REG - Asian Energy Impact Asian Energy - AEIT Asian Energy - AEIP - Audited Results to 31 December 2022
22/01/2024 14:00
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RNS Number : 4980A Asian Energy Impact Trust PLC 22 January 2024
LEI: 254900V23329JCBR9G82
22 January 2024
Asian Energy Impact Trust plc
(the "Company" or "AEIT")
AUDITED RESULTS TO 31 DECEMBER 2022
Asian Energy Impact Trust plc, the renewable energy investment trust providing
direct access to sustainable energy infrastructure in fast-growing and
emerging economies in Asia, announces its audited results for the period from
1 November 2021 to 31 December 2022 ("2022 Annual Report").
Following this announcement, the 2022 Annual Report will need to be
appropriately electronically tagged in compliance with DTR 4.1 and uploaded to
the National Storage Mechanism ("NSM"). Uploading to the NSM is a necessary
step before the Company may apply to the FCA for a restoration of the listing.
The Company is working on the electronic tagging of the accounts, following
which it will apply to the FCA for the restoration of the listing and will
make a further announcement in due course.
FINANCIAL HIGHLIGHTS
As at
31 December 2022
(audited)
GAAP Measures
Net assets - US$ million 86.6
Fair value of investment portfolio - US$ million 11.5
Cash held at AEIT - US$ million 115.8
Dividends declared in respect of the period - cents per share 2.5
Alternative Performance Measures
NAV per share - cents 49.3
NAV total return per share -49.2
Gearing (as a % of Adjusted GAV) 27.0%
Ongoing charges ratio 2.50%
IMPACT HIGHLIGHTS
As at
31 December 2022
(audited)
Alternative Performance Measures
Total installed capacity 132MW
Renewable energy generated in the period 85,199 MWh
Estimated tonnes of carbon avoided from generated electricity 62,770 tCO(2)e
Jobs supported (full time equivalents) 148
Investments qualifying as sustainable in line with the EU Taxonomy 100%
key points
· Net assets at 31 December 2022 of US$86.6 million (NAV of 49.3
cents per share), underpinned by a robust independent valuation process. Since
IPO, the NAV per share decreased from 98.0 cents to 49.3 cents, principally as
a result of a very substantial write down in the portfolio valuation at the
period end and the recording of an onerous contract provision in respect of
the commitment to acquire the remaining 57% interest in SolarArise India
Projects Private Limited ("SolarArise").
· As at 31 December 2022, the Company had invested, or committed
to invest, US$99.9 million, equivalent to 55% of total capital raised. The
Board has suspended acquisitions of, or commitments to, new investments
pending the outcome of the Board's strategic review of the options for the
Company's future, which is expected to be completed before the end of Q1 2024.
· As at 31 December 2022, the Company had cash balances of
US$115.8 million. During the 12 months ended 31 December 2023 the Company:
acquired the remaining 57% of SolarArise for US$38.5 million and 99.8% of Viet
Solar System Company Limited for US$3.1 million; funded the construction of
the 200MW solar project that forms part of the Rewa Ultra Mega Solar Park (the
"RUMS project"), via a US$20 million loan; paid post period dividends of
US$4.4 million; and paid recurring and exceptional running costs of the
Company. As at 31 December 2023, the Company had cash reserves of US$41.4
million and its wholly owned UK subsidiary, AEIT Holdings Limited, had cash
reserves of US$1.7 million.
· The annualised ongoing charges ratio was 2.5% for the period
ended 31 December 2022. In view of the Company's substantially reduced size,
the Board is reviewing, with the Transitional Investment Manager, the
Company's cost base to assess where it may be possible to make cost savings.
· As at 31 December 2022, gearing in AEIT's investment portfolio
represented 27.0% of the Adjusted GAV, increasing to 46% including committed
acquisitions.
· The future of the Company relies heavily on the outcome of
the current strategic review of the options for the future of the Company.
While the Directors have a reasonable expectation that the Company has
adequate resources to continue in operational existence for the foreseeable
future and the going concern basis of accounting has been adopted in preparing
the 2022 Annual Report and Financial Statements, the result of the strategic
review is not known at this time and potential outcomes could include a
managed wind down of the Company. As a result, there remains a material
uncertainty surrounding the Company's future and in respect of going concern.
· The Company has also published its 2023 Interim Report today.
Details are available through the published interim results RNS and on the
Company's website, www.asianenergyimpact.com
(https://url.avanan.click/v2/___http:/www.asianenergyimpact.com___.YXAxZTpzaG9yZWNhcDphOm86Mjc3YWRiNjllOGU4MmM0MzgwMDBmYzRkOTRjMTYzMjc6NjpkYjBjOjc3Y2IwN2Y2Yjc1OWRmZjJkMmIyMGZmZjVmOTE3ZjJiMjQ3YWNmYzc4MjQ1ZWVkNTRjZTNiYmU0N2JlMWIwMzY6cDpU)
.
UPDATE ON THE RUMS PROJECT
Construction of the RUMS project has commenced. On the recommendation of the
Transitional Investment Manager, the Company has appointed Fichtner as the
owner's technical advisor to the RUMS project, providing boots on the ground
to oversee the construction of the asset on a day-to-day basis. An official
extension has been granted to the deadline for the scheduled commercial
operation date to 5 February 2024. The third of five shipments of panels have
arrived on site. Although risks remain on timing and the overall cost due to
the size and tight timelines of the project, it is currently expected to be
commissioned before 31 March 2024.
Q4 2022 FACTSHEET
The Company's factsheet for the quarter ended 31 December 2022 will be
available shortly on its website, www.asianenergyimpact.com
(https://url.avanan.click/v2/___http:/www.asianenergyimpact.com___.YXAxZTpzaG9yZWNhcDphOm86Mjc3YWRiNjllOGU4MmM0MzgwMDBmYzRkOTRjMTYzMjc6NjpkYjBjOjc3Y2IwN2Y2Yjc1OWRmZjJkMmIyMGZmZjVmOTE3ZjJiMjQ3YWNmYzc4MjQ1ZWVkNTRjZTNiYmU0N2JlMWIwMzY6cDpU)
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Sue Inglis, Chair of Asian Energy Impact Trust plc, said: "I would like to
thank shareholders for their patience over the past year. It would be
disingenuous to say the period since IPO has not been without disappointment
and challenges. However, the Board is encouraged by the Company's progress
following Octopus Energy Generation's appointment last November and we firmly
believe in the investment opportunity to deliver an impact-led renewable
investment strategy in Asia. However, the future of the Company will be
determined by the outcome of the strategic review, on which shareholders will
get a vote. In the meantime, a key priority is to look for ways to recover
value from existing investments and our transitional investment manager is
providing the active management to do that as we undertake the strategic
review."
Enquiries
Asian Energy Impact Trust plc Tel: +44 (0)20 3757 1892
Sue Inglis, Chair
Octopus Energy Generation (Transitional Investment Manager) Tel: +44 (0)20 4530 8369
Press Office aeit@octopusenergygeneration.com
Shore Capital (Joint Corporate Broker) Tel: +44 (0)20 7408 4050
Robert Finlay / Rose Ramsden / Anita Ghanekar (Corporate)
Adam Gill / Matthew Kinkead / William Sanderson (Sales)
Fiona Conroy (Corporate Broking)
Peel Hunt LLP (Joint Corporate Broker) Tel: +44 (0)20 7418 8900
Luke Simpson / Huw Jeremy (Investment Banking Division)
Alex Howe / Richard Harris / Michael Bateman / Ed Welsby (Sales)
Smith Square Partners LLP (Financial Advisor) Tel: +44 (0)20 3696 7260
John Craven / Douglas Gilmour
Camarco (PR Advisor) Tel: +44 (0)20 3757 4982
Louise Dolan / Eddie Livingstone-Learmonth / Phoebe Pugh asianenergyimpacttrust@camarco.co.uk
(mailto:asianenergyimpacttrust@camarco.co.uk)
About Asian Energy Impact Trust plc
Asian Energy Impact Trust plc listed on the premium segment of the main market
of the London Stock Exchange in December 2021 and was awarded the Green
Economy Mark upon admission. The Company is an Article 9 fund under the EU
Sustainable Finance Disclosure Regulation.
With effect from 1 November 2023, the Company appointed Octopus Energy
Generation as its transitional investment manager until 30 April 2024 (the
"Transitional Investment Management Period"). The Transitional Investment
Management Period will allow the Board with its advisers to complete the
strategic review of options for the Company's future.
Further information on the Company can be found on its website at
www.asianenergyimpact.com
(https://url.avanan.click/v2/___http:/www.asianenergyimpact.com___.YXAxZTpzaG9yZWNhcDphOm86Mjc3YWRiNjllOGU4MmM0MzgwMDBmYzRkOTRjMTYzMjc6NjpkYjBjOjc3Y2IwN2Y2Yjc1OWRmZjJkMmIyMGZmZjVmOTE3ZjJiMjQ3YWNmYzc4MjQ1ZWVkNTRjZTNiYmU0N2JlMWIwMzY6cDpU)
.
About Octopus Energy Generation
Octopus Energy Generation ("OEGEN") is driving the renewable energy agenda by
building green power for the future. Its London-based, leading specialist
renewable energy fund management team invests in renewable energy assets and
broader projects helping the energy transition, across operational,
construction and development stages. The team was set up in 2010 based on the
belief that investors can play a vital role in accelerating the shift to a
future powered by renewable energy. It has a 13-year track record with
approximately £6 billion of assets under management (AUM) (as of
September 2023) across 16 countries and total 3.2GW. These renewable projects
generate enough green energy to power 2.3 million homes every year, the
equivalent of taking over 1.2 million petrol cars off the road. Octopus Energy
Generation is the trading name of Octopus Renewables Limited.
Further details can be found at www.octopusenergygeneration.com
(https://url.avanan.click/v2/___http:/www.octopusenergygeneration.com/___.YXAxZTpzaG9yZWNhcDphOm86YWU5MjAzMTY0ODg2OGJjYzQ1NDUwNTU1OGVmZTc0ZmY6NjoyOTI1OmQyNWZmZDNlNzk1MmRhMGYxNTFmYzFkZjgyMmE2OWRiODBjZGQ5MmZmYTg2YTBjNzBjY2JmZGExZDhiNDM1N2M6cDpU)
.
Overview
About the Company
Asian Energy Impact Trust plc ("AEIT" or the "Company", formerly ThomasLloyd
Energy Impact Trust plc) is a closed‑ended investment company incorporated
in England and Wales. The Company's ordinary shares were admitted to the
premium listing segment of the Official List of the Financial Conduct
Authority and to trading on the main market of the London Stock Exchange on 14
December 2021.
The Company has a triple return investment objective which consists of: (i)
providing shareholders with attractive dividend growth and prospects for
long-term capital appreciation (the financial return); (ii) protecting natural
resources and the environment (the environmental return); and (iii) delivering
economic and social progress, helping build resilient communities and
supporting purposeful activity (the social return).
The Company seeks to achieve its investment objective by investing in a
diversified portfolio of unlisted sustainable energy infrastructure assets in
the areas of renewable energy power generation, transmission infrastructure,
energy storage and sustainable fuel production ("Sustainable Energy
Infrastructure Assets"), with a geographic focus on fast‑growing and
emerging economies in Asia.
The Board is undertaking a strategic review of the options for the Company's
future, which is expected to be concluded by the end of the first quarter of
2024. At the date of this Annual Report, based on the information currently
available, the most likely outcomes of the strategic review are a proposal for
either the relaunch of the Company, potentially with a new investment
objective, investment policy, target returns and/or Investment Manager but
maintaining the impact-led, Asian focus, or a managed wind-down and subsequent
winding-up of the Company. The outcome of the strategic review will be subject
to shareholder approval.
This Annual Report and the Company's website may contain certain
'forward-looking statements' with respect to the Company's financial
condition, results of its operations and business, and certain plans,
strategies, objectives, goals and expectations with respect to these items and
the markets in which the Company invests. Forward-looking statements are
sometimes, but not always, identified by their use of a date in the future or
such words as 'aims', 'anticipates', 'believes', 'estimates', 'expects',
'intends', 'targets', 'objective', 'could', 'may', 'should', 'will' or 'would'
or, in each case, their negative or other variations or comparable
terminology. Forward-looking statements are not guarantees of future
performance. By their very nature forward-looking statements are inherently
unpredictable, speculative and involve risk and uncertainty because they
relate to events and depend on circumstances that will occur in the future.
Many of these assumptions, risks and uncertainties relate to factors that are
beyond the Company's ability to control or estimate precisely. There are a
number of such factors that could cause the Company's actual investment
performance, results of operations, financial condition, liquidity, dividend
policy and financing strategy to differ materially from those expressed or
implied by these forward-looking statements. These factors include, but are
not limited to: changes in the economies and markets in which the Company
operates; changes in the legal, regulatory and competition frameworks in which
the Company operates; changes in the markets from which the Company raises
finance; the impact of legal or other proceedings against or which affect the
Company; changes in accounting practices and interpretation of accounting
standards under IFRS; and changes in power prices and interest, exchange and
discount rates. Any forward-looking statements made in this Annual Report or
the Company's website, or made subsequently, which are attributable to the
Company, or persons acting on its behalf (including the Investment Manager),
are expressly qualified in their entirety by the factors referred to above.
Each forward-looking statement speaks only as of the date it is made. Except
as required by its legal or statutory obligations, the Company does not intend
to update any forward-looking statements. Nothing in this Annual Report or the
Company's website should be construed as a profit forecast or an invitation to
deal in the securities of the Company.
2022 Performance Highlights
As at 31 December 2022
Financial
Capital raised to date Net asset value ("NAV") Gross asset value ("GAV")(2 3) NAV per share(1 3)
US$180.9m US$86.6m US$127.3m 49.3 cents
Dividend per share(4) NAV total return per share since IPO(3) Cash held at AEIT Fair value of investment portfolio
2.5 cents (49.2)% US$115.8m US$11.5m
Adjusted gross asset value ("Adjusted GAV")(3 5) Market capitalisation(3) Net operational asset value(3 6) Gearing ratio(3 7)
US$173.3m US$207.3m US$23.5m 27%
Impact(8)
Total installed capacity Renewable energy generated in the period Estimated tonnes of carbon avoided from generated electricity
132 MW 85,199 MWh 62,770 tCO(2)e
GHG intensity of investee companies tCO(2)e/USDm Jobs supported (full time equivalents) Investments qualifying as sustainable (EU Taxonomy)
35.9 148 100%
(1 ) Calculated on the basis of 175,684,705 ordinary shares
in issue.
(2 ) GAV a measure of the value of the assets of the Company,
being the sum of all investments held in the investment portfolio at the
balance sheet date together with any cash and cash equivalents.
(3 ) An alternative performance measure ("APM").
(4 ) Total dividends declared in relation to the period from
IPO to 31 December 2022.
(5 ) Adjusted GAV is GAV plus proportionate share of asset
level debt.
(6 ) The value of the Company's operational portfolio
excluding construction assets.
(7 ) Group debt and non-Group investment debt (calculated on
a proportionate basis) as a % of Adjusted GAV.
(8 ) These metrics have been proportioned to account for
AEIT's share of the SolarArise and NISPI assets during the reporting period.
Investment Portfolio
As at 31 December 2022
Plant or site Technology Country Revenue type Total Total Average Economic Economic
renewable renewable remaining ownership ownership -
energy energy life of asset committed
generating generating modelled
capacity on capacity based on economic share (years)
a 100% basis (MWp)
(MWp)
NISPI 80 32
Islasol IA Solar Philippines Wholesale electricity market 18 7 18.5 40% 40%
Islasol IB Solar Philippines Wholesale electricity market 14 6 18.5 40% 40%
Islasol II Solar Philippines Wholesale electricity market 48 19 18.5 40% 40%
SolarArise(9) 433 186
Telangana I Solar India 25 year fixed price PPA 12 5 18.5 43% 100%
Telangana II Solar India 25 year fixed price PPA 12 5 18.5 43% 100%
Karnataka I Solar India 25 year fixed price PPA 40 17 19.5 43% 100%
Karnataka II Solar India 25 year fixed price PPA 27 12 20.0 43% 100%
Maharashtra Solar India 25 year fixed price PPA 67 29 21.5 43% 100%
Uttar Pradesh Solar India 25 year fixed price PPA 75 32 23.0 43% 100%
Total operating generating capacity 233 100
Madhya Pradesh(10) Solar India 25 year fixed price PPA 200 86 n/a 43% 100%
Total 'ready to build' generating capacity 200 86
VSS(11) 6 0
Mo Cay Solar Vietnam 20 year PPA 2 n/a 17.0 n/a 99.8%
Hoang Thong Solar Vietnam 20 year PPA 4 n/a 17.0 n/a 99.8%
Total generating capacity including committed assets 319 132
Total 'ready to build' capacity 200 86
(9 ) Represents the acquisition of the 43% economic interest
in SolarArise, completed on 19 August 2022, and the remaining 57% economic
interest, committed to be acquired on 20 June 2022, and which completed on 13
January 2023.
(10 ) A construction-ready project (the "RUMS project"). As at 31
December 2022 the project was not proceedable. Post the period end, a decision
has been taken to proceed and it is expected to commission before 31 March
2024.
(11 ) A committed acquisition at 31 December 2022, which
completed on 31 May 2023.
Strategic Report
Chair's Statement
With thanks to shareholders for their patience, I present the Annual Report
for Asian Energy Impact Trust plc (formerly ThomasLloyd Energy Impact Trust
plc) for the period ended 31 December 2022, our first Annual Report since IPO
in December 2021.
For much of the period, the Board was encouraged by the Company's progress:
· the Company's IPO was achieved despite an extremely challenging
fundraising environment;
· a few days later, we completed the acquisition of our first seed
asset, a 40% economic interest in Negros Island Solar Power Inc ("NISPI"), the
80 MW Philippines investment platform with three operating solar plants;
· a category 5 Typhoon Rai struck the Philippines almost
simultaneously with completion of the NISPI acquisition and, although damage
across the Philippines was significant, NISPI's solar plants proved resilient
and were undamaged;
· although completion of our other seed asset, a 43% economic
interest in SolarArise India Projects Private Limited ("SolarArise"), an
Indian investment platform with six operating solar plants (233 MW) and one
construction-ready solar plant (200 MW), did not occur until August 2022, the
delay enabled us to secure changes to the acquisition terms, including a
reduction in the acquisition price and a 16% increase in the price at which
the consideration shares were issued, thereby reducing the number of
consideration shares issued;
· in June 2022 we committed to acquire the remaining 57% economic
interest in SolarArise;
· in November 2022, the Company expanded its activities, making its
first investment in Vietnam and entering into a strategic partnership
providing the Company with right of first refusal on additional Vietnamese
investment opportunities;
· in November 2022, we also increased the size of the Company
through a further fund raise; and
· we appeared to have a substantial, diversified pipeline of
exciting new investment opportunities.
Overall, the Company seemed to be making good progress in achieving its triple
return investment objective, including our impact objectives.
However, the pace of deployment of the net IPO proceeds was slower than
expected; with less than 75% of the proceeds deployed within 12 months of the
IPO, triggering the requirement to propose a Continuation Resolution at the
2023 Annual General Meeting.
Post the period end, we faced challenges with regard to receiving the
information we were seeking from the Investment Manager in connection with the
preparation of the 2022 annual report and financial statements. In addition,
the Audit and Risk Committee challenged key inputs into the 31 December 2022
portfolio valuation proposed by the Investment Manager, in particular with
regard to the forward price curve being used in the NISPI valuation and the
valuation of the RUMS project, SolarArise's construction-ready asset. Matters
came to a head in April 2023 when the Investment Manager provided the Audit
and Risk Committee with material new information on the RUMS project, which
brought into question its commercial viability and the potential liabilities
that would arise if the project was abandoned. The resulting material
uncertainty in the Company's financial position led to the temporary
suspension of the listing of, and trading in, the Company shares on 25 April
2023. This was all against the backdrop of substantial changes to the
investment environment over the period. London-listed renewable energy
investment companies continue to trade at material discounts to NAV and there
was a more challenging macroeconomic environment with high inflation, rising
interest rates and later falling power prices.
Events since the temporary share suspension have been well-documented through
our frequent shareholder updates, including the termination of the appointment
of our original Investment Manager and the appointment of a new transitional
Investment Manager with effect from 1 November 2023. The Board is encouraged
by the Company's progress following the Transitional Investment Manager's
appointment and is pleased to report that it has quickly established an open
and robust working relationship with the Transitional Investment Manager and
the Board is now receiving the full and timely information it expects from its
Investment Manager.
The Board is bitterly disappointed that, after what seemed a very promising
start for the Company, this promise has not been fulfilled, with the NAV per
share having fallen by approximately 50% since IPO, principally as a result of
a very substantial write down in the portfolio valuation. We regret the
shareholder experience over the past year and the actions taken by the Board
in response are detailed in this report.
In light of the significant delay in the publishing this Annual Report, events
up to the signing date are also presented and considered as post period
events.
Impact
The Company was launched in response to investor interest in an impact led
investment trust focused solely on fast‑growing emerging economies in Asia
where greenhouse gas emissions ("GHG") continue to grow rapidly. At IPO, the
Company was the first, and it continues to be the only, London-listed
renewable energy investment company focused on Asia, being the region with the
most urgent need for investment in sustainable energy infrastructure and where
capital invested can have the greatest impact.
Our investment portfolio is constructed to address the climate change
mitigation priorities set out in our target countries' Nationally Determined
Contributions under the Paris Agreement on Climate Change by avoiding GHG
emissions. Our investments also support those countries' efforts to achieve
the United Nations Sustainable Development Goals ("UN SDGs"), whilst having a
positive impact in the communities around our assets.
The Company is classified as an Article 9 fund under the EU Sustainable
Finance Disclosure Regulation ("SFDR") and will make a minimum of 95%(12)
sustainable investments with an environmental objective under the EU Taxonomy.
I am pleased to report that 100%(13) of investments made to date are aligned
with the EU Taxonomy.
(12 ) Excludes cash not yet invested.
(13 ) This calculation excludes cash held by the Company.
IPO and subsequent placing
On 14 December 2021, the Company's shares were listed in the premium listing
category of the FCA's Official List and admitted to trading on the London
Stock Exchange's main market, raising gross cash proceeds of US$115.4 million
from a diversified institutional and retail investor base, as well as the UK
Government's FCDO.
In the November 2022 placing, we raised US$35.3 million of additional capital
from both existing and new investors in support of a strong deployment
pipeline. When combined with IPO proceeds and the seed asset consideration
share capital issued, total capital raised to date is US$181 million.
Investment activity
At the time of the IPO, we had committed to acquire interests in portfolios of
assets in India, being a 43% economic interest in SolarArise, and the
Philippines, being a 40% economic interest in NISPI, for a combination of new
ordinary shares to be issued by the Company and cash.
We completed the acquisition of the interest in NISPI, the 80 MW Philippines
investment platform with three operating solar plants, for a cash
consideration of US$25.4 million on 17 December 2021. NISPI's solar plants
export electricity to the grid at the wholesale electricity spot market
("WESM") price.
SolarArise is a 433 MW Indian investment platform with six operating solar
plants totalling 233 MW and one construction‑ready 200 MW solar plant. The
completion of the acquisition of the 43% economic interest in SolarArise was
for a consideration of US$30.2 million, settled through the issue of 26.0
million ordinary shares at US$1.16035 per share. In addition, cash of US$2.7
million was paid by SolarArise to the Indian tax authorities on behalf of the
sellers. Post the period end (on 13 January 2023), the acquisition of the
remaining 57% of SolarArise was completed for a cash consideration of US$38.5
million and, at the date of this Annual Report, the Company owns 100% of
SolarArise for a total consideration of US$71.4 million.
On 1 November 2022, the Company committed to acquire Viet Solar System Company
Limited ("VSS") a privately-owned company which holds 6.12 MW of rooftop solar
assets for US$3.1 million. This acquisition completed on 31 May 2023 and
represents a 99.8% interest in VSS.
As at 31 December 2022, the Company had invested, or had committed to invest
US$99.9 million, 55% of total capital raised. Following the temporary share
suspension, the Board suspended acquisitions of, or commitments to, new
investments. The Board will not make any acquisitions or commitments to new
investments pending the outcome of the Board's strategic review of the options
for the Company's future.
Portfolio performance
Since acquisition, our proportion of generation from the investment portfolio
was 85,199 MWh, 17% below budget. Irradiance was 7% below expectations and,
therefore, excluding the impact of irradiance, performance was 10% below
expectations. NISPI generation was impacted by outages resulting from Typhoon
Rai (known as Typhoon Odette in the Philippines) in December 2022 and
curtailment from damage to the Negros-Cebu subsea cable. The curtailment was
resolved in October 2022 after which the assets performed in line with the
weather-adjusted budget. In India, three of the solar plants were impacted by
a particularly heavy monsoon season, with one additional plant experiencing
poor on-site air quality, leading to lower generation. In relation to the poor
air quality, the Transitional Investment Manager is working with the on‑site
asset managers to increase cleaning frequency of the panels to improve
generation, whilst also investigating the source and legality of the cause of
the increased pollution.
During the period, in May 2022, the construction of the 200 MW RUMS project in
Madhya Pradesh, India, which was originally scheduled for completion in the
first half of 2023, was formally postponed due to a delay in the
infrastructure construction directed by the solar park owner. Post the period
end, the disclosure of economic unviability meant that the Board took the
decision not to continue with construction of the project as the resulting
liabilities from not proceeding were less than the negative value associated
with proceeding. More recently in October 2023, the Board revisited this
decision in light of an improved position presented by the Former Investment
Manager, following a substantial decline in solar module prices in May and
June 2023, and the Board has since decided to proceed with the project. As
this investment could have resulted in the portfolio breaching the single
country limit in the Company's investment policy (50% of GAV), a change to
the investment policy was proposed and approved by shareholders in October
2023. The RUMS project is expected to be commissioned before 31 March 2024,
and, as a new source of renewable energy, will make a significant contribution
towards achieving our impact objectives.
Results
The NAV of the Company as at 31 December 2022 was US$86.6 million. Since IPO,
the NAV per share decreased from 98.0 cents to 49.3 cents, principally as a
result of a very substantial write down in the portfolio valuation at the
period end. Significant deficiencies in how assets have been valued
historically alongside overly aggressive assumption sets have materialised
through the preparation of the 31 December 2022 portfolio valuation. This is
coupled with less controllable movements in value due to FX depreciation and
downwards pressure on WESM pricing. The asset valuations now presented as at
31 December 2022 are based on what could and should have been known at that
time.
The Company had a cash balance of US$115.9 million at the period end, of which
US$41.6 million was committed to the acquisition of the 57% economic interest
in SolarArise and the 99.8% economic interest in VSS. At the same date, the
Company had no gearing and gearing on a 'look-through' basis to its underlying
investments was 27% of Adjusted GAV.
The Company made a loss for the period of US$88.8 million. This was largely
driven by the material decrease in the fair value of investments seen over the
period and the recognition of a US$38.5 million onerous contract provision
with respect to the 57% SolarArise acquisition. The Company received no
investment income during the period.
The annualised ongoing charges ratio was 2.5% at the period end. In view of
the Company's substantially reduced size, we are reviewing, with the
Transitional Investment Manager, the Company's cost base to assess where it
may be possible to make cost savings.
The Directors declared a fourth interim dividend of 1.18 cents per share which
was paid on 23 May 2023 to shareholders on the register at close of business
on 21 April 2023. In respect of the period under review, the Company paid
total dividends of 2.5 cents per share, equivalent to a 2.5% dividend yield on
the IPO price of US$1.00 per share. All dividends were paid out of the
Company's distributable capital reserves. EBITDA from the Company's
operational assets over the period, excluding the costs within the SolarArise
holding company, was US$4.9 million(14) compared to the aggregate cost of
dividends paid to shareholders in respect of the period of US$4.0 million.
(14 ) EBITDA generated from dates in which the underlying assets
were owned, pro-rated for economic ownership.
Post-period end developments
As mentioned earlier, the post-period end events which have had a very
significant impact on the Company have been well-documented through our
frequent updates to shareholders, so I am not repeating them in this
statement. However, a detailed summary, including a full outline, of recent
events can be found within this Annual Report.
The Board and the Transitional Investment Manager have worked hard to make
meaningful improvements to the Company's governance structure across its
portfolio companies and improve the transparency of information provided to
the Board.
In light of the poor operational performance, the Board has commissioned an
independent technical advisor to undertake full updated technical due
diligence across all assets in the portfolio and we expect to report the
outcome by the end of January 2024.
Upstreaming cash back to the UK from the underlying assets is problematic
under the current structures. A key priority for 2024 will be to undertake
capital restructurings to mitigate the current issues.
Despite the tumultuous times since the temporary share suspension, support
from the majority of our shareholders for the actions that the Board has taken
post the period end has continued to prevail and shareholders have repeatedly
indicated their support for the Company's investment philosophy of being an
impact-led, renewables-focused investor in emerging Asian markets. On behalf
of the Board, I thank shareholders for their continued support of the Board
throughout the numerous General Meetings held in 2023 and also for their
levels of engagement with the Board since the temporary share suspension.
Restoration of the listing
Following the announcement of the financial results for 2022 this Annual
Report needs to be appropriately electronically tagged in compliance with DTR
4.1, before it can be uploaded to the NSM. Uploading to the NSM is a necessary
step before the Company may apply to the FCA for a restoration of the listing.
The Company is working on the electronic tagging of the Annual Report,
following which it will apply to the FCA for the restoration of the listing
and will make a further announcement in due course.
Status of strategic review
The strategic review of the options for the Company's future is reaching an
advanced stage. At the date of this Annual Report, based on the information
currently available, the most likely outcome of the strategic review remains a
proposal for either the relaunch of the Company (potentially with a new
investment objective, investment policy, target returns and/or Investment
Manager but maintaining the impact-led, Asian focus) or a managed wind-down.
Having analysed with our advisers the initial proposals received for a
relaunch of the Company, the Board will be inviting a shorter list of
potential investment managers to submit final proposals. Any proposal to
relaunch the Company would need to offer a compelling investment proposition
for both existing and prospective investors to enable the Company to scale up
its size significantly over time as, at its current size, the Company will not
have a viable long-term future.
Any managed wind-down proposal would seek to achieve an optimal balance
between maximising shareholder value and timely return of cash to
shareholders, before a formal winding up once substantially all of the
Company's assets have been realised.
The Board will continue to consult shareholders at appropriate stages of the
strategic review and expects to conclude the strategic review by the end of
the first quarter of 2024. The Board does not intend to declare a dividend in
respect of the quarter ended 31 December 2023 prior to completion of the
strategic review.
Outlook
The financial results for 2022 are clearly very disappointing for the Board
and for shareholders. Despite the results, my Board colleagues and I continue
to firmly believe in the investment opportunity to deliver an impact-led
renewable energy investment strategy in the fast growing and emerging markets
in Asia and that the investment philosophy of the Company remains sound:
· Investing in sustainable energy solutions in emerging Asia can
have a far higher environmental impact than investing in renewable energy in
Europe and North America due to the higher carbon intensity.
· Asia is home to more than half the world's population and its GHG
emissions attributable to energy are predominantly being generated from fossil
fuels.
· Demand for energy is rising faster in Asia than any other region
with population growth, urbanisation and rising standards of living and
consumption driving demand for energy.
· The fastest-growing major power generation markets globally are
in emerging and developing Asia.
· Investment in sustainable energy infrastructure also enables a
substantial social impact, by supporting direct job creation and catalysing
economic activity.
As an example, India is now ranked the sixth most attractive market for
renewable energy investment and deployment opportunities(15) and has the
fastest rate of renewable electricity growth of any major economy, with solar
leading the transition. Government policies, incentives and targets continue
to underpin the region as attractive for investment. In addition, the private
sector, commercial and industrial (C&I) companies in particular, are
increasingly turning to renewable PPAs as they seek lower-cost electricity
whilst reducing emissions. Storage technologies in this market are becoming
increasingly important to address intermittency.
(15 ) Renewable Energy Country Attractiveness Index 61.
Vietnam also offers an attractive market, and the focus is turning to offshore
wind where a production target of 7 GW by 2030 has been set, alongside the
onshore wind target of 16 GW, with the sector's growth expected to reach 65 GW
by 2045(16).
(16 )
https://www.evwind.es/2023/03/17/vietnam-looks-to-offshore-wind-power-in-transition-to-renewable-energy/90797.
Notwithstanding the investment opportunity, the future of the Company will be
determined by the outcome of the strategic review. In particular, a relaunch
would rely heavily on shareholders continuing to support that option and their
willingness to participate, alongside new investors, in future fundraising
growth, without which the Company would not have a viable long-term future.
Having voted against the resolution to wind up the Company at the general
meeting held on 19 December 2023, shareholders have provided the Board with
the additional time needed to complete the strategic review, which we will
continue to work tirelessly to conclude at the earliest opportunity.
Irrespective of the outcome of the strategic review, a key short-term priority
is to look for ways to recover value from existing investments and there are
opportunities for optimising value through more efficient structuring and
asset level improvement initiatives.
Sue Inglis
Chair
22 January 2024
Our Operating Model
AEIT was incorporated as a public company limited by shares and carries on
business as an investment trust within the meaning of section 1158 of the
Corporation Tax Act 2010. The Company's shares were admitted to trading on the
premium segment of the main market of the London Stock Exchange on 14 December
2021.
The Company invests in Sustainable Energy Infrastructure Assets, with a
geographic focus on fast-growing and emerging economies in Asia. Assets within
the investment portfolio are held through locally incorporated holding
companies or special purpose vehicles ("SPVs").
At 31 December 2022, the Company owned directly nine solar SPVs with 313 MW of
operational capacity and one 200 MW construction-ready asset (the "RUMS
project"). Based on information now available and knowable as at 31 December
2022, the valuation of proceeding with the RUMS project was estimated to be
negative US$33.3 million based on 100% ownership, whereas the liabilities
associated with aborting the project were estimated to be in the region of
US$14.1-US$33.2 million, with the lower end assuming 100% success in
implementing a mitigation strategy. As such, as at 31 December 2022, the
least value destructive option for shareholders was to abort the RUMS project.
Subsequent to the period end, investments were made in Vietnam through the
Company's UK intermediate holding company, AEIT Holdings Limited ("AEIT
Holdings").
External debt financing is only at locally incorporated holding company or SPV
levels. As at 31 December 2022, this comprised outstanding principal amounts
of US$45.9 million(17) in the Indian solar portfolio, representing a leverage
ratio of 27%.(18)
(17 ) Pro-rated for 43% economic ownership.
(18 ) See APM calculation
The Company has a 31 December financial year end and plans to announce
half-year results in September and full-year results in March. The Company
also announces quarterly NAVs as at 31 March and 30 September in May and
November respectively. The Company currently pays dividends quarterly,
targeting payments in March, June, September and December each year.
The Company has an independent board of non-executive directors and has
appointed Adepa Asset Management S.A as its Alternative Investment Fund
Manager ("AIFM") to provide portfolio and risk management services to the
Company. The AIFM has delegated the provision of portfolio management services
to the Investment Manager. For the period from IPO to 31 October 2023, the
Investment Manager was ThomasLloyd Global Asset Management (Americas) LLC (the
"Former Investment Manager"). From 1 November 2023 Octopus Renewables Limited,
trading as Octopus Energy Generation ("OEGEN" or "Octopus Energy Generation"),
was appointed as a transitional Investment Manager (the "Transitional
Investment Manager") for the Company and assumed all day-to-day portfolio
management responsibilities for the Company from this date. OEGEN has been
appointed for an initial six-month term until 30 April 2024.
As an investment trust, the Company does not have any employees and is reliant
on third-party service providers for its operational requirements. With the
exception of NISPI which has employees from the third-party asset manager, the
SPVs do not have any direct employees and services are provided through
third-party providers. The AEIT Management Engagement Committee ("MEC")
reviews the service levels and performance of the Company's key service
providers at least annually, as described in the 'Management Engagement
Committee Report' section in the Governance Report. In the period, the MEC
identified the top priorities for improving the performance of the Former
Investment Manager during 2023, included improving the robustness of the
Investment Manager's internal processes, significantly enhancing the quality,
transparency and timeliness of management and other information and continuing
to add strength in depth to the teams responsible for the Company. Post the
period end, a decision was taken to terminate the appointment of the Former
Investment Manager and Octopus Energy Generation was appointed as the
Transitional Investment Manager from 1 November 2023.
Figure 1: AEIT Operating Model and Group Structure
·
Shareholders
Independent Board of Directors Asian Energy Impact Trust Plc, Company Service Providers
Listed on the LSE Main Market · Brokers: Shore Capital and Peel Hunt
· Fund Administrator & Company Secretary: JTC UK
· Depository: Indos
· Registrar: Computershare
· External Auditor: Deloitte
· Independent Valuation Expert: PwC
· PR Advisor: Camarco
· Tax Advisors: PwC
· VAT Advisor: PKF
· Legal: Stephenson Harwood
AIFM: Adepa Asset Management
Former Investment Manager: ThomasLloyd Group
Transitional Investment Manager:
Octopus Energy Generation
AEIT Holdings Ltd
VSS* Negros Island Solar Power Inc. SolarArise India Projects Private Ltd** Investment Portfolio Service Providers
· External asset managers
· Operations & maintenance ('O&M') contractors
· Engineering procurement and construction ('EPC') contractors
· Technical advisors
· Tax and structuring advisors
· Local legal advisors
· External auditors
VSS SPVs Portfolio Investments Held in SPVs India SPVs
Debt Providers- Asset Level Debt
* At 31 December 2022, the Company had committed to buying a 99.8%
interest in VSS, a Vietnamese rooftop solar platform for US$3.1 million. This
completed on 31 May 2023.
** In January 2023, the company completed its acquisition of the
remaining 57% economic interest in SolarArise. On completion, the Company owns
100% of SolarArise.
Objectives and KPIs
The Company has a triple return investment objective which consists of: (i)
financial return; (ii) environmental return; and (iii) social return.
Objective KPI Performance commentary
Financial return(19) 2.5 cents per share dividend paid in respect of the period from IPO to Financial performance throughout 2022 was disappointing. The key contributors
31 December 2022, equivalent to a yield of 2.5% based on the IPO price to the poor performance was the slow deployment of the net IPO proceeds and
· Target annual dividend yield (based on the IPO price) of 2-3% for
the material decline in the Company's investment portfolio valuation.
2022, 5-6% for 2023 and at least 7% for 2024, with the aim of progressively NAV per share of 49.3 cents at 31 December 2022, a-49.2% return based on the
increasing the nominal target thereafter opening post-IPO NAV The Board have made some active changes to key service providers during the
course of 2023 and is exploring ways to optimise value throughout the
· Target 10-12% NAV total return per annum (based on the IPO price) EBITDA from the Company's operational assets over the period, excluding the investment portfolio and to reduce costs at the Company level.
once the investment portfolio is fully operational on a fully invested and costs within the SolarArise holding company, was US$4.9 million(20) compared
geared basis to the aggregate cost of dividends paid to shareholders in respect of the
period of US$4.0 million.
· Over the medium term (from IPO), target annual dividends fully
covered by EBITDA from the operational assets that results from the MWh of 85,199 MWh clean energy generated
clean energy generated; in the short term, the Directors may determine to pay
all or part of any dividend from capital reserves
Environmental return 62,770 tCO(2)e of GHG emissions avoided(21) The 132 MW of installed capacity avoids GHG emissions through the generation
of clean energy. The 62,770 tonnes of GHG emissions avoided is equivalent to
· Protecting natural resources and the environment with significant 132 MW installed operational capacity (AEIT's share) avoiding the amount of emissions associated with 34,427 cars on the road in
greenhouse gas avoidance
the UK(23). As at 31 December 2022, AEIT had commitments to acquire an
133 MW commitments to additional capacity(22) additional 57% of SolarArise and an 99.8% interest in VSS. On completion of
those acquisitions in 2023, AEIT's total operational capacity to 271 MW
100% EU Taxonomy alignment (pro‑rata share based on ownership).
100% of investments substantially contribute to climate change mitigation in
line with the EU Taxonomy criteria.
Social return
· Delivering economic and social progress, helping build resilient 148 FTEs The portfolio provided social returns through the creation and support of
communities and supporting purposeful activity - aligned with the UN
quality jobs. As at 31 December 2022, the portfolio directly supported 148
Sustainable Development Goals Employment directly supported full time equivalent jobs(24) full time equivalent jobs, helping to ensure the Just Transition.
4 SDGs contributed to Investments made purposeful contributions to SDGs 7, 8, 13, 15
(19 ) The Board is continuing undertaking a strategic review of
the options for the Company's future. The outcome of the strategic review is
likely to result in changes to the Company's target financial return. For
further information on the strategic review, see Chair's Statement.
(20 ) EBITDA generated from dates in which the underlying assets
were owned, pro-rated for economic ownership.
(21 ) Carbon avoided is calculated using the International
Financial Institution's approach for harmonised GHG accounting.
(22 ) The construction-ready RUMS project has been excluded as
this project was not proceedable as at 31 December 2022.
(23 ) Equivalent cars is calculated using a factor for displaced
cars derived from the UK government GHG Conversion Factors for Company
Reporting.
(24 ) Total FTE jobs supported as at 31 December 2022 through
AEIT's proportional share of the NISPI and SolarArise portfolios.
Investment Strategy and Policy(25)
(25 ) The Board is continuing undertaking a strategic review of
the options for the Company's future, and it is expected that the outcome of
the strategic review will result in changes to the Company's investment
strategy and policy. For further information on the strategic review, see
Chair's Statement.
The Company seeks to achieve its investment objective by investing directly,
predominantly via equity and equity-like instruments, in a diversified
portfolio of unlisted sustainable energy infrastructure assets in the areas of
renewable energy power generation, transmission infrastructure, energy storage
and sustainable fuel production ("Sustainable Energy Infrastructure Assets"),
with a geographic focus on the fast-growing and emerging economies in Asia.
The Company aims to adopt a socially and environmentally responsible
investment approach that is geared towards sustainable business values and
which reduces investment risk through diversification across countries,
sectors and technologies.
Investment restrictions
The Investment Manager will ensure that the Company's portfolio is
diversified, so as to ensure a sufficient diversification of investment risk,
while also taking into account ESG criteria in making its investment
decisions.
The following specific investment restrictions apply to the Company:
· the Company will only invest in Sustainable Energy Infrastructure
Assets situated in the fast-growing and emerging countries in Asia;
· in relation to: (i) the Company's investments in Sustainable
Energy Infrastructure Assets situated in any single country; (ii) the
Company's investment in any single Sustainable Energy Infrastructure Asset;
and (iii) the Company's investments in Sustainable Energy Infrastructure
Assets under contract with any single governmental or quasi‑governmental
offtaker, the relevant investment restriction will vary depending on the
Company's NAV, as follows:
% of Company's GAV
Exposure Exposure
to single to single
Sustainable governmental
Energy or quasi-
Exposure to Infrastructure governmental
Company's NAV single country Asset offtaker
Up to and including US$1 billion 50% 25% 25%
Above US$1 billion and up to and including US$3 billion 40% 20% 20%
Above US$3 billion 30% 15% 15%
· due to the exceptional circumstances of avoiding the greater
value destruction associated with abandoning the project rather than
proceeding with construction, assessment of the single country limit will
exclude any funds invested in the RUMS project up to completion of
commissioning. The Company's assessment of the single country limit as set out
in the table above will otherwise apply and, from the point of making the
decision to commit to construct the RUMS project, no further Sustainable
Energy Infrastructure Assets shall be acquired, or projects committed to, with
exposure to India until the Company is in compliance with that limit;
· the Company's investments in Sustainable Energy Infrastructure
Assets under contract with any single private offtaker will not exceed 20% of
GAV for investment grade offtakers and 10% of GAV for non-investment grade
offtakers;
· the Company will only invest in countries, which the Investment
Manager considers as having a stable political system, a transparent and
enforceable legal system and which recognise the rights of foreign investors;
· the Company will only invest in operational assets, or in
construction phase assets where: (i) an offtake agreement has been entered
into; (ii) the land on which the Sustainable Energy Infrastructure Asset is
situated, is identified or contractually secured where appropriate; and (iii)
all relevant permits have been granted;
· the Company will only invest in technologies, such as solar
panels, wind turbines, boilers and steam turbine generators, the commercial
use of which has already been proven;
· the Company will only hold investments that are denominated in
currencies which are freely transferable;
· the Company will not invest in other externally managed
investment companies or collective investment schemes; and
· the Company will not typically provide funding for development or
pre-construction projects and any such funding will, in any event, not exceed
5% of the GAV in aggregate and 2.5% of GAV per development or pre-construction
project and would only be undertaken when supported by customary security.
The investment restrictions and limits set out above will be measured at the
time of the relevant investment. These investment restrictions and limits
apply to the Group (comprising the Company and its proportionate interest in
investments, intermediate holding companies and project SPVs) as a whole on a
look-through basis. Where the Company holds its interest in Sustainable Energy
Infrastructure Assets through a project SPV, the investment restrictions and
limits will apply directly to the underlying Sustainable Energy Infrastructure
Asset as if it was held directly by the Company, save where the relevant
project SPV is part of a co-obligor group with other project SPVs in which
case any co-obligor group will be assessed on an aggregated basis as set out
below under 'Gearing'.
The Company will not be required to dispose of any investment or to rebalance
the investment portfolio as a result of a change in the respective valuations
of its assets. However, in such circumstances, the Investment Manager will
take such steps as it considers appropriate to enable the Company to comply
with its investment restrictions, unless the Investment Manager reasonably
believes that doing so would be prejudicial to the interests of the Company
and its shareholders as a whole.
Gearing
Subject to the limits set out below, the Company will maintain gearing at a
level which the Directors and the Investment Manager consider to be
appropriate in order to enhance returns and to provide flexibility to make
investments and for cash management purposes.
Gearing will not be employed at the level of the Company and will generally be
employed at the level of the relevant project SPV or intermediate holding
company. The level of long-term gearing to be employed in relation to any
project SPV or intermediate holding company will be assessed so that it is
commensurate with the terms of the offtake agreement for the underlying
Sustainable Energy Infrastructure Asset. Gearing, save for construction
projects where the guarantee of the intermediate holding company is required,
will generally be structured as non-recourse finance, typically at the level
of the relevant project SPV or intermediate holding company, including but not
limited to bank borrowings, public bond issuance or private placement
borrowings, provided that aggregate borrowings across all project SPVs and
intermediate holding companies will not exceed 65% of the sum of: (i) the
Company's GAV; (ii) the aggregate borrowings of the Company's intermediate
holding companies; and (iii) the Company's proportionate share of borrowings
at the level of its Sustainable Energy Infrastructure Assets (the "Adjusted
GAV"), with the Company targeting below 50% in the medium term. This limit
will be measured based on the Adjusted GAV at the time any project SPV or
intermediate holding company enters into the relevant facility.
Although co-obligor guarantee arrangements between multiple SPVs will normally
be avoided, any such arrangements will be considered as bringing the SPVs
concerned into a single asset and, therefore, subject to the single
Sustainable Energy Infrastructure Asset restriction referred to in the table
above at the time that such arrangement is entered into.
No financing arrangements on a cross border basis between the Company's
subsidiaries will be entered into, so keeping the Company's various pools of
assets and liabilities insulated within their own geographies.
The Company expects all borrowings to be denominated in the currency of the
relevant Sustainable Energy Infrastructure Asset or US Dollars to help offset
any foreign currency exposure. In addition, borrowings will typically be
amortising over the term of the associated offtake agreement.
For the avoidance of doubt, any investments by the Company in project SPVs or
intermediate holding companies which are structured as debt will not be
considered gearing for these purposes and, therefore, will not be subject to
the restrictions set out above.
Cash management policy
Whilst it is the intention of the Company to be fully or near fully invested
or contractually committed in normal market conditions, the Company may in its
absolute discretion decide to hold cash on deposit or invest in cash
equivalent investments, which may include short-term investments in money
market funds and tradeable debt securities ("Cash and Cash Equivalents").
There is no restriction on the amount of Cash and Cash Equivalents that the
Company may hold and there may be times when it is appropriate for the Company
to have significant holdings of Cash and Cash Equivalents instead of being
fully or near fully invested or contractually committed. No financial
transactions are permitted with counterparties with a credit rating of less
than BBB- from Standard & Poor's or Baa3 from Moody's.
Changes to investment policy
No material change will be made to the Company's investment policy without the
prior approval of shareholders by ordinary resolution and the prior approval
of the FCA. Any changes to the Company's investment policy are also required
to be notified to HMRC in advance of the filing date for the accounting period
in which the investment policy is amended (together with details of why the
change does not impact the Company's status as an investment trust).
Timeline of Key Events since IPO
Date Event
14 December 2021 Completion of IPO, raising gross proceeds of US$115.4 million, admission to
trading on the London Stock Exchange and contractual commitments to acquire a
40% economic interest in Negros Island Solar Power Inc. ('NISPI') and a 43%
economic interest in SolarArise India Projects Private Limited ('SolarArise').
17 December 2021 Completion of the acquisition of the 40% economic interest in NISPI and its
three solar power projects in the Philippines, totalling 80 MW for a cash
consideration of US$25.4 million.
20 June 2022 Contractual commitment to acquire the remaining 57% economic interest in
SolarArise which owns six operating and one construction-ready solar power
projects in India, for a cash consideration of US$38.5 million.
19 August 2022 Completion of the acquisition of the 43% economic interest in SolarArise for a
consideration of US$30.2 million, settled through the issue of 26.0 million
ordinary shares at US$1.16035 per share. In addition, cash of US$2.7 million
was paid to the Indian tax authorities on behalf of the sellers.
1 November 2022 Expansion into Vietnam following a contractual commitment to acquire 99.8%
economic interest in Viet Solar System Company Limited ('VSS'), which holds 6
MW of rooftop solar assets, for US$4.6 million (being the total value of the
investment, including debt, and represented a net US$3.1 million equity
investment).
8 November 2022 Confirmation that AEIT classifies under Article 9 of the EU SFDR, with
investments substantially contributing to climate mitigation under the EU
Green Taxonomy.
18 November 2022 Admission to trading of 34.3 million new ordinary shares issued following a
subsequent placing that raised gross proceeds of US$35.3 million.
Material events post period end
13 January 2023 Completion of the acquisition of the remaining 57% economic interest in
SolarArise.
25 April 2023 Temporary share suspension at the Company's request due to a material
uncertainty regarding the fair value of its assets and liabilities, in
particular with regard to the RUMS project.
31 May 2023 Decision not to proceed with construction of the RUMS project, predominantly
due to high solar panel prices. Completion of the acquisition of the 99.8%
economic interest in VSS and its two solar power projects.
30 June 2023 Annual General Meeting held.
Alongside the standard annual resolutions to re-elect the Board which were
passed, a Continuation Resolution was proposed as 75% of the net IPO proceeds
had not been deployed within 12 months of admission to trading.
12 July 2023 Company announced that the final portfolio valuation as at 31 December 2022
could reflect a material downward movement that would be in addition to the
costs written off and potential abandonment liabilities associated with not
proceeding with the RUMS project.
1 August 2023 The Company's only development project (the 'TT8 Project'), a 150 MW DC solar
PV project, held by a special purpose vehicle of SolarArise, signed a power
purchase agreement with Maharashtra State Electricity Distribution Company
Limited.
15 August 2023 Company announced receipt of new information under protections of its
whistleblowing policy revealing that ThomasLloyd Global Asset Management
(Americas) LLC was aware of material information relating to the RUMS project
by August 2022 and, therefore, it appeared that key information had been
withheld from the Board, and misleading information given to it, over a
protracted period of time.
24 August 2023 Shareholders representing 58% of the votes cast (and a majority of the issued
share capital) voted against the Continuation Resolution in line with the
Board's recommendation. As a result, the Board was required to bring forward
proposals for the reconstruction, reorganisation or winding-up of the Company
for shareholder approval within four months.
Strategic review of options for the Company's future commenced.
15 September 2023 Company served notice terminating ThomasLloyd Global Asset Management
(Americas) LLC's appointment as Investment Manager with effect from 31 October
2023.
25 September 2023 Shareholders representing approximately 54% of the Company's total issued
share capital supported the current Board and the resolutions to replace the
current Board were not passed.
11 October 2023 Decision to proceed with the RUMS project due to it being the least value
destructive option for shareholders.
27 October 2023 Company changed its name to Asian Energy Impact Trust plc.
31 October 2023 Shareholders representing over 91% of the issued share capital voted in favour
of changes to the Company's investment policy (to avoid any potential breach
of the single country limit as a consequence of proceeding with the RUMS
project and make clarificatory changes to the gearing policy), in line with
the Board's recommendation. Termination of the Former Investment Manager's
appointment effective.
1 November 2023 Octopus Energy Generation appointed as Transitional Investment Manager.
AEIT launched a new corporate website
13 December 2023 Unaudited NAV as at 30 September 2023 announced of US$88.5 million (50.4 cents
per share). Company announced that moving forward with the development of the
TT8 Project whilst the strategic review is underway may not be the best option
for the Company.
19 December 2023 Shareholders representing 83% of the votes cast (and 69% of the issued share
capital) voted against a resolution to wind up the Company, in line with the
Board's recommendation.
Post Period Updates
The material uncertainty surrounding the investment portfolio valuation as at
31 December 2022 and the subsequent events that followed throughout 2023,
including the temporary share suspension effective from 7.30 am on 25 April
2023 have had adverse consequences for the Company and its shareholders. A
summary of the key events is set out below.
Temporary share suspension
On 25 April 2023 the Company announced a temporary suspension in the listing
of, and trading in, the Company's shares (the "temporary share suspension").
The temporary share suspension was at the Company's request due to a material
uncertainty regarding the fair value of its assets and liabilities, in
particular with regard to the 200 MW construction-ready RUMS project, which
was acquired as part of the SolarArise portfolio. Further work was required to
assess the quantum of the liabilities and commercial viability of the project.
Due to this, the Company was unable to finalise the accounts within four
months after the accounting period end date, as required by the FCA's
Disclosure Guidance and Transparency Rules.
Decision not to proceed with the RUMS project
Following the temporary share suspension, the Board appointed independent
advisors to undertake detailed reviews of the liabilities associated with
abandoning the RUMS project and the Company's options for the project
(including proceeding with constructing it or abandoning it). In parallel, the
Former Investment Manager re-evaluated the options for the RUMS project,
including the funding requirement in the event of proceeding with
construction. Based on the reviews undertaken at that time, and the
information provided to the Board on 31 May 2023 by the Former Investment
Manager, the Board concluded that it would not be in the interests of
shareholders to proceed with the construction of the RUMS project. As well as
being commercially unviable, predominantly due to the high solar panel prices
at that time, proceeding would breach the Company's investment policy
restrictions.
Re-evaluation of 31 December 2022 portfolio valuation proposed by the Former
Investment Manager
Due to the ongoing material uncertainties regarding the Company's financial
position and in support of progressing the audit and annual report and
accounts for the period ended 31 December 2022, the Board also appointed, in
May 2023, PricewaterhouseCoopers LLP ("PwC") to undertake a detailed review of
the key assumptions included in the financial models and the valuation
methodology of the operational assets within the portfolio, namely the
SolarArise portfolio and NISPI, as at 31 December 2022 proposed by the Former
Investment Manager. On 12 July 2023, the Board announced it had received a
draft report from PwC and that the Board anticipated the final portfolio
valuation as at 31 December 2022 could reflect a material downward movement
that would be in addition to the costs written off and potential abandonment
liabilities associated with not proceeding with the RUMS project.
2023 Annual General Meeting
At the Annual General Meeting held on 30 June 2023, alongside the standard
annual resolutions to re-elect the Board which were passed, a Continuation
Resolution was proposed as 75% of the net IPO proceeds had not been deployed
within 12 months of admission to trading. If the Continuation Resolution did
not pass, the Directors would be required by the Company's Articles of
Association to put forward proposals for the reconstruction, reorganisation or
winding up of the Company to shareholders for their approval within four
months of the date of the meeting at which the Continuation Resolution was
proposed. Given the uncertainty of the Company's financial situation, the
Board recommended that shareholders abstain from voting on the Continuation
Resolution and adjourned the AGM ahead of the shareholder vote on the
Continuation Resolution.
General meetings requisitioned by entities and funds affiliated with the
Former Investment Manager
On 11 July 2023, the Company received a notice from certain entities and funds
affiliated with the Former Investment Manager (the "Requisitioners"), which
held 14.8% of the Company's issued share capital, requisitioning a general
meeting of the Company's shareholders to vote on, amongst other things, the
Continuation Resolution.
On 31 July 2023 in the notices for the requisitioned general meeting and
adjourned Annual General Meeting (the "August Meetings"), the Board
recommended shareholders to vote against the Continuation Resolutions to be
proposed at those meetings as shareholders would be unable to form a
considered view of the Company as, at that time, (i) its valuation was
uncertain, (ii) its principal construction asset was believed to be
commercially unviable and the non-completion liabilities were expected to be
substantial, (iii) the audit of its financial statements for the period ended
31 December 2022 and associated annual report and accounts could not be
completed, (iv) its shares were suspended from listing and (v) there was no
clear strategy for the future of the Company.
Prior to the August Meetings a second notice from the Requisitioners was
received by the Company requisitioning a further general meeting to consider
ordinary resolutions that the current Board be removed from office as
directors of the Company and replaced with new directors nominated by the
Requisitioners with immediate effect.
Ahead of the August Meetings that were held on 24 August 2023, the Board
continued to provide updates to shareholders on material new information in
support of its recommendation to vote against the Continuation Resolutions. At
the August Meetings, shareholders representing 58% of the votes cast (and a
majority of the issued share capital) voted against the Continuation
Resolutions in line with the Board's recommendation. The Board immediately
commenced an evaluation of the options for the Company's future in view of its
obligation, under the Company's Articles of Association to put proposals to
shareholders for the reconstruction, reorganisation or winding-up of the
Company, by 24 December 2023.
The second requisitioned general meeting was held on 25 September 2023.
Shareholders representing approximately 54% of the Company's total issued
share capital supported the current Board and the resolutions to replace the
current Board were not passed.
Change of Investment Manager
As the Continuation Resolutions were not passed at the August Meetings, the
Company was entitled to terminate its investment management agreement with the
Former Investment Manager summarily at any time and without further payment in
respect of the Former Investment Manager's initial five-year term of
appointment. Due to the deteriorated relationship with the Former Investment
Manager and concerns on the quality, validity and timeliness of information
provided by it to the Board, the Board determined it would be in the best
interests of shareholders to terminate the Former Investment Manager's
appointment as the Investment Manager. Following a competitive tender process,
the Board announced on 28 September 2023 that it had agreed heads of terms to
appoint Octopus Energy Generation as the Transitional Investment Manager for
an initial term expiring on 30 April 2024. Following completion of the
customary take‑on and regulatory procedures, Octopus Energy Generation's
appointment with immediate effect was subsequently confirmed on 1 November
2023.
Decision to proceed with the RUMS project due to changed circumstances
On 11 October 2023 the Board announced its decision to proceed with the RUMS
project due to it having become the least value destructive option for
shareholders. This was based on the advice received from the Former Investment
Manager that:
· panel prices had fallen by 30% which meant that the negative NPV
was significantly less than at 31 December 2022;
· aborting the RUMS project would: (i) crystallise an immediate
write off of US$8.9 million of costs incurred in respect of the project as at
30 September 2023; (ii) result in the encashment of US$1.2 million of
performance bank guarantees; (iii) potentially indirectly expose SolarArise to
abandonment liabilities (net of the performance bank guarantees) of up to
US$32.3 million and likely protracted associated litigation; and (iv) lead to
reputational damage that could adversely impact the value of the SolarArise
platform; and
· whilst the RUMS project was clearly not value accretive,
proceeding to construct it would: (i) allow SolarArise to better manage its
liabilities in respect of the RUMS project, providing greater certainty
compared to a very uncertain process of aborting it, both in terms of the
value of any potential abandonment liabilities and the expected timeline for
settlement; and (ii) add a further 200 MW of capacity to the SolarArise
platform and, once operational as part of a wider portfolio, may facilitate a
more attractive exit of SolarArise in any future liquidity event.
To proceed with the RUMS project, the Board put forward a resolution to amend
the single country limit in the Company's investment policy to avoid any
potential breach of that limit as a consequence of proceeding with the RUMS
project (and also to make clarificatory changes to the gearing policy), which
was passed at a general meeting held on 31 October 2023.
Change of name and new corporate website
On 27 October 2023, the Company changed its name to Asian Energy Impact Trust
plc. The Company launched a new corporate website, www.asianenergyimpact.com,
on 1 November 2023.
Unaudited NAV as at 30 September 2023
On 13 December 2023, the Board announced the unaudited NAV as at 30 September
2023 in order to provide investors with the most recent financial information
at the earliest possible time.
Unaudited net assets as at 30 September 2023 were US$88.5 million (NAV of 50.4
cents per share), a marginal increase on the net assets (and NAV per share) as
at 31 December 2022.
The unaudited NAV as at 30 September 2023 (relative to 31 December 2022)
reflects an uplift the portfolio valuation resulting from the negative NPV of
proceeding with the RUMS project as at 30 September, being materially lower
than costs of not proceeding with it reflected in the 31 December 2022
portfolio valuation, which was largely offset by a further material reduction
in the Philippines wholesale electricity spot market over the period and
additional non-recurring professional fees incurred since the temporary share
suspension.
At 30 September 2023, the Company had cash balances of US$63.6 million and
held US$1.7 million in its UK subsidiary, AEIT Holdings. The Company has
invested a further US$20.0 million in SolarArise to provide funding required
for constructing the RUMS project.
As at 30 September 2023, gearing in AEIT's investment portfolio represented
54.6% of the Adjusted GAV.
Winding-up proposal
In accordance with its obligation to put forward proposals for the
reconstruction, reorganisation or winding-up of the Company to shareholders
for their approval within four months of the Continuation Resolutions not
having been passed, the Board convened a further general meeting on 19
December 2023 to consider a resolution to wind-up of the Company and appoint
liquidators. The Board had considered possible options for a reconstruction or
reorganisation of the Company but, given, in particular, the concentrated and
illiquid nature of the Company's portfolio and the current size of the
Company, the Board concluded that a reorganisation or reconstruction was not
viable or in the best interests of shareholders as a whole. Accordingly, in
order to comply with its obligation under the Articles, the Board's only
option was to put a winding up proposal, but recommended shareholders to vote
against the resolution principally for the following reasons: (i) if the
resolution was passed, it was expected that the listing of the Company's
shares would be permanently suspended; and (ii) if the resolution was not
passed (in-line with the Board's voting recommendation), the Board would have
the additional time needed to complete the strategic review of the options for
the Company's future and shareholders would have the opportunity to vote on
the outcome of the strategic review. Shareholders representing 83% of the
votes cast (and 69% of the issued share capital) voted against the winding-up
resolution, in line with the Board's recommendation.
Investments
No. of individual assets Net operational asset value(27) Adjusted GAV
purchased in the period(26) US$ 23.5m US$ 173.3m
10
(26 ) Includes the 200 MW construction project in Rewa Ultra Mega
Solar Park (the "RUMS project") in India.
(27) The value of the Company's operational investment portfolio
excluding construction assets.
At the time of the IPO, the Company had committed to acquire interests in
portfolios of assets in India, being a 43% economic interest in SolarArise
India Projects Private Limited ("SolarArise"), and the Philippines, being a
40% economic interest in Negros Island Solar Power Inc ("NISPI"), for a
combination of cash and new ordinary shares to be issued by the Company.
Summary of deployment
AEIT proportion of
Acquisition price Total operational AEIT proportion on construction-ready
Investment Proportion paid (US$ million) capacity completion capacity
SolarArise 43.0% 32.9(29) 233 MW 100 MW 86 MW
57.0%(28) 38.5 133 MW 114 MW
NISPI 40.0% 25.4 80 MW 32 MW n/a
VSS²⁸ 99.8% 3.1 6 MW 6 MW n/a
Totals 99.9 319 MW 271 MW 200 MW
(28) Completed post the period end.
(29) Includes payment of US$2.7 million to Indian tax authorities on
behalf of the sellers.
The acquisition of NISPI, the 80 MW Philippines investment platform with three
operating solar plants, completed on 17 December 2021 for a cash
consideration of US$25.4 million. The sites are in the Central Visayas region,
located across two sites on Negros, the fourth largest island of the
Philippines. The 40% economic interest in NISPI was acquired from an associate
of the Former Investment Manager and the remaining 60% is owned by Ayala Clean
Energy Inc. No gearing is employed within the portfolio. The three solar
power plants currently generate revenue through the sale of power to the grid
at the WESM price. This means in-year performance and its value is at risk to
wholesale energy market price movements in both the short term and long term
within the Philippines.
The seed asset acquisition in India reflected a 43% economic interest in
SolarArise, the 433 MW Indian investment platform with six operating solar
plants totalling 233 MW and one 200 MW construction-ready solar plant (the
"RUMS project". All operating assets benefit from long-term fixed price power
purchase agreements with central government agencies such as Solar Energy
Corporation of India Ltd. ("SECI") or state government electricity utilities.
The acquisition of the 43% economic interest was acquired from associates of
the Former Investment Manager and completed in August 2022 following an
amendment to the sale and purchase agreement to update the fair value to a
more recent date, being 30 June 2022. Due to the strengthening of the US
Dollar, this reduced the purchase consideration from US$34.6 million as
outlined in the IPO prospectus to US$32.9 million. Completion comprised of
consideration of US$30.2 million, settled through the issue of 26.0 million
ordinary shares at US$1.16035 per share and cash of US$2.7 million that was
paid by SolarArise to the Indian tax authorities on behalf of the sellers.
On 20 June 2022 the Company committed to acquire the remaining 57% economic
interest in SolarArise from the remaining shareholders including the founders
of SolarArise. The commitment was made for a cash consideration of US$38.5
million, reflecting a 5.2% discount to the acquisition price of the 43%
economic interest agreed in November 2021 primarily due to the strengthening
of the US Dollar. This acquisition completed post the period end on 13 January
2023 and at the date of this Annual Report the Company owns 100% of
SolarArise. At at 31 December 2022, the 200 MW construction-ready asset was
not commercially viable to proceed, with the potential liabilities associated
with aborting the project being less than the negative NPV to the Company from
constructing the project. Post the period end, the viability of the project
improved, principally due to panel prices having fallen by 30% which meant
that the negative NPV resulting from construction was significantly less than
the potential abandonment liabilities, and a decision was made in October 2023
to proceed with construction.
On 1 November 2022, the Company, through its subsidiary AEIT Holdings Limited
("AEIT Holdings"), made its first investment in Vietnam through a contractual
agreement to acquire Viet Solar System Company Limited ("VSS"), a
privately-owned company which holds 6.12 MW of rooftop solar assets for US$3.1
million. The gross value of the assets was US$4.6 million including external
debt. The acquisition completed on 31 May 2023 and represents a 99.8% economic
interest in VSS. This acquisition was the start of a new local partnership
with Solar Electric Vietnam ("SEV"), an engineering, procurement and
construction provider and renewable energy developer in Vietnam. Additionally,
AEIT Holdings entered into an investment agreement for an additional US$25.4
million of uncommitted funding for other renewable energy pipeline assets once
such assets have been identified and to be acquired on agreeable terms.
No further assets have been acquired post the period end through this
arrangement.
200 MW construction-ready RUMS project
The RUMS project is held by a wholly-owned special purpose subsidiary,
Talettutayi Solar Projects Nine Private Limited ("TT9") of SolarArise.
Background
TT9 successfully bid for the RUMS project in a reverse auction conducted on 19
July 2021 and received the letter of award on 1 September 2021. Power purchase
agreements ("PPAs") were signed on 25 November 2021 with Rewa Ultra Mega Solar
Limited ("RUMSL"), the operator of the solar park of which the RUMS project
forms part, and M.P. Power Management Company Limited and Indian Railways,
with a fixed rate tariff of INR 2.339 per kWh for 25 years. The original
deadline for the scheduled commercial operating date ("SCOD") was 25 June
2023, but in September 2022 this was extended to 8 September 2023 due to a
delay by RUMSL in getting the initial tariff and other related approvals from
the state regulatory agencies. The original bid projections were for an
overall project cash cost of INR 5,880 million (US$78.4 million) funded by
debt of INR 4,700 million (US$62.7 million) and equity of INR 1,180 million
(US$15.7 million) with an IRR of 13.5%. It was expected that the equity
financing required for the construction of the RUMS project would be funded
entirely from existing cash resources within SolarArise and ongoing operating
cash flow from its operational solar portfolio.
Increased cost estimates leading to temporary share suspension
During April 2023 it was disclosed to the Board that the cost of the RUMS
project and the attendant equity funding requirement had gone up significantly
thereby calling into question its economic viability. The cost increase had
arisen principally due to increases in module costs, the cost of the EPC
contract, goods and services tax and adverse movements in exchange rates in
comparison to the costs in the original bid assumptions. For example, the RUMS
project was originally bid with a module cost of US$24.2 cents per watt peak
('c/Wp') but prices rose significantly during 2022, in particular due to
supply chain issues in the market and following the implementation of basic
customs duty of 40% on imported solar modules and 25% on imported solar cells
from 1 April 2022. This caused prices to rise to a peak of approximately US$40
c/Wp, but had fallen to approximately US$29 c/Wp by December 2022.
Later in April 2023, the Board was further advised by the Former Investment
Manager that potentially significant non‑completion liabilities would arise
in TT9 in the event that it did not proceed with the construction of the RUMS
project. Having received information that suggested the RUMS project may no
longer be commercially viable and that there were potentially significant
non-completion liabilities, the Company immediately sought the temporary share
suspension to undertake further work to clarify the position and complete its
2022 audit and Annual Report.
Valuation of RUMS project
As at 30 September 2022, the fair value of the RUMS project included within
the valuation of SolarArise prepared by the Former Investment Manager was
US$4.9 million (US$2.1 million for the 43% interest owned at that date).
This represented the fair value of the project cashflows of US$14.1 million
offset by the assumed equity funding required of US$9.2 million.
In the days following the temporary share suspension, the Board and Former
Investment Manager commenced a number of important workstreams including
taking advice regarding potential liabilities in the event that the RUMS
project was not constructed in accordance with the contractual documentation
and on the valuation of the RUMS project.
Based on information now available and knowable as at 31 December 2022, the
valuation of proceeding with the construction project was estimated to be
negative US$33.3 million based on 100% ownership, whereas the potential
liabilities associated with aborting the project were estimated to be
US$14.1-US$33.2 million, with the lower end assuming 100% success in
implementing a mitigation strategy. As there is significant subjectivity in
determining the specific abort case liabilities to include in the valuation,
it has been determined that a market participant would view the SolarArise
portfolio in its entirety and that an appropriate assumption would be to write
the SolarArise portfolio down to zero as the potential abort liabilities would
have exceeded the value of SolarArise (before providing for such liabilities).
This results in applying an abort liability of US$12.0 million for the 43%
ownership. Including the abort liabilities in the valuation of SolarArise as
at 31 December 2022 also gives rise to an onerous contract for the commitment
to purchase the remaining 57% as the committed price to pay was less than the
value of the contract.
Latest updates
Falling solar module prices resulted in the Former Investment Manager
continuing to re-evaluate the project and the Board appointed an Indian-based
independent financial advisor to complete a commercial assessment of the RUMS
project. The EPC provider was identified with high-level commercials agreed
and JA Solar was selected as the preferred solar panel provider with an agreed
price of US$15.5 c/Wp (US$22.3 c/Wp including import duties). Updating the
model with the declining panel prices and other assumption changes reduced the
overall negative NPV of the project to approximately US$13 million. Based on
advice from the Former Investment Manager, on 11 October 2023, the Board
agreed to provide funding of US$20 million by way of an INR-denominated
external commercial borrowings loan from the Company to SolarArise to enable
construction of the RUMS project to proceed.
The Transitional Investment Manager has since refined the RUMS project model
and the published valuation as at 30 September 2023 is a negative NPV of
US$14.6 million.
Construction of the RUMS project has commenced. On the recommendation of the
Transitional Investment Manager, the Company has appointed Fichtner as the
owner's technical advisor to the RUMS project, providing boots on the ground
to oversee the construction of the asset on a day-to-day basis. An official
extension has been granted to the deadline for the SCOD to 5 February 2024.
As at early January 2024, the third of five shipments of panels have arrived
on site. Although risks remain due to the size and tight timelines of the
project, it is currently expected to be commissioned before 31 March 2024.
Portfolio Breakdown
The following charts are representative of the pro-rata share of the assets
owned as at 31 December 2022.
Geographical diversification - as a % of generating capacity (MWp)
Asset phase - as a % of generating capacity (MWp)
Revenue structure - as a % of generating capacity (MWp)
Portfolio Performance
During 2022, the investment portfolio's electricity generation was 85,199 MWh.
This reflects the proportionate share of the electricity generated by
investments from the date of acquisition and therefore takes into account 40%
of NISPI from 1 January 2022 and 43% of SolarArise from 19 August 2022.
Across the investment portfolio, electricity generation was 17% below budget,
driven by lower irradiation, poor weather and low air quality in India and
grid curtailment in the Philippines.
Output generated by underlying operating assets(30) Revenue generated by underlying operating assets(30) EBITDA generated by underlying operating assets(30)
85,199 MWh US$7.8m US$4.9m
(30) Pro-rated for economic ownership and from the 1 January 2022 for
NISPI and 19 August 2022 for SolarArise (the date of investment). These are
not IFRS measures and are KPIs used to monitor the performance of the
underlying assets.
Philippines
The Philippines portfolio comprises NISPI, an investee company with three
operating solar plants with a total capacity of 80 MW situated on the island
of Negros. All three solar plants export electricity to the grid at the
wholesale electricity spot market ("WESM") price.
Generation during 2022 was 19% lower than budget due to grid curtailment
stemming from the effects of Typhoon Rai (December 2021) and the damaged
Negros-Cebu subsea cable. The damaged subsea cable was restored in October
2022. In the final two months of 2022, the portfolio generated 6% below budget
which was in line with the variance in irradiation observed in the period.
Although generation was lower than expected, WESM prices continued to increase
throughout the year with an average of 7.79 PHP per kWh achieved by NISPI, in
comparison to a budgeted price in the investment case of 7.74 PHP per kWh in
2022 and 4.81 PHP per kWh achieved in 2021. The steep trend upwards was driven
by global energy market instability and increased demand as the nation-wide
lockdowns were released and economic activity resumed, alongside rising fossil
fuel prices. Whilst higher prices were achieved during the year compared to
the prior years, the current valuation of the NISPI investment is based on
modelled future cash flows and is highly dependent on assumed operational
performance and the price that is assumed longer term to be achieved. In the
December 2022 valuation, the valuation methodology has been updated to utilise
leading market forecasters for the future WESM price curves. Prior periods
utilised the Former Investment Manager's in-house power price curve based on
historical prices achieved, indexed for future prices subject to the price
cap. The updated methodology utilises independent third-party advisor curves
and these curves are depicting a significant downwards trend in future energy
prices in the short to medium term, before levelling off in the long term.
Energy prices are driven by commodity prices, in particular delivered coal and
liquefied natural gas, which are expected to fall from the heightened prices
seen during global events such as the pandemic and the start of the
Russia-Ukraine conflict. Further, at the end of 2022 and into early 2023,
commodity prices showed sharp declines. Future budgets will be set utilising
the independent forecasted prices and performance reported against these
models. Further detail can be found in the Portfolio Valuation section.
At 31 December 2022, on a 100% basis, NISPI had PHP 538 million of cash
reserves, equivalent to US$9.7 million and generated EBITDA of PHP 378
million, equivalent to US$6.8 million during 2022. NISPI has no debt.
India
As at 31 December 2022, the Indian portfolio comprised a 43% economic interest
in SolarArise, an Indian platform with interests in six operating solar plants
and the 200 MW construction-ready RUMS project, situated across five states in
India and with a total potential capacity of 433 MW. All plants are or will
export electricity under 25-year fixed-price government PPAs.
In comparison to budget for the full year of 2022, energy generation declined
by 14% driven by lower irradiation, heavy rains during monsoon season
resulting in floods at two of the sites (Telangana I and Telangana II) and air
quality issues at Maharashtra. During the period of ownership from 19 August
2022, generation was 15% under budget. The Transitional Investment Manager is
working closely with the asset management team on the ground to put in place
mitigating actions to prevent the effects of flooding, test pollution levels
in comparison to legislation and increase cleaning cycles at Maharashtra.
At 31 December 2022, excluding the amounts paid out to shareholders for the
57% acquisition in January 2023, on a 100% basis, SolarArise had INR 653
million of cash reserves, equivalent to US$7.9 million of which approximately
US$5.1 million had been generated from operations during the period of
ownership. At 31 December 2022, SolarArise had approximately US$106.8 million
of borrowings.
Portfolio Valuation
Valuation process
Regular valuations are undertaken for the Company's portfolio of assets. The
process follows International Private Equity Valuation Guidelines, typically
using a discounted cashflow ("DCF") methodology. The DCF methodology is deemed
the most appropriate valuation basis where a detailed projection of likely
future cash flows is possible. Due to the asset class, availability of market
data and the ability to project the asset's performance over the forecast
horizon, a DCF valuation is typically the basis upon which renewable assets
are traded in the market. In a DCF analysis, the fair value of the investee
companies is the present value of the expected future cash flows, based on a
range of operating assumptions for revenues, costs, leverage and any
distributions, before applying an appropriate discount rate. Key
macro-economic and fiscal assumptions for the portfolio valuation are set out
in note 9 to the Financial Statements. The assets held in the Company's UK
subsidiary, AEIT Holdings, substantially comprise working capital balances and
therefore the Directors consider the fair value of AEIT Holdings to be equal
to its book value.
Following the material uncertainty surrounding the portfolio valuation as at
31 December 2022, detailed in the Post Period Updates section, the Board,
Transitional Investment Manager and AIFM have made a number of changes to the
valuation process which have been implemented to arrive at the 31 December
2022 valuation presented in this Annual Report.
In addition to the above, an updated valuation policy reflecting the change in
assumption methodologies and review process has been adopted.
In accordance with the Company's valuation policy, the investment portfolio at
31 December 2022 has been valued by the Transitional Investment Manager. PwC
was engaged as an independent valuation expert to provide a private
independent opinion on the reasonableness of the valuations which were
prepared by the Transitional Investment Manager, and adopted by the Board and
AIFM when they approved the 31 December 2022 valuations.
Changes in relation to operational assets
PwC was appointed to assist the Company with a detailed review of the key
assumptions included in the financial models and the valuation methodology for
the Company's operational assets in India and the Philippines which had been
prepared by the Former Investment Manager for the purpose of the 31 December
2022 valuation. As previously announced, following this review, the Company
identified several areas for concern, including assumptions regarding
revenues, operating costs, tax projections and cash extraction which were
either inaccurate or considered to be unrealistically optimistic.
Following the PwC review, the operational asset models have been re-worked by
the Transitional Investment Manager.
· This included updating the basis of the macro-economic
assumptions in the models, utilising leading third-party market forecasters
for power prices in the Philippines and a number of other material changes
based on the Transitional Investment Manager's experience.
· The SolarArise holding company model was revised to accurately
reflect asset management costs, cash extraction and tax assumptions in respect
of SolarArise.
Changes in relation to the RUMS project
A commercial assessment of the construction-ready RUMS project was undertaken
by an Indian-based independent financial adviser alongside a new model being
built by an external specialist modelling firm which was reviewed by a model
audit company, under the supervision of the Former Investment Manager.
While the model audit review was never finalised, a draft report was prepared.
The outstanding issues noted in the draft report were reviewed and updated by
the Transitional Investment Manager in new model in determining the
appropriate valuation for the RUMS project.
Portfolio valuation as at 31 December 2022
The fair value of the Company's investment portfolio as at 31 December 2022
was USS11.5 million. The movements from IPO are detailed in the bridge below
and exclude the onerous contract provision.
Fair value of investments from IPO to 31 December 2022
The basis of assumptions used by the Transitional Investment Manager in the 31
December 2022 portfolio valuations are outlined in the 'Portfolio Valuation'
section.
(31) The Company has received advice that abort liabilities associated
with the RUMS project are restricted to the level of the SolarArise holding
company and therefore the value of SolarArise can not fall below US$nil.
Basis of assumptions
Economic assumptions
The main economic assumptions used in the portfolio valuation as at 31
December 2022 are inflation forecasts, interest rates, foreign exchange rates
and power price forecasts.
· Inflation forecasts: Our approach is to blend two inflation
forecasts from reputable third-party sources.
· Interest rates: Interest rate forecasts are only relevant for the
Indian portfolio of assets. As existing facility agreements are in place, we
have assumed the rates as at 31 December 2022 are the long-term rates.
· Foreign exchange rate: Underlying valuations are calculated in
local currency and converted back to US Dollars at the spot rate at the
relevant valuation date.
· Power price forecasts: All assets in the SolarArise portfolio
have long-term fixed price power purchase agreements and therefore market
forecasts are not required. The NISPI portfolio generates revenue through the
sale of power to the grid at the wholesale electricity spot market ("WESM")
price and is fully exposed to volatility in WESM price curves. In determining
the forecast for the WESM prices, our approach is to blend at least two
wholesale energy price curves as prepared by market advisors that are
reputable in the relevant market. By blending two or more forecasts, if there
are any differences in methodology or assumptions this provides a hedge
against the different market eventualities that the advisors reflect and
minimises the risk of using a single curve which is too prudent or too
optimistic. Prior period valuations relied on the Former Investment Manager's
in-house assumptions which were not based on independent market forecasts and
were materially higher than independent market forecasters' forecasted prices
utilised in the 31 December 2022 valuations, particularly in the long term.
Discount rates
To determine the reasonable ranges, the applicable cost of equity for the
solar market was estimated considering data points from transactional and
other valuation benchmarks, disclosures in broker reports, other public
disclosures and broader market experience of investors in the market. The
Transitional Investment Manager compared the range to its own risk-adjusted
discount rate analysis and determined the appropriate discount rates to apply.
Generation
Each asset's valuation assumes a 'P50' level of electricity output based on
yield assessments prepared by technical advisors. The P50 output is the
estimated annual amount of electricity generation that has a 50% probability
of being exceeded-both in any single year and over the long-term and a 50%
probability of being underachieved. P50 is the market standard assumption to
utilise in valuation models. There is observed historical underperformance of
the Company's operational assets when compared with the level of generation
assumed at the time of acquisition. A technical advisor has been appointed to
provide updated P50 yield assessments which are expected to be lower than
these original assumptions. In lieu of receiving these, an estimated reduction
has been applied for the 31 December 2022 valuations.
Adjustments to modelling methodology and timing of cash extraction
There are three elements to these adjustments.
· Asset management costs at the SolarArise holding company level:
The ongoing asset management costs associated with the SPVs are charged at the
holding company, rather than at the underlying SPV level. Previously, these
costs were excluded from the valuation. For 31 December 2022, there has been a
change in the SolarArise holding company valuation methodology which now uses
a discounted cash flow methodology to reflect the ongoing liabilities and
asset management fees required to operate the underlying assets which are paid
from the holding company.
· Taxes at the SPV and SolarArise holding company levels: Tax
inputs have been corrected within the models to align with the underlying tax
returns.
· Cash extraction: Prior to 31 December 2022, the capital position
of the underlying assets was not modelled appropriately and, in particular,
negative distributable reserves at NISPI and SolarArise were not taken into
account in the valuations. Correcting for the actual capital position of the
assets had a negative impact on the valuations. Partially mitigating the
impact of this modelling change, the valuations include an assumption that
NISPI, the SolarArise holding company and each of the SolarArise SPVs will
undertake a number of actions including capital reductions within a reasonable
timeframe and within the boundaries of permissible cash extraction to
eliminate some of the cash traps in the future. There remains a risk that
these mitigations may take longer than forecast or may not be achievable.
Conversely, more radical restructuring options are being looked into by the
Transitional Investment Manager, which could lead to further valuation
optimisations.
Carbon credits
For the SolarArise portfolio, carbon credit revenue was previously included in
the base case. These revenues are now treated as an upside as opposed to a
base case assumption and, therefore, have been removed.
Other adjustments
This refers to the balance of valuation movements in the period excluding the
factors noted above including the inclusion of actual performance figures
during the period. In addition, a number of other assumptions that were either
inaccurate, or incongruent with standard market practice for the Company's
assets, have been adjusted. These include updating lease and other operational
costs to reflect contractual terms and inclusion of capex for inverter
replacements.
Valuation approach for SolarArise
SolarArise has been valued as a total portfolio and this includes the six
operational assets, the liabilities associated with the construction-ready
RUMS project that was commercially not viable to proceed as at 31 December
2022, and the costs, assets and liabilities of the holding company, all based
on a 43% ownership share. As the liabilities associated with abandoning the
RUMS project represented a broad range of possible outcomes, the worst of
which would be greater than the value of the assets held, it has been
determined that the fair value of the SolarArise portfolio as at 31 December
2022 was US$nil(31). This represents abort liabilities for the RUMS project of
US$12.0 million for the 43% ownership.
The RUMS project
The total bridge movement of the RUMS project reflects the cash put in since
IPO from the SolarArise holding company and the negative valuation of US$12.0
million at 31 December 2022.
Valuation sensitivities
The sensitivities are based on owning 43% of SolarArise and 40% of NISPI as at
31 December 2022. For each of the sensitivities shown, it is assumed that
potential changes occur independently with no effect on any other assumption.
The sensitivity movements are presented both on a cents per share basis and as
a percentage of the Company 's NAV. For SolarArise, the sensitivities in the
chart below are calculated on its operational portfolio, excluding the RUMS
project. As the total value of SolarArise (including the RUMS project) as at
31 December 2022 is US$nil, the downsides shown below are not reflective of
the actual impact on the Company (as the value of SolarArise can not fall
below US$nil).
Discount rate: A range of discount rates are applied in calculating the fair
value of investments, considering the location, technology and lifecycle stage
of each asset as well as leverage and the split of fixed to variable revenues.
A 100bps increase or decrease in the levered cost of equity for each portfolio
has been applied.
Generation: The sensitivity assumes a 10% increase or decrease in total
forecast generation relative to the base case for each year of the asset life.
Power price curve: The sensitivity assumes a 25% increase or decrease in power
prices relative to the base case for each year of the asset life (excluding
any period covered by a PPA).
Inflation: The sensitivity assumes a 1% increase or decrease in inflation
relative to the base case for each year of the asset life. Where revenue or
cost items have a contractually defined indexation profile, this has not been
sensitised.
RUMS project abort liabilities: As at 31 December 2022, the least value
destructive option was to abort the RUMS project. Third-party advisors were
engaged to review the range of abort liabilities that could arise. The
potential outcomes ranged from a worst case liability of US$33.2 million to a
mitigated case of US$14.1 million on a 100% basis. The sensitivity shows the
impact on Company value by adopting the ends of these ranges vs. the assumed
abort estimation of US$27.8 million.
Cash extraction: As at 31 December 2022, NISPI, the SolarArise holding company
and each of the SolarArise SPVs had significant negative distributable reserve
balances, prohibiting the payment of dividends. The valuations have been
updated to reflect this but assume that some measures to eliminate cash traps
within a reasonable timeframe are implemented, for example, capital
reductions. The sensitivity assumes that such measures to eliminate cash traps
are delayed by c. 12 months at both NISPI and SolarArise.
FX rate: Investments are held in the currency of the territory in which the
asset is located. At 31 December 2022, the Company was impacted by the US
Dollar strengthening against both the Philippine Peso and the Indian Rupee
over the period. A flat decrease or increase of 10% in the relevant rate over
the remaining asset life of each plant has been applied to the final values as
at 31 December 2022.
Financial Review
The Financial Statements of the Company for the period from 1 November 2021 to
31 December 2022 are set out in this report. The Financial Statements have
been prepared in accordance with United Kingdom adopted international
accounting standards and the applicable legal requirements of the Companies
Act 2006.
Basis of accounting
The Company applies IFRS 10 and Investment Entities: Amendments to IFRS 10,
IFRS 12 and IAS 28, which state that investment entities should measure all
their subsidiaries, joint ventures and associates that are themselves
investment entities at fair value. The primary impact of this application, in
comparison to consolidating subsidiaries, is that the cash balances, the
working capital balances and borrowings in its subsidiaries are presented as
part of the Company's fair value of investments.
The comparative period is the period from incorporation on 6 September 2021,
to 31 October 2021, being the Company's first accounting period. On 16
November 2021, the Company extended its accounting period to 31 December 2022.
The Company did not commence its operating activities until the listing of its
ordinary shares on the London Stock Exchange on 14 December 2021, and
therefore, there is no profit or loss up to this date.
Results for the period ended 31 December 2022
US$m
Net asset value 86.6
Fair value of Company's investments 11.5
Net assets per share (cents) 49.3
Movement on fair value of investments (47.0)
Onerous contract provision with respect to 57% acquisition of SolarArise (38.5)
Loss for the period (88.8)
Net assets
The net asset value as at 31 December 2022 was US$86.6 million or 49.3 cents
per ordinary share. The fair value of the Company's investment portfolio as at
31 December 2022 was USS11.5 million.
The valuation of the underlying portfolio has decreased significantly due to a
detailed review of all modelled assumptions affecting the valuations.
Net asset value bridge - IPO to 31 December 2022
Notes to the NAV bridge
· IPO cash proceeds: US$115.4 million raised at IPO (before
associated listing expenses), resulting in the issue of 115.4 million shares.
· Consideration shares issued on SolarArise 43% acquisition: In
August 2022, AEIT completed the acquisition of 43% of SolarArise. Completion
comprised of consideration of US$30.2 million, settled through the issue of
26.0 million ordinary shares at US$1.16035 per share and cash of US$2.7
million that was paid by SolarArise to the Indian tax authorities on behalf of
the sellers.
· Gross proceeds received in subsequent placing: The number of
shares subsequently increased from 141.4 million to 175.7 million during Q4
2022 pursuant the placing of shares for cash that closed on 16 November 2022
raising gross proceeds of US$35.3 million.
· Change In fair value of investments: The change of -US$47.0
million represents the decrease in fair value of the underlying investments
relative to their acquisition prices. This is outlined further in note 9 to
the Financial Statements. The fair value of the Company's investments held on
the balance sheet as at 31 December 2022 only includes the fair value of
NISPI. Given the likely value of the crystallised abort liabilities on the
RUMS project has been assumed that a market participant would look at the
SolarArise platform in its entirety and would write the value of SolarArise as
a whole down to US$nil. This represents a total abort liability of US$27.8
million (100% basis).
· Onerous contract provision: At 31 December 2022, the Company had
a commitment to purchase the remaining 57% of SolarArise. This transaction
completed in January 2023 for a total consideration of US$38.5 million. Based
on the 31 December 2022 valuation of SolarArise, the value of 57% of
SolarArise was significantly lower than the consideration payable, and
effectively US$nil, and therefore, an onerous contract has been recognised in
the Company's balance sheet. See note 13 to the Financial Statements for
further information.
· Other Company-level costs: This relates to the Company-level
costs incurred in the period of US$3.5 million, offset by FX gains of US$1.7
million. Included in these costs are exceptional costs incurred following the
temporary share suspension of US$1.2 million, relating to the 31 December 2022
valuations and the finalisation of the 2022 audit. See note 4 to the Financial
Statements.
Income
In accordance with the Statement of Recommended Practice: Financial Statements
of Investment Trust Companies and Venture Capital Trusts ("SORP") issued in
July 2022 by the Association of Investment Companies ("AIC"), the statement of
comprehensive income differentiates between the 'revenue' account and the
'capital' account, and the sum of both items equals the Company's profit for
the year. Items classified as capital in nature either relate directly to the
Company's investment portfolio or are costs deemed attributable to the
long-term capital growth of the Company.
In the period ended 31 December 2022, the Company's total revenue was negative
US$85.5 million comprising of the movement of fair value of investments
(US$47.0 million) and an onerous contract provision recognised in respect of
the purchase price of the remaining 57% of SolarArise (US$38.5 million). The
operating expenses included in the statement of comprehensive income for the
year were US$3.3 million. These comprise US$1.4 million Former Investment
Manager fees and US$3.5 million operating expenses offset by US$1.7 million
net foreign exchange gains in the period. The details on how the Former
Investment Manager's fees were charged are as set out in note 19 to the
Financial Statements.
Ongoing charges
The ongoing charges ratio ("OCR") is a measure, expressed as a percentage of
average net assets, of the regular, recurring annual costs of running the
Company. It has been calculated and disclosed in accordance with the AIC
methodology, as annualised ongoing charges (i.e. excluding acquisition costs
and other non-recurring items) divided by the average published undiluted NAV
in the year. For the period ended 31 December 2022, the OCR was 2.5%. The OCR
is an APM.
Financing
The Company does not have any debt. However it is permitted to have debt
within its underlying investments. Per the Company's investment policy,
gearing should not exceed 65% of the Adjusted GAV, with the Company targeting
gearing of below 50% in the medium term. External debt financing is only at
the level of the Indian solar portfolio and, as at 31 December 2022, this
comprised outstanding principal amounts of US$45.9 million (pro rated for
economic ownership), representing a leverage ratio of 27%, increasing to 46%
on a committed basis (including 100% of SolarArise).
Dividends
During the period, interim dividends totalling US$1.9 million were paid (0.44
cents per share paid in respect of the period from IPO to 31 March 2022 in
June 2022, 0.44 cents per share paid in respect of the quarter to 30 June 2022
in September 2022 and 0.44 cents per share paid in respect of the quarter to
30 September 2022 in December 2022).
Post the period end, a further interim dividend of 1.18 cents per share was
declared in respect of the quarter to 31 December 2022 and paid in May 2023,
and therefore dividends of 2.5 cents per share were paid in respect of the
period under review.
Impact Report
Impact highlights(32)
Providing financial returns through clean energy generation
Installed operational capacity - MW Clean energy generated - MWh EU Taxonomy alignment(33)
100 - SolarArise 85,199 100%
32 - NISPI
Providing environmental returns through GHG emission avoidance
GHG emissions avoided - tCO(2)e Equivalent UK cars taken off the road - No.
34,427
62,770
Providing environmental returns through GHG emission avoidance
Employment directly supported full time equivalent ("FTE") jobs - No.
148
Contributing to UN SDGs
32 These metrics have been proportioned to account for AEIT's share of
the SolarArise and NISPI assets during the reporting period.
33 This calculation excludes cash held by the Company.
Impact and ESG approach
Objective
The Company delivers on climate change mitigation through its investments.
Nowhere is it more urgent to invest in renewable energy solutions that provide
an alternative to polluting fossil fuels and coal than in Asia. The Company's
investments in sustainable energy target these rapidly growing and emerging
economies where greenhouse gas emissions ("GHGs") continue to grow rapidly.
The investee companies within the investment portfolio address the climate
change mitigation priorities set out in those countries' Nationally Determined
Contributions ("NDCs") under the Paris Agreement on Climate Change, and
efforts to achieve the United Nations Sustainable Development Goals ("UN
SDGs"). The investment strategy finances renewable energy generation and
avoids GHG emissions, while having a positive impact in the communities in
which it invests.
As a result of this inherently green contribution, the Company was awarded the
Green Economy Mark by the London Stock Exchange in December 2021. In 2022 AEIT
was also classified as an Article 9 financial product with a sustainable
objective under the EU Sustainable Finance Disclosure Regulation ("SFDR").
2022 highlighted the challenges of realising global ambitions to rapidly
transition to the low-carbon and resilient economic trajectories that climate
science shows to be both imperative and overdue. Despite geopolitical shocks,
such as the war in Ukraine that forced a new focus on energy security at all
costs and commodity price volatility, there was significant momentum around
climate action in the Company's target markets.
Country Commitments to renewable energy transition in 2021 and 2022
Bangladesh Updated NDC targets in 2021 to lower GHG emissions by 7% by 2030, largely
through renewable energy.(34)
Indonesia US$10 billion in public finance and US$10 billion in private finance from the
Just Energy Transition Partnership with the US, Japan and European countries
over the next five years (from 2022), to peak power sector emissions by 2030
and to increase carbon emission reduction targets by 25%.(35)
Vietnam Just Energy Transition Partnership to mobilise US$15 billion in public and
private finance.(36)
Philippines 35% renewable energy by 2030, and 50% by 2040. In 2021, committed to a 75%
emissions reduction by 2030, and moratorium on new coal power.(37)
India New NDCs, strengthening its 2030 emissions intensity target to 45% below 2005
levels, and 50% of electricity from non-fossil fuel energy sources and net
zero emissions by 2070.(38)
Approach
The Company integrates environmental, social and governance ("ESG") risk
management into its due diligence and management systems and applies a
triple-return approach that considers social and environmental objectives
alongside the financial returns of the Company.
Financial return(39) Environmental return Social return
Providing shareholders with attractive dividend growth and prospects for Protecting natural resources and the environment. Delivering economic and social progress, through job creation and contribution
long‑term capital appreciation. to UN SDGs.
The Investment Manager supports investee companies in monitoring and reporting
on mandatory Principle Adverse Impact ("PAI") indicators established under the
SFDR framework, and a range of additional ESG-related indicators, as part of
its approach to active investment management.
The Company uses a set of key performance indicators ("KPIs") that aims to
balance economic, environmental and social considerations, aligning the
triple-return approach to the impact areas of generating clean energy,
avoiding emissions and supporting quality jobs. The KPIs are listed below:
Impact Area Metric Unit Definition Definition framework
Financial return: Installed operational capacity MW Total amount of energy the portfolio can transmit as of the end of the IRIS+. Energy Capacity (PD3764).
reporting period
Generating clean
energy
New energy capacity added MW Amount of new energy capacity connected to the grid during the reporting IRIS+. Energy Capacity Added (PI9448)
period
Energy generated for sale MWh Amount of energy generated and sold to offtaker(s) during the reporting period IRIS+. Energy Generated for Sale:
Renewable (PI5842)
Environmental return: Avoided emissions tCO(2)e Avoided emissions from renewable energy generation estimated using IFI Joint Methodology for Renewable Energy Accounting approach
standardised grid emission factor per MWh.
Avoiding emissions
Social return: Quality Jobs Jobs in directly financed companies Number of FTE jobs Number of full-time equivalent employees working for enterprises financed or IRIS+. Jobs in Directly Supported/ Financed Enterprises. (PI4874)
supported by the organisation as of the end of the reporting period, aligned
with HIPSO Direct Jobs Supported (Operations and Maintenance)
34 https://www.global-climatescope.org/markets/bd/.
35
https://www.reuters.com/business/cop/us-japan-partners-mobilise-20-bln-move-indonesia-away-coal-power-2022-11-15/.
36
https://www.reuters.com/business/energy/g7-vietnam-reach-155-bln-climate-deal-cut-coal-use-sources-2022-12-14/.
37
https://www.reuters.com/business/environment/philippines-raises-carbon-emission-reduction-target-75-by-2030-2021-04-16/.
38
https://climateactiontracker.org/countries/india/targets/#:~:text=Target%20Overview,capacity%20to%2050%25%20by%202030.
39 The Board is continuing undertaking a strategic review of the options
for the Company's future. The outcome of the strategic review is likely to
result in changes to the Company's target financial return. For further
information on the strategic review, see Chair's Statement.
Beyond the Company contributions to these selected impact KPIs, investments
support a range of positive contributions in the communities where the Company
operates assets, including through ancillary corporate social responsibility
efforts. These additional sustainability contributions are also monitored and
highlighted in this impact report.
Financial return: generating clean energy
The financial return target, in particular yield through dividends, is
contributed to through the generation of clean energy and the operational
performance of assets. Put simply, with all other things being equal, the more
green energy an asset produces, the better the financial returns for investors
through receiving revenue for the electricity that is sold. In this respect,
there is no trade-off between financial returns and positive impact through
avoided emissions.
In looking through the impact lens, financial returns are generated though the
installed operational capacity and the resulting clean energy generated, and
these returns are sustainable through the alignment to the EU Taxonomy.
The following KPIs are proportionally based on 43% ownership of SolarArise
from 19 August 2022 and 40% ownership of NISPI.
Installed operational Clean energy generated - EU Taxonomy alignment
capacity - MW MWh 100%
100 - SolarArise 85,199
32 - NISPI
In 2022 the investment portfolio comprised interests in 313 MW of installed
operational capacity. The proportional share of this was 132 MW of generating
capacity which generated 85,199 MWh of clean renewable energy in the
Philippines and India in 2022. This clean energy generation is equivalent to
providing 41,954 people in the Philippines and 52,080 people in India with
clean electricity. This directly supports the Philippines' and India's NDCs,
helping to address their climate mitigation priorities.
Equivalent number of people provided with clean electricity
41,954 in the Philippines(40) 52,080 in India(41)
Considering post period completions on the remaining 57% equity share in
SolarArise (including the decision in October 2023 to proceed with the RUMS
project) and a 99.8% equity share in VSS, the generation potential of the
operational AEIT portfolio increases to an estimated 704,757 MWh/year in 2024.
Potential MWh contribution of AEIT's operational portfolio following post
period completions
40 On the basis of: IEA 2020. Average per capita electricity consumption
in Philippines (0.84 MWh).
41 On the basis of: IEA 2020. Average per capita electricity consumption
in India (0.96 MWh).
The Company aims for 100% alignment of sustainable investments with the EU
Taxonomy. In some cases, bringing infrastructure assets into alignment with
the full requirements of technical screening criteria may be part of the value
addition of the acquisition. Investee companies may also make substantial
contributions to other environmental objectives of the EU Taxonomy. To ensure
no significant harm to biodiversity and ecosystems, environmental screening is
conducted for all investments. Physical climate risk and vulnerability
assessments have been completed for all investee company sites by an external
consultant. Investee companies will continue to develop longer term climate
change risk management plans as part of their ongoing ESG management approach.
As at 31 December 2022 100% of existing investments made a significant
contribution to climate change mitigation and were aligned with the EU
Taxonomy.
This analysis was conducted by the Former Investment Manager, and reviewed by
the ESG Committee and Transitional Investment Manager, drawing on publicly
available information and proprietary data sets, and information provided
directly by investee companies. Where necessary, inputs from third-party
technical advisors may be reflected.
Improving the resilience of the investment portfolio is another way to ensure
long-term financial returns. Climate change is a daily lived reality at the
renewable energy sites operated by investee companies, which are located in
some of the most climate vulnerable regions of the world. The Company's
efforts to assess climate risk and develop scenarios for its investment
portfolio are discussed as part of its 'Task Force on Climate- Related
Financial Disclosures' in this Annual Report.
The EU Taxonomy
The EU Taxonomy was published in 2020, the culmination of an extensive effort
to develop a shared framework for defining environmentally sustainable
activities across the European Union. The EU Taxonomy specifies six
environmental objectives:
· climate change mitigation;
· climate change adaption;
· protecting marine and water resources;
· transitioning to a circular economy; preventing pollution;
· protecting and restoring biodiversity and ecosystems
The EU Taxonomy is a critical element of the EU's Sustainable Finance Action
Plan, and has a central role in the EU SFDR which requires definition of the
extent to which investments with an environmentally sustainable objective will
meet EU Taxonomy requirements.
Environmental return: avoiding emissions
Through investments in renewable energy, the Company protects natural
resources and the environment, directly avoiding greenhouse gas emissions.
The following KPIs are proportional based on 43% ownership of SolarArise from
19 August 2022 and 40% ownership of NISPI.
Avoided emissions-tCO(2)e(42) Equivalent cars taken off the road in the UK(43) GHG intensity of investee companies -
40,928 - SolarArise 34,427 tCO(2)e/US$m
21,842 - NISPI 35.87
The total 85,199 MWh of clean energy generated resulted in a total of 62,770
tonnes of avoided CO(2) emissions. This is equivalent to 34,427 cars taken off
the road in the UK for a year.
Considering post period completions on the remaining 57% equity share in
SolarArise (including the decision in October 2023 to proceed with the RUMS
project) and a 99.8% equity share in VSS, the potential contribution of AEIT's
operational portfolio to carbon avoided emissions increases substantially to
568,164 tCO(2)e/year in 2024(44).
Potential tCO(2)e avoided emissions and impact from AEIT's operational
portfolio following post period completions
The Former Investment Manager engaged with its investee companies to measure
their GHG emissions. Some GHG emissions will inevitably be associated with
investments even though they help avoid emissions that would otherwise result
if the same electricity was produced using fossil fuels.
2022 carbon footprint
During the reporting period, the Former Investment Manager engaged with an
external advisor to help calculate the first GHG emissions footprint and this
has been reviewed by the Transitional Investment Manager and recommended by
the ESG Committee for approval by the Board. The Company has quantified and
reported its carbon footprint using guidance from the Partnership for Carbon
Accounting Financials' ("PCAF") 2022 'Global GHG Accounting and Reporting
Standard for the Financial Industry' ('Financed Emissions Standard'). The PCAF
'Financed Emissions Standard' was developed with the purpose of providing
financial institutions with transparent, harmonised methodologies to measure
and report emissions in conformance with the requirements of the 'Greenhouse
Gas Protocol Corporate Value Chain (Scope 3) Accounting and Reporting
Standard'. The Company has consolidated its approach for carbon accounting
using guidance from the operational control approach for unlisted equity.
Additionally, for SolarArise, the Company received a carbon footprint for the
whole 2022 calendar year. As such, SolarArise's emissions have been
proportioned to AEIT's stake and pro-rated from 19 August 2022, the date of
investment and the pro-rated share of NISPI's emissions are considered. More
detail on how different activities were allocated to different scopes is laid
out below:
Scope Portfolio ('financed') Company emissions Total emissions Percentage of total
emissions (tCO(2)e) (tCO(2)e) (tCO(2)e) (%)
1 - Direct emissions 22.98 0.00 22.98 1
2 - Indirect emissions 191.49 0.00 191.49 7
3 - Indirect emissions 1,909.10 490.71 2,399.81 92
Carbon footprint - Scope 1, 2, 3 2,123.57 490.71 2,614.29 100
42 Carbon avoided is calculated using the International Financial
Institution's approach for harmonised GHG accounting.
43 Equivalent cars is calculated using a factor for displaced cars
derived from the UK government GHG Conversion Factors for Company reporting.
44 These calculations are based on the operational asset's 'generation
potential', which is based on the operational asset's 'P50' yield assumptions
for the next available full operational year (including asset degradation that
occurs naturally over the asset's lifetime and the 'hair cut' included in the
31 December 2022 valuation models).
Scope 1 emissions are primarily associated with on-site fuel combustion. In
2022, Scope 1 emissions accounted for the smallest proportion of the
investment portfolio's carbon footprint. This figure reflects limited use of
on-site combustion due to the 2022 portfolio consisting solely of operational
solar assets. Scope 2 emissions are associated with imported electricity to
the solar portfolio, and accounted for 7% of its total emissions. The Company,
as a legal entity, has no direct employees, owned or leased real estate, or
direct assets, and therefore the Company has no Scope 1 or 2 emissions.
Scope 3 emissions account for the majority of emissions, making up 92% of the
total carbon footprint. These emissions are associated with activities that
are indirectly associated with the Company and its portfolio investments. The
Company's emissions relate to AEIT's purchased goods and services (for example
the emissions relating to the Company's legal services and the Former
Investment Manager's services) and AEIT's Board travel. In line with the PCAF
methodology, all of the portfolio Scope 3 emissions for these various
activities are captured by the GHG Protocol's Scope 3 Category 15 -
Investments, also known as 'financed emissions'. The majority of financed
emissions are related to purchased goods and services, fuel- and
energy-related activities (not included in Scope 1 and 2), travel and waste.
In 2022, the carbon intensity was 19.76 tCO(2)e/MW capacity. This includes
Scope 1, 2 and 3 of the whole of AEIT's emissions. Absolute emissions will
continue to grow as the Company invests into more assets, with the relative
proportion of Scope 1 emissions likely to increase as construction assets are
added to the portfolio. The weighted average carbon intensity ("WACI") in
2022, which represents the emissions intensity per million US Dollars of
revenue generated, was calculated to 35.87 tCO(2)e/ US$m revenue.
Data quality
The Company recognises the challenges in measuring its GHG emissions for its
sites and activities. In particular:
· quality and availability of data collected for conversion
calculations can significantly impact the accuracy of the final emissions
output; and
· availability and specificity of emissions factors used to convert
data into related emissions can also impact the validity of final emissions
output.
In 2022, the Former Investment Manager received a combination of physical
activity-based data and spend-based data for Scope 1 and 2 activities and
spend data only for Scope 3 activities. Spend-based emissions factors are
typically derived on industry average greenhouse gas emissions, and therefore
are less specific than activity-based emissions factors. In addition,
spend-based emissions factors for the Philippines were not available, and
therefore the external advisor calculated the majority of the NISPI
portfolio's emissions using its default French emission factors. Given that
the majority of emissions were calculated via spend-based emissions factors
and that there was a lack of appropriate emissions factors for the geographic
locations of the investment portfolio, the Transitional Investment Manager has
low confidence in the precision of these emission calculations.
Supply chain visibility and quantification, and the availability of
appropriate emissions factors are considerable challenges facing companies
seeking to calculate and report on their carbon footprint. Given the
difficulties in capturing and calculating the carbon footprint, the
Transitional Investment Manager will continue to develop and refine its
methodology, working with asset management service providers to reduce
reliance on spend data and with carbon consultants to improve the specificity
of emissions factors.
Social return: quality jobs
The Company aims to contribute to delivering economic and social progress and
help build resilient communities through supporting jobs and contributing to
the UN SDGs.
Employment - directly supported full time equivalent jobs Number of UN SDGs contributed to
148 4 - SDGs 7, 8, 13, 15
As at 31 December 2022, the investment portfolio (proportioned by share)
supported 5 FTE salaried jobs at its investee companies and 143 FTE contractor
positions. While the FTE employee numbers remained largely stable throughout
2022, contractor numbers at SolarArise reduced in Q4 2022 as scheduled
maintenance work concluded.
FTE employee opportunities supported FTE contractor employment opportunities supported
5 143
Considering the post-period completion on the remaining 57% equity share in
SolarArise (which was a committed investment before the end of the period),
the potential contribution of the portfolio to total supported jobs increases
substantially to 287(45).
The vast majority of both direct and contractor jobs were occupied by men.
Gender pay-gap analysis was not possible in most cases given no female
employees at the investee companies. A substantial gender pay gap was reported
at one investee company, with the average daily gross pay for men being 51%
higher than women. Attracting and retaining diverse talent, including female
employees, remains a challenge. No targets have been set in the reporting
period.
No major health and safety incidents resulting in lost working time were
reported on any of the investee company sites in 2022. This may have resulted
from the proactive efforts to promote health and safety understanding,
including mandatory health and safety training for contractors and other
workers at operating solar sites.
Adherence with global standards and guidelines on human rights and good
governance, such as the UN Principles on Business and Human Rights and the
OECD Guidelines for Multinational Enterprises, are key to the Company's
commitments. All investee companies in the investment portfolio established
grievance mechanisms through which any stakeholder could raise concerns about
their project implementation frameworks. In 2022 no complaints related to
adherence with these frameworks were reported to the Former Investment
Manager. The Transitional Investment Manager will continue to work closely
with investee companies to identify and action areas where implementation of
these frameworks can be further enhanced, make information about the
functioning of these mechanisms more readily available, and establish
appropriate policies to promote respect for human rights in all activities,
including with their suppliers.
Our commitment to enhance impact opportunities is reflected by the
partnerships NISPI has made with the Philippines Department of Environment and
a local organisation in Negros. This collaboration is introducing stingless
bees in Mt. Kanla-on Natural Park to support honey production and boost
biodiversity. Meanwhile, NISPI's Agrovoltaics program combines food
agriculture with solar plants, yielding peanuts and allowing goats to graze
for additional income. Future collaborations with community-focused NGOs are
planned to maximise agricultural potential and benefit the local community.
45 This calculation excludes potential jobs created during the
construction phase of RUMS project and estimates the number of jobs supported
by considering a 40% share of jobs supported at NISPI during Q4 2022 and a
100% share of jobs supported at SolarArise during at 31 December 2022.
Contribution to UN SDGs
Through its investments and additional impact activities, the Company made
active contributions to four UN SDGs as outlined below.
AEIT contribution to UN SDG targets
Affordable and clean energy
7.2: Reducing India's and the Philippines' reliance on fossil fuels through
renewable energy generation by AEIT's assets.
Decent work and economic growth
8.5: Achieve productive employment and decent work, illustrated by the 148
jobs supported by the portfolio and the additional income generated for locals
through the robotics program at NISPI.
8.8: Protecting labour rights and promoting safe and secure working
environments for all workers through policies and grievance mechanisms and
health and safety training.
Take urgent action to combat climate change and its impacts
13.1: Strengthening resilience of portfolio to climate-related hazards through
climate risk analysis and monitoring.
13.2: Contributing to national strategies to increase share of renewable
energy to the grid in the fight against climate change
Life on land
15.5: Reduce the degradation of natural habitats and loss of biodiversity,
protecting and preventing impacts to threatened species and other local flora
and fauna through the implementation of environmental screening and monitoring
at AEIT's assets and the delivery of additional initiatives such as the
introduction of bees in Mt. Kanla-on National Park.
Risk and Risk Management
Risk appetite
The Board is ultimately responsible for defining the level and type of risk
that the Company considers appropriate, ensuring it remains in line with the
Company's investment objective and investment policy that sets out the key
components of its risk appetite. The Company's risk appetite is considered in
light of the emerging and principal risks that the Company faces, including
having regard to, amongst other things, the level of exposure to power prices,
gearing and financing risk and operational risk.
Risk management
The Company's risk management framework is overseen by the Audit and Risk
Committee, comprising independent non-executive Directors.
The Company's risk management policies and procedures do not aim to eliminate
risk completely, as this is neither possible nor commercially viable. Rather,
they seek to reduce the likelihood of occurrence, and ensure that the Company
is adequately prepared to deal with risks and minimise their impact if they
materialise.
Procedures to identify principal or emerging risks:
The purpose of the risk management framework and policies adopted by the
Company is to identify risks and enable the Board to respond to risks with
mitigating actions to reduce the potential impacts should the risk
materialise. The Board regularly reviews the Company's risk matrix, with a
focus on ensuring appropriate controls are in place to mitigate each risk. The
risk management framework was implemented at IPO and has been in place for the
period under review and continues to be in operation.
The following is a description of the procedures for identifying principal
risks that each service provider highlights to the Board on a regular basis.
● Alternative Investment Fund Manager: The Company has appointed Adepa Asset
Management S.A to be the Alternative Investment Fund Manager of the Company
(the "AIFM") for the purposes of UK AIFM Directive. Accordingly, the AIFM is
responsible for exercising the risk management function in respect of the
Company. As part of this the AIFM has put in place a Risk Management Policy
which includes stress testing procedures and risk limits. As part of this risk
management function, the AIFM maintains a register of identified risks
including emerging risks likely to impact the Company. This is updated
quarterly following discussions with the Investment Manager and presented to
the Board for review and challenge.
● Investment Manager: Portfolio Management has been delegated by the AIFM to
the Investment Manager. The Investment Manager provides a report to the Board
at least quarterly on asset level risks, industry trends, insight to future
challenges in the renewable sector including the regulatory, political and
economic changes likely to impact the renewables sector.
● Brokers: Brokers provide regular updates to the Board on Company
performance, advice specific to the Company's sector, competitors and the
investment company market whilst working with the Board and Investment Manager
to communicate with shareholders.
● Company Secretary and Auditors: Brief the Board on forthcoming
legislation/regulatory change that might impact on the Company. The Auditor
also has specific briefings at least annually.
Procedures for oversight:
The Audit and Risk Committee undertakes a quarterly review of the Company's
risk matrix 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.
The Board has completed a robust assessment of the company's emerging and
principal risks, including:
(a) a description of its principal risks;
(b) what procedures are in place to identify emerging risks; and
(c) an explanation of how these are being managed or mitigated.
Following the issues that came to light during the audit of the 2022 Annual
Report and Financial Statements, the Audit and Risk Committee has reflected on
risks that have subsequently crystallised and the steps it has taken and
changes it has made as a result. These are detailed in the table below:
Crystallised risk Impact of crystallisation Steps taken/changes made
Valuation process · Temporary share suspension due to a material uncertainty · A detailed review of the key assumptions included in the
regarding the fair value of the Company's assets financial models and the valuation methodology for the Company's operational
assets in India and the Philippines which had been prepared by the Former
· Identified errors and inaccuracies in the prior period valuations Investment Manager carried out by an independent third-party, PwC
· Inaccurate or aggressive valuation assumptions identified by the
Company following this review have been updated in line with best practice and
market standards
· Introduction of a SolarArise holding company model to accurately
reflect asset management costs, Indian tax liabilities and cash repatriation
out of India
· Replacement of the Former Investment Manager effective 31 October
2023 by the Transitional Investment Manager
· Replacement of the former independent valuer
· Appointment of PwC as an independent valuation expert to provide
a private independent opinion on the reasonableness of the valuations that are
prepared by the Transitional Investment Manager in respect of the 31 December
2022 and subsequent valuations
· Commenced a review of value optimisation strategies with
Transitional Investment Manager
Asset valuations · Large decreases in the NAV when subsequent valuations carried out · Replacement of the Former Investment Manager effective 31 October
using less aggressive assumptions in line with best practice and market 2023 by the Transitional Investment Manager
standards
● Updated valuation process as detailed above
· The Transitional Investment Manager has additional controls in
place for any conflicted transactions
Reliance on third-party service providers (Company and asset level) · Valuations based on inaccurate or aggressive assumptions · Replacement of the Former Investment Manager effective 31 October
subsequently being updated in line with best practice and market standards, 2023 by the Transitional Investment Manager. The Transitional Investment
leading to a large decline in the NAV Manager has a comprehensive due diligence process that should flag
pre-construction risks at the point at which commitments were made
· Inherited asset structures that do not optimise cash extraction
by AEIT, thus requiring reorganisation · The Transitional Investment Manager is currently undertaking a
review of governance procedures across all of the investment portfolio to
· Asset management contracts have not been formalised propose potential improvements to the Board
· Reports from whistleblowers of key information being withheld · The former independent valuer has been stepped down and PwC have
from the Board, particularly with regard to the cost and funding of the been appointed as the independent valuation expert to provide a private
proposed construction of the RUMS project and the potential penalties that independent opinion on the reasonableness of the valuations that are prepared
would result from aborting it by the Transitional Investment Manager in respect of the 31 December 2022 and
subsequent valuations
· The Board, which had embedded itself in the detail of the
Company's activities, has ensured, in so far as possible, that the new service
providers have been given the appropriate handover and information to carry
out their duties
· Getting in place appropriate asset management agreements is a
priority for the Transitional Investment Manager
· Changes made to SPV governance to ensure that the Board is aware
of all commitments made in the underlying investments prior to signing
Construction risk · Changes in macro-economic factors from the commitment date to the · Appointment of independent legal advisors to review potential
construction commencement date, such as the increase in solar panel prices abandonment liabilities associated with the RUMS project and determine
(and EPC costs) and the changes in FX rates probability of crystallisation
· Commitments made without the Board being made aware of all · Appointment of an independent India-based financial adviser to
associated risks of the project advise the Board on the options for the RUMS project, including proceeding
with construction and aborting it, and the associated risks of each option
· Appointment of an independent technical advisor, Fichtner, to
oversee the RUMS project and provide independent reports to the Transitional
Investment Manager and the Board
Generation · Operational assets acquired underperformed against P50 technical · Appointment of independent technical advisor, Sgurr, to conduct
assumptions refreshed due diligence on the P50 technical assumptions to validate or update
modelled assumptions in 31 December 2023 and subsequent valuations
· Pending receipt of the Sgurr report, a reduction has been applied
to the P50 yield assessments used for the 31 December 2022, 30 June 2023 and
30 September 2023 valuations to reflect observed historical underperformance
of the operational assets when compared with the level of generation assumed
at the time of acquisition
Principal risks and uncertainties
The Board has defined principal risks that have the potential to materially
impact the Company's business model, reputation or financial standing. 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.
External economic, political and climate risk factors for the Company -
external risks that could impact the income and value of the Company's
investments
Risk Potential impact Mitigation
Foreign currency The Company's functional currency is US Dollars (USD), but the Company's While the Company does not hedge translational risk on the valuation of the
investments are based in countries whose local currency is not USD. investment portfolio, the Company may hedge revenues which are to be received
by the Company in currencies other than the US Dollar and used to fund
Therefore, changes in foreign currency exchange rates may affect the value of dividend payments to shareholders.
the investments due to adverse changes in currencies or dividend income from
the investment portfolio may be less than expected when received in US The Investment Manager monitors foreign exchange exposures using short and
Dollars. long-term cash flow forecasts. The Company's portfolio concentrations and
currency holdings are monitored regularly by the Board, AIFM and Investment
Manager.
Interest rates While most borrowing arrangements are on fixed rate terms, the timing of The Company seeks to maintain a leverage ratio of below 65% of Adjusted GAV.
entering into such agreements when interest rates are increasing, may lead to
reduced project returns and a lower valuation of the investment portfolio. The Company seeks to limit its exposure to interest rate volatility and
therefore the investee companies fix the finance costs at the date of signing.
Where rates are variable, rising rates could lead to adverse debt-cover
ratios. Interest rate assumptions are reviewed and monitored regularly by the AIFM and
Investment Manager in the valuation process. Debt cover ratios are monitored
Refinancing of such borrowings may also be at higher interest rates than monthly at the investee company level.
expected resulting in lower returns and decreased revenue flows to AEIT.
Macro level changes in interest rates may affect the valuation of the
investment portfolio by impacting the valuation discount rates and could also
impact returns on any cash deposits.
Inflation The expenditure of the Company's investments are frequently partially Inflation assumptions are reviewed and monitored regularly by the AIFM and
index-linked and therefore any discrepancy with the Company's inflation Investment Manager in the valuation process.
expectations could impact positively or negatively on the Company's cash
flows.
The India portfolio currently has a non-index linked fixed price revenue
stream over the life of the asset presenting the risk that high-cost inflation
could cannibalise returns.
Tax Changes to the existing rates and rules could have an adverse effect on the The Company considers tax matters at the point of investment and actively
valuation of the investment portfolio and levels of dividends paid to considers forthcoming changes in the jurisdictions in which it operates and
shareholders. has tax advisors to ensure it is abreast of any upcoming changes to tax
legislation and rates, and can implement necessary changes.
Investment in multiple jurisdictions diversifies exposure to individual
country regulations and hence risk. During the period, the Board commissioned
additional tax advice, particularly in relation to SolarArise.
Reputation Events over the course of 2023, namely the temporary share suspension, the Since the temporary share suspension, the Board has worked tirelessly to
decline in the Company's NAV and public allegations raised by the Board and finalise the December 2022 valuations, complete the 2022 Annual Report and
Former Investment Manager can impact the Company's reputation and ultimately work with the Auditor to finalise the 2022 financial audit as soon as
have an adverse effect on shareholder returns. practicable. In doing so, the Board has appointed external advisors to perform
detailed reviews; has actively and transparently engaged with shareholders
notifying them of issues as soon as they arise and has made positive changes
to improve the Company's future and outlook.
Government policy or regulatory changes Relevant government support for the transition to clean affordable energy in The Company aims to hold a diversified investment portfolio, and a diversified
the countries in which the investment portfolio is situated may change or set of electricity sale arrangements within target countries, so that it is
decrease. Changes to government policy may lead to changes in tax incentives, unlikely that all assets will be affected equally by any single potential
auction processes for PPAs, and other contracting and pricing mechanisms for change in regulation or policy. Country level investment strategies have
renewable energy, which could lead to opportunities being commercially assessed government commitments to scaling up low carbon energy and taking
unviable or unattractive which may lead to lower returns or slower deployment ambitious action on climate change, and the Investment Manager and investee
of capital. companies monitor policy developments closely.
Additionally, the investment portfolio does not benefit from any revenue
subsidies.
Climate change Climate-related risks relate to transition risks and physical risks. Climate risk assessments are undertaken for each asset in the portfolio as
part of the investment process and screening for EU Taxonomy alignment.
Further detail can be found in the TCFD disclosures The prominent transition risk relates to oversupply of renewable energy over
time, which may cause downward pressure on long-term power price forecasts There is growing demand for consistent, comparable, reliable, and clear
setting lower capture prices, including the risks associated with periods of climate related financial disclosure from many participants in financial
negative power prices and power price volatility in markets This could markets. The Board, AIFM and Investment Manager have included TCFD as part of
ultimately lead to a shortfall in anticipated revenues to the Company. the Company's Annual Report which provides a detailed analysis of risks and
opportunities associated with climate change.
The prominent physical risks relate to long-term changes to weather patterns,
which could cause a material adverse change to an asset's energy yield from
that expected at the time of investment. Physical risks associated with acute
and chronic temperature change could lead to flooding, storms and typhoons,
and high winds. This could damage equipment and force operational downtime
resulting in reduced revenue capability and profitability of the portfolio of
assets.
Internal risk factors for the Company - internal risks that could impact
target returns and result in Company objectives not being met over the longer
term.
Risk Potential impact Mitigation
Availability of pipeline investments A deterioration of the investment pipeline may impact the ability to commit The Board and Investment Manager oversee the investment pipeline and abort
and deploy capital into suitable opportunities in the expected time frame. exposure and frequently monitor its progress in relation to Company targets.
Competition in the infrastructure market remains strong which could limit the
ability of the Company to acquire assets in line with target returns, or incur There will be no further investment acquisitions until the strategic review
abort costs where transactions are unsuccessful. has concluded.
Both deployment risks could ultimately impact shareholder returns.
Investment restrictions Failure to comply with the investment restrictions may arise due to foreign The Board monitors compliance through information provided by the Investment
currency movements, construction over-spend, asset allocation or failure to Manager, Company Secretary and AIFM on a quarterly basis or prior to
deploy capital in a timely manner. commitment of capital. The assessment of potential or actual breaches to
investment restrictions forms part of the Board's risk management framework.
Breaches of investment restrictions may result in lower returns than expected,
lower dividend income or reputational damage. The decision to proceed with the RUMS project may result in a breach of the
single country limit and as a mitigation measure shareholder and FCA approval
was sought, and received, to amend the investment policy.
Conflicts of interest The appointments of the AIFM and Investment Manager are on a non-exclusive The AIFM and Investment Manager have clear conflicts of interest and
basis and each of the AIFM and Investment Manager manages other accounts, allocation policies in place. Transactions where there may be potential
vehicles and funds pursuing similar investment strategies to that of the conflicts of interest follow these policies.
Company. This has the potential to give rise to conflicts of interest.
Conflict of interest policies are also in place at the Board and Company
Asset transfers between funds managed by the Investment Manager give rise to levels.
potential conflicts of interest.
The Board, AIFM and Investment Manager are responsible for establishing and
There are possibilities for the Board to have conflicts of interest. regularly reviewing procedures to identify, manage, monitor and disclose
conflicts of interest relating to the activities of the Company.
Reliance on Company level third-party service providers (crystallised risk The Company has no employees and therefore it has contractually delegated to All third-party service providers are subject to ongoing oversight by the
post period) third-party service providers the day-to-day management of the Company. Board and AIFM and the performance of the key service providers is reviewed on
a regular basis. The Board's Management Engagement Committee (the "MEC")
A deterioration in the performance of any of the key service providers performs a formal review process at least once a year to consider the ongoing
including the Investment Manager, AIFM and Administrator could have an impact performance of the Investment Manager and other service providers and makes a
on the Company's performance and there is a risk that the Company may not be recommendation on the continuing appointments.
able to find appropriate replacements should the engagement with the service
providers be terminated. As explained under 'Procedures for oversight', following the reliance on
third-party service provider risk crystallised post-period, changes have been
In particular, the Company relies on the experience and recommendations of the made to further mitigate the crystallisation of this risk in the future.
Investment Manager for the achievement of its investment objective.
Valuations process (crystallised risk post period) The valuation of the investment portfolio is dependent on financial models It is Company policy to include sign off by an independent third-party on the
which utilise certain key drivers and assumptions: principally discount and quarterly valuations provided by the Investment Manager. Valuations are
local inflation rates, near and long-term electricity price outlooks and the reviewed by the Audit and Risk Committee and approved by the AIFM and Board
amount of electricity generated and sold. before adoption in the quarterly results.
Some assumptions and projections are based on the experience and judgement of As explained under 'Procedures for oversight', following the valuation process
the Investment Manager. risk crystallised at the period end, changes have been made to further
mitigate the crystallisation of this risk, at the time of both acquisitions of
Actual results may vary significantly from the projections and assumptions investments and subsequent valuations, in the future.
which may reduce the valuations and profitability of the Company leading to
reduced returns to shareholders.
Errors may occur in financial models.
Environmental, Social and Governance ('ESG') Policy Material ESG risks may arise such as health and safety, human rights, bribery, The Board has put in place an ESG Committee to specifically review and monitor
corruption and environmental damage that may impact shareholder returns. ESG-related polices, processes and risks.
If the Company fails to adhere to its public commitments and policies as ESG risk consideration is embedded in the investment cycle. Ongoing
stated in its SFDR pre-contractual disclosures and its Triple Return operational and construction ESG risk management is reviewed periodically by
commitment, this could result in shareholder dissatisfaction and adversely the Investment Manager, who works closely with asset managers on ESG and
affect the reputation of the Company. impact standards and reporting.
Cyber security Attempts may be made to access the IT systems and data used by the Investment Cyber security policies and procedures implemented by key service providers
Manager, Administrator and other service providers through a cyber-attack or are reported to the Board and AIFM periodically to ensure conformity.
malicious breaches of confidentiality that could impact the Company's
reputation or result in financial loss. Thorough third-party due diligence is carried out on all suppliers engaged to
service the Company.
All providers have processes in place to identify cyber security risks and
apply and monitor appropriate risk plans.
Compliance with relevant laws, regulations and rules Failure to comply with any relevant laws, regulations and rules, including The Board monitors compliance with relevant laws, regulations and rules and
section 1158 of the Corporation Tax Act 2010, the rules of the FCA, (including associated information provided by the Company Secretary, AIFM and Investment
the Listing Rules and the Prospectus Regulation Rules), the Companies Act Manager on a quarterly basis and the assessment of associated risks forms part
2006, the UK Market Abuse Regulation, AIFMD, Accounting Standards and the of the Board's risk management framework. All parties are appropriately
General Data Protection Regulation, could result in financial penalties, loss qualified professionals and ensure that they keep informed with any
of investment trust status, legal proceedings against the Company and/or its developments or updates to relevant laws, regulations and rules.
Directors or reputational damage.
Risk factors for the investment portfolio - risks that could adversely impact
the portfolio's performance and, as a result, the ability to achieve the
Company's objectives and target returns over the longer term.
Risk Potential impact Mitigation
Power prices Revenues of certain investee companies in the investment portfolio are wholly The Investment Manager will seek to acquire assets which have a PPA in place,
dependent on the wholesale electricity market price achieved and therefore or obtain a PPA to ensure visibility of revenue streams. It is targeted that
such revenue is subject to volatility. more than 75% of an investee company's revenue, on an aggregated basis, will
be secured by a mid to long-term PPA therefore minimising the impact of
The income and value of the Company's investments may be adversely impacted by declining energy prices.
changes in the prevailing market prices of electricity and/or prices
achievable for offtaker contracts. Model assumptions are based on quarterly reports from a number of independent
established market consultants to inform on the electricity prices over the
There is a risk that the actual prices received vary significantly from the longer term. A new policy has been adopted by the Company, effective for the
model assumptions, leading to a shortfall in anticipated revenues to the 31 December 2022 and subsequent valuations, to blend at least two wholesale
Company and dividends payable to shareholders. electricity spot market price curves as prepared by market advisors that are
reputable in these markets.
Capital structure The ability to extract cash efficiently from the underlying investee companies The Transitional Investment Manager has ensured that the underlying valuation
is imperative to maximise the value of the Company's Investment portfolio. models reflect the current capital structure of the underlying investments.
The risk that cash extraction is delayed/trapped due to inefficient capital Assumptions have been made within the underlying valuation models with regard
structures can decrease the value of the underlying investments. to capital restructuring and the timing required to put these into effect. The
sensitivity of delays in this timing are shown in note 9.
Credit risk Some investee companies may have one offtaker therefore increasing the Prior to taking part in the auction process for a PPA, the Investment Manager
concentration of credit risk. Late or non-payment of sales invoices issued by diligences and assesses the credit risk of an offtaker to conclude on credit
the investee companies may lead to lower cash flows and revenues received by worthiness.
the Company.
Where possible, late interest payment terms will be included in offtake
agreements.
The Investment Manager ensures asset managers monitor outstanding balances and
actively chase non-payments.
Construction (crystallised risk at the period end) Construction projects carry the risk of over-spend, supply chain risk, delays Where an investment is made in a construction phase asset, it must have an
or disruptions to construction milestones, connection failures, changes in offtake agreement in place; the land for the construction must be identified
market conditions and/ or inability of contractors to perform their or contractually-secured where appropriate; and all relevant permits must have
contractual commitments, all of which could impact Company performance. These been granted.
include, but are not limited to:
The Investment Manager carries out due diligence on any external third-party
- increase in prices of component parts (for example solar panels) construction contractors prior to engaging. Its ESG due diligence processes
also support efforts to anticipate and manage construction related risks.
- legislative changes impacting the construction timeline or
construction cost Construction of the RUMS project has seen a number of these risks being
crystallised. The Company has appointed an independent technical advisor,
- inaccurate assessment of aborting projects post-commitment Fichtner, to oversee the construction going forward.
Generation The volume of solar irradiation available on a given day is out of the The Company utilised technical consultants prior to acquisition to advise on
Company's control and this is a risk on the performance of the assets. the assumptions which should be made regarding volume and its impact on
performance for each investment and to minimise downtime.
Inconsistent irradiation may have a significant effect on performance of the
investment portfolio if actual electricity generation is significantly The Investment Manager works with investee companies to stay informed of grid
different from the assumptions made in the commercial model. This may and supporting infrastructure maintenance arrangements, and liaises with
negatively impact project returns or expected dividend income. relevant operators to seek to anticipate and minimise interruptions.
Additionally, the investment portfolio may be subject to the risk of The investee companies have in place insurance to cover certain losses and
interruption in grid connection or irregularities in overall power supply damage.
infrastructure.
The Company will seek to diversify the renewable energy technologies it
Circumstances may arise that adversely affect the performance of the relevant invests in to achieve a consistent generation profile across the investment
renewable energy asset. portfolio.
These include health and safety, grid connection, material damage or The Board has appointed an independent technical advisor, Sgurr, to review the
degradation, equipment failures and environmental risks. technical assumptions associated with each asset in the portfolio.
Reliance on asset level third-party service providers The performance of some investee companies may be dependent on external Prior to entering into a service contract, the Investment Manager carries out
O&M service providers and/or asset managers in remote locations and relies due diligence on third-party suppliers to assess reputation, experience and
upon them performing their duties with the required skill or level of care. breadth of the local team.
The Investment Manager seeks to include service level metrics in O&M
agreements with minimum production, overall plant performance metrics and
health and safety targets at a minimum.
It is now understood that asset management agreements are outstanding on some
portfolio assets and this is a priority for the Transitional Investment
Manager.
Cyber security Attempts may be made to access the IT systems and data used by the third-party Processes in place and training for the Transitional Investment Manager to
asset managers through a cyber-attack or phishing attempts that could result mitigate risks associated with receiving emails from bad actors.
in financial loss.
Third-party due diligence is carried out on asset managers engaged to manage
investment portfolio.
Further financial risks are detailed in note 18 to the Financial Statements.
Emerging risks
The Board is of the opinion that these are the principal risks, but mindful of
their obligations under the changes made to the AIC Code of Corporate
Governance issued in February 2019, the Board has also considered emerging
risks which may impact the forthcoming six-month period. These include:
Internal risk factors for the Company - risks that impact target returns and
result in Company objectives not being met over the longer term.
Risk Potential impact Mitigation
Changes in key service providers Post the period end the Board has appointed OEGEN as Transitional Investment The Board has embedded itself in the detail of the Company's activities and
Manager for an initial six-month period. There is a risk that these service ensured in so far as possible, that the new service providers have been given
providers fail to get up to speed on the Company's affairs as quickly as the appropriate handover and information to carry out their duties.
required and are not able to deliver to the targets they have been set by the
Board. Both PwC and the Transitional Investment Manager are experienced in their
relevant fields and were appointed on the basis of their experience, track
record and depth of knowledge.
Strategic review At the General Meeting held on 19 December 2023, shareholders voted against Irrespective of the outcome of the strategic review, the Board and
the proposal for the winding-up of the Company and appointment of liquidators. Transitional Investment Manager are focussed on, in particular:
Consequently, the Board is continuing with its strategic review of the options · developing plans to maximise the value of the current investment
for the Company's future, which is expected to be concluded by the end of the portfolio by developing remediation plans to address asset-specific
first quarter of 2024. performance issues and optimisation plans for the capital structures within
the investment portfolio; and
At this stage, based on the information currently available, the most likely
outcome of the strategic review is a proposal for either the relaunch of the · having regard to the increase in the Company's ongoing charges
Company, potentially with a new investment objective, investment policy, ratio as a result of its substantially reduced size, undertaking a review of
target returns and/or Investment Manager but maintaining the impact-led, Asian all of the Company's costs with the objective of making cost savings where
focus, or a managed wind-down and subsequent winding-up of the Company. In appropriate.
either of the expected scenarios, as a consequence of the Company's current
size, the Company is likely to have a higher ongoing charges ratio than its Any recommendation to relaunch the Company will be subject to the Board, with
renewable energy investment company peers. its advisers, having completed a thorough analysis of the recommended
proposal, with a particular focus on the proposed investment strategy, the
The outcome of the strategic review will be subject to shareholder approval. proposed Investment Manager's relevant investment experience and track record
Until such time as shareholders have approved proposals for the Company's and marketing capabilities and resources available to the Company, prospective
future, the Company's future will remain uncertain, and this could adversely returns risks and risk management and whether, overall, the proposal offers a
affect the price at which the shares trade once the temporary share suspension compelling investment proposition for both existing and prospective investors
has been lifted. to enable the Company to scale up its size significantly over time.
Any recommended proposal for a managed wind-down will seek to achieve an
appropriate balance between optimising shareholder value and timely return of
capital to shareholders.
Task Force on Climate-Related Financial Disclosures
Compliance statement
The Company has complied with the requirements of LR 9.8.6(8)R by including
climate-related financial disclosures consistent with the TCFD recommendations
and recommended disclosures except for quantitative information around climate
risks and opportunities alongside transition plans as required by TCFD
Strategy principle (b), and accurate Scope 3 emission data as required under
Metrics and Targets principle (b). The Company will work to provide this
information as soon as practically possible.
Kristine Damkjaer
ESG Committee Chair
22 January 2024
Governance
a) Describe the Board's oversight of climate-related risks and opportunities
Addressing climate change through investment in renewable energy in fast
growing and emerging economies in Asia is the essence of the investment
strategy. The Board has established a delegated ESG Committee to review and
monitor ESG-related matters, which include climate-related risks. The ESG
Committee meets at least two times a year and reports back to the Board to
provide recommendations for how sustainability should be considered within the
Company Strategy. The Committee understands climate change issues and sought
support from external advisors to supplement its work.
The Company embeds climate change within its triple return investment strategy
through investments into assets that support the transition to a low carbon
economy, or which mitigate the effects of climate change. The Board have
considered climate change as an integral component of the investment objective
and have defined the Company as an Article 9 Fund under the SFDR, targeting
95% of investments to be aligned with the EU Taxonomy's Climate Change
Mitigation criteria. In 2022, as part of the Company's annual EU Taxonomy
alignment assessment, the Board instructed the Former Investment Manager to
appoint an external advisor to undertake climate change assessments on AEIT's
portfolio to identify climate related risks and potential mitigation
strategies. These reports have been reviewed by the ESG Committee as part of
preparing this report.
The Audit and Risk committee ("ARC") also considers climate change as part of
its oversight of investment processes. The ESG Committee and ARC work closely
to oversee climate-related disclosures and agree remedial measures. Climate
change risk is included within the Company's risk register.
b) Describe management's role in assessing and managing climate-related risks
and opportunities
The Former Investment Manager had an ESG Monitoring and Stewardship Committee
and considered climate change as part of its remit. Climate risk assessments
were completed for prospective investments reports were shared with the Former
Investment Manager, and opportunities to build resilience around investments
were considered. The Transitional Investment Manager will continue to assess
climate risks and consider opportunities for mitigation for existing and
prospective investments.
Strategy
The Company aims to finance climate action by investing in sustainable energy
and the business model is expressly designed to accelerate the low-carbon
transition in Asian emerging economies, both benefitting from and reinforcing
efforts to act on climate change. As highlighted in the 'Impact Report'
section of this Annual Report, the investment portfolio has contributed to
climate change mitigation. The Company invests in some of the most
climate-vulnerable countries in the world, and is seeking to assess and manage
climate risk, and foster resilience through its investment strategy.
a) Describe the impact of climate-related risks and opportunities the
organisation has identified over the short, medium and long term
The Former Investment Manager coordinated a transition risk analysis, with
external specialist support using an independent sustainability advisor's
Climate Risk and Impacts Solutions Platform, based on transition scenarios
from the International Energy Agency (the "IEA") and aligned with
Intergovernmental Panel on Climate Change (IPCC) scenarios under three
time-horizons: 2025, 2030 and 2040. These time-horizons have been selected to
reflect the asset lives. The IEA Announced Pledges Scenarios ("APS") was used
as the low-carbon scenario, and assumes that all climate commitments made by
governments around the world will be met in full and on time. APS assumes
global warming will reach 1.70C by 2100. The IEA Stated Policies Scenario
(STEPS) was used as the business-as-usual carbon scenario which reflects
current sector-by-sector and country by country assessment of the existing
policies that are in place. STEPS assumes global warming will reach 2.5⁰C by
2100. The transition assessment considered transition indicators including
eight opportunity indicators (carbon price, national decarbonisation plans,
per capita emissions, annual investment in renewables, solar PV power
generation, biomass power generation, battery storage capacity, reputation)
and one risk indicator (increase in critical metals demand). The choice of
these indicators was driven by the IEA model used to support the transition
risk assessment.
Physical climate risk analysis was performed for each of the investee company
sites using the external specialist's proprietary physical risk screening
tool. Using the IPCC's 2021 Sixth Assessment Report scenarios, a low and high
greenhouse gas emissions scenario (SSP1-2.6 and SSP5-8.5) were selected under
three time-horizons: baseline, 2030 and 2050. On this basis, four key hazards
were identified: tropical cyclones, water stress & drought, wildfire
weather, and extreme heat, which are expected to increase in the medium (2030)
and long (2050) term. A potential impact from these hazard types could include
increased costs for energy and water resources. The combined conditions of
high temperature, high wind speed and low humidity may also increase the risk
of wildfires.
b) Describe the impact of climate-related risks and opportunities on the
organisation's businesses, strategy and financial planning
The tables below are a summary of the key material risks and opportunities
that are likely to affect portfolio investments, the investment strategy and
financial planning in the short, medium and long term. Risks included are
those that the Investment Manager estimate to be potentially significant (e.g.
significant revenue decrease, costs increases NAV decrease, increased cost of
capital).
Climate-related risks
Time horizon Risk type Impact
Short-term (2025) Policy change and power price volatility: Climate and sustainable energy Financial planning
policies are evolving and dynamic in core target markets. These changes are
monitored closely as increased efforts to increase energy supply and the share
of renewables in the grid could present itself as a competition risk.
Increased competition for investments may lead to a reduction in financial
returns of new projects. In countries with dynamic markets, there is a risk of
renewable energy cannibalisation.
Grid capacity limitations: The capacity of local grids in target economies to Strategy, financial planning
accommodate large increases in intermittent energy supply is a concern, given
current technical specifications and management capacities. This may impact
the project's ability to sell its maximum energy generation potential.
Supply chain risk: More copper for grids, silicon for solar panels and lithium Strategy, financial planning
for battery storage is required to transition to low-emissions power systems.
Rapidly growing critical mineral demand for clean energy technologies is
resulting in supply chain competition, increases in costs, and supply chain
sustainability risk management issues.
Medium-term (2030) Climate-related hazards: Risks associated with tropical cyclones are already Portfolio investments, financial planning
high, and factored into asset design in most cases, but may increase. High
wind speeds can cause physical damage to sites, equipment, and vehicles and
can lead to increased expenditure for reparations. Extreme heat could cause a
health and safety risk for personnel and could overheat electrical equipment.
Flooding can also lead to physical damage of the assets that will require
additional expenditure for reparations and lost revenue during the reparations
period.
Construction risk: Climate-related physical risks may also affect construction Portfolio investments
projects, including inaccurate assessment of the opportunity, and changes in
market conditions linked to climate-related disruptions.
Technology obsolescence risk: As more resources and scientific research are Strategy
dedicated to achieving net zero goals, new technologies may emerge that could
replace current renewables or environmental infrastructure technologies.
Price uncertainty: A faster than forecast transition to a global renewable Financial planning
energy supply would increase the penetration of zero marginal cost electricity
leading to 'price cannibalisation' and could result in generating assets
without long-term PPAs selling their power for less than forecast at
investment.
Long-term (2050) Climate-related physical risks: As climate change worsens, portfolio Portfolio investments
investments could face a higher likelihood of experiencing extreme weather
events, both chronic (for example, altered rainfall patterns, wildfires, and
extreme heat) and acute (for example, more frequent and severe tropical
cyclones, storms, heat waves, droughts, and floods), potentially resulting in
more physical damage to on-site infrastructure and off-site transmission and
distribution systems.
Climate-related opportunities
Time horizon Opportunity type Impact
Short-term (2025) National decarbonisation plans: Target governments remain committed to climate Strategy
action and increasing the share of renewable energy in the energy mix.
Governments in target countries continue to offer incentives to invest in the
focus technologies, notably solar energy, but also in wind.
Demand for renewable energy: There is a growing demand for renewable energy, Financial planning, strategy
and pressure on businesses and corporations to decarbonise and purchase
renewable energy through both regulatory and climate-related commitments is
growing. The investment strategy targets fast growing economies in Asia, with
expanding populations. This increased demand creates short-term opportunities
to sell renewable energy at a premium. An increase in public support for
decarbonisation is also poised to increase demand for impact-focused
investment in public markets. Growing demand for baseload renewable energy
power creates new opportunities for pipeline portfolio technologies, such as
biopower.
Integration of new energy technologies including those that address Portfolio investments
intermittency issues: Energy storage technologies, such as lithium-ion
batteries, are becoming more widely adopted and efficient, making it possible
to store solar energy for later use. This presents short-term opportunities to
provide more reliable and consistent solar supply.
Medium-term (2030) Technological advancements: Can further reduce the levelised cost of energy, Financial planning
and create attractive new pipeline opportunities. For example, the use of
higher-efficiency solar cells can increase the energy output of solar panels,
while reducing the cost per unit of energy produced.
Carbon pricing and taxation: Could help direct capital towards renewable Strategy
technologies and away from carbon-intensive sources
Long-term (2050) Continued commitment to decarbonisation and technology innovation: As the Strategy
viability and cost effectiveness of low-carbon sustainable energy solutions
become mainstream in emerging Asia, so will the business model. These may
provide opportunities to broaden investment mandate, including by taking on
different approaches and technologies.
c) Describe the resilience of the organisation's strategy, taking into
consideration different future climate scenarios, including a 2°C or lower
scenario
Overall, the Company is well positioned to take advantage of the investment
opportunities that arise from this transition over the short-, medium- and
long-term. The speed and efficiency of the transition will have a notable
effect on the performance of the Company. If global temperature change is to
be limited to a 2°C increase from pre-industrial levels by 2100, it is
expected there will need to be significant intervention from governments,
regulators, and the market. Given the investment mandate, there is a direct
correlation between the transition to a low-carbon future and the size of the
investment opportunity over the long-term. If temperatures increase beyond
2°C, the physical effects of climate change will be more severe, creating
additional risks for the assets acquired. Climate-related risks and
opportunities on balance provide more opportunities to the Company than risks
to the Company is likely to benefit from an APS scenario more than the STEPS
scenario pathway.
Risk management
a) Describe the organisation's processes for identifying and assessing
climate-related risks
Addressing climate change is the central mandate of the Company. With the
support of an independent sustainability advisor and its software and
proprietary tools, the Former Investment Manager completed an exercise whereby
climate-related risks and opportunities to the Company were identified and
assessed. This was reviewed by the ESG Committee. All principal risks are
integrated into the Company's risk register and management frameworks.
b) Describe the organisation's processes for managing climate-related risks
There are a number of risk mitigation strategies the Company can utilise to
mitigate climate-related risk:
· Diversify the investment portfolio across technologies,
geographies and development stage
· Carry out diligence and analysis to understand latest
trends and dynamics and status of policy, using external experts where
appropriate
· Work with policy makers and regulators to educate and
influence policy and frameworks that accelerate the transition to a clean
energy future, and actively engage with stakeholders and communities to
mitigate resistance to renewable energy assets.
· Actively manage and engage with investee companies on
climate-related issues, risks and opportunities, encouraging asset-level
adaptation plans that mitigate most material risks (for example, ensuring
effective insurance cover, diversified supply chains, and equipment spares)
For example, while the NISPI facilities were not damaged by Super Typhoon Rai
in December 2021 and continuing rain tested the adequacy of the site drainage
system. In response, increased maintenance of the drainage system was
introduced to avoid potential flooding. This paid off during the 2022 typhoon
season in Negros, when, despite severe rains., NISPI's sites were not
disrupted.
Site managers at the SolarArise facilities across India are also taking
precautionary approaches: when severe rains or flooding are envisaged, plants
can be shut-down to avoid costly damage that would result in long-term service
disruptions. Major drainage works are also being undertaken at
flood-vulnerable sites, to adapt to increasingly strong rains, alongside
proactive measures to re-wire the plants to make them more flood resistant.
c) Describe how processes for identifying, assessing, and managing
climate-related risks are integrated into the organisation's overall risk
management
In 2022, the Former Investment Manager completed comprehensive physical
climate risk assessments for all AEIT's infrastructure assets to capture any
potential climate-related risks not already considered in existing
risk-management frameworks. These assessments were carried out with the
external specialist in line with EU Taxonomy Do No Significant Harm
requirements, using its proprietary assessment and data tool. The tool has
been developed using best-in-class open-source climate data and was used to
extract data on relevant natural hazards that may have an impact under present
day climate conditions, as well as in the future climate scenario.
Further monitoring of how severe weather events may affect the operations of
AEIT's investee companies, and opportunities to reduce service interruptions
will continue to build portfolio resilience against climate change and help
manage risks going forward.
Metrics and targets
a) Disclose the metrics used by the organisation to assess climate-related
risks and opportunities
The Company continues to develop its framework for assessing climate-related
risks and opportunities.
Opportunity metrics:
The investment strategy is aligned to climate mitigation. Therefore, the
metrics presented below measure the contribution made through generating clean
energy and driving a transition to net zero. These metrics measure the scale
of the climate-related opportunities the Company has taken advantage of. The
following KPIs track this contribution:
· installed operational capacity: MW
· clean energy generated: MWh
· EU Taxonomy alignment: %; and
· GHG emissions avoided: tCO(2)(e)
Risk metrics:
In 2022, the Former Investment Manager undertook a review of 100% of
infrastructure assets which were screened for physical and transition-related
climate change risks. Portfolio diversification is also a core metric to
monitor climate-related risk.
· 100% infrastructure assets screened for climate-related
risks.
· Portfolio diversification
b) Disclose Scope 1, Scope 2, and if appropriate, Scope 3 greenhouse gas
emissions, and the related risks
Efforts to measure and manage the Company's GHG footprint complement the focus
on avoiding GHG emissions by investing in sustainable energy in fast growing
and carbon intensive economies in Asia where demand for energy continues to
soar, as well as its adherence with the highest standards of good practice for
financial products with a sustainability objective under the EU Sustainable
Finance Disclosure Regulation. The transition risks associated with future
constraints on emissions, whilst not expected to be a high risk for a
low-carbon portfolio, can also be monitored through carbon measurement.
The Former Investment Manager worked with all investee companies and an
external advisor, to account for GHG emissions. The external advisor is a
certified B-Corporation offering support and a software solution that
estimates the GHG emissions associated with financial expenditures. Disclosure
of Scope 1, 2 and 3 emissions can be found in the Impact Report.
c) Describe the targets used by the organisation to manage climate-related
risks and opportunities and performance against targets
The Transitional Investment Manager has set a climate-related risk management
target to maintain the investment portfolio's current status of 100% of
infrastructure assets screened for climate-related risks.
2022 was the first year of operation for AEIT. The metrics set out in the
Impact Report set an initial GHG footprint for the Company. Most investee
companies are poised to grow their renewable energy asset base. As a result,
at this stage, quantitative GHG emission reduction targets which would address
any risks in relation to future constraints on emissions are not being
specified. As the infrastructure investment portfolio becomes more
established, the Company will explore the viability and value addition of
setting portfolio level targets given these risks are not expected to be high
for the portfolio. This is expected to occur in 2024. In the meantime the
Transitional Investment Manager has set a qualitative target to continue to
work with investee companies to improve key elements of GHG measurement
related to operations and maintenance service providers.
A climate-related opportunity management target has already been set as part
of AEIT's SFDR disclosures. AEIT has a target of 100% alignment of sustainable
investments with the EU Taxonomy.
Key TCFD catch ups and progress throughout 2022
Target
1. 100% of infrastructure assets screened for climate-related risks. 2. Improve key elements of GHG measurement related to operations and 3. 100% alignment of sustainable investments with the EU taxonomy alignment.
maintenance service providers.
Achieved in 2022
1. 100% 2. First carbon footprinting exercise completed with guidance from an external 3. 100%(46)
advisor. Large proportion of data based on spend data.
46 This calculation excludes cash held that is committed and is
awaiting deployment.
Stakeholder Engagement
The Board is aware of the need to foster the Company's business relationships
with suppliers, customers and other key stakeholders through its stakeholder
management activities as described below. The Board believes that positive
relationships with each of the Company's stakeholders are important to support
the Company's long-term success.
Key stakeholders How we engage Key communication
Shareholders of AEIT The Board communicates with shareholders through the following ways: Following positive feedback from shareholders to participate in a further fund
raise by the Company, which led to the subsequent placing in November 2022
The Board looks to attract long-term investors in the Company and, in doing · Dialogue with shareholders
so, it has sought out regular opportunities to communicate with shareholders.
Since the temporary share suspension, the Board has worked determinedly with
· Regular market announcements the Auditor to finalise the 2022 Annual Report and Accounts and the audit as
soon as practicable. In doing so, the Board has actively and transparently
· Dedicated website, providing information on strategy, performance engaged with shareholders, discussing with them issues as soon as they rise
and investment portfolio and has made other positive changes to improve the Company's future and
outlook.
· The Board receives shareholder feedback after meetings and agrees
actions with the Investment Manager The next key milestone will be the completion of the strategic review and the
Board will continue to engage proactively with shareholders, taking their
· Material communications to shareholders, such as NAV feedback into account in reaching a conclusion on the best option for the
announcements, the Annual and Interim Reports and significant business events Company's future.
· Regular discussions with and briefings for investors and analysts
on evolution of KPIs and reporting metrics
Service providers, including the Investment Manager, AIFM, Administrator and The Board receives regular reports from the Investment Manager and maintains From the IPO, the Board had endeavoured to use its collective skills,
Company Secretarial and other corporate service providers ongoing dialogue between scheduled meetings. Representatives of the Investment knowledge and experience to work collaboratively with and support the Former
Manager attend Board and Committee meetings. Investment Manager, taking into account the Former Investment Manager's lack
Building trusted relationships through an on-going two way communication and
of prior experience of managing a London-listed investment company, and
aligned objectives for growth and development To build and maintain strong working relationships, the Company's key service engaged frequently with members of the Former Investment Manager's team
providers are invited to attend quarterly Board meetings to present their responsible for the Company, including communicating the Board's expectations.
respective reports. This enables the Board to exercise effective oversight of For further information, see the 'Annual evaluation of the Investment Manager'
the Company's activities. The Board also has in place a Management Engagement in the Management Engagement Committee Report and 'Evaluation of the Board
Committee that meets annually to review service provider performance. Further post temporary share suspension' in the Nomination Committee Report.
information on the Management Engagement Committee can be found in the
Management Engagement Committee Report. From 1 November 2023, the Company has appointed a transitional Investment
Manager with clear objectives for its initial term that runs until April 2024.
The Company's Auditor is invited to attend all of the Audit and Risk Committee A key milestone was reached following the announcement of the 30 September
meetings and attends at least one meeting per year. The Chair of the Audit and 2023 NAV on 13 December 2023 following a robust valuation process. The Board
Risk Committee maintains regular contact with the Auditor, Investment Manager was heavily involved in this process and ensured all parties were made aware
and Administrator to oversee the audit process. of the history of the investments.
The Board spends time engaging with the Company's key service providers The Board has maintained constant communication with the Company's Auditor
outside of scheduled Board meetings to develop its working relationship with following the temporary share suspension, making it aware of the steps taken
those service providers and ensure the smooth operational function of the to rectify historic issues and updated timelines for signing off the 2022
Company. Annual Report and Accounts and completing the audit.
Asset service providers to the investee companies The Investment Manager actively manages asset level service providers, A key focus for the Transitional Investment Manager is reviewing all
including third-party asset managers, operations and maintenance ('O&M') contractual and governance provisions of the local asset managers to ensure
Building trusted partnerships through shared learnings and an ongoing dialogue contractors, construction managers, owners engineers, suppliers, HSE (Health, they are working within delegated authority frameworks. Updated technical due
and aligned objectives for growth and development Safety, and Environment) contractors and Landowners. diligence is currently being conducted across all operational sites and the
Transitional Investment Manager will feed these findings back to the Board and
Communications with service providers are managed across a variety of through to the valuations once available.
platforms to ensure focus on day-to-day operational performance of the assets.
The Investment Manager undertakes quarterly meetings with external asset
managers to review performance against service provisions, weekly calls with
all operators and formal annual contract reviews.
The Investment Manager's whistleblowing framework allows employees supported
by the investee companies to confidentially raise any concerns or issues.
Local communities Social responsibility engagement by investee companies is highlighted in the The Company received no complaints through the grievance mechanisms and a key
Impact Report. focus of the Transitional Investment Manager will be to review the existing
Making a meaningful contribution in the communities where we invest advances
impact initiatives on sites which benefit the local communities to see if
AEIT impact objective. Strategic priorities for investee company community engagement are agreed on a there are any more opportunities for enhancement.
rolling basis.
Support of investment entity senior management continuing active dialogue with
key stakeholders within the community.
Active maintenance of grievance mechanisms at investee companies that enable
communities to engage around any complaints.
Section 172(1) statement
The Company provides disclosure relevant to the requirements of section 172(1)
(a - f) throughout the Strategic Report. As an externally managed investment
trust, the Company has no employees, however, the Directors assess the impact
that the Company's activities and the delivery of its investment objective has
on its stakeholders as an investor in clean energy generation. These
stakeholders can be the employees of the investee companies within the
investment portfolio, co-shareholders, local communities and the end customers
or investors.
The Directors confirm that they have acted in good faith to promote the
success of the Company for the benefit of shareholders as a whole and have
considered and addressed the references within section 172(1) as below:
S172(1) reference Reference
a. the likely consequences of any decision in the long term, Refer to 'Chair's Statement', 'Our operating model', 'Objectives and KPIs' and
'Post Period Updates' sections of the Strategic Report
b. the interests of the company's employees, The Company does not have any direct employees. However, the Board has widened
the assessment to include employees of the investee companies within the
investment portfolio (for example, through collecting people-related KPIs such
as gender pay gap and diversity statistics).
c. the need to foster the company's business relationships with suppliers, Refer to the 'Stakeholder Engagement' section of the Strategic Report.
customers and others,
d. the impact of the company's operations on the community and the environment, Refer to the 'Environmental return' and 'Social return' sections of the Impact
Report.
e. the desirability of the company maintaining a reputation for high standards of Refer to the first table in this 'Stakeholder Engagement' section of the
business conduct, and Strategic Report and the Report of the Management Engagement Committee in the
Governance Report.
f. the need to act fairly as between members of the company. Refer to the Impact Report and the first table in this 'Stakeholder
Engagement' section of the Strategic Report and the 'Corporate Governance
Report' section of the Governance Report.
The Board reviews ongoing progress, issues and any updates as part of the
quarterly Board meetings through updates from the Investment Manager and the
Brokers. The Investment Manager provides updates on relationships with
stakeholders such as co-shareholders, O&M providers and EPC contractors,
where relevant. The Brokers provide updates on communications with
shareholders and the Management Engagement Committee reviews the Company's
relationships with key suppliers. The Company's risk review framework also
facilitates the identification of items relevant to the section 172(1)
statement. During the annual review of the strategy, objectives and processes,
the Board assesses the longer -term factors relating to the Company's
decisions and the implications for the communities and environments in which
we invest and operate.
Non-financial Information Statement
Non-financial information area Reference
Environmental matters (including the impact of the Company's business on the See 'Environmental return' section of the Impact Report.
environment)
The Company's employees As a closed-ended investment company, the Company has no direct employees.
Information on indirect employees can be found in the 'Social return' section
of the Impact Report.
Community issues See 'Social return' section of the Impact Report.
Social matters See 'Social return' section of the Impact Report.
Respect for human rights See 'Social return' section of the Impact Report.
Anti-corruption and anti-bribery matters See 'Anti-bribery, anti-corruption and tax evasion' section of the Directors'
Report
This Strategic Report has been approved by the Board of Directors and signed
on its behalf by:
Sue Inglis
Chair
22 January 2024
Governance
Board of Directors
Sue Inglis
Chair
Date of appointment
18 October 2021
Committee membership
A E M N R
Relevant skills and experience
Sue is an experienced lawyer and corporate financier with comprehensive
investment company sector knowledge and technical expertise from more than 30
years advising listed investment companies and financial institutions. Her
executive roles included Managing Director - Corporate Finance in the
investment companies team at Cantor Fitzgerald Europe and investment companies
and financial institutions teams at Canaccord Genuity. Sue was a partner and
head of the funds and financial services group at Shepherd & Wedderburn, a
leading Scottish law firm. In 1999 she was a founding partner of Intelli
Corporate Finance, an advisory boutique firm focusing on the asset management
and investment company sectors, which was acquired by Canaccord Genuity in
2009.
Sue retired as an executive in 2018 to pursue a career as a non-executive
director, focusing on investment companies. Sue has previously served on the
boards of several listed investment companies, including NextEnergy Solar Fund
Limited, and was chair of The Bankers Investment Trust PLC.
Current external appointments
Listed companies: Sue is the senior independent director of Baillie Gifford US
Growth Trust PLC and Seraphim Space Investment Trust PLC. She is also the
senior independent director and chair of the audit committee of CT Global
Managed Portfolio Trust PLC.
Other significant appointments: None.
Mukesh Rajani
Senior Independent Director
Date of appointment
18 October 2021
Committee membership
A E M N R
Relevant skills and experience
Mukesh is an experienced advisory, tax, structuring and audit professional
with more than 40 years of experience. He worked at PricewaterhouseCoopers
('PwC') for 35 years, where he was a partner for 25 years. During his time at
PwC, Mukesh advised leading UK and international organisations on a broad
range of complex business issues including market assessment, entry strategy,
regulatory requirements, partner selection, mergers, acquisitions, disposals,
business reorganisations, capital markets, tax structuring, tax litigation and
complex cross-border matters. He was a member of PwC's Emerging Markets Group
and established and led PwC's India Business Group for more than 20 years.
Mukesh was previously an independent non-executive director and chair of the
audit committee of the UK India Business Council, an advocacy and strategic
advisory business on a mission to build economic prosperity in the UK and
India.
Mukesh is a Fellow of the Institute of Chartered Accountants in England and
Wales.
Current external appointments
Listed companies: None.
Other significant appointments: None.
Kirstine Damkjaer
Director
Date of appointment
18 October 2021
Committee membership
A E M N R
Relevant skills and experience
Kirstine is a chair and non-executive director at several companies in Africa,
Denmark and the UK. She has over 25 years of international investment and
asset management experience from positions as non‑executive director, CEO of
EKF the Danish Export Credit Agency, Chief Investment Officer and Global Head
of Equity at the International Finance Corporation and Principal with the
World Bank Pension Plan and Endowment.
Kirstine has worked across multiple sectors with a strong focus on the
sustainability and climate investment agendas. Kirstine is a graduate of the
University of Aarhus, Denmark and a Chartered Financial Analyst (CFA), and has
attended trainings at Stanford, IMD, INSEAD and Copenhagen Business School.
Current external appointments
Listed companies: None.
Other significant appointments: Kirstine is non-executive chair at
Formuepleje. She is also a non-executive director at Africa Finance
Corporation, PensionDanmark, ResourceDanmark and Bladt Industries.
Clifford Tompsett
Director
Date of appointment
18 October 2021
Committee membership
A E M N R
Relevant skills and experience
Clifford is an experienced advisory, transaction and audit professional having
spent his whole career at PricewaterhouseCoopers ('PwC'), including the last
26 years as a partner. He has deep experience and knowledge of work in
emerging markets and across a range of sectors and the execution of complex
transactions, including mergers and acquisitions. He created, built and led
PwC's Global IPO Centre based in London and with hubs in Hong Kong and New
York.
Clifford has previously served as an independent non-executive director and
the chair of the audit committee of three Nasdaq listed purpose acquisition
companies: Kismet Acquisition One Corp, which completed the US$1.9 billion
acquisition of Nexters Inc. an international game development company in 2021,
Kismet Acquisition Three Corp, and Quadro Acquisition One Corp. He is also a
former senior independent director and chair of the audit and risk committee
of Cello Health plc, the AIM-listed global healthcare advisory company.
Clifford is a Fellow of the Institute of Chartered Accountants in England and
Wales.
Current external appointments
Listed companies: None
Other significant appointments: Clifford is an independent non‑executive
director and chair of the audit committee of REED Global Limited (the
recruitment company).
Committee membership
A Audit and Risk Committee
E ESG Committee
M Management Engagement Committee
N Nomination Committee
R Remuneration Committee
Committee Chair
Directors' Report
The Directors present their report for the financial period from 1 November
2021 to 31 December 2022.
Information contained elsewhere in this Annual Report
The information listed in the table below is incorporated into this Report by
reference.
Information Section
Business review Strategic Report
Financial results Financial Statements
Related party transactions Financial Statements - note 19
Dividends Financial Statements - note 7
Principal risks and uncertainties Strategic Report - Principal Risks and Uncertainties
Financial risk management Financial Statements - note 18
Post-balance sheet events Strategic Report - Post Period Updates
Financial Statements - note 22
Likely future developments in the Company's business Chair's Statement - 'Strategic Review', 'Outlook'
Corporate governance statement Corporate Governance - Corporate Governance Report
S.172 Companies Act 2006 statement Strategic Report - 'S.172(1) statement'
Directors Board of Directors
Directors' terms of appointment Corporate Governance - Corporate Givernance Report
Directors' remuneration Corporate Governance - Directors' Remuneration Report
Directors' indemnities Corporate Governance - Directors' Remuneration Report
Directors' interests in shares Corporate Governance - Directors' Remuneration Report
Principal activity
The Company is an investment company as defined in section 833 of the
Companies Act 2006 and operates as an investment trust in accordance with
sections 1158 and 1159 of the Corporation Tax Act 2010. It invests in a
diversified portfolio of sustainable energy infrastructure assets in
fast‑growing markets in Asia with the current objectives(47) of:
(47) The Board is undertaking a strategic review of the options for
the Company's future, and it is expected that the outcome of the strategic
review will result in changes to the Company's investment strategy and policy.
For further information on the strategic review, see page ● .
· providing shareholders with attractive dividend growth and
prospects for long-term capital appreciation;
· protecting natural resources and the environment; and
· delivering economic and social progress, helping build resilient
communities and supporting purposeful activity.
The Company's operating activities commenced on 14 December 2021 when the
Company's ordinary shares were admitted to trading on the London Stock
Exchange's Main Market.
Investment trust status
The Company has been approved as an investment trust under sections 1158 and
1159 of the Corporation Tax Act 2010 with effect from 14 December 2021. The
Company had to meet relevant eligibility conditions to obtain approval as an
investment trust and must comply with ongoing requirements to maintain its
investment trust status, including, but not limited to, retaining no more than
15% of its eligible investment income.
The Directors are of the opinion that the Company conducted its affairs during
the financial period under review, and has continued to conduct its affairs
since 31 December 2022, in compliance with the Investment Trust (Approved
Company) (Tax) Regulations 2011. The Directors intend to continue to conduct
the affairs of the Company to enable it to continue to qualify as an
investment trust under sections 1158 and 1159 of the Corporation Tax Act 2010.
Appointment and replacement of Directors
The rules concerning the appointment and replacement of Directors are
contained in the Company's Articles of Association, which require that all
Directors shall be subject to re-appointment at the first AGM after
appointment and re‑appointment annually thereafter. At the AGM of the
Company held on 30 June 2023, the re-appointment of all Directors was approved
by shareholders.
Capital structure, rights and restrictions
At 1 November 2021, the Company's issued share capital comprised one ordinary
share of US$0.01 and 5,000,000 redeemable preference shares of £0.01 each. No
shares were held in treasury.
On 14 December 2021, 115,393,126 ordinary shares of US$0.01 each were issued
for cash at US$1.00 per share pursuant to the IPO (gross proceeds: US$115.4
million). The shares were issued to institutional and retail investors, as
well as the UK Government's FCDO.
On 22 March 2022, the Company effected a court approved capital reduction
process which included the cancellation of the preference shares and the
related reduction of an amount receivable from related parties of US$66,000
and the reduction of the share premium reserve and related transfer to the
special distributable reserve of US$112.0 million. The special distributable
reserve is distributable and may be used, where the Board considers it
appropriate, by the Company for the purposes of paying dividends to
shareholders and, in particular, augmenting or smoothing payments of dividends
to shareholders.
Prior to the IPO, the Company agreed to acquire a 43% economic interest in
SolarArise from ThomasLloyd Cleantech Infrastructure Holding GmbH, ThomasLloyd
SICAV - Sustainable Infrastructure Income Fund and ThomasLloyd Cleantech
Infrastructure Fund SICAV, with the consideration to be settled in ordinary
shares of US$.0.01 each. On 19 August 2022, 26,014,349 ordinary shares were
issued in settlement of the consideration due on completion of that
acquisition, based on an issue price of US$1.16035 per share (gross
consideration: US$30.2 million). The issue price represented a discount of
2.5% to the Company's closing share price of US$1.190 on 12 August 2022 (the
date on which the issue price was fixed) and a premium of 16.2% to the
unaudited NAV per share as at 30 June 2022.
On 18 November 2022, 34,277,228 ordinary shares of US$0.01 each were issued
for cash at US$1.03 per share pursuant to a non-pre-emptive placing (gross
proceeds: US$35.3 million). The placing price represented a premium of 2.5% to
the Company's closing share price of US$1.005 on 7 November 2022 (the date on
which the placing price was fixed) and a premium of 2.2% to the unaudited NAV
per share as at 30 September 2022. The shares were issued to institutional
investors.
No ordinary shares have been issued since 18 November 2022. No shares were
bought back or held in treasury during the financial period under review or
since 31 December 2022.
At 31 December 2022 (and the date of this Report), the Company's issued share
capital comprised 175,684,705 ordinary shares and no shares were held in
treasury. The total number of voting rights of the Company at 31 December 2022
(and the date of this Report) was, therefore, 175,684,705. All of the issued
ordinary shares have been admitted to trading on the premium segment of the
main market of the London Stock Exchange.
Shareholders are entitled to all dividends paid by the Company. On a winding
up, provided the Company has satisfied all its liabilities, shareholders are
entitled to the surplus assets of the Company. Shareholders are entitled to
attend and vote at all general meetings of the Company and, on a poll, to one
vote for each ordinary share held.
There are:
· no restrictions on the transfer of securities in the Company
except:
· where the Company is legally entitled to impose such
restrictions, such as restrictions on transfers by Directors and persons
closely associated with them during closed periods;
· where the Company's Articles of Association allow the Board to
decline to register a transfer of shares or otherwise impose a restriction on
shares to prevent the Company breaching any law or regulation; or
· pursuant to a lock-up agreement between the Company and the
Former Investment Manager's related entities restricting the transfer of the
26,014,349 ordinary shares issued pursuant to the acquisition of the 43%
economic interest in SolarArise, which prohibits the transfer of such shares
prior to 19 August 2023 except with the prior approval of the Company;(48)
(48) This restriction has since expired.
· no restrictions on exercising voting rights save where the
Company is legally entitled to impose such restrictions, such as if, having
been served with a notice under section 793 of the Companies Act 2006, a
shareholder fails to disclose details of any past or present beneficial
interest;
· no agreements between holders of securities regarding their
transfer or voting rights which are known to the Company; and
· no special rights with regard to control attached to securities
in the Company.
Temporary share suspension
Following the material uncertainty regarding the fair value of the Company's
investment portfolio as at 31 December 2022, the Company requested the FCA to
suspend the listing of its ordinary shares (with a corresponding request made
to the London Stock Exchange for a suspension of trading) with effect from
7.30 a.m. on 25 April 2023, with reference to the FCA's Listing Rule
5.1.2G(3). Following the announcement of the financial results for 2022 the
results need to be appropriately electronically tagged in compliance with DTR
4.1, before they can be uploaded to the NSM. Uploading to the NSM is a
necessary step before the Company may apply to the FCA for a restoration of
the listing. The Company is working on the electronic tagging of the accounts,
following which it will apply to the FCA for the restoration of the listing
and will make a further announcement in due course.
Share issue and buy-back authorities
By way of special resolutions passed on 11 November 2021, the Directors
currently have a general authority to allot shares with an aggregate nominal
value of up to US$8.2 billion for cash on a non‑pre‑emptive basis. This
authority will expire on 10 November 2026. Unless specifically authorised by
shareholders, no issue of ordinary shares on a non‑pre‑emptive basis will
be made at a price less than the prevailing NAV per ordinary share at the time
of issue.
By way of a special resolution passed on 24 August 2023, the Company was
granted authority to make market purchases up to 14.99% of its issued share
capital. The Company has not bought back any shares under this authority,
which expires at the conclusion of the 2024 AGM. The Company may cancel
bought-back shares or hold bought-back shares in treasury and then sell such
shares for cash. Shares will only be re-sold from treasury at a premium to the
NAV per share. The share issue and buy-back authorities provide the Company
with additional flexibility in the management of its capital base.
Major interests in shares
As at 31 December 2022 and 21 January 2024 (the latest practicable date prior
to the publication of this Annual Report), the Company was aware of the
following interests in 3% or more of the voting rights in the Company's issued
share capital.
31 December 2022 21 January 2024
Investor No. of shares % of voting rights No. of shares % of voting rights
Secretary of State for Foreign, Commonwealth and Development Affairs 32,321,899 18.4 32,321,899 18.4
Brevan Howard Investment Products Limited 29,708,737 16.9 29,708,737 16.9
ThomasLloyd Global Asset Management 26,004,420 14.8 26,004,420 14.8
AllianceBernstein 17,214,584 9.8 17,214,584 9.8
Credit Suisse Private Banking 9,500,000 5.4 11,500,000 6.6
Liontrust Sustainable Investments 8,770,802 5.0 8,770,802 5.0
Schroder Investment Management 8,135,810 4.6 8,135,810 4.6
Privium Fund Management 6,800,000 3.9 6,800,000 3.9
Charles Stanley 6,236,487 3.6 3,871,958 2.2
WH Ireland 5,872,412 3.3 5,872,412 3.2
Going concern
The Company has undertaken an evaluation of its cashflow forecasts and going
concern position to 31 March 2025, including downside scenarios. This
evaluation demonstrated that the Company has sufficient cash to meet all of
its liabilities within the going concern assessment period, which is a period
of at least 12 months from the date the Financial Statements were authorised
for issue.
In reaching this conclusion, the Directors considered the Company's net assets
as at 31 December 2022 of US$86.6 million, its cash reserves at that date of
US$115.8 million, consequences of the share suspension and its recurring
operating expenditure requirements, both to date and into the future. During
the 12 months ended 31 December 2023, the Company paid out all of its
commitments as disclosed in note 21 to the Financial Statements, being US$38.5
million to acquire 57% of SolarArise in January 2023 and US$3.1 million to
acquire 99.8% of VSS in May 2023, funded the construction of the RUMS project
via a US$20.0 million loan, paid dividends to its shareholders of US$4.4
million and paid the costs of the Company. As at 31 December 2023 the Company
had cash reserves of US$41.4 million and AEIT Holdings had cash reserves of
US$1.7 million. This cash position has been used in assessing the Company's
going concern position and cash flow forecasts.
The Company continues to meet its day-to-day liquidity needs through its cash
resources. Assumed future cash inflows over the going concern period include
the receipt of dividend and interest income from its underlying investments
and the main cash outflows are the ongoing running costs of the Company and
the payment of dividends to its shareholders. A key priority for 2024 for the
Board and Transitional Investment Manager is to undertake capital
restructuring to facilitate the repatriation of cash out of the underlying
investment portfolio. A downside scenario that was modelled within the cash
flows in the going concern assessment assumed this repatriation is delayed
until after the end of the going concern period (i.e. no dividend or interest
income is received from the Company's investments during that period). Even in
this scenario, the Company has sufficient cash reserves to continue as a going
concern. The cash flow forecasts in the downside scenario also assume no
further investment commitments during the going concern period. The Company
had no outstanding investment commitments at 31 December 2023 and at the date
of signing this Annual Report.
The future of the Company relies heavily on the outcome of the current
strategic review of the options for the future of the Company which is
expected to be to conclude by the end of the first quarter of 2024. At the
date of this Annual Report, based on the information currently available, the
most likely outcomes of the strategic review remain a proposal for either the
relaunch of the Company (potentially with a new investment objective,
investment policy, target returns and/or Investment Manager but maintaining
the impact-led, Asian focus) or a managed wind-down. Shareholders will have
the opportunity to vote on the outcome of the strategic review.
The Board does not intend to declare a dividend in respect of the quarter
ended 31 December 2023, nor does it intend to make any further acquisitions or
commitments prior to completion of, the strategic review.
While the Directors therefore have a reasonable expectation that the Company
has adequate resources to continue in operational existence for the
foreseeable future and the going concern basis of accounting has been adopted
in preparing the Financial Statements, the outcome of the strategic review as
set out above is not within the control of the Board and is therefore
uncertain, and will solely be down to a vote of the shareholders, who may vote
for a managed wind up of the Company. In light of this shareholder vote and
that shareholders may vote for a managed wind up of the Company, this
constitutes a material uncertainty related to events or conditions that may
cast significant doubt on the Company's ability to continue as a going
concern.
Viability statement
In accordance with the UK Corporate Governance Code and the AIC Code, the
Directors have assessed the prospects of the Company over a longer period than
the 12 months required for the going concern assessment.
The Board has assessed the viability of the Company for the period to 31
January 2026. This is a period of approximately two years from when the 2022
Annual Report and Accounts were approved. In reviewing the Company's
viability, the Directors are mindful of the ongoing work surrounding the
strategic review referred to under 'Going concern' above and the subsequent
shareholder vote on the outcome of the strategic review, which remains outside
of the Directors' control and therefore gives rise to a material uncertainty
surrounding the going concern of the Company (all of which are set out in the
going concern disclosures on also on this page).
At the date of this Annual Report, based on the information currently
available, the most likely outcome of the strategic review remains a proposal
for either the relaunch of the Company (potentially with a new investment
objective, investment policy, target returns and/or Investment Manager but
maintaining the impact-led, Asian focus) or a managed wind-down.
Having analysed with the Company's advisers the initial proposals received for
a relaunch of the Company, the Board will be inviting a shorter list of
potential investment managers to submit final proposals. Any proposal to
relaunch the Company would need to offer a compelling investment proposition
for both existing and prospective investors to enable the Company to scale up
its size significantly over time as, at its current size, the Company may not
have a viable long‑term future. The Board is of the opinion that the ongoing
workstreams associated with a relaunch of the Company, such as establishing an
investment pipeline, making further investments and fundraising will take up
to two years and for this reason a period of two years has been selected for
this viability statement.
Any managed wind-down proposal would seek to achieve an optimal balance
between maximising shareholder value and timely return of cash to
shareholders, before a formal winding up once substantially all of the
Company's assets have been realised. The Board also expects this process to
take up to two years.
The Board, therefore, believes that this period, being approximately two years
from the signing of the Financial Statements, is an appropriate time horizon
over which to assess the viability of the Company.
In their assessment of the prospects of the Company over the Period, the
Directors considered each of the principal risks and uncertainties and are
hopeful that proposals to relaunch the Company, along with key changes to the
Company's third-party service providers, will aid the future success of the
Company. In assessing the Company's prospects, the Directors have reviewed
cash flow forecasts to 31 January 2026 which assume no further investment
commitments and that all ongoing costs will be met by the Company's cash
resources of US$41.4 million at 31 December 2023. The cash flow forecasts for
the viability assessment assume that dividend or interest income will be
received from the Company's underlying investments, but, even in the scenario
that the Company receives no dividend or interest income from its underlying
investments over the Period, the Company will still have sufficient cash to
meet all its liabilities over the period.
In assessing the viability of the Company, the Board concludes that:
o In the event that shareholders vote in favour of a managed wind down, the
Company has the resources to complete this without the need for further
capital and will be able to meet its liabilities as they fall due.
o However, if the shareholders vote in favour of continuation of the
Company, further funding will be needed in order to fund future investments
and meet other liabilities as they fall due.
Dividend policy
The Company pays dividends on a quarterly basis. The Company may, where the
Directors consider it appropriate, use the special distributable reserve
created by the cancellation of its share premium account to pay dividends.
Distributions made by the Company may take either the form of dividend income
or of 'qualifying interest income' which may be designated as interest
distributions for UK tax purposes.
All dividends are paid as interim dividends. As the Company does not pay final
dividends, shareholders are not provided the opportunity to vote on the
payment of a final dividend. Accordingly, in line with good corporate
governance practice, the Board will ask shareholders to approve the Company's
dividend policy at each AGM.
In light of the strategic review, the dividend policy of the Company remains
uncertain. The Board does not intend to declare a dividend in respect of the
quarter ended 31 December 2023 prior to completion of the strategic review.
Streamlined energy and carbon reporting
As an investment company with all its activities outsourced to third parties,
the Company does not have any physical assets, property, employees or
operations of its own and, therefore, the Company's own direct environmental
impact is minimal. In relation to the Streamlined Energy and Carbon Reporting
("SECRˮ), implemented by The Companies (Directors' Report) and Limited
Liability Partnerships (Energy and Carbon Reporting) Regulations 2018, for the
financial period ended 31 December 2022 the Company is considered to be a low
energy user (<40,000 KWh) and, therefore, falls below the threshold to
produce an energy and carbon report.
The energy and emissions metrics for the investment portfolio for the year
ended 31 December 2022 are disclosed in the Impact Report.
Modern slavery
The Company is committed to maintaining the highest standards of ethical
behaviour and expects the same of its business partners. The use of slavery
and human trafficking is unacceptable and entirely incompatible with its
ethics as a business. The Company believes that all efforts should be made to
eliminate it from its supply chains.
The majority of services supplied to or on behalf of the Company are from the
financial services, energy and construction industries and other services
associated with those industries. As such, the Company believes there to be a
low risk profile of anyone supplying it directly with services being involved
in slavery and/or human trafficking. The most significant area of risk for the
Company is in relation to its investee companies in relation to sourcing solar
panels as there is widely known evidence to suggest that a large proportion of
the current global polysilicon supply chain is at high risk of forced labour
violations. Polysilicon is the raw material required to create most solar
panels. The Company has put in place supplier due diligence processes and
traceability requirements to reduce this risk.
Anti-bribery, anti-corruption and tax evasion
It is the Company's policy to conduct all of its business in an honest and
ethical manner. The Company takes a zero‑tolerance approach to bribery and
corruption and is committed to acting professionally, fairly and with
integrity in all its business dealings and relationships wherever it operates.
The Company is committed to ensuring that the Company and its subsidiaries and
investment entities, and anyone contracting with the Company and its
subsidiaries and investment entities (including by the Investment Manager and
other key service providers), comply with the requirements of the UK Bribery
Act 2010 or equivalent legislation in other jurisdictions.
The Company does not tolerate tax evasion in any of its forms in its
subsidiaries and investment entities. The Company complies with the relevant
UK law and regulation in relation to the prevention of facilitation of tax
evasion and supports efforts to eliminate the facilitation of tax evasion
worldwide. It also works to make sure its business partners share this
commitment.
Donations and contributions
No political or charitable donations were made during the financial period
under review.
Amendment to the Company's Articles
The Company's Articles of Association may only be amended by a special
resolution passed by shareholders.
Listing Rule 9.8.4
The FCA's Listing Rule 9.8.4 requires the Company to include certain
information in a single identifiable section of the Annual Report or a cross
reference table indicating where the information is set out. The Directors
confirm that there are no disclosures to be made in this regard other than in
accordance with Listing Rule 9.8.4(7) (details of an allotment for cash of
equity securities made during the financial period), the information on which
is detailed under 'Capital structure, rights and restrictions.
Disclosure of information to the Auditor
Having made enquiries of key service providers, each of the Directors holding
office at the date of this Report confirms that:
• as far as they are aware, there is no relevant audit information
of which the Auditor is unaware; and
• they have taken all the steps a Director might reasonably be
expected to have taken to make themselves aware of any relevant audit
information and to establish that the Auditor is aware of that information.
This confirmation is given and should be interpreted in accordance with
section 418 of the Companies Act 2006.
Auditor
The Company's Auditor, Deloitte LLP, was appointed prior to AEIT's IPO and is
willing to continue in office. Resolutions to re-appoint Deloitte LLP and
authorise the Board to determine the Auditor's remuneration will be proposed
at the forthcoming Accounts General Meeting.
Accounts General Meeting
As the Company was required to hold its 2023 AGM before this Annual Report was
available, a general meeting of the Company will be convened at which
resolutions of a financial nature typically considered at an AGM will be
proposed. The notice of the Accounts General Meeting and details of the
resolutions to be proposed will be contained in a separate circular to
shareholders.
Approval
This Directors' Report was approved by the Board and signed on its behalf by:
Sue Inglis
Chair
22 January 2024
Corporate Governance Report
This Corporate Governance Report forms part of the Directors' Report.
The Company became a member of the AIC with effect from 14 December 2021
following completion of its IPO. As such, the Board has considered the
principles and provisions of the AIC Code of Corporate Governance (the "AIC
Codeˮ). The AIC Code addresses the principles and provisions set out in the
UK Corporate Governance Code (the "UK Code"), as well as setting out
additional provisions on issues that are of specific relevance to the Company.
The Board considers that reporting against the principles and provisions of
the AIC Code, which has been endorsed by the Financial Reporting Council
provides more relevant information to shareholders.
The AIC Code is available on the AIC website (www.theaic.co.uk) and the UK
Corporate Governance Code can be found on the Financial Reporting Council's
website (www.frc.org.uk). The AIC Code includes an explanation of how it
adapts the principles and provisions set out in the UK Code to make them
relevant for investment companies.
Compliance with the AIC Code
Throughout the period ended 31 December 2022, the Company complied with the
principles and provisions of the AIC Code except that the Chair of the Company
is a member of the Audit Committee and is also Chair of the Nomination
Committee. Given the size of the Board of which all members are independent
non-executive Directors and the knowledge and experience of the Chair, the
Directors consider that this is appropriate.
Division of responsibilities
The Board has overall responsibility for the Company's activities. However,
the Company has delegated or outsourced various matters to its standing
Committees and key service providers, most notably the AIFM, Investment
Manager and Administrator, all of which operate within clearly defined terms
of reference or agreements that set out their roles, responsibilities and
authorities.
Board
The Board provides overall leadership and is collectively responsible for the
long-term sustainable success of the Company, generating value for
shareholders, contributing to the fight against climate change and benefitting
the communities in which our assets are located. Accordingly, the Board's
principal responsibilities include:
· determining the Company's strategic objectives and risk appetite;
· ensuring that the necessary resources are in place for the
Company to meet its objectives and fulfil its obligations to shareholders,
within a framework of high standards of corporate governance and effective
risk management and internal controls;
· business conduct and implementation of its key investment,
financial, operational and compliance policies, ensuring they are aligned with
AEIT's purpose and strategy and the Board's culture and values and that any
necessary corrective action is taken;
· scrutinising the performance of the Investment Manager,
Administrator and other key service providers and holding them to account;
· reviewing the proposed valuations of AEIT's investments;
· ensuring effective engagement with, and encouraging participation
from, shareholders and other key stakeholders; and
· providing strategic guidance and offering specialist advice,
whilst providing constructive and effective challenge, especially with regard
to portfolio management.
Matters not delegated or outsourced to Committees and key service providers
are reserved for consideration and approval by the Board (including those
matters listed in a formal schedule of reserved matters approved by the
Board), thus enabling the Board to maintain full and effective control over
strategic issues and all operational matters of a material nature. The
reserved matters include:
· approving AEIT's long-term objectives and any matters of a
strategic nature, including any changes to the investment objective, policy
and restrictions (including those which may need to be submitted to
shareholders for approval) and target returns;
· the appointment and removal of key service providers and any
material amendments to the Company's agreements with them;
· approving any other material contracts and agreements entered
into, varied or terminated;
· approving any transactions with related parties;
· approving Annual and Interim Reports and quarterly NAV and other
financial announcements;
· approving the Company's operating budget;
· setting the Company's dividend policy and approving dividends;
· approving the raising of new capital;
· approving prospectuses, circulars and other shareholder
communications;
· Board appointments and removals; and
· the Company's corporate governance arrangements.
The primary focus at Board meetings is a review of investments and associated
matters (such as performance against budget and KPIs, compliance with
investment restrictions, investment pipeline, investment strategy, projected
cash flows, gearing and currency hedging), financial analyses, share price
premium/discount, investor relations and marketing, industry, legal and
regulatory (including corporate governance) developments and other matters of
an operational nature.
Chair
The Chair is Sue Inglis. Her primary role as Chair is to provide leadership to
the Board. The principal responsibilities of the Chair include:
· ensuring the overall effectiveness of the Board in directing the
Company;
· taking a leading role in setting the Company's strategic
objectives in conjunction, and through regular interaction with, the
Investment Manager;
· facilitating open, honest and constructive debate among Directors
and the effective contribution of all Directors;
· ensuring the Company is meeting its responsibilities to
shareholders and other stakeholders; and
· engaging with shareholders to ensure that the Board has a clear
understanding of their views.
Full details of the role and responsibilities of the Chair are available on
the Company's website.
Senior Independent Director
The Senior Independent Director is Mukesh Rajani. His primary responsibilities
as such are to serve as a sounding board for the Chair, act as an intermediary
for other Directors and be available to respond to shareholders' concerns if
they cannot be resolved through the normal channels of communication (i.e.
through the Chair). The Senior Independent Director leads the annual
evaluation of the Chair.
Board Committees
The Board has five standing Committees, being the Audit and Risk Committee,
ESG Committee, Management Engagement Committee, Nomination Committee and
Remuneration Committee: Given its size and the diverse range of skills and
experience of the Directors, the Board has considered it appropriate for all
Directors to serve on all standing Committees.
Details of the principal responsibilities of the Committees are included in
their respective reports on pages ● to ● and the terms of reference of
each Committee are available on the Company's website. The Committees review
their terms of reference at least annually, with any proposed changes
recommended to the Board for approval. Committee Chairs attend AGMs to answer
any questions on each of their Committee's activities.
The Board may also establish additional Committees from time to time to take
operational responsibility on specific matters. These Committees ensure that
key matters are dealt with efficiently and in a timely manner.
AIFM
The Company is classified as an Alternative Investment Fund under the EU
Alternative Investment Fund Managers' Directive as incorporated into UK law
(the "AIFMD") and is, therefore, required to have an AIFM. The Company's AIFM
is Adepa Asset Management S.A.
The AIFM's responsibilities include:
· portfolio management (which it has delegated to the Investment
Manager);
· monitoring and ensuring compliance with the Company's investment
policy;
· risk management;
· approval of quarterly portfolio valuations and NAVs; and
· ensuring compliance with AIFMD regulations and reporting.
The AIFM is entitled to an annual management fee, subject to a minimum fee of
US$75.000 per annum, at the following rates, based on the NAV and payable
quarterly in arrears:
NAV Fee rate
Up to US$200 million 0.055%
Between US&200-400 million 0.045%
Between US&400-1,000 million 0.035%
Above US$1 billion 0.025%
The AIFM is also entitled to annual risk management fee and AIFMD reporting
fees of EUR14,500. The AIFM's appointment is terminable by either party on not
less than six months' notice in writing.
Investment Manager
The AIFM, with the agreement of the Company, has delegated the portfolio
management of the Company to the Investment Manager. The Investment Management
Agreement between the AIFM, Company and Investment Manager (the "IMA") sets
out the matters in respect of which the Investment Manager has authority and
responsibility, subject to the overall control and supervision of the Board.
These include:
· having full discretion in relation to AEIT's portfolio management
activities in accordance with AEIT's investment policy and any other
restrictions imposed in the IMA or by the Board from time to time;
· managing cash not yet invested by the Company or otherwise
applied in respect of its operating expenses; and
· promoting the Company and investor relations.
In advance of Board meetings, the Investment Manager provides regular reports,
which include operating updates on the Company's investments, cash flow
forecasts and other relevant information. Senior representatives of the
Investment Manager attend Board meetings. The Investment Manager is
responsible for keeping the Board informed, in a timely manner, of any
material developments arising from its portfolio management activities or
other relevant matters, including interactions with shareholders and other key
stakeholders.
For the period from IPO to 31 October 2023, the Investment Manager was
ThomasLloyd Global Asset Management (Americas) LLC (the "Former Investment
Manager"). Under the relevant IMA, the Former Investment Manager was entitled
to a management fee, details of which are included in note 19 to the Financial
Statements. On 15 September 2023, following the failure of the Continuation
Resolution at both the requisitioned general meeting and the adjourned annual
general meeting held on 24 August 2023, the Board served notice on the Former
Investment Manager terminating the IMA with effect from 31 October 2023. From
1 November 2023, Octopus Energy Generation ("OEGEN") was appointed as
Transitional Investment Manager to cover an initial period through to 30 April
2024. For this initial term, the Company will pay OEGEN a management fee of
US$1.35 million. At the end of the term, at the discretion of the Board, there
is scope for OEGEN to earn an additional management fee of up to US$0.55
million for its services during the transitional period.
The Board, together with its advisors, is currently conducting a strategic
review of the options for the Company's future, including the appointment of
an Investment Manager for the period post 30 April 2024.
Administrator/Company Secretary
The Company has appointed JTC UK Ltd as the Company's Administrator to provide
fund accounting, company secretarial and other administrative services. The
Administrator's responsibilities include:
· undertaking the day-to-day financial and administration functions
of the Company, including calculation of the NAV and maintenance of the
Company's accounting and statutory records;
· providing the company secretarial functions required by the
Companies Act 2006;
· ensuring that the Company complies with applicable laws, rules
and regulations, including laws and regulations applicable to investment
trusts, the FCA rules applicable to listed investment companies and the London
Stock Exchange rules;
· advising on all governance matters;
· supporting the Board and its Committees to ensure that they have
the policies, processes and information they need to function effectively and
efficiently and to enable the Directors to discharge their responsibilities;
and
· ensuring that Board and Committee procedures are followed.
In advance of Board meetings, the Administrator provides regular reports,
which include operational information, details of any breaches or complaints
and relevant legal and regulatory, corporate governance and other technical
updates. The Administrator is responsible for keeping the Board informed, in
a timely manner, of any material developments regarding matters within the
scope of its role and responsibilities.
Board and Committee meetings
Regular Board and Committee meetings are scheduled throughout the year. In
addition, valuation meetings are held in advance of each scheduled Audit and
Risk Committee meeting to review preliminary quarterly valuations of the
Company's investments. Ad hoc Board and Committee meetings are also held
between scheduled meetings in preparation for or to follow-up after scheduled
meetings, to consider investment proposals and to deal with any other matters
arising between scheduled meetings. Typically, all Directors attend valuation
and ad hoc meetings, although this is not always feasible or necessary and any
Director who is unable to attend a meeting can communicate their views ahead
of the meeting.
Attendance at scheduled meetings
Board Audit and Risk Committee ESG Committee Management Engagement Committee Nomination Committee Remuneration Committee
No. of scheduled meetings held 5 4 2 1 1 1
Sue Inglis 5 4 2 1 1 1
Mukesh Rajani 5 4 2 1 1 1
Clifford Tompsett 5 4 2 1 1 1
Kirstine Damkjaer 5 4 2 1 1 1
Board composition and succession
Board composition and independence
The Board consists of four non-executive Directors, all of whom were appointed
prior to the Company's IPO and are (and were on appointment) independent of
the Investment Manager. The Chair and each of the other Directors is (and was
on appointment) also independent when assessed against the circumstances set
out in provision 13 of the AIC Code. The independence of the Directors is
reviewed at least annually by the Nomination Committee.
The current Board was selected to bring a breadth of skills, knowledge and
experience relevant to the Company's structure and strategy. Details of the
Directors, including their skills and experience, are set out on pages ●
and ● .
The composition of the Board is a fundamental driver of its success as the
Board must provide strong and effective leadership of the Company without any
one individual or small group dominating the decision making. The strong and
diverse mix of experienced individuals on the current Board enables high
calibre debate and constructive challenge. The Board is able to use the
skills, knowledge and experience of the individual Directors to their maximum
potential and make decisions that are in the best long-term interests of the
Company. In particular, the Board uses the Directors' skills, knowledge and
experience to review information provided by the Company's key service
providers, make enquiries, raise challenges and request additional information
as required. However, as the Directors are all non-executive, the effective
operation of the Board is heavily dependent on receiving accurate, transparent
and timely information (including in response to the Board's requests for
information) from the Company's key service providers and, in particular, the
AIFM, Investment Manager and Administrator.
The Board's tenure, succession and diversity policies seek to ensure that the
Board continues to be well-balanced and refreshed regularly by the appointment
of new Directors with the necessary skills, knowledge, experience and personal
qualities and who can bring fresh perspectives. The Board will review the
appropriateness of its composition in light of the outcome of the current
strategic review of the options for the Company's future and, if necessary,
make changes to ensure that the Board has the necessary skills, knowledge and
experience to implement the outcome of the strategic review.
Board diversity
Given the small size of the Board, that it comprises only non-executive
Directors and the Company's specialist nature as an externally managed
investment company, setting specific diversity targets may provide challenges
when recruiting new Directors. The Board does not consider, therefore, it
appropriate to set specific diversity targets. However, the Directors
acknowledge that diversity in its broadest sense is important to ensure that
the Company can draw on a broad range of backgrounds, skills, experience and
perspectives to achieve effective stewardship of the Company and the long-term
sustainable success of the Company. As explained under 'Appointments to the
Board' below, an integral part of the process for recruiting new Directors
will include, therefore, the consideration of diversity generally, taking into
account gender, social and ethnic backgrounds and cognitive and personal
strengths, as well as skills, knowledge and experience.
The FCA's Listing Rules now require companies to report on whether they have
met the following targets on board diversity:
· at least 40% of the individuals on the board are women;
· at least one of the senior board positions (in the case of the
Company, these are the Chair and Senior Independent Director) is held by a
woman; and
· at least one director is of an ethnic minority background.
As shown in the tables below, at 31 December 2022 (and at the date of this
Report), the Company met all of these diversity targets.
No. of senior
Gender diversity No. of Board positions % of Board positions on Board
Male 2 50 1
Female 2 50 1
No. of senior
Ethnic diversity No. of Board positions % of Board positions on Board
White British or other (including minority - white groups) 3 75 1
Asian/Asian British 1 25 1
As an externally managed investment company with solely non‑executive
Directors, the Company does not have a chief executive or a chief financial
officer (both being 'senior positions' under the relevant FCA Listing Rule)
and has no employees. Accordingly, there are no disclosures about executive
management positions to be included. The information in the tables above was
provided by individual Directors in response to a request from the
Administrator.
Appointments to the Board
The Nomination Committee reviews at least annually the composition and
effectiveness of the Board and its Committees with the objective of ensuring
that these have the appropriate balance of skills, knowledge and experience
required to meet the current and future opportunities and challenges facing
the Company and succession plans are implemented in an orderly manner. The
Nomination Committee makes recommendations to the Board when it considers that
a new Director should be recruited.
Once a decision has been taken by the Board to recruit a new Director, the
Nomination Committee will oversee the recruitment process. At the outset, the
Nomination Committee will review the current balance and diversity of the
Board, taking into account gender, social and ethnic backgrounds and cognitive
and personal strengths, and identify any specific skills, knowledge,
experience and personal qualities that are required to ensure the continued
effective operation of the Board. The Nomination Committee will then set
objective selection criteria to ensure a formal rigorous and transparent
appointment process and protect against potential discrimination. The
Nomination Committee intends to use non‑executive director recruitment
consultants and/or open advertising when recruiting new Directors. The
Nomination Committee will seek to ensure that longlists of candidates should
include diverse candidates, taking into account gender, social and ethnic
backgrounds, with the appropriate skills, knowledge experience and personal
qualities. Following the creation of a shortlist of candidates, the
decision-making process will be based on merit, with due consideration of the
objective selection criteria identified.
When considering new appointments, the Nomination Committee will also take
into account other demands on the candidates' time. In advance of joining the
Board, successful candidates will be asked to disclose any existing
significant commitments with an indication of the time involved and to confirm
that they are able to allocate sufficient time to the business of the Company
and that there are no situations where they have, or could have, a direct or
indirect interest that conflicts, or possibly could conflict, with the
Company's interests.
Directors are not appointed for any specific term and are subject to annual
re-appointment at AGMs.
Directors' appointments are reviewed by the Nomination Committee ahead of
their submission for election or re-election, with submission being contingent
on a satisfactory performance evaluation. A Director may resign, and the
Company may terminate a Director's appointment at any time, by not less than
one month's notice in writing. The Articles of Association permit a Director
to be removed without prior notice in certain circumstances. Directors are not
entitled to any compensation payments for loss of office.
At the time of appointment, a new Director receives a letter of appointment
that sets out their duties and obligations. Copies of the letters of
appointment of the current Directors are available for inspection at the
Company's registered office and at each AGM.
Induction and professional development
Any new Directors will receive an induction on joining the Board covering the
Company's strategy, policies, operational structure and governance, which will
be coordinated by the Administrator. In addition, new Directors will be
briefed fully about the Company's strategy and portfolio by the Investment
Manager.
The Administrator is charged with assisting in the ongoing training and
development of all Directors, including providing the Directors with details
of the Company's regulatory and statutory obligations (and changes thereto).
Directors are able to receive training or additional information on any
specific subject pertinent to their role as a Director that they request or
require. The Directors are encouraged to participate generally in industry
events and to attend any other relevant seminars and conferences, if necessary
at the Company's expense. Directors' individual training requirements are
considered as part of the annual evaluation process.
Information and support
To enable the Board to function effectively and the Directors to discharge
their responsibilities, the Directors are regularly updated on investment,
financial, investor and other stakeholder engagement and other matters. In
addition to periodic reporting at scheduled Board and Committee meetings, the
Directors receive, and may request, ad hoc information from the Investment
Manager, Administrator and other key service providers. As the Directors are
all non-executive, the effective functioning of the Board is heavily dependent
on receiving accurate, transparent and timely information (including in
response to the Board's requests for information) from the Company's key
service providers and, in particular, the AIFM, Investment Manager and
Administrator.
The Directors have access to the advice and services of the Administrator. In
addition, there is a procedure in place for Directors to take independent
professional advice at the Company's expense should this be required to aid
them in their duties. No such independent professional advice was sought
during the financial period under review.
Time commitment
All Directors are aware of the need to allocate sufficient time to the Company
in order to discharge their responsibilities effectively. Directors must
obtain prior approval from the Board when they take on any additional external
appointments and it is their responsibility to ensure that such appointments
will not prevent them meeting their required time commitments to the Company.
Where a significant additional external appointment is approved by the Board,
the reasons for permitting the appointment will be explained in the next
Annual Report. No such appointments were approved during the financial period
under review.
Conflicts of interest
Directors have a duty to avoid situations where they have, or could have, a
direct or indirect interest that conflicts, or possibly could conflict, with
the Company's interests ('conflict situations'). As permitted by the Companies
Act 2006, the Company's Articles of Association allow the Directors to
authorise conflict situations, where appropriate.
The Board has a procedure in place to deal with conflict situations. As part
of this process, Directors must submit any actual or potential conflict
situations they may have to the Board for approval as soon as possible. In
deciding whether to approve a conflict situation, the Board will act in a way
it considers, in good faith, will be most likely to promote the Company's
success, taking into consideration whether the Director's ability to act in
accordance with their wider duties is affected. The Administrator maintains
the register of approved conflict situations (which also includes a list of
other external positions held), which is tabled and considered at each Board
meeting. Directors have a duty to keep the Board updated about any changes to
their approved conflict situations. In certain circumstances the conflicted
Director may be required to absent themself from discussions or decisions on
the matter on which they are conflicted (in which event, the Director will not
be counted when determining whether the meeting is quorate). No such
circumstances arose during the financial period under review. Neither the
Chair nor any of the other Directors has, or has had, any potential conflicts
of interest of the nature listed in provisions 6 and 12 of the AIC Code.
Election and re-election by shareholders
Directors are required to stand for re-appointment at the first AGM following
their appointment and annual re-appointment at each subsequent AGM. A Director
who retires at an AGM may, if willing to continue to act, be reappointed at
that meeting.
Having considered their effectiveness, demonstration of commitment to the
role, attendance at meetings and contribution to the Board's and its
Committees' deliberations, the Board approved the nomination for
re-appointment of all the Directors at the annual general meeting held on 30
June 2023, and this was subsequently approved by shareholders.
Board tenure
The Board's policy on Director, including Chair, tenure is that a Director
should normally serve no longer than nine years but, where it is in the best
interests of the Company, its shareholders and other stakeholders, a Director
may serve for a limited time beyond that.
The Board believes that the continuity of knowledge and experience of its
Directors is important and that a suitable balance requires to be struck with
the need for refreshing of the skills and experience of the Board. The Board
believes that some limited flexibility in its approach to Director, including
Chair, tenure will enable it to manage succession planning more effectively.
Succession planning
The Nomination Committee is responsible for succession planning and its
approach to succession planning is explained in the Nomination Committee
Report.
Annual performance evaluations
Board, Committees, Chair and individual Directors
Details on the 2022 formal evaluations of the Board, its standing Committees,
the Chair and individual Directors, conducted by the Nomination Committee, are
included in the Nomination Committee Report. Having considered them, the Board
accepted all of the Nomination Committee's recommendations.
Investment Manager
The performance of the Investment Manager is considered at every Board
meeting, with a formal evaluation by the Management Engagement Committee at
least once each year.
Details on the 2022 formal evaluation of the Investment Manage are included
'in the Management Engagement Report.
AIFM, Administrator and other key service providers
The performance of the Administrator and other key service providers is
monitored by the Board and its standing Committees on an ongoing basis and
formally evaluated by the Management Engagement Committee (or, in the case of
the Auditor, the Audit and Risk Committee) at least annually. Information on
the 2022 formal evaluations is included in the Management Engagement Committee
Report and Audit and Rick Committee Report.
Directors' remuneration
The Directors' Remuneration Report includes the Directors' remuneration policy
and details of the remuneration of each Director.
Principal risks
The Company's principal and emerging risks, together with details of how the
Board seek to manage and mitigate them, are set out in the Strategic Report.
The Company's financial instrument risks are discussed in note 18 to the
Financial Statements.
Internal controls
The Board is responsible for maintaining the Company's systems of risk
management and internal controls (such as financial, operational and
compliance controls). The AIC Code requires the Board to review the
effectiveness of the Company's systems of risk management and internal
controls at least annually.
Although the Board has contractually delegated services that the Company
requires to external third parties, it remains fully informed of the internal
control framework established by each relevant service provider. Any changes
or amendments to the internal control frameworks of the third-party providers,
along with commentary on the effectiveness of financial controls are discussed
at the Audit and Risk Committee.
The Board has undertaken a review of the aspects covered by the guidance and
has identified risk management controls in the key areas of business
objectives, accounting, compliance, operations and secretarial as being
matters of particular importance upon which it requires reports from the
relevant key service providers.
During the finalisation of the 2022 audit, a number of failings and weaknesses
in the valuation process became apparent to the Board, and more than just
judgemental macroeconomic factors, and ultimately led to a material fall in
the valuation of the investment portfolio as at 31 December 2022. These
failings and the steps the Board has taken to address them are outlined in the
Audit and Risk Committee Report. Also refer to the 'Risk and Risk Management'
section for details of the risks crystallised in the period.
Internal audit function
The Audit and Risk Committee has considered the need for an internal audit
function and considers that this is not appropriate given the nature and
circumstances of the Company as an externally managed investment company with
external service providers.
Relations with investors and other stakeholders
The Board is mindful of the importance of engaging with AEIT's shareholders,
as well as with the AIFM, Investment Manager, Administrator and other key
stakeholders. Details of our engagement with all of the Company's key
stakeholders and how we had regard to those stakeholders in our
decision-making processes during the financial period under review are set out
in the Strategic Report.
The Board recognises that relationships with suppliers are enhanced by prompt
payment and the Administrator, in conjunction with the Investment Manager,
ensures payments are processed on a timely basis.
Approval
This Corporate Governance Report was approved by the Board and signed on its
behalf by:
Sue Inglis
Chair
22 January 2024
Audit and Risk Committee Report
I present the Audit and Risk Committee Report for the financial period ended
31 December 2022, which sets out the Committee's responsibilities and its work
and focus during, and with respect to, the financial period.
The issues surrounding the finalisation of the 31 December 2022 portfolio
valuation, the 2022 Annual Report and Accounts and subsequent audit have been
extremely disappointing. In addition to the principal responsibilities
outlined below, the Audit and Risk Committee has overseen some significant
changes to the valuation process, including the replacement of the Former
Investment Manager and of the previous independent valuer and the introduction
of a reasonableness opinion from an independent valuation expert. This brought
a fresh and independent view to the valuations which the Committee determined
was required.
Committee's principal responsibilities
· Monitoring and, as appropriate, challenging the integrity of
AEIT's Financial Statements, including its Annual and Interim Reports and any
other formal announcements relating to its financial performance.
· Reviewing the valuation of AEIT's investments prepared by the
Investment Manager and reported on by the independent valuation expert.
· Reviewing the content of the Annual Report, including the
Financial Statements, and advising the Board on whether, taken as a whole, it
is fair, balanced and understandable and provides shareholders with sufficient
information to assess the Company's performance, business model and strategy.
· Assessing AEIT's principal and emerging risks, including those
that would threaten its business model, future performance, solvency or
liquidity and reputation, and how they are managed and mitigated.
· Working with the ESG Committee, ensuring the effective
integration of ESG-related risks into AEIT's risk management framework.
· Keeping under review the adequacy and effectiveness of AEIT's
risk management and internal control systems.
· Considering the ongoing assessment of AEIT as a going concern and
assessment of its longer-term viability.
· Managing the relationship with the Auditor, including reviewing
the Auditor's remuneration, independence and performance.
· Considering annually whether there is a need for AEIT to have its
own internal audit function.
· Reporting to the Board on how the Committee has discharged its
responsibilities and making recommendations as appropriate.
The Committee consists of all the Directors and is chaired by Clifford
Tompsett. The Chair of the Board is a member of the Audit and Risk Committee.
The Board believes that Sue Inglis' knowledge and experience is of significant
benefit to the Committee.
The AIC Code requires the Committee to have at least one member with recent
and relevant financial experience. Two of the Committee members are qualified
accountants (of which the Committee Chair is one), one member has a relevant
investment background and one member is a former investment banker with
extensive experience of listed closed‑ended funds. The Board is satisfied,
therefore, that the Committee has sufficient recent and relevant financial and
sector experience to discharge its responsibilities.
The Audit and Risk Committee's authority and duties are clearly defined within
its written terms of reference which are available on the Company's website.
The terms of reference include all matters indicated by the FCA's Disclosure
Guidance and Transparency Rule 7.1 and the AIC Code. The terms of reference
are reviewed at least annually.
The Committee operates to a forward-planned agenda linked to the Company's
financial calendar. It has four scheduled meetings each year and meets at such
other times as may be required. The Committee met six times during the
financial period ended 31 December 2022. Since the period end, the Committee
has met ● times.
Representatives of the Company Secretary, Investment Manager, independent
valuation expert and Auditor are invited to attend Committee meetings and the
Chair may invite other external specialists as and when deemed appropriate.
At least once a year the Committee meets with the Auditor without any
representative of the Investment Manager or Administrator being present.
During the period the Committee met privately with the Auditor once. The
Auditor was also present at all Committee meetings where there was a review of
the Financial Statements or formal announcements relating to financial
performance. The Committee Chair also maintains regular contact with the
Auditor outside the formal Committee meeting schedule.
Financial statement and significant reporting matters
As part of its monitoring of the integrity of the Financial Statements and NAV
publications, the Committee reviews whether suitable accounting policies have
been adopted and whether appropriate estimates and judgements have been made.
The Committee considered the following significant judgements and other areas
of audit focus in respect of the Financial Statements for the period ended 31
December 2022. These areas have been identified as being significant by virtue
of their materiality.
In this section we disclose the key chronology of events that led to the
temporary share suspension in addition to the final judgements and assumptions
adopted in finalising the December 2022 Annual Report and Accounts and how the
Committee challenged and concluded on each key judgement and significant
reporting matters.
Valuation of investments
The valuation of the Company's investments relies on a number of key
assumptions. The key assumptions (which are set out in notes 2 and 9 to the
Financial Statements) include future power prices, renewable energy
generation, discount rates, inflation rates and the timing of dividends given
some of the investments have capital structures which make the payment of
dividends more difficult. Sensitivities of the key inputs used within the
models are detailed in note 9. In addition, there is significant subjectivity
and estimation uncertainty in determining the fair value of the Company's
investment in SolarArise and the valuation of the RUMS project. Further detail
on the RUMS project is set out in notes 2 and 9 to the Financial Statements.
This report sets out the issues associated with the valuation of the Company's
investment portfolio and how the Committee challenged the key assumptions set
out above.
The period leading up to 17 April 2023 Audit and Risk Committee meeting
During 2022, the Committee held a number of ad hoc meetings with the Former
Investment Manager, the Company's previous independent valuer and the AIFM to
review and challenge the integrity of the Former Investment Manager's
valuation models. In particular, the Committee queried the use of 'in-house'
wholesale electricity spot market ("WESM") price curves that were prepared by
the Former Investment Manager in the NISPI valuation when it is market
standard to use an independent source. The Committee also had questions over
the tax provisioning and financial modelling, particularly with regard to
SolarArise. In response to the Committee's challenges, the following actions
were taken by the Former Investment Manager in arriving at the initial draft
31 December 2022 valuations:
· the appointment of a third-party model audit firm to review the
integrity of the valuation models including tax assumptions; and
· the appointment a leading independent power consultant to provide
forecast WESM price curves for wholesale market prices in the Philippines
(these curves were received in early February 2023 and reported low, base and
high case WESM forecasts).
In late February 2023, initial draft valuations prepared by the Company's
former independent valuer, together with presentations prepared by the Former
Investment Manager, were circulated for a valuation co‑ordination meeting
held on 2 March 2023 (the "March Meeting"). A number of significant matters
were discussed and challenged at the March Meeting and in the period leading
up to the Committee meeting held on 17 April 2023 (the "April Meeting"),
including the following:
· NISPI: At the March Meeting, the Former Investment Manager
proposed a valuation of US$32.1 million for the 40% interest in NISPI. The
power price forecast in this NISPI valuation applied a 75% weighting to the
Former Investment Manager's in-house forecast and a 25% weighting to the high
case of the independent power consultant's forecast. The valuation materials
also disclosed that, if the independent base case power price curve had been
used only, the valuation would have been reduced to US$14.5 million (a
decrease of US$17.6 million (55%) to the original valuation proposed).
The Committee was unable to get comfortable the WESM prices used in this
initial valuation, reiterating that using an independent source is best
practice and market standard. The valuation was subsequently updated to
US$26.8 million reflecting 100% of the independent power consultant's high
case power curve. The adoption of the high case power curve referenced above
had resulted in a US$10.2 million valuation reduction but this had been offset
by the Former Investment Manager changing other assumptions in its model which
increased the valuation by US$5.0 million, including updating generation
forecasts (US$2.6 million), accelerated cash extraction (US$1.4 million) and a
reduction in the discount rate (US$1.0 million). The Former Investment Manager
also provided the Committee with a report highlighting the differing
judgements made by the independent power consultant to its own assumptions and
judgements used in its 'in-house' price forecasts. Examples of these differing
judgements included the timing and implications of falling commodity prices,
the ability of the grid to meet demand and the availability of alternative
energy sources to meet demand, particularly the speed of renewables uptake in
the Philippine market. In addition, analysis prepared by the Former Investment
Manager showed that the high case independent forecast tracked most closely to
historic WESM market prices achieved by NISPI and that the base case
projection was significantly below historic prices. As such, the Former
Investment Manager advised the Committee that, based on its experience and
knowledge in the market, using the high case independent forecast would be a
reasonable balanced assumption in light of the subjectivity surrounding the
wider macroeconomic factors driving the forecast WESM price curves and this
was supported by the independent valuer.
· SolarArise: At the March Meeting, the Former Investment Manager
proposed a valuation of US$30.5 million for the 43% interest in SolarArise.
This included a valuation of the RUMS project at cost (US$2.1 million) rather
than using a DCF valuation as had been used in prior period valuations.
Despite being requested by the Committee, the Former Investment Manager did
not provide the Committee with a copy of the RUMS project model to justify
that the project returns supported the costs incurred to date. This remained
an outstanding issue and the Committee was unable to sign off on the valuation
of the RUMS project at that time.
Other matters discussed at the March Meeting and subsequently included:
o Asset performance: Reports provided by the Former Investment Manager
showed that generation of SolarArise's assets was underperforming budget, but
the Committee was told these performance issues were largely due to one-off
events (like flooding, etc.) and that the overall generation profiles adopted
were consistent with the initial P50 generation forecasts obtained at the time
that each asset was commissioned.
o Adequacy of tax provisions: Questions were raised by the Committee on the
completeness of tax provisions and the modelling of tax within the valuations.
Members of the Committee were involved in detailed discussions with the
Auditor about this and an audit adjustment was proposed to deal with this
issue.
o Cash extraction: The Former Investment Manager had made the Committee
aware that cash extraction in SolarArise's assets had some challenges but had
previously advised that the requirement to model these intricacies was not
required as the impact was not deemed to be material after potentially
available mitigations were modelled.
The Committee was guided by the Former Investment Manager's knowledge and
experience in the Indian market and the draft report from the independent
valuer and was conscious that an independent third-party model review was
underway to justify the Former Investment Manager's conclusions and identify
any potential additional issues which may need to be included within the
valuations.
· Third-party model review: At the time of the April Meeting the
third-party model review had not been completed. Draft reports from the
third-party model audit firm subsequently received showed that there remained
a number of substantive unanswered questions, particularly in the areas of
taxation, distributable reserves and the ability to extract cash from the
underlying SPVs to SolarArise and from SolarArise and NISPI to the Company.
This work by the third‑party model audit firm was never completed and was
superseded by the valuation work carried out by PricewaterhouseCoopers LLP
("PwC") and the Transitional Investment Manager and the updated valuation
process as discussed below.
The 17 April 2023 Audit and Risk Committee meeting and subsequent temporary
share suspension
In the draft financial statements circulated in advance of the 17 April 2023
meeting the RUMS project was carried at cost, but still with no explanation of
the economic viability of the project. Furthermore, on the morning of, and 10
minutes prior to, the April Meeting a presentation on the RUMS project was
emailed by the Former Investment Manager to the Committee which disclosed that
the cost of the RUMS project and the equity funding requirement had gone up
significantly, thereby calling into question its economic viability. These
cost increases had arisen principally due to increases in module costs, the
estimated cost of the EPC contract, goods and services tax and adverse
movements in exchange rates in comparison to the costs in the original bid
assumptions and those used in the prior valuations. On 21 April 2023, the
Board was further advised by the Former Investment Manager that potentially
significant non-completion liabilities would arise in the event that the SPV
did not proceed with the construction of the RUMS project.
The Board and Auditor agreed over the weekend of 22/23 April 2023 that there
would not be sufficient time before 30 April 2023 (the date by which AEIT was
required to publish its 2022 Annual Report to avoid a suspension of the
listing of its shares) to assess the impact of the new information presented
with regard to the RUMS project on the SolarArise valuation and the Company's
Financial Statements for the financial period ended 31 December 2022, nor for
the financial implications to be thoroughly audited by Deloitte LLP such that
the quality of the 2022 Financial Statements and audit process could be
maintained. Over the same weekend and having taken advice from the Company's
professional advisors, the Board concluded that the new information created a
material uncertainty regarding the fair value of the Company's assets and
liabilities and, following discussion with the FCA, the listing of, and
trading in the Company's shares was suspended on 25 April 2023.
The period post the temporary share suspension up to the appointment of OEGEN
as Transitional Investment Manager
It was against this background and the failure of the Former Investment
Manager to satisfactorily answer the Board's and Auditor's outstanding
questions on the valuations that the Board and AIFM appointed PwC to complete
a detailed review of the key assumptions included in the financial models and
the valuation methodology of the Company's operational assets in India and the
Philippines which had been prepared by the Former Investment Manager to assist
them with the finalisation of the valuations of the Company's investment
portfolio as at 31 December 2022.
As announced by the Company in July 2023, following this review, the Company
identified several areas for concern, including material errors and
inconsistencies, more than just judgemental macroeconomic factors,
inaccurately shown within the valuations. Examples included unrealistically
optimistic revenue and operating cost assumptions, inaccurate tax calculations
and a failure to properly consider limitations on cash extraction. The
announcement also stated that the portfolio valuation could reflect a downward
movement relative to the 30 September 2022 valuation (and the draft valuations
as at 31 December 2022 provided by the Former Investment Manager) and that
this downward movement could be material.
A copy of the PwC report was provided to the Former Investment Manager on 22
July 2023. However, other than some clarificatory questions received on 15
August 2023, no response was received from the Former Investment Manager in
relation to the findings.
Following discussions with a range of stakeholders, it was concluded that the
appointment of a transitional Investment Manager was appropriate, and also
would be the most effective way to finalise the 31 December 2022 and 30 June
2023 valuations, 2022 audit and Annual Report and Accounts and 2023 Interim
Report and ensure the temporary share suspension could be lifted as soon as
possible.
Finalisation of the 31 December 2022 investment valuations
Following the appointment of OEGEN, all of the items highlighted in PwC's
report have been addressed and adjusted in the investment valuations (as at 31
December 2022 and in subsequent valuation periods). The key assumptions used
and the approach taken by the Transitional Investment Manager in the 31
December 2022 valuations are outlined on pages X to X and in notes 2 and 9 of
the Financial Statements. In particular, the Committee reviewed the following
material judgements and key sources of estimation uncertainty:
· Macro-economic assumptions: OEGEN confirmed that it is best
practice and common amongst market participants to utilise third-party
forecasts prepared by independent and reputable providers when formulating
macro-economic assumptions used in financial models and that it had done so
with regard to inflation, FX and power prices (see below). The Committee
reviewed these assumptions, understood the methodology applied, the source of
the forecasts and whether they were independent and was satisfied with the
assumptions adopted.
· WESM pricing: OEGEN's approach is to blend at least two WESM
price curves as prepared by market advisors that are reputable in the relevant
markets. By blending two or more forecasts, if there are any differences in
methodology or assumptions, this provides a hedge against the different market
eventualities that the advisors reflect and minimises the risk of using a
single curve which is too prudent or too optimistic. OEGEN appointed, with the
agreement of the Committee, two new independent forecasters to provide
forecast price curves for WESM. The Committee was satisfied with this approach
and noted that these price curves were materially similar to the independent
forecasts previously received.
· Discount rates: Discount rate ranges are based on the applicable
cost of equity for the solar market considering data points from transactional
and other valuation benchmarks, disclosures in broker reports, other public
disclosures and broader market experience of investors in the market. OEGEN
compared the range to its own risk-adjusted discount rate analysis and
determined the appropriate discount rates to apply. The Committee was
satisfied with this approach and was mindful that these rates were also in the
ranges of the independent valuation expert and the Auditor.
· Generation profile: Given that there is an observed historical
underperformance of the Company's operational assets when compared with the
level of P50 generation assumed at the time of acquisition, OEGEN has applied
a 'haircut' to the original P50 generation profiles to align the generation
profile in the valuation models to current performance. The Committee was
satisfied with this approach and was mindful that a technical advisor has been
appointed to provide updated P50 yield assessments. It was agreed amongst
OEGEN and the Committee that, once received, the revised P50 generation
profiles would be used in future valuation periods (without the need for a
'haircut').
· Cash extraction: Given the current structure of the investments
is not optimal for cash extraction, OEGEN's DCF models assume a degree of
capital restructuring for each investment to enable cash to be extracted more
efficiently. The Committee reviewed the cash extraction methods and
assumptions in the underlying models and was satisfied with the plans to
restructure each asset to extract cash and the judgements adopted in the
timing on when cash can be received from each investment.
· SolarArise holding company: Previously the costs, tax and cash
extraction limitations of the holding company were omitted from the SolarArise
valuation. These have now been valued using a DCF model and included in the
total SolarArise valuation. This approach was discussed with the independent
valuation expert, PwC, and the Committee was satisfied with this.
· Fair value of the RUMS project: As at 31 December 2022, the DCF
valuation of proceeding with the RUMS project was a negative NPV of US$33.3
million (predominantly due to significantly higher assumed module prices than
those previously assumed as well as the higher than budgeted interest rate as
per the facility agreement with Tata Cleantech Capital Limited signed on 2
November 2022) whereas the expected liabilities from aborting the project were
between US$14.1 million (assuming 100% success of a mitigation strategy) and
US$33.2 million. Therefore, as at 31 December 2022, the valuation of
SolarArise assumes that the RUMS project would be aborted, and any costs paid
into the project would be written off to US$nil. As a significant judgement
was required on the likely value of the crystalised abort liabilities as at 31
December 2022, it has been assumed that a market participant would look at the
SolarArise platform in its entirety and consider the potential abort
liabilities such that they would write the value of SolarArise as a whole down
to US$nil. This represents total abort liabilities of US$27.8 million (on a
100% basis). This judgement was discussed with the independent valuation
expert, and the Company's Auditor and the Committee was satisfied with this.
The Committee also considered advice that the Company had received detailing
that the abort liabilities associated with the RUMS project were restricted to
the level of the SolarArise holding company and not the Company itself and
therefore the value of SolarArise to the Company could not be negative. As
disclosed in note 22 to the Financial Statements, post period end a decision
was taken to proceed with the RUMS project in light of a substantial fall in
panel prices and improvement in certain macro‑economic factors.
PwC was engaged as the independent valuation expert to provide a private
independent opinion on the reasonableness of the 31 December 2022 valuations
of SolarArise and NISPI prepared by the Transitional Investment Manager.
In its assessment of the material judgements and key sources of estimation
uncertainty in the valuations, the Committee also considered the views of the
Company's independent valuation expert, PwC, and the work and conclusions of
Deloitte LLP as external auditor. The Committee was satisfied with the basis
of assumptions and valuation approach adopted by the Transitional Investment
Manager and recommended to the Board that the final valuations as at 31
December 2022 were within a reasonable range and should be approved.
Onerous contract provision
As at 31 December 2022, the Company owned 43% of SolarArise which has been
valued at US$nil as set out above. However, given that it had also made a
commitment at the balance sheet date to purchase the remaining 57%, an onerous
contract provision of US$38.5 million has also been recognised. The onerous
contract provision has been valued based on the difference between the agreed
acquisition price of US$38.5 million and the value of the 57% interest using
the fair value ascribed to the 43% investment of US$nil. The Committee
considered the papers prepared by the Transitional Investment Manager on the
valuation and recording of the onerous contract provision and the work of
Deloitte LLP, the independent Auditor.
Going concern and viability statement
The Committee reviewed the Company's financial resources and concluded that
the continued use of the going concern basis was appropriate but, given the
strategic review and the options available to shareholders, including the
potential for shareholders to vote for a managed wind up, that a material
uncertainty existed in respect of going concern. The Committee considered the
going concern papers prepared by the Transitional Investment Manager, the
disclosures presented and the work of the Auditor, Deloitte LLP, and concluded
that adopting the going concern basis of accounting, but with a material
uncertainty, was appropriate. The Committee also considered and reviewed the
Company's viability statement and considered the period of two years and why
it is an appropriate period to use. The full going concern disclosure and
viability statement are included in the Directors' Report.
Other key activities during, and in respect of, the financial period ended, 31
December 2022
Financial reports and NAV announcement
The Committee reviewed the Company's accounting policies and critical
estimates and judgements. In addition, the Committee considered the format and
content of the Interim Reports for the periods ended 31 March 2022 and 30 June
2022 and the announcement of the NAV and trading update as at 30 September
2022 before recommending their approval to the Board.
The Committee also received and discussed with the Auditor its report on the
results of its interim review of the Interim Report for period ended 31 March
2022 and status updates and its initial report and results for the financial
period ended 31 December 2022.
Fair, balanced and understandable
The Committee has concluded that the Annual Report, taken as a whole, is fair,
balanced and understandable and provides the necessary information for
shareholders to assess the Company's financial position, performance, business
model and strategy. The Committee has reported its conclusions to the Board of
Directors. The Committee reached this conclusion through a process of review
of this Annual Report and enquiries of the various parties involved in the
production of the Annual Report and ensuring that there is sufficient balance
of the events of the past eight months following the suspension of trading in
the Company's shares.
Risk management and internal controls
The Committee oversaw the establishment of the Company's risk management and
internal controls framework. The Committee continued to monitor the
effectiveness of the framework during the financial period, making refinements
as required. Improvements made to the control environment following the
crystalised risks in, and following, the period are detailed in the Risk and
Risk Management section. The Committee will continue to assess how
improvements can continue to be made to the Company's overall control
environment.
Under the AIC Code, the Board is required to establish procedures to manage
risk, oversee the internal control framework and determine the nature and
extent of the principal risks the Company is willing to take in order to
achieve its long-term strategic objectives. A principal role of the Committee
is to assist the Board in this regard. Details of the Company's risk
management and internal control framework are set out in the Risk and Risk
Management section. The Company's principal and emerging risks, together with
details of how the Board seeks to manage and mitigate them, are also set out
in that section.
The Board relies on the accuracy and transparency of the information provided
by its key third‑party service providers in order to make its decisions, in
particular the experience and knowledge of the Investment Manager in making
decisions surrounding valuations and investments.
The Committee has taken steps to make improvements to the Company's overall
control environment. The appointment of the Transitional Investment Manager,
the redesign of the Company's valuation process to include a private
independent opinion on the reasonableness of the valuations prepared by the
Transitional Investment Manager by PwC as the independent valuation expert,
and the willingness of the Board to seek third-party advice to clarify
outstanding issues such as the potential abort liabilities associated with the
RUMS project are all examples of (and/or enhancements to) the Company's
control framework designed to mitigate the impact of these risks from
re-occurring. The Board is also working closely with the Transitional
Investment Manager to review the controls surrounding investment acquisitions,
which include improved governance within the underlying investee companies.
The Committee will continue to assess the Company's control environment and
further improvements that can be made, particularly around the investment
valuation process.
Internal audit
The Committee has considered the need for an internal audit function and
considers that this is not appropriate given the nature and circumstances of
the Company as an externally managed investment company with external service
providers. The Board is of the opinion that the appointment of the
Transitional Investment Manager and the changes made to the risk framework are
sufficient and do not warrant the need for an internal audit function.
However, the Board and the Committee will continue to keep this under review.
Effectiveness of the audit
To form a view on audit quality and the effectiveness of Deloitte LLP as
Auditor, the Committee reviewed and considered:
· the Auditor's fulfilment of the agreed audit plan and variations
from it;
· discussions or reports highlighting the major issues that arose
during the course of the audit;
· feedback from the Transitional Investment Manager evaluating the
performance of the audit team, including the robustness of the audit, the
level of challenge offered by the audit team, the skills, experience and
overall quality of the audit team, the timeliness of delivering the tasks
required for the audit and reporting to the Committee and the overall quality
of the service;
· the updated discussions through 2023 and additional reporting
required to close off the audit; and
· the Committee's own observations and interactions with the
Auditor.
The Committee also considered the Auditor's technical competence, its
understanding of the Company's business and whether it demonstrated an
appropriate level of diligence, professional scepticism and challenge.
Following this review, the Committee was satisfied that Deloitte LLP had
carried out its duties in a diligent and professional manner and provided a
high level of service.
Independence of the Auditor
The Committee is satisfied that there are no issues in respect of the
independence of the Auditor.
The Committee has put a policy in place on the supply of any non-audit
services provided by the Auditor. Such services are considered on a
case-by-case basis and may only be provided to the Company if such services
are compatible with the 'white list' of permissible services under the Revised
Ethical Standards 2019 of the FRC and that the provision of such services is
at a reasonable and competitive cost and does not constitute a conflict of
interest or potential conflict of interest which would prevent the Auditor
from remaining objective and independent.
Details of fees paid to the Auditor are shown in note 4 to the Financial
Statements. The Committee considered and agreed the audit fee during the
period. Total fees paid for non-audit services were US$489,000, of which
US$282,000 related to the Auditor's role as reporting accountant for the IPO,
US$164,000 related to tax structuring services delivered prior to the IPO and
US$43,000 related to the review of the Interim Report for the period ended 31
March 2022. Non-audit work as a percentage of total fees paid was 52% and,
excluding IPO-related services, was 5%. In the opinion of the Board, none of
the non-audit services provided caused any concern as to the Auditor's
independence or objectivity. The Committee also considered if there were any
other factors impacting the Auditors' independence and objectivity and
concluded that there were none.
Deloitte LLP confirmed that all its partners and staff involved with the audit
were independent of any links to the Company and that these individuals had
complied with Deloitte LLP's ethics and independence policies and procedures
which are fully consistent with the Financial Reporting Council's Ethical
Standards.
Tenure and reappointment of the Auditor
This is the second financial period that Deloitte LLP has audited the
financial statements of the Company. The reappointment of the Auditor is
subject to annual shareholder approval. There are no contractual obligations
restricting the choice of Auditor and the Company will put the audit services
contract out to tender at least every 10 years. In accordance with
professional guidelines, the statutory auditor will be rotated at least every
five years. The current statutory auditor, Daryl Winstone, has completed his
second year in the role. The Company hastherefore complied with the Statutory
Audit Services Order 2014 for the financial year under review.
Having satisfied itself as to the effectiveness and independence of Deloitte
LLP as the Company's Auditor, the Committee recommended to the Board that
Deloitte LLP be reappointed as Auditor for the year ended 31 December 2023.
Accordingly, a resolution proposing the reappointment of Deloitte LLP as the
Auditor will be put to shareholders at the forthcoming Accounts General
Meeting.
The Committee will continue to monitor the performance of the Auditor on an
annual basis and will consider its independence and objectivity, taking
account of appropriate guidelines. In addition, the Committee Chair will
continue to maintain regular contact with the lead audit partner outside the
formal Committee meeting schedule, not only to discuss formal agenda items for
upcoming meetings, but also to review any other significant matters.
Whistleblowing
The Committee reviewed the whistleblowing policy in place for each of the
Investment Manager and the Administrator and was satisfied the relevant staff
could raise concerns, in confidence, about possible improprieties relating to
financial reporting or other matters that may affect the Company.
On 15 August 2023, the Company announced that new information had come to
light under the protections of the Company's whistleblowing policy revealing
that the Former Investment Manager was aware of material information relating
to the RUMS project by August 2022. Based on the information provided by the
whistleblowers to the Company, it appears, therefore, that key information was
withheld from the Board, and misleading information given to it, over a
protracted period of time. The investment management agreement between the
AIFM, the Company and the Former Investment Manager was subsequently
terminated with effect from 31 October 2023. From 1 November 2023, Octopus
Energy Generation were appointed as a transitional Investment Manager to cover
the period through to 30 April 2024.
Approval
This Audit and Risk Committee Report was approved by the Audit and Risk
Committee and signed on its behalf by:
Clifford Tompsett
Audit and Risk Committee Chair
22 January 2024
ESG Committee Report
I present the ESG Committee Report for the financial period ended 31 December
2022.
Committee's principal responsibilities
Reviewing reports from, and overseeing AEIT's ESG and impact activities
undertaken by the Investment Manager, including:
· development, maintenance, and implementation of AEIT's ESG and
impact strategy and KPIs;
· reviewing external insights which will inform the ESG and impact
strategy;
· monitoring performance in relation to ESG matters, impact
objectives, and KPIs;
· effective management and governance of ESG and impact matters
(including policies, procedures, processes, resourcing and management) by the
Investment Manager;
· supporting compliance with relevant legal and regulatory
requirements, industry standards and guidelines relating to ESG and impact
matters; and
· ESG and impact reporting and disclosures.
· reporting to the Board on how the Committee has discharged its
responsibilities and making recommendations as appropriate.
The Committee consists of all the Directors and is chaired by Kirstine
Damkjaer.
The Committee's authority and duties are clearly defined within its written
terms of reference which are available on the Company's website. The terms of
reference are reviewed at least annually.
During the financial period under review, the Committee met three times,
including two scheduled meetings.
Principal activities during the financial period
KPIs and reporting
In conjunction with the Former Investment Manager, the Committee set the
Company's initial KPIs. The Committee oversaw the reporting on ESG matters in
the Company's Interim Reports for the period ended 31 March 2022 and 30 June
2022. For this Annual Report, the Transitional Investment Manager has reviewed
the KPI data previously prepared by the Former Investment Manager and updated
it for the Committee to review.
Impact and ESG Action Plan 2022
The Committee reviewed the Impact and ESG Action Plan 2022 prepared by the
Former Investment Manager and assessed the Former Investment Manager's
internal resources, with a particular focus on the key priorities, allocation
of responsibilities between the Company and the Former Investment Manager and
the resources available to the Former Investment Manager to implement the
plan. Subsequently the Former Investment Manager undertook a review to refresh
and further refine its internal processes, including to respond to new
regulatory developments such as those reflected in the regulatory technical
standards of the EU Sustainable Finance Disclosure Regulation ("SFDR"), as
well as global industry good practices, with support from an external
independent globally-renowned sustainability consultancy.
Article 9 classification
The Committee oversaw the process that enabled the Company to disclose, in
November 2022, that it classifies under Article 9 of the EU SFDR as a
financial product that has sustainable investment as its objective.
Committee evaluation
An evaluation of the Committee formed part of the annual Board evaluation
process completed in December 2022. It was concluded that the Committee, as a
whole, had the appropriate skills, knowledge and experience to carry out its
responsibilities.
Approval
This Report is approved on behalf of the ESG Committee by:
Kirstine Damkjaer
ESG Committee Chair
22 January 2024
Management Engagement Committee Report
I present the Management Engagement Committee Report for the financial period
ended 31 December 2022.
Committee's principal responsibilities
· Evaluating the performance and appropriateness of the continuing
appointment of the Investment Manager.
· Reviewing the level and method of the Investment Manager's
remuneration.
· Reviewing the terms of the Investment Management Agreement,
including considering whether they remain appropriate, are fair, comply with
all regulatory requirements and conform with market and industry practice.
· Considering the merit of obtaining an independent appraisal of
the Investment Manager's services.
· Evaluating the performance of the AIFM, Administrator and other
key service providers (except for the Auditor) and considering whether their
fees are reasonable and competitive.
· Assessing whether the culture, policies and practices of the
Investment Manager, Administrator and other key service providers are
consistent with good risk management, compliance and regulatory frameworks.
· Reporting to the Board on how the Committee has discharged its
responsibilities and making recommendations as appropriate.
The Committee consists of all the Directors and is currently chaired by Mukesh
Rajani.
The Committee's authority and duties are clearly defined within its written
terms of reference which are available on the Company's website. The terms of
reference are reviewed at least annually.
The Committee has one scheduled meeting each year and meets at such other
times as may be required. It met once during the financial period ended 31
December 2022.
The activities of the Committee are complemented by the Board's and its
Committees' ongoing oversight of, and engagement with, the Investment Manager,
Administrator and other key service providers.
Principal activities during the financial period
Annual evaluation of the Investment Manager
The Investment Manager during the period under review was ThomasLloyd Global
Asset Management (Americas) LLC (the Former Investment Manager).
The Committee met in December 2022 for the purpose of the formal annual
evaluation of the Former Investment Manager's performance and to review the
terms of the Investment Management and Distribution Agreement (the "IMA"),
including the fee and notice provisions. The Committee reviewed a detailed
questionnaire completed by the Former Investment Manager, which included
sections on the Former Investment Manager's systems, controls and policies. In
addition, the Committee reviewed the results of an in-depth questionnaire
completed by the Directors evaluating the performance of the Former Investment
Manager. The feedback from the questionnaires completed in connection with the
annual Board evaluation, to the extent relevant to the evaluation of the
Investment Manager, was also considered. Areas of focus of the Committee's
review included:
· execution of the investment strategy, including pace of
deployment of capital, and investment results achieved to date;
· the quality, experience and continuity of the Former Investment
Manager's team involved in managing all aspects of the Company's business,
considering, in particular, the Investment Manager's plans for additional
senior recruitments;
· the Former Investment Manager's engagement with the Board and
other key stakeholders, including investors;
· the Former Investment Manager's investor relations and marketing
activities on behalf of AEIT;
· the Investment Manager's compliance with contractual arrangements
and duties, including compliance with AEIT's investment policy;
· the level and method of the Former Investment Manager's
remuneration (details of which are included in note 19 to the Financial
Statements) and the period of notice required to terminate the Former
Investment Manager's appointment, having regard to those of comparable listed
investment companies; and
· the Former Investment Manager's culture and strategy and goals
for developing its business.
The Committee noted that the information flow and reporting to the Board and
its Committees needed significant enhancement in quality, transparency and
timeliness and that the Chair and Committee Chairs would continue to
collaborate with the Former Investment Manager to achieve this.
The Committee also noted that the pace of deployment of capital was slower
than expected at the time of the IPO. The Committee had concerns about the
level of strength and depth of the Former Investment Manager's teams
responsible for the Company but was encouraged by the additional resources
being added to strengthen its investment team. This was expected to improve
the overall performance of the Former Investment Manager and, in particular,
improve the pace of capital deployment and build further its in-house asset
management capabilities, facilitating optimisation of the performance of the
Company's operating assets.
The Committee identified the top priorities for improving the performance of
the Former Investment Manager during 2023, including improving the robustness
of the Former Investment Manager's internal processes, significantly enhancing
the quality, transparency and timeliness of management and other information
and continuing to add strength in depth to the teams responsible for the
Company.
Having completed the review, feedback was given to the Former Investment
Manager, including areas requiring significant improvement.
Based on its review, the Committee was generally satisfied with the
performance of, and services provided by, the Former Investment Manager
subject to the Former Investment Manager demonstrating positive progress with
regard to the areas requiring significant improvement.
However, following the events that led to the delay in the 2022 audit and
specifically the issues surrounding the investment portfolio valuations
(discussed further in the Audit and Risk Committee Report) and information the
Board received in August 2023 revealing that the Former Investment Manager had
withheld key information from the Board, the Board served notice on
ThomasLloyd Global Asset Management (Americas) LLC to terminate the IMA, with
effect from 31 October 2023. Following a competitive tender process, Octopus
Energy Generation was appointed as the transitional Investment Manager to
cover the period from 1 November 2023 to 30 April 2024.
Annual evaluation of other key service providers
At its meeting in December 2022, the Committee also undertook the formal
annual evaluation of the Administrator's and other key service providers'
performance and reviewed their respective remuneration. The Committee reviewed
a detailed questionnaire completed by the other key service providers, which
included sections on their systems, controls and policies. In most instances,
relationships with the other key service providers are managed by the
Investment Manager and/ or the Administrator on behalf of the Board and the
Committee considered feedback received from the Former Investment Manager and
the Administrator regarding the levels of service provided by, and
relationships with, the other key service providers. There were no material
issues to report as a result of the evaluation.
The Committee was satisfied with the levels of service provided by the
Administrator and other key service providers and that the fees were fair and
competitive. The Committee concluded that, in its opinion, the continuing
appointments of the Administrator and other key service providers on the terms
agreed remained appropriate and in the interests of the Company and
recommended this to the Board. The Board agreed with the Committee's
recommendations and approved the continuing appointments of the other key
service providers on the terms agreed.
Committee evaluation
An evaluation of the Committee formed part of the annual Board evaluation
process completed in December 2022. It was concluded that the Committee
members had the appropriate skills and experience to assess the performance
and terms of engagement of the Investment Manager, Administrator and other key
service providers.
Approval
This Report is approved on behalf of the Management Engagement Committee by:
Mukesh Rajani
Management Engagement Committee Chair
22 January 2024
Nomination Committee Report
I present the Nomination Committee Report for the financial period ended 31
December 2022.
Committee's principal responsibilities
· Developing and reviewing periodically policies on diversity and
Board tenure.
· Reviewing the structure, size and composition of the Board and
its Committees.
· Undertaking an annual performance evaluation of the Board, its
Committees, the Chair and each of the other Directors.
· Reviewing the time required from the Directors and their outside
commitments.
· Ensuring plans are in place for orderly succession to the Board.
· Identifying, evaluating and recommending candidates for new Board
appointments.
· Reporting to the Board on how the Committee has discharged its
responsibilities and making recommendations as appropriate.
The Committee consists of all the Directors and is chaired by Sue Inglis. The
Board considers that given the size of the Board and that all members are
non-executive it is appropriate that all Directors sit on this Committee.
Individual Directors are not involved in decisions connected with their own
appointments.
The Committee's authority and duties are clearly defined within its written
terms of reference which are available on the Company's website. The terms of
reference are reviewed at least annually.
The Committee has one scheduled meeting each year, with additional meetings as
required. The Committee met once during the year, in December 2022.
Principal activities during the financial period
Annual evaluation of the Board, Committees and Directors
The Committee ensures that there is a formal and rigorous annual evaluation of
the performance of the Board, its Committees, the Chair and each of the other
Directors.
For the 2022 evaluation, the Committee opted to undertake an internal
performance evaluation process, assisted by the Administrator. This involved
the Directors completing in-depth questionnaires prepared by the
Administrator. The questionnaires included a comprehensive assessment of
various areas, including:
· overall strategy of the Company;
· oversight of investment and operating activities;
· risk management;
· shareholder accountability;
· support and relationship with key stakeholders;
· Board and Committee compositions, processes and effectiveness;
· corporate governance and regulatory compliance;
· Board skills, knowledge, experience and diversity;
· each Director's independence, commitment and contribution; and
· performance of the Chair.
The feedback from the completed questionnaires was collated by the
Administrator and then considered by the Committee. The Committee also sought
the views of the Former Investment Manager as part of the evaluation process.
The performance evaluation of the Board Chair was led by the Senior
Independent Director.
Following a robust review, the Committee concluded that:
· each Director continued to be independent of the Former
Investment Manager and no circumstances had been identified that were likely
to, or could appear to, impair their independent judgement;
· the skills, knowledge and experience of each Director were a
significant benefit to the Board;
· each Director had demonstrated their ability to commit the time
required to discharge their responsibilities fully and effectively;
· the Directors (individually and collectively) had been operating
effectively;
· as all Directors had been in office for less than two years,
there were no issues with respect to long tenure;
· the Board and each of its Committees had a good balance of
relevant skills, knowledge, experience and diversity and their structures,
sizes and compositions were appropriate at this stage in the Company's life
and, accordingly, no changes were expected to be required for at least the
next 12 months;
· the Committees continued to support the Board in fulfilling its
duties;
· the reporting and information flow from the Former Investment
Manager to the Directors required significant improvement to enhance the
effectiveness of the Board and its Committees and it was noted that the Chair
and Committee Chairs would continue to collaborate with the Investment Manager
to achieve this;
· to develop the understanding of ESG matters of the Board as a
whole, the Chair of the ESG Committee, in conjunction with the Investment
Manager, should develop an ESG education programme for the Directors; and
· the proposed election of each Director at the 2023 AGM should be
recommended by the Board.
The Committee made recommendations to the Board based on the outcome of its
deliberations.
Diversity and Board tenure policies
The Committee reviewed the policies on diversity and Board tenure and
recommended them to the Board for approval (see 'Board diversity' and 'Board
tenure' respectively for details of these policies, as approved by the Board).
Succession planning
The Committee considered succession planning and, in particular, whether a
detailed succession plan was required. It concluded that, as the Company is in
an early stage of its life and all Directors have served less than two years,
a detailed succession plan is not required at this time.
The tenure of all Directors, including the Chair, is expected not to exceed
nine years unless exceptional circumstances warrant, such as to allow for
phased retirements of the current Directors, all of whom were appointed at the
time of the IPO. The Committee intends, in due course, to develop a detailed
succession plan that seeks to achieve an appropriate balance between
preservation of knowledge and experience and bringing in fresh ideas and
perspectives. Accordingly, the Committee expects that the detailed succession
plan will:
· preserve continuity by phasing the retirement of the original
Directors so that they do not all retire at once after serving nine years; and
· take into account the current and future opportunities and
challenges facing the Company and the skills, knowledge, experience and
diversity needed on the Board in the future.
The Committee will consider succession planning, including the need for a
detailed succession plan, at least annually.
Committee evaluation
As noted earlier in this Report, an evaluation of the Committee formed part of
the annual performance evaluation process. The conclusion from the process was
that the Committee was operating effectively with the right balance of
membership and skills.
Evaluation of the Board post temporary share suspension
At its scheduled meeting held in November 2023, the Committee reviewed the
performance the Board since its last scheduled meeting and also revisited the
performance of the Board over the preceding period from IPO.
It was noted that the Board had endeavoured to use its collective skills,
knowledge and experience to work collaboratively with the Former Investment
Manager from the outset, taking into account the Former Investment Manager's
lack of previous experience of managing a London-listed investment company.
The Committee agreed that members of the Former Investment Manager's senior
management team had seemed to struggle with the Board's oversight and requests
for information. Having considered the interaction between the Board and
Former Investment Manager during 2022, the Committee concluded that the
collaborative approach adopted by the Board had not adversely affected the
Board's ability to request information from and challenge the Former
Investment Manager and, in particular, that the Board had been asking the
correct questions on material matters. However, the Committee noted that, as
the Directors are all non-executive, the Board is heavily dependent on
receiving accurate, transparent and timely information (Including in response
to the Board's requests for information) from the Company's key service
providers and, in particular, the Investment Manager. It was also noted that
the Chair and Audit and Risk Committee Chair had met with the Chief Executive
Office and Chief Financial Officer of the Former Investment Manager at its
head office in December 2022 to address what, at that time, appeared to be
'teething issues' in providing the information required by the Board and to
agree a 'reset' on how the Former Investment Manager would work with the Board
going forward, to ensure the Board was receiving accurate and transparent
information in a timely manner, which the Former Investment Manager had
supported. Finally, it was noted that the Board only became aware, when it
received information under the protections of the Company's whistleblowing
policy in August 2023, that key information was withheld from the Board, and
misleading information given to it, over a protracted period of time (and as
early as August 2022), which related to matters in respect of which the Board
had repeatedly made enquiries of the Investment Manager.
The Committee noted that the key events following the temporary share
suspension and the subsequent breakdown in relationship with the senior
management team of the Former Investment Manager had required the Board to
take a more day-to-day hands-on approach in order to find a resolution and act
in the best interests of shareholders. This has required each of the Directors
to call upon their wide-ranging skills, knowledge and experience to, in
particular (and with the assistance of external advisers reporting directly to
the Board), investigate in detail the Company's underlying investments and
their respective valuations and the Company's consequential financial
position, develop a strategy to enable the temporary share suspension to be
lifted, undertake a strategic review of the options and communicate with
shareholders and other stakeholders in a detailed, transparent and timely
manner.
After a robust discussion, the Committee concluded that, whilst, with the
benefit of hindsight, there were some matters that the Board could have
handled differently, those were not material and would not have led to a
different outcome or avoided the temporary share suspension. Furthermore, the
Committee agreed that the Company had benefited from the skills, knowledge and
experience of each Director throughout. The Committee also agreed, and
recommended to the Board, that the composition of the Board should be reviewed
once the outcome of the strategic review of the options for the Company's to
ensure that, in particular, the Board has the necessary skills, knowledge and
experience to implement the outcome of the strategic review.
Approval
This Report is approved on behalf of the Nomination Committee by:
Sue Inglis
Nomination Committee Chair
22 January 2024
Directors' Remuneration Report
The Board presents the Directors' Remuneration Report for the financial period
ended 31 December 2022, which has been prepared in accordance with the
requirements of the Companies Act 2006 and the Large and Medium-sized
Companies and Groups (Accounts and Reports) Regulations 2008. By law, the
Company's Auditor is required to audit certain of the disclosures provided in
this Report. Where disclosures have been audited, they are indicated as such.
The Auditor's opinion is given in the Independent Auditor's Report.
Remuneration committee
Committee's principal responsibilities
· Determining the Directors' remuneration policy and reviewing its
ongoing appropriateness and relevance.
· Setting the Directors' remuneration, including any ad hoc
payments to Directors in relation to duties undertaken over and above normal
business.
· Reporting to the Board on how the Committee has discharged its
responsibilities and making recommendations as appropriate.
The Committee consists of all the Directors and is chaired by Mukesh Rajani.
The Board considers that given the size of the Board and that all members are
non-executive it is appropriate that all Directors sit on this Committee. The
Chair of the Board is eligible to serve on the Committee as, on appointment,
she was (and remains) independent. Individual Directors are not involved in
decisions connected with their own remuneration.
The Committee's authority and duties are clearly defined within its written
terms of reference, which are available on the Company's website. The terms of
reference are reviewed by the Committee at least annually.
The Committee has one scheduled meeting each year, and meets at such other
times as the Committee Chair shall require. The Committee met once during the
year, in December 2022
Directors' remuneration policy
It is the Company's policy that the level of Directors' remuneration should be
sufficient to attract and retain Directors with the skills, knowledge and
experience necessary for the effective stewardship of the Company and reflect
the expected contribution of the Board, as a whole, to the long-term
sustainable success of the Company. In addition, the Directors' remuneration
should be fair and reasonable in relation to the remuneration of directors of
comparable listed investment companies of similar size and complexity as the
Company. The duties and responsibilities of, and time expected to be spent on
the Company's business by, individual Directors should also be taken into
account.
Director's fees are determined within the limit set out in the Company's
Articles of Association. Within that limit, it is the responsibility of the
Board as a whole to determine and approve the Directors' remuneration,
following a recommendation from the Remuneration Committee.
There are no performance conditions attaching to the Directors' remuneration
as the Board does not consider such arrangements necessary or appropriate for
non-executive Directors. Accordingly, the Directors' remuneration is wholly in
the form of fixed annual fees, which are payable in cash quarterly in arrears.
Annual fees are pro-rated where a change takes place during a financial year.
The Directors' fee rates are reviewed by the Remuneration Committee at least
annually, but reviews will not necessarily result in a change to the rates.
As permitted by the Company's Articles, Directors may be paid additional ad
hoc fees where they undertake any special or material additional duties or
services outside their ordinary duties as a Director which require a
meaningful time commitment (details of any additional fees paid and the
associated work undertaken will be disclosed in the Directors' Remuneration
Report in the next Annual Report).
The Directors are entitled to the reimbursement of reasonable fees and
expenses incurred by them in the performance of their duties. Where expenses
are recognised as a taxable benefit, a Director may receive the grossed-up
costs of that expense as a benefit.
Directors have no entitlement to pensions or pension-related benefits, medical
or life insurance schemes, share options or long-term incentive schemes.
The Directors do not have a service contract. Each Director has signed a
letter of appointment with the Company. The letters of appointment provide for
a minimum period of one month's notice of termination by either party. On
termination, a Director shall only be entitled to accrued fees as at the date
of termination together with reimbursement of any expenses properly incurred
to that date.
The Board is committed to ongoing investor engagement and any feedback
received from investors will be taken into account when reviewing the
Directors' remuneration policy and Directors' fees.
Subject to this policy being approved by shareholders at the Accounts General
Meeting, it is intended that the policy will continue in force until the 2026
AGM.
Annual report on Directors' remuneration (audited information)
For the financial period ended 31 December 2022, the Directors' fees were
£40,000 per annum for each Director with an additional £10,000 per annum for
being the Chair of the Board or a Board Committee. Following the Remuneration
Committee's annual review of Directors' remuneration, for the financial year
ended 31 December 2023, the Director's remuneration has been set at £50,000
per annum, with the remuneration for the Chair of the Board set at £65,000
per annum and for the Chair of the Audit and Risk Committee at £55,000 per
annum.
The following table shows, in respect of each Director, all remuneration
earned during the financial period ended 31 December 2022 and the remuneration
that was set for the year ending 31 December 2023. Directors' fees are paid in
sterling, as presented below, and, for the purpose of the Financial Statements
converted into US Dollars at the exchange rate applicable at the time of
payment.
2022 2022 2022 2023
Director Role Fee (£)(49) Benefits (£)(50) Total (£)(49) Fee (£)
Sue Inglis Chair, Nomination Committee Chair 52,692 - 52,692 65,000
Kirstine Damkjaer ESG Committee Chair 52,692 2,163 54,855 50,000
Mukesh Rajani Senior Independent Director, Management Engagement Chair, Remuneration 52,692 - 52,692 50,000
Committee Chair
Clifford Tompsett Audit and Risk Committee Chair 52,692 - 52,692 55,000
Total 210,768 2,163 212,931 220,000
None of the Directors received any additional ad hoc fees during the financial
period ended 31 December 2022.
(49) The 2022 financial period commended on 1 November 2021 and ended
on 31 December 2022. The Directors were appointed on 18 October 2021 but were
only entitled to fees from 14 December 2021, when the Company's IPO completed.
(50 ) Reimbursement of travelling and accommodation expenses to
attend Board meetings.
Directors' liability insurance and indemnification
The Company maintains appropriate directors' and officers' liability insurance
in respect of legal action against the Directors on an ongoing basis.
In addition, as permitted by the Company's Articles of Association, the
Company has indemnified each Director in respect of costs which they may incur
relating to the defence of any proceedings brought or threatened against them
arising out their position as a Director but subject to applicable law and
other exclusions and limitations, including the indemnity not applying if they
are convicted or a court judgement is given against.
Company performance
The following chart shows the Company's shareholder return (with reference to
its share price, including dividends reinvested) and, for comparison purposes,
the total return of the FTSE All-Share Index (in US Dollar terms, including
dividends reinvested), with both rebased to 100 at 14 December 2021 (the date
the Company's IPO completed). As the Company does not have a specific
benchmark index, the Remuneration Committee has deemed the FTSE All-Share
Index (in US Dollar terms) to be the most appropriate comparator for the
Company's performance for the purpose of this Annual Report as it is a
publicly available broad equity index which focuses on smaller companies and
is, therefore, more relevant than most other publicly available indices. The
choice of the FTSE All-Share Index is also in line with our peer group.
Company's performance since IPO
While the above graph can be a helpful benchmark, as well as its performance
return target, the Company also has a number of impact targets which it holds
in equal regard. Both performance and impact targets are considered when
setting Directors' remuneration.
Relative importance of spend on pay
In order to show the relative importance of spend on pay, the table below sets
out the aggregate Directors' remuneration paid during the financial period
ended 31 December 2022 compared with the distributions to shareholders by way
of dividends during that financial period. During the financial period under
review, no ordinary shares were bought back by the Company and there were no
other distributions, payments or other uses of the Company's net return or
cash flow deemed to assist in the understanding of the relevant importance of
spend on pay.
2022
US$'000
Total Directors' remuneration 256
Dividends paid 1,901
Directors' interests in shares (audited information)
There are no requirements for the Directors to own shares in the Company.
The interests of the Directors in the Company's ordinary shares at 31 December
2022, all of which are beneficial, are shown in the table below. There have
been no changes to the Directors' interests between 31 December 2022 and the
date of this Report.
31 December 2022
Director No. of shares
Sue Inglis 65,000
Kirstine Damkjaer -
Mukesh Rajani 33,000
Clifford Tompsett 33,000
Shareholder resolutions
The Directors' Remuneration Report is put to an advisory shareholder vote on
an annual basis.
The Directors' remuneration policy is subject to shareholder approval every
three years (or sooner if a material alteration to the policy is proposed).
Ordinarily, such resolutions would be put to shareholders at the AGM. However,
as the Company was required to hold its 2023 AGM before this Annual Report was
available, ordinary resolutions will be put to shareholders at the forthcoming
Accounts General Meeting to approve the Directors' Remuneration Report and the
Directors' remuneration policy. As the Directors' remuneration policy has not
been approved previously by shareholders, it is subject to the relevant
resolution being passed at the Accounts General Meeting and, if approved, will
become effective on the passing of the resolution.
Remuneration Committee's principal activities during the financial period
Review of Directors' remuneration policy
The Committee reviewed the Directors' remuneration policy and recommended it
to the Board for approval by shareholders, which will be sought at the
Accounts General Meeting.
Review of Directors' remuneration
The Committee reviewed the level at which the Directors' fees should be set
for the year ended 31 December 2023. Having been provided with a detailed
schedule of directors' fees paid by comparable listed investment companies,
which had been prepared by the Administrator, the Committee agreed that it was
not necessary to obtain advice from an independent remuneration consultant.
Subsequent to the period end, the Committee concluded that, for the year ended
31 December 2023, the standard Director's remuneration should be set at
£50,000 per annum. In recognition of their role, responsibilities and
additional time commitments, the remuneration for the Chair of the Board was
set at £65,000 per annum and for the Chair of the Audit and Risk Committee,
set at £55,000 per annum.
Committee evaluation
An evaluation of the Committee was undertaken as part of the overall Board
evaluation completed in December 2022. The evaluation concluded that there was
a good balance of skills amongst the members of the Committee, enabling the
Committee to operate effectively.
Approval
This Directors' Remuneration Report was approved by the Board and signed on
its behalf by:
Mukesh Rajani
Remuneration Committee Chair
22 January 2024
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report, including the
Financial Statements, in accordance with applicable law and regulations,
including the FCA's Listing Rules and Disclosure Guidance and Transparency
Rules.
UK company law requires the Directors to prepare Financial Statements for each
financial year. Under UK company law:
· the Directors are required to prepare Financial Statements in
accordance with UK-adopted international accounting standards ("IFRS"); and
· the Directors must not approve the Financial Statements unless
they are satisfied that they give a true and fair view of the state of affairs
of the Company and of 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 applicable IFRS have been followed, 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 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 comply with the Companies
Act 2006. They 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 ensuring that the Annual Report, including
the Financial Statements, taken as a whole, are fair, balanced, and
understandable and provide the information necessary for shareholders to
assess the Company's performance, business model and strategy.
Website publication
The Directors are responsible for ensuring the Annual Report, including the
Financial Statements, are made available on a website. Financial statements
are published on the Company's website in accordance with legislation in the
United Kingdom governing the preparation and dissemination of financial
statements, which may vary from legislation in other jurisdictions. The
maintenance and integrity of the Company's website is the responsibility of
the Directors. The Directors' responsibility also extends to the ongoing
integrity of the Financial Statements contained therein.
Responsibility statement
Each of the Directors confirms that, to the best of their knowledge:
· the Financial Statements, which have been prepared in accordance
with IFRS, give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Company;
· the Strategic Report includes a fair review of the development
and performance of the business and the financial position of the Company,
together with a description of the principal risks and uncertainties that it
faces; and
· the Annual Report, including the Financial Statements, taken as a
whole, is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company's position and performance,
business model and strategy.
This responsibility statement was approved by the Board and is signed on its
behalf by:
Sue Inglis
Chair
22 January 2024
Independent Auditor's Report to the Members of Asian Energy Impact Trust Plc
Report on the audit of the financial statements
1. Opinion
In our opinion the financial statements of Asian Energy Impact Trust plc (the
"Company"):
· give a true and fair view of the state of the Company's affairs
as at 31 December 2022 and of its loss for the period then ended;
· have been properly prepared in accordance with United Kingdom
adopted international accounting standards; and
· have been prepared in accordance with the requirements of the
Companies Act 2006.
We have audited the financial statements which comprise:
· the statement of comprehensive income;
· the statement of financial position;
· the statement of changes in equity;
· the statement of cash flows; and
· the related notes 1 to 22.
The financial reporting framework that has been applied in their preparation
is applicable law and United Kingdom adopted international accounting
standards.
2. Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) (ISAs (UK)) and applicable law. Our responsibilities under those
standards are further described in the auditor's responsibilities for the
audit of the financial statements section of our report.
We are independent of the Company in accordance with the ethical requirements
that are relevant to our audit of the financial statements in the UK,
including the Financial Reporting Council's (the "FRC's") Ethical Standard as
applied to listed public interest entities, and we have fulfilled our other
ethical responsibilities in accordance with these requirements. The non-audit
services provided to the Company for the year are disclosed in note 4 to the
financial statements. We confirm that we have not provided any non-audit
services prohibited by the FRC's Ethical Standard to the Company.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
3. Material uncertainty related to going concern
We draw your attention to note 2 in the financial statements, which indicates
that the outcome of the strategic review is outside the control of the Board
and is therefore uncertain and will be solely down to a vote of the
shareholders who may vote for a managed wind up of the Company.
As stated in note 2, these events or conditions along with the other matters
set out in note 2, indicate that a material uncertainty exists that may cast
significant doubt on the Company's ability to continue as a going concern. Our
opinion is not modified in respect of this matter.
In auditing the financial statements, we have concluded that the Directors'
use of the going concern basis of accounting in the preparation of the
financial statements is appropriate.
Our evaluation of the Directors' assessment of the Company's ability to
continue to adopt the going concern basis of accounting included the following
procedures:
· We obtained an understanding of the relevant controls that the
Company has established regarding the drafting, review and approval of the
going concern model and going concern assessment;
· We challenged the Directors on the assumptions made in the cash
flow model used to prepare the going concern forecasts. This includes checking
the accuracy of the going concern model;
· We assessed the risks to the forecasts and whether the
sensitivities run were appropriate to reflect these risks. This includes
performing a sensitivity analysis to consider specific scenarios, including a
reduction in dividend income from investments and associated cashflows;
· We reviewed the future commitments of the Company and assessed
the Company's ability to fulfil these commitments;
· We challenged the appropriateness of the Company's disclosures
within note 2 of the financial statements over the going concern basis and the
material uncertainty arising with reference to, our knowledge and
understanding of the assumptions taken by the Directors, the options available
to shareholders within the strategic review.
In relation to the reporting on how the Company has applied the UK Corporate
Governance Code, we have nothing material to add or draw attention to in
relation to:
· the Directors' statement in the financial statements about
whether the Directors considered it appropriate to adopt the going concern
basis of accounting; and
· the Directors' identification in the financial statements of the
material uncertainty related to the Company's ability to continue as a going
concern over a period of at least twelve months from the date of approval of
the financial statements.
Our responsibilities and the responsibilities of the Directors with respect to
going concern are described in the relevant sections of this report.
4. Summary of our audit approach
Key audit matters The key audit matters that we identified in the current year were:
· Going concern (see material uncertainty related to going concern
section);
· The valuation of the company's 40% investment in Negros Island
Solar Power inc in the Philippines ("NISPI") and the 43% investment in
SolarArise (India), each of which are held at fair value through profit and
loss, including the valuation of termination penalties relating to the Rewa
Ultra Solar Park ("RUMS") construction asset in SolarArise and the subsequent
impact on valuing the company's 43% investment in SolarArise; and
· The valuation and recoding of the onerous contract provision for
the Company's commitment to acquire a further 57% in SolarArise.
Materiality Overall materiality was set at US$1.7 million, determined based on 2% of net
assets.
Scoping We perform a full scope audit on the Company's financial statements, with a
particular focus on the fair value of the Company's 40% investment in NISPI in
the Philippines and the 43% investment in SolarArise in India and the
recording of the onerous contract provision.
All audit work is performed by the same audit team.
Significant changes in our approach This is the first year we have audited the Company as a listed entity and the
first year that the Company has held investments.
On 25 April 2023, the Company announced a temporary share suspension. This was
due to the Board identifying a material uncertainty regarding the fair value
of the Company's investment in SolarArise with a specific focus on the
valuation and viability of a 200 MW construction asset being Rewa Ultra Mega
Solar Park (the "RUMS project") initially acquired as part of the SolarArise
investment. The uncertainty identified related to the feasibility of
completing construction of this asset. This was principally due to the high
cost of solar panels and the resulting impact on the assets returns and the
termination penalties payable should construction not proceed. Subsequent to
year end, following a decline in the price of solar panels, the Board decided
to proceed with construction of the asset although those events and conditions
did not exist at the balance sheet date.
In addition, linked to the events summarised above, the Board decided to
terminate the investment management agreement with the former investment
manager and from 1st November 2023, Octopus Renewables Limited (trading as
Octopus Energy Generation) were appointed as the transitional investment
manager. The Board have also launched a strategic review which will allow
shareholders to vote on the future of the Company which will either lead to
(a) a relaunch of the Company with a new investment objective, investment
policy and target returns; or (b) a managed wind-down.
The above matter(s) have increased the risk associated with the audit. In
response to these risks, we updated our risk assessment and audit planning
and:
· Identified additional key audit matters in respect of (1) The
valuation of termination penalties relating to the RUMS construction asset in
SolarArise and the subsequent impact on valuing the Company's 43% investment
in SolarArise (2) The recording and valuation of the onerous contract
provision for the Company's commitment to acquire a further 57% in SolarArise;
and (3) a material uncertainty relating to going concern; and
· Reduced performance materiality from 70% to 50% of materiality to
increase the extent of audit procedures across key balances.
5. Key audit matters
Key audit matters are those matters that, in our professional judgement, were
of most significance in our audit of the financial statements of the current
period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) that we identified. These matters
included those which had the greatest effect on: the overall audit strategy,
the allocation of resources in the audit; and directing the efforts of the
engagement team.
These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters. In addition to the matter
described in the material uncertainty related to going concern section, we
have determined the matters described below to be the key audit matters to be
communicated in our report.
5.1. The valuation of the Company's 40% investment in NISPI (Philippines) and
the 43% investment in SolarArise (India), each of which are held at fair value
through profit or loss
Key audit matter description The Company's principal activity is to invest in a diversified investment
portfolio of sustainable energy infrastructure assets in fast-growing and
emerging economies in Asia. As at 31 December 2022, the company held two
investments being a 40% interest in NISPI and a 43% interest SolarArise.
The Company acquired NISPI for US$28.3 million and SolarArise for US$32.8
million. At 31 December 2022, the Company had also agreed to acquire the
further 57% interest in SolarArise for a consideration of US$38.5 million. The
acquisition completed on 13 January 2023.
These investments are measured at fair value through profit and loss and at 31
December 2022 were valued at US$11.5 million (NISPI) and US$nil (SolarArise)
respectively. The valuation of US$nil ascribed to SolarArise is principally
due to the termination penalties associated with RUMS construction asset. The
Company engaged an independent valuation firm to review the valuation of each
investment prepared by the transitional investment manager, Octopus Energy
Generation.
As described in the significant accounting policies in note 2 and note 9
(investments at fair value through profit or loss), the fair value of each
investment is determined using a discounted cash flow methodology, which
corresponds to the income approach under IFRS13 'Fair value measurement'.
The fair value of each investment is based on a number of significant
assumptions, the most critical of which are:
· The forecast power prices adopted in valuing NISPI, as the asset
has not entered into a power purchase arrangement ("PPA") and consequently
sells its output on the Philippines spot market (the wholesale energy spot
market ("WESM")). SolarArise has fixed price PPA's and consequently power
price risk is limited. The directors engaged a range of third party providers
to provide power price forecasts to aid them in their selection of power price
forecasts for NISPI. This assumption is not relevant to SolarArise as it has
fixed price power purchase arrangements.
· The discount rate used in valuing the investment in both NISPI
and SolarArise.
· The termination penalties associated with the RUMS construction
asset within SolarArise.
Other key assumptions include forecast energy generation, the timing of
dividends and the availability of distributable reserves and inflation. The
Company's 43% investment in SolarArise has been valued at US$nil as the
potential termination penalties relating to the RUMS construction asset (at
43% interest) are higher than the value ascribed to the remaining assets
within SolarArise.
The Company has identified the valuation of investments as a key source of
estimation uncertainty (Fair value estimation for investments at fair value),
with further details provided in note 2 and note 9 to the financial
statements. This includes the value ascribed to any termination penalties
associated with the RUMS project in SolarArise. Note 9 also provides
disclosure on the sensitivity of the valuation of investments to a change in
the above assumptions. The significant assumptions adopted in valuing each
investment is also referred to within the Audit and Risk Committee report.
Given the inherent subjectivity in the above assumptions, and the risk of bias
in the assumptions adopted, in particular the discount rate and forward power
prices, we identified a risk of fraud in the adoption of the discount rate
(NISPI and SolarArise) and forward power prices (NISPI only) and the valuation
of the termination penalties associated with the RUMS project in SolarArise.
How the scope of our audit responded to the key audit matter Procedures to address the risk around future power prices and the discount
rates adopted included:
· obtaining an understanding of relevant controls established
around the valuation of investments and the selection of key assumptions;
· agreeing the power prices adopted in valuing NISPI to the
external forecasts obtained by the Directors and Investment Manager (Octopus
Energy Generation), assessing whether the forecasts adopted were within a
reasonable range and whether there was bias in the forecasts adopted. We also
assessed the competence, capability and objectivity of the providers of those
forecasts;
· with the assistance of our internal valuation specialist, we
calculated an independent discount rate range for each investment. We assessed
whether the discount rate adopted by the Directors fell within this range.
Where additional risk premia were added to the discount rate, we assessed
whether these were reasonable taking into account the specific risk
characteristics.
Procedures to address the risk around the termination penalties in valuing
'RUMS' in SolarArise included:
· Reviewing the legal advice obtained regarding the termination
penalties associated with the RUMS construction asset in SolarArise. We
confirmed the penalties by reference to the relevant agreements and assessed
the judgements around those termination penalties in valuing the Company's
investment in SolarArise.
Procedures to address other aspects of the valuation included:
· assessed the competence, capability and objectivity of the
Company's independent valuation expert. We also met with them to understand
their scope of work, the process undertaken (including quality control
procedures) and the overall methodology and assumptions applied;
· we agreed the generation forecasts to the technical reports for
each asset and assessed the historical generation levels of each asset;
· we benchmarked the inflation rate adopted to external forecasts.
· for SolarArise, where there are fixed price PPA's, we agreed the
price per Mwh to those PPA's;
· we recomputed each valuation and tested the mechanical accuracy
of the valuation model; and
· we assessed the appropriateness of the disclosures made in the
financial statements including the key assumptions, sensitivities applied and
challenging whether these reflect a reasonable possible range.
Key observations We considered the valuation ascribed to NISPI of US$11.5 million to be within
an acceptable range.
We considered the value ascribed to SolarArise of US$nil to be within an
acceptable range. This takes into consideration the range of termination
penalties associated with the RUMS construction asset.
5.2. The recording and valuation of the onerous contract provision for the
Company's commitment to acquire a further 57% in SolarArise
Key audit matter description At December 2022, and as set out in the key audit matter in section 5.1 above,
the value ascribed to the Company's 43% investment in SolarArise was US$nil.
The Company in 2022 agreed to acquire the remaining 57% of SolarArise for
US$38.5 million. This transaction completed on 13 January 2023. Given the
value ascribed to the 43% stake (US$nil), the Directors have concluded that an
onerous contract existed at the balance sheet date relating to the agreement
to acquire the remaining 57%. This is because the acquisition was for an
agreed price of $38.5m, but the fair value of the additional investment is
$nil, consistent with the investment of 43% already owned as noted in section
5.1 above.
Given the size of the provision and its impact on the financial statements, we
have identified this as a key audit matter. A fraud risk has also been
identified in respect of this provision given the judgements involved in
valuing the 57% investment and therefore the value of the onerous contract
provision. There is also an identified risk around potential fraud around the
recording of this onerous contract provision. Further details on the onerous
contract provision can be found in Note 13 to the financial statements.
How the scope of our audit responded to the key audit matter · We evaluated the onerous contract provision by agreeing the
consideration to the transaction agreements.
· We assessed the fair value ascribed to the 43% interest (see the
separate key audit matter in section 5.1 above) which was used to compute the
value of the onerous contract provision ascribed to the 57% commitment.
· We recomputed the value of the onerous contract provision.
· We assessed the appropriateness of the disclosures made in the
financial statements.
Key observations Based on our work performed, we agree with the recording and valuation of the
onerous contract provision for US$38.5 million.
6. Our application of materiality
6.1. Materiality
We define materiality as the magnitude of misstatement in the financial
statements that makes it probable that the economic decisions of a reasonably
knowledgeable person would be changed or influenced. We use materiality both
in planning the scope of our audit work and in evaluating the results of our
work.
Based on our professional judgement, we determined materiality for the
financial statements as a whole as follows:
Materiality US$1.7 million.
For the audit of the income statement, materiality was limited to US$0.85
million.
Basis for determining materiality 2% of net assets as at 31 December 2022.
We applied a lower materiality of 50% of overall materiality to specific
balances in the income statement.
Rationale for the benchmark applied We have considered the users of the financial statements when selecting the
appropriate benchmark. The Company's investment objective is to achieve
long-term capital appreciation from its investments. We therefore evaluated
the Company's net assets as the most appropriate benchmark as it is one of the
principal considerations for members of the Company in assessing financial
performance and represents total shareholders' interest.
Our procedures on the income statement (excluding fair value and exchange rate
movements) were performed to a lower level of materiality for which we believe
misstatements of lesser amounts than materiality for the financial statements
as a whole could be reasonably expected to influence the users' assessment of
the financial performance of the Company.
6.2. Performance materiality
We set performance materiality at a level lower than materiality to reduce the
probability that, in aggregate, uncorrected and undetected misstatements
exceed the materiality for the financial statements as a whole. Performance
materiality was initially set at 70% of materiality but following the events
which led to the suspension of shares (see section 4 above) we decided to
reduce performance materiality to 50% of materiality (i.e., approximately
US$0.85m). In determining performance materiality, we considered the following
factors:
· the increased inherent risks following the announcement and
impact of the share suspension in April 2023;
· the complexity of the Company and the risks associated with the
valuation of the Company's two investments and onerous contract provision; and
· the quality of the control environment and that were not able to
rely on controls.
6.3. Error reporting threshold
We agreed with the Audit and Risk Committee that we would report to the
Committee all audit differences in excess of US$88,000, as well as differences
below that threshold that, in our view, warranted reporting on qualitative
grounds. We also report to the Audit and Risk Committee on disclosure matters
that we identified when assessing the overall presentation of the financial
statements.
7. An overview of the scope of our audit
7.1. Scoping
Our audit was scoped by obtaining an understanding of the entity and its
environment, including internal control, and assessing the risks of material
misstatement. Audit work to respond to the risks of material misstatement was
performed directly by the audit engagement team. In September 2022 and
November 2023, we visited the NISPI operations in the Philippines and Solarise
operations in India respectively, visiting the assets or meeting with local
management to further our understanding of the asset and the dynamics of the
local energy market. This visit and the knowledge gained was factored into our
risk assessment and our audit plan.
7.2. Our consideration of the control environment
We obtained an understanding of the control environment and the relevant
controls to address key aspects of the financial statements, in particular
controls over the valuation of investments. Following the temporary share
suspension announced in April 2023, the Board appointed a new investment
manager (Octopus Energy Generation) to manage the investment portfolio and to
complete the Annual Report and Accounts. As set out in the Audit and Risk
Committee report and the Risk Management section, deficiencies were identified
by the Board in the overall control environment including controls around the
acquisition of and valuation of investments and in assessing and valuing the
RUMS construction obligations within SolarArise.
As disclosed within the same sections referenced above, the Board has taken
steps to improve the overall control environment including (amongst others)
appointing a new investment manager, undertaking a detailed review of the key
assumptions in valuing each of the Company's investments in conjunction with
an independent third-party, taking legal advice in respect of the position of
the RUMS construction asset and enhancing due diligence on potential
acquisitions.
Given the matters noted above we were unable to rely on controls for the
purpose of our audit.
7.3. Our consideration of climate-related risks
Climate change and the transition to a low carbon economy ("climate change")
were considered in our audit where they have the potential to directly or
indirectly impact key judgements and estimates within the financial
statements, including the valuation of investments.
The Directors have disclosed their climate risk considerations (and
opportunities) on pages 42 to 45. This is consistent with our evaluation of
the climate-related risks facing the company. We assessed these disclosures by
performing inquiries with the former and current investment manager and
independent industry research, and we did not identify any climate related
material risks of misstatement. We also considered whether information
included in the climate related disclosures in the annual report were
materially consistent with our understanding of the business and the financial
statements and our knowledge obtained in the audit.
8. Other information
The other information comprises the information included in the annual report,
other than the financial statements and our auditor's report thereon. The
directors are responsible for the other information contained within the
annual report.
Our opinion on the financial statements does not cover the other information
and, except to the extent otherwise explicitly stated in our report, we do not
express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the course of the audit, or otherwise
appears to be materially misstated.
If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether this gives rise to a
material misstatement in the financial statements themselves. If, based on the
work we have performed, we conclude that there is a material misstatement of
this other information, we are required to report that fact.
We have nothing to report in this regard.
9. Responsibilities of directors
As explained more fully in the Statement of Directors' Responsibilities, the
directors are responsible for the preparation of the financial statements and
for being satisfied that they give a true and fair view, and for such internal
control as the Directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the Directors are responsible for
assessing the Company's ability to continue as a going concern, disclosing as
applicable, matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the company or
to cease operations, or have no realistic alternative but to do so.
10. Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
A further description of our responsibilities for the audit of the financial
statements is located on the FRC's website at: www.frc.org.
uk/auditorsresponsibilities. This description forms part of our auditor's
report.
11. Extent to which the audit was considered capable of detecting
irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and
regulations. We design procedures in line with our responsibilities, outlined
above, to detect material misstatements in respect of irregularities,
including fraud. The extent to which our procedures are capable of detecting
irregularities, including fraud is detailed below.
11.1. Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of
irregularities, including fraud and non-compliance with laws and regulations,
we considered the following:
· the nature of the industry and sector, control environment and
business performance including the design of the company's remuneration
policies, key drivers for directors' remuneration, bonus levels and
performance targets;
· results of our enquiries of the investment manager (both the
former investment manager and the new investment manager), the directors and
the Audit and Risk committee about their own identification and assessment of
the risks of irregularities, including those that are specific to the
company's sector;
· any matters we identified having obtained and reviewed the
company's documentation of their policies and procedures relating to:
o identifying, evaluating and complying with laws and regulations and
whether they were aware of any instances of non-compliance;
o detecting and responding to the risks of fraud and whether they have
knowledge of any actual, suspected or alleged fraud;
o the internal controls established to mitigate risks of fraud or
non-compliance with laws and regulations;
· the matters discussed among the audit engagement team and
relevant internal specialists, including tax and valuations specialists
regarding how and where fraud might occur in the financial statements and any
potential indicators of fraud.
As a result of these procedures, we considered the opportunities and
incentives that may exist within the organisation for fraud and identified the
greatest potential for fraud in the valuation of investments held at fair
value principally (i) the valuation of the Company's 40% investment in NISPI
and the 43% investment in SolarArise. This includes the valuation of
termination penalties relating to the RUMs construction asset in SolarArise
and the related impact on valuing the Company's 43% investment in in
SolarArise; and (ii) the valuation and recording of the onerous contract
provision for the Company's commitment to acquire a further 57% in SolarArise.
In common with all audits under ISAs (UK), we are also required to perform
specific procedures to respond to the risk of management override.
We also obtained an understanding of the legal and regulatory framework that
the company operates in, focusing on provisions of those laws and regulations
that had a direct effect on the determination of material amounts and
disclosures in the financial statements. The key laws and regulations we
considered in this context included the UK Companies Act, Listing Rules, the
Investment Trust SORP and UK tax legislation, given the Company's
qualification as an investment trust.
In addition, we considered provisions of other laws and regulations that do
not have a direct effect on the financial statements but compliance with which
may be fundamental to the Company's ability to operate or to avoid a material
penalty.
11.2. Audit response to risks identified
As a result of performing the above, we identified (i) the valuation of the
Company's 40% investment in NISPI and the 43% investment in SolarArise, each
of which are held at fair value including the valuation of termination
penalties relating to the RUMs construction asset in SolarArise and the
related impact on valuing the Company's 43% investment in in SolarArise; and
(ii) the recording and valuation of the onerous contract provision for the
Company's commitment to acquire a further 57% in SolarArise as key audit
matters related to the potential risk of fraud. The key audit matters section
of our report explains the matters in more detail and also describes the
specific procedures we performed in response to those key audit matters.
In addition to the above, our procedures to respond to risks identified
included the following:
· reviewing the financial statement disclosures and testing to
supporting documentation to assess compliance with provisions of relevant laws
and regulations described as having a direct effect on the financial
statements;
· enquiring of the former and new investment manager and the Audit
and Risk Committee concerning actual and potential litigation and claims;
· performing analytical procedures to identify any unusual or
unexpected relationships that may indicate risks of material misstatement due
to fraud;
· reading minutes of meetings of those charged with governance;
· in addressing the risk of fraud through management override of
controls, testing the appropriateness of journal entries and other
adjustments; assessing whether the judgements made in making accounting
estimates are indicative of a potential bias; and evaluating the business
rationale of any significant transactions that are unusual or outside the
normal course of business.
We also communicated relevant identified laws and regulations and potential
fraud risks to all engagement team members including internal specialists and
remained alert to any indications of fraud or non-compliance with laws and
regulations throughout the audit.
Report on other legal and regulatory requirements
12. Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the directors' remuneration report to be audited
has been properly prepared in accordance with the Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
· the information given in the strategic report and the directors'
report for the financial year for which the financial statements are prepared
is consistent with the financial statements; and
· the strategic report and the directors' report have been prepared
in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the company and its
environment obtained in the course of the audit, we have not identified any
material misstatements in the strategic report or the directors' report.
13. Corporate Governance Statement
The Listing Rules require us to review the directors' statement in relation to
going concern, longer-term viability and that part of the Corporate Governance
Statement relating to the Company's compliance with the provisions of the UK
Corporate Governance Code specified for our review.
Based on the work undertaken as part of our audit, we have concluded that each
of the following elements of the Corporate Governance Statement is materially
consistent with the financial statements and our knowledge obtained during the
audit:
· the directors' statement with regards to the appropriateness of
adopting the going concern basis of accounting and any material uncertainties
identified;
· the directors' explanation as to its assessment of the company's
prospects, the period this assessment covers and why the period is
appropriate;
· the directors' statement on fair, balanced and understandable;
· the board's confirmation that it has carried out a robust
assessment of the emerging and principal risks;
· the section of the annual report that describes the review of
effectiveness of risk management and internal control systems; and
· the section describing the work of the audit and risk committee.
14. Matters on which we are required to report by exception
14.1. Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our
opinion:
· we have not received all the information and explanations we
require for our audit; or
· adequate accounting records have not been kept, or returns
adequate for our audit have not been received from branches not visited by us;
or
· the financial statements are not in agreement with the accounting
records and returns.
We have nothing to report in respect of these matters.
14.2. Directors' remuneration
Under the Companies Act 2006 we are also required to report if in our opinion
certain disclosures of directors' remuneration have not been made or the part
of the directors' remuneration report to be audited is not in agreement with
the accounting records and returns.
We have nothing to report in respect of these matters.
15. Other matters which we are required to address
15.1. Auditor tenure
Following the recommendation of the Audit and Risk Committee, we were
appointed by board of directors on 28 October 2021 to audit the financial
statements for the period ending 31 October 2021 and subsequent financial
periods.
The comparative period for the Company is the period from incorporation on 6
September 2021 to 31 October 2021, being the Company's first accounting date.
During the year the Company extended its accounting period to 31 December
2022. This is the first year of our audit of the Company as a listed entity
(second in total including the short comparative period in the prior year).
The period of total uninterrupted engagement including previous renewals and
reappointments of the firm is 2 years, covering the years ending 31 October
2021 to 31 December 2022.
15.2. Consistency of the audit report with the additional report to the audit
committee
Our audit opinion is consistent with the additional report to the audit
committee we are required to provide in accordance with ISAs (UK).
16. Use of our report
This report is made solely to the company's members, as a body, in accordance
with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been
undertaken so that we might state to the company's members those matters we
are required to state to them in an auditor's report and for no other purpose.
To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the company's members as a
body, for our audit work, for this report, or for the opinions we have formed.
Daryl Winstone FCA (Senior Statutory Auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
22 January 2024
Financial Statements
Statement of Comprehensive Income
For the period from 1 November 2021 to 31 December 2022
Revenue Capital Total
Notes US$'000s US$'000s US$'000s
Investment income - - -
Movement in fair value of investments 9 - (46,993) (46,993)
Onerous contract provision 13 - (38,500) (38,500)
Total revenue - (85,493) (85,493)
Investment management fees 3e (712) (712) (1,424)
Administration and professional fees 4 (3,240) (296) (3,536)
Net foreign exchange gains 5 1,669 - 1,669
Loss before taxation (2,283) (86,501) (88,784)
Taxation 6 - - -
Loss for the period (2,283) (86,501) (88,784)
Loss per ordinary share (cents) - basic and diluted 8 (1.98) (75.14) (77.13)
The total column of the above 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.
There are no items of other comprehensive income in the current period, other
than the profit/(loss) for the period, and therefore no separate income
statement has been presented.
The Company was incorporated on 6 September 2021 and did not commence its
operating activities until the listing of its ordinary shares on the London
Stock Exchange on 14 December 2021. The Company prepared its first set of
statutory financial statements prior to the IPO, for the period from
incorporation, on 6 September 2021, to 31 October 2021. As there was no
activity in the prior period, comparative revenue or capital profit or loss
has not been presented.
The accompanying notes are an integral part of these Financial Statements.
Statement of Financial Position
As at As at
31 December 2022 31 October 2021
Notes US$'000s US$'000s
Non-current assets
Investments at fair value through profit or loss 9 11,491 -
Current assets
Trade and other receivables 10 633 66
Cash and cash equivalents 11 115,819 -
116,452 66
Current liabilities: amounts falling due within one year
Trade and other payables 12 (2,863) -
Onerous contract provision 13 (38,500) -
(41,363) -
Net current assets 75,089 66
Net assets 86,580 66
Capital and reserves: equity
Ordinary share capital 14 1,757 -
Preference share capital 14 - 66
Share premium 14 63,518 -
Special distributable reserve 15 110,089 -
Revenue reserve 3i (2,283) -
Capital reserve 3i (86,501) -
Shareholders' funds 86,580 66
Net assets per share (cents) 16 49.28 n/a
The Financial Statements were approved by the Board of Directors and
authorised for issue on 22 January 2024 and were signed on its behalf by:
Sue Inglis
Clifford Tompsett
Chair of the Board Director
The accompanying notes are an integral part of these Financial Statements.
Incorporated in England and Wales with registered number 13605841
Statement of Changes in Equity
For the period from 1 November 2021 to 31 December 2022
Notes Share capital Preference Share premium Special Capital reserve Revenue Total
US$'000s shares US$'000s distributable US$'000s reserve US$'000s
US$'000s reserve US$'000s
US$'000s
Opening equity as at 6 September 2021 - - - - - - -
Shares issued in period 14 - 66 - - - - 66
At 31 October 2021 - 66 - - - - 66
Shares issues in the period 14 1,757 - 179,128 - - - 180,885
Share issue costs 14 - - (3,618) - - - (3,618)
Transfer to special distributable reserve 15 - - (111,992) 111,992 - - -
Cancellation of share capital 14 - (66) - - - - (66)
Loss and comprehensive income for the period - - - (86,501) (2,283) (88,784)
Dividends paid 7 - - (1,903) - - (1,903)
Closing equity as at 31 December 2022 1,757 - 63,518 110,089 (86,501) (2,283) 86,580
The accompanying notes are an integral part of these Financial Statements.
Statement of Cash Flows
Notes For the period from From
1 November incorporation to
2021 to
31 October 2021
31 December 2022
US$'000s
US$'000s
Operating activities cash flows
Loss before taxation (88,784) -
Adjustments for:
Movement in fair value of investments 9 46,993 -
Increase in provisions 13 38,500 -
Foreign exchange gains (1,669) -
Operating cash flow before movements in working capital (4,960) -
Changes in working capital:
Increase in trade and other receivables 10 (633) -
Increase in trade and other payables 12 2,863 -
Net cash flow used in operating activities (2,730) -
Investing activities cash flows
Acquisition of investments 9 (28,298) -
Net cash flow used in investing activities (28,298) -
Financing activities cash flows
Dividends paid to shareholders 7 (1,903) -
Proceeds from issue of share capital during the period 14 150,699 -
Costs in relation to issue of shares 14 (3,618) -
Net cash flow from financing activities 145,178 -
Cash and cash equivalents at start of period - -
Net increase in cash and cash equivalents 114,150 -
Foreign exchange gains on cash or cash equivalents 1,669 -
Cash and cash equivalents at end of period 11 115,819 -
The accompanying notes are an integral part of these Financial Statements.
Notes to the Financial Statements
For the period from 1 November 2021 to 31 December 2022
1. General information
Asian Energy Impact Trust plc ("AEIT" or the "Company") is a public company
limited by shares incorporated in England and Wales on 6 September 2021 with
registered number 13605841. The Company changed its name from ThomasLloyd
Energy Impact Trust plc on 27th October 2023. The Company is a closed-ended
investment company with an indefinite life. The Company commenced its
operations on 14 December 2021 when the Company's ordinary shares were
admitted to trading on premium segment of the London Stock Exchange's Main
Market (the "IPO"). The Directors intend, at all times, to conduct the affairs
of the Company as to enable it to qualify as an investment trust for the
purposes of section 1158 of the Corporation Tax Act 2010, as amended.
The registered office and principal place of business of the Company is The
Scalpel, 18th Floor, 52 Lime Street, London, EC3M 7AF, United Kingdom.
The Company's principal activity is to invest in a diversified investment
portfolio of sustainable energy infrastructure assets in fast-growing and
emerging economies in Asia. The Company has a 'Triple Return' investment
objective which consists of: (i) providing shareholders with attractive
dividend growth and prospects for long-term capital appreciation
(the financial return); (ii) protecting natural resources and the environment
(the environmental return); and (iii) delivering economic and social progress,
helping build resilient communities and supporting purposeful activity (the
social return). The Company seeks to achieve its investment objective by
delivering on its principal activity.
The audited financial statements of the Company (the "Financial Statements")
are for the period from 1 November 2021 to 31 December 2022 and comprise only
the results of the Company as the Company is determined to be an investment
entity and, therefore its subsidiaries are measured at fair value and are not
consolidated (see note 2). On 16 November 2021, the Company extended its
accounting period to 31 December 2022. The comparative period is the period
from 6 September 2021 to 31 October 2021, being the period from incorporation
to the Company's first accounting date.
The Company has appointed Adepa Asset Management S.A to be the alternative
investment fund manager of the Company (the "AIFM") for the purposes of
Directive 2011/61/EU of the European Parliament and of the Council on
Alternative Investment Fund Managers. Accordingly, the AIFM is responsible for
the portfolio management of the Company and for exercising the risk management
function in respect of the Company. The AIFM, with the agreement of the
Company, has delegated the portfolio management of the Company to the
Investment Manager. For the period from IPO to 31 October 2023, the Investment
Manager was ThomasLloyd Global Asset Management (Americas) LLC (the "Former
Investment Manager"). Under the relevant investment management agreement
between the AIFM, Company and Former Investment Manager (the "IMA") the Former
Investment Manager was entitled to a management fee, details of which are
included in note 19 to the Financial Statements. On 15 September 2023, the
Board served notice on the Former Investment Manager terminating the IMA with
effect from 31 October 2023. From 1 November 2023, Octopus Energy Generation
("OEGEN") was appointed as Transitional Investment Manager to cover an initial
period through to 30 April 2024. For this initial term, the Company will pay
OEGEN a management fee of US$1.35 million. At the end of the term, at the
discretion of the Board, there is scope for OEGEN to earn an additional
management fee of up to US$0.55 million for its services during the
transitional period.
JTC Limited (the "Administrator") provides administrative and company
secretarial services to the Company under the terms of the Administration
Agreement between the Company and the Administrator.
2. Basis of preparation
The Financial Statements have been prepared in accordance with United Kingdom
adopted international accounting standards and the applicable legal
requirements of the Companies Act 2006.
The Financial Statements have also been prepared as far as is relevant and
applicable to the Company in accordance with the Statement of Recommended
Practice: Financial Statements of Investment Trust Companies and Venture
Capital Trusts ("SORP") issued in July 2022 by the Association of Investment
Companies ("AIC"). In line with the AIC SORP, the statement of comprehensive
income differentiates between the 'revenue' account and the 'capital' account,
and the sum of both items equals the Company's profit for the year. Items
classified as capital in nature either relate directly to the Company's
investment portfolio or are costs deemed attributable to the long-term capital
growth of the Company.
The Financial Statements are prepared on the historical cost basis but as the
Company qualifies as an investment entity under the amendments to IFRS10, all
investments in subsidiaries, associates and joint ventures are measured at
fair value through profit or loss. They have been prepared on the basis of the
accounting policies, significant judgements, key assumptions and estimates as
set out in notes 2 and 3. These policies are consistently applied.
The Financial Statements are presented in US Dollar ('US$'), which is the
Company's functional currency and are rounded to the nearest thousand, unless
otherwise stated. On 14 December 2021, the date of the IPO, the Company
changed its functional and presentation currency to the US Dollar from the
Great British Pound ('GBP'), with the change in functional currency being
applied prospectively.
Going concern
The Company has undertaken an evaluation of its cashflow forecasts and going
concern position to 31 March 2025, including downside scenarios. This
evaluation demonstrated that the Company has sufficient cash to meet all of
its liabilities within the going concern assessment period, which is a period
of at least 12 months from the date the Financial Statements were authorised
for issue.
In reaching this conclusion, the Directors considered the Company's net assets
as at 31 December 2022 of US$86.6 million, its cash reserves at that date of
US$115.8 million, consequences of the share suspension and its recurring
operating expenditure requirements, both to date and into the future. During
the 12 months ended 31 December 2023, the Company paid out all of its
commitments as disclosed in note 21 to the Financial Statements, being US$38.5
million to acquire 57% of SolarArise in January 2023 and US$3.1 million to
acquire 99.8% of VSS in May 2023, funded the construction of the RUMS project
via a US$20.0 million loan, paid dividends to its shareholders of US$4.4
million and paid the costs of the Company. As at 31 December 2023 the Company
had cash reserves of US$41.4 million and AEIT Holdings had cash reserves of
US$1.7 million. This cash position has been used in assessing the Company's
going concern position and cash flow forecasts.
The Company continues to meet its day-to-day liquidity needs through its cash
resources. Assumed future cash inflows over the going concern period include
the receipt of dividend and interest income from its underlying investments
and the main cash outflows are the ongoing running costs of the Company and
the payment of dividends to its shareholders. A key priority for 2024 for the
Board and Transitional Investment Manager is to undertake capital
restructuring to facilitate the repatriation of cash out of the underlying
investment portfolio. A downside scenario that was modelled within the cash
flows in the going concern assessment assumed this repatriation is delayed
until after the end of the going concern period (i.e. no dividend or interest
income is received from the Company's investments during that period). Even in
this scenario, the Company has sufficient cash reserves to continue as a going
concern. The cash flow forecasts in the downside scenario also assume no
further investment commitments during the going concern period. The Company
had no outstanding investment commitments at 31 December 2023 and at the date
of signing this Annual Report.
The future of the Company relies heavily on the outcome of the current
strategic review of the options for the future of the Company which is
expected to be to conclude by the end of the first quarter of 2024. At the
date of this Annual Report, based on the information currently available, the
most likely outcomes of the strategic review remain a proposal for either the
relaunch of the Company (potentially with a new investment objective,
investment policy, target returns and/or Investment Manager but maintaining
the impact-led, Asian focus) or a managed wind-down. Shareholders will have
the opportunity to vote on the outcome of the strategic review.
The Board does not intend to declare a dividend in respect of the quarter
ended 31 December 2023, nor does it intend to make any further acquisitions or
commitments prior to completion of, the strategic review.
While the Directors therefore have a reasonable expectation that the Company
has adequate resources to continue in operational existence for the
foreseeable future and the going concern basis of accounting has been adopted
in preparing the Financial Statements, the outcome of the strategic review as
set out above is not within the control of the Board and is therefore
uncertain, and will solely be down to a vote of the shareholders, who may vote
for a managed wind up of the Company. In light of this shareholder vote and
that shareholders may vote for a managed wind up of the Company, this
constitutes a material uncertainty related to events or conditions that may
cast significant doubt on the Company's ability to continue as a going
concern.
Critical accounting judgements, estimates and assumptions
The preparation of the Financial Statements requires management to make
judgements, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets, liabilities, income
and expenses. Actual results may differ from these estimates. Estimates and
underlying assumptions are reviewed regularly on an on-going basis. Revisions
to accounting estimates are recognised in the period in which the estimates
are revised and in any future periods affected. Significant estimates,
judgements and assumptions for the period are set out as follows:
Key sources of estimation uncertainty: fair value estimation for investments
at fair value
The Company's investments at fair value are not traded in active markets. As
such, the fair value of these investments is calculated using discounted cash
flow ("DCF") models based on valuation methods and techniques generally
recognised as standard in the industry, specifically taking into account the
International Private Equity and Venture Capital Valuation Guidelines, which
includes recommendations and best practice.
The discounted cash flow models use observable data, to the extent
practicable. However, the key inputs require management to make estimates. The
key assumptions used in the DCF models at 31 December 2022 that the Directors
believe would have a material impact on the fair value of the investments
should they change are set out in note 9. The key unobservable inputs, and
therefore the key sources of estimation uncertainty, are future power prices,
renewable energy generation, discount rates, inflation rates and the timing of
dividends given some of the investments have capital structures which make the
realisation of dividends more difficult. Sensitivities of the key inputs used
in the DCF models are detailed in note 9.
As at 31 December 2022, the Company held an investment in SolarArise which
owns 6 operational solar farms and 1 under construction asset in India. The
asset under construction is termed the RUMS project.
In preparing the December 2022 valuation of SolarArise, the Board identified a
risk that the fair value of the RUMS project was negative. At the balance
sheet date, the valuation of proceeding with the project was estimated to be
negative US$33.3 million on a 100% basis. The Board has considered ways to
mitigate this exposure including aborting the project and not proceeding with
construction. However, termination penalties could arise if the project were
aborted which are estimated to be up to US$33.4 million (on a 100% basis).
There is therefore significant subjectivity and estimation uncertainty in
determining the fair value of the Company's investment in SolarArise and the
valuation of the RUMS project. In determining the fair value of SolarArise, it
has been determined that a market participant would view the SolarArise
portfolio in its entirety and that an appropriate assumption would be to write
the SolarArise portfolio down to zero. This reflects a fair value (pre RUMS
abort liability) of US$12.0 million for the 43% ownership held at the balance
sheet date and the fact that it has been assessed that there is a remote risk
of further liabilities falling on the Company such that the valuation cannot
go below US$nil. The sensitivity of this key input is detailed in note 9.
Including the abort liabilities in the valuation of SolarArise as at 31
December 2022 also gives rise to an onerous contract for the commitment to
purchase the remaining 57% of SolarArise. This is because on acquisition, the
remaining 57% stake acquired in January 2023 for US$38.5 million would be
written down to US$nil. Please see note 13 for further details. Post period
end solar module prices have fallen as China came out of lockdowns and opened
up supply through 2023. This is the primary reason why the overall negative
NPV of the project has fallen to approximately US$13 million as at 1
September 2023, and based on advice from the Former Investment Manager, on 11
October 2023, the Board agreed to provide funding of US$20 million by way of
an INR denominated external commercial borrowings loan from the Company to
SolarArise to enable construction of the RUMS project to proceed on the basis
that proceeding with the project was now the a less disadvantageous option
rather than paying termination penalties. This loan was provided on 18 October
2023. The Transitional Investment Manager subsequently values the RUMS project
at a negative NPV of US$14.6 million as at 30 September 2023. See note 22 for
further details.
Further considerations on currency risks, interest rate risks, power price
risks, credit risks, and liquidity risks are detailed in note 18.
Critical accounting judgement: equity and loan investments
The Company considers the equity and 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,
derivatives and debt 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.
Critical accounting judgement: basis of non-consolidation
The Company has adopted the amendments to IFRS 10 which states that investment
entities should measure all of their subsidiaries that are themselves
investment entities at fair value (in accordance with IFRS 9 Financial
Instruments: Recognition and Measurement, and IFRS 13 Fair Value Measurement).
Under the definition of an investment entity, the Company should satisfy all
three of the following tests:
(i) the Company obtains funds from one or more investors for the purpose
of providing those investors with investment management services;
(ii) the 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) the Company measures and evaluates the performance of substantially
all of its investments on a fair value basis.
In assessing whether the Company meet 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
invest in renewable energy infrastructure investments due to high barriers to
entry and capital requirements;
(ii) the Company intends to hold its investments for the remainder of
their useful lives for the purpose of capital appreciation and investment
income in line with the Company's stated strategy and the Directors believe
the Company is able to generate returns to the investors during that
period(51); and
(iii) the Company measures and evaluates the performance of all of its
investments 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 of the investments and in decision making.
(51) Directors will be putting forward proposals for the
reconstruction and reorganisation of the Company to shareholders. Included
within these proposals will be a managed wind-down of the Company.
Shareholders will be given the option to vote on their preferred proposal.
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.
Critical accounting judgement: functional currency
The Directors consider that the US Dollar is the currency that most faithfully
represents the economic effect of the underlying transactions, events and
conditions that impact the Company.
The Company's ordinary share capital is issued in US Dollars. The primary
activity of the Company is to invest in unlisted debt and equity securities
issued by companies involved in the construction or operation of sustainable
renewable energy infrastructure assets in fast-growing and emerging economies
in Asia. Although these unlisted debt and equity securities are held in their
local currencies, the fair value associated with each investment held is
converted into US Dollars at the prevailing spot exchange rate at the
valuation date for presentation within the Company's results. The US Dollar is
the currency in which the Company measures its performance and reports its
results, as well as the principal currency in which it receives subscriptions
from its investors.
The functional currency assessment also considers the cost structure of the
Company and the currencies in which it may pay dividends and receive income.
The majority of operating expenses are denominated in US Dollars and the
Company announces dividend payments in US Dollars (although it may also settle
in currencies other than US Dollars). It is expected that the Company will
receive dividend income in currencies other than US Dollars, although it may
enter into a hedging programme to mitigate against future volatility in those
currencies in comparison to US Dollars.
The functional currency assessment is reviewed periodically in light of
investments made and to be made.
Key sources of estimation uncertainty: contingent consideration in relation to
NISPI
The sale and purchase agreement to acquire the 40% economic interest in NISPI
included an additional contingent cash consideration of up to US$22.0 million
that was dependent upon NISPI being awarded a Green Auction PPA prior to 1
June 2023. In assessing the fair value of this contingent consideration at 31
December 2022, the Investment Manager and Directors have considered a number
of external factors, including macro-economic, political and operational.
NISPI did not participate in a Green Auction during 2022 as it was not
eligible to participate. At 31 December 2022, the wholesale power prices were
higher than expected Green Auction solar prices and it was expected that this
will prevail through 1 June 2023. Consequently, the likelihood that NISPI
would participate in such an auction prior to 1 June 2023 was assessed as
being remote. As such, the contingency is fair valued at US$nil at 31 December
2022.
Post the period end it has been confirmed that NISPI was not awarded a Green
Auction PPA by 1 June 2023 and no further consideration is payable.
New and amended standards and interpretations
Effective from 1 November 2021 to January 2022
The Company applied the following amendments for the first time for its annual
reporting period commencing 1 November 2021:
· onerous contracts - Cost of Fulfilling a Contract - Amendments to
IAS 37; and
· annual improvements to IFRS Standards 2018-2020.
The amendments listed above did not have any impact on the amounts recognised
in the current or prior period and are not expected to significantly affect
the current or future periods. The Company has considered the above amendments
in valuing the onerous contract provision as detailed in note 13.
Effective on or after 1 January 2023
Certain new accounting standards, amendments to accounting standards and
interpretations have been published that are effective for annual periods
beginning on or after 1 January 2023 that have not been early adopted in
preparing these Financial Statements. These standards, amendments and
interpretations are not expected to have a material impact on the Company in
the current or future reporting periods, or on foreseeable future
transactions.
The new standards, amendments to existing standards and interpretations that
have been published and will be applied to the Company in future periods,
subject to UK endorsement, include:
· disclosure of accounting policies and materiality judgements -
Amendments to IAS 1 and IFRS Practice Statement 2, effective 1 January 2023;
· non-current liabilities with covenants - Amendments to IAS 1,
effective 1 January 2024;
· definition of accounting estimates - Amendments to IAS 8,
effective 1 January 2023; and
· deferred tax related to assets and liabilities arising from a
single transaction - Amendments to IAS 12, effective 1 January 2023.
These are not likely to have a material impact on the Company's Financial
Statements going forward.
3. Significant accounting policies
a) Financial instruments
Financial assets and financial liabilities are recognised on the Company's
Statement of Financial Position when the Company becomes a party to the
contractual provisions of the instrument. Financial assets are derecognised
when the contractual rights to the cash flows from the instrument expire or
the asset is transferred, and the transfer qualifies for derecognition in
accordance with IFRS 9 Financial Instruments.
Financial assets
As an investment entity, the Company is required to measure its investments in
its wholly owned direct subsidiaries, joint ventures and associates at FVTPL.
As explained in note 2, the Company has made a judgement to fair value both
the equity and debt investment in its subsidiary together. Subsequent to
initial recognition, the Company measures its investments on a combined basis
at fair value in accordance with IFRS 9 Financial Instruments:
Recognition and Measurement and IFRS 13 Fair Value Measurement
Trade receivables, loans and other receivables that are non-derivative
financial assets and that have fixed or determinable payments that are not
quoted in an active market are classified as financial assets at amortised
cost. These assets are measured at amortised cost using the effective interest
method, less allowance for expected credit losses. The Company has assessed
IFRS 9's expected credit loss model and does not consider there to be any
material impact on these Financial Statements.
Trade receivables, loans and other receivables are included in current assets,
except where maturities are greater than 12 months after the year end date in
which case they are classified as non-current assets.
Regular purchases and sales of investments are recognised on the trade date -
the date on which the Company commits to purchase or sell the investment.
Financial assets at FVTPL are initially recognised at fair value. Transaction
costs are expensed as incurred within the Statement of Comprehensive Income.
Financial assets are derecognised when the rights to receive cash flows from
the investments have expired or the Company has transferred substantially all
risks and rewards of ownership.
Subsequent to initial recognition, all financial assets and financial
liabilities at FVTPL are measured at fair value.
Gains and losses arising from changes in the fair value of the 'financial
assets at FVTPL' category are presented in the Statement of Comprehensive
Income within investment income in the period in which they arise.
Income from financial assets at FVTPL is recognised in the Statement of
Comprehensive Income within investment income when the Company's right to
receive payments is established.
Financial liabilities and equity
Debt and equity instruments are classified as either financial liabilities or
as equity in accordance with the substance of the contractual arrangement.
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 and Measurement and IFRS 13 Fair Value Measurement
Financial liabilities are subsequently measured at amortised cost using the
effective interest method, with interest expense recognised on an effective
interest rate method.
The Company derecognises financial liabilities when, and only when, the
Company's obligations are discharged, cancelled or they expire.
Ordinary shares are classified as equity. An equity instrument is any contract
that evidences a residual interest in the assets of an entity after deducting
all of its liabilities. Equity instruments issued by the Company are
recognised at the proceeds received, net of direct issue costs. Direct issue
costs are charged against the value of ordinary share premium.
b) Taxation
Investment trusts which have approval under section 1158 of the Corporation
Tax Act 2010 are not liable for taxation on capital gains. The Company has
successfully applied and has been granted approval as an Investment Trust by
HMRC.
Irrecoverable withholding tax is recognised on any overseas income on an
accrual basis using the applicable rate of taxation for the country of origin.
The underlying intermediate holding companies and project companies in which
the Company invests provide for and pay taxation at the appropriate rates in
the countries in which they operate. This is taken into account when assessing
the value of the subsidiaries, joint ventures and associates.
c) Segmental reporting
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 Board to manage the Company presents the business as a
single segment.
d) Investment income
Investment income comprises interest income and dividend income received from
the Company's subsidiaries. Interest income is recognised in the Statement of
Comprehensive Income using the effective interest method. Dividend income is
recognised when the Company's entitlement to receive payment is established.
e) Expenses
All expenses are accounted for on an accrual basis. In accordance with the
Statement of Recommended Practice: Financial Statements of Investment Trust
Companies and Venture Capital Trusts ('SORP') issued in July 2022 by the
Association of Investment Companies ('AIC'), the statement of comprehensive
income differentiates between the 'revenue' account and the 'capital' account,
and the sum of both items equals the Company's profit for the year/period. In
respect of the analysis between revenue and capital items presented within the
Statement of Comprehensive Income, expenses directly attributable to the
long-term capital growth of the Company are presented as capital items. See
below for specific examples:
· Investment management fees: As per the Company's investment
objective, it is expected that income returns will make up 50% of the
Company's long-term return. Therefore, based on the estimated split of future
returns (which cannot be guaranteed), 50% of the investment management fee is
charged as a capital item within the Statement of Comprehensive Income.
· Transaction costs: Transaction costs incurred on completed
transactions are charged as capital items within the Statement of
Comprehensive Income.
f) Foreign currency
Foreign currency transactions are translated into the functional currency
using the exchange rates prevailing at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies are retranslated into
the functional currency using the exchange rate prevailing at the statement of
financial position date. Foreign exchange gains and losses arising from
translation are included in the statement of comprehensive income. Foreign
exchange gains and losses relating to the financial assets carried at fair
value through profit or loss are presented in the statement of comprehensive
income.
g) Cash and cash equivalents
Cash and cash equivalents includes deposits held with banks and other
short-term deposits with original maturities of three months or less.
h) Dividends payable
Final dividends payable to equity shareholders are recognised in the Financial
Statements when they have been approved by shareholders and become a liability
of the Company. Interim dividends payable are recognised in the period in
which they are paid.
i) Reserves
The Company's capital is represented by the ordinary shares, share premium,
the special distributable reserve, retained losses and other comprehensive
income.
· Share premium: Share premium includes the premium above nominal
value received by the Company on issuing shares, net of issue costs, to the
extent not subsequently cancelled and transferred to another reserve.
· Special distributable reserve: This reserve is distributable and
may be used, where the Board considers it appropriate, by the Company for the
purposes of paying dividends to shareholders (and, in particular, augmenting
or smoothing payments of dividends to shareholders) or buying back shares.
There is no guarantee that the Board will make use of this reserve for such
purposes. See note 15 for further information.
· Retained losses: Retained losses are split between revenue and
capital reserves as follows:
· Revenue reserve: This reserve reflects all income and costs which
are recognised in the revenue column of the statement of comprehensive income.
This reserve is distributable by way of dividend.
· Capital reserve: This reserve includes gains and losses on
disposal of investments and changes in fair values of investments, foreign
exchange differences determined to be of a capital nature and the capital
element of the management fee. Any associated tax relief is also credited to
this reserve. This reserve is distributable by way of dividend.
j) Onerous contract provision
Present obligations arising under onerous contracts are recognised and
measured as provisions. An onerous contract is considered to exist where the
Company or its subsidiaries has a contract under which the unavoidable costs
of meeting the obligations under the contract exceed the economic benefits
expected to be received under it. The Company's onerous contract relates to
the agreed acquisition of a further 57% in SolarArise where the fair value of
that 57% stake at the balance sheet date has been determined to be less than
the agreed consideration payable. Please refer to note 13 for further detail.
As the onerous contract is linked to the fair value of the investment
portfolio, the income statement charge arising from the onerous contract has
been recognised in revenue.
4. Administration and professional fees
For the period ended 31 December 2022
Revenue Capital Total
US$'000 US$'000 US$'000
Administration fees 146 - 146
AIFM fees 94 - 94
Legal and professional fees 693 - 693
Transaction costs - 296 296
Compliance and regulatory fees 157 - 157
Directors' fees 267 - 267
Valuation fees 842 - 842
Company's audit and non-audit fees:
- in respect of audit services 445 - 445
- in respect of non-audit related services 207 - 207
Other operating expenses 389 - 389
3,240 296 3,536
Analysed as:
For the period ended 31 December 2022
Total
US$'000
Ongoing and recurring costs of the Company 1,508
Exceptional costs incurred to finalise the December 2022 valuations and 2022 1,192
audit
Other one-off costs 836
Total 3,536
Fees payable to the Company's Auditor during the period were:
For the period ended 31 December 2022
Total
US$'000
Fees payable to the Company's Auditor for the audit of the Company's Financial 445
Statements
Fees payable to the Company's Auditor for other services:
Audit-related services 43
Non-audit related services 446
Total 934
The audit-related services provided relate to the review of the interim
financial statements. During the period, the Company's Auditor was also paid
£215,000 (US$282,000 equivalent) for its role as reporting accountant and
£136,000 (US$164,000 equivalent) for tax structuring advice in connection
with the IPO. The reporting accountant fee was recognised directly in equity
as a cost associated with the initial capital raising of the Company.
In addition to the fees disclosed above, US$3,350 is payable to the Company's
Auditor in respect of audit services provided to the Company's unconsolidated
subsidiary, AEIT Holdings, that is not included in the Company's expenses
above.
The Company has no employees. Full detail on Directors' fees is provided in
note 19. Directors' fees in the table above include employer social security
contributions of US$11,000. In the period from incorporation to 31 October
2021 and from 1 November 2021 until the date of IPO, Directors' fees were
US$nil.
5. Net foreign exchange gains
Net foreign exchange gains primarily relate to foreign exchange gains realised
on the Company's IPO proceeds that have not yet been deployed.
6. Taxation
(a) Analysis of charge in the period
For the period ended 31 December 2022
Revenue Capital Total
US$'000 US$'000 US$'000
Corporation tax - - -
Tax charge for the period - - -
(b) Factors affecting total tax charge for the period
The effective UK corporation tax rate applicable to the Company for the period
is 19%. The tax charge differs from the charge resulting from applying the
standard rate of UK corporation tax for an investment trust company. The
differences are explained below:
Revenue Capital Total
US$'000 US$'000 US$'000
Loss before taxation (2,283) (86,501) (88,784)
Corporation tax at 19% (434) (16,435) (16,869)
Effects of:
Non-deductible capital losses - 16,244 16,244
Unutilised losses carried forward 434 191 625
Total tax charge for the period - - -
The Directors are of the opinion that the Company has complied with the
requirements for maintaining investment trust status for the purposes of
section 1158 of the Corporation Tax Act 2010. This allows certain capital
profits of the Company to be exempt from UK tax. Additionally, the Company may
designate dividends payable wholly or partly as interest distributions for UK
tax purposes. Interest distributions are treated as tax deductions against
taxable income of the Company so that investors do not suffer double taxation
on their returns.
The Financial Statements do not directly include the tax charges for any of
the Company's subsidiaries as these are held at fair value. Each of these
companies are subject to taxes in the countries in which they operate.
The Company has an unrecognised deferred tax asset of US$0.8 million based on
the excess unutilised operating expenses of US$3.3 million at the prospective
UK corporation tax rate of 25%. A deferred tax asset has not been recognised
in respect of these operating expenses and will be recoverable only to the
extent that the Company has sufficient future taxable revenue.
7. Dividends
The dividends reflected in the Financial Statements for the period are as
follows:
For the period ended
31 December 2022
Cents per ordinary share Total
US$'000
Q1 2022 dividend - paid on 24 June 2022 0.44 508
Q2 2022 dividend - paid on 30 September 2022 0.44 622
Q3 2022 dividend - paid on 2 December 2022 0.44 773
Total 1.32 1,903
The dividends relating to the period ended 31 December 2022, which is the
basis on which the requirements of section 1159(52) of the Corporation Tax Act
2010 are detailed below:
(52) The requirement for an investment trust to pay out 85% of profits
generated in the year as dividends.
For the period ended
31 December 2022
Cents per ordinary share Total
US$'000
Q1 2022 dividend - paid on 24 June 2022 0.44 508
Q2 2022 dividend - paid on 30 September 2022 0.44 622
Q3 2022 dividend - paid on 2 December 2022 0.44 773
Q4 2022 dividend - paid on 23 May 2023 1.18 2,073
Total 2.50 3,976
As disclosed in note 22, the Company declared its dividend for the fourth
quarter on 13 April 2023 of 1.18 cents per share in respect of the three-month
period from 1 October 2022 to 31 December 2022. The dividend totalling US$2.1
million was paid on 23 May 2023.
See note 22 for details on additional dividends declared since the period end.
8. Earnings per ordinary share
Earnings per ordinary share is calculated by dividing the profit or loss
attributable to equity shareholders of the Company by the weighted average
number of ordinary shares in issue during the period:
For the period ended 31 December 2022
Revenue Capital Total
Loss attributable to the equity holders of the Company (US$'000) (2,283) (86,501) (88,784)
Weighted average number of ordinary shares in issue (000s) 115,177 115,177 115,177
Earnings per ordinary share (cents) - basic and diluted (1.98) (75.14) (77.13)
9. Investments at fair value through profit or loss
As set out in note 2, the Company accounts for its interest in its wholly
owned direct subsidiaries as an investment at fair value through profit or
loss.
31 December 2022
US$'000
Philippines 11,491
India -
AEIT Holdings -
Total investments at FVTPL 11,491
Movements in the period:
Acquisition of assets - cash settled 28,298
Acquisition of assets - consideration shares 30,186
Discount rate unwind 2,833
Changes to inflation 2,789
Change in FX (3,391)
Estimated termination penalties for RUMS project (14,071)
Adjustments to modelling methodology and timing of cash extraction (12,410)
Decrease in power prices (WESM) (9,036)
Changes to generation profile (3,328)
Increase in discount rates (826)
Removal of carbon credit revenues (SolarArise) (2,033)
Other movements in fair value of investments (7,520)
Fair value of Company's investments as at 31 December 2022 11,491
Fair value of the investment portfolio
The Transitional Investment Manager has carried out a fair market valuation of
the investments as at 31 December 2022. These valuations have been reviewed by
the Company's independent valuation expert.
The Directors have satisfied themselves as to the methodology used, the
discount rates applied and the valuation. All investments are in renewable
energy assets and are valued using a discounted cash flow methodology.
The key assumptions used in the DCF models at 31 December 2022 that the
Directors believe would have a material impact on the fair value of the
investments should they change are set out in the table below. The key
unobservable inputs, and therefore the key sources of estimation uncertainty,
are future power prices, renewable energy generation, discount rates and
inflation rates. The table below also includes other assumptions that the
Transitional Investment Manager consider to be key to the valuation of each
investment, such as the ability to extract cash from each of the investments
and the timing of dividend payments.
Key assumption Philippines India Description
Power prices Forecast WESM(53) prices, are based on a blend of two wholesale energy price Fixed price PPA All assets in the Indian portfolio have long‑term fixed price power purchase
curves as prepared by independent market advisors that are reputable in these agreements and therefore market forecasts are not required. The Philippine
markets. portfolio generates revenue through the sale of power to the grid at the
wholesale electricity market price and is fully exposed to volatility in
wholesale energy price curves.
Energy generation P50 P50 Electricity output is based on specifically commissioned yield assessments
prepared by technical advisors. Each asset's valuation assumes a 'P50' level
of electricity output, which is the estimated annual amount of electricity
generation that has a 50% probability of being exceeded-both in any single
year and over the long-term- and a 50% probability of being underachieved. The
P50 provides an expected level of generation over the long-term. A 3-5%
'haircut' has been applied to the current P50 yields in the models based on
historical underperformance.
Discount rate 12% 12% for operational assets; The discount rate used in each DCF model reflects the current market
12.5% for construction assets assessment of the time value of money and the risks specific to each
investment. Key inputs to the discount rates have been reviewed by PwC, the
independent valuation expert.
FX rate US$1:PHP 55.616 US$1:INR 82.67 Underlying valuations are calculated in local currency and converted back to
USD at the spot rate at the relevant valuation date.
Inflation CPI trends downwards to a long‑term inflation rate assumption of 3%. The India CPI forecasts trend downwards in the near term to a long-term inflation Inflation assumptions used in the model are a blend of a leading market
Bangko Sentral ng Pilipinas (central bank of the Philippines) target inflation rate assumption of 4.2%. This is in line with the Reserve Bank of India target forecaster with International Monetary Fund (IMF) CPI forecasts for all
range is 2% to 4%. inflation range of 2% to 6%. invested markets as at 31 December 2022.
Capital structure Philippines: Capital reduction effective on 30 June 2023 India: Capital reduction effective on 31 December 2023 The current structure of each of these investments is not optimal for cash
extraction. The DCF models assume a degree of capital restructuring for each
investment to enable cash to be extracted more efficiently. Any delay to these
restructuring plans may delay the ability of the Company to extract cash out
of its underlying investments.
(53) Philippine Wholesale Electricity Spot Market.
RUMS project
Within the SolarArise portfolio is a 200 MW asset under construction (the
"RUMS project") held through a separate subsidiary. As at 31 December 2022,
SolarArise had spent US$6.8 million on the RUMS project. In valuing the
SolarArise portfolio, the RUMS project was initially held at US$6.8 million
i.e. cost.
At 31 December 2022 the price of solar panels to complete construction of the
asset were high, primarily due to lockdowns in China which limited global
solar panel supply. The DCF valuation of proceeding with the RUMS project as
at 31 December 2022 was therefore a negative NPV of US$33.3 million (100%
basis) whereas the potential liabilities from aborting the project were
between US$14.1million and US$33.2 million, with termination penalties
potentially being levied on SolarArise. Therefore the valuation of SolarArise
at 31 December 2022 assumes that the RUMS project would be aborted, any costs
paid into the project would be written off to US $nil and that termination
penalties would be levied on the rest of the SolarArise investment. There is
significant judgement in determining the likely value of the crystallised
abort liabilities but in valuing SolarArise at 31 December 2022, it has been
assumed that a market participant would look at the SolarArise platform in its
entirety and consider either the termination liabilities or the negative NPV
of proceeding with the RUMS project in valuing the investment and therefore
the fair value of the SolarArise investment as a whole has been written down
to US$nil as the risk of further liabilities being levied on the Company is
deemed to be remote such that the valuation cannot go below US$nil. This
represents total abort liabilities of US$27.8 million (100% basis). As at 31
December 2022, the Company owned 43% of SolarArise. However, given that it had
also made a commitment to purchase the remaining 57%, an onerous contract
provision has also been recognised for the 57% commitment - see note 13.
Post period end, following a decrease in panel prices and re-evaluation of the
project, the Board decided that proceeding with the project represented the
least value destructive option for the Company. As at 30 September 2023, the
valuation of the RUMS project is a negative NPV of US$14.6 million. This
excludes the paid in capital to date of US$10.1 million. See note 22 for
further information.
AEIT Holdings
On 5 May 2022, the Company incorporated a wholly owned subsidiary, AEIT
Holdings, a private company, limited by ordinary shares. AEIT Holdings'
principal activity is to act as an investment holding company and it is
intended that the Company will acquire its future investments directly through
AEIT Holdings. It is expected that the Company will finance AEIT Holdings
through a mix of equity and long-term debt. At 31 December 2022, AEIT Holdings
did not hold any investments and is therefore held at a fair value of US$nil.
Valuation sensitivities
The following table presents the results and impact of the sensitivity
analysis completed on the key inputs used in the DCF models. The sensitivities
assume that the relevant input is changed over the entire useful life of each
of the underlying renewable energy investments, while all other variables
remain constant. All sensitivities have been calculated independently of each
other. Each of these sensitivities have been assessed as reasonably possible
based on actual changes seen over the year.
The Directors have assessed the sensitivity applied to each of the significant
unobservable inputs and believe that each sensitivity represents a reasonable
possible long-term movement in the significant unobservable input to which it
relates, notwithstanding the significant short-term movements that have
occurred in the period in relation to Philippine wholesale power prices,
foreign exchange, inflation rates and government bonds yields due to the
recent energy market disruption caused by the ongoing Ukraine-Russia war.
While the Directors believe the changes in inputs calculated to be within a
reasonable expected range based on their understanding of market transactions,
this is not intended to imply the likelihood of change or that possible
changes in value would be restricted to the range considered. For SolarArise,
the sensitivities in the chart below are calculated on its operational
portfolio, excluding the RUMS project. As the total value of SolarArise
(including the RUMS project) as at 31 December 2022 is US$nil, the downsides
shown below are not reflective of the actual impact on the Company (as the
value of SolarArise can not fall below US$nil.
Impact of sensitivity
Significant unobservable input Relationship to fair value Fair value increase Fair value (decrease) NAV per share increase NAV per share (decrease)
Power prices Power price sensitivities have only been applied to investments whose US$6.8 million US$(6.5) million 3.9 cents (3.7) cents
underlying assets are exposed to merchant prices (i.e. revenue streams which
are not tied to a fixed-price PPA). An increase in forecasted power prices
used for these revenue streams would result in an increase in fair value.)
Sensitivity: +/- 25%
Renewable energy generation An increase in generation would result in an increase in fair value. US$6.5 million US$(6.6) million 3.7 cents (3.8) cents
Sensitivity: +/- 10%
Discount rate A decrease in the discount rate used would result in an increase in fair US$1.4 million US$(1.3) million 0.8 cents (1.1) cents
value.
Sensitivity: -/+ 1%
Foreign exchange rate Deflation of the local currencies in which the investments are held against US$1.0 million US$(1.0) million 0.6 cents (0.6) cents
the US Dollar would result in an increase in fair value.
Sensitivity: -/+ 10%
Cost inflation A decrease in the inflation rate used would result in an increase in fair US$0.6 million US$(0.6) million 0.3 cents (0.3) cents
value.
Sensitivity: -/+ 1%
Cash extraction As at 31 December 2022, NISPI, the SolarArise holding company and each of the - US$(1.2) million - (0.7) cents
SolarArise SPVs has significant negative distributable reserve balances,
prohibiting the payment of dividends.
The updated valuations have been updated to reflect this but assume that some
measures to eliminate cash traps within a reasonable timeframe are implemented
for example, capital reductions. The sensitivity assumes that such measures to
eliminate cash traps are delayed by c. 12 months at both NISPI and SolarArise.
Sensitivity: Delay to assumed capital reductions +12 months
RUMS termination liabilities As at 31 December 2022, the least value destructive option was to abort the US$5.9 million US$(2.4) million 3.3 cents (1.4) cents
RUMS project. Advice was sought on the range of liabilities that could arise.
The potential outcomes ranged from a worst case liability of US$14.1 million
to a mitigated case of US$6.1 million on a 43% basis.
The sensitivity shows the impact on Company value by adopting the ends of
these ranges vs. the concluded abort estimation of $12.0 million.
Sensitivity: Third party advisors worst case / mitigated case
10. Trade and other receivables
31 December 2022 31 October 2022
US$'000 US$'000
VAT receivable 541 -
Prepayments 92 -
Amounts receivable from related parties - 66
Total 633 66
Amounts receivable from related parties in the prior year related to the
ordinary share and preference shares issued on incorporation, payable by the
initial parent company, ThomasLloyd Cleantech Infrastructure Holding GmbH.
In March 2022, the preference shares were cancelled (see note 14).
11. Cash and cash equivalents
The cash and cash equivalents were held in the following currencies at the
period end:
31 December 2022 31 October 2022
US$'000 US$'000
US$ 109,024 -
GBP 6,742 -
Euro 53 -
Total 115,819 -
12. Trade and other payables
31 December 2022 31 October 2022
US$'000 US$'000
Trade payables 350 -
Accrued expenses 2,367 -
Amounts payable to related parties 146 -
Total 2,863 -
Amounts payable to related parties are management fees accrued and payable to
the previous Former Investment Manager. See note 19 for further information.
13. Provisions
31 December 2022 31 October 2022
US$'000 US$'000
Opening balance - -
Additions in the period
Onerous contract provision 38,500 -
Amounts utilised in the period - -
Balance at the end of the period 38,500 -
On 20 June 2022 the Company made a commitment to purchase the remaining 57% of
SolarArise for a total consideration of US$38.5 million. The Company has
identified an onerous contract and recognised a provision of US$38.5 million
in respect of this commitment as the fair value of the 57% investment is lower
than the consideration paid to acquire this 57% investment, primarily due to
termination penalties relating to the RUMS project. Completion of the purchase
of 57% of SolarArise occurred on 13 January 2023. See note 9 for further
details on how the fair value of SolarArise was determined.
14. Share capital
Allotted, issued and fully paid: Number of ordinary Share capital US$'000 Share Number of preference shares Preference share capital US$'000
shares
premium US$'000
At incorporation (6 September 2021) 1 - - - -
Issues of shares (18 October 2021) 1 - - 50,000 66
Cancellation of shares (18 October 2021) (1) - - - -
At 31 October 2021 1 - - 50,000 66
Issue of shares at IPO (14 December 2021) 115,393,127 1,154 114,239 - -
Cancellation of preference shares (22 March 2022) - - - (50,000) (66)
Subsequent issue of shares (16 August 2022) 26,014,349 260 29,926 - -
Subsequent issue of shares (16 November 2022) 34,277,228 343 34,963 - -
Share issue costs - - (3,618) - -
Transfer to special distributable reserve - - (111,992) - -
Closing balance 31 December 2022 175,684,705 1,757 63,518 - -
The Company was incorporated on 6 September 2021 with share capital of £0.01,
being one ordinary share of £0.01.
On 18 October 2021, the Company issued US$0.01 of ordinary share capital,
being one ordinary share of US$0.01 and preference share capital of £50,000,
being 5,000,000 preference shares of £0.01. On this date, the Company
cancelled the one ordinary share of £0.01.
On 14 December 2021, at IPO, the Company issued 115,393,127 ordinary shares of
US$0.01 each, at a price of US$1.00 per ordinary share, raising gross
proceeds of US$115.4 million.
On 22 March 2022, the Company effected a capital reduction process which
included the cancellation of the 50,000 preference shares and the related
reduction of an amount receivable from related parties of US$66,000 and the
reduction of the share premium reserve and related transfer to the special
distributable reserve of US$111,992,000.
On 16 August 2022, the Company issued 26,014,349 ordinary shares of US$0.01
each in consideration for the 43% economic interest in SolarArise. SolarArise
forms part of the seed assets of the IPO, with the consideration shares
forming part of the gross IPO proceeds. The shares were issued at a price of
US$1.16035 per share that was based on the 10-day average share price prior to
allotment of the shares.
On 16 November 2022, pursuant to the subsequent placing programme, the Company
issued 34,277,228 ordinary shares of US$0.01 each at a price of US$1.030 per
ordinary share, raising gross proceeds of US$35.3 million. The shares were
subsequently issued on 18 November 2022.
Expenses incurred of US$3.6 million were determined to be directly
attributable to the equity transactions and that would have otherwise been
avoided if the shares had not been issued. These expenses include broker fees
and commissions, sponsor fees, amounts paid to lawyers, accountants and other
professional advisors in relation to the IPO and the subsequent placing
programme. Such expenses have been recognised directly in share premium.
15. Special distributable reserve
In March 2022, the Company was granted court approval for a capital reduction
process to cancel US$112.0 million of share premium which was transferred to
the special distributable reserve. During 2022, the Company paid dividends of
US$1.9 million from this reserve. At 31 December 2022, the special
distributable reserve was US$110.1 million and is fully distributable.
16. Net asset value per ordinary share
As at 31 December 2022
Total shareholders' equity (US$'000) 86,580
Number of ordinary shares in issue (000) 175,685
Net asset value per Ordinary Share (cents) 49.28
17. Financial instruments by category
The table below sets out the classifications of the carrying amounts of the
Company's financial assets and financial liabilities into categories of
financial instruments. There are no non-recurring fair value measurements.
As at 31 December 2022
Financial assets at amortised cost US$'000 Financial assets at fair value through profit or loss US$'000 Financial liabilities at amortised cost Total US$'000
US$'000
Non-current assets
Investments at fair value through profit or loss - 11,491 - 11,491
Current assets
Cash and cash equivalents 115,819 - - 115,819
Total assets 115,819 11,491 - 127,310
Current liabilities
Trade and other payables - - (350) (350)
Total liabilities - - (350) (350)
Net assets 115,819 11,491 (350) 126,960
Financial instruments are held at carrying value as an approximation to fair
value unless stated otherwise.
IFRS 13 requires the Company to classify its investments in a fair value
hierarchy that reflects the significance of the inputs used in making the
measurements. IFRS 13 establishes a fair value hierarchy that prioritises the
inputs to valuation techniques used to measure fair value. The three levels of
fair value hierarchy under IFRS 13 are as follows:
Level 1: fair value measurements are those derived from quoted prices
(unadjusted) in active markets for identical assets or liabilities
Level 2: fair value measurements are those derived from inputs other than
quoted prices included within Level 1 that are observable for the asset or
liability, either directly (i.e. as prices) or indirectly (i.e. derived from
prices)
Level 3: fair value measurements are those derived from valuation techniques
that include inputs to the asset or liability that are not based on observable
market data (unobservable inputs)
As at 31 December 2022
Level 1 Level 2 Level 3 Total
US$'000 US$'000 US$'000 US$'000
Financial assets
Investments at fair value through profit or loss - - 11,491 11,491
Total financial assets - - 11,491 11,491
There were no Level 1 or Level 2 assets during the period. There were no
transfers between Level 1 and 2, Level 1 and 3 or Level 2 and 3 during the
period.
Reconciliation of level 3 fair value measurement of financial assets and
liabilities
An analysis of the movement between opening to closing balances of the
investments at fair value through profit or loss (all classified as Level 3)
is given in note 9.
The fair value of the investments at fair value through profit or loss
includes the use of Level 3 inputs. Refer to note 9 for details on the
valuation methodology.
18. Financial risk management
The Company is exposed to certain risks through the ordinary course of
business and its financial risk management objective is to minimise the effect
of these risks on its operations. The management of risks is the
responsibility of the Board. The Investment Manager and AIFM 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 the Company's operations.
The exposure to each financial risk considered potentially material to the
Company, how it arises and the policy for managing it is summarised below.
(i) Currency risk
The Company operates internationally and holds both monetary and non-monetary
assets denominated in currencies other than the US Dollar, the functional
currency. Foreign currency risk, as defined in IFRS 7, arises as the value of
future transactions and recognised monetary assets and monetary liabilities
denominated in other currencies fluctuate due to changes in foreign exchange
rates. IFRS 7 considers the foreign exchange exposure relating to non-monetary
assets and liabilities to be a component of market price risk and not foreign
currency risk. However, the Investment Manager monitors the exposure on all
foreign currency-denominated assets and liabilities.
Whilst the Company will not pursue long-term currency hedging, the Board
intends to substantially hedge future dividend payments to shareholders where
those payments are funded by non-US Dollar-denominated dividend income. This
hedging programme may cover up to a rolling two-year period. At 31 December
2022, the Company had not entered into any foreign exchange hedging
transactions for the purpose of managing its exposure to foreign exchange
movements (both monetary and non-monetary).
In relation to local currency debt facilities held at the investment portfolio
level, these are and should be in the same currency as the offtake agreement,
which provides a natural hedge to mitigate the currency risk. The Investment
Manager also includes prevailing assumptions on annualised currency
depreciation in its financial projections, so that its financial models
contain anticipated changes in currency value. As at 31 December 2022, the
SolarArise portfolio held debt of US$106.8 million on a 100% basis (US$45.9
million on a 43% basis).
When the Investment Manager formulates a view on the future direction of
foreign exchange rates and the potential impact on the Company, the Investment
Manager factors that into its investment portfolio decisions. While the
Company has direct exposure to foreign exchange rate changes on the price of
non-US Dollar-denominated investments, it may also be indirectly affected by
the impact of foreign exchange rate changes on the earnings of certain of its
investments and, therefore, the sensitivity analysis below may not necessarily
indicate the total effect on the Company's net assets of future movements in
foreign exchange rates.
The table below summarise the Company's assets and liabilities, both monetary
and non-monetary, denominated in the currencies the Company is exposed to,
expressed in US$'000s.
US$ GBP PHP INR Other Total
Assets
Investments at fair value through profit or loss - - 11,491 - - 11,491
Trade and other receivables - 633 - - - 633
Cash and cash equivalents 109,024 6,742 - - 53 115,819
Liabilities
Trade and other payables (593) (2,270) - - - (2,863)
Onerous contract provision - - - (38,500) - (38,500)
Net assets 108,431 5,105 11,491 (38,500) 53 86,580
% of NAV 125% 6% 13% (43%) 0% 100%
(ii) Interest rate risk
The Company's interest and non-interest bearing assets and liabilities (both
monetary and non-monetary) as at 31 December 2022 are summarised below:
Non-interest
Interest bearing bearing Total
US$'000 US$'000 US$'000
Assets
Cash and cash equivalents - 115,819 115,819
Trade and other receivables - 633 633
Investments at fair value through profit or loss - 11,491 11,491
Total assets - 127,943 127,943
Liabilities
Trade and other payables - (2,863) (2,863)
Onerous contract provision (38,500) (38,500)
Total liabilities - (41,363) (41,363)
(iii) Power price risk
The Company is also exposed to power price risk on its investments, primarily
being future power prices. Wholesale electricity prices tend to be volatile
and are impacted by a variety of factors, including market demand, the
electricity generation mix in a specific market and fluctuations in the market
prices of certain commodities. Whilst SolarArise benefits from fixed priced
PPAs, NISPI's revenues are based on the wholesale electricity spot market
price in the Philippines. The Investment Manager continually monitors the
wholesale electricity spot market price and forecasts and aims to put in place
mitigating strategies, such as securing fixed PPA contracts, to reduce the
exposure of the Company to this risk. However none were entered into either in
the year or subsequent to the balance sheet date. The valuation sensitivity
of the investment portfolio to power prices is shown in note 9.
The Company's policy is to manage price risk arising from investments through
diversification of its investment portfolio and selection of investments in
renewable energy assets and other financial instruments within the specified
limits set out in the Company's investment policy, or otherwise set by the
Board.
(iv) Credit risks
The Company is exposed to third-party credit risk in several instances and the
possibility that a counterparty with which the Company or its underlying
investment entities contract may fail to perform their obligations under a
commitment that it has entered into with the Company or its underlying
investment entities, in the manner anticipated by the Company.
Credit risk arises where capital commitments are being made and is managed by
diversifying exposures among a portfolio of counterparties and through
applying credit limits to those counterparties with a lower credit standing.
Counterparty credit risk exposure limits are determined based on the credit
rating of the counterparty. Counterparties are assessed and monitored on the
basis of their ratings from Standard & Poor's and/or Moody's. No financial
transactions are permitted with counterparties with a credit rating of less
than BBB- from Standard & Poor's or Baa3 from Moody's, unless specifically
approved by the Board.
Credit risk also arises from cash and other assets that are required to be
held in custody by banks and other financial institutions. Cash held with
banks and other financial institutions will not be treated as client money
subject to the rules of the FCA and may be used by the bank in the ordinary
course of its own business. The Company will, therefore, be subject to the
creditworthiness of the bank or other financial institution. In the event of
insolvency of a bank or other financial institution, the Company will rank as
a general creditor in relation thereto and may not be able to recover such
cash in full, or at all. To mitigate this risk, cash and bank deposits are
only held with major financial institutions with high credit ratings assigned
by international credit rating agencies.
The Company has assessed the expected credit loss model in IFRS 9 and does not
consider any material impact on these Financial Statements. No balances are
past due or impaired.
(v) Liquidity risks
Liquidity risk is the risk that the Company may not be able to meet its
financial obligations as they fall due. The objective of liquidity management
is, therefore, to ensure that all commitments which are required to be funded
can be met out of readily available and secure sources of funding.
At 31 December 2022, the Company's financial liabilities were trade payables.
The Company also held an onerous commitment for $38.5m to acquire the
remaining 57% interest in SolarArise and a contingent liability in relation to
contingent consideration payable under the NISPI sale and purchase agreement.
As detailed in note 21 the fair value of this contingent liability was
determined to be US$nil at 31 December 2022 and the risk surrounding this
contingent liability has fallen away post the period end. The Company intends
to hold sufficient cash to meet its working capital needs over a horizon of at
least the next 12 months from the signing of these Financial Statements. The
Company held cash and cash equivalents of US$115.8 million at 31 December
2022, with total financial liabilities of US$0.35 million. The Company also
had non-financial liabilities, including amounts payable under an onerous
contract provision, of US$41.0 million.
Cash flow forecasts are prepared by the Investment Manager on a quarterly
basis for a rolling six-month period to assist in the ongoing analysis of
short-term cash flow, and for at least 12 months to cover the Company's going
concern assessment. The Directors monitor forecast and actual cash flows from
operating, financing and investing activities to consider payment of trade and
other payables, payment of dividends or the funding of additional investing
activities. The Company also ensures that it maintains adequate cash reserves
by monitoring the forecast and actual cash flows.
The following table shows the maturity analysis of financial assets and
liabilities held at 31 December 2022.
Less than 1 year 1-5 years More than 5 years Total
US$'000 US$'000 US$'000 US$'000
Assets
Investments at fair value through profit or loss - - 11,491 11,491
Cash and cash equivalents 115,819 - - 115,819
Liabilities
Trade and other payables (350) - - (350)
115,469 - 11,491 126,960
Investments at fair value through profit and loss have been presented as more
than 5 years on account that they are held as long term investments.
Capital risk management
The Company manages its capital to ensure that it will be able to continue as
a going concern while maximising the capital return to shareholders. The
capital structure of the Company at 31 December 2022 consists of equity
attributable to equity holders of the Company, comprising issued share capital
and reserves, including accumulated losses. The Board continues to monitor
the balance of the overall capital structure so as to maintain investor and
market confidence. The Company is not subject to any external capital
requirements.
The Company does not have any debt, however is permitted to have debt within
its underlying investments. Per the Company's investment policy, gearing
should not exceed 65% of the Adjusted GAV, with the Company targeting gearing
of below 50% in the medium term. External debt financing is only at the level
of the Indian solar portfolio and as at 31 December 2022, this comprised
outstanding principal amounts of US$45.9 million (pro rated for economic
ownership), representing a leverage ratio of 27% increasing to 46% on a
committed basis (including 100% of SolarArise).
19. Related party transactions
AIFM
The Company is classified as an Alternative Investment Fund under the EU
Alternative Investment Fund Managers' Directive as incorporated into UK law
(the 'AIFMD') and is, therefore, required to have an AIFM. The Company's AIFM
is Adepa Asset Management S.A.
The AIFM is entitled to an annual management fee at the following rates, based
on the NAV and payable quarterly in arrears:
Fee based on NAV
Up to US$200 million 0.055%
Between US&200-400 million 0.045%
Between US&400-1,000 million 0.035%
Above US$1 billion 0.025%
The AIFM is also entitled to an annual risk management fee of EUR14,500.
For the period from IPO to 31 December 2022, the AIFM was entitled to
management fees of US$94,000. Of this total, US$38,000 remained outstanding at
the balance sheet date and was included in payables.
Investment Manager
The AIFM, with the agreement of the Company, has delegated the portfolio
management of the Company to the Investment Manager. For the period from IPO
to 31 October 2023, the Investment Manager was ThomasLloyd Global Asset
Management (Americas) LLC (the "Former Investment Manager").
Management fees are payable quarterly in arrears and are calculated at the
following rates, based on the NAV on the last business day of the relevant
quarter:
Fee based on NAV
Up to US$700 million 1.3%
US$700 million to US$2.0 billion 1.1%
Over US$2.0 billion 1.0%
For the period from IPO to 31 December 2022, the Former Investment Manager was
entitled to management fees of US$1.4 million. Of this total, US$0.15 million
remained outstanding at the balance sheet date and was included in amounts
payable to related parties.
The Investment Management Agreement between the AIFM, Company and Former
Investment Manager (the "IMA") was terminated post period end with effect from
31 October 2023. From 1 November 2023, Octopus Energy Generation were
appointed as Transitional Investment Manager to cover an initial period
through to 30 April 2024.
Transactions with the Former Investment Manager
Acquisition of SolarArise
The Company acquired its 43% economic interest in SolarArise from ThomasLloyd
SICAV, ThomasLloyd Cleantech Infrastructure Fund SICAV and ThomasLloyd
Cleantech Infrastructure Holding GmbH, all related parties of the Former
Investment Manager. The acquisition agreement signed in November 2021 was
amended prior to completion in August 2022 to provide for the consideration to
be changed from a fixed number of ordinary shares to a variable number of
shares based on an average 10-day share price prior to date of allotment, to
update the fair value to that at 30 June 2022 as opined on by an independent
third-party and to provide for the number of ordinary shares to be issued as
consideration to be net of withholding tax of US$2.7 million, which was
required to be withheld and remitted by the Company to the tax authorities on
behalf of the sellers.
At November 2021, the consideration payable was US$34.6 million, which was to
be settled by the issue of 34,606,872 ordinary shares in the Company
(equivalent to an issue price of US$1.00 per share). Following these
amendments, completion of the acquisition of the 43% economic interest in
SolarArise was for a consideration of US$30.2 million, settled through the
issue of 26,014,349 ordinary shares at US$1.16035 per share. In addition, cash
of US$2.7 million was paid to the Indian tax authorities on behalf of the
sellers.
As at 31 December 2022 the Company's investment in SolarArise was valued at
US$nil. See note 9 for further information.
Acquisition of NISPI
The Company acquired its 40% economic interest in NISPI from ThomasLloyd CTI
Asia Holdings Pte Ltd, which is a related party of the Former Investment
Manager and shares an ultimate beneficial owner with the Former Investment
Manager. Under the acquisition agreement, the Company paid an initial cash
consideration of US$25.4 million and may have led to paying an additional
contingent cash consideration of up to US$22.0 million if the Company, prior
to June 2023, was awarded a power purchase agreement pursuant to a Green
Auction carried out by the Department of Energy of the Philippines. If such
contingent consideration was payable, the consideration would have been
settled 10 business days after the Green Auction purchase price agreement is
awarded. On 10 June 2022, the Company and ThomasLloyd CTI Asia Holdings Pte
Ltd agreed to extend the date for payment of any contingent consideration to
the earlier of (i) 31 December 2026 and (ii) 10 business days after a
further capital raise by the Company, the purpose of which includes funding
payment of contingent consideration (or, if the updated valuation has not been
received prior to such fundraise, 10 business days after the updated
valuation has been received).
NISPI was not awarded a PPA under a Green Auction prior to June 2023 and
therefore no further consideration is payable for the acquisition of NISPI.
Directors
The Company has four non-executive Directors. Total Directors' fees of
US$255,000, with associated payroll taxes of US$11,000, have been incurred in
respect of the period since IPO. Total expenses of US$6,000 were also paid to
the Directors in the period, of which US$1,000 was outstanding at 31 December
2022.
The Directors had the following shareholdings in the Company, all of which
were beneficially owned.
Ordinary shares held Ordinary shares held
as at date of this as at 31 December
report 2022
Sue Inglis 65,000 65,000
Kirstine Damkjaer - -
Mukesh Rajani 33,000 33,000
Clifford Tompsett 33,000 33,000
20. Subsidiaries, joint ventures and associates
As a result of applying Investment Entities (Amendments to IFRS 10, IFRS 12
and IAS 27), no subsidiaries have been consolidated in these Financial
Statements. The Company does not control each of the subsidiaries listed below
and therefore the transfer of dividends is dependent on there being suitable
distributable reserves, and the approval of co-shareholders. For those
subsidiaries with external debt, all debt agreements are complied with. See
note 21 to the Financial statements fro further information on the Company's
commitments with respect to these subsidiaries. The Company's subsidiaries
are listed below:
Place of Registered Ownership
Name Category business Office* interest
AEIT Holdings Limited Intermediate Holdings UK A 100%
Negros Island Solar Power Inc. ('NISPI') Project company Philippines B 34%(54)
SolarArise India Projects Private Ltd ('SolarArise') Intermediate Holdings India C 43%
Talettutayi Solar Projects Private Limited Project company India D 43%
Talettutayi Solar Projects One Private Limited Project company India D 43%
Talettutayi Solar Projects Two Private Limited Project company India D 43%
Talettutayi Solar Projects Four Private Limited Project company India D 43%
Talettutayi Solar Projects Five Private Limited Project company India D 43%
Talettutayi Solar Projects Six Private Limited Project company India D 43%
Talettutayi Solar Projects Eight Private Limited Project company India D 43%
Talettutayi Solar Projects Nine Private Limited Project company India D 43%
Talettutayi Solar Projects Ten Private Limited Project company India D 43%
*Registered offices:
A - The Scalpel, 18th Floor, 52 Lime Street, London, EC3M 7AF, United Kingdom.
B - Emerald Arcade, F.e. Ledesma 8t., San Carlos, Negros Island, Philippines.
C - A-39, LGF, Lajpat Nagar, Part-1 New Delhi-110024, India.
D - Unit No. 1004, 10th Floor, BPTP Park Centra, Sector 30, NH-8,
Gurugram-122001, Haryana, India.
As at 31 December 2022, investments into AEIT Holdings, NISPI and SolarArise
were held directly. All other investments were held indirectly.
(54) The Company's economic interest in NISPI is 40%.
21. Guarantees, contingent liabilities and other commitments
NISPI - contingent consideration
The sale and purchase agreement for the acquisition of the 40% economic
interest in NISPI provided for an initial cash consideration of US$25.4
million and potentially an additional contingent cash consideration of up to
US$22.0 million. This contingent cash consideration was dependent upon NISPI
being awarded a PPA, prior to June 2023, by the Philippine's Department of
Energy under their Green Auction process. As 31 December 2023 any payment was
considered remote and therefore was fair valued at US$nil.
NISPI was not awarded a PPA under a Green Auction prior to June 2023 and
therefore this contingent liability no longer exists at the date of signing
these Financial Statements.
AEIT Holdings - funding
At the balance sheet date, the Company committed to provide US$5.0 million of
funding to AEIT Holdings to acquire a 99.8% interest in VSS, a privately-owned
company which holds 6.12 MWp of rooftop solar assets. The funding was provided
through the issue of shares by AEIT Holdings to the Company for cash. The
funding was provided on 20 April 2023 and the acquisition of VSS completed on
31 May 2023 for US$3.1 million.
SolarArise - acquisition of additional 57% economic stake
On 20 June 2022 the Company made a commitment to purchase the remaining 57% of
SolarArise for a total consideration of US$38.5 million. The Company has
identified an onerous contract and recognised a provision of US$38.5 million
in respect of this commitment. This provision represents the Company's best
estimate of the fair value of 57% of SolarArise (which was US$nil after
factoring in the liabilities associated with the RUMS project) less the
consideration payable as of 31 December 2022. Completion of the purchase of
57% of SolarArise occurred on 13 January 2023. See note 13 for further
information.
22. Post period end events
There have been no reportable events after the balance sheet date, other than
as described below:
On 13 January 2023, the Company completed its acquisition of the remaining 57%
in SolarArise for US$38.5 million. At the period end, the Company had an
onerous contract provision in respect of this commitment. See note 13 for
further information.
The Company declared its fourth interim dividend of 1.18 cents per ordinary
share on 13 April 2023 in respect of the period from 1 October 2022 to 31
December 2022. The dividend was paid on 22 May 2023.
On 20 April 2023, the Company increased its investment in AEIT Holdings by
US$5.0 million. US$3.1 million of this amount was used by AEIT Holdings to
acquire Viet Solar System Company Limited ("VSS"), a privately-owned company
which holds 6.12 MW of rooftop solar assets. The acquisition completed on 31
May 2023 and represents a 99.8% interest in VSS.
On 25 April 2023 the Company announced a temporary share suspension. This was
due to a material uncertainty regarding the fair value of its assets and
liabilities, in particular with regard to the 200 MW construction-ready asset
in Rewa Ultra Mega Solar Park, the "RUMS project" acquired as part of the
SolarArise portfolio.
On 6 June 2023 the Company declared an interim dividend for the period from 1
January 2023 to 31 March 2023 of 0.44 cents per ordinary share. The dividend
was paid on 19 July 2023 to shareholders on the register on 16 June 2023.
On 10 August 2023 the Company declared an interim dividend for the period from
1 April 2023 to 30 June 2023 of 0.44 cents per ordinary share. The dividend
was paid on 11 September 2023 to shareholders on the register on 18 August
2023.
On 15 September 2023, the Board served notice on the Former Investment Manager
terminating the IMA with effect from 31 October 2023. From 1 November 2023,
Octopus Energy Generation "OEGEN" was appointed as Transitional Investment
Manager to cover an initial period through to 30 April 2024. For this initial
term, the Company will pay OEGEN a management fee of US$1.35 million. At the
end of the term, at the discretion of the Board, there is scope for OEGEN to
earn an additional management fee of up to US$0.55 million for its services
during the initial period.
On 11 October 2023 the Board announced its decision to proceed with the RUMS
project due to it being the least value destructive option for shareholders.
This was based on the advice received from the Former Investment Manager. To
proceed with the RUMS project, the Board put forward an amendment to the
Company's investment policy with regard to the single country limit which was
passed on 31 October 2023.
On 27 October 2023, the Company changed its name to Asian Energy Impact Trust
plc. with a new corporate website launched on 1 November 2023
www.asianenergyimpact.com.
On 8 November 2023 the Company declared an interim dividend for the period
from 1 July 2023 to 30 September 2023 of 0.44 cents per ordinary share. The
dividend was paid on 11 December 2023 to shareholders on the register on
17 November 2023.
On 13 December 2023, the Company announced its unaudited NAV as at 30
September 2023 is US$88.5 million (50.4 cents per share) and as at 30
September 2023, the Company had cash balances of US$63.6 million and held
US$1.7 million in its UK subsidiary, AEIT Holdings. As at 30 September 2023,
the value of the SolarArise portfolio increased from US$nil as at 31 December
2022 to US$11.3 million and included a negative NPV associated with completing
the RUMS project of US$14.6 million. The improvement in valuation associated
with completing the RUMS project is due to a reduction in the price of solar
panels through 2023, primarily due to China opening up from lockdowns and
therefore an increase in solar panel supply.
Other information
Alternative Performance Measures
In reporting financial information, the Company presents alternative
performance measures ("APMs") which are not defined or specified under the
requirements of IFRS. The Company believes that these APMs, which are not
considered to be a substitute for or superior to IFRS measures, provide
stakeholders with additional helpful information on the performance of the
Company. The Directors assess the Company's performance against a range of
criteria which are viewed as particularly relevant for closed-end investment
companies. The APMs presented in this report are shown below:
NAV per share
A measure of the value of the Company attributable to each share, at the
reporting date. The calculation of NAV per share is shown in note 16 to the
Financial Statements.
NAV total return
A measure of success of the Company's investment strategy. The NAV total
return per share includes both income and capital returns by taking into
account any increase or decrease in the NAV per share over the reporting
period and assuming that dividends paid to shareholders during the reporting
period are reinvested at the NAV per share on the ex-dividend date.
31 December 2022 NAV
NAV per share at IPO (14 December 2021) - cents a 98.00
NAV per share at 31 December 2022 - cents b 49.28
Benefits of reinvesting dividends - cents(55) d (0.78)
Dividends paid in the year - cents c 1.32
Total return (b+c+d)÷a)-1 -49.2%
(55) Calculated by taking the dividend per share and assuming it is
reinvested at the prevailing NAV/share price on the dividend payment date.
GAV, Adjusted GAV and Gearing
GAV is measure of the total size of the Company and is the total value of the
assets of the Company, being the aggregate of aggregate of the fair value of
its investment portfolio and any cash and cash equivalents. Leverage is not
employed at the Company level but may be employed within investment portfolio.
Adjusted GAV is a measure of the total size of the Company, including, on a
look through basis, its proportionate share of any leverage within its
investment portfolio, and forms the basis on which the gearing restriction in
the Company's investment policy is calculated. Gearing is a measure of the
potential financial risk to which the Company is exposed and is its
proportionate share of any leverage within its investment portfolio expressed
as a percentage of Adjusted GAV. This excludes the onerous contract relating
to the commitment to acquire a further 57% of SolarArise.
As at
31 December 2022
US$ million
Value of investment portfolio a 11.5
Cash and cash equivalents of the Company b 115.8
GAV a + b = c 127.3
Debt in underlying SPVs(56) d 45.9
Adjusted GAV c + d = e 173.3
Gearing (d÷e) 27%
(56) Debt held at SolarArise and disclosed here on a 43% basis.
Net operational asset value
The value of the Company's operational asset investments, excluding
construction projects. Provides a measure of the value of the investment
portfolio that is revenue generating and will make a positive contribution to
the Company's dividend cover.
As at
31 December 2022
US$ million
Value of investment portfolio a 11.5
Abort liabilities recognised in respect of the RUMS project b (12.0)
Net operational asset value a-b 23.5
Market capitalisation
Market capitalisation is a measure of the value of the Company as determined
by the stock market and is the total value of all outstanding shares at the
prevailing market price.
As at
31 December 2022
US$ million
Share price (US$ per share) a 1.18
Shares in issue at period end b 175,685
Market capitalisation a+b 207.3
Ongoing charges ratio
The ongoing charges ratio is a measure of the recurring annual costs of
running the Company based on historical data. It is calculated using the AIC
methodology and is the Company's recurring operating expenses for the last 12
months expressed as a percentage of the average published net assets for that
period. Recurring operating expenses exclude the costs of buying and selling
investments, any non-recurring costs and the costs of issuing shares.
Period ended 31 December 2022 US$ million
Reported NAV
Q1 2022 a 106.2
Q2 2022 b 115.2
Q3 2022 c 142.5
Q4 2022 d 86.6
Average NAV (a+b+c+d)/4 = e 112.7
Total expenses f 3.3
less transaction costs g (0.3)
less non-audit related services h (0.2)
less other non-recurring expenses i (1.5)
add realised FX gains j 1.7
Annualised expenses (f+g+h+i+j)/12.5*12 =k 2.9
Ongoing charges ratio (k÷e) 2.50%
% of sustainable investments including cash
The proportion of the Company's sustainability-related investments after
classifying the Company's cash as 'unsustainable'. This is disclosed in the
SFDR periodic disclosures.
As at
31 December 2022
US$ million
Fair value of investments a 11.5
Net assets of the Company b 86.6
Onerous contract provision c 38.5
Adjusted net assets of the Company b+c =d 125.1
% of sustainable investments (a÷d) 9.2%
Committed for 57% of SolarArise e 38.5
Committed for 99.8% of VSS f 3.1
Total commitments e+f =g 41.6
% of sustainable investments (including commitments) (a+g)÷d 42.4%
Excluding cash, 100% of the Company's investments are sustainable.
SFDR Principle Adverse Impacts Statement (Unaudited)
SFDR Principle Adverse Impacts Statement for financial products (Article 7 of
SFDR)
Financial market participant: Asian Energy Impact Trust plc
Summary
Asian Energy Impact Trust plc (AEIT) LEI 254900V23329JCBR9G82 through its
Investment Manager during the period, ThomasLloyd Global Asset Management
(Americas) LLC, considered principal adverse impacts of its investment
decisions on sustainability factors. The present statement is the consolidated
statement on principal adverse impacts on sustainability factors of AEIT.
This statement on principal adverse impacts on sustainability factors covers
the reference period from 1 January 2022 to 31 December 2022. The indicators
presented are based on data directly provided by investee companies and
reviewed by the Investment Manager. This statement considers the operational
assets within the SolarArise and excludes the RUMS project. Including the RUMS
project results in the SolarArise being valued at zero due to material
negative value of that project. Without this exclusion, all data pertaining to
SolarArise, would not have been considered due to the mathematical
calculations. Excluding the RUMS project ensures that SolarArise reflects a
non zero value and PAIs are more reflective of the assets. To complete a
comprehensive assessment of Scope 2 and 3 assessments, software solutions that
apply emissions factors to financial expenditures were used. On climate and
environment related indicators: the GHG emissions associated with the AEIT
portfolio are a small fraction of the avoided emissions associated with the
clean energy generation it has financed, even when all three scopes are
accounted for. AEIT will continue to work with investee companies to explore
opportunities to further reduce this footprint, in order to improve carbon
footprint, carbon intensity, and reduce non-renewable energy consumption PAIs
wherever possible. Portfolio emissions or intensity targets are not yet
proposed. No investments had negative impacts on biodiversity sensitive areas,
and emissions to water and hazardous waste were small across the portfolio. On
social and employee issues, respect for human rights, anti-corruption and
anti-bribery matters, no major issues related to the UN Global Compact or OECD
Guidelines for Multinational Enterprises were reported, and grievance
mechanisms were in place. Further engagement with investee companies will
strengthen the practical implementation of existing policies and effectiveness
of grievance mechanisms. The data presented in this first PAI statement for
AEIT has been reviewed by the Board.
Indicators applicable to investments in investee companies (AEIT investment
portfolio including commitment to SolarArise)
Adverse sustainability indicator Metric Impact 2022 Explanation Actions taken, and actions planned and targets set for the next reference
(First year of reporting) period
Climate and other environment-related indicators
Greenhouse gas (GHG) emissions 1. GHG emissions Scope 1 GHG Emissions 23.0 tCO(2)e The Investment Manager used an external advisor, a CDP certified software to The current portfolio footprint is relatively small. 2022 is the first year of
support GHG accounting, and to complete its GHG footprint. The figures operation for AEIT. Next steps include engagement with investee companies to
presented represent a best first effort to capture the scope 3 emissions of identify and implement measures to further reduce GHG emissions. At this
investee companies more completely by applying emissions factors to financial stage, GHG emission reduction targets are not being set.
expenditures. Through the process a number of areas were identified where more
work is needed to collect more granular data on critical scope 3 emissions, in
addition to priorities for GHG management. Nevertheless, the emissions
associated with the AEIT portfolio are substantially smaller than the
emissions avoided associated with the clean energy generation it has financed.
Scope 2 GHG Emissions 68.2 tCO(2)e
Scope 3 GHG Emissions 598.7 tCO(2)e
Total GHG Emissions 689.9 tCO(2)e
2. Carbon footprint Carbon footprint 22,2tCO(2)e/EUR m
3. GHG intensity of investee companies GHG intensity of investee companies 213.6 tCO(2)e/EUR m revenue
4. Exposure to companies active in the fossil fuel sector Share of investments in companies active in the fossil fuel sector 0 The Investment Manager's ESG policies excluded investment in coal or nuclear
fired power, and oil and gas projects.
5. Share of non-renewable energy Share of non-renewable energy consumption and non-renewable energy production a) 100% (all consumption from non-renewable sources) The investment portfolio is focused on renewable energy production. However, The Investment Manager will continue to work with companies to explore
of investee companies from non-renewable energy sources compared to renewable
some non-renewable energy is used through diesel generator sets for backup opportunities to reduce their consumption of non-renewable energy and improve
energy sources, expressed as a percentage of total energy sources b) 0% (all production from renewable sources) power and purchasing electricity from the grid to support overnight functions energy efficiency.
for the solar portfolio. Taking a conservative approach, energy purchased from
the grid has been treated as non-renewable for the purposes of these metrics.
6. Energy consumption intensity per high impact climate sector Energy consumption in GWh per million EUR of revenue of investee companies, 0.075GWh/ EURm Renewable energy generation is allocated to the NACE sector "electricity, gas,
per high impact climate sector steam and air conditioning supply" (NACE code D/35) classified in total as
high impact climate sector. For the purposes of this PAI indicator regulation
2022/1288 does not differentiate between renewable energy generation and other
forms of energy generation which have a high climate impact.
Biodiversity 7. Activities negatively affecting biodiversity - sensitive areas Share of investments in investee companies with sites/operations located in or 0% None. To ensure no significant harm to biodiversity and ecosystems, environmental
near to biodiversity- sensitive areas where activities of those investee screening is conducted for all investments.
companies negatively affect those areas
Water 8. Emissions to Water Tonnes of emissions to water generated by investee companies per million EUR 0.002 tonnes As the current portfolio comprises entirely of solar plants, these emissions The Investment Manager will continue to monitor this critical issue.
invested, expressed as a weighted average are not associated with their operations.
Waste 9. Hazardous waste and radioactive waste ratio Tonnes of hazardous waste and radioactive waste generated by investee 0.04 tonnes The Investment Manager understood that the small quantity of hazardous waste The Investment Manager will continue to explore opportunities to reduce the
companies per million EUR invested, expressed as a weighted average reported were in relation to solar panels that were replaced at one investee production of hazardous waste and promote circular economy approaches.
company site. These solar panels were safely disposed of through a designated
waste disposal agent authorised by government authorities.
Indicators for Social and Employee, Respect for Human Rights, Anti-Corruption
and Anti-Bribery Matters
Social and employee matters 10. Violations of UN Global Compact principles and Organisation for Economic Share of investments in investee companies that have been involved in 0% No violations have been reported. Further engagement with investee companies will strengthen their
Cooperation and Development (OECD) Guidelines for Multinational Enterprises violations of the UNGC principles or OECD Guidelines for Multinational implementation of the OECD Guidelines for Multinational Enterprises and the
Enterprises effectiveness of grievance mechanisms.
11. Lack of processes and compliance mechanisms to monitor compliance with UN Share of investments in investee companies without policies to monitor 0% All investee companies have grievance mechanisms in place through which any The Investment Manager will continue to work closely with the investee
Global Compact principles and OECD Guidelines for Multinational Enterprises compliance with the UNGC principles or OECD Guidelines for Multinational stakeholder can raise concerns about their project implementation frameworks, companies to identify and action areas where implementation of these
Enterprises or grievance /complaints handling mechanisms to address violations and complaints lodged through these mechanisms are reported to the Investment frameworks can be further enhanced, make information about the functioning of
of the UNGC principles or OECD Guidelines for Multinational Enterprises Manager. these mechanisms more readily available, and establish appropriate policies to
promote respect for human rights in all activities, including with their
suppliers.
12. Unadjusted gender pay gap Average unadjusted gender pay gap of investee companies 37% Gender pay-gap analysis was not possible in most cases given no female The Investment Manager will continue to monitor and encourage investee
employees at the investee company. A substantial gender pay gap was reported companies to consider diversity and equality in their operating priorities,
at one of AEIT's investee companies, with the average daily gross pay for men local culture and needs.
being 51% higher as women.
13. Board gender diversity Average ratio of female to male board members in investee companies, expressed 74% SolarArise board diversity had 50/50 representation. However, NISPI did not The Investment Manager will look to advocate for gender equality across
as a percentage of all board members have a board in place during the period and so the calculation assumes 100% investee company governance.
male representation for NISPI.
14. Exposure to controversial weapons (anti- personnel mines, cluster Share of investments in investee companies involved in the manufacture or 0% Not applicable due to exclusion. Not applicable. These sectors are excluded.
munitions, chemical weapons and biological weapons) selling of controversial weapons
Additional climate and other environment-related Indicators
6. Water usage (a) Average amount of water consumed by the investee companies (in cubic (a) 751.7 m3/ EUR m Water consumption at investee companies fluctuated over the course of 2022, Efforts to improve water consumption efficiency reflecting the level of water
meters) per million EUR of revenue of investee companies
with less consumption during rainy periods, and substantially higher scarcity at site level are needed at all sites. The Investment Manager will
(b) 0% consumption during periods of high pollution that result in a greater need for continue to engage with investee companies to explore site appropriate
(b) percentage of water recycled and reused by investee companies solar panel cleaning. responses. The Investment Manager will encourage the measurement of water
recycling and reuse.
Water recycling and reuse was not measured during the period and so the
Investment Manager assumed 0%.
Additional social and employee, respect for human rights, anti-corruption and
anti-bribery matters indicator
3. Number of days lost to injuries, accidents, fatalities or illness Number of workdays lost to injuries, accidents, fatalities or illness of 0 Investee companies reported no workdays lost to health and safety related Continued vigilance in monitoring incidents at managed sites is needed, and
investee companies expressed as a weighted average issues. sustained efforts to maintain high health and safety standards are required.
SFDR Periodic Disclosure
Template periodic disclosure for the financial products referred to in Article
9, paragraphs 1 to 4a, of Regulation (EU) 2019/2088 and Article 5, first
paragraph, of Regulation (EU) 2020/852
Product name: Asian Energy Investment Trust plc
Legal entity identifier: 254900V23329JCBR9G82
Sustainable investment means an investment in an economic activity that
contributes to an environmental or social objective, provided that the
investment does not significantly harm any environmental or social objective
and that the investee companies follow good governance practices.
The EU Taxonomy is a classification system laid down in Regulation (EU)
2020/852 establishing a list of environmentally sustainable economic
activities. That Regulation does not include a list of socially sustainable
economic activities. Sustainable investments with an environmental objective
might be aligned with the Taxonomy or not.
Sustainable investment objective
Does this financial product have a sustainable investment objective?
●●QYes ●●£No
Q It made sustainable investments with an environmental objective: 100% £ It promoted Environmental/Social (E/S) characteristics and while it did
not have as its objective a sustainable investment, it had a proportion of 0%
Q in economic activities that qualify as environmentally sustainable under of sustainable investments
the EU Taxonomy
£ with an environmental objective in economic activities that qualify as
£ in economic activities that do not qualify as environmentally environmentally sustainable under the EU Taxonomy
sustainable under the EU Taxonomy
£ with an environmental objective in economic activities that do not
qualify as environmentally sustainable under the EU Taxonomy
£ with a social objective
£ It made sustainable investments with a social objective: 0% £ It promoted E/S characteristics, but did not make any sustainable
investments
To what extent was the sustainable investment objective of this financial
product met?
Asian Energy Infrastructure Trust Plc (AEIT) is a renewable energy investment
trust providing direct access to sustainable energy infrastructure in
fast-growing and emerging economies in Asia. In line with AEIT's triple return
objectives, which aim to provide financial, environmental and social returns,
the investments support the environmental objective of climate change
mitigation as set out in Article 9 of the EU Taxonomy by generating,
transmitting, storing, distributing or using renewable energy. AEIT's
investments in sustainable energy target countries where greenhouse gas (GHG)
emissions are growing rapidly. The investments address the climate change
mitigation priorities set out in those countries' Nationally Determined
Contributions under the Paris Agreement on Climate Change, as well as their
efforts to achieve the Sustainable Development Goals (SDGs), by avoiding GHG
emissions and having a positive effect on the communities in which they work.
In the period ended 31 December 2022, investments were made in 80 MW of
operating solar capacity on Negros Province in the Philippines and 233 MW of
operating solar capacity in India. AEIT's share of the operational capacity
was 32 MW and 100 MW respectively.
Sustainability indicators measure how the sustainable objectives of this
financial product are attained.
How did the sustainability indicators perform?
AEIT's investments substantially contributed to climate change mitigation as
reflected in the technical screening criteria listed in section 4 Annex 1
regulation 2021/2139. The construction and operation of new renewable energy
infrastructure in Asia helped improve energy access and security, create jobs,
and avoid GHG emissions. These positive impacts were measured using the
following key performance indicators, which align with SDG 7 (Affordable and
Clean Energy) and SDG 13 (Climate Action):
Installed renewable capacity - MW 132
Renewable energy generated - MWh 85,199
CO(2) emissions avoided - tCO(2)e 62,770
Note: Figures are based on AEITʹs proportional share of the investment
portfolio as at 31 December 2022. The Portfolio therefore comprised a 40%
interest in NISPI and a 43% interest in SolarArise.
… and compared to previous periods?
Not applicable: this was the first complete year of AEIT operation, with the
first investment made in December 2021.
How did the sustainable investments not cause significant harm to any
sustainable investment objective?
Environmental, social and governance (ESG) considerations are integral to
AEITʹs investment objective, and AEITʹs investment manager during the period
(the 'Investment Manager') had environmental and social policies that drew on
the International Finance Corporationʹs environmental and social performance
standards. These policies provide a framework that help identify and manage
potential significant harm to any environmental or social objectives,
including water; biodiversity and ecosystems; circular economy; pollution
prevention.
How were the indicators for adverse impacts on sustainability factors taken
into account?
Data related to the mandatory indicators for Principle Adverse Impacts listed
under Table 1 Annex 1 of regulation 2022/1288 have been collected. These
indicators are also monitored continuously over the life of an investment.
AEITʹs 2022 Annual Report includes its Annual PAI Statement completed using
Annex I of regulation 2022/1288.
Were sustainable investments aligned with the OECD Guidelines for
Multinational Enterprises and the UN Guiding Principles on Business and Human
Rights?
No major controversies or violations were reported during the period. The
Investment Manager will continue to engage with investee companies to
strengthen implementation frameworks, and enhance the practical effectiveness
of established grievance mechanisms.
Principal adverse impacts are the most significant negative impacts of
investment decisions on sustainability factors relating to environmental,
social and employee matters, respect for human rights, anti‐ corruption and
anti‐bribery matters.
How did this financial product consider principal adverse impacts on
sustainability factors?
The issues addressed by the PAIs were expressly covered by the Investment
Managerʹs Sustainability Policies and management frameworks, and social and
environmental issues were considered during due diligence phases of the
investment process and KPIs were monitored post-acquisition. Specifically, in
2022 the Investment Manager worked with the investee companies to carry out
greenhouse gas accounting including to capture Scope 3 emissions. AEITʹs 2022
Annual Report includes its Annual PAI Statement containing information on the
mandatory PAI indicators in Table 1 Annex 1 regulation 2022/1288 for the AEIT
investments collected using best efforts.
What were the top investments of this financial product?
Largest investments Sector % Assets Country
SolarArise Energy 100% India
NISPI Energy 0% Philippines
Note: Figures are based on AEITʹs investment portfolio at 31 December 2022.
The list includes the investments constituting the greatest proportion of
investments of the financial product during the reference period which is: Jan
1 - December 31 2022.
Asset allocation describes the share of investments in specific assets.
What was the proportion of sustainability-related investments?
100%
AEIT invests in sustainable energy solutions and infrastructure assets that
align with the EU Green Taxonomy environmental objective of climate change
mitigation. In 2022, 100% of AEIT investments were used to meet its
sustainable investment objective, in accordance with the binding elements of
the investment strategy. This calculation excludes cash held that is committed
and is awaiting deployment.
Given AEIT held a significant proportion of cash during the period, AEIT
decided to also disclose the proportion of sustainability-related investments
including and classifying AEIT's cash as 'unsustainable'. This is calculated
to be only 9.2%(57).
(57) Refer to the APM for detailed calculations.
Considering the undeployed cash which was committed but not yet invested to
the SolarArise Portfolio and VSS Portfolio as sustainable investments, this
percentage increases to 42.4%. The remaining cash was being held for future
investments, that are expected to also meet the sustainable investment
criteria as per the Investment Strategy's mandate.
What was the asset allocation?
100% of the sustainable investments were held indirectly through Special
Purpose Vehicles and intermediate entities.
Investments #1 Sustainable 100% Environmental Taxonomy-aligned 100%
#2 Not sustainable
#1 Sustainable covers sustainable investments with environmental or social
objectives.
#2 Not sustainable includes investments which do not qualify as sustainable
investments.
In which economic sectors were the investments made?
Energy - Electricity generation using solar photovoltaic technology
To comply with the EU Taxonomy, the criteria for fossil gas include
limitations on emissions and switching to fully renewable power or low-carbon
fuels by the end of 2035. For nuclear energy, the criteria include
comprehensive safety and waste management rules.
Enabling activities directly enable other activities to make a substantial
contribution to an environmental objective
Transitional activities are economic activities for which low-carbon
alternatives are not yet available and that have greenhouse gas emission
levels corresponding to the best performance.
Taxonomy-aligned activities are expressed as a share of:
· turnover reflecting the share of revenue from green activities of
investee companies
· capital expenditure (Capex) showing the green investments made by
investee companies, e.g. for a transition to a green economy.
· operational expenditure (OpEx) reflecting green operational
activities of investee companies.
To what extent were sustainable investments with an environmental objective
aligned with the EU Taxonomy?
100%
All investments made by AEIT in 2022 were in companies that exclusively
generate solar photovoltaic electricity, thereby meeting the substantial
contribution criteria of the technical screening criteria of the EU Taxonomy
in section 4.1 Annex 1 of regulation 2021/2139 (electricity generation using
solar photovoltaic technology). The MWh produced have been reported above and
detailed in AEIT's Annual Report. To ensure no significant harm to
biodiversity and ecosystems, environmental screening was conducted for all
investments prior to acquisition, reflecting the Investment Manager's
ESG policies and national law. New physical climate risk and vulnerability
assessments were completed for all existing investments in collaboration using
a leading third‑party sustainability advisory. Investee companies have
sought to use durable equipment. Where panel or critical equipment replacement
was required, as was the case at one of our investee companies, the process
was prudently managed to minimise the number of components that had to be
disposed of, and managed through authorised specialist service providers
through a process regulated by the relevant national government.
The alignment of existing investments with EU Taxonomy was not subject to an
assurance provided by an auditor. Such alignment was substantiated by in-house
experts, on the basis of inputs from third-party technical advisors, publicly
available information, information provided directly by investee companies, as
well as third‑party data sources.
Did the financial product invest in fossil gas and/or nuclear energy related
activities complying with the EU Taxonomy(58)?
(58) Fossil gas and/or nuclear related activities will only comply with
the EU Taxonomy where they contribute to limiting climate change ('climate
change mitigation') and do no significant harm to any EU Taxonomy objective -
see explanatory note in the left-hand margin. The full criteria for fossil gas
and nuclear energy economic activities that comply with the EU Taxonomy are
laid down in Commission Delegated Regulation (EU) 2022/1214.
£ Yes
£ In fossil gas
£ In nuclear energy
Q No
The graphs below show in green the percentage of investments that were aligned
with the EU Taxonomy. As there is no appropriate methodology to determine the
taxonomy-alignment of sovereign bonds*, the first graph shows the Taxonomy
alignment in relation to all the investments of the financial product
including sovereign bonds, while the second graph shows the Taxonomy alignment
only in relation to the investments of the financial product other than
sovereign bonds.
1. Taxonomy-alignment of investments including sovereign bonds*
Climate change mitigation
2. Taxonomy-alignment of investments excluding sovereign bonds*
Climate change mitigation
Note: AEIT does not make any investments in Fossil gas or Nuclear.
* For the purpose of these graphs, 'sovereign bonds' consist of
all sovereign exposures.
are sustainable investments with an environmental objective that do not take
into account the criteria for environmentally sustainable economic activities
under the EU Taxonomy.
What was the share of investments made in transitional and enabling
activities?
0%
How did the percentage of investments aligned with the EU Taxonomy compare
with previous reference periods?
Not Applicable.
What was the share of sustainable investments with an environmental objective
that were not aligned with the EU Taxonomy?
0%
What was the share of socially sustainable investments?
Not applicable for Article 9 SFDR classification purposes. All AEIT
investments aim to have a positive effect on the communities in which they
work and support social development. In 2022, AEIT investments directly
supported 148 full time equivalent jobs, including 5 full time salaried
employee positions.
What investments were included under 'not sustainable', what was their purpose
and were there any minimum environmental or social safeguards?
No investments were included under not sustainable.
What actions have been taken to attain the sustainable investment objective
during the reference period?
The sustainability objectives achieved are the direct result of implementation
of the binding elements of our investment strategy. AEIT invests in a
diversified portfolio of sustainable energy infrastructure assets in
fast-growing and emerging economies in Asia. The investments meet the AEIT's
aim of building a diversified portfolio of assets in the areas of renewable
energy generation. The 2022 portfolio consists entirely of solar photovoltaic
electricity generation. The Investment Manager has worked with the investee
companies to monitor progress towards attainment of these sustainability
objectives using the key performance indicators specified above, which align
with SDG 7 (Affordable and Clean Energy) and SDG 13 (Climate Action). Avoided
emissions were calculated using the standards of the International Financial
Institutions Joint Standards for GHG Accounting for Grid Connected Renewable
Energy Projects. The avoided emissions attributable to the AEIT portfolio on
this basis substantially exceeded the Scope 1, 2 and 3 emissions associated
with operating these assets as reported in AEIT's Annual PAI Statement which
is annexed to its 2022 Annual Report. The sustainability indicators presented
in this disclosure and in the Annual Report have been reviewed by the Board.
Reference benchmarks are indexes to measure whether the financial product
attains the sustainable objective.
How did this financial product perform compared to the reference sustainable
benchmark?
Not Applicable.
How did the reference benchmark differ from a broad market index?
Not Applicable as AEIT does not use any reference benchmarks.
How did this financial product perform with regard to the sustainability
indicators to determine the alignment of the reference benchmark with the
sustainable investment objective?
Not Applicable.
How did this financial product perform compared with the reference benchmark?
Not Applicable.
How did this financial product perform compared with the broad market index?
Not Applicable.
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