REG - Ecofin US Renewables - Half-year Report
16/09/2022 07:01
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RNS Number : 6620Z Ecofin US Renewables Infrastr.Trust 16 September 2022
16 September 2022
LEI No: 2138004JUQUL9VKQWD21
ECOFIN U.S. RENEWABLES INFRASTRUCTURE TRUST PLC
(the "Company" or "RNEW")
Half-yearly report for the six months ended 30 June 2022
Objective
The Company's investment objective is to provide Shareholders with an
attractive level of current distributions by investing in a diversified
portfolio of mixed renewable energy and sustainable infrastructure assets
("Renewable Assets") predominantly located in the U.S. with prospects for
modest capital appreciation over the long term.
Why RNEW?
RNEW targets attractive risk-adjusted returns and a sustainable dividend yield
through a differentiated investment strategy focused on the middle market of
U.S. renewable energy:
l Fully invested portfolio: Diversified portfolio of U.S. renewable
energy assets with an attractive long-term income stream;
l Stable income: Portfolio generating 100% contracted revenues which
together offer geographical diversification and opportunity for both capital
growth and inflation protection; and
l U.S. renewables market with promising growth outlook: $360 billion
growth opportunity projected over the next decade with historic unified
government support to achieve the 2035 carbon-free U.S. power sector goal.
Highlights
Financial
As at 30 June 2022 $134.3 million 103.5 cents
97.3 cents
79.9 pence £110.3 million 85.0 pence
Net Asset Value ("NAV") per share NAV Share price
1.2%(1) 7.4%(1) 2.8 cents
NAV total return for the Period Share price total return for the Period Dividends per share declared for the Period
26.5%(2)
Leverage at project level
Operational
16.3 years(3) 62 ~32,900
Weighted average remaining term of Number of renewable energy assets Number of households supplied since
revenue contracts 31 December 2021
162 MW(4) ~106,800 tonnes(5) 374 GWh(4)
Portfolio generating capacity of CO(2)e avoided since 31 December 2021 Clean electricity generated since IPO
177 GWh(4)
Clean electricity generated since
31 December 2021
Figures reported either as at the referenced date or over the six month period
ended 30 June 2022 (the "Period"). All references to cents and dollars ($) are
to the currency of the U.S., unless stated otherwise.
1. These are alternative performance measures. ("APMs"). Definitions of
how these APMs and other performance measures used by the Company have been
calculated can be found at the last section of this report.
2. Based on Gross Asset Value ("GAV").
3. Includes all construction-stage and committed assets.
4. Represents the Company's share of portfolio generating capacity
(including assets under construction).
5. CO(2)e based on the Company's proportionate share. CO(2)e
calculations are derived using the U.S. Environmental Protection Agency's
("EPA") Emissions & Generation Resources Integrated Database.
Invested and committed assets
As of 30 June 2022, RNEW's diversified renewable energy portfolio consisted
of:
l 62 assets spread across seven states with a total capacity of 162 MW
that generated 177 GWh of clean electricity in the Period and included:
o 58 operating solar assets totalling 81 MWdc
o 3 construction stage solar assets totalling 21 MWdc
o 1 operating wind asset totalling 60 MWdc
l No major health and safety incidents occurred across the portfolio
during the Period. Asset generation and availability were largely unaffected
by the COVID-19 pandemic.
l In respect of the reporting period, the Company declared dividends of
2.8 cents per Share. The Company is targeting a dividend of 5.25 cents to 5.75
cents for FY 2022, of which 2.8 cents has already been paid and/or
declared(6).
l The Company's NAV was $134.3 million or 97.3 cents per Share at 30
June 2022. The NAV total return over the Period was 1.2%.
l The Company's U.S. subsidiaries at a project level had $46.3
million(7) of long-term, non-recourse debt representing approximately 25.3% of
GAV(8) and $2.1 million of short-term, non-recourse debt representing
approximately 1.2% of GAV.
Financial information As at or period to
30 June 2022
Net assets (million) $134.3
Shares in issue (million) 138.0
NAV per share (cents) 97.3
Share price (cents) 103.5
Share price premium to NAV 6.4%
Dividends declared per share (cents)(9) 2.8
NAV total return per share(10) 1.2%
Share price total return(11) 7.4%
Cash (million) $3.9
Leverage (million) $48.4
6. The target dividends set out above are targets only and are not
profit forecasts. There can be no assurance that these targets can or will be
met and they should not be seen as an indication of the Company's expected or
actual results or returns. The Company's ability to distribute dividends will
be determined by the existence of sufficient distributable reserves,
legislative requirements and available cash reserves.
7. Represents the Company's proportionate share of total debt at the
asset special purpose vehicle ("SPV") level across its existing investments as
at 30 June 2022.
8. GAV is the sum of the Company's NAV and proportionate share of debt.
9. Dividends declared relating to the Period.
10. Opening NAV as at 31 December 2021 of 98.9 cents per Share.
11. Total return is based on the Share price in U.S. Dollars and assumes
dividends paid for the Period are immediately reinvested.
Chair's Statement
On behalf of the Board, I am pleased to present the Company's half-yearly
report for the six months ended 30 June 2022 (the "Half-yearly Report"). Your
Company continues to grow, having raised $13.1 million (before costs) in new
equity capital in May at a share price of 101.5 cents per share through a
placing and a retail offer. The net proceeds have been deployed into new
investments and paying down debt drawn on the Company's revolving credit
facility.
During the first half of the year, authorities in both the U.S. and the UK
lifted most of the remaining COVID-19 restrictions. The Company and its
advisers have coped well with the effects of the pandemic and there were no
material impacts on asset operations or the investment portfolio.
Investment Manager
On 19 July 2022, the Company announced that portfolio managers Jerry Polacek,
Matthew Ordway and Prashanth Prakash had resigned from their roles at Ecofin
to pursue a new venture. The Board was very disappointed by these
resignations. In an ideal world, we would have had more notice, and, working
together with Ecofin, would have been able to effect a smooth transition to a
new team. However, this was not possible principally because notice periods in
the U.S. are typically much shorter than in the UK.
Since the announcement, the Board's priorities have been to ensure that Ecofin
concentrates on:
(i) management of the existing asset portfolio, the ongoing performance
of which enabled the Company to declare a dividend for the second quarter of
1.4 cents per share on 28 July 2022, consistent with the dividend yield target
for the year ending 31 December 2022 of 5.25 cents - 5.75 cents as set out in
the November 2020 IPO prospectus; and
(ii) recruitment of a new leadership team. The Board has stressed to
Ecofin's senior management that this needs to happen without delay and has
been assured that it is an absolute priority. The Board has been receiving
regular updates from Ecofin.
In our view, focusing on these priorities is the best way to protect value for
RNEW's shareholders. However, as a Board, we are very conscious of our duties
to shareholders and, while we are strong believers in the U.S. renewable
energy story and the Company's investment strategy, we are open to exploring
all options for the future of RNEW consistent with good governance.
It should be noted that Ecofin has confirmed to the Board that the ongoing
management of the existing portfolio is unaffected by the resignations, and
the Board will continue to work with Ecofin to ensure that this remains the
case going forward. Ed Russell, Senior Managing Director of Ecofin, continues
to be responsible for overall leadership of the Ecofin team and the
origination group continues to be managed by Jason Benson, Director of Private
Renewable Energy. Earlier in the year and prior to the departure of the
investment team, Ecofin recruited two new resources dedicated to asset
management and project controllership with over 17 years' experience in the
energy industry.
Portfolio overview
RNEW's shareholders benefit from a high-quality portfolio of 62 solar and wind
assets with a combined capacity of 162 MW across seven states: California,
Connecticut, Massachusetts, Minnesota, New Jersey, Texas and Virginia. Since
30 June 2022, the portfolio has expanded further with the closing of three
additional assets within the Echo Solar Portfolio at sites in Delaware and
Virginia. The new assets are ground mounted solar projects and benefit from
long term contracted revenues with investment grade electric utilities. The
overall weighted average remaining contract term of the overall portfolio is
16.3 years.
As at 30 June 2022, 90% of the portfolio NAV was represented by operating
assets. Further, as at 30 June 2022, 59 assets were in operation and three
assets were under construction. Total generation from the Company's assets
during the period to 30 June 2022 was 177 GWh, 2% below budget, as strong
solar and wind resource during Q2 was offset by low wind resource relative to
budget during Q1.
Details of each asset and its performance are set out in the Investment
Manager's Report.
Results
NAV as at 30 June 2022 was 97.3 cents per share compared to 97.6 cents per
share as at 31 March 2022 and 98.9 cents per share at 31 December 2021. During
the first half of 2022, NAV per share decreased by 1.6% as described further
in the Portfolio Valuation section of the Investment Manager's Report, largely
due to dividends paid of $3.7 million or 2.8 cents per share.
The valuation of the portfolio at 30 June 2022 is supported by an independent
valuation firm, Marshall & Stevens, and is based on an underlying blended
weighted average pre-tax discount rate of 7.5%. This reflects a small increase
in discount rates as at 30 June 2022 due to expectations of interest rate
increases and rising bond yields.
RNEW's profit before tax for the six months to 30 June 2022 was $1.5 million
and earnings per share, based on revenue received by way of dividends from the
Company's unconsolidated subsidiary, RNEW Holdco LLC ("Holdco") (which
indirectly holds RNEW's investments through underlying subsidiaries), were 1.2
cents per share.
Dividends
During the period, the Board declared two quarterly interim dividends of 1.4
cents per share each, in respect of the quarters ended 31 March 2022 and 31
December 2021. These dividends were consistent with the Company's IPO target
dividend range of 5.25% to 5.75% per ordinary share referred to above and, on
28 July 2022, after the period end, the Board declared a further interim
dividend of 1.4 cents per share for the quarter ended 30 June 2022.
Dividend cover for the twelve months ended 30 June 2022 was 1.0 times. We
expect the stability of trailing twelve month dividend cover to be supported
by the fact that income generated from the portfolio has historically been and
is expected to continue to be higher in Q3 and Q4 due to energy production and
cash collection seasonality; in addition, several assets within the portfolio
are expected to move from the construction phase to the operational phase.
Share price
As at 31 December 2021, the share price was 99 cents per share, a very slight
0.1% premium to NAV of 98.9 cents per share at the same date. As stated in the
2021 Annual Report, both the Board and the Investment Manager believe that the
strong fundamentals of the Company, its portfolio, and the depth of the middle
market U.S. renewable energy market opportunity justify the basis for the
share price to trade at a premium to NAV. This was the case throughout much of
the first half and at 30 June 2022, the share price was 103.5 cents per share,
a 6.4% premium to NAV. Since announcement of the Ecofin management
resignations referred to above, the share price had declined to 90 cents per
share as at 9 September 2022. This is a 7.5% discount to the NAV of 97.3 cents
as at 30 June 2022. The share price in sterling (RNEP - 78p as at 9 September
2022) represents a 7.0% discount to NAV (based on an exchange rate of US $1.16
= £1.) Notwithstanding the recent decline in share price, RNEW's portfolio of
predominantly operating assets with cash flows supported by long-term revenue
contracts with investment grade quality counterparties continues to perform in
line with expectations.
Board
The Board continues to work well together and with Ecofin. The Investment
Management team and one of the Directors are based in the U.S. and as a result
Board meetings include video conferencing as a matter of course, but, within
applicable COVID-19 guidelines, Board members and advisers based in the UK
meet in person.
Outlook
As addressed in detail in the Investment Manager's report, the U.S. renewable
energy sector continues to offer strong prospects for ongoing investment and
growth, even while facing near-term challenges of supply chain constraints,
inflation, and potential trade policy risks on certain imported solar
components. In the first half of 2022, the American Clean Power ("ACP")
association reported that 9.8 GW of wind, utility-scale solar and battery
storage capacity had been installed in the U.S., representing more than $10.0
billion in capital investment. Looking to the near future, the ACP reports
that the U.S. renewable energy pipeline totalled 128.9 GW as of 30 June 2022,
providing a robust opportunity set for future investment. The passage of the
Inflation Reduction Act ("IRA") in August represents an unprecedented long
term policy boost for U.S. renewable energy with approximately $369 billion
allocated towards climate infrastructure and energy security. The IRA includes
provisions for extending tax credits for solar and wind through 2035 and
introduces a new tax credit for standalone battery storage, which provides
strong alignment with RNEW's investment strategy.
While the pipeline remains strong, given the announced personnel departures,
in the near term, Ecofin is focused on diligently managing RNEW's portfolio
and closing additional assets comprising the Echo Solar Portfolio. Since 30
June 2022, the portfolio expanded with the closing of three assets within the
Echo Solar Portfolio at sites in Delaware and Virginia.
I would like to thank my fellow Directors, the Ecofin team and all our
advisers for their input during the first half and for the Company's
performance to date.
Patrick O'D Bourke
Chair
15 September 2022
Investment Manager's Report
Six months ended 30 June 2022
Investment activity
8 investments - full deployment of proceeds
Since the IPO on 22 December 2020, the Company has closed and funded eight
investments adding 62 assets totalling 162 MWdc across seven U.S. states. The
initial three investments in 55 assets ("SED Solar Portfolio", "Ellis Road
Solar", and "Oliver Solar") totalled $36.3 million and closed by 31 December
2020.
2022 Year To Date ("YTD")
On 7 January 2022, the Company obtained a $15.9 million non-recourse
construction loan from Seminole Financial Services, LLC, a U.S. specialist
renewable lender, for the construction of the Echo Solar - MN project.
On 28 January 2022, the Company closed a tax equity partnership for the
Skillman Solar project.
On 23 March 2022, the Company finalized a negotiation for a buyout wherein the
Company sold one 41 kWdc asset within the SED Solar Portfolio, as per the
terms of the Power Purchase Agreement ("PPA"), reducing the total number of
assets remaining in said portfolio to 52 (11.3 MWdc) and the Company's total
assets to 60.
On 25 March 2022, the Company declared mechanical completion of the Skillman
Solar project and completed a major milestone tax equity funding. The project
declared commercial operation as of 15 August 2022.
On 28 June 2022, the Company closed on the acquisition of two ground mount
solar projects in Virginia ("VA") at construction stage in the Echo Solar
Portfolio, comprising the 2.7 MWdc Monroe Solar Partners, LLC project (i.e.,
Echo Solar - VA 1) and the 4.2 MWdc Randolf Solar Partners, LLC project (i.e.,
Echo Solar - VA 2) with an aggregate closing value of $2.6 million bringing
the Company's total assets to 62.
As of 30 June 2022, the Company had approximately $11.21 million of
outstanding net commitments on closed assets and approximately $34.02 million
of outstanding net commitments on assets it has committed to buy but has not
yet closed.
2021
On 2 February 2021, the Company completed its fourth investment (56th and 57th
assets) to acquire a 49.5% equity interest in Beacon Solar 2 & 5, two
operating utility scale solar photovoltaic ("solar PV") assets in California,
collectively totalling $24.8 million.
On 4 May 2021, the Company announced its fifth investment (58th asset), a
commitment to acquire a 100% interest in a commercial solar PV asset in New
Jersey for $6.2 million, comprising approximately $4.2 million of equity value
("Skillman Solar"). The Skillman Solar acquisition closed on 30 September
2021.
On 22 July 2021, the Company announced its sixth investment with the signing
of a purchase agreement to acquire twelve solar PV assets at construction
stage ("Echo Solar Portfolio"), subject to customary closing conditions. Since
the announcement, one solar asset within the Echo Solar Portfolio has been
released from commitment due to development delays (without any investment
having been made) and will be reconsidered by RNEW for future investment upon
achieving its milestones. The released asset had no impact on the economics
of the remaining Echo Solar Portfolio.
On 17 September 2021, the Company closed the acquisition of its 59th asset,
Westside Solar Partners, LLC (i.e., "Echo Solar - MN"), a 13.7 MW solar asset
in Minnesota. Construction is underway and the project is expected to begin
operations in Q4 2022.
On 12 October 2021, the Company completed its seventh investment (60th asset)
to acquire a 100% interest in a further operating commercial solar asset in
New Jersey for $2.8 million ("Delran Solar").
On 26 October 2021, the Company completed its eighth investment (61st asset)
to acquire its first wind asset, through a $49 million acquisition to acquire
a 100% interest in an operating wind asset in Texas ("Whirlwind).
Events following the Period end
On 29 July 2022, the Company declared mechanical completion of the Echo Solar
- MN project, and future funding will coincide with draws on the non-recourse
construction loan in the near-term, with tax equity financing and the
Company's Revolving Credit Facility ("RCF") able to support the repayment of
the construction loan at its term.
On 22 August 2022, the Company closed on the acquisitions of three additional
ground mount solar projects at construction stage in the Echo Solar Portfolio,
comprising the 6.5 MWdc Hemings Solar Partners, LLC project in Virginia (Echo
Solar - VA 3), the 2.9 MWdc Small Mouth Bass Solar Partners, LLC project in
Virginia (i.e., Echo Solar - VA 4), and the 5.9 MWdc Heimlich Solar Partners,
LLC project in Delaware ("DE") (Echo Solar - DE 1) and with an aggregate asset
value of approximately $5.5 million. This deployed the balance of the $12.9
million net proceeds from the secondary equity offering completed in
May 2022.
1. Figure is shown net of anticipated tax equity financing of $10.5
million.
2. Figure is shown net of anticipated tax equity financing of $17.2
million.
Cumulative Invested Capital and Commitments at Each Period Since IPO
(millions)
Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q1 2022
Closed/ Funding in Construction Assets $11 $4 - $9 - $5
Closed/ Funding in Operating Assets $21 $25 - - $52 -
Closed/ Funded in Prior Periods - $32 $61 $61 $69 $121
Closed/ Remaining Commitments $4 - - $12 $5 $1
Signed/ Future Commitments - - $5 $40 $40 $40
$36 $61 $66 $122 $166.0 $167.0
Details of each asset held or committed to as at 30 June 2022 are set out in
the table below:
Investment Name Sector Capacity Number of State Ownership(2) Phase Status Remaining
(MW)(1) assets revenue
contract term
(years)(3)
SED Solar Portfolio Commercial Solar 11.3 52 Massachusetts, 100% Operational Closed 14.1
Connecticut
Ellis Road Solar Commercial Solar 7.1 1 Massachusetts 100% Operational Closed 19.0
Oliver Solar Commercial Solar 4.8 1 California 100% Operational Closed 13.4
Beacon 2 Utility-Scale Solar 29.5 1 California 49.5% Operational Closed 20.5
Beacon 5 Utility-Scale Solar 23.9 1 California 49.5% Operational Closed 20.5
Skillman Solar Commercial Solar 2.6 1 New Jersey 100% Operational Closed 15.0
Delran Solar Commercial Solar 2.0 1 New Jersey 100% Operational Closed 13.0
Whirlwind Wind 59.8 1 Texas 100% Operational Closed 5.5
Echo Solar - MN Commercial Solar 13.7 1 Minnesota 100% Construction Closed 25.0
Echo Solar - VA 1 Commercial Solar 2.7 1 Virginia 100% Construction Closed 25.0
Echo Solar - VA 2 Commercial Solar 4.2 1 Virginia 100% Construction Closed 25.0
Subtotal (Closed) 161.6 62 14.2(3)
Echo Solar - VA 3 Commercial Solar 6.5 1 Virginia 100% Construction Committed 25.0
Echo Solar - VA 4 Commercial Solar 2.9 1 Virginia 100% Construction Committed 25.0
Echo Solar - DE 1 Commercial Solar 5.9 1 Delaware 100% Construction Committed 25.0
Echo Solar Portfolio - VA/DE Commercial Solar 25.4 5 Virginia, Delaware 100% Construction Committed 25.0
Total (Closed and Committed) 202.3 70 16.3(3)
1. Capacity reflects RNEW's proportionate ownership interest in the
assets.
2. Cash equity ownership.
3. Average remaining revenue contract term (years).
Ecofin update
On 19 July 2022 Ecofin announced that portfolio managers Jerry Polacek,
Matthew Ordway, and Prashanth Prakash had resigned from their roles at Ecofin
to pursue a new venture. The three managers subsequently departed Ecofin on 19
August 2022 and, while we are disappointed with their departure, they left
RNEW fully invested in high quality wind and solar assets.
Ecofin has started the process of securing replacements for the departing
members of the origination team and early-stage discussions with candidates
are underway. We are confident that new leadership team members can be found
in a reasonable time frame.
Meanwhile, Jason Benson, Director of Private Renewable Energy, who has been
heavily involved with RNEW's portfolio management and deal origination since
IPO, is managing the construction and funding the six projects across
Minnesota, Virginia, and Delaware totalling 35.9 MW that comprise the
currently closed Echo Solar Portfolio. Our funding strategy for the Echo Solar
Portfolio includes drawing upon the RCF during the construction period. We are
also working with an experienced investor to complete a tax equity funding for
the Echo Solar Portfolio. In parallel, we are actively engaged with project
lenders to put in place a long-term term loan facility for the Echo Solar
Portfolio in the coming months as the underlying projects achieve commercial
operation. When completed, the Echo Solar Portfolio is expected to contribute
additional geographic and revenue contract diversity through its PPAs with two
separate investment grade electric utility purchasers.
The asset management and project controllership group has over 17 years of
combined experience in the energy industry. Additionally, prior to the end of
the third quarter, an offer was extended to an additional resource that will
bring another 15 years of energy experience to the company.
Working very closely with the origination team to onboard new assets
seamlessly, the asset management and project controllership team strives to
attain operational excellence for each of the renewable energy assets in order
to maximize profitability for shareholders. The team interfaces with engineers
and plant operators to ensure plant optimization. Strong relationships and
constant communication with our outsourced, top-tier asset management and
O&M service providers are key to smooth operations, and have remained
unchanged since the IPO. Continuous process improvement is at the forefront
for the team to steadily advance the effectiveness of data analytics.
Additionally, the asset management and project controllership team is focussed
on keeping current with new accounting guidance and reporting requirements
that impact the portfolio.
Further, while the status of the near-term new project pipeline remains
strong, until recruitment is completed, Ecofin will maintain its focus on
managing RNEW's existing assets and near-term funding obligations.
Ecofin's leadership is committed to providing the RNEW Board and shareholders
with timely updates on the progress in recruiting new personnel. We believe
RNEW is positioned to take advantage of a robust U.S. market that has been
further strengthened by the passing of the Inflation Reduction Act, which
provides billions of dollars for U.S. wind and solar investments.
Portfolio overview
As at 30 June 2022, the portfolio was heavily weighted towards operating
assets with 90% of NAV invested in operating assets held at fair market value
("FMV") (68% of total invested and committed net equity capital(1)),
reflecting the completion of construction at Ellis Road Solar, Oliver Solar
and Skillman Solar and the operating asset acquisitions of Delran Solar and
Whirlwind. The portfolio benefits from geographic diversification spanning
seven states to provide risk mitigation against regulatory and resource
exposures. Furthermore, RNEW's portfolio reflects diversification across three
renewable energy sectors of: utility scale solar (15%), commercial solar
(57%), and wind (28%) to mitigate resource, regulatory, technology and market
risks.
Portfolio summary charts((1)):
Asset Name
Asset Name Portfolio %
Beacon 2&5 15%
SED Solar Portfolio 11%
Oliver Solar 5%
Ellis Road Solar 5%
Skillman Solar 3%
Delran Solar 2%
Whirlwind 28%
Echo Solar - MN 9%
Echo Solar - VA/DE 22%
Sector FMV
Sector Portfolio %
Utility Scale Solar 15%
Commercial Solar 57%
Wind 28%
Asset Status
Operating 69%
Construction 31%
(1)Includes closed and committed assets based on equity exposure at FMV
Operating performance for six months ended 30 June 2022:
During the six months ended 30 June 2022, the portfolio generated 177.6 GWh of
clean energy, 1.9% below budget. Of the total, solar assets generated 78.3
GWh, 0.6% above budget (see project variances and explanations below) and wind
assets generated 99.3 GWh, 3.9% below budget (principally due to low wind
resource in Q1 2022 relative to budget).
The performance of the underlying operating portfolio combined with its 100%
contracted revenue structure generated revenues of $4.5 million for the
Company. Cash flows were below budget partially due to lower than expected
cash distributions from Beacon 2 & 5 due to higher than expected operating
expenses in the Period, combined with delays in operations from Skillman
Solar. This was partially offset by higher than expected cash flow from the
SED Solar Portfolio as a result of higher than expected energy production
during Q2 2022, combined with higher than expected cash flow from Whirlwind as
a result of strong wind resource during Q2 2022 and favourable operating
expenses relative to budget.
Net Production Variance vs. Budget (GWh)
Actual Budget
Q1 2022 72.6 81.7
Q2 2022 105.0 99.4
H1 2022 177.6 181.1
Actual Budget GWh Above % Above (Below)
Investment Name Sector State (GWh) (GWh) (Below) Budget Budget
Beacon 2 Utility-Scale Solar California 34.4(1) 34.1(1) 0.3 0.9%(a)
Beacon 5 Utility-Scale Solar California 27.4(1) 26.3(1) 1.1 4.2%(b)
SED Solar Portfolio Commercial Solar Massachusetts, Connecticut 6.9 6.4 0.5 7.8%(c)
Ellis Road Solar Commercial Solar Massachusetts 4.4 4.4 - -
Oliver Solar Commercial Solar California 3.9(2) 3.9(2) - -
Delran Solar Commercial Solar New Jersey 1.3 1.3 - -
Skillman Solar Commercial Solar New Jersey - 1.4 (1.4) (100%)
Solar Subtotal 78.3 77.8 0.5 0.6%
Whirlwind Wind Texas 99.3 103.3 (4.0) (3.9%)(d)
Wind Subtotal 99.3 103.3 (4.0) (3.9%)
Total 177.6 181.1 (3.5) (1.9%)
Values and totals have been rounded to the nearest decimal.
1. Reflects RNEW's pro forma share of production based on ownership.
2. Oliver Solar reached its Commercial Operation Date ("COD") on 29
November 2021 and has been earning PPA revenue from the offtaker based on P50
modelled production since that date. However, due to some commissioning and
testing delays with its offtaker, a global commerce company, the system was
not yet energised as at 30 June 2022.
Production variance summary:
a Flat performance primarily due to the need for fuseholder
replacements in combiner boxes, which have been delayed in receipt due to
supply chain constraints.
b Overperformance primarily due to near 100% availability and higher
insolation.
c Overperformance primarily due to lower insolation caused by greater
than anticipated snowfall in the greater Boston area during January/February
which was more than offset by outperformance in March-June due to higher
insolation.
d Underperformance primarily due to force majeure weather event in Q1
partially offset by stronger wind resource in Q2.
Revenues
As at 30 June 2022, RNEW's portfolio had 100% of its revenue contracted with a
weighted average remaining term of 16.3 years; this includes all construction
and committed assets. Approximately 99% of the portfolio benefits from
fixed-price revenues, many with annual escalators of 1-2%, through PPAs,
contracted solar renewable energy credits ("SREC"), and fixed rents under
leases. These fixed price contracts mitigate market price risk for the term of
the contracts. Less than 1% of the portfolio has a variable form of revenue
contract. These contracts are set at a fixed discount to a defined
Massachusetts utility electric rate, which provides an ongoing economic
benefit to the customer (i.e., the offtaker/rooftop owner), as opposed to
receiving the higher utility electric rate when consuming electricity from the
grid. While the variable rate contract introduces an element of price
volatility, it also offers the potential to hedge inflation risk as utility
rates in Massachusetts have appreciated 3.0% on average per annum from
1990-2022.
The revenue profile reported below represents a snapshot of RNEW's existing
revenue contracts as at 30 June 2022 and does not assume any replacement
revenue contracts following the expiry of these contracts. With increased
adoption of renewable energy in the U.S. and rising natural gas prices (which
tend to result in higher power prices in U.S. markets where natural gas is the
marginal fuel), we believe that RNEW's prospects for re-contracting at the end
of revenue contract terms remain positive.
Portfolio revenue breakdown((1)(2))
Year Contracted - Fixed Price Revenue Contracted - Variable Price Revenue Contracted - Fixed Price Incentive Revenue Uncontracted - Market Revenue
2021 76.2 0.7 23.1 -
2022 85.8 0.4 13.8 -
2023 88.6 0.9 10.5 -
2024 90.5 0.9 8.6 -
2025 90.3 2.0 7.7 -
2026 89.8 2.0 8.2 -
2027 91.9 2.1 6.0 -
2028 57.1 2.6 2.8 37.5
2029 56.5 2.6 2.5 38.4
2030 55.7 2.6 2.5 39.2
2031 55.2 2.7 2.4 39.7
2032 55.1 2.7 2.5 39.7
2033 54.7 2.7 2.4 40.2
2034 54.1 2.8 2.3 40.8
2035 53.9 2.7 1.7 41.7
2036 50.8 2.6 1.2 45.4
2037 49.6 2.5 0.3 47.6
2038 85.9 3.0 - 11.1
2039 86.3 0.2 - 13.5
2040 86.4 - - 13.6
2041 82.7 - - 17.3
2042 78.9 - - 21.1
(1) The increase in uncontracted market revenue from 2028 onwards is due to
the maturity of the Whirlwind PPA.
(2) The decrease in uncontracted market revenue from 2038 onwards is due to
Whirlwind reaching the conclusion of its technical useful life.
Active management
Ecofin maintains an active approach to managing RNEW's portfolio. For
operating assets, our process involves actively monitoring production through
direct, real-time system access, review of monthly O&M and asset
management reports, and meeting at least monthly with project operators and
asset managers to review and enhance performance. For construction stage
assets, the process is appropriately structured for more frequent engagement
with the relevant engineering, procurement and construction ("EPC") contractor
to review project milestones, troubleshoot issues, and review and approve
payments in accordance with contracts.
Financing
As at 30 June 2022, the Company's U.S. subsidiaries at a project level had
debt balances of $48.4 million, with no funds drawn down under the RCF. This
total debt balance corresponds to approximately 26.5% of GAV, and compares to
the maximum limit of 65% in the Company's Investment Policy, as further
detailed in the table below. Given that the Company's portfolio primarily
comprises operating assets that have long-term fixed-price revenue contracts
with investment grade counterparties, construction and term loan financing
opportunities at both a project and group level are widely available on
attractive terms. With that in mind, the Company's Investment Manager and
Board favour a measured approach to using leverage to mitigate interest rate
and default risk. The Company has proactively and successfully put in place
both a RCF and non-recourse construction loan at its U.S. subsidiaries as
described below:
l On 19 October 2021, RNEW Capital, LLC, entered into a $65.0 million
secured RCF with KeyBank, one of the premier lenders to the U.S. renewable
energy industry. The RCF comprises a $50.0 million, two-year tranche priced at
LIBOR plus 1.75% and a $15.0 million, three-year tranche priced at LIBOR plus
2.00%. The RCF is secured upon certain of the Company's investment assets and
offers the ability to substitute reference assets. The RCF also includes an
accordion option which provides access to an additional $20.0 million of
capital which can be accessed subject to certain conditions. This substantial
commitment with attractive pricing and terms reflects the high quality of
RNEW's portfolio. As at 30 June 2022, this RCF was undrawn.
l On 7 January 2022, a wholly-owned U.S. subsidiary of RNEW, Westside
Solar Partners, LLC (i.e. "Echo Solar - MN"), entered into a $15.9 million
non-recourse construction loan related to and secured by the 13.7 MW Minnesota
commercial solar asset within the Echo Solar Portfolio. As of 30 June 2022,
$2.1 million was drawn on the facility.
Through the 49.5% acquisition of the Beacon 2 and 5 operating solar assets,
the Company assumed its share of amortising project term loans that totalled
$46.3 million, as referred to above.
On 30 June 2022, the Company had GAV of $182.7 million, and total recourse and
non-recourse debt of $48.4 million, resulting in total leverage of 26.5% as
described above.
The borrowing facilities available to the Company and its subsidiaries at 30
June 2022 were as set out in the table below:
Loan type Provider Borrower Facility amount Amount drawn Maturity Applicable rate
($m) ($m)
Revolving credit facility KeyBank RNEW Capital, LLC $50.0 $NIL Oct-23 LIBOR+1.75%
$15.0 $NIL Oct-24 LIBOR+2.00%
Project construction loan Seminole Westside Solar Partners, LLC $15.9 $2.1 Nov-22 5.0%
Term loan KeyBank Beacon Solar 2 $25.6 $25.6 May-26 LIBOR+1.25%
Term loan KeyBank Beacon Solar 5 $20.7 $20.7 May-26 LIBOR+1.25%
Total Debt $127.2 $48.4
Portfolio valuation
Valuation of the Company's portfolio is performed on a quarterly basis. A
discounted cash flow ("DCF") valuation methodology is applied which is
customary for valuing privately owned renewable energy assets. The valuation
is performed by Ecofin at 31 March and 30 September, and by a third-party
valuation firm at 30 June and 31 December.
Fair value for each investment is derived from the present value of the
investment's expected future cash flows, using reasonable assumptions and
forecasts for revenues and operating costs, and an appropriate discount rate.
More specifically, such assumptions include annual energy production,
curtailment, merchant power prices, useful life of the assets, and various
operating expenses and associated annual escalation rates often tied to
inflation, including O&M, asset management, balance of plant, land leases,
insurance, property and other taxes, decommissioning bonds, among other items.
At IPO on 22 December 2020, the Company raised $125.0 million (before costs)
by issuing 125,000,000 Shares. Subsequently, on 10 May 2022, the Company
announced a placing and retail offer of new ordinary shares ("New Ordinary
Shares") of $0.01 each in the capital of the Company at an issue price of
$1.015 per New Ordinary Share. The Company raised $13.1 million (before costs)
by issuing a total of 12,927,617 New Ordinary Shares. Admission of these New
Ordinary Shares to the London Stock Exchange became effective on 24 May 2022.
Portfolio NAV Bridge for the six month period
NAV 31 Dec 2021 $123.7
Capital Raised $12.9
Change in ProjectCo DCF - DCF Depreciation ($0.2)
Change in ProjectCo DCF - discount rates ($3.5)
Change in ProjectCo DCF - Merchant Curves $3.8
Distributions from ProjectCos to RNEW $4.5
Dividend to Shareholders ($3.7)
Expenses Paid ($1.4)
Change in Financial Assets ($1.5)
Change in Deferred Tax ($0.3)
NAV 30 June 2022 $134.3
Capital raised: Represents proceeds raised from the May 2022 placing and
retail offer net of commissions retained by brokers, fees to intermediaries,
REX fees, and other transaction expenses.
Change in projectCo DCF: Represents the impact on RNEW NAV from changes to DCF
depreciation and quarterly cashflow roll-forward and change in project-level
debt outstanding balances, including principal amortization.
Change in projectCo DCF Discount Rates: Represents the impact on RNEW NAV from
changes to the discount rates applied to the DCF models of each ProjectCo. As
at 30 June 2022, the weighted average pre-tax discount rate was 7.5%, an
increase from 7.2% at 31 December 2021 principally related to the rise in
inflation and interest rates.
Change in projectCo DCF merchant curves: Represents the impact on RNEW NAV
from changes to the forward merchant price curves used in the DCF models of
each ProjectCo. The increase was principally due to the update of the DCF
models with the most recently published regional market forward prices by the
U.S. Energy Information Administration ("EIA").
Distributions from projectCos to RNEW: Represents cash generated by project
companies, which was distributed up to RNEW during the Period for purposes of
paying dividends to shareholders.
Dividends to shareholders: Dividends for Q4 2021 and Q1 2022 of $3.7 million
(2.8 cents per share) were paid during the Period. After the Period end, the
Company declared a further dividend of 1.4 cents per share in respect of the
quarter ended 30 June 2022. Over the twelve-month period ended 30 June 2022,
the portfolio generated net revenue sufficient to cover the dividend
approximately 1.0 times.
Expenses paid: Represents the impact on RNEW NAV due to management fees and
expenses paid during the Period.
Change in financial assets: Represents the impact on RNEW NAV due to increases
or decreases in cash, receivables, payables and other net working capital
account balances.
Deferred tax liability: Represents the impact on RNEW NAV due to accruals
arising from operations in the Period and from a project level prior period
adjustment at RNEW Holdco, LLC, the Company's wholly-owned U.S. subsidiary,
which is subject to U.S. income taxes.
Portfolio valuation sensitivities
The figure below shows the impact on the portfolio valuation of changes to the
key input valuation assumptions ("sensitivities") with the horizontal x-axis
reflecting the impact on NAV per Share. The valuation sensitivities are based
on the portfolio of assets as at 30 June 2022. For each sensitivity
illustrated, it is assumed that potential changes occur independently with no
effect on any other assumption. It should be noted that the relatively
moderate impact of a change in forecast merchant power prices reflects the
long-term fixed price contracted revenues of the Company's portfolio, with a
weighted average remaining contracted term of 16.3 years as at 30 June 2022.
Similarly, the moderate impacts due to variations in operational expenses
reflect a number of the Company's assets having fixed price, long-term
operating expenses including O&M, property leases, and payments in lieu of
taxes.
Sensitivity Impact on NAV per Share
Energy Production P75/P25 (6.4%) to 6.3%
Discount Rates ± 50bps (5.0%) to 5.4%
Merchant power prices ±10% (4.9%) to 4.9%
Operating Expenses ±10% (4.1%) to 4.1%
Curtailment (Wind) ± 50% (3.8%) to 3.5%
Market outlook
During the first half of 2022, the U.S. renewable energy market continued to
grow despite several challenges most notably including trade policy, supply
chain issues, and inflation. U.S. renewable energy, comprising wind, solar,
and battery storage, had installations of 9.8 GW in the first half of this
year, which is estimated to represent over $10 billion of capital investments.
With these additions, there is now 211.1 GW of operating U.S. renewable energy
assets covering all 50 states, enough to power 58 million American homes.
Operating U.S. Renewable Energy (in MW) as of 30 June 2022
Onshore Wind 139,143 MW 66%
Offshore Wind 42 MW 0%
Utility Solar 65,479 MW 31%
Battery Storage 6,471 MW 3%
The U.S. renewable energy pipeline of projects in construction and advanced
development totals a further 128.9 GW (as of 30 June 2022), which represents
year-to-date growth of approximately 4% compared to 12% in 2021 and represents
a $360 billion growth opportunity over the next decade. International trade
policy and supply chain constraints have dampened the near-term growth
prospects of U.S. renewable energy with more than 32 GW of capacity delayed
from achieving commercial operations. While these near-term challenges
persist, the underlying resiliency of the U.S. renewable energy industry
continues to be driven by strong corporate demand with 14.8 GW of new PPAs
from corporates and utilities announced in the first half of 2022.
U.S. Renewable Energy Pipeline (in MW) as of 30 June 2022
Onshore Wind 23,185 MW 18%
Offshore Wind 17,502 MW 14%
Utility Solar 73,703 MW 57%
Battery Storage 14,499 MW 11%
In a historic development, Senators Chuck Schumer and Joe Manchin reached
agreement in July 2022 on a $430 billion bill covering climate, healthcare,
and taxes called the Inflation Reduction Act ("IRA"). With $369 billion
allocated towards climate infrastructure and energy security it represents the
largest ever government investment in U.S. renewable energy. The IRA passed
the U.S. Senate in August and it was approved by Congress and signed by
President Biden on 16 August 2022. The IRA provides an unprecedented level of
long-term policy certainty to directly benefit the growth of the U.S.
renewable energy industry. Notably, it extends the term for claiming
investment tax credits ("ITC") and production tax credits ("PTC") for solar,
wind and certain other renewable energy projects for facilities that begin
construction before 1 January 2035. It also qualifies interconnection costs
for projects less than 5 MWac as ITC-eligible, even if the interconnection
facilities are owned by the utility, so long as they were paid for by the
taxpayer. The tax credits are designed to stimulate growth of U.S.
manufacturing and related industries through increased credit values for
projects using domestic content and paying prevailing wages.
The IRA offers a new tax credit for standalone battery storage. Additionally,
the IRA provides various tax credits for new and used electric vehicles
("EVs") which are expected to stimulate demand for EVs and their supportive
infrastructure, and lead to a resulting increase in electricity demand. As a
result of the IRA, we believe that the growth of the U.S. renewable energy
industry is going to continue for many years to come and this will provide a
robust set of opportunities for RNEW on a long-term basis.
Solar
The U.S. solar industry had more than 5.5 GW of installations during the first
half of 2022. Utility scale solar installations in the second quarter of 2022
totalled 1.6 GW, which was down materially from prior periods principally due
to the uncertainty caused by the U.S. Commerce Department's initiation in late
March 2022 of an antidumping and countervailing duty investigation relating to
solar cells and modules imported from Vietnam, Cambodia, Thailand and
Malaysia. These four countries combined account for approximately 80% of U.S.
imported solar modules. On 6 July 2022, the Biden administration initiated an
executive action that directs the Commerce Secretary to implement regulations
that would preclude imposing any new tariffs on imported solar cells and
modules from those four countries for 24 months. If the Commerce Department
determines that tariffs on imported solar products from those four countries
are warranted, no duties will be due over the 24 month period covered in the
executive action. While a legal challenge cannot be ruled out, President
Biden's executive action is widely being viewed as providing a safe harbour to
U.S. solar installers and developers to procure modules from a reliable source
and resume sustained industry growth.
Another trade policy development impacting the U.S. solar industry is the
Uyghur Forced Labor Prevention Act ("UFLPA"), which took effect on 21 June
2022. The UFLPA requires the U.S. government to rapidly develop a new
enforcement strategy to strengthen the prohibition of imported goods made
through forced labour into the U.S. Specifically, it creates a rebuttable
presumption that any goods mined, produced, or manufactured wholly or in part
in the Xinjiang Uyghur Autonomous Region (XUAR) of China, are produced with
forced labour and therefore prohibited from importation. Importers and U.S.
solar industry participants will be adapting their procurement practices to
mitigate risks associated with the UFLPA.
Looking ahead, the U.S. solar pipeline remains robust with 22.8 GW under
construction and 50.9 GW in advanced development as of 30 June 2022. Ecofin
observes that the vast majority of solar projects stalled by the Commerce
Department investigation will take several months to resume as contracts are
renegotiated and construction crews are mobilised. These delays can be
expected to have a dampening effect on asset level acquisitions of
construction ready projects through at least the third quarter of 2022.
Notwithstanding the policy and supply chain related impacts on the first half
of 2022 U.S. solar industry investment activity, we believe the underlying
growth potential of addressable U.S. solar projects for RNEW to invest remains
substantial for years to come.
Wind
U.S. wind represents the largest source of operating U.S. renewable energy
generating capacity totalling 139.2 GW as of 30 June 2022. In the first half
of 2022, 3.5 GW of wind power was installed. Year to date installations
declined relative to 2021 due to the expiration of the PTC and supply chain
related delays. Despite the decline in installations, the outlook for U.S.
wind power remains bright with 23.2 GW of onshore wind and 17.5 GW of offshore
wind in either construction or advanced development.
Texas, where RNEW's Whirlwind project is located, continues to see growing
demand for electricity driven by its business-friendly environment attracting
people and businesses to relocate from other states. Texas also hosts the most
wind capacity in development, with 3,478 MW in advanced development and 3,655
MW under construction. Texas had the largest amount of land-based wind
capacity enter the pipeline in Q2 at 531 MW. Wyoming has the second most
land-based wind capacity in the pipeline at 3,000 MW, followed by Illinois
(2,247 MW), and New York (1,538 MW). Additionally, power prices in Texas are
heavily influenced by the cost of natural gas given that natural gas power
plants comprise 44% of power generating capacity. Since January 2020, prices
of natural gas have more than quadrupled, rising from $2.12 per million
British thermal units (MMBtu) to $8.70 per MMBtu as of 1 June 2022. Not only
are the market fundamentals contributing to rising prices, climate change is
contributing to record summer heat which triggered the Texas power market
regulator in July 2022 to issue a request for consumers to conserve energy
amid record energy demand. We believe that these factors should place
Whirlwind in a good position to recontract its capacity on attractive terms in
the coming years.
In summary, we see a vastly improving growth outlook for the U.S. renewable
energy industry driven by the passage of the IRA and broad based energy
consumer demand for renewable energy. RNEW's diversified portfolio of
predominantly operating U.S. solar and wind assets with long-term revenue
contracts continues to provide investors with direct access to the growing
U.S. renewable energy market and is capable of generating a stable source of
dividends during these uncertain times.
Ecofin Advisors, LLC
15 September 2022
ESG Integration and Impact
Impact goal: Allocate capital using an ESG integrated investment process to
build and operate a diversified portfolio of renewable energy assets that
achieves RNEW's investment objective
The Company's emphasis on ESG comes from the top: its Board of Directors is
diverse and has substantial and relevant investment experience to provide
strong corporate governance.
RNEW is focused on allocating capital using an investment process which fully
integrates ESG considerations and analysis to build and operate a diversified
portfolio of renewable energy assets consistent with RNEW's investment
objective. The Company has selected Ecofin as its investment manager which
aligns with its investment and impact objectives.
Ecofin, through its parent company, is a signatory to the Principles for
Responsible Investment (PRI) and incorporates ESG analysis into its investment
and reporting process. All of Ecofin's investment strategies for renewables
infrastructure are designed to provide investors with attractive long-term
returns and a level of impact that aligns with United Nations Sustainable
Development Goals:
This strategy seeks to achieve positive impacts that align with the following
UN Sustainable Development Goals
v 7 Affordable and Clean Energy
v 8 Decent Work and Economic Growth
v 9 Industry, Innovation and Infrastructure
v 11 Sustainable Cities and Communities
v 13 Climate Action
The Investment Manager's sustainability and impact policy is further described
in the Sustainability & Impact section of its website
ecofininvest.com/sustainability-impact.
ESG integration
The Company offers investors direct exposure to renewable energy and
sustainable infrastructure assets including solar, wind, and battery storage
that reduce greenhouse gas ("GHG") emissions and promote a positive
environmental impact. The Investment Manager integrates analysis of ESG issues
throughout the lifecycle of its investment activities spanning due diligence,
investment approval, and ongoing portfolio management. Environmental criteria
analysis considers how an investment performs as a steward of nature; social
criteria analysis examines its impact and relationships with employees,
suppliers, customers and the communities in which it operates; and governance
analysis examines internal controls, business ethics, compliance and
regulatory status associated with each investment.
Ecofin has developed a proprietary ESG due diligence risk assessment framework
(ESG Risk Assessment) that combines both qualitative and quantitative data.
This ESG Risk Assessment is embedded in Ecofin's investment memoranda and
systematically applied by the investment team to all opportunities prior to
investment authorisation by Ecofin's Investment Committee. Each of the
Company's closed and committed investments spanning 70 assets was analysed
through Ecofin's ESG Risk Assessment prior to investment commitment. Ecofin
believes this approach to assessing ESG issues serves to mitigate risk and
enhance RNEW's impact:
l Environmental factors affecting climate risk are reviewed to
determine an investment's impact and ability to reduce GHG emissions, air
pollution and water consumption.
l Analysis of environmental issues also considers the impact that the
investment will have on land use and considers mitigation plans when issues
are identified.
l Analysis of social issues may encompass an investment's impact on the
local community and consider health and safety together with the
counterparties to be engaged to construct and operate the assets.
l Governance is reviewed in partnership with qualified third-party
legal counsel to ensure compliance with all laws and regulations, strong
ongoing corporate governance through strict reporting protocols with qualified
operators and project asset managers and annual independent financial
statement audits.
Ecofin applies a systematic approach to ESG monitoring once acquisitions are
closed. Through Ecofin's engagement with third party O&M and asset
management service providers, Ecofin reviews asset-level reporting on health
and safety metrics, environmental matters, and compliance. Issues identified
are reviewed and addressed with service providers through periodic meetings
such as monthly operations meetings. Importantly, ESG factors are analysed and
reported in a transparent manner so that investors and key stakeholders can
measure their impact.
Impact
RNEW's portfolio, in the six month period to 30 June 2022, produced
approximately 177 GWh of clean electricity, enough to power approximately
32,900 homes, offsetting approximately 106,800 tonnes of CO(2)e and avoiding
the consumption of approximately 22,300 million litres of water.
RNEW focuses on investments that have a positive environmental impact by
reducing GHG emissions, air pollution and water consumption. Ecofin seeks to
analyse and report on ESG factors on a consistent basis to maximise the impact
of its investment activities. To assess environmental impact, Ecofin measures
CO(2) e, going beyond measuring only CO(2) emissions avoided and quantifying
other GHG emissions, such as methane and nitrous oxide, and also measuring the
contribution that investments make to save water consumption. Water is
consumed by thermoelectric (i.e. coal and gas) power plants in the cooling
process associated with steam turbine generators. Water savings occur in the
same way that renewable energy generation offsets CO(2) emissions from
thermoelectric generators. Ecofin calculates estimated water savings by
reference to the EIA thermoelectric cooling water data by location and
applying it to the production from RNEW's portfolio. Ecofin's methodology for
calculating the environmental impact of investments relies on trusted data
sources including the U.S. EPA and the EIA.
Portfolio impact for the six months ended 30 June 2022
106,800 22,300M
Tonnes of CO(2)e Reduction Litres of water savings
= =
32.900 8,900
Households supplied Olympic size swimming pools
Investment Policy
The Company's investment objective and investment policy (including defined
terms) are as set out in its IPO prospectus:
"Investment objective
The Company's investment objective is to provide Shareholders with an
attractive level of current distributions by investing in a diversified
portfolio of mixed renewable energy and sustainable infrastructure assets
("Renewable Assets") predominantly located in the United States with prospects
for modest capital appreciation over the long term.
Investment policy and strategy
The Company intends to execute its investment objective by investing in a
diversified portfolio of Renewable Assets predominantly in the United States,
but it may also invest in other OECD countries.
Whilst the principal focus of the Company will be on investment in Renewable
Assets that are solar and wind energy assets ("Solar Assets" and "Wind Assets"
respectively), sectors eligible for investment by the Company will also
include different types of renewable energy (including battery storage,
biomass, hydroelectric and microgrids) as well as other sustainable
infrastructure assets such as water and waste water.
The Company will seek to invest primarily through privately-negotiated middle
market acquisitions of long-life Renewable Assets which are
construction-ready, in-construction and/or currently in operation with
long-term PPAs or comparable offtake contracts with investment grade quality
counterparties, including utilities, municipalities, universities, schools,
hospitals, foundations, corporations and others. Long-life Renewable Assets
are those which are typically expected by Ecofin to generate revenue from
inception for at least 10 years.
The Company intends to hold the Portfolio over the long term, provided that it
may dispose of individual Renewable Assets from time to time.
Investment restrictions
The Company will invest in a diversified portfolio of Renewable Assets subject
to the following investment limitations which, other than as specified below,
shall be measured at the time of the investment:
l once the Net Initial Proceeds are substantially fully invested, a
minimum of 20 per cent. of Gross Assets will be invested in Solar Assets;
l once the Net Initial Proceeds are substantially fully invested, a
minimum of 20 per cent. of Gross Assets will be invested in Wind Assets;
l a maximum of 10 per cent. of Gross Assets will be invested in
Renewable Assets that are not Wind Assets or Solar Assets;
l exposure to any single Renewable Asset will not exceed 25 per cent.
of Gross Assets;
l exposure to any single Offtaker will not exceed 25 per cent. of Gross
Assets;
l once the Net Initial Proceeds are substantially fully invested,
investment in Renewable Assets that are in the construction phase will not
exceed 50 per cent. of Gross Assets, but prior to such time investment in such
Renewable Assets will not ex-ceed 75 per cent. of Gross Assets. The Company
expects that construction will be primarily focussed on Solar Assets in the
shorter term until the Portfolio is more substantially invested and may
thereafter include Wind Assets in the construction phase;
l exposure to Renewable Assets that are in the development (namely
pre-construction) phase will not exceed 5 per cent. of Gross Assets;
l exposure to any single developer in the development phase will not
exceed 2.5 per cent. of Gross Assets;
l the Company will not typically provide Forward Funding for
development projects. Such Forward Funding will, in any event, not exceed 5
per cent. of Gross Assets in aggregate and 2.5 per cent. of Gross Assets per
development project and would only be undertaken when supported by customary
security;
l Future Commitments and Developer Liquidity Payments, when aggregated
with Forward Funding (if any), will not exceed 25 per cent. of Gross Assets;
l once the Net Initial Proceeds are substantially fully invested,
Renewable Assets in the United States will represent at least 85 per cent. of
Gross Assets; and
l any Renewable Assets that are located outside of the United States
will only be located in other OECD countries. Such Renewable Assets will
represent not more than 15 per cent. of Gross Assets.
References in the investment restrictions detailed above to "investments in"
or "exposure to" shall relate to the Company's interests held through its
Investment Interests.
For the purposes of this Prospectus, the Net Initial Proceeds will be deemed
to have been substantially fully invested when at least 75 per cent. of the
Net Initial Proceeds have been invested in (or have been committed in
accordance with binding agreements to investments in) Renewable Assets.
The Company will not be required to dispose of any investment or to rebalance
the Portfolio as a result of a change in the respective valuations of its
assets. The investment limits detailed above will apply to the Group as a
whole on a look-through basis, namely, where assets are held through a Project
SPV or other intermediate holding entities or special purpose vehicles, and
the Company will look through the holding vehicle to the underlying assets
when applying the investment limits.
Gearing policy
The Group primarily intends to use long-term debt to provide leverage for
investment in Renewable Assets and may utilise short‑term debt, including,
but not limited to, a revolving credit facility, to assist with the
acquisition of investments.
Long-term debt shall not exceed 50 per cent. of Gross Assets and short-term
debt shall not exceed 25 per cent. of Gross Assets, provided that total debt
of the Group shall not exceed 65 per cent. of Gross Assets, in each case,
measured at the point of entry into or acquiring such debt.
The Company may employ gearing either at the level of the relevant Project SPV
or at the level of any intermediate subsidiary of the Company. Gearing may
also be employed at the Company level, and any limits set out in this
Prospectus shall apply on a consolidated basis across the Company, the Project
SPVs and any such intermediate holding entities (but will not count any
intra‑Group debt). The Company expects debt to be denominated primarily in
U.S. Dollars.
For the avoidance of doubt, financing provided by tax equity investors and any
investments by the Company in its Project SPVs or intermediate holding
companies which are structured as debt are not considered gearing for this
purpose and are not subject to the restrictions in the Company's gearing
policy.
Currency and hedging policy
The Group may use derivatives for the purposes of hedging, partially or fully:
l electricity price risk relating to any electricity or other benefit
including renewable energy credits or incentives, generated from Renewable
Assets not sold under a PPA, as further described below;
l currency risk in relation to any Sterling (or other non-U.S. Dollar)
denominated operational expenses of the Company;
l other project risks that can be cost-effectively managed through
derivatives (including, without limitation, weather risk); and
l interest rate risk associated with the Company's debt facilities.
In order to hedge electricity price risk, the Company may enter into
specialised derivatives, such as contracts for difference or other hedging
arrangements, which may be part of a tripartite or other PPA arrangement in
certain wholesale markets where such arrangements are required to provide an
effective fixed price under the PPA.
Members of the Group will only enter into hedging or other derivative
contracts when they reasonably expect to have an exposure to a price or rate
risk that is the subject of the hedge.
Cash management policy
Until the Company is fully invested the Company will invest in cash, cash
equivalents, near cash instruments and money market instruments and treasury
notes ("Near Cash Instruments"). Pending re-investment or distribution of cash
receipts, the Company may also invest in Near Cash Instruments as well as
Investment Grade Bonds and exchange traded funds or similar ("Liquid
Securities"), provided that the Company's aggregate holding in Liquid
Securities shall not exceed 10 per cent. of Gross Assets measured at the point
of time of acquiring such securities.
Amendments to the investment objective, policy and investment restrictions
In the event that the Board considers it appropriate to amend materially the
investment objective, investment policy or investment restrictions of the
Company, Shareholder approval to any such amendment will be sought by way of
an ordinary resolution proposed at an annual or other general meeting of the
Company."
Interim Management Report
The Directors are required to provide an Interim Management Report in
accordance with the Financial Conduct Authority ("FCA") Disclosure Guidance
and Transparency Rules. They consider that the Chair's Statement and the
Investment Manager's Report in this half-yearly report provide details of the
important events which have occurred during the Period and their impact on the
financial statements. The following statements on related party transactions,
going concern and the Directors' Responsibility Statement below, together with
the Chair's Statement and Investment Manager's Report, constitute the Interim
Management Report for the Company for the six months ended 30 June 2022.
The Directors have identified the following as the Company's principal risks
and uncertainties. These are described in the Company's Annual Report for the
period ended 31 December 2021 (pages 36 - 38):
1. Cyber risk
2. Electricity price risk
3. Interest rate, currency and inflation risk
4. Investment performance risk
5. Investment valuation risk
6. Political and regulatory risk
7. Premium/discount risk
8. Service provider risk (including the Investment Manager)
9. COVID-19 risk
10. Counterparty risk
11. Climate and ESG risk
The Directors have identified as an emerging risk, Chinese solar materials
tied to forced labour.
Description
In June 2022, the White House announced the UFLPA which addresses forced
labour in the supply chain for solar panels in China, including a ban on
imports from several polysilicon producers operating in Xinjiang. A
significant portion of the world's polysilicon, which is used to make solar
panels, comes from China.
Mitigation
l The Company works with reputable EPC firms to reduce the risk that
any materials sourced from vendors employing the use of forced labour end up
in the Company's projects and will actively monitor developments on this issue
to mitigate its impacts.
l The Investment Manager will make inquiries of vendors regarding
future procurement and their compliance with the UFLPA.
The Annual Report contains more detail on the Company's principal risks and
uncertainties, including the Board's ongoing process to identify, and where
possible mitigate, emerging risks (pages 36 to 38). The Annual Report can be
found on the Company's website.
The Board is of the opinion that these principal risks are equally applicable
to the remaining six months of the financial year as they were to the six
months being reported on.
The Company is a member of the Association of Investment Companies ("AIC"),
which provides regular technical updates as well as drawing members' attention
to forthcoming industry/ regulatory issues and advising on compliance
obligations.
When required, experts are employed to provide information and technical
advice, including legal advisers, tax advisers and other advisers.
Related Party Transactions
The Company's Investment Manager, Ecofin, is considered a related party under
the Listing Rules. Details of the amounts paid to the Company's Investment
Manager and the Directors during the Period are detailed in Note 10 to the
Financial Statements.
Going Concern
The Directors have adopted the going concern basis in preparing the interim
financial statements. The following is a summary of the Directors' assessment
of the going concern status of the Company.
The Directors have a reasonable expectation that the Company has adequate
resources to continue in operational existence for at least twelve months from
the date of this report. In reaching their conclusion, the Directors
considered the Company's cash flow forecasts, cash position, income and
expense flows and available borrowing facilities. The Company's net assets at
30 June 2022 were $134,324,000 million. As at 30 June 2022, the Company held
$3,859,000 million in cash and was undrawn on its RCF. The Company continues
to meet its day-to-day liquidity needs through its cash resources. The total
expenses for the six months ended 30 June 2022 were $1,196,000 million, which
represented approximately 0.94% of average net assets during the Period. At
the date of approval of this half-yearly report, based on the aggregate of
investments and cash held, the Company had substantial cover for its operating
expenses.
The Directors also considered the impacts of both the secondary effects of the
COVID-19 pandemic and the Russian invasion of Ukraine on the Company's
portfolio of investments. The Directors do not foresee any immediate material
risk to the Company's portfolio and the income from underlying SPVs. A
prolonged and deep market decline could lead to falling values in the
underlying investments or interruptions to cashflow, however the Company
currently has sufficient liquidity available to meet its future obligations.
The Directors are also satisfied that the Company would continue to remain
viable under downside scenarios, including decreasing government regulated tax
credits and a decline in long term power price forecasts.
Underlying SPV revenues are derived primarily from the sale of electricity by
project companies through PPAs in place with creditworthy counterparties such
as utilities, municipalities, and corporations. Most of these PPAs are
contracted over a long period with a weighted average as at 30 June 2022 of
16.3 years.
During the Period and up to the date of this Report, there has been no
significant impact on the revenue and cash flows of the SPVs outside normal
operations. The SPVs have contractual O&M agreements in place with service
providers. Therefore, the Directors and the Investment Manager do not
anticipate a material threat to SPV revenues.
Finally, the Board believes that the Company and its key third party service
providers have in place appropriate business continuity plans to continue to
maintain service levels throughout any future pandemics or any other business
interruptions.
Directors' Statement of Responsibility for the Half-Yearly Report
The Directors confirm to the best of their knowledge that:
l The condensed set of financial statements contained within the
interim financial report has been prepared in accordance with FRS 104 Interim
Financial Reporting; and
l The Interim Management Report includes a fair review of the
information required by 4.2.7R and 4.2.8R of the FCA's Disclosure Guidance and
Transparency Rules.
Patrick O'D Bourke
Chair
For and on behalf of the Board of Directors
15 September 2022
Financial Statements
Unaudited Condensed Statement of Comprehensive Income
For the six months ended 30 June 2022
For the six months ended Period from Incorporation on
30 June 2022 12 August 2020
(Unaudited)
to 30 June 2021
(Unaudited)
Revenue Capital Total Revenue Capital Total
Notes $'000 $'000 $'000 $'000 $'000 $'000
Losses on investments 3 - (1,770) (1,770) - (8) (8)
Net foreign exchange gains/(losses) - 4 4 - (333) (333)
Income 4 4,457 - 4,457 2,285 - 2,285
Investment management fees 5 (638) - (638) (352) - (352)
Other expenses (558) - (558) (506) - (506)
Profit/(loss) on ordinary activities before taxation 3,261 (1,766) 1,495 1,427 (341) 1,086
Taxation - - - - - -
Profit/(loss) on ordinary activities after taxation 3,261 (1,766) 1,495 1,427 (341) 1,086
Earnings per Share (cents) - basic and diluted 6 2.55c (1.38c) 1.17c 1.93c (0.46c) 1.47c
The total column of the Condensed Statement of Comprehensive Income is the
profit and loss account of the Company.
All revenue and capital items in the above statement derive from continuing
operations. No operations were acquired or discontinued during the six months
to 30 June 2022 (the "Period").
Profit on ordinary activities after taxation is also the "Total comprehensive
profit for the Period".
The notes below form part of these interim financial statements.
Unaudited Condensed Statement of Financial Position
As at 30 June 2022
As at As at
30 June 31 December
2022 2021
(Unaudited) (Audited)
Notes $'000 $'000
Non-current assets
Investments at fair value through profit or loss 3 130,973 118,882
Current assets
Cash and cash equivalents 3,859 5,362
Trade and other receivables 36 1
3,895 5,363
Current liabilities: amounts falling due within one year
Trade and other payables (544) (522)
Net current assets 3,351 4,841
Net assets 134,324 123,723
Capital and reserves: equity
Share capital 7 1,380 1,251
Share premium 12,689 29
Special distributable reserve 8 121,250 121,250
Capital reserve (2,525) (759)
Revenue reserve 1,530 1,952
Shareholders' funds 134,324 123,723
Net assets per Share (cents) 9 97.3c 98.9c
Approved and authorised by the Board of directors for issue on 15 September
2022.
Patrick O'D Bourke
Chair of the Board
The accompanying notes form part of these interim financial statements.
Unaudited Condensed Statement of Changes in Equity
For the six months ended 30 June 2022
Six months ended 30 June 2022 (Unaudited)
Share Special
Share premium distributable Capital Revenue
capital account reserve reserve reserve Total
Notes $'000 $'000 $'000 $'000 $'000 $'000
Opening equity as at 1 January 2022 1,251 29 121,250 (759) 1,952 123,723
Transactions with Shareholders
Shares issued in Period 7 129 13,027 - - - 13,156
Shares issued to Investment Manager - 44 - - - 44
Share issue costs - (411) - - - (411)
Dividend distribution - - - - (3,683) (3,683)
Total transactions with Shareholders 1,380 12,689 121,250 (759) (1,731) 132,829
Profit and total comprehensive income for the Period - - - (1,766) 3,261 1,495
Closing equity as at 30 June 2022 1,380 12,689 121,250 (2,525) 1,530 134,324
Period from Incorporation on 12 August 2020 to 30 June 2021 (Unaudited)
Share Special
Share premium distributable Capital Revenue
capital account reserve reserve reserve Total
Notes $'000 $'000 $'000 $'000 $'000 $'000
Opening equity as at 12 August 2020 - - - - - -
Transactions with Shareholders
Shares issued at IPO 7 1,250 123,750 - - - 125,000
Shares issued to Investment Manager - 28 - - - 28
Share issue costs - (2,502) - - - (2,502)
Transfer to Special distributable reserve 8 - (121,250) 121,250 - - -
Dividend distribution - - - - (499) (499)
Total transactions with Shareholders 1,250 26 121,250 - (499) 122,027
Profit and total comprehensive income for the Period - - - (341) 1,427 1,086
Closing equity as at 30 June 2021 1,250 26 121,250 (341) 928 123,113
The Company's distributable reserves consist of the Special distributable
reserve, Capital reserve attributable to realised gains and Revenue reserve.
The accompanying notes form part of these interim financial statements.
Unaudited Condensed Statement of Cash Flows
For the six months ended 30 June 2022
Period from
Incorporation
Six months on 12 August
ended 30 June 2020 to
2022 30 June 2021
(Unaudited) (Unaudited)
Notes $'000 $'000
Operating activities
Profit on ordinary activities before taxation 1,495 1,086
Adjustment for unrealised losses/(gains) on investments 1,770 (95)
Increase in trade and other receivables (35) (1,287)
Increase in trade and other payables 22 336
Net cash flow from operating activities 3,252 40
Investing activities
Purchase of investments 3 (13,861) (67,324)
Net cash flow used in investing activities (13,861) (67,324)
Financing activities
Proceeds of share issues 7 13,200 125,028
Share issue costs (411) (2,502)
Dividends paid (3,683) (499)
Net cash flow from financing activities 9,106 122,027
(Decrease)/Increase in cash (1,503) 54,743
Cash and cash equivalents at start of the Period 5,362 -
Cash and cash equivalents at end of the Period 3,859 54,743
As at 30 June As at 30 June
2022 2021
(Unaudited) (Unaudited)
$'000 $'000
Cash and cash equivalents
Cash at bank - 103
Money market cash deposits 3,859 54,640
Total cash and cash equivalents 3,859 54,743
The accompanying notes form part of these interim financial statements.
Notes to the Interim Financial Statements
For the six months ended 30 June 2022
1. General Information
Ecofin U.S. Renewables Infrastructure Trust PLC ("RNEW" or the "Company") is a
public company limited by shares incorporated in England and Wales on 12
August 2020 with registered number 12809472. The Company is a closed-ended
investment company with an indefinite life. The Company commenced operations
on 22 December 2020 when its Shares were admitted to trading on the London
Stock Exchange. 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 6th
Floor, 125 London Wall, London, EC2Y 5AS.
The Company's investment objective is to provide Shareholders with an
attractive level of current distributions, by investing in a diversified
portfolio of mixed renewable energy and sustainable infrastructure assets
predominantly located in the U.S. with prospects for modest capital
appreciation over the long term.
The financial statements comprise only the results of the Company, as its
investment in RNEW Holdco, LLC ("Holdco") is included at fair value through
profit or loss as detailed in the key accounting policies below.
The Company's Alternative Investment Fund Manager ("AIFM") and Investment
Manager is Ecofin Advisors, LLC.
Sanne Fund Services (UK) Limited provides administrative and company
secretarial services to the Company under the terms of an administration
agreement.
2. Basis of Preparation
The unaudited interim financial statements of the Company have been prepared
in accordance with IAS 34 "Interim Financial Reporting". The accounting
policies, critical accounting judgements, estimates and assumptions are
consistent with those used in the latest audited financial statements to 31
December 2021 and should be read in conjunction with the Company's annual
audited financial statements for the period ended 31 December 2021. The
interim financial statements have been prepared in accordance with UK-adopted
international accounting standards. The interim financial statements are
prepared on the historical cost basis, except for the revaluation of certain
financial instruments at fair value through profit or loss ("FVTPL").
The interim financial statements have also been prepared as far as is relevant
and applicable to the Company in accordance with the Statement of Recommended
Practice ("SORP") issued by the Association of Investment Companies ("AIC") in
July 2022.
These condensed interim financial statements do not include all information
and disclosures required in the annual financial statements and should be read
in conjunction with the Company's annual financial statements as at 31
December 2021. The audited annual accounts for the period ended 31 December
2021 have been delivered to the Companies House. The audit report thereon was
unqualified.
The functional currency of the Company is U.S. Dollars as this is the currency
of the primary economic environment in which the Company operates and where
its investments are located. The Company's investment is denominated in U.S.
Dollars and a substantial majority of its income is receivable, and of its
expenses is payable, in U.S. Dollars. Also, a majority of the Company's cash
and cash equivalent balances is retained in U.S. Dollars. Accordingly, the
interim financial statements are presented in U.S. Dollars rounded to the
nearest thousand dollars.
Basis of consolidation
The Company has adopted the amendments to IFRS 10 which state that investment
entities should measure all of their subsidiaries that are themselves
investment entities at fair value.
The Company owns 100% of its subsidiary Holdco. The Company invests in SPVs
through its investment in Holdco. The Company and Holdco meet the definition
of an investment entity as described by IFRS 10. Under IFRS 10, investment
entities measure subsidiaries at fair value rather than being consolidated on
a line-by-line basis, meaning Holdco's cash, debt and working capital balances
are included in investments held at fair value rather than in the Company's
current assets. Holdco has one investor, which is the Company. In substance,
Holdco is investing the funds of the investors in the Company on its behalf
and is effectively performing investment management services on behalf of such
unrelated beneficiary investors.
Going concern
The Directors have adopted the going concern basis in preparing the interim
financial statements. Details of the Directors' assessment of the going
concern status of the Company, which considered the adequacy of the Company's
resources and the current macro-economic climate, including the impact from
the Russian invasion of Ukraine and the secondary effects of the COVID-19
pandemic, are given in the Going Concern section further above.
Critical accounting judgements, estimates and assumptions
The preparation of financial statements requires management to make
judgements, estimates and assumptions that affect the application of
accounting policies and the reported amount of assets, liabilities, income and
expenses. Estimates are, by their nature, based on judgement and available
information, hence actual results may differ from these judgements, estimates
and assumptions. The estimates and assumptions that have a significant risk of
causing a material adjustment to the carrying value of assets and liabilities
are those used to determine the fair value of the investments as disclosed in
note 3 to the interim financial statements.
The Company's investments in unquoted investments are valued by reference to
valuation techniques approved by the Directors and in accordance with the
International Private Equity and Venture Capital Valuation ("IPEV")
Guidelines.
The Company uses discounted cash flow ("DCF") models to determine the fair
value of the underlying assets in Holdco. The value of Holdco includes any
working capital not accounted for in the DCF models (deferred tax liabilities,
cash plus any receivables or payables at the entity and not at the asset
level). The fair value of each asset is derived by projecting its future cash
flows, based on a range of operating assumptions for revenues and expenses,
and discounting those future cash flows to the balance sheet date using a
discount rate appropriately calibrated to the risk profile of the asset and
market dynamics. The key estimates and assumptions used within the DCF models
are consistent with those used in the latest audited financial statements to
31 December 2021 and include discount rates, annual energy production,
curtailment, merchant power prices, useful life of the assets, and various
operating expenses and associated annual escalation rates often tied to
inflation, including operations and maintenance, asset management, balance of
plant, land leases, insurance, property and other taxes and decommissioning
bonds, among other items. An increase/(decrease) in the key valuation
assumptions would lead to a corresponding decrease/(increase) in the fair
value of the investments. The Company's investments at fair value are not
traded in active markets.
Segmental reporting
The Chief Operating Decision Maker, which is the Board, is of the opinion that
the Company is engaged in a single segment of business, being investment in
renewable energy infrastructure assets to generate investment returns whilst
preserving capital. The financial information used by the Chief Operating
Decision Maker to manage the Company presents the business as a single
segment.
3. Investments Held at Fair Value through Profit or Loss
As at 30 June 2022, the Company had one investment, being Holdco. The cost of
the investment in Holdco is $133,065,052.
As at 30 As at 31
June 2022 December 2021
Total Total
$'000 $'000
(a) Summary of valuation
Analysis of closing balance:
Investment at fair value through profit or loss 130,973 118,882
Total investments 130,973 118,882
(b) Movements during the Period
Opening balance of investment, at cost 119,204 -
Additions, at cost 13,861 119,204
Cost of investments at Period end 133,065 119,204
Revaluation of investments to fair value:
Unrealised losses in fair value of investment (2,092) (322)
Fair value of investment at Period end 130,973 118,882
(c) Losses on investments during the Period
Unrealised movement in fair value of investments during the Period (1,770) (322)
Losses on investments (1,770) (322)
Fair value measurements
IFRS 13 requires disclosure of fair value measurement by level. The level of
fair value hierarchy within financial assets or financial liabilities is
determined on the basis of the lowest level input that is significant to the
fair value measurement. Financial assets and financial liabilities are
classified in their entirety into only one of the following three levels:
Level 1
The unadjusted quoted price in an active market for identical assets or
liabilities that the entity can access at the measurement date.
Level 2
Inputs other than quoted prices included within Level 1 that are observable
(i.e. developed using market data) for the asset or liability, either directly
or indirectly.
Level 3
Inputs are unobservable (i.e. for which market data is unavailable) for the
asset or liability.
As at 30 June 2022 As at 31 December 2021
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
$'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000
Investments at fair value through
profit or loss:
Investment in Holdco - - 130,973 130,973 - - 118,882 118,882
Total investments - - 130,973 130,973 - - 118,882 118,882
Due to the nature of the underlying investments held by Holdco, the Company's
investment in Holdco is always expected to be classified as Level 3. There
have been no transfers between levels during the Period.
As at As at
30 June 31 December
2022 2021
$'000 $'000
Opening balance 118,882 -
Additions during the Period 13,861 119,204
Unrealised losses on investments (1,770) (322)
Closing balance 130,973 118,882
4. Income
Period from
Incorporation
Six months on 12 August
ended 30 June 2020 to
2022 30 June 2021
$'000 $'000
Income from investment
Dividends from Holdco 4,450 2,275
Deposit interest 7 10
Total income 4,457 2,285
5. Investment Management Fee
Six months ended 30 June 2022 Period from Incorporation on 12 August 2020 to 30 June 2021
Revenue Capital Total Revenue Capital Total
$'000 $'000 $'000 $'000 $'000 $'000
Investment Management Fee 638 - 638 352 - 352
The Company and Ecofin entered into the Investment Management Agreement
("IMA") on 11 November 2020, pursuant to which Ecofin was appointed as the
AIFM, as defined in the AIFM Directive, of the Company.
Under the IMA, the Investment Manager receives a fee of 1.00% per annum of NAV
up to and including $500 million; 0.90% per annum of NAV in excess of $500
million up to and including $1 billion; and 0.80% per annum of NAV in excess
of $1 billion, invoiced quarterly in arrears. Until such time as 90% of the
Net Initial Proceeds of the Company's IPO was committed to investments, the
Investment Management fee was only charged on the committed capital of the
Company. No performance fee or asset level fees are payable to the AIFM under
the IMA.
The Investment Manager reinvests 15% of its annual management fee in Shares
(the "Management Fee Shares"), subject to a rolling lock-up of up to two
years, subject to certain limited exceptions. The Management Fee Shares are
issued on a quarterly basis. Where the Shares are trading at a premium to NAV,
the Company issues new Shares to the Investment Manager equivalent in value to
the management fee reinvested. Where the Shares are trading at a discount to
NAV, the Management Fee Shares are purchased by the Company's Brokers at the
prevailing market price.
The calculation of the number of Management Fee Shares to be issued is based
upon the NAV as at the relevant quarter concerned. The Investment Manager is
also entitled to be reimbursed for out-of-pocket expenses reasonably and
properly incurred in respect of the performance of its obligations under the
IMA.
Unless otherwise agreed by the Company and the Investment Manager, the IMA may
be terminated by the Company or the Investment Manager on not less than 12
months' notice to the other party, such notice not to expire earlier than 36
months from the Effective Date of the IMA (11 November 2020). The IMA may be
terminated by the Company with immediate effect from the time at which notice
of termination is given or, if later, the time at which such notice is
expressed to take effect in accordance with the conditions set out in the IMA.
The Company has issued or the Company's Brokers have purchased the following
Management Fee Shares in respect of the Period under review:
Shares issued Investment Issue price Number of Date of issue
Management Fees (cents) Shares
$
1 January 2022 to 31 March 2022 44,559 97.64 45,636 3 May 2022
1 April 2022 to 30 June 2022 50,359 97.32 51,745 2 August 2022
6. Earnings per Share
Earnings per Share is based on the profit for the six months ended 30 June
2022 of $1,495,000 (30 June 2021: $1,086,000) attributable to the weighted
average number of Shares in issue of 127,710,783 in the Period (30 June 2021:
73,920,041). Revenue profit and capital losses were $3,261,000 and
($1,766,000) respectively (30 June 2021: $1,427,000 and ($341,000)
respectively).
7. Share Capital
As at 30 June 2022 As at 31 December 2021
Nominal Nominal
Number of value Number of value
Allotted, issued and fully paid: shares £ $ shares £ $
Opening balance 125,053,498 - 1,250,534.98 - - -
Allotted upon incorporation
Shares of 1c each (Ordinary Shares) - - - 1 - 0.01
Initial Redeemable Preference
Shares paid up to one quarter of their
nominal value ("Initial Redeemable
Preference Shares") - - - 50,000 12,500.00 -
Allotted/redeemed following
admission to LSE
Shares issued - - - 125,000,000 - 1,250,000.00
Initial Redeemable Preference Shares redeemed - - - (50,000) (12,500.00) -
Placing and retail offer
Shares issued 12,927,617 - 129,276.17 - - -
Management Fee Shares issued
Shares issued 45,636 - 456.36 53,497 - 534.97
Closing balance 138,026,751 - 1,380,267.51 125,053,498 - 1,250,534.98
The Shares have attached to them full voting, dividend and capital
distribution (including on winding-up) rights. They confer rights of
redemption. The Initial Redeemable Preference Shares did not carry a right to
receive notice of or attend or vote at any general meeting of the Company
unless no other shares were in issue at that time. The Initial Redeemable
Preference Shares were treated as equity in accordance with the requirements
of IFRS. The Initial Redeemable Preference Shares did not confer the right to
participate in any surplus remaining following payment of such amount.
In accordance with the Company's IPO Prospectus, the Company has the right to
issue C Shares of nominal value 1 cent each pursuant to any Subsequent Issue
under the Share Issuance Programme. There were no C Shares in issue during the
Period.
On incorporation, the issued share capital of the Company was $0.01
represented by one Share, which was subscribed for by Ecofin Advisors, LLC. On
22 October 2020, 50,000 Initial Redeemable Preference Shares were allotted to
Ecofin Advisors, LLC. The Initial Redeemable Preference Shares were paid up as
to one quarter of their nominal value and were redeemed immediately following
Admission out of the proceeds of the IPO.
On 22 December 2020, the Company was admitted to the premium segment of the
main market of the LSE and to the premium segment of the Official List of the
FCA ("Admission"). Pursuant to this, 125,000,000 Shares were issued at a price
of $1.00 per Share.
On 24 May 2022 the Company issued 12,927,617 Shares at an issue price of
$1.015 per Share pursuant to a placing and retail offer.
During the Period, the Company also issued 45,636 Shares with respect to the
first quarter to the Company's Investment Manager, in relation to investment
management fees paid during the Period at an issuance price of $0.9764. After
the Period end, the Company issued a further 51,745 Shares with respect to the
second quarter to the Company's Investment Manager, in relation to investment
management fees for the Period at an issuance price of $0.9732.
As at 30 June 2022, the Company's issued share capital comprised 138,026,751
Shares (30 June 2021: 125,027,930; 31 December 2021: 125,053,498) and this is
the total number of Shares with voting rights in the Company.
8. Special Distributable Reserve
Following admission of the Company's Shares to trading on the LSE, the
Directors applied to the Court and obtained a judgement on 29 January 2021 to
cancel the amount standing to the credit of the share premium account of the
Company. The amount of the share premium account cancelled and credited to the
Company's Special distributable reserve was $121,250,000, which can be
utilised to fund distributions to the Company's Shareholders.
9. Net Assets per Share
Net assets per Share is based on $134,324,000 of net assets of the Company as
at 30 June 2022 (31 December 2021: $123,723,000) attributable to the
138,026,751 Shares in issue as at the same date (December 2021: 125,053,498).
10. Related Party Transactions with the Investment Manager and the Directors
Investment Manager
Fees payable to the Investment Manager are shown in the Statement of
Comprehensive Income. As at 30 June 2022, the fee owing to the Investment
Manager was $336,000.
As at 30 June 2022, the Investment Manager's total holding of Shares in the
Company was 8,678,342 (31 December 2021: 8,606,995).
Directors
The Company is governed by a Board of Directors (the "Board"), all of whom are
non-executive, and it has no employees. Each of the Directors was appointed on
22 October 2020.
Each of the Directors is entitled to receive a fee from the Company at such
rate as may be determined in accordance with the Articles. Each Director
receives a fee payable by the Company at the rate of £40,000 per annum.
The Chair of the Board receives an additional £10,000 per annum. The Chair of
the Audit Committee, the Chair of the Management Engagement Committee and the
Chair of the Risk Committee each receive an additional £6,000 per annum.
The aggregate remuneration and benefits in kind of the Directors in respect of
the Company's accounting period ending on 31 December 2022 which will be
payable out of the assets of the Company are not expected to exceed £188,000.
The Directors are also entitled to out-of-pocket expenses incurred in the
proper performance of their duties.
The Directors had the following shareholdings in the Company, all of which
were beneficially owned.
Shares at
Shares at 31 December
Director 30 June 2022 2021
Patrick O'Donnell Bourke 104,436 54,436
David Fletcher 57,669 41,165
Tammy Richards 25,000 25,000
Louisa Vincent 33,375 27,710
11. Commitments and Contingencies
As at 30 June 2022 the Company had the following future investment
obligations:
The Company had a collective future unlevered net equity commitment amount of
$72.9 million in respect of $21.7 million of pending future equity obligations
on closed construction assets and a committed pipeline of eight solar assets
in respect of the Echo Solar Portfolio in Virginia/Delaware totalling $51.2
million in unlevered equity value. These commitment figures are subject to
change based on the vendor's ability to deliver on certain conditions to
close, which may impact the price paid for certain projects and in certain
situations may cause projects to be removed from the Echo Solar Portfolio.
These figures also do not include the anticipated closure of a tax equity
arrangement in Q3-Q4 of 2022 estimated to be $27.7 million, which will be
coordinated with project closings and used towards the commitments in the Echo
Solar Portfolio. Additional funding required is expected to be facilitated in
the short-term through the RCF, and subsequently through a term debt facility
as the projects become operational.
12. Post Balance Sheet Events
On 19 July 2022, the Company announced that portfolio managers Jerry Polacek,
Matthew Ordway and Prashanth Prakash had resigned from their roles at Ecofin
to pursue a new venture.
On 28 July 2022, the Company declared an interim dividend in respect of the
period from 1 April 2022 to 30 June 2022 of 1.4 cents per ordinary share,
paid on 29 August 2022 to shareholders on the register on 12 August 2022. The
ex-dividend date was 11 August 2022.
On 2 August 2022, the Company issued 51,745 Management Fee Shares to the
Company's Investment Manager.
On 22 August 2022, the Company closed on the acquisitions of three ground
mount solar projects at construction stage in the Echo Solar Portfolio with an
aggregate asset value of approximately $5.5 million.
13. Status of this report
These interim financial statements are not the Company's statutory accounts
for the purposes of section 434 of the Companies Act 2006. They are unaudited.
The unaudited half-yearly report will be made available to the public at the
registered office of the Company. The report will also be available in
electronic format on the Company's website, http://www.ecofininvest/rnew.
The financial information for the period ended 31 December 2021 has been
extracted from the statutory accounts which have been filed with the Registrar
of Companies. The auditor's report on those accounts was not qualified and did
not contain statements under sections 498 (2) or (3) of the Companies Act
2006.
This Half-yearly report was approved by the Board of Directors on 15 September
2022.
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 APMs presented in this report are shown below:
Premium/Discount
The amount, expressed as a percentage, by which the share price is greater or
less than the NAV per Share.
As at
30 June 2022
NAV per Share (cents) a 97.3
Share price (cents) b 103.5
Premium (b÷a)-1 6.4%
Total return
Total return is a measure of performance that includes both income and capital
returns. It takes into account capital gains and the assumed reinvestment of
dividends paid out by the Company into its Shares on the ex-dividend date. The
total return is shown below, calculated on both a share price and NAV basis.
Share price NAV per share
For the six months ended 30 June 2022 (cents) (cents)
Opening at 1 January 2022 a 99.0 98.9
Closing at 30 June 2022 b 103.5 97.3
Dividends paid during the Period c 2.8 2.8
Adjusted closing (d = b + c) d 106.3 100.1
Total return (d÷a)-1 7.4% 1.2%
Ongoing charges ratio
A measure, expressed as a percentage of average NAV, of the regular, recurring
annual costs of running an investment company.
As at As at
30 June 31 December 2021
2022
Average NAV ($'000) a 126,717 123,744
Annualised expenses ($'000) b 2,411 1,817
Ongoing charges ratio (b÷a) 1.90% 1.47%
Until such time as 90% of the Net Initial Proceeds of the Company's IPO was
committed to investments, the Investment Management fee was only charged on
the committed capital of the Company. Since 1 October 2021, and throughout the
six months to 30 June 2022, the Investment Management fee has been charged on
the full NAV of the Company.
For further information contact:
Secretary and registered office:
Sanne Fund Services (UK) Limited
6th Floor, 125 London Wall, London, EC2Y 5AS
The Half-yearly financial report will be submitted to the National Storage
Mechanism and will shortly be available for inspection
at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism)
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