power price fluctuations, NESF's ability to
effectively manage its exposure through its hedging programme, as
well as generating electricity significantly over budget, meant
that the period was a successful one. During the year, the Company
was again able to increase its dividend in line with RPI, paying a
total of GBP38.1m of cash dividends as well as an additional
GBP2.9m of scrip shares to ordinary shareholders who elected for
the scrip dividend alternative.
On the acquisition front, the uncertain environment did not stop
NESF being able to grow its portfolio. The Company reached its
subsidy-free development target of 150MW and took steps in
establishing a foothold in the long-term, high-credit UK corporate
PPA market by acquiring the Camden portfolio, comprising two
projects totalling 100MW.
Recent changes to the Group's investment policy mean that NESF
can increase its geographic, asset class and structure diversity,
offering a truly unique investment opportunity for shareholders. I
would like to thank everyone at NESF for their commitment as well
as our stakeholders for their continued support."
Michael Bonte-Friedheim, Group CEO of NextEnergy Capital
commented:
"Notwithstanding the unprecedented circumstances, I am extremely
pleased with NESF's ability to navigate a difficult environment of
fluctuating power prices with both efficient portfolio optimisation
as well as implementing a hedging policy that has produced a
significant top line gain for the Group. As well as a solid set of
financial results, the period saw NESF deliver on what it set out
to do such as reaching its 150MW target of subsidy-free assets in
development. As well as this milestone, the Group made several
significant acquisitions which add significant long-term confidence
in our portfolio continuing to deliver above budget.
Our overwhelming shareholder approval to changes in the
Company's Investment Policy means that we can now deploy up to 30%
of our GAV outside of the UK, as well as being able to invest 15%
into private equity structures and 10% in standalone energy storage
projects. These exciting and significant changes mean that NESF has
the increased freedom to create a truly diversified portfolio of
solar assets and offer a unique investment opportunity for
shareholders. I would like to thank all at NESF for their continued
hard work and look forward to another exciting period of growth for
our stakeholders."
For further information:
NextEnergy Capital Group 020 3746 0700
Michael Bonte-Friedheim ir@nextenergysolarfund.com
Aldo Beolchini
Ross Grier
Peter Hamid (Investor Relations)
Cenkos Securities 020 7397 8900
James King
William Talkington
Shore Capital 020 7408 4090
Anita Ghanekar
Sarah Mather
Fiona Conroy (Corporate Broking)
Camarco 020 3781 8334
Owen Roberts
Eddie Livingstone-Learmonth
Apex Fund and Corporate Services (Guernsey)
Limited 01481 735 827
Nick Robilliard
+++
NextEnergy Solar Fund
Generating a more sustainable future
Annual Report for the year ended 31 March 2021
Our Objectives
Investment Objective
To provide ordinary shareholders with attractive risk-adjusted
returns, principally in the form of regular dividends, by investing
in a diversified portfolio of primarily UK-based solar energy
infrastructure assets.
Strategic Objectives
Investment
Expand the portfolio in line with the Company's Investment
Policy.
Demonstrate our leadership in the UK solar market and achieve
superior technical and operational performance.
Maintain our pricing discipline in relation to acquisitions.
Operational
Optimise the value of our investments through effective
portfolio and asset management.
Consistently achieve operational outperformance of the portfolio
attributable to effective asset management (Asset Management
Alpha).
Environmental
Participate in climate change mitigation, enhance local
biodiversity where our assets are located, and contribute towards a
zero carbon and sustainable future.
Society
Positively impact both the communities in which our solar assets
are located and wider stakeholders.
Governance
To act in a manner consistent with our values of integrity,
fairness and transparency.
Maintain strong and constructive relationships with our
shareholders and other key stakeholders.
Overview
Performance Highlights
Financial Highlights
NAV per ordinary share
as at 31 March 2021
98.9p
(31 March 2020: 99.0p)
Dividends per ordinary share for the year ended
31 March 2021
7.05p
(31 March 2020: 6.87p)
NAV total return per ordinary share for the year ended
31 March 2021
7.0%
(31 March 2020: -4.5%)
Ordinary shareholders' NAV
as at 31 March 2021
GBP581m
(31 March 2020: GBP579m)
Cash dividend cover (pre-scrip dividends) for the year ended
31 March 2021
1.1x
(31 March 2020: 1.2x)
Ordinary shareholder total return for the year ended
31 March 2021
5.1%
(31 March 2020: -7.8%)
Financial debt gearing
as at 31 March 2021(1)
24%
(31 March 2020: 22%)
Total gearing
as at 31 March 2021(2)
43%
(31 March 2020: 42%)
Ordinary shareholder annualised total return since IPO
6.1%
(31 March 2020: 6.3%)
Operational Highlights
Total capacity installed as at 31 March 2021
814MW
(31 March 2020: 755MW)
Operating solar assets
as at 31 March 2021
94
(31 March 2020: 90)
Total electricity generation for the year ended
31 March 2021
738GWh
(31 March 2020: 712GWh)
Generation above budget for the year ended
31 March 2021
6.2%
(31 March 2020: 4.7%)
ESG Highlights
Tonnes of CO(2) e emissions avoided p.a.(3)
317,600
(31 March 2020: 307,700)
UK homes powered for one year(3)
195,000
(31 March 2020: 189,000)
(1) Financial debt gearing excludes the GBP200m preference
shares
(2) Total gearing is the aggregate of financial debt and GBP200m
of preference shares. The preference shares are equivalent to
non-amortising debt with repayment in shares
(3)
www.greeninvestmentgroup.com/green-impact/green-investment-handbook
NextEnergy Solar Fund Overview
SPECIALIST SOLAR POWER RENEWABLE ENERGY INVESTMENT COMPANY WITH
A MANDATE FOR GROWTH IN LINE WITH THE COMPANY'S STRATEGIC AIMS
MANAGED BY THE NEXTENERGY CAPITAL GROUP, A LEADING SPECIALIST
INVESTMENT AND ASSET MANAGER IN THE SOLAR ENERGY INFRASTRUCTURE
SECTOR
DIVERSIFIED PORTFOLIO OF 94 OPERATING SOLAR PLANTS
POWERING THE EQUIVALENT OF 195,000 UK HOMES (EQUIVALENT TO
PORTSMOUTH AND BRIGHTON COMBINED) ANNUALLY WITH CLEAN RENEWABLE
ENERGY
CONSISTENT OPERATING AND ASSET MANAGEMENT OUTPERFORMANCE SINCE
IPO
TARGETING A TOTAL DIVID OF 7.16P PER ORDINARY SHARE IN RESPECT
OF THE YEARING 31 MARCH 2022, PAYABLE QUARTERLY
Why Invest in Solar Assets?
ABUNDANT ENERGY SOURCE
More solar energy hits the Earth in a single hour than the
energy being used by the entire human population in a year.
Solar energy generation is now economically viable in markets
not typically characterised by high levels of solar
irradiation.
PROVEN AND STABLE TECHNOLOGY
Reliable and predictable source of electricity due to high
consistency in yearly solar irradiation.
Long useful life (25-40 years with potential to extend) with
high proportion of contracted cash flows from operating solar
plants.
COST-EFFECTIVE ELECTRICITY GENERATION
Low operating and maintenance costs and ongoing capital
expenditures.
Solar PV technology has benefited from a significant reduction
in costs and non-subsidised solar assets are now economically
competitive with fossil fuel sources and provide attractive
financial returns.
CLIMATE CHANGE SOLUTION
Fundamental to achieving a more sustainable future by
accelerating the transition to clean and sustainable energy.
Meaningful contribution to reducing CO(2) e emissions through
the generation of clean electricity.
Strategic Report
Chairman's Statement
Kevin Lyon,
Chairman of NESF, commented:
The Board is proud of everyone involved with NESF and their
response and performance in the face of the pandemic's consequences
on our sector. Despite these challenges, the Company recorded its
seventh consecutive year of operating outperformance, positive
dividend coverage and we achieved our dividend target of 7.05p,
having met the target every year since IPO.
We have reset our strategy for growth, refocusing the investment
policy to allow for more international expansion, and increased
risk diversification through investments in private equity
structures and in different technologies such as battery storage.
As we look to the future, we will keep our focus on our revised
investment strategy, aiming to achieve investor value creation,
progressive dividend growth and positive dividend coverage.
NESF also achieved key milestones in the face of the difficult
operating environment, with the acquisition of the two new UK solar
farms (Camden portfolio, totalling 100MW) and achieving our 150MW
subsidy-free development target. We continue to create a future for
solar in a subsidy-free world and are targeting long-term corporate
PPAs, direct wire agreements and leveraging our electricity sales
capabilities to maximise revenues generated by these plants.
I am pleased to present the Annual Report for the NextEnergy
Solar Fund Limited (the "Company" or "NESF") for the year ended 31
March 2021.
The year was significantly impacted by the Covid-19 pandemic and
its effects on the demand for electricity, power prices and our
operations. The Company, its Investment Manager, NextEnergy Capital
and its operating asset manager, WiseEnergy, all faced challenges
on an unprecedented level but successfully transitioned to remote
working. A phased return to the office is now occurring in
jurisdictions where regulations permit.
The uncertainty caused by Covid-19 exacerbated the power price
forecasting models in the renewable sector, impacting share prices.
Our share price performance was disappointing in comparison to the
sector, despite our assets continuing to consistently outperform
generation budgets and successfully implemented our power price
hedging strategy, which allowed us to reduce volatility and lock in
cash flows throughout the pandemic, reducing risk.
Our current dividend yield and share price offers investors both
current and new, an attractive opportunity to invest as we position
ourselves for future growth, whilst also playing a key part in
contributing to tackling global climate change.
Results and Key Events
The Company has continued to perform well operationally during
the challenges of the Covid-19 pandemic, driven by the
implementation of our portfolio and asset management strategy, our
approach to continually improve operating efficiency and ability to
manage our exposure to power price fluctuations effectively through
our specialist electricity sales function.
The Company's assets generated significantly more electricity
and revenues than budgeted, and more than in prior periods, largely
due to effective asset management, higher solar irradiation, and
the proactive hedging of UK power prices for our electricity
generation. This enabled us to both minimise the impact of power
price volatility and actively capture pricing opportunities in the
market which contributed to our revenues during the year.
At the AGM held in September 2020, shareholders overwhelmingly
approved changes to the Company's Investment Policy, allowing the
Company to invest up to 30% (previously 15%) of GAV in solar plants
outside the UK in OECD countries, invest up to 15% of GAV in
private equity structures and up to 10% in standalone energy
storage. These changes will help us seek opportunities in markets
which yield significantly higher risk-adjusted financial returns
than the UK solar secondary or subsidy-free markets. The Investment
Adviser is actively considering opportunities to deploy capital in
these areas.
The Company is delighted that it has reached its subsidy-free
development target of 150MW, by approval of the final two
development projects for construction. Hatherden (50MW) and
Whitecross (36MW) are currently being prepared for construction and
are expected to be energised in late 2022. These assets will follow
the successful energisation of High Garrett (8.5MW) in October
2020, and Staughton (50MW) and Hall Farm II (5MW) during the last
financial year. NESF's early entry into the UK subsidy-free market
has shown its ability to develop value-accretive opportunities such
as long-term corporate power price agreements ("PPAs") and secure
more attractive risk- adjusted financial returns compared to
acquiring operating solar projects with subsidies. This has allowed
NESF to establish its expertise and leadership position in this
subsidy-free space.
Similarly, NESF took significant steps in establishing a
foothold in the long-term, high-credit UK corporate PPA market by
acquiring the Camden portfolio, comprising two projects totaling
100MW. The Grange (50MW) is fully operational and South Lowfield
(50MW) is expected to be energised this summer. The Camden
portfolio has a 15-year PPA in place covering c.75% of the
electricity to be generated over the life of the PPA. The PPA
counterparty is AB InBev, the world's largest brewer.
The technical performance of our plants during the year has been
exceptional. Generation was 6.2% above budget and Asset Management
Alpha (which measures the operational outperformance attributable
to effective asset management above and beyond changes in
underlying solar irradiation) was 0.7%. With the majority of our
electricity sold under fixed-price contracts, we achieved earnings
per ordinary share of 6.87p (2020: -5.09p).
During the year, the Board concluded its review of its dividend
policy. To the extent the Board considers it appropriate, each year
we will target increasing the total annual dividend paid to
ordinary shareholders. For the financial year ending 31 March 2022,
we are therefore targeting an increased total dividend of 7.16p per
ordinary share.
In approving this dividend target, the Board took into account
the projected future power prices and associated price hedges,
inflation in our markets, historic and budgeted technical and
operational performance of our portfolio, the appropriate ratio of
ordinary earnings and future targeted dividend payments.
NAV and Operating Results
At the year end, the ordinary shareholders' NAV was GBP581m,
equivalent to 98.9p per ordinary share (2020: GBP579m, 99.0p per
ordinary share).
The main detractors during the year were a decrease in long-term
power price forecasts (-3.0p per ordinary share), a downward
revision in short-term inflation forecasts (-1.1p per ordinary
share) and increased corporation tax rate from 2023 onwards (-1.8p
per ordinary share). The main contributors during the year were a
decrease in the unlevered discount rate (+3.4p per ordinary share)
and the Company's operating outperformance (+1.4p per ordinary
share).
Profit before tax was GBP40.2m (2020: -GBP29.7m) with earnings
per ordinary share of 6.87p (2020: -5.09p). Cash dividend cover
(pre-scrip dividends) was 1.1x (2020: 1.2x).
For the year, the ordinary shareholder total return was 5.1%
(2020: -7.8%) and the ordinary share NAV total return was 7.0%
(2020: -4.5%). As at 31 March 2021, NESF had an annualised ordinary
shareholder total return of 6.1% (2020: 6.3%) and an annual
ordinary share NAV total return of 6.0% since IPO (2020: -5.9%). At
year end, the NESF share price was 99.6p, which was a 0.7% premium
to the NAV per ordinary share of 98.9p (2020: share price was
101.5p, 2.5% premium to the NAV per ordinary share which was
99.0p).
Power Prices
At the beginning of the financial year, the "oil price war"
between the USA, Saudi Arabia and Russia, and the first effects of
the Covid-19 pandemic led to sharp power price declines. In May
2020, the short-term demand-side effects stemming from the pandemic
drove power prices down to unprecedented levels. A H2 2020 economic
recovery, and subsequent increased demand for electricity, has
driven a recovery in short and medium-term power prices; something
that is currently reflected in day-ahead prices as well as 2021 and
2022 pricing.
Of the Company's revenues for the year, 66% were derived from
government subsidies and, at the end of the year, the average
remaining weighted life under the relevant subsidies was 14 years.
These revenues are fixed for the long-term in accordance with the
terms of the relevant subsidies.
The remaining 34% of the Company's revenues were derived from
selling the electricity generated to carefully selected
counterparties in the open market and, therefore, are exposed to
market power price movements. Our Asset Manager's electricity sales
desk is focused on securing the best terms for our sales and
minimising our exposure to short-term price fluctuations by
securing fixed prices for specified time periods. The flexible PPA
framework allowed us to lock in higher power prices during the year
and produced a GBP7.0m revenue uplift compared to selling the
electricity at the spot rate.
Looking forward to the next two financial years, as at 16 June
2021, the Company has agreed fixed UK pricing (hedged)
covering:
-- 87% of budgeted generation for the 2021/22 financial year; and
-- 63% of budgeted generation for the 2022/23 financial year.
Portfolio Performance
Energy generated during the year was 738GWh (2020: 712GWh), 6.2%
above budget (2020: 4.7%), resulting in a seventh consecutive year
of outperformance.
During the year, solar irradiation across the portfolio was 5.5%
above budget (2020: 4.0%). Asset Management Alpha for the year was
0.7% (2020: 0.7%) and would have been 1.3% (2020: 1.5%) if we
excluded distributor network outages, over which we have no
control.
Our UK portfolio performed above expectations with generation
outperformance of 6.3% (2020: 4.6%) and an Asset Management Alpha
of 0.7% (2020: 0.7%).
Our Italian portfolio performed above expectations with
generation outperformance of 5.1% (2020: 6.4%) and an Asset
Management Alpha of 0.2% (2020: 1.3%).
Overall, we estimate this extra generation to have delivered
additional revenues of c.GBP4.8m (2020: GBP3.5m) to the
Company.
Portfolio Update
Over the year, our Investment Adviser and Asset Manager have
continued to optimise the returns from the portfolio by:
-- acquiring projects with attractive long-term PPAs
-- executing our electricity sales strategy to maximise revenue
and reduce shorter-term power price risk;
-- implementing technical improvements;
-- reducing operating costs through re-negotiating contractual
terms and entering into new agreements; and
-- securing options or rights to extend the useful life of four of our assets;
Our subsidy-free asset High Garrett (8.5MW) was successfully
energised in October 2020. The final investment decision covering
two further subsidy-free assets, Hatherden (50MW) and Whitecross
(36MW), ensured our 150MW subsidy-free portfolio target was
achieved, of which 64MW has been energised as at the date of this
report. The full subsidy-free portfolio will amount to a total
investment of c.GBP79m (7.7% of GAV as at 31 March 2021).
We are progressing strategies for the sale of electricity from
these subsidy-free plants to secure attractive risk-adjusted
returns using electricity sales agreements, corporate power
purchase agreements or direct-wire agreements with a range of
off-takers. The successful consolidation of our subsidy-free
portfolio demonstrates our ability to adjust effectively to a
changing UK solar market through our expertise in identifying
opportunities and maximising risk-adjusted returns.
Separate to the Company's subsidy-free strategy, the Company has
agreed to finance, design, build, operate and own over 30MW of
solar assets on sites operated by Anglian Water Group. The power
generated from these assets will be sold directly to Anglian Water
under 25-year agreements at a fixed price. Sutterton (0.4MW) and
Marham (1MW) were energised in early 2021, and a further 18MW are
expected to be energised during the current financial year.
In addition, we acquired the 100MW long-term PPA backed Camden
portfolio for a total consideration of GBP64.3m. The Grange (50MW)
is fully operational and South Lowfield (50MW) will be energised
during the summer, increasing our combined installed power to
864MW. More information on this transaction can be found in the
Investment Adviser's Report.
On 14 May 2020, two subsidy-free pre-construction development
projects, Strensham and Llanwern, were disposed of for a combined
consideration of GBP11.5m. Construction had not started on either
of these projects and they were disposed of as it became apparent
during the development process they would not meet NESF's financial
target return, mainly due to the decline in power price
forecasts.
Similarly, following the successful completion of our 150 MW
subsidy-free development portfolio, on 25 March 2021, 16 further
development projects in the pipeline were sold for a combined
consideration of GBP5.6m. For both disposal transactions, NESF
recovered all development costs incurred and produced a return on
capital invested significantly in excess of our annualised target
return for UK assets.
Changes to Investment Policy
At the Company's AGM on 11 September 2020, the following changes
were approved by shareholders:
-- up to 30% of GAV may be invested in solar assets that are
located outside the UK (the limit was previously up to 15%);
-- the Company may now acquire an interest in solar assets
located in non-OECD countries where those assets form part of a
portfolio of solar assets in which the Company acquires an interest
and subject to the Company's aggregate investment in any such
assets being not greater than 3% of GAV;
-- up to 15% of GAV may now be invested in solar assets through
private equity structures; and
-- the Company may now also invest in standalone energy storage
systems (not ancillary to or co-located with solar assets owned by
the Company) up to an aggregate limit of 10% of GAV.
At the time of making an investment, the cost of the investment
is calculated as a percentage of GAV to ensure it does not breach
the relevant limit.
In line with its refocused investment policy, the Company is
advancing a significant pipeline of both domestic and international
solar assets and domestic energy storage asset opportunities,
including investments in private equity structures, which
complement its existing portfolio, with a view to achieving higher
financial returns, additional geographical, technology, and revenue
diversification.
Debt Strategy
As at 31 March 2021, the Company's had GBP200m of preference
shares (2020: GBP200m). The Company's subsidiaries also had
financial debt outstanding of GBP246m (2020: GBP214m). Of the
financial debt, GBP192m comprises two long-term fully amortising
debt facilities, and GBP54m was drawn under a short-term credit
facility.
The short-term credit facility of GBP70m was extended from July
2020 to July 2022 during the year. At the year end, the Company's
subsidiaries had GBP36m (2020: GBP71.1m) undrawn from two
short-term credit facilities and the Company had a cash balance of
GBP11m (2020: GBP25m).
The total financial debt represented 24% of GAV as at 31 March
2021 (2020: 22%). As at 31 March 2021, the total gearing comprising
the total financial debt and the preference shares represented 43%
of GAV (2020: 42%).
Dividends
The Directors have approved a fourth interim dividend of 1.7625p
per ordinary share, which will be payable on 30 June 2021 to
ordinary shareholders on the register as at the close of business
on 21 May 2021. Following the payment of the fourth interim
dividend, the Company will have paid total dividends of 7.05p per
ordinary share in respect of the year ended 31 March 2021 (2020:
6.87p), achieving its target for the year.
The Company continues to offer a scrip dividend alternative as
approved by ordinary shareholders at the 2020 AGM, details of which
can be found on the Company's website (nextenergysolar.com).
During the year, the Company paid a total of GBP38.1m of cash
dividends (2020: GBP36.7m) and, in addition, issued GBP2.9m of
scrip shares to ordinary shareholders who elected for the scrip
dividend alternative (2020: GBP3.0m), making a total of GBP41.0m of
distributions (2020: GBP39.7m).
The Company has paid dividends since IPO that have increased
annually in line with RPI. With effect from the financial year
beginning 1 April 2021, to the extent the Board considers it
appropriate, we will each year target increasing the total annual
ordinary dividend paid to shareholders. In deciding the total
annual dividend, the Board will take into account projected future
power prices and associated price hedges, inflation in our markets,
historic and budgeted technical and operational performance of our
portfolio, and the appropriate ratio of ordinary earnings and cash
cover to proposed dividend payments.
For the financial year ending 31 March 2022, we are targeting an
increased total dividend of 7.16p per ordinary share.
Environmental, Social and Governance Matters
Our commitment to ESG is at the forefront of our business
strategy and purpose. Our Investment Adviser is a signatory of the
United Nations' Principles for Responsible Investments and has
integrated ESG principles into all aspects of the NEC Group's
investment and asset management processes. NESF integrates ESG
factors in investment decisions by implementing the Investment
adviser's Sustainable Investment Policy (1) throughout the
investment cycle, from preliminary screening and exclusion to risk
management during pre-investment and ownership phases. We have
strengthened our transparency and reporting in compliance with the
EU Sustainable Finance Disclosure Regulation.
The electricity generated by our portfolio during the year ended
31 March 2021 was equivalent to a saving of 317,600 tonnes of CO
(2) equivalent emissions (2020: 307,700 tonnes CO (2) e) and
sufficient to power 195,000 UK homes for an entire year (2020:
189,000 homes). This is roughly equivalent to powering a city with
490,000 inhabitants (e.g. Portsmouth and Brighton combined) or
taking 102,000 petrol/diesel cars off the road for an entire year
(2020: 99,000 cars off the road for an entire year).
Our Asset Manager also actively engages in activities that
enhance the environment and communities surrounding our solar
plants, including, where feasible, on-site biodiversity activities
such as encouraging wildflower meadows, installing bug hotels,
partnering with local beekeepers and other initiatives to improve
the local biodiversity, as well as local community programmes.
Please refer to the ESG report for more information.
The Company continues to hold the London Stock Exchange Green
Economy Mark, which recognises funds which derive 50% or more of
their revenues from environmental solutions, and the Guernsey Green
Fund Mark, due to our meaningful contribution to reducing CO (2) e
emissions through the generation of clean solar power.
In addition to the ESG activities on behalf of NESF and other
clients, the NEC Group continues to donate at least 5% of its net
profits to the NextEnergy Foundation, which it established in 2017.
The NextEnergy Foundation participates proactively in the global
effort to reduce carbon emissions, providing clean power sources in
regions where they are not available and contributing to poverty
alleviation.
Board changes during the year
Sue Inglis stood down from the board on the 31 March 2021. The
Board would like to take this opportunity to thank Sue for her
contributions during her time as a Director. We wish Sue well for
the future.
Appreciation
On behalf of my fellow Directors, I would like to express my
sincere thanks and appreciation to the numerous people who have
worked in the field and from home under difficult and testing
conditions to enable our Company to continue to operate
successfully in these challenging times.
Outlook
The Board, our Investment Manager and our Investment Adviser
believe that the market environment continues to be favourable for
the Company and its Investment Policy.
Undoubtedly, the economic shock of Covid-19 has had a profound
impact on energy demand and commodity prices. However, the
near-term power price recovery during the second half of the
financial year and beyond has underlined the resilience of our
sector in the current uncertain environment. The price for
electricity is driven by several factors that are proving
particularly difficult to predict in the current environment but is
ultimately dependent on the supply and demand for electricity. A
sustained upturn in demand for electricity will be driven by the
pace of economic recovery once the effects of the pandemic fully
subside.
We continue to closely monitor macro and micro economic
indicators and governmental information to assess the potential
future impact on the Company's activities. The Company will
continue to focus on generating attractive financial returns for
our shareholders, while having positive social and environmental
impacts.
With the energisation of our third subsidy-free asset (High
Garrett, 8.5MW) and the investment approval of Hatherden and
Whitecross, both exciting subsidy-free assets of scale, NESF has
reached its target of c.150MW of subsidy-free assets in the
portfolio.
NESF will now look to consolidate its leadership position in the
growing UK long-term corporate PPA market, building upon the
successes of the Anglian Water projects and the landmark 100MW
Camden acquisition, with the aim of providing long-term, reliable
cashflows for the Company.
NextEnergy Capital's specialist energy trading desk continues to
ensure that our electricity sales strategy, including our
subsidy-free assets, lock in revenue prices mitigating power price
risk.
We are aiming to extend the useful life of a further ten assets
during the current financial year, adding to the 35 assets which
have already secured extensions. These extensions will be value
accretive and optimise our long-term revenues.
We are currently advancing a pipeline of non-UK acquisitions, a
direct investment in an existing private equity fund, and
investments in energy storage systems and ancillary solar
technologies. These will complement our existing portfolio and
diversify some of our asset-specific or market risks, whilst also
adapting our portfolio to the changing dynamics of the solar
markets in which our assets are located.
1
https://cdn.next1.nextenergycapital.com/next/2021/04/NextEnergy-NEC_Sustainable_Investment_policy.pdf
ESG continues to be a core part of our purpose, as activities
mitigating climate change accelerate globally. The execution of our
ESG policy is not just integrated into NESF investment decisions,
it ensures we continue to lead by example and our Company and
stakeholders are fully aligned to create a better environment for
both current and future generations.
The Company has demonstrated that it can be resilient to the
volatility that the Covid-19 pandemic has posed, and we are well
placed to meet the challenge of achieving our investment objectives
and the opportunity to grow the business in the future in line with
our strategic aims.
Kevin Lyon,
Chairman
16 June 2021
Our Business Model
Structure
The Company is regulated by the Guernsey Financial Services
Commission as a registered closed-ended investment company. It has
an indefinite life.
The Company's capital structure comprises ordinary shares and
preference shares. The ordinary shares are listed on the premium
segment of the Official List and traded on the London Stock
Exchange's Main Market. The preference shares are not listed or
traded on any public market. The rights attaching to each class of
shares are summarised in note 13 to the Financial Statements.
The Company makes its investments through intermediate holding
companies ("HoldCos") and underlying special purpose vehicles
("SPVs") that hold the solar assets. The Group comprises the
Company, the HoldCos and the SPVs. As explained in note 2d) to the
Financial Statements, as the Company is an investment entity as
described by IFRS 10, the Company does not prepare consolidated
accounts and, instead, holds its investments in its HoldCos and
SPVs at fair value.
The Company has the ability to use short- and long-term debt at
the Company, HoldCo and SPV levels. Debt at the HoldCo and SPV
levels is non-recourse.
Operating Model
The Company's business model follows that of an externally
managed investment company. Therefore, the Company does not have
any employees and outsources its activities to third party service
providers, including the Investment Manager, Asset Manager and
Administrator who are the principal service providers. The
Investment Manager outsources specific services to the Investment
Adviser.
Management of the Company
The independent Board is responsible to shareholders for the
overall management of the Company, including strategy and strategic
aims, corporate governance, risk management and financial
reporting.
The Company has outsourced the management of its day-to-day
activities to the Investment Manager and the Administrator, which
operate within clearly defined terms of agreements that set out
their roles, responsibilities and authorities. The Investment
Manager, operating under guidelines determined by the Board, has
direct responsibility for the decisions relating to the day-to-day
running of the Company and is accountable to the Board for the
investment and operating performance of the Company. The
Administrator provides the Company with company secretarial, fund
accounting and administration services.
Further information on the division of responsibilities for the
management of the Company can be found in the Corporate Governance
Statement.
Management of the Company's Investment Activities and Assets
The Investment Manager, Investment Adviser and Asset Manager are
all members of NextEnergy Capital Group (the "NEC Group").
The NEC Group, which is privately owned, was founded in 2007 and
has evolved into a leading specialist investment and asset manager
in the solar energy infrastructure sector. Since its inception, it
has been active in the development, construction and ownership of
solar assets, which is its sole focus. As at 31 March 2021, the NEC
Group had assets under management of $2.6 billion with a cumulative
generating capacity of more than 1.2GW. In addition to the Company,
it manages two private equity funds, NextPower II LP (invests in
solar assets in Italy) and NextPower III LP (invests in solar
assets globally).
The NEC Group's team of some 190 individuals has significant
experience in energy and infrastructure transactions across
international jurisdictions. The Investment Adviser's Investment
Committee comprises of Michael Bonte-Friedheim, Aldo Beolchini
Giulia Guidi and Ross Grier who have over 65 years' industry
experience.
Since it was founded, the NEC Group has provided operating asset
management, monitoring, technical due diligence and other services
to over 1,300 utility-scale solar power plants with an installed
capacity in excess of 2.1GW. Its asset management clients include,
banks, private equity funds and other specialist investors. It has
created a proprietary asset management platform which integrates
all technical, financial and commercial data to analyse clients'
data in real-time and generates insight that help drive
performance. This software and systems having been refined over the
past 12 years, together with specialist staff with extensive solar
experience allows WiseEnergy to be at the forefront of the
'digitalisation of energy'.
The collective experience of the NEC Group of investing and
managing solar assets best positions the Company to implement
efficiencies at both the investment and operating asset levels. The
technical and operating outperformance of the Company's portfolio
to date underlines the benefits of this comprehensive strategic
relationship.
Administration of the Company
The Board has delegated administration, fund accounting and
company secretarial services to the Administrator.
Apex Fund and Corporate Services (Guernsey) Limited, is part of
the Apex Group which was established in Bermuda in 2003 and is a
global financial services provider. It has over 45 offices
worldwide and 4,000+ employees.
Further details of the Administrator's responsibilities can be
found in the Corporate Governance Report.
Michael Bonte-Friedheim is Founding Partner and CEO of the NEC
Group. He has over 20 years' specialist experience in the power and
energy sector and was previously Managing Director in Goldman
Sachs' energy and power investment banking team in London and
non-executive Chairman and CEO of a number of listed energy
companies.
Aldo Beolchini is Managing Partner and CIO of the NEC Group. He
has over 20 years' experience in investment banking and renewable
energy. Prior to joining the NEC Group in 2008, he was Vice
President at Morgan Stanley Investment Banking.
Entity Principal Roles
Investment Manager
(Management Agreement with the * Acting as the Company's Alternative Investment Fund
Company - see note 1 in the Manager ("AIFM").
Financial Statement)
* Discretion for making investments in accordance with
the Company's Investment Policy, subject to them
having been recommended by the Investment Adviser.
* Portfolio and risk management services as required by
the EU's AIFM Directive.
* Reporting to the Board on all operational, financial
and technical issues and the valuation of the
investments.
Investment Adviser
(Advisory Agreement with the * Providing investment and other advice and
Investment Manager) recommendations to the Investment Manager in respect
of the Company's existing and potential investments.
* Identify investment opportunities for the Company.
* Evaluating investment opportunities and co-ordinate
external due diligence activities.
* Negotiating all project contracts with
counterparties.
* Preparing investment proposals and provide general
advice and recommendations to the Investment Manager
concerning the Company's portfolio, financing,
strategy, market developments, etc.
* Reviewing performance of the Company's portfolio
together with the Asset Manager.
* Managing Investor Relations for the Company.
Asset Manager
(Asset Management Agreements * Asset management of solar power plants.
with the SPVs)
* Technical and financial analysis of each site to
assess performance and identify potential
improvements. Periodic site visits on each plant.
* Ensuring each SPV's suppliers perform in accordance
with contracts.
* Managing unexpected occurrences at plants and ensures
prompt response to any asset management requirements
of the Company.
* Managing each SPV's administrative and financial
functions and requirements.
* Periodic financial, technical and administrative
reporting to the Company.
Dividend Policy, Scrip Dividends and Dividend Target for
Financial Year Ending 31 March 2022
The Company's principal purpose is to provide ordinary
shareholders with attractive risk-adjusted returns, principally in
the form of dividends that increase in line with RPI for financial
year 2021 and a progressive dividend thereafter. In respect of each
financial year, the Company pays quarterly interim dividends of
equal amount, with dividends declared in August, November, February
and May and paid in or around September, December, March and June
respectively.
The Company offers a scrip dividend alternative to ordinary
shareholders and currently anticipates that it will continue to do
so.
Scrip dividends provide ordinary shareholders with the
flexibility to receive their quarterly dividend in cash or newly
issued ordinary shares. Details of the scrip dividend alternative
for the year ending 31 March 2022 will be set out in a separate
circular that is expected to be sent to ordinary shareholders in or
around August 2021. Once published, a copy of the circular will
also be available on the Company's website
(nextenergysolarfund.com).
The target dividend for the financial year ending 31 March 2022
is 7.16 pence per ordinary share, an increase of 1.5% compared to
the financial year ended 31 March 2021. We expect to pay four
quarterly of dividends of 1.79 pence each.
Five Year Record
Year Ended 31 March
Financial Key Performance Indicators 2017 2018 2019 2020 2021
Ordinary shares in issue 456.4m 575.7m 581.7m 584.2m 586.9m
Ordinary share price 110.5p 111.0p 117.5p 101.5p 99.6p
Market capitalisation of ordinary
shares GBP504m GBP639m GBP683m GBP593m GBP585m
NAV per ordinary share 104.9p 105.1p 110.9p 99.0p 98.9p
Total ordinary NAV GBP479m GBP605m GBP645m GBP579m GBP581m
Premium/(discount) to NAV 5.3% 5.6% 6.0% 2.5% 0.7%
Earnings per ordinary share 13.81p 5.88p 12.37p (5.09p) 6.87p
Dividend per ordinary share 6.31p 6.42p 6.65p 6.87p 7.05p
Dividend yield 5.7% 5.8% 5.7% 6.8% 7.1%
Cash dividend cover - pre scrip
dividends 1.1x 1.1x 1.3x 1.2x 1.1x
Preference shares in issue - - 100m 200m 200m
Financial debt outstanding at
subsidiaries level GBP270m GBP270m GBP269m GBP214m GBP246m
Financial debt (financial debt/GAV) 36% 31% 27% 22% 24%
Gearing (financial debt + preference
shares/GAV) 36% 31% 36% 42% 43%
GAV GBP749m GBP875m GBP1,014m GBP991m GBP1,025m
Weighted average cost of capital 5.9% 5.8% 5.4% 5.5% 5.4%
Ordinary shareholder total return
- cumulative since IPO 26.7% 33.6% 46.7% 37.5% 42.6%
Ordinary shareholder total return
- annualised since IPO 9.1% 8.5% 9.5% 6.3% 6.1%
Ordinary shareholder total return 21.1% 6.2% 11.8% -7.8% 5.1%
Ordinary NAV total return* 14.4% 6.3% 11.8% -4.5% 7.0%
Ordinary NAV total return -
annualised since IPO 4.9% 7.0% 8.1% 5.9% 6.0%
Ongoing charges ratio 1.2% 1.1% 1.1% 1.1% 1.1%
Weighted average discount rate 7.9% 7.3% 7.0% 6.8% 6.3%
Operational Key Performance
Indicators
Invested capital GBP522m GBP734m GBP896m GBP950m GBP999m
Number of assets 41 63 87 90 94
Total installed capacity 454MW 569MW 691MW 755MW 814MW
Annual generation 394 GWh 451 GWh 693 GWh 712 GWh 738 GWh
% increase (year-on-year) 75% 14% 54% 3% 3%
Generation since IPO 0.6 TWh 1.1 TWh 1.8 TWh 2.5 TWh 3.2 TWh
Irradiation (delta vs. budget) -0.3% -0.9% 9.0% 4.0% 5.5%
Generation (delta vs. budget) 3.3% 0.9% 9.1% 4.7% 6.2%
Asset Management Alpha 3.6% 1.8% 0.1% 0.7% 0.7%
Weighted average lease life 24.6 23.3 25.2 26.9 27.5
years years years years years
Our Investment Strategy and Track Record
Investment Strategy
Our strategy is straightforward:
-- Investment: We seek to own a broad range of large scale solar
energy infrastructure assets, primarily located in the UK but with
up to 30% of GAV in other OECD countries, that generate reliable
cash flows over their useful lives (typically, at least 25-40 years
from energisation).
-- Asset management: We seek to enhance the returns from our
assets through effective asset management, including controlling
costs, delivering operational efficiencies, extending their useful
lives and executing short and medium-term electricity sales hedges
to mitigate power price risk.
-- Financing: We seek to optimise the risk-adjusted returns to
our ordinary shareholders by funding our activities through an
appropriate mix of shareholder equity and debt, subject to debt
being capped at 50% of GAV.
-- Risk management: We seek to actively manage potential risks,
including maintaining a diversified exposure by location,
third-party suppliers, service providers and other commercial
counterparties to improve the resilience of the Company's portfolio
and contributing to its long-term sustainable success.
Investment Policy
The Company seeks to achieve its investment objective by
investing predominantly in solar PV assets.
The Company invests in solar PV assets primarily in the UK. Not
more than 30% of the Company's GAV (calculated at the time of
investment) may be invested in solar PV assets that are located
outside the UK. Investments in solar PV assets outside the UK will
be made in OECD countries that the Investment Manager and
Investment Adviser believe have a stable solar energy regulatory
environment and provide investment opportunities with similar, or
better, investment characteristics and returns relative to
investments in the UK, although the Company may acquire an interest
in solar PV assets located in non-OECD countries where those assets
form part of a portfolio of solar PV assets in which the Company
acquires an interest and where the Company's aggregate investment
in any such assets is, at the time any such investment is made, not
greater than 3% of the GAV.
The Company intends to continue to acquire solar PV assets that
are primarily ground-based and utility-scale and which are on sites
that may be agricultural, industrial or commercial. The Company may
also acquire portfolios of residential or commercial
building-integrated installations. The Company targets solar PV
assets that are anticipated to generate stable cash flows over
their asset lifespan.
The Company typically seeks to acquire sole ownership of
individual solar PV assets through SPVs, but may invest in solar PV
assets through entering into joint ventures, acquiring minority
interests or via private equity structures, provided that not more
than 15% of the GAV may be invested in private equity structures
(calculated at the time of investment). Where a controlling
interest of less than 100% in a particular solar PV asset is
acquired, the Company intends to secure controlling shareholder
rights through shareholders' agreements or other legal
arrangements. Where a non-controlling interest is being acquired
(either directly in a solar PV asset or through a private equity
structure) the Company intends to secure minority protection rights
or protections through limited partnership agreements in line with
typical private equity structures. Investments by the Company in
solar PV assets may be either by way of equity or a mix of equity
and shareholder loans.
The Company has built up a diversified portfolio of solar PV
assets and its Investment Policy contains restrictions to ensure
risk diversification. No single investment (or, if an additional
stake in an existing investment is acquired, the combined value of
both the existing and the additional stake) by the Company in any
one solar PV asset will constitute (at the time of investment) more
than 30% of the GAV. In addition, the four largest solar PV assets
will not constitute (at the time of investment) more than 75% of
the GAV.
The Company will continue, primarily, to acquire operating solar
PV assets, but may also invest in solar PV assets that are under
development (that is, at the stage of origination, project planning
or construction) when acquired. Such assets will constitute (at the
time of investment) not more than 10% of the Gross Asset Value in
aggregate.
The Company may also agree to forward-fund by way of secured
loans the construction costs of solar PV assets where it retains
the right (but not the obligation) to acquire the relevant asset
once operational. Such forward-funding will not fall within the 10%
development restriction above but will be restricted to no more
than 25% of the GAV (at the time such arrangement is entered into)
in aggregate and will only be undertaken where supported by
appropriate security (which may include financial instruments as
well as asset- backed guarantees).
The right to forward fund, subject to the above limitations,
enables the Company to retain flexibility in the event of changes
in the development pipeline over time. In addition, the Company
will not employ forward funding and engage in development activity
in relation to the same project or asset.
A significant proportion of the Group's income is expected to
result from the sale of the entirety of the electricity generated
by the solar PV assets within the terms of power purchase
agreements ("PPAs") to be executed from time to time. These are
expected to include the monetisation of ROCs and other regulated
benefits and the sale of electricity generated by the assets to
energy consumers and energy suppliers (Brown Power). Within this
context, the Company expects to execute PPAs with creditworthy
counterparties at the appropriate time.
The Company will continue to diversify its third-party
suppliers, service providers and other commercial counterparties,
such as developers, engineering and procurement contractors,
technical component manufacturers, PPA providers and landlords.
In pursuit of the Company's investment objective, the Company
may employ leverage, which borrowing together with the aggregate
subscription monies paid in respect of all Preference Shares in
issue and including any unpaid or undeclared dividends thereon will
not exceed (at the time the relevant arrangement is entered into)
50% of the GAV in aggregate. Such leverage will be deployed for the
acquisition of further solar PV assets in accordance with the
Company's Investment Policy. The Company may seek to raise leverage
at any of the SPV, UK Holdco or Company level.
The Company invests with a view to holding its solar PV assets
until the end of their useful lives. However, assets may be
disposed of or otherwise realised where the Investment Manager
determines, in its discretion, that such realisation is in the best
interests of the Company. Such circumstances may include (without
limitation) disposals for the purposes of realising or preserving
value, or of realising cash resources for reinvestment or
otherwise. The Company will seek to optimise and extend the
lifespan of its assets and may invest in their repowering and/or
integration of ancillary technologies (e.g. energy storage) on its
solar PV assets to fully utilise grid connections and balance the
electricity grid with a view to generating greater revenues. The
Company may also invest in standalone energy storage systems (not
ancillary to or co-located with solar PV assets owned by the
Company) up to an aggregate limit of 10% of the GAV (calculated at
the time of investment). The Company expects to re-invest any cash
surplus (in excess of that required to meet the Company's dividend
target and ongoing operating expenses) in further investments,
thereby supporting its long-term net asset value.
The Company may invest cash held for working capital purposes
and pending investment or distribution in cash or near-cash
equivalents, including money market funds.
The Company may (but is not obliged to) enter into hedging
arrangements in relation to interest rates and/or power prices.
Where investments are made in currencies other than sterling,
currency hedging may be carried out to seek to provide protection
to the level of sterling dividends and other distributions that the
Company aims to pay on its shares and in order to reduce the risk
of currency fluctuations and the volatility of returns that may
result from such currency exposure. This may involve the use of
forward foreign exchange contracts to hedge the income from assets
that are exposed to exchange rate risk against sterling and foreign
currency borrowings to finance foreign currency assets.
Hedging transactions (if carried out) will only be undertaken
for the purpose of efficient portfolio management to protect or
enhance returns from the Company's portfolio and will not be
carried out for speculative purposes.
As required by the Listing Rules, any material change to the
Investment Policy of the Company will be made only with the
approval of the FCA and of the Company's Ordinary Shareholders by
ordinary resolution.
In the event of any breach of the Company's Investment Policy,
Shareholders will be informed of the actions to be taken by an
announcement issued through a Regulatory Information Service or a
notice sent to Shareholders at their registered addresses in
accordance with the Articles.
Future Investments
As per its Investment Policy, the Company has an investment
limit of 30% of the Company's GAV in solar assets outside the UK.
The Company already has investments in Italy and is advancing
attractive risk-adjusted investment opportunities in other OECD
jurisdictions which would enhance geographic diversification and
provide attractive risk-adjusted financial returns.
The Company is also permitted to invest up to 15% of its GAV
into private equity structures. The Investment Adviser is
considering opportunities to deploy capital in such structures.
The Company may also acquire an interest in solar assets located
in non-OECD countries where those assets are part of a portfolio of
solar assets in which the Company acquires an interest and subject
to the Company's aggregate investment in any such assets being not
greater than 3% of the Company's GAV.
The Company is also permitted to invest up to 10% of its GAV in
standalone energy storage, and we have commenced a detailed review
of numerous opportunities in this technology that will complement
its solar farm portfolio in the UK.
Disposals
During the year, the Company disposed of several non-operational
development projects (Strensham, Llanwern, and 16 development
projects) to an affiliate of NEC. This resulted in NESF recovering
all development costs incurred and producing a return on capital
invested significantly in excess of NESF's annualised target return
for our UK assets. The Board of Directors reviewed each proposal
alongside external advice and concluded that each transaction was
in the best interests of NESF shareholders, whilst also being in
line with the Company's Investment policy. Our RNS disclosures
demonstrate that we have followed the appropriate process for these
disposals. The disposals were undertaken as the investment manager
continued to actively manage the NESF portfolio and looked to
divest residual development risk that did not fit the required
return profile. Full details can be found in the relevant RNS
announcements.
Investment Adviser's Report
Introduction
As at 31 March 2021, the NAV per ordinary share was 98.9p (2020:
99.0p). The change in NAV over 12 months reflects a decrease in
long-term power price forecasts (-3.0p per ordinary share), a
downward revision in short-term inflation forecasts (-1.1p per
ordinary share) and increased UK corporate tax rates rising to 25%
from 2023, expected to remain in place for the remainder of the
life of the portfolio (-1.8p per ordinary share). These movements
were mainly offset by the Company's operating outperformance (+1.4p
per ordinary share) and a reduction in the unlevered discount rate
(+3.4p per ordinary share).
At the year end, the UK blended average power curve corresponded
to an average solar capture price of approximately GBP45.4/MWh
(2020: GBP43.3/MWh) for the period 2021-2025 and GBP46.5/MWh (2020:
GBP48.6/MWh) for the period 2026-2041 (at 2021 prices).
In March 2020, as the pandemic took hold, the NEC Group
implemented its business continuity plans for its global staff to
work from home. This had minimal disruption on the operations of
the NEC Group. As our employees gradually return to the office, we
continue to follow multiple government guidelines and monitor
closely the impact of Covid-19 on our workforce, and the countries
in which we operate and are pursuing new investment
opportunities.
Portfolio Highlights
NEC Group continued to explore new attractive opportunities for
NESF whilst actively managing NESF's existing portfolio of
operating and development assets. On 14 May 2020, two subsidy-free
projects under development, Strensham (40MW) and Llanwern (75MW),
were disposed of for a combined consideration of GBP11.5m. This
resulted in NESF recovering all development costs incurred and
producing a return on capital invested significantly in excess of
NESF's annualised target return for our UK assets. Construction had
not started on either of these projects, and they were sold when
they did not meet NESF's annualised target return, partly due to
the decline in power price forecasts. The transaction constituted a
smaller related party transaction as set out in the FCA's Listing
Rules.
On 29 June 2020, a short-term revolving credit facility ("RCF")
of GBP70m was extended from July 2020 to July 2022. This extension
provides the Company with a short-term source of capital, at an
attractive cost. The Company expects to use the RCF to finance the
completion of its subsidy-free pipeline, and other investment
opportunities that fall within the Company's Investment Policy.
Pre-construction works for our third subsidy-free asset, High
Garrett, began in early 2020 and full construction commenced during
the summer. High Garrett, a 8.5MW extension to the 5MW ROC asset
known as Kentishes acquired in 2016, was energised in October
2020.
The Company has agreed to finance, design, develop, build,
operate and own approximately 30MW of solar assets on Anglian Water
sites. During the year, construction work progressed, and the first
two projects Sutterton (0.4MW) and Marham (1MW) were energised in
early 2021. The power generated from these assets will be sold
direct to Anglian Water at a fixed price for a 25-year period
through a private wire agreement.
On 1 March 2021, two projects totaling 100MW were acquired for a
consideration of GBP64.3m. The Grange (50MW) is fully operational
whilst South Lowfield (50MW) will be energised in the summer of
2021. Once commissioned, these two assets will represent an
increase of c.13% in NESF's installed capacity and produce enough
clean energy combined to power the equivalent of c.29,000 UK
households per year. Both assets benefit from long-term 15-year PPA
in place with AB InBev for c.75% of the electricity generation.
Following the investment approval of two subsidy-free projects
(Hatherden (50MW) and Whitecross (36MW)) the Company successfully
reached its target subsidy-free development portfolio capacity of
c.150MW. Both assets are being prepared for construction and are
expected to be energised in late 2022. The early entry into the UK
subsidy-free market reflects the Company's leadership in the space
and expertise in developing attractive value-accretive
opportunities. As a result of our specialist energy sales desk,
NESF's subsidy-free portfolio will benefit from active hedging and
greater trading flexibility, thereby maximising risk-adjusted
returns for shareholders by locking in future cash flows.
Irradiation Generation Asset
No. of assets (delta vs. (delta vs. Management
Financial year ended
31 March monitored budget) budget) Alpha
2015 6 -0.4% +4.8% +5.2%
2016 23 +0.4% +4.1% +3.7%
2017 31 -0.3% +3.3% +3.6%
2018 55 -0.9% +0.9% +1.8%
2019 84 +9.0% +9.1% +0.1%
2020 85 +4.0% +4.7% +0.7%
2021 88 +5.5% +6.2% +0.7%
Cumulative from IPO 88 +2.9% +5.2% +2.3%
Having achieved its target subsidy-free capacity of c.150MW, the
Company has begun to eliminate any residual development risk. In
March 2021, the Company divested 16 development projects (not in
construction or in operation) from its subsidy-free pipeline. The
projects were sold to an affiliate of the NextEnergy Group through
a related-party transaction as set out in the FCA's Listing Rules.
The divestment amounted to a combined consideration of GBP5.6m and
resulted in an attractive return on the capital invested into this
development activity.
Portfolio Performance
During the pandemic, workers in the electricity sector are
considered "key workers" and this enabled the Asset Manager to
ensure that the technical and operational integrity of NESF's solar
assets were maintained and, to date, NESF has not experienced any
significant technical or operational impacts on its portfolio
resulting from the effects of Covid-19.
Irradiation Generation Asset
(delta vs. (delta vs. Management
Year ended 31 March 2021 budget) budget) Alpha
UK portfolio +5.6% +6.3% +0.7%
Italy portfolio +4.9% +5.1% +0.2%
Total + 5.5% +6.2% + 0.7%
During the year, irradiation across the entire portfolio was
5.5% above expectation (2020: 4.0%), and generation was 6.2% above
budget (2020: 4.7%). Asset Management Alpha for the year was 0.7%
(2020: 0.7%), which would have been 1.3% (2020: 1.5%) if
distributor network outages, over which we have no control, were
excluded.
Asset Management Alpha
The Asset Management Alpha is an important metric that allows
the Company to identify the "real" outperformance of the portfolio
due to effective asset management and excludes the effect of
variation in irradiation. The "nominal" outperformance is
calculated as the GWh generated by the portfolio versus the GWh
expected in the assumptions used at the time of acquisition. This
metric can be used for comparison with other peers in the solar
industry to directly show the contribution of the Asset Manager to
generation outperformance.
The Asset Manager monitors actual performance versus
expectations for assets operational for at least two months post
completion. The three rooftop portfolios have been excluded as
irradiation is not monitored. Similarly, the generation performance
of assets that are yet to pass Preliminary Acceptance Certificate
("PAC") in accordance with the EPC contract is not reported by the
Asset Manager.
Portfolio Optimisation
Asset life extensions
During the year, we secured options or rights to extend the
leases and/or planning on four UK plants. The positive impact on
NAV of these lease extensions amounted to 0.6p per ordinary
share.
As at 31 March 2021, 35 UK assets (337MW), comprising c.41% of
the Company's portfolio, had secured 5, 10 or 15 year lease
extensions. We continue to work on extending the life of the
remaining assets and are targeting a further ten assets for the
remainder of the current financial year to 31 March 2022.
For illustrative purposes, should the ten targeted assets be
valued on a 40-year lease basis from the date of connection to the
grid (assuming current lease terms), the Company's NAV per ordinary
share at 31 March 2021 would increase by approximately 1.6p.
Asset optimisation
During the year, three sites entered into new Operating and
Maintenance 'O&M' contracts, of which NEC actively negotiated a
reduction in price of GBP5.5k/MW with various counterparties. This
resulted in an aggregate annualised cost savings of c.GBP20k,
equivalent to a 20% reduction in contract price.
Short/medium-term power purchase agreements
NEC's specialist energy trading desk, along with external energy
brokers, ensures that the Company's electricity sales strategy
maximises revenues whilst mitigating the negative impact of
short-term fluctuations in the power markets.
Secured pricing comprises of fixed price contracts, hedging
under the trading contracts and nine FiT sites opted into the
export tariff. During the year, power price contract fixes provided
GBP7.0m in additional revenue compared to baseload prices.
FY2021/ FY2022/
UK hedging summary 2022 2023
Budgeted generation hedged (%) (1) 87% 63%
(1) Covers 95% of total portfolio (775MW) as at 16 June 2021
For the financial year ended 31 March 2021, the Italian
portfolio derived c. 85% of revenues from subsidised revenues
(principally FiTs) and c. 15% of revenues resulted from the sale of
electricity generated under short-term contracts. The Company has
secured fixed price agreements covering 100% of its Italian
electricity generation for calendar year 2021 at a weighted average
fixed price of c.EUR45/MWh (2020: 100% at EUR57/MWh).
OFGEM audits
Since IPO, the majority of OFGEM audits have been successfully
signed-off without impacting ROC accreditations. NESF continues to
have regular audits and the NEC Group have experienced team who
deal with the ongoing audit. Professional advisers are engaged as
and when appropriate. During the year, no adjustments to the NAV
were made as a result of any completed or ongoing OFGEM audits.
Subsidy-free Portfolio
Starting in 2018, the Company sourced a pipeline of projects to
be developed into operating subsidy-free assets and set a target of
c. 150MW to add into its portfolio. As at 31 March 2021, the
Company had 64MW of operating subsidy-free assets. Following the
recent investment approval of Hatherden (50MW) and Whitecross
(36MW), the Company will have reached its target when the assets
are energised in the financial year 2022/23.
The Company's subsidy-free pipeline was intentionally greater
than its subsidy-free target of c. 150MW. This was to ensure a
broad set of investment opportunities for NESF from which it has
selected the most attractive projects for inclusion in its
portfolio.
The Anglian Water projects (Sutterton and Marham) and the Camden
projects (The Grange and South Lowfield) are subsidy-free. However,
the energy generated will be sold directly to offtakers at a fixed
price linked to inflation for 25 and 15 years respectively. These
assets therefore have similar characteristics to subsidised assets
and for that reason are not included in the 150MW subsidy-free
target.
The NEC Group's Head of Energy Sales is responsible for managing
the strategy for the sale of electricity from the subsidy-free
operating assets. Details on the power price risk management
strategy can be found below and in note 22b to the Financial
Statements.
The Italian Solis Portfolio
In December 2017 the Company acquired the portfolio of eight
operating solar plants with an installed capacity of 34.5MW located
in Italy for a total value of EUR131.9m (equivalent to GBP116.2m).
The portfolio represented 11% of the Company's GAV as at 31 March
2021.
The key benefits of the Solis portfolio continue to be:
-- High risk-adjusted return: As at the 31 March 2021 valuation,
the net IRR of the Solis portfolio was c. 8.0%.
-- Low risk-profile: The Company benefits from the portfolio's
operating history and the high quality of its components. In
addition, it reduces NESF's exposure to merchant energy markets, as
c. 85% of its revenues are fixed for 15 years following the
acquisition.
-- Positive contribution to dividend cover: The higher return on
investment is coupled with an attractive cashflow generation
profile, which is higher than ROC assets, and evenly spread over
the life of the investment, as the Italian FiT is fully fixed. For
the purposes of comparison, the Solis portfolio has a cash dividend
cover equivalent metric of 1.4x.
-- NAV accretion: As at 31 March 2021, the Solis portfolio was
valued on a DCF basis with a discount rate of 7.25% (2020: 7.75%)
as a result of the increasing competition to acquire solar PV
assets in Italy.
-- Diversifying market risk: Italy is supported by a FiT
incentive mechanism. The FiT is granted by a state-owned company
which promotes and supports renewable energy in Italy, where the
sole shareholder is the Ministry of Economy and Finance. Tariffs
differ depending on the capacity, type of plant and the time of
commissioning which range between EUR195/ MWh to EUR318/MWh. Once a
PV plant is accredited, the FiT is granted over a period of 20
years and is not inflated.
-- Low revenue risk: Of the Solis portfolio revenues, c.85%
result from FiTs. The FiTs specific to this portfolio expire in
2032. The remaining 15% is from the sale of the brown electricity
fed into the grid at market price or via PPAs to other market
participants. With this revenue mix there is low revenue risk. In
addition, low operating costs result in stable EBITDA margins in
excess of 80%.
Changes to Investment Policy
As explained in the Chairman's Statement, the following changes
to the Company's Investment Policy were approved by shareholders at
the Company's AGM on 11 September 2020:
-- up to 30% of GAV may be invested in solar assets that are
located outside the UK (the limit was previously 15%);
-- the Company may now acquire an interest in solar assets
located in non-OECD countries where those assets form part of a
portfolio of solar assets in which the Company acquires an interest
and subject to the Company's aggregate investment in any such
assets being not greater than 3% of GAV;
-- up to 15% of GAV may now be invested in solar assets through
private equity structures; and
-- the Company may now also invest in standalone energy storage
systems (not ancillary to or co-located with solar assets owned by
the Company) up to an aggregate limit of 10% of GAV.
We have identified and are advancing value creating
opportunities in line with the refocused Investment Policy to
maximise shareholder returns and increase geographical
diversification.
Managing NESF's merchant market exposure
Energy and market risk
PPA sourcing and structuring management Market and pricing analysis
Run competitive off-taker We measure, monitor NEC provides pricing
selection processes and manage merchant for NESF projects, supported
through our extensive exposure through selling by multiple independent
network in the solar at spot, entering into short and long-term
industry short-term, medium-term third-party power price
Quantitative evaluation and long-term PPAs forecasts
of the offers in term Constant dialogue with Undertake rigorous analysis
of risk and reward and investors, banks and and monitoring of the
devise optimal project- off-takers on developing main drivers for power
specific solutions new and innovative structures prices in target markets
Individual view of market for risk diversification Monitor policy/regulatory
price risks and opportunities to enable us to increase developments in the
and delivery obligations portfolio returns UK and other OECD target
in order to find the markets to obtain an
optimal PPA structure holistic energy market
overview
Portfolio Valuation
Introduction
The Investment Adviser carries out the fair market valuation of
the Company's underlying investment portfolio in line with its
accounting policies. This valuation is then presented to the Board
of the Investment Manager, before being presented to the Company's
Board for review and final approval. The valuation is carried out
quarterly (ad hoc valuations may also be undertaken from time to
time, for example in conjunction with an equity fund raising).
The valuation principles used are based on a discounted cash
flow methodology. Assets not yet operational or where the
completion of the acquisition is not imminent at the time of
valuation use the acquisition cost as a proxy for fair value.
The Board reviews the operating and financial assumptions used
in the valuation of the Company's underlying portfolio.
Portfolio valuation - key As at 31 As at 31
Assumptions March 2021 March 2020
UK long-term inflation 3.0% 3.0%
UK short-term inflation (1 year horizon) 3.0% 2.2%
Weighted average discount rate 6.3% 6.8%
Weighted average asset life 27.5 years 26.9 years
GBP45.6/MWh GBP43.3/MWh
UK short-term power price average (2021-2025) (real 2021) (real 2021)
GBP46.4/MWh GBP48.6/MWh
UK long-term power price average (2026-2041) (real 2021) (real 2021)
EUR46.8/MWh EUR46.9/MWh
Italy power price average (20 years) (real 2021) (real 2021)
19% until
2023, 25%
UK corporation tax rate thereafter 19%
Portfolio valuation bridge for the year ended 31 March 2021
(1) Operating result includes excess cash generated for the period of GBP9.5m.
Forecasted power price methodology
For the UK portfolio, we use multiple sources for UK power price
forecasts. At the short end, where PPAs exist we use the PPA prices
that have been achieved, for periods where there are no PPAs in
place, we use the short-term market forward prices. After this we
use a simple average of three leading independent energy market
consultants' long-term projections. This approach allows mitigation
of any delay in response from the Consultants in publishing
periodic (quarterly) or ad hoc updates following any significant
market development.
For the Italian portfolio, a leading independent energy market
consultant's long-term projections are used to derive the power
curve adopted in the valuation.
The power price forecasts used also include a "solar capture"
discount which reflects the difference between the prices available
in the market in the daylight hours of operation of a solar plant
versus the baseload prices included in the power price estimates.
This solar capture discount is provided by the Consultants on the
basis of a typical load profile of a solar plant and is reviewed as
frequently as the baseload power price forecasts. The application
of such a discount results in a lower long-term price being assumed
for the energy generated by NESF's portfolio.
Historic - UK power prices
UK electricity day ahead prices increased from c. GBP24.2/MWh in
April 2020 to c. GBP57.0/MWh in March 2021.
Source: N2EX - UK baseload - day ahead.
Forecast UK power prices (real 2021)
The Company's current UK long-term (2026-2041) average power
price forecast represents a decrease of 4.5% compared to those used
at the end of the previous financial year (real 2021). Overall, the
20-year UK average power price forecast is 49% below the
assumptions employed at IPO.
Historic - Italian power prices
The Italian price of electricity increased from approximately
EUR24.8/MWh in April 2020 to c. EUR60.4/MWh in March 2021.
Source: Gestore Marcati Energetici - purchasing price.
Forecast Italian power price (real 2021)
The Company's current Italian 20-year average power price
forecast represents a decrease of 0.2% compared to those used at
the end of the previous financial year (real 2021).
Discount rate
During the year, the Company has reduced the discount rate for
unlevered operating UK solar assets to 5.75% (2020: 6.25%).
In the context of high liquidity provided by international
investors, a maturing renewable energy market, a scarcity of
subsidised assets and the lack of any incentive framework for new
installations, the demand for operating solar assets remained
strong resulting in sustained pressure on prices in the last twelve
months. These changing dynamics were evidenced by the experience of
the Investment Adviser when bidding for solar assets in the UK.
As at 31 As at 31
Discount rate assumptions Premium March 2021 March 2020
UK unlevered - 5.75% 6.25%
UK levered 0.7-1.0% 6.45-6.75% 6.95-7.25%
Italy unlevered (1) 1.5% 7.25% 7.75%
Subsidy-free (uncontracted) (2) 1.0% 6.75% 7.25%
Life extensions (3) 1.0% 6.75-7.75% 7.25-8.25%
(1) Unlevered discount rate for Italian operating assets
implying 1.50% country risk premium.
(2) Unlevered discount rate for subsidy-free uncontracted
operating assets implying 1.0% risk premium.
(3) 1.0% risk premium for cash flows after 30 years where leases have been extended.
The resulting weighted average discount rate for the Company's
portfolio was 6.3% (2020: 6.8%). The Company does not use the
weighted average cost of capital ("WACC") as the discount rate for
its investments as it believes that the reduction in WACC deriving
from the introduction of long-term debt financing does not reflect
the greater level of risk to equity investors associated with
leverage assets or levered portfolios. However, for the purposes of
transparency, the Company's pre-tax WACC as at 31 March 2021 was
5.4% (2020: 5.5%).
Asset life
The discounted cash flow methodology implemented in the
portfolio valuation assumes a valuation time-horizon capped to the
current terms of the lease and planning permission on the
properties where each individual solar asset is located. These
leases have been typically entered into for a 25-year period from
commissioning of the relevant solar plants (specific terms may
vary). However, the useful operating life of the Company's
portfolio of solar assets is expected to be longer than 25 years.
This is due to many factors, including:
-- solar assets with technology components similar to the ones
deployed in the Company's portfolio have been demonstrated to be
capable of operating for over 45 years, with levels of the
technical degradation lower than those assumed or guaranteed by the
manufacturers;
-- local planning authorities have already granted initial
planning consents that do not expire and/or have granted
permissions to extend initial consented periods;
-- the Company owns rights to supply electricity into the grid
through connection agreements that do not expire, and
-- discounted cash flow valuation assumes a zero-terminal value
at the end of the lease term for each asset or the end of the
planning permission, whichever is the earlier.
Operating performance
The Company values each solar asset on the basis of the minimum
performance ratio ("PR") guaranteed by the vendor, or that
estimated by the appointed technical adviser during the acquisition
due diligence. These estimates have been generally lower than the
actual PR that the Company has been experiencing during subsequent
operations. We therefore deem it appropriate to adopt the actual PR
after two years of operating history when, typically, the plants
have satisfied tests and received Final Acceptance Certification
("FAC").
During the year, FACs were closed across 41.1MW, with GBP617k
retentions secured. These funds have been held back at the SPV to
remedy any issues which remain outstanding.
As at 31 March 2021, 69 UK solar assets and all eight Italian
solar assets (totalling 557MW) achieved FAC and their actual PR was
used in the discounted cash flow valuation.
Capacity
FAC timeline for remaining assets (MW)
Financial quarter ending June 2021 83
Financial quarter ending September 2021 12
Financial quarter ending December 2021 9
2022 onwards 111
Total 215
NAV
The Company's NAV is calculated quarterly and based on the
valuation of the investment portfolio provided by the Investment
Adviser and the other assets and liabilities of the Company
calculated by the Administrator. The NAV is reviewed and approved
by the Investment Manager and the Board. All variables relating to
the performance of the underlying assets are reviewed and
incorporated in the process of identifying relevant drivers of the
discounted cash flow valuation.
In accordance with IFRS 10, the Company reports its financial
results as an Investment entity and on a non-consolidated basis
(see note 2c to the Financial Statements). The change in fair value
of its assets during the year is taken through the Statement of
Comprehensive Income.
NAV bridge for the year ended 31 March 2021
The movement in the NAV was driven by the following factors:
-- a decrease in long-term (2026-2041) UK power prices forecasts
provided by three Consultants (2020: two Consultants), being 4.5%
lower than prior year. The Company used the forecasts released by
the Consultants up to the date of preparation of this Annual
Report;
-- the uplift resulting from a decrease in the unlevered
discount rate from 6.25% to 5.75% during the year;
-- the increase in UK corporate tax rates from 2023 onwards;
-- the downward revision in short-term inflation forecasts;
-- the minor uplift arising from lease extensions;
-- the operating results achieved by the Company's solar assets; and
-- the dividends and operating costs paid during the year.
NAV sensitivity analysis as at 31 March 2021
Sensitivity analyses can be found in note 19b to the Financial
Statements.
The UK Government is consulting on an alignment of the RPI to
the lower consumer price index ("CPI"). Any change agreed after the
consultation would not take effect until between 2025-30. The NAV
does not take into account this potential change as it is not
certain. However, for illustrative purposes, a CPI transition
sensitivity for the year would equate to -6.2% reduction in
ordinary NAV per share which is the equivalent of -6.4p per
ordinary share.
Cash flow generation
The Company generates revenues through the sale of electricity
to the markets and the subsidies provided under different subsidy
regimes (ROC, NIROC and FiT). Both revenue streams are underpinned
by two main factors:
-- the actual energy output (measured as amount of KWh of energy
generated), which is mainly driven by the solar irradiation,
technical performance and availability of the plant; and
-- the actual price at which the energy generated is sold to the
markets, as well as the subsidies received for the same
generation.
The performance of a plant in terms of revenues is therefore a
product of both the operational performance and the commercial
terms of the PPAs in place. Before taking into account tax payments
and financing considerations, the cash flow generation of solar
assets is also influenced by operating expenses, which are usually
governed by long-term contracts and characterised by low volatility
over the long-term.
Delta
Year ended 31 March Actual per Budget per vs.
2021 MW(1) MW(1) Budget Comments
Actual irradiation
Solar Irradiation [A] (kWh/m2) 1,269 1,203 +5.5% for the year
Positive delta represents
Conversion Asset Management
Factor(2) [B] (%) 80.3% 79.8% +0.7% Alpha for the year
[C]
= Actual generation
[A measured at the
Metered Generation x B] (kWh) 1,020 960 +6.2% meter for the year
Power
Power price Subsidies price Subsidies
Implied average
power price and
Realised (GBP/ subsidies across
Prices [D] MWh) 47.2 90.6 48.4 88.9 +2.0% entire
[E]
Revenues = portfolio (including
(Subsidies, [C ROC recycle and
PPAs, Etc.) x D] (GBP'000) 48.1 92.4 46.5 85.3 +8.3% embedded benefits
Actual revenues
at portfolio level
for the year (unaudited
Total Revenues [E] (GBP'000) 140.5 131.8 +6.6% figures per MW)
Actual costs at
portfolio level
Operating for the year (unaudited
Expenses [F] (GBP'000) (28.9) (30.8)(4) (6.2%) figures per MW)
[G]
= Actual EBITDA for
[E the year (unaudited
EBITDA(3) - F] (GBP'000) 111.6 101.0 +10.5% figures per MW)
EBITDA Margin(3) 79.5% 76.7%
(1) Based on the average installed capacity (721MW) over the
financial year. Given the different composition of the growing
portfolio, this information is not directly comparable with what
was provided in the previous Annual Report.
(2) Ratio captures the solar plant performance ratio as well as
the availability (which reflects all system shut downs for
maintenance or one-off events such as DNO outages).
(3) EBITDA is a reference to EBITDA at the SPV levels.
(4) Budgeted operating expenses are based on the acquisition case of the assets.
Operating results
Profit before tax was GBP40.2m (2020: -GBP29.7m) with earnings
per ordinary share of 6.87p (2020: -5.09p).
Operating expenses and ongoing charges
The operating expenses, excluding preference share dividends
paid by the Company, for the year amounted to GBP6.8m (2020:
GBP7.2m). The Company's ongoing charges ratio ("OCR") was 1.1%
(2020: 1.1%). The budgeted OCR for the financial year ending 31
March 2022 is 1.1%. The OCR, which has been calculated in
accordance with the Association of Investment Companies recommended
methodology, is an Alternative Performance Measure.
For the year ended 31 March 2021, the fourth quarterly dividend
of 1.7625p per ordinary share is expected to be paid on 30 June
2021 to ordinary shareholders on the register at the close of
business on 21 May 2021. The Company offers scrip dividends,
details of which can be found on the Company's website
(nextenergysolarfund.com).
Cash flow analysis
As at 31 March 2021, the Company held cash of GBP10.8m at high
credit rated financial institutions.
Cash received from assets in the year covered the operating
expenses, the preference shares dividend, the dividends declared to
ordinary shareholders in respect of the year ended 31 March 2021
and part of the Investment into HoldCos.
Year end 31 Year end 31
March 2021 March 2020
Cash flows of the Company GBP'000 GBP'000
Company cash balance at 1April 25,128 19,285
Investment in HoldCos (35,570) (42,098)
Proceeds from preference shares - 98,650
Received from HoldCos 77,814 -
Directors' fees (253) (224)
Investment Manager fees (5,157) (5,629)
Administration fees (3,565) (1,487)
Dividends paid in cash to ordinary shareholders (38,062) (36,771)
Preference share dividends (9,526) (6,598)
Company cash balance at 31 March 10,809 25,128
NESF Group operating SPV's
The below table represents the unaudited consolidated financial
results of the Company's SPVs.
Year ended
March 2021 Year ended
(unaudited) March 2020
GBP'000 GBP'000
Total Group revenue 101,302 108,001
EBITDA 78,289 85,966
EBIT 26,422 21,233
Cash income for the year (1) 59,490 61,192
(1) Cash distributed to the fund during the year.
Cash dividend cover
Pre-scrip
dividends
Year ended 31 March 2021 GBP'000 GBP'000
Cash income for year (1) 59,490
Net operating expenses for year (6,825)
Preference shares dividend (9,526)
Net cash income available for distribution 43,139
Ordinary shares dividend paid during year 41,011
Cash dividend cover (2) 1.1x
(1) Cash income differs from the Income in the Statement of
Comprehensive Income as the latter is prepared on an accruals
basis.
(2) Alternative Performance Measure.
Financing
Financial debt
At 31 March 2021, the Company's subsidiaries had financial debt
outstanding of GBP246m (2020: GBP214m), on a look-through basis, as
shown in the table below.
Due to a combination of low debt levels, and RPI linked
subsidies, debt covenants at the HoldCos level would only be
breached at very low power prices (less than c.GBP20/MWh).
Preference shares
At 31 March 2021, the Company had GBP200m of preference shares
outstanding (2020: GBP200m).
The preference shares are non-redeemable (except in limited
exceptional circumstances), non-voting and convertible into
ordinary shares from 1 April 2036 at their issue price (GBP200m in
aggregate) plus any unpaid preference share dividends at the date
of conversion. For financial accounting purposes, and in line with
IFRS the preference shares are classified as long-term liabilities.
The preference shares are equivalent to non- amortising debt with
repayment in shares, and the Company is not required to use
cashflow, or raise funds, to repay them at the end of their life.
The absence of amortisation enhances the ability to pay the
ordinary share dividend, and repayment in shares removes
refinancing risk.
The investment management fee is calculated based on the
ordinary share NAV and, accordingly, no management fee is payable
in respect of the preference shares. The terms of the preference
shares can be found in note 23 to the Financial Statements.
Total gearing
The financial debt, together with the preference shares,
represented a total gearing level of 43% (2020: 42%), which is
below the maximum limit of 50% in the Company's Investment
Policy.
No. of Loan
power to Facility
Provider/ plants Value(2) amount Amount
Termination
(inc.
Outstanding options Applicable
arranger Type Borrower secured(1) (%) Tranches (GBPm) (GBPm) to extend) rate
Fully-amortising
MIDIS/CBA/ long-term
NAB debt(3) NESH 21 (241MW) Medium-term 48.4 48.4 Dec-26 2.91%(4)
Floating
long-term 24.2 24.2 Jun-35 3.68%(4)
Index-linked RPI +
51.4% long-term 38.7 35.1(5) Jun-35 0.36%
Fixed long-term 38.7 38.7 Jun-35 3.82%
Debt service
reserve 7.5 - Jun-26 1.50%
facility
Fully-amortising
long-term NESH RPI +
MIDIS debt(3) IV 5 (84MW) 47.5% Inflation-linked 27.5 21.5(5) Sep-34 1.44%
Fixed long-term 27.5 24.3 Sep-34 4.11%
Total
long-term
debt 192.2
Revolving
credit NESH LIBOR
NIBC facility II 2 (28MW) N/a 20.0 - Feb-22 + 2.20%
Revolving
Banco credit NESH LIBOR
Santander facility VI 13 (100MW) N/a 70.0 54.1 Jul-22 + 1.90%
Total
short-term
debt 54.1
Total
debt 246.3
(1) NESF has 325MW under long-term debt financing, 128MW under
short-term debt financing and 359MW without debt financing.
(2) Loan to Value defined as 'Debt outstanding / GAV'.
(3) Long-term debt is fully amortised over the period secured
assets receive subsidies (ROCs and others).
(4) Applicable rate represents the swap rate.
(5) Represents the "real" outstanding debt balance. The
"nominal" outstanding debt balances are included in the debt
balances provided in Note 23 b) to the financial statements.
Alignment of interest
As at 16 June 2021, NextEnergy Capital Group employees held
394,561 shares in NESF.
Events After the Balance Sheet Date
On 13 May 2021, the Directors approved an interim dividend of
1.7625p per ordinary share for the quarter ended 31 March 2021 to
be paid on 30 June 2021 to ordinary shareholders on the register as
at the close of business on 21 May 2021.
NextEnergy Capital Limited
16 June 2021
Operating Portfolio
Remaining
Installed life of
Announcement Subsidy/ capacity plant
Power plant Location date PPA(1) (MW) Cost (GBPm) (Years)
1 Higher Hatherleigh Somerset May-14 1.6 6.1 7.3(3) 17.0
2 Shacks Barn Northamptonshire May-14 2.0 6.3 8.2(3) 16.3
3 Gover Farm Cornwall Jun-14 1.4 9.4 11.1(3) 18.7
4 Bilsham West Sussex Jul-14 1.4 15.2 18.9(3) 23.2
5 Brickyard Warwickshire Jul-14 1.4 3.8 4.1(3) 18.6
6 Ellough Suffolk Jul-14 1.6 14.9 20.0(3) 27.9
7 Poulshot Wiltshire Sep-14 1.4 14.5 15.7(3) 17.9
8 Condover Shropshire Oct-14 1.4 10.2 11.7(3) 18.6
9 Llywndu Ceredigion Dec-14 1.4 8.0 9.4 28.7
Cock Hill
10 Farm Wiltshire Dec-14 1.4 20.0 23.6(3) 18.4
11 Boxted Airfield Essex Dec-14 1.4 18.8 20.6(3) 19.0
12 Langenhoe Essex Mar-15 1.4 21.2 22.9(3) 34.0
13 Park View Devon Mar-15 1.4 6.5 7.7(3) 33.8
14 Croydon Cambridgeshire Mar-15 1.4 16.5 17.8(3) 18.7
15 Hawkers Farm Somerset Apr-15 1.4 11.9 14.5(3) 19.0
16 Glebe Farm Bedfordshire Apr-15 1.4 33.7 40.5(3) 28.7
17 Bowerhouse Somerset Apr-15 1.4 9.3 11.1(3) 34.0
18 Wellingborough Northamptonshire Jun-15 1.4 8.5 10.8(3) 18.2
19 Birch Farm Essex Oct-15 FiTs UK 5.0 5.3(3) 19.2
Thurlestone
20 Leicester Leicestershire Oct-15 FiTs UK 1.8 2.3 12.1
21 North Farm Dorset Oct-15 1.4 11.5 14.5(3) 33.7
Ellough Phase
22 2 Suffolk Nov-15 1.3 8.0 8.0(3) 34.6
23 Hall Farm Leicestershire Nov-15 FiTs UK 5.0 5.0(3) 39.4
24 Decoy Farm Lincolnshire Nov-15 FiTs UK 5.0 5.2(3) 35.0
25 Green Farm Essex Nov-15 FiTs UK 5.0 5.8 20.0
26 Fenland Cambridgeshire Jan-16 1.4 20.4 23.9(2,4) 19.3
27 Green End Cambridgeshire Jan-16 1.4 24.8 29.0(2,4) 20.0
28 Tower Hill Gloucestershire Jan-16 1.4 8.1 8.8(2,4) 19.0
29 Branston Lincolnshire Apr-16 1.4 18.9 33.6
30 Great Wilbraham Cambridgeshire Apr-16 1.4 38.1 33.9
31 Berwick East Sussex Apr-16 1.4 8.2 = 97.9(2,5) 20.5
32 Bottom Plain Dorset Apr-16 1.4 10.1 34.2
33 Emberton Buckinghamshire Apr-16 1.4 9.0 39.1
34 Kentishes Essex Nov-16 1.2 5.0 4.5 40.5
35 Mill Farm Hertfordshire Jan-17 1.2 5.0 4.2 35.8
36 Bowden Somerset Jan-17 1.2 5.0 5.6 35.7
37 Stalbridge Dorset Jan-17 1.2 5.0 5.4 35.7
38 Aller Court Somerset Apr-17 1.2 5.0 5.5 21.0
39 Rampisham Dorset Apr-17 1.2 5.0 5.8 21.5
40 Wasing Berkshire Apr-17 1.2 5.0 5.3 25.7
41 Flixborough South Humberside Apr-17 1.2 5.0 5.1 26.8
42 Hill Farm Oxfordshire Apr-17 1.2 5.0 5.5 30.9
43 Forest Farm Hampshire Apr-17 FiTs UK 3.0 3.3 31.0
44 Birch CIC Essex Jun-17 FiTs UK 1.7 1.7 19.2
45 Barnby Nottinghamshire Jun-17 1.2 5.0 5.4 21.3
46 Bilsthorpe Nottinghamshire Jun-17 1.2 5.0 5.4 21.7
47 Wickfield Wiltshire Jun-17 1.2 4.9 5.6 22.1
48 Bay Farm Suffolk Aug-17 1.6 8.1 10.5 32.9
49 Honington Suffolk Aug-17 1.6 13.6 16.0 32.8
50 Macchia Rotonda Apulia Nov-17 FiTs Italy 6.6 14.8
51 Iacovangelo Apulia Nov-17 FiTs Italy 3.5 15.1
52 Armiento Apulia Nov-17 FiTs Italy 1.9 15.1
53 Inicorbaf Apulia Nov-17 FiTs Italy 3.0 = 116.2(2,6) 14.9
Gioia del
54 Colle Campania Nov-17 FiTs Italy 6.5 15.6
55 Carinola Apulia Nov-17 FiTs Italy 3.0 15.6
56 Marcianise Campania Nov-17 FiTs Italy 5.0 15.5
57 Riardo Campania Nov-17 FiTs Italy 5.0 15.5
Gilley's
58 Dam Cornwall Dec-17 1.3 5.0 6.4 33.7
Pickhill
59 Bridge Clwyd Dec-17 1.2 3.6 3.7 36.5
60 North Norfolk Norfolk Feb-18 1.6 11.0 14.6 23.6
61 Axe View Devon Feb-18 1.2 5.0 5.6 26.4
62 Low Bentham Lancashire Feb-18 1.2 5.0 5.4 24.9
63 Henley Shropshire Feb-18 1.2 5.0 5.2 25.2
64 Pierces Farm Berkshire May-18 FiTs UK 1.7 1.2 18.1
65 Salcey Farm Buckinghamshire May-18 1.4 5.5 6.5 18.1
66 Thornborough Buckinghamshire Jun-18 1.2 5.0 5.7 20.0
67 Temple Normaton Derbyshire Jun-18 1.2 4.9 5.6 20.3
Fiskerton
68 Phase 1 Lincolnshire Jun-18 1.3 13.0 16.6 29.0
Huddlesford
69 HF Staffordshire Jun-18 1.2 0.9 0.9 19.8
70 Little Irchester Northamptonshire Jun-18 1.2 4.7 5.9 20.8
71 Balhearty Clackmannanshire Jun-18 FiTs UK 4.8 2.6 29.8
72 Brafield Northamptonshire Jun-18 1.2 4.9 5.8 35.2
Huddlesford
73 PL Staffordshire Jun-18 1.2 0.9 0.9 20.0
74 Sywell Northamptonshire Jun-18 1.2 5.0 5.9 20.1
75 Coton Park Derbyshire Jun-18 FiTs UK 2.5 1.1 20.1
76 Hook Somerset Jul-18 1.6 15.3 21.8(2) 33.0
77 Blenches Wiltshire Jul-18 1.6 6.1 7.8(2) 17.7
78 Whitley Somerset Jul-18 1.6 7.6 10.4(2) 32.7
79 Burrowton Devon Jul-18 1.6 5.4 7.3(2) 32.5
80 Saundercroft Devon Jul-18 1.6 7.2 9.6(2) 32.9
81 Raglington Hampshire Jul-18 1.6 5.7 8.1(2) 32.8
82 Knockworthy Cornwall Jul-18 FiTs UK 4.6 6.6(2) 17.0
83 Chilton Canetello Somerset Jul-18 FiTs UK 5.0 9.0(2) 31.3
84 Crossways Dorset Jul-18 FiTs UK 5.0 10.0(2) 31.3
85 Wyld Meadow Dorset Jul-18 FiTs UK 4.8 7.1(2) 32.3
Rooftop
86 Ermis Portfolio Aug-18 FiTs UK 1.0 3.0 15.6
Rooftop
87 Angelia Portfolio Aug-18 FiTs UK 0.2 0.6 15.5
88 Ballygarvey County Antrim Aug-19 1.4 NIROCs 8.2 8.5 26.8
Hall Farm
89 2 Leicestershire Aug-19 Subsidy-free 5.4 2.5 38.3
90 Staughton Bedfordshire Dec-19 Subsidy-free 50.0 27.4 37.9
91 High Garret Essex Oct-20 Subsidy-free 8.5 4.1 34.0
Long-term
92 AWS - Marham Norfolk Mar-21 PPA 1.0 0.7 24.7
Long-term
93 AWS - Sutterton Lincolnshire Mar-21 PPA 0.4 0.3 24.9
Long-term
94 The Grange Nottinghamshire Mar-21 PPA 50.0 32.1 39.8
Total 814 969 27.57
(1) ROCs, unless otherwise stated. An explanation of the ROC subsidy is available at www.ofgem.gov.uk/environmental-programmes/renewables-obligation-ro.
(2) With project level debt.
(3) Part of the Apollo portfolio.
(4) Part of the Thirteen Kings portfolio.
(5) Part of the Radius portfolio.
(6) Part of the Solis portfolio.
(7) Weighted average remaining life of the portfolio.
Portfolio Generation Performance
Year ended 31 March
2021 Since acquisition
Irradiation Generation Irradiation Generation
Operational Acquisition Generation delta delta delta delta
Power plant date date (GWh) (%) (%) (%) (%)
Higher
1 Hatherleigh Apr-14 May-14 6.1 5.9 6.3 1.0 5.0
2 Shacks Barn May-14 May-14 6.1 4.9 8.1 2.9 8.3
3 Gover Farm Jan-15 Jun-14 9.8 4.9 9.0 2.7 1.0
4 Bilsham Jan-15 Jul-14 16.4 8.5 6.8 4.8 5.3
5 Brickyard Jan-15 Jul-14 3.7 6.5 10.3 3.3 6.0
6 Ellough Jul-14 Jul-14 15.0 1.9 5.0 0.7 6.2
7 Poulshot Apr-15 Sep-14 14.7 6.3 10.8 0.9 5.2
8 Condover May-15 Oct-14 9.6 3.6 2.9 0.0 0.6
9 Llywndu Jul-15 Dec-14 7.9 (1.2) 6.0 (3.6) 2.7
10 Cock Hill Farm Jul-15 Dec-14 20.8 7.3 9.5 2.9 4.6
11 Boxted Airfield Apr-15 Dec-14 19.0 5.9 7.8 3.5 5.7
12 Langenhoe Apr-15 Mar-15 22.2 7.8 10.8 6.1 9.1
13 Park View Jul-15 Mar-15 6.8 3.5 5.8 (2.0) 0.7
14 Croydon Apr-15 Mar-15 16.6 8.7 12.2 6.1 7.5
15 Hawkers Farm Jun-15 Apr-15 12.5 5.6 7.4 0.2 3.7
16 Glebe Farm May-15 Apr-15 34.7 9.0 14.0 6.2 12.1
17 Bowerhouse Jul-15 Jun-15 8.9 7.4 (0.6) 2.7 0.9
18 Wellingborough Jun-15 Jun-15 8.5 4.5 9.1 2.4 4.8
19 Birch Farm Sep-15 Oct-15 5.1 7.0 8.6 4.3 6.2
Thurlestone
20 Leicester(1) Oct-15 Oct-15 1.5 0.0 (2.4) 0.0 0.0
21 North Farm Oct-15 Oct-15 11.3 1.2 (7.0) (2.9) (2.9)
Ellough Phase
22 2 Aug-16 Nov-15 8.4 7.0 12.1 8.4 12.1
23 Hall Farm Apr-16 Nov-15 4.9 4.9 11.8 3.7 3.7
24 Decoy Farm Mar-16 Nov-15 5.1 6.6 11.5 4.8 9.4
25 Green Farm Dec-16 Nov-15 5.1 3.8 5.6 3.7 4.5
26 Fenland Jan-16 Jan-16 21.0 6.3 9.8 5.1 9.3
27 Green End Jan-16 Jan-16 24.1 5.7 3.6 4.9 4.9
28 Tower Hill Jan-16 Jan-16 8.3 7.6 10.3 3.4 6.8
29 Branston Mar-16 Apr-16 19.2 6.0 10.5 6.0 6.2
30 Great Wilbraham Mar-16 Apr-16 38.8 7.4 8.9 5.4 6.2
31 Berwick Mar-16 Apr-16 9.6 5.5 13.3 5.1 9.7
32 Bottom Plain Mar-16 Apr-16 10.6 4.4 4.8 3.0 3.9
33 Emberton Mar-16 Apr-16 8.7 5.4 3.2 4.4 4.0
34 Kentishes Jul-17 Nov-16 5.3 6.5 7.0 5.7 6.3
35 Mill Farm Jul-17 Jan-17 5.3 9.4 12.6 8.6 11.3
36 Bowden Sep-17 Jan-17 5.4 2.3 3.3 0.3 1.5
37 Stalbridge Sep-17 Jan-17 5.5 3.0 7.8 0.9 6.5
38 Aller Court Sep-17 Apr-17 5.4 5.4 7.9 3.5 5.1
39 Rampisham Sep-17 Apr-17 5.4 0.2 2.2 (1.8) (1.2)
40 Wasing Aug-17 Apr-17 5.4 8.3 11.1 6.6 10.0
41 Flixborough Aug-17 Apr-17 5.0 4.3 7.2 5.1 7.8
42 Hill Farm Mar-17 Apr-17 5.2 8.4 10.3 7.2 8.7
43 Forest Farm Mar-17 Apr-17 3.3 7.4 11.7 5.0 8.9
44 Birch CIC May-17 Jun-17 1.7 6.8 5.3 5.4 4.8
45 Barnby Aug-17 Jun-17 4.3 2.7 (5.3) 4.5 3.8
46 Bilsthorpe Aug-17 Jun-17 4.8 3.4 2.0 4.1 6.2
47 Wickfield Mar-17 Jun-17 5.2 9.3 10.8 6.1 5.2
48 Bay Farm Sep-17 Aug-17 8.3 6.5 12.3 7.8 8.2
49 Honington Sep-17 Aug-17 13.4 4.3 4.9 4.2 3.9
Macchia
50 Rotonda Nov-17 Nov-17 9.7 6.4 3.4 5.8 4.6
51 Iacovangelo Nov-17 Nov-17 5.3 5.3 6.2 4.2 6.5
52 Armiento Nov-17 Nov-17 2.9 6.2 8.1 5.0 7.4
53 Inicorbaf Nov-17 Nov-17 4.7 6.5 7.9 5.4 6.7
Gioia del
54 Colle Nov-17 Nov-17 9.8 3.9 6.1 0.4 3.8
55 Carinola Nov-17 Nov-17 4.3 4.6 5.5 2.4 5.4
56 Marcianise Nov-17 Nov-17 7.2 3.9 4.7 2.8 4.0
57 Riardo Nov-17 Nov-17 7.2 3.6 2.4 2.3 1.5
58 Gilley's Dam Nov-17 Dec-17 5.1 (2.8) (1.3) (4.8) (2.4)
Pickhill
59 Bridge Dec-17 Dec-17 3.6 3.4 6.9 4.5 7.8
60 North Norfolk Dec-17 Feb-18 11.2 5.5 7.2 6.8 8.9
61 Axe View Dec-17 Feb-18 5.2 7.4 9.1 5.3 7.1
62 Low Bentham Dec-17 Feb-18 4.7 0.8 2.8 1.3 3.1
63 Henley Jan-18 Feb-18 4.9 4.1 6.6 3.0 5.9
64 Pierces Farm May-18 May-18 1.8 4.3 10.0 4.4 7.8
65 Salcey Farm May-18 May-18 5.6 7.4 8.4 9.7 6.4
66 Thornborough Jun-18 Jun-18 5.0 4.8 4.2 6.7 (2.5)
Temple
67 Normaton Jun-18 Jun-18 4.6 1.1 0.2 4.6 (1.3)
Fiskerton
68 Phase 1 Jun-18 Jun-18 12.9 5.6 3.4 8.6 2.0
Huddlesford
69 HF Jun-18 Jun-18 0.9 3.6 4.3 6.1 3.8
Little
70 Irchester Jun-18 Jun-18 4.6 2.9 (1.4) 5.7 (4.7)
71 Balhearty Jun-18 Jun-18 4.0 0.1 (6.1) (1.2) (11.2)
72 Brafield Jun-18 Jun-18 5.1 6.5 4.4 7.8 1.7
Huddlesford
73 PL Jun-18 Jun-18 0.9 3.1 1.1 5.8 2.5
74 Sywell Jun-18 Jun-18 5.1 4.7 4.9 7.5 1.4
75 Coton Park Jun-18 Jun-18 2.2 1.2 2.7 4.0 4.8
76 Hook Jul-18 Jul-18 16.2 4.9 4.6 3.7 1.8
77 Blenches Jul-18 Jul-18 6.2 5.9 8.8 5.0 7.8
78 Whitley Jul-18 Jul-18 7.5 7.0 (0.1) 4.7 (0.3)
79 Burrowton Jul-18 Jul-18
13.2 6.0 2.2 5.8 3.5
80 Saundercroft Jul-18 Jul-18
81 Raglington Jul-18 Jul-18 5.9 5.5 (3.7) 4.5 (7.6)
82 Knockworthy Jul-18 Jul-18 4.1 2.1 (14.3) 1.9 (5.9)
Chilton
83 Canetello Jul-18 Jul-18 5.4 5.3 4.4 4.6 6.0
84 Crossways Jul-18 Jul-18 5.7 4.1 4.4 3.5 4.1
85 Wyld Meadow Jul-18 Jul-18 5.0 0.1 (2.7) (1.4) (1.3)
86 Ermis(1) Aug-18 Aug-18 0.8 0.0 (0.5) 0.0 (0.7)
87 Angelia(1) Aug-18 Aug-18 0.2 0.0 1.0 0.0 4.5
88 Ballygarvey Mar-18 Aug-19 6.1 (0.6) (4.0) 0.2 (3.4)
89 Hall Farm2 Aug-19 Aug-19 5.0 11.0 8.7 11.0 8.7
90 Staughton Dec-19 Dec-19 8.0 (1.7) (5.9) (1.7) (5.9)
91 High Garrett Oct-20 Oct-20 0.3 24.0 (5.1) 24.0 (5.1)
AWS -
92 Marham(2) Jan-21 Jan-21 - - - - -
AWS -
93 Sutterton(2) Mar-21 Mar-21 - - - - -
94 The Grange(2) Mar-21 Mar-21 - - - - -
Total 738 5.5 6.2 2.9 5.2
(1) Rooftop asset which is not monitored for irradiation.
(2) Assets which are yet to pass provisional acceptance
clearance (PAC) are not reported by the Asset Manager.
Sustainability and ESG
NESF Chairman ESG Foreword
In a year where the world has faced unprecedented change, we
continue to see a systemic shift towards the need for rapid action
in recognition of climate change, as the world transitions towards
a more sustainable, renewable energy supply.
Governments and major economies around the world continue to
step up their support, with the UK government becoming the first
major Government to pass net-zero emission laws which require all
greenhouse gas emissions to be net-zero by 2050.
Solar will have a huge part to play in this transition and NESF
is in a great position to deliver change, with a solid foundation
and the right management team driving growth forward.
Environmental, Social and Governance matters are more important
than ever to investors, other stakeholders, and society. Tracking
progress and reporting impact change throughout the NESF value
chain is a crucial step in tackling climate change, driving
accountability, and ultimately delivering a sustainable future for
generations to come.
NESF achieved compliance with the European Union Sustainable
Finance Disclosure Regulation this year and plans to remain
compliant going forward. Macquarie Green Investment Group also
continues to review and audit NESF data to ensure a high standard
of transparency and continuity to all our stakeholders.
NESF ESG reporting continues to benefit from the extensive
experience of NextEnergy Capital's Head of ESG, Giulia Guidi.
Giulia continues to drive real change at NESF, not only
incorporating ESG into the heart of all investment decisions but
also providing valuable insight as an adviser on the NESF
investment committee.
This is an exciting period for NESF and we look forward to
continuing our leading and transparent approach in this space.
Human Rights in Xinjiang
NESF is aware of the recent media attention alleging forced
labour in the solar supply chain in Xinjiang, China. Modern slavery
is a grave form of human rights abuse and the Board of NESF
supports the prevention of modern slavery in its own activities and
throughout its business relationship, including its supply
chain.
NESF recognises that the threat of modern slavery within supply
chains requires a collaborative commitment and willingness to
influence change from the whole sector.
NESF is actively involved with the solar energy industry to
improve transparency and traceability and address human rights
violations within the sector's supply chain.
The Board has continued to be actively engaged with its
Investment Advisor since the matter was first reported and is
monitoring the situation closely.
Kevin Lyon
Chairman
16 June 2021
Introduction from the CEO of NextEnergy Capital Group
As the world accustoms itself to living with a modern-day
pandemic, we have learnt just how responsive and adaptable
governments, businesses, communities and individuals can be in the
face of such a crisis. It is this responsiveness which is necessary
to redouble efforts to achieving the 17 UN SDGs, progress against
many of which has been detrimentally affected by Covid-19.
The development of reliable, sustainable and resilient
infrastructure is at the core of the recovery plan and at
NextEnergy Capital Group (NEC) we have the technical experience to
play an instrumental role in this transition. The commitment to our
mission of generating a more sustainable future is unwavering, and
the UN SDGs remain core to our Environmental, Social and Governance
(ESG) approach and operational practices. This, coupled with
evolving our framework for managing, measuring, and reporting our
contribution to the UN SDGs, as well as evaluating our impact on
the world around us, is central to guiding our sustainable
investment strategy and approach to ensure we continue to do things
properly in the future.
Our framework is built on three pillars:
1) Climate Change
2) Biodiversity
3) Human Rights
This framework applies to the whole value chain of our business,
from our clients' investments and our employees to our suppliers
and services providers, our business partners, and the broader
communities we operate in. The core of NEC's sustainability
framework is our Sustainable Investment Policy, which articulates
the value-creating ability of ESG considerations in our business
and operations, and the solar sector more broadly, as well as our
commitment to the United Nations Principles for Responsible
Investment.
Our Sustainable Investment Policy applies to both NESF and our
private equity funds; it outlines our business principles and
explains how we integrate ESG factors throughout the investment
process.
This year we have increased our transparency in line with the EU
Sustainable Finance Disclosure Regulation (SFDR) and have issued an
ESG Document where we have articulated how we take ESG factors into
account for the group and for each specific fund, including
NESF.
NESF ESG at a Glance 2020/21
Environmental Performance
738GWh clean 317.6ktCO(2) e 195,269 322 ha (800
energy avoided equivalent acres)
generated homes powered biodiversity
enhancement
Social Performance
GBP113,000 community 7 new O&M contracts GBP80,000 donated
funding signed for a total of to
GBP28k, generating new the NextEnergy
jobs Foundation
Governance performance
Total board meetings 40% female at Board Ranked 65 in the
held during financial level during the year FTSE250 Hampton-
year - 62 (25% female at board Alexander Review
level following Sue
Inglis's resignation)
NESF's Sustainability Framework
We believe that solar energy has a pivotal role to play in
responding to rapidly increasing energy demand while addressing the
global climate agenda. NESF's commitment to tackling climate change
ties into our additional ESG objectives we have set within NEC's
business practices in order to develop a sustainable energy
investment strategy.
Both NESF and NEC's commitment to sustainability is built around
three fundamental pillars (see Sustainability Pillars): climate
change, biodiversity and human rights. We believe that only by
acknowledging the interconnections that exist between the three
pillars and addressing them together, can we make a meaningful
contribution to global sustainable development.
Based on these three pillars, and in line with the Group's
sustainability framework, NESF refers to the UN Sustainable
Development Goals (SDGs) as the underlying framework by which to
identify, measure and report on key ESG impacts and opportunities
associated with our assets.
Our Commitment to the United Nations Sustainable Development
Goals
The SDGs form the basis of our sustainability strategy.
NESF's Approach to ESG
Our ESG approach is based on integration and is applied in three
different steps: identify, manage, and report.
Integration of ESG factors occurs throughout NESF's investment
and development process, from an initial screening, to full due
diligence, risk management, implementation, and finally to
measuring and reporting on the factors during the asset management
phase.
NESF pays particular attention to any ESG risks associated with
its supply chain and maintains active dialogue by engaging with key
stakeholders.
ESG responsibilities reside with the Head of ESG at NEC, the
Fund's Investment Adviser. The Head of ESG reports directly to
NEC's CEO and is also a member of the Fund's Investment
Committee.
Sustainability Pillars
Climate Change:
NESF is committed to supporting the UK Government in its
ambitious objective of bringing all greenhouse gas emissions to net
zero by 2050 and limiting global average temperature rise to 2degC
from pre -- industrial levels. NESF communicates its positive
contributions to climate change mitigation via reporting annually
on its clean energy generation and the CO(2) e emissions avoided
for the portfolio. This year NESF has expanded its reporting to
include historical greenhouse gas (GHG) emissions avoided as well
as the emissions associated with its portfolio, namely the GHG
scope 1, 2 and 3 with the objective of increasing transparency
towards net-zero ambitions
Biodiversity:
A key focus for NESF has been the opportunity to enhance
biodiversity across the portfolio's sites. The Fund's commitment to
leading best practice in biodiversity within the solar industry
begins during the site selection phase and extends to the life
cycle of each asset
Human Rights
NESF respects fundamental human rights principles and is against
any form of slavery and forced labour, as stated in its Modern
Slavery Statement(1) . The Group's commitment to respecting human
rights is guided by the United Nations Declaration of Human Rights;
NESF also recognises both the OECD Guidelines on Multinational
Enterprise and the UN Guiding Principles of Business and Human
Rights as key frameworks through which to identify and manage human
rights associated with our operations, our supply chain, and our
business relationships
ESG Integration
By integrating NEC's Sustainable Investment Policy into NESF's
investment and development process, we are ensuring sustainable
growth can be delivered over the long-term. As NESF is involved in
secondary market acquisition as well as new developments; we have
defined a process by which we identify, manage, and report on any
ESG risks and opportunities for both types of activities. An
outline of our approach is set out below
Identify
NESF has a tried and tested investment and development process.
ESG considerations form part of the investment decision-making at
each stage of an investment and of the site's development. For
secondary market acquisitions that occurred after September 2019,
when the updated sustainability policy was approved, NESF
undertakes due diligence in the pre-acquisition phase, to identify
any potential risk associated with ESG matters. Once an initial
screening has confirmed that NESF is not entering into any excluded
activities, full due diligence is undertaken to review compliance
with national and local environmental legislation(2) , social
policies and best practice, including the Solar Energy UK 10
Commitments for Solar Farm Developers(3) . The due diligence is
usually undertaken by an external adviser, and the outcome is
presented to the Investment Committee for the final decision.
(1) https://www.nextenergysolarfund.com/modern-slavery-statement/
(2)
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/218695/
env-impact-landscape.pdf;
(3)
https://www.solarpowerportal.co.uk/news/sta_publishes_10_commitments_for_solar_farm_developers_2356
For new developments, a comprehensive set of national and local
data sets are considered to avoid sensitive areas and to comply
with the applicable guidelines for the deployment of solar
projects. This development phase is supported by the use of
computer-based geographic information system modelling tools, and
site assessments are used to review and exclude inappropriate sites
during early stages of development.
Excluded Activities & Site Selection
In accordance with the international, national and local
landscape designations recognised by the UK Government, NESF does
not invest in areas of high biodiversity or landscape character
value. The NEC team confirms this exclusion at the earliest stage
of site selection.
In line with NEC's policy, no activity will be undertaken if it
would impact upon indigenous people or cause potential relocation
of communities where no Free Prior Informed Consent (FPIC) has
occurred before construction. These two exclusions are very
unlikely to happen in the UK.
Manage
When potential risks are identified during the preacquisition
and development phase the ESG team, together with the investment
team and, where relevant, external advisers, agree upon the
necessary mitigation measures to manage and minimise the impacts.
Usually, an action plan that includes these mitigation measures is
put forward and presented to the Investment Committee for
approval.
The action plan is then negotiated with contractors, including
Engineering, Procurement and Construction (EPC) and operations and
maintenance (O&M), and then handed over to the asset management
arm of NEC for management. Wise Energy oversees the implementation
of these measures, including biodiversity management, land
management, community engagement, and health and safety, amongst
others.
Wise Energy reports on any progress towards these plans on a
regular basis and, in addition, will measure and manage a number of
selected KPIs based on the SDGs which have been identified as
material to our business and operations, for more information see
our Sustainable Development Goals Report on our website
(nextenergysolarfund.com).
Report
NESF is committed to a high level of transparency on ESG issues
and reports on the performance of the operational portfolio against
progress on any ESG action plans as well as on a selected number of
KPIs, as mentioned above.
During the current financial year, we have reported in
compliance with the requirement of the EU Sustainable Finance
Disclosure Regulation; our ESG Disclosure Document was issued on 10
March 2021 via our website (nextenergysolarfund.com).
NESF's performance in relation to the SDGs was recognized
through its contribution to SDG 3 (Good Health and Wellbeing), SDG
7 (Affordable and Clean Energy), SDG 9 (Industry, Innovation and
Infrastructure), SDG 12 (Responsible Consumption and Production,
SDG 13 (Climate Action) and SDG 15 (Life on Land) reported in the
Group's 2020 SDGs report, available on our website
(nextenergysolarfund.com).
ESG integration into the investment process
These KPIs are independently verified by the Green Investment
Group (GIG) who has been hired by NEC to support the group's impact
reporting efforts. NESF's contribution to these goals was reported
in the Group's 2020 SDGs report, available on our website.
Particular attention is given to climate related reporting. In
line with NEC being an official supporter of the Task Force on
Climate-Related Non-Financial Disclosure ("TCFD"), as well as both
NEC and NESF having net-zero ambitions, NESF has recently
commissioned the Green Investment Group to additionally report on
its historical CO(2) e emission reductions and to calculate its
portfolio scope 1, 2 and 3 carbon footprint.
NESF & SFDR
The Sustainable Finance Disclosure Regulation (SFDR) has come
into force on the 10 March 2021, requiring financial market
participants to disclose on ESG policies and practices. As
previously mentioned, to comply, NESF has published an ESG
Disclosure document on its website. This document outlines how NESF
substantially contributes to climate mitigation, how it does no
significant harm to the other four environmental objectives
applicable to the solar PV sector (climate adaptation, water
management, circular economy and biodiversity), and how it complies
with the minimum safeguarding standards, including, but not limited
to, human rights violations.
Supply chain
Our approach to supply chain management is consistent with the
broader approach to ESG. We deal with this issue through two
parallel processes: ongoing ESG due diligence at asset and
portfolio level and an extensive stakeholder engagement
process.
NESF's ESG due diligence process also extends to its supply
chain. NESF has developed specific due diligence questionnaires to
assess suppliers' human rights and labour policies and practices,
as well as other ESG factors, in order to identify potential risks
within its supply chain. This process is embedded into NESF's
investment process and includes module, inverter and battery
manufacturers.
In addition to each individual investment, the supply chain due
diligence is undertaken with key selected manufacturers with which
NESF and the Group have signed or will sign a master framework
agreement. NESF has developed module framework agreements as the
structure through which to identify and select top-tier, reputable
manufacturers with a proven track record of delivering high quality
products (i.e. manufactured with high durability, easy dismantling,
refurbishment and recycling). This framework incorporates quality
control, product certification and international standards,
including ISO 9001 and IEC61215:2016; thereby providing visibility
of the entire supply chain and materials used during production.
NESF is currently in the process of including ESG considerations
and obligations into these agreements to ensure that suppliers
abide by our standards, and in particular the group's Sustainable
Investment Policy and Human Rights Position Statement.
NESF is aware of the recent allegations of forced labour in the
solar supply chain in Xinjiang and we are committed to preventing
modern slavery in our own activities and those related to our
business relationships, including supply chain. This is supported
by our public Policy and statements.
NESF strongly believes that supply chain management can be
tackled collectively and through a long-term engagement process
aimed to influence changes to eradicate human rights abuses and
raise labour practices and standard globally. To this extent, NEC
continues to engage with a number of stakeholders, including NGOs,
industry associations, reputable advisers and manufacturers to
increase transparency and traceability. NEC, NESF's investment
adviser, has signed the Solar Energy Industry Association (SEIA)
and the Solar Energy UK (SEUK) pledge against slave labour; NEC is
also actively involved with the SEUK in setting up a task force to
address this very important matter.
Stakeholder Engagement and Stewardship
During the reporting year, several members of NEC's staff
engaged with SUK across various workstreams, including one employee
who chairs the SUK Natural Capital Working group, while others are
involved with supporting SUK on their engagement with the
Department for Business, Energy and Industrial Strategy (BEIS) on
the technical interpretation of the Nationally Significant
Infrastructure Projects (NSIP) threshold. Lastly, other employees
have been working with Ofgem around the Renewables Obligation (RO)
audits program.
NESF's Stewardship efforts have seen the Company involved in
several consultations with the UK Government on the Contracts for
Difference scheme, as well as leading negotiations with the
Valuation Office Agency (VOA) on the revised ratings list for
solar, network charging and cost modelling. In addition, the NEC
Group is a signatory of the United Nations Principles for
Responsible Investment ("UNPRI"), and a member of the Institutional
Investors Group on Climate Change ("IIGCC"). The ESG Team actively
engages and collaborates with both organisations to promote best
practice within the solar industry, and regularly discusses any
relevant recommendations and important trends for NESF with
colleagues who are responsible for investment and asset management
of the Company's portfolio. NESF also engages with an extended set
of stakeholders to continuously improve its approach to ESG and
supply chain matters in the solar sector. These include
conservation groups, such as IBAT Alliance, experts on climate
change, human rights and biodiversity, and non-profit
organisations, such as the Business and Human Rights Resource
Centre.
(4) NextEnergy-Capital-ESG-Disclosures-Final-09.03.2021.pdf (nextenergycapital.com)
Accountability and Governance
Responsibility for NESF's ESG risk management, reporting and
stakeholder engagement falls within NEC's ESG team.
The Head of ESG, Giulia Guidi, reports to NEC's CEO and is
responsible for setting the strategy and for implementing the
Sustainable Investment Policy for the Group and in particular, for
the Company. She sits on the Company's investment committee and
takes an active role in the investment decision-making process. She
meets regularly with senior managers of the Company to continue to
raise awareness around global societal issues, discuss new trends,
review the stakeholder engagement strategy, and the wider Group
business strategy.
NESF has built strong governance around these issues, ensuring
that the team works not only alongside the investment and
development teams, but also meets regularly with the procurement
offices, the operational team, the biodiversity team, the portfolio
managers, and the SPV's managers, in order to ensure that ESG is
integrated at the different stages of investment and
development.
The ESG team consists of two team members, Giulia Guidi, with
more than 20 years of combined experience in ESG risk management in
the financial sector, and Phoebe Wright, the ESG Analyst for the
NEC Group. An additional resource is responsible for NextEnergy
Foundation.
Scope 1,2,3 Emissions Units
35.3 ktCO(2) e
Green impact: historic performance
Metric Units FY2021 FY2020 FY2019 FY2018 FY2017 FY2016 FY2015 FY2014
ktCO(2)
GHG avoided e 317.6 307.7 299.4 211.2 191.4 110.0 30.6 21.6
NOx avoided tonnes 283.4 274.4 276.5 193.1 176.3 108.3 41.3 34.3
Sox avoided tonnes 527.5 511.9 499.2 365.9 335.8 214.4 94.1 82.6
PM2,5 tonnes 24.0 23.2 22.6 15.9 14.5 8.4 2.4 1.7
PM10 tonnes 5.9 5.8 5.6 4.0 3.7 2.3 0.9 0.7
Fossil Fuels tonnes
avoided oil equivalent 135.9 131.2 127.7 90.0 81.6 46.9 13.0 9.1
million
barrels 1.00 0.96 0.94 0.66 0.60 0.34 0.10 0.07
Source: Green Investment Group
Environmental, Social and Governance factors
Environmental
In the context of our business, environmental factors considered
throughout the investment and ownership phase include climate
change, biodiversity and landscape, potential water impacts, as
well as circular economy considerations.
Climate change: NESF contributes to positive climate mitigation
and it is committed to reporting its CO(2) e avoided emission on a
year-on-year basis, as well as through employing historical data.
GIG has also supported us in estimating the carbon footprint
associated with the lifecycle of our portfolio, including our
greenhouse gas emissions scope 1, 2 and 3. (see below). NESF's
carbon footprint throughout the lifecycle is minor and we aim to
start collecting additional data in the future to assess how we can
achieve a net zero objective. Climate-related risks, such as areas
that according to the Environment Agency's datasets are at risk of
flooding, are identified during the pre-investment phase. We
currently avoid flood risk areas, however sometimes we can model
them to ensure that the project minimises flood risk. In the past,
mitigation measures put in place for solar projects have helped to
alleviate the risk of flooding on land adjacent to the site.
Despite the operational lifetime of NESF's sites being up to 45
years, all sites are designed using a 100-year flood projection to
account for projected climate-induced risks. In line with our TCFD
commitments, and, based on potential initial risks identified, at a
future date we could commission climate-related physical risk
assessment for climate-induced risks.
Biodiversity: NEC has a dedicated Biodiversity team that is
working with organisations such as Wychwood and Twig to ensure that
land management and native fauna and flora are being considered
throughout the investment and ownership phases. A set of proven
biodiversity solutions are included within planning-controlled site
proposals, with the view of ecologically enhancing the project area
and any additional land held under the project ground lease. NEC
has developed a specific Universal Biodiversity Management Plan
("UBMP") for NESF sites (see case study 1) and NESF has hired
biodiversity specialists to design and implement bespoke and
effective measures that develop, repair and connect local wildlife,
habitats and ecosystems. Our UBMP also exists to improve local
stakeholder relationships by educating the community on the
benefits of transforming solar plants into ecosystem-friendly
assets. This makes up part of NEC's wider Biodiversity Strategy
which works to support the UK Government's 25-year Environmental
Plan (2) . During the asset's operational lifetime, schemes are
also designed to allow sheep grazing. Such schemes employ densities
which work within the land's natural carrying capacity. They are
devised in conjunction with the broader environmental, landscape
and ecological objectives of site-specific measures, which are
agreed in advance with local councils, as well as the UBMP.
Circular economy: where possible, biodegradable or recyclable
materials are sourced. At the end of the solar farm's life, we
expect there to be a residual value in most of the materials used
in the modules, for example glass, silicon, steel, aluminum and
copper. The value of these materials is expected to pay in full for
the decommissioning costs of the solar farm.
Social
NESF pays particular attention to any social impacts that could
arise in the communities we operate in, as well as to broader
impacts that could be present throughout our supply chain. NESF
focuses its attention on the following factors:
Community engagement: during the pre-acquisition phase, NESF
closely engages with local parishes and councils to ensure the
suitability of site proposals. Where possible, community feedback
is incorporated into the transaction proposals so that we can work
on long-term community development plans (see case study 2). We
also commit to employing people locally where practical and
possible. In addition, community funds are established to promote
development and support community renewable energy projects and
initiatives. NESF is dedicated to using our solar farms as
educational opportunities, particularly regarding the promotion of
the value of biodiversity and clean energy.
Health and safety: Regarding occupational and environmental
health and safety standards, we uphold minimum construction and
production-related industry standards, such as those set out in the
Construction, Design and Management Regulations 2015 and the
International Organisation for Standardisation's requirements.
These standards are incorporated into the main service delivery
contracts and impose contractual obligations on our suppliers.
Labour and human rights: NESF has zero tolerance for human
rights abuses across the value chain. We work with our
counterparties to ensure that they abide by our human rights
related principles, as outlined in NESF's Modern Slavery Statement,
NEC's Sustainable Investment Policy and NESF Human Rights
Statement. To this extent, NEC is working to include human rights
related criteria into our solar PV module framework agreements (see
"Supply chain"). We also aim to add obligations to comply with
human rights related standards in our contractual relationships
with all our counterparties, including co-owners and EPC and
O&M contractors and subcontractors.
Governance
As part of our ESG approach we want to engage with
counterparties that have the highest standards in terms of
transparency and governance.
Anti-bribery, Anti money Laundering, corruption and tax evasion:
It is both NESF's and NEC's policy to conduct all of its business
in an honest and ethical manner. We have a zero tolerance policy
towards bribery, corruption and the criminal facilitation of tax
evasion. As part of the investment process, NESF undertakes due
diligence on each counterparty to ensure they act professionally,
fairly and with integrity in all business dealings.
NESF ESG Case Studies
Case Study 1: Universal Biodiversity Management Plans (UBMP)
NEC is committed to ESG principles and responsible investment.
We continue to develop our ESG policy and are committed to evolving
it and delivering sustainable growth across the Company.
In early 2020, the UBMP sites transitioned into the
implementation phase. Universal non-site-specific measures such as
hibernacula, bug hotels and bird and bat boxes have been introduced
across all 15 sites by August 2020 within the UK portfolio. These
measures have been introduced to increase net gain within the
portfolio and supports NEC's commitment to their Biodiversity
Strategy. These will be monitored to ensure that they remain in
good order and usable for the wildlife that inhabits them.
We had to stage these UBMP initiatives into two phases as the
impact of Covid-19 made it prohibitive to have non-operational
works carried out at site during the Spring and early Summer of
2020. Phase 1 was the boxes; bug hotels and hibernacula and Phase 2
was the wildflower seeding.
At the start of September (2020), Phase 2 was initiated to
deploy wildflowers across the 12 UBMP sites that required seeding.
This was a partial success as 5 sites were sown with wildflower mix
during the planting season. Due to the wet weather forecasts the
decision had therefore been taken to postpone the seeding works at
the remaining 7 sites until Spring 2021.
Overall, for 2021, the Biodiversity Team have 14 sites completed
to full UBMP level as per the Wychwood guidance maps. A total of 1
site is outstanding for Autumn 2021.
Case Study 2: Exemplar Sites
As of 31 March 2020, NESF had implemented a total of five sites
at an exemplar standard. An additional three sites had been
earmarked for 2021.
As of 31 March 2021, NESF carried out annual ecological surveys
within the Exemplar portfolio. These surveys were being conducted
by Wychwood alongside trainee ecologists so that they could gain
fieldwork exposure and learn how to perform ecological surveys on
NESF assets. NEC believes it is essential to support upcoming
students in their research and ensure learning opportunities are
encouraged when available. These surveys consisted of Breeding
Birds, Botany and Invertebrates and the reports will be finalised
in September to allow tangible data to track the ecological growth
on these sites, to ensure progress and monitor biodiversity net
gain.
Regarding the Exemplar's sites Biodiversity Management Plans,
Burrowton and Emberton were finalised at the end of the financial
year. Two bug hotels were introduced at Emberton in December 2020
and wildflowers along with species-specific bird boxes were
introduced at Burrowton by January 2021.
O&M Power Plant Habitats Status
PSH
Operations Croydon Works Not
Gemec Hall Works Required
Ingeteam Decoy Works
Ingeteam Birch Works
Ingeteam Brickyard Works
Ingeteam Condover Works Works
Encome Branston Works Complete
Encome Shacks Barn Works
Encome Bottom Plain Works Work
Encome Higher Works
Ingeteam Bilsham Works
Ingeteam Cockhill Works Works
Ingeteam Gover Farm Works Complete
Ingeteam Llwyndu Works
BSR North Farm Works
Case Study 3: Community Engagement - Langham Parish Council
pre-school outdoor play area
At our Boxted solar farm, we donated GBP7,142.58 towards Langham
Parish council to support the redevelopment of the Langham
pre-school playground. The outdoor play area was installed on 21
September 2020 in order to make it a safe area for young children
to play in.
Case Study 4: Community Engagement - Contribution to
Education
The community orchard and outdoor classroom was a plot of land
that was developed to build a community orchard, which is also
helping to promote wildlife, near the Birch site in Colchester. At
the request of the local community, an outdoor classroom was built
and introduced in 2019. This was made possible by a donation from
one of our SPVs, Birch CIC. Since then, the area has been used by
local parish and schools to provide an area where the community can
watch nature and learn about sustainability.
Case Study 5: University Research
The Biodiversity Team worked alongside Bristol University to
support a PhD Student with their research into solar farms and bats
in the south west region. The student visited 12 sites within the
UK portfolio between July and October 2020 to complete the project.
This project also encompassed landowner engagement as the project
required adjacent fields within the area. Data analysis is still
ongoing, and we expect the project to be finalised by September
2021. NESF believes in supporting scientific research within the
sector to help provide tangible information regarding biodiversity
and net gain.
Case Study 6: Greater Change
Last year NESF helped to combat homelessness around the Bilsham
site in Chichester and the Hill Farm site in Oxford. The Company
supported 10 individuals living around both sites through Greater
Change, which works to aid these individuals to find accommodation,
as well as training them to live and maintain their new homes. This
year, a total of GBP8,610 was spent on the 10 individuals around
Oxford and Chichester to support them in making a difference to
their current situation which was heavily impacted by Covid-19. One
individual became homeless due to the pandemic and struggled
significantly with substance abuse. NESF funding was able to help
him obtain a property through the council and provide him the
necessary support to abstain from his addiction.
Trevor said:
"I would like to say thank you for supporting me, this will
change my life and make it easier for me to see my children and
feel presentable. I can't thank you enough!"
Recognition of NESF's Green Credentials
During the year ending 31 March 2020, the Company was awarded
the London Stock Exchange's Green Economy Mark, which recognises
companies that derive over 50% of their annual revenues from
products and services that contribute to the global green
economy.
The Company was also successful in obtaining Guernsey Green Fund
status from the Guernsey Financial Services Commission ("GFSC").
Following an application to the GFSC via Route 1 suitable
third-party certification, NESF is deemed to have met the following
investment criteria as outlined in the Guernsey Green Fund Rules,
2018 ("Rules"):
-- the property of a Guernsey Green Fund shall be invested with
the aim of spreading risk and with the ultimate objective of
mitigating environmental damage resulting in a net positive outcome
for the environment; and
-- a Guernsey Green Fund shall comprise 75% of assets by value
that meet the Rules' criteria and the remaining 25% must not lessen
or reduce the Guernsey Green Fund's overall objective of mitigating
environmental damage or comprise an investment of a type specified
within schedule 3 of the Rules.
The Route 1 suitable third-party certification was provided by
Grant Thornton Limited in the form of an independent limited
assurance report and their engagement was conducted in accordance
with the International Standard on Related Services ("ISRS") 4400
"Engagements to Perform Agreed-Upon Procedures Regarding Financial
Information".
Charitable Donation to the NextEnergy Foundation (the
"Foundation")
The Foundation is an international charity founded in 2017 with
the vision of participating proactively in the global effort to
reduce carbon emissions, providing clean power sources in regions
where they are not available, and contributing to poverty
alleviation. The Foundation is NEC's personal effort to support
small and commendable projects that would otherwise not be in the
remit of its operations. NEC has pledged 5% of its profits annually
to the Foundation, recognising the importance of benefiting
communities both in which it is present as well as those
beyond.
In December 2020, NESF made a charitable donation of GBP80,000
to the Foundation. This is the second year that NESF has supported
the Foundation; the funds donated were utilised to contribute to
projects directly related to the Foundation's mission of
alleviating poverty through the nexus with renewable energy access,
but also its expanded remit to respond to those most affected
socially and economically by the Covid-19 pandemic. This has
included:
-- Completing the installation of solar systems on 100% of the
primary schools in the Nkhata Bay District, Malawi;
-- Contributing to the installation of a solar water farm which
will provide purified drinking water for up to 2,500 litres per day
in the Cabo de la Vela community, Colombia; and,
-- Distributing food parcels to vulnerable children and
marginalised elderly across the UK and Italy over the 2020/21
Festive period.
More details about the projects which Foundation has, and is
currently supporting, can be found on the Foundation website
(nextenergyfoundation.org).
Looking Ahead and Next Steps
For NESF, ESG integration is an evolving process where
stakeholder engagement and implementation of industry best practice
helps us to continuously improve our practices and become a leader
in the solar sector.
In line with our continued commitment to climate change
solutions, and our support of the UK Government's Net Zero
ambition, we aim to continue our stakeholder engagement on this
subject and aim to provide further transparency on what a net zero
scenario implies for a solar PV portfolio.
We are planning to continue to strengthen our ESG disclosures
and to deepen the overall integration of ESG into our investment
process, in line with the evolving requirements of the EU Taxonomy
and Disclosure Regulation; we aim to measure NESF's current
portfolio performance through an expanded set of key performance
indicators line with the EU Regulatory Technical Standard.
Another key area of focus continues to be the assessment of our
supply chain, including module, inverter and battery suppliers, in
order to determine their approach to environmental, social and
governance matters and, in particular, their labour practices.
Stakeholder Engagement
We recognise the importance of maintaining a high standard of
business conduct and strong and constructive relationships with our
key stakeholders in order to deliver the Company's long-term
strategic objectives.
As the Company has no employees and given the nature of its
services, the Investment Adviser has significant dealings with our
other stakeholders and, therefore, is an integral point of contact
between the Company and our stakeholders. The Company's Corporate
Brokers, Cenkos Securities plc and Shore Capital Ltd, are also an
integral point of contact between the Company and our shareholders
and, together with the Investment Adviser feed back any shareholder
concerns or observations.
Our key stakeholders are shown in the table below. The table
seeks to explain why those stakeholders are important to us and how
we seek to engage with them, which we may do either directly or
through the Investment Adviser or our Corporate Brokers as
appropriate.
Some of our Why they are How we engage with them
Key Stakeholders important
to us
Investment Adviser The Investment
Adviser's * Board and Committee meetings.
performance is
critical
for the Company to * Ad hoc meetings and calls with the Board.
deliver
its investment
strategy * External Board evaluation, which includes feedback
successfully and meet from the Investment Adviser.
its investment and
strategic
objectives. * Informal meetings.
Accordingly,
the Company relies on
the Investment
Adviser's
expertise, and needs
to ensure the quality
and sustainability of
its services, to
deliver
the necessary
performance.
The Investment
Adviser's
culture and
reputation
is also important
when
it is representing
the
Company and its
subsidiaries.
Investment Manager The Investment
Manager's * Quarterly reports to the Board.
role is important to
ensure all
acquisitions * Annual evaluation by the Management Engagement
and divestments meet Committee.
the Company's
investment
and strategic * Ad hoc meetings and calls with Directors.
objectives.
Shareholders A well-informed and
(All investors supportive * Annual and Interim Reports.
in the Company- shareholder base is
institutional crucial
investors -(including to the long-term * Quarterly factsheets.
wealth managers)and sustainability
retail investors of our business.
(including private Understanding * Market announcements, including quarterly NAV
individuals)) the views and announcements.
priorities
of our shareholders
is, * Website.
therefore,
fundamental
to retaining their * Institutional investor meetings (one-to-one and
continued group), primarily through our Investment Adviser and
support and to have corporate brokers, to update them (e.g. annual and
the interim results presentations) or gauge their
potential to access opinions on specific matters(e.g. strategy and
equity capital raisings).
capital in order to
continue
to expand the * Regular institutional investor feedback received from
Company's our Investment Adviser and corporate brokers.
portfolio over time
in
order to further * Chairman meetings and other communications with
diversify substantial shareholders.
the investment
portfolio
and create economies * Research analyst presentations.
of scale.
* Dialogue with research analysts through our
Investment Adviser, as and when required.
* AGM.
* Investor perception surveys.
Administrator As the Company has no
employees, we rely on * Board and Committee meetings.
the Administrator to
provide us with
administrative, * Ad hoc meetings and calls with the Board.
fund accounting and
company
secretarial services. * Quarterly reports to the Board.
In particular, on the
Administrator
maintaining * Annual evaluation of the Administrator by the
the accuracy of our Management Engagement Committee.
accounting
records and ensuring
our compliance with
applicable
laws, rules and
regulations.
Other Key Service A strong and
Providers and constructive * Board and Committee meetings.
Advisers (Registrar, working relationship
Financial Advisers, with our other key
Legal advisers, service * One-to-one meetings and calls.
Corporate Brokers, providers and
Public Relations advisers
and Auditors) ensures that we * Provision of relevant information to or by the
receive Company.
high-quality services
to help deliver our
investment * Annual evaluation of key service providers and
and strategic advisers by the Management Engagement Committee.
objectives.
Lenders An appropriate amount
(Provider of of gearing is * Provision of information to lenders in accordance
the Company's required with the terms of the relevant facility agreements.
credit facilities) to achieve our target
returns. It is
important * Consultation in advance on matters which may require
to maintain a strong their consent under the relevant facility agreements
working relationship .
with our existing
lenders
in case we may need,
at some point, their
consent for, e.g.,
strategic
initiatives. We also
look to build strong
relationships with
lenders,
including our
existing
lenders, who may
provide
debt facilities in
the
future.
Local Communities Ensuring our
investment * See the Environmental, Social and Corporate
creates a positive Governance Report.
social
impact is core to our
sustainability
approach.
Asset Manager The Asset Manager's
performance * Monthly and ad-hoc meetings with the Investment
is critical for the Adviser.
operating
solar assets to
deliver * Monthly reports to the Investment Adviser.
operational
outperformance
verses the budget. * Quarterly reports to the Investment Manager, which is
The reported to the Board.
Asset Manager also
provide
the administration * Annual evaluation of the Asset Manager by the
and Management Engagement Committee.
fund accounting for
the
Company's
subsidiaries,
as well as providing
an Energy Sales desk
to manage our
electricity
price ad sales
strategy.
Risks and Risk Management
We recognise that effective risk management is important to the
Company's long-term sustainable success.
Approach to Managing Risk
Our risk management process is designed to identify, evaluate,
manage and mitigate (rather than eliminate) the significant risks
we face. The process can therefore only provide reasonable, and not
absolute, assurance.
The Audit Committee formally reviews, on the Board's behalf, the
effectiveness of our risk management and internal control systems
bi -- annually. During the course of these reviews, the Audit
Committee has not identified or been advised of any material
failings or weaknesses that it has determined to be material.
Risk Appetite
The Board is ultimately responsible for defining the level and
type of risk that the Company considers appropriate, ensuring it
remains in line with the Company's investment objective and
Investment Policy that sets out the key components of its risk
appetite.
The Company's risk appetite is considered in light of the
emerging and principal risks that the Company faces, including
having regard to, amongst other things, the level of exposure to
power prices, gearing and financing risk and solar resource
risk.
Emerging and Principal Risks
Details of the emerging and principal risks we face that have
the potential to materially affect our business are set out below.
There are some risks that we currently regard as immaterial and,
therefore, they have not been included below but they may become
material in the future. Other risks may be unknown to us at
present.
Portfolio Management and Performance Risk
Risks Summary Mitigation
1. Electricity Solar is an intermittent There is a level of predictability
generation falling energy source compared for solar irradiation
below expectation to traditional energy compared to other renewables,
resources such as coal in that irradiation levels
and gas. The volume of tend to follow a set
solar irradiation available trend throughout the
on a given day is out year.
of the Company's control The geographical location
and this is a risk on of the asset has an impact
the performance of the on irradiation levels,
assets. due to climate variations
Unplanned DNO outages, and small differences
weather patterns and in day lengths across
technical issues can regions. Assets acquired
impact generation. with this in mind.
The Asset Manager has
value-enhancing tools
that optimise the Company's
portfolio generation
and resolve interruptions
efficiently.
The diversification of
the underlying solar
module and inverter manufacturers
and O&M suppliers.
The reliability of solar
technology when properly
maintained.
2. Portfolio Valuation of a solar Assumptions used in the
valuation PV asset is dependent SPV valuation model are
on financial models based frequently reviewed by
on several drivers: principally the Investment Manager
discount rates, rate to ensure they are at
of inflation, power price the appropriate level.
curves and amount of Documentation supporting
electricity the solar the fair values model
assets are expected to is presented to the Board
produce. Certain assumptions quarterly for approval
may prove to be inaccurate, and adoption.
particularly during periods To manage the impact
of volatility. of the power price volatility,
the Investment Adviser
uses an average of the
power price curves from
three Consultants.
Operational and Strategic Risks
Risks Summary Mitigation
1. A decline Revenues of solar assets The Investment Adviser
in the price are dependent on the uses the most recent
of electricity electricity market. Exposure quarterly reports from
to the wholesale energy the Consultants to be
market could impact the kept informed of long-term
prices received for energy electricity prices, and
generated by and revenues uses this information
forecast for the operating to formulate the Company's
assets of the Company. electricity sales and
The development of subsidy-free hedging strategies.
assets has the potential Short-term: The Company
to increase this risk enters into PPAs and
as once operational they forward contracts to
generate their revenue fix electricity prices
through the wholesale for a future period ranging
energy market and short-term from six to 12months.The
PPAs contracts. NEC Group has an Energy
The Company is exposed Sales desk which is responsible
to a reduction in the for hedging generation
price of electricity. produced in the short-term.
The Covid-19 pandemic At the date of this report,
resulted in a decline the Company had secured
in demand for energy fixed price agreements
which exacerbated recent covering 87% of its UK
declines in the price electricity generation
of electricity. This for the 2021/22 financial
risk exists with future year and 63% for the
pandemics. 2022/23 financial year.
A H2 2020 economic recovery, Long-term: Wholesale
and subsequent increased power prices are beyond
demand for electricity, the control of the Company.
has driven a recovery Factors that could increase
in short- and medium- the price of electricity
term power prices; something include the roll-out
that is currently reflected of electric vehicles
in day-ahead prices as and the electrification
well as 2021 and 2022 of domestic heating and
forward pricing. transportation networks.
The Investment Adviser
reviews wholesale electricity
price forecasts and enters
into long-term PPAs where
appropriate.
Subsidy free assets:
The Investment Adviser
will plan for short-term
and long-term contracts
before the asset is operational.
2. Counterparty This is the risk of counterparty The Asset Manager continuously
risk failure. The Company monitors NESF's contracts
has entered into O&M in line with the market.
contracts and PPAs, which There are contractual
affect the costs and arrangements in place
revenues of the Company. that have warranties
The Company has also in case of defaults.
contracted with various The Asset Manager ensures
EPCs for construction that counterparties are
of the subsidy-free assets. of an acceptable financial
If the counterparty becomes standing to minimise
insolvent there is a risk.
risk of disruption and
financial loss until
the counterparty is replaced.
3. Plant operational The Company relies on The Company can seek
risk third-party contractors legal recourse against
to provide corrective failure by an O&M contractor.
and preventative maintenance The Asset Manager monitors
through O&M contracts. and ensures that the
The O&M contractor could O&M contract maintains
fail to fulfil its obligation a detailed preventative
and the solar plant's schedule, with contract
performance could deteriorate. warranties and penalty
Degradation of the solar payments in the event
modules reduce the performance of failure.
of the plant over time. NESF looks at technological
An increase in the rate improvements on an ongoing
of degradation may lead basis to offset the effect
to under performance. of degradation. Also,
NESF has contract warranties
to secure the performance
of the plants.
External and Market Risks
Risks Summary Mitigation
1. Adverse changes On 31 January 2020 the The Investment Manager
in government UK left the European and the Board believe
policy and political Union. The EU-UK Trade Brexit to have a very
uncertainty and Cooperation Agreement limited effect on the
was agreed on 24 December Company's financial and
2020 and ratified by operating prospects.
the UK Parliament on The Investment Manager
30 December 2020. Uncertainty will continue to closely
remains regarding the monitor the impact of
impact of the agreement the EU-UK Trade and Cooperation
to the UK energy market, Agreement on the underlying
the regulatory environment portfolio. In both the
and the legal and commercial UK and Italy, the Company
operations of the portfolio built up a stock of spare
assets. parts during 2019 to
Changes in policies by ensure adequate levels
the coalition government of spare parts are available
in Italy could affect at portfolio level to
the value of the Italian mitigate potential disruption
assets. to supply chains between
EU countries.
The UK's sixth carbon
budget released earlier
this year will enshrine
the Government's commitment
to reduce the country's
greenhouse gas emissions
to net zero. Within this
commitment the Government
commits to reducing greenhouse
gas emissions but 78%
by 2035 compared to 1990
levels. The Investment
Manager does not think
the UK government will
introduce primary legislation
to reverse this commitment
as a result of Brexit.
The implications of Brexit
and the policies of the
Italian government on
the Company are not identifiable
at present. These risks
are beyond the control
of the Company, but the
Company closely monitors
developments and their
impact on the solar industry
and would consider legal
remedies.
2. Adverse changes Uncertainty for the future The Company actively
to regulatory regulatory framework monitors regulatory changes
framework for for solar PV creates within the industry and
solar PV a risk that further planned participates in contributions
acquisitions do not take towards government discussions
place. This would affect on the industry.
the Company's growth
potential, valuation
and profitability.
3. Changes to Changes to the existing NESF has tax advisers
tax legislation rates and rules could to ensure awareness of
and rates have an adverse effect any upcoming changes
on the valuation of the to tax legislation and
portfolio and levels rates, to implement the
of dividends paid to necessary changes as
shareholders. quickly and smoothly
as possible.
4. Health and The Covid-19 pandemic Covid-19 health and safety
Safety could affect the supply practices have been implemented
chain for solar equipment, to conform to local governmental
work environment at sites standards.
and at our Investment
Adviser and other stakeholders'
offices and the welfare
of our staff working
from home.
Going Concern and Viability
Going Concern
This Strategic Report describes the Company's business
activities, together with the factors likely to affect its future
performance, position and prospects. The financial position of the
Company, its cash flows, liquidity position and borrowing
facilities are referred to in the Chairman's Statement, Investment
Manager's Report and notes to the Financial Statements.
The NESF Group's cash balance as at 31 March 2021 was GBP11m,
all of which was readily available. It also had immediately
available but undrawn amounts under its debt facilities of a
further GBP36m. The NESF Group had capital commitments totaling
GBP9.5m at the year end. The majority of the NESF Group's revenues
are derived from government subsidies. A significant part of the
NESF Group's borrowings are on a non-recourse basis. The Company's
portfolio is diversified by geography, components, plant size,
subsidy schemes and revenue streams.
The Board is satisfied that the Company has sufficient financial
resources available to be able to manage the Company's business
effectively and pursue the Company's principal activities and
investment objective. In particular, the Board is not currently
aware of any material uncertainties in relation to the Company's
ability to continue for a period of at least 12 months from the
date of approval of this Annual Report. The Board is of the
opinion, therefore, that the going concern basis adopted in the
preparation of the Financial Statements is appropriate.
Assessment of Viability
In accordance with the AIC Code of Corporate Governance and the
FCA's Listing Rules, the Directors have assessed the prospects of
the Company over a longer period than the 12 months required when
preparing financial statements on a going concern basis.
In reviewing the Company's viability, the Directors have
assessed its viability for the period to 31 March 2026. The Board
believes this period, being approximately five years, is an
appropriate period over which to assess the Company's viability as
it is consistent with the five year period used by the Board when
considering the Company's investment strategy and medium-term
business plans, including cash flows, and is considered reasonable
having regard the long-term nature of the Company's investment
strategy.
The Company owns a portfolio of solar energy infrastructure
assets in the UK and Italy that are predominantly fully
constructed, operational and generating renewable electricity. As a
result, it benefits from predictable and reliable long-term cash
flows and is subject to a set of risks that can be identified and
assessed. Each solar asset is supported by a detailed financial
model at acquisition and incorporated into the Company's valuation
model for quarterly valuations. The Directors believe that the
diversification within the Company's portfolio of solar assets
helps to withstand and mitigate the emerging and principal risks
the Company is most likely to face. The Company's revenues from
investments provide substantial cover to the operating expenses of
the SPVs, HoldCos and the Company and any other costs likely to be
faced by any of them over the viability assessment period.
NESF prepares a five-year cash flow forecast annually and the
Investment Manager and the Board review this as part of their
business planning and to address the sustainability of the
dividends. This forecast is based on the Investment Manager's
expectations of future asset performance, income and costs, and are
consistent with the methodology applied to provide the valuation of
the investments. The forecast considers the Company's cash
balances, cash flows, dividend cover, other financial ratios,
compliance, investment policy and key operational and financial
indicators over the period. Furthermore, the forecast also
considers the terms of the Company's borrowing facilities (mainly
interest payable, amortisation and financial covenants) and the
terms of the preference shares and their limited redemption rights.
Apart from any drawings under two revolving credit facilities for
an aggregate of GBP90m that expire in 2022, there are no borrowings
by the Company or any of the HoldCos or SPVs that are expected to
be refinanced. However, the forecast considers raising further
short-term debt and equity to acquire future assets.
The viability assessment assumes continued government support
for existing subsidy arrangements for the assets within the
portfolio.
The key assumptions underpinning the cash flows and covenant
compliance forecasts are subject to sensitivity analysis to explore
and evaluate the Company's resilience to the potential impact of
those emerging and principal risks that, both individually and in
aggregate, could prevent the Company from delivering on its
investment strategy. The emerging and principal risks that are
subject to the sensitivity analysis are outlined in note 19b, as
these could have a material negative impact on valuations and cash
flows and give rise to a reduction in the availability of finance.
The remaining emerging and principal risks, whilst having an impact
on the Company's business model and future performance, position
and prospects, are not considered by the Directors to have a
reasonable likelihood of impacting the Company's viability over the
five-year period to 31 March 2026.
The sensitivities performed were designed to be severe but
plausible and to take full account of the availability and likely
effectiveness of mitigating actions that could be taken to reduce
or avoid the impact or occurrence of the underlying risks.
If the ordinary shares trade, on average, at a discount to the
NAV in excess of 10% over any financial year of the Company, the
Board is required to propose, at the next AGM, a special resolution
that the Company ceases in its current form. In assessing the
likelihood of a discontinuation resolution being triggered, the
Board has had regard to the historic average premia/discounts of
the Company's ordinary shares and its peers over rolling 12 month
periods since the Company's IPO in 2014.
Viability Statement
Having considered the five-year forecast cash flows and covenant
compliance, the impact of the sensitivities in combination and the
emerging and principal risks facing the Company, the Directors
confirm that they have a reasonable expectation that the Company
will be able to continue in operation and meet its liabilities as
they fall due over the period to 31 March 2026.
Covid-19 Pandemic
The pandemic has affected all levels of business and society
since early 2020. The Directors do not believe that there is a
significant risk to the business and continue to monitor
developments and follow governmental guidelines.
Approval
This Strategic Report was approved by the Board on 16 June 2021
and signed on its behalf by:
Kevin Lyon
Chairman
16 June 2021
Governance
Introduction from the Chairman
Kevin Lyon
Chairman
I am pleased to present the Company's Corporate Governance
Report, for the year ended 31 March 2021.
We believe that strong corporate governance gives the Company's
shareholders and other key stakeholders confidence in the Company's
trustworthiness, fairness and transparency. The practice of good
governance is, therefore, an integral part of the way we manage the
Company and plays an important role in shaping the Company's
long-term sustainable success and achieving our strategic
objectives.
In April 21, the Board commissioned an independent specialist to
carry out a perception study with NESF shareholders. The study
involved speaking to investors to listen to their views. This was a
productive and helpful exercise and the views and opinions of the
shareholders have been duly noted and will be considered. The
initiative formed part of NESF's pro-active approach to increase
market understanding and promote engagement. The Board would like
to thank all participants for their valuable contributions.
Corporate Governance Regime
This Corporate Governance Report explains how we apply the
principles and provisions of the AIC Code of Corporate Governance
(February 2019). It provides details of the key aspects of our
corporate governance framework and seeks to demonstrate how the
Board and its Committees have operated during the year and how we
exercise effective stewardship over the Company's activities for
the benefit of our shareholders as a whole, whilst having regard to
the interests of wider stakeholders.
Board Composition and Evaluation
Sue Inglis (Sue) resigned from the Board on 31 March 2021. This
reduced our gender diversity, with our female Director making up
25% of the Board. The Board continues to keep its composition under
review.
During the year, we implemented our second external Board
evaluation, which was undertaken by Linstock Limited. Overall, the
conclusions from the evaluation were positive, although they did
identify some areas that we should seek to improve upon and we are
responding to the recommendations. The AIC Code requires us to
undertake externally facilitated Board evaluations at least every
three years. Further information on this year's evaluation process
and its findings can be found under "Annual Performance
Evaluations".
Management Engagement Committee
Following Sue's resignation, the Board resolved that Joanne
Peacegood be appointed as chair of the Management Engagement
Committee. Further information on the principle responsibilities of
the Management Engagement Committee can be found above.
Engagement with Our Key Stakeholders
We recognise the importance of engaging with our key
stakeholders and information on how we do this can be found under
"Engagement with Our Stakeholders". During the year, we updated the
Company's website (nextenergysolarfund.com), incorporating improved
features and additional functionality. We will continue to look at
how we engage with all of our key stakeholders to ensure that our
engagement is both appropriate for the Company's business and
dynamic so that we can respond as the business and our key
stakeholders' views evolve.
Kevin Lyon
Chairman
16 June 2021
Governance Framework
Our governance framework reflects the fact that, as an
investment company, the Company has no employees, its Directors are
all non-executive and its day-to-day activities, including
investment management and administration, are outsourced to
external service providers.
BOARD
(All independent of the Investment Manager, Investment Adviser
and Administrator)
Independent Chairman: Kevin Lyon (since 22 January 2014)
Principal Responsibilities: To lead the board; to ensure the
board's overall effectiveness in directing NESF
Senior Independent Director: Vic Holmes (since 22 January 2014)
Principal Responsibilities: To provide a sounding board for the
chairman and serve as an intermediary for the other directors and
shareholders
Non-executive Directors: Patrick Firth (since 22 January 2014),
Joanne Peacegood (since 20 February 2020)
SCHEDULED MEETINGS: 4 p.a.
PRINCIPAL RESPONSIBILITIES:
To promote the long-term sustainable success of NESF, generating
value for shareholders whilst having regard to the interests of
wider stakeholders
To set NESF's strategic objectives and ensure that the necessary
resources are available for it to meet its objectives
To establish a framework of prudent and effective controls that
enable risk to be assessed and managed To oversee the performance
of the Investment Manager and other external service providers
To ensure effective engagement with shareholders and other key
stakeholders Audit Committee
To robustly scrutinise and constructively challenge all matters
that come before the board
MANAGEMENT ENGAGEMENT REMUNERATION AND NOMINATIONS
AUDIT COMMITTEE COMMITTEE COMMITTEE
MEMBERSHIP: All Directors MEMBERSHIP: All Directors MEMBERSHIP: All Directors
CHAIRMAN: Patrick CHAIRMAN: Jo Peacegood CHAIRMAN: Vic Holmes
Firth (since 31 March 2021) (since 2014)
(since 2014) SCHEDULED MEETINGS: SCHEDULED MEETINGS:
SCHEDULED MEETINGS: 1 p.a. 1 p.a.
3 p.a. PRINCIPAL RESPONSIBILITIES: PRINCIPAL RESPONSIBILITIES:
PRINCIPAL RESPONSIBILITIES: To evaluate at least To keep under review
To oversee the quality annually the performance the Directors' remuneration
of financial reporting and continuing appointments policy
To review and monitor of the Investment To review and evaluate
the risks the company Manager and other regularly the Board's
is exposed to, its key service providers composition and succession
risk appetite and and advisers planning and lead
the effectiveness the process for new
of its risk management Board appointments
framework To lead the annual
To review the effectiveness evaluation of the
of the external audit Board and Committees
process and independence
of the external auditor
Board of Directors
Kevin Lyon
Chairman
Resident: UK
Appointed: 22 January 2014
Independent: Yes
Relevant Skills and Experience:
Over 30 years of experience in private equity and Director
positions in a number of different companies.
Qualified Chartered Accountant.
Spent approximately 17 years with 3i Group, responsible for
their core private equity business across the UK, with a team of 10
directors and 40 executives.
Independent Non-executive Director and Chairman of more than 20
companies over the last 15 years, including Smart Metering Systems
plc, Valiant Petroleum plc, Wyndeham Press Group, Craneware plc,
Booker plc, David Lloyd Leisure and Phase 8.
Attended management courses of INSEAD, IESE and Ashridge.
Awarded the Institute of Directors Scotland Non-executive
Director of the Year Award in 2013.
Principal External Appointments:
Chairman of Inoapps Ltd, a vendor of Oracle software and AMG
Vango, an owner & distributor of outdoor brands.
Non-executive Director of retailer SpaceNK.
Vic Holmes
Senior Independent Director
Resident: Guernsey
Appointed: 22 January 2014
Independent: Yes
Relevant Skills and Experience:
Over 30 years of experience in financial services.
Qualified Chartered Certified Accountant.
Joined the Board of Guernsey International Fund Management
Limited, Guernsey's largest fund administration company, in
1986.
Head of Northern Trust's Irish businesses (2005 to 2007) and
Channel Island businesses (2007 to 2011).
Chairman of the Guernsey Investment Fund Association's executive
committee from 2013 to 2015.
Has served on a wide range of fund-related Boards, based mainly
in Guernsey and Ireland but also in the UK and Cayman Islands,
since 1986.
Spent 15 years in managing director positions with Baring Asset
Management Group companies until 2005.
Principal External Appointments:
Chairman of Permira Holdings Limited, Utmost Worldwide Limited,
Highbridge Tactical Credit Fund Limited and Ocorian Admin
(Guernsey) Limited.
Non-executive Director of DBG Management GP (Guernsey) Limited,
Rothschild & Co BI Limited and a range of Ashmore funds.
Patrick Firth
Non-executive Director
Resident: UK
Appointed: 22 January 2014
Independent: Yes
Relevant Skills and Experience:
Has worked in the fund industry in Guernsey since joining
Rothschild Asset Management C.I. Limited in 1992.
Qualified Chartered Accountant.
Managing Director at Butterfield Fund Services (Guernsey)
Limited (subsequently Butterfield Fulcrum Group (Guernsey Limited),
a Company providing third party fund administration services, from
2002 to 2009.
Former Chairman of the Guernsey International Business
Association and of the Guernsey Investment Fund Association.
A member of the Chartered Institute of Securities and
Investment.
Principal External Appointments:
Non-executive Director of a number of management companies,
general partners and investment companies, including Riverstone
Energy Limited, ICG-Longbow Senior Secured UK Property Debt
Investments Limited, India Capital Growth Fund Limited and Sancus
Lending Limited (formerly GLI Finance Limited).
Joanne Peacegood
Non-executive Director
Resident: Guernsey
Appointed: 20 February 2020
Independent: Yes
Relevant Skills and Experience:
Over 20 years of experience in the Investment Management sector
including Premium Listed Funds and Alternative assets.
Qualified Chartered Accountant and Institute of Directors
Diploma.
Worked for big four accounting firms in the Channel Islands UK
and Canada for over 20 years.
Led hundreds of audits for reputable Asset Management clients
and Controls Assurance engagements.
Expertise in Valuations, Corporate Governance, Audit,
Accounting, Risk, Controls and Regulations.
Previous Innovation & Technology leader overseeing
technology solutions to enable the business to operate more
efficiently.
Chair of Guernsey Investment & Fund Association.
Council member of Guernsey International Business
Association.
Member of the Cyber Partnership Forum (Guernsey) and the AIC
Channel Islands Committee.
Principal External Appointments:
Non-executive Director roles include Cairngorm (Private Equity),
Alpha (Private Equity), Ashgrove (Debt), Castelnau (Equity), Danske
(Hedge), Guernsey Electricity (Utilities) and Longview (Asset
Managers).
Corporate Governance Statement
Statement of Compliance
The Board considers that the principles and provisions set out
in the AIC Code of Corporate Governance (February 2019) provide the
most appropriate framework for the Company's governance and
reporting to shareholders. The AIC Code addresses the principles
and provisions set out in the UK Corporate Governance Code (July
2018) as well as setting out additional principles and
recommendations on issues that are of specific relevance to
investment companies. The AIC Code includes an explanation of how
the AIC Code adapts the principles and provisions set out in the UK
Corporate Governance Code to make them relevant for investment
companies. The AIC Code is available on the AIC's website
(www.theaic.co.uk).
The AIC Code has been endorsed by the Financial Reporting
Council and the Guernsey Financial Services Commission. By
reporting against the AIC Code, the Board is meeting its
obligations in relation to:
-- the UK Corporate Governance Code (and associated disclosure
requirements under the FCA's Listing Rule 9.8.6R) and, accordingly,
the Company does not need to report further on issues contained in
the UK Corporate Governance Code which are irrelevant to it;
and
-- the Guernsey Financial Services Commission's Finance Sector
Code of Corporate Governance (February 2016).
The Company has complied with the principles and has complied
with the provisions of the AIC Code during the year ended 31 March
2021.
Board Leadership and Company Purpose
Board Leadership
The role of the Board is to promote the long-term sustainable
success of the Company, generating value for our shareholders
whilst having regard to the interests of wider stakeholders.
The Investment Manager, Investment Adviser and Administrator are
responsible for implementing the Company's strategy and managing
the Company's day-to-day activities and operations. The Company's
success is based on such implementation and management being
effective. The Board leads and provides direction for the
Investment Manager, Investment Adviser and Administrator by setting
the Company's strategic objectives within a robust framework of
risk management and internal controls. The Board oversees the
execution of the Company's strategy and implementation of its key
investment, financial, operational and compliance policies,
enabling it to scrutinise robustly and challenge constructively the
performance of the Investment Manager, Investment Adviser and
Administrator.
Company Purpose, Values and Strategy
The Company's principal purpose is to provide ordinary
shareholders with attractive risk-adjusted returns, principally in
the form of regular dividends, by investing in a diversified
portfolio of primarily UK-based solar energy infrastructure assets,
through investment in a diversified portfolio of solar assets
managed in accordance with its Investment Policy. Details of the
Company's investment and strategic objectives and its investment
strategy are set out in "Our Objectives" and "Our Investment
Strategy and Track Record" in setting the Company's strategic
objectives, the Board had regard to the interests of the Company's
key stakeholders.
The Strategic Report describes:
-- how the Company seeks to generate and preserve value over the
long-term (see "Portfolio Optimisation" in the Investment Adviser's
Report);
-- the key considerations relating to new investment
opportunities (see "Portfolio Highlights" in the Investment
Adviser's Report);
-- the emerging and principal risks to the future success of the
Company and how we seek to manage and mitigate them (see "Risks and
Risk Management"); and
-- the sustainability of the Company's business model (see "the
Going Concern and Viability section").
We aim to ensure the Company is run in a manner that is
consistent with our belief in integrity, fairness and transparency
and responsive to the views of the Company's shareholders and wider
stakeholders.
Board Culture
Our culture is based on openness, trust and candour between
Board members, respect for differing opinions and areas of
expertise and individual and collective accountability. We believe
that this culture encourages constructive and robust challenge and
debate, generates strong collective wisdom, and ultimately leads to
good decision making, all of which are important to the successful
implementation of the Company's strategy.
We seek to ensure that our culture is aligned with the Company's
purpose, values and strategy principally through ongoing and
regular dialogue and engagement with the Investment Manager,
Investment Adviser and Administrator, whose efforts are
collectively directed towards delivering returns to shareholders in
line with the Company's purpose, and monitoring the performance and
management of the Company.
Section 172 Statement
Section 172 of the Companies Act 2006 ("Section 172") applies
directly to UK domiciled companies. Nonetheless, although NESF is a
Guernsey company, the intention of the AIC Code is that the matters
set out in section 172 are reported on by all companies,
irrespective of domicile, provided this does not conflict with
local company law. Under section 172, directors have a duty to
promote the success of their company for the benefit of its members
as a whole, whilst having regard to (amongst others) the likely
consequences of their decisions in the long-term and the interests
of the company's wider stakeholders.
Information on how we have acted in accordance with the
requirements of section 172 is included throughout the Strategic
Report and this Corporate Governance Report. In particular:
-- information on the Company's values and business model and
our culture can be found under "Our Business Model" and under
"Company Purpose, Values and Strategy" above;
-- details of how the Company seeks to generate and preserve
value over the long-term can be found in the Investment Adviser's
Report;
-- information on the emerging and principal risks that could
disrupt the long-term success of the Company and how we seek to
manage and mitigate them are considered under "Risks and Risk
Management";
-- details of the Company's key stakeholders, why they are
important to us and how we engage with them can be found in
"Engagement with Our Stakeholders";
-- in relation to the Company's solar assets, the Asset Manager
and the Investment Adviser have day-to day responsibility for the
Company's dealings with suppliers, contractors, customers and
others and information of how they foster these relationships are
included under "Stakeholder Engagement";
-- information on how the Company's operations impact on the
environment and the communities in which its solar assets are
located are included in the Sustainability and ESG section; and
-- a summary of the Board's principal activities during the year
under review is included under "Principal Roles".
In making decisions, our aim is always to ensure the long-term
sustainable success of the Company and, therefore, the likely
long-term consequences of any decision are a key consideration. In
relation to the decisions we took during the year under review, we
acted in the way we considered, in good faith, would be most likely
to promote the Company's long-term sustainable success and achieve
its wider objectives for the benefit of our shareholders as a
whole, having had regard to our wider stakeholders and the other
matters set out in Section 172.
Conflicts of Interest
The Directors have a duty to avoid situations where they have,
or could have, a direct or indirect interest that conflicts, or
possibly could conflict, with the Company's interests ("conflict
situations"). A Director must inform the Chairman (or, in the case
of the Chairman, the Senior Independent Director) as soon as they
become aware of the possibility of a conflict situation.
Where it is deemed appropriate, the Board may approve conflict
situations. In deciding whether to approve a conflict situation,
the Board will act in a way it considers, in good faith, will be
most likely to promote the Company's long-term sustainable success.
The Board can impose limits or conditions when giving approval if
it considers this appropriate.
We believe that our arrangements for approving and monitoring of
potential conflict situations is operating effectively.
There were no conflict situations during the year under review
(or since the end of the year).
Division of Responsibilities
Board
The Board comprises four Directors, all of whom are
non-executive and independent, and is chaired by Kevin Lyon.
The Board's principal responsibilities include:
-- promoting the Company's long-term sustainable success,
generating value for our shareholders whilst having regard to the
interests of wider stakeholders;
-- setting the Company's strategic objectives and ensuring that
the necessary resources are in place for the Company to meet its
objectives;
-- establishing a framework of prudent and effective controls
that enable risk to be assessed and managed;
-- establishing a framework of high standards of corporate governance;
-- overseeing the execution of the Company's strategy and
implementation of its key investment, financial, operational and
compliance policies;
-- overseeing the performance of our Investment Manager,
Investment Adviser, Administrator and other key service providers
and advisers;
-- ensuring effective engagement with shareholders and other key stakeholders; and
-- robustly scrutinising and constructively challenging all
matters that come before the Board.
The Board has overall responsibility for the Company's
activities. However, it has delegated or outsourced various matters
to its standing Committees and day-to-day activities to the
Investment Manager and the Administrator, all of which operate
within clearly defined terms of reference or agreements that set
out their roles, responsibilities and authorities. All other
matters are reserved for consideration and approval by the Board
(including those matters listed in a formal schedule of reserved
matters approved by the Board), thus enabling the Board to maintain
full and effective control over appropriate strategic, financial,
operational and compliance issues. The reserved matters
include:
-- the overall management and leadership of the Company,
including setting of the strategic objectives;
-- changes to the Company's equity and debt capital structures;
-- the Company's dividend policy and declaration of dividends;
-- the Company's financial reporting and controls;
-- ensuring the appropriate systems of internal control and risk
management strategy are in place;
-- approval of material contracts and agreements entered into, varied or terminated;
-- approval of related party transactions;
-- approval of quarterly and any ad hoc net asset value and related announcements;
-- the Company's operating and marketing budgets;
-- Board and Committee memberships; and
-- all corporate governance matters.
To enable the Board to fulfil its responsibilities, the
Directors are expected to provide strategic guidance, constructive
challenge, offer specialist advice and hold the Investment Manager,
Investment Adviser, Administrator and other service providers and
advisers to account.
The Directors have access to the advice and services of the
Administrator. Where necessary, in carrying out their duties, the
Directors may also seek independent professional advice and
services at the expense of the Company.
Chairman
The current Chairman is Kevin Lyon. His primary role as Chairman
is to provide leadership to the Board. The principal
responsibilities of the Chairman include:
-- the overall effectiveness of the Board in directing the Company;
-- taking a leading role in setting the Company's strategic objectives;
-- promoting behaviors and attributes that make up the Board's
culture (details of which can be found under "Board Culture");
-- ensuring the Company is meeting its responsibilities to
shareholders and wider stakeholders; and
-- engaging with shareholders to ensure that the Board has a
clear understanding of their views.
The effectiveness and independence of the Chairman is evaluated
on an annual basis as part of the Board's performance evaluation.
Information on the 2021 appraisal of the Chairman can be found
under "Annual Performance Evaluations".
Senior Independent Director
The current Senior Independent Director is Vic Holmes. His
primary role as such is to serve as a sounding board for the
Chairman, act as an intermediary for other Directors and be
available to respond to shareholders' concerns if they cannot be
resolved through the normal channels of communication (i.e. through
the Chairman). The Senior Independent Director leads the annual
evaluation of the Chairman (see "Annual Performance Evaluations"
for information on the 2021 annual evaluation).
Board Committees
The Board has three standing Committees:
-- Audit Committee: The Audit Committee is chaired by Patrick
Firth. Information on the Audit Committee's membership, roles and
responsibilities is included in the Audit Committee Report.
-- Management Engagement Committee:The Management Engagement
Committee is chaired by Joanne Peacegood.
Remuneration and Nominations Committee: The Remuneration and
Nominations Committee is chaired by Vic Holmes. Information on the
membership and the remuneration-related roles and responsibilities
of the Committee are included in the Directors' Remuneration
Report.
The Committee's nomination-related responsibilities include:
-- reviewing the Board composition and assessing whether the
balance of skills, experience, knowledge, diversity and
independence is appropriate to enable the Board to discharge its
responsibilities effectively and ef ciently;
-- succession planning;
-- leading the process for new appointments to the Board; and
-- leading the annual evaluation of the Board and its Committees.
A copy of the terms of reference of each Committee is available
on the Company's website (www.nextenergysolarfund.com). The
Committees review their terms of reference at least annually, with
any proposed changes recommended to the Board for approval.
The Board also establishes additional Committees from time to
time to take operational responsibility for speci c matters
following "in principle" approval from or with subsequent rati
cation by the Board. These Committees ensure that key matters are
dealt with ef ciently.
Investment Manager and Investment Adviser
A Management Agreement between the Company and the Investment
Manager sets out the matters over which the Investment Manager has
authority and responsibility. Under the Management Agreement, but
subject to the overall control and supervision of the Board, the
Investment Manager has full discretion to make investments in solar
assets that have been recommended by the Investment Adviser and
meet the requirements of the Company's Investment Policy.
The Investment Manager is also the Company's Alternative Fund
Manager ("AIFM") for the purpose of the EU's AIFM Directive. As the
AIFM, the Investment Manager also has responsibility for all risk
management and portfolio management activities. In addition, the
Investment Manager has been granted powers by the Company as
regards its HoldCos and SPVs in order to facilitate the performance
of its obligations.
The Investment Adviser's role primarily entails the origination,
evaluation, co-ordination and recommendation of investment
opportunities for the Company and the related provision of
investment advice to the Investment Manager in respect of strategy,
acquisitions and disposals, portfolio ef ciencies, nancing, market
developments and other matters that may affect the Company's
portfolio or the Company's ability to meet its investment or
strategic objectives. In addition, the Investment Adviser is
responsible for overseeing the performance of the Company's
portfolio.
In advance of Board meetings, the Investment Manager provides
regular reports, which include operating updates on the Company's
solar assets, information on potential new investment
opportunities, cash flow forecasts and other financial information,
industry updates and other relevant information. Senior
representatives of the Investment Manager and the Investment
Adviser attend Board meetings. In addition, there is regular
contact between the Board, Investment Manager and Investment
Adviser, including informal meetings between Board meetings. Our
active engagement and supportive working relationship with the
Investment Manager and Investment Adviser create an open and
collaborative culture that ensures that we have a thorough
understanding of the Company's business and facilitates our robust
scrutiny and constructive challenge of the activities and
performance of the Investment Manager and Investment Adviser.
Administrator
The Company has appointed the Administrator to provide company
secretarial, fund accounting and administration services. The
Administrator's responsibilities include:
-- ensuring that the Company complies with applicable Guernsey
laws, rules and regulations and also the FCA's rules and
regulations applicable to investment companies with a premium
listing and of the London Stock Exchange's rules and
regulations;
-- advising on all governance matters;
-- supporting the Board to ensure that it has the policies,
processes and information it needs in order to function effectively
and efficiently;
-- under the direction of the Chairman, facilitating the flow of
information between the Board, Committees, Investment Manager,
Investment Adviser and other service providers and advisers;
and
-- ensuring that Board procedures are followed.
In advance of Board meetings, the Administrator provides regular
reports, which include financial and other operational information,
details of any breaches or complaints and relevant legal,
regulatory, corporate governance and other technical updates. There
is also regular contact between the Directors and the Administrator
between Board and Committee meetings. Our working relationship and
dialogue with the Administrator provides us with a thorough
understanding of the Company's operational activities, ensures we
comply with relevant legal, regulatory, corporate governance and
other technical requirements and facilitates our effective
oversight and scrutiny of the activities and performance of the
Administrator.
Board and Committee Meetings and Activities Meetings
The Board and its standing Committees hold regular scheduled
meetings and additional meetings as required. The agenda for each
meeting is prepared by the Administrator and approved by the
Chairman of the relevant meeting. Representatives of the Investment
Manager, Investment Adviser and Administrator attend all scheduled
meetings, although the Directors may meet without all or some of
them being present.
Agendas, along with reports and other papers containing
relevant, concise and clear information, are circulated to the
Board and Committees in a timely manner to enable review and
consideration prior to scheduled and ad hoc meetings. This ensures
that the Directors are capable of contributing to and making
informed decisions. The Board or a Committee may also seek, as
required, further clarification of matters from the Investment
Manager, Investment Adviser, Administrators and other service
providers or advisers by means of additional reports and/or
in-depth discussions.
The primary focus at the quarterly Board meetings is:
-- a review of the Company's investments, including their
performance and any operational issues and asset management
initiatives;
-- any investment opportunities and how they fit within the Company's strategy;
-- legal, regulatory and market developments that may impact the Company or its investments;
-- valuation of investments and NAV calculation;
-- the Company's financial performance;
-- the Company's financial and regulatory compliance;
-- investor relations, shareholder analysis and marketing; and
-- peer group benchmarking and other relevant sector information.
Board Activities
In addition to routine business at the quarterly Board meetings,
matters considered by the Board during the year under review
included:
-- changes to the Company's Investment Policy, as approved at
the AGM on 11 September 2020 (see "Investment Policy" in the
Strategic Report);
-- consideration of the Company's dividend policy (see "Dividend
Policy" in the Strategic Report);
-- the Company's strategy and strategic aims, including in
respect of UK subsidy-free solar and international assets (see
"Portfolio Update" in the Chairman's Statement and in the
Investment Adviser's Report );
-- approving the Annual and Interim Reports;
-- engaging an independent service provider to consider the valuation process;
-- the Board and Committee Composition and Evaluation (see
"Board Composition, Independence and Succession"); and
-- recommendations from its Committees.
Committee Activities
Information on the activities of the Audit Committee during the
year under review can be found under "Responsibilities and
Activities" in the Audit Committee Report. The Management
Engagement Committee has agreed that next annual evaluation of the
Company's key service providers, including the Investment Manager,
Investment Adviser and Administrator, and advisers will be
completed in Q4 2021. Matters considered by the Remuneration and
Nominations Committee during the year under review included:
-- Board Composition:Following Sue Inglis' resignation with
effect from 31 March 2021, and having evaluated the skills,
experience, knowledge and tenure of the continuing Directors, the
Committee concluded that an immediate replacement would not be
sought. The Committee will continue to keep the Board's composition
under review. Details of the Board Composition are discussed under
"Board Composition and Independence".
-- Annual evaluation of the effectiveness of the Board and its
Committees: Details of the evaluation process and the outcomes can
be found under "Annual Performance Evaluations".
-- Succession planning: Details of the intended succession plan
can be found under "Succession Planning".
Meeting Attendance
The number of scheduled Board and Committee meetings during the
year under review which each Director was entitled to attend, and
the attendance of the individual Directors at those meetings, is
shown in the table below.
In addition to the scheduled Board meetings, there were 10 ad
hoc Board meetings, one ad hoc meetings of the Audit Committee and
one ad hoc meeting for each of the Remuneration and Nominations
Committee and Management Engagement Committee during the year under
review. These meetings were convened to conclude a number of
matters previously discussed at scheduled meetings and to deal with
administrative and process matters. Ad hoc meetings are typically
convened at relatively short notice and are held in Guernsey. It is
not always feasible or necessary for all the Directors to attend
the ad hoc meetings. However, Directors who are unable to attend an
ad hoc meeting are expected to communicate their views on any
matters to be discussed to their fellow Directors ahead of the
meeting.
Board Composition and Succession
Board Composition, Independence and Succession
The Board currently comprises four Directors, all of whom are
non-executive and independent of the Investment Manager and the
Investment Adviser. Details of the Directors' skills, experience
and principal external appointments are included in their
biographies.
The current Chairman, Kevin Lyon, Senior Independent Director,
Vic Holmes, and Audit Committee Chairman, Patrick Firth, have held
their positions since the Company's IPO in 2014. Joanne Peacegood
has held her position since 20 February 2020. The Chairman (or any
other of the Directors) do not have, and have not had, any
relationships or circumstances that may create a conflict of
interest between their interests and those of the shareholders.
Appointments to the Board
The Remuneration and Nominations Committee oversees the
recruitment process, which generally includes the use of a firm of
Non-executive Director recruitment consultants.
When considering new appointments, the Committee takes into
account other demands on the candidates' time. In advance of
joining the Board, new Directors are asked to disclose any existing
significant commitments with an indication of the time involved and
to confirm that they are able to allocate sufficient time to the
business of the Company and that there are no situations where they
have, or could have, a direct or indirect interest that conflicts,
or possibly could conflict, with the Company's interests.
At the time of appointment, a new Director receives a letter of
appointment that sets out their duties and obligations. Copies of
the letters of appointment of the current Directors are available
for inspection at the Company's registered office and at each
AGM.
An induction programme for new Directors is in place. This
includes meetings with the senior members of the NextEnergy Capital
team involved in the management of the Company and the
Administrator, as well as visiting at least one of the Company's
sole PV assets.
Management Remunerations
Audit Engagement and Nominations
Director Board Committee Committee Committee
Kevin Lyon 4/4 3/3 1/1 1/1
Vic Holmes 4/4 3/3 1/1 1/1
Patrick Firth 4/4 3/3 1/1 1/1
Joanne Peacegood 4/4 3/3 1/1 1/1
Sue Inglis(1) 4/4 3/3 1/1 1/1
(1) Sue Inglis resigned as a Director on 31 March 2021.
Details of changes to the Board during the year under review can
be found under "Board Composition and Evaluation".
Board Commitments
Prior to taking on any new listed board, time consuming,
conflicted or otherwise significant appointments, a Director must
seek the prior approval, on behalf of the Board, of the Chairman
(or, in the case of the Chairman, the Senior Independent Director).
If the Chairman (or Senior Independent Director) believes the
relevant appointment causes a conflict or potential conflict of
interest, they will refer the appointment for consideration and, if
appropriate, approval of the Board. A Director must promptly notify
the Administrator of any new board appointments that they take
on.
When considering whether to recommend the election or
re-election of a Director at any AGM, the Board assesses the
Director's continuing ability to meet the time requirements of the
role by considering, amongst other things, their attendance at
Board, Committee and other ad hoc meetings held during the year as
well as the nature and complexity of their other external
roles.
The Directors' attendance at all scheduled Board and Committee
meetings held during the year is shown in the table above. Patrick
Firth was appointed to the Board of India Capital Growth Fund
Limited, a company listed on the premium segment of the main market
of the London Stock Exchange, with effect from 25 September 2020.
Neither the Chairman nor any of the other Directors took on any
other listed board appointments during the year under review (or
since the end of the year). The Board believes all the Directors
have sufficient time to meet their Board responsibilities.
Board Diversity
Appointments to the Board are made on merit, having due regard
to the benefits of diversity in its widest sense (including gender,
age, social and ethnic backgrounds and cognitive and personal
skills, experience and strengths) and with the objective of
ensuring that the Board and its Committees have the skills,
experience and knowledge necessary to bring a wide range of
perspectives and to discharge their responsibilities effectively.
Our priority when making new appointments is to identify the
candidate with the best range of skills, experience and knowledge
to complement those of the existing Directors. Accordingly, we do
not believe it is in the interests of the Company or its
shareholders to set prescriptive targets for diversity on the
Board.
Board Tenure
We have considered the tenure for Directors, including the
Chairman, and are mindful that three Directors will reach their
ninth anniversary simultaneously in January 2023. We have
considered succession planning and concluded that no Director
should normally remain in office beyond the date of the AGM
following the ninth anniversary of their first appointment to the
Board. However, this period may be extended to facilitate effective
succession planning, as outlined in the section below.
None of the Directors has been on the Board for nine years or
more. The date of appointment of each Director can be found in
their biographies.
Succession Planning
The Remuneration and Nominations Committee is responsible for
reviewing the succession plans for the Board. Kevin Lyon, Vic
Holmes and Patrick Firth are the longest standing Directors, having
been appointed at the time of the Company's IPO in 2014. Whilst the
Board does not consider that length of service in itself
necessarily undermines a Director's independence or that each
Director, including the Chairman, should serve for a finite fixed
period, the Remuneration and Nominations Committee has reviewed and
recommended to the Board a succession plan for the staged
refreshment of the Board with Patrick Firth, Kevin Lyon and Vic
Holmes to resign at the 2022, 2023 and 2024 AGMs respectively.
Election and Re-election by Shareholders
All Directors stand for re-election at each AGM of the Company,
save that, at the first AGM following their appointment, a new
Director stands for election.
The Board has reviewed the outcome of the annual Board
evaluation, information on which is set out under "Annual
Performance Evaluations" below. The Board has also assessed each
Director's independence, time commitment to the Company,
contribution (outside of the usual meeting cycle as well as in
scheduled meetings) since they were last elected or re-elected, and
tenure, as well as the nature and complexity of their other
external roles and whether their election or re-election would be
in the best interests of the Company. We believe that the Board is
well balanced and possesses the necessary breadth of skills,
experience and knowledge and diversity of gender and cognitive and
personal strengths to ensure it functions effectively and
efficiently in discharging its responsibilities, which is important
to the long-term sustainable success of the Company. We are also
satisfied that each Director continues to perform effectively, to
be independent and to demonstrate commitment to their role.
Therefore, resolutions will be proposed at this year's AGM to
re-elect all four Directors.
Removal of Directors
The Directors' letters of appointment do not impose any maximum
limit on the period for which they may serve, although the
continuation of their appointment is contingent on satisfactory
performance evaluation and annual re-election (or, in the case of a
Director appointed since the previous AGM, election) by
shareholders at the AGM.
Under their letter of appointment, a Director's appointment may
be terminated at any time by either the Company or the Director
giving not less than three months' notice or otherwise in
accordance with the Company's Articles of Incorporation.
Annual Performance Evaluations
Board, Committees and Directors
In February 2021, the Company re-engaged Linstock Limited, an
independent consultant, to facilitate an external Board valuation.
Linstock has no other connection with the Company or with
individual Directors, other than providing this type of
service.
All board members participated in the evaluation. The Investment
Adviser also participated in the evaluation. The evaluation took
the form of comprehensive online questionnaires, which asked the
Directors to consider, among other things: board composition,
expertise, dynamics and succession planning; the management and
focus of, and atmosphere in, Board meetings; Directors' training
requirements, Board support by the Administrator; the effectiveness
of the Chairman; the performance of the Audit and Remuneration and
Nominations Committees; the Company's strategy and strategic
objectives and oversight of its strategy, investment activities and
performance; risks and risk management; investor relations and
marketing, including shareholder engagement; and priorities for
change over the next 12 months.
The Remuneration and Nominations Committee considered Linstock's
report at its meeting in March 2021. Linstock's report rated a
number of key areas of focus as good or adequate including Board
composition and dynamics, management of meetings, the effectiveness
of the Committees, the clarity of the Company's strategic aims, the
Board's oversight of the Company's strategy and the Board's
effectiveness in monitoring risks and risk management. The top two
priorities for the next 12 months were identified establishing and
implementing a suitable plan for the staged refreshment of the
Board, enhancing Board dynamics and the relationship between the
Company and Investment Adviser, both of which had been hampered
over the financial year due to Covid-19 restrictions preventing
face to face meetings and less formal engagement outside of the
Boardroom. The Remuneration and Nominations Committee concluded
that, based on the evaluation, the composition of the Board and its
Committees reflected a suitable mix of skills, experience and
knowledge and that the Board and its Committees, were functioning
effectively.
Having considered Linstock's report, each Director's individual
performance, contribution and commitment, the Boardroom atmosphere
and the relationships between the Board members, the Remuneration
and Nominations Committee was satisfied that each Director
contributed effectively and that, collectively, the Directors
worked together effectively in the pursuit of achieving the
Company's objectives.
Chairman
Led by the senior Independent Director the review of the
Chairman was very positive, with the other Directors commenting
favourably on, in particular, the Chairman's leadership, his
facilitation of constructive Board relations, his encouragement of
open and inclusive Boardroom discussions. The other Directors
concluded that the Chairman continued to chair the Board
effectively.
Investment Manager and Investment Adviser
The services provided by the Investment Manager and Investment
Adviser are kept under continual review by the Board but it was
agreed that the formal review would be delayed until Q1 2022 to
align with the Board's calendar of events for the year ended 31
March 2022. When considering the performance of the Investment
Manager and Investment Adviser the Board considers the Company's
track record in terms of NAV and share price performance and
achievement of performance objectives, the quality of the services
provided, the resources that they committed to the Company's
affairs, the continuity of the personnel assigned to handle the
Company's affairs and the relationship between the Board and the
Investment Manager and Investment Adviser. The Board also
considered the terms of the Management Agreement, and in particular
the fees payable to the Investment Manager (no fees are payable by
the Company to the Investment Adviser). The Board considers that,
having regard to NextEnergy Capital's proven track record in, and
sole focus on, the solar energy infrastructure sector, the
specialist nature of the Company's investment remit was best served
by the Investment Manager. The Board agrees that the continuing
appointment of the Investment Manager on the terms set out in the
Management Agreement and its continued appointment terms set out in
the Management Agreement and its continued appointment of the
Investment Adviser were in the best interests of shareholders as a
whole and the Company's wider stakeholders.
Details of the fees payable to the Investment Manager and
related entities can be found in notes 5 and 26 to the Financial
Statements.
Other Key Service Providers and Advisers
The Board monitored the service levels of the Administrator and
the Company's other key party service providers and advisers
throughout the year. The formal review has been postponed until Q1
2022 to align with the Board's calendar of events for the year
ended 31 March 2022. The Board remain satisfied that the
Administrator and the Company's other key service providers were
all operating effectively and providing a good level of
service.
Directors' Remuneration
The Directors' Remuneration Report includes the Directors'
remuneration policy and details of the Directors' remuneration
during the year under review.
Risk, Internal Controls and Internal Audit Introduction
The Board is responsible for promoting the long-term sustainable
success of the Company and generating value for our shareholders
whilst having regard to the interests of wider stakeholders. A
critical factor in achieving long-term sustainable success is
understanding the risks that the Company faces and ensuring that
controls are in place to manage and mitigate them. The Company's
principal and emerging risks, together with details of how we seek
to manage and mitigate them, are set out under "Risks and Risk
Management". The Company's financial instrument risks are discussed
in note 22 to the Financial Statements.
Responsibility for, and Review of, Risk Management and Internal
Controls
The Board is responsible for determining the nature and extent
of the emerging and principal risks the Company is willing to take
in order to achieve its long-term strategic objectives. The Board
is also responsible for maintaining the Company's systems of risk
management and internal controls (such as financial, operational
and compliance controls). The AIC Code requires the Board to review
the effectiveness of the Company's systems of risk management and
internal controls at least annually.
The Board, through the Audit Committee, has established, in
conjunction with the Investment Manager, Investment Adviser and
Administrator, an ongoing process designed to meet the particular
needs of the Company in managing the risks to which it is exposed.
The process is based on a risk-based approach to internal controls
and risk management through a matrix that identifies each of the
key risk areas associated with the Company's business and
activities and the controls employed to minimise and mitigate those
risks. The matrix attributes assigns, in relation to each risk, a
rating (high, medium or low) of the risk value, risk probability
and effectiveness of control.
The Audit Committee is responsible for monitoring and regularly
reviewing Company's systems of internal controls and risk
management and reports its findings and conclusions to the Board
(see "Risk management and internal control processes" in the Audit
Committee Report).
Taking into account the information under "Risks and Risk
Management".
The ongoing work of the Audit Committee in monitoring the risk
management and internal control systems on behalf of the Board and
the Audit Committee's reports to the Board on its findings and
conclusions regarding the risk management and internal control
systems, the Board:
-- is satisfied that it has carried out a robust assessment of
the principal and emerging risks facing the Company, including
those that could threaten its business model, future performance,
solvency, liquidity or reputation; and
-- has reviewed the adequacy and effectiveness of the risk
management and internal control systems and no significant failings
or weaknesses were identified.
Risk Management and Internal Control Systems
The Company's risk management and internal control systems are
designed to identify, manage and mitigate on a timely basis both
the key principal risks and the emerging risks inherent to the
Company's business and safeguarding the Company's assets. The
systems are also designed to manage, rather than eliminate, the
risk of failure to achieve the Company's investment and strategic
objectives and can only provide reasonable, but not absolute,
assurance against material misstatement or loss.
The Company has delegated its day-to-day activities to the
Investment Manager, Investment Adviser and Administrator and has
clearly defined their roles, responsibilities and authorities. The
Board oversees the ongoing performance and work of the Investment
Manager, Investment Adviser and Administrator at its quarterly
meetings.
The Board monitors the actions of the Investment Manager and
Investment Adviser at quarterly and relevant ad hoc Board meetings.
At each quarterly Board meeting, the Investment Manager and
Investment Adviser report on the performance of the Company's
investments, activities since the last Board meeting, any specific
new risks identified relating to the Company's portfolio,
investment valuations and cash projections. The Board also receives
updates from the Investment Manager and Investment Adviser on
material developments affecting the Company or its investments
between quarterly Board meetings.
The Board, Investment Manager and Investment Adviser, together,
review all financial performance and results notifications.
The Investment Manager reports to the Board twice a year on the
Company's longer-term viability, which includes financial
sensitivities and stress testing of the business to ensure that the
adoption of the going concern is appropriate.
The Board is made aware of the business controls of the
Investment Manager and Investment Adviser during periodic Board
updates enabling oversight of the key business processes. The
Investment Adviser also provides an update of the control
environment for the UK HoldCos and SPVs to ensure the Board has
oversight of business controls for the entire NESF Group.
The Administrator, which provides administrative, accounting,
compliance and company secretarial services to the Company, has its
own internal control systems relating to these matters. In its role
as a third-party fund administration services provider, the
Administrator produced an annual ISAE 3402 Assurance Report on its
internal control procedures in place for the year ended 30
September 2020 and this was reviewed by the Audit Committee and the
Board. At each quarterly Board meeting, the Board receives reports
from the Administrator, which include an outline of the Company's
corporate activity and information on financial, compliance,
governance, legal and regulatory matters.
The Company is ultimately dependent upon the quality and
integrity of the management and staff of the Investment Manager,
Investment Adviser and Administrator. In each case, qualified and
able individuals have been selected at all levels. The Investment
Manager, Investment Adviser and Administrator are aware of the
internal controls relevant to their activities and are collectively
accountable for the operation of those controls. Appropriate
segregation and delegation of duties is in place.
Each year a detailed review of the quality of services and
performance of the Investment Manager, Investment Adviser and
Administrator and other key service providers and advisers pursuant
to their terms of engagement is undertaken by the Management
Engagement Committee.
Internal Audit Function
For the reasons stated under "Internal audit requirements" in
the Audit Committee Report, the Board does not currently consider
that an internal audit function is required.
Approval
This Corporate Governance Statement was approved by the Board on
16 June 2021 and signed on its behalf by:
Kevin Lyon
Chairman
16 June 2021
Directors' Remuneration Report
Vic Holmes
Remuneration and Nominations Committee Chairman
I am pleased to present the Directors' Remuneration Report for
the year ended 31 March 2021.
Introduction
This Directors' Remuneration Report has been prepared by the
Remuneration and Nominations Committee and approved by the Board.
The Committee deals with both remuneration-related matters and
nominations. This Directors' Remuneration Report covers the
remuneration-related activities of the Committee and shows how the
current remuneration policy, which was approved by shareholders at
the AGM in 2020, was implemented during the year ended 31 March
2021.
Remuneration and Nominations Committee
Chaired by Vic Holmes, the Remuneration and Nominations
Committee comprises of all of the Directors. The Board is satisfied
that, as all of the Directors are non-executive, it is appropriate
for all of them to be members of the Committee. All of the
Directors are, and have been since appointment, independent.
In respect of remuneration-related matters, the Remuneration and
Nominations Committee's responsibilities include:
-- setting the policy for the remuneration of the Directors;
-- reviewing the ongoing appropriateness and relevance of the remuneration policy;
-- within the terms of the approved policy, determining the
remuneration of the Chairman and reviewing the quantum of the other
Directors' remuneration and, if considered appropriate,
recommending any changes to the Board;
-- appointing and setting the terms of reference for any
remuneration consultants to advise the Committee;
-- agreeing policy on the recovery by the Directors of expenses;
-- incurred in performance of their duties; and
-- drafting the Directors' Remuneration Report and reporting to
shareholders on the implementation of the Company's remuneration
policy in accordance with relevant corporate governance
requirements.
Full details of the Committee's roles and responsibilities are
set out in formal terms of reference. The terms of reference are
regularly reviewed by the Committee and are available on the
Company's website (www.nextenergysolarfund.com).
Remuneration Policy
The Directors' remuneration policy is designed to support the
strategic objectives of the Company and to promote its long-term
success. In this context, the remuneration policy is designed to
enable the Company to attract and retain Directors of high calibre
with suitable skills, experience and knowledge and to ensure that
their remuneration is set at a reasonable level commensurate with
their duties and responsibilities and the time commitment required
to carry out their duties effectively.
As all Directors are non-executive, there are:
-- no service contracts with the Company;
-- no bonuses or other performance-related payments;
-- no pensions or pension-related benefits, medical or life
insurance schemes, share options, long-term incentive plans or
other benefits; and
-- no payments for loss of office save for payment of any fees
or expenses due but unpaid at the time of termination and for any
unexpired notice period.
The Directors have letters of appointment that provide that
their appointment can be terminated by no more than three months'
notice by either party. In normal circumstances, the Directors are
expected to serve up to a maximum of nine years, subject to
satisfactory performance, which is reviewed annually by the
Remuneration and Nominations Committee. The Company requires that
all Directors are re-elected at each AGM and, if any Director is
not re-elected, their appointment ceases immediately and without
the requirement for any notice. A Director's appointment may also
be terminated with immediate effect in certain other circumstances
as detailed in the Company's Articles of Incorporation.
The Directors' remuneration:
-- will reflect their duties, responsibilities, experience and
time spent on the Company's affairs, taking into account the nature
of the Company's activities;
-- will allow those chairing the Board and key Committees, as
well as the Senior Independent Director, to be paid higher fees
than other Directors in recognition of their more demanding roles
and increased accountability;
-- will be paid quarterly in arrears;
-- at the discretion of the Board, may include additional fees
for any further specific work undertaken on behalf of the Company
which is outside of their normal duties and requires a meaningful
time commitment (details of any additional fees paid and the
associated work undertaken will be disclosed in the Director's
Remuneration Report in the next Annual Report); and
-- will be reviewed by an independent professional consultant
with relevant experience at least every three years.
The aggregate fees payable to the Directors will not exceed
GBP400,000 per annum. The level of this limit provides, in
particular, flexibility in respect of the recruitment of additional
Board members.
Whilst the Board currently considers four Directors sufficient
for the Company, the number of Directors may increase in future
periods, either permanently or for a limited time in order to aid
succession and to ensure an orderly transition.
The Remuneration and Nominations Committee reviews the quantum
of Directors' remuneration at least every three years, with the
last review having taken place in 2020. In reviewing whether to
recommend any changes to the Board, the Committee has regard to the
outcome of latest Directors' remuneration review by an independent
remuneration consultant appointed by the Company, the level of fees
paid by other UK-listed renewable energy infrastructure investment
companies and other comparator UK-listed investment companies and
any views expressed by shareholders on Directors' fees. The Board
also considers wider factors such as any change in the Directors'
responsibilities (including additional time commitments due to
increased legal, regulatory or corporate governance requirements)
and the rate of inflation over the period since the previous
review. No Director is present when their own fee is being
determined.
The Directors are entitled to be reimbursed all reasonable
travel, hotel and other expenses incurred in attending meetings or
in carrying out any other duties incumbent on them as
Directors.
Directors' and officers' liability insurance cover is maintained
by the Company, at its expense, on behalf of the Directors.
The Company is committed to engagement with shareholders and
will seek major shareholders' views in advance of making
significant changes to its remuneration policy or how it is
implemented. The Chairman of the Remuneration and Nominations
Committee will attend the AGM to answer any questions in relation
to remuneration.
The Remuneration and Nominations Committee has the discretion to
amend the remuneration policy with regard to minor or
administrative matters where it would be, in the opinion of the
Committee, in the best interests of the Company and
disproportionate to seek or await shareholder approval.
Directors' Remuneration
The table below shows the Directors' remuneration for the
financial year ended 31 March 2021, together with the comparative
figures for 2020, following the increase in Directors' remuneration
as detailed in last year's Annual Report.
No additional fees were paid to the Directors during the year
ended 31 March 2021 (2020: none).
The total amount of Directors' expenses reimbursed during the
year ended 31 March 2021 was GBP839 (2020: GBP1,729).
Director Role 2021 2020
Kevin Lyon Chairman GBP70,000 GBP65,000
Patrick Firth Audit Committee Chairman GBP50,000 GBP45,000
Vic Holmes Senior Independent Director/ Remuneration GBP46,000 GBP41,750
and Nominations Committee Chairman
Joanne Peacegood(2) Director GBP42,000 GBP4,705
Sue Inglis(1) Management GBP45,000 GBP40,000
Engagement
Committee
Chairman
(1) Resigned with effect from 31 March 2021.
(2) Appointed as Chair of the Management and Engagement
Committee from 31 March 2021.
Directors' and Officers' Liability Insurance
The Company maintains Directors' and officers' liability
insurance, at its expense, on behalf of the Directors.
Directors' Interests
There is no requirement under the Company's Articles of
Incorporation or letters of appointment for Directors to hold
shares in the Company.
Director 2021 2020
Kevin Lyon 160,000 160,000
Patrick Firth 89,641 83,904
Vic Holmes 110,000 110,000
Joanne Peacegood 10,000 -
Sue Inglis(1) 50,000 50,000
(1) Resigned with effect from 31 March 2021.
The interests of the Directors (and their connected persons) in
the ordinary shares of the Company at 31 March 2021, together with
the comparative figures for 2020, are shown in the table above.
All holdings of the Directors (and their connected persons) are
beneficial. There have been no changes in the interests shown in
the table above since the Company's financial year end to the date
of this Directors' Remuneration Report.
None of the Directors (nor any of their connected persons) had
or has any interest in the Company's preference shares.
Relative Importance of Spend on Directors' Remuneration
To enable shareholders to assess the relative importance of
spend on Directors' remuneration, the following table shows the
total remuneration paid to the Directors and the total dividends
paid or payable to shareholders for the financial year ended 31
March 2021, together with the comparative figures for 2020.
2021 2020 Change
GBP'000 GBP'000 GBP'000
Directors' total remuneration 253 224 29
Total dividends paid or payable(3) 41,011 39,731 1,280
(3) Including the cash equivalent of scrip dividends.
Shareholder Approval of Remuneration Policy
The Company seeks shareholder approval of the Directors'
remuneration policy at every third AGM. The Directors' remuneration
policy for the three year period to 31 March 2023 was approved at
the AGM held in 2020. There are no material differences in the
substance of the remuneration policy set out in this Directors'
remuneration report from that approved by shareholders in 2020.
At the AGM held on 11 September 2020, of the 456,791,436 votes
cast by proxy and at the meeting (including votes cast at the
Chairman's discretion), 99.97% were in favour of the resolution to
approve the Directors' remuneration policy, as set out in the
Annual Report for the year ended 31 March 2020, and 0.01% were
against. 49,156 votes were withheld.
Shareholder Approval of Remuneration Report
An advisory ordinary resolution to approve the Directors'
Remuneration Report (excluding the Directors' remuneration policy)
is put to members at each AGM.
At the AGM held on 11 September 2020, of the 456,792,260 votes
cast by proxy and at the meeting (including votes cast at the
Chairman's discretion), 99.97% were in favour of the advisory
resolution to approve the Directors' Remuneration Report in respect
of the year ended 31 March 2020, 0.01% were against and 49,156
votes were withheld.
Approval
This Directors' Remuneration Report was approved by the Board on
16 June 2021 and signed on its behalf by:
Vic Holmes
Remuneration and Nominations
Committee Chairman
16 June 2021
Audit Committee Report
Patrick Firth
Audit Committee Chairman
I am pleased to present the Audit Committee's Report for the
year ended 31 March 2021.
Introduction
The Audit Committee aims to serve the interests of the Company's
shareholders and other stakeholders through its independent
oversight of the Company's financial reporting process, its systems
of internal controls and effective management of risk and the
appointment and ongoing review of the independence and quality of
the work of the Company's external auditor.
Composition
Chaired by Patrick Firth, the Audit Committee comprises of all
of the Directors. As permissible under the AIC Code the Chairman of
the Board is a member of the Committee to enable his greater
understanding of the issues facing the Company and also to benefit
from his valuable contributions. All of the Directors are, and have
been since appointment, independent. The Board has considered the
composition of the Audit Committee.
All members of the Committee are qualified accountants. The
Board is satisfied that the Committee, as a whole, has:
-- recent and relevant financial experience;
-- competence relevant to the sector in which the Company operates; and
-- the skills, experience and objectivity to be an effective Audit Committee.
Details of the skills and experience of all of the Committee
members are outlined in their biographies.
Meetings
The Audit Committee meets no less than three times a year and at
such other times as the Committee shall require or any member may
request. The Administrator, Investment Manager and Investment
Adviser are invited to attend meetings, as the Committee deems
appropriate.
The external auditor attends the Audit Committee meetings at
which the annual and interim financial statements are considered,
and at which the auditor has the opportunity to meet with the
Committee without representatives of the Investment Manager, the
Investment Adviser or the Administrator being present. The auditor
also attends the audit planning meeting. The auditor may request
that a meeting of the Committee be convened if it deems it
necessary.
The Audit Committee met four times (3 scheduled and 1 ad hoc)
during the year ended 31 March 2021 (details of the Committee
members' attendance at the meetings can be found under "Meeting
Attendance").
Responsibilities and Activities
The Audit Committee's responsibilities include:
-- monitoring the integrity of the Company's financial
statements and any formal announcements relating to its financial
performance;
-- reviewing significant financial reporting judgements;
-- evaluating the effectiveness of the systems of internal control and risk management;
-- assessing the effectiveness and independence of the Company's external auditor; and
-- making recommendations to the Board on the appointment and
remuneration of the external auditor.
Full details of the Committee's roles and responsibilities are
set out in formal terms of reference and include all of the roles
and responsibilities recommended by the AIC Code. The terms of
reference are regularly reviewed by the Committee and are available
on the Company's website (nextenergysolarfund.com).
The Audit Committee is required to report formally to the Board
on its findings after each meeting on all matters within its roles
and responsibilities, identifying any matters on which it considers
that action or improvement is needed and making recommendations on
the steps and decisions to be taken. In discharging its duties over
the course of the year under review, the Audit Committee's
principal activities included the following:
-- Risk management and internal control processes:The Committee
assessed the principal and emerging risks facing the Company
(details of which are included under "Risks and Risk Management").
The Committee also reviewed and, where necessary, amended and
updated the Company's risk matrix and its record of internal
control processes. The Committee was satisfied with the adequacy
and effectiveness of the risk management framework and internal
control processes, details of which are included under "Risk,
Internal Controls and Internal Audit".
-- Interim review and annual audit: The Committee reviewed and
approved the interim review and annual audit plans of the external
auditor, including their scope and the auditor's engagement terms
and fees. The Committee monitored the implementation of the plans
and discussed the auditor's reports and findings. The Committee
also evaluated, and was satisfied with, the effectiveness,
including performance and objectivity, and independence of the
auditor and the overall quality and effectiveness of the external
audit process.
-- Annual and Interim Reports:The Committee reviewed the
Company's accounting policies and considered the format and content
of the Company's Interim and Annual Reports before recommending
their approval to the Board. As part of the review process, the
Committee:
- considered the continuing appropriateness of the Company's
accounting policies, including the potential implications of
forthcoming changes in accounting standards for the Company;
- reviewed the significant financial reporting judgements used
in preparing the Financial Statements; and
- discussed and challenged the forecasts, assumptions and other
information provided by the Investment Manager to support the going
concern and viability statements.
- The Committee concluded that, taken as whole, the Annual
Report was fair, balanced and understandable and provided the
information necessary for shareholders to assess the Company's
position and performance, business model and strategy.
-- Internal audit requirements:The Committee considered the
Company's internal audit requirements. Due to the Company having no
employees and the outsourcing of its investment and administrative
arrangements to third parties who have their own internal controls
and procedures, the Committee concluded that there continued to be
no need for an internal audit function.
-- Whistleblowing: The Committee reviewed the whistleblowing
policy in place for each of the Investment Manager, the Investment
Adviser and the Administrator and was satisfied the relevant staff
could raise concerns, in confidence, about possible improprieties
relating to financial reporting or other matters that may affect
the Company.
-- Performance evaluation: The Committee reviewed the outcome of
the annual evaluation of its performance and concluded that it
continued to provide effective challenge and oversight.
The Audit Committee Chairman will be available at the AGM to
answer any shareholder questions on the Committee's activities.
Significant Issues Considered Relating to Financial
Statements
Following discussions with the Investment Manager, the
Investment Adviser and the external auditor, the Committee
determined that the significant areas connected with the
preparation of the financial statements of the Company related to
the valuation of investments. The Company is required to calculate
the fair value of its investments. Whilst there is a relatively
active market for financial assets of this nature, there are no
suitable listed or other public market quotations against which the
value of the Company's investments can be benchmarked. Accordingly,
the valuation of the Company's investments is undertaken using a
discounted cash flow methodology in line with IFRS 9 Financial
Instruments and IFRS 13 Fair Value Measurement and takes into
account the International Private Equity and Venture Capital's
valuation guidelines. As further explained in note 4a to the
Financial Statements, valuation of the Company's investments using
a discounted cash flow methodology requires a series of material
judgements to be made regarding the assumptions and estimates
underlying the discounted cash flow calculations. As such
judgements are subjective, they carry elements of risk.
The Investment Manager undertakes the valuation of the Company's
investments and provides the Board with a detailed valuation
report, which includes information on the assumptions and other
factors that have a material impact on the valuation and the
rationale for any proposed changes to them since the previous
valuation. The key assumptions and other factors include (but are
not limited to):
-- Discount rates:A discount rate is applied to the expected
future cash flows for each investment's financial forecasts derived
using, among others, the key assumptions referred to above to
arrive at its valuation. The Investment Manager recommends to the
Board the discount rates to be used based on the Investment
Adviser's extensive experience of the current market for
transactions in solar assets in the relevant jurisdictions.
-- Power price assumptions: A significant proportion of the
income from the Company's investments is fixed for a period of time
in accordance with the terms of the relevant ROC or FiT subsidy.
The balance of the income has exposure to wholesale electricity
prices, although the Investment Manager seeks to reduce this
exposure through entering into short- or long-term power purchase
agreements with fixed price mechanisms. Over time the proportion of
income that is fixed in accordance with the terms of subsidies will
reduce, increasing the proportion of income with exposure to
changes in wholesale electricity prices. The Investment Adviser
uses the average of three of the leading independent energy market
consultants' long--term projections to derive, by jurisdiction, the
future assumed wholesale electricity prices used in the valuation
of the Company's investments.
-- Lease life extensions: Assets where the lease life has been
extended beyond the life of the subsidy have additional risk.
-- Operating performance and costs assumptions: These include
assumptions regarding the remaining operating life of each
investment, the energy generated by each investment over its life
and operating costs.
-- Macroeconomic assumptions:These include inflation, foreign
exchange rate, interest rate and tax rate assumptions. Further
details on the key assumptions and other factors, together with a
sensitivity analysis showing the impact of changing some of them,
are included in the Investment Adviser's Report.
The Board considers in detail each valuation report received
from the Investment Manager, challenges the key assumptions and
other factors used in calculating the valuation of the Company's
investments and monitors the changes in them over time.
Annual Report for Year Ended 31 March 2021
The production of the Annual Report, including the audit of the
Company's financial statements, for the year ended 31 March 2021
was a comprehensive process requiring input from a number of
different contributors.
One of the key corporate governance requirements is that the
Annual Report, taken as a whole, must be fair, balanced and
understandable and provide the information necessary for
shareholders to assess the Company's position and performance,
business model and strategy. Another requirement is that the
narrative and numerical disclosures in the Annual Report must be
consistent. Having reviewed the Annual Report and considered the
work undertaken in producing it, the Committee concluded that the
Annual Report did pass these tests and, in recommending approval of
the Annual Report to the Board, it reported accordingly.
Non-audit Services Provided by External Auditor
The Company may only use its external auditor for non-audit work
with the prior approval of the Audit Committee. The Committee's
policy regarding the provision of non-audit services by the auditor
is aligned to the Financial Reporting Council Ethical Standard 2019
which precludes the auditor from providing any prohibited non-audit
services. Furthermore, the Committee will not approve the use of
the auditor for non-audit services where there may be perceived to
be a conflict with the auditor's role as such or which may
compromise its independence or objectivity.
During the year from 1 April 2020 to 16 June 2021, the only
non-audit work carried out by KPMG was in relation to its review of
the Interim Report and certain agreed upon procedures in relation
to a related party transaction for which it was paid fees of
GBP40,000 and GBP67,500 respectively (equivalent to 7.4% and 12.5%
respectively of the audit fee for the year ended 31 March
2021).
Annual Assessment of Effectiveness of External Audit Process
Following the conclusion of the audit process for the Company's
financial statements for the year ended 31 March 2020, the Audit
Committee evaluated the quality and effectiveness of the external
audit process. In order to form a view, the Committee considered
its own observations and interactions with KPMG, as well as
feedback from KPMG, the Investment Manager, the Investment Adviser
and the Administrator. The Committee reviewed the robustness of the
audit process and the quality of delivery, reporting, people and
service. The Committee also considered KPMG's technical competence,
understanding of the Company's business and the sector in which it
operates and whether KPMG demonstrated an appropriate level of
diligence, professional scepticism and challenge. In addition, the
Committee considered the cost effectiveness of the audit process.
The Committee also reviewed the independence of KPMG, having regard
to matters such as its report describing its arrangements to
identify, report and manage any conflicts of interest and the
extent of non-audit services provided by it. Having completed the
evaluation, the Committee was satisfied with the effectiveness,
including performance and objectivity, and independence of KPMG and
the overall quality and effectiveness of the external audit
process. Consequently, the Committee recommended to the Board that
a resolution to appoint KPMG as the Company's auditor be put to
shareholders at this year's AGM.
Auditor's Fees for NESF and Subsidiaries
The fees payable to KPMG for audit services and audit related
services to the Company and its subsidiaries for the year ended 31
March 2021 were as follows:
2021
GBP'000
NESF 80
Subsidiaries 462
Total audit fees 542
Interim review 40
Agreed upon procedures 67
Total fees 649
External Auditor's Tenure
There are no contractual obligations that restrict the Company's
choice of external auditor and the auditor's appointment is subject
to shareholder approval at each AGM. As KPMG was first appointed as
the Company's external auditor in 2019 following a competitive
tender, the Committee will consider the need for a competitive
tender for the role of external auditor in, or before, 2024. In any
event, the Committee will carry out a competitive tender in, or
before, 2028 in respect of the audit for the year ending 31 March
2029. The audit partner for the Company, Dermot Dempsey, has been
in place for two years and, therefore, the Committee expects that
there will be an audit partner rotation for, or before, the audit
for the year ending 31 March 2025.
Approval
This Audit Committee Report was approved by the Audit Committee
on 16 June 2021 and signed on its behalf by:
Patrick Firth
Audit Committee Chairman
16 June 2021
Directors' Report
Introduction
The Directors are pleased to present their Annual Report,
including the Company's audited financial statements, for the year
ended 31 March 2021. This Directors' Report and the Strategic
Report respectively comprise the "management report", for the
purposes of the FCA's Disclosure Guidance and Transparency Rule
4.1.5R.
Financial Results and Dividends
The financial results for the year can be found in the Statement
of Comprehensive Income.
Details of the four interim dividends that have been declared in
respect of the year ended 31 March 2021 are set out in note 15b to
the Financial Statements. As the last dividend in respect of any
financial period is payable prior to the relevant AGM, it is
declared as an interim dividend and, accordingly, there is no final
dividend payable. This means that shareholders are not given the
opportunity to vote on the payment of a final dividend.
Accordingly, in accordance with good corporate governance, the
Board asks shareholders to approve the Company's dividend policy at
each AGM. The dividend policy is set out under "Dividend Policy,
Scrip Dividends and Dividend Target for the Financial Year Ending
31 March 2022".
In addition to being asked to approve the Company's dividend
policy at this year's AGM, shareholders will also be asked to renew
the Company's scrip dividend facility that gives ordinary
shareholders the opportunity to elect to receive new ordinary
shares (these being scrip shares) in place of their cash dividend
payments. Information on the scrip dividend alternative can be
found under "Dividend Policy, Scrip Dividends and Dividend Target
for the Financial Year Ending 31 March 2022".
Share Capital
During the year, the Company issued 2,781,747 ordinary shares as
scrip shares. As at 31 March 2021 and the date of this Directors'
Report, there were 586,987,678 ordinary shares in issue.
The Company issued no preference shares within the year ended 31
March 2021. As at 31 March 2021 and the date of this Directors'
Report, there were 200m preference shares in issue. Details of the
private placement and further information regarding the rights of
the preference shares can be found in note 23a to the Financial
Statements.
Substantial Shareholdings
As at 31 March 2021, the Company had been notified under the
FCA's Disclosure Guidance and Transparency Rules of the following
substantial holdings in its ordinary shares:
Ordinary Shares
Investor No. %
Artemis Investment Management LLP on behalf
of discretionary funds
under management 70,246,523 11.97
Baillie Gifford & Co 59,677,002 10.17
M&G Investments 59,135,726 10.07
Legal & General Investment Mgt 41,975,295 7.15
Gravis Capital Mgt 40,016,510 6.82
Investec Wealth & Investment (RS) 35,261,471 6.01
Between 31 March 2021 and the date of this Directors' Report,
the Company was notified that M&G Investments had increased
their interest to 60,209,662 ordinary shares (10.26% of the issued
ordinary shares) and Investec Wealth & Investment (RS) had
decreased their interest to 29,342,705 ordinary shares (4.99% of
the issued ordinary shares). There have been no other notifications
during that period
Powers to Issue and Buy-back Ordinary Shares
At the Company's AGM held on 11 September 2020, the Directors
were granted general authority to issue ordinary shares or sell
treasury shares, non-pre-emptively, in accordance with the Articles
of Incorporation up to, in aggregate, 116,987,009 ordinary shares,
equivalent to 20% of the ordinary shares in issue at the date the
authority was granted, less one. Save for the scrip shares referred
to under "Share Capital" above no ordinary shares have been issued
and no treasury shares have been sold under this authority, which
will expire at the conclusion of this year's AGM.
At last year's AGM, the Directors were also granted authority to
make one or more market purchases of ordinary shares, in accordance
with section 315 of the Companies (Guernsey) Law, 2008, up to, in
aggregate, 87,681,763 ordinary shares, equivalent to 14.99% of the
ordinary shares in issue at the date the authority was granted. No
ordinary shares have been purchased under this authority, which
will expire at the conclusion of this year's AGM.
The Directors will be seeking similar issuance and purchase
authorities at this year's AGM. The Directors do not currently have
any authority to issue any further preference shares.
Treasury Shares
Under section 315 of the Companies (Guernsey) Law, 2008, the
Company is allowed to hold shares acquired by market purchase as
treasury shares, rather than having to cancel them. It is the
Company's policy to hold up a maximum of 10% of the ordinary shares
in issue as treasury shares, which may be either sold in the market
or cancelled subsequently. This gives the Company the ability to
re-issue shares quickly and cost efficiently, thereby providing the
Company with additional flexibility in the management of its
capital base. The Board would only authorise the sale of treasury
shares at prices at or above the prevailing NAV per ordinary share
(plus any costs of the relevant sale), so there would be no
dilution of the NAV per ordinary shares. There are currently no
treasury shares.
Restrictions on Transfer of Shares
There are no restrictions on the transfer of shares in the
Company, except pursuant to:
-- the Listing Rules, which require certain individuals to have
approval to deal in the Company's shares; and
-- the Company's Articles of Incorporation, which allow the
Board to decline to register a transfer of shares or otherwise
impose a restriction on shares, to prevent the Company breaching
any law or regulation.
The Company is not aware of any agreements between holders of
securities that may result in restrictions on the transfer of
shares in the Company.
Shares Carrying Special Rights
No person holds shares in the Company carrying special rights
with regard to control of the Company.
Amendment of Articles of Incorporation
The Articles may be amended by a special resolution of the
Company's shareholders.
Powers of the Directors
Subject to the Articles of Incorporation, the Companies
(Guernsey) Law, 2008 and any directions given by the Company by
special resolution, the business of the Company will be managed by
the Board, which may exercise all the powers of the Company.
Greenhouse Gas Emissions
As the Company has outsourced its day-to-day activities to third
parties, there are no significant greenhouse gas emissions from its
operations. In relation to the Company's investments, the level of
greenhouse gas emissions arising from the low volume of electricity
imports and from operation and maintenance activity is not
considered material for disclosure purposes. Furthermore, as the
assets are renewable energy generators, they reduce carbon dioxide
emissions on a net basis.
Political Donations
The Company made no political donations during the year.
Charitable Donations
Sustainability and ESG section. No other charitable donations
were made during the year.
Events after the Balance Sheet Date
Details of events occurring since 31 March 2021 can be found in
note 28 to the Financial Statements.
Independent Auditor
The Company appointed KPMG Channel Islands Limited ("KPMG") to
act as its independent auditor on 27 September 2019 and re --
appointed KPMG in the same capacity at the AGM in September
2020.
KPMG has indicated its willingness to continue as auditor for
the year ending 31 March 2022 and resolutions to re-appoint KPMG
and to authorise the Directors to determine KPMG's remuneration,
will be proposed at this year's AGM.
2021 AGM
A separate notice convening this year's AGM will be sent to
shareholders in due course. The notice will include an explanation
of the resolutions to be considered at the meeting. A copy of the
notice will also be published on the Company's website
(nextenergysolarfund.com).
Approval
This Directors' Report was approved by the Board on 16 June 2021
and signed on its behalf by:
Kevin Lyon
Chairman
16 June 2021
The Company donated GBP80,000 (2020: GBP50,000) to the
NextEnergy Foundation, information on which can be found in the
Statement of Directors' Responsibilities
Statement of Directors' Responsibilities in Respect of the
Annual Report and the Financial Statements
Directors' Responsibilities
The Directors are responsible for preparing the Annual Report
and financial statements in accordance with applicable law and
regulations.
Company law requires the directors to prepare financial
statements for each financial year. Under that law they are
required to prepare the financial statements in accordance with
International Financial Reporting Standards ("IFRS") and applicable
law.
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Company and of its profit or
loss for that period. In preparing these Financial Statements, the
directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable, relevant and reliable;
-- state whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements;
-- assess the Company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern;
and
-- use the going concern basis of accounting unless they either
intend to liquidate the Company or to cease operations, or have no
realistic alternative but to do so.
The Directors are responsible for keeping proper accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
its financial statements comply with the Companies (Guernsey) Law,
2008. They are responsible for such internal control as they
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error, and have general responsibility for taking such
steps as are reasonably open to them to safeguard the assets of the
Company and to prevent and detect fraud and other
irregularities.
Disclosure of Information to Auditor
The Directors who hold office at the date of approval of this
Director's Report confirm that so far as they are aware, there is
no relevant audit information of which the Company's auditor is
unaware, and that each Director has taken all the steps they ought
to have taken as a director to make themselves aware of any
relevant audit information and to establish that the Company's
auditor is aware of that information.
Website Publication
The Directors are responsible for ensuring the Annual Report is
made available on a website. Annual Reports are published on the
Company's website (nextenergysolarfund.com). Legislation in
Guernsey governing the preparation and dissemination of financial
statements may vary from legislation in other jurisdictions. The
maintenance and integrity of the Company's website is the
responsibility of the Directors. The Directors' responsibility also
extends to the ongoing integrity of the financial statements
contained on the website.
Directors' Confirmations
In accordance with the FCA's Disclosure Guidance and
Transparency Rule 4.1.12R, we confirm that, to the best of our
knowledge:
-- the Financial Statements have been prepared in accordance
with International Financial Reporting Standards and give a true
and fair view of the assets, liabilities, financial position and
profit or loss of the Company; and
-- the management report (comprising the Strategic Report, the
Directors' Report and any other sections of the Annual Report
referred to in the Strategic Report or the Directors' Report)
includes a fair review of the development and performance of the
Company and its position, together with a description of the
emerging and principal risks that it faces.
In addition, in accordance with the AIC Code, we confirm that,
to the best of our knowledge, the Annual Report, taken as a whole,
is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company's performance,
business model and strategy.
On behalf of the Board of Directors of
NextEnergy Solar Fund Limited
Kevin Lyon
Chairman
16 June 2021
Independent auditor's report
to the members of NextEnergy Solar Fund Limited
Our opinion is unmodified
We have audited the financial statements of NextEnergy Solar
Fund Limited (the "Company"), which comprise the statement of
financial position as at 31 March 2021, the statements of
comprehensive income, changes in equity and cash flows for the year
then ended, comprising significant accounting policies and other
explanatory information.
In our opinion, the accompanying financial statements:
- give a true and fair view of the financial position of the
Company as at 31 March 2021, and of the Company's financial
performance and cash flows for the year then ended;
- are prepared in accordance with International Financial Reporting Standards; and
- comply with the Companies (Guernsey) Law, 2008.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our
responsibilities are described below. We have fulfilled our ethical
responsibilities under, and are independent of the Company in
accordance with, UK ethical requirements including FRC Ethical
Standards, as applied to listed entities. We believe that the audit
evidence we have obtained is a sufficient and appropriate basis for
our opinion.
Overview
Materiality: GBP11.6m
financial statements as a whole Approximately 2% of net
asset value
Key audit matters vs 2020
Recurring risks Valuation of investments
Key audit matters: our assessment of risks of material
misstatement
Key audit matters are those matters that, in our professional
judgement, were of most significance in the audit of the financial
statements and include the most significant assessed risks of
material misstatement (whether or not due to fraud) identified by
us, including those which had the greatest effect on: the overall
audit strategy; the allocation of resources in the audit; and
directing the efforts of the engagement team. These matters were
addressed in the context of our audit of the financial statements
as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters. In arriving at our
audit opinion above, the key audit matter was as follows (unchanged
from 2020):
The risk Our response
Valuation of Forecast based valuation: Our audit procedures
investments at Basis included the following:
fair value through The Company's investments Control evaluation:
profit and loss in its direct subsidiaries We tested the design
GBP769.6 million; are carried at fair value and implementation of
(2020: GBP753.6 through profit or loss the Investment Manager's
million) and represent a significant review control over the
Refer to the proportion of the Company's valuation of the underlying
Audit Committee net assets. Those direct investment portfolio.
Report, accounting subsidiaries hold equity Valuation model integrity
policies and interests in special and model inputs:
financial instrument purpose vehicles which * tested the valuation model for integrity, logic and
disclosures. in turn own solar photovoltaic material formula errors;
assets (the "underlying
investment portfolio")
for which there is no * verified key inputs into the valuation model, such as
liquid market. power price forecasts, energy yield, contracted
The fair value of the revenue and operating costs, to supporting
Company's investments documentation, including consideration of the impact
has been determined as of Covid-19;
the product of the fair
value of the underlying
investment portfolio * agreed a value driven sample of balances within the
and the other residual residual net asset amounts at subsidiary levels to
net assets within the supporting documentation such as independent bank
subsidiaries. The fair confirmations, post year end receipts and other
value of the underlying source documentation.
investment portfolio
has been determined using
the income approach whereby Assessing fair value:
the long term forecasted * obtained and vouched supporting documentation in
cash flows of each individual relation to all significant acquisitions and
solar photovoltaic asset disposals during the year;
is discounted at a rate
that reflects their risk
profile. * considered market transactions in close proximity to
Inherent in these long the year-end and assessed their appropriateness as
term forecasted cash being representative of fair value;
flows are macro-economic
assumptions including
power price forecasts, * in order to assess the reliability of management's
future energy yields, forecasts we completed a retrospective assessment
and inflation. over the actual performance of the underlying
Risk investment portfolio by comparing last year's actual
The valuation risk represents generation output to the historical forecasted
a risk of fraud and error amounts included in the valuation model.
associated with estimating
the timing and amount
of long term forecasted Benchmarking valuation
cash flows alongside assumptions:
the selection and application With support from our
of appropriate assumptions KPMG valuation specialist
including the impact we assessed and challenged
Covid-19 has had on those the appropriateness of
assumptions. the Company's valuation
Changes to long term assumptions including
forecasted cash flows the discount rate, power
and/or the selection price forecasts, other
and application of different macro- economic assumptions
assumptions may result applied, and the impact
in a materially different Covid-19 has had on those
valuation for the underlying assumptions, by:
investment portfolio * assessing the appropriateness of the valuation
which in turn would impact methodology applied by the Investment Manager;
the valuation of the
Company's investments
at fair value through * benchmarking against independent market data and
profit or loss. relevant peer group companies, and
The valuation risk represents
a risk of fraud and error
associated with estimating * using our KPMG valuation specialist's experience in
the timing and amount valuing similar investments.
of long term forecasted
cash flows alongside
the selection and application
of appropriate assumptions
including the impact
Covid-19 has had on those
assumptions.
Changes to long term
forecasted cash flows
and/or the selection
and application of different
assumptions may result
in a materially different
valuation for the underlying
investment portfolio
which in turn would impact
the valuation of the
Company's investments
at fair value through
profit or loss.
Assessing transparency:
We considered the appropriateness
of the Company's investment
valuation policies and
the adequacy of the Company's
disclosures in relation
to the use of estimates
and judgements in arriving
at fair value.
We assessed whether the
disclosures around the
sensitivities to changes
in key assumptions reflect
the risks inherent in
the valuation of the
underlying investment
portfolio including the
impact of Covid-19.
Our application of materiality and an overview of the scope of
our audit
Materiality for the financial statements as a whole was set at
GBP11.6m, determined with reference to a benchmark of net assets of
GBP580.7m, of which it represents approximately 2% (2020: 2%).
In line with our audit methodology, our procedures on individual
account balances and disclosures were performed to a lower
threshold, performance materiality, so as to reduce to an
acceptable level the risk that individually immaterial
misstatements in individual account balances add up to a material
amount across the financial statements as a whole. Performance
materiality for the Company was set at 75% (2020: 75%) of
materiality for the financial statements as a whole, which equates
to GBP8.7m. We applied this percentage in our determination of
performance materiality because we did not identify any factors
indicating an elevated level of risk.
We reported to the Audit Committee any corrected or uncorrected
identified misstatements exceeding GBP0.5m, in addition to other
identified misstatements that warranted reporting on qualitative
grounds.
Our audit of the Company was undertaken to the materiality level
specified above, which has informed our identification of
significant risks of material misstatement and the associated audit
procedures performed in those areas as detailed above.
Going concern
The directors have prepared the financial statements on the
going concern basis as they do not intend to liquidate the Company
or to cease its operations, and as they have concluded that the
Company's financial position means that this is realistic. They
have also concluded that there are no material uncertainties that
could have cast significant doubt over its ability to continue as a
going concern for at least a year from the date of approval of the
financial statements (the "going concern period").
In our evaluation of the directors' conclusions, we considered
the inherent risks to the Company's business model and analysed how
those risks might affect the Company's financial resources or
ability to continue operations over the going concern period. The
risks that we considered most likely to affect the Company's
financial resources or ability to continue operations over this
period were:
-- the availability of capital to meet operating costs and other
financial commitments; and
-- the ability of the Company's subsidiaries to successfully
refinance or repay debt and to comply with debt covenants.
We considered whether these risks could plausibly affect the
liquidity in the going concern period by comparing severe, but
plausible downside scenarios that could arise from these risks
against the level of available financial resources indicated by the
Company's financial forecasts.
We considered whether the going concern disclosure in Note 2(c)
to the financial statements gives a full and accurate description
of the directors' assessment of going concern.
Our conclusions based on this work:
-- we consider that the directors' use of the going concern
basis of accounting in the preparation of the financial statements
is appropriate;
-- we have not identified, and concur with the directors'
assessment that there is not, a material uncertainty related to
events or conditions that, individually or collectively, may cast
significant doubt on the Company's ability to continue as a going
concern for the going concern period; and
-- we have nothing material to add or draw attention to in
relation to the directors' statement in the notes to the financial
statements on the use of the going concern basis of accounting with
no material uncertainties that may cast significant doubt over the
Company's use of that basis for the going concern period, and that
statement is materially consistent with the financial statements
and our audit knowledge.
However, as we cannot predict all future events or conditions
and as subsequent events may result in outcomes that are
inconsistent with judgements that were reasonable at the time they
were made, the above conclusions are not a guarantee that the
Company will continue in operation.
Fraud and breaches of laws and regulations - ability to
detect
Identifying and responding to risks of material misstatement due
to fraud
To identify risks of material misstatement due to fraud ("fraud
risks") we assessed events or conditions that could indicate an
incentive or pressure to commit fraud or provide an opportunity to
commit fraud. Our risk assessment procedures included:
-- enquiring of management as to the Company's policies and
procedures to prevent and detect fraud as well as enquiring whether
management have knowledge of any actual, suspected or alleged
fraud;
-- reading minutes of meetings of those charged with governance; and
-- using analytical procedures to identify any unusual or unexpected relationships.
As required by auditing standards, and taking into account
possible incentives or pressures to misstate performance and our
overall knowledge of the control environment, we perform procedures
to address the risk of management override of controls, in
particular the risk that management may be in a position to make
inappropriate accounting entries, and the risk of bias in
accounting estimates such as valuation of unquoted investments. On
this audit we do not believe there is a fraud risk related to
revenue recognition because the Company's revenue streams are
simple in nature with respect to accounting policy choice, and are
easily verifiable to external data sources or agreements with
little or no requirement for estimation from management. We did not
identify any additional fraud risks.
We performed procedures including:
-- identifying journal entries and other adjustments to test
based on risk criteria and comparing any identified entries to
supporting documentation;
-- incorporating an element of unpredictability in our audit procedures; and
-- assessing significant accounting estimates for bias.
Further detail in respect of valuation of unquoted investments
is set out in the key audit matter section of in this report.
Identifying and responding to risks of material misstatement due
to non-compliance with laws and regulations
We identified areas of laws and regulations that could
reasonably be expected to have a material effect on the financial
statements from our sector experience and through discussion with
management (as required by auditing standards), and from inspection
of the Company's regulatory and legal correspondence, if any, and
discussed with management the policies and procedures regarding
compliance with laws and regulations. As the Company is regulated,
our assessment of risks involved gaining an understanding of the
control environment including the entity's procedures for complying
with regulatory requirements.
The Company is subject to laws and regulations that directly
affect the financial statements including financial reporting
legislation and taxation legislation and we assessed the extent of
compliance with these laws and regulations as part of our
procedures on the related financial statement items.
The Company is subject to other laws and regulations where the
consequences of non-compliance could have a material effect on
amounts or disclosures in the financial statements, for instance
through the imposition of fines or litigation or impacts on the
Company's ability to operate. We identified financial services
regulation as being the area most likely to have such an effect,
recognising the regulated nature of the Company's activities and
its legal form. Auditing standards limit the required audit
procedures to identify non-compliance with these laws and
regulations to enquiry of management and inspection of regulatory
and legal correspondence, if any. Therefore if a breach of
operational regulations is not disclosed to us or evident from
relevant correspondence, an audit will not detect that breach.
Context of the ability of the audit to detect fraud or breaches
of law or regulation
Owing to the inherent limitations of an audit, there is an
unavoidable risk that we may not have detected some material
misstatements in the financial statements, even though we have
properly planned and performed our audit in accordance with
auditing standards. For example, the further removed non-compliance
with laws and regulations is from the events and transactions
reflected in the financial statements, the less likely the
inherently limited procedures required by auditing standards would
identify it.
In addition, as with any audit, there remains a higher risk of
non-detection of fraud, as this may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of
internal controls. Our audit procedures are designed to detect
material misstatement. We are not responsible for preventing
non-compliance or fraud and cannot be expected to detect
non-compliance with all laws and regulations.
Other information
The directors are responsible for the other information. The
other information comprises the information included in the annual
report but does not include the financial statements and our
auditor's report thereon. Our opinion on the financial statements
does not cover the other information and we do not express an audit
opinion or any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit, or otherwise appears to be materially misstated. If, based
on the work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report
that fact. We have nothing to report in this regard.
Disclosures of emerging and principal risks and longer term
viability
We are required to perform procedures to identify whether there
is a material inconsistency between the directors' disclosures in
respect of emerging and principal risks and the viability
statement, and the financial statements and our audit knowledge. We
have nothing material to add or draw attention to in relation
to:
-- the directors' confirmation within the viability statement
that they have carried out a robust assessment of the emerging and
principal risks facing the Company, including those that would
threaten its business model, future performance, solvency or
liquidity;
-- the disclosures describing these emerging and principal risks
and explaining how they are being managed or mitigated; and
-- the directors' explanation in the viability statement as to
how they have assessed the prospects of the Company, over what
period they have done so and why they consider that period to be
appropriate, and their statement as to whether they have a
reasonable expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the period
of their assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
We are also required to review the viability statement, set out
under the Listing Rules. Based on the above procedures, we have
concluded that the above disclosures are materially consistent with
the financial statements and our audit knowledge.
Corporate governance disclosures
We are required to perform procedures to identify whether there
is a material inconsistency between the directors' corporate
governance disclosures and the financial statements and our audit
knowledge.
Based on those procedures, we have concluded that each of the
following is materially consistent with the financial statements
and our audit knowledge:
-- the directors' statement that they consider that the annual
report and financial statements taken as a whole is fair, balanced
and understandable, and provides the information necessary for
shareholders to assess the Company's position and performance,
business model and strategy;
-- the section of the annual report describing the work of the
audit committee, including the significant issues that the audit
committee considered in relation to the financial statements, and
how these issues were addressed; and
-- the section of the annual report that describes the review of
the effectiveness of the Company's risk management and internal
control systems.
We are required to review the part of Corporate Governance
Statement relating to the Company's compliance with the provisions
of the UK Corporate Governance Code specified by the Listing Rules
for our review. We have nothing to report in this respect.
We have nothing to report on other matters on which we are
required to report by exception
We have nothing to report in respect of the following matters
where the Companies (Guernsey) Law, 2008 requires us to report to
you if, in our opinion:
-- the Company has not kept proper accounting records; or
-- the financial statements are not in agreement with the accounting records; or
-- we have not received all the information and explanations,
which to the best of our knowledge and belief are necessary for the
purpose of our audit.
Respective responsibilities
Directors' responsibilities
As explained more fully in their statement set out in the
Statement of Directors' Responsibilities , the directors are
responsible for: the preparation of the financial statements
including being satisfied that they give a true and fair view; such
internal control as they determine is necessary to enable the
preparation of financial statements that are free from material
misstatement, whether due to fraud or error; assessing the
Company's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern; and using the going
concern basis of accounting unless they either intend to liquidate
the Company or to cease operations, or have no realistic
alternative but to do so.
Auditor's responsibilities
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue our
opinion in an auditor's report. Reasonable assurance is a high
level of assurance, but does not guarantee that an audit conducted
in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in aggregate,
they could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial
statements.
A fuller description of our responsibilities is provided on the
FRC's website at www.frc.org.uk/auditorsresponsibilities.
The purpose of this report and restrictions on its use by
persons other than the Company's members as a body
This report is made solely to the Company's members, as a body,
in accordance with section 262 of the Companies (Guernsey) Law,
2008. Our audit work has been undertaken so that we might state to
the Company's members those matters we are required to state to
them in an auditor's report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company's
members, as a body, for our audit work, for this report, or for the
opinions we have formed.
Dermot Dempsey
For and on behalf of KPMG Channel Islands Limited
Chartered Accountants and Recognised Auditors
Guernsey
16 June 2021
Financial Statements
Statement of Comprehensive Income
For the year ended 31 March 2021
2021 2020
Notes GBP'000 GBP'000
Income
Income comprises of:
Interest income 12,000 9,573
Investment income 38,868 42,934
Administrative services income 9,128 8,685
Net changes in fair value of investments 17 (3,421) (75,714)
Total net income/(loss) 56,575 (14,522)
Expenditure
Preference share dividends 9,526 7,789
Management fees 5 5,157 5,629
Legal and professional fees 716 897
Directors' fees 7 253 224
Administration fees 6 237 274
Other expenses 9 142 112
Audit fees 8 110 99
Charitable donation 10 80 50
Regulatory fees 75 30
Insurance 55 25
Total expenses 16,351 15,129
Profit/(loss) and comprehensive income/(loss) for the year 40,224 (29,651)
Earnings per ordinary share - basic 14 6.87p (5.09p)
Earnings per ordinary share - diluted 14 6.32p (5.09p)
All activities are derived from ongoing operations.
There is no other comprehensive income or expense apart from
those disclosed above and consequently a Statement of Other
Comprehensive Income has not been prepared.
The accompanying notes are an integral part of these audited
financial statements.
Statement of Financial Position
As at 31 March 2021
2021 2020
Notes GBP'000 GBP'000
Non-current assets
Investments 17 769,644 753,560
Total non-current assets 769,644 753,560
Current assets
Cash and cash equivalents 10,809 25,128
Trade and other receivables 11 22,211 23,992
Total current assets 33,020 49,120
Total assets 802,664 802,680
Current liabilities
Trade and other payables 12 (23,953) (26,270)
Total current liabilities (23,953) (26,270)
Non-current liabilities
Preference shares 23 (197,920) (197,781)
Total non-current liabilities (197,920) (197,781)
Net assets 580,791 578,629
Equity
Share capital and premium 13 605,938 602,989
Retained earnings (25,147) (24,360)
Equity attributable to ordinary shareholders 580,791 578,629
Total equity 580,791 578,629
Net assets per ordinary share 16 98.9p 99.0p
The accompanying notes are an integral part of these audited
financial statements.
The audited financial statements were approved and authorised
for issue by the Board of Directors on 16 June 2021 and signed on
its behalf by:
Kevin Lyon, Patrick Firth,
Chairman Director
Statement of Changes in Equity
For the year ended 31 March 2021
Share capital Retained
and premium earnings Total equity
GBP'000 GBP'000 GBP'000
Ordinary shareholders' equity at 1 April 2019 600,029 45,022 645,051
Loss and comprehensive loss for the year - (29,651) (29,651)
Scrip shares issued in lieu of dividends 2,960 - 2,960
Ordinary dividends declared - (39,731) (39,731)
Ordinary shareholders' equity at 31 March 2020 602,989 (24,360) 578,629
Ordinary shareholders' equity at 1 April 2020 602,989 (24,360) 578,629
Profit and comprehensive income for the year - 40,224 40,224
Scrip shares issued in lieu of dividends 2,949 - 2,949
Ordinary dividends declared - (41,011) (41,011)
Ordinary shareholders' equity at 31 March 2021 605,938 (25,147) 580,791
Statement of Changes in Cash Flows
For the year ended 31 March 2021
2021 2020
Notes GBP'000 GBP'000
Cash flows from operating activities
Profit/(loss) and comprehensive income/(loss)
for the year 40,224 (29,651)
Adjustments for:
Interest income receivable (12,000) (9,573)
Interest income received 12,000 9,573
Investment income receivable (38,868) (42,934)
Investment income received 41,164 59,914
Proceeds from HoldCos 17 9,546 -
Payments to HoldCos 17 (29,051) (106,511)
Financing proceeds from HoldCos 17 35,200 -
Financing proceeds returned to HoldCos 17 (35,200) -
Change in fair value of investments 17 3,421 75,714
Financial debt amortisation 139 109
Dividends paid on preference shares
as finance costs 9,526 7,789
Operating cash flows before movements
in working capital 36,101 (35,570)
Changes in working capital
Movement in trade and other receivables (514) 437
Movement in trade and other payables (2,344) (14,305)
Net cash generated from/(used in) operating
activities 33,242 (49,438)
Cash flows from financing activities
Net proceeds from preference shares 23 - 98,650
Dividends paid on preference shares (9,499) (6,598)
Dividends paid on ordinary shares (38,062) (36,771)
Net cash (used in)/generated from financing
activities (47,561) 55,281
Net movement in cash and cash equivalents
during year (14,319) 5,843
Cash and cash equivalents at the beginning
of the year 25,128 19,285
Cash and cash equivalents at the end
of the year 10,809 25,128
The accompanying notes are an integral part of these audited
financial statements .
Notes to the Financial Statements
For the year ended 31 March 2021
1. General Information
The Company was incorporated with limited liability in Guernsey
under the Companies (Guernsey) Law, 2008 on 20 December 2013 with
registered number 57739, and is regulated by the Guernsey Financial
Services Commission as a registered closed - ended investment
company. The registered office of the Company is 1, Royal Plaza,
Royal Avenue, St Peter Port, Guernsey, Channel Islands GY1 2HL.
The Company's ordinary shares are publicly traded on the London
Stock Exchange under a premium listing. The Company seeks to
provide ordinary shareholders with attractive risk-adjusted
returns, principally in the form of regular dividends, by investing
in a diversified portfolio of primarily UK and OECD based solar
energy infrastructure assets. The Company currently makes its
investments through HoldCos and SPVs which are directly or
indirectly wholly owned by the Company.
The Company has appointed NextEnergy Capital IM Limited as its
Investment Manager pursuant to the Management Agreement dated 18
March 2014. The Investment Manager is a Guernsey registered
company, incorporated under the Companies (Guernsey) Law, 2008 with
registered number 57740 and is licensed and regulated by the
Guernsey Financial Services Commission and is a member of the NEC
Group. The Investment Manager acts as the Alternative Investment
Fund Manager of the Company.
The Investment Manager has appointed NextEnergy Capital Limited
as its Investment Adviser pursuant to the Investment Advisory
Agreement dated 18 March 2014. The Investment Adviser is a company
incorporated in England with registered number 05975223 and is
authorised and regulated by the FCA.
2. Summary of Significant Accounting Policies
a) Basis of preparation
The Financial Statements, which gives a true and fair view, have
been prepared on a going concern basis in accordance with IFRS.
The Financial Statements have been prepared on historical cost
basis, except for the revaluation of certain investments and
financial instruments. The principal accounting policies adopted
are set out below. These policies have been consistently
applied.
Certain amounts relating to 2020 in the financial statements
have been reclassified to conform to the presentation in the
Company's latest audited financial statements for the year ended 31
March 2021.
b) Functional and presentation currency
The financial statements are presented in pounds sterling which
is the Company's functional and presentation currency. Functional
currency is the currency of the primary economic environment in
which the Company operates. The Company's shares were issued in
pounds sterling and the listing of the shares on the Main Market is
in pounds sterling. The performance of the Company is measured and
reported to investors in pounds sterling and dividends in the
primarily UK-based assets are in pounds sterling. The Board
considers the pound sterling as the currency that most faithfully
represents the economic effects of the underlying transactions,
events and conditions.
c) Going Concern
The Company owns a portfolio of solar energy infrastructure
assets in the UK and Italy that are predominantly fully
constructed, operational and generating renewable electricity. A
significant proportion of the income from the Company's investments
is fixed for a long period of time in accordance with the terms of
the relevant ROC or FiT subsidy. The balance of the income has
exposure to wholesale electricity prices, although the Investment
Manager seeks to reduce this exposure through entering into short-
or long-term power purchase agreements with fixed price
mechanisms.
The Directors have reviewed the current and projected financial
position of the Company making reasonable assumptions about future
performance. The key areas reviewed were:
-- maturity of debt facilities;
-- future investment transactions;
-- expenditure commitment; and
-- forecast income and cash flows.
The NESF Group's cash balance as at 31 March 2021 was GBP11m,
all of which was readily available. It also had immediately
available but undrawn amounts under its debt facilities of a
further GBP36m. The NESF Group had capital commitments totaling
GBP9.5m at the year end. The majority of the NESF Group's revenues
are derived from government subsidies. A significant part of the
NESF Group's borrowings are on a non-recourse basis. The Company's
portfolio is diversified by geography, components, plant size,
subsidy schemes and revenue streams.
The Board is satisfied that the Company has sufficient financial
resources available to be able to manage the Company's business
effectively and pursue the Company's principal activities and
investment objective. In particular, the Board is not currently
aware of any material uncertainties in relation to the Company's
ability to continue for a period of at least 12 months from the
date of approval of this Annual Report. The Board is of the
opinion, therefore, that the going concern basis adopted in the
preparation of the Financial Statements is appropriate.
d) Basis of Non-Consolidation
The Company has set up/acquired SPVs through its investment in
the holding companies. The Company meets the definition of an
investment entity as described by IFRS 10. Under IFRS 10 investment
entities are required to hold subsidiaries at fair value through
profit or loss rather than consolidate them. There are five holding
companies (NextEnergy Solar Holdings Limited, NextEnergy Solar
Holdings II Limited, NextEnergy Solar Holdings III Limited,
NextEnergy Solar Holdings IV Limited and NextEnergy Solar Holdings
V Limited, collectively the "HoldCos"). The HoldCos are also
investment entities and, as required under IFRS 10, value their
investments at Fair Value.
Under the definition of an investment entity, the entity should
satisfy all three of the following tests:
-- obtains funds from one or more investors for the purpose of
providing these investors with investment management services;
and
-- commits to its investors that its business purpose is to
invest funds solely for returns from capital appreciation;
investment income, or both (including having an exit strategy for
investments); and
-- measures and evaluates the performance of substantially all
of its investments on a fair value basis.
In assessing whether the Company meets the definition of an
investment entity set out in IFRS 10, the Directors note that:
-- the Company is an investment company that invests funds
obtained from multiple investors in a diversified portfolio of
solar energy infrastructure assets and related infrastructure
assets and has appointed the Investment Manager to manage the
Company's investments;
-- The Company's purpose is to invest funds for investment
income and potential capital appreciation and will exit its
investments at the end of their economic lives or when their
planning permissions or leasehold land interests expire (unless it
has repowered their sites) and may also exit investments earlier
for reasons of portfolio balance or profit; and
-- The Board evaluates the performance of the Company's
investments on a fair value basis as part of the quarterly
management accounts review and the Company values its investments
on a fair value basis twice a year for inclusion in its annual and
interim financial statements with the movement in the valuations
taken to the Income Statement and, therefore, is measured within
its earnings.
Taking these factors into account, the Directors are of the
opinion that the Company has all the typical characteristics of an
investment entity and meets the definition set out in IFRS 10.
The Directors believe the treatment outlined above provides the
most relevant information to investors.
e) Taxation
Under the current system of taxation in Guernsey, the Company is
exempt from paying taxes on income, profit or capital gains.
Therefore, income from investments in solar assets is not subject
to any tax in Guernsey, although the HoldCos and SPVs are subject
to tax in their country of incorporation.
f) Segmental Reporting
IFRS 8 Operating Segments requires a "management approach" under
which segment information is presented on the same basis as that
used for internal reporting purposes.
The Chief Operating Decision Maker, which is the Board, is of
the opinion that the Company is engaged in a single segment of
business, being investment in solar energy infrastructure assets
via its HoldCos and SPVs. Therefore, the financial information used
by the Chief Operating Decision Maker to allocate resources and
manage the Company presents the business as a single segment.
g) Dividends
Dividends to the Company's shareholders are recognised when they
become legally payable. In the case of interim dividends, this is
when paid.
h) Income
Income includes investment income from financial assets at fair
value through profit or loss, administrative service fee income,
interest income from Eurobonds and finance income.
Investment income, predominantly dividends received from
financial assets at fair value through profit or loss is recognised
in the Statement of Comprehensive Income within income when the
Company's right to receive payments is established.
Administrative service fee income and interest income from
Eurobonds is recognised in the Statement of Comprehensive Income
within income on an accruals basis.
Finance income comprises interest earned on cash held on
deposit. Finance income is recognised in the Statement of
Comprehensive Income within income on an accruals basis.
i) Expenses
All expenses are accounted for on an accruals basis.
j) Cash and Cash Equivalents
Cash and cash equivalents includes deposits held at call with
banks and other short-term deposits with original maturities of
three months or less.
k) Trade and Other Payables
Trade and other payables are initially recognised at fair value,
and subsequently re-measured at amortised cost using the effective
interest method where necessary.
l) Financial Instruments
Classification
The Company classifies its investments based on both the
Company's business model for managing these financial assets and
the contractual cash flow characteristics of the financial assets.
The portfolio of financial assets is managed and performance is
evaluated on a fair value basis. The Company is primarily focused
on fair value information and uses that information to assess the
assets' performance and to make decisions. The Company has not
taken the option to designate irrevocably any equity securities at
fair value through other comprehensive income.
Recognition, Derecognition and Measurement
Purchases and sales of investments are recognised on the trade
date, being the date on which the Company commits to purchase or
sell the investment. Financial assets at fair value through profit
or loss are initially recognised at fair value. Transaction costs
are expensed as incurred in the Statement of Comprehensive
Income.
Financial assets are derecognised when the rights to receive
cash flows from the investments have expired or the Company has
transferred substantially all risks and rewards of ownership.
Subsequent to initial recognition, all financial assets at fair
value through profit or loss are measured at fair value. Gains and
losses arising from changes in the fair value of investments are
presented in the Statement of Comprehensive Income within "Net
changes in fair value of investments" in the period in which they
arise.
Dividend income from financial assets at fair value through
profit or loss are recognised in the Statement of Comprehensive
Income within "Income" when the Company's right to receive payments
is established. Interest on debt securities at fair value through
profit or loss is recognised in the Statement of Comprehensive
Income on an accruals basis.
Fair Value Estimation
The fair value of financial assets that are not traded on an
active market is determined using valuation techniques. The
Company's investments have been valued on a look through basis
based on the discounted cash flows of the solar assets and the
residual value of net assets at the HoldCos level. These valuations
are reviewed regularly by the Investment Manager who reports to the
Board on a periodic basis. The Board considers the appropriateness
of the valuation model and inputs, as well as the valuation
result.
Fair value is the price that would be received from a sale of an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date, regardless of
whether that price is directly observable or estimated using other
valuation techniques. In estimating the fair value of an asset or
liability, the Company takes into account the characteristics of
the asset or liability if market participants would take those
characteristics into account when pricing the asset or liability at
the measurement date. Fair value for measurement and/or disclosure
purposes in these Financial Statements is determined on such a
basis.
In addition, for financial reporting purposes, fair value
measurements are categorised into Level 1, 2 or 3 based on the
degree to which inputs to the fair value measurements are
observable and the significance of the inputs to the fair value
measurement in its entirety which are described as follows:
-- Level 1 inputs are quoted prices in active markets for
identical assets or liabilities that the Company can access at the
measurement date;
-- Level 2 inputs are inputs, other than quoted prices included
within Level 1, that are observable for the asset or liability,
either directly or indirectly; and
-- Level 3 inputs are unobservable inputs for the asset or liability.
m) Ordinary Share Capital and Share Premium
Ordinary shares are classified as equity. Costs directly
attributable to the issue of new shares (that would have been
avoided if there had not been a new issue of new shares) are
written off against the value of the ordinary share premium.
Dividends paid on the ordinary shares are recognised in the
Statement of Changes in Equity.
n) Preference Shares
In accordance with International Accounting Standard 32,
preference shares are classified as liabilities and are held at
amortised cost. Dividends paid on the preference shares are
recognised in the Statement of Comprehensive Income as an interest
expense.
o) Trade and Other Receivables
Trade and other receivables are recognised initially at fair
value and subsequently measured at amortised cost. At each
reporting date, the Company shall measure the loss allowance on
trade and other receivables at an amount equal to the lifetime
expected credit losses if the credit risk has increased
significantly since initial recognition. If, at the reporting date,
the credit risk had not increased significantly since initial
recognition, the Company shall measure the loss allowance at an
amount equal to 12-month expected credit losses. Significant
financial difficulties of the counterparty, probability that the
counterparty will enter bankruptcy or financial reorganisation and
default in payments are all considered indicators that a loss
allowance may be required.
p) Offsetting Financial Instruments
Financial assets and liabilities are offset and the net amount
reported in the Statement of Financial Position when there is a
legally enforceable right to offset the recognised amounts and
there is an intention to settle on a net basis or realise the asset
and settle the liability simultaneously. The legally enforceable
right must not be contingent on future events and must be
enforceable in the normal course of business and in the event of
default, insolvency or bankruptcy of the company or the
counterparty.
3. New and Revised Standards
a) New and Revised IFRSs Adopted by the Company
The Directors have assessed all new standards and amendments to
standards and interpretations which are effective for annual
periods commencing on or after 1 April 2020 and noted no material
impact on the Company.
b) New and revised IFRSs in Issue but not yet Effective
The Directors have considered new standards and amendments to
standards and interpretations in issue and effective for annual
periods commencing after 1 April 2021 and do not expect that their
adoption will result in a material impact on the financial
statements of the Company in future periods.
4. Critical Accounting Estimates and Judgements
The Company makes estimates and assumptions that affect the
reported amounts of assets and liabilities. Estimates and
judgements are continually evaluated and based on historic
experience and other factors believed to be reasonable under the
circumstances.
a) Critical Accounting Estimate: Investments at Fair Value
Through Profit or Loss
The Company's investments are measured at fair value for
financial reporting purposes. The Board has appointed the
Investment Manager to produce investment valuations based on
projected future cash flows. These valuations are reviewed and
approved by the Board. The investments are held through SPVs.
IFRS 13 establishes a single source of guidance for fair value
measurements and disclosures about fair value measurements. Fair
value is defined as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The Board
bases the fair value of the investments on the information received
from the Investment Manager. The Board did engage a third party
review of the valuation process during the year.
The Company classified its investments at fair value through
profit or loss as level 3 within the fair value hierarchy. Level 3
investments amount to GBP769.6m (2020: GBP753.6m) and consist of 94
(2020: 90) investments in solar PV plants (held indirectly through
the HoldCos), all of which have been valued on a look through basis
based on the discounted cash flows of the solar assets (except for
those solar assets not yet operational) and the residual value of
net assets at the HoldCos level.
The discount rate is a significant Level 3 input and a change in
the discount applied could have a material effect on the value of
the investments. Investments in solar assets that are not yet
operational are held at fair value, where the cost of the
investment is used as an appropriate approximation of fair value.
Level 3 valuations are reviewed regularly by the Investment Manager
who reports to the Board on a periodic basis. The Board considers
the appropriateness of the valuation model and inputs, as well as
the valuation result.
Information about the unobservable inputs used at 31 March 2021
in measuring financial instruments categorised as Level 3 in the
fair value hierarchy and their sensitivities are disclosed in note
20. Unlisted investments reconcile to the "Total investments at
fair value" in the table in note 17.
b) Significant Judgement: Consolidation of Entities
The Company, under the investment entity exemption rule, holds
its investments at fair value. The Company meets the definition of
an investment entity per IFRS 10 as detailed in note 2d).
The Company does not have any other subsidiaries other than
those determined to be controlled subsidiary investments.
Controlled subsidiary investments are measured at fair value
through profit or loss and are not consolidated in accordance with
IFRS 10. The fair value of controlled subsidiary investments is
determined as described in note 17.
The Company and the HoldCos operate as an integrated structure
whereby the Company invests solely in the HoldCos. Under IFRS 10,
there is a requirement for the Board to assess whether the HoldCos
are themselves investment entities. The Board has performed this
assessment and concluded that each of the HoldCos is an investment
entity for the following reasons:
-- the HoldCos have obtained funds for the purpose of investing
in equity or other similar interests in multiple investments and
providing the Company (and its investors) with investment income;
and
-- the performance of investments made through the HoldCos are
measured and evaluated on a fair value basis.
Furthermore, the HoldCos themselves are not deemed to be
operating entities providing services to the Company and,
therefore, are able to apply the exemption to consolidation.
5. Management Fees
The Investment Manager is entitled to receive an annual fee,
accruing daily and calculated on a sliding scale, as follows
below:
-- 1% of NAV up to GBP200m;
-- 0.9% of NAV above GBP200m and up to and including GBP300m; and
-- 0.8% of NAV above GBP300m.
For the year ended 31 March 2021 the Company incurred GBP5.2m in
management fees, of which GBPnil was outstanding at 31 March 2021.
(2020: GBP5.6m in management fees of which nil was outstanding at
31 March 2020).
6. Administration Fees
Under an Administration Agreement, for the year ended 31 March
2021 the Administrator was entitled to receive a minimum annual
fee, accruing daily and calculated on a sliding scale, as
follows:
-- 0.06% of NAV up to GBP150m;
-- 0.03% of NAV above GBP150m and up to and including GBP200m; and
-- 0.025% of NAV above GBP200m.
Pursuant to an amendment to the Administration Agreement, the
administration fee was changed to a fixed fee of GBP220k per annum
with effect from 1 October 2020. With effect from 1 January 2022,
the fixed fee will increase annually in line with the annual
increase in Guernsey RPI.
For periods up to 31 March 2021, the Administrator was also
entitled to additional fees for attendance at ad hoc Board and
Board Committee meetings.
For the year ended 31 March 2021 the Administrator was entitled
to administration fees of GBP237k (2020: GBP274k), of which GBP57k
was outstanding at 31 March 2021 (2020: GBP70k).
The fee is payable quarterly in arrears.
7. Directors' Fees
The Directors are all non-executive and their remuneration is
solely in the form of fees. The Directors' fees for the year were
GBP253k (2020: GBP224k), of which GBPnil was outstanding at 31
March 2021 (2020: GBPnil).
8. Audit Fees
The analysis of the auditor's remuneration is as follows:
31 March 31 March
2021 2020
GBP'000 GBP'000
Fees payable to the auditor for the audit of the Company 80 75
Additional audit fee and disbursements for prior year 30 24
Total 110 99
9. Other Expenses
31 March 31 March
2021 2020
GBP'000 GBP'000
Amortisation expense 139 109
Sundry expenses 2 2
Director's expenses 1 1
Total 142 112
10. Charitable Donation
During the year ended 31 March 2021, the Company made a
charitable donation of GBP80k to the NextEnergy Foundation (2020:
GBP50k). Information on the NextEnergy Foundation and how it used
the donation can be found in of the 2021 Annual Report, which, can
also be found on our website (nextenergysolarfund.com).
11. Trade and Other Receivables
31 March 31 March
2021 2020
GBP'000 GBP'000
Administrative service fee income receivable 759 252
Prepayments 29 22
Due from HoldCos 21,423 23,718
Total trade and other receivables 22,211 23,992
Amounts due from HoldCos are interest free and payable on
demand.
12. Trade and Other Payables
31 March 31 March
2021 2020
GBP'000 GBP'000
Other payables 142 184
Dividends payable - 6
Preference dividends payable 2,388 2,362
Due to HoldCos 21,423 23,718
Total trade and other payables 23,953 26,270
Amounts due to HoldCos are interest free and payable on
demand.
13. Share Capital and Reserves
a) Ordinary shares
The share capital of the Company comprises solely of ordinary
shares of no par value and preference shares of no par value.
Share
Number of Gross amount Issue costs premium
Ordinary shares issuance ordinary shares raised GBP'000 GBP'000 GBP'000
Total issued at 31 March 2020 584,205,931 610,454 (7,465) 602,989
Scrip Dividend - 30 June 2020 729,115 786 - 786
Scrip Dividend - 30 September 2020 809,483 855 - 855
Scrip Dividend - 31 December 2020 1,046,866 1,110 - 1,110
Scrip Dividend - 31 March 2021 196,283 198 - 198
Total issued at 31 March 2021 586,987,678 613,403 (7,465) 605,938
All the holders of the ordinary shares are entitled to receive
dividends as declared from time to time. At any general meeting of
the Company, each ordinary shareholder will have, on a show of
hands, one vote and, on a poll, one vote in respect of each
ordinary share held.
b) Preference shares
In accordance with International Accounting Standard 32, the
preference shares are classified as liabilities. Details of the
preference shares can be found in note 23a).
c) Retained reserves
Retained reserves comprise the retained earnings as detailed in
the Statement of Changes in Equity.
Under Guernsey law, the Company can pay dividends in excess of
its retained earnings provided it satisfies the solvency test
prescribed by the Companies (Guernsey) Law, 2008. The solvency test
considers whether the Company is able to pay its debts when they
fall due, and whether the value of the Company's assets is greater
than its liabilities. The Company satisfied the solvency test in
respect of all dividends declared or paid in the year.
14. Earnings per Ordinary Share
a) Basic
31 March 31 March
2021 2020
Profit/(loss)and comprehensive income/(loss)for the year (GBP'000) 40,224 (29,651)
Basic number of issued ordinary shares 585,423,190 582,993,198
Earnings per share basic 6.87p (5.09p)
b) Diluted
From 1 April 2036 the preference shares have the right to
convert, based on 100p per preference share and the NAV per
ordinary share at the time of conversion, into new ordinary shares
or a new class of unlisted B shares with dividend and capital
rights ranking pari passu with the ordinary shares.
31 March 31 March
2021 2020
Profit/(loss) and comprehensive income/(loss) for the year (GBP'000) 40,224 (29,651)
Plus: preference share dividends paid during the year (GBP'000) 9,526 7,789
Profit/(loss)for the year attributable to ordinary shareholders (GBP'000) 49,750 (21,862)
Basic weighted average number of issued ordinary shares 585,423,190 582,993,198
Plus: weighted number of ordinary shares issuable on any conversion of preference shares,
based on the NAV per ordinary share as at the year end 202,020,202 147,745,278
Adjusted weighted average number of ordinary shares 787,443,392 730,738,476
Earnings per share diluted 6.32p (5.09p) (1)
(1) The conversion to ordinary shares is only treated as
dilutive when their conversion would decrease earnings per share or
increase loss per share from continuing operations. The 2020
diluted earnings per share of (5.09p) reflects an update to the
previously reported amount of (2.99p).
15. Ordinary Share Dividends
a) Paid During the year
31 March 31 March
31 March 2021 31 March 2020
2021 Pence per 2020 Pence per
GBP'000 share GBP'000 share
Quarter 1 10,034 1.7175 9,671 1.6625
Quarter 2 10,310 1.7625 10,003 1.7175
Quarter 3 10,324 1.7625 10,023 1.7175
Quarter 4 10,343 1.7625 10,034 1.7175
Total 41,011 7.005 39,731 6.8150
b) Declared in Respect of the year
31 March 31 March
31 March 2021 31 March 2020
2021 Pence per 2020 Pence per
GBP'000 share GBP'000 share
Quarter 1 10,310 1.7625 10,003 1.7175
Quarter 2 10,324 1.7625 10,023 1.7175
Quarter 3 10,343 1.7625 10,034 1.7175
Quarter 4 10,346 1.7625 10,034 1.7175
Total 41,323 7.0500 40,094 6.8700
16. Net Assets per Ordinary Share
31 March 31 March
2021 2020
Ordinary shareholders' equity (GBP'000) 580,791 578,629
Number of issued ordinary shares 586,987,678 584,205,931
Net assets per ordinary share 98.9p 99.0p
17. Investments at Fair Value Through Profit or Loss
The Company owns its portfolio of solar assets through its
investments in the HoldCos. The Company's investments comprise its
portfolio of solar assets and the residual net assets of the
HoldCos. As explained in note 4a), all of the Company's investments
are held at fair value through pro fi t or loss and classi fi ed as
Level 3 in the fair value hierarchy. There were no movements
between the hierarchy Levels during the year ended 31 March 2021
(2020: none).
The Company's total investments at fair value are recorded under
"Non-current assets" in the Statement of Financial Position.
31 March 31 March
2021 2020
GBP'000 GBP'000
Brought forward cost of investments 795,989 689,478
Investment proceeds from HoldCos (9,546) -
Investment payments to HoldCos 29,051 106,511
Additions - acquisition of Eurobonds (1) - 125,000
Disposal - de-recognition of loans (1) - (125,000)
Carried forward cost of investments 815,494 795,989
Brought forward unrealised (losses)/gains
on valuation (42,429) 33,285
Movement in unrealised (losses)/gains on valuation (3,421) (75,714)
Carried forward unrealised losses on valuation (45,850) (42,429)
Total investments at fair value 769,644 753,560
(1) Non-cash transactions: On 18 September 2019, NESH III issued
Eurobonds listed on The International Stock Exchange totaling
GBP125m. The Eurobonds were put in place to ensure optimum tax
planning within the Company and replaced certain debt facilities
between the Company and NESH III which were repaid.
To facilitate the acquisition of the Camden portfolio, GBP35.2m
was drawn down at subsidiary level, remitted to the Company before
being returned to a subsidiary to facilitate the purchase.
The total change in the value of the investments in the HoldCos
is recorded through profit and loss in the Statement of
Comprehensive Income. Information about the principal unobservable
inputs used in valuing the Company's investments and their
sensitivities is included in note 19.
18. Subsidiaries
The Company holds investments through subsidiary companies (the
HoldCos) which have not been consolidated as a result of the
adoption of IFRS 10: Investment entities exemption to
consolidation. As stated in note 4c), the HoldCos are incorporated
in the UK and 100% directly owned. There are no cross guarantees
amongst Group entities. Below is the legal entity name for the
SPVs, all owned 100% at 31 March 2021 directly or indirectly
through the HoldCos listed below.
Country
Country of of
Name incorporation Name incorporation
NextEnergy Solar Holdings
Limited UK
North Farm Solar Park
BL Solar 2 Limited UK Limited UK
Bowerhouse Solar Limited UK Push Energy (Birch) Limited UK
Push Energy (Boxted Airfield)
Ellough Solar 2 Limited UK Limited UK
Push Energy (Croydon)
Glebe Farm SPV Limited UK Limited UK
Glorious Energy Limited UK Push Energy (Decoy) Limited UK
Push Energy (Hall Farm)
Greenfields (A) Limited UK Limited UK
Push Energy (Langenhoe)
NESF-Ellough Ltd UK Limited UK
SSB Condover Limited
Nextpower Ellough LLP UK [(Condover)] UK
Nextpower Gover Farm ST Solarinvest Devon
Limited UK 1 Limited UK
Nextpower Higher Hatherleigh UK Sunglow Power Limited UK
Nextpower Shacks Barn Wellingborough Solar
Ltd UK Limited UK
NextEnergy Solar Holdings
II Limited UK
ESF Llwyndu Limited UK Trowbridge PV Ltd UK
NextEnergy Solar Holdings
III Limited UK
Burcroft Solar Parks
Balhearty Solar Limited UK Ltd UK
Burrowton Farm Solar
Ballygarvey Solar Ltd UK Park Ltd UK
Chilton Cantello Solar
BESS Pierces Ltd UK Park Ltd UK
Crossways Solar Park
Birch Solar Farm CIC UK Ltd UK
Blenches Mill Farm Solar
Park Ltd UK Empyreal Energy Limited UK
Brafield Solar Limited UK Fiskerton Limited UK
Nextpower Water Projects
Francis Lane Solar Limited UK Ltd UK
Gourton Hall Solar Limited UK NextZest Ltd UK
Greenfields (T) Limited UK PF Solar Limited UK
Raglington Farm Solar
Helios Solar 1 Limited UK Park Ltd UK
Renewable Energy HoldCo
Helios Solar 2 Limited UK Ltd UK
Hook Valley Farm Solar
Park Ltd UK RRAM (Portfolio 2) Ltd UK
Knockworthy Solar Park RRAM (Portfolio One)
Ltd UK Ltd UK
Lark Energy Bilsthorpe
Ltd UK RRAM Energy Limited UK
Saundercroft Farm Solar
Le Solar 51 Limited UK Park Ltd UK
Little Irchester Solar
Limited UK SL Solar Services Ltd UK
Micro Renewables Domestic
Ltd UK Sywell Solar Limited UK
Micro Renewables Ltd UK Tau Solar Limited UK
Temple Normanton Solar
Moss Farm Solar Limited UK Limited UK
NESH 3 Portfolio A Limited UK TGC Solar Radbrook Ltd UK
Nextpower Bosworth Ltd UK Thornborough Solar Limited UK
Nextpower Grange UK Nextpower South Lowfields UK
Nextpower Higher Farm Thurlestone-Leicester
Ltd UK Solar Limited UK
NextPower High Garrett UK Solar (Fiskerton)
Ltd UK LLP UK
Wheb European Solar (UK)
Nextpower Hops Energy UK 2 Ltd UK
Wheb European Solar (UK)
Nextpower SPV 4 Ltd UK 3 Ltd UK
Whitley Solar Park (Ashcott
Nextpower SPV 6 Ltd UK Farm) Ltd UK
Nextpower SPV 10 Ltd UK Wickfield Solar Ltd UK
NextEnergy Solar Holdings
IV Limited UK Wyld Meadow Farm UK
Berwick Solar Park Limited UK
Bottom Plain Solar Park
Limited UK
Branston Solar Park
Limited UK Emberton Solar Park Limited UK
NextEnergy Solar Holdings Great Wilbraham Solar
V Limited UK Park Limited UK
Agrosei S.r.l Italy Nextpower Radius Limited UK
Fotostar 6 S.r.l Italy
Macchia Rotonda Solar
S.r.l Italy Starquattro S.r.l Italy
NextEnergy Solar Holdings
VI Limited UK SunEdison Med. 6 S.r.l Italy
Bowden Lane Solar Park
Ltd UK
Fenland Renewables Limited UK
Green End Renewables
Limited UK
Tower Hill Farm Renewables
Limited UK
19. Fair Value of Investment in Unconsolidated Subsidiaries
a) Valuation process
The valuation process is described in note 4a).
The Directors and the Investment Manager consider that the
discounted cash flow methodology used in deriving the fair value of
investments in operating solar plants is in accordance with the
fair value requirements of IFRS 13 and that the valuation
methodology used, including the key estimates and assumptions
applied, is appropriate.
Investments in assets that are not yet operational are also held
at fair value, where the cost of the investment is used as an
appropriate approximation of fair value. These investments are not
included in the sensitivity analyses in note 19b).
b) Sensitivity Analyses of Changes in Significant Unobservable
Inputs to the Discounted Cash Flow Calculation
Most of the Company's investments are valued using the
discounted cash flow methodology. Information on this methodology
is included in note 4a). The Directors consider the following to be
signi fi cant unobservable inputs to the discounted cash flows
calculation on a look through basis.
Discount rates
Discount rates used in the valuation of the Company's
investments represent the Investment Adviser's and Board's
assessment of the rate of return in the market for assets with
similar characteristics and risk profile.
31 March 31 March
2021 2020
Weighted average discount rate 6.3% 6.8%
Range of discount rates (unlevered to levered) 5.75% to 7.25% 6.25% to 7.75%
Premium applied to cash flows earned 30 years after grid connection date 1.0% 1.0%
The table below shows the sensitivity of the portfolio valuation
to a change to the weighted average discount rate by plus or minus
0.5%, with all other variables held constant.
Discount rate sensitivity +0.5% change Investments -0.5% change
31 March 2021
Directors' valuation (GBP20.6m) GBP769.6m GBP22.3m
Directors' valuation - percentage movement (3.4%) 3.7%
Change in NAV per ordinary share (3.5p) 3.8p
31 March 2020
Directors' valuation (GBP18.3m) GBP753.6m GBP19.7m
Directors' valuation - percentage movement (3.3%) 3.5%
Change in NAV per ordinary share (3.1p) 3.4p
Power price
As at 31 March 2021, estimates implied an average rate of growth
of UK electricity prices (2021-2041) of approximately 0.1% (2020:
1%) in real terms and a long-term inflation rate of 3.0% (2020:
3.0%).
The impact of Covid-19 on 2020 power prices was seen to reverse
during 2021 and the blended average of the "central case" scenarios
has been applied to the valuation.
The table below shows the sensitivity of the portfolio valuation
to a sustained decrease or increase in the power price by minus or
plus 10% on the valuation, with all other variables held
constant.
Power price sensitivity -10% change Investments +10% change
31 March 2021
Directors' valuation (GBP42.2m) GBP769.6m GBP40.9m
Directors' valuation - percentage movement (6.9%) 6.7%
Change in NAV per ordinary share (7.2p) 7.0p
31 March 2020
Directors' valuation (GBP40.7m) GBP753.6m GBP39.8m
Directors' valuation - percentage movement (7.3%) 7.1%
Change in NAV per ordinary share (7.0p) 6.8p
Energy generation
The portfolios aggregate energy generation yield depends on the
combination of solar irradiation and technical performance of the
solar assets. The table below shows the sensitivity of the
portfolio valuation to a sustained decrease or increase of energy
generation by minus or plus 5% on the valuation, with all other
variables held constant.
-5% +5%
Energy generation sensitivity underperformance Investments outperformance
31 March 2021
Directors' valuation (GBP40.4m) GBP769.6m GBP39.6m
Directors' valuation - percentage movement (6.6%) 6.5%
Change in NAV per ordinary share (6.9p) 6.8p
31 March 2020
Directors' valuation (GBP40.7m) GBP753.6m GBP39.8m
Directors' valuation - percentage movement (7.4%) 7.2%
Change in NAV per ordinary share (7.0p) 6.8p
Inflation rates
The portfolio valuation assumes long-term inflation of 3.0%
(2020: 3.0%) p.a. for investments (based on UK RPI).
The table below shows the sensitivity of the portfolio valuation
to a change to the inflation rate by minus or plus 0.5%, with all
other variables held constant.
Inflation rate sensitivity +0.5% change Investments -0.5% change
31 March 2021
Directors' valuation (GBP30.6m) GBP769.6m GBP28.8m
Directors' valuation - percentage movement (4.7%) 5.0%
Change in NAV per ordinary share (4.9p) 5.3p
31 March 2020
Directors' valuation (GBP26.4m) GBP753.6m GBP28.2m
Directors' valuation - percentage movement (4.7%) 5.1%
Change in NAV per ordinary share (4.5p) 4.8p
Operating costs
The table below shows the sensitivity of the portfolio to
changes in operating costs by plus or minus 10% at the SPVs level,
with all other variables held constant.
Operating costs sensitivity +10% change Investments -10% change
31 March 2021
Directors' valuation (GBP11.9m) GBP769.6m GBP11.8m
Directors' valuation - percentage movement (2.0%) 1.9%
Change in NAV per ordinary share (2.0p) 2.0p
31 March 2020
Directors' valuation (GBP12.3m) GBP753.6m GBP11.7m
Directors' valuation - percentage movement (2.2%) 2.1%
Change in NAV per ordinary share (2.1p) 2.0p
Tax rates
The UK corporation tax rate used in the portfolio valuation is
19% until 2023 and 25% thereafter (2020: 19%), in accordance with
the latest UK Budget announcements.
20. Non-investment Financial Assets and Liabilities
Cash and cash equivalents are Level 1 items in the fair value
hierarchy.
Current assets and current liabilities are Level 2 items in the
fair value hierarchy, with their carrying value being approximates
for their fair values as these are short-term items.
The preference shares are held at amortised cost using the
effective interest method and are measured at gross proceeds net of
transaction costs incurred, as at 31 March 2021 they are held as
GBP197.9m (2020: GBP197.8m). The carrying value of the preference
shares approximate their fair value as at 31 March 2021. The
transaction costs are amortised over the expected life of the
preference shares to 2036.
21. Capital Management
a) Capital structure
The NESF Group, which comprises the Company and its
unconsolidated subsidiaries (being the HoldCos and SPVs), manages
its capital to ensure that it will be able to continue as a going
concern whilst maximising the return to ordinary shareholders
through the optimisation of the debt and equity balances. The NESF
Group's principal use of cash has been to fund investments in
accordance with the Company's Investment Policy as well as ongoing
operational expenses.
The capital structure of the Company consists entirely of equity
(comprising issued ordinary share capital and retained earnings)
and preference share capital (which, for accounting purposes, are
treated as a liability). The capital structure of each of the
Company's subsidiaries consists entirely of equity or a combination
of equity and debt, which may be short or long-term. The Board,
with the assistance of the Investment Adviser, monitors and reviews
the NESF Group's capital structure on an ongoing basis.
b) Debt
The Company's Investment Adviser reviews the debt structure of
the Company and its subsidiaries on an ongoing basis. The Company
and its subsidiaries use leverage for financing the acquisition of
solar investments and working capital purposes. In accordance with
the Company's Investment Policy, the NESF Group may employ
leverage, provided that it does not exceed (at the time the
relevant arrangement is entered into) 50% of GAV. For this purpose,
leverage includes all short and long-term debt raised by the
Company or any of its HoldCos or SPVs, as well as the aggregate
subscription monies paid in respect of all preference shares in
issue and any unpaid dividends due in respect of the preference
shares.
As at 31 March 2021, the Company had GBP200m of preference
shares in issue (2020: GBP200m) and no financial debt outstanding
and the HoldCos had GBP246.3m in long-term debt and revolving
credit facilities outstanding (2020: GBP214.3m) (see note 23b)),
representing a gearing level of 43% (2020: 42%).
22. Financial Risk Management Objectives
The Board, with the assistance of the Investment Manager and
Investment Adviser, monitors and manages the financial risks
relating to the operations of the NESF Group through an internal
risk map and the Investment Manager's reports. These risks include
capital risk, market risk (including price risk, power price risk,
currency risk and interest rate risk), credit risk and liquidity
risk. The objective of the risk management programme is to minimise
the potential adverse effects on the financial performance of the
NESF Group.
For the Company and its subsidiaries, financial risks are
managed by the Investment Manager and Investment Adviser, which
operate within Board-approved policies. The various types of
financial risk which affect the Company, its subsidiaries or both
are managed as described below. Risks that affect the Company's
unconsolidated subsidiaries may affect in turn the fair value of
investments held by the Company
a) Capital risk (Company only)
The Company has put in place a financing structure that enables
it to manage its capital effectively. The Company's capital
structure comprises equity (issued ordinary share capital and
retained earnings) and preference share capital. As at 31 March
2021 the Company had no recourse financial debt, although the
Company is a guarantor for two financing and hedging facilities of
its subsidiaries (see note 25).
b) Market Price Risk (Company and subsidiaries)
Market price risk is the risk that the fair value of future cash
flows of a financial instrument held by the Company, through its
subsidiaries, will fluctuate because of changes in market prices.
Changes in market prices will affect the discount rate applied to
the expected future cash flows from the Company's investments and,
therefore, the fair value of those investments. The impact of
changes in the discount rate is considered in note 19b).
Power price risk (Company and subsidiaries)
The wholesale market price of electricity is volatile and is
affected by multiple factors, including demand for electricity, the
generation across the entire grid and government subsidies, as well
as fluctuations in the market prices of fuel commodities and
foreign exchange. Whilst some of the Company's investments benefit
from subsidies and short-term PPA hedges that fix prices, other
revenue streams are not hedged and subject to wholesale electricity
prices.
A decrease in economic activity in the UK or Italy, as during
the Covid-19 period, could result in a decrease in demand for
electricity in the market. Short-term and seasonal fluctuations in
electricity demand could also impact the price at which the
subsidiaries can sell electricity. Supply of electricity can be
affected by new entrants to the wholesale power market.
The Investment Adviser monitors these factors and hedges the
price at which the subsidiaries sell electricity as necessary.
Currency risk (Company and NESH V)
Foreign currency risk, as de fi ned in IFRS 7, arises as the
values of recognised monetary assets and monetary liabilities
denominated in other currencies fl uctuate due to changes in
foreign exchange rates. The Company has no direct exposure to
currency risk as all its assets and liabilities are in pounds
sterling, the Company's functional and presentational currency. A
substantial majority of the cash fl ows from the Company's solar
assets in Italy to NESH V are hedged and so the cash fl ows to the
Company from that HoldCo are exposed to limited currency risk and
therefore the currency risk on the value of the assets is not
considered to be signi fi cant.
Interest rate risk (Company and subsidiaries)
The Company is indirectly exposed to interest rate risk from the
credit facilities of the HoldCos, as at 31 March 2021 of the
GBP246.3m (2020: GBP214.3m) credit facilities outstanding,
GBP119.6m (2020: GBP123.2m} had fixed interest rates and the
remaining GBP126.7m (2020: GBP91.1m) had floating interest rates.
For the floating amount, interest rate swaps were implemented over
the term of the loans to mitigate interest rate risks for GBP72.6m
(2020: GBP72.6m). The counterparties to these swaps are all
Investment grade financial institutions. The remaining GBP54.1m
(2020: GBP18.5m) had floating rates which are not hedged and are
not considered by the Directors to be significant.
c) Credit risk (Company and subsidiaries)
Credit risk is the risk that a counterparty will default on its
contractual obligations resulting in a financial loss to the
Company or the subsidiary that is a party to the contract. Credit
risk arises from cash and cash equivalents and derivative financial
instruments, as well as credit exposures to customers.
The Company and its subsidiaries mitigate their risk of cash and
derivative transactions by only transacting with major
international financial institutions with high credit ratings
assigned by international credit rating agencies. At the investment
level, the credit risk relating to significant counterparties is
reviewed on a regular basis, in conjunction with monitoring the
credit ratings issued by recognised credit rating agencies, and
potential adjustments to the discount rate are considered to
recognise changes to credit risk where applicable. The Directors
believe that the NESF Group is not significantly exposed to the
risk that the customers of its investments do not fulfil their
payment obligations because of the NESF Group's policy to invest in
jurisdictions and with customers with satisfactory credit
ratings.
The Company's maximum exposure to credit risk is the carrying
amounts of the respective financial assets set out below:
31 March 31 March
2021 2020
GBP'000 GBP'000
Cash and cash equivalents 10,809 25,128
Trade and other receivables 22,211 23,992
Debt investments 300,000 300,000
Total 333,020 349,120
Debt investments relate to Eurobonds which have been valued at
fair value as part of the Company's investments as disclosed in
note 17. No collateral is received from NESH III or NESH V in
relation to the Eurobonds. The credit quality of these investments
is based on the fi nancial performance of NESH III and NESH V as
well as the underlying investments they own. The risk of default is
deemed low and the principal repayments and interest payments are
expected to be made in accordance with the agreed terms and
conditions.
The Company does not have any signi fi cant credit risk exposure
to any single counterparty in relation to trade and other
receivables. In respect of the Company's subsidiaries, ongoing
credit evaluation is performed on the fi nancial condition of
accounts receivable. As 31 March 2021, the probability of default
of the Company's subsidiaries was considered low and so no
allowance has been recognised based on 12-month expected credit
loss as any impairment would be insigni fi cant to the subsidiary
(2020: none). The Investment Adviser has suf fi cient oversight of
the subsidiary's receivables to assess the probability of
default.
Details of the Company's cash and cash equivalent balances at
the year end are set out in the table below.
Credit rating
Standard & Cash
Poor's GBP'000
31 March 2021
Long - A
Barclays Bank PLC Short - A/A-1 5,809
Northern Trust Long - AA- Short - A-1+ 5,000
31 March 2020
Long - A
Barclays Bank PLC Short - A-1 25,128
d) Liquidity risk (Company and subsidiaries)
Liquidity risk is the risk that the NESF Group will not be able
to meet its fi nancial obligations as they fall due as a result of
the maturity of assets and liabilities not matching. The Board has
established an appropriate liquidity risk management framework for
the management of the NESF Group's short-, medium- and long-term
funding and liquidity management requirements. The Company and its
subsidiaries manage liquidity risk by monitoring forecast and
actual cash flows and matching the maturity pro fi les of assets
and liabilities and maintaining suf fi cient cash balances to meet
their operating needs.
The following table shows the maturity of the Company's
non-derivative financial assets and liabilities. The amounts
disclosed are contractual, undiscounted cash fl ows and may differ
from the actual cash fl ows received or paid in the future as a
result of early repayments.
Carrying Up to 3 to Greater than
amount 3 months 12 months 12 months
GBP'000 GBP'000 GBP'000 GBP'000
31 March 2021
Assets
Cash and cash equivalents 10,809 10,809 - -
Trade and other receivables 22,211 22,211 - -
Liabilities
Contractual preference shares
repayment and dividends
payable (1) (192,896) (2,388) - (342,508)
Trade and other payables (23,953) (23,953) - -
31 March 2020
Assets
Cash and cash equivalents 25,128 25,128 - -
Trade and other receivables 23,992 274 - 23,718
Liabilities
Contractual preference shares
repayment and dividends
payable (1) (202,368) (2,368) - (352,000)
Trade and other payables (23,902) (184) - (23,718)
(1) Assumes no conversion of preference shares in 2036.
23. Preference Shares and Revolving Credit and Debt
Facilities
a) Preference shares
On each of 12 November 2018 and 12 August 2019, the Company
issued 100,000,000 preference shares at a price of 100p per
preference share. The preference shares pay a preferred dividend of
4.75% p.a. until March 2036, after which they have the right to
convert, based on 100p per preference share and the NAV per
ordinary share at the time of conversion, into new ordinary shares
or a new class of unlisted B shares with dividend and capital
rights ranking pari passu with the ordinary shares. The preference
shares do not confer any voting rights, except in limited
circumstances.
The preference shares are redeemable at the option of the
Company at any time after 1 April 2030, in full or in part. The
redemption price will be the subscription price plus any unpaid
dividends. In addition, the preference shares may be redeemed in
full at the option of the holders in the event of a delisting or
change of control of the Company.
Opening Amortisation Carry Amount
GBP'000 GBP'000 GBP'000
31 March 2021
Preference shares 197,781 139 197,920
31 March 2020
Preference shares (1) 99,022 109 197,781
(1) Additional GBP100m preference shares issued within the
financial year ended 31 March 2020.
b) Revolving credit and debt facilities
The Company's HoldCos have revolving credit and debt facilities
which are factored into the calculation of the fair value of the
underlying investments.
In January 2017, NESH closed a syndicated loan with MIDIS, NAB
and CBA for GBP157.5m ("Project Apollo") to refinance its revolving
credit facility. As part of the facility agreement, the lenders
provide an additional Debt Service Reserve Facility of GBP7.5m and
hold a charge over the assets of NESH. As at 31 March 2021, the
outstanding amount was GBP150.3m (2020 GBP150.8m).
In July 2015, NESH II agreed a loan with NIBC for GBP22.7m. In
July 2016, GBP1.0m was repaid and in March 2018, the remaining
balance was repaid. At the same time as the repayment the
short-term facility was converted into a new GBP20.0m in revolving
credit facility. As at 31 March 2021, the outstanding amount was
GBPnil (2020 GBPnil).
In March 2016, NESH IV agreed the purchase of Project Radius.
The acquisition was part funded by a debt facility entered between
NESH IV and Macquarie Bank Limited for GBP55.0m, which was fully
drawn down in April 2016. As part of the debt facility agreement
Macquarie Bank Limited holds a charge over the assets of NESH IV.
As at 31 March 2021, the outstanding amount was GBP48.7m (2020
GBP51.3m).
In July 2018, NESH IV closed a RCF with Santander for GBP40.0m
which was subsequently fully drawn down. In January 2019, the
facility was increased to a total commitment of GBP70.0m with a
subsequent GBP30.0m drawdown. In August 2019, GBP56.0m was repaid.
In February 2021 GBP35.2m was drawn down. As at 31 March 2021, the
outstanding amount was GBP54.1m (2020 GBP18.5m).
24. Reconciliation of Financing Activities
Net income Non-cash Carry
Opening Cash flows allocation flows Amount
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
31 March 2021
Share capital and premium 602,989 - - 2,949 605,938
Preference shares (1) 197,781 - - 139 197,920
Retained earnings (24,360) (38,062) 40,224 (2,949) (25,147)
Total 776,410 (38,062) 40,224 139 778,711
31 March 2020
Share capital and premium 600,029 - - 2,960 602,989
Preference shares (1) 99,022 98,650 - 109 197,781
Retained earnings 45,022 (36,771) (29,651) (2,960) (24,360)
Total 744,073 61,879 (29,651) 109 776,410
(1) Additional GBP100m preference shares issued within the
financial year ended 31 March 2020.
25. Commitments and Guarantees
The Company had parental guarantees in place with two financial
institutions for its subsidiaries debt obligations and a currency
hedge transaction executed through subsidiaries.
On 19 November 2018, the Company entered into a
counter-indemnity deed with Banco Santander ("Santander") regarding
borrowings by NextPower Radius Limited. Under the terms of the deed
the Company may request Santander to issue a letter of credit for
no more than EUR2,275,150. As at 31 March 2021, no letters of
credit were in issue (2020: none).
On 1 December 2017, the Company provided a guarantee to Intesa
Sanpaolo S.p.A. ("ISP") relating to derivative transactions made
available to NESH V. The guarantee covers all present and future
obligations of NESH V to ISP relating to the derivative
transactions. As at 31 March 2021 the Company has no outstanding
commitments related to this guarantee (2020: none).
26. Related Parties
The Investment Manager, the Investment Adviser and the Asset
Manager are considered to be related parties in light of their
responsibilities in implementing the investment strategy set by the
Board of Directors and directing the activities of Group entities.
All management fee transactions with the Investment Manager are
disclosed in note 5.
There are no fee transactions between the Company and the
Investment Adviser.
Under existing arrangements with the Asset Manager, each of the
operating subsidiaries of the Company entered into an asset
management agreement with the Asset Manager and each of the HoldCos
entered into on accounting services agreement with the Asset
Manager. The total value of recurring and one-off services paid to
the Asset Manager by the subsidiaries during the year amounted to
GBP6.2m (2020: GBP5.9m).
As announced on 14 May 2020, two subsidy-free projects under
development, Strensham (40MW) and Llanwern (75MW), were sold to a
subsidiary of NextPower Development Ltd for a combined value of
GBP11.5m, resulting in NESF recovering all development costs
incurred. The transaction resulted in a net IRR (after NESF's
transaction costs) significantly in excess of NESF's annualised
target return for UK assets. As announced on 23 March 2021, a
further 16 development projects (not in construction or in
operation) from its subsidy-free pipeline, were also sold to
NextPower Development Ltd for a combined value of GBP5.6m. These
two transactions constitute smaller related party transactions as
set out in the FCA's Listing Rule 11.1.10R.
At 31 March 2021, GBP21.4m (2021: GBP23.7m) was owed to and from
the subsidiaries in relation to their restructuring. GBP9.1m of
administrative service fees were received from the subsidiaries
during the year (2020: GBP8.7m), none of which was outstanding at
31 March 2021 (2020: GBPnil). During the period, dividends of
GBP38.9m (2020: GBP42.9m) were received from the subsidiaries.
The Directors' fees for the year ended 31 March 2021 amounted to
GBP253,000 (2020: GBP224,000).
27. Controlling Party
In the opinion of the Directors, on the basis of shareholdings
disclosed to them, the Company has no immediate nor ultimate
controlling party.
28. Events After the Balance Sheet Date
On 13 May 2021, the Directors approved a dividend of 1.7625
pence per ordinary share for the quarter ended 31 March 2021 to be
paid on 30 June 2021 to ordinary shareholders on the register as at
the close of business on 21 May 2021.
Additional Information
Alternative Performance Measures ("APMs")
We assess our performance using a variety of measures that are
not specifically defined under IFRS and are therefore termed APMs.
The APMs that we use may not be directly comparable with those used
by other companies. Our APMs, which are shown below, are used to
present a clearer picture of how the Company has performed over the
period/year and are all financial measures of historical
performance.
Asset Management Alpha
Asset Management Alpha measures the operating performance of the
portfolio. It is the performance of the portfolio relative to
budget due to effective management and excludes the effect of
variation in solar irradiation.
31 March 31 March
2021 2020
% %
Delta of generation vs. budget (A) 6.2 4.7
Delta of irradiation vs. budget (B) 5.5 4.0
Asset Management Alpha (A - B) 0.7 0.7
Invested Capital
Invested capital measures the capital deployed into solar assets
through the HoldCos and SPVs to generate investment returns for
shareholders.
31 March 31 March
2021 2020
GBP'000 GBP'000
Invested capital 998,809 949,831
Total Gearing
Total gearing measures the aggregate of the NESF Group's
financial debt and fair value of the preference shares relative to
GAV.
31 March 31 March
2021 2020
GBP'000 GBP'000
NESG Group's outstanding financial debt
(A) 246,300 214,299
Preference shares as per Statement of Financial
Position (B) 197,920 197,781
Net assets as per Statement of Financial
Position (C) 580,791 578,629
Total gearing ((A + B) / (A + B + C)),
expressed as a percentage) 43.3% 41.6%
Financial Debt Gearing
Financial debt gearing measures the aggregate of the NESF
Group's financial debt relative to GAV.
31 March 31 March
2021 2020
GBP'000 GBP'000
NESG Group's outstanding financial debt
(A) 246,300 214,299
Preference shares as per Statement of Financial
Position (B) 197,920 197,781
Net assets as per Statement of Financial
Position (C) 580,791 578,629
Financial debt gearing ((A) / (A + B +
C)), expressed as a percentage) 24.0% 21.6%
Cash Income
Cash income measures of the cash generated from the Company's
operations.
31 March 31 March
2021 2020
GBP'000 GBP'000
Income as per Statement of Comprehensive
Income (A) 59,996 61,192
Trade and other receivables - administrative
service fee income accrual at beginning
of year as per note 11 to Interim Financial
Statements (B) 252 249
Trade and other receivables - administrative
service fee income accrual at end of year
as per note 11 to Interim Financial Statements
(C) 758 252
Cash income (A + B - C) 59,490 61,189
Cash Dividend Cover (Pre-scrip Dividends)
Cash dividend cover (pre-scrip dividends) measures the cash
available to pay ordinary share dividends, treating all scrip
dividends as if they had been paid as cash dividends.
31 March 31 March
2021 2020
GBP'000 GBP'000
Cash Income as per the table above (A) 59,490 61,189
Total expenses as per Statement of Comprehensive
Income (B) 16,351 15,129
Pre-scrip ordinary dividends paid as per
Statement of Changes in Equity (C) 41,011 39,731
Cash dividend cover (pre-scrip dividends)
((A - B) / C) 1.1x 1.2x
Dividend Yield
Dividend yield is a measure of the return to the ordinary
shareholders.
31 March 31 March
2021 2020
Pence Pence
Dividend per ordinary share (A) 7.05 6.87
Ordinary share price at end of year (B) 99.6 101.5
Dividend yield (A / B, expressed as a percentage) 7.1% 6.8%
NAV per Ordinary Share
NAV per ordinary share is a measure of the value of one ordinary
share.
31 March 31 March
2021 2020
Pence Pence
Net assets as per Statement of Financial
Position (GBP,000) (A) 580,791 578,629
Number of ordinary shares in issue at year
end (B) 586,987,678 584,205,931
NAV per ordinary share ((A / B) x 1,000) 98.9p 99.0p
NAV Total Return per Ordinary Share
NAV total return per ordinary share is a measure of the overall
financial performance of the Company and measures the combined
effect of dividends paid together with the rise or fall in the
NAV.
31 March 31 March
2021 2020
Pence Pence
Basic NAV per ordinary share at year end
as per Statement of Financial Position (A) 98.9 99.0
Annual dividend per ordinary share declared
in respect of year (B) 7.05 6.87
Basic NAV per ordinary share at beginning
of year as per Statement of Financial Position
(C) 99.0 110.9
NAV total return per ordinary share ((A
+ B - C) / C, expressed as a percentage) 7.0% (4.5%)
Ordinary Shareholder Total Return
Ordinary shareholder total return is a measure of the overall
performance of the ordinary shares and measures the combined effect
of dividends paid together with the rise or fall in the share
price.
31 March 31 March
2021 2020
Pence Pence
Ordinary share price at year end (A) 99.6 101.5
Annual dividend per ordinary share declared/paid
in respect of year (B) 7.05 6.87
Ordinary share price at beginning of year
(C) 101.5 117.5
Ordinary shareholder total return per share
((A + B - C) / C, expressed as a percentage) 5.1% (7.8%)
Premium to NAV per Ordinary Share
Premium to NAV per ordinary share is a measure of the
performance of the ordinary share price relative to the NAV per
ordinary share.
31 March 31 March
2021 2020
Pence Pence
Ordinary share price at year end (A) 99.6 101.5
NAV per ordinary share at year end as per
Statement of Financial Position (B) 98.9 99.0
Premium to NAV per Ordinary Share ((A - B)
/ B, expressed as a percentage) 0.7% 2.5%
Ongoing Charges Ratio
Ongoing charges ratio measures the Company's recurring operating
costs (excluding costs incurred by the HoldCos and SPVs, interest
costs, preference share dividends and taxation) as a percentage of
the average of the net assets at the end of each of the last four
consecutive quarters ending at the year end.
31 March 31 March
2021 2020
GBP'000 GBP'000
Total expenses as per Statement of Comprehensive
Income (A) 16,351 15,129
Preference share dividends as per Statement
of Comprehensive Income (B) 9,526 7,789
Non-recurring expenses (C) 253 264
Average of quarterly net assets (D) 582,823 643,236
Ongoing charges ratio ((A - B - C) / D, expressed
as a percentage) 1.1% 1.1%
General Shareholder Information
Alternative Investment Fund Management Directive ("AIFMD")
The AIFMD aims to harmonise the regulation of Alternative
Investment Fund Managers ("AIFMs") and imposes obligations on
managers who manage or market Alternative Investment Funds ("AIFs")
in the EU or who market shares in such funds to EU investors.
The Company is a non-EU AIF and has appointed NextEnergy Capital
IM Limited as its non-EU AIFM. The Company's marketing activities
in the UK and the EU are subject to regulation under the AIFMD and
any applicable national private placement regimes ("NPPRs"). NPPRs
provide a mechanism to market non- EU AIFs that are not allowed to
be marketed under the AIFMD domestic marketing regimes. The Board
uses NPPRs to market the Company, specifically in the UK, the
Republic of Ireland, the Netherlands and Sweden.
In accordance with the AIFMD, information in relation to the
Company's leverage and remuneration of the Investment Manager, as
the Company's AIFM, are required to be made available to investors.
These disclosures, including those on the AIFM's remuneration
policy, are available on request from the Investment Manager.
Packaged Retail and Insurance-Based Investment Products
("PRIIPs") Regulation/Key Information Document ("KID")
The PRIIPs Regulation aims to ensure retail investors are
provided with transparent and consistent information across
different types of financial products.
The Company is a PRIIP. The PRIIPs Regulation requires the
Investment Manager to publish a KID in respect of the Company that
includes standardised illustrations of theoretical risk and
returns. The KID is available on the Company's website under
Investor Relations (www. nextenergysolarfund.com).
The Company is not responsible for the information contained in
the KID and investors should note that the procedures for
calculating the risks, costs and potential returns are prescribed
by law. The figures in the KID may not reflect the expected returns
for the Company and anticipated performance returns cannot be
guaranteed.
Foreign Account Tax Compliance Act ("FATCA")/ OECD Common
Reporting Standard ("CRS")
FATCA is a United States federal law enacted in 2010, the intent
of which is to enforce the requirement for United States persons
(including those living outside the US) to file yearly reports on
their non-US financial accounts. Developed and approved by the OECD
in 2014, the CRS is a global standard for the automatic exchange of
financial account information between governments around the world
to help fight against tax evasion and protect the integrity of
systems.
The Board, in conjunction with the Company's service providers
and advisers, will ensure the Company's compliance with the FATCA
and CRS requirements to the extent relevant to the Company.
Markets in Financial Instruments Directive II ("MiFID II")
Status
MiFID II requires retail investors in complex products to be
assessed for "knowledge and understanding" by distributing firms if
they are buying them without advice.
The Company's ordinary shares are considered as "non-complex" in
accordance with MiFID II.
Retail Distribution of the Company's Shares Via Financial
Advisers and Other Third-Party Promoters
The FCA's rules restrict the promotion of investment products
classified as "non-mainstream pooled investment products" to retail
investors. The restrictions do not apply to ordinary shares in a UK
investment trust or non--UK investment company which would qualify
for approval as an investment trust under section 1158 of the
Corporation Tax Act 2010 if resident and listed in the UK.
The Board has been advised that the Company would qualify as an
investment trust if it was resident in the UK. Accordingly, the
promotion and distribution of the Company's ordinary shares are not
subject to the FCA's restrictions referred to above.
The Company currently conducts its affairs so that its ordinary
shares can be recommended by financial advisers to retail investors
and intends to continue to do so for the foreseeable future.
ISA Status
NESF's ordinary shares are eligible for stocks and shares
ISAs.
The Company intends to continue to manage its affairs so that
its ordinary shares qualify as an eligible investment for a stocks
and shares ISA.
Net Asset Value per Ordinary Share
The NAV per ordinary share is calculated on a quarterly basis
and published through a stock exchange announcement.
Scrip Dividends
The Company offers a scrip dividend alternative to shareholders.
For further information, please see the scrip dividend alternative
circular for the year ending 31 March 2021, which is available
under "Publications" in the Investor Relations section of the
Company's website (nextenergysolarfund.com).
Additional Information
Copies of the Company's Annual and Interim Reports, quarterly
factsheets and stock exchange announcements, together with
information on the Company's ordinary share price, NAV per ordinary
share, historic ordinary share and NAV performance, together with
further information, is available on the Company's website
(nextenergysolarfund.com).
Financial Calendar for Year Ending 31 March 2022
Interim results announced November 2021
Annual results announced June 2022
Annual General Meeting August 2022
Interim dividends
In the absence of unforeseen circumstances, the Directors expect
to declare and pay the following interim dividends per ordinary
share in respect of the financial year ending 31 March 2022.
Announcement Ex-dividend Payment
Dividend date date date Amount
1st 13 Aug 21 22 Aug 21 30 Sep 21 1.79p
2nd 12 Nov 21 19 Nov 21 31 Dec 21 1.79p
3rd 11 Feb 22 18 Feb 22 31 Mar 22 1.79p
4th 13 May 22 20 May 22 30 June 22 1.79p
Cautionary Statement
This Annual Report and the Company's website may contain certain
"forward-looking statements" with respect to the Company's
financial condition, results of its operations and business, and
certain plans, strategies, objectives, goals and expectations with
respect to these items and the markets in which the Company
invests. Forward-looking statements are sometimes, but not always,
identified by their use of a date in the future or such words as
"aims", "anticipates", "believes", "estimates", "expects",
"intends", "targets", "objective", "could", "may", "should", "will"
or "would" or, in each case, their negative or other variations or
comparable terminology.
Forward-looking statements are not guarantees of future
performance. By their very nature forward-looking statements are
inherently unpredictable, speculative and involve risk and
uncertainty because they relate to events and depend on
circumstances that will occur in the future. Many of these
assumptions, risks and uncertainties relate to factors that are
beyond the Company's ability to control or estimate precisely.
There are a number of such factors that could cause the Company's
actual investment performance, results of operations, financial
condition, liquidity, dividend policy and financing strategy to
differ materially from those expressed or implied by these
forward-looking statements. These factors include, but are not
limited to: changes in the economies and markets in which the
Company operates; changes in the legal, regulatory and competition
frameworks in which the Company operates; changes in the markets
from which the Company raises finance; the impact of legal or other
proceedings against or which affect the Company; changes in
accounting practices and interpretation of accounting standards
under IFRS; and changes in power prices and interest and exchange
rates.
Any forward-looking statements made in this Annual Report or the
Company's website, or made subsequently, which are attributable to
the Company, or persons acting on its behalf (including the
Investment Manager and Investment Adviser), are expressly qualified
in their entirety by the factors referred to above. Each
forward-looking statement speaks only as of the date it is made.
Except as required by its legal or statutory obligations, the
Company does not intend to update any forward-looking
statements.
Nothing in this Annual Report or the Company's website should be
construed as a profit forecast or an invitation to deal in the
securities of the Company.
Glossary and Definitions
Administrator Apex Funds and Corporate Services (Guernsey)
Limited
AGM Annual General Meeting
AIC The Association of Investment Companies
AIC Code The AIC Code of Corporate Governance (February
2019)
AIFM Alternative Investment Fund Manager for the
purpose of the EU's Alternative Investment
Fund Management Directive
Asset Management Alpha The difference between (i) the delta of generation
vs. budget and (ii) the delta of irradiation
vs. budget
Apollo portfolio 21 UK solar plants held within NESH (see the
Operating Portfolio - Overview for further
details)
Asset Manager or WiseEnergy (Great Britain) Limited and WiseEnergy
WiseEnergy Italia Srl
Brexit The withdrawal of the United Kingdom from
the European Union
Cash dividend cover The ratio of the Company's cash income to
dividends paid or payable in respect of the
financial period/year
CBA Commonwealth Bank of Australia
Company or NESF NextEnergy Solar Fund Limited
Consultants The three independent market forecasters used
by the Company
CO (2) e or carbon A term for describing different greenhouse
dioxide equivalent gases in a common unit. For any quantity and
type of greenhouse gas, CO (2) e signifies
the amount of CO (2) which would have the
equivalent global warming impact
DNO Distribution Network Operators
EBITDA Earnings before interest, tax, depreciation
and amortisation
Embedded benefits Supplier costs that are reduced or avoided
via contracting with small-scale generation
connected at the distribution network level
instead of the national transmission system
EPC Engineering, Procurement and Construction
ESG Environmental, Social and Governance
FCA Financial Conduct Authority
FiT Feed-in-Tariff schemes are financial mechanisms
by which the UK Government incentivised the
deployment of small-scale renewable energy
generation and the Italian Government incentivised
the deployment of large-scale renewable energy
generation) by requiring participating licensed
electricity suppliers to make payments on
both generation and export from eligible installations
GAV Gross asset value, being the aggregate of
the net asset value of the ordinary shares,
the fair value of the preference shares and
the amount of NESF Group debt outstanding
GW A unit of power equal to 1,000 MW
GWh GW hour, being a measure of electricity generated
per hour
HoldCos Intermediate holding companies used by the
Company as pass-through vehicles to invest
in underlying solar energy infrastructure
assets, currently being NESH, NESH II, NESH
III, NESH IV, NESH V and NESH VI
IFRS International Financial Reporting Standards
Investment Adviser NextEnergy Capital Limited
or NEC
Investment Manager NextEnergy Capital IM Limited
IPO Initial Public Offering
IRR Internal Rate of Return
KPMG KPMG Channel Islands Limited, independent
auditor to the Company
KWh Kilowatt hour, being a measure of electricity
generated per hour
LIBOR London Interbank Offered Rate
MIDIS Macquarie Infrastructure Debt Investment Solutions
MW A Megawatt is unit of power equal to one million
watts and is used as a measure of the output
of a power plant
MWh MW hour, being a measure of electricity generated
per hour
NAB National Australia Bank
Net assets or NAV Net asset value
NAV total return The actual rate of return from dividends paid
and any increase or reduction in the NAV per
ordinary share over a given period of time
NEC or NEC Group The NextEnergy Capital group of companies,
including the Investment Manager, Investment
Adviser and Asset Manager
NESF Group The Company, HoldCos and SPVs
NESH NextEnergy Solar Holding Limited
NESH II NextEnergy Solar Holding II Limited
NESH III NextEnergy Solar Holding III Limited
NESH IV NextEnergy Solar Holding IV Limited
NESH V NextEnergy Solar Holding V Limited
NESH VI NextEnergy Solar Holding VI Limited
NIROC Like the ROCs in Great Britain, the Northern
Ireland Renewable Obligation Certificate scheme
obliges electricity suppliers to produce a
certain number of NIROCs for each MWh of electricity
which they supply to their customers in Northern
Ireland or to pay a buy-out fee that is proportionate
to any shortfall in the number of NIROCs being
so presented
O&M Operations and Maintenance
OECD Organisation for Economic Co-operation and
Development
OFGEM Office of Gas and Electricity Markets
Ongoing charges ratio The regular, recurring annual costs of running
the Company (excluding the costs of acquisition
or disposal of investments, financing charges
and gains or losses arising on investments),
expressed as a percentage of average net assets,
calculated in accordance with the AIC's methodology
Ordinary shareholder The actual rate of return from dividends paid
total return and any increase or reduction in the ordinary
share price over a given period of time
Ordinary shares The issued ordinary share capital of the Company
Performance ratio Describes the relationship between the actual
and theoretical energy outputs of a solar
plant (expressed as a percentage)
PPA Power purchase agreement
Premium/discount to The amount, expressed as a percentage, by
NAV which the Company's ordinary shares trade
above or below the NAV per ordinary share
Preference shares The issued preference share capital of the
Company
PV Photovoltaic
Radius portfolio Five UK solar plants held within NESH IV (see
the Operating Portfolio - Overview for further
details)
ROC Renewable Obligation Certificates (the Renewable
Obligation scheme is the financial mechanism
by which the UK Government incentivised the
deployment of large-scale renewable electricity
generation by placing a mandatory requirement
on licensed UK electricity suppliers to source
a specified and annually increasing proportion
of the electricity they supply to customers
from eligible renewable sources or pay a penalty)
ROC recycle The payment received by generators from the
redistribution of the buy-out fund (payments
are made into the buy-out fund when suppliers
do not have sufficient ROCs or NIROCs to cover
their obligation)
RPI Retail Price Index
RRAM portfolio 10 UK solar plants held in NESH III (see the
Operating Portfolio - Overview for further
details)
Scrip shares Ordinary shares issued pursuant to the Company's
scrip dividend alternative
SDG The Sustainable Development Goals are a set
of ambitious global developmental targets
adopted by the United Nations Member States
in 2015 to be achieved by 2030 and seek to
address the global challenges we face through
the promotion of development as a balance
of social, economic, and environmental sustainability
Solis portfolio Eight Italian solar plants held within NESH
V (see the Operating Portfolio - Overview
for further details)
SPVs Special purpose vehicles that hold the Company's
investment portfolio of underlying solar energy
infrastructure assets
Thirteen Kings portfolio 13 plants held in NESH III (see the Operating
Portfolio - Overview for further details)
Treasury shares Ordinary shares which are bought back by the
Company, reducing the number of outstanding
shares on the open market, and held by the
Company for resale at a future date
Wholesale revenue Revenue from energy sold in the wholesale
power market which is not connected with subsidy
schemes or PPAs
Corporate Information
The Company
NextEnergy Solar Fund Limited
Registered Office:
1 Royal Plaza
Royal Avenue
St Peter Port Guernsey GY1 2HL Registered no.: 57739
LEI: 213800ZPHCBDDSQH5447
Ordinary Share ISIN: GG00BJ0JVY01
Ordinary Share SEDOL: BJ0JVY0
London Stock Exchange Ticker: NESF
Website: www.nextenergysolarfund.com
Directors
Kevin Lyon, Chairman
Vic Holmes, Senior Independent Director Patrick Firth
Joanne Peacegood
(All non-executive and independent)
Investment Manager
NextEnergy Capital IM Limited
1 Royal Plaza
Royal Avenue
St Peter Port
Guernsey GY1 2HL
Investment Adviser
NextEnergy Capital Limited
20 Savile Row
London W1S 3PR
Company Secretary and Administrator
Apex Funds and Corporate Services (Guernsey) Limited
1 Royal Plaza
Royal Avenue
St Peter Port
Guernsey GY1 2HL
Independent Auditor
KPMG Channel Islands Limited
Glategny Court
Glategny Esplanade
St Peter Port
Guernsey GY1 1WR
Registrar
Link Market Services (Guernsey) Ltd
Mont Crevelt House
Bulwer Avenue
St Sampson
Guernsey GY2 4LH
Legal Advisers
As to UK Law
Stephenson Harwood LLP
1 Finsbury Square
London EC2M 7SH
As to Guernsey Law
Carey Olsen (Guernsey) LLP
PO Box 98, Carey House
Les Banques
St Peter Port
Guernsey GY1 4BZ
Mourant Ozannes
Royal Chambers
St Julian's Avenue
St Peter Port
Guernsey GY1 4HP
Sponsor and Joint Broker
Shore Capital and Corporate Ltd
Cassini House
57 St James's Street
London SW1A 1LD
Financial Adviser and Joint Broker
Cenkos Securities plc
6, 7, 8 Tokenhouse Yard London EC2R 7AS
Media and Public Relations Adviser
Camarco
107 Cheapside London EC2V 6DN
Principal Bankers
Barclays Bank plc
6/8 High Street St Peter Port
Guernsey GY1 3BE
Notes to Editors(1) :
About NextEnergy Solar Fund
NESF is a renewable energy infrastructure investment company
that currently invests in operating solar power plants in the UK
and Italy. The Company may invest up to 30% of its gross asset
value in non-UK OECD countries, 15% in private equity structures,
and 10% in standalone energy storage.
NESF currently has a diversified portfolio comprising 94
operating solar assets, primarily on agricultural, industrial, and
commercial sites, with a combined installed power capacity of
c.814MWp.
As at 31 March 2021, the Company had gross assets of GBP1,025
million, of which 89% was invested in the UK, and net assets of
GBP581 million. The majority of long-term cash flows from its
investments are inflation-linked.
NESF's investment objective is to provide ordinary shareholders
with attractive risk-adjusted returns, principally in the form of
regular dividends, by investing in a diversified portfolio of
primarily UK-based solar energy infrastructure assets.
For further information on NESF please visit
nextenergysolarfund.com
Commitment to ESG
NESF is committed to ESG principles and responsible investment
which make a meaningful contribution to reducing CO2 emissions
through the generation of clean solar power. NESF will only select
investments that meet the requirements of NEC Group's Sustainable
Investment Policy. Based on this policy, NESF benefits from NEC's
rigorous ESG due diligence on each investment. NESF is committed to
reporting on its ESG performance in accordance with the UN
Sustainable Development Goals framework and the EU Sustainable
Finance Disclosure Regulation.
NESF has been awarded the London Stock Exchange's Green Economy
Mark and has been designated a Guernsey Green Fund by the Guernsey
Financial Services Commission.
NESF's sustainability-related disclosures in the financial
services sector in accordance with Regulation (EU) 2019/2088 can be
accessed on the ESG section of both the NESF website (
nextenergysolarfund.com/esg/ ) & NEC Group website (
nextenergycapital.com/sustainability/transparency-and-reporting/
).
About NextEnergy Capital Group ("NEC Group")
NESF is managed by the NextEnergy Capital Group, a specialist
solar investment manager, which has a strong track record in
sourcing, acquiring, and managing operating solar assets. NEC Group
is a leading player in the global solar investment sector and has
over 190 team members with offices in UK, Italy, India, and the USA
and assets under management of over $2.6bn across three
institutional funds.
NextEnergy Capital Group donates 5% of its net annual profits to
NextEnergy Foundation. NextEnergy Foundation is an international
charity that was founded in 2016. Its mission is to participate
proactively in the global effort to reduce carbon emissions,
provide clean power sources in regions where they are not yet
available, and contribute to poverty alleviation.
For further information on NEC Group please visit
nextenergycapital.com
For further information on NextEnergy Foundation visit
nextenergyfoundation.org
About WiseEnergy
WiseEnergy is NEC Group's specialist operating asset management
division. NESF is differentiated by its access to WiseEnergy, which
has provided operating asset management, monitoring, technical due
diligence, and other services to over 1,300 utility-scale solar
power plants with an installed capacity in excess of 2.1GW.
For further information on Wise Energy please visit
wise-energy.com
([1]) Note: All financial data is as at 31 March 2021, being the
latest date in respect of which NESF has published financial
information
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