Aquila Eur Renwables Aquila Euro Rnw-AERI - Final Results
26/04/2023 07:00
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RNS Number : 5106X Aquila European Renewables PLC 26 April 2023
AQUILA EUROPEAN RENEWABLES PLC
(the "Company", the "Fund" or "AER")
LEI Number: 213800UKH1TZIC9ZRP41
Final Results
We are pleased to present the results for the year ended 31 December 2022.
HIGHLIGHTS
Investment Objective
Aquila European Renewables Plc (the "Company", the "Fund" or "AER") seeks to
generate stable returns, principally in the form of income distributions, by
investing in a diversified portfolio of renewable energy infrastructure
investments.
Highlights
· 80.7% growth in portfolio operating capacity (+184.7 MW(1)) during
2022, resulting in a step‑change in earnings capacity
· 2022 total NAV return of 12.9%(2), the highest one-year return
since IPO
· 2022 revenue of the portfolio 24.2% ahead of budget, driven by
favourable electricity pricing environment
· Robust dividend cover: 1.4x in 2022. 1.8x expected in 2023 and
1.6x(4) on average over the next five years
· Electricity production during 2022 increased by 27.6% compared to
2021 to 666.4 GWh (2021: 522.3 GWh)
· Annualised total NAV return of 7.1%(2) since IPO, at the top end of
long-term target range of 6.0 to 7.5%
· EUR 150.5 million of capital deployed or committed during 2022 in
unlevered solar PV, increasing solar portfolio exposure to 51.5%(3)
Subsequent events
· EUR 20.0 million share buyback announced on 3 February 2023, in
addition to a 5.0% increase in target dividend for 2023(5)
· In April 2023, the Company extended the maturity date of the
Revolving Credit Facility ("RCF") by twelve months to April 2025
· Completion of the construction project Guillena and The Rock EPCM
takeover declared in April 2023
· Members of the Board of Directors and Investment Adviser announced
their commitment to acquire AER Ordinary Shares
(1. ) Includes the investments in and the completion of The
Rock and the Spanish solar PV Assets in 2022.
(2. ) Calculation is based on NAV per Ordinary Share in
euros, includes dividends and assumes no reinvestment of dividends.
(3. ) Percentage calculated on a pro-forma basis assuming the
final payments for Greco are completed.
(4. ) As announced in February 2023 based on forward-looking
assumptions as at 31 December 2022. Dividend cover presented is net of
existing project debt repayments, excludes the impact of the share buyback and
assumes the 2023 target dividend is paid in 2023 to 2027. No reinvestment of
surplus cash flow or interest received is assumed. There can be no assurance
that these targets can or will be met and it should not be seen as an
indication of the Company's expected or actual results or returns.
(5. ) Subject to the portfolio performing in line with
expectations.
Financial Information As at As at
31 December 31 December
2022 2021
Ordinary Share price (cents) 92.3 102.0
NAV per Ordinary Share (cents)(1) 110.6 102.6
Ordinary Share price (discount)/premium to NAV(1) (16.6%) (0.6%)
Net assets (EUR million) 451.7 417.4
Financial Information 01 January 01 January
2022 -
2021 -
31 December 2022 31 December 2021
Dividends per Ordinary Share (cents)(3) 5.25 5.0
Dividend cover(4) 1.4x 1.1x
Ongoing charges(1,5) 1.1% 1.1%
NAV total return per Ordinary Share(1,2) 12.9% 7.6%
Total Shareholder return per Ordinary Share(1,6) (4.5)% 0.5%
(1. ) This disclosure is considered to represent the
Company's alternative performance measures ("APMs"). Definitions of these APMs
and other performance measures used, together with how these measures have
been calculated, can be found in Annual Accounts on pages 112 to 113. All
references to cents are in euros, unless stated otherwise.
(2. ) Calculation based on NAV per Ordinary Share in euros,
includes dividends and assumes no reinvestment of dividends.
(3. ) Dividends paid/payable and declared relating to the
period.
(4. ) Calculation based on the operational result at special
purpose vehicle ("SPV") level. Refer to page 22 in the Annual Report for
further details.
(5. ) Calculation based on average NAV over the period and
regular recurring annual operating costs of the Company, further details can
be found in the Annual Report on page 43.
(6. ) Calculation based on Ordinary Share price in euros,
includes dividends.
WHY INVEST?
We seek to generate stable returns, principally in the form of income
distributions, by investing in a diversified portfolio of renewable energy
infrastructure investments.
Market Opportunity
· Opportunity to participate in Europe's green energy transition.
o Significant capital required to meet green energy targets; and
o Heterogenous power markets provide diversification and optionality.
· Highly experienced and credentialed Investment Adviser:
o Managing a 19 GW clean energy portfolio across Europe;
o 10 GW clean energy development and construction pipeline; and
o Ambitious CO(2) reduction targets.
Positioning
· European focused (excluding UK), diversified by geography and
technology.
· High contracted revenues (PPAs, Regulated Tariffs) to ensure
earnings visibility.
· Fully invested.
· Low gearing levels (25.6%(3)).
· Strong dividend cover supported by a diversified operating
portfolio.
Returns
· Long-term return target of 6.0 to 7.5% (net of fees and expenses).
· Ordinary Share price discount to NAV of 16.6%.
· Total NAV return of 12.9%(1,3) in 2022.
· Annualised total NAV return of 7.1%(1,2,3) since IPO.
· Two consecutive increases in annual dividend by 5.0% since 2021.
(1. ) Includes dividends and assumes no reinvestment.
(2. ) Assumes an opening NAV per share of 0.98.
(3. ) This disclosure is considered to represent the
Company's alternative performance measures (APMs). Definitions of these APMs
and other performance measures used, together with how these measures have
been calculated, can be found in the Annual Accounts on pages 112 to 113. All
references to cents are in euros, unless stated otherwise. All references to
cents are in euros, unless stated otherwise.
For further details contact:
Media contacts:
Edelman Smithfield
Ged Brumby | 020 3047 2527
Kanayo Agwunobi | 020 3047 2126
Sponsor, Broker and Placing Agent
Numis Securities 020 7260 1000
Tod Davis
David Benda
Vicki Paine
CHAIRMAN'S STATEMENT
I am pleased to present the 2022 Annual Report and Financial Statements for
Aquila European Renewables Plc ("AER" or the "Company") on behalf of the Board
of Directors.
Introduction
In my statement last year, I expressed the hope that our Company was now close
to achieving the goals of its initial stage of development, namely to have an
efficiently invested balance sheet, with a diversified and resilient portfolio
offering strong cash flow cover for a progressive dividend. The transformation
of both our portfolio and our technological balance is now evident, as we
managed to achieve these objectives during the 2022 calendar year and our
initial goal has therefore been achieved.
With the completion of our first three construction projects, Albeniz, The
Rock and Jaén (part of the Greco portfolio), our total portfolio operating
capacity increased by approximately 80.7% in 2022. The Company also
successfully deployed and committed an incremental EUR 150.5 million of our
available balance sheet resources, representing our largest year on record for
capital deployment.
In combination, these two events have led to a step-change in the earnings
capacity of our portfolio, with strong cash flow capabilities and dividend
cover to support a progressive dividend policy.
Our announcement on 3 February 2023 highlighted the positive outlook for the
Company and this is also reflected in our dividend cover guidance in the short
to medium term. More details of this outlook were provided in that
announcement and are also available later in this report. I would also refer
our Shareholders to the investor presentation of 6 February 2023 on our
website
(https://www.aquilaeuropean-renewables.com/investorrelations/reports-publications#submenu),
which sets out in detail the assumptions behind this analysis and models
numerous sensitivities in relation to both power prices and production levels.
Dividend
The Board also announced on 3 February 2023 an increase in the target
dividend by 5.0% to 5.51 cents per Ordinary Share for 2023, subject to the
portfolio performing in line with expectations.
In 2023, the Company is expecting dividend cover of 1.8x(1) and over the next
five years is expected to generate an average cover of 1.6x(1), reflecting
both our fully invested balance sheet, and our robust and resilient portfolio.
Share Buyback Programme
As a result of last autumn's volatility in the financial markets, by the end
of last year the Company's share price fell to trade at a large and sustained
discount to NAV per Ordinary Share, in line with the peer group. In our
statement of 3 February 2023, the Board of Directors firmly stated its belief
that the current share price did not properly reflect the value of the
underlying portfolio and consequently we announced a EUR 20.0 million share
buyback programme. The share buyback programme is expected to be accretive to
NAV per Ordinary Share and dividend cover.
Members of the AER Board of Directors and Investment Adviser employees also
bought additional AER Ordinary Shares.
2022 Performance
During the reported period, revenue of the portfolio was 24.2% above budget
due to higher than expected power prices, particularly in the Nordics. This
was partially offset by the lower than expected production of the portfolio by
6.9%, largely as a result of the significant drought that impacted Portugal
during the period, as well as lower than expected wind conditions in Greece.
The strong revenue performance has been reflected in the Company's dividend
cover, which was 1.4x during the reported period.
In November 2022, The Rock, a 400.0 MW onshore Norwegian wind farm in which
AER owns 13.7% interest, became operational and has been benefiting from high
electricity prices observed in the NO4 pricing region. Over the next
14 years, The Rock will continue to provide Alcoa's Aluminium smelter in
Mosjøen with renewable energy. Alcoa's Aluminium smelter is a key contributor
to employment and growth in Mosjøen. As at 25 April 2023 there have been no
new developments in the Sami appraisal case which is scheduled to commence on
30 May 2023. In April 2023, the Company announced that the takeover under the
Engineering, Procurement and Construction Management ("EPCM") agreement for
The Rock has been achieved. Key provisions are in place to ensure the EPCM
contractor, Eolus, remains responsible for the appraisal case.
We expect the parties will find good and workable solutions to safeguard
migration of the reindeer and we look forward to updating Shareholders in due
course.
During 2022, the Investment Adviser's Markets Management Group successfully
concluded three new Power Purchase Agreements ("PPAs") for our new solar PV
investments in Spain and were able to lock-in attractive prices for up to
seven years, further enhancing the portfolio's income visibility and dividend
cover over the medium term.
Revolving Credit Facility
The Company's remaining commitments (via its wholly owned subsidiary,
Tesseract Holdings Limited) amount to approximately EUR 47.5 million,
primarily in relation to the Guillena project which was completed in April
2023. AER has a very conservative gearing structure, with low levels of
gearing (25.6% of Gross Asset Value(2) ("GAV")), whilst the majority of its
project level debt is fully amortising with fixed interest rates. Through
Tesseract Holdings Limited, the Company also has significant funding
flexibility via its EUR 100.0 million Revolving Credit Facility ("RCF"),
which at 31 December 2022 was EUR 65.1 million undrawn(3), with the option
to be increased by a further EUR 50.0 million (to EUR 150.0 million),
subject to bank consent. In April 2023, the Company extended the maturity date
of the RCF by twelve months to April 2025.
ESG
The Company is committed to contributing to the UN Sustainable Development
Goals in order to ensure access to affordable, reliable, sustainable and
modern energy for all. In March 2022, Tesla, AER's operating wind farm in
Norway (AER interest: 25.9%) was awarded Norweaʼs 2022 membership award; this
prize is given to a member who has excelled in positive engagement with the
community through social or environmental sustainability. We also announced
our second GRESB assessment results for the year with a score of 88 out of
100, representing an improvement compared to our 2021 result and also higher
than the GRESB average of 82 points.
However, the Company's GRESB rating reduced from 4 out of 5 to 3 out of 5
stars due to the relative net underperformance compared to its peer group. In
response, the Investment Adviser has identified various improvements which are
expected to be introduced in 2023 and we look forward to keeping Shareholders
updated on our progress throughout the year.
Regulatory Change
Recently, the European Commission ("EC") announced a public consultation
process to reform the European electricity market design in order to better
protect consumers from excessive price volatility and support their access to
secure energy from clean sources. Importantly, the EC has committed to
securing European energy sovereignty and achieving climate neutrality, whilst
recognising that renewables is the key driver to achieve these goals, further
reinforcing the positive tailwinds in this sector. Additionally, the EC has
announced its "Green Deal Industry Plan" which aims to provide a more
supportive environment for the scaling up of the EU's manufacturing capacity
for the net-zero technologies and products required to meet Europe's ambitious
climate targets. This will be done on four pillars: a predictable and
simplified regulatory environment, speeding up access to finance, enhancing
skills, and open trade for resilient supply chains.
The Investment Adviser is actively contributing to the consultation process in
combination with the broader industry. AER is well positioned given its
pan‑European investment strategy, which reduces our reliance on any single
power market, combined with a strong contracted revenue base in the form of
Power Purchase Agreements or subsidies, increasing our earnings visibility.
Board View
Since undergoing rapid growth in 2022, AER now offers a fully invested balance
sheet and a resilient and diversified portfolio which the Board believes
deserves to be significantly more valuable than is implied by the recent share
price discount to NAV. As illustrated in our short and medium-term dividend
cover guidance, the portfolio is expected to generate significant surplus cash
flow over time, supporting our progressive dividend policy.
It is the Board's view that there remains an attractive and sizeable
opportunity to deploy incremental capital to help fund the build-out of the
very substantial construction pipeline (over 10 GW in European geographies)
developed by Aquila Capital, our Investment Adviser.
Outlook
The Board remains of the view that the market outlook for renewable energy
generation in Europe is strong, reinforced by a combination of geopolitical
and macro-economic factors, along with the ever-more urgent need to
decarbonise Europe's energy supply. We expect this to ensure a continuing
favourable regulatory backdrop at the European level.
It is the ambition of the Board to build a larger-scale portfolio to further
enhance the investment proposition for our current and future Shareholders.
Clearly our share price needs to regain a premium to our NAV to enable us to
fund the investment opportunities provided by the Investment Adviser. We hope
that the Company's continued strong operational performance, combined with
clear and consistent communication of our strengths and opportunities, can set
us back onto that path. The first stage on this journey involves the inaugural
Shareholder continuation vote, which will be tabled at the Annual General
Meeting in June 2023, and which the Board is recommending that Shareholders
should support. I am pleased to confirm that Aquila, who hold approximately
2.1% of the issued share capital, will not be voting their shares in respect
of the continuation vote, given the inherent conflict of interest were they to
do so.
The Board and the Investment Adviser have been engaging with our major
Shareholders in light of the disappointing performance of the share price,
despite the 12.9% NAV return(2) achieved this year. Your feedback as
Shareholders is highly valued and we hope our actions since the announcement
on 3 February 2023 demonstrate that we are listening and will act decisively
in the interests of all Shareholders. The Board and its advisers will, over
the coming year, continue to explore a number of different initiatives to help
secure recognition in the share price of the real underlying value of the
portfolio with a commitment to review broader options if that value fails to
be reflected in the share price.
On behalf of the Board, we thank you for the support that you have shown and
we hope, will continue to show, for a company that is making a significant
contribution to our collective objective of achieving a net zero economy.
Ian Nolan
Chairman
25 April 2023
(1. ) These are targets only and not forecasts. There can be
no assurance that these targets can or will be met and it should not be seen
as an indication of the Company's expected or actual results or returns. These
forecasts do not include the buybacks.
(2. ) This disclosure is considered to represent the
Company's alternative performance measures ("APM"). Definitions of these APMs
and other performance measures used, together with how these measures have
been calculated, can be found in Annual Accounts on pages 112 to 113.
(3. ) Includes EUR 10.9 million provided as guarantees to
offtakers when securing PPAs and town council as a part of dismantling
guarantee and grid connection guarantee.
INVESTMENT ADVISER'S REPORT
Investment Adviser Background
Aquila Capital is one of the leading investment and industrial development
companies, managing over EUR 14.7 billion on behalf of institutional
investors worldwide and managing one of the largest clean energy portfolios in
Europe. Over the past two decades, Aquila Capital and its subsidiaries have
committed to support the green energy transition and create a more sustainable
world. As of 31 December 2022, the company manages wind energy, solar PV,
hydropower energy and battery storage assets with a capacity of around 19 GW.
Additionally, it has projects in sustainable real estate and green logistics,
either completed or under development. Aquila Capital also invests in energy
efficiency, carbon forestry and data centres.
The Investment Adviser's dedicated, expert investment teams comprise over 700
employees worldwide. Moreover, a strategic partnership since 2019 with Japan's
Daiwa Energy & Infrastructure draws on their sector networks and
experience to screen, develop, finance, manage and operate investments along
the entire value chain. As this business model requires local management
teams, Aquila Capital is represented across 17 investment offices.
The Investment Adviser currently has a significant pipeline of over 10.0 GW of
development and construction assets in the EMEA region, primarily in solar PV
located in Southern Europe. This represents an attractive source of growth
opportunities for AER.
Aquila Capital's in-house Markets Management Group ("MMG"), a team of experts
dedicated to sourcing and structuring Power Purchase Agreements, market
analysis, trading, origination, FX, interest rates and other hedge products,
has facilitated the Company's proactive approach to hedging and risk
management.
The Company's Alternative Investment Fund Manager ("AIFM"), FundRock
Management Company (Guernsey) Limited (previously known as International Fund
Management Limited), has appointed Aquila Capital as its Investment Adviser in
respect of the Company. Aquila Capital's key responsibilities are to
originate, analyse and assess suitable renewable energy infrastructure
investments and advise the AIFM accordingly.
Overall CO(2)eq emissions avoided(1)
2.2 million tonnes
Green energy produced(1)
7.4 TWh
Households supplied(1)
2.0 million
(1. ) Contribution for the year 2022 based on current
portfolio of the Aquila Group.
INVESTMENT PORTFOLIO
AS AT 31 DECEMBER 2022
1. Sagres 2. Benfica III
Country Portugal Portugal
Capacity(1) 107.6 MW 19.7 MWp
Status Operational Operational
COD(2) 1951-2006 2017/2020
Asset life from COD(2) n.a.(6) 30y
Equipment Manufacturer Various AstroNova
Energy offtaker(3) FiT PPA
Ownership in asset 18.0%(5) 100.0%
Leverage(4) 23.4% 0.0%
Acquisition date July 2019 October 2020
Offtaker Counterparty EDP/Renta Axpo
3. Albeniz 4. Ourique
Country Spain Portugal
Capacity(1) 50.0 MWp 62.1 MWp
Status Operational Operational
COD(2) 2022 2019
Asset life from COD(2) 30y 30y
Equipment Manufacturer Canadian Solar Suntec
Energy offtaker(3) PPA CfD
Ownership in asset 100.0% 50.0%(5)
Leverage(4) 0.0% 0.0%
Acquisition date December 2020 June 2021
Offtaker Counterparty Statkraft ENI
4. Greco 5. Tiza
Country Spain Spain
Capacity(1) 100.0 MWp 30.0 MWP
Status Construction/Operational Operational
COD(2) 2023 2022
Asset life from COD(2) 30y 30y
Equipment Manufacturer Jinko Canadian Solar
Energy offtaker(3) PPA PPA
Ownership in asset 100.0% 100.0%
Leverage(4) 0.0% 0.0%
Acquisition date March 2022 June 2022
Offtaker Counterparty Statkraft Axpo
6. Tesla 7. Holmen II
Country Norway Denmark
Capacity(1) 150.0 MW 18.0 MW
Status Operational Operational
COD(2) 2013-2018 2018
Asset life from COD(2) 25y 25y
Equipment Manufacturer Nordex Vestas
Energy offtaker(3) PPA FiP
Ownership in asset 25.9%(5) 100.0%
Leverage(4) 20.2% 25.6%
Acquisition date Jul 2019 Jul 2019
Offtaker Counterparty Statkraft Energie.dk
8. Olhava 9. Svindbaek
Country Finland Denmark
Capacity(1) 34.6 MW 32.0 MW
Status Operational Operational
COD(2) 2013-2015 2018
Asset life from COD(2) 27.5y 25y
Equipment Manufacturer Vestas Siemens
Energy offtaker(3) FiT FiP
Ownership in asset 100.0% 99.9%
Leverage(4) 41.4% 14.2%
Acquisition date Sep 2019 Dec-19 & Mar-20
Offtaker Counterparty Finnish Energy Energie.dk
6. The Rock 9. Desfina
Country Norway Greece
Capacity(1) 400.0 MW 40.0 MW
Status Operational Operational
COD(2) 2022 2020
Asset life from COD(2) 30y 25y
Equipment Manufacturer Nordex Enercon
Energy offtaker(3) PPA FiP
Ownership in asset 13.7%(5) 89.0%(7)
Leverage(4) 50.6% 52.0%(8)
Acquisition date June 2020 December 2020
Offtaker Counterparty Alcoa DAPEEP
Total (AER share) 463.8 MW
(1. ) Installed capacity at 100% ownership.
(2. ) COD = Commercial Operations Date.
(3. ) PPA = Power Purchase Agreement, FiT = Feed-in tariff,
FiP = Feed-in premium, CfD = Contract for Difference.
(4. ) Leverage level calculated as a percentage of debt plus
fair value as at 31 December 2022.
(5. ) Majority of remaining shares are held by entities
managed and/or advised by Aquila Capital.
(6. ) 21 individual assets. Approximately ten years remaining
asset life when calculated using net full load years.
(7. ) Represents voting interest. Economic interest is
approximately 93.0%.
(8. ) Calculation based on voting interest.
INVESTMENTS 2022
Over EUR 150 million capital deployed or committed during 2022.
Greco Solar PV
Country: Spain
Date Acquired March 2022
Status: Construction/Operational
Capacity: 100.0 MWp
In March 2022, the Company acquired 100.0% interest in Greco, a solar PV
project located in the region of Andalucía, southern Spain. Greco benefits
from attractive solar irradiation yields and consists of two assets with a
total capacity of 100.0 MWp, comprising Jaén (50 MWp) and Guillena (50 MWp).
The portfolio has an assumed operating life of 30 years. Total consideration
for Greco was EUR 90.0 million, excluding earn-out, with the majority due at
completion. The remaining consideration for the portfolio is EUR 47.5 million,
corresponding to the completion of Guillena and a 5% deferred payment for
Jaén that was paid after the reporting period in March 2023 at the time the
provisional acceptance certificate was also issued.
Jaén achieved completion and started producing electricity in November 2022,
having secured a pay-as-produced PPA in October with Statkraft Markets GmbH at
an attractive price, hedging 70% of P50 production. Guillena secured a PPA
hedging 60% of P50 production with Statkraft Markets GmbH, with completion of
the project expected by the second quarter of 2023.
The project is expected to provide 184 GWh of renewable electricity annually
over its lifetime, equivalent to approximately 93 kt of CO(2) avoidance in
its lifetime.
Tiza Solar PV
Country: Spain
Date Acquired June 2022
Status: Operational
Capacity: 30.0 MWp
In June 2022, the Company acquired 100.0% interest in Tiza, a solar PV asset
with 30 MWp capacity, located in the region of Almeria, southern Spain. The
project benefits from a recently signed, 6.5-year fixed price PPA with Axpo
Iberia, a subsidiary of Axpo Solutions, which covers 70% of P50 production.
Tiza is expected to provide 54 GWh of renewable electricity annually over its
lifetime, representing approximately 62 kt of CO(2) equivalent avoidance over
its lifetime. During construction a series of environmental benefits were
implemented, such as the restoration and relocation of olive trees, the
building of over ten rabbit refuges built and the introduction of a natural
barrier of plants around the perimeter to protect the local fauna.
Albeniz Solar PV
Country: Spain
Date Acquired December 2020
Status: Operational
Capacity: 50.0 MWp
The project is part of a cluster of four separate solar PV parks in various
stages of development and construction, owned by funds managed by Aquila
Capital. The portfolio is located in the south of Spain, benefiting from high
irradiation and yields and advanced solar PV technology.
The project was completed and became operational in June 2022, and has been
producing revenue since then, with final commissioning taking place in August
2022. The asset is expected to have an operating life of 30 years after
commissioning. Albeniz benefits from PPAs covering 80% of P50 production with
Statkraft over a term of approximately five years.
The Rock Wind energy
Country: Norway
Date Acquired June 2020
Status: Operational
Capacity: 400.0 MWp
The Rock benefits from a fixed price PPA for 14 years covering approximately
70% of production. The asset has been operational since November 2022
following takeover under the Turbine Supply Agreement ("TSA"). In April 2023,
the Company announced that the takeover under the EPCM agreement for The Rock
has also been achieved. Following takeover under the EPCM, all parties agreed
that Eolus will remain responsible for the upcoming appraisal case with the
Sami district, which is due to commence on 30 May 2023, and the result of the
case is expected on or before autumn 2023.
The project company, the developer and the turbine supplier are currently
involved in an arbitration process to settle outstanding claims related to
construction delays and extensions of time under the TSA. The project company
does not expect the arbitration case to negatively affect its financial
position.
PORTFOLIO CONSTRUCTION
AS AT 31 DECEMBER 2022
Capital Deployment Profile since IPO(1)
During 2022 the Company has successfully deployed or committed EUR 150.5
million on new acquisitions and existing assets, increasing its total capital
deployment since IPO to EUR 434.8 million. As at 31 December 2022, the
Company's only remaining commitments (via its wholly owned subsidiary,
Tesseract Holdings Limited) amounted to approximately EUR 47.5 million
relating to the deferred payment for Guillena (the second asset of the Greco
portfolio), and the 5% remaining deferred consideration to Jaén, which was
paid during the first quarter of 2023. Remaining capital commitments are
expected to be funded from AER's existing surplus liquidity comprising cash on
hand and the RCF (please refer to the gearing section in the Annual Report on
page 26 for further details).
The Company, together with its Investment Adviser, has identified an
attractive pipeline of investment opportunities which are consistent with the
Company's investment objectives. The pipeline offers the potential for further
diversification in terms of geography and technology, whilst also offering
potential to invest in construction projects which could enable further value
creation opportunities over time. These assets are spread across northern,
eastern and southern Europe, over wind energy, solar PV, hydropower and energy
storage technologies.
(1. ) Data show invested capital as at 31 December of each year.
Contracted Revenue position
Fixed price PPA 25.8%(1,2)
Government regulated tariff 26.1%(1,2)
Market 48.1%(1,2)
Contracted revenue (net present value) EUR 292 million(3)
Contracted revenue (aggregate over asset life) EUR 411 million(4)
Contracted revenue (over the next five years) 51.9%(1,2)
Weighted average contracted revenue life 7.4 years(5)
(1. ) Includes replacement PPA assumed to be secured for
Olhava once the FiT runs out from 2025 for a tenor of three years.
(2. ) Asset revenues are discounted by the weighted average
portfolio discount rate as of 31 December 2022 and are taken from 1 January
2023 onwards.
(3. ) Contracted revenue as at 31 December 2022, discounted by
the weighted average portfolio discount rate.
(4. ) Aggregate contracted revenue over entire asset life (not
discounted).
(5. ) Weighted based on investment value and on production
hedged. Olhava future PPAs has been excluded as it has not yet been secured.
The Company is diversified across six countries and six different price zones
in Norway (NO2 and NO4 regions), Iberia (Spain and Portugal), Finland, Denmark
and Greece, allowing it to benefit from different subsidy schemes as well as
PPAs.
Contracted revenues expected over the next five years, on a present value
basis, have decreased to 51.9% (December 2021: 68.5%) as a result of the
increases in electricity price forecasts (boosting merchant exposure),
combined with the expiry of existing tariffs and PPAs, including those for
Olhava, Benfica III and Ourique over the next five years.
However, the Company has continued to focus on maintaining a high degree of
contracted revenues to mitigate its exposure to seasonal fluctuations and
short-term events which have the potential to increase volatility in
electricity prices. It has retained flexibility to capitalise on periods of
higher power prices, whilst simultaneously enabling the Company to avoid
fixing prices during periods of significant weakness.
The Company has continued to implement fixed power prices evenly throughout
the year. During the year, the Investment Adviser and its in-house MMG have
secured attractive PPAs for the Company (see Spanish PPAs section in the
Annual Report on page 25 for further detail):
· Jaén: 70% of P50 production, pay‑as‑produced with Statkraft
Markets, five years;
· Guillena: 60% of P50 production, pay‑as-produced with Statkraft
Markets, seven years;
· Tiza: 70% of P50 production, fixed solar profile PPA with Axpo
Iberia, 6.5 years.
The Company was pleased to secure these PPAs at such attractive price levels,
which were almost double what had been observed for similar PPA terms over the
last few years.
The portfolio has good visibility of future cash flows with a weighted average
contract life of approximately 7.4 years for revenues contracted (31 December
2021: 8.8 years). Furthermore, the Company contracts its revenues with
investment grade counterparties.
FINANCIAL PERFORMANCE
Electricity production(1) (GWh) Region 2022 2021 Variance Variance 2022 against P50 Budget
Technology
Wind energy Denmark, Finland, Norway, Greece 440.8 395.0 11.6% (5.5%)
Solar PV Portugal, Spain 187.5 79.0 137.3% (2.9%)
Hydropower Portugal 38.2 48.4 (21.1%) (32.1%)
Total 666.4 522.3 27.6% (6.9%)
Load factors(1)
Technology 2022 2021
Wind energy 31.9% 28.0%
Solar PV 15.9% 18.1%
Hydropower 22.5% 29.9%
Total 25.9% 26.7%
Technical availability(1,4)
Technology 2022 2021
Wind energy 96.6% 98.6%
Solar PV 99.9% 94.4%
Hydropower 99.2% 98.6%
Total 97.5% 98.2%
Revenues(2,3) (EURm)
Technology 2022 2021 Variance
Wind energy 46.2 33.6 37.6%
Solar PV 12.2 4.2 190.1%
Hydropower 4.8 4.5 8.0%
Total 63.2 42.2 49.6%
(1. ) Data includes Tiza from March 2022, Albeniz from June 2022
and The Rock and Jaén from November 2022. Desfina based on voting share
(89.0%).
(2. ) Includes merchant revenue, contracted revenue & other
revenue (e.g. Guarantees of Origin, Electricity Certificates).
(3. ) Revenues reflect the whole year 2022 for all assets. Desfina
based on economic share (93.0%).
(4. ) Average technical availability based on weighted installed
capacity (AER share).
Electricity production during 2022 increased by 27.6% to 666.4 GWh (2021:
522.3 GWh), aided by the acquisition of Tiza (30.0 MWp), the operating solar
PV asset, and the completion of three of the four assets under construction:
The Rock (400.0 MW), Albeniz (50.0 MWp) and Jaén (50.0 MWp). These four
assets alone have added 137.8 GWh(1) of production to the portfolio and
represent approximately 20.7% of 2022 total production. As a result, the
portfolio is well positioned given these four assets will contribute
significantly to the portfolio in 2023 and beyond.
For 2022, revenue was 24.2% over budget because of high electricity prices
that started to rise during the first half of 2021 across Europe. The upward
trend in power prices was intensified by the supply disruptions caused by the
conflict in Ukraine, which drove commodity prices up, most notably for gas and
coal. Prices in the Nordics were also impacted due to tighter hydrological
balance and increased interconnection links to Germany and the United Kingdom.
Production performance was 6.9% below budget, while technical availability
remained strong in all asset classes, at 97.5%. The underperformance in
production was due to the severe drought that affected the first three
quarters of the year in Portugal; this led to Sagres production to be 32.1%
below budget. Also, lower than expected wind levels in Greece led to Desfina
production to be 12.3% below budget. Furthermore, irradiation in Iberia was
slightly below budget and this led to production being 2.9% below budget at
the Iberian solar PV assets, whilst slower wind levels in the Nordics led to
production being 4.0% below budget. Underperformance in December was driven by
lower than expected wind conditions in Greece and Norway. Production forecasts
which underpin the Company's net asset value are based on P50 production
assumptions sourced from leading technical advisers.
1. Accumulated production since economic transfer date of each asset,
except for The Rock accumulated since completion occurred.
Dividend Cover
EUR million(2) 2022 2021 Variance (%)
Asset income 63.2 42.2 49.6%
Asset operating costs (12.3) (7.9) 57.0%
Interest and tax (6.0) (4.5) 32.3%
Underlying asset earnings 44.9 29.9 50.3%
Asset debt amortisation (10.9) (12.2) (10.3%)
Company and HoldCo(2) expenses(5), other (4.9) 1.9 nmf(4)
Total underlying asset earnings 29.1 19.6 48.8%
Dividends paid 21.2 17.0 24.4%
Dividend cover 1.4x 1.1x Nmf(4)
Reconciliation to Company Cash Flow Statement
EUR millioin 2022 2021 Variance (%)
Total underlying asset earnings 29.1 19.6 48.8%
SPV
Distributions to HoldCo (31.1) (6.9) 356.4%
Movement in working Capital (2.7) (10.8) (75.1%)
HoldCo
Expenses (excluding investment expenses) 1.6 0.6 181.1%
Company
Investment advisory fee funded by share issuance(6) (1.3) (2.7) (50.6%)
Interest and dividend income 17.1 11.8 45.4%
Movement in working capital 4.5 (3.3) (238.8%)
Construction income -- (4.0) n.a.
Other(7) (0.1) 0.2 (165.1%)
Company net cash flow from operating activities 16.9 4.4 281.0%
The table above calculates dividend cover based on the underlying earnings of
its investment portfolio, sourced from the profit & loss ("P&L")
statements from each of the Company's investments, held by HoldCo, with the
exception of debt amortisation which is sourced from the cash flow statement.
Each of the investments are held through special purpose vehicles ("SPV")(8).
The majority of SPV financial statements are audited.
Total underlying asset earnings are calculated by aggregating the P&L of
the Company's SPVs (adjusted for AER's share), less any repayments of project
level debt at the SPV level (adjusted for AER's share), less fund level costs
at the Company and HoldCo level.
(1. ) This disclosure is considered to represent the
Company's alternative performance measures("APMs"). Definitions of these APMs
and other performance measures used, together with how these measures have
been calculated, can be found in the Annual Report on page 112. Numbers and
percentages may vary due to rounding differences.
(2. ) Non-euro currencies converted to EUR as at 31 December
for each year. Desfina contribution reflects AERs economic interest (93.0% in
2022, 100.0% in 2021) rather than voting interest (89.0%).
(3. ) Tesseract Holdings Limited.
(4. ) nmf = not meaningful.
(5. ) Expenses reflect recurring ordinary costs and expenses
at AER and THL level. Legal fees, investment expenses and Investment Adviser
fee (which is financed by the issuance of new ordinary shares, where
applicable) is not included. The figure for 2021 includes income accrued by
AER in relation to shareholder loans provided to construction assets.
(6. ) Investment advisory fee funded by share issuance
treated as a cash flow expense for Company net cash flow from operating
activities.
(7. ) Deduction of legal costs and currency losses, addition
of financing costs.
(8. ) References to SPVs in this section also includes
holding companies, where applicable.
The Company reported robust dividend cover of 1.4x during the period, compared
to 1.1x reported in 2021, driven by a 48.8% increase in total underlying asset
earnings. The improvement in total underlying asset earnings was primarily
driven by higher power prices across the portfolio whilst production also
increased as a result of the successful completion of construction projects
(Albeniz, The Rock) and the acquisition of an operating asset (Tiza).
Dividends paid increased by 24.4% as a result of higher shares in issue due to
capital raising in late 2021, combined with a 5.0% increase in the dividend
target for 2022.
Cash Dividend Cover
EUR million 2022 2021 Variance (%)
Company
Net cash flow from operating activities 16.9 4.4 281.0%
Investment advisory fee funded by share issuance 1.3 2.7 (50.6%)
HoldCo
Net cash flow from operating activities (2.7) 31.4 (108.5%)
Shareholder loan repayments(1) 10.6 0.5 2139.2%
Acquisition of accrued interest from shareholder loan(2) 1.5 2.4 (39.1%)
Other(3) 0.3 - n.a.
Consolidation adjustments (2.6) (37.0) (92.9%)
Adjusted net cash flow from operating activities 25.3 4.4 476.0%
Dividends paid 21.2 17.0 24.4%
Cash dividend cover 1.2x 0.3x nmf
The table above provides an alternative dividend cover calculation based on
actual cash distributions received by the Company and HoldCo from the
investment portfolio or SPVs. Cash distributions are paid in the form of
dividends or Shareholder loan payments (interest or principal).
Adjusted net cash flow from operating activities is calculated by
consolidating net cash flow from operating activities at the Company and
HoldCo, subject to certain adjustments (as shown in the table above), the most
notable being distributions from the Company's assets in the form of
Shareholder loan repayments.
Cash dividend cover increased significantly from 0.3x to 1.2x in 2022 as a
result of the increase in net cash flow from operating activities, which was
primarily driven by the completion of construction assets (Albeniz, The Rock),
the acquisition of an operating asset (Tiza) and the timing of distributions
paid by the respective assets.
(1. ) Distributions from operating activities in the form of
shareholder loan repayments from Olhava, Benfica III, Tiza and Desfina (2021:
Benfica III).
(2. ) Accrued shareholder loan interest purchased at the Tiza
acquisition (2021: Ourique).
(3. ) Other: refund of refinancing fee (The Rock), payment of
legacy receivables (Ourique).
CASE STUDY:
SAGRES OPTIMISATION
Capacity
107.6MW
Location
Sagres, Portugal
Sagres is a 107.6 MW hydropower asset in which AER acquired an 18.0% interest
in July 2019. During 2022, the Investment Adviser's Asset Management team
identified an opportunity to refinance the existing bank debt on accretive
terms. After running a competitive tender process, the refinancing completed
in October 2022 resulted in a marginal decrease in the debt balance to EUR
40.0 million (100% interest basis). The refinancing resulted in lower gearing
levels, lower margins and a higher tenor, whilst also being accretive to
economic returns.
Additionally, during the due diligence process undertaken for the refinancing,
an independent technical adviser identified a 1.1% increase in long-term
average annual production for the asset (resulting in an increase in maximum
net capacity from 102.7 MW to 107.6 MW). This can be attributed to a series of
improvements to the hydropower plants performed by the Aquila Capital Asset
Management team between 2019 and 2022, such as upgrades to the control
systems, major overhauls and refurbishments to the units, regular civil works
and replacement of hydromechanical equipment. This increase in production has
been included in the fourth quarter valuation of the asset, which increased by
1.8%. However, this was offset by a rise in the discount rate during the same
period.
CASE STUDY:
SPANISH PPAs
Capacity
130MWp
Location
Spain
The Investment Adviser's MMG was active in negotiating PPA contracts in Spain,
where the majority of the Company's investment activities took place in 2022.
During the second half of 2022, the Spanish government introduced measures to
cap the price of electricity on merchant revenues and introduced a clawback on
PPA revenues for prices above EUR 67.0/MWh. The MMG team had to adapt its PPA
strategy in response to regulatory changes and accordingly sought to maximise
the PPA tenor up to the pricing cap. As a result, the MMG team secured
attractive PPAs for three solar PV assets located in Spain, with tenors
ranging from five to seven years, providing AER with a greater visibility on
future revenues.
As illustrated in the graph below, two of the three PPAs were secured at peak
pricing levels (Tiza and Guillena), whilst with the remaining PPA (Jaén) a
more conservative approach was taken in order to gain greater visibility of
the expected start of operations and thus minimise any delivery risks under
the PPA. Furthermore, prices entered for these three PPAs were almost double
what had been observed historically for comparable terms.
Gearing(1)
As at As at
31 December 31 December
EUR million 2022 2021 Variance
NAV 451.7 417.4 8.2%
Debt(2) 155.2 144.3 7.5%
GAV 606.9 561.8 8.0%
Debt (% of GAV)(3) 25.6 25.7 (0.1 bps)
Weighted average maturity (years) 14.6 13.9 0.7
Weighted average interest rate (%)(4) 2.5 2.5 0.0 bps
RCF interest rate (%)(5) 1.85 1.85 0.0 bps
The portfolio remains conservatively levered with the Company operating at a
gearing ratio of 25.6% of GAV (2021: 25.7%)(6). The Company's prospectus
allows it to operate with a maximum gearing level of 50.0% of GAV(7). The
Company's asset level debt is largely fully amortising with fixed interest
rates. Approximately EUR 13.1 million of asset level debt (AER share) was
repaid in 2022, offset by increased utilisation of the Company's RCF.
During the period the Company increased the RCF limit from EUR 40.0 million to
EUR 100.0 million (via its wholly owned subsidiary, Tesseract Holdings
Limited, which is the borrowing entity), with the maturity date extended by
twelve months until April 2024. After the reporting period, the Company
subsequently exercised a further twelve month extension option under the RCF,
extending the maturity from April 2024 to April 2025. As at 31 December 2022,
the RCF was drawn to EUR 34.9 million (EUR 65.1 million undrawn), including
bank guarantees. It is expected that the RCF will be used to fund the
Company's remaining commitments for Greco (estimated at EUR 47.5 million).
Debt Summary as at 31 December 2022
Project AER share Drawn debt (EUR million) Currency Bullet/amortising Maturity Hedged proportion Type
Tesla 25.9% 9.0 EUR Partly amortising Mar-29 100.0% Bank Debt
Sagres 18.0% 7.0 EUR Fully amortising Jun-33 70.0% Bank Debt
Olhava 100.0% 19.2 EUR Fully amortising Dec-30 / Sep-31 100.0% Bank Debt
Holmen II 100.0% 13.6 DKK Fully amortising Dec-37 93.2% Bank Debt
Svindbaek I 99.9% 7.8 DKK Fully amortising Dec-37 100.0% Bank Debt
The Rock: USPP Bond 13.7% 31.8 EUR Fully amortising Sep-45 100.0% Debt Capital Markets
The Rock: Green Bond 13.7% 11.0 EUR Bullet Sep-26 100.0% Debt Capital Markets
Desfina 89.0% 31.9 EUR Fully amortising Dec-39 100.0% Bank Debt
Subtotal 131.2 97.7%
RCF 100.0% 24.05 EUR Apr-25 0.0% Bank Debt
Total 155.2 82.6%
(1. ) Foreign currency values converted to EUR as at 31
December 2022. Data represents AER's share of debt. AER share of Desfina debt
based on voting interest.
(2. ) Debt corresponds to senior debt secured at project
level and RCF at HoldCo level.
(3. ) This disclosure is considered to represent the
Company's alternative performance measures ("APMs"). Definitions of these APMs
and other performance easures used, together with how these measures have been
calculated, can be found in the Annual Report on page 112. All references to
cents are in euros, unless stated otherwise.
(4. ) Weighted average all in interest rate for EUR
denominated debt (excl. RCF). DKK denominated debt has an average weighted
interest rate of 2.8% (2021: 2.7%).
(5. ) Margin over EURIBOR.
(6. ) Excludes bank guarantees of EUR 10.9 million.
(7. ) The Company may take on long-term structural debt
provided that, at the time of entering into such debt, it does not exceed 50%
of the prevailing Gross Asset Value. Any short-term debt, such as a Revolving
Credit Facility, will be subject to a separate gearing limit so as not to
exceed 25% of the Gross Asset Value at the time of entering into such debt.
Valuation
Fair Value
The table below shows the fair values of the investments on HoldCo level as
well as the reconciliation to the respective item on Company level.
EUR million 2022 2021 (%)
Tesla 35.5 31.4 13.1
Sagres 23.0 15.8 45.5
Holmen II 39.5 24.5 61.7
Olhava 27.2 27.3 (0.5)
Svindbaek 46.9 40.6 15.5
The Rock 41.7 45.0 (7.3)
Benfica III 17.1 16.7 2.2
Albeniz 55.1 46.0 19.8
Desfina 28.5 40.9 (30.3)
Ourique 36.4 29.5 23.3
Greco 66.5 n.a. n.a.
Tiza 34.1 n.a. n.a.
Fair Value of Investments (HoldCo)(1) 451.5 317.6 42.2
Cash and other current assets of HoldCo 6.4 9.2 (30.2)
Revolving credit facility drawn by HoldCo (24.0) - n.a.
Elimination of intercompany shareholder loans (5.3) (9.8) (46.6)
Investments at fair value through profit or loss 428.6 317.0 35.2
(1. ) Includes capital contributions related to construction
assets (Albeniz: EUR 6.3 million), new investments (Greco, Tiza combined:
(EUR 94.3 million), capital injection (Sagres: EUR 2.2 million) and other
(EUR 0.3 million).
· The Company's NAV as at 31 December 2022 was EUR 451.7 million or
110.6 cents per Ordinary Share. Compared to 31 December 2021 (EUR 417.4
million or 102.6 cents per Ordinary Share) this represents a NAV total return
of 12.9% per Ordinary Share (including dividends).
· Dividends of EUR 21.2 million (5.2 cents per Ordinary Share) were
paid during the year with respect to the fourth quarter of 2021 to the third
quarter of 2022.
· The main drivers of NAV movements throughout the reporting period
include:
· Forecast power prices: increase in short-term electricity price
forecasts across the majority of the portfolio resulted in an increase of 13.2
cents per Ordinary Share; the methodology continues to assume an average of
two power price curves from independent market analysts over the life of each
asset. No forward or futures curves are used;
· Inflation: increase in short-term CPI forecasts(1) boosted the NAV
per Ordinary Share by 6.9 cents, whilst medium and long‑term assumptions
remain unchanged;
· Discount rate: the Company's discount rate has increased by 70 bps
to 7.2% (31 December 2021: 6.5%), following the increase in risk-free rates
across the portfolio, which has the effect of decreasing the valuation of each
asset; and
· Norwegian onshore wind taxes for Tesla and The Rock (-1.7
cents).(2)
Valuation Methodology
The Company owns 100.0% of its subsidiary Tesseract Holdings Limited ("HoldCo"
or "THL"). The Company meets the definition of an investment entity as
described by IFRS 10. As such, the Company's investment in the HoldCo is
valued at fair value.
The Company has acquired underlying investments in SPVs through its investment
in the HoldCo. The Investment Adviser has carried out fair market valuations
of the SPV investments as at 31 December 2022 and the Directors have satisfied
themselves as to the methodology, the discount rates and key assumptions
applied, and the valuations. All SPV investments are at fair value through
profit or loss and are valued using the IFRS 13 framework for fair value
measurement. The economic assumptions shown on page 30 were used in the
valuation of the SPVs.
(1. ) Short-term inflation forecast sourced from Bloomberg.
(2. ) Includes production tax, high price contribution tax,
and natural resources tax.
Valuation Assumptions
As at 31 December 2022
Discount rates The discount rate used in the valuations is calculated according to
internationally recognised methods. Typical components of the discount rate
are risk-free rates, country-specific and asset-specific risk premia.
The latter comprise the risks inherent to the respective asset class as well
as specific premia for other risks such as development and construction; this
is the case for Greco, for example.
Power price Power prices are based on captured power price forecasts from leading market
analysts. The forecasts are independently sourced from providers with coverage
in almost all European markets as well as providers with regional expertise.
The approach applied to all asset classes (wind energy, solar PV and
hydropower) remains unchanged with the first two using a blend of two power
price curve providers and the third using a blend of three power price curve
providers.
Energy yield/load factors Estimates are based on third-party energy yield assessments, which consider
historic production data (where applicable) and other relevant factors.
Inflation rates Long-term inflation is based on the monetary policy of the European Central
Bank. Short-term inflation assumptions are based on the first two years being
sourced from Bloomberg and an interpolation for another two years to the
long-term rate.
Asset life In general, an operating life of 25 to 30 years for onshore wind energy and 30
years for solar PV is assumed. In individual cases, a longer operating life is
assumed where the contractual arrangement (i.e. O&M agreement with
availability guarantee) supports such an assumption. The operating lives of
hydropower assets are estimated in accordance with their expected concession
terms. The Investment Adviser is currently undertaking a review of its
portfolio to evaluate the prospect of asset life extensions.
Operating expenses Operating expenses are primarily based on respective contracts and, where not
contracted, on the assessment of a technical adviser.
Taxation rates Underlying country-specific tax rates are derived from due diligence reports
from leading tax consulting firms.
Capital expenditure Based on the contractual position (e.g. EPC agreement), where applicable.
Portfolio Valuation - Key Assumptions
Metric 2022 2021
Discount rate Weighted average 7.2% 6.5%
Long-term inflation Weighted average 2.0% 2.0%
Remaining asset life(1) Wind energy (years) 22 23
Solar PV (years) Hydropower (years) 29 27
10 11
Operating life assumption(2) Wind energy (years) 26 26
Solar PV (years) 30 30
Hydropower (years) n.a. n.a.
There were no significant changes in the key valuation assumptions compared to
the previous reporting period.
(1. ) Remaining asset life based on net full load years. Does
not consider any potential asset life extensions.
(2. ) Asset life assumption from date of commissioning.
MARKET COMMENTARY AND OUTLOOK
Asset Life Extensions
The Company's assets continued to be valued based on asset life assumptions of
25 to 30 years for wind energy and 30 years for solar PV, which is generally
lower compared to the peer group and broader market, where up to +10 years in
operating life have been observed.
The Company's Investment Adviser is undertaking due diligence for each of the
Company's assets to validate a potential asset life extension on a
case-by-case basis across the portfolio. To demonstrate how an extension of
asset life could impact the Company's NAV, if the life of wind energy assets
were to be extended to 35 years, the Company's NAV as of 31 December 2022
would increase by 8.6% or 10 cents per Ordinary Share(1). Similarly, if the
life of the Company's solar PV assets were to increase from 30 to 40 years (as
seen in the market) this would increase the NAV by 3.2% or 3 cents per
Ordinary Share(2).
(1. ) Data reflects latest pricing forecast as at 31 December
2022. All power prices are in nominal terms as at 31 December 2022 and reflect
the captured price. The methodology has changed compared to what was reported
previously. Current methodology reflects the actual weighted captured price
based on merchant revenue and merchant production. Previous methodology
applied weighting based on last reported asset valuation.
(2. ) Excludes any potential changes to opex/capex
assumptions, which would be subject to further due diligence which would
offset against some of the potential increase in NAV.
Market Prices
In 2022 power markets witnessed the continuation of the uprise in power prices
underway since the second half of 2021, with power prices across Europe being
traded at a premium compared to the previous year. This trend of power prices
was intensified by the supply disruptions caused by the conflict in Ukraine,
which drove commodity prices up, most notably for gas and coal. However, since
mid-2022 the governments of the jurisdictions in which the Company operate,
together with the European Commission, introduced measures in order to reduce
these impacts. Nevertheless, near-term power price forecasts continue to abide
the demand and supply law, and are further enhanced by weather conditions.
Thus, near-term forecasts provided by independent markets analysts continue to
be above historical levels.
Nordics
In 2022, power prices in the Nordics presented an increasing convergence from
prices in continental Europe and were thus subjected to increasing fuel
prices. This was due to tighter hydrological balance, with hydro reservoirs
below the average levels for 2021, and increased interconnection links with
Germany and the UK. The Nordic electricity system spot price averaged EUR
135.6 per MW in 2022 (2021: EUR 62.3 per MW).
Additionally, due to the different patterns for southern and northern price
areas in Norway, the impact of higher commodity prices differs widely across
these zones. The southern zones (NO1, NO2 and NO5) prices were significantly
impacted by continental Europe via the existing interconnection. In contrast,
northern regions (NO3 and NO4) were less affected by fluctuations in power
prices due to lower demand and abundant wind resources; however, a higher
interconnection to the southern zones has resulted in an increase in prices.
Iberia
Whilst spot prices remained high across all European geographies, average spot
prices in Iberia were at a discount when compared to other geographies. This
was due to the temporary gas price "cap" mechanism introduced by the Spanish
and Portuguese governments in mid‑June 2022, which held back the impact of
escalating fuel prices on power prices. In Iberia, spot prices were, on
average, traded at EUR 167.9 per MW in 2022 (2021: EUR 111.9 per MW).
As described in the case study in the Annual Report on page 25, the Investment
Adviser with its MMG team secured PPAs for the new operating assets. This,
together with the high degree of contracted revenue in the remaining Iberian
assets, has limited the impact of the new regulations on the asset valuations.
Greece
Power prices in Greece have been impacted by elevated fuel prices more than
other European countries due to the higher proportion of hours in which
gas-fired generation sets the marginal price in the wholesale market. During
2022, power prices averaged EUR 279.7 per MW (2021: EUR 116.4 MWh). The Greek
government has introduced an EUR 85.0 MW threshold applied for revenue in the
Day-Ahead Market. However, since 100% of the revenues from Desfina are hedged,
these regulations had no impact on the asset's valuation.
EU Market Design(1)
As a result of soaring energy prices and with the aim to increase the
resilience of the EU's energy market, on 16 March 2023 the EU Commission
unveiled its draft proposal for a reform of the EU electricity market. The
proposal aims to boost the deployment of renewables by 2030, improve consumer
protection and enhance industrial competitiveness. In doing so, it aims to
reduce the link between electricity bills and volatile short-term fossil fuel
prices, whilst better protecting consumers from future price spikes and
potential market manipulation. The reform integrates measures to various
directives to promote the use of more stable, long-term Power Purchase
Agreements ("PPAs"), in order to make the energy market more resilient
following the expiration of emergency tools. It aims to increase the market's
flexibility, competitiveness and transparency by ensuring security of supply,
and fully utilising alternatives to gas, such as storage and demand response
from individual Member States.
The proposal seeks to enhance the predictability and stability of energy costs
to boost industrial competitiveness. In this context, to provide power
producers with revenue stability, all public support for new investments in
infra-marginal renewable electricity generation is set to be in the form of
two-way Contracts for Difference (CfDs). Finally, the proposal aims to boost
liquidity for forward contracts that lock-in future prices and facilitate the
integration of renewables into the system by means of transparency obligations
relating to grid congestion and trading deadlines closer to real time.
The Green Deal Industrial Plan: Putting Europe's Net-zero Industry in the Lead
In February 2023, the European Commission presented its Green Deal Industrial
Plan (the "Plan") to enhance the competitiveness of Europe's net-zero industry
and support a faster transition to climate neutrality. The Plan aims to
provide a more supportive environment for the scaling up of the EU's net-zero
technologies and products that are required to meet Europe's ambitious climate
targets.
The Plan aims to build on former initiatives implemented in the EU, whilst
being based on four pillars: (1) predictable and simplified regulatory
environment; (2) speeding up access to finance; (3) enhancing skills; and
(4) open trade for resilient supply chains.
Pillar 1 - Predictable and Simplified Regulatory Environment
The Commission is to provide a regulatory framework that allows for quick
deployment, ensuring simplified and fast-track permitting, while promoting
European strategic projects and developing standards to support the scale-up
of technologies across the EU Single Market.
Pillar 2 - Faster Access to Funding
This pillar aims to speed up investment and financing for clean tech assets in
the region. By guaranteeing a level playing field within the Single Market,
private financing as well as Member States are able to invest and/or grant aid
to help fast-track the green transition.
Pillar 3 - Enhancing Skills
Between 35% and 40% of all jobs could be affected by the green transition, and
so developing the skills needed for well-paid quality jobs will be a priority
for the Commission. Therefore, it will propose to establish Net-Zero Industry
Academies to roll out up-skilling and re‑skilling programmes in strategic
industries.
Pillar 4 - Open Trade for Resilient Supply Chains
There will be an expected increase in global co-operation under the principles
of fair competition and open trade. To that end, the Commission will develop
the EU's network of Free Trade Agreements and other forms of co-operation with
partners to support the green transition. It will also explore the creation of
a Critical Raw Materials Club, to bring together raw material "consumers" and
resource‑rich countries. This will help to ensure the global security of
supply through a competitive and diversified industrial base, and of Clean
Tech/Net-Zero Industrial Partnerships. It will also help to protect the
Single Market by ensuring foreign subsidies do not distort competition.
Outlook
The outlook for the European renewable energy sector continues to be
encouraging. Energy security, affordability and decarbonisation have become
vital considerations for governments and businesses in light of the continuing
conflict in Ukraine, leading to increased competition as well as public and
private investment in renewable infrastructure projects. The dependence of
many countries on external suppliers of key commodities has become an
irrefutable concern given the drastic reduction in Russian gas supply into
Europe. The resulting supply chain challenges have helped set the stage for
renewable infrastructure to play a dominant role in delivering greater energy
diversification and independence in the coming future.
Energy prices are forecast to decrease over the medium and long term, having
fallen from the peaks of 2022, with governments likely to continue to utilise
fiscal policy and regulation as a way to reduce costs to consumers, who are
already feeling the pressure of higher inflation and interest rates.
Nonetheless, the Company's business model and investment portfolio have
demonstrated their resilience in enduring these changes, continuing to deliver
strong financial returns whilst maintaining a prudent capital structure.
Adding further impetus to the renewable energy sector is the EU's developing
response to the US Inflation Reduction Act, focused on ensuring Europe's
continued industrial competitiveness throughout the energy transition. Support
by the EU through the earmarking of substantial funding for renewable
projects, including the REPowerEU plan, is being accelerated with measures to
give member states greater freedom to support industry and the fast-tracking
of permitting and access to funding for relevant projects. This increased
certainty and visibility over the regulatory landscape is an encouraging
tailwind for the Company and the sector. Moreover, we envisage a continued
acceleration of national deployment plans for renewables in order to meet
existing net zero targets, including the target of having renewable energy
sources account for at least 45% of the EU's energy mix by 2030. Europe will
thus need to almost double its existing share of renewable energy by the end
of the decade. This trend is further compounded by decarbonisation becoming an
increasingly urgent priority for governments and businesses considering the
repercussions of climate change, especially the likelihood of extreme weather
events increasing in frequency.
Finally, grid access has become an increasingly critical concern across
several jurisdictions. Projects are coming to market with grid connection
dates for the end of the decade and beyond, in large part due to aging
networks and the need for capacity upgrades, adding further urgency to public
and private investment in the near future. Other technologies are also
gathering momentum, such as the rising trend of (co-located) battery energy
storage systems ("BESS"), but also floating offshore wind and green hydrogen
power plants. The Investment Adviser is well positioned to participate in this
stage of the green energy transition given its dedicated BESS team already
manages 1.74 GW of installed capacity, across a pipeline of 25 projects
throughout Europe, and the Company can invest up to 20% of GAV into BESS
assets. Thus, we envisage greater investment in the flexibility of grids to
integrate the rising demand for renewable generation while improving
reliability of supply. Overall, tailwinds behind the sector continue to be
strong, with the Company set to benefit from multiple opportunities whilst
delivering on a progressive dividend.
Aquila Capital Investmentgesellschaft mbH
25 April 2023
ENVIRONMENTAL, SOCIAL AND GOVERNANCE
1. Environmental
In 2015, the UN launched 17 Sustainable Development Goals, with the purpose of
putting an end to poverty, improving health and education, reducing
inequality, spurring economic growth and tackling climate change around the
world. These goals are set to stimulate action for people, the planet and
prosperity, and aim to transform the world by 2030.
UN Sustainable Development Goals
In 2018, the EU agreed to a climate and energy framework and set ambitious
goals for 2030. The aim is to have a clean, affordable and reliable energy
system in Europe, targeting:
40.0%
At least a 40.0% decline below 1990 levels in greenhouse gas emissions
32.0%
A 32.0% renewables share of the energy system
32.5%
A 32.5% improvement in energy efficiency
"The war in Ukraine following the global pandemic has created an exceptional
environment for renewable technologies in Europe. The announcement by the
European Commission of the European Green Deal Industrial Plan to enhance the
competitiveness of Europe´s Net Zero industry and support a faster transition
to climate neutrality provides welcome tailwinds and the projected growth of
renewables has intensified.
According to the International Energy Association ("IEA")'s 2022 market
report, renewable capacity expansion in the next five years will be much
faster than what was expected in 2021. From 2022-2027, the IEA projects
renewables to grow by almost 2,400 GW, equal to the entire installed power
capacity of China today. This is almost 30% higher than what was forecast in
the IEA's 2021 report, making it their largest upward revision ever.
In parallel the EU's efforts to regulate the industry using transparency
frameworks such as the Sustainable Finance Disclosure Regulation ("SFDR") or
the EU Taxonomy aims to further facilitate investment into sustainable
activities, including the energy transition. While the alignment with these
regulatory standards is not straight-forward, Aquila Capital uses clearly
defined mechanisms to measure our climate mitigation impacts and ensure that
the construction and operation of renewable energy projects do not come at the
expense of the environment and society. Hence, we are confident in our
position to benefit from and further support these initiatives."
Angela Wiebeck
Chief Sustainability Officer at Aquila Capital
UN Sustainable Development Goals
The Company aims to invest in a diversified portfolio of renewable energy
infrastructure investments, such as hydropower plants, wind and solar parks,
across continental Europe and Ireland. With the objective of providing
investors with a diversified portfolio of renewable assets, AER is able to
deliver on its investment objectives as well as contribute towards the green
economy. AER contributes to the following three UN Sustainable Development
Goals:
AER's Contribution to the UN Sustainable Development Goals
Goal Overview Contribution towards UN Sustainable Development Goals
Ensure access to affordable, reliable, sustainable and modern energy for all. · AER's portfolio produces renewable energy which contributes towards 7 AFFORDABLE AND CLEAN ENERGY
Europe's electricity mix.
· Renewable energy is a cost-effective source of energy compared to
other options.
· AER's investments in renewable assets help to support and encourage
further investment in the industry.
Build resilient infrastructure, promote inclusive and sustainable · AER targets renewable investments which are supported by high 9 INDUSTRY, INNOVATION AND INFRASTRUCTURE
industrialisation and foster innovation. quality components and infrastructure in order to optimise the energy yield
and subsequent return to investors.
· AER's investments help to support the construction of shared
infrastructure (e.g. substations) which enables the further expansion of
renewable energy sources.
· AER's Investment Adviser, Aquila Capital, is responsible for
monitoring and optimising the Company's day-to-day asset performance. This
process also involves actively exploring how new technologies and other forms
of innovation can be utilised to enhance asset performance and sustainability
(energy yield, O&M, asset life).
Take urgent action to combat climate change and its impacts. · The Company's 463.8 MW portfolio has the potential to power 13 CLIMATE ACTION
approximately 240.8 thousand households1 and avoid approximately 240.8
thousand tonnes of CO2 emissions. AER has ambitious goals to expand its
portfolio, which will be accretive to further CO2 reduction over time.
· As a signatory to the UN Principles for Responsible Investments
("UN PRI"), the Company's Investment Adviser has integrated ESG criteria all
along its investment process for real assets, which includes considerations of
climate change.
GRESB
GRESB is a global ESG benchmark for real estate and infrastructure which
synthesises Environmental, Social, and Governance ("ESG") data. The Company
undertook its second GRESB assessment, with AER achieving an overall score of
88 out of 100 (2020: 84 out of 100), higher than the GRESB average of 82
points amongst its peer group. In addition, AER achieved a 3 out of 5-star
GRESB rating (2020: 4 out of 5).
At portfolio level, the score shows an improvement in performance in the
category of Leadership, Reporting and Risk Management whilst the score in the
two remaining categories of Stakeholder Engagement and Policies was
maintained. Meanwhile, at asset level, the rating recognises AER's policy
frameworks and strong performance in resource and emission management,
including water consumption, greenhouse gas emissions and energy use.
AER and its Investment Adviser will continue to improve their systems and
policy frameworks, leading to potentially even higher GRESB ratings and ESG
performance in the coming years.
(1. ) Forecast households supplied and avoided CO2 emissions
for the year 2023, based on the portfolio as of 31 December 2022; Guillena
forecast is assumed from July 2023.
2. Social
Desfina Reforestation
At Desfina, the Greek 40 MW wind farm in which the Company acquired 89.0%
interest in December 2020, the project company has built a wooden house for
the benefit of the Forestry Authority. The house was built at the entrance of
the Parnassos National Park; this will support the reforestation process of
the landscape in the area, the planting of 2,000 plants and the maintenance,
fertilisation and watering of them for the following three years.
Sustainable Construction in Spain
The construction of both Tiza and Albeniz benefited from the integration of a
number of sustainability initiatives, including the creation of a barrier of
plants around the perimeter of the solar PV (approximately 711 metres), an
increase in localised plantations with the addition of 152 units of retama
sphaerocarpa and translocation of over 150 olive trees between the two
projects, whilst pardoning over 50 additional trees. Additionally, over 200
sheep have been introduced into the solar PVs in order to control the
vegetation to avoid possible shading of the solar panels and to avoid possible
fires. This is controlled and supervised by the O&M provider, thus
resulting in a smooth operation that helps the local shepherds while providing
a sustainable vegetation control plan for the solar parks.
Tesla Engagement with Local Community
In March 2022, Midtfjellet Wind Farm (Tesla) was awarded the Norwea's
membership award. This prize is given to a member who has excelled in positive
engagement with the community, for example through social or environmental
sustainability.
Norwea writes(1): "The prize goes to Midtfjellet Wind Farm for its many years
of work for outdoor life and activities in and around the facility. At
Midtfjellet, past and future meet in a spectacular way. The landscape is wild
and beautiful, at the same time as it houses the production of clean and
renewable energy. The wind farm is a popular destination: cycling, skiing,
fishing and family trips. The surroundings with the fantastic turbines make
the whole experience unique and special. Since the start in 2011, about 17,000
visitors have been on a guided tour of the area. There have been people from
nursing homes, kindergartens, schools, universities and other institutions, as
well as companies and politicians. Congratulations to Midtfjellet Vindpark,
all employees in the company and partners who have contributed to the
success."
Workshop with High School Students in Benfica III
In May 2022, the Investment Adviser's Asset Management team, Aquila Clean
Energy, hosted a training session on solar photovoltaic energy for a group of
secondary school students from the Agrupamento de Escolas de Oliveira do
Hospital school. The event helped to enhance awareness of both photovoltaic
energy and the operation of the Tapadas and Azambuja PV plants (part of the
Benfica III portfolio).
The students visited a solar power plant with an installed capacity of more
than 15 MW to understand the main characteristics of a PV plant, the different
phases of a renewable energy project including the development and operation
of a solar plant, and the importance of sustainability for the environment.
Further training was given at the Tapadas and Azambuja PV plants, which are
located in Minde, Alcanena Municipality, with the aim of raising awareness of
job opportunities related to solar PV energy and its technology. In Portugal
the unemployment rate in youths between 16-24 years is 23.5%. These type of
initiatives aim to reduce that percentage.
(1. ) Translation of text prepared by Norwea in Norwegian.
3. Governance
AER Board:
3 men
1 woman
Investment Adviser:
58% men
42% women
56 different nationalities
The independent Board of Directors has the responsibility for AERʼs
sustainability policy and its implementation, with the daily operations being
delegated to its independent AIFM, FundRock Management Company (Guernsey)
Limited ("FundRock"). FundRock monitors environmental, social and governance
risks, which are fully integrated across every single stage of its investment
process. Aquila Capital publishes its own ESG report, describing the
Investment Adviser's approach to sustainability within the investment process.
Aquila Capital regards integrity and diversity as key pillars in their
governance and they have been vital for the growth and success of the Company.
The Investment Adviser is fully regulated and supervised by the Federal
Financial Supervisory Authority in Germany.
Angela Wiebeck has joined the Investment Adviser as Chief Sustainability
Officer on 3 October 2022 from her previous role at UBS, with responsibility
for designing, expanding, and optimising capabilities in topics such as Net
Zero and broader ESG efforts.
Diversity
The Board of Directors is appointed based on expertise and merit, being
mindful of the benefits generated by diversity. The Board is comprised of
members with different skills and experiences, whilst endeavouring to comply
with the Listing Rules on diversity. The current Board is comprised of three
men and one woman, all non-executive Directors who have a significant number
of years of experience in their relevant fields. The search for a fifth
non-executive member of the Board is underway to further enhance the Board's
independence, diversity and breadth of experience. Additionally, the
Investment Adviser is also mindful of the benefits provided by
diversification, both in terms of culture (its employees comprise 56 different
nationalities), and in terms of gender (its gender ratio is 58% men and 42%
women). Additionally, 27% of people in leadership positions are female, of
which two, Susanne Wermter (CEO Aquila Clean Energy) and Christine Brockwell
(CPO Aquila Clean Energy), are ranked in the Top 100 Women's Green Fund Power
List, honouring women working in wind power worldwide.
Supply Chain Management
The Investment Adviser's membership in associations such as the Global
Infrastructure Investor Association (GIIA) and the Global Listed
Infrastructure Organization (GLIO) accord it the opportunity to lobby for
human and labour rights along the value chain of several manufacturers to
prevent trade disruptions. In addition, membership in the associations is also
beneficial in highlighting the economic interests of the Investment Adviser to
the relevant authorities.
The Investment Adviser takes a multi-faceted approach to the mitigation of
governance risks, limiting exposure to risks within the supply chain. All EPC
and Operations and Maintenance (O&M) contracts are negotiated with
contractors operating in a country adhering to the European Union's labour
minimum standards. Any sourcing of raw materials, components, equipment or
services from suppliers domiciled in countries linked to the use of forced
labour is made with guarantees that such components are not associated with
human rights violations. Moreover, an in-house on-boarding and screening
process for suppliers is in place to prevent and mitigate any risk of human
rights violations, including a pre-screening of counterparties in terms of bad
press risk and a fully-fledged Know Your Customer (KYC) process. All
counterparties are monitored by the Investment Adviser according to internal
compliance and procurement policies. Measures include the selection of
geographies with strong regulatory frameworks, comprehensive internal due
diligence processes that examine counterparties and their governance
frameworks, and the use of specialist advisers to conduct technical and legal
due diligence analyses at the project level. All governance measures are
audited by major audit firms on a regular basis.
INVESTMENT POLICY AND KEY PERFORMANCE INDICATORS
Investment Policy
The Company will seek to achieve its investment objective, set out above,
through investment in renewable energy infrastructure investments in
continental Europe and the Republic of Ireland comprising (i) wind,
photovoltaic and hydropower plants that generate electricity through the
transformation of the energy of the wind, the sunlight and running water as
naturally replenished resources, and (ii) non-generation renewable energy
related infrastructure associated with the storage (such as batteries) and
transmission (such as distribution grids and transmission lines) of renewable
energy, in each case either already operating or in
construction/development ("Renewable Energy Infrastructure Investments").
The Company will acquire a mix of controlling and non-controlling interests in
Renewable Energy Infrastructure Investments and may use a range of investment
instruments in the pursuit of its investment objective, including, but not
limited to, equity, mezzanine or debt investments.
In circumstances where the Company does not hold a controlling interest in the
relevant investment, the Company will seek, through contractual and other
arrangements, to, inter alia, ensure that the Renewable Energy Infrastructure
Investment is operated and managed in a manner that is consistent with the
Company's investment policy, including any borrowing restrictions.
Investment Restrictions
The Company aims to achieve diversification principally through investing in a
range of portfolio assets across a number of distinct geographies and a mix of
wind, solar PV and hydro technologies involved in renewable energy generation.
The Company will observe the following investment restrictions when making
investments:
· no more than 25 per cent. of its Gross Asset Value (including cash)
will be invested in any single asset;
· the Company's portfolio will comprise no fewer than six Renewable
Energy Infrastructure Investments;
· no more than 20 per cent. of its Gross Asset Value (including cash)
will be invested in non-generation renewable energy related infrastructure
associated with the storage (such as batteries) and transmission (such as
distribution grids and transmission lines) of renewable energy;
· no more than 30 per cent. of its Gross Asset Value (including cash)
shall be invested in assets under development and/or construction;
· no more than 50 per cent. of the Gross Asset Value (including cash)
will be invested in assets located in any one country;
· no investments will be made in assets located in the UK; and
· no investments will be made in fossil fuel assets.
Compliance with the above restrictions will be measured at the time of
investment and non-compliance resulting from changes in the price or value of
assets following investment will not be considered as a breach of the
investment restrictions.
The Company will hold its investments through one or more special purpose
vehicles ("SPVs") and the investment restrictions will be applied on a
look‑through basis.
Although not forming part of the investment restrictions or the Investment
Policy, where Renewable Energy Infrastructure Investments benefit from a Power
Purchase Agreement, the Company will take reasonable steps to avoid
concentration with a single counterparty and intends that no more than 25 per
cent. of income revenue received by Renewable Energy Infrastructure
Investments will be derived from a single off-taker.
Changes to the Investment Policy
The Directors do not currently intend to propose any material changes to the
Company's Investment Policy. Any material changes to the Company's Investment
Policy set out above will only be made with the approval of Shareholders.
Hedging
The Company does not intend to use hedging or derivatives for investment
purposes but may from time to time use derivative instruments such as futures,
options, futures contracts and swaps (collectively "Derivatives") to protect
the Company from fluctuations of interest rates or electricity prices. The
Derivatives must be traded on a regulated market or by private agreement
entered into with financial institutions or reputable entities specialised in
this type of transaction.
Liquidity Management
The AIFM will ensure that a liquidity management system is employed for
monitoring the Company's liquidity risks. The AIFM will ensure, on behalf of
the Company, that the Company's liquidity position is consistent at all times
with its investment policy, liquidity profile and distribution policy. Cash
held pending investment in Renewable Energy Infrastructure Investments or for
working capital purposes will be invested in cash equivalents, near cash
instruments, bearer bonds and money market instruments.
Borrowing Limits
The Company may make use of long-term limited recourse debt for Renewable
Energy Infrastructure Investments to provide leverage for those specific
investments. The Company may also take on long-term structural debt provided
that at the time of entering into (or acquiring) any new long-term structural
debt (including limited recourse debt), total long-term structural debt will
not exceed 50 per cent. of the prevailing Gross Asset Value. For the avoidance
of doubt, in calculating gearing, no account will be taken of any Renewable
Energy Infrastructure Investments that are made by the Company by way of a
debt or a mezzanine investment. In addition, the Company may make use of
short-term debt, such as a Revolving Credit Facility, to assist with the
acquisition of suitable opportunities as and when they become available. Such
short-term debt will be subject to a separate gearing limit so as not to
exceed 25 per cent. of the Gross Asset Value at the time of entering into (or
acquiring) any such short-term debt.
In circumstances where these aforementioned limits are exceeded as a result of
gearing of one or more Renewable Energy Infrastructure Investments in which
the Company has a non-controlling interest, the borrowing restrictions will
not be deemed to be breached. However, in such circumstances, the matter will
be brought to the attention of the Board who will determine the appropriate
course of action.
Dividend Policy
The Company is targeting a progressive dividend over the medium term with a
minimum dividend of 5 cents per Ordinary Share, subject to having sufficient
distributable reserves.
Dividends are expected to be paid quarterly, normally in respect of the three
months to 31 March, 30 June, 30 September and 31 December, and are expected
to be made by way of interim dividends to be declared in
May, August, November and February.
The Company will declare dividends in euros and Shareholders will, by default,
receive dividend payments in euros. Shareholders may, on completion of a
dividend election form, elect to receive dividend payments in sterling (at
their own exchange rate risk). The date on which the exchange rate between
euro and sterling is set will be announced at the time the dividend is
declared. A further announcement will be made once the exchange rate has been
set. Dividend election forms will be available from the Registrar,
Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol
BS99 6ZY or via telephone 0370 707 1346.
The Company's target dividend for 2023 was announced on 3 February 2023 and is
as set out in point (iv) below.
Key Performance Indicators ("KPIs")
The Board measures the Company's success in achieving its investment objective
by reference to the following KPIs:
(i) Achievement of NAV and Share Price Growth since IPO (June 2019)
2022 6.7% share price returns
27.6% NAV
2021 11.3% share price returns
14.1% NAV
2020 10.8% share price returns
6.3% NAV
The Board monitors both the NAV and share price performance and compares with
other similar investment trusts. A review of performance is undertaken at each
quarterly Board meeting and the reasons for relative under and
over-performance against various comparators is discussed. The Company's NAV
total return and total Shareholder return since IPO (June 2019) to 31
December 2022 was 27.6% and 6.7% (2021: 14.1% and 11.3%) respectively. The
Company's NAV total return and share price total return for the year to 31
December 2022 was 12.9% and (4.5%) (2021: 7.6% and 0.5%) respectively. On an
annualised basis, the NAV total return per Ordinary Share has achieved 7.1%
since IPO.
The Chairman's Statement above incorporates a review of the highlights during
the year. The Investment Adviser's Report above highlights investments made
and the Company's performance during the year.
(ii) Maintenance of a Reasonable Level of Premium or Discount of Share Price
to NAV(1)
( )
2022 (16.6%)
2021 (0.6%)
2020 6.5%
The Company's broker monitors the premium or discount on an ongoing basis and
keeps the Board updated as and when appropriate. At quarterly Board meetings
the Board reviews the premium or discount in the year since the previous
meeting in comparison with other investment trusts with a similar mandate.
The share price closed at a 16.6% discount to the NAV as at 31 December
2022 (2021: 0.6% discount).
On 3 February 2023, the Board announced the details of a Buyback Programme for
up to EUR 20 million in response to the widening discount at which the
Company's share price was trading, as compared to its NAV per Ordinary Share,
as they believe that the current share price does not accurately reflect the
inherent value in the portfolio. This is part of a broader package of
initiatives seeking to improve the marketability of the Company's shares.
Since that date, the Company has bought back for Treasury a total of
16,652,452 Ordinary Shares for an aggregate amount of EUR 15.9 million.
(iii) Maintenance of a Reasonable Level of Ongoing Charges
( )
2022 1.1%
2021 1.1%
2020 1.4%
The Board receives management accounts containing an analysis of expenditure
and which is reviewed at its quarterly Board meetings. The Board reviews the
ongoing charges on a quarterly basis and considers these to be reasonable in
comparison to peers.
Based on the Company's average net assets during the year ended 31 December
2022, the Company's ongoing charges figure was calculated in accordance with
the Association of Investment Companies ("AIC") methodology.
(iv) To Meet its Target Total Dividend in each Financial Year (cents per
share)
Target:
2023 forecast 5.51 cents (target dividend)
2022 5.25 cents
2021 5.00 cents
2020 4.00 cents
On 3 February 2023, the Company announced a target dividend of 5.51 cents per
Ordinary Share ("2023 Target Dividend") in relation to the year ending 31
December 2023. The 2023 Target Dividend is in accordance with the Company's
dividend policy to pay a progressive dividend over the medium term and is
subject to the portfolio performing in line with expectations. The 2023 Target
Dividend represents an increase of 5.0% versus the prior year and followed a
5.0% increase in the 2022 target dividend announced in April 2022.
The dividend target set for 2022 was for not less than 5.25 cents per Ordinary
Share, subject to the performance of the portfolio. These were paid in four
equal interim dividends which totalled 5.25 cents.
SECTION 172
Section 172 of the Companies Act 2006 requires the Board to act in a way that
it considers would most likely promote the success of the Company for the
benefit of all stakeholders, taking into account the interests of stakeholders
and the environment in its decision-making and to share how this duty has been
discharged.
The Board's values - integrity, accountability and transparency - mean that
the Board has always worked hard to communicate effectively with the Company's
stakeholders. This is a two-way process and the feedback received from the
Company's stakeholders is highly valued and factored into the Board's
decision-making process.
The Company has a range of stakeholders, and this section maps out who they
are, what the Board believes their key interests to be, how the Company
enables engagement with stakeholders and highlights the key results that have
consequently arisen during the year.
Company Sustainability and Stakeholders
As an externally managed investment company, the Company does not have any
employees. Its main stakeholders are as set out in the diagram below, which
explains the relationship between the Company and each of its stakeholders.
Company's Operating Model
The Company was listed on the main market of the London Stock Exchange on 5
June 2019. The Company's investments are held via its sole subsidiary,
Tesseract Holdings Limited, which in turn holds the investment portfolio via a
number of Special Purpose Vehicles ("SPVs').
Engagement with Stakeholders
The Board is aware of the need to foster the Company's business relationships
with suppliers, customers and other key stakeholders through its stakeholder
engagement activities. These activities include meetings, annual reviews,
presentations and publications and enable the Board to ensure it fulfils its
strategies and discharge its duties under section 172 of the Act.
The Board carried out an annual review of its key service providers, including
the Investment Adviser, to understand the culture of its service providers to
ensure they and the Company can maintain high standards of business conduct.
The annual review process involves the assessment of the service providers'
policies and control environments to ensure their continued competitiveness
and effectiveness.
Shareholders
As a public company listed on the London Stock Exchange, the Company is
subject to the Listing Rules and the Disclosure Guidance and Transparency
Rules. It is a regulatory requirement, for the Board to act fairly between
Shareholders. The Board ensures that the Company complies with the Listing
Rules at all times and seeks the advice of the Company Secretary, lawyers and
corporate broker in its dealings.
The Chairman and key Board members met many of the Company's key investors to
gauge their views on the Company's progress since IPO. Separately, the
Investment Adviser has participated in a roadshow to meet with the Company's
key investors. Additionally, on 29 March 2022, the Company, together with its
Investment Adviser, held a Capital Markets Day to provide Shareholders and
analysts with further background and information about AER and its
investments. The outcome of these meetings was discussed by the Board and as a
consequence of these meetings, and in order to better align the Company with
its Shareholders, a number of initiatives have been undertaken as detailed
below.
In the run-up to year end and following the mini budget announced under the
Truss administration, stock markets became more volatile and the Company's
discount to NAV widened. In response, and following consultation with the
Company's stakeholders, on 3 February 2023, the Board announced the details
of a share Buyback Programme for up to EUR 20 million pursuant to the
authority granted to the Board at the last Annual General Meeting to purchase
up to 14.99% of the Company's issued share capital. The Board authorised the
buyback as it believes that the current share price does not accurately
reflect the inherent value in the Company's portfolio. Since that date the
Company has bought back for Treasury a total of 16,652,452 Ordinary Shares for
an aggregate amount of EUR 15.9 million. Since the start of the Buyback
Programme, the discount to NAV at which the Company's shares trade has
narrowed from 16.6% to 14.6 and the liquidity in the Company's shares has
markedly improved.
The Company's name was changed from Aquila European Renewables Income Fund plc
to Aquila European Renewables plc to maximise the appeal of the Company across
a broader range of investors and other stakeholders. The name change became
effective on 3 November 2022.
At its quarterly Board meetings, the Board reviews and discusses detailed
reports from the Company's broker and media PR consultants in relation to the
Company's share performance, trading and liquidity as well as the composition
of, and changes to, the register of Shareholders. Shareholders' views are also
considered by the Board at those meetings to assist the Board's
decision-making process and to ensure expected returns are achieved and
sufficient capital is available to invest in appropriate renewable energy
infrastructure investments and to grow the business in line with strategy and
expectation. Details of the decisions taken by the Board during the year can
be found below under 'Key Decisions made During the Year'.
The Investment Adviser and Board believe that it is important for the
Company's continued success to have the potential to access equity capital in
order to expand the Company's portfolio over time, to further diversify the
investment portfolio, to create economies of scale and, at times when the
Company's shares are trading at a premium against its NAV, as a means to
manage such premium. The Company's shares traded at a premium early in the
year and during that time issued shares to its Investment Adviser in lieu of
its quarterly management fees. The Company may issue shares from its Treasury
account but will only issue shares at a premium to NAV at the time of issue.
To help the Board in its aim to act fairly between the Company's members, it
seeks to ensure effective communication is provided to all Shareholders. The
Board encourages Shareholders to attend the Annual General Meeting or General
Meetings, at which Directors and representatives of the Investment Adviser are
available to meet Shareholders in person and answer questions. The Annual
Report and half-yearly accounts are distributed to the Company's Shareholders
and made available on the Company's website. The quarterly factsheet is also
available on the Company's website.
The Company's website - www.aquila-european-renewables.com is considered an
essential communication channel and information hub for Shareholders. As such,
it includes full details of the investment objective, supporting philosophy
and investment process and performance along with news, opinions, disclosures,
results and key information documents. It also presents information about the
Board, its committees and other governance matters and Shareholders are
encouraged to view the website in order to better understand the Company.
Service Providers
As an externally managed investment trust, the Company conducts all its
business through its key service providers. The Board believes that
maintaining positive relationships with each of the Company's service
providers is important to support the Company's long-term success.
In order to ensure strong working relationships, the Company's key service
providers (the Investment Adviser, AIFM, Company Secretary, Administrator) are
invited to attend quarterly Board meetings to present their respective
reports. This enables the Board to exercise effective oversight of the
Company's activities. During the year, the Board spent a considerable amount
of time between Board meetings engaging with the Company's key service
providers to continue to develop strong working relationships and to determine
good working practices to ensure the smooth operational function of the
Company. The Board and its advisers seek to maintain constructive
relationships with the Company's key service providers on behalf of the
Company through the annual review process, regular communications, meetings
and the provision of relevant information.
Alternative Investment Fund Manager ("AIFM")
The AIFM is an important service provider for the Company's long-term success.
The AIFM has engaged Aquila Capital to act as the Company's the Investment
Adviser for the purpose of providing investment advisory services to the
Company. The AIFM is responsible for reviewing each investment opportunity
prior to being presented to the Board. In addition to the reports the Board
receive from the Investment Adviser, it also receives quarterly reports from
the AIFM. The Board maintains regular contact with the AIFM in order to foster
a constructive working relationship. Additionally, the AIFM is responsible for
monitoring the risks faced by the Company and these are regularly discussed at
meetings of the Audit and Risk Committee.
Investment Adviser
The Investment Adviser is the most significant service provider to the
Company. The performance of the Investment Adviser is determined by the
quality of the Investment Adviser's management team and their ability to
source high quality assets at attractive prices.
The Board closely monitors the Company's investment performance in relation to
its objectives, investment policy and strategy. To assist the Board, the
Investment Adviser provides monthly reports. Additionally, the Investment
Adviser presents its quarterly production and operational update reports at
each quarterly Board meeting. The Board maintains constructive dialogue
between meetings with the Investment Adviser. On a periodic basis, the Board
visits the Investment Adviser at its Hamburg office, the site of one of the
portfolio assets or one of its other offices so that they are able to gain a
better understanding of the Investment Adviser, to meet key members of the
team and gain further insight into the operation of each asset. The Investment
Adviser's remuneration is based on the NAV of the Company. From IPO until
30 June 2023 the Investment Adviser's fees will be paid in shares, which
aligns the Investment Adviser's interests with those of the Company's
Shareholders.
Portfolio Investments
Prior to being presented to the Board of HoldCo, the Company's wholly owned
subsidiary, the Company's Board is presented with potential investment
opportunities that have been identified by the Investment Adviser and which
have undergone a process of analysis and challenge by the AIFM, including
considerations relating to environmental, social and governance issues. The
Board considers each proposal against the Company's investment objective,
investment policy and strategy and with consideration for the wider group of
stakeholders. In considering each investment opportunity, the Board considers
the Company's long-term success, having particular regard to the following
aspects of each proposal:
· potential revenue forecast to be generated by each asset;
· the diversity of the Company's portfolio;
· any community and environmental issues associated with each asset;
· geopolitical risk;
· the length of tenure of each asset;
· hedging aspects to limit risk; and
· funding aspects, including the use of gearing.
As at 31 December 2022, the Company and the HoldCo had EUR 89.9 million of
liquidity consisting of EUR 24.7 million in cash on hand plus EUR 65.1 million
in an undrawn revolving credit facility. Remaining commitments via Tesseract
Holdings Limited amounted to EUR 47.5 million.
Society and the Environment
The Company is an investor in renewable energy assets and is acutely aware of
its impact on the environment. The Company has an ESG policy and climate risk
strategy which ensure that society and the environment are considered when
implementing its investment strategy. The ESG policy is available on request
from the Company Secretary. Further details of matters relating to ESG can be
found above or on its website at https://www.aquila-european- renewables.com.
Key Decisions made During the Year
Decisions Relating to the Company's Portfolio of Assets
All acquisitions and decisions made during the year in respect of the
Company's portfolio of assets, including new acquisitions, PPA agreements,
financing or refinancing of the Company's assets and other matters, are
detailed in the Investment Adviser's Report above.
Investment Adviser's Fees
The Board agreed to purchase or issue shares to the Investment Adviser in
relation to fees payable during the year as detailed below:
Date Issue or purchase of Ordinary Shares Amount acquired by the Investment Adviser Price paid per Ordinary Share (EUR)
7 February 2022 Issue 731,520 1.0383
1 June 2022 Issue 554,773 1.021075
1 June 2022 Purchase 176,300 1.0376
5 August 2022 Purchase 760,053 1.01657415
9 November 2022 Purchase 852,206 0.947292
Following year end, and as instructed by the Board, the Company's brokers
purchased a further 900,340 Ordinary Shares at a price of 90 cents for Aquila
Capital Investmentgesellschaft mbH in lieu of fees due to them in respect of
the fourth quarter, in accordance with the Investment Advisory Agreement.
The Board believes issuing shares to the Investment Adviser in lieu of fees
further aligns the interests of the Investment Adviser with the Company's
Shareholders.
Dividend Guidance
During the year the Board agreed to increase the Company's dividend by 5.0% to
5.25 cents per ordinary share. Since year end, on 3 February 2023, the Board
approved a further 5.0% increase to the Company's target dividend to 5.51
cents per share.
Funding Consideration
During the year the Board authorised the AIFM and Investment Adviser to
negotiate an increase in the Company's Revolving Credit Facility ("RCF")
following which the bank agreed to increase the Company's RCF from EUR 40
million to EUR 100 million and to extend the term until maturity to April
2024. Since then, the Board has instructed the AIFM and Investment Adviser to
negotiate a further twelve month extension of the facility to April 2025.
Approval to this extension was granted on 21 April 2023.
Name Change
As detailed above, on 31 October 2022, the Board agreed to change the
Company's name from Aquila European Renewables Income Fund plc to Aquila
European Renewables plc with effect from 3 November 2022, to maximise the
appeal of the Company across a broader range of investors and other
stakeholders.
Board Changes
On 2 February 2023, Dr Patricia Rodrigues replaced Kenneth MacRitchie as Chair
of the Remuneration and Nomination Committee as part of the Board's ongoing
commitment to ensure that they maintain suitable diversity and representation
within the Board structure. The Board has begun the process of recruiting an
additional Board member to further expand its skills base and to enhance its
diversity.
Principal Risks and Uncertainties
During the year the Company has carried out a robust assessment of its
principal and emerging risks and the procedures in place to identify any
emerging risks are described below.
Procedures to Identify Principal or Emerging Risks
The Board regularly reviews the Company's risk matrix, with a focus on
ensuring that the appropriate controls are in place to mitigate each risk. The
experience and knowledge of the Board is important, as is advice received from
the Board's service providers, specifically the Alternative Investment Fund
Manager ("AIFM"), who is responsible for the risk and portfolio management
services and outsources the portfolio management to the Investment Adviser.
· Investment Adviser: the Investment Adviser provides a report to the
Board on a quarterly basis or periodically as required on industry trends and
insight to future challenges in the renewables sector including the
regulatory, political and economic changes likely to impact the renewables
sector;
· Alternative Investment Fund Manager ("AIFM"): following advice from
the Investment Adviser and other service providers, the AIFM maintains a
register of identified risks, including emerging risks, likely to impact the
Company;
· Broker: the Broker provides advice periodically specific to the
Company on the Company's sector, competitors and the investment company
market, whilst working with the Board and Investment Adviser to communicate
with Shareholders;
· Company Secretary: the Company Secretary briefs the Board on
forthcoming legislation/regulatory change that might impact the Company; and
· AIC: The Company is a member of the Association of Investment
Companies, which provides regular technical updates as well as drawing
members' attention to forthcoming industry and regulatory issues.
Procedure for Oversight
The Audit and Risk Committee undertakes a review of the Company's risk matrix
on a regular basis and a formal review of the risk procedures and controls in
place at the AIFM and other key service providers to ensure that emerging (as
well as known) risks are adequately identified and, so far as practicable,
mitigated.
Principal Risks
The Board considers the following to be the principal risks faced by the
Company along with the potential impact of these risks and the steps taken to
mitigate them.
Risks Potential Impact/Description Mitigation
Economic and Political
1. Electricity Prices The income and value of the Company's investments may be affected by future The Company holds a balanced mix of investments that benefit from government
changes in the market price of electricity. subsidies as well as long-term fixed price PPAs. Of AER's forecast revenue for
the next five years (on a present value basis), approximately 52% will be
generated via government tariffs or fixed price PPAs, protecting the Company's
revenue from volatile electricity prices.
While some of the revenues of the Company's investments benefit from fixed
prices, they are also partly dependent on the wholesale market price of
electricity, which is volatile and is affected by a variety of factors,
including: The Investment Adviser retains the services of market‑leading energy
consultants to assist with determining future power pricing for the respective
regions.
· market demand;
· generation mix of power plants; The underlying SPV companies may use derivative instruments such as futures,
options, futures contracts and swaps to protect from fluctuations in future
· government support for various forms of power generation; electricity prices.
· fluctuations in the market price of commodities; and
· foreign exchange. The Investment Adviser models and monitors power price curves on an ongoing
basis and will recommend appropriate action. In addition, the Investment
Adviser has a dedicated team which is responsible for the origination,
negotiation and execution of all PPAs.
There is a risk that the actual prices received vary significantly from the
model assumptions, leading to a shortfall in anticipated revenues by the
Company.
The Investment Adviser reviews the hedging strategy on a deal-by-deal basis,
both at time of investment and on an ongoing basis. Should changes be required
to the hedging strategy, these will be recommended to the AIFM and Board.
Increased EU goals to push green economies will lead to a ramp up of
renewables and capacities with potential to lead to grid oversupply issues
resulting in pricing pressures.
The current energy geopolitical crisis in Europe is driving increasing energy
prices and volatility which is likely to have an impact on performance.
Windfall taxes, regulation and price caps introduced across Europe to curb
excess profits could impact the Company's revenue.
2. Act of War/Sanctions As evidenced with the ongoing war in Ukraine and the various restrictions The Investment Adviser, utilising its extensive experience, is constantly
imposed, acts of war and resulting sanctions can lead to O&M supply monitoring geopolitical and macro-economic developments. Where required,
delays, volatile energy markets and general uncertainty. external geopolitical and risk analysis is undertaken.
This can also lead to short-term price increases and more focus on renewable The Company does not have any direct exposure to Ukraine or Russia, there are
energy infrastructure and increased competition for assets. also no direct business relations with counterparties from these countries.
With increasing competition for renewable investments, new geographies may be
considered, potentially introducing additional political and regulatory risks.
3. Equity Market Volatility Volatility in equity markets may cause the Company's shares to rise or fall The Company's advisers monitor market conditions and report regularly to the
and therefore to trade at a premium or a discount to its net asset value. If Board. In the event that the Company is unable to raise new capital it could
volatility causes the shares to trade at a discount this could impact the defer making any new investments until the stock market recovers and, in
Company's ability to raise further equity to allow it to repay debt or to extreme circumstances, existing investments could be sold to reduce debt and
support further investments. raise liquidity.
If the shares trade at a significant discount for a period of time, the The Company's share price recently decreased towards a 20% discount to its net
Company could become vulnerable to a takeover. In addition, loss of confidence asset value. As a result, the Board introduced a share buyback programme on
by Shareholders may increase the likelihood of attracting votes against the 3 February 2023. The discount has since narrowed and the Board and its
continuation vote to be put to Shareholders at the AGM to be held in June advisers continue to monitor the share price.
2023.
4. Global Recession A global recession may lead to electricity pricing volatility as a result of The Investment Adviser has a dedicated Markets Management Group team, which is
demand and inflationary pressures. Other possible impacts of a global responsible for the origination, negotiation and execution of PPAs.
recession include windfall taxes, reduction in availability of debt, reduced
access to capital markets for fund raising and increased risk at
counterparties as balance sheets become stressed.
51.9% of AER's forecast revenue for the next five years (on a present value
basis) will be generated via government tariffs or fixed price PPAs,
protecting that element of the Company's revenue from volatile electricity
Inflation assumptions are built into modelling of future revenue and prices.
expenditure of investments. Thus changes in inflation can impact, positively
or negatively, on individual asset valuations and the resulting net asset
value performance of the Company.
Most of the non-contracted revenues and costs of the Company's investments are
either indexed or correlated to inflation.
5. Change in Political Sentiment A change in political direction or regulation in one of the countries in which The AIFM, advised by the Investment Adviser with its 17 offices in 16
the Company targets investment could lead to changes, reductions, caps or countries, continuously monitors all jurisdictions in which the Company
withdrawals of government support arrangements, a windfall tax or potentially invests.
the nationalisation of investments. This could have a material impact on the
valuation of the investments and the Company's net asset value.
Tax, legal and ESG due diligence ("DD") is undertaken on each investment and
reviewed prior to signing off any investment proposal.
Environmental groups may put pressure on the government in relation to its
renewables ambitions and permits due to environmental concerns and impact on
the projects.
Additional due diligence on development and construction assets is undertaken
for new investment opportunities in order to avoid or mitigate any potential
issues.
The Investment Adviser has significant experience in these assets and performs
ongoing monitoring of these risks.
Regulatory changes at the SPV level are monitored by the Investment Adviser
and reported to the Board/AIFM on an ongoing basis.
Operational
6. Investment Performance There is a risk that the portfolio underperforms and, as a result, the target Each quarter the Board reviews a report prepared by the Investment Adviser on
returns are not met over the longer term. This could lead to the dividend not the portfolio performance. In addition, a monthly production update for each
being covered and an inability to pay the target dividend. investment is provided to the Board which closely monitors performance of the
individual assets.
Adverse weather conditions may impact investment performance through
lower-than-expected production levels. The Investment Adviser has a substantial team of executives employed across
various disciplines within the renewables sector in 17 offices in 16 countries
who oversee and actively monitor all of the investments.
Investments under development or construction have higher risk of performance
due to permit and leases potential challenges, construction budget slippage
and development performance. New investments are reviewed and approved by the Board in line with the
Company's investment policy of investing in a diversified portfolio across
both geography and technology.
In the case of development/construction assets, the Investment Adviser puts in
place legal agreements with the developer to align all parties for a
successful outcome and mitigate the risks associated with the initial phase of
the investment.
7. Environmental /Social/Governance ("ESG") Failure to adhere to its ESG Policy and Impact Strategy could result in the The Investment Adviser performs detailed due diligence on ESG factors for each
Company being liable for damages or compensation to the extent that such asset prior to acquisition and on a periodic basis thereafter, taking into
losses are not covered by insurance policies. In addition, adverse publicity consideration each ESG risk identified by the Board and Investment Adviser.
or reputational damage could follow. Further details on how ESG is mitigated, and the wider approach of the
Investment Adviser to ESG matters, can be found above.
Significant ESG risks to the portfolio could include:
Environmental - climate change, biodiversity issues or environmental
impairment.
Social - impact on local communities in which the Company's assets operate as
well as employee welfare including health and safety incidents.
Governance - lack of a strong governance framework within the Company could
expose it to, among other things, the negative impact of bribery and
corruption.
8. Competition for Assets With increasing numbers of investors seeking exposure to renewable assets, it The track record of the Investment Adviser and its market position and
is possible that new competitors will enter the market in which the Company penetration allow it to access potential investments that newer entrants may
operates. This could lead to increased pricing for the Company's target not have access to. Through the Investment Adviser, the Company has access to
investments with corresponding lower returns and slower deployment of a number of assets that are in the development phase, creating a competitive
uninvested cash. advantage for the Company.
The Board is mindful of pricing when it reviews new investment proposals and
the need to deliver on the Company's target objective and strategy.
9. Counterparty Risk The majority of the operational risk in the Company's investments is retained Operation and maintenance ("O&M") of assets are subcontracted to a
by the counterparty or its subcontractors. Failure to properly operate and counterparty who is responsible for ensuring effective continuing operation
maintain assets may result in reduction of revenues and value of assets. and maintenance of that asset. The Investment Adviser ensures that each such
However, some risks will remain within the investment. counterparty has the experience and resources to comply with its obligations
and monitors compliance on an ongoing basis.
Poor performance by a subcontractor may lead to the need for a replacement,
which could have cost implications, impacting the performance of the Constant monitoring of the investments and the counterparties/service
investment and potentially distributions to the Company until the issue is providers allows the Investment Adviser to identify and address risks early.
resolved. Diversification of counterparties and service providers ensures any impact is
limited.
The value of the Company's investments and the income they generate may be
affected by the failure of counterparties to comply with their obligations The Investment Adviser assesses the credit risk of companies against defined
under a PPA. criteria prior to them becoming counterparties to PPAs.
10. Litigation The Company may be subject to litigation either directly or via its subsidiary Prior to an investment or the engagement of a third party, a detailed due
or at SPV level. diligence exercise is undertaken to identify any risks either from
subcontractors or any party likely to be impacted by the Company's actions.
ESG matters are considered at each investment stage. Local communities and
relevant parties are consulted prior to an investment or prior to formal
engagement in order to identify any potential grievance.
The Company has access to legal advisers who provide advice at each stage of
an investment and at each stage in the Company's life.
11. Performance of the Investment Adviser The Investment Adviser manages over EUR 14.7 billion for clients worldwide; The Company and AIFM are made aware of and review potential conflicts of
there is a risk of conflict when allocating potential new investments across interest at the time of each investment being made. The Investment Adviser
various clients including the Company. procures and provides the Board with an independent fairness valuation
opinion, which mitigates the risk where valuations conflict exists. When
assets are bought along with other funds managed by the Investment Adviser,
the price is externally validated.
The Investment Adviser employs experienced executives to identify, acquire and
manage the Company's investments. There is a risk that a key person leaves the In addition, an investment allocation policy has been implemented by the
Investment Adviser. Investment Adviser and has been agreed by the Board.
The strength and depth of the Investment Adviser's resources mitigate the risk
of a key person departure.
12. IT Security A hacker or third party could obtain access to the Investment Adviser or any Service providers have been carefully selected for their expertise and
other service provider and destroy data or use it for malicious purposes. Data reputation in the sector. Each service provider has provided assurances to the
records could be destroyed, resulting in an inability to make investment AIFM and the Company on their cyber policies and business continuity plans
decisions and monitor investments. along with external audit reviews of their procedures where applicable.
The pandemic and more recently the Russian and Ukraine war has increased IT The Investment Adviser and key service providers have information security
security concerns and threats being posed to the Company and operating policies in place and have appointed IT security officers whose tasks are to
structure by hackers which may lead to loss of information or even a cash provide support for emergency events and crises, the monitoring of the
loss. resumption and repair of the IT security measures after completion of a
disturbance or incident, and the ongoing development of improvements to the IT
security concept.
The Investment Adviser's in-house Asset Management team has reviewed the
protective measures taken by the counterparties and has further increased the
vigilance against cyber-attacks that could affect the performance and
infrastructure of the investments. Insurance is in place to cover potential
losses from direct attacks. For indirect attacks (e.g. against grid operation
or transmission system) the various administrators, operation and maintenance
providers are required to maintain sufficient insurance coverage to mitigate
possible damages.
Financial
13. Portfolio Valuation There is a risk that the Company's asset valuations and underlying assumptions The principal component of the Company's balance sheet is its portfolio of
such as future electricity prices and discount rates are not a fair reflection renewable investments. Each quarter, the AIFM is responsible for preparing a
of the market, meaning that the investment portfolio could be over or fair market value of the investments, with input and guidance from the
under-valued. Investment Adviser. These valuations and the key underlying assumptions are
interrogated by the Board before being approved.
The Investment Adviser has a strong track record in undertaking valuations of
renewable assets built up over the years since it was founded in 2001.
In addition, when a conflicted new investment is being proposed by the
Investment Adviser, a fairness valuation opinion from an independent adviser
is procured by the Investment Adviser for the AIFM and the Board.
The Investment Adviser and broker monitor market competitors and provide
feedback on valuation methodologies and assumptions to the valuation team.
14. Leverage Risk/Interest Risk The use of leverage creates risks including: The Company's investment policy restricts the use of leverage to:
· exposure to interest rates which can fluctuate; · Short-term debt: 25% of the prevailing GAV.
· covenant breaches; · Long-term structural debt: 50% of the prevailing GAV.
· enhanced loss on underperforming investments; and
· the ability to refinance assets impacts asset returns and cash As at 31 December 2022, the Company's subsidiary, Tesseract Holdings Limited,
flows. had 4.0% of short-term debt and on SPV level there was 21.6% of long-term
structured debt as a percentage of GAV. The AIFM monitors all debt levels
against these policy restrictions and reports them to the Board on a quarterly
basis.
Fluctuations in interest rates may impact discount rates which are applied to
the portfolio valuations as well as affecting cost of debt in both the
underlying SPVs and the Company.
The Investment Adviser provides updates of the covenant compliance to the AIFM
and to the Board periodically and looks at refinancing as early as possible.
Interest rate risk on bank debt at the asset level is mitigated by the use of
hedging instruments.
The majority of the Company's long-term structural debt is non-recourse,
largely fixed interest rates and fully amortising.
Compliance, Tax and Legal
15. Changes to Tax Legislation or Rates Changes in tax legislation, base erosion and profit shifting rules, substance, The corporate structure of the Company is reviewed periodically by the Company
withholding tax rules and rates, could result in tax increases, resulting in a and its advisers. The Board has been kept informed of the recent introduction
decrease in income received from the Company's investments. of the windfall (and other tax arrangements) taxes introduced across Europe to
curb profits of energy providers on a timely basis and has carefully
considered the impact on the Company's portfolio, which is further discussed
in the Investment Adviser's Report.
A windfall tax on profits from an investment levied by government.
The Investment Adviser works closely with tax and industry experts prior to
providing structuring recommendations to the Company prior to investment and
on an ongoing basis.
16. Regulatory and Compliance Changes The Company fails to comply with section 1158 of the Corporation Tax Act to All service providers including the broker, Company Secretary, Administrator,
ensure maintenance of investment trust status, UK Listing Authority Investment Adviser and AIFM are experienced in these areas and provide
regulations including Listing Rules, Foreign Account Tax Compliance Act and comprehensive reporting to the Board and on the compliance of these
Alternative Investment Fund Managers Directive ("AIFMD"). regulations.
The Company fails to comply with relevant ESG rules and regulations and fails The AIFM is experienced in compliance with the AIFMD reporting obligations and
to monitor those such as the SFDR, changing disclosure requirements and green reports at least quarterly to the Board.
washing risks.
Failure to comply with the relevant rules and obligations may result in
reputational damage to the Company or have a negative financial impact. The Investment Adviser actively monitors changes in regulation across the
markets in which the Company operates.
Possible uncertainty remains with post-Brexit negotiations and eventual trade
deals agreed. Unfavourable terms can impact withholding taxes, double tax The Company complies with article 8 of the SFDR and as noted under "ESG" looks
treaty limitations and various other trading concerns. to comply with local requirements to mitigate potential risks.
Additionally, the Company operates in multiple markets throughout Europe, and
some have shown signs of changes or potential in regulation as a response to
high power prices.
Emerging Risks
17. Climate-related risks Climate-related risks can be categorised as physical or transitional risks. The Company should be sufficiently protected through hedging of price risks in
Physical risks are those associated with the physical effects of climate the event of unforeseen changes in regulatory requirements related to climate
change. They can be event‑driven (acute), such as cyclones, hurricanes, change.
wildfires, heatwaves, pandemics, droughts, and floods; or longer term
(chronic) shifts in climate patterns, such as sustained higher temperatures
with melting of glaciers and ice sheets causing sea level rise, permafrost
melting, chronic heatwaves and desertification, extreme variability in Insurance is usually in place in the event of acute climate risks such as
precipitation, land degradation and changes in air quality. physical damage due to floods or wildfires resulting in production losses.
Transitional risks are those that arise as economies transition towards less Financial model forecasts are based on P50 production (the estimated annual
polluting, greener solutions. These include externally imposed risks such as amount of electricity generation that has a 50% probability of being exceeded
the effect of legal and regulatory requirements or policy changes, changes in - both in any single year and over the long-term - and a 50% probability of
societal demands, advancements in technologies, market changes and the being underachieved) data sourced from energy yield assessments provided by
consequent business decisions taken to respond to such changes. Transitional external service providers.
risks have the potential to crystallise suddenly, for example as a result of
policy changes. Physical or transitional climate-related risks could impact
the operation of the Company's asset and hence the production or revenue
generated by the portfolio assets. The Company also mitigates the frequency of both physical and transitional
risks through extensive geographical diversification of its portfolio.
18. Financial Crises Risk of bank failure. On 10 March 2023, Silicon Valley Bank and Signature Bank The Company's bankers are carefully chosen based on their credit rating.
came close to collapse, prompting US regulators to take control in an attempt Further due diligence is undertaken on each bank to ensure they are robust
to prevent contagion. On 19 March 2023, it was announced that the Swiss before they are engaged by the Company.
government had successfully negotiated the acquisition of Credit Suisse by UBS
in order to prevent its collapse and prevent contagion. If either the US
regulators or the Swiss Government had been unsuccessful in preventing
contagion, the Company's bankers could have been affected, creating The Company's funds are held by a number of banks in order to diversify
difficulties for the Company to operate. counterparty risk. Since the 10 March 2023 announcement, the AIFM has
undertaken a review of the Company's banking arrangements to identify any
exposure to Silicon Valley, Signature and Credit Suisse Banks. Following this
analysis, the AIFM has concluded that the Company's exposure is minimal and
unlikely to negatively impact the Company.
Viability Statement
In accordance with the UK Corporate Governance Code and the Listing Rules, the
Directors have assessed the prospects of the Company over a longer period than
the 12 months required by the 'Going Concern' provision.
In reviewing the Company's viability, the Directors have assessed the
viability of the Company for the period to 31 December 2027 (the "Period").
The Board believes that the Period, being approximately five years, is an
appropriate time horizon over which to assess the viability of the Company,
particularly when taking into account the long-term nature of the Company's
investment strategy, which are modelled over five years and the principal
risks outlined above. Based on this assessment, the Directors have a
reasonable expectation that the Company will be able to continue to operate
and to meet its liabilities as they fall due over the period to 31 December
2027.
In considering the prospects of the Company, the Directors looked at the key
risks facing the Company, HoldCo and the SPVs, focusing on the likelihood and
impact of each risk as well as any key contracts, future events or timescales
that may be assigned to each key risk. The Directors are satisfied that the
Company would continue to remain viable under downside scenarios, including a
decline in long term production and power price forecasts, taking into account
tax implications and regulatory changes imposed on renewables and on those in
the electricity generation market in certain jurisdictions across Europe.
These risks, together with the mitigating factors of each, are shown in the
Principal Risk section shown above.
As a sector-focused renewable energy investment company, the Company aims to
produce stable dividends while preserving the capital value of its investment
portfolio. As part of their analysis, the Board were mindful that the
Company's portfolio assets, held via HoldCo, are predominantly fully
constructed and operating renewable electricity generating facilities with
asset lives significantly in excess of the period under consideration.
This assessment also included a detailed review of the issues arising
following the war in Ukraine, high volatility in commodity prices, the
windfall revenue clawback on inframarginal technologies (e.g. solar PV, wind,
nuclear, hydro) and other taxes that currently face the Company's assets as
disclosed in the Principal Risk and the Investment Adviser's Report shown
above. The Board have also considered the impact of climate related events on
the Company's assets and on its ability to continue to produce electricity.
For example, based on the guidance provided in the Company's February 2023
investor presentation, the Company expects its 2023 target dividend to be
fully covered even if forecast power prices decline by 30%.
The Company has a low gearing level representing 25.6% as at 31 December 2022
of its Gross Asset Value, comprised of a RCF (which has an undrawn limit of
EUR 65 million) and non-recourse debt at the asset level. The Company (via its
subsidiaries, where applicable) is in compliance with its covenants related to
the RCF and non-recourse debt. The Company has recently negotiated an
extension to its RCF which now expires in April 2025. The Board and advisers
have analysed the covenants of the RCF and based on stress testing the
Company's RCF covenants, significant headroom exists in relation to both the
Interest Coverage Ratio ("ICR") and Loan to Value Ratios. For example, based
on the Company's RCF compliance certificate for Q4 2022, forward cash flows
would have to reduce by over 65% in order to breach the Company's ICR ratio.
The Board have also considered the failure of Silicon Valley Bank and Credit
Suisse and the Impact of contagion, and have concluded that the Company's
counterparty banking relations are unaffected and are sufficiently robust.
The Directors believe that the Company is well placed to manage its business
risks successfully over both the short and long term and accordingly, the
Board has a reasonable expectation that the Company will be able to continue
in operation and to meet its liabilities as they fall due for a Period of at
least five years.
The internal control framework of the Company is subject to a formal review on
at least an annual basis. On a regular basis, the Board reviews the risk
report prepared by the AIFM.
The Directors do not expect there to be any material increase in the expenses
of the Company over the Period. The Company's income from investments provides
substantial cover to the Company's operating expenses and buyback programme,
and any other costs likely to be faced by the Company over the Period of the
assessment.
The Company is subject to a continuation vote at this year's AGM to be held on
14 June 2023. Following discussions with the Company's broker, Investment
Adviser and a number of existing shareholders, the Directors are of the view
that the continuation vote will be passed at the forthcoming AGM. The Board
believes there are several significant factors that support the Director's
view of a positive vote for the Company's continuation as detailed in the
Going Concern Statement shown below. If the Continuation Resolution is not
passed, then the Directors shall within six months of such Continuation
Resolution not being passed, put proposals to shareholders for the
reconstruction, reorganisation or liquidation of the Company.
Going Concern
The Directors have adopted the going concern basis in preparing the financial
statements. The following is a summary of the Directors' assessment of the
going concern status of the Company.
The Company continues to meet its day-to-day liquidity needs through its cash
resources and RCF. In reaching this conclusion, the Directors have considered
its cash position, income, expense flows, ongoing buyback programme and
compliance with the RCF covenants. The Company's net assets as at 31 December
2022 was EUR 451.7 million (2021: EUR 417.4 million). As at 31 December 2022,
the Company held EUR 19.9 million (2021: EUR 94.3 million) in cash.
The Company has a low gearing level representing 25.6% as at 31 December 2022
of its Gross Asset Value, comprised of a RCF (which has an undrawn limit of
EUR 65 million) and non-recourse debt at the asset level. The Company (via its
subsidiaries, where applicable) is in compliance with its covenants related to
the RCF and non-recourse debt. The Company has recently negotiated an
extension to its RCF which now expires in April 2025. The Board and advisers
have analysed the covenants of the RCF and, based on stress testing the
Company's RCF covenants, significant headroom exists in relation to both the
Interest Coverage Ratio ("ICR") and Loan to Value Ratios. For example, based
on the Company's RCF compliance certificate for Q4 2022, forward cash flows
would have to reduce by over 65% in order to breach the Company's ICR ratio.
The total expenses for the year ended 31 December 2022 were EUR 4.7 million
(2021: EUR 4.1 million), which represented approximately 1.1% (2021: 1.1%) of
average net assets during the year. At the date of approval of this document,
based on the aggregate of investments and cash held, the Company has
substantial operating expenses cover.
The major cash outflows of the Company are the payment of dividends, costs
relating to the acquisition of new investments and payment due in respect of
the settlement of shares purchased in respect of the Company's buyback
programme. The Directors are confident that the Company has sufficient cash
balances to fund its commitments to Guillena, which as at 31 December 2022 was
the Company's only remaining commitment which is intended to be funded via the
Company's RCF.
This assessment has included a detailed review of the issues arising following
the war in Ukraine; high volatility in commodity prices; the windfall revenue
clawback on inframarginal technologies (e.g. solar PV, wind energy, nuclear,
hydropower); other taxes that currently face the Company's assets, as
discussed in the Chairman's Statement and Investment Adviser's Report above
and the impact of climate related events on the Company's assets.
The Directors are also satisfied that the Company would continue to remain
viable under downside scenarios, including a decline in long term production
and power price forecasts. For example, based on the guidance provided in the
Company's February 2023 investor presentation, the Company expects its 2023
target dividend to be fully covered even if forecast power prices decline by
30%.
The underlying SPV revenues are derived from the sale of electricity, 51.9% of
which is through Power Purchase Agreements which cover the Company's
liabilities.
The Company is subject to a Continuation Resolution at this year's AGM to be
held on 14 June 2023. Following discussions with the Company's broker,
Investment Adviser and a number of existing shareholders, the Directors are of
the view that the Continuation Resolution will be passed at the forthcoming
AGM. The Board believes there are several significant factors that support the
Director's view of a positive vote for the Company's continuation as detailed
below:
· The Company's Investment Adviser is one of the largest
participants in the European renewables market and provides the Company with
access to a 10 GW development and construction pipeline, providing significant
opportunities for long-term growth;
· The recent transformation of the Company's portfolio has resulted
in high level of earnings visibility and dividend cover. This has enabled the
Board to recently announce a 5% increase to its dividend target for 2023;
· The Company is trading at a forward dividend yield which compares
favourably to other renewable funds providing exposure to European assets;
· The Company's portfolio is well positioned, with all of its
construction projects completed, relatively low gearing levels (25.6% of Gross
Asset Value) and high contracted revenue. In addition, the Investment Adviser
is also undertaking due diligence in relation to asset life extensions which
could realise further upside within the portfolio;
· The Company has demonstrated a proactive approach to capital
allocation following the EUR 20 million share buyback programme announced in
February 2023;
· The Board of Directors and Investment Adviser have demonstrated
strong shareholder alignment through the commitment of the Investment Adviser
to take its management fee in shares since IPO, as well as recent share
purchases by select members of the Board and employees of the Investment
Adviser; and
· The Company has an efficient cost structure, which is up to 30%
less than peers based on its Ongoing Charges as a percentage of Net Asset
Value.
If the Continuation Resolution is not passed, then according to the Company's
articles, the Directors shall within six months of such Continuation
Resolution not being passed, put proposals to shareholders for the
reconstruction, reorganisation or liquidation of the Company. Accordingly, the
Directors expect that if the Continuation Resolution is not passed, an event
which the Directors consider to be unlikely, formulating and implementing any
such proposals would require the Company to continue operations for a period
of at least 12 months from the date of approval of the Company's financial
statements.
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE FINANCIAL
STATEMENTS
The Directors are responsible for preparing the Annual Report and the
Financial Statements in accordance with applicable law and regulation.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law, the Directors have prepared the financial
statements in accordance with international accounting standards in conformity
with UK adopted international accounting standards and with the requirements
of the Company's Act 2006 as applicable to companies reporting under these
standards. Under Company law, 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 the profit or loss of the Company
for that period.
In preparing the financial statements, the Directors are required to:
· select suitable accounting policies and then apply them
consistently;
· state whether they have been prepared in accordance with UK adopted
international accounting standards, subject to any material departures
disclosed and explained in the financial statements;
· make judgements and accounting estimates that are reasonable and
prudent; and
· prepare the financial statements on the going concern basis unless
it is inappropriate to presume that the Company will continue in business.
The Directors are also responsible for safeguarding the assets of the Company
and hence for taking reasonable steps for the prevention and detection of
fraud and other irregularities.
The Directors are responsible for keeping adequate 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 the financial statements and the Directors'
Remuneration Report comply with the Companies Act 2006 and Article 4 of the
IAS Regulation.
The Directors are responsible for the maintenance and integrity of the
Company's website. Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from legislation in other
jurisdictions.
Directors' Confirmations
Each of the Directors, whose names and functions are listed in Corporate
Governance section, confirm that, to the best of their knowledge:
· the Company financial statements, which have been properly prepared
in accordance with UK adopted international accounting standards, give a true
and fair view of the assets, liabilities, financial position, and profit of
the Company; and
· the Directors' Report includes a fair review of the development and
performance of the business and the position of the Company, together with a
description of the principal risks and uncertainties that it faces.
For and on behalf of the Board
Ian Nolan
Chairman
25 April 2023
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2022
For the year ended 31 December 2022 For the year ended 31 December 2021
Revenue Capital Total Revenue Capital Total
Notes (EUR '000) (EUR '000) (EUR '000) (EUR '000) (EUR '000) (EUR '000)
Unrealised gains on investments 4 - 41,778 41,778 - 19,236 19,236
Net foreign exchange losses - (13) (13) - (7) (7)
Interest income from shareholder loans 5 15,929 - 15,929 11,783 - 11,783
Dividend income 5 1,200 - 1,200 - - -
Investment advisory fees 6 (3,150) - (3,150) (2,682) - (2,682)
Other expenses 7 (1,565) - (1,565) (1,388) - (1,388)
Profit on ordinary activities before finance costs and taxation 12,414 41,765 54,179 7,713 19,229 26,942
Finance costs 8 (75) - (75) (318) - (318)
Profit on ordinary activities before taxation 12,339 41,765 54,104 7,395 19,229 26,624
Taxation 9 - - - - - -
Profit on ordinary activities after taxation 12,339 41,765 54,104 7,395 19,229 26,624
Return per Ordinary Share - undiluted (cents) 10 3.02 10.24 13.26 2.15 5.59 7.74
Return per Ordinary Share - diluted (cents) 10 3.02 10.24 13.26 2.14 5.58 7.72
The notes below are an integral part of these financial statements.
The total column of the Statement of Comprehensive Income is the profit and
loss account of the Company.
All revenue and capital items in the above statement derive from continuing
operations. No operations were acquired or discontinued during the year.
Return on ordinary activities after taxation is also the "Total comprehensive
income for the year".
STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2022
As at As at
31 December 31 December
2022 2021
Notes (EUR '000) (EUR '000)
Fixed assets
Investments at fair value through profit or loss 4 428,641 316,953
Current assets
Trade and other receivables 11 5,630 9,298
Cash and cash equivalents 19,893 94,275
25,523 103,573
Current liabilities
Trade and other payables 12 (2,514) (3,083)
(2,514) (3,083)
Net current assets 23,009 100,490
Net assets 451,650 417,443
Capital and reserves: equity
Share capital 13 4,082 4,069
Share premium 255,643 254,388
Special reserve 14 125,082 134,393
Capital reserve 65,618 23,853
Revenue reserve 1,225 740
Total Shareholders' funds 451,650 417,443
Net assets per Ordinary Share (cents) 15 110.64c 102.58c
The notes below are an integral part of these financial statements.
The financial statements were approved by the Board of Directors on 25 April
2023 and signed on its behalf by:
Ian Nolan
Chairman
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2022
Share
Share premium Special Capital Revenue
capital account reserve reserve reserve Total
Notes (EUR '000) (EUR '000) (EUR '000) (EUR '000) (EUR '000) (EUR '000)
Opening equity as at 1 January 2022 4,069 254,388 134,393 23,853 740 417,443
Shares issued during the year(1) 13 13 1,313 - - - 1,326
Share issue costs - (58) - - - (58)
Profit for the year - - - 41,765 12,339 54,104
Dividend paid 16 - - (9,311) - (11,854) (21,165)
Closing equity as at 31 December 2022 4,082 255,643 125,082 65,618 1,225 451,650
Share
Share premium Special Capital Revenue
capital account reserve reserve reserve Total
Notes (EUR '000) (EUR '000) (EUR '000) (EUR '000) (EUR '000) (EUR '000)
Opening equity as at 1 January 2021 3,170 164,351 144,450 4,624 308 316,903
Shares issued during the year(1) 13 899 91,664 - - - 92,563
Share issue costs - (1,627) - - - (1,627)
Profit for the year - - - 19,229 7,395 26,624
Dividend paid 16 - - (10,057) - (6,963) (17,020)
Closing equity as at 31 December 2021 4,069 254,388 134,393 23,853 740 417,443
The notes below are an integral part of these financial statements.
During the year, the Company issued 1,286,293 new Ordinary Shares with gross
proceeds of EUR 1.33 million (2021: 89,902,303 shares with gross aggregate
proceeds of EUR 92.56 million).
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2022
Notes Year ended Year ended
31 December 2022
31 December 2021
(EUR '000) (EUR '000)
Operating activities
Profit on ordinary activities before finance costs and taxation 54,179 26,942
Adjustment for:
Unrealised gains on investments (41,778) (19,236)
Decrease/(increase) in trade and other receivables 3,668 (3,535)
Increase in trade and other payables 859 273
Net cash flow from operating activities 16,928 4,444
Investing activities
Purchase of investments 4 (71,369) (125,127)
Repayments during the year 4 1,459 19,506
Additional contingent consideration - 841
Payment of contingent consideration (1,428) -
Net cash flow used in investing activities (71,338) (104,780)
Financing activities
Proceeds of share issues 13 1,326 92,563
Share issue costs (58) (1,627)
Dividend paid 16 (21,165) (17,020)
Finance costs 8 (75) (318)
Net cash flow from financing activities (19,972) 73,597
Net decrease in cash and cash equivalents (74,382) (26,739)
Cash and cash equivalents at start of year 94,275 121,014
Cash and cash equivalents at end of year 19,893 94,275
The notes below are an integral part of these financial statements.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
1. General Information
Aquila European Renewables Plc (formerly ''Aquila European Renewables Income
Fund Plc'', "the Company") is a public company limited by shares, incorporated
in England and Wales on 8 April 2019 with registered number 11932433.
The Company is domiciled in England and Wales. The Company is a
closed‑ended investment company with an indefinite life. The Company
commenced its operations on 5 June 2019 when the Company's Ordinary Shares
were admitted to trading on the London Stock Exchange. The Directors intend,
at all times, to conduct the affairs of the Company so as to enable it to
qualify as an investment trust for the purposes of section 1158 of the
Corporation Tax Act 2010, as amended.
On 3 November 2022 the Company changed its name from Aquila European
Renewables Income Fund Plc to Aquila European Renewables Plc.
The registered office and principal place of business of the Company is 6th
Floor, 125 London Wall, London, EC2Y 5AS.
The Company's investment objective is to generate stable returns, principally
in the form of income distributions, by investing in a diversified portfolio
of Renewable Energy Infrastructure Investments. RE: F1 Update
The Company's Investment Adviser is Aquila Capital Investmentgesellschaft mbH,
authorised and regulated by the German Federal Financial Supervisory
Authority.
FundRock Management Company (Guernsey) Limited (formerly Sanne Fund Management
(Guernsey) Limited) acts as the Company's Alternative Investment Fund Manager
for the purposes of Directive 2011/61/EU of the Alternative Investment Fund
Managers Directive.
Apex Listed Companies Services (UK) Limited (formerly Sanne Fund Services (UK)
Limited) provides administrative and company secretarial services to the
Company under the terms of an administration agreement between the Company
and the Administrator.
2. Basis of Preparation
The financial statements have been prepared in accordance with UK adopted
international accounting standards in conformity with the requirements of the
Companies Act 2006, as applicable to companies reporting under those
standards.
The financial statements have also been prepared as far as is relevant and
applicable to the Company in accordance with the Statement of Recommended
Practice issued by the AIC in April 2021.
The financial statements are prepared on the historical cost basis, except for
the revaluation of certain financial instruments at fair value through profit
or loss. The principal accounting policies adopted are set out below. These
policies are consistently applied.
The functional currency of the Company is euros as this is the currency of the
primary economic environment in which the Company operates. Accordingly, the
financial statements are presented in euros, rounded to the nearest thousand
euros, unless otherwise stated. The EUR/GBP exchange rate as of 31 December
2022 was 0.8853 (2021: 0.8408).
Accounting for Subsidiary
The Company owns 100% of its subsidiary Tesseract Holdings Limited ("HoldCo"
or "THL"). The Company has acquired renewable energy infrastructure
investments through its investment in the HoldCo. The Company finances the
HoldCo through a mix of loan investments and equity. The loan investment
finance represents Shareholder loans (the "Shareholder loans" or "SHL")
provided by the Company to HoldCo. The Company meets the definition of an
investment entity as described by IFRS 10. Under IFRS 10 an investment entity
is required to hold subsidiaries at fair value through profit or loss and
therefore does not consolidate the subsidiary.
The HoldCo is an investment entity and as described under IFRS 10 values its
SPV investments at fair value through profit or loss. SPV investments are
investments held at HoldCo. Further details of the HoldCo and SPV structure
and investments can be found in note 21 below.
Characteristics of an Investment Entity
Under the definition of an investment entity, the Company should satisfy all
three of the following tests:
I. Company obtains funds from one or more investors for the purpose
of providing those investors with investment management services;
II. Company commits to its investors that its business purpose is to
invest funds solely for returns from capital appreciation, investment income,
or both; and
III. Company measures and evaluates the performance of substantially
all 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:
I. the Company has multiple investors and obtains funds from a
diverse group of Shareholders who would otherwise not have access individually
to investing in renewable energy infrastructure investments due to high
barriers to entry and capital requirements;
II. the Company intends to hold these renewable energy infrastructure
investments, via the HoldCo, for the remainder of their useful life for the
purpose of capital appreciation and investment income. The renewable energy
infrastructure investments are expected to generate renewable energy output
for 25 to 30 years from their relevant commercial operation date; the
Directors believe the Company is able to generate returns to the investors
during that period; and
III. the Company measures and evaluates the performance of all its
investments, held via HoldCo, on a fair value basis which is the most relevant
for investors in the Company. Management use fair value information as a
primary measurement to evaluate the performance of all the investments and in
decision making.
The Directors are of the opinion that the Company meets all the typical
characteristics of an investment entity and therefore meets the definition set
out in IFRS 10. The Directors are satisfied that investment entity accounting
treatment appropriately reflects the Company's activities as an
investment trust.
The Directors have also satisfied themselves that Tesseract Holdings Limited
meets the characteristic of an investment entity. Tesseract Holdings Limited
has one investor, Aquila European Renewables Plc; however, in substance
Tesseract Holdings Limited is investing the funds of the investors of Aquila
European Renewables Plc on its behalf and is effectively performing investment
management services on behalf of many unrelated beneficiary investors.
The Directors believe the treatment outlined above provides the most relevant
information to investors.
Critical Accounting Judgements, Estimates and Assumptions
The preparation of financial statements in accordance with IFRS requires
management to make judgements, estimates and assumptions in certain
circumstances that affect reported amounts. These are judgements, estimates
and assumptions that have a significant risk of causing a material adjustment
to the carrying amounts of assets and liabilities.
Key Judgements
As disclosed above, the Directors have concluded that the Company and HoldCo
meet the definition of an investment entity as defined in IFRS 10. This
conclusion involved a degree of judgement and assessment as to whether the
Company met the criteria outlined in IFRS 10.
The Company classifies its investments based on its business model for
managing those financial assets and the contractual cash flow characteristics
of the financial assets. The portfolio of 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
contractual cash flows of the Company's Shareholder loans are solely principal
and interest, however, these securities are not held for the purpose of
collecting contractual cash flows. The collection of contractual cash flows is
only incidental to achieving the Company's business models objective.
Consequently, all investments are measured at fair value through profit or
loss. The Company considers the equity and Shareholder loan investments to
share the same investment characteristics and risks and they are therefore
treated as a single unit of account for fair value purposes (IFRS 13) and a
single class for financial instrument disclosure purposes (IFRS 9).
As a result, the evaluation of the performance of the Company's investments is
done for the entire portfolio on a fair value basis, as is the reporting to
the key management personnel and to the investors. In this case, all equity
and Shareholder loan investments form part of the same portfolio for which the
performance is evaluated on a fair value basis together and reported to the
key management personnel in its entirety.
Key Estimation and Uncertainty: Investments at Fair Value Through Profit or
Loss
The key assumptions that have a significant impact on the carrying value of
the Company's underlying investments in SPVs are the discount rates, useful
lives of the assets, the rate of inflation, the price at which the power and
associated benefits can be sold, the amount of electricity the assets are
expected to produce and operating costs of the SPVs.
The discount rates are subjective and therefore it is feasible that a
reasonable alternative assumption may be used resulting in a different value.
The discount rates applied to the cash flows are reviewed annually by the
Investment Adviser to ensure they are at the appropriate level. The Investment
Adviser will take into consideration market transactions, which are of similar
nature, when considering changes to the discount rates used. The weighted
average discount rate applied in the December 2022 valuation was 7.2% (2021:
6.5%).
Useful lives are based on the Investment Adviser's estimates of the period
over which the assets will generate revenue, which are periodically reviewed
for continued appropriateness. The assumption used for the useful life of the
wind assets is 25 to 30 years and solar PV is 30 years. The actual useful life
may be a shorter or longer period depending on the actual operating conditions
experienced by the asset. The operating lives of hydropower assets are
estimated in accordance with their expected concession terms.
Climate risks can also impact the carrying value of the Company's underlying
investments. The Company relies (via the HoldCo or relevant SPVs) on third
party technical advisers to consider the impact of climate risks when
assessing P50 production forecasts. For example, the impact of increasing
temperatures on precipitation, evapotranspiration and its subsequent impact on
P50 production was recently considered by a third party technical adviser as
part of due diligence related to a refinancing for the Company's hydropower
asset, Sagres.
The price at which the output from the generating assets is sold is a factor
of both wholesale electricity prices and the revenue received from the
government support regime. Future power prices are estimated using external
third-party forecasts which take the form of specialist consultancy reports.
The future power price assumptions are reviewed as and when these forecasts
are updated. There is an inherent uncertainty in future wholesale electricity
price projection. Long-term power price forecasts are provided by a leading
market consultant, updated quarterly, and may be adjusted by the Investment
Adviser where more conservative assumptions are considered appropriate.
Specifically commissioned external reports are used to estimate the expected
electrical output from the wind and hydropower farm and solar PV assets,
taking into account the expected average wind speed at each location and
generation data from historical operation. The actual electrical output may
differ considerably from that estimated in such a report mainly due to the
variability of actual wind to that modelled in any one period. Assumptions
around electrical output will be reviewed only if there is good reason to
suggest there has been a material change in this expectation.
The P50 level of output is the estimated annual amount of electricity
generation (in MW) that has a 50.0% probability of being exceeded both in any
single year and over the long term and a 50.0% probability of being under
achieved.
The operating costs of the SPV companies are frequently partly or wholly
subject to inflation and an assumption is made that inflation will increase at
a long-term rate. The SPV's valuation assumes long-term inflation of 2.0%
(2021: 2.0%). The impact of physical and transition risks associated with
climate change is assessed on a project by project basis and factored into the
underlying cash flows as appropriate.
The estimates and assumptions that have a significant risk of causing a
material adjustment to the carrying value of assets and liabilities are those
used to determine the fair value of the investments as disclosed in note 4 to
the financial statements under sensitivities.
New Standards, Interpretations and Amendments Adopted from 1 January 2022
A number of new standards and amendments to standards are effective for the
annual periods beginning after 1 January 2022. None of these have a
significant effect on the measurement of the amounts recognised in the
financial statements of the Company.
New Standards and Amendments Issued but not yet Effective
The relevant new and amended standards and interpretations that are issued,
but not yet effective, up to the date of issuance of the Company's financial
statements are disclosed below. These standards are not expected to have a
material impact on the Company in future reporting periods and on foreseeable
future transactions.
Amendments to IAS 1: Classification of Liabilities as Current or Non-current
In January 2020, the IASB issued amendments to paragraphs 69 to 76 of IAS 1 to
specify the requirements for classifying liabilities as current or
non‑current. The amendments are effective for annual reporting periods
beginning on or after 1 January 2023.
Definition of Accounting Estimates - Amendments to IAS 8
In February 2021, the IASB issued amendments to IAS 8, in which it introduces
a definition of accounting estimates. The amendments are effective for annual
reporting periods beginning on or after 1 January 2023.
Disclosure of Accounting Policies - Amendments to IAS 1 and IFRS Practice
Statement 2
In February 2021, the IASB issued amendments to IAS 1 and IFRS Practice
Statement 2 Making Materiality Judgements. The amendments to IAS 1 are
applicable for annual periods beginning on or after 1 January 2023.
3. Significant Accounting Policies
Financial Instruments
Financial Assets
The Company's financial assets principally comprise of investments held at
fair value through profit (Shareholder loan and equity investments) and trade
and other receivables.
The Company's Shareholder loan and equity investments in HoldCo are held at
fair value through profit or loss. Gains or losses resulting from the
movements in fair value are recognised in the Company's Statement of
Comprehensive Income at each measurement point. Where there is sufficient
value within HoldCo, the Company's Shareholder loans are fair valued at their
redeemable amounts and the residual fair value reflected within the Company's
equity investments.
Trade and other receivables are initially recognised at fair value and
subsequently measured at amortised cost using the effective interest rate
method.
Financial Liabilities
The Company's financial liabilities include trade and other payables, and
other short-term monetary liabilities which are initially recognised at fair
value and subsequently measured at amortised cost using the effective interest
rate method.
Recognition, Derecognition and Measurement
Financial assets and financial liabilities are recognised in the Company's
Statement of Financial Position when the Company becomes a party to the
contractual provisions of the instrument. Financial assets and financial
liabilities are initially measured at fair value. Transaction costs that are
directly attributable to the acquisition or issue of financial assets and
financial liabilities (other than financial assets and financial liabilities
at fair value through profit or loss) are added to or deducted from the fair
value of the financial assets or financial liabilities, as appropriate, on
initial recognition. Transaction costs directly attributable to the
acquisition of financial assets or financial liabilities at fair value through
profit or loss are recognised immediately in profit or loss.
A financial liability (in whole or in part) is derecognised when the Company
has extinguished its contractual obligations, it expires or is cancelled.
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, financial assets at fair value through
profit or loss are measured at fair value. Gains and losses resulting from the
movement in fair value are recognised in the Statement of Comprehensive
Income. Financial liabilities are subsequently measured at amortised cost
using the effective interest rate method.
Taxation
Investment trusts which have approval under section 1158 of the Corporation
Tax Act 2010 are not liable for taxation on capital gains. Shortly after
listing, the Company received an approval as an investment trust by HMRC.
Current tax is the expected tax payable on the taxable income for the period,
using tax rates that have been enacted or substantively enacted at the date of
the Statement of Financial Position.
Deferred Taxation
Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable
profit and is accounted for using the statement of financial position
liability method. Deferred tax liabilities are recognised for all taxable
temporary differences and deferred tax assets are recognised to the extent
that it is probable that taxable profits will be available against which
deductible temporary differences can be utilised.
Deferred tax is calculated at the tax rates that are expected to apply in the
period when the liability is settled, or the asset is realised. Deferred tax
is charged or credited to the Statement of Comprehensive Income except when it
relates to items charged or credited directly to equity, in which case the
deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset when there is a legally
enforceable right to set off tax assets against tax liabilities and when they
relate to income taxes levied by the same taxation authority and the Company
intends to settle its current tax assets and liabilities on a net basis.
Segmental Reporting
The Chief Operating Decision Maker ("CODM"), which is the Board, is of the
opinion that the Company is engaged in a single segment of business, being
investment in renewable energy infrastructure assets to generate investment
returns whilst preserving capital. The financial information used by the CODM
to manage the Company presents the business as a single segment.
Income
Income includes investment income from financial assets at fair value through
profit or loss and finance income.
Investment income from financial assets at fair value through profit or loss
is recognised in the Statement of Comprehensive Income within investment
income when the Company's right to receive income is established.
Interest earned on shareholder loans is recognised on an accruals basis.
Dividend income is recognised when the right to receive it is established, and
is reflected in the Statement of Comprehensive Income as investment income.
Expenses
All expenses are accounted for on an accruals basis. In respect of the
analysis between revenue and capital items presented within the Statement of
Comprehensive Income, all expenses are presented as revenue as it is directly
attributable to the operations of the Company.
Payment of Investment Advisory Fees in Shares
The Company issues shares to the Investment Adviser in exchange for receiving
investment advisory services. The fair value of the investment advisory
services received in exchange for shares is recognised as an expense at the
time at which the investment advisory fees are earned, with a corresponding
increase in equity. The fair value of the investment advisory services is
calculated by reference to the definition of investment advisory fees in the
Investment Advisory Agreement.
Further details on the Company's share issues to the Investment Adviser are
disclosed in note 6 to the financial statements.
Foreign Currency
Transactions denominated in foreign currencies are translated into euros at
actual exchange rates as at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies at the period end are reported
at the rates of exchange prevailing at the period end. Any gain or loss
arising from a change in exchange rates subsequent to the date of the
transaction is included as an exchange gain or loss to capital or revenue in
the Statement of Comprehensive Income as appropriate. Foreign exchange
movements on investments are included in the Statement of Comprehensive Income
within gains on investments.
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.
Share Capital, Special Reserve 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 recognised against the value of the Ordinary Share
premium account.
Repurchases of the Company's own shares are recognised and deducted directly
in equity. No gain or loss is recognised in profit or loss on the purchase,
sale, issue or cancellation of the Company's own equity instruments.
4. Investments at Fair Value Through Profit or Loss
As at As at
31 December 31 December
2022 2021
Investments at Investments at
Fair Value Fair Value
Through Profit Through Profit
or Loss or Loss
(EUR '000) (EUR '000)
(a) Summary of valuation
Analysis of closing balance:
Investments held at fair value through profit or loss 428,641 316,953
Total investments 428,641 316,953
(b) Movements during the year:
Opening balance of investments, at cost 293,068 225,333
Purchases at cost 71,369 87,241
Repayments during the year (1,459) (19,506)
Cost of investments 362,978 293,068
Revaluation of investments to fair value:
Unrealised movement in fair value of investments 65,663 23,885
Balance of capital reserve - investments held 65,663 23,885
Fair value of investments 428,641 316,953
(c) Gains on investments in year (per Statement of Comprehensive Income)
Movement in unrealised revaluation of investments held 41,778 19,236
Gains on investments 41,778 19,236
The fair value of the Company's equity and the Shareholder loans investments
in HoldCo are determined by the underlying fair values of the SPV investments,
which are not traded and contain unobservable inputs. As explained in note 2,
the Company has made a judgement to fair value both the equity and Shareholder
loan investments together. As such, the Company's equity and the Shareholder
loan investments in HoldCo have been classified as Level 3 in the fair value
hierarchy.
Fair Value Measurements
IFRS 13 requires disclosure of fair value measurement by level. The level of
fair value hierarchy within the financial assets or financial liabilities is
determined on the basis of the lowest level input that is significant to the
fair value measurement. Financial assets and financial liabilities are
classified in their entirety into only one of the following three levels:
Level 1
The unadjusted quoted price in an active market for identical assets or
liabilities that the entity can access at the measurement date.
Level 2
Inputs other than quoted prices included within Level 1 that are observable
(i.e. developed using market data) for the asset or liability, either directly
or indirectly.
Level 3
Inputs are unobservable (i.e. for which market data is unavailable) for the
asset or liability.
The classification of the Company's investments held at fair value is detailed
in the table below:
As at 31 December 2022 As at 31 December 2021
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
(EUR '000) (EUR '000) (EUR '000) (EUR '000) (EUR '000) (EUR '000) (EUR '000) (EUR '000)
Investments at fair value
through profit and loss - - 428,641 428,641 - - 316,953 316,953
- - 428,641 428,641 - - 316,953 316,953
Due to the nature of the investments, they are always expected to be
classified as Level 3. There have been no transfers between levels during the
year ended 31 December 2022.
The movement on the Level 3 unquoted investments during the year is shown
below:
Year ended Year ended
31 December 31 December
2022 2021
(EUR '000) (EUR '000)
Opening balance 316,953 229,982
Additions during the year 71,369 87,241
Repayments during the year (1,459) (19,506)
Unrealised gains on investments adjustments 41,778 19,236
Closing balance 428,641 316,953
Valuation Methodology
The Company owns 100% of its subsidiary Tesseract Holdings Limited. The
Company meets the definition of an investment entity as described by IFRS 10;
as such, the Company's investment in the HoldCo is valued at fair value.
HoldCo's cash, working capital balances and fair value of investments are
included in calculating fair value of the HoldCo.
The Company acquired underlying investments in SPVs through its investment in
the HoldCo.
The Investment Adviser has carried out fair market valuations of the SPV
investments as at 31 December 2022 and the Directors have satisfied themselves
as to the methodology used, the discount rates and key assumptions applied,
and the valuation. All SPV investments are held at fair value through profit
or loss and are valued using the IFRS 13 framework for fair value measurement.
The following economic assumptions were used in the valuation of the SPVs.
Valuation Assumptions
As at 31 December 2022
Discount rates The discount rate used in the valuations is calculated according to
internationally recognised methods. Typical components of the discount rate
are risk-free rates, country-specific and asset-specific risk premia.
The latter comprise the risks inherent to the respective asset class as well
as specific premia for other risks such as development and construction; this
is the case for Greco, for example.
Power price Power prices are based on captured power price forecasts from leading market
analysts. The forecasts are independently sourced from providers with coverage
in almost all European markets as well as providers with regional expertise.
The approach applied to all asset classes (wind energy, solar PV and
hydropower) remains unchanged with the first two using a blend of two power
price curve providers and the third using a blend of three power price curve
providers.
Energy yield/load factors Estimates are based on third-party energy yield assessments, which consider
historic production data (where applicable) and other relevant factors.
Inflation rates Long-term inflation is based on the monetary policy of the European Central
Bank. Short-term inflation assumptions are based on the first two years being
sourced from Bloomberg and an interpolation for another two years to the
long-term rate.
Asset life In general, an operating life of 25 to 30 years for onshore wind energy and 30
years for solar PV is assumed. In individual cases, a longer operating life is
assumed where the contractual arrangement (i.e. O&M agreement with
availability guarantee) supports such an assumption. The operating lives of
hydropower assets are estimated in accordance with their expected concession
terms. The Investment Adviser is currently undertaking a review of its
portfolio to evaluate the prospect of asset life extensions.
Operating expenses Operating expenses are primarily based on respective contracts and, where not
contracted, on the assessment of a technical adviser.
Taxation rates Underlying country-specific tax rates are derived from due diligence reports
from leading tax consulting firms.
Capital expenditure Based on the contractual position (e.g. EPC agreement), where applicable.
Valuation Sensitivities
The fair value of the Company's investment in HoldCo is ultimately determined
by the underlying fair values of the SPV investments. As such, sensitivity
analysis is produced to show the impact of changes in key assumptions adopted
to arrive at the SPV valuation.
For each of the sensitivities, it is assumed that potential changes occur
independently of each other with no effect on any other base case assumption,
and that the number of investments in the SPVs remains static throughout the
modelled life.
The NAV per share impacts from each sensitivity are shown below:
(i) Discount Rates
The DCF valuation of the SPV investments represents the largest component of
the NAV of the Company and the key sensitivities are considered to be the
discount rate used in the DCF valuation and assumptions.
The weighted average valuation discount rate applied to calculate the SPV
valuation is 7.2% at 31 December 2022.
An increase or decrease in this rate by 0.5% at project level has the
following effect on valuation:
NAV per -0.5% +0.5% NAV per
share impact change Total NAV change share impact
Discount rate in (EUR cents) (EUR '000) (EUR '000) (EUR '000) in (EUR cents)
Valuation as of 31 December 2022 4.8 471,283 451,650 433,174 (4.5)
(ii) Power Price
Long-term power price forecasts are provided by leading market consultants and
are updated quarterly. The sensitivity below assumes a 10% increase or
decrease in merchant power prices relative to the base case for every year of
the asset life. The sensitivity considers a flat 10% movement in power prices
for all years, i.e. the effect of adjusting the forecast electricity price
assumptions in each of the jurisdictions applicable to the SPV down by 10% and
up by 10% from the base case assumptions for each year throughout the
operating life of the SPV.
Note the Company intends to renew power price hedges (e.g. in the form of PPAs
or other mechanisms) before the existing contracts (PPAs and government
regulated tariffs) expire. This rolling hedge strategy is not reflected in the
sensitivities illustrated above. When renewing the existing hedges, the
Company's power price exposure and, therefore, its sensitivity towards power
prices, decreases.
A change in the forecast electricity price assumptions by plus or minus 10%
has the following effect on valuation:
NAV per Total NAV per
share impact -10.0% share impact +10.0% NAV value
Power price (EUR cents) (EUR '000) (EUR '000) (EUR '000) (EUR cents)
Valuation as of 31 December 2022 (10.6) 408,308 451,650 495,715 10.8
(iii) Energy Yield
The base case assumes a "P50" level of output. The P50 output is the estimated
annual amount of electricity generation (in MW) that has a 50% probability of
being exceeded both in any single year and over the long term and a 50%
probability of being under achieved. Hence the P50 is the expected level of
generation over the long term. The sensitivity illustrates the effect of
assuming "P90 10 years" (a downside case) and "P10 10 years" (an upside case)
energy production scenarios. A P90 10 years downside case assumes the average
annual level of electricity generation that has a 90% probability of being
exceeded over a ten-year period. A P10 10 years upside case assumes the
average annual level of electricity generation that has a 10% probability of
being exceeded over a ten-year period. This means that the SPV aggregate
production outcome for any given ten-year period would be expected to fall
somewhere between these P90 and P10 levels with an 80% confidence level, with
a 10% probability of it falling below that range of outcomes and a 10%
probability of it exceeding that range. The sensitivity does not include the
portfolio effect which would reduce the variability because of the
geographical diversification. The sensitivity is applied throughout the next
ten years.
The table below shows the sensitivity of the SPV value to changes in the
energy yield applied to cash flows from project companies in the SPV as per
the terms P90, P50 and P10 explained above.
NAV per P90 Total P10 NAV per
share impact 10 years NAV value 10 years share impact
Energy yield (EUR cents) (EUR '000) (EUR '000) (EUR '000) (EUR cents)
Valuation as of 31 December 2022 (8.9) 415,175 451,650 488,123 9.0
(iv) Inflation Rates
The projects' income streams are principally a mix of government regulated
tariffs, fixed-price PPAs and merchant revenues. Government regulated tariffs
and fixed-price PPAs tend not to be inflation linked, whilst merchant revenues
are generally subject to inflation. The current contractual life of government
regulated tariffs and fixed-price PPAs are shorter than their respective asset
lives, meaning, from a valuation perspective, the assets are more exposed to
merchant revenues in the late asset life. As described earlier, the Company
intends to renew power price hedges (e.g. in the form of PPAs or other
mechanisms) before the existing contracts (PPAs and government-regulated
tariffs) expire. This rolling hedge strategy is not reflected in the
sensitivities illustrated above. The projects' management and maintenance
expenses typically move with inflation; however, debt payments are fixed. This
results in the SPV returns and valuation being positively correlated to
inflation. The SPVs valuation assumes long-term inflation of 2.0% p.a.
The sensitivity illustrates the effect of a 0.5% decrease and a 0.5% increase
from the assumed annual inflation rates in the financial model for each year
throughout the operating life of the SPV.
NAV per Total NAV per
share impact -0.5% NAV value +0.5% share impact
Inflation rates (EUR cents) (EUR '000) (EUR '000) (EUR '000) (EUR cents)
Valuation as of 31 December 2022 (4.3) 434,122 451,650 470,280 4.6
(v) Asset Life
In general, an operating life of 25 to 30 years for onshore wind energy and 30
years for solar PV is assumed. In individual cases, a longer operating life is
assumed where the contractual set-up (i.e. O&M agreement with availability
guarantee) supports such an assumption. The operating lives of hydropower
assets are estimated in accordance with their concession term.
The sensitivity below shows the valuation impact from a one-year adjustment to
the asset life across the portfolio.
NAV per Total NAV per
share impact -1 year NAV value +1 year share impact
Asset life (EUR cents) (EUR '000) (EUR '000) (EUR '000) (EUR cents)
Valuation as of 31 December 2022 (2.4) 441,663 451,650 458,869 1.8
(vi) Operating Expenses
The sensitivity shows the effect of a 10.0% decrease and a 10.0% increase to
the base case for annual operating costs for the SPV, in each case assuming
that the change to the base case for operating costs occurs with effect from 1
January 2023 and that change is applied for the remaining life of the assets.
An increase or decrease in operating expenses by 10% at SPV level has the
following effect on valuation:
NAV per Total NAV per
share impact -10.0% NAV value +10.0% share impact
Operating expenses (EUR cents) (EUR '000) (EUR '000) (EUR '000) (EUR cents)
Valuation as of 31 December 2022 3.6 466,393 451,650 436,281 (3.7)
5. Interest Income
For the For the
year ended year ended
31 December 31 December
2022 2021
Income from investments (EUR '000) (EUR '000)
Interest income from Shareholder loans 15,929 11,783
Dividend income 1,200 -
Total income 17,129 11,783
6. Investment Advisory Fees
For the year ended 31 December 2022 For the year ended 31 December 2021
Revenue Capital Total Revenue Capital Total
(EUR '000) (EUR '000) (EUR '000) (EUR '000) (EUR '000) (EUR '000)
Investment advisory fees 3,150 - 3,150 2,682 - 2,682
Under the Investment Advisory Agreement, the following fee is payable to the
Investment Adviser:
a) 0.75% per annum of NAV (plus VAT) of the Company up to EUR 300
million;
b) 0.65% per annum of NAV (plus VAT) of the Company between EUR 300
million and EUR 500 million; and
c) 0.55% per annum of NAV (plus VAT) of the Company above EUR 500
million
During the first two years of its appointment, the Investment Adviser has
undertaken to apply its fee (net of any applicable tax) in subscribing for, or
acquiring, Ordinary Shares. If the Ordinary Shares are trading at a premium to
the prevailing NAV, the Company will issue new Ordinary Shares to the
Investment Adviser. If, however, the Ordinary Shares are trading at a discount
to the prevailing NAV at the relevant time, no new Ordinary Shares will be
issued by the Company and instead the Company will instruct its broker to
acquire Ordinary Shares to the value of the fee due in respect of the relevant
period. The current Investment Adviser fee arrangement with Aquila Capital
Investmentgesellschaft was extended, whereby the Investment Adviser fee is
fully paid in the shares of the Company for an additional two years until 30
June 2023.
The Investment Adviser is also entitled to be reimbursed for certain expenses
under the Investment Advisory Agreement. These include out-of-pocket expenses
properly incurred by the Investment Adviser in providing services, including
transactional, organisational, operating and/or travel expenses.
Share-Based Payments
The Company settled investment advisory fees by issuing or purchasing Ordinary
Shares. The Company has issued and purchased the following shares to settle
investment advisory fees in respect of the year under review:
In respect of the year ended 31 December 2022 Investment advisory fees (EUR) Fair value of issue/ purchase price (cents) Number of shares Date of Issued/
transaction
purchased
31 March 2022 566,465 102.11 554,773 1 June 2022 Issued
31 March 2022 183,233 103.76 176,300 1 June 2022 Purchased
30 June 2022 772,650 101.00 760,053 8 August 2022 Purchased
30 September 2022 812,545 94.73 852,206 9 November 2022 Purchased
31 December 2022 810,308 90.00 900,340 3 February 2023 Purchased
Fair value
Investment of issue/
advisory fees price Number of Date of Issued/
In respect of the year ended 31 December 2021 (EUR) (cents) shares transaction purchased
31 March 2021 587,524 102.13 575,271 17 May 2021 Issued
30 June 2021 587,156 100.61 583,596 11 August 2021 Issued
30 September 2021 747,975 102.28 731,301 10 November 2021 Issued
31 December 2021 759,537 103.83 731,520 9 February 2022 Issued
7. Other Expenses
For the year ended 31 December 2022 For the year ended 31 December 2021
Revenue Capital Total Revenue Capital Total
(EUR '000) (EUR '000) (EUR '000) (EUR '000) (EUR '000) (EUR '000)
Secretary and administrator fees 254 - 254 227 - 227
Tax compliance 132 - 132 32 - 32
Directors' fees 169 - 169 146 - 146
Directors' other employment costs 12 - 12 16 - 16
Broker retainer 87 - 87 53 - 53
Audit fees - statutory(1) 352 - 352 237 - 237
AIFM fees 147 - 147 112 - 112
Registrar's fees 23 - 23 18 - 18
Marketing fees 67 - 67 70 - 70
FCA and listing fees 61 - 61 57 - 57
Legal fees 162 - 162 157 - 157
ESG rating fees 33 - 33 107 - 107
Other expenses 66 - 66 156 - 156
Total expenses 1,565 - 1,565 1,388 - 1,388
The GBP equivalent of the statutory audit fees was GBP 246,000 (2021: GBP
201,300) including VAT of GBP 49,200 (2021: GBP 33,550). In the prior year,
the auditors received an additional amount of GBP 18,000 (VAT of GBP 3,000)
for non-audit services in relation to reporting accountant services for
admission of new shares to trading on the London Stock Exchange, which have
been treated as a capital expense and included in "share issue costs"
disclosed in the Statement of Changes in Equity. There are no non-audit
services in relation to the current year.
8. Finance Costs
For the year ended 31 December 2022 For the year ended 31 December 2021
Revenue Capital Total Revenue Capital Total
(EUR '000) (EUR '000) (EUR '000) (EUR '000) (EUR '000) (EUR '000)
Interest charges 72 - 72 317 - 317
Bank charges 3 - 3 1 - 1
Total 75 - 75 318 - 318
9. Taxation
(a) Analysis of tax charge in the year
For the year ended 31 December 2022 For the year ended 31 December 2021
Revenue Capital Total Revenue Capital Total
(EUR '000) (EUR '000) (EUR '000) (EUR '000) (EUR '000) (EUR '000)
Total tax charge for the year (see note 9(b)) - - - - - -
(b) Factors Affecting Total Tax Charge for the Year:
The effective UK corporation tax rate applicable to the Company for the year
is 19%. The tax charge differs from the charge resulting from applying the
standard rate of UK corporation tax for an investment trust company.
The differences are explained below:
For the year ended 31 December 2022 For the year ended 31 December 2021
Revenue Capital Total Revenue Capital Total
(EUR '000) (EUR '000) (EUR '000) (EUR '000) (EUR '000) (EUR '000)
Profit on ordinary activities before taxation 12,339 41,765 54,104 7,395 19,229 26,624
Corporation tax at 19% 2,344 7,935 10,279 1,405 3,654 5,059
Effects of:
Gain on investments held at fair value not (taxable)/allowable - (7,937) (7,937) - (3,655) (3,655)
Foreign exchange loss not allowable - 2 2 - 1 1
Dividend income not taxable (228) - (228) - - -
Expenditure not deductible for tax purposes 13 - 13 10 - 10
Movement in management expenses not utilised/deferred tax not recognised 19 - 19 20 - 20
Impact of tax-deductible interest distributions (2,148) - (2,148) (1,435) - (1,435)
Total tax charge for the year - - - - - -
Investment companies that have been approved by HM Revenue & Customs under
section 1158 of the Corporation Tax Act 2010 are exempt from tax on capital
gains. Due to the Company's status as an investment trust, and the intention
to continue meeting the conditions required to obtain approval in the
foreseeable future, the Company has not provided for deferred tax on any
capital gains or losses arising on the revaluation of investments.
The Company has unrelieved excess management expenses of EUR 1,273,191 (2021:
EUR 1,121,391). It is unlikely that the Company will generate sufficient
taxable profits in the future to utilise these expenses and therefore no
deferred tax asset has been recognised. The unrecognised deferred tax asset
calculated using a tax rate of 25% (2021: 25%) amounts to EUR 318,298 (2021:
EUR 280,348). The March 2021 Budget announced an increase to the main rate of
corporation tax to 25% from 1 April 2023. This increase in the standard rate
of corporation tax was substantively enacted on 24 May 2021 and became
effective from 2 June 2021.
10. Return per Ordinary Share
For the For the
year ended year ended
31 December 31 December
Income from investments 2022 2021
Revenue return after taxation (EUR '000) 12,339 7,395
Capital profit return after taxation (EUR '000) 41,765 19,229
Total net return (EUR '000) 54,104 26,624
Weighted average number of Ordinary Shares - undiluted 407,926,535 344,137,679
Weighted average number of Ordinary Shares - diluted 407,926,535 344,869,199
Number of shares
For the For the
year ended year ended
31 December 31 December
Weighted average number of shares used as the denominator 2022 2021
Weighted average number of Ordinary Shares used as the denominator in 407,926,535 344,137,679
calculating basic earnings per share
Ordinary Shares issued after the year end in settlement of investment advisory - 731,520
fees earned during the year
Weighted average number of Ordinary Shares and potential Ordinary Shares used 407,926,535 344,869,199
as the denominator in calculating diluted earnings per share
11. Trade and Other Receivables
As at As at
31 December 31 December
2022 2021
(EUR '000) (EUR '000)
Interest due from Shareholder loans 5,542 7,811
Intercompany receivables - 1,384
Prepaid expenses 88 103
Total 5,630 9,298
12. Trade and Other Payables
As at As at
31 December 31 December
2022 2021
(EUR '000) (EUR '000)
Accrued expenses 1,291 1,078
Intercompany payable 645 -
Deferred consideration payable 578 2,005
Total 2,514 3,08
13. Share Capital
As at 31 December 2022 As at 31 December 2021
No. of shares (EUR '000) No. of shares (EUR '000)
Allotted, issued and fully paid:
Ordinary Shares of 1 cent each ("Ordinary Shares") 408,225,705 4,082 406,939,412 4,069
Total 408,225,705 4,082 406,939,412 4,069
The Ordinary Shares shall carry the right to receive the profits of the
Company available for distribution and determined to be distributed by way of
interim or final dividends at such times as the Directors may determine in
accordance with the Articles of the Company. The holders of Ordinary Shares
have the right to receive notice of, and to attend and vote at, General
Meetings of the Company.
During the year, the Company issued 1,286,293 new Ordinary Shares with gross
proceeds of EUR 1.33 million (2021: 89,902,303 with gross aggregate proceeds
of EUR 92.56 million). The current year's issuance of new Ordinary Shares
relates to the settlement of the Investment Adviser's fees of EUR 1.33 million
(2021: EUR 2.5 million for 2,477,872 Ordinary Shares).
For the year ended 31 December 2022 Shares in issue at the beginning of the year Shares subscribed Shares redeemed Shares in issue at the end of the year
Ordinary Shares 406,939,412 1,286,293 - 408,225,705
For the year ended 31 December 2021 Shares in issue at the beginning of the year Shares subscribed Shares redeemed Shares in issue at the end of the year
Ordinary Shares 317,037,109 89,902,303 - 406,939,412
Since the year end, the Company has not issued further Ordinary Shares (2021:
731,520) to the Company's Investment Adviser, in relation to advisory fees
payable for the quarter ended 31 December 2022.
14. Special Reserve
As indicated in the Company's prospectus dated 10 May 2019, following
admission of the Company's Ordinary Shares to trading on the London Stock
Exchange, the Directors applied to the Court and obtained a judgement on 30
July 2019 to cancel the amount standing to the credit of the share premium
account of the Company. The amount of the share premium account cancelled and
credited to a special reserve was EUR 149,675,608.
15. Net Assets per Ordinary Share
Net assets per Ordinary Share as at 31 December 2022 is based on EUR
451,650,000 (2021: EUR 417,443,000) of net assets of the Company
attributable to the 408,225,705 (2021: 406,939,412) Ordinary Shares in issue
as at 31 December 2022.
16. Dividend Paid
The Company has paid the following interim dividends in respect of the year
under review:
For the year ended 31 December 2022 For the year ended 31 December 2021
Cents per Total Cents per Total
Total dividends paid in the year Ordinary Share (EUR '000) Ordinary Share (EUR '000)
31 December 2021 interim - paid 11 March 2022 (2021: 12 March 2021) 1.25c 5,096 1.25c 3,970
31 March 2022 interim - paid 17 June 2022 (2021: 18 June 2021) 1.3125c 5,351 1.25c 3,978
30 June 2022 interim - paid 2 September 2022 (2021: 3 September 2021) 1.3125c 5,353 1.25c 3,985
30 September 2022 interim - paid 2 December 2022 (2021: 3 December 2021) 1.3125c 5,365 1.25c 5,087
Total 5.1875c 21,165 5.00c 17,020
The dividend relating to the year ended 31 December 2022, which is the basis
on which the requirements of section 1159 of the Corporation Tax Act 2010 are
considered, is detailed below:
For the year ended 31 December 2022 For the year ended 31 December 2021
Cents per Total Cents per Total
Total dividends declared in the year Ordinary Share (EUR '000) Ordinary Share (EUR '000)
31 March 2022 interim - paid 17 June 2022 (2021: 18 June 2021) 1.3125c 5,351 1.25c 3,978
30 June 2022 interim - paid 2 September 2022 (2021: 3 September 2021) 1.3125c 5,353 1.25c 3,985
30 September 2022 interim - paid 2 December 2022 (2021: 3 December 2021) 1.3125c 5,365 1.25c 5,087
31 December 2022 interim - paid 17 March 2023 (2021: 11 March 2022)(1) 1.3125c 5,334 1.25c 5,096
Total 5.2500c 21,403 5.00c 18,146
Not included as a liability in the year ended 31 December 2022 financial
statements.
17. Financial Risk Management
The Investment Adviser, AIFM and the Administrator report to the Board on a
quarterly basis and provide information to the Board which allows it to
monitor and manage financial risks relating to its operations. The Company's
activities expose it to a variety of financial risks: market risk (including
price risk, interest rate risk and foreign currency risk), credit risk and
liquidity risk. These risks are monitored by the AIFM. Each risk and its
management is summarised below.
Market Risk
The value of the investments will be a function of the discounted value of
their expected future cash flows, and as such will vary with, inter alia,
movements in interest rates, market prices and the competition for such
assets. The Investment Adviser carries out a full valuation on a quarterly
basis, which takes into account market risks. The sensitivity of the
investment valuation due to market risk is shown in note 4 above.
(i) Currency Risk
Foreign currency risk is defined as the risk that the fair values of future
cash flows will fluctuate because of changes in foreign exchange rates. The
Company's financial assets and liabilities are denominated in euros and
substantially all its revenues and expenses are in euros. The Company is not
considered to be materially exposed to foreign currency risk.
(ii) Interest Rate Risk
The Company's interest rate risk on interest bearing financial assets is
limited to interest earned on Shareholder loans. The Board considers that,
as Shareholder loan investments bear interest at a fixed rate, they do not
carry any interest rate risk.
The Company's interest and non-interest bearing assets and liabilities as at
31 December 2022 are summarised below:
Interest Non-interest
bearing bearing Total
Assets (EUR'000) (EUR'000) (EUR'000)
Cash and cash equivalents - 19,893 19,893
Trade and other receivables - 5,630 5,630
Investments at fair value through profit or loss 248,451 180,190 428,641
Total assets 248,451 205,713 454,164
Liabilities
Trade and other payables - (2,514) (2,514)
Total liabilities - (2,514) (2,514)
In the tables above, the interest bearing asset value for investments at fair
value through profit or loss relates to the face value of debt investments.
The Company's interest and non-interest bearing assets and liabilities as at
31 December 2021 are summarised below:
Interest Non-interest
bearing bearing Total
Assets (EUR'000) (EUR'000) (EUR'000)
Cash and cash equivalents - 94,275 94,275
Trade and other receivables - 9,299 9,299
Investments at fair value through profit or loss 193,078 123,875 316,953
Total assets 193,078 227,449 420,527
Liabilities
Trade and other payables - (3,083) (3,083)
Total liabilities - (3,083) (3,083)
(iii) Price Risk
Price risk is defined as the risk that the fair value of a financial
instrument held by the Company will fluctuate. Investments are measured at
fair value through profit or loss. As of 31 December 2022 the Company held
investments with an aggregate fair value of EUR 428,641,000 (2021: EUR
316,953,000). All other things being equal, the effect of a 10% increase or
decrease in the share prices of the investments held at the year end would
have been an increase or decrease of EUR 42,864,000 (2021: EUR 31,695,000)
in the profit after taxation for the year ended 31 December 2022 and the
Company's net assets at 31 December 2022. The sensitivity of the investment
valuation due to price risk is shown further in note 4.
Credit Risk
Credit risk is the risk of loss due to the failure of a borrower or
counterparty to fulfil its contractual obligations. The Company is exposed to
credit risk in respect of trade and other receivables, cash at bank and
Shareholder loan investments. The Company's credit risk exposure is minimised
by dealing with financial institutions with investment grade credit ratings
and making Shareholder loan investments which are equity in nature. The
Company's Shareholder loan investments in HoldCo are secured by underlying
renewal investments and as such these Shareholder loans are not exposed to
credit risk. No balances are past due or impaired.
As at As at
31 December 31 December
2022 2021
(EUR '000) (EUR '000)
Investments at fair value through profit or loss - Shareholder loan 248,451 193,078
investments
Trade and other receivables 5,630 9,298
Cash and cash equivalents 19,893 94,275
Total 273,974 296,651
In the table above, the value for investments at fair value through profit or
loss relates to the face value of debt investments.
The table below shows the cash balances of the Company and the credit rating
for each counterparty:
As at As at
31 December 31 December
2022 2021
Rating (EUR '000) (EUR '000)
Royal Bank of Scotland A-2 / BBB-S&P Rating 2,170 4,074
EFG International AG - Daily liquid fund A / F1-Fitch Rating 15,183 45,203
Royal Bank of Scotland International A- under S&P Rating 2,540 44,998
Total 19,893 94,275
Liquidity Risk
Liquidity risk is the risk that the Company may not be able to meet a demand
for cash or fund an obligation when due. The Investment Adviser, AIFM and the
Board continuously monitor forecast and actual cash flows from operating,
financing and investing activities to consider payment of dividends, repayment
of the Company's Shareholder loans or further investing activities.
Financial liabilities by maturity as at 31 December 2022 are shown below:
Less than
1 year 1-5 years 5+ years Total
(EUR'000) (EUR'000) (EUR'000) (EUR'000)
Trade and other payables (2,514) - - (2,514)
Total (2,514) - - (2,514)
Financial liabilities by maturity as at 31 December 2021 are shown below:
Less than
1 year 1-5 years 5+ years Total
(EUR'000) (EUR'000) (EUR'000) (EUR'000)
Trade and other payables (3,083) - - (3,083)
Total (3,083) - - (3,083)
As at 31 December 2022, across the Company's investment portfolio there is
approximately EUR 131.2 million (2021: EUR 144.3 million) of non-recourse,
project debt (on a proportional basis) at the SPV level.
Capital and Risk Management
The Company's capital management objectives are to ensure that the Company
will be able to continue as a going concern while maximising the return to
equity Shareholders.
In accordance with the Company's investment policy, the Company's principal
use of cash (including the proceeds of the IPO and placings) is to invest in a
diversified portfolio of Renewable Energy Infrastructure Investments, as well
as expenses related to the share issue when they occur, ongoing operational
expenses and payment of dividends and other distributions to Shareholders in
accordance with the Company's dividend policy.
The Company considers its capital to comprise Ordinary Share capital,
distributable reserves and retained earnings. The Company is not subject to
any externally imposed capital requirements. The Company's share capital and
reserves that are shown in the Statement of Financial Position total EUR
451,650,000 (2021: EUR 417,443,000).
The Board, with the assistance of the Investment Adviser, monitors and reviews
the Company's capital on an ongoing basis.
Use of distributable reserves is disclosed in note 19.
Share capital represents the 1 cent nominal value of the issued share capital.
The share premium account arose from the net proceeds of new shares.
The capital reserve reflects any increases and decreases in the fair value of
investments which have been recognised in the capital column of the Statement
of Comprehensive Income.
18. Transactions with the Investment Adviser and Related Party Transactions
AIFM fees for the year ended 31 December 2022 amount to EUR 147,000 (2021: EUR
112,000). As at 31 December 2022, the fee outstanding to the AIFM was EUR
30,734 (2021: EUR 8,700). The AIFM, Company Secretary and Administrator are
part of the same PraxisIFM Group which was acquired by Sanne Group plc, which
was then subsequently acquired by Apex Group. The Company Secretary and
Administrator fees for the year ended 31 December 2022 amount to EUR 254,000
(2021: EUR 227,000) and the total fees paid to Apex Group amount to EUR
401,000 (2021: EUR 339,000).
Fees payable to the Investment Adviser are shown in the Statement of
Comprehensive Income. As at 31 December 2022, the fee outstanding to the
Investment Adviser was EUR 815,581 (2021: EUR 759,537).
Fees are payable to the Directors, effective from 1 April 2021, at an annual
rate of EUR 75,000 to the Chairman, EUR 50,000 to the Chair of the Audit and
Risk Committee and EUR 43,000 to the other Directors. Directors' fees paid
during the year were EUR 169,000. With effect from 1 January 2023, fees were
increased by 5% for Mr MacLellan, Dr Rodrigues and Mr MacRitchie.
During the year, the Company advanced Shareholder loans to HoldCo of EUR
248,451,000 (2021: EUR 193,078,000). The accrued interest and the Shareholder
loans outstanding at the year end was EUR 253,993,000 (2021: EUR 200,889,000).
The Directors had the following shareholdings in the Company, all of which
were beneficially owned.
Ordinary Shares at 31 December Ordinary Shares at 31 December
2022 2021
Ian Nolan 100,000 100,000
David MacLellan 75,000 75,000
Kenneth MacRitchie 50,000 50,000
Patricia Rodrigues 50,000 50,000
Since year end, Mr Nolan and Mr MacLellan purchased a further 50,000 Ordinary
Shares each in the Company.
19. Distributable Reserves
The Company's distributable reserves consists of the special reserve and
revenue reserve. Capital reserve represents unrealised investments and as such
is not distributable.
The revenue reserve is distributable. The amount of the revenue reserve that
is distributable is not necessarily the full amount of the reserve as
disclosed within these financial statements of EUR 1,225,000 as at 31 December
2022 (2021: EUR 740,000).
20. Commitments and Contingencies
As at 31 December 2022, the Company (via its wholly owned subsidiary,
Tesseract Holdings Limited), has the below future investment obligations
relating to the Spanish construction project Greco.
Following the completion of construction assets Albeniz, The Rock and Jaén,
all held via HoldCo and the first of the two assets of the Spanish solar PV
portfolio Greco, Guillena, the second asset of the portfolio, was the only
asset under construction in the Company's portfolio as at 31 December 2022.
The remaining commitments for the funding of Guillena amount to
EUR 47.5 million. On 5 April 2023, the Company announced the completion of
Guillena which has become fully operational.
21. Unconsolidated Subsidiaries and Associates
The following tables show subsidiaries and associates of the Company. As the
Company is regarded as an investment entity as referred to in note 2, these
subsidiaries have not been consolidated in the preparation of the financial
statements.
Subsidiary entity name and registered address Effective ownership Investment Country of incorporation Profit/(loss) for the year ended 31 December 2022 Profit/(loss) for the period ended 31 December 2021 Total assets balances as at 31 December 2022 Total assets balances as at 31 December 2021
%
(EUR million)
(EUR million)
(EUR million)
(EUR million)
Tesseract Holdings Limited Leaf B, 20th Floor, Tower 42 Old Broad Street 100.0 HoldCo Subsidiary entity, owns underlying SPV investments United Kingdom 43.0 19.2 180.2 123.9
London EC2N 1HQ
The following table shows the investments held via SPVs which are held by
Tesseract Holdings Limited, the Company's wholly owned subsidiary.
Subsidiary entity name and registered address Effective ownership Investment Country of incorporation Profit/(loss) for the year ended 31 December 2022 Profit/(loss) for the period ended 31 December 2021 Total assets balances as at 31 December 2022 Total assets balances as at 31 December 2021
%
(EUR million)
(EUR million)
(EUR million)
(EUR million)
Holmen II Wind Park ApS Københavnsvej 81 4000 Roskilde Denmark 100.0 Subsidiary entity, owns investment in Holmen II Denmark 4.3 0.5 27.2 24.0
Aalto Wind No 2 Ltd. Oy c/o Intertrust (Finland) Oy Bulevardi 1, 6th floor 100.0 Subsidiary entity, owns investment in Olhava Finland (0.0) 0.0 53.0 52.3
FI-00100 Helsinki, Finland
Prettysource Lda Avenida Fontes Pereira de Melo, n.º 14b 11.º floor, 1050 100.0 Subsidiary entity, owns investment in Benfica III Portugal 0.1 (0.1) 4.2 4.5
121 Lisbon
Astros Irreverentes Unipessoal Lda Avenida Fontes Pereira de Melo, n.º 14 100.0 Subsidiary entity, owns investment in Benfica III Portugal 0.1 (0.1) 4.2 4.5
11.º floor, 1050 121 Lisbon
Contrate o Sol Unipessoal Lda Rua Filipe Folque no. 10J, 2 Dto, 1050-113 100.0 Subsidiary entity, owns investment in Benfica III Portugal 0.2 0.1 2.1 2.1
Lisbon
Argeo Solar S.L.Paseo de la Castellana 259D, 14S-15, Madrid Spain 100.0 Subsidiary entity, owns investment in Albeniz Spain (1.7) (0.2) 40.2 34.3
Vector Aioliki Desfinas S.A.Salaminos Str. 2015124 Maroussi Attica, Greece 89.0 Subsidiary entity, owns equity investment in Desfina Greece 2.2 8.5 56.7 69.4
Ega Suria S.L.Paseo de la Castellana 259D Floors 14 and 1528046 Madrid 100.0 Subsidiary entity, owns investment in Tiza Spain 0.4 (0.3) 24.1 20.0
Azalent Investment S.L Paseo de la Castellana 259D Floors 14 and 1528046 100.0 Subsidiary entity, owns investment in Greco Spain (0.4) (0.1) 52.4 19.6
Madrid.
Svindbaek Vindkraft GP ApS Gyngemose Parkvej 502860 Søborg Denmark 100.0 Subsidiary entity, General partner to Svindbaek Vindkraft HoldCo ApS Denmark 0.0 0.0 0.0 0.0
Svindbaek Vindkraft HoldCo ApS Gyngemose Parkvej 502860 Søborg Denmark 100.0 Subsidiary entity, owns investment in Svindbaek Denmark 2.1 (2.1) 37.5 33.8
The following table shows associates of the Company. The Company's investments
in associates are held through HoldCo.
Associate entity name and registered address Effective ownership % Investment Country of incorporation Profit/(loss)for the year ended 31 December 2022 (EUR million) Profit/(loss)for the period ended 31 December 2021 (EUR million) Total assets balances as at 31 December 2022 (EUR million) Total assets balances as at 31 December 2021 (EUR million)
Midtfjellet Vindkraft AS Sandvikvågvegen 45 N-5419 Fitjar, Norway 25.9 Associate entity, owns equity investment in Tesla Norway 132.0 NOK 24.0 NOK 1,069.7 NOK 1,094.1 NOK
Palea Solar Farm Ourique S.A.Avenida Fontes Pereira de Melo,no. 14, 11. Andar 50.0 Associate entity, owns equity investment in Ourique Portugal (0.4) (1.3) 51.3 48.7
1050-121 Lisbon Portugal
Svindbaek Vindkraft GP ApS Gyngemose Parkvej 502860 Søborg Denmark 100.0 Subsidiary entity, General partner to Svindbaek Vindkraft HoldCo ApS Denmark 0.0 0.0 0.0 0.0
As disclosed in note 4, the Company finances the HoldCo through a mix of
Shareholder loans and equity. The Shareholder loans accrue at an interest rate
range of 2.0% to 10.375%.
HoldCo finances its SPV investments through a mix of Shareholder loans and
equity. The Shareholder loans accrue at an interest rate range of 2.5% to
9.75%.
There are no restrictions on the ability of the Company's subsidiaries and
associates entities to transfer funds in the form of interest and dividends.
22. Post Balance Sheet Events
Share Buyback Programme
On 3 February 2023, the Company announced the introduction of a Share Buyback
Programme for up to EUR 20 million.
Since year end, the Company has purchased for treasury a total of 16,652,452
Ordinary Shares at an aggregate price of EUR 15,946,950 at an average price
per Ordinary share of 95.8 cents.
Revolving Credit Facility("RCF")
On 21 April 2023, the Company's RCF was extended for a further twelve-month
period which will expire in April 2025.
Guillena Completion
On 5 April 2023, the Company announced the completion of Guillena which is now
fully operational.
The Rock: Engineering, Procurement and Construction Management Agreement
On 5 April 2023, the Company announced that the takeover under the
Engineering, Procurement and Construction Management Agreement had been
achieved.
Dividend Payment
A fourth interim dividend for the year to 31 December 2022 of 1.3125 cents per
Ordinary Share was paid on 17 March 2023.
Purchase of Shares for the Investment Adviser
On 3 February 2023, the Company purchased 900,340 Ordinary Shares at an
average price of 90 cents per Ordinary Share for the Investment Adviser in
satisfaction of the Company's Investment Advisory Agreement in respect of the
Investment Adviser's fees for the quarter ended to 31 December 2022.
PUBLICATION OF ANNUAL REPORT AND FINANCIAL STATEMENTS
This announcement does not constitute the Company's statutory accounts as
defined in the Companies Act 2006. The financial information for the year to
31 December 2022 will be filed with the Registrar of Companies.
The figures shown above for the year to 31 December 2021 was derived from the
2021 statutory accounts which was approved on 28 April 2022 and delivered to
the Registrar of Companies. The auditors reported on the 2021 statutory
accounts; their reports were unqualified and did not include a statement under
Section 498(2) or (3) of the Companies Act 2006.
The Annual Report for the year ended 31 December 2022 was approved on 25 April
2023. It will be made available on the Company's website at
https://www.aquila-european-renewables.com/.
The Annual Report will be submitted to the National Storage Mechanism and will
shortly be available for inspection at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
This announcement contains regulated information under the Disclosure Guidance
and Transparency Rules of the FCA.
ANNUAL GENERAL MEETING
In line with the requirements of the Companies Act 2006, the Company will hold
an Annual General Meeting of Shareholders to consider the resolutions laid out
in the Notice of Meeting. Notice is hereby given that the Annual General
Meeting of Aquila European Renewables Plc will be held at the offices of CMS
Cameron McKenna Nabarro Olswang LLP, Cannon Place, 78 Cannon Street, London
EC4N 6AF on 14 June 2023 at 1 p.m.
Company Secretary and registered office:
Apex Listed Companies Services (UK) Limited
(formerly Sanne Fund Services (UK) Limited)
Tel : 020 3327 9720
6th Floor, 125 London Wall
London
EC2Y 5A
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