TIDMNESF
RNS Number : 2059Q
NextEnergy Solar Fund Limited
27 June 2022
LEI: 213800ZPHCBDDSQH5447
27 June 2022
NextEnergy Solar Fund Limited
("NESF" or the "Company")
Full Year Results for the year ended 31 March 2022
NextEnergy Solar Fund, the specialist renewable energy
investment company, is pleased to announce its full year results
and annual report, for the year ended 31 March 2022.
Financial Highlights
-- +14.6p (c.15%) increase in NAV per ordinary share to 113.5p (31 March 2021: 98.9p).
-- Increased ordinary shareholders' NAV of GBP668.5m (31 March 2021: GBP580.8m).
-- Ordinary shareholder annualised total return for the year of 11% (31 March 2021: 5.1%).
-- Gearing (including preference shares) of 42% (31 March 2021: 43%).
-- Dividends per ordinary share of 7.16p (31 March 2021: 7.05p).
-- Increased cash dividend cover before scrip to 1.2x (31 March 2021: 1.1x).
-- 5.0% increase in FY22/23 target dividend to 7.52p per ordinary share.
-- Estimated dividend cover of between 1.3x and 1.5x for the FY22/23.
Portfolio Highlights
During the year, total group portfolio revenue increased c.19%
to GBP114m (31 March 2021: GBP96m) and EBITDA of the portfolio
increased c.22% to GBP90m (31 March 2021: GBP74m). The portfolio
performed strongly and expanded through acquisitions in
international solar assets and battery storage. These acquisitions
help the Company enhance revenues and add potential future NAV
accretive growth.
1 April 2021 to 31 March 2022:
UK solar:
-- Energised South Lowfield, a 50MW solar asset located in North Yorkshire.
-- Established a strong foothold in the long-term, high-credit
UK corporate power purchase agreement ("PPA") market with a 15-year
corporate PPA with AB InBev, the world's largest brewer, on 100MW
covering c.75% of electricity generated.
Energy storage:
-- Strategic step into the energy storage sector in the United
Kingdom via a GBP100m Joint Venture Partnership ("JVP") with
Eelpower Limited ("Eelpower"). The JVP is targeting the
establishment of up to 250MW in projects. The Company has
sufficient secured pipeline to complete the initial target spend of
GBP100m.
-- First stand-alone 50MW battery asset under construction as
part of the JVP and is expected to be energised early 2023. The
battery will initially feature a one-hour duration system but has
been prepped for evolution to a two-hour duration system.
Private solar infrastructure solar fund:
-- Commitment of US$50m to NextPower III LP ("NPIII"), a private
ESG solar infrastructure fund established to invest in solar
infrastructure projects primarily in OECD countries. Providing an
opportunity for NESF's shareholders to, efficiently and
cost-effectively, access an established portfolio of operational
and under construction international assets and co-investment
opportunities.
International solar:
-- First co-investment alongside NPIII, for a 50MW Spanish solar
plant currently under construction.
1 April 2022 to date:
UK solar:
-- Initiated construction of Whitecross, a 36MW subsidy free solar farm in Lincolnshire.
-- Commenced with the grid connection works and construction
preparation of Hatherden, a 50MW subsidy free solar farm.
-- These two-subsidy free UK solar farms will complete the
Company's 150MW subsidy free solar target.
-- Announced NESF's 100(th) operating solar asset.
Energy storage:
-- Co-located battery retrofit programme introduced across the
portfolio. Starting with North Norfolk, an 11MW, 1.6ROC asset
located near to Cromer, where a c.6MW two-hour duration battery
will be developed.
-- An additional four potential co-located battery locations
have been identified in the existing NESF solar portfolio and moved
into development stage.
Private solar infrastructure fund:
-- NPIII progress as at 27 June 2022: 92 solar projects
totalling c.1GW capacity secured across the USA, Spain, Portugal,
Chile, India, and Poland, with a further 300MW under
exclusivity.
International solar:
-- Second co-investment alongside NPIII, for a 210MW solar
portfolio in Portugal. The portfolio will be constructed across
2022 into 2023.
NAV Movements
The main contributor to the change in the Company's NAV during
the year was an increase in power price forecast assumptions (+9.5p
per ordinary share) driven by an uplift in the short to medium term
power forecasts provided by the Company's three independent
advisers and Power Purchase Agreements ("PPAs"). Other changes
included updating short-term inflation assumptions (+6.1p per
ordinary share).
31 March 2021 to 31 March 2022, NAV p/share movement:
NAV p/share at 31 March 2021 98.9p
Power Forecasts and PPA's +9.5p
-------
Inflation +6.1p
-------
Operating Result Net Distributions
to Fund +0.2p
-------
RCF Drawdown -7.1p
-------
New Assets at Cost +6.9p
-------
Revaluation of New Assets +0.1p
-------
Other(1) -1.1p
-------
NAV p/share at 31 March 2022 113.5p
-------
(1) movements in residual value of holding companies
Operational Highlights
-- Total installed capacity of 865MW (31 March 2021: 814MW).
-- Reached 99 fully operating solar assets during the year, this
has increased to 100 since year end (31 March 2021: 94).
-- Signed a new GBP100m (GBP75m committed + GBP25m accordion)
Revolving Credit Facility with a 3-year duration on attractive
terms with lenders NatWest and AIB.
-- Portfolio generation outperformance of +1.8% for the
financial year ended 31 March 2022, translating into additional
revenues of c.GBP2.0m.
-- NextEnergy Capital's power sales desk continues to
successfully manage risk and opportunistically secure power prices
higher than forecasts in line with NESF's power sales strategy. In
addition to NESF's budgeted revenues from ROCs and FITs, the
Company's hedging positions (covering 716MW UK portfolio) as at 15
June 2022 were:
o 2022/23: 85% of UK budgeted generation, (average fix price of
GBP78MWh).
o 2023/24: 74% of UK budgeted generation, (average fix price of
GBP73MWh).
o 2024/25: 42% of UK budgeted generation, (average fix price of
GBP86MWh).
Power Sales Strategy
Approximately 50% of the Company's revenues are made up of
government-backed subsidies via ROCs and FITs, and this component
of revenue increases in-line with RPI, whilst the remaining
revenues in the portfolio are generated through the sale of
budgeted power generation into the market. This portion of revenues
continues to benefit from the sustained high power price
environment and increases the unsubsidised revenue portion of the
portfolio.
To manage the sale of power into the market, NextEnergy Capital
has a specialist power sales desk. This team actively manages the
Company's power price contracting strategy and activities. In the
current environment, the power sales desk has enabled the Company
to mitigate market price volatility whilst allowing optimum
weighted average price by forward hedging above forecast prices.
Aggregating the amount of revenue derived from subsidies and the
power hedged (as noted above), the Company has a high degree of
comfort around forward revenue projections and strengthening
dividend cover for the current financial year.
Inflation
The Company continues to be consistent in its inflation
assumption approach, using third party, independent inflation data
from the HM Treasury Forecasts and long-term implied rates from the
Bank of England estimates for its UK assets. For international
assets, IMF forecasts are used.
Assumptions as at 31 March 2022:
Financial year Inflation assumption
ending used
2022 4.10%
---------------------
2023 8.00%
---------------------
2024 3.70%
---------------------
2025 3.30%
---------------------
2026 3.40%
---------------------
2027 3.30%
---------------------
2028-2030 3.00%
---------------------
2030 onwards 2.25%
---------------------
ESG Highlights
-- Establishment of the NESF ESG Board Committee, chaired by Josephine Bush.
-- Qualifies under Article 9 of the Sustainable Finance Disclosures Regulation ("SFDR").
-- NESF continues to provide the fund's substantial contribution
to climate change mitigation by disclosing the carbon emission
reduction associated with the fund's clean energy generation.
-- In compliance with the requirement of Article 9 of the SFDR,
the fund is disclosing its periodic reporting in accordance with
Annex V on its website: [
https://www.nextenergysolarfund.com/esg/transparency-and-reporting/
]
-- 773GWh clean electricity generated (31 March 2021: 738GWh).
-- 328,700 tonnes of CO2e emissions avoided (31 March 2021: 317,600 t CO2e avoided).
-- Equivalent to 216,300 UK homes powered for one year (31 March 2021: 195,000 UK homes).
-- GHG emissions data is provided by the Green Investment Group
(GIG) and is calculated using their Green Impact methodology based
on information provided by NextEnergy Capital and on the UNFCCC -
IFI Approach to GHG accounting for renewable energy project:
[
https://unfccc.int/sites/default/files/resource/Renewable%20Energy_GHG%20accounting%20approach.pdf
]
-- A new standalone NESF ESG/Sustainability Report will be released in August 2022.
Biodiversity Highlights
-- 15 Universal Biodiversity Management Plans (UBMPs) were
launched in the NESF portfolio, going above and beyond local
planning to enhance and promote biodiversity net gain. These
measures consist of the introduction of wildflowers, hibernacula,
bird, bat and owl boxes and bug hotels.
-- A further 15 UBMP sites have been identified and are in the
process of being implemented in the NESF portfolio over the current
financial year.
-- Wildflowers, crucial for pollinators, continue to be planted
across the portfolio, covering a total area of 34 acres to
date.
-- 45% of portfolio has enhanced biodiversity measures in place to date.
-- 47% of portfolio grazed by sheep currently.
-- 37 average plant species across the portfolio.
Future Pipeline
The Company has exclusivity over an immediate attractive
pipeline of GBP350m of domestic and international assets across the
solar and battery space.
Available Capital
The Company has capital to pursue its short-term immediate
pipeline, including bringing online a secured battery storage
project and completing the construction of its post-subsidy solar.
Out of the total GBP145m Revolving Credit Facilities ("RCF")
available to the Company, GBP49m remains undrawn and available for
deployment. The Company may look to raise capital in the near
future to fund attractive growth opportunities it has identified
and is pursuing.
Market Outlook
The UK power market continues to experience sustained high
prices. Prevailing market conditions around the supply of gas
continue to look challenging given recent macroeconomic and
geo-political events, highlighting the importance of energy
security. Against this backdrop, NESF offers strong diversification
and protection for investors in their portfolios, in conjunction
with helping accelerate Net Zero ambitions following COP26. For the
current financial year, NESF is targeting an attractive dividend of
7.52p per ordinary share, supported by a strong expected dividend
cover.
Results Presentation
There will be a webcast and conference call this morning at
9.00am hosted by:
-- Michael Bonte-Friedheim (CEO and Founder of NextEnergy Group)
-- Ross Grier (UK Managing Director of NextEnergy Capital)
To register for the webcast please use this link:
https://webcast.openbriefing.com/nesf-june22
The presentation will be followed by a Q&A session for
analysts. Investor questions can be submitted prior to the
presentation via email to ir@nextenergysolarfund.com. NextEnergy
Capital will endeavour to answer submitted questions during the
Q&A section, if this is not possible due to time constraints,
the investment advisor will follow up separately after the
presentation.
A recording of the analyst presentation will also be made
available on the Company's website shortly after the event.
Kevin Lyon, Chairman of NextEnergy Solar Fund commented:
"The twelve months to 31 March 2022 marked the second year of
living with COVID-19, alongside macroeconomic and geopolitical
uncertainty, and rising inflation. Despite these challenges, NESF
has generated a steady revenue stream and provided investors with a
reliable attractive dividend, with the Company's portfolio
performing strongly throughout the year.
Having underwritten a commitment to NextPower III ("NPIII"), a
private solar infrastructure fund, NESF made its first
international solar co-investments in Spain and Portugal alongside
NPIII and finalised its first stand-alone investment into the
battery storage sector.
NESF weathered the turbulence that the past year has thrown at
it and capitalised on rising power prices, with ordinary
shareholders' NAV at GBP668.5m compared to 2021's figure of
GBP580.8m, a significant uplift.
I would like to take a moment to thank everyone who has
continued to support NESF over the last year. The Board and I
firmly believe that NESF is both well positioned and low risk due
to our significant and expanding footprint in the solar sector,
combined with our proactive hedging strategy."
Michael Bonte-Friedheim, CEO and Founder of NextEnergy Group
commented:
"Over the course of twelve months there has been a dynamic shift
in the UK and other power markets. We saw exceptional support from
COP26 promoting the continued roll out of renewable technology,
alongside increased market volatility, and record power prices in
the UK and abroad.
NESF's portfolio continues to outperform technically,
financially and operationally, providing vital low-cost of
production power generation to the UK, in an environment of rising
inflationary pressure, with increased focus on energy security.
NESF remains well placed to deliver shareholders an attractive,
inflation-protected income, while pursuing more of the exciting
growth prospects the sector offers. NESF continues to build new
solar projects in the UK, which will contribute to the
decarbonisation of the power generation sector and the reduction of
imported hydrocarbons."
For further information:
NextEnergy Capital Group 020 3746 0700
Michael Bonte-Friedheim ir@nextenergysolarfund.com
Aldo Beolchini
Ross Grier
Peter Hamid (Investor Relations)
RBC Capital Markets 020 7653 4000
Matthew Coakes
Kathryn Deegan
Cenkos Securities 020 7397 8900
James King
William Talkington
Camarco 020 3781 8334
Owen Roberts
Eddie Livingstone-Learmonth
Ocorian Administration (Guernsey)
Limited 014 8174 2642
Kevin Smith
NextEnergy Solar Fund
Generating a more sustainable future
Annual Report for the year ended 31 March 2022
Our Objectives
Investment Objective
To provide ordinary shareholders with attractive risk --
adjusted returns, principally in the form of regular dividends,
through a diversified portfolio of solar energy infrastructure
assets and complementary technologies, such as energy storage.
Strategic Objectives
Investment
-- Expand and strengthen the portfolio in line with the
Company's Investment Policy.
-- Enhance growth and diversification through the introduction
of energy storage and international solar assets.
Operational
-- Consistently achieve operational outperformance of the
portfolio attributable to active asset management.
-- Pursue continuous improvement in the management of operating
costs associated with the portfolio.
Environmental
-- Contribute towards a net zero sustainable future and help
mitigate climate change.
-- Enhance local biodiversity for the surrounding areas where we
operate.
Social
-- Provide a positive social impact.
-- Continue to actively engage with and support the communities
located close to our solar assets.
Governance
-- 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.
Financial Highlights 1
NAV per ordinary share
as at 31 March 2022
113.5p
(31 March 2021: 98.9p)
Ordinary shareholders' NAV
as at 31 March 2022
GBP668.5m
(31 March 2021: GBP580.8m)
Financial debt gearing
as at 31 March 2022(2)
25%
(31 March 2021: 24%)
Total dividend per ordinary share
for the year ended
31 March 2022
7.16p
(31 March 2021: 7.05p)
Cash dividend cover (pre-scrip dividends)
for the year ended
31 March 2022
1.2x
(31 March 2021: 1.1x)
Total gearing
as at 31 March 2022(3)
42%
(31 March 2021: 43%)
NAV total return per ordinary share
for the year ended 31 March 2022
22.0%
(31 March 2021: 7.0%)
Ordinary Shareholder Total Return
for the year ended 31 March 2022
11.0%
(31 March 2021: 5.1%)
Ordinary shareholder
annualised total return
since IPO
6.7%
(31 March 2021: 6.1%)
Operational Highlights
Total capacity installed
as at 31 March 2022(5)
865MW
(31 March 2021: 814MW)
Total electricity generation
for the year ended
31 March 2022
773GWh
(31 March 2021: 738GWh)
Operating solar assets
as at 31 March 2022(6)
99
(31 March 2021: 94)
Generation above budget
for the year ended
31 March 2022
1.8%
(31 March 2021: 6.2%)
ESG Highlights
Tonnes of CO(2) e emissions
avoided p.a.(4)
328,700
(31 March 2021: 317,600)
UK homes powered
for one year(4)
216,300
(31 March 2021: 195,000)
1 Refer to the Alternative Performance Measures below for calculation basis
2 Financial debt gearing excludes the GBP200m preference shares
3 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
4 www.greeninvestmentgroup.com/green-impact/green-investment-handbook
5 Excluding share in private equity vehicle (NextPower III).
Inclusion of NESF's 6.21% share of NextPower III on a look through
equivalent basis would increase total capacity by 19.2MW to
884MW
6 Not including the $50m commitment into private equity vehicle (NextPower III)
NextEnergy Solar Fund Overview
A SOLAR POWER RENEWABLE ENERGY INVESTMENT COMPANY WITH A
DIVERSIFIED HIGH-QUALITY PORTFOLIO, MANDATE FOR GROWTH AND A
DIVERSE PIPELINE OF NEW OPPORTUNITIES
-- NEXTENERGY CAPITAL, INVESTMENT MANAGER
-- WISEENERGY, ASSET MANAGER
BOTH LEADING MANAGERS IN THE SOLAR ENERGY INFRASTRUCTURE SECTOR
DIVERSIFIED PORTFOLIO:
-- 99 OPERATING SOLAR ASSETS
-- 1 INTERNATIONAL PRIVATE EQUITY SOLAR FUND INVESTMENT
-- 2 EUROPEAN SOLAR CO-INVESTMENTS
-- 250MW JOINT VENTURE PARTNERSHIP INTO UK STANDALONE ENERGY STORAGE
POWERING THE EQUIVALENT OF 216,300 UK HOMES (EQUIVALENT TO
NEWCASTLE AND BRIGHTON) ANNUALLY WITH GREEN RENEWABLE ENERGY
CONTINUED ASSET OUTPERFORMANCE SINCE IPO
Why Invest in NextEnergy Solar Fund?
ABUNDANT CLEAN ENERGY SOURCE
-- Enough solar energy hits the Earth in a single hour to power
the energy needs of the entire human population for a year.
-- Solar is the cheapest form of renewable energy generation and quickest to construct.
RELIABLE INVESTMENT WITH ATTRACTIVE GROWTH PROSPECTS
-- Provides a regular attractive dividend for income seeking investors.
-- Offers a natural hedge against inflation with a high
proportion of regulated revenues linked to RPI.
-- Large diversified operating portfolio with incremental growth
prospects through the introduction of
complementary technologies, such as Energy Storage.
PROVEN AND STABLE TECHNOLOGY
-- Reliable and predictable source of electricity due to high
consistency in yearly irradiation and minimal moving parts.
-- Long useful life (25-40 years) with high proportion of
contracted cash flows from operating solar assets.
COST-EFFECTIVE ELECTRICITY GENERATION
-- Active portfolio management provides prudent cost of
operation, maintenance and replacement of assets.
-- Solar technology has benefited from a significant reduction
in costs, falling over 90% in the last ten years. Subsidy-free
solar assets are economically competitive 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.
-- Investment in solar provides significant biodiversity
benefits to the local surrounding areas.
Strategic Report
Chairman's Statement
"The twelve months to 31 March 2022 marked the second year of
living with COVID-19, alongside macroeconomic and geopolitical
uncertainty, and rising inflation. Despite these challenges, NESF
has generated a steady revenue stream and provided our investors
with a reliable attractive dividend, with the Company's portfolio
performing strongly throughout the year.
NESF made its first international solar co-investments in Spain
and Portugal, its first material investment into the battery
storage sector, as well as committing $50m into Next Power III, a
private equity infrastructure solar fund investment.
NESF managed to weather the turbulence that the past year has
thrown at us and capitalise on rising power prices, with ordinary
shareholders' NAV at GBP668.5m compared to 2021's figure of
GBP580.8m, a significant uplift.
I would like to take a moment to thank everyone who has
continued to support NESF over the last year, employees and
shareholders alike. The Board and I firmly believe that NESF is
well positioned due to NESF's proactive hedging strategy and our
significant footprint in the solar sector. Thank you."
Kevin Lyon,
Chairman
I am pleased to present the eighth Annual Report for NextEnergy
Solar Fund Limited (the "Company" or "NESF") for the year ended 31
March 2022.
The year under review has witnessed sustained global economic
challenges associated with the Covid-19 pandemic and, most
recently, the conflict in Ukraine and its global impact on energy
prices. The Board would like to extend their deepest sympathies to
all those impacted by the conflict.
Towards the end of 2021, power prices reached record high levels
across both the UK and Europe, as countries recovered from
prolonged periods of economic restrictions as a result of multiple
lockdowns, alongside global gas shortages. In the first quarter of
2022, geopolitical events resulting from the conflict in Ukraine
added additional pressure on oil and gas supplies, creating further
volatility, resulting in sustained increases in power prices in
Europe and the UK. High power prices are forecast to continue in
the short to medium-term and are a driving factor in the current
high inflationary environment.
For the year, the Ordinary Shareholder Total Return was 11.0%
(31 March 2021:5.1%) and the ordinary share Net Asset Value ("NAV")
total return was 22.0% (31 March 2021: 7.0%). During March 2022,
NESF's share price began recovering towards pre-pandemic levels.
The share price recovery continued post the year end, with the
share price reaching 107.2p as at 23 June 2022 (up from 103.4p on
31 March 2022).
The Company continues to present investors, both current and
new, with an attractive opportunity to invest, particularly as the
Company strategically positions itself for the next stage of
technological and geographic growth. The Company also offers
investors inflation-linked protection, as a large proportion of
revenues are linked to Retail Price Index ("RPI") via government
subsidies.
Furthermore, NESF continues to play a part in tackling global
climate change and enhancing local biodiversity, as well as helping
reduce the use of hydrocarbons in generating electricity in the UK
and further afield.
NESF's portfolio has demonstrated robust performance over the
year. Since IPO, the portfolio has continued to outperform budgeted
generation, whilst ensuring power price volatility is managed
through NESF's electricity sales hedging strategy. This strategy
also gives the Company high certainty of future revenues due to
power price hedges already in place. It also allows NESF to both
reduce risk and take advantage of temporary higher forward power
prices, which is currently the case.
Results and Key Events
The Company has made substantial progress towards its growth
goals whilst continuing to offer financial stability during the
financial year. NextEnergy Capital Limited (the "Investment
Adviser"), continues to provide dedicated support to the Company.
During the year ended 31 March 2022, the Company:
-- Expanded into standalone battery storage through a 250MW
Joint-Venture Partnership ("JVP") with EelPower;
-- The JVP announced construction of its first standalone 50MW
battery storage asset in Fife, Scotland;
-- Committed $50m into its first private equity infrastructure
solar fund, NextPower III L.P. ("NextPower III"); and
-- Entered the Spanish solar market through its first co-investment alongside NextPower III.
Since the end of the financial year, the Company has also:
-- Announced a highly attractive target dividend for the
financial year ending 31 March 2023, which is expected to be fully
covered with an estimated dividend cover of between 1.3x -
1.5x;
-- Introduced a co-located battery retrofit program, identifying
potential sites across NESF's current 91 UK operating solar assets;
and
-- Entered the Portuguese solar market through its second co --
investment alongside NextPower III.
Dividend Target:
NESF provides a regular attractive dividend for income seeking
investors. For the financial year ended 31 March 2022, the Company
declared a total dividend of 7.16p per ordinary share, with the
dividend remaining covered throughout the year. The Company has a
progressive annual dividend policy, and when appropriate, the Board
considers increasing the target dividend paid to shareholders. To
date the Board has increased the target dividend every year since
the Company listed in 2014. The Board of NESF recently approved a
target dividend of 7.52 pence per ordinary share for the year
ending 31 March 2023, representing a 5.0% increase from the
previous year. This increase is above the 4.1% calculated RPI rise
forecast by HM Treasury for the 2022 calendar year.
The Company has achieved all its dividend targets whilst
maintaining a covered dividend throughout the eight years and
continues to target a covered dividend beyond this financial
year.
Standalone Battery Storage:
In September 2021, NESF entered the standalone battery storage
space by agreeing a GBP100m JVP, with Eelpower Limited, a leading
battery storage specialist in the UK. The JVP signed its first
acquisition during the period for a 50MW storage facility that is
currently expected to be energised in 2022. The project is a
ready-to-build standalone battery storage, located in Scotland,
which will provide additional stability and flexibility to the
grid. This investment has multiple revenue opportunities such as
arbitrage trading (battery dispatch and re-optimisation using asset
backed financial trades) and capacity markets. The JVP includes a
framework for future acquisitions of up to 250MW, enabling the
Company to invest in opportunities that offer complementary revenue
streams to the existing portfolio of solar assets.
Private Equity Solar Infrastructure Fund Commitment:
In June 2021, NESF announced a commitment of US$50m to NextPower
III, a NextEnergy Capital managed private equity Environmental,
Social and Governance ("ESG") solar infrastructure fund that
invests in solar assets globally (primarily in Organisation for
Economic Co-operation and Development ("OECD") countries. NextPower
III benefits from NextEnergy Capital's ability to source and secure
solar assets that deliver attractive risk-adjusted target returns.
This investment has enabled NESF to benefit from access to a
geographically well diversified portfolio of operational, in
construction and pre-construction solar assets spread across the
United States, India, Poland, Chile, Spain and Portugal (on a look
through equivalent basis, NESF owns 19.2MW of these operational
assets as at 31 March 2022). The commitment also provides NESF with
increased diversification across regulatory regimes, technology
providers and offtake counterparties. NESF's Investment Manager,
has agreed to rebate to NESF its full investment management fee
relating to NESF's US$50m commitment to NextPower III, thereby
providing a cost-effective investment from NESF's perspective, with
the elimination of 'fees-on-fees' because of the commonality of the
Investment Manager.
Co-Investments:
As a result of being an investor in NextPower III, NESF benefits
from co-investment opportunities through direct stakes in solar
photovoltaic ("PV") assets alongside large international
institutional investors on a no fee, no carry basis. This is
particularly beneficial as it provides NESF access to an attractive
new pipeline of potential international assets not available to
other market participants or investors. The Company announced its
first co-investment in January 2022, a 24.5% stake for c.EUR11m in
a Spanish 50MW solar project, Agenor Hive S.L.U ("Agenor"). Once
energised in 2022, the co-investment will benefit from a 5-year
Power Purchase Agreement ("PPA") covering approximately 70% of
contracted revenues. Post the year end, in May 2022, the Company
announced a second co -- investment in Portugal, Santarém. The
Company acquired a c.13% stake in the 210MW solar asset in Portugal
for a consideration of EUR22.5m. Energisation of this project is
expected to take place in 2023. Once energised, Santarém is
expected to benefit from a long-term PPA for the sale of
electricity which is currently being negotiated with a robust
creditworthy counterparty. Co-investments with NextPower III have
thus already amounted to a total of c.EUR33.5m alongside the
Company's US$50m commitment to NextPower III.
Co-Located Battery Storage:
In April 2022, post the year end, NESF announced a new
co-located battery storage retrofit program across the Company's 91
UK operating solar farms. As part of this program the first site
for a co-located battery project was identified, extending the
existing 11MW North Norfolk solar farm to include a 6MWh/12MWh
battery system. Planning permission for the co-located battery
system has been secured, with construction expected to commence on
site later this year. An additional four potential locations for
co-located battery storage systems have been identified to date and
are being progressed into development stage.
Continued Growth in UK Solar:
In summer 2021, the Company energised South Lowfield, a 50MW
solar asset located in North Yorkshire. The energisation represents
a significant milestone for NESF's strategy of establishing a
foothold in the long-term, high-credit UK corporate PPA market. The
Camden portfolio, comprising The Grange (50MW) and South Lowfield
(50MW), has a 15-year PPA in place covering c.75% of the
electricity to be generated over the next 15 years. The PPA
counterparty is AB InBev, the world's largest brewer. The portfolio
also demonstrates the Company's ability to establish itself as a
leader in this subsidy-free space.
Post the year end, the Company commenced construction of
subsidy-free site Whitecross, a 36MW, utility solar asset, located
in Lincolnshire. The original construction date of the asset was
deferred from H2 2021 due to material volatility in the supply
chain post Covid-19 which has since stabilised. The asset is now
expected to be energised during Q1 2023 and will generate
electricity for approximately 10,000 households' yearly electricity
consumption with renewable power. Whitecross will join the
Company's other three operating subsidy-free solar assets,
Staughton (50MW), High Garret (8.4MW), and Hall Farm 2 (5.4MW),
which together with Whitecross comprise c.100MW of NESF's 150MW
target in subsidy-free solar capacity. The Company has also
commenced with the grid connection works and construction
mobilisation phase of Hatherden, a 50MW subsidy-free solar farm.
Whitecross and Hatherden will complete the Company's 150MW
subsidy-free solar allocation. The Company anticipates these assets
to be energised early in 2023.
NAV and Operating Results
At the year end, the ordinary shareholders' NAV was GBP668.5m
equivalent to 113.5p per ordinary share (2021: GBP580.8m, 98.9p per
ordinary share).
The main contributors to changes in NAV over the 12 month period
were a large increase in power price forecasts (+5.0p per ordinary
share), power purchase agreements (+4.5p per ordinary share) and an
upward revision in HM Treasury's short-term inflation forecasts
(+6.1p per ordinary share).
Profit and comprehensive income for the year was GBP127.6m
(2021: GBP40.2m) with earnings per ordinary share of 21.69p (2021:
6.87p). Cash dividend cover (pre-scrip dividends) was 1.2x (2021:
1.1x).
As at 31 March 2022, NESF had an annualised Ordinary Shareholder
Total Return since IPO of 6.7% (31 March 2021: 6.1%) and an
annualised NAV total return since IPO of 8.0% (31 March 2021:
6.0%). At the year end, the NESF share price was 103.4p, which was
a 8.9% discount to the NAV per ordinary share of 113.5p.
Power Prices
During 2021, extreme power price volatility led to dramatic
increases in UK and European wholesale power prices attributable to
reduced gas supply and storage levels, outages at UK nuclear and
interconnector facilities and the impact of low UK wind resource.
The conflict in Ukraine further contributed to gas supply and
storage issues, leading to continued power price highs up to 31
March 2022, which has continued into FY2022/23. These factors
resulted in the March 2022 UK day ahead auction price monthly
average reaching a record of GBP250/MWh.
Of the Company's revenues during the year, 57% were derived from
government subsidies and long-term PPAs and, at the end of the
year, the average remaining weighted life of the subsidies was 13
years.
The remaining 43% 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 until the price has been locked
('hedged'). The Asset Manager's electricity sales desk is focused
on securing the best terms for NESF's electricity sales. This
flexible approach is designed to protect against adverse short-term
price movements whilst also enabling the Company to
opportunistically capture favourable market conditions by securing
high fixed prices for specified future time periods. Looking
forward to the next three financial years, as at 15 June 2022, the
Company has agreed pricing covering:
-- 85% of UK budgeted generation for the 2022/23 financial year
(average fix price of GBP78MWh);
-- 74% of UK budgeted generation for the 2023/24 financial year
(average fix price of GBP73MWh); and
-- 42% of UK budgeted generation for the 2024/25 financial year
(average fix price of GBP86MWh).
Portfolio Performance
Energy generated during the year was 773 GWh (2021: 738GWh) and
the portfolio achieved a generation outperformance of 1.8% (2021:
6.2%), increasing revenues by an estimated GBP2.0m against budget
(2021: GBP4.8m). Portfolio generation was significantly impacted by
Distribution Network Operator Outages ("DNOOs"); without this
disruption, portfolio generation would have been 3.6% above
budget.
Distribution Network Operators ("DNOs") are regionally based
licensed companies (there are six across Great Britain) with each
responsible for a specific region. They own and operate the power
lines and infrastructure that connects consumers and embedded
generators to the power system and the national grid.
DNOs complete rolling programs of preventative maintenance and
upgrade works to ensure stability of the energy supplied to
consumers. In order to keep their staff safe, they often have to
de-energise power lines to complete these works. As part of this,
they have the right to ask generators such as NESF to isolate
certain assets for periods of time. The distributed nature of
NESF's assets does well to mitigate the impact of this in normal
years, however, during the coronavirus pandemic (2020) the DNOs
were not able to complete their periodic maintenance works and
therefore rolled these forward into 2021/22. This created a
concentration on the number of DNOOs within this year resulting in
an adverse impact on the portfolio's performance, a trend which is
not anticipated to continue.
During the year, solar irradiation across the portfolio was 3.4%
above budget (2021: 5.5%). Asset Management Alpha which measures
the operating performance of the portfolio for the year was -1.6%
(2021: 0.7%) caused by DNOOs of which the Company has no control
over. If distributor network outages were excluded, the Asset
Management Alpha would have been 0.2% (2021: 1.3%).
The Company's UK portfolio performed above expectations with
generation outperformance of 1.9% (2021: 6.3%) and the Italian
portfolio performed above expectations with generation
outperformance of 1.1% (2021: 5.1%).
Summary Portfolio Update
During the year, the Investment Adviser and Asset Manager
continued to optimise portfolio returns by:
-- Energising projects with attractive long-term PPAs;
-- Executing the electricity sales strategy to maximise revenue
and reduce shorter-term power price risk;
-- Preparing the remaining subsidy-free portfolio for construction;
-- Securing a low-cost GBP75m Revolving Credit Facility ("RCF")
(plus accordion) to fund the investment pipeline (margin of 120bps
over SONIA ("Sterling Overnight Index Average"));
-- Implementing technical improvements across the portfolio; and
-- Reducing operating costs through utilising existing insurance
contracts, re-negotiating contractual terms and entering into new
agreements
In line with its investment policy, the Company is advancing a
significant pipeline of both domestic and international solar
assets, including co-investments in private equity structures and
domestic energy storage asset opportunities, 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 2022, the Company had GBP200m of preference
shares (2021: GBP200m). The Company's subsidiaries also had
financial debt outstanding of GBP283.3m, inclusive of NextPower III
debt of GBP4.8m (2021: GBP246m).
Of the financial debt, GBP182.3m represented two long-term fully
amortising debt facilities, GBP96.2m was drawn under two RCFs and
GBP4.8m was the look through debt in relation to the US$50m
commitment into NextPower III.
At the year end, the Company's subsidiaries had GBP49m (2021:
GBP36m) undrawn (excluding the accordion) from two RCFs and the
Company had a cash balance of c.GBP19.6m (2021: GBP11m).
The total financial debt represented 25% of Gross Asset Value
("GAV") as at 31 March 2022 (2021: 24%). At the same reporting
date, the total gearing comprising the total financial debt and the
preference shares represented 42% of GAV (2021: 43%) within the 50%
limit contained within the investment policy.
Dividends Paid
The Directors have approved a fourth interim dividend of 1.79p
per ordinary share, which will be paid on 30 June 2022 to ordinary
shareholders on the register as at the close of business on 20 May
2022. Following the payment of the fourth interim dividend, the
Company will have paid total dividends of 7.16p per ordinary share
in respect of the year ended 31 March 2022 (2021: 7.05p), achieving
its target for the year.
The Company continues to offer a scrip dividend alternative as
approved by ordinary shareholders at the 2021 Annual General
Meeting ("AGM"), details of which can be found on the Company's
website (www.nextenergysolarfund.com).
During the year, the Company paid a total of GBP39.8m of cash
dividends (2021: GBP38.1m) and, in addition, issued GBP2.1m of
scrip shares to ordinary shareholders who elected for the scrip
dividend alternative (2021: GBP2.9m), making a total of GBP41.9m of
distributions (2021: GBP41.0m).
Environmental, Social and Governance Matters
NESF's commitment to ESG and sustainability remains at the
forefront of its strategy and purpose. The Investment Adviser,
NextEnergy Capital, is a signatory of the United Nations'
Principles for Responsible Investments and integrates ESG
principles into all aspects of the NextEnergy Group's investment
and asset management processes. NESF incorporates ESG factors into
all investment decisions by implementing the Investment Adviser's
Sustainable Investment Policy 1 throughout the investment process,
from preliminary screening through to risk management during the
ownership phases.
Net Zero Alignment
Aligned with the Company's commitment to support the UK
Government's net zero ambitions presented at COP26, NESF's
portfolio during the year ended 31 March 2022 has generated 773 GWh
of clean electricity, contributing to avoiding the emission of
328,700 tonnes of CO(2) e (2021: 317,600 tonnes CO(2) e) and
equivalent to powering 216,300 UK homes for an entire year (2021:
195,000). This is roughly equivalent to powering a city with
541,000 inhabitants (e.g. Newcastle and Brighton combined) or
taking 108,690 cars off the road for an entire year (2021: 102,000
cars). The above data has been verified by the Green Analytics team
of the Green Investment Group, a reputable third-party climate
related data provider.
Biodiversity Net Gain
NESF's 91 UK operating solar assets provide a great opportunity
to enhance local biodiversity, above and beyond local planning
requirements. The Investment Adviser engages in activities that
enhance the environment and community surrounding its solar assets,
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 below.
Positive Social Contribution
We contribute to local growth and development wherever our
assets are located. We are dedicated to ensuring labour standards
are applied by all our contractors. 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 ("Foundation"), which was established in
2017. My fellow board members and I are proud that the Company
supports the Foundation. The 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. To find out more information please scan the
below QR code.
EU Taxonomy and Sustainable Finance Disclosure Regulation
NESF complies with the requirements of the EU Taxonomy and
Sustainable Finance Disclosure Regulation ("SFDR"). The Company's
legal adviser has confirmed that NESF is classified under Article 9
of the SFDR, as the Company is marketed in the EU and has
sustainable investment as its objective. The Company's sustainable
investment objectives arise from its focus on investments in solar
PV and battery storage assets and its investment decision making
processes. In light of this classification, NextEnergy Group has
made the relevant disclosures for NESF available on the fund
website.
Task Force on Climate-Related Financial Disclosures
NESF recognises the importance of reporting on the impacts of
climate change and has been an official supporter of the goals of
the Task Force on Climate-related Financial Disclosures ("TCFD")
since September 2019. The Company has included the Company's full
TCFD report below.
Board Changes
The Board was delighted to announce the appointment of Josephine
Bush as a Non-Executive Director with effect from 1 January 2022.
The appointment broadens the Board's expertise, especially within
the renewable energy and sustainable finance sector harnessing
Josephine's wealth of knowledge and insight, with Josephine having
spent 14 years at Ernst & Young LLP specialising in this
sector. Josephine's appointment also helps maintain appropriate
Board diversity levels and provides enhanced governance to the
Company's ESG activities and reporting.
Appreciation
On behalf of the entire Board, 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 the Company to continue to operate
successfully during the Covid-19 pandemic.
The Board fully appreciates the hard work of the Investment
Adviser and its employees, who continue to deliver substantial
value to the Company's growth ambitions and sustained high
performance.
Outlook
The Board, Investment Manager and Investment Adviser believe
that the market environment continues to be favourable for the
Company and its Investment Policy is appropriate for the market
conditions.
Undoubtedly, the aftermath of the Covid-19 pandemic and the
conflict in Ukraine continue to have a profound impact on the
sector in which the Company operates. The increase in power price
volatility during the year and beyond has underlined the benefit
and value of the Company's hedging strategy through the Investment
Adviser's active electricity trading desk, locking in future
revenues and reducing uncertainty in times of volatile power
prices. The price for electricity is driven by several factors that
are inherently difficult to predict in the current dynamic
environment but is ultimately dependent on supply and demand. The
Company continues to monitor the media speculation around a
potential windfall tax on UK renewable electricity generators.
Whilst the details remain unclear, the Company continues to
actively promote the importance of renewable energy penetration in
the UK, which continues to strengthen the UK's energy independence
and will help the governments in achieving its net zero
ambitions.
ESG continues to be a core part of NESF's purpose, as activities
mitigating climate change accelerate globally. The execution of an
ESG policy is not just integrated into NESF investment decisions,
it ensures the Company continues to lead by example and that
stakeholders are fully aligned to create a better environment for
both current and future generations.
In the current unstable economic climate, the Board continues to
closely monitor both 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 shareholders, while
having positive social and environmental impacts.
NESF continues to consolidate its leadership position in the
growing UK long-term corporate PPA market, building upon the
landmark 100MW Camden acquisition with PPA off taker AB InBev. This
emerging PPA market can provide long-term, reliable cashflows for
the Company, whilst supporting large corporates' energy needs
through their desire to consume renewable green energy and to help
tackle climate change.
NESF is progressing its power price hedging strategies for the
sale of electricity from subsidy-free assets to secure attractive
risk-adjusted returns. The successful selection of the 150MW
subsidy-free portfolio demonstrates the Company's ability to
respond efficiently and effectively to a changing UK solar market
through its expertise in identifying opportunities and maximising
risk-adjusted returns.
The Company continues to identify additional co-located battery
storage opportunities through its retrofit program, in addition to
its existing 250MW joint venture with Eelpower for standalone
battery storage. Working closely with leading delivery partners in
the UK battery sector, NESF expects that co-location of battery
storage systems alongside the Company's existing solar portfolio
will provide additional asset, technology and revenue
diversification, whilst also accessing the favourable future
revenue opportunities that battery storage systems present.
The Company also continues to pursue a strong pipeline of
international growth opportunities on a direct and co-investment
basis, as well as its pipeline of electricity storage assets in the
UK. The pipeline has been composed to complement the existing
portfolio, diversify some asset-specific/market risks, and enhance
shareholder returns.
NESF is aiming to extend the useful life of further assets
during the current financial year, adding to the 35 UK assets
(337MW) which have already secured extensions since IPO. These
extensions will be value accretive by increasing long-term
revenues.
The Company has demonstrated that it can be resilient to the
volatility that the Covid-19 pandemic has posed, and the Company
remains well placed to continue to meet its investment objectives
and harness growth opportunities in the future which are in line
with the Company's strategic goals.
Lastly, as demonstrated at last year's COP26 conference, the UK
is setting an example to the rest of the world on how economies can
change their energy mix to tackle climate change. The next six
months provide an exciting opportunity for NESF as it continues to
invest in both solar assets and energy storage. The Board strongly
believes that the Company is making a real difference to the UK
energy landscape and looks forward to helping deliver both global
net zero goals and value to our shareholders.
Kevin Lyon,
Chairman
24 June 2022
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(a) to the Financial Statements
below.
The Company makes its investments through intermediate holding
companies ("HoldCos"), underlying special purpose vehicles ("SPVs")
and a singular direct investment that hold the solar assets. The
NESF Group comprises the Company, the HoldCos and the SPVs.
As explained in Note 2(d) to the Financial Statements below, as
the Company is an investment entity as described by International
Financial Reporting Standards ("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 below.
Management of the Company's Investment Activities and Assets
The Investment Manager, Investment Adviser and Asset Manager are
shown in the diagram previously and their key roles are shown next.
They are all members of the NextEnergy Group (the "NextEnergy
Group").
The NextEnergy Group, which is privately owned, was founded in
2007 and has evolved into a leading specialist investment and asset
manager in the renewable energy infrastructure sector and battery
storage. Since its inception, it has been active in the
development, construction and ownership of solar and battery
storage assets.
As at 31 March 2022 the NextEnergy Group had assets under
management of c.$2.8 billion with a cumulative operating generating
capacity of more than c.1.3GW. In addition to the Company, it
manages a private equity fund, NextPower III, which invests in
solar assets globally. The fund recently announced its final close,
which brought the total capital raised to $896m, exceeding its
target of $750m. In December 2021, the Investment Manager secured
the UK Infrastructure Bank as a cornerstone investor for a private
10-year solar infrastructure fund, NextPower UK ESG (subsidy-free
UK solar). In January 2022, the Investment Manager divested the
entire portfolio of operating solar projects owned by the private
equity fund, NextPower II. At sale, NextPower II was among the ten
largest portfolios of operating solar assets in Italy (c.149MW) and
achieved an exceptional net Internal Rate of Return ("IRR") for
investors.
The NextEnergy Group's team of some 200 individuals has
significant experience in energy and infrastructure transactions
across international jurisdictions. The Investment Adviser's
Investment Committee comprises Michael Bonte-Friedheim, Aldo
Beolchini Giulia Guidi and Ross Grier who have a total of 69 years'
industry experience between them.
Since it was founded, the NextEnergy Group has provided
operating asset management, monitoring, technical due diligence and
other services to over 1,400 utility-scale solar power assets with
an installed capacity in excess of 1.8GW. Its asset management
clients include listed solar funds (in addition to the Company),
banks, private equity funds and other specialist investors. The
Asset Manager has created a proprietary asset management platform
which integrates all technical, financial and commercial data to
analyse clients' data in real-time and generate insight, all of
which help to protect and enhance the long-term quality and
performance. This software and systems which have been refined over
the past 14 years, together with specialist staff with extensive
renewables experience, allows WiseEnergy to be at the forefront of
the 'digitalisation of energy'.
The collective experience of the NextEnergy Group of investing
and managing renewables 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. On 30 March
2022, the Company announced that it had transferred administration
services to Ocorian Administration (Guernsey) Limited. Prior to the
appointment, Apex Fund and Corporate Services (Guernsey) Limited
were the designated administrator for the Company.
Ocorian Administration (Guernsey) Limited, is part of the
Ocorian Group which was established in Jersey in 1971 as Bedell
Trust, and is a global financial services provider. It operates in
20 key locations globally and has 4,000+ employees.
Further details on the Administrator's responsibilities can be
found below in the Corporate Governance Report.
Michael Bonte-Friedheim is Founding Partner and CEO of the
NextEnergy Group. He has over 21 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 NextEnergy
Group. He has over 20 years' experience in investment banking and
renewable energy. Prior to joining the NextEnergy Group in 2008, he
was Vice President at Morgan Stanley Investment Banking.
Entity Principal Roles
Investment Manager
(Management Agreement * Acting as the Company's Alternative Investment Fund
with the Company - Manager ("AIFM").
see note 1 in the
Financial Statements
below) * Discretion to make 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 * Provide investment and other advice and
with the Investment recommendations to the Investment Manager in respect
Manager) of the Company's existing and potential investments.
* Identify investment opportunities for the Company.
* Evaluate investment opportunities and co-ordinate
external due diligence activities.
* Negotiate all project contracts with counterparties.
* Prepare investment proposals and provide general
advice and recommendations to the Investment Manager
concerning the Company's portfolio, financing,
strategy, market developments, etc.
* Review performance of the Company's portfolio
together with the Asset Manager.
* Manage Investor Relations for the Company.
Asset Manager
(Asset Management * Asset management of solar power assets.
Agreements with the
SPVs)
* Technical and financial analysis of each site to
assess performance and identify potential
improvements. Periodic site visits on each plant.
* Ensure each SPV's suppliers perform in accordance
with contracts.
* Managing unexpected occurrences at assets and ensures
prompt response to any asset management requirements
of the Company.
* Manage each SPV's administrative and financial
functions and requirements.
* Periodic financial, technical and administrative
reports to the Company.
Dividend Policy, Scrip Dividends and Dividend Target for
Financial Year Ending 31 March 2023
The Company's principal purpose is to provide ordinary
shareholders with attractive risk-adjusted returns, principally in
the form of dividends with a progressive annual dividend policy in
place. 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
Scrip 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 2023 will be set out in a separate
circular that is expected to be sent to ordinary shareholders on or
around August 2022. Once published, a copy of the circular will
also be available on the Company's website
(www.nextenergysolarfund.com).
The target dividend for the financial year ending 31 March 2023
is 7.52 pence per ordinary share, an increase of 5.1% compared to
the financial year ended 31 March 2022.
Five Year Record
Year Ended 31 March
Financial Key Performance Indicators 2018 2019 2020 2021 2022
Ordinary shares in issue 575.7m 581.7m 584.2m 586.9m 589.1m
Ordinary share price 111.0p 117.5p 101.5p 99.6p 103.4p
Market capitalisation of ordinary GBP639m GBP683m GBP593m GBP585m GBP609m
shares
NAV per ordinary share 1 105.1p 110.9p 99.0p 98.9p 113.5p
Total ordinary NAV 1 GBP605m GBP645m GBP579m GBP581m GBP668m
Premium/(discount) to NAV 1 5.6% 6.0% 2.5% 0.7% (8.9%)
Earnings per ordinary share 5.88p 12.37p -5.09p 6.87p 21.69p
Dividend per ordinary share 6.42p 6.65p 6.87p 7.05p 7.16p
Dividend yield 1 5.8% 5.7% 6.8% 7.1% 6.9%
Cash dividend cover - pre scrip
dividends 1 1.1x 1.3x 1.2x 1.1x 1.2x
Preference shares in issue - 100m 200m 200m 200m
Financial debt outstanding at GBP270m GBP269m GBP214m GBP246m GBP283m
subsidiaries level
Financial debt (financial debt/GAV)
1 31% 27% 22% 24% 25%
Gearing (financial debt + preference
shares/GAV) 1 31% 36% 42% 43% 42%
GAV GBP875m GBP1,014m GBP991m GBP1,025m GBP1,150m
Weighted average cost of capital 5.8% 5.4% 5.5% 5.4% 5.3%
Ordinary Shareholder Total Return
- cumulative since IPO 33.6% 46.7% 37.5% 42.6% 53.6%
Ordinary Shareholder Total Return
- annualised since IPO 8.5% 9.5% 6.3% 6.1% 6.7%
Ordinary Shareholder Total Return 6.2% 11.8% -7.8% 5.1% 11.0%
Ordinary NAV total return 1 6.3% 11.8% -4.5% 7.0% 22.0%
Ordinary NAV total return - annualised
since IPO 1 7.0% 8.1% 5.9% 6.0% 8.0%
Ongoing Charges Ratio 1 1.1% 1.1% 1.1% 1.1% 1.1%
Weighted average discount rate 7.3% 7.0% 6.8% 6.3% 6.3%
Operational Key Performance Indicators
Invested capital 1 GBP734m GBP896m GBP950m GBP999m GBP1,039m
Number of operating assets 63 87 90 94 99
Total installed capacity 569MW 691MW 755MW 814MW 865MW
2
Annual generation 451 GWh 693 GWh 712 GWh 738 GWh 773 GWh
% increase (year-on-year) 14% 54% 3% 3% 4%
Generation since IPO 1.1 TWh 1.8 TWh 2.5 TWh 3.2 TWh 4.0 TWh
Solar irradiation (delta vs.
budget) -0.9% 9.0% 4.0% 5.5% 3.4%
Generation (delta vs. budget) 0.9% 9.1% 4.7% 6.2% 1.8%
Asset Management Alpha 1 1.8% 0.1% 0.7% 0.7% -1.6%
Weighted average lease life 23.3 25.2 26.9 27.5 27.3
years years years years years
1 Alternative performance measures - see below
2 Excludes share in private equity vehicle (NextPower III).
Inclusion of NESF's share of NextPower III would increase capacity
by 19.2MW to 884MW
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, but may invest up to 10% of GAV in
standalone energy storage systems.
-- Location: 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 pro-active effective asset management, including
rigorously 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.
Further details of our investment strategy are included in the
Investment Adviser's Report below.
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 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 GAV 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 NESF 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 PPAs to be
executed from time to time. These are expected to include the
monetisation of Renewable Obligation Certificates ("ROC") and other
regulated benefits and the sale of electricity generated by the
assets to energy consumers and energy suppliers (Merchant 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 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 life. 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 Financial Conduct Authority ("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 the
Investment Manager by an announcement issued through a Regulatory
Information Service or a notice sent to Shareholders at their
registered addresses in accordance with the Articles.
Investments and Future Pipeline
The Company has made significant progress in executing
additional dividend-enhancing acquisitions. The Company's latest
investments comprise a $50m commitment ($24.1m currently drawn as
at 31 March 2022) into NextPower III, a battery storage Joint
Venture Partnership with Eelpower Limited (GBP100m), UK
subsidy-free solar investments (Whitecross and Hatherden) and
international solar co-investments (Agenor and Santerem).
In line with the investment policy, the Company continues to
advance a significant pipeline of UK solar assets, international
solar assets and UK energy storage assets. These investment
opportunities aim to achieve robust financial returns and increase
dividend cover whilst adding geographical, technological, and
revenue diversification to the NESF portfolio. The Company
envisages the future pipeline will be funded through a mixture of
drawdowns on existing and future RCF facilities and future equity
issuances.
Installed Capacity since IPO(1)
1 Excluding share in private equity vehicle (NextPower III).
Inclusion of NESF's 6.21% share of NextPower III on a look through
equivalent basis would increase total capacity by 19.2MW to
884MW
Capital Deployment Timeline since IPO
Total Cumulative Generation since IPO (TWh)(1)
Annual Generation since IPO (GWh)(1)
1 Excluding share in private equity vehicle (NextPower III) on a look through basis.
Performance since IPO(1)
NESF Total Return vs FTSE All-Share Index Total Return
Compound Annual Return (%)
Cumulative Performance (%)
Source: Morningstar
(1) To ensure like-for-like comparisons, all the total returns
in the charts assume dividends have been reinvested.
Investment Advisers Report - Introduction
NextEnergy Group is a leading solar investment manager and asset
manager. The NextEnergy Group is responsible for the acquisition
and management of the Company's portfolio, including the sourcing
and structuring of new investments and advising on the Company's
financing strategy. It has c. $2.8bn of assets under management and
employs over 200 people worldwide.
Investment Adviser's Investment Committee
The Investment Adviser's Investment Committee comprises Michael
Bonte-Friedheim, Aldo Beolchini, Giulia Guidi and Ross Grier, who
combined have in excess of 70 years' industry experience.
Michael Bonte-Friedheim is Founding Partner and CEO of
NextEnergy Group and member of the Investment Committee for
NextEnergy Solar Fund.
Aldo Beolchini is Managing Partner and Chief Investment Officer
of NextEnergy Capital and a member of the Investment Committee for
NextEnergy Solar Fund.
Giulia Guidi is Head of ESG at NextEnergy Capital and a member
of the Investment Committee for NextEnergy Solar Fund.
Ross Grier is UK Managing Director of NextEnergy Capital and a
member of the Investment Committee for NextEnergy Solar Fund.
Introduction
As at 31 March 2022, the NAV per ordinary share was 113.5p
(2021: 98.9p). The substantial change in NAV over 12 months
reflects a large increase in power price forecasts (+5.0p per
ordinary share), power purchase agreements (+4.5p per ordinary
share) and an upward revision in short-term inflation forecasts
(+6.1p per ordinary share).
At the year end, the UK blended average power curve corresponded
to an average solar capture price of approximately GBP105.2/MWh
(2021: GBP47.1/MWh) for the period 2022-2026 and GBP44.3/MWh (2021:
GBP47.8/MWh) for the period 2027-2041 (at 2022 prices).
We continue to follow government guidelines and monitor the
impact of Covid-19 on our global workforce, and the countries in
which we operate and pursue investment opportunities. Similarly,
with the ongoing conflict in Ukraine, we are monitoring the
macro-economic environment and considering any potential impact to
NESF, and the industry in which we operate.
Investment Advisers Report
Portfolio Highlights
During the year, we continued to explore new opportunities in
different technologies, asset classes and geographies whilst
actively managing NESF's existing portfolio of operating solar
assets and development projects.
To progress its investment pipeline, the NESF Group secured a
new RCF of GBP100m in June 2021 (GBP75m committed + GBP25m
accordion) with a 3-year duration to June 2024. The RCF was on
attractive terms with lenders NatWest and AIB with agreed margin of
120bps over SONIA. The facility increased NESF's overall RCF
capacity to GBP145m (not including the GBP25m accordion). In
February 2022, the NESF Group chose not to extend a GBP20m RCF with
NIBC Bank N.V. in order to pursue more cost-effective financing
opportunities.
In June 2021, NESF announced a commitment of US$50m to NextPower
III LP ("NextPower III"), a private equity ESG solar infrastructure
fund established to invest in solar assets primarily in OECD
countries. The investment benefits from diversification across
regulatory regime, technology provider, offtake counterparty and
geographic location (with access to solar assets in the United
States, India, Portugal, Spain, Poland and Chile). NextPower III
recently announced its final close, bringing the total capital
raised to $896m, outperforming its target of $750m. At final close,
NESF's commitment reflected a 6.21% ownership share in NextPower
III, adding 19.2MW to NESF's installed capacity on a look-through
equivalent basis as at 31 March 2022. NESF's investment in
NextPower III represents 2.0% of NESF's GAV as at 31 March
2022.
The investment into NextPower III provides access to attractive
co-investment opportunities, of which the Company has already begun
to take advantage. These are direct investments alongside NextPower
III and other investors in the fund, on a no-fee, no carry basis.
In January 2022, the Company announced its first co-investment for
a 24.5% stake in a Spanish 50MW utility scale solar project,
Agenor. It is currently under construction in Cádiz, Spain and is
expected to be energised in 2022. Agenor will benefit from a five
year PPA for the sale of electricity with a high-credit
counterparty for c.70% of contracted volumes for an initial
five-year period. This co-investment further strengthens the
Company's portfolio, providing additional geographical and revenue
diversification, whilst offering an attractive return profile with
a high proportion of contracted revenues locked in via the PPA.
Post the year end, the Company also announced a c.13% stake in
Santarem, another co-investment with NextPower III, a 210MW solar
asset in Portugal. Energisation of the project is expected to take
place in Q2 2023. Once energised, Santarém is expected to benefit
from a long-term PPA for the sale of electricity which is currently
being negotiated with a robust creditworthy counterparty.
In June 2021, NESF energised South Lowfield, a 50MW subsidy-free
asset in North Yorkshire. The asset is part of the Camden
acquisition of two projects totalling 100MW that was made in March
2021. The projects will produce enough clean energy combined to
power the equivalent of c.29,000 UK households per year. Both
assets benefit from a long-term 15-year PPA with AB InBev for c.75%
of the electricity generated.
In September 2021, NESF made its first strategic step into the
energy storage sector through a GBP100m JVP, with Eelpower Limited,
a leading battery storage specialist in the UK. The JVP signed its
first acquisition of a 50MW ready-to-build, standalone battery,
located in Fife, Scotland, which will provide additional stability
to the grid via its export capacity. It is expected to be energised
and grid-connected in 2023. The JVP, owned 70% by NESF and 30% by
Eelpower, also includes a framework for the acquisition of up to
250MW (including this initial 50MW project) of battery storage
assets. The Directors have concluded that the JVP meets the control
requirements of the relative accounting standards and is therefore
accounted for as a subsidiary (see note 18). The Company is
permitted to invest 10% of its GAV into standalone energy storage
systems.
During the year, NESF also added four rooftop solar assets, as
part of an agreement made with the renewable energy developer,
Zestec. The four assets have a combined capacity of 0.7MW and are
located in Cheshire, Worcestershire, Oxfordshire and East Sussex.
The remaining assets will benefit from the Company's hedging
strategy. This venture requires small individual investments
(typically GBP0.2m-GBP0.3m per rooftop) but yields attractive
risk-weighted financial returns. It is also a good avenue to deploy
cash flows generated by the portfolio in excess of the dividend and
operating cost base.
Post the year end, the Company announced the commencement of
construction of a 36MW subsidy-free utility solar asset in
Lincolnshire, Whitecross. The asset is now expected to be energised
during the first quarter of 2023 and will generate electricity for
approximately 10,000 households' yearly electricity consumption
with renewable power. Whitecross will join the Company's other
three operating subsidy-free solar assets, Staughton (50MW), High
Garret (8.4MW), and Hall Farm 2 (5.4MW), which together with
Whitecross comprise c.100MW of NESF's 150MW target in subsidy-free
solar capacity. The Company has also commenced with the grid
connection works and construction mobilisation phase of Hatherden,
a c.50MW subsidy-free solar farm. These two subsidy-free solar
farms will complete the Company's 150MW subsidy-free solar target.
The Company anticipates these assets to be energised early in
2023.
Similarly, selection of the first site for a co-located battery
storage project occurred post the year end. The project will extend
the existing 11MW North Norfolk solar farm within the NESF
portfolio to include a 6MW/12MWh battery system. Planning
permission for the co-located battery system has been secured, with
construction expected to commence on site later this year.
Implementing co-located batteries across the portfolio presents an
attractive growth opportunity as these assets offer both synergies
with PV assets, as well as offering diversification to portfolio
income.
Solar irradiation Generation
Financial year ended 31 No. of (delta vs. Asset Management (delta vs.
March assets monitored budget) Alpha budget)
2015 6 -0.4% +5.2% +4.8%
2016 23 +0.4% +3.7% +4.1%
2017 31 -0.3% +3.6% +3.3%
2018 55 -0.9% +1.8% +0.9%
2019 84 +9.0% +0.1% +9.1%
2020 85 +4.0% +0.7% +4.7%
2021 88 +5.5% +0.7% +6.2%
2022 90 +3.4% -1.6% +1.8%
Cumulative from IPO to
31 March 2022 90 +3.0% +1.6% +4.6%
Portfolio Performance
During the year, solar irradiation across the entire portfolio
was 3.4% above expectation (2021: 5.5%), and generation was 1.8%
above budget (2021: 6.2%), increasing revenues by an estimated
GBP2.0m. Portfolio generation was significantly impacted by
Distribution Network Operator Outages without such DNOOs, portfolio
generation would have been c.3.6% above budget.
DNOOs were driven by extraordinary grid maintenance undertaken
by DNOs during the year, primarily reflecting backlog from the
pandemic-impacted 2020/21 financial year and activities to
reinforce grid reliability.
Throughout the pandemic, workers in the electricity sector have
been considered 'key workers' and this enabled the Asset Manager to
ensure that the technical and operational integrity of NESF's solar
assets was maintained and DNOOs impact was minimised as far as
possible.
DNOOs significantly disrupted generation during the year,
reducing Asset Management Alpha by 1.8%. For illustrative purposes,
DNOOs reduced generation by 3.4% in September 2021, the largest
monthly impact since IPO, with at least two 5MW assets completely
taken off-line for the entire month.
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
solar irradiation is not monitored. Similarly, the generation
performance of assets that are yet to pass Preliminary Acceptance
Certificate ("PAC") in accordance with the engineering, procurement
and construction ("EPC") contract is not reported by the Asset
Manager.
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.
Year ended Solar irradiation Generation
31 March (delta vs. Asset Management (delta vs.
2022 budget) Alpha budget)
UK portfolio +3.4% -1.5% +1.9%
Italy portfolio +3.7% -2.6% +1.1%
Total +3.4% -1.6% +1.8%
Portfolio Optimisation
Asset life extensions
As at 31 March 2022, 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 three assets for the
remainder of the current financial year to 31 March 2023.
Asset Optimisation
During the year, nine sites entered into new Operating and
Maintenance ("O&M") contracts. Eight of these contracts were
O&M replacements of which the Investment Adviser actively
negotiated a reduction in price achieving an average of
GBP5,300/MW. This resulted in aggregate annualised cost savings of
c.GBP92,000 equivalent to a 27% reduction in contract price.
A further two sites, entered into new O&M Contracts, for
which a reduction in price was negotiated to GBP5,500/MW. This has
resulted in an aggregate annualised cost savings of c.GBP54,000
equivalent to a 33% reduction in contract price.
Initially six sites entered into new O&M contracts, that
disaggregated its services across a number of contractors which
specialise in land management, monitoring, panel cleaning, CCTV and
security and electrical services known as O&M 2.0 sites.
O&M 2.0 has achieved c.GBP5k/MWp (c. 10% under NESF's target)
for these six sites. A further three sites, entered into the
O&M 2.0 programme, that has achieved c.GBP4.5k/MWp saving which
is c.20% saving under NESF's target.
Due to Storm Arwen in November 2021 and further damage caused by
Storm Eunice in February 2022, Balhearty solar farm was damaged and
will be repaired by a chosen EPC contractor, appointed by the
Investment Adviser. An insurance claim has been initiated, which
the Investment Adviser expects to cover the majority of
reconstruction costs and lost revenue resulting from plant
downtime.
Short/Medium-Term Power Purchase Agreements
NESF continues to lock in power price hedges over a 36-month
period at levels above the independent market consultant's
predicted levels. This proactive risk mitigation helps secure and
underpin both dividend commitments and dividend cover, whilst
reducing volatility and increasing visibility of cash flows.
NextEnergy Group'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 fixed price contracts, hedging under the trading
contracts and nine FiT sites opted into the export tariff.
FY2022/ FY2023/ FY2024/
UK hedging summary(1) 2023 2024 2025
Generation hedged
(%) 85% 74% 42%
Average fixed price GBP78 GBP73 GBP86
(GBP/MWh)
1 Covers 83% of total portfolio (716MW) as at 15 June 2022
For the year ended 31 March 2022, the Italian portfolio derived
c. 85% of revenues from subsidised revenues (principally FiTs) and
c. 15% of revenues resulted from the sale of electricity under
fixed price agreements covering 100% of its Italian electricity
generation for calendar year 2022 at a weighted average fixed price
of c.EUR64/MWh (2021: EUR45/MWh).
OFGEM Audits
During the year, no material adjustments to the NAV were made as
a result of Office of Gas and Electricity Markets ("OFGEM") audits.
Since IPO, the majority of OFGEM audits have been successfully
signed-off without impacting ROC accreditations. The NextEnergy
Group has experienced staff who deal with the ongoing audits.
Engagement with OFGEM is through professional advisers and senior
NextEnergy Group staff. The team has identified and mapped
contractual recourse associated with identified risk of loss for
completed and ongoing 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 to its portfolio. As at 31 March 2022, the Company
had 64MW of operating subsidy-free assets. Whitecross, a 36MW,
subsidy-free utility solar asset, located in Lincolnshire, has now
commenced construction. The Company has also commenced with the
grid connection works and construction mobilisation phase of
Hatherden, a 50MW subsidy-free solar farm.
Whitecross (36MW) will join the Company's other three operating
subsidy-free solar assets, Staughton (50MW), High Garret (8.4MW),
and Hall Farm 2 (5.4MW), which together with Whitecross comprise
c.100MW of NESF's 150MW target in subsidy-free solar capacity.
The original construction date of the asset was deferred from H2
2021 due to material volatility in the solar PV module supply chain
post Covid-19 which has since stabilised. The asset is now expected
to be energised during the first quarter of 2023 and will generate
electricity for approximately 10,000 households' yearly electricity
consumption with renewable power.
Following a rigorous selection process, NESF selected Jinko
Solar to supply solar modules to Whitecross, having agreed to the
adoption of NESF's Supplier Code of Conduct policies and
procedures. NESF continues to implement high ESG and technical
standards within its supply chain process, as well as its
investment decision making processes.
Whitecross will benefit from the latest available solar
technology from Jinko Solar called 'N-type solar cells', a
bi-facial solar technology offering superior power density and
efficiency with a recently set world record for solar cell
efficiency. NESF will receive long-term benefits from this
technology as it decreases the land footprint necessary for
Whitecross's installed capacity, optimising land use and
performance of the solar asset. Crucially, Whitecross will rapidly
bring extra power capacity to the market and contribute to the
reduction of fossil fuels used for power generation in the UK,
against the current backdrop of unprecedented and sustained higher
power prices.
NextEnergy Capital is one of the leading constructors of
post-subsidy solar in the UK market. We continue to push forward
with the next wave of solar deployment in the UK, delivering
tangible progress in the UK's drive to Net Zero power
production.
The NextEnergy Group's Head of Energy Sales is responsible for
managing the strategy for the sale of electricity from all assets.
Details on the power price risk management strategy can be found at
the bottom of this section and in note 22(b) to the Financial
Statements below.
Managing NESF's merchant market exposure
PPA sourcing and structuring Energy and market risk Market and pricing analysis
management
Run competitive off-taker We measure, monitor and NEC provides pricing
selection processes through manage merchant exposure for NESF projects, supported
our extensive network through selling at spot, by multiple independent
in the solar industry entering into short-term, short and long-term third-party
Quantitative evaluation medium-term and long-term power price forecasts
of the offers in terms PPAs Undertake rigorous analysis
of risk and reward and Constant dialogue with and monitoring of the
devise optimal project-specific investors, banks and main drivers for power
solutions off-takers on developing prices in target markets
Individual view of market new and innovative structures Monitor policy/regulatory
price risks and opportunities for risk diversification developments in the UK
and delivery obligations to enable us to increase and other OECD target
in order to find the portfolio returns markets to obtain an
optimal PPA structure holistic energy market
overview
The Italian Solis Portfolio
In December 2017 the Company acquired the portfolio of eight
operating solar assets with an installed capacity of 34.5MW located
in Italy for a total value of EUR131.9m (equivalent to GBP116.2m).
The portfolio represented 10% of the Company's GAV as at 31 March
2022.
The key benefits of the Solis portfolio continue to be:
-- High risk-adjusted return: As at the 31 March 2022 valuation,
the net IRR of the Solis portfolio was 8.3%.
-- 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 2022, the Solis portfolio was
valued on a DCF basis with a discount rate of 7.25% (2021: 7.25%)
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
2031. The remaining 15% is from the sale of the merchant
electricity fed into the grid at market price or via PPAs to other
market participants thus there is low revenue risk. In addition,
low operating costs result in stable EBITDA margins in excess of
80%.
International Solar Co-investments
In June 2021, the Company made a commitment of US$50m to
NextPower III ("NextPower III"), a private equity solar fund
focused on utility scale solar assets in OECD markets to provide an
opportunity to efficiently access an established portfolio of
operational and in-construction international solar assets. This
commitment also unlocked attractive co-investment opportunities on
a direct investment basis alongside NextPower III and other
investors in the fund, on a no-fee, no carry basis.
In January 2022, the Company announced its first co-investment
consisting of a 24.5% stake in a Spanish 50MW utility scale solar
project, Agenor. The commitment allows NESF to take advantage of
the vehicle's expertise in sourcing attractive international
opportunities through access to its pipeline of assets. Agenor is
currently under construction in Cádiz, Spain and is expected to be
energised during 2022. The opportunity will benefit NESF in the
following ways:
-- Low revenue risk via an initial 5-year PPA with a high-credit
counterparty for c.70% of contracted volumes
-- Additional geographical diversification, complementing the
Company's commitment into the international solar private equity
fund, NextPower III, and its investment in the Italian portfolio,
Solis.
Post the year end, the Company also announced a c.13% stake in
Santarem, another co-investment with NextPower III, a 210MW solar
asset in Portugal. Energisation of the project is expected to take
place in Q2 2023. Once energised, Santarém is expected to benefit
from a long-term PPA for the sale of electricity which is currently
being negotiated with a robust creditworthy counterparty.
NESF's RPI inflation assumptions
2028- 2030
Year ending 2022 2023 2024 2025 2026 2027 2030 onwards
31 March 2021 3.00% 2.90% 2.90% 2.80% 2.80% 3.00% 3.00% 3.00%
31 March 2022 4.10% 8.00% 3.70% 3.30% 3.40% 3.30% 3.00% 2.25%
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
for review and 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 except for NextPower III which is valued using the
estimated attributable NAV. 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.
As at 31 March As at 31 March
Portfolio valuation - key assumptions 2022 2021
UK long-term inflation 2.25% 3.0%
UK short-term inflation (1 year
horizon) 8.0% 3.0%
Weighted average discount rate 6.3% 6.3%
Weighted average asset life 27.3 years 27.5 years
UK short-term power price average GBP105.2/MWh GBP47.1/MWh
(2022-2026) (real 2022) (real 2022)
UK long-term power price average GBP44.3/MWh GBP47.8/MWh
(2027-2041) (real 2022) (real 2022)
Italy power price average (20 EUR60.8/MWh EUR46.1/MWh
years) (real 2022) (real 2022)
19% until 2023,
UK corporation tax rate 25% thereafter 19%
Portfolio valuation bridge for the year ended 31 March 2022
Forecasted power prices methodology
For the UK portfolio, we use multiple sources for UK power price
forecasts. At the short end (up to three years), 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 year two we use a rolling blended average of three
leading independent energy market consultants' long-term central
case projections. This approach allows mitigation of any delay in
response from the three independent market forecasters used by the
Company ("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 asset
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 asset 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 increase from c. GBP66.4/MWh in
April 2021 to GBP250.4/MWh in March 2022 (see graph below).
Forecast UK power prices (real 2022)
On average, the Company's current UK long-term power price
represents an increase of 25.1% compared to last year (and -37.2%
below the average price used at IPO).
Historic - Italian power prices
The Italian price of electricity increased from approximately
EUR69.0/MWh in April 2021 to EUR308.9/MWh in March 2022 (see graph
below).
Forecast Italian power price (real 2022)
On average, the Company's current Italian long-term power price
represents an increase of 23.8% compared to that used at the end of
the previous financial year.
% of NESF revenue fixed until 31 March 2023
NESF 10-year forecast revenue breakdown
Discount rate
During the year, the Company maintained the discount rate for
unlevered operating UK solar assets at 5.75% (2021: 5.75%)
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 dynamics were evidenced by the experience of the
Investment Adviser when bidding for solar assets in the UK.
Discount rate As at 31 March As at 31 March
assumptions Premium 2022 2021
UK unlevered - 5.75% 5.75%
UK levered 0.7-1.0% 6.45-6.75% 6.45-6.75%
Italy unlevered(1) 1.5% 7.25% 7.25%
Subsidy-free (uncontracted)(2) 1.0% 6.75% 6.75%
Life extensions(3) 1.0% 6.75-7.75% 6.75-7.75%
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% (2021: 6.3%). 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
leveraged assets or geared portfolios. However, for the purposes of
transparency, the Company's pre-tax WACC as at 31 March 2022 was
5.3% (2021: 5.4%).
The Company has not included the impact of the discount rates
used in the NextPower III investment, as the Company has no control
or influence over these rates and a weighted average discount rate
is not produced by NextPower III, as their underlying investments
are in multiple geographies.
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 assets (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 assets
have satisfied tests and received Final Acceptance Certification
("FAC").
During the year, FACs were closed for nine sites, across 89.95MW
with a retention of GBP417k secured across all the projects.
As at 31 March 2022, 78 UK solar assets and all eight Italian
solar assets (totalling 647MW) 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 2022 -
Financial quarter ending September
2022 50
Financial quarter ending December
2022 90
2023 onwards 154
Total 294
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 2(d) to the Financial Statements below). 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 2022
The movement in the NAV was driven by the following factors:
-- An increase in UK power prices forecasts provided by three
Consultants, being on average 25% higher than the prior year. The
Company used the forecasts released by the Consultants up to the
date of preparation of this Annual Report;
-- the upward revision in short-term inflation forecasts;
-- 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 2022
The chart below shows the impact of the key sensitivities on the
NAV per ordinary share. Additional sensitivity analyses can be
found in note 19(b) to the Financial Statements below.
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.
Year ended Delta
31 March Actual per Budget per vs.
2022 MW(1) MW(1) Budget Comments
Actual solar
Solar irradiation
Irradiation [A] (kWh/m2) 1,241 1,200 +3.4% for the year
Represents Asset
Conversion Management Alpha
Factor(2) [B] (%) 72.2% 73.4% (1.6%) for the year(5)
Actual
[C] generation
= measured at the
Metered [A meter for the
Generation x B] (kWh) 896 880 +1.8% year
Power price Subsidies Power price Subsidies
Implied average
power price and
subsidies across
entire portfolio
(including ROCC
Recycle and
Realised (GBP/ Embedded
Prices [D] MWh) 70.6 77.2 51.2 76.3 +1.3% Benefits
[E]
Revenues =
(Subsidies, [C
PPAs, Etc.) x D] (GBP'000) 63.3 69.2 45.0 67.1 +3.1%
Actual revenues
at portfolio
level
for the year
Total (unaudited
Revenues [E] (GBP'000) 132.5 112.2 +18.1% figures per MW)
Actual costs at
portfolio level
for the year
Operating (unaudited
Expenses [F] (GBP'000) (28.0) (30.4)(4) (7.9%) figures per MW)
Actual EBITDA
[G] for
= the year
[E (unaudited
EBITDA(3) - F] (GBP'000) 104.5 81.7 +27.8% figures per MW)
EBITDA
Margin(3) 78.8% 72.9%
(1) Based on the average installed capacity 860 MW 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 asset 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.
(5) Asset Management Alpha for the year was negative due to
abnormal DNOO activity as explained above on the Investment
Adviser's report.
Operating results
Profit and comprehensive income for the year was GBP127.6m
(2021: GBP40.2m) with earnings per ordinary share of 21.69p (2021:
6.87p).
Operating expenses and ongoing charges
The operating expenses, excluding preference share dividends
paid by the Company, for the year amounted to GBP6.7m (2021:
GBP6.7m). The Company's Ongoing Charges Ratio was 1.1% (2021:
1.1%). The budgeted Ongoing Charges Ratio for the financial year
ending 31 March 2023 is 1.1%. The Ongoing Charges Ratio, which has
been calculated in accordance with the Association of Investment
Companies recommended methodology, is an Alternative Performance
Measure (see below).
For the year ended 31 March 2022, the fourth quarterly dividend
of 1.79p per ordinary share is expected to be paid on 30 June 2022
to ordinary shareholders on the register at the close of business
on 20 May 2022. 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 2022, the Company held cash of GBP19.6m 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 2022
and part of the Investment in HoldCos.
Year end 31 Year end
March 2022 31 March
Cash flows of the Company GBP'000 2021 GBP'000
Company cash balance
at 1 April 10,809 25,128
Investment in HoldCos 6,877 (35,570)
Received from HoldCos 57,735 77,814
Director's fees (212) (253)
Investment Manager fees (4,979) (5,157)
Administrative expenses (1,281) (3,565)
Dividends paid in cash
to ordinary shareholders (39,841) (38,062)
Preference share dividends (9,500) (9,526)
Company cash balance
at 31 March 19,608 10,809
NESF Group operating SPV's
The below table represents the unaudited consolidated financial
results of the Company's SPVs.
Year ended 31
Year ended 31 March 2021
March 2022
Unaudited
GBP'000 GBP'000
Total NESF Group revenue 114,286 96,384
EBITDA 89,966 74,433
EBIT 90,247 29,734
Cash income for the year(1) 65,792 59,490
(1) Cash distributed to the fund during the year.
Cash dividend cover
Year ended Pre-scrip dividends
31 March 2022 GBP'000 GBP'000
Cash income for year(1, 2) 65,792
Net operating expenses for year 6,690
Preference shares dividend 9,500
Net cash income available for
distribution 49,602
Ordinary shares dividend paid
during year 41,940
Cash dividend cover(2) 1.2x
(1) Cash income differs from the Income in the Statement of
Comprehensive Income as the latter is prepared on an accruals
basis. See below for further information.
(2) Alternative Performance Measure.
Dividend per ordinary share track record
(1) The period 2014/2015 was the first financial year following the Company's IPO.
(2) Target dividends for the financial year ending 31 March 2023.
Financing
Financial debt
At 31 March 2022, the NESF Group had financial debt outstanding
of GBP283m (2021: GBP246m), including NextPower III debt calculated
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
extraordinarily low power prices (less than c.GBP20/MWh). No
covenants breaches have occurred during the year.
Preference shares
At 31 March 2022, the Company had GBP200m of preference shares
outstanding (2021: 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.
From 1 April 2030, the Company may elect to redeem all or some
of the preference shares. Redemption of the preference shares by
the Company would provide an attractive uplift if the share price
is trading at a healthy premium. Benefits of the preference shares
for NESF included:
-- a reduction in the exposure to secured debt financing;
-- the fixed preferred dividend of 4.75p per preference share
being a significantly lower all-in annual cash cost to the Company
compared to issuing ordinary shares; and
-- the further optimisation of the Company's capital structure
and, over the long term, increase in cash flows available to fund
ordinary share dividends or for reinvestment compared to
refinancing with conventional long-term amortising financial debt,
thereby increasing the cash dividend cover
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(a) to the Financial Statements
below.
Total gearing
The financial debt, together with the preference shares,
represented a total gearing level of 42% (2021: 43%), which is
below the maximum limit of 50% in the Company's Investment
Policy.
Loan Amount
Provider/ to Value(2) out- Termi-
No. of nation
power Facility (inc.
assets amount standing options Applicable
arranger Type Borrower secured(1) (%) Tranches (GBPm) (GBPm) to extend) rate
Fully-amortising
MIDIS / long-term
CBA / NAB debt(3) NESH 21 (241MW) 44.2% Medium-term 48.4 42.3 Dec-26 2.91%(4)
Floating
long-term 24.2 24.2 Jun-35 3.68%(4)
Index-linked RPI +
long-term 38.7 34.2(5) Jun-35 0.36%
Fixed long-term 38.7 38.7 Jun-35 3.82%
Debt service
reserve
facility 7.5 - Jun-26 1.50%
Fully-amortising
long-term NESH RPI +
MIDIS debt(3) IV 5 (84MW) 40.9% Inflation-linked 27.5 19.9(5) Sep-34 1.44%
Fixed long-term 27.5 23.0 Sep-34 4.11%
Total long-term
debt 182.3
Revolving NESH LIBOR
Banco Santander credit facility VI 13 (100MW) N/a N/a 70.0 21.2 Jul-22 + 1.90%
Revolving NESH SONIA
Natwest/AIB(7) credit facility III 15 (98MW) N/a N/a 75.0 75.0 Jun-24 + 1.20%
Total short-term
debt 96.2
NextPower III look
through debt N/a N/a N/a N/a 4.8(6)
Total debt 283.3
1 NESF has 326MW under long-term debt financing, 198MW under
short-term debt financing and 343MW without debt financing
(excludes NextPower III look through debt).
2 Loan to Value defined as 'Debt outstanding / GA'.
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 22b) to the financial statements.
6 The total combined short and long-term debt in relation to
NESF's commitment into NextPower III (on a look through equivalent
basis).
7 Plus GBP25m accordion options.
Alignment of interest
As at 15 June 2022, NextEnergy Group employees held 317,961
shares in NextEnergy Solar Fund.
NextEnergy Capital Limited
24 June 2022
Operating Portfolio
Remaining
Installed life of
Announcement capacity Cost plant
Power plant Location date Subsidy/PPA1 (MW) (GBPm) (Years)
Higher
1 Hatherleigh(3) Somerset May-14 1.6 6.1 7.3 16.0
2 Shacks Barn3 Northamptonshire May-14 2.0 6.3 8.2 15.3
3 Gover Farm3 Cornwall Jun-14 1.4 9.4 11.1 17.6
4 Bilsham3 West Sussex Jul-14 1.4 15.2 18.9 22.2
5 Brickyard3 Warwickshire Jul-14 1.4 3.8 4.1 17.6
6 Ellough3 Suffolk Jul-14 1.6 14.9 20.0 26.9
7 Poulshot3 Wiltshire Sep-14 1.4 14.5 15.7 16.9
8 Condover3 Shropshire Oct-14 1.4 10.2 11.7 17.6
9 Llywndu Ceredigion Dec-14 1.4 8.0 9.4 27.7
Cock Hill
10 Farm Wiltshire Dec-14 1.4 20.0 23.6 17.4
11 Boxted Airfield3 Essex Dec-14 1.4 18.8 20.6 18.0
12 Langenhoe3 Essex Mar-15 1.4 21.2 22.9 33.0
13 Park View3 Devon Mar-15 1.4 6.5 7.7 32.8
14 Croydon3 Cambridgeshire Mar-15 1.4 16.5 17.8 17.7
Hawkers
15 Farm3 Somerset Apr-15 1.4 11.9 14.5 18.0
16 Glebe Farm3 Bedfordshire Apr-15 1.4 33.7 40.5 27.7
17 Bowerhouse3 Somerset Apr-15 1.4 9.3 11.1 33.0
18 Wellingborough3 Northamptonshire Jun-15 1.4 8.5 10.8 17.2
FiTs
19 Birch Farm3 Essex Oct-15 UK 5.0 5.3 18.2
Thurlestone FiTs
20 Leicester Leicestershire Oct-15 UK 1.8 2.3 11.1
21 North Farm3 Dorset Oct-15 1.4 11.5 14.5 32.7
Ellough
22 Phase 23 Suffolk Nov-15 1.3 8.0 8.0 33.6
FiTs
23 Hall Farm3 Leicestershire Nov-15 UK 5.0 5.0 38.4
FiTs
24 Decoy Farm3 Lincolnshire Nov-15 UK 5.0 5.2 34.0
FiTs
25 Green Farm Essex Nov-15 UK 5.0 5.8 19.0
26 Fenland2,4 Cambridgeshire Jan-16 1.4 20.4 23.9 18.3
27 Green End2,4 Cambridgeshire Jan-16 1.4 24.8 29.0 19.0
28 Tower Hill2,4 Gloucestershire Jan-16 1.4 8.1 8.8 18.0
29 Branston2,5 Lincolnshire Apr-16 1.4 18.9 32.6
Great
30 Wilbraham2,5 Cambridgeshire Apr-16 1.4 38.1 23.0
31 Berwick2,5 East Sussex Apr-16 1.4 8.2 97.9 19.5
32 Bottom Plain2,5 Dorset Apr-16 1.4 10.1 33.2
33 Emberton2,5 Buckinghamshire Apr-16 1.4 9.0 38.1
34 Kentishes Essex Nov-16 1.2 5.0 4.5 39.5
35 Mill Farm Hertfordshire Jan-17 1.2 5.0 4.2 34.8
36 Bowden Somerset Jan-17 1.2 5.0 5.6 34.7
37 Stalbridge Dorset Jan-17 1.2 5.0 5.4 34.7
38 Aller Court Somerset Apr-17 1.2 5.0 5.5 20.0
39 Rampisham Dorset Apr-17 1.2 5.0 5.8 20.5
40 Wasing Berkshire Apr-17 1.2 5.0 5.3 24.7
41 Flixborough South Humberside Apr-17 1.2 5.0 5.1 25.8
42 Hill Farm Oxfordshire Apr-17 1.2 5.0 5.5 29.9
FiTs
43 Forest Farm Hampshire Apr-17 UK 3.0 3.3 30.0
FiTs
44 Birch CIC Essex Jun-17 UK 1.7 1.7 18.2
45 Barnby Nottinghamshire Jun-17 1.2 5.0 5.4 20.3
46 Bilsthorpe Nottinghamshire Jun-17 1.2 5.0 5.4 20.7
47 Wickfield Wiltshire Jun-17 1.2 4.9 5.6 21.1
48 Bay Farm Suffolk Aug-17 1.6 8.1 10.5 31.9
49 Honington Suffolk Aug-17 1.6 13.6 16.0 31.3
Macchia FiTs
50 Rotonda2,6 Apulia Nov-17 Italy 6.6 13.8
FiTs
51 Iacovangelo2,6 Apulia Nov-17 Italy 3.5 14.1
FiTs
52 Armiento2,6 Apulia Nov-17 Italy 1.9 14.1
FiTs
53 Inicorbaf2,6 Apulia Nov-17 Italy 3.0 116.2 13.9
Gioia del FiTs
54 Colle2,6 Campania Nov-17 Italy 6.5 14.6
FiTs
55 Carinola2,6 Apulia Nov-17 Italy 3.0 14.6
FiTs
56 Marcianise2,6 Campania Nov-17 Italy 5.0 14.5
FiTs
57 Riardo2,6 Campania Nov-17 Italy 5.0 14.5
Gilley's
58 Dam Cornwall Dec-17 1.3 5.0 6.4 32.7
Pickhill
59 Bridge Clwyd Dec-17 1.2 3.6 3.7 19.9
60 North Norfolk Norfolk Feb-18 1.6 11.0 14.6 22.6
61 Axe View Devon Feb-18 1.2 5.0 5.6 25.4
62 Low Bentham Lancashire Feb-18 1.2 5.0 5.4 23.9
63 Henley Shropshire Feb-18 1.2 5.0 5.2 24.2
Pierces FiTs
64 Farm Berkshire May-18 UK 1.7 1.2 17.1
65 Salcey Farm Buckinghamshire May-18 1.4 5.5 6.5 17.1
66 Thornborough Buckinghamshire Jun-18 1.2 5.0 5.7 19.0
67 Temple Normaton Derbyshire Jun-18 1.2 4.9 5.6 19.3
Fiskerton
68 Phase 1 Lincolnshire Jun-18 1.3 13.0 16.6 28.0
Huddlesford
69 HF Staffordshire Jun-18 1.2 0.9 0.9 18.8
70 Little Irchester Northamptonshire Jun-18 1.2 4.7 5.9 19.8
FiTs
71 Balhearty Clackmannanshire Jun-18 UK 4.8 2.6 28.8
72 Brafield Northamptonshire Jun-18 1.2 4.9 5.8 19.7
Huddlesford
73 PL Staffordshire Jun-18 1.2 0.9 0.9 19.0
74 Sywell Northamptonshire Jun-18 1.2 5.0 5.9 19.1
FiTs
75 Coton Park Derbyshire Jun-18 UK 2.5 1.1 19.1
76 Hook2,4 Somerset Jul-18 1.6 15.3 21.8 32.0
77 Blenches2,4 Wiltshire Jul-18 1.6 6.1 7.8 16.7
78 Whitley2,4 Somerset Jul-18 1.6 7.6 10.4 31.7
79 Burrowton2,4 Devon Jul-18 1.6 5.4 7.3 16.5
80 Saundercroft2,4 Devon Jul-18 1.6 7.2 9.6 31.9
81 Raglington2,4 Hampshire Jul-18 1.6 5.7 8.1 31.8
FiTs
82 Knockworthy2,4 Cornwall Jul-18 UK 4.6 6.6 16.0
Chilton FiTs
83 Canetello2,4 Somerset Jul-18 UK 5.0 9.0 30.3
FiTs
84 Crossways2,4 Dorset Jul-18 UK 5.0 10.0 30.3
FiTs
85 Wyld Meadow2,4 Dorset Jul-18 UK 4.8 7.1 31.3
FiTs
86 Ermis Rooftop Portfolio Aug-18 UK 1.0 3.0 14.6
FiTs
87 Angelia Rooftop Portfolio Aug-18 UK 0.2 0.6 14.5
1.4
88 Ballygarvey County Antrim Aug-19 NIROCs 8.2 8.5 25.8
89 Hall Farm(2) Leicestershire Aug-19 Subsidy-free 5.4 2.5 37.3
90 Staughton Bedfordshire Dec-19 Subsidy-free 50.0 27.4 36.9
91 High Garret Essex Oct-20 Subsidy-free 8.4 4.1 33.0
Long-term
92 Marham Norfolk Mar-21 PPA 1.0 0.7 23.7
Long-term
93 Sutterton Lincolnshire Mar-21 PPA 0.4 0.3 23.9
Long-term
94 The Grange Nottinghamshire Mar-21 PPA 50.0 32.1 38.8
Long-term
95 South Lowfield Yorkshire Mar-21 PPA 50.0 29.6 39.2
FiTs
96 Newfield Cheshire May-21 UK 0.2 0.2 22.4
FiTs
97 JSC Worcestershire May-21 UK 0.04 0.04 17.4
98 Karcher Oxfordshire Aug-21 Subsidy-free 0.3 0.2 23.0
99 Dolphin East Sussex Aug-21 Subsidy-free 0.2 0.2 24.6
Subtotal 865.0 999.4 27.3(7)
Private Equity Multiple
Investment (NextPower long-term
III)8 OECD Markets Jun-21 PPAs 19.2 17.4 n/a
Total 884.2 1,016.8 27.3(7)
(1) ROCs, unless otherwise stated. (5) Part of the Radius portfolio.
An explanation of the ROC subsidy (6) Part of the Solis portfolio.
is available at (7) Average years remaining.
www.ofgem.gov.uk/environmental-programmes/renewables-obligation-ro. (8) 19.2MW represents the proportion
(2) With project level debt. of NextPower III operational assets
(3) Part of the Apollo portfolio. owned by NESF on a look through equivalent
(4) Part of the Thirteen Kings portfolio. basis as at 31 March 2022. NextPower
III is a portfolio of assets at different
stages of their project life cycle.
Portfolio Generation Performance
Year ended 31 March 2022 Since acquisition
Generation Solar Generation Solar Generation
(GWh) irradiation delta irradiation delta
Operational Acquisition delta (%) delta (%)
Power plant date date (%) (%)
Higher
1 Hatherleigh Apr-14 May-14 5.7 4.1 1.1 1.4 4.5
Shacks
2 Barn May-14 May-14 5.9 1.2 5.4 2.6 7.9
Gover
3 Farm Jan-15 Jun-14 9.2 6.4 2.6 3.2 1.2
4 Bilsham Jan-15 Jul-14 16.7 6.4 9.7 5.0 5.9
5 Brickyard Jan-15 Jul-14 3.6 2.7 5.9 3.2 6.0
6 Ellough Jul-14 Jul-14 14.0 1.6 -1.9 0.8 5.1
7 Poulshot Apr-15 Sep-14 13.8 0.5 4.7 0.8 5.1
8 Condover May-15 Oct-14 9.6 1.8 3.3 0.3 1.0
9 Llywndu Jul-15 Dec-14 8.1 0.2 9.9 -3.0 3.8
Cock Hill
10 Farm Jul-15 Dec-14 20.3 3.5 7.4 3.0 5.0
Boxted
11 Airfield Apr-15 Dec-14 18.2 1.7 4.0 3.3 5.5
12 Langenhoe Apr-15 Mar-15 21.6 5.5 8.5 6.0 9.0
13 Park View Jul-15 Mar-15 6.7 1.9 4.5 -1.4 1.2
14 Croydon Apr-15 Mar-15 15.1 5.8 2.5 6.1 6.8
Hawkers
15 Farm Jun-15 Apr-15 12.0 2.9 3.6 0.6 3.7
Glebe
16 Farm May-15 Apr-15 33.8 7.7 11.6 6.4 12.0
17 Bowerhouse Jul-15 Jun-15 8.4 5.3 -5.9 3.1 -0.1
18 Wellingborough Jun-15 Jun-15 8.3 2.6 7.0 2.4 5.1
Birch
19 Farm Sep-15 Oct-15 5.0 3.4 6.5 4.2 6.3
Thurlestone
20 Leicester(1) Oct-15 Oct-15 1.5 0.0 -1.1 0.0 -0.1
North
21 Farm Oct-15 Oct-15 10.8 -1.5 -11.4 -2.7 -4.3
Ellough
Phase
22 2 Aug-16 Nov-15 8.5 7.3 14.5 8.2 12.6
23 Hall Farm Apr-16 Nov-15 3.7 4.1 -14.0 3.8 0.4
Decoy
24 Farm Mar-16 Nov-15 4.9 4.4 9.1 4.7 9.4
Green
25 Farm Dec-16 Nov-15 4.9 2.6 1.6 3.4 4.0
26 Fenland Jan-16 Jan-16 20.7 4.4 8.3 5.0 9.2
Green
27 End Jan-16 Jan-16 21.7 2.9 -6.3 4.6 3.1
Tower
28 Hill Jan-16 Jan-16 8.1 3.5 7.6 3.4 6.9
29 Branston Mar-16 Apr-16 19.1 6.1 10.0 6.0 6.8
Great
30 Wilbraham Mar-16 Apr-16 36.1 3.7 1.1 5.1 5.3
31 Berwick Mar-16 Apr-16 9.1 1.9 7.3 4.6 9.3
Bottom
32 Plain Mar-16 Apr-16 10.4 5.1 2.8 3.4 3.8
33 Emberton Mar-16 Apr-16 7.9 2.7 -6.3 4.1 2.3
34 Kentishes Jul-17 Nov-16 5.2 3.5 5.4 5.3 6.1
35 Mill Farm Jul-17 Jan-17 5.0 5.8 6.5 8.0 10.3
36 Bowden Sep-17 Jan-17 5.2 -0.2 0.2 0.2 1.2
37 Stalbridge Sep-17 Jan-17 5.3 -0.2 5.0 0.6 6.1
Aller
38 Court Sep-17 Apr-17 5.3 3.3 4.6 3.4 5.0
39 Rampisham Sep-17 Apr-17 5.2 -2.8 -0.9 -2.0 -1.2
40 Wasing Aug-17 Apr-17 5.1 1.2 5.0 5.4 8.9
41 Flixborough Aug-17 Apr-17 5.0 6.1 8.0 5.3 7.9
42 Hill Farm Mar-17 Apr-17 5.1 2.1 7.4 6.0 8.4
Forest
43 Farm Mar-17 Apr-17 3.1 2.0 6.9 4.3 8.4
Birch
44 CIC May-17 Jun-17 1.7 3.1 3.6 5.0 4.6
45 Barnby Aug-17 Jun-17 4.9 3.8 7.7 4.3 4.7
46 Bilsthorpe Aug-17 Jun-17 4.9 4.0 5.4 4.1 6.0
47 Wickfield Mar-17 Jun-17 4.9 1.9 3.0 5.1 4.7
48 Bay Farm Sep-17 Aug-17 8.0 2.2 8.4 6.5 8.2
49 Honington Sep-17 Aug-17 13.2 0.4 3.7 3.4 3.8
Macchia
50 Rotonda Nov-17 Nov-17 9.0 6.9 -3.7 6.1 2.7
51 Iacovangelo Nov-17 Nov-17 5.2 5.0 4.2 4.4 6.0
52 Armiento Nov-17 Nov-17 2.9 5.9 7.4 5.2 7.4
53 Inicorbaf Nov-17 Nov-17 4.6 6.0 5.4 5.5 6.4
Gioia
54 del Colle Nov-17 Nov-17 9.6 2.6 3.8 0.9 3.8
55 Carinola Nov-17 Nov-17 4.0 2.5 -1.3 2.4 3.9
56 Marcianise Nov-17 Nov-17 7.0 1.4 2.6 2.5 3.7
57 Riardo Nov-17 Nov-17 6.8 1.4 -3.3 2.1 0.4
Gilley's
58 Dam Nov-17 Dec-17 5.0 -3.2 -2.2 -4.4 -2.3
Pickhill
59 Bridge Dec-17 Dec-17 3.7 5.5 9.2 4.7 8.1
North
60 Norfolk Dec-17 Feb-18 10.3 4.0 -0.7 6.1 6.6
61 Axe View Dec-17 Feb-18 5.2 6.4 7.7 5.6 7.2
62 Low Bentham Dec-17 Feb-18 4.7 6.2 4.5 2.5 3.5
63 Henley Jan-18 Feb-18 4.9 4.0 6.5 3.3 6.0
Pierces
64 Farm May-18 May-18 1.7 -1.0 4.1 2.9 6.8
Salcey
65 Farm May-18 May-18 5.3 2.6 2.4 7.8 5.4
66 Thornborough Jun-18 Jun-18 3.8 -1.0 -21.2 4.6 -7.6
Temple
67 Normaton Jun-18 Jun-18 3.9 3.4 -14.1 4.3 -4.8
Fiskerton
Phase
68 1 Jun-18 Jun-18 12.0 5.0 -2.9 7.6 0.7
Huddlesford
69 HF Jun-18 Jun-18 0.9 4.2 7.6 5.6 4.9
Little
70 Irchester Jun-18 Jun-18 4.3 -0.2 -6.8 4.1 -5.3
71 Balhearty Jun-18 Jun-18 3.4 3.6 -2.1 0.1 -9.0
72 Brafield Jun-18 Jun-18 4.8 4.0 -0.2 6.7 1.2
Huddlesford
73 PL Jun-18 Jun-18 0.9 3.6 1.8 5.2 2.3
74 Sywell Jun-18 Jun-18 5.1 1.5 4.9 5.9 2.3
Coton
75 Park Jun-18 Jun-18 2.3 -0.4 3.8 2.8 4.5
76 Hook Jul-18 Jul-18 15.2 2.5 -1.6 3.4 0.9
77 Blenches Jul-18 Jul-18 5.7 2.9 0.1 4.4 5.7
78 Whitley Jul-18 Jul-18 7.5 8.2 0.0 5.7 -0.2
79 Burrowton Jul-18 Jul-18 12.8 5.1 -0.2 4.3 1.1
80 Saundercroft Jul-18 Jul-18
81 Raglington Jul-18 Jul-18 4.9 -0.6 -19.1 3.1 -10.8
82 Knockworthy Jul-18 Jul-18 3.8 1.6 -20.5 1.8 -9.9
Chilton
83 Canetello Jul-18 Jul-18 5.4 5.4 3.2 4.8 5.2
84 Crossways Jul-18 Jul-18 5.5 3.6 0.8 3.5 3.2
85 Wyld Meadow Jul-18 Jul-18 4.7 0.2 -8.5 -1.0 -3.3
86 Ermis1 Aug-18 Aug-18 0.8 0.0 2.2 0.0 0.1
87 Angelia1 Aug-18 Aug-18 0.2 0.0 -2.6 0.0 2.4
88 Ballygarvey Mar-18 Aug-19 6.4 4.7 1.3 2.0 -1.5
89 Hall Farm Aug-19 Aug-19 4.0 10.4 -11.1 10.7 -1.2
90 Staughton Dec-19 Dec-19 49.4 10.2 7.2 8.4 5.2
91 High Garrett Oct-20 Oct-20 7.9 5.6 -0.4 6.3 -0.6
92 Marham2 Jan-21 Mar 21 - - - - -
93 Sutterton(2) Mar-21 Mar 21 - - - - -
94 The Grange Jan-21 Mar 21 11.0 -13.4 -12.7 -13.4 -12.7
South
95 Lowfield Jun-21 Jun-21 6.1 -7.1 -32.4 -7.1 -32.4
96 Newfield Apr-19 Apr-19 - - - - -
(NZ)1
97 JSC (NZ)1 Mar-19 Mar-19 - - - - -
98 Karcher Nov-19 Nov-19 - - - - -
(NZ)1
99 Dolphin Jul-21 Jul-19 - - - - -
(NZ)(1)
Subtotal 773 3.4 1.8 3.0 4.6
Private Equity Multiple Jun-21 - - - - -
Investment
(NextPower
III)3
Total 773 3.4 1.8 3.0 4.6
(1) Rooftop asset which is not monitored for solar irradiation.
(2) Assets which are yet to pass provisional acceptance
clearance (PAC) are not reported by the Asset Manager.
(3) NextPower III performance not included.
Sustainability and ESG
NESF Chairman ESG Foreword
The last 12 months has accelerated the need for and
understanding of, global renewable energy generation. Governments
and major economies around the world continue to step up their
support, with the UK becoming the first major economy to pass
net-zero emission laws, requiring all greenhouse gas emissions to
be net-zero by 2050. There has never been a more important time to
transition away from carbon emitting forms of energy and towards a
green, clean, energy supply.
Solar PV and Energy Storage play a huge part in this transition
and NESF is in a great position to continue providing a positive
impact. The Investment Adviser, NextEnergy Capital Limited,
continues to drive NESF forward, harnessing the team's in-depth
knowledge and skillset to add value and achieve the Company's
sustainability goals.
The year has been defined by a range of challenges, including
the ongoing impact of the global pandemic as well as the recent
supply chain consequences associated with the conflict in Ukraine.
Despite this continued uncertainty, NESF continues to see a
systemic shift towards the need for rapid action in recognition of
a stronger reliance on national, renewable, and sustainable energy
source, not only to address climate change. The current
geopolitical landscape has emphasised the importance of UK energy
security and independence. NESF's has 91 operating solar assets in
the UK, with additional operating solar assets in Italy and Spain,
and with its expansion into UK energy storage, strengthens the UK's
energy independence supply.
Environmental, Social and Governance matters are more important
than ever to our stakeholders and society. Tracking progress and
reporting impact change throughout NESF's value chain is a crucial
step in tackling climate change, driving accountability, and
ultimately delivering a sustainable future for generations to
come.
NESF's 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. NextEnergy Capital's ESG team is also
expanding, which will bring in new expertise and knowledge to help
implement and expand NESF's ESG strategy.
I am pleased that NESF achieved Article 9 status, having met the
strict requirements of the European Union Sustainable Finance
Disclosure Regulations this year. NESF is committed to continuing
any disclosure requirements for funds classified under Article 9.
Separate to this, NESF use the Macquarie Green Investment Group to
review and independently audit NESF's carbon related data to ensure
a high standard of transparency and continuity in relation to our
positive contribution to climate mitigation.
Josephine Bush joining during the year brings extensive ESG
knowledge to the NESF board of directors. Since her appointment,
the board has introduced an ESG Committee, which is chaired by
Josephine and supported by Giulia Guidi. The ESG committee ensures
constant dialogue and provides frequent updates on ESG issues to
the Board, ensuring ESG remains at the heart of NESF's
strategy.
This is an exciting period for NESF and we look forward to
continuing our leading and transparent approach in this space.
Kevin Lyon
24 June 2022
Introduction from Michael Bonte-Friedheim, CEO and Founder of
NextEnergy Group
As the world continues to adapt to the challenges of living with
an evolving geopolitical, environmental and social landscape, 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 Sustainable Development Goals
("SDGs"), progress against many of which has been detrimentally
affected by Covid-19. Furthermore, the conflict in Ukraine has
highlighted the importance of maintaining supply chain security,
delivering low risk economic returns and safeguarding social
inclusion. We believe that NESF's experience and global presence
will help to mitigate any ESG risks associated with sourcing and
securing contracts with global suppliers that have become more
prevalent in light of the challenges faced during the year and in
the future.
The development of reliable, sustainable and resilient
infrastructure is at the core of the recovery plan and NextEnergy
Group has 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 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
right for the future.
Our sustainability 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.
NESF actively supports the UK Government's net zero ambitions:
NESF can offer investors the opportunity to decarbonize their
portfolio and transition to a net zero economy. For the past 12
months, NESF has contributed to avoid emitting 328.7 ktCO(2) e to
the atmosphere. NESF also presented the benefits that an investment
in solar PV and sustainable energy provides beyond climate
mitigation: in particular, it explained how it continues to
contribute to the economic growth of the local area, increase
biodiversity value and encourages local community engagement.
NESF continues to be committed to enhance biodiversity and
achieve positive gain, contributing to build climate resilient
infrastructure. The core of NextEnergy Group'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.
We continue to increase our transparency in line with the EU
SFDR. NESF classifies under Article 9 of the SFDR, as a sustainable
investment with an environmental objective of climate mitigation:
in addition to the ESG Document published in March 2021, NESF is
committed to provide the relevant disclosure according to the
requirements of Article 9 of the SFDR. The Company has included its
full TCFD report below.
NESF ESG at a Glance 2021/22
Environmental Performance
773GWh clean energy 328.7ktCO(2) e 216,300 equivalent
generated avoided homes powered
Social Performance
GBP91,400 community 6 new O&M contracts GBP100,000 donated
funding (through signed for a total to the Foundation
SPVs) of GBP223k, generating
new jobs
Governance performance
Total board meetings during Gender diversity
the year - 31 40% female at
board level
NESF's Sustainability Framework
Solar energy has a pivotal role to play in responding to rapidly
increasing energy demand while addressing the global climate
agenda. In their recent 'Net Zero by 2050' report, the
International Energy Agency ("IEA") forecasted annual additions of
630 gigawatts of solar PV installations by 2030, four-times the
record levels set in 2020. NESF's commitment to contribute to
climate change mitigation ties into our broader ESG objectives we
have set within NextEnergy Group's business practices in order to
develop a sustainable energy investment strategy.
Following a materiality assessment, we built NESF and NextEnergy
Group's sustainability commitment around three fundamental pillars
(see below): climate change, biodiversity and human rights. These
are macro drivers for our sustainable agenda, either because they
represent an opportunity, or because they represent a risk. 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 NESF Group's
sustainability framework, NESF refers to the UN 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.
NESF pays particular attention to any ESG risks associated with
its supply chain and maintains active dialogue by engaging with key
stakeholders.
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.
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 greenhouse gas ("GHG")
emissions avoided for the portfolio. NESF has expanded its
reporting to include also historical GHG emission avoided as well
as the carbon emission associated with its portfolio, namely the
GHG emission 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. NESF aims to align its practice with the
objective of the TNFD, and considers the framework throughout all
stages of investment and asset management.
Human Rights and Modern Slavery:
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 NESF 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.
NESF pays particular attention to any ESG risks associated with
its supply chain and maintains active dialogue by engaging with key
stakeholders.
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 NextEnergy Group team confirms this exclusion at the
earliest stage of site selection.
In line with NextEnergy Group'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 prior to construction. These two
exclusions are very unlikely to happen in the UK.
ESG responsibilities reside with the Head of ESG at NextEnergy
Capital Limited, the Investment Adviser. The Head of ESG reports
directly to NextEnergy Group's CEO and is also a member of the
Company's investment committee. More details on the governance of
ESG can be found in the governance sector below.
1 https://www.nextenergysolarfund.com/modern-slavery-statement/
ESG Integration
By integrating NextEnergy Group's Sustainable Investment Policy
into NESF's investment and development process, we are ensuring
sustainable growth can be delivered over the long-term. A dedicated
team works alongside the investment team to ensure any Principal
Adverse Impact ("PAI") is identified, managed, and reported. 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.
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 using computer-based
geographic information system modelling tools, and site assessments
are used to review and exclude inappropriate sites during early
stages of development.
Supply chain
In line with our mission of creating a more sustainable future
by leading the transition to clean energy, NextEnergy Group has
been at the forefront of integrating ESG considerations into its
investment process, including the supply chain.
A supply chain risk management approach consistent with the NESF
Group's sustainability framework has been developed and applied
from an early stage. We approach supply chain considerations
through two parallel processes: ongoing ESG due diligence at asset
and portfolio level and an extensive stakeholder engagement
process.
NESF's suppliers have to fulfil two main conditions: abide by
the NESF Group Code of Conduct for Suppliers and respond
satisfactorily to our ESG due diligence.
In addition to due diligence for each individual investment, the
supply chain specific due diligence is undertaken with key selected
manufacturers with which NESF and the NESF Group have signed 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 of the supply chain and materials
used during production. In addition, in 2021, the ESG team has
worked closely with the procurement team and with WiseEnergy's
commercial team to define the ESG criteria for the selection of
O&M's to manage NESF solar assets. Finally, NESF consistently
applies a contractual obligation in each agreement for suppliers to
abide by our Code of Conduct.
NESF is strongly 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 but also by our active participation in sector-level
initiatives aimed to increase transparency and traceability of the
sector.
NESF strongly believes that supply chain management can be
tackled collectively through a process that requires a long-term
commitment and willingness to influence market changes to eradicate
human rights abuses and raise labour practices and standard
globally. This is particularly true for our Tier 2 and 3 suppliers,
for which it is not always possible to obtain transparent and
verifiable information. NextEnergy Group's head of ESG continues to
act as the chair of the SEUK task group on Responsible Sourcing and
to contribute to the supply chain monitoring programme set up
jointly by SEUK and Solar Power Europe ("SPE"). The programme has
started in September 2021 and aims to progress in Q2 2022 with the
launch of a pilot phase through which key suppliers will be audited
according to selected ESG standards. Full details of this
initiative should be made publicly available by the end 2022.
Furthermore, NextEnergy Group continued to extend our due
diligence process to our supply chain, including module, inverter
and battery suppliers, strengthening the existing due diligence
questionnaire to align it to the SEUK and SPE programme.
We continue to monitor our suppliers and engage with them to
ensure the highest levels of ESG standards are adhered to. Given
our track record and the track record of our dedicated ESG team, we
believe we are at the forefront of ensuring engagement and change
where unacceptable practices are identified throughout our sector
and supply chain.
Transparency
NESF & SFDR - Article 9 Fund
The Sustainable Finance Disclosure Regulation ("SFDR") has come
into force on 10 March 2021, requiring financial market
participants to disclose on ESG policies and practices. NESF has
published an ESG Disclosure document on its website and has made
the relevant disclosure in the annual report as well as
pre-contractual disclosure. This document outlines how NESF aligns
with the EU Taxonomy, in particular how it substantially
contributes to climate mitigation, how it does no significant harm
("DNSH") to the other 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,
implementation of the OECD Guidelines for Multinational
Enterprises, and the UN Guiding Principles on Business and Human
Rights.
NESF classify under Article 9 of the SFDR and starting from this
year, it has disclosed according to Annex III and V of the SFDR and
Taxonomy Regulatory Technical Standard ("RTS"). Please refer to the
NESF website for the relevant disclosure. To continue to increase
transparency, an FAQ document has been published on the fund
website to clarify how NESF is planning to comply with future EU
SFDR requirements.
Stakeholder Engagement and Stewardship
NESF regularly engages with key stakeholders, including the UK
Government and leading UK industry associations, such as Solar
Energy UK ("SEUK"). During the reporting year, several members of
NESF's staff engaged with SEUK across various workstreams,
including one employee who chairs the SEUK Natural Capital Working
Group, while others are involved with supporting SEUK 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 Fund involved in
several consultations with the UK Government on the Contracts for
Difference scheme, as well as leading negotiations with the
Valuation Office Agency on the revised ratings list for solar,
network charging and cost modelling. In addition, the NextEnergy
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
Accountability and Governance
Responsibility for NESF's ESG risk management, reporting and
stakeholder engagement falls within NextEnergy Group's ESG
team.
The Head of ESG, Giulia Guidi, reports to NextEnergy Group's CEO
and is responsible for setting the strategy and for implementing
the Sustainable Investment Policy for the NESF 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 weekly with the investment team
and at least bi-weekly 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 NESF 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 three resources, Giulia Guidi, with
more than 20 years of combined experience in ESG risk management in
the financial sector, David Hawkins, with 10 years of
sustainability and environmental experience in the energy sector,
and Phoebe Wright, the ESG Analyst for the NextEnergy Group. The
team plans to hire an associate by Q4 2022. An additional resource
is responsible for NextEnergy Foundation.
ktCO2e avoided
since IPO Units
1,818 ktCO(2)
e
Green impact: historic performance
Metric Units FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021 FY2022
GHG ktCO(2)
avoided e 30.6 110.0 191.4 211.2 299.4 307.7 317.6 328.7
NOx
avoided tonnes 41.3 108.3 176.3 193.1 276.5 274.4 283.4 296.3
Sox
avoided tonnes 94.1 214.4 335.8 365.9 499.2 511.9 527.5 549.7
PM2,5 tonnes 2.4 8.4 14.5 15.9 22.6 23.2 24.0 25.2
PM10 tonnes 0.9 2.3 3.7 4.0 5.6 5.8 5.9 6.2
Fossil
Fuels tonnes
avoided oil equivalent 13.0 46.9 81.6 90.0 127.7 131.2 135.9 142.8
million
barrels 0.10 0.34 0.60 0.66 0.94 0.96 1.00 1.05
Environmental, Social and Governance Factors
This year we have decided to publish a standalone ESG report to
provide an extensive overview on our sustainability strategy and a
deep dive on how the Company consider E, S and G factors. Here
below is a summary of the key ESG aspects that are driving our
business.
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 CO2e 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
greenhouses scope 1, 2 and 3. NESF's carbon footprint throughout
the lifecycle is minor, and we aim to start collecting additional
data from SPV's suppliers 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 via a
consistent Climate Change Risk Screening process. All sites are
designed using a 100-year flood projection to account for projected
climate-induced risks.
More information on how the Company considers climate related
risks is included in the TCFD report below.
Biodiversity : NextEnergy Group 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. These
specialists help to design and implement bespoke and effective
measures that develop, repair and connect local wildlife, habitats
and ecosystems. In Q1 2022 a new Environmental Impact Manager has
been hired within the investment team to give stronger
consideration on how the Company contributes to value its natural
capital. 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. NextEnergy Group has developed a specific
Universal Biodiversity Management Plan ("UBMP") for NESF sites with
the objective of extending it to a larger number of assets over
years. Our UBMP also exists to improve local stakeholder
relationships by educating the community on the benefits of
transforming solar assets into ecosystem-friendly assets. During
the asset's operational lifetime, schemes are also designed to
allow sheep grazing and 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.
This approach makes up part of NextEnergy Group's wider
Biodiversity Strategy which works to support the UK Government's
25-year Environmental Plan1. The Company aims to align its already
strong biodiversity strategy with the framework proposed by the
Task Force on Nature related Financial Disclosure "TNFD".
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, aluminium 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. 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 work with our counterparties to
ensure that they abide by our human rights related principles, as
outlined in NESF's Modern Slavery Statement, NextEnergy Group's
Sustainable Investment Policy and NESF Human Rights Statement. To
this extent, NextEnergy Group has included human rights related
criteria into our solar PV module framework agreements (see 'Supply
chain'). We have also added an obligation for our EPC and O&M
contractors and all suppliers to respond to our ESG Due Diligence
and to abide by our Code of Conduct for suppliers, which include
amongst others, environmental, working condition and human rights
related standards.
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 NextEnergy Group'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.
(1)
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/693158/25-year-environment-plan.pdf
Task Force on Climate-Related Financial Disclosures ("TCFD")
The challenge posed by climate change necessitates a complete
transformation of the way the world produces and consumes energy.
In August 2021, the United Nations' Intergovernmental Panel on
Climate Change ("IPCC") published their Sixth Assessment Report,
which stated "global warming of 1.5˚C and 2˚C (before
pre-industrial levels) will be exceeded during the 21st century,
unless deep reductions in CO2 and other greenhouse gas emissions
occur in the coming decades. The transition to a low-carbon economy
is imperative to make meaningful reductions in global greenhouse
gas concentrations, minimise long-term climate change impacts, and
enable a development trajectory that is sustainable on a global
scale.
The Company sees renewable energy as having a crucial role to
play in the low-carbon transition and in providing economic
opportunities that support governmental mandates such as the UK
net-zero target by 2050.
To be a leader in ESG and responsible investment space,
accountability is paramount. The Investment Manager has delivered
on increased transparency and reporting as this constitutes a
valuable addition to existing disclosures, including a broad set of
policies and position statements, a set of SDGs to report on our
impact and contribution to the SDGs and an ESG disclosures document
to confirm compliance with EU SFDR particularly Article 8 and
Article 9, as well as fund-level Green Impact Reports, which
discloses our contribution to climate mitigation.
The Company endeavours to communicate progress as we expand our
low-carbon businesses capabilities, develop our policy engagements,
build on our climate risk management strategies, expand our core
ESG metrics, and pursue engagements with investors, stakeholders
and the wider solar industry in order to collectively address the
climate challenge and promote the transition to a low-carbon
economy.
Introduction
The Company recognises that climate impacts should no longer be
considered non-financial and has been an official supporter of the
goals of the TCFD since September 2019. TCFD was established in
2015, with the aim of developing a comprehensive and uniform
framework for climate reporting, enabling investors and other
stakeholders to assess the companies' climate-related financial
risk. These risks may be categorised as follows:
Physical Risk: These are risks related to the changes to the
physical environment from the impacts of climate change in terms of
intensity or frequency of extreme events (acute risks) and
longer-term changes in climate (chronic risks).
Transition Risk: Moving towards a low carbon economy will entail
political, technological, legal, market and social changes that can
create risks and opportunities to existing businesses and their
underlying revenue streams.
The Company has been a leader within its sector for integrating
considerations on climate throughout its organisation and within
its decision-making processes. For the year ended 31 March 2022,
the Company responded to the 11 recommendations set out by TCFD,
with the ambition of continually expanding and evolving its
implementation and reporting in line with TCFD recommendations into
future reports.
Governance
1. The Board oversights climate related risks and
opportunities.
2. The Investment Manager assesses and manages climate related
risks and opportunities.
Board
Overall responsibility for NESF's performance and management
falls on the NESF board. Understanding climate risk management
processes is critical to the Board. ESG matters are more important
than ever to investors, 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. Climate considerations and progress updates
are discussed during ESG Committee meetings and quarterly meetings
with the Investment Manager. During such meetings risks related to
climate change are discussed.
Investment Manager/Adviser
The Investment Manager and Investment Adviser realise that the
integration of a climate and ESG strategy into NESF's governance
structures is imperative to effectively identify and manage
potential risks. Under the leadership of NextEnergy Capital's CEO,
climate -- related matters have been integrated into their
corporate Sustainability Framework, which is based on three pillars
- Climate Change, Biodiversity and Human Rights. Continuing this
emphasis within business principles, the ESG team has developed a
Climate Change Position Statement, which was first published in
March 20211. The Statement sets the ambitions, the reference
standards, and the practice that the Manager adopts when dealing
with climate-related risks and opportunities. The Investment
Manager's commitment to minimising both physical and transitional
climatic risks is evident not only in the nature of the business as
a leading solar investment manager, but also in the activities
undertaken by the individual departments of the business.
The CEO and senior management are the driving force behind the
conception of NESF's climate ambitions, while the Head of ESG is
responsible for the strategy execution and for updating the Board
and Investment Committee members on recent climate-related
activities and progress. The Head of ESG is a member of the Group
Risk Committee which meets quarterly. The risk register includes
climate related risks and other ESG risks. The implementation of
ESG and climate strategy is facilitated by a Sustainability
Framework, which draws on SDGs as the structure by which risks are
identified, managed, and reported across on a broad range of ESG
issues that encompasses climate change and beyond.
The Investment Manager coordinates stewardship practices amongst
senior management with an external collaborator. This partnership
enables the Investment Manager to have political influence over the
climate-related policies, mandates and consultations that are most
material to us. These include engaging with the UK Department for
Business, Energy and Industrial Strategy ("BEIS") on consultations
such as UK carbon pricing. In addition, the Investment Manager has
participated in panel sessions on the natural capital value of
solar farms and has contributed to the Department for Environment,
Food and Rural Affairs ("DEFRA") consultation on biodiversity net
gain. The Investment Manager is also a member of the Institutional
Investor Group on Climate Change ("IIGCC") and is currently
participating in the Working Groups for the Paris Alignment
Investment Initiative. The Head of ESG also sits on the board of
Solar Energy UK ("SEUK") and was recently appointed chair of the
SEUK Supply Chain Working Group that is tasked with setting
auditable ESG standards and a traceability programme for improving
transparency and business ethics in the global solar supply.
Asset Manager
Climate risks are assessed during each pre-acquisition and
development phase through a screening questionnaire. When potential
risks are identified, the ESG team, together with the investment
team and, where relevant, external advisers, undertake a further
risk assessment and 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 EPC and operations and
maintenance ("O&M"), and then handed over to the asset manager
of NESF, WiseEnergy. The Asset Manager oversees the implementation
of these measures, including biodiversity management, land
management, community engagement, and health and safety, amongst
others. WiseEnergy report on any progress towards these plans on a
regular basis and, in addition, will measure and manage several
selected KPIs based on the SDGs and the EU SFDR and Taxonomy
Regulatory Technical Standards which have been identified as
material to NESF's business and operations.
Strategy
1. Describe the climate related risks and opportunities the
organisation has identified over the short, medium and long
term.
2. Describe the impact of climate-related risks and
opportunities on the organisation's businesses, strategy and
financial planning.
3. Describe the resilience of the organisation's strategy,
taking into consideration different future climate scenarios,
including a 2degC or lower scenario.
The Company understands that climate change poses risks and
opportunities across all stakeholders. Through its commitment to
providing clean energy, the Company is well placed to help curb
global carbon emissions. Conversely, there are risks associated
with such a transition and the potential physical consequences
associated with rising temperatures.
The table below covers some of the key risks and opportunities
faced over the short, medium and long term.
Climate-Related Risks and Opportunities
Risks Opportunities
Short-Term
* Lower power prices due to over-deployment of * Increased governmental support for renewables as
renewables and cannibalisation nations aim to curb climate emissions in line with
commitments made
* Saturated market and increased competition for
investments leading to a reduction in financial * Increased public support for decarbonisation
returns of new projects increases the volume of ESG investing in public
markets
* Increased temperatures reducing energy demand and
driving down power prices * Increased deployment of renewables drives the
benefits and importance of battery storage assets
Medium-Term
* Extreme weather events (storms and flooding) causing * Technological advancements driving down levelised
physical damage to assets within portfolio cost of energy ("LCOE")
* Increased temperatures reducing the efficiency and * Implementation of carbon pricing and taxation could
productivity of assets due to heat losses help direct capital towards renewable technologies,
such as solar and battery storage, and away from
carbon-intensive sources
* Implementation of carbon pricing and taxation could
impact companies within the supply chain, leading to
price increases and reduced profitability
Long-Term
* Adverse changes in yearly irradiation averages and * As transport, industry and heating move away from
variances impacting the commercial viability of solar fossil fuels and rely on electricity, demand
increases could increase power prices
* New technologies leading to early obsolescence of
solar assets
Portfolio Investments
Productivity of a solar asset is a balance between maximising
irradiation and minimising heat losses. As temperature increases,
the efficiency of solar assets falls because heat stress impacts
critical equipment, such as inverters and transformers. The
consistent and relatively cool climate makes the UK a uniquely
strong location for efficiency of solar assets. However, increased
temperatures could lead to increased heat losses and inefficiency
of the portfolio's assets. Likewise, the Company's portfolio of
eight Italian assets and its co-investment in Spain could face
similar challenges.
The Company's asset manager, WiseEnergy, closely monitors the
portfolio's assets throughout the year, measuring metrics such as
irradiation, generation, and availability. This enables the Company
to identify assets at risk and implement mitigation strategies to
limit heat loss in the future.
Increased greenhouse gas emissions are not simply associated
with increased temperatures, but also with other extreme weather
conditions, such as storms, flooding, and fires. All of NESF's
assets have been constructed with a 1 in a 100 year assessment of
likely wind conditions for the specific location of construction.
One of the key benefits of the portfolio of distributed energy
assets that NESF has, is its resilience to any localised issues. As
a result of recent UK weather events (storms Arwen, Dudley and
Eunice), the ESG team aims to engage with an external expert to
carry out a high-level climate risk screening for the entire
portfolio of UK assets to be better prepared against any future
physical climate risks.
Strategy
The political and social climate is currently very supportive of
climate change action, of which the deployment of solar and other
renewable assets is an essential part. Subsequently, there are
significant capital flows being directed towards sustainable
investments and the deployment of green infrastructure. There is
strong evidence to suggest this trend is likely to continue.
Indeed, at the UN Climate Change Conference ("COP26") in October
2021, the Glasgow Financial Alliance for Net Zero ("GFANZ") stated
that the financial sector commitments to net zero over the next
three decades will exceed $130 trillion.
Alongside the opportunities this brings, there are also some
risks. High levels of investment lead to increased competition and,
subsequently, acquisition costs of assets can be driven up and lead
to a reduction in returns. The Company has seen this within the UK
market over recent years. The Company has been able to draw upon
the expertise of the Investment Manager to diversify its portfolio
into new jurisdictions as well as assets classes (such as
construction and development assets), in line with the Company's
investment limits.
Financial Planning
There are some key challenges to the Company in relation to
finances and cash flows because of climate change. The wholesale
market price of electricity is affected by several factors,
including demand, subsidies, fuel commodity prices and foreign
exchange. As renewables become a greater proportion of the energy
mix, the volatility in the availability of these renewable
resources is expected to drive volatility in power prices and,
subsequently, distributions to the fund and its shareholders.
Increased concentration of solar assets also leads to
cannibalisation, and the price captured on the market by solar is
eroded over time.
The Company's hedging strategy aims to eliminate these risks
associated with power price volatility. Some of the Company's
investments benefit from subsidies and short-term PPA hedges that
fix prices, with the remaining revenue streams subject to wholesale
electricity prices. The Company has agreed fixed UK pricing
(hedged) covering 85% of budgeted generation for the 2022/23
financial year and 74% of budgeted generation for the 2023/24
financial year.
By contrast, this volatility could provide a significant
opportunity to battery storage assets, which generate returns
through such volatility. Optimising through its arbitrage involves
charging the battery when energy prices are low and discharging
during more expensive peak hours. The Company's investment
objective allows investment 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. In September
2021, NESF entered the standalone battery storage space by agreeing
a GBP100m 'JVP' with Eelpower Limited, a leading battery storage
specialist in the UK. The JVP includes a framework for acquisitions
up to 250MW, providing ample opportunities to offer complementary
revenue streams to our existing portfolio of solar assets.
The Intergovernmental Panel on Climate Change ("IPCC") use
Representative Concentration Pathways ("RCPs") as a basis for
modelling future consequences of anthropogenic greenhouse gas
emissions and reflect a wide range of possible outcomes. There are
4 key scenarios: RCP2.6, RCP4.5, RCP6 and RCP8.5. The four
scenarios are outlined in the table below.
Scenarios RCP2.6 and RCP4.5 refer to pathways whereby
significant efforts are made to reduce anthropogenic climate
change. These scenarios assume greater deployment of renewable
energy and subsequently pose greater transition risks to
businesses. As previously mentioned, this is associated with
greater power price volatility and cannibalisation as solar (and
other renewable technologies) becomes a greater proportion of the
energy mix. However, as industries (such as transport) move away
from fossil fuels and towards electrification, the subsequent
demand increase is expected to offset such changes to the
supply.
The Company's 'NAV' sensitivity analysis shows that a 10%
decrease in power prices lead to a 6.6% decrease in the NAV and a
10% increase in power prices lead to a 6.3% increase in the
NAV.
Alongside increased support for green investment, another key
part of the RCP2.6 and RCP4.5 scenarios likely involve increased
regulations aimed at actively mitigating CO2 emissions. These
include carbon pricing that will impact organisations in countries
that take part in emissions trading schemes or are subject to
emissions taxes. The purpose of such strategies is to charge the
hidden cost of carbon emissions to the source. It is expected that
in low emissions scenarios, prices in existing emissions trading
schemes are likely to increase. Whilst this could improve the
commercial viability of renewable technologies, it may
simultaneously drive-up costs within the supply chain of solar
infrastructure assets.
By contrast, under scenarios where limited efforts are made to
reduce emissions (RCP6 and RCP8.5), global temperature increases
are significantly higher than 2degC. This leads to several physical
risk factors, such as extreme weather conditions, floods and heat
stress. Storms may put solar assets at risk of physical damage that
could drive up operational costs and lead to losses in generation
due to periods of repair. The existing portfolio of assets has a
weighted average expected life of 27.3 years and are designed to be
extremely resilient to different weather conditions. There is also
insurance in place to cover physical damage to plants that may lead
to large financial and environmental losses.
Furthermore, higher emissions scenarios are expected to both
increase average temperatures and the variance in irradiation. As
previously mentioned, increased temperatures reduce the efficiency
and productivity of assets due to heat losses and higher volatility
in irradiation directly impacts the volatility of the company's
revenues.
Our NAV sensitivity analysis shows that a 5% decrease in
irradiation leads to an 6.3% decrease in the NAV and a 5% increase
in irradiation lead to a 6.0% increase in the NAV.
Radiative Forcing Atmospheric CO(2) equivalent Description
(parts per million)
8.5 >1,370 Worst-case emissions scenario,
whereby no effort is made
to curb climate change and
emissions continue to rise
throughout the 21st century
Emissions peak around 2080,
6 850 then decline
Emissions in RCP 4.5 peak
4.5 650 around 2040, then decline
Ambitious pathway, whereby
emissions go to zero by
2.6 490 2100
Risk Management
1. Describe the organisation's processes for identifying and assessing climate-related risk.
2. Describe the organisation's processes for managing climate-related risks.
3. Describe how processes for identifying, assessing, and
managing climate related risks are integrated into the
organisation's overall risk management.
The core business of the Investment Manager is focused on
generating positive climate-related impacts through the reduction
of carbon emissions associated with the clean energy generated by
the renewable energy assets. Despite no direct exposure to
carbon-intensive sectors, the Investment Manager has identified
certain physical climate risks as material to the business. The
Investment Manager has reviewed the Company's risk appetite to
reflect its climate ambitions that has been expressed to
stakeholders and have aligned it with NextEnergy Group's group-wide
Risk Management framework. The Company will continue to refine its
climate risk assessment approach in order to reflect the constantly
evolving nature of climate factors and impacts.
Potential physical climatic risks associated with an asset
acquired or developed after 2020, are screened by the ESG team, and
where there is evidence of potential risks, an external climate
risk advisor is appointed for further assessment during the
pre-acquisition stage. The advisor will provide a climate change
risk assessment report, which will inform final investment
decision. As a member of both the NEC Group Risk Committee and the
NESF Investment Committee, during Committee meetings the Head of
ESG is responsible for advising on the ESG risks and opportunities
associated with each acquisition and or development, including
those related to climate.
Risk Factors and Risk Assessment
The level of risk assigned to an investment is determined by
investigating and engaging with involved parties over a wide range
of factors throughout the due diligence process. While the risk
level varies depending on the asset being acquired, certain risk
factors can be more easily mitigated than others and as such are
classified with a lower risk rating due to their ability to be more
readily managed.
The Investment Manager's ESG team have worked with an external
consultant to develop an internal climate risk rating system that
is aligned with the TCFD guidelines. It is expected that this will
be implemented by Q4 2022. Carrying out this procedure enables the
ESG team to highlight the severity of any climate-related risks
associated with the portfolio during the acquisition process, and
to determine which assets will require a third-party assessment to
be carried out post-acquisition. Based on the findings of the
assessment, it is expected that mitigation measures will be
presented by the advisor and passed onto the asset manager,
ensuring the risk is monitored and reported on for as long as
required and where relevant, for the entire lifetime of the
Project.
General
classification Physical risks Possible consequences Risk rating
Acute Increased severity Damage to property Medium (Likely +
and frequency of and infrastructure Moderate)
extreme weather events resulting in environmental
(hurricanes, storm damage, increased
surge, heat waves) capital costs (e.g.
repairs, cleaning,
write-offs and possible
early retirement
of assets), decreased
power generation,
worker incidents
(e.g. unable to access
site).
Fires Low (Unlikely + Minimal)
Flooding Low (Likely + Minimal)
Chronic Changes in precipitation Reduction of anticipated Low (Likely + Minimal)
patterns, solar irradiation power generation,
and cloudiness increased losses
in transmission lines,
increased costs associated
with more frequent
or intense cleaning
requirements and
an increase in health
and safety incidents
as a result of increased
changed weather conditions
(e.g. heat stress
associated with hot
days)
Changes in dirt, Low (Likely + Minimal)
dust, snow, atmospheric
particles and others
Changes in mean temperatures Low (Likely + Minimal)
Water stress and Decreased water availability Low (Unlikely + Minimal)
drought increases cost to
clean panels and
domestic water to
site
Metrics and Targets
1. Disclose the metrics used by the organisation to assess
climate related risks and opportunities.
2. Disclose Scope 1, Scope 2, and if appropriate, Scope 3
greenhouse gas emissions, and the related risks.
3. Describe the targets used by the organisation to manage
climate related risks and opportunities and performance against
targets.
We recognise the value in considering ESG metrics when
identifying potential investment risk or opportunities. In terms of
NESF's asset emissions, the Greenhouse Gas ("GHG") Protocol has
outlined the most effective framework for reporting on carbon
emissions. The framework separates emissions into the following
categories:
-- Scope 1: Direct emissions from the activities of a company
under its control, includes fuel company-owned vehicles and
air-conditioning leaks.
-- Scope 2: Indirect emissions from purchase of electricity,
steam heating and cooling by the company.
-- Scope 3: All other indirect emissions that are embedded
within the Company's value chain.
NESF and its Investment Manager aim to obtain the GHG emission
data directly from suppliers, although it is anticipated that this
process will take time. Until then, NESF has commissioned the Green
Investment Group to estimate the Scope 1 and 2 GHG emissions
associated with the Company's solar assets.
The Company's estimated lifecycle GHG emissions are 37.6
ktCO2e/yr. The Company aims to incorporate measured scope 3
emissions into its reporting in due course.
Targets
The Science Based Targets initiative ("SBTi") was established in
2015, with the goal of helping companies to set emission reduction
targets in line with climate science and Paris Agreement goals. The
Company is in the process of evaluating its targets
commitments.
Outlook
The Company is aware of the potential for the effective
management of climate risks and opportunities to impact returns and
has therefore identified a few areas to expand on its current TCFD
disclosures in the future. The Company is aiming to introduce a
comprehensive scenario analysis that will help quantify climate
risks faced over time. This analysis will involve projections of
irradiation levels and power prices under two different emissions
pathways, one with high physical risk (e.g. RCP8.5) and another
with high transition risk (e.g. RCP2.6). This deeper analysis would
provide greater clarity on the potential revenue impacts across
different outcomes.
The Green Investment Group has been instrumental in providing
metrics for the Companies reports and disclosures, including scope
1 and 2 emissions as well as the number of homes powered through
the Company's electricity generated. The Company therefore intends
to expand its metrics to include scope 3 emissions, which will give
clarity on upstream and downstream emissions within its value
chain. Once identified, the Investment Manager can begin engaging
with its suppliers in order to take action to reduce such emissions
from its suppliers. The emissions calculated may then be used as a
baseline for future performance and will be used to inform its
SBTi-aligned targets. The Company is continuously striving to
improve on its disclosures and processes to ensure risks are
effectively identified and, where possible, mitigated.
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 strategic
objectives over the longer term.
As the Company has no employees and given the nature of its
services, the Investment Adviser (in addition to the Board) 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 RBC Capital Markets Ltd, are also an integral point of
contact between the Company and our shareholders and, together with
the Investment Adviser ensure that any shareholder feedback or
observations is collated.
Our key stakeholders are shown in the table below, in no
particular order. The table explains 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.
Key Stakeholders Why they are important How we engage with them
to us
Investment Adviser The Investment Adviser's
performance is critical * Board and Committee meetings.
for the Company to
deliver
its investment strategy * Ad hoc meetings and calls with the Board.
successfully and meet
its investment and
strategic * External Board evaluation, which includes feedback
objectives. Accordingly, from the Investment Adviser.
the Company relies on
the Investment Adviser's
expertise, and needs * Informal meetings.
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
role is important to * Quarterly reports to the Board.
ensure all acquisitions
and divestments meet
the Company's investment * Annual evaluation by the Management Engagement
and strategic Committee.
objectives.
* Ad hoc meetings and calls with Directors.
Shareholders A well-informed and
(All investors in supportive shareholder * Annual and Interim Reports.
the Company- institutional base is crucial to the
investors, wealth long-term sustainability
managers and retail of our business. * Quarterly factsheets.
investors (including Understanding
private individuals)) the views and priorities
of our shareholders * Market announcements, including quarterly NAV
is, therefore, announcements.
fundamental
to retaining their
continued * Website.
support and to having
the potential to access
equity capital in order * Institutional investor meetings (one-to-one and
to continue to expand group), primarily through our Investment Adviser and
the Company's portfolio corporate brokers, to keep communications open
over time in order to (including annual and interim results presentations)
further diversify the and gauge their opinions on specific matters (e.g.
investment portfolio strategy and capital raisings).
and create economies
of scale.
* Regular institutional investor feedback received from
our Investment Adviser and corporate brokers.
* Chairman meetings and other communications with
substantial shareholders.
* Research analyst presentations.
* Dialogue with research analysts through our
Investment Adviser, as and when required.
* AGM.
* Rothschild & Co shareholder perception study.
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. In particular, * Quarterly reports to the Board.
we rely on the
Administrator
maintaining the accuracy * Annual evaluation of the Administrator by the
of our accounting Management Engagement Committee and the Audit
records Committee.
and ensuring our
compliance
with applicable laws,
rules and regulations.
Other Key Service A strong and
Providers and Advisers constructive * Board and Committee meetings.
(Registrar, Financial working relationship
Advisers, Legal advisers, with our other key
Corporate Brokers, service * One-to-one meetings and calls.
Public Relations providers and advisers
and Auditors) ensures that we receive
high quality services * Provision of relevant information to or by the
to help deliver our Company.
investment and strategic
objectives.
* Annual evaluation of key service providers and
advisers by the Management Engagement Committee and
Audit Committee.
Some of our Key Why they are important How we engage with them
Stakeholders to us
Lenders An appropriate amount
(Provider of the of gearing is required * Provision of information to lenders in accordance
Company's credit to achieve our target with the terms of the relevant facility agreements.
facilities) returns. It is important
to maintain a strong
working relationship * Consultation in advance on matters which may require
with our existing lenders their consent under the relevant facility agreements
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 ESG Report below.
creates a positive social
impact is core to our
sustainability approach.
Asset Manager The Asset Manager's
performance is critical * Monthly and ad-hoc meetings with the Investment
for the operating solar Adviser.
assets to deliver
operational
outperformance versus * Monthly reports to the Investment Adviser.
the budget. The Asset
Manager also provides
the administration and * Quarterly reports to the Investment Manager, which i
fund accounting for s
the Company's reported to the Board.
subsidiaries,
as well as providing
an energy sales desk
to manage our electricity
price and 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 less material and,
therefore, they have not been included below but they may become
material in the future. Additionally, 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 compared
below expectation to traditional energy resources to other renewables, in
such as coal and gas. The that solar irradiation
volume of solar irradiation levels tend to follow a
available on a given day set trend throughout the
is out of the Company's year.
control and this is a risk The geographical location
on the performance of the of the asset has an impact
assets. on
Unplanned DNO outages, solar irradiation levels,
weather patterns and technical due to climate variations
issues can impact generation. and small differences in
day lengths across regions.
Assets are chosen with
this in mind.
The Asset Manager has value-enhancing
tools that optimise the
Company's portfolio generation
and resolve interruptions
efficiently.
The diversity of the underlying
solar module and inverter
manufacturers and O&M suppliers.
2. Portfolio Valuation of a solar PV The Company's model and
valuation asset is dependent on financial the internal controls thereon
models based on several are reviewed in detail
drivers: principally discount on a periodic basis by
rates, rate of inflation, a third party modelling
power price curves and specialist to ensure the
amount of electricity the Company's model is robust
solar assets are expected and compliant with the
to produce. Certain assumptions latest modelling standards
may prove to be inaccurate, and controls.
particularly during periods Documentation supporting
of volatility. the fair values model is
presented to the Board
quarterly for approval
and adoption.
To manage the impact 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 of are dependent on the electricity uses the most recent quarterly
electricity market. Exposure to the reports from the Consultants
wholesale energy market to be kept informed of
impacts the prices received long-term electricity prices,
for energy generated by and uses this information
and revenues forecast for to formulate the Company's
the operating assets of electricity sales and hedging
the Company. strategies.
The acquisition of subsidy-free Short-term: The Company
assets will increase this enters into PPAs and forward
risk as currently most contracts to fix electricity
of their revenues are derived prices for a future period
from the wholesale energy ranging from six to 12
market with only a part months. The NextEnergy
benefiting from short-term Group has an Energy Sales
PPAs. desk which is responsible
The Company is exposed for hedging generation
to a reduction in the price produced in the short-term.
of electricity. The Covid-19 As at 15 June 2022, the
pandemic has resulted in Company had secured fixed
a decline in demand for price agreements covering
energy which has exacerbated 85% of its electricity
recent declines in the generation for the 2022/23
price of electricity. This financial year and 74%
risk exists with future for the 2023/24 financial
pandemics. year.
The recent supply chain Long-term: Wholesale power
issues associated with prices are beyond the control
the conflict in Ukraine, of the Company. Factors
alongside wider macroeconomic that could increase the
and geopolitical uncertainty price of electricity including
has led to volatile power the roll-out of electric
prices. vehicles and the electrification
of domestic heating and
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.
The introduction of battery
storage enables generated
electricity to be fed in
to the grid at optimum
pricing levels.
2. Counterparty This is the risk of counterparty The Asset Manager continuously
risk failure. The Company has monitors NESF's contracts
entered into O&M contracts in line with the market.
and PPAs, which affect There are contractual arrangements
the costs and revenues in place that have warranties
of the Company. The Company in case of defaults.
has also contracted with The Asset Manager ensures
various EPCs for construction that counterparties are
of the subsidy-free assets. of an acceptable financial
If the counterparty becomes standing to minimise risk.
insolvent there is a risk
of disruption and financial
loss until the counterparty
is replaced.
3. Plant operational The Company relies on third-party The Company can seek legal
risk contractors to provide recourse against failure
corrective and preventative by an O&M contractor.
maintenance through O&M The Asset Manager monitors
contracts. and ensures that the O&M
The O&M contractor could contract maintains a detailed
fail to fulfil its obligation preventative schedule,
and the solar asset's performance with contract warranties
could deteriorate. and penalty payments in
Degradation of the solar the event of failure.
modules reduce the performance NESF looks at technological
of the plant over time. improvements on an ongoing
An increase in the rate basis to offset the effect
of degradation may lead of degradation. Also, NESF
to under performance. has contract warranties
to secure the design performance
of the assets.
External and Market Risks
Risks Summary Mitigation
1. Adverse changes On 31 January 2020 the The Investment Manager
in government UK left the European Union. and the Board believe the
policy and political Uncertainty remains regarding withdrawal of the United
uncertainty the impact of the agreement Kingdom from the European
to the UK energy market, Union ("Brexit") to have
the regulatory environment a very limited effect on
and the legal and commercial the Company's financial
operations of the portfolio and operating prospects.
assets. The Investment Manager
Changes in policies by continue to closely monitor
the coalition government the impact on the underlying
in Italy could affect the portfolio.
value of the Italian assets. The global consequences
International conflicts of international conflict
and geopolitical tensions on power prices emphasises
may impact trade of commodities, the importance of national
such as oil and gas, which energy independence, which
have subsequent downstream the Company believes it
impacts on power price is well placed to facilitate.
volatility and supply chain Supply chain shortages
stability for solar equipment. in solar equipment could
The conflict in Ukraine prohibit construction of
has led to global volatility new projects and drive-up
in supply chains and power acquisition prices of existing
prices. assets. The Investment
Manager has a wealth of
experience and a strong
network built through its
global presence that enables
it to source the best projects
and contracts for the NESF
portfolio.
Geopolitical expectations
known at the time of acquisition
of an asset are built into
the Company's strategy
and projected financial
returns for the asset.
2. Adverse changes Uncertainty for the future The Company actively monitors
to regulatory regulatory framework for regulatory changes within
framework for solar PV creates a risk the industry and participates
solar PV that further planned acquisitions in contributing towards
do not take place. This government discussions
would affect the Company's on the industry in the
growth potential, valuation UK, and Italy and other
and profitability. countries in which investments
are located.
3. Changes to Changes to the existing NESF has tax advisers to
tax legislation rates and rules could have ensure constant awareness
and rates an adverse effect on the of any upcoming changes
valuation of the portfolio to tax legislation and
and levels of dividends rates, to implement the
paid to shareholders. necessary changes as required.
Media speculation remains Investment in multiple
around a potential windfall jurisdictions diversifies
tax on UK renewable electricity exposure to individual
generators. country regulations and
Changes to current subsidies hence risk.
based on findings of the Increase in subsidy free
regulator would impact assets in the portfolio
the Company's revenue streams. reduces exposure to regulated
revenues, supported by
the hedging strategy.
4. Health and The physical location, Health and safety practices
Safety maintenance and operation are in place that conform
of a solar power plant to local governmental standards.
may pose health and safety Insurance policies are
risks to those involved. in place and reviewed to
increase cover where necessary.
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 2022 was GBP19.6m,
all of which was readily available. It also had immediately
available but undrawn amounts under its debt facilities of a
further GBP49m. The NESF Group had capital commitments totalling
GBP59m at the year end. The majority of the NESF Group's revenues
are derived from government subsidies. A large portion 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.
A thorough evaluation of the cash flow impact, for the going
concern period, of the following individual and combined two
scenarios was reviewed by the Directors and were deemed appropriate
market standard stress tests:
-- All investments consistently generate at 5% below budgeted
level of electricity output
-- Power prices (on the unhedged portion of the portfolio) were
reduced by 10% across the portfolio
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
(February 2019) ("AIC Code") 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
performed a robust assessment of its viability for the period to 31
March 2027. 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, Italy and Spain that are predominantly fully
constructed, operational and generating renewable electricity, and
entered into the battery storage asset market this year. 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 GBP145m that expire in 2022 and 2024, 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 summarised above 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 19(b), 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 2027.
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 premium/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 2027.
Covid-19 Pandemic
The pandemic has affected all levels of business and society for
the past two years. The Directors believe that the Company has
effective measures in place for the risks to the business and
continue to monitor developments and follow governmental
guidelines.
Ukraine Conflict
The Company's portfolio has no exposure to either Ukraine or
Russia. Whilst the Board and Investment Advisor continue to monitor
the situation, it remains too early to assess the implications on
the wider supply chain.
Approval
This Strategic Report was approved by the Board on 24 June 2022
and signed on its behalf by:
Kevin Lyon
Chairman
Governance
Introduction from the Chairman
Kevin Lyon
Chairman
I am pleased to present the Company's Corporate Governance
Report, which comprises the below, for the year ended 31 March
2022.
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.
Corporate Governance Regime
This Corporate Governance Report explains how we apply the
principles and provisions of the AIC Code. 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.
The Board also considers other updated guidance and best
practice.
Board Composition and Evaluation
We continued to keep the Board's composition under review and
appointed Josephine Bush during the year to add to the ESG and
renewables experience of the Board.
The AIC Code requires us to undertake externally facilitated
Board evaluations at least every three years, and the most recent
review was undertaken by Linstock Limited in 2021. Further
information on this year's evaluation process and its findings can
be found under 'Annual Performance Evaluations' below.
Audit Committee
Patrick Firth is the appointed chair of the Audit Committee.
Further information on the Audit Committee can be found below.
Remuneration and Nominations Committee
Vic Holmes is the appointed chair of the Remuneration and
Nominations Committee. Further information on the Remuneration and
Nominations Committee can be found below.
Management Engagement Committee
Joanne Peacegood ("Jo") is the appointed chair of the Management
Engagement Committee. Further information on the Management
Engagement Committee can be found below.
ESG Committee
The ESG Committee was formed shortly after year end, with
Josephine Bush appointed chair. Further information on the ESG
committee can be found below.
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' below. The most recent
shareholder perception study was undertaken by Rothschild & Co
in April 2021. 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
24 June 2022
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 Chair : 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
chair 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) and Josephine Bush (since
1 January 2022)
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 ensure effective engagement with shareholders and other key
stakeholders
To robustly scrutinise and constructively challenge all matters
that come before the board
To identify, monitor and report on Environmental, Social and
Governance (ESG) risks and opportunities throughout NESF's value
chain
AUDIT COMMITTEE
MEMBERSHIP: All Directors
CHAIR: Patrick Firth
(since 2014)
SCHEDULED MEETINGS: 3 p.a.
PRINCIPAL RESPONSIBILITIES:
To oversee the quality of financial reporting
To review and monitor the risks the company is exposed to, its
risk appetite and the effectiveness of its risk management
framework
To review the effectiveness of the external audit process and
independence of the external auditor
MANAGEMENT ENGAGEMENT COMMITTEE
MEMBERSHIP: All Directors
CHAIR: Jo Peacegood
(since 2021)
SCHEDULED MEETINGS: 1 p.a.
PRINCIPAL RESPONSIBILITIES:
To evaluate at least annually, the performance and continuing
appointments of the Investment Manager and other key service
providers and advisers
RENUMERATION AND NOMINATIONS COMMITTEE
MEMBERSHIP: All Directors
CHAIR: Vic Holmes
(since 2014)
SCHEDULED MEETINGS: 1 p.a.
PRINCIPAL RESPONSIBILITIES:
To keep under review the Directors remuneration policy
To review and evaluate regularly the Board's composition and
succession planning and lead the process for new Board
appointments
To lead the annual evaluation of the Board and Committees
ESG COMMITTEE
MEMBERSHIP: All Directors
CHAIR: Josephine Bush
(since 2022)
SCHEDULED MEETINGS: 2 p.a.
PRINCIPAL RESPONSIBILITIES:
To provide strategic advice to the Board on ESG matters
Support and challenge NEC with respect to ESG matters including
investment, divestment and asset management activities
Board of Directors
Kevin Lyon
Non-executive Director
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.
Won 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.
Chairman of KultraLab Ltd, a technology led behavioural science
consultancy.
Chairman of AMG Vango, an owner & distributor of outdoor
brands.
Non-executive Director of retailer SpaceNK.
Josephine Bush
Non-executive Director
Resident: UK
Appointed: 1 January 2022
Independent: Yes
Relevant Skills and Experience:
Over 14 years of experience in the renewable energy sector.
Was a senior partner at Ernst & Young LLP for 14 years
specialising in the renewable energy sector and amongst other
things was responsible for developing the Ernst & Young LLP
global renewables business plan. She was a member of the Ernst
& Young LLP Power and Utilities Board and UK&I Governance
Board.
Qualified solicitor and chartered tax adviser and CFA ESG
investing qualification. Passed the Cambridge Institute of
Sustainable Leadership Sustainable Finance course.
Josephine founded a not for profit, Sustainability & You, to
raise awareness of climate change challenges and opportunities.
Principal External Appointments:
Chair of the Audit, Risk and ESG committee, of Vulcan Energy
Resources Ltd (ASX listed).
Non-executive director of Net Zero Now Ltd and Foresight
Sustainable Forestry Company PLC.
Member of the investment committee of Gresham House's British
Sustainable Infrastructure Fund.
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 Riverstone Energy Limited and India
Capital Growth Fund Limited.
Vic Holmes
Non-executive 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.
Senior roles in the international fund administration services
business of the Baring Asset Management group of companies from
1990 to 2005 (based in Dublin) including Head of Fund
Administration Services with responsibility for services out of
London, Dublin, Guernsey, Isle of Man and Jersey.
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.
Principal External Appointments:
Chairman of Permira Holdings Limited, Utmost Worldwide Limited,
Highbridge Tactical Credit Fund Limited and Ocorian Administration
(Guernsey) Limited.
Non-executive Director of DBG Management GP (Guernsey) Limited,
Rothschild & Co BI Limited and a range of Ashmore funds.
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.
Worked for big four accounting firms in the Channel Islands, UK
and Canada for 20 years.
Qualifications include Chartered Accountant (FCA), Institute of
Directors Diploma and BA honours degree in Accounting.
Led hundreds of audits for reputable Asset Management clients
and Controls Assurance engagements.
Expertise in Valuations, Risk, Controls, Corporate Governance
and Regulations. Innovation & Technology Director overseeing
technology solutions to enable businesses to operate more
efficiently.
Principal External Appointments:
Non-executive Director roles include Private Equity, Debt,
Hedge, Real Estate, Utilities, Asset Manager and Chair of Castelnau
Group Limited.
Chair of the Guernsey Investment & Fund Association and
Council member of the Guernsey International Business
Association.
Member of the AIC Channel Islands Committee.
Corporate Governance Statement
Statement of Compliance
The Board considers that the principles and provisions set out
in the AIC Code 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 speci c
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 (June 2021).
The Company has complied with the principles and has complied
with the provisions of the AIC Code during the year ended 31 March
2022.
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, nancial, 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 diversi ed
portfolio of primarily UK-based solar energy infrastructure assets,
through investment in a diversi ed 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' above. 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 above);
-- the key considerations relating to new investment
opportunities (see "Portfolio Highlights" in the Investment
Adviser's Report above);
-- 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' above); and
-- the sustainability of the Company's business model (see 'the
Going Concern and Viability section' above).
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, 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 con ict with local company law. Under Section 172,
directors have a duty to promote the success of their company for
the bene t 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' above 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 above;
-- 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' above;
-- 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' above;
-- 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 above;
-- 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 above;
and
-- a summary of the Board's principal activities during the year
under review is included below.
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 bene t of our shareholders as a whole,
having had regard to our wider stakeholders and the other matters
set out in Section 172.
Con icts of Interest
The Directors have a duty to avoid situations where they have,
or could have, a direct or indirect interest that con icts, or
possibly could con ict, with the Company's interests ('con ict
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 con ict situation.
Where it is deemed appropriate, the Board may approve con ict
situations. In deciding whether to approve a con ict 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 con ict situations is operating effectively.
There were no con ict situations during the year under review
(or since the end of the year).
Division of Responsibilities
Board
The Board comprises five Directors, all of whom are
non-executive and independent, and is chaired by Kevin Lyon. The
biographies of the Directors are above.
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 effective controls that enable
risk to be managed and continually assessed;
-- establishing a framework of high standards of corporate
governance;
-- overseeing the execution of the Company's strategy and
implementation of its key investment, nancial, 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 de ned 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, nancial,
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 nancial reporting and controls;
-- ensuring that 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 ful l 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 behaviours and attributes that make up the Board's
culture (details of which can be found under 'Board Culture'
above);
-- 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 2022 appraisal of the Chairman can be found
under 'Annual Performance Evaluations' above.
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'
above for information on the 2022 annual evaluation).
Board Committees
The Board has four 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
below.
-- Management Engagement Committee: The Management Engagement
Committee is chaired by Joanne Peacegood.
-- ESG Committee: The ESG Committee is chaired by Josephine
Bush.
-- 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
below.
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 on 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 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, SPVs and NextPower III 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 ow forecasts and other nancial 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.
The Investment Manager's appointment is terminable by the
Investment Manager or the Company on not less than 12 months'
notice. The Investment Advisor's appointment is terminable by the
Investment Advisor or the Company on not less than 12 months'
notice.
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 ef ciently;
-- under the direction of the Chairman, facilitating the ow 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 nancial 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 clari cation 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 t 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 nancial performance;
-- the Company's nancial 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:
-- consideration of the Company's dividend policy (see 'Dividend
Policy' in the Strategic Report above);
-- 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 above and in the
portfolio highlights above);
-- assessment of key service providers including transferring
the administration of the Company to Ocorian Administration
(Guernsey) Limited during the year;
-- approving the Annual and Interim Reports;
-- the Board and Committee Composition and Evaluation (see
'Board Composition and Evaluation' above); 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 below. The Management
Engagement Committee completed the annual evaluation of the
Company's key service providers, including the Investment Manager,
Investment Adviser and Administrator in Q2 2022. Matters considered
by the Remuneration and Nominations Committee during the year under
review included:
-- Board Composition: The Committee will continue to keep the
Board's composition under review. Details of the Board Composition
are discussed under 'Board Composition and Independence' below.
-- 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 Board
Evaluations' above.
-- Succession planning: Details of the intended succession plan
can be found under 'Succession Planning' above.
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 15 ad
hoc Board meetings, one ad hoc meeting of the Audit Committee and
two ad hoc meetings 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, therefore, for all the Directors
to attend the ad hoc meetings. However, Directors who are unable to
attend an ad hoc meeting communicate their views on any matters to
be discussed to their fellow Directors ahead of the meeting.
Remunerations
Management Engagement and Nominations
Director Board Audit 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
Josephine Bush* 1/1 1/1 1/1 0/0
*Josephine Bush has attended all meetings since her appointment
on 1 January 2022.
Board Composition, Independence and Succession
The Board currently comprises five 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 on above.
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. Jo Peacegood has
held her position since 20 February 2020 and Josephine Bush has
held her position since 1 January 2022. The Chairman (or any other
of the Directors) does not have, and has 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 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
solar PV assets as far as practical in light of Covid-19.
Details of changes to the Board during the year under review can
be found under 'Board Composition and Evaluation' above.
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. Neither
the Chairman nor any of the other Directors took on any other new
appointments that would impact their ability to meet their board
responsibilities to the Company 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 question of tenure for Directors,
including the Chairman, and are mindful that three of our five
Directors will reach their ninth anniversary simultaneously in
January 2023. We have considered succession planning and also
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 for
a limited time to facilitate effective succession planning, as
outlined in the section below.
None of the Directors have been on the Board for nine years or
more. The date of appointment of each Director can be found in
their biographies above.
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, the Remuneration
and Nominations Committee has reviewed and recommended to the board
a succession plan to replace each of Patrick Firth and Kevin Lyon
during 2023 and Vic Holmes during 2024.
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 four Directors, and elect one Director.
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
The Board's balance and skills is reviewed on an annual basis.
During the year the Board undertook an internal evaluation of its
performance and, in addition, an evaluation focusing on individual
commitment, performance and contribution of each Director was
conducted. The Chairman then met with each Director to fully
understand their views of the Company's strengths and to identify
potential weaknesses. If appropriate, new members would be proposed
to resolve any perceived issues, or a resignation sought. Following
discussions and review of the Chairman's evaluation by the other
Directors, the Senior Independent Director reviewed the Chairman's
performance. Training and development needs are identified as part
of this process, thereby ensuring that all Directors are able to
discharge their duties effectively.
Following the annual performance evaluation the Board confirms
that each Director has proved their ability to fulfil all legal
responsibilities and to provide effective independent judgement on
issues of strategy, performance, resources and conduct. The Board
therefore has no hesitation in recommending to the shareholders
that Josephine Bush be elected and all other Directors be
re-elected at the AGM.
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 and 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. 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 consider 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 agree that the continuing appointment of the
Investment Manager on the terms set out in the Management Agreement
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 below.
Other Key Service Providers and Advisers
The Board continually monitors the service levels of the
Administrator and the Company's other key party service providers
and advisers throughout the year. The formal review took place in
Q2 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 below 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' above. The Company's financial instrument risks are
discussed in note 22 to the Financial Statements below.
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 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' of the Audit
Committee Report), taking into account the information under 'Risks
and Risk Management' below.
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
regarding 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, SPVs and NextPower III 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. 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 below, the Board does not currently
consider that an internal audit function is required.
Approval
This Corporate Governance Statement was approved by the Board on
24 June 2022 and signed on its behalf by:
Kevin Lyon
Chairman
24 June 2022
Directors' Remuneration Report
Remuneration and Nominations Committee Report
Vic Holmes
Remuneration and Nominations Committee Chairman
I am pleased to present the Directors' Remuneration Report for
the year ended 31 March 2022.
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 2021, was implemented during the year ended 31 March
2022.
Remuneration and Nominations Committee
Chaired by Vic Holmes, the Remuneration and Nominations
Committee comprise 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 Directors'
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 five 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 2022, together with the comparative
figures for 2021.
No additional fees were paid to the Directors during the year
ended 31 March 2022 (2021: none).
The total amount of Directors expenses reimbursed during the
year ended 31 March 2022 was GBP1,429 (2021: GBP839).
Director Role 2022 2021
Kevin Lyon Chairman GBP70,000 GBP70,000
Patrick Firth Audit Committee Chairman GBP50,000 GBP50,000
Vic Holmes Senior Independent GBP46,000 GBP46,000
Director/
Remuneration and
Nominations
Committee
Chairman
Joanne Peacegood Management Engagement Committee GBP45,000 GBP42,000
Chairman
Josephine ESG Committee Chairman GBP10,500(3) -
Bush(1)
Sue Inglis(2) Management - GBP45,000
Engagement
Committee
Chairman
(1) Appointed with effect from 1 January 2022
(2) Resigned with effect from 31 March 2021.
(3) The annual fee payable to Josephine Bush was increased to
GBP45,000 on 1 May 2022 to reflect her appointment as Chair of the
newly formed ESG Committee.
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 2022 2021
Kevin Lyon 210,000 160,000
Patrick Firth 91,207 89,641
Vic Holmes 158,400 110,000
Joanne Peacegood 50,000 10,000
Josephine Bush 10,000 N/A
Sue Inglis N/A 50,000
The interests of the Directors (and their connected persons) in
the ordinary shares of the Company at 31 March 2022, together with
the comparative figures for 2021, 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 2022, together with the comparative figures for 2021.
2022 2021 Change
GBP'000 GBP'000 GBP'000
Directors' total
remuneration 222 253 (31)
Total dividends
paid or payable(3) 41,940 41,011 929
(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.
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 9 August 2021, of the 366,216,711 votes cast
by proxy and at the meeting (including votes cast at the Chairman's
discretion), 99.95% were in favour of the resolution to approve the
Directors' remuneration report, as set out in the Annual Report for
the year ended 31 March 2021, and 0.03% were against. 85,399 votes
were withheld.
Approval
This Directors' Remuneration Report was approved by the Board on
24 June 2022 and signed on its behalf by:
Vic Holmes
Remuneration and Nominations
Committee Chairman
24 June 2022
Audit Committee Report
Patrick Firth
Audit Committee Chairman
I am pleased to present the Audit Committee's Report for the
year ended 31 March 2022.
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 membership of the Audit Committee
comprise all of the Directors including Josephine Bush who was
appointed during the year. 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.
Four of the 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 above.
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 planning meeting for the annual audit and interim
review. The auditor may request that a meeting of the Committee be
convened if it deems it necessary.
The Audit Committee met four times (three scheduled and one ad
hoc) during the year ended 31 March 2022 (details of the Committee
members' attendance at the meetings can be found under 'Meeting
Attendance' above).
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 ( www.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'
above). 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' above. The Committee also
reviewed the most recent ISAE 3402 reports from each administrator
and sought additional assurances where required including
confirmation from the previous and new Administrator that there had
been no material changes from the date of the report to the date on
which the Annual Report was signed.
-- 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 reviewed the 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.
-- 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 attending 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 area 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 4(a) to the
Financial Statements below, 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,
power price volatility is managed through NESF's electricity sales
hedging strategy. The Company's flexible hedging approach is
designed to protect against adverse short-term price movements
whilst also enabling the Company to opportunistically capture
favourable market conditions by securing high fixed prices for
specified future time periods. 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
the 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 above.
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. The Board
also requests additional information to support the valuation
assumptions where required.
Annual Report for Year Ended 31 March 2022
The production of the Annual Report, including the audit of the
Company's financial statements, for the year ended 31 March 2022
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.
Audit Related Services in line with FRC Ethical Standard
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 ended 31 March 2022, the only non-audit work
carried out by the independent auditor to the company ("KPMG") was
in relation to its review of the Interim Report for which it was
paid fees of GBP45,000 (equivalent to 7.2% of the audit fee for the
year ended 31 March 2022).
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 2022, 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 of assumptions
where necessary. 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 2022 were as follows:
2022
GBP'000
NESF 84
Subsidiaries 497
Total audit fees 581
Interim review 45
Total fees 626
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 three 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 24 June 2022 and signed on its behalf by:
Patrick Firth
Audit Committee Chairman
24 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 2022. 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 below.
Details of the four interim dividends that have been declared in
respect of the year ended 31 March 2022 are set out in note 15(b)
to the Financial Statements below. 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 2023' above.
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 2023' above.
Share Capital
During the year, the Company issued 2,089 566 ordinary shares as
scrip shares. As at 31 March 2022 and the date of this Directors'
Report, there were 589,077,244 ordinary shares in issue.
The Company issued no preference shares within the year ended 31
March 2022. As at 31 March 2022 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 23(a) to the Financial
Statements below.
Substantial Shareholdings
As at 31 March 2022, 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 79,568,646 13.52
M&G Investments 56,283,295 9.56
Gravis Capital Mgt 40,429,010 6.87
Legal & General Investment Mgt 37,040,554 6.29
Baillie Gifford & Co 33,482,097 5.69
Investec Wealth & Investment
(RS) 30,085,492 5.11
Between 31 March 2022 and the date of this Directors' Report,
the Company was notified that Baillie Gifford & Co has an
interest in 1,202,381 ordinary shares (0.2% 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 9 August 2021, 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, 117,624,954 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, 88,159,902 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 to 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
The Company donated GBP100,000 (2021: GBP80,000) to the
Foundation. No other charitable donations were made during the
year.
Events after the Balance Sheet Date
Details of events occurring since 31 March 2022 can be found in
note 28 to the Financial Statements below.
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 August
2021.
KPMG has indicated its willingness to continue as auditor for
the year ending 31 March 2023 and resolutions to re-appoint KPMG
and to authorise the Directors to determine KPMG's remuneration,
will be proposed at this year's AGM.
2022 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
(www.nextenergysolarfund.com).
Approval
This Directors' Report was approved by the Board on 24 June 2022
and signed on its behalf by:
Kevin Lyon
Chairman
24 June 2022
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
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.
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 (www.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 IFRS 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
24 June 2022
Independent Auditor's Report to the Members of NextEnergy Solar
Fund Limited
Our opinion is unmodified
We have audited the financial statements of Next Energy Solar
Fund Limited (the "Company"), which comprise the statement of
financial position as at 31 March 2022, the statements of
comprehensive income, changes in equity and cash flows for the year
then ended, and notes, 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 2022, 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 the FRC Ethical
Standard as required by the Crown Dependencies Audit Rules and
Guidance. We believe that the audit evidence we have obtained is a
sufficient and appropriate basis for our opinion.
Key audit matters: our assessment of the risks of material
misstatement
Key audit matters are those matters that, in our professional
judgment, 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 2021):
The risk Our response
-------------- ---------------- -----------------
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the
Private
Investment.
-------------- ---------------- -----------------
Our application of materiality and an overview of the scope of
our audit
Materiality for the financial statements as a whole was set at
GBP13.3m, determined with reference to a benchmark of net assets of
GBP668.5m, of which it represents approximately 2% (2021: 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% (2021: 75%) of
materiality for the financial statements as a whole, which equates
to GBP10m. 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 GBP0.6m, 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 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;
-- 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 above, 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
24 June 2022
Statement of Comprehensive Income
For the year ended 31 March 2022
2022 2021
Notes GBP'000 GBP'000
Income
Income comprises:
Interest income 12,799 12,000
Investment income 42,009 38,868
Administrative services income 10,226 9,128
Net changes in fair value of investments 17 78,665 (3,421)
Total net income 143,699 56,575
Expenditure
Preference share dividends 9,454 9,526
Management fees 5 5,041 5,157
Legal and professional fees 744 716
Directors' fees 7 222 253
Administration fees 6 227 237
Other expenses 9 122 142
Audit Fees 8 138 110
Charitable donation 10 100 80
Regulatory fees 79 75
Insurance 22 55
Total expenses 16,149 16,351
Profit and comprehensive income for
the year 127,550 40,224
Earnings per ordinary share - basic 14 21.69p 6.87p
Earnings per ordinary share - diluted 14 17.34p 6.32p
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 2022
2022 2021
Notes GBP'000 GBP'000
Non-current assets
Investments 17 842,346 769,644
Total non-current assets 842,346 769,644
Current assets
Cash and cash equivalents 19,608 10,809
Trade and other receivables 11 16,389 22,211
Total current assets 35,997 33,020
Total assets 878,343 802,664
Current liabilities
Trade and other payables 12 (11,785) (23,953)
Total current liabilities (11,785) (23,953)
Non-current liabilities
Preference shares 23 (198,058) (197,920)
Total non-current liabilities (198,058) (197,920)
Net assets 668,500 580,791
Equity
Share capital and premium 13 608,037 605,938
Retained earnings 60,463 (25,147)
Equity attributable to ordinary shareholders 668,500 580,791
Total equity 668,500 580,791
Net assets per ordinary share 16 113.5p 98.9p
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 24 June 2022 and signed on
its behalf by:
Kevin Lyon Patrick Firth
Chairman Director
Statement of Changes in Equity
For the year ended 31 March 2022
Share capital Retained
and premium earnings Total equity
GBP'000 GBP'000 GBP'000
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
Ordinary shareholders' equity at
1 April 2021 605,938 (25,147) 580,791
Profit and comprehensive income
for the year - 127,550 127,550
Scrip shares issued in lieu of dividends 2,099 - 2,099
Ordinary dividends declared - (41,940) (41,940)
Ordinary shareholders' equity at
31 March 2022 608,037 60,463 668,500
Statement of Changes in Cash Flows
For the year ended 31 March 2022
2022 2021
Notes GBP'000 GBP'000
Cash flows from operating activities
Profit and comprehensive income
for the year 127,550 40,224
Adjustments for:
Interest income receivable (12,799) (12,000)
Interest income received 12,799 12,000
Investment income receivable (42,009) (38,868)
Investment income received 34,019 41,164
Change in fair value of investments 17 (78,665) 3,421
Proceeds from HoldCos 17 82,443 9,546
Payments to HoldCos 17 (58,370) (29,051)
Financing proceeds from HoldCos 42,100 35,200
Financing proceeds returned to HoldCos (42,100) (35,200)
Proceeds from NextPower III 17 10,502 -
Payments to NextPower III (27,716) -
Net changes in unrealised foreign
exchange (32) -
Financial debt amortisation 139 139
Dividends paid on preference shares
as finance costs 9,454 9,526
Operating cash flows before movements
in working capital 57,315 36,101
Changes in working capital
Movement in trade and other receivables 694 (514)
Movement in trade and other payables 131 (2,344)
Net cash generated from operating
activities 58,140 33,242
Cash flows from financing activities
Dividends paid from preference shares (9,500) (9,499)
Dividends paid on ordinary shares (39,841) (38,062)
Net cash used in financing activities (49,341) (47,561)
Net movement in cash and cash equivalents
during year 8,799 (14,319)
Cash and cash equivalents at the
beginning of the year 10,809 25,128
Cash and cash equivalents at the
end of the year 19,608 10,809
The accompanying notes are an integral part of these audited
financial statements
Notes to the Financial Statements
For the year ended 31 March 2022
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 Floor 2 Trafalgar
Court, Les Banques, St Peter Port, Guernsey, Channel Islands GY1
4LY.
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 either directly or 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
NextEnergy 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 give a true and fair view, have
been prepared on a going concern basis in accordance with IFRS.
The Financial Statements have been prepared using the historical
cost convention with the exception of financial assets held at fair
value through profit and loss. The principal accounting policies
adopted are set out below. These policies have been consistently
applied.
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, Italy and Spain and that are predominantly fully
constructed, operational and generating renewable electricity and
entered into the battery storage asset market this year. 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:
-- current net asset position;
-- maturity of debt facilities;
-- future investment transactions;
-- expenditure and capital commitment; and
-- forecast income and cash flows.
The NESF Group's cash balance as at 31 March 2022 was GBP19.6m,
all of which was readily available. It also had immediately
available but undrawn amounts under its debt facilities of a
further GBP48.8m. The NESF Group had capital commitments totalling
GBP59m at the year end. The majority of the NESF Group's revenues
are derived from government subsidies. A signi cant 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 satis ed that the Company has suf cient 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 six 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 and NextEnergy Solar Holdings VI 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.
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 NextPower III, 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 and holding in a private equity fund.
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.
h) Income
Income includes investment income from financial assets at fair
value through profit or loss, administrative service fee income,
interest income from equalisation of investments and 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 and takes
into account the International Private Equity and Venture Capital's
valuation guidelines. The Company's Private Equity Solar fund
investment (NextPower III) has been valued using the estimated
attributable NAV and the remainder of investments 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. 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 2021 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 2022 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
protected future cash flows. These valuations are reviewed and
approved by the Board. The investments are held through SPVs and
NextPower III is held directly.
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 Company classified its investments at fair value through
profit or loss as level 3 within the fair value hierarchy. Level 3
investments amount to GBP842.4m (2021: GBP769.6m) and consist of
one Private Equity Solar fund investment (NextPower III) which has
been valued using estimated attributable NAV and 99 (2021: 94)
investments in solar PV assets (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. The conflict in Ukraine has had an unprecedented
and sustained positive impact on the long-term power price
projections, which is also a significant Level 3 input. 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 2022
in measuring financial instruments categorised as Level 3 in the
fair value hierarchy and their sensitivities are disclosed in note
19. 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 2(d).
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 has one associate
investment, Agenor, which is measured at cost since it is not yet
operational per note 19(a).
The Company and the HoldCos operate as an integrated structure
whereby the Company invests in the HoldCos and a singular direct
investment. 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.
The NAV for the purpose of calculation is reduced by an amount
equivalent to US$50m for NESF's investment in NextPower III. For
the year ended 31 March 2022 the Company incurred GBP5.0m in
management fees, of which GBP62k was outstanding at 31 March 2022.
(2021: GBP5.2m in management fees of which nil was outstanding at
31 March 2021).
The Investment Management Agreement is terminable by not less
than 12 month's written notice.
6. Administration Fees
Under an amended Administration Agreement with the previous
administrator the administration fee was a xed fee of GBP220k per
annum with effect from 1 October 2020. With effect from 1 January
2022, the xed fee was to increase annually in line with the annual
increase in Guernsey RPI. For the period up to 30 March 2022, the
previous administrator was also entitled to additional fees for
attendance at ad hoc Board and Board Committee meetings.
With effect from 30 March 2022 Ocorian Administration (Guernsey)
Limited was appointed Administrator to the Company. The
administration fee changed to a fixed fee of GBP275k per annum with
effect from 30 March 2022. With effect from 1 January 2023, the xed
fee will increase annually in line with the annual increase in
Guernsey RPI.
For the year ended 31 March 2022 the previous administrator was
entitled to administration fees of GBP227k (2021: GBP237k), of
which GBP115k was outstanding at 31 March 2022 (2021: GBP57k).
The fee payable to the previous administrator was payable
quarterly in arrears. The fee payable to the new Administrator is
payable quarterly in advance.
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
GBP222k (2021: GBP253k), of which GBP11k was outstanding at 31
March 2022 (2021: GBPnil).
8. Audit Fees
The analysis of the auditor's remuneration is as follows:
31 March 31 March
2022 2021
GBP'000 GBP'000
============================================ ========= =========
Fees payable to the auditor for the audit
of the Company 84 80
Additional audit fee and disbursements for
prior year 54 30
============================================ ========= =========
Total 138 110
============================================ ========= =========
9. Other Expenses
31 March 31 March
2022 2021
GBP'000 GBP'000
Amortisation expense 139 139
Sundry expenses (18) 2
Director's expenses 1 1
Total 122 142
10. Charitable Donation
During the year ended 31 March 2022, the Company made a
charitable donation of GBP100k to the Foundation (2021: GBP80k).
Information on the Foundation and how it used the donation can be
found on our website (www.nextenergysolarfund.com).
11. Trade and Other Receivables
31 March 31 March
2022 2021
GBP'000 GBP'000
Administrative service fee income receivable - 759
Accrued Income 20 -
Prepayments 74 29
Due from HoldCos 16,295 21,423
Total trade and other receivables 16,389 22,211
Amounts due from HoldCos are interest free and payable on
demand.
12. Trade and Other Payables
31 March 31 March
2022 2021
GBP'000 GBP'000
Other payables 273 142
Due to NextPower III 896 -
Preference dividends payable 2,342 2,388
Due to HoldCos 8,274 21,423
Total trade and other payables 11,785 23,953
Amounts due to HoldCos are interest free and payable on
demand.
During the year, an amount of GBP13.1m representing a non-cash
dividend was set-off against amounts due to Holdco as these
transactions are with the same Holdco.
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.
31 March 31 March
2022 2021
Ordinary shares issuance Shares Shares
Opening balance 586,987,678 584,205,931
Scrip shares issued during the year 2,089,566 2,781,747
Total issued at 31 March 2022 589,077,244 586,987,678
31 March 31 March
Issued ordinary shares - share capital and 2022 2021
premium GBP'000 GBP'000
Opening balance 605,938 602,989
Value of scrip shares issued during the
year 2,099 2,949
Total issued at 31 March 2022 608,037 605,938
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 23(a).
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
2022 2021
Profit and comprehensive income for the
year (GBP'000) 127,550 40,224
Basic weighted average number of issued
ordinary shares 588,014,946 585,423,190
Earnings per share basic 21.69p 6.87p
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
2022 2021
Profit and comprehensive income for the
year (GBP'000) 127,550 40,224
Plus: preference share dividends paid during
the year (GBP'000) 9,454 9,526
Profit for the year attributable to ordinary
shareholders (GBP'000) 137,004 49,750
Weighted average number of issued ordinary
shares 588,014,946 585,423,190
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 202,224,469 202,020,202
Adjusted weighted average number of ordinary
shares 790,239,415 787,443,392
Earnings per share diluted 17.34p 6.32p
15. Ordinary Share Dividends
a) Paid During the year
31 March 31 March
31 March 2022 31 March 2021
2022 Pence per 2021 Pence per
GBP'000 share GBP'000 share
Quarter 1 10,346 1.7625 10,034 1.7175
Quarter 2 10,527 1.7900 10,310 1.7625
Quarter 3 10,529 1.7900 10,324 1.7625
Quarter 4 10,538 1.7900 10,343 1.7625
Total 41,940 7.1325 41,011 7.005
b) Declared in Respect of the year
31 March 31 March
31 March 2022 31 March 2021
2022 Pence per 2021 Pence per
GBP'000 share GBP'000 share
Quarter 1 10,527 1.7900 10,310 1.7625
Quarter 2 10,529 1.7900 10,324 1.7625
Quarter 3 10,538 1.7900 10,343 1.7625
Quarter 4 10,544 1.7900 10,346 1.7625
Total 42,138 7.1600 41,323 7.0500
16. Net Assets per Ordinary Share
31 March 31 March
2022 2021
Ordinary shareholders' equity (GBP'000) 668,500 580,791
Number of issued ordinary shares 589,077,244 586,987,678
Net assets per ordinary share 113.5p 98.9p
17. Investments at Fair Value Through Profit or Loss
The Company owns its portfolio of solar assets through its
investments in the HoldCos and a direct investment in NextPower
III. The Company's investments comprise of its portfolio of solar
assets and the residual net assets of the HoldCos. As explained in
note 4(a), all of the Company's investments are held at fair value
through pro t or loss and classi ed as Level 3 in the fair value
hierarchy. There were no movements between the hierarchy levels
during the year ended 31 March 2022 (2021: 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
2022 2021
GBP'000 GBP'000
Brought forward cost of investments 815,494 795,989
Investment proceeds from HoldCos (82,443) (9,546)
Investment payments to HoldCos 58,370 29,051
Investment proceeds from NextPower III (10,502) -
Investment payments to NextPower III 28,612 -
Carried forward cost of investments 809,531 815,494
Brought forward unrealised losses on valuation (45,850) (42,429)
Movement in unrealised gains/(losses) on
valuation 78,665 (3,421)
Carried forward unrealised gains/(losses)
on valuation 32,815 (45,850)
Total investments at fair value 842,346 769,644
Non-cash transactions: On 23 February 2022, NESH V issued
Eurobonds listed on The International Stock Exchange totalling
GBP6.6m.
To facilitate the acquisition of various investments, GBP42.1m
was drawn down at subsidiary level, remitted to the Company before
being returned to a subsidiary.
The total change in the value of the investments in the HoldCos
is recorded through pro t 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 and Associates
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. The Company holds its investment of NextPower III
directly. The HoldCos are all incorporated in the UK and 100%
directly owned. There are no cross guarantees amongst NESF Group
entities. During the year a subsidiary of the Company invested in
Camilla Battery Storage Limited with another company, management
have assessed the substance of this investment and have concluded
that it meets the control requirements of IFRS 10 Consolidated
Financial Statements and is therefore treated as a subsidiary not a
joint venture as per IFRS 11 Investments in Associates and Joint
Ventures. Below is the legal entity name for the SPVs, all owned
100% at 31 March 2022 directly or indirectly through the HoldCos
listed below (besides Agenor which is owned 24.5% by Next Energy
Solar Holdings V Limited).
Country of Country of
Name incorporation Name incorporation
NextEnergy Solar Holdings
Limited UK
North Farm Solar Park
BL Solar 2 Limited UK Limited UK
Push Energy (Birch)
Bowerhouse Solar Limited UK Limited UK
Push Energy (Boxted
Ellough Solar 2 Limited UK Airfield) Limited UK
Push Energy (Croydon)
Glebe Farm SPV Limited UK Limited UK
Push Energy (Decoy)
Glorious Energy Limited UK Limited UK
Push Energy (Hall
Greenfields (A) Limited UK Farm) Limited UK
Push Energy (Langenhoe)
NESF-Ellough Ltd UK Limited UK
SSB Condover Limited
Nextpower Ellough LLP UK (Condover) UK
ST Solarinvest Devon
Nextpower Gover Farm Limited UK 1 Limited UK
Nextpower Higher Hatherleigh UK Sunglow Power Limited UK
Wellingborough Solar
Nextpower Shacks Barn Ltd UK Limited UK
NextEnergy Solar Holdings
II Limited UK
ESF Llwyndu Limited UK Trowbridge PV Limited 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
Camilla Battery Storage
BESS Pierces Ltd UK Limited UK
Chilton Cantello Solar
Birch Solar Farm CIC UK Park Ltd UK
Blenches Mill Farm Solar Crossways Solar Park
Park Ltd UK Ltd UK
Brafield Solar Limited UK Empyreal Energy Limited UK
Francis Lane Solar Limited UK Fiskerton Limited UK
Gourton Hall Solar Limited UK NextZest Ltd UK
Greenfields (T) Limited UK PF Solar Limited UK
Helios Solar 1 Limited UK Pierces Solar Limited UK
Raglington Farm Solar
Helios Solar 2 Limited UK Park Ltd UK
Hook Valley Farm Solar 2 Renewable Energy HoldCo
Park Ltd UK Ltd UK
Knockworthy Solar Park Ltd UK RRAM Energy Limited UK
Saundercroft Farm
Lark Energy Bilsthorpe Ltd UK Solar Park Ltd UK
SL Solar Services
Le Solar 51 Limited UK Ltd UK
Little Irchester Solar Limited UK Sywell Solar Limited UK
Little Staughton Airfield
Solar Limited UK Tau Solar Limited UK
Micro Renewables Domestic Temple Normanton Solar
Ltd UK Limited UK
TGC Solar Radbrook
Micro Renewables Ltd UK Ltd UK
Moss Farm Solar Limited UK NextPower Grange Limited UK
Thornborough Solar
NESH 3 Portfolio A Limited UK Limited UK
NextPower South Lowfield
Nextpower Bosworth Ltd UK Limited UK
Thurlestone-Leicester
Nextpower Eelpower Ltd UK Solar Limited UK
UK Solar (Fiskerton)
Nextpower Higher Farm Ltd UK LLP UK
Nextpower High Garrett Ltd UK Warmingham Solar Limited UK
Wheb European Solar
NextPower Hops Energy UK (UK) 2 Ltd UK
Wheb European Solar
Nextpower SPV 4 Ltd UK (UK) 3 Ltd UK
Whitley Solar Park
Nextpower SPV 6 Ltd UK (Ashcott Farm) Ltd UK
Nextpower SPV 10 Ltd UK Wickfield Solar Ltd UK
Nextpower SPV Water Projects
Ltd UK Wyld Meadow Farm UK
NextEnergy Solar Holdings
IV Limited UK
Emberton Solar Park
Berwick Solar Park Limited UK Limited UK
Bottom Plain Solar Park Great Wilbraham Solar
Limited UK Park Limited UK
Branston Solar Park Limited UK Nextpower Radius Limited UK
NextEnergy Solar Holdings
V Limited UK
Agrosei S.r.l Italy Starquattro S.r.l Italy
Fotostar 6 S.r.l Italy SunEdison Med. 6 S.r.l Italy
Macchia Rotonda Solar S.r.l Italy Agenor* Spain
NextEnergy Solar Holdings
VI Limited UK
Green End Renewables
Bowden Lane Solar Park Ltd UK Limited UK
Tower Hill Farm Renewables
Fenland Renewables Limited UK Limited UK
* Agenor is an associate of the Company, not a subsidiary.
19. Fair Value of Investment in Unconsolidated Subsidiaries
a) Valuation process
The valuation process is described in note 4(a).
The Directors and the Investment Manager consider that the
discounted cash ow methodology used in deriving the fair value of
investments in operating solar assets 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. As at 31 March 2022, investments held at
fair value using the discounted cash flow methodology totalled
GBP803.2m (2021: GBP740.3m).
During the year the Company invested directly in a private
equity fund NextPower III LP. The fair value of the Company's
investment in private equity funds is generally considered to be
the Company's attributable portion of the NAV of the private equity
fund, as determined by the general partner/manager of such funds,
adjusted if considered necessary by the Board of Directors,
including any adjustment necessary for carried interest. The Board
of Directors and the Investment Manager consider the IPEV
guidelines when valuing private equity fund investments. As at 31
March 2022, investments held at fair value using NAV totalled
GBP17.3m (31 March 2021: GBPnil).
Investments in assets that are not yet operational (this
includes the co-investment into Project Agenor) 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 19(b). As at 31 March
2022, investments held at fair value using the cost methodology
totalled GBP21.9m (2021: GBP29.3m).
b) Sensitivity Analyses of Changes in Signi cant Unobservable
Inputs
(i) Sensitivity analysis of changes in significant unobservable
inputs of underlying operating solar assets
The operating solar assets are valued using the discounted cash
ow methodology. Information on this methodology is included in note
4(a). The Directors consider the following to be signi cant
unobservable inputs to the discounted cash ows 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
2022 2021
Weighted average discount rate 6.3% 6.3%
5.75% to 5.75% to
Range of discount rates (unlevered to levered) 7.25% 7.25%
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 2022
Directors' valuation (GBP20.1m) GBP842.4m GBP21.6m
Directors' valuation - percentage
movement (2.7%) 2.9%
Change in NAV per ordinary share (3.4p) 3.7p
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
Power Price
As at 31 March 2022, estimates implied an average rate of growth
of UK electricity prices (2022-2041) of approximately -7.7% (2021:
-0.2%) in 2022 real terms and an average rate of growth of Italian
electricity prices (2022-2041) of approximately -4.7% (2021: -1.4%)
in 2022 real terms. As at 31 March 2022, estimates implied a
long-term inflation rate of 2.3% (2021: 3.0%).
The impact of the current higher power price environment,
heightened by the conflict in Ukraine, on 2022 power prices has
been unprecedented. The blended average of the 'central case'
scenarios have been applied to the valuation which includes the
impact of the current high power price environment.
The table below shows the sensitivity of the portfolio valuation
to a sustained decrease or increase in the power price by plus or
minus 10% on the valuation, with all other variables held
constant.
Power price sensitivity -10% change Investments +10% change
31 March 2022
Directors' valuation (GBP48.9m) GBP842.4m GBP46.5m
Directors' valuation - percentage
movement (6.6%) 6.3%
Change in NAV per ordinary share (8.3p) 7.9p
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
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 plus or minus 5% on the valuation, with all other
variables held constant.
Energy generation sensitivity -5% underperformance Investments +5% outperformance
31 March 2022
Directors' valuation (GBP46.2m) GBP842.4m GBP43.9m
Directors' valuation - percentage
movement (6.3%) 6.0%
Change in NAV per ordinary
share (7.8p) 7.5p
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
Inflation Rates
The portfolio valuation assumes long-term inflation of 2.3%
(2021: 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 plus or minus 3.0%
(2021:0.5%), with all other variables held constant.
Inflation rate sensitivity -3.0% change Investments +3.0% change
31 March 2022
Directors' valuation (GBP132.9m) GBP842.4m GBP191.1m
Directors' valuation - percentage
movement (18.0%) 25.9%
Change in NAV per ordinary share (22.6p) 32.4p
31 March 2021 -0.5% change Investments +0.5% change
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
Operating Costs
The table below shows the sensitivity of the portfolio to
changes in operating costs by plus or minus 5% (2021:10%) at the
SPVs level, with all other variables held constant.
Operating costs sensitivity +5% change Investments -5% change
31 March 2022
Directors' valuation (GBP6.5m) GBP842.4m GBP6.5m
Directors' valuation - percentage
movement (0.9%) 0.9%
Change in NAV per ordinary share (1.1p) 1.1p
31 March 2021 +10% change Investments -10% change
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
Tax Rates
The UK corporation tax rate used in the portfolio valuation is
19% until 2023 and 25% thereafter (2021: 19% until 2023 and 25%
thereafter), in accordance with the latest UK Budget
announcements.
(ii) Sensitivity analysis of changes in significant unobservable
inputs of Private Equity Investments
The NAV of NextPower III, the direct private equity investment
as at 31 March 2022 was GBP17.3m. The valuation of private equity
investments is subject to changes in the valuations of the
underlying portfolio companies. These can be exposed to a number of
risks, including liquidity risk, price risk, credit risk, currency
risk and interest rate risk.
A movement of 10% in the value of the private equity investment
would move the Company NAV at the year end by 0.2%.
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 2022 they are held at
GBP198.1m (2021: GBP197.9m). The transaction costs are amortised
over the expected life of the preference shares to 2036. The
carrying value of the preference shares approximate their fair
value as at 31 March 2022.
21. Capital Management
a) Capital Structure
The NESF Group, which comprises the Company and its
unconsolidated subsidiaries (being the HoldCos and SPVs) and
NextPower III, manages its capital to ensure that it will be able
to continue as a going concern while 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 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 2022, the Company had GBP200m of preference
shares in issue (2021: GBP200m) and no financial debt outstanding.
The subsidiaries had GBP283.3m in long-term debt, look through debt
and revolving credit facilities outstanding (2021: GBP246.3m) (see
note 23(b), representing a gearing level of 42% (2021: 43%).
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 matrix 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
2022 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 19(b).
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.
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 ned in IFRS 7, arises as the values
of recognised monetary assets and monetary liabilities denominated
in other currencies 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 ows from the Company's solar assets in Italy to NESH V are
hedged and so the cash 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 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 2022. Of the
GBP278.5m (2021: GBP246.3m) credit facilities outstanding
(excluding NextPower III look through debt of GBP4.8m), GBP115.8m
(2021: GBP119.6m) had fixed interest rates and the remaining
GBP162.7m (2021: GBP126.7m) 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 GBP66.5m (2021:
GBP72.6m). The counterparties to these swaps are all Investment
grade financial institutions. The remaining GBP96.2m (2021:
GBP54.1m) 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 on 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
2022 2021
GBP'000 GBP'000
Cash and cash equivalents 19,608 10,809
Trade and other receivables 16,389 22,211
Debt investments 306,554 300,000
Total 342,551 333,020
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 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 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 nancial condition of accounts receivable. As at
31 March 2022, 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 cant to the subsidiary (2021: none). The
Investment Adviser has suf 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 2022
Long - A
Short -
Barclays Bank PLC A/A-1 19,608
31 March 2021
Long - A
Short -
Barclays Bank PLC A/A-1 5,809
Long - AA-
Short -
Northern Trust A-1+ 5,000
d) Liquidity Risk (Company and subsidiaries)
Liquidity risk is the risk that the NESF Group will not be able
to meet its 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 ows and matching the maturity pro les of assets and
liabilities and maintaining suf cient cash balances to meet their
operating needs.
The following table shows the maturity of the Company's
non-derivative nancial assets and liabilities. The amounts
disclosed are contractual, undiscounted cash ows and may differ
from the actual cash ows received or paid in the future as a result
of early repayments.
Greater
Carrying than 12
amount Up to 3 3 to 12 months
GBP'000 months GBP'000 months GBP'000 GBP'000
31 March 2022
Assets
Cash and cash equivalents 19,608 19,608 - -
Trade and other receivables 16,389 16,389 - -
Liabilities
Contractual preference
shares repayment and
dividends payable(1) (200,400) (2,342) (7,132) (333,000)
Trade and other payables (9,443) (9,443) - -
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) (200,308) (2,388) (7,132) (335,376)
Trade and other payables (21,565) (21,565) - -
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 2022
Preference shares 197,920 139 198,058
31 March 2021
Preference shares 197,781 139 197,920
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 2022, the
nominal outstanding amount was GBP145.1m (2021: GBP150.3m).
In June 2021, NESH III closed a RCF with National Westminster
Bank plc and AIB Group (UK) p.l.c. for GBP75.0m which GBP75.0m was
subsequently drawn down. As at 31 March 2022, the outstanding
amount was GBP75.0m (2021: 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 2022, the nominal outstanding amount was GBP47.3m
(2021: GBP48.7m).
In July 2018, NESH VI 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 2022, the
outstanding amount was GBP21.1m (2021: GBP54.1m).
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 2022
Share capital and
premium 605,938 - - 2,098 608,036
Preference shares 197,920 - - (139) 197,781
Retained earnings (25,147) (39,841) 127,550 (2,099) 60,465
31 March 2021
Share capital and
premium 602,989 - - 2,949 605,938
Preference shares 197,781 - - 139 197,920
Retained earnings (24,360) (38,062) 40,224 (2,949) (25,147)
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.
The Company, through its Holdco, has forward and development
funding facilities in relation to the construction of subsidy-free
development projects. As at 31 March 2022, the facilities amounted
to GBP3m and GBP1.4m respectively (2021: GBP3m and GBP1.4m).
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 GBP2,500,000. As at 31 March 2022, a letter of credit
of GBP2,374,426 was in issue (2021: none).
On 1 December 2017, the Company provided a guarantee to Intesa
Sanpaolo S.p.A. ('ISP') relating to derivative transactions made
available by NESH V. The guarantee covers all present and future
obligations of NESH V to ISP relating to the derivative
transactions. As at 31 March 2022 the Company has no outstanding
commitments related to this guarantee (2021: none).
The Company has a remaining commitment to NextPower III of
$25.9m as at 31 March 2022. The Company, through its subsidiary,
has a remaining commitment of EUR1.0m in relation to the
co-investment in Project Agenor as at 31 March 2022.
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 NESF 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
GBP6.6m (2021: GBP6.2m).
At 31 March 2022 GBP8.3m (2021: GBP21.4m) was owed from/to the
subsidiaries in relation to their restructuring, GBP8.0m being cash
trapped within the structure at year end (2021: GBPnil). GBP10.2m
of administrative service fees were received from the subsidiaries
during the year (2021: GBP9.1m), none of which was outstanding at
31 March 2022 (2021: GBPnil). During the year, dividends of
GBP42.0m (2021: GBP38.9m) were received from the subsidiaries.
Refer to note 11 and 12 for terms and conditions on amounts due
from and to subsidiaries.
During the year the Company committed US$50m to NextPower III
LP, as a limited Partner governed by a Limited Partnership
Agreement, with US$24.1m drawn as at 31 March 2022. The Investment
Manager, the Investment Adviser and the Asset Manager are all
professionally engaged to provide services to this fund.
Equalisation interest of GBP0.8m was received due to subsequent
closes of NextPower III LP. The principal activity of NextPower III
is to invest in solar photovoltaic plants globally (primarily in
OECD countries). The Company has committed a fixed amount of
capital which may be drawn (and returned) over the life of
NextPower III. The Company pays capital calls when due and receives
distributions from NextPower III over the life of the fund. The
outstanding commitment to NextPower III is disclosed in note
25.
The Directors' fees for the year ended 31 March 2022 amounted to
GBP221,500 (2021: GBP253,000).
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 9 May 2022, the Company announced its second international
co-investment for an investment of EUR22.5m, acquiring a c.13%
interest in a 210MW solar project currently under construction in
Santarém, Portugal.
On 11 May 2022, the Directors approved a dividend of 1.79 pence
per ordinary share for the quarter ended 31 March 2022 to be paid
on 30 June 2022 to ordinary shareholders on the register as at the
close of business on 20 May 2022.
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
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 active management and excludes the effect of
variation in solar irradiation.
31 March 31 March
2022 2021
% %
======================================= ======== ========
Delta of generation vs. budget (A) 1.8 6.2
Delta of solar irradiation vs. budget
(B) 3.4 5.5
======================================= ======== ========
Asset Management Alpha (A - B) (1.6) 0.7
======================================= ======== ========
Invested Capital
Invested capital measures the capital deployed into solar assets
through the HoldCos and SPVs, and private equity investments and
battery storage assets to generate investment returns for
shareholders.
31 March 31 March
2022 2021
GBP'000 GBP'000
================== ======================= =======================
Invested capital 1,038,648 998,809
================== ======================= =======================
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
2022 2021
GBP'000 GBP'000
============================================ ======== ========
NESF Group's outstanding financial debt
(A) 283,304 246,300
Preference shares as per Statement of
Financial Position (B) 198,058 197,920
N e t assets as per Statement of Financial
Position (C) 668,500 580,791
============================================ ======== ========
Total Gearing (((A + B) / (A + B + C)),
expressed as a percentage) 41.9% 43.3%
============================================ ======== ========
Financial Debt Gearing
Financial debt gearing measures the aggregate of the NESF
Group's financial debt relative to GAV.
31 March 31 March
2022 2021
GBP'000 GBP'000
============================================ ======== ========
NESF Group's outstanding financial debt
(A) 283,304 246,300
Preference shares as per Statement of
Financial Position (B) 198,058 197,920
N e t assets as per Statement of Financial
Position (C) 668,500 580,791
============================================ ======== ========
Financial Debt Gearing (((A) / (A + B
+ C)), expressed as a percentage) 24.6% 24.0%
============================================ ======== ========
Cash Income
Cash income measures the cash generated from the Company's
operations.
31 March 31 March
2022 2021
GBP'000 GBP'000
============================================== ======== ========
Income as per Statement of Comprehensive
Income (A) 65,034 59,996
Trade and other receivables - administrative
service fee income accrual at beginning
of year (B) 758 252
Trade and other receivables - administrative
service fee income accrual at end of
year (C) - 758
============================================== ======== ========
Cash income (A + B - C) 65,792 59,490
============================================== ======== ========
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
2022 2021
GBP'000 GBP'000
================================================== ======== ========
Cash Income as per the able above (A) 65,792 59,490
Total expenses as per Statement of Comprehensive
Income (B) 16,190 16,351
Pre-scrip ordinary dividends paid as
per Statement of Changes in Equity (C) 41,940 41,011
================================================== ======== ========
Cash dividend cover (pre-scrip dividends)
((A - B) / C) 1.2x 1.1x
================================================== ======== ========
Dividend Yield
Dividend yield is a measure of the return to the ordinary
shareholders.
31 March 31 March
2022 2021
Pence Pence
Dividend per ordinary share (A) 7.16 7.05
Ordinary share price at end of year (B) 103.4 99.6
========================================= ======== ========
Dividend yield (A / B, expressed as
a percentage) 6.92% 7.10%
========================================= ======== ========
NAV per Ordinary Share
NAV per ordinary share is a measure of the value of one ordinary
share.
31 March 31 March
2022 2021
Pence Pence
=========================================== =========== ===========
N et assets as per Statement of Financial
Position (GBP'000) (A) 668,500 580,791
Number of ordinary shares in issue at
year end (B) 589,077,244 586,987,678
=========================================== =========== ===========
NAV per ordinary share ((A / B) x 1,000) 113.5p 98.9p
=========================================== =========== ===========
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
2022 2021
Pence Pence
============================================= ======== ========
Basic NAV per ordinary share at year
end as per Statement of Financial Position
(A) 113.5 98.9
Annual dividend per ordinary share declared
in respect of year (B) 7.16 7.05
Basic NAV per ordinary share at beginning
of year as per Statement of Financial
Position (C) 98.9 99.0
============================================= ======== ========
NAV total return per ordinary share ((A
+ B - C) / C, expressed as a percentage) 21.98% 7.00%
============================================= ======== ========
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
2022 2021
Pence Pence
========================================== ======== ========
Ordinary share price at year end (A) 103.4 99.6
Annual dividend per ordinary share d
e c l a r e d / paid in respect of year
(B) 7.16 7.05
Ordinary share price at beginning of
year (C) 99.6 101.5
========================================== ======== ========
Ordinary Shareholder Total Return per
share ((A + B - C) / C, expressed as
a percentage) 11.00% 5.1%
========================================== ======== ========
(Discount)/Premium to NAV per Ordinary Share
(Discount)/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
2022 2021
Pence Pence
================================================= ======== ========
Ordinary share price at year end (A) 103.4 99.6
NAV per ordinary share at year end as
per Statement of Financial Position (B) 113.5 98.9
================================================= ======== ========
(Discount)/premium to NAV per Ordinary
Share ((A - B) / B, expressed as a percentage) (8.9%) 0.7%
================================================= ======== ========
Ongoing Charges Ratio
Ongoing Charges Ratio measures 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.
31 March 31 March
2022 2021
GBP'000 GBP'000
================================================== ======== ========
Total expenses as per Statement of Comprehensive
Income (A) 16,181 16,351
Preference share dividends as per Statement
of Comprehensive Income (B) 9,454 9,526
N o n - recurring expenses (C) 248 253
Average of quarterly net assets (D) 595,637 582,823
================================================== ======== ========
Ongoing Charges Ratio ((A - B - C) /
D, expressed as a percentage) 1.09% 1.10%
================================================== ======== ========
General Shareholder Information
Alternative Investment Fund Management Directive ("AIFMD")
The AIFMD aims to harmonise the regulation of 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.
NAV 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 2022, which is available
under 'Publications' in the Investor Relations section of the
Company's website (www.nextenergysolarfund.com).
Additional Information
Copies of the Company's Annual and Interim Reports, quarterly
fact sheets 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 (
www.nextenergysolarfund.com ).
Financial Calendar for Year Ending 31 March 2023
Interim results announced November 2022
Annual results announced June 2023
AGM August 2023
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 2023.
Dividend Announcement Ex-dividend Payment Amount
date Date date
========== ============= ============ ========== =======
1st 21 Aug 22 22 Aug 22 30 Sep 22 1.88p
2nd 19 Nov 22 20 Nov 22 31 Dec 22 1.88p
3rd 18 Feb 23 19 Feb 23 31 Mar 23 1.88p
4th 20 May 23 21 May 23 30 Jun 23 1.88p
========== ============= ============ ========== =======
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 Ocorian Administration (Guernsey) Limited (since
30 March 2022)
Apex Fund and Corporate Services (Guernsey) Limited
(prior to 29 March 2022)
========================== ======================================================================
Agenor Agenor Hive S.L.U
========================== ======================================================================
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 The difference between (i) the delta of generation
Alpha vs. budget and (ii) the delta of solar irradiation
vs. budget
========================== ======================================================================
Apollo portfolio 21 UK solar assets held within NESH (see the Operating
Portfolio - Overview above for further details)
========================== ======================================================================
Asset Manager or WiseEnergy (Great Britain) Limited and WiseEnergy
WiseEnergy Italia Srl
========================== ======================================================================
Cash dividend cover The ratio of the Company's cash income to dividends
paid or payable in respect of the financial year
========================== ======================================================================
CBA Commonwealth Bank of Australia
========================== ======================================================================
Company or NESF NextEnergy Solar Fund Limited
========================== ======================================================================
Company law Guernsey Commpany Law, 2008
========================== ======================================================================
Consultants The three independent market forecasters used by
the Company
========================== ======================================================================
CO(2) e or carbon A term for describing different greenhouse gases
dioxide equivalent 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
========================== ======================================================================
DNOO Distribution Network Operators Outages
========================== ======================================================================
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
========================== ======================================================================
Foundation NextEnergy Foundation
========================== ======================================================================
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
========================== ======================================================================
GHG Greenhouse Gas
============================ ====================================================================
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
============================ ====================================================================
Investment Manager NextEnergy Capital IM Limited
============================ ====================================================================
IPO Initial Public Offering
============================ ====================================================================
IRR Internal Rate of Return
============================ ====================================================================
JVP Joint Venture Partnership
============================ ====================================================================
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
============================ ====================================================================
NextEnergy Group The NextEnergy 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
============================ ====================================================================
NP III NextPower III L.P.
================================ ================================================================
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
================================ ================================================================
PR Describes the relationship between the actual
and theoretical energy outputs of a solar asset
(expressed as a percentage)
================================ ================================================================
PPA Power purchase agreement
================================ ================================================================
Preference shares The issued preference share capital of the Company
================================ ================================================================
PV Photovoltaic
================================ ================================================================
Radius portfolio Five UK solar assets held within NESH IV (see
the Operating Portfolio - Overview above for further
details)
================================ ================================================================
RCF Revolving Credit Facility
================================ ================================================================
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)
================================ ================================================================
ROCC 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 assets held in NESH III (see the Operating
Portfolio - Overview above 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
================================ ================================================================
SFRD Sustainable Finance Disclosure Regulation
================================ ================================================================
Solis portfolio Eight Italian solar assets held within NESH V
(see the Operating Portfolio - Overview above
for further details)
================================ ================================================================
SONIA Sterling Overnight Index Average
================================ ================================================================
SPVs Special purpose vehicles that hold the Company's
investment portfolio of underlying solar energy
infrastructure assets
================================ ================================================================
TCFD Task Force on Climate-related Financial Disclosures
================================ ================================================================
Thirteen Kings portfolio 13 assets held in NESH III (see the Operating
Portfolio - Overview above 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
================================ ================================================================
Corporate Information
The Company
NextEnergy Solar Fund Limited
Registered Office*:
Floor 2
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 4LY
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
Josephine Bush
(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
Asset Manager
WiseEnergy
Heathcoat House,
20 Savile Row
London W1S 3PR
Company Secretary and Administrator
Ocorian Administration (Guernsey) Limited**
Floor 2
Trafalgar Court
Les Banques St Peter Port
Guernsey GY1 4LY
Apex Fund 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
Sponsor and Joint Broker
Cenkos Securities plc
6, 7, 8 Tokenhouse Yard
London EC2R 7AS
Joint Broker
RBC Capital Markets Ltd (appointed 8 November 2021)
100 Bishopsgate
London EC2N 4AA
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
* on 30 March 2022 the registered office of the Company changed
from 1 Royal Plaza, Royal Avenue, St Peter Port, Guernsey GY1
2HL
** appointed 30 March 2022
*** resigned 29 March 2022
Notes to Editors(1) :
About NextEnergy Solar Fund
NESF is a specialist renewable energy investment company listed
on the premium segment of the London Stock Exchange that invests in
utility-scale solar power plants and energy storage. The Company
may invest up to 30% of its gross asset value in non-UK OECD
countries, 15% in solar-focused private equity structures, and 10%
in energy storage.
NESF currently has a diversified portfolio comprising of the
following:
Solar PV:
-- 100 operating solar assets across the UK and Italy (primarily
on agricultural, industrial, and commercial sites)
-- A 50MW co-investment into a Spanish solar project alongside
NextPower III ESG, currently under construction
-- A 210MW co-investment into a Portuguese solar project
alongside NextPower III ESG, currently under construction
-- A subsidy-free UK solar project under construction (Whitecross 36MW)
-- A ready-to-build subsidy-free UK solar project (Hatherden 50MW)
-- A $50m commitment into NextPower III ESG (a private solar
infrastructure fund providing exposure to both operating and under
construction, international solar assets)
Energy Storage:
-- A 50MW standalone battery storage project in Fife, Scotland,
currently under construction (part of a 250MW joint venture with
Eelpower)
-- A 6MW co-located battery storage project at North Norfolk Solar Farm
The NESF portfolio has a combined installed power capacity of
865MW (excluding NextPower III MW on an equivalent look-through
basis).
As at 31 March 2022, the Company had a gross asset value of
GBP1,150 million, 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, and a net asset value of
GBP668.5 million.
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 solar
energy and energy storage infrastructure assets. The majority of
NESF's long-term cash flows are inflation-linked via UK government
subsidies.
For further information on NESF please visit www.
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 Group
NESF is managed by NextEnergy Capital, part of the NextEnergy
Group. NextEnergy Group was founded in 2007 to become a leading
market participant in the international solar sector. Since its
inception, it has been active in the development, construction, and
ownership of solar assets across multiple jurisdictions. NextEnergy
Group operates via its three business units: NextEnergy Capital
(Investment Management), WiseEnergy (Operating Asset Management)
and Starlight (Asset Development).
NextEnergy Capital
NextEnergy Capital comprises the Group's investment management
activities. To date, NEC has invested in over 325 individual solar
plants for a capacity in excess of 2.3GW across it institutional
funds.
www.nextenergycapital.com
-- NextEnergy Solar Fund ("NESF") is a solar infrastructure
investment company focused on the UK and other OECD countries,
which is listed on the premium segment of the London Stock
Exchange. It currently owns 865MW spread among 100 individual
operating assets in the UK and Italy, comprising a gross asset
value of GBP1,150m. NESF is one of the largest listed solar energy
investment companies in the world.
-- NextPower II ("NPII") a private fund made up of 105
individual operating solar power plants and an installed capacity
of 149MW, focused on consolidating the substantial, highly
fragmented Italian solar market. NPII was successfully divested in
January 2022, a 2016 vintage vehicle that generated net IRRs in
excess of its gross target of 10-12%.
-- NextPower III ESG ("NPIII ESG") is a private fund exclusively
focused on the international solar infrastructure sector,
principally targeting projects in carefully selected OECD
countries, including the US, Portugal, Spain, Chile, Poland and
Italy. NPIII ESG is a fund that provides a positive social and
environmental impact to the countries it has and will invest into.
NPIII completed its fundraise with a total of $896m, including a
SMA raised. The target of the fund was $750m.
-- NextPower UK ESG ("NPUK ESG") is a private unlevered fund
investing in greenfield subsidy-free solar projects, with PPA's, in
the UK. NPUK ESG was launched in December 2021. The UK
Infrastructure Bank is providing financing to the initial seed
assets of the fund, and plans to invest up to GBP250m, half of the
fund's total target fund size, on a match-funding basis.
WiseEnergy
WiseEnergy(R) is NextEnergy Capital Group's operating asset
manager. WiseEnergy is a leading specialist operating asset manager
in the solar sector. Since its founding, WiseEnergy has provided
solar asset management, monitoring and technical due diligence
services to over 1,400 utility-scale solar power plants with an
installed capacity in excess of 1.8GW. WiseEnergy clients comprise
leading banks and equity financiers in the energy and
infrastructure sector.
www.wise-energy.com
Starlight
Starlight is NextEnergy Group's development company that is
active in the development phase of solar projects. It has developed
over 100 utility-scale projects internationally and continues to
progress a large pipeline of c.2.5GW of both green and brownfield
project developments across global geographies.
Notes:
(1:) All financial data is at 31 March 2022, being the latest
date in respect of which NESF has published financial
information
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