Foresight Solar Fund - Annual Results to 31 December 2022
15/03/2023 07:00
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RNS Number : 9905S Foresight Solar Fund Limited 15 March 2023
15 March 2023
Foresight Solar Fund Limited
("Foresight Solar" or "the Company")
Annual results to 31 December 2022
Foresight Solar Fund Limited, a fund investing in a diversified portfolio of
ground-based solar PV and battery storage assets in the UK and
internationally, is pleased to announce its results for the year ended 31
December 2022.
Highlights
● NAV increased to £771.5 million (31 December 2021: £660.0 million), driven
by elevated power prices, above-budget inflation and the Spanish assets
beginning operation; NAV per share rose 16.9% to 126.5 pence (31 December
2021: 108.2 pence)
● Electricity generated by the global portfolio was 2.3% above base case, driven
by strong operational performance and high irradiation in the UK. UK
production was 8.6% ahead, whilst Australia was 12.5% below forecast
● Consolidated revenues and EBITDA were 26% and 37% ahead of budget
● The Company's 125MW Spanish solar portfolio began operations and, at 11% of
total capacity, is expected to make a significant contribution to revenues in
2023
● The Company continued to deliver on its battery storage mandate with the
acquisition of 50% equity holdings in the 50MW Clayfords and the 50MW
Lunanhead projects
● After the year end, Foresight Solar entered separate exclusive negotiations to
acquire the full rights to a further 50MW BSS project, and to purchase a
development-stage portfolio with total capacity of over 400MWp in Spain
● Total dividend of 7.12 pence per share for 2022, in line with the Company's
target; dividend cover for 2022 was 1.74x, underwritten by attractive price
hedges and higher merchant power prices
● Target dividend of 7.55 pence per share for 2023, an increase of 6%
year-on-year; the Company is confident of achieving dividend cover of 1.5x
based on cash generated in the period alone, with a similar level of cover
expected for 2024 and 2025, assuming current revenue forecasts
Key Metrics
As at As at
31 December 2022 31 December 2021
Net Asset Value ("NAV") £771.5m £660.0m
NAV per Share 126.5p 108.2p
Gross Asset Value ("GAV") £1,296.3m £1,172.0m
Total Dividend per Share for the period 7.12p 6.98p
Annualised Total Shareholder Return since IPO 7.8% 5.9%
Commenting on the Company's results, Alex Ohlsson, Chairman of Foresight Solar
Fund Limited, said:
"Foresight Solar has enjoyed another strong year, benefiting not only from
elevated power prices and higher than anticipated inflation, but also from its
favourable power price hedges, good operational performance, and construction
completion of the Spanish portfolio. This resulted in impressive total
shareholder return of 24.8% for the calendar year and NAV total return for
2022 of 24%.
"Looking into 2023, the Company is pleased to declare a target dividend of
7.55 pence per share, a 6.0% increase year-on-year. Based on a strong
contracted revenue position, and even after accounting for the effects of the
EGL and the windfall tax in Spain, this year's target dividend is expected to
be at least 1.50x covered from cash generated in the period alone. A similar
level of cover is expected for 2024 and 2025, assuming current revenue
forecasts.
"Operationally, the portfolio continued to perform well, generating above
budget electricity levels. The Company's Spanish portfolio is now fully
operational and, at 11% of total capacity, is expected to make a significant
contribution to 2023 revenues. Foresight Solar has a strong focus on the
Spanish market, and I am pleased to announce that the Company is in advanced
negotiations to acquire the full project rights to a development-stage
portfolio in the country with a potential capacity of more than 400MW. The
transaction is well progressed and is expected to close in the first half of
2023.
"After the year end, Foresight Solar also entered exclusive negotiations for
the rights to a further 50MW ready-to-build battery project. Discussions have
progressed well and completion is expected in the second quarter of 2023.
Given the positive market dynamics, the Investment Manager is actively
considering building this asset as a longer duration project, as well
assessing the potential for extending the duration of its other BSS sites.
"The Investment Manager believes there are several attractive opportunities in
UK battery storage and in development-stage portfolios in the UK and Europe.
As governments continue to support the transition to a net zero economy and
prioritise domestic energy security, there is significant upside for the
Company's core solar and battery storage markets. These industry fundamentals,
combined with Foresight Solar's exciting pipeline of opportunities and
attractive yield, position us strongly for 2023 and the following years."
Results presentation
Foresight Solar is holding a presentation for analysts at 09:30 today.
Analysts wishing to attend should contact
foresightsolar@citigatedewerogerson.com
(mailto:foresightsolar@citigatedewerogerson.com) . The presentation will also
be uploaded to the Company's website.
Dividend Declaration
Foresight Solar confirms total dividends of 7.12 pence per ordinary share for
2022, in line with its target.
The Board is pleased to announce the fourth and final interim dividend
relating to 2022 of 1.78 pence per ordinary share ("the Dividend"). The shares
will go ex-dividend on 20 April 2023 and the Dividend will be paid on 26 May
2023 to shareholders on the register as at the close of business on 21 April
2023.
The expected timetable in relation to the Dividend is:
Ex-dividend Date 20 April 2023
Record Date 21 April 2023
Dividend Payment Date 26 May 2023
For further information, please contact:
Foresight Group
+44 (0)20 3911 2318
Matheus Fierro
mfierro@foresightgroup.eu
Jefferies International Limited
+44 (0)20 7029 8000
Gaudi Le Roux
William Brown
Harry Clements
Citigate Dewe Rogerson
+44 (0)20 7638 9571
foresightsolar@citigatedewerogerson.com
(mailto:foresightsolar@citigatedewerogerson.com)
Toby Moore +44 7768 981 763
Laura Banks +44 7545 942 738
Lucy Gibbs +44 7957 596 729
Foresight Solar Fund Limited
Annual report and financial statements
for the year ended 31 december 2022
Our purpose
Foresight Solar Fund Limited is a closed-ended investment company investing in
a diversified portfolio of ground-based solar PV and battery storage assets in
the UK and internationally.
The Company aims to deliver sustainable and progressive investment returns to
investors alongside strong environmental, social and governance ("ESG")
benefits.
Investment objectives
● Preserve and enhance capital value
● Deliver a sustainable, progressive quarterly dividend
● Develop further portfolio diversification
Highlights
AS AT 31 DECEMBER 2022
£771.5m 126.5p £1,296.3m
NET ASSET VALUE ("NAV") NAV PER SHARE GROSS ASSET VALUE ("GAV") (1)
(31 December 2021: £660.0m) (31 December 2021: 108.2p) (31 December 2021: £1,172.0m)
7.12p £724.6m 7.8%
DIVIDEND PER SHARE DECLARED RELATING TO THE PERIOD MARKET CAPITALISATION ANNUALISED TOTAL SHAREHOLDER RETURN SINCE IPO
(Full year to 31 December 2021: 6.98p) (31 December 2021: £618.5m) (31 December 2021: 5.9%)
9.0%
ANNUALISED TOTAL NAV RETURN SINCE IPO
(31 December 2021: 7.3%)
In 2022, FSFL has delivered:
● Total shareholder return of 24.8% and a total NAV return of 24.0%
● 16.9% NAV growth to 126.5 pence per share driven by high power prices,
above-budget inflation and the completion of construction assets
● Portfolio generation 2.3% above budget. UK production was 8.6% ahead and
Australia was 12.5% below forecast
● Consolidated revenue 26% higher than expected ahead of budget and EBITDA up
37%
● Start of operations at the 125MW Spanish solar portfolio, adding approximately
two pence per share of NAV uplift
● 1,113GWh(2) of clean electricity generation, enough to power more than 383,900
UK homes and avoid 859,000 tonnes of carbon emissions compared to coal
● Further progress in its battery storage system ("BSS") portfolio with the
acquisition of holdings in the 50MW Clayfords and the 50MW Lunanhead projects
● Prioritised rights to over 600MW of UK solar projects and an extensive
pipeline of battery opportunities
● Post year end, the Company confirmed exclusive negotiations for the full
project rights to another 50MW BSS project
● Target dividend of 7.55 pence per share for 2023, an increase of 6.0%
year-on-year. The Company is confident of achieving dividend cover of 1.50x
based on current revenue projections
(1) Refer to the Alternative Performance Measures ("APMs") shown on page 52 for
more details.
(2) This represents the unadjusted generation total for all solar sites in the
portfolio irrespective of ownership stakes or loss adjustment
GEOGRAPHIC FOOTPRINT
At the end of the year, the Company's diversified portfolio comprised
61 assets, with a total global net peak capacity of 1,095MW.
UK
53 Assets
1 Wymeswold Solar
2 Castle Eaton Solar
3 Highfields Solar
4 High Penn Solar
5 Pitworthy Solar
6 Hunters Race Solar
7 Spriggs Farm Solar
8 Bournemouth Solar
9 Landmead Solar
10 Kencot Hill Solar
11 Copley Solar
12 Atherstone Solar
13 Paddock Wood Solar
14 Southam Solar
15 Port Farm Solar
16 Membury Solar
17 Shotwick Solar
18 Sandridge Solar
19 Wally Corner Solar
20 Coombeshead Solar
21 Park Farm Solar
22 Sawmills Solar
23 Verwood Solar
24 Yardwall Solar
25 Abergelli Solar
26 Crow Trees Solar
27 Cuckoo Grove Solar
28 Field House Solar
29 Fields Farm Solar
30 Gedling Solar
31 Homeland Solar
32 Marsh Farm Solar
33 Sheepbridge Solar
34 Steventon Solar
35 Tengore Solar
36 Trehawke Solar
37 Upper Huntingford Solar
38 Welbeck Solar
39 Yarburgh Solar
40 Abbey Fields Solar
41 SV Ash Solar
42 Bilsthorpe Solar
43 Bulls Head Solar
44 Lindridge Solar
45 Manor Farm Solar
46 Misson Solar
47 Nowhere Solar
48 Pen Y Cae Solar
49 Playters Solar
50 Roskrow Solar
51 Sandridge Battery
52 Clayfords Battery
53 Lunanhead Battery
Australia
4 Assets:
1 Bannerton Solar
2 Longreach Solar
3 Oakey 1 Solar
4 Oakey 2 Solar
Spain
4 Assets:
1 Virgen del Carmen Solar
2 Los Llanos Solar
3 Los Salinas Solar
4 Los Picos Solar
CHAIRMAN'S STATEMENT
On behalf of the Board, I am pleased to present the audited Annual Report and
Financial Statements for Foresight Solar Fund Limited (the "Company" or the
"Fund") for the year ended 31 December 2022.
The Company has enjoyed another strong year, benefiting not only from elevated
short-term power prices and higher than anticipated inflation, but also from
its favourable power price hedges, good operational performance and
construction completion of the Spanish portfolio. This resulted in total
shareholder return of 24.8% for the calendar year and NAV total return for the
period of 24.0%. Earnings per share were significantly ahead of budget at
25.3 pence per share.
Dividend cover for the year was 1.74x, underwritten by attractive price hedges
and higher merchant power prices. Forecast dividend cover remains robust even
after accounting for the additional tax payments from the UK Government's
Electricity Generator Levy ("EGL") and from the windfall taxes in Spain. The
Company's revenue generation position in the short and medium term will be
supported by the high proportion of contracted revenues, as the Investment
Manager continues to forward-hedge power prices to build dividend cover.
Generation from the Company's global portfolio was 2.3% ahead of budget for
the year, producing 1,113GWh of clean energy (2021: 903GWh). The UK
portfolio, representing 75% of total generation for the period, enjoyed its
best year to date due to a combination of strong irradiation and high levels
of availability. Good operational performance in Australia was not sufficient
to mitigate low irradiation. Across both markets, however, the effect of
elevated power prices resulted in revenues significantly above budget for the
year.
The Company is pleased to confirm that its existing portfolio of Spanish solar
assets is now fully operational following energisation of the 26MW Virgen del
Carmen project in October 2022. Whilst initial generation for the Spanish
sites has not been included in the 2022 production figures, the projects are
expected to make a significant contribution to revenues in 2023, representing
11% of total capacity.
FSFL has a strong focus on the Spanish market and, as such, we are excited to
announce the Company is in advanced negotiations to acquire the full project
rights to a development-stage portfolio with a potential capacity of over
400MWp in the country. The counterparty is an experienced developer that would
continue to progress the sites under a development services agreement.The
transaction is well progressed and is expected to close in the first half of
2023.
More broadly, the Company has made good progress in its diversification
strategy during 2022, continuing to expand its portfolio of battery storage
projects with two further acquisitions in the second half of the year. Post
year end, the Fund also announced the proposed acquisition of the full project
rights to a further 50MWp battery storage asset in Scotland, subject to final
approvals. The Company will seek to develop this project with two-hour
duration capacity and the Investment Manager is currently exploring options to
similarly extend the duration of FSFL's other recent battery storage systems
("BSS") acquisitions. The Company believes the opportunities available in
battery storage and development-stage assets provide good potential for growth
and has visibility of a strong near-term pipeline in both sectors.
Key financials
In 2022, the NAV per Ordinary Share increased by 16.9% to 126.5 pence
(31 December 2021: 108.2 pence).
The Company's financial performance during the year was strengthened by
elevated power prices and inflation, alongside strong asset availability and
projects emerging from construction. Sustained high power prices and inflation
have driven returns, with consolidated revenue and EBITDA 26% and 37% ahead of
budget for the year, respectively.
Power prices across all the Company's markets have been volatile but remained
at elevated levels throughout the year. Actual power prices were above
forecast, contributing to an 11.7 pence per share NAV uplift for the year,
double the rise registered in 2021. The Investment Manager's commitment to
forward-fix rates at attractive prices and the ability to fix output at these
higher levels contributed to drive higher revenues.
Inflation also surged in 2022, reaching a 40-year high at the end of December,
significantly ahead of the Company's revised forecast of 5.0%. A revised
forecast of 6.5% has been applied for 2023 and in combination these
adjustments produced a further NAV uplift of 11.1 pence per share.
This high inflationary environment resulted in the fastest tightening of
monetary policy in decades as central banks grappled to bring spiralling
prices under control. Between February and December, the Bank of England
raised interest rates from 0.25% to 3.50%, which by extension has
significantly reduced risk premia for renewable assets. Given the spread of
yield to government bonds at 4.0% by the third quarter, the Board considered
it appropriate to raise the discount rate for UK assets by 100 basis points to
7.00%, with a subsequent negative impact on NAV of 7.0 pence per share.
Operational performance
The Company's UK solar portfolio delivered an excellent year's performance
with electricity generation 8.6% above budget, reflecting consistently high
levels of irradiation and good asset availability. This was despite a small
number of material incidents that impacted performance, such as supply delays
for replacement inverters and occasional DNO outages. Looking at the technical
performance of the UK assets excluding DNO outages, electricity generation was
9.0% above budget compared to an irradiation value of 9.4% above expectations.
Whilst operational performance in Australia was good, it was not sufficient to
mitigate the lasting effects of La Niña. The meteorological phenomenon led
to a third successive year of above-average rainfall and low irradiation,
disrupting solar production across the country, and resulting in generation
being below budget for 2022. Adverse weather was the main reason for the
underperformance for the year, with irradiation 11.8% below forecast and
production 12.5% below budget for the full year.
The Asset Manager carries out a process of continual improvement to optimise
the portfolio, with recent initiatives focused on the evaluation and
implementation of repowering options for sites where it is prudent to replace
technology that is no longer well supported. Tendering and benchmarking of
operations and maintenance contracts were completed during 2022, providing
improved contractual terms and modest increases in NAV.
Acquisitions
The Company has continued to expand its position in the battery storage market
with several further acquisitions. In August and October, the Fund announced
it was acquiring 50% equity holdings in the Clayfords and Lunanhead BSS
projects, both of which are scheduled to become operational in the second half
of 2024. Post year end, the Company announced that it is in exclusive
negotiations to acquire the full project rights to a further 50MW BSS site in
Scotland, subject to certain conditions being met. Completion of this
investment will bring the Fund's total battery capacity to the equivalent of
125MW.
The Company is also seeking to conclude its first investment in
development-stage projects with the Spanish platform of over 400MW of
potential capacity. This will involve acquiring 100% ownership of the project
rights to the portfolio that is currently awaiting grid connection and
environmental permits.
Dividends
The Company has declared total dividends of 7.12 pence per share for the year,
in line with its target. The fourth and final FY2022 dividend of 1.78 pence
per share will be paid on 26 May 2023.
Dividend cover for the year on a cash basis was 1.74x after paying a total of
£35.7 million of debt.
I am pleased to declare a target dividend of 7.55 pence per share for FY2023,
an increase of 6.0% compared with 2022. In establishing the 2023 dividend
target, the Board has sought to balance the near-term benefits of higher
forward power prices, inflation and cash generation against macroeconomic
factors and power price forecasts over the long term.
Based on a strong contracted revenue position and including an assessment of
the effects of the EGL and the windfall tax in Spain, the 2023 target dividend
is expected to be at least 1.50x covered from cash generated in the period
alone. A similar level of cover is also expected for 2024 and 2025 assuming
current revenue forecasts.
Debt facilities
As at 31 December 2022, the total outstanding debt of the Company and its
subsidiaries amounted to £524.8 million (31 December 2021: £512.0 million),
including long-term debt of £409.8 million (December 2021: £388.6 million).
Total gearing decreased to 40.5% of Gross Asset Value ("GAV") (December 2021:
43.7%), following drawdowns of £23.5 million of long-term debt in the
Spanish portfolio, offset by scheduled repayments of long-term debt and £8.4
million net repayment of short-term debt during the year. Other adjustments to
the nominal long-term debt balances include currency and inflation exposure.
(Refer to the Alternative Performance Measures (APMs) shown on page 152 for
more details.)
Long-term structural gearing represented 31.6% of GAV (2021: 33.2%), well
within the 40% long-term debt target set by the Board. The Company's net debt
position, after deducting existing Group cash balances, represented 32.7% of
GAV (December 2021: 37.9%).
During the year, the Company announced it had refinanced and replaced two
existing revolving credit facilities ("RCF") with a new £150.0 million
facility. The three-year sustainability-linked resource is due to expire in
February 2025 and does not need to be refinanced before then. As at 31
December 2022, the Company had used £115.0 million of its RCF, leaving
£35.0 million undrawn (December 2021: £123.4 million used), of which
£11.8 million was allocated to letters of credit due to expire during 2023.
Of the £409.8 million long-term debt, £320.2 million is exposed to interest
rate risk, although the Company has interest rate swaps in place for 99.5% of
this exposure. The interest rate for the remaining 22% of the Company's
long-term debt is linked to inflation. The RCF facility remains unhedged,
which the Board considers to be an appropriate level of exposure.
The Board believes the current level of Company debt to be appropriate to the
size and revenue profile of the portfolio.
Sustainability update
Sustainability and environmental, social and governance ("ESG") considerations
lie at the heart of the Company's ethos and operations. The Company frequently
assesses its approach to sustainability and ESG, seeking to emulate and drive
best practice wherever possible.
In 2022, the Company celebrated its first full year of data collection on
various portfolio metrics, tracking different sustainability indicators that
allow for performance monitoring and comparison. The focus has been on
consolidating the Company's processes in terms of how sustainability and ESG
considerations are embedded, recognising that such factors are of increasing
importance to investors. We expect to continue to evolve and improve our
processes and use the information collected in 2022 to drive meaningful change
across all areas of sustainability and ESG.
Towards the end of the year, the Investment Manager launched its Nature
Recovery Ambition Statement, written in collaboration with its sustainability
partner, the Eden Project. The Statement will pave the way for a Solar Nature
Recovery Blueprint, which will be used to guide a best practice approach to
biodiversity baselining and nature recovery throughout the Company's
portfolio.
The Board also recognises the importance of assessing climate-related risks
that have the potential to materially impact its business. As such, it
published its second Task Force for Climate-related Financial Disclosures
report, with the analysis presented on pages 44 to 60.
Finally, the Company's programme of educational site visits continued its
successful run, with assets playing host to nearly 500 schoolchildren across
12 separate site visits and 15 workshops during the year. These events not
only help make the projects more meaningful to local communities, they
contribute to educate the children and their families on the benefits of
renewable energy and the importance of protecting and enhancing biodiversity.
The portfolio of assets has grown consistently since the Company's inception
in 2013, providing more and more energy suppliers, companies and households
with renewable electricity. The energy generated in 2022 alone equated to
enough clean power to fuel over 383,900 UK homes.
Governance
During the year, the Nomination Committee commenced the first phase of the
succession plan for the rotation off the Board of Peter Dicks, who will be
succeeded by an appropriate candidate. The second phase of the Company's
succession plan will focus on the replacement of Jersey-based Directors.
The Company's current auditors, KPMG, have now been in place for nine years
and will be asked to re-tender as part of an ITT process for the reviews
starting from the year ending 31 December 2024. The process will be managed
by a Board steering committee and the Investment Manager.
Outlook
We entered 2023 with central banks hopeful that the most rapid tightening of
monetary policy in decades had begun to wrestle inflation down. The Company
now faces a materially different macroeconomic backdrop to that of 12 months
ago. Yields on 20-year UK Government bonds ended 2022 at 4% and a return to
the exceptionally low interest rates of the last decade is not expected in the
near term. With spreads over the risk-free rate narrowed, the Company's
ability to focus on growth opportunities alongside reliable yield is now more
desirable than it has been in the past.
Following the political and regulatory turmoil of the past year, greater
clarity has emerged in terms of government intervention in the energy markets.
There is now defined guidance on the implementation of the Electricity
Generator Levy in the UK and on the price ceiling and clawback tax in Spain.
This has allowed the impact of such policies to be factored into Company
forecasts.
With its most recent acquisition targets, the Investment Manager has signalled
that there are attractive investment opportunities for the Company in the UK
battery storage market and in development-stage portfolios. They continually
appraise all segments within the Fund's investment mandate to assess
investment attractiveness. For the last few years, it has been the Investment
Manager's view that the pricing for UK subsidy-backed operational solar
projects is not returns accretive. Whilst this position may change with
discount rates increasing, the Company has displayed capital discipline and
has not acquired any assets on the secondary market since 2018. Instead, the
focus has been on driving performance from the existing portfolio and pursuing
value-accretive opportunities in earlier stage projects.
The Investment Manager is reviewing several further development-stage
opportunities in both the UK and across Europe and with a variety of
structures, and is seeking to invest in similar solar or battery storage
development pipelines in the United Kingdom.
In battery storage, the UK continues to be the most active market in Europe,
assisted by a clear framework that is attracting private capital to develop a
potential pipeline of over 34GW of new projects. The successful deployment of
this target is dependent on the availability of new grid connections and so,
realistic expectations for connection dates need to be set for projects not
already in planning. Notwithstanding this, the Investment Manager continues to
develop a significant pipeline of opportunities via trusted partners. The
Company will also seek, where feasible, to develop battery projects with
longer durations, reflecting the more favourable pricing dynamics and an
enhanced ability to take advantage of arbitrage opportunities.
Across Europe, the deployment of large-scale ground-mounted solar is expected
to accelerate over the next few years with many nations expected to be
"gigawatt plus" markets for annual installations. This includes Germany,
Italy, the Netherlands, Poland and Spain, which are all aiming to deploy
significant levels of solar to meet net zero pledges, while reducing reliance
on foreign gas imports to improve energy security. In 2022, the UK also
approved a record of over 4GW of new solar capacity, which bodes well for
greater numbers of projects reaching the ready-to-build stage in the near
term.
Looking forward, we continue to see significant opportunity in the Company's
core solar and battery storage markets as governments carry on supporting the
transition to a net zero economy and prioritising domestic energy security. In
addition to offering investors the opportunity to participate in the move to a
greener society, the Company offers an attractive yield, alongside growth
potential and an exciting pipeline.
Annual General Meeting
We look forward to meeting Shareholders at the Company's next Annual General
Meeting ("AGM") on 14 June 2023 at 9:30am. Details of how Shareholders may
participate will be set out in the Notice of Annual General Meeting that will
be published in due course.
Alexander Ohlsson
Chairman
14 March 2023
MARKET CONTEXT
Market developments
United Kingdom
In April 2022, the then UK government of Prime Minister, Boris Johnson,
announced the British Energy Security Strategy with the aim of expanding
nuclear, wind, solar and hydrogen, alongside oil and gas. The Strategy's bold
targets, which could potentially lead to 95% of Great Britain's electricity
being produced from low carbon sources, took on new significance with the war
in Ukraine as energy security concerns made a case for greater domestic
production. The Strategy also highlighted the potential for the UK's existing
14GW of solar capacity to grow up to five times by 2035, with the promise of
streamlining planning consents. Whilst there has been significant political
upheaval since, this remains the official Government position.
The following month, in May, the surge in energy prices spurred by Russia's
invasion of Ukraine prompted then Chancellor of the Exchequer Rishi Sunak to
state that HM Treasury would not rule out expanding the windfall tax levied on
the oil and gas sector to all energy producers, including renewables
generators. In the political upheaval that followed, it would be over six
months before details of the Electricity Generator Levy ("EGL") were defined.
The buoyant listed infrastructure and energy market that had seen around £3
billion of capital raised in the first six months of the year collapsed in the
second half, with both the macroeconomic backdrop and uncertainty around
government intervention weighing heavily on investor confidence.
Notwithstanding these challenges, there has been positive progress on the
planning side for both new solar and battery storage in the UK. It was a
record year for solar farm approvals, with almost 4GW of new capacity signed
off by August, up significantly from the 3.1GW that received a green light
during all of 2021. This points to strong levels of deployment over the next
five years. The battery storage market is also primed for significant growth,
with a record 800MWh of utility-scale energy storage capacity added in 2022,
while the sector is expected to bring online gigawatts of capacity every year
to 2030.
The government has also been considering more fundamental changes to energy
markets with the former Department for Business, Energy and Industrial
Strategy (BEIS) last year publishing its consultation on the Review of the
Electricity Market Arrangement (REMA).
Whilst this review is necessary to assess how best to construct a market that
enables the incorporation of an increasing share of renewable energy and
flexible generation, it is also incredibly wide ranging. The sooner there is
clarity on the direction of travel, the better it will be for investors,
operators and consumers.
The UK is not alone in taking such action. Across Europe, national governments
are considering similar reforms to decouple the cost of electricity production
from natural gas as the marginal price-setter. However, without a clearer
position on what the price signals for future renewable energy income streams
will be, there is risk that uncertainty will impact investor sentiment and
actually limit deployment in the sector.
Australia
Australia's National Electricity Market ("NEM") experienced unprecedented
volatility in spot prices during the first half of 2022. A combination of
thermal generation outages, coal and gas supply problems and an early winter
that increased demand led to an "energy squeeze" driving prices to record
highs. Solar generators benefited from the fluctuations, locking in
higher-than-expected revenues. The second half of the year brought a
normalisation to the market with power prices returning to recent annual
averages, including some negative pricing events occurring during peak mid-day
solar production hours.
In May, Australian voters handed the Labor Party its first national election
majority in almost a decade. Prime Minister Anthony Albanese succeeded in
securing a mandate to deliver a proposed centrist platform based on climate
and tax, promising to transform the country into a "renewable energy
superpower."
To date, there is no proposed replacement for the Large-scale Renewable Energy
Target ("LRET"), a scheme that incentivises the installation of renewable
energy power stations. The government has, however, endorsed a domestic
emissions reduction target of 43% by 2030, higher than the 26% to 28% target
set by the previous Coalition Government; it has also extended stimulus for
large-scale battery storage systems, with the Australian Renewable Energy
Agency ("ARENA") granting significant funding to eight projects with an
aggregate capacity of 2.0GW/4.2GWh in December.
At local level, the government of New South Wales is in the development phase
of the state's first Renewable Energy Zone ("REZ"). These zones will group new
wind and solar power generation in areas where it can be efficiently stored
and transmitted, guaranteeing reliable supply as coal-fired power stations
retire. The REZ in the Central-West Orana region promises 10GW of renewables
by 2030 and 1GW of pumped hydroelectric power by 2036.
Meanwhile, in Queensland, the upgrade of the interconnector to New South Wales
was completed in April and the Callide coal power station will remain closed
until the first quarter of 2023. Both developments have reduced the
oversupply of electricity in the state, effectively removing the downward
pressure on prices in the local market.
Spain
As with the rest of Europe, Spain experienced high power prices at the
beginning of 2022. This resulted in the government introducing measures to
mitigate the effect on households and on the wider economy. Amongst the
initiatives, a cap on natural gas prices, a tax on extraordinary energy
revenues, and the suspension of the 7% generation tax, all had a direct impact
on renewable energy assets.
Whilst such interventionist policies initially generated concerns for
investors and operators, the relatively quick clarity provided and widespread
nature of similar regulation across Europe served to level the playing field,
allowing the Spanish market to remain active. A similar level of activity is
expected to continue in 2023 based on strong market fundamentals and the
government's overall supportive approach.
Despite the short-term noise, the Spanish government has ambitious renewable
energy targets and is aiming to increase generation from solar and wind by
60GW to a total of 100GW by the end of this decade. Those goals can only be
achieved with capital from the private sector, so, to hasten the deployment of
projects, the government has pushed through market-friendly proposals.
In March, a package of measures to speed up the approval process of renewable
energy projects, looking favourably on those with low environmental impacts,
was enacted. In late January 2023, Spain's Ministry for Ecological Transition
and Demographic Challenge ("MITECO") announced that approximately 25GW of
solar PV projects had secured favourable environmental impact statements.
Under current legislation these projects will need to complete by a mid-2025
commissioning deadline. Whilst it appears unlikely that there is even
available resources to bring such volume of projects online in time, it is
still expected to help drive a significant increase on the 19GW of current
installed capacity.
The government also published the draft scheme for its latest capacity market
auction, the process to award grid connection access to new renewable
projects, with an update on the process expected in the coming months. Since
the first tender two years ago, the government has authorised more than 6GW of
production to solar, wind and biomass in four different processes.
Power prices
United Kingdom
The UK power market reached record highs during 2022, following what were
already elevated prices in 2021. Day-ahead auction prices at N2EX, the
exchange-traded marketplace in the United Kingdom, averaged £204/MWh during
the year, a 75% increase on the 2021 average of £117/MWh. Pricing remained
high throughout the 12 months, with an average of £176/MWh in the first half,
whilst the second semester registered an increase to £232/MWh. Prices peaked
in the summer, reaching an average of £370/MWh in August.
Surging natural gas costs in Europe placed direct upward pressure on power
prices. The Russian invasion of Ukraine in February 2022 led European
countries to limit their imports from what was previously the continent's
largest fossil fuel provider. Combined with record-breaking temperatures, the
boycott pushed gas prices to their summer highs. Demand in the UK also
increased due to maintenance on oil generation plants. With prices at
unsustainable levels, it was fortunate that milder autumn and winter
temperatures across the continent reduced heating needs, limiting the demand
for gas and helping to reduce prices by the end of the year.
Throughout the period, the Company continued its policy of entering power
price hedges for periods up to 2026. Overall, the average price secured across
the UK portfolio during the year, including fixed price arrangements, was
£117/MWh, a 73% year-on-year increase to the £68/MWh achieved in 2021. The
Company regularly monitors forward electricity prices and has continued to
enter new arrangements at attractive prices into 2023.
As a response to rising energy costs, the UK Government extended its windfall
tax with a levy on renewable generators for exceptional revenues that could be
made over the next five years. The Electricity Generator Levy applies a 45%
tax on generation revenues over £10 million and above a cap set at £75/MWh
for 2023. This benchmark rate will rise in line with the Consumer Price Index
("CPI"), a measure of inflation, each year starting from April 2024 until the
EGL is scheduled to end in April 2028.
Australia
The year was marked by increased coal-fired power plant outages and a
continued surge in commodity prices, resulting in higher spot prices on the
country's National Electricity Market (NEM). Coal and gas prices rose
substantially in the first half of the year due to lower-than-expected supply
and disruptions linked to Russian sanctions. The enhanced opportunity to sell
liquefied natural gas ("LNG") and thermal coal in global markets led
Australian gas generators to reprice their spot market offers, pushing prices
higher.
In the first six months of 2022, the power price across the NEM was A$175/MWh,
an increase of 191% compared to the same period a year earlier. In the second
half of the year, however, spot prices fell in line with historical averages,
bringing the full year average down to $A115/MWh, compared to A$60/MWh in
2021.
In Queensland, where the Company has three assets, several factors contributed
to higher power prices in the first half of the year, including the outage at
the Callide coal plant, which is expected to continue well into 2023. The
second semester, on the other hand, was marked by good irradiance, but the
excess solar generation and the reduced demand because of lower-than-usual
seasonal temperatures led to lower power prices.
In the State of Victoria, home to the Company's Bannerton site, the pressure
on supply was not as pronounced because operational coal plants experienced
fewer outages, although, in the second half of the year, solar farms suffered
increased economic curtailment because of lower demand.
Spain
Throughout 2022, power prices remained above historic averages as a direct
result of the sustained upward trend in natural gas prices.
Spanish benchmark electricity prices are set by a marginal cost model, which
means they are based on the cost of the most expensive plant required to
satisfy demand - and that is typically gas-fired generation. With Russia's
invasion of Ukraine pushing up natural gas prices, electricity prices
followed.
Spiralling energy prices were eventually capped by the Spanish government in
June, when it imposed a limit of €40/MWh on thermal generators that will
gradually increase to €70/MWh by May 2023. Whilst the cap initially had a
predicted end in June 2023, the government has already filed to extend it
until at least 2024.
This cap resulted in average baseload prices of €135/MWh between June and
December 2022, considerably lower than the €212/MWh registered for the first
five months of the year. Although prices trended down in the second semester,
this was mostly caused by higher wind production and lower gas prices.
In addition to the energy price cap, the Spanish government also implemented a
levy on "extraordinary revenues", recently extended until December 2023. This
tax seeks to claw back excess revenues received by renewable energy producers
due to the incorporation of unusually high gas costs into the wholesale price
of electricity. Although provision was made for power purchase agreements
("PPAs") signed up to a price of €67/MWh (prior to 31 March 2022), the tax
charge amounted to, on average, an extra €32/MWh on unhedged production
after the cap on gas prices was introduced. The combination of these
interventions has effectively limited electricity prices at €120/MWh until
the end of 2024, which is borne out by the forward rates.
Despite the cap and the tax, the wider landscape in Spain remains appealing.
The country has some of the highest irradiation levels in Europe and, overall,
the regulatory environment remains supportive, with the government looking to
achieve ambitious decarbonisation targets. In the short term, despite the
government's attempt to rein in high power prices, they remained materially
above what was forecast when most recent investments in the country were made.
Subsidy revenues
The buy-out price for Renewables Obligation Certificates ("ROC"), the United
Kingdom's main support mechanism for large-scale renewable electricity
projects, for the 2022/23 annual compliance period increased to £52.88
(2021/22 compliance period: £50.80). The change reflected the average monthly
percentage change in the Retail Price Index ("RPI"), a measure of inflation,
during 2022. On average, the Company received 1.30 ROC/MWh across the UK
portfolio. Meanwhile, the 2022/23 Feed-in Tariff ("FiT") rate for the Yardwall
project, the only UK asset to which ROC does not apply, was £79.90/MWh
(2021/22: £74.30/MWh).
In Australia, the average Large-Scale Generation Certificate ("LGC") price
secured by the portfolio for the full year was A$21.12 per certificate, lower
than the A$30.29 registered in 2021. This is due to step-down mechanisms in
the contracted price, although, considering the timeline to 2030, the prices
are in line with forecast merchant LGC prices.
Power price forecasts
The Investment Manager uses forward-looking power price assumptions to assess
the likely future income of the portfolio assets for valuation purposes. The
Company's assumptions are formed from a blended average of the forecasts
provided by three third-party consultants, adjusted by the Investment Manager
for the expected capture price discounts for solar generation as considered
appropriate.
For assets with fixed price arrangements in place, the contracted values are
used in place of the blended forecast.
For assets with subsidy arrangements in place for a period shorter than the
assumed useful economic life of the asset, the blended forecast is used for
the remaining period.
United Kingdom
When compared against June 2022 expectations, the long-term average annual
power price forecast used for December 2022 valuations increased 5.1% across
the duration of the curves used to model the Company's projected cash flows.
This was largely due to movements in the short term resulting from the current
elevated pricing environment.
The Company's forecasts over the short to medium-term assume a decrease in
prices in real terms of 16.6% per annum as the current market is expected to
revert to historical levels by around 2030. From that point on, prices are
forecast to flatten out, with a 1.5% per annum decline expected as solar
capture price discounts become more prominent.
When the assumed asset life extends beyond 2050, the Investment Manager has
assumed no real growth in forecast power prices.
Australia
Electricity prices are forecast to trend down through the 2020s, before rising
as coal-powered plants retire and more expensive gas and flexible technologies
set the majority of electricity prices in the following decade.
As more solar projects come online in the next few years, they will flood the
grid with renewable energy during the day. This likely imbalance between
supply and demand has the potential to push down prices of electricity
generated from green sources. The introduction of new battery capacity,
however, may help offset that discount as these storage systems can consume
electricity to charge when prices are low and discharge back into the grid
when demand is high - and renewable generation is low.
Spain
Although short to medium-term futures saw a significant increase during 2022,
long-term fundamentals in the Spanish energy market remain largely unaffected.
It is expected that a significant amount of new renewable energy capacity,
particularly solar PV, will be added to the grid over the coming years due to
the country's high solar resource. This will cause a decrease in power prices,
particularly solar capture prices, in the long-term but this is already
incorporated in the projections the Company's consultants prepare and is
reflected in the valuation models.
Revenue analysis
The Company's income is generated at solar asset level from the export of
electricity into the grid. The revenues predominantly arise from the
regulatory support mechanisms available in the markets in which the Company
operates, and the sale of electricity to third-party offtakers - either at
fixed or merchant prices.
In 2022, approximately 39% of revenues were derived from subsidies, with the
remaining 61% from the sale of electricity to the grid. However, given fixed
price contracts secured via UK PPAs, 76% of revenues in 2022 were considered
contracted (i.e. subsidy or fixed price sales), with the remaining 24%
merchant.
For 2023, 79% of the total expected revenues across the portfolio are
contracted. At the time of writing, the weighted average contracted price
(under PPAs) for the UK portfolio in 2023 stands at £121 per MWh.
On an NPV basis, as at 31 December 2022, contracted revenues over the entire
investment period represented 49% of the total forecast revenues.
The Company will continue to minimise the impact of power price volatility on
future cash flows by entering fixed price arrangements for the sale of
electricity. The goal is to achieve a high percentage of annual fixed revenues
in the short and medium-term by actively managing the power price exposure of
production. By way of example, the Company can fix some electricity sales in
the summer, due to the seasonal production profile of solar assets, to support
the dividend policy, while leaving some exposure to market rates that allow
the Company to capture potential upside from power price volatility.
Status of contracted revenues
The table below sets out the average PPA fixed price achieved for the UK
portfolio in each calendar year, and the proportion of generation that has
been forward hedged.
As at 31 December 2022 2023 2024 2025
Average fixed price for UK portfolio £/MWh £121 £96 £92
Proportion of contracted revenue for the global portfolio 79% 75% 66%
FUND STRUCTURE
The Company is a closed-ended company with an indefinite life and was
incorporated in Jersey under the Companies (Jersey) Law 1991, as amended on 13
August 2013, with registration number 113721.
The Company's Initial Public Offering on 24 October 2013 raised
£150 million, creating the largest solar investment company listed in the UK
at the time. Following multiple equity raises since launch, the Company has
grown steadily and now owns a portfolio with a Gross Asset Value of £1,296.3
million on 31 December 2022.
On that same date, the Company had 609,958,720 Ordinary Shares in issue, all
of which are listed on the premium segment of the Official List and traded on
the London Stock Exchange's Main Market.
Operating structure
As an investment company, the Company has no direct employees and outsources
all operations to a few key service providers.
The Company makes its investments through intermediate holding companies and
underlying Project Vehicles/Special Purpose Vehicles ("SPVs").
The operating structure and key service providers are detailed in the graphic
below:
Shareholders
Equity investment v Dividends ^ Company Secretary & Administrator
JTC (Jersey) <>
Investment Manager Foresight Solar Fund Limited Other key service providers and advisors
Foresight Group LLP Corporate Broker - Jefferies International Limited
Auditor - KPMG
Registrar - Computershare
Investor Services
Legal Advisors - Dickson Minto,
Ogier <>
Shareholder loans v Shareholder loan repayments ^
HOLDCOs
Intermediate Holding Companies
Equity investment v Cash flow distributions ^ Short and long-term
debt providers <>
Asset Manager Assets
Foresight Asset Management Limited <> Project Special Purpose Vehicles
Investment objective
The Company's objective is to provide investors with a sustainable,
progressive quarterly dividend and enhanced capital value through investment
in a diversified portfolio of ground-based solar farms and battery storage
systems ("BSS") predominantly located in the UK.
Investment policy
The Company pursues its investment objective by acquiring ground-based solar
power plants.
The Company is also permitted to invest in utility scale battery storage
systems up to a limit of 10% of the GAV, calculated at the time of investment.
There is also scope for the Company to invest up to 5% of its GAV in
development-stage assets, in other words, solar or BSS opportunities that are
pre-construction and may not have secured grid connection rights or planning
consent at the date of investment.
Investments in assets which are, when acquired, still under construction will
be limited to 25% of the GAV of the Company and subsidiaries, calculated at
the time of investment. (Refer to the Alternative Performance Measures
("APMs") shown on page 152 for more details.)
Investments outside the UK will be limited to 25% of the GAV of the Company
and subsidiaries, calculated at the time of investment.
Investment strategy
The Company's continuing aim is to build a diversified portfolio of assets by
acquiring majority or minority stakes in individual ground-based solar assets
and BSS.
When investing in a stake of less than 100% in a solar power plant or a
battery SPV, the Company will secure its rights through shareholders'
agreements and other legal transaction documents.
Power purchase agreements ("PPAs") will be entered into between each of the
individual solar power plant SPVs in the portfolio and creditworthy offtakers.
Under the PPAs, the SPVs will sell solar-generated electricity and/or green
benefits to the designated offtaker. The Company may retain exposure to power
prices through PPAs that do not include mechanisms such as fixed prices or
price floors.
Investment may be made in equity, debt or intermediate instruments but not in
instruments traded on any investment exchange.
The Company is permitted to invest cash held for working capital purposes and
awaiting investment in cash deposits, gilts and money market funds.
Investment restrictions
To spread risk and diversify its portfolio, at the time of investment, no
single asset shall exceed 30% of the Company's GAV post-acquisition. If the
investment is an additional stake in an existing investment, the combined
value of both the existing stake and the additional stake acquired should also
not exceed 30%.
The GAV of the Company will be calculated based on the last published gross
investment valuation of the Company's portfolio, including cash, plus
acquisitions made since the date of such valuation at their cost of
acquisition.
The Company's portfolio will provide diversified exposure through the
inclusion of no less than five individual solar power plants and the Company
will also seek to diversify risk by ensuring that a significant proportion of
its expected income stream is derived from regulatory support (which will
consist of, for example, but will not be limited to, ROCs and FiTs for UK
assets).
The Company will also seek diversification using a number of different
third-party providers such as developers, engineering, procurement and
construction ("EPC") contractors, operations and maintenance ("O&M")
contractors, panel manufacturers, landlords and distribution network
operators.
The Articles provide that gearing, calculated as Group borrowing (including
any asset-level gearing) as a percentage of the Company's GAV, will not exceed
50% at the time of drawdown.
It is the Board's current intention that long-term gearing (including
long-term, asset-level gearing), calculated as Group borrowings (excluding
intra-group borrowings, such as borrowing between members of the Group, and
revolving credit facilities) will not exceed 40% of GAV at the time of
drawdown.
Any material change to the investment policy will require the prior approval
of Shareholders by way of an ordinary resolution (for so long as the Ordinary
Shares are listed on the Official List) in accordance with the Listing Rules.
Alternative Investment Fund Management Directive ("AIFMD")
The AIFMD, which was implemented across the EU on 22 July 2013, aims to
harmonise the regulation of Alternative Investment Fund Managers ("AIFMs") and
imposes obligations on firms that manage or distribute Alternative Investment
Funds ("AIFs") in the EU or that market shares in such funds to EU investors.
Under the AIFMD, the Company is self-managed and acts as its own AIFM.
The Company is located outside the European Economic Area ("EEA") but its
marketing activities in the UK are subject to regulation under the AIFMD and
the National Private Placement Regime.
Global portfolio revenue split
● UK subsidy income - 35%
● UK electricity sales - Merchant - 20%
● UK electricity sales - Fixed - 33%
● AUS subsidy - Merchant - 1%
● AUS subsidy - Fixed - 2%
● AUS electricity sales - Merchant - 3%
● AUS electricity sales - Fixed - 6%
Global portfolio revenue split - NPV basis
● Electricity sales - Merchant - 51%
● Subsidy - 38%
● Electricity sales - Contracted - 11%
Countries by production
● UK - 75%
● Australia - 25%
● Spain - 0%(1)
(1) Spanish generation during commissioning has been excluded for 2022 reporting
purposes.
O&M contractors by capacity
● Brighter Green Engineering Limited - 42%
● Anesco Limited - 17%
● IM2 - 12%
● Canadian Solar - 9%
● Belectric Solar Limited - 8%
● Lightsource - 5%
● UGL - 5%
● Other - 2%
Countries by installed capacity
● UK - 73%
● Australia - 16%
● Spain - 11%
Installed capacity by revenue type
● ROC - 66%
● Subsidy-free - 18%
● LGC - 16%
● FiT - 0%(1)
(1) Yardwall is the only FiT asset in the portfolio
Inverters by capacity
● SMA - 44%
● Power Electronics - 14%
● ABB - 13%
● Schneider Electric - 9%
● Bonfiglioli - 4%
● GE Power Conversion - 4%
● LTI ReEnergy - 3%
● Other - 9%
Solar panel suppliers by capacity
● Canadian Solar - 13%
● Trina Solar - 12%
● JA Solar - 11%
● REC Solar - 9%
● Renesola - 9%
● First Solar - 8%
● Jetion - 7%
● Hanwha - 5%
● SunEdison - 5%
● S-Energy - 5%
● Astronergy - 4%
● Yingli Solar - 3%
● Talesun - 2%
● Other - 7%
INVESTMENT PORTFOLIO
Current portfolio
Operational/ Acquisition
Installed peak under cost(1) Revenue
Type Asset capacity (MW) construction (£m) type
UK
1 Solar Wymeswold(2) 34 Operational 45.0 ROC/Electricity sales
2 Solar Castle Eaton 18 Operational 22.6 ROC/Electricity sales
3 Solar Highfields 12 Operational 15.4 ROC/Electricity sales
4 Solar High Penn 10 Operational 12.7 ROC/Electricity sales
5 Solar Pitworthy 16 Operational 19.3 ROC/Electricity sales
6 Solar Hunters Race 10 Operational 13.3 ROC/Electricity sales
7 Solar Spriggs Farm 12 Operational 14.6 ROC/Electricity sales
8 Solar Bournemouth 37 Operational 47.9 ROC/Electricity sales
9 Solar Landmead 46 Operational 52.4 ROC/Electricity sales
10 Solar Kencot Hill 37 Operational 49.5 ROC/Electricity sales
11 Solar Copley 30 Operational 32.7 ROC/Electricity sales
12 Solar Atherstone 15 Operational 16.2 ROC/Electricity sales
13 Solar Paddock Wood 9 Operational 10.7 ROC/Electricity sales
14 Solar Southam 10 Operational 11.1 ROC/Electricity sales
15 Solar Port Farm 35 Operational 44.5 ROC/Electricity sales
16 Solar Membury 16 Operational 22.2 ROC/Electricity sales
17 Solar Shotwick 72 Operational 75.5 ROC/Electricity sales
18 Solar Sandridge 50 Operational 57.3 ROC/Electricity sales
19 Solar Wally Corner 5 Operational 5.7 ROC/Electricity sales
20 Solar Coombeshead 10 Operational 36.6
21 Solar Park Farm 13 Operational (Acquired ROC/Electricity sales
22 Solar Sawmills 7 Operational as portfolio)
23 Solar Verwood 21 Operational
24 Solar Yardwall 3 Operational FiT/Electricity sales
25 Solar Abergelli 8 Operational 3.7 ROC/Electricity sales
26 Solar Crow Trees 5 Operational 1.8 ROC/Electricity sales
27 Solar Cuckoo Grove 6 Operational 2.5 ROC/Electricity sales
28 Solar Field House 6 Operational 3.1 ROC/Electricity sales
29 Solar Fields Farm 5 Operational 1.7 ROC/Electricity sales
30 Solar Gedling 6 Operational 1.9 ROC/Electricity sales
31 Solar Homeland 13 Operational 5.2 ROC/Electricity sales
32 Solar Marsh Farm 9 Operational 4.0 ROC/Electricity sales
33 Solar Sheepbridge 5 Operational 1.9 ROC/Electricity sales
34 Solar Steventon 10 Operational 4.2 ROC/Electricity sales
35 Solar Tengore 4 Operational 1.3 ROC/Electricity sales
36 Solar Trehawke 11 Operational 4.7 ROC/Electricity sales
37 Solar Upper Huntingford 8 Operational 3.1 ROC/Electricity sales
38 Solar Welbeck 11 Operational 4.4 ROC/Electricity sales
39 Solar Yarburgh 8 Operational 3.4 ROC/Electricity sales
40 Solar Abbey Fields 5 Operational 1.5 ROC/Electricity sales
41 Solar SV Ash 8 Operational 3.4 ROC/Electricity sales
42 Solar Bilsthorpe 6 Operational 1.9 ROC/Electricity sales
43 Solar Bulls Head 6 Operational 2.2 ROC/Electricity sales
44 Solar Lindridge 5 Operational 1.7 ROC/Electricity sales
45 Solar Manor Farm 14 Operational 6.1 ROC/Electricity sales
46 Solar Misson 5 Operational 2.0 ROC/Electricity sales
47 Solar Nowhere 8 Operational 3.7 ROC/Electricity sales
48 Solar Pen Y Cae 7 Operational 2.9 ROC/Electricity sales
49 Solar Playters 9 Operational 4.0 ROC/Electricity sales
50 Solar Roskrow 9 Operational 3.7 ROC/Electricity sales
51 Battery Sandridge 25(3) Under construction 12.7 Merchant
52 Battery Clayfords 25(4) Under construction 14.1 Merchant
53 Battery Lunanhead 25(5) Under construction 16.4 Merchant
UK subtotal 800 728.4
Australia
1 Solar Bannerton 53(6) Operational 22.9 LGC/Long-term PPA
2 Solar Longreach 17 Operational 5.7 Long-term PPA/Electricity sales
3 Solar Oakey 1 30 Operational 9.2 Long-term PPA/ Electricity sales
4 Solar Oakey 2 70 Operational 34.0 LGC/Electricity sales
Australia subtotal 170 71.8
Spain
1 Solar Virgen del Carmen 26 Operational 18.0 Long-term PPA/Electricity sales
2 Solar Los Llanos 49 Operational 64.2 Long-term PPA/Electricity sales
3 Solar Los Salinas 30 Operational (Acquired Long-term PPA/Electricity sales
4 Solar Los Picos 20 Operational as portfolio) Long-term PPA/Electricity sales
Spain subtotal 125 82.2
Total 1,095 882.4
(1) Original equity cost at time of acquisition, including transaction costs. For
assets under construction, this includes estimated construction costs to start
of operations. International acquisition costs converted to GBP including
transaction costs at the applicable rate at the time of acquisition.
(2) Includes the 2MW extension acquired in March 2015.
(3) Accounts for the 50% stake the Company holds of Sandridge BSS (50MW).
(4) Accounts for the 50% stake the Company holds of Clayfords (50MW).
(5) Accounts for the 50% stake the Company holds of Lunanhead (50MW).
(6) Accounts for the 48.5% stake the Company holds of Bannerton (110MW).
Portfolio summary
As at 31 December 2022, the Company's portfolio comprised 61 assets with a
total net peak capacity of 1,095MW, of which 75MW remains under construction.
In the UK, the Company has an operational portfolio of 50 solar assets with a
total installed capacity of 725MW. In addition, the Fund holds a 50% share in
three battery storage projects, equivalent to 75MW, that are currently in
construction. The Company owns four operational solar assets in Australia,
totalling 170MW of installed capacity, and 125MW of installed capacity
distributed across four solar projects in Spain that commenced operations in
the second half of the year.
The Company's UK assets all benefit from regulatory support and are accredited
under the Renewables Obligation ("RO") scheme, except for Yardwall, which is a
Feed-in Tariff ("FiT") scheme-accredited asset (representing less than 1% of
the UK portfolio). The Australian assets, meanwhile, benefit from subsidies
in the form of Large-Scale Generation Certificates ("LGCs").
The Company's Spanish projects do not benefit from regulatory support. These
assets bid into the long-term power purchase agreement ("PPA") market, aiming
to strike production deals at determined prices with specific counterparties
for a certain period, providing a high proportion of contracted revenues. They
have been successful in settling those transactions, with the Lorca portfolio
signing a ten-year agreement with Statkraft in December 2021 and the Virgen
del Carmen project establishing a ten-year offtake agreement with Shell in
September 2020.
Acquisitions
Clayfords
In August, the Company announced the acquisition of a 50% equity stake in
Clayfords Energy Storage Limited ("CESL"), a 50MW lithium-ion battery energy
storage plant based in Aberdeenshire, UK. The project is fully consented and
construction-ready, and is expected to start commercial operations at the end
of 2024.
CESL represents the Company's second investment into standalone battery
storage systems, adding to the Sandridge project in Wiltshire, England, which
was acquired in May 2021. Sandridge will provide portfolio diversification
and operating efficiencies since it is adjacent to the Sandridge solar
park, also owned by the Company.
Lunanhead
A third BSS project was added to the portfolio in September. The Company
acquired a 50% equity stake in Gigabox No 4 Limited, known as Lunanhead, which
holds the development rights to construct a 50MW energy storage plant in
Angus, Scotland.
The project is fully consented and is expected to start commercial operations
by mid-2024. It will be connected to Scottish Hydro Electric Power
Distribution's network initially for a capacity of 45MW, increasing to the
maximum capacity by early 2025.
INVESTMENT MANAGER'S REPORT
Questions and answers with the Investment Manager
Ross Driver recounts some of the opportunities and challenges faced in 2022,
discusses the approach for the current year and outlines Foresight Solar's
organic growth opportunities.
There were many macroeconomic and geopolitical issues affecting energy prices,
renewables policy and equity markets in 2022. How would you summarise the
year?
From an economic perspective, 2022 was certainly a year without recent
comparison. Natural gas prices, and by extension electricity prices, were
beginning to normalise from elevated levels when Russia invaded Ukraine in
late February. The subsequent sharp rise in fossil fuel costs, particularly
gas, was the catalyst that sent prices spiralling to the highs of late last
year. In the UK and other developed economies, double-digit inflation led
central banks to hike interest rates at the fastest pace seen in a generation.
In combination, rampant inflation and rising interest rates had a significant
impact on investors' risk appetite and, consequently, on equity markets.
In the UK, the already complex macroeconomic environment was compounded by
political instability and regulatory uncertainty. Specific details on how the
government's Electricity Generator Levy ("EGL") would operate were announced
in December, a full six months after the initial indication that a windfall
tax might be extended to renewable energy producers. This gap created a long
period of uncertainty.
Inflation and what is next for gilt rates remains at the forefront of
investors' minds. Political instability, government intervention and the
potential for wide ranging market reform, however, risk undermining investor
confidence, especially when other countries are planning significant economic
support for renewable energy roll-out.
Despite this challenging backdrop, the Company managed to withstand external
pressures, grow and deliver strong returns. Good operational availability
across the generating portfolio resulted in production above expectations, and
the Investment Manager continues to deliver on opportunities with the
potential to organically grow the NAV. (Refer to the Alternative Performance
Measures (APMs) shown on page 152 for more details.)
As you mention, Russia's invasion of Ukraine and the UK government's
Electricity Generator Levy ("EGL") had a direct impact on energy prices. Did
they peak in the third quarter of 2022?
That most likely is the case, but it does not mean that energy prices will
quickly revert to levels seen in the years before the pandemic. Day-ahead gas
prices fell significantly from mid-December to the start of 2023 but remain
almost three times the historic average. Remember, Europe has experienced a
milder winter than average, a glut of liquefied natural gas arrived in
response to price signals, and until recently China was still pursuing its
strict zero-COVID-19 policy. It appears the worst is over for now, but it
remains to be seen what happens heading into next winter, especially if the
Chinese economy can successfully re-open.
Late last year, the UK government provided much-needed clarity on the EGL.
Whilst questions about its efficacy remain, mitigating factors in the draft
legislation include the introduction of inflation indexation to the benchmark
energy price from 2024. The EGL itself is unlikely to dampen immediate
pressures in markets that typically forward-hedge power prices several years
in advance, but we expect it will provide a meaningful contribution towards
the government's price cap subsidy. Prices are falling in response to
increased supply and a fall in demand, albeit in the UK there has not been a
targeted government scheme on the latter. This helps reduce prices for now,
but there could be further bumps in the road before power prices revert
to historical averages.
In the near term, Foresight Solar is well insulated from potential falls in
power prices thanks to its active hedging approach. The proportion of
contracted revenues for the global portfolio now stands at 79% for 2023, 75%
for 2024 and 66% for 2025, offering reassurance for dividend cover.
Inflation has been steadily climbing since the COVID-19 pandemic. In the UK,
the Consumer Prices Index ("CPI"), a measure of inflation, rose by 10.5% in
2022. What are your expectations for this year?
The Bank of England will certainly hope that its programme of rate rises has
been sufficient to stem the inflation spiral, and it appears indicators are
beginning to fall even if January 2023 inflation remained in double figures.
As with energy prices, peak inflation is now likely behind us and most
analysts expect it to fall significantly during the year, but the real
question is how quickly that happens. Labour markets remain tight,
understandably adding upward wage pressure and core inflation could prove to
be stickier than initially thought. Peak passed, but we are not out of the
woods yet.
The Company has always taken a prudent approach to inflation estimates and, as
measures come down from their December 2022 and January 2023 peaks, our
expectation is that the average throughout 2023 will be around 6.5%. Over the
medium and long term, inflation assumptions remain unchanged at 3.0% from
2024.
In 2022, the Spanish portfolio became fully operational. Tell us a bit more
about the evolution of those assets and what it means for the Company.
The four assets in Spain represent an exciting growth story. The Company
acquired the project rights to the 125MW subsidy-free portfolio in late 2020,
taking advantage of the Investment Manager's presence in the country, and
shepherded the projects through construction to full operation.
Located in Granada and Huelva, in the south of Spain, the solar plants are in
a region with some of the highest irradiation levels in continental Europe and
are expected to make a significant contribution to revenues in 2023.
The Spanish electricity market is one of Europe's most active for the
deployment of new renewable projects and continues to be a strong focus for
the Company because of the attractive opportunities it offers.
The Company is now able to invest in development-stage projects. How do you
see that creating additional value?
Development-stage projects are those that have a delivery plan and have
secured some form of land rights but still require additional work before they
are ready to start construction. This means the upfront capital commitment can
be significantly lower than that for "construction-ready" assets. Whilst not
all projects in a development portfolio will always achieve final approval for
construction, those that do present the opportunity for superior returns.
Hence why it is desirable to enter development with a portfolio approach.
The Investment Manager has the expertise to take on such projects, carefully
pricing risks and being able to capture that increased financial upside from
projects that are built out and brought into operation. Foresight Group has
been doing this with joint venture development partnerships for several years,
realising strong value uplift as projects reach the ready-to-build stage and
once again at construction completion.
Delivery of the Lorca portfolio and Virgen del Carmen in Spain demonstrate the
Company is already familiar with the second stage of this strategy. Taking the
four assets from construction to operation delivered approximately 2 pence per
share of NAV uplift in 2022.
What about battery storage systems ("BSS"), how do they fit into the overall
strategy?
As the proportion of renewable generation increases, the requirements for
grid stability and for services able to rebalance the intermittent nature of
solar and wind energy are expected to increase. BSS will gain in
importance and will play a significant role in the energy transition. It
also offers diversification of revenue streams, both with the ability to
capture capacity market contracts but also to arbitrage the peaks and troughs
in volatile energy markets.
The Company currently has three BSS assets in its portfolio. Post year end, it
entered exclusive negotiations for a potential fourth project, aiming for a
closing date by the second quarter of 2023. The development of greenfield BSS
projects, and the co-location with solar assets, has strong growth potential,
and offers an additional, differentiated source of portfolio revenue with
attractive
risk/return characteristics.
Looking ahead, what should FSFL stakeholders expect?
The Company's investment objectives remain unchanged. Going into its tenth
year, the Company continues to build an attractive, diversified portfolio with
the goal of preserving and enhancing capital value whilst also delivering a
progressive quarterly dividend.
Alongside offering a strong, reliable yield, the Fund will further seek to
offer an attractive Total Shareholder Return. As the markets continue to
develop, we see a large number of growth opportunities to also offer investors
continued NAV growth.
We are doing that with demonstrable environmental, social and governance
benefits. We are proud to contribute to the transition to a lower carbon
economy.
Our ultimate objective is to be the premium diversified solar energy platform
in the industry, and we are delivering that sustainably.
Key investment metrics
31 December 31 December
2022 2021
Market capitalisation £724.6m £618.5m
Share price 118.8p 101.4p
Dividend declared per share for the year 7.12p 6.98p
Gross Asset Value ("GAV") £1,296.3m £1,172.0m
Annualised total NAV return since IPO 9.0% 7.3%
Annualised total shareholder return since IPO 7.8% 5.9%
Net Asset Value ("NAV") £771.5m £660.0m
NAV per share 126.5p 108.2p
Profit after tax for the year £154.5m £117.9m
The purpose and calculation methodology of the key APMs are shown on page 152.
Movements in Net Asset Value
The Company's NAV per share increased to 126.5 pence during the year from
108.2 pence in 2021. A breakdown in the movement of the NAV is shown in the
table below.
NAV NAV per
share
NAV as at December 2021 £660.0m 108.2p
Dividends paid (£43.0m) (7.1p)
Fund costs (£10.6m) (1.7p)
Other adjustments £2.7m 0.5p
Forex £3.0m 0.5p
Time value £43.3m 7.1p
Project actuals £12.1m 2.0p
Power forecasts £71.5m 11.7p
Inflation £67.7m 11.1p
Discount rates (£42.9m) (7.0p)
Spanish assets revaluation £11.7m 1.9p
Operational updates (£4.0m) (0.7p)
NAV as at December 2022 £771.5m 126.5p
Valuation methodology
The Investment Manager is responsible for providing fair market valuations of
the Company's underlying assets to the Board of Directors every quarter. A
broad range of assumptions is used in the models. These assumptions are based
on long-term forecasts and generally are not materially affected by short-term
fluctuations, economic gyrations or portfolio technical performance unless
they represent a significant movement. Material changes to long-term forecasts
typically have a greater impact.
It is the policy of the Investment Manager to value assets based on discounted
cash flows ("DCF") from the date of acquisition. Assets under construction are
valued at cost until the date of commissioning and start of operations.
Revenues and costs accrued during construction or during the commissioning
process do not form part of the DCF calculation in making a fair valuation.
The current portfolio consists of non-market-traded investments and valuations
are based on a DCF methodology or held at cost while the assets have not yet
reached commissioning.
This approach adheres to both IAS 39 and IFRS 13 accounting standards (page
125), as well as the International Private Equity and Venture Capital ("IPEV")
Valuation Guidelines.
Based on the recommendation of the Investment Manager, the Company's Directors
review and challenge the operating and financial assumptions, including the
discount rates, used in the valuation of the portfolio before approval.
Discount rates for valuation
During the year, the Investment Manager reviewed the discount rates applied to
the valuation of the portfolio due to increases in government bond rates. As a
result of this analysis, discount rates for the UK portfolio were increased by
100bps from 6.0% to 7.0% on a levered basis to maintain an adequate premium to
the risk-free rate. In terms of assessing the climate change risk, the
Investment Manager benchmarks the discount rate against a similar asset base
to ensure the underlying climate risk exposure is factored into the analysis.
The discount rate used for UK asset cash flows which have received lease
extensions beyond the initial investment period of 25 years is 8% for
subsequent years, reflecting the merchant risk of the expected cash flows
beyond the first two and a half decades.
For the Australian portfolio, assets are valued using a discount rate which
is dependent on the level of contracted revenues in place. The weighted
average discount rate across the Australian portfolio has increased to 8.00%
(31 December 2021: 7.88%). This is due to assets with higher discount rates
now forming a larger percentage of the Australian portfolio, rather than any
underlying discount rate changes.
Since the Spanish assets commenced operation, they moved to valuation on a DCF
basis. The discount rate for the three Lorca portfolio assets is 7.5%, whilst
the discount rate for Virgen del Carmen ("VdC") is 7.0%. VdC is an unlevered
project, therefore a lower risk premium is applied. It should be noted that
the discount rates have not been reduced following construction completion
given the recent increase in Euribor. As with all jurisdictions, these
discount rates will also continue to be reviewed against recent transactions
to ensure they reflect market values, and rates will be adjusted accordingly.
The weighted average levered discount rate across the portfolio is now 7.16%
compared to 6.26% as at 31 December 2021.
Other assets under construction, such as the three battery projects, are
valued at cost and will continue to be held at cost until they are connected
to the grid and fully operational, at which point they will be valued on a
DCF basis.
Non-UK asset valuations are updated quarterly to reflect movements related to
exchange rates.
Asset life
The expected weighted average life of the UK portfolio as at
31 December 2022 is 30.8 years (31 December 2021: 30.6 years) from the
date of commissioning. This represents a remaining portfolio useful life of
23.0 years when the historical operational periods are taken into account.
The average useful economic life across 40 of the 50 operational UK assets
goes beyond 25 years, averaging 32.3 years from the date of commissioning.
Conservative operational and lifecycle costs are incorporated into the
extended useful life period. The useful economic life for assets located in
Australia remained stable at 34.4 years (31 December 2021: 34.4 years).
Movements in NAV
Dividends paid
The Company paid £43.0 million in dividends during the year to 31 December
2022.
Fund costs
Total costs were £10.6 million, which predominantly include management fees,
financing costs and corporation tax incurred by the Company and its
subsidiaries on a consolidated basis.
Other adjustments
Working capital adjustments in relation to the Company and its subsidiaries
released £2.7 million.
Time value
A value uplift of £43.3 million, resulting from moving the valuation date
forward and, therefore, bringing future cash flows closer to the present
(and discounting them less).
Project actuals
Cash generation from UK projects exceeded modelled forecasts by £12.1 million
in the year due to electricity generation base case outperformance, which is
predominantly a function of the high power prices achieved across the
portfolio and of strong operational availability.
Foreign exchange movements
Fluctuations in the exchange rate over the period positively impacted the GBP
valuations of the Australian and Spanish assets by £3.0 million.
Power price forecasts
The Company uses forward-looking power price assumptions to assess the likely
future income of its assets for valuation purposes. The Company's assumptions
are based on a blended average of the forecasts provided by third-party
consultants, which are updated on a quarterly basis.
The valuation change of £71.5 million during the period includes the impact
of the UK, Australian and Spanish price forecasts. This also includes the
effects of the UK Government's Electricity Generator Levy (EGL) on the UK
portfolio.
Inflation forecasts
This update reflects actual inflation for 2022, which has been more than the
5% forecast used in the valuation modelling; as well as forecast inflation,
which has been increased to 6.5% for 2023. For future years, assumptions
remain unchanged: 3% from 2024 to 2030, dropping to 2.25% thereafter to
reflect the convergence of RPI to CPIH, which is a more comprehensive measure
of inflation. This modelling leads to the £67.7 million uplift.
Discount rates
The Investment Manager reviewed discount rates and, as a result, the UK
levered discount rates increased to 7% from 6% during the year, causing the
negative £42.9 million impact. The discount rates for other geographies were
left unchanged.
Operational updates
Operational updates to the portfolio, including life extensions, newly signed
O&M contracts, business rates updates and other asset-related costs came
to £4.0 million.
Post-construction revaluation (Spain)
As the Spanish assets began exporting to the grid in the third and fourth
quarter of 2022, their valuations moved to a discounted cash flow basis,
leading to a £11.7 million gain, equivalent to a 1.9 pence per share
increase in the NAV.
The Lorca portfolio added 1.1 pence per share to the NAV when it reached
operations in the third quarter. The Virgen del Carmen project moved to a
discounted cash flow valuation in the last quarter of 2022, adding 0.8 pence
per share to the NAV. This represents a project valuation, whilst the overall
NAV factors in the additional costs of bringing the asset to commissioning
following schedule delays.
Valuation sensitivities
Where possible, assumptions are based on observable market and technical data.
In many cases, such as forward power prices, independent advisors are used
to provide evidenced information, enabling the Investment Manager to adopt a
prudent approach. (The chart below shows the impact per share of changes in
key valuation assumptions on NAV.)
The Investment Manager has set out the inputs which it has ascertained would
have a material effect on the NAV in note 16 of the Financial Statements. All
sensitivities are calculated independently of each other.
OPERATIONAL REVIEw
United Kingdom portfolio performance
The UK operational assets outperformed expectations during the year, with
electricity generation 8.6% above base case reflecting annual irradiation that
was 9.4% higher than forecast, and after adjusting for financial compensation
received.
Whilst irradiation was notably higher during the year, especially over the
summer, two other factors ensured high levels of asset availability and helped
drive outperformance. The first was the utilisation of key spare parts that
the Company has warehoused and the other was the Asset Manager's prompt
resolution of a small number of material incidents across the portfolio.
Both served to reduce assets' downtime and maintain production.
Some issues, however, were outside the Company's control. In 2022, the
portfolio experienced a higher number of distribution network operator ("DNO")
outages than in the previous year. The most notable was at Crow Trees, which
lasted 12 days. When DNO outages occur, the Asset Manager works with the
network operator to minimise their impact. Excluding these types of outages,
production during the year was 9.0% above base case.
Another challenge was the lack of supply chain reliability. A few assets were
affected by issues with certain inverter manufacturers. In the instances in
which these problems have persisted, repowering of the assets was initiated,
with works scheduled to begin in the first quarter of 2023 so that all solar
farms are ready in time to benefit from the higher irradiation periods
from spring.
Health and safety
The unusually hot summer in the UK led to ground fires at two of the Company's
assets. Fire services promptly dealt with the incidents at Sandridge and
Verwood, and there were no injuries or material impact on the solar farms or
their production. Lessons were learnt and have been communicated to the
Company's operator partners to further minimise the risk during high
irradiation periods in the future.
One RIDDOR (Reporting of Injuries, Diseases and Dangerous Occurrences
Regulations) was recorded during 2022 when an electrical fault occurred on an
inverter at Verwood. Follow-up actions were undertaken to ensure procedures
were correctly followed and to reduce the risk of further incidents.
Health and safety services to the SPVs remain in place via an independent
consultancy that continues to provide additional support to the projects. The
Asset Manager continues to monitor health and safety incidents and uses the
feedback from these events to raise awareness, drive improvements and limit
risks.
Ofgem audits
Audits remain open by the Office of Gas and Electricity Markets (Ofgem), the
UK energy regulator, and the Asset Manager awaits further instruction to close
them fully - but does not anticipate any material issues. At the end of the
year, a total of 11 audits remained open awaiting responses from Ofgem, and
one was fully closed.
Ofgem continues to request audits and the Asset Manager follows up promptly.
As part of the regulator's oversight role, more audits are anticipated in
2023. To prepare for this, the Asset Manager has been conducting mock audits
across the portfolio to establish any potential issues in advance and to
mitigate the prospect of future reviews.
Security
One theft occurred at Crow Trees in early 2022 that had a minor impact on the
solar farm's performance. The material damage and the production losses,
however, were recovered in a successful insurance claim.
To minimise these types of occurrences and improve protection - with robust
security systems - the Asset Manager completed CCTV upgrades across the
portfolio. Additional initiatives, such as mock thefts, were also carried out
to identify weak spots and determine potential corrective measures.
In terms of cybersecurity, the Company completed a global portfolio review to
identify key risks at operator and asset level. For operational assets,
technical risks are being mitigated with the completion of programmes of work
to upgrade routers. On newly constructed assets, there is focus on the EPC
contract to ensure that cybersecurity specifications are up to date
and relevant.
Optimisation
During 2022, concerns about the potential for systemic inverter failures for
some manufacturers increased, with the Company more actively reviewing options
to repower sites where such risks may become a serious performance issue. The
decision stems from the Company's abundance of caution since the inverters in
question are not a significant proportion of the portfolio.
Regardless of isolated problems, technical optimisation of assets continued to
further improve performance. Special attention was paid to string monitoring
and reducing repair times. As part of that process, the Company continued to
review the need for key spare parts and to make purchases accordingly. This
strategy has proven successful, reducing downtime and driving operational
efficiency.
On the commercial front, the work to extend leases continued to progress and
the Company secured multiple extensions throughout the year. This has direct,
positive financial implications as they are recognised in higher valuations of
the assets. The programme of works continues into 2023 and more extensions are
expected.
Regarding operations, two key operations and maintenance ("O&M") contracts
were signed in 2022. In the first half of the year, a tender was completed for
the five Second Generation Portfolio 1 assets, with a new 15-year agreement
penned with Lightsource BP, the existing operator.
The second contract was with Brighter Green Engineering, which operates 25
assets in the UK. The agreement includes a reduction in price, with an average
cost per megawatt 20% lower, and introducing more robust contractual
guarantees to drive the performance of those assets.
The changes resulted in annual cost savings for the Company and uplifts in
NAV. (Refer to the Alternative Performance Measures (APMs) shown on page 152
for more details.)
Australia portfolio performance
The Australian market experienced unprecedented volatility in the first
six months of 2022; so much so that the market operator suspended the
National Electricity Market ("NEM") in June to address energy
security issues.
The wild price variability was a positive for some renewables companies and
the elevated spot prices ensured the Company's Australian assets, for example,
beat expected revenue in the months to July. In the second half of the year,
the NEM returned to normality and re-established historical intraday patterns
with negative pricing intervals in the central hours of the day.
Good operational performance from the Company's solar farms was not sufficient
to mitigate the lasting effects of La Niña, which continued to limit
irradiation across the country and led to generation 12.5% below forecast.
At the state level, in Queensland, despite the government completing the New
South Wales interconnector works in May, Units C3 and C4 of the Callide coal
plant remained out of service and will continue out of commission until April
2023. This combination of factors will likely result in smaller intervals of
negative pricing in the middle of the day, benefiting solar generation.
Looking specifically at the Company's operational assets, Bannerton was
affected by network constraints and outages, as well as irradiation levels
below budget.
To improve the performance of assets more generally, the Asset Manager worked
with a tracker manufacturer to implement a new algorithm that increases energy
yield in diffused light conditions and early and late winter sun hours. The
new tool was implemented in the first half of 2022.
Spain portfolio update
The three assets of the Lorca portfolio started producing electricity in late
June and began full commercial operations in August. The project programme
remained on track for construction completion, and the Provisional Acceptance
Certificate ("PAC"), a significant milestone towards completion, was signed in
December. Lorca is now operating under the Engineering, Procurement and
Construction ("EPC") contract warranty and the Asset Manager is working with
the EPC contractor to monitor the sites and ensure optimal performance.
Further west, in Huelva, the Virgen del Carmen ("VdC") solar farm commenced
exporting to the grid in October and is going through the final commissioning
phases of the EPC contract. The project was originally due to complete at the
start of 2022, but a combination of delays in achieving the necessary public
approvals and a subsequent halt to the energisation process due to wildfire
risk meant that the connection occurred materially later. As a result, there
were additional costs involved in bringing the asset to operations. These
additional overheads were covered from group cash flows, but the project
expects to recover liquidated damages from the contractor under the EPC
contract.
Due to the recent commissioning date of the solar farms, generation from the
Spanish portfolio was not included in the 2022 figures. All four sites are now
operating in line with design specifications and with a full year's production
in 2023, the projects will make a significant contribution to revenues, and
this will be laid out in line with the rest of the portfolio. Spain
consistently has some of the best irradiation levels in Europe and, with a
supportive regulatory environment, the country remains an attractive market.
Battery storage systems ("BSS") construction update
Sandridge
The Company's 50% investment in Sandridge Battery Storage Limited, a 50MW
lithium-ion project located in the UK, experienced construction delays in 2022
because of setbacks in broader grid enhancement works being carried out by the
distribution network operator ("DNO").
Operations will now likely start in late 2023 or early 2024, although the
effects of the delayed completion are expected to be more than offset by the
improved market outlook for large-scale batteries.
Clayfords
Discussions with the DNO took place to bring forward the connection date for
the UK-based 50MW project from the second half of 2024. A definitive date,
however, has not yet been agreed.
The focus for the next steps of the project is on construction procurement,
with the Investment Manager now evaluating options for extending the project
to a two-hour duration.
Lunanhead
The principal activity is final negotiation of the EPC contract with the
preferred supplier. A framework construction and operation contract is at an
advanced stage, with an expected closing date during the first half of 2023.
The Investment Manager is evaluating the possibility to construct the 50MW
Lunanhead BSS as a two-hour duration site, which would likely form the basis
for future projects.
Electricity generation
The generation figures below for Australia and the UK have been adjusted,
where relevant, for events in which compensation has been, or will be,
received. The Spanish assets have not been included in the analysis due to
their recent commissioning date.
Total electricity Generation Irradiation
Connection generation variance vs variance vs
Site date MW (MWh) base case base case
UK
Abbey Fields March 2016 4.9 4,977 0.0% 12.8%
Abergelli March 2015 7.7 7,352 2.0% 4.9%
Atherstone March 2015 14.8 14,408 7.5% 10.3%
Bilsthorpe November 2014 5.7 5,877 11.5% 12.3%
Bournemouth September 2014 37.3 41,834 8.9% 6.3%
Bulls Head September 2014 5.5 5,732 14.2% 13.0%
Castle Eaton March 2014 17.8 17,480 11.8% 12.9%
Coombeshead December 2014 9.8 10,449 4.6% 6.2%
Copley December 2015 30.0 31,213 14.3% 14.3%
Crow Trees February 2016 4.7 4,523 6.8% 19.0%
Cuckoo Grove March 2015 6.1 6,490 -2.2% -0.6%
Field House March 2016 6.4 6,730 6.6% 8.2%
Fields Farm March 2016 5.0 5,375 16.1% 11.7%
Gedling March 2015 5.7 5,768 12.6% 16.3%
High Penn March 2014 9.6 12,530 14.0% 13.1%
Highfields March 2014 12.2 9,857 11.3% 11.3%
Homeland March 2014 13.2 14,414 6.1% 4.0%
Hunters Race July 2014 10.3 10,934 5.7% 6.6%
Kencot Hill September 2014 37.2 38,110 9.0% 7.6%
Landmead December 2014 45.9 45,705 10.0% 13.2%
Lindridge January 2016 4.9 4,680 1.9% 8.8%
Manor Farm October 2015 14.2 13,802 12.0% 12.8%
Marsh Farm March 2015 9.1 9,638 6.5% 7.7%
Membury March 2015 16.5 17,292 12.3% 8.2%
Misson March 2016 5.0 4,229 -8.9% 6.8%
Nowhere March 2015 8.1 8,888 13.5% 15.1%
Paddock Wood March 2015 9.2 10,176 12.6% 9.4%
Park Farm March 2015 13.2 12,577 8.0% 9.0%
Pen Y Cae March 2015 6.8 5,819 -7.6% 6.7%
Pitworthy March 2014 15.6 16,017 14.9% 7.0%
Playters October 2015 8.6 9,313 10.9% 13.7%
Port Farm March 2015 34.7 35,066 9.0% 9.2%
Roskrow March 2015 8.9 8,838 -1.6% 3.2%
Sandridge March 2016 49.6 48,628 4.1% 8.7%
Sawmills March 2015 6.6 6,664 1.5% 5.7%
Sheepbridge December 2015 5.0 4,608 -0.2% 15.2%
Shotwick March 2016 72.2 68,481 8.8% 7.5%
Southam March 2015 10.3 10,485 11.0% 8.2%
Spriggs Farm March 2014 12.0 13,104 15.0% 8.2%
Steventon June 2014 10.0 10,319 6.4% 11.1%
SV Ash March 2015 8.4 8,536 12.9% 9.9%
Tengore February 2015 3.6 3,861 8.5% 5.4%
Trehawke March 2014 10.6 10,967 4.1% 6.8%
Upper Huntingford October 2015 7.7 7,618 6.4% 6.3%
Verwood February 2015 20.7 22,391 8.5% 8.7%
Wally Corner March 2017 5.0 5,104 5.6% 6.8%
Welbeck July 2014 11.3 11,485 9.8% 13.3%
Wymeswold March 2013 34.5 34,247 11.6% 12.8%
Yarburgh November 2015 8.1 8,427 9.6% 13.7%
Yardwall June 2015 3.0 3,248 4.2% 3.8%
Total 723.2 734,266 8.6%
Weighted total 9.4%
Australia
Bannerton July 2018 53.4 71,838 -9.2% -9.5%
Longreach March 2018 17.3 31,422 -6.8% -7.0%
Oakey 1 February 2019 29.7 49,420 -2.1% -10.5%
Oakey 2 May 2019 70.0 95,636 -20.6% -15.5%
Total 170.4 248,316 -12.5%
Weighted total -11.8%
Overall portfolio
Total 893.6 982,582 2.3% 2.1%
case study
BATTERY STORAGE SYSTEMS ("BSS")
Longer duration opportunities
Context
Since the implementation of the Electricity Market Reform ("EMR") in the UK in
2013, the take-up of renewable generation increased to 38% in 2021 from 13%
the year the policy was implemented. That share is likely to continue to grow
if the country is to meet its 2050 net zero target. With more and more nations
seeking to deliver on their own decarbonisation goals, the reliance on solar
and wind production will only rise.
The intermittent nature of renewables, however, needs to be balanced with
storage solutions if grid operators are to successfully manage supply and
demand requirements.
It was the opportunity to capitalise on the nascent battery storage market
that led Shareholders to vote overwhelmingly in favour of updating the
Company's investment policy in 2020 to include BSS projects.
In the time since, the Company has acquired stakes in three UK-based projects,
and the Investment Manager has an extensive pipeline of yield-accretive BSS
opportunities from trusted partners.
The storage market is growing quickly. In 2022, the UK added a record 800MWh
of new utility-scale energy storage capacity, bringing the total of connected
projects to 2.6GWh. The country's battery pipeline has also continued to grow,
reaching 34.5GW in December.
That same month, the EPEX wholesale day ahead market reached a new record high
of £2,585/MWh. Roughly two weeks later, the N2EX wholesale market settled a
record low price of minus £50.08/MWh. Negative pricing provides BSS with an
opportunity to be paid to charge, and longer duration projects can take
advantage of this to maximise revenues when pricing in other markets, such as
ancillary services, is not as favourable.
After the year ended, in January 2023, the balancing mechanism registered the
highest monthly volume of battery dispatches since late 2020. Numbers almost
tripled to reach 0.3% of the BM total, demonstrating the BSS growth potential.
Description of revenue streams
Types Ancillary services Wholesale markets Balancing mechanism ("BM") Capacity market
Potential Ancillary services have been the dominant revenue stream for BSS. Batteries' This platform for buying and selling electricity has multiple duration BM ensures balance is maintained in the power system. These long-term contracts pay for batteries' availability to provide capacity
fast response times make them ideally suited to help balance grid contracts, including intraday and years-ahead deals.
in case of system stress.
requirements.
Longer duration assets can secure higher revenues due to their higher
Longer duration assets have the capability to trade over multiple auction capacity. Longer duration projects can be available for more time, leading to higher
Since the energy throughput required is relatively low, there's limited blocks, making them a good option for this type of market. revenues. A two-hour asset, for example, can earn almost two times more than
additional benefit to longer duration systems - although they can still tap a one-hour site for contracts awarded in the same auction.
this market.
Best-placed technology Shorter duration Longer duration Longer duration Longer duration
Rationale
The abundance of projects has made longer duration assets even more appealing.
Part of that is due to the fast-evolving nature of the market. Short duration
sites coming online have had a direct impact in the ancillary services market,
increasing supply and pushing down revenues. One way to counter this budding
saturation is to branch out to other revenue streams, capitalising on trading
in the wholesale market, tapping capacity markets, and increasingly benefiting
from the balancing mechanism. Longer duration sites are better positioned to
capture these opportunities and generate growth for the Company.
Another important aspect of BSS projects with higher capacity is the potential
to benefit from increased economies of scale in construction and connection.
EPC contractors, for example, are offering more appealing terms for two-hour
solutions, making these projects even more competitive in comparison to their
one-hour counterparts. The longer duration sites may also be connected at
transmission level, which provides the potential for additional revenue
streams and for reduced upfront grid connection costs.
Considerations
The location of BSS sites is crucial to maximise returns. Parts of the network
where batteries can turn up to solve locational constraints are the ones that
offer the highest revenue potential. For longer duration assets, operating in
a place where energy costs are high at peak times but there is cheap energy
available because of turning down for constraints can be especially
profitable.
Another relevant consideration is tied to the improved reliability of the
latest battery storage technology, especially when it comes to its
environmental footprint. Ensuring the traceability and the compliance of all
project components and suppliers is already standard practice for the Company
(as described in the Sustainability section of this report, on page 42), but
it's something that has even stronger relevance when it comes to the
extraction of the commodities needed to produce batteries.
Overview of existing assets
Project Clayfords Lunanhead Sandridge
Site location Aberdeenshire Angus Wiltshire
Technology Li-ion Li-ion Li-ion
Project size 50MW 50MW 50MW
Status Ready to build Ready to build Ready to build
Target operations start date H2 2024 H2 2024 H1 2024
Regulatory regime Subsidy-free Subsidy-free Subsidy-free
Total investment amount Current total expected costs for the three projects at 1-hour durations amount
to approximately £43 million - for the 50% equity stake in each of
the assets
SUSTAINABILITY AND ESG
The Company's direct investments into solar energy generation and battery
storage support global decarbonisation targets and the broader sustainability
agenda.
Highlights
During 2022, the Company delivered on several landmarks:
● 1,113GWh(1) of clean electricity generated, enough to power 383,900 UK homes
● 859,486 tonnes of carbon dioxide emissions avoided(2)
● £177,602 contributed to communities via benefits payments to local
authorities
● 100% of assets aligned with the EU Taxonomy, based on internal assessment
● 93% of key suppliers have undergone enhanced due diligence checks on the
Ethixbase platform, providing greater visibility over the supply chain and
helping mitigate the risk of forced labour amongst the Company's panel and
inverter manufacturers, and O&M providers
● The Investment Manager launched its Nature Recovery Ambition Statement, which
will pave the way for a Solar Nature Recovery Blueprint - a tool to help
restore nature and improve biodiversity across the Company's natural assets
(1) This represents the unadjusted generation total for all solar sites in the
portfolio irrespective of ownership stakes or loss adjustment.
(2) As of 2023, the Company will start using the International Financial
Institutions ("IFI") approach. More detail on this can be found on page 40.
Ratings
The Investment Manager is a signatory to the Principles for Responsible
Investment ("PRI"), a set of voluntary guidelines that help companies address
social, ethical, environmental and corporate governance issues as part of the
investment process. The scorecard for Foresight Group's latest annual
assessment is available via the PRI's assessment portal but, in summary, the
Investment Manager achieved:
● 5-star rating for Infrastructure
● 5-star rating for Investment & Stewardship
Approach to sustainability
Sustainability and environmental, social and governance (ESG) considerations
are central to the Company's strategy, helping drive decision-making in both
its investment and asset management processes.
A key component of this is the Company's ability to quantify, measure and
enhance the sustainable impact it generates as a result of its investments and
operations. The nature of the Company's business activities means it is well
positioned to serve the needs of investors seeking to achieve positive
environmental and social outcomes alongside attractive financial returns.
The Investment Manager's Sustainable Infrastructure Investment Strategy is
based on:
● Establishing sustainability-led investment strategies, informed by Foresight's
sustainable investment principles and considering climate risks and
opportunities
● Incorporating sustainability and ESG into investment processes using
proprietary systems for assessing and enhancing sustainability performance
throughout the investment lifecycle
● Ongoing monitoring and management of sustainability performance through
collection and analysis of Portfolio Sustainability Metrics, driving
performance optimisation
● Reporting to all relevant stakeholders in a transparent way
Sustainable Finance Disclosure Regulation (SFDR) categorisation of fund
As a UK-managed entity, the Company is not obligated to deliver the
EU-legislated reporting requirements under SFDR.
Due to the sustainable nature of the Company and its assets, however, it is
currently in the process of obtaining Article 9 status under SFDR. The
necessary disclosures will be published once this process has been finalised.
Pursuant to Article 11 of SFDR (which requires transparency via periodic
reports), disclosures relating to the Company's overall sustainability-related
impact by means of relevant indicators will be included in the SFDR Product
Disclosures. The Principal Adverse Impacts ("PAI") of its investment decisions
on sustainability factors will also be included and updated on an annual
basis.
EU Taxonomy alignment
A key element of the European Commission's sustainable finance agenda, the EU
Taxonomy is a classification system that provides transparent, science-based,
industry-specific thresholds to determine truly sustainable assets and funds.
The classification system aims to provide assurance to investors that projects
make a genuine contribution to sustainability targets whilst also having no
material negative environmental consequences.
Following internal review, 100% of the Company's assets were assessed as being
aligned with the EU Taxonomy. The assessment involves scrutinising each asset
against the EU Taxonomy's Technical Screening Criteria, inclusive of the Do No
Significant Harm ("DNSH") criteria, to ensure that the projects meet the
required standard.
Sustainable impact reporting
The UN's Sustainable Development Goals ("SDGs") are a set of 17 objectives
that seek to mobilise the international community to deliver sustainable
development by 2030. They represent a key driver of the Company's
investment activities.
The table below and the subsequent graphic demonstrate to which SDGs the
Company contributes, the underlying targets that contribution is measured
against and the yearly performance.
Goal SDG target Contribution
3. Good health and well-being 3.9 Substantially reduce the number of deaths and illnesses from hazardous Achieved through the reduction of pollution and emitted greenhouse gases
chemicals and air, water and soil pollution and contamination. ("GHGs") by the installation and management of low-carbon energy generation
assets.
7. Affordable and clean energy 7.2 Increase substantially the share of renewable energy in the global energy Achieved by reducing reliance on fossil fuels by investment in utility-scale,
mix. renewable energy generation assets.
9. Industry, innovation and infrastructure 9.1 Develop quality, reliable, sustainable and resilient infrastructure, Achieved by future-proofing energy systems through investment in
including regional and transborder infrastructure, to support economic de-centralised, interconnected generation assets, using the latest
development and human well-being, with a focus on affordable and equitable technologies to maximise electrical output.
access for all.
13. Climate action 13.3 Improve education, awareness-raising and human and institutional capacity Achieved by raising awareness and improving institutional capacity on climate
on climate change mitigation, adaptation, impact reduction and early warning. change mitigation.
15. Life on land 15.5 Take urgent and significant action to reduce the degradation of natural Achieved by preserving the integrity of land through investment in low-impact
habitats, halt the loss of biodiversity and, by 2020, protect and prevent the and low-polluting technologies and introducing environmental initiatives
extinction of threatened species. through active asset management, supporting biodiversity and the ecosystem.
Good health & well-being
● 601,195kg NOx (nitrous oxide) avoided vs energy generated from gas
● 10,465kg PM10 avoided (μm10 particulate matter)
● 440,876kg SOx avoided (sulphur dioxide)
● 4,787kg PM2.5 avoided (μm2.5 particulate matter)
Affordable & clean energy
● 1,113GWh Renewable energy
● 383,905 Homes powered for a year
Industry, innovation & infrastructure
● 1,095MW Renewable generation capacity added to the electricity grid
Climate Action
● 859,486 tCO(2)e Emissions avoided compared to coal
Life on land
● 95,729 ToE avoided (Tonnes of oil equivalent) contributing to the
avoidance of fossil fuel use
Portfolio Sustainability Metrics
For the Company's operational sites, a series of metrics are reported on
quarterly, tracking sustainability and ESG performance via the Investment
Manager's data platform, Sennen. In 2022, the Company completed its first full
year of reporting against these metrics for each asset.
This information forms part of the Investment Manager's commitment to ongoing
monitoring and is processed to generate data pertaining to sustainable impact,
emissions reporting, social value, community benefits payments and other
statistics pertaining to employment, Inclusion & Diversity, and waste
management.
For the coming year, continued emphasis will be placed on encouraging
participation from across the operator base to ensure the dataset continues to
improve in quality and consistency. The information from 2022 will also give
the Company a robust baseline against which to compare future results and help
identify new opportunities for enhanced sustainability performance across
the portfolio.
GHG emissions
● Zero Scope 1 GHG emissions (tCO(2)e)
(2021: Zero)
● 897.11 Scope 2 GHG emissions (tCO2e)
(2021: 1252.69)
● 21,410 Scope 3 GHG emissions (tCO(2)e)
Carbon footprint
● 1.16 Carbon footprint (tCO(2)e/£1m invested)
(2021: 1.9)
Weighted Average Carbon Intensity (WACI) of investee companies
● 5.17 WACI of investee companies (tCO(2)e/£1m revenue)
(2021: 10.66)
Share of non-renewable energy consumption and production
● 85% % share of assets with a renewables tariff for on-site consumption
(2021: 59%)
● 76% % of overall portfolio consumption from renewable sources
(2021: 54%)
● 100% % of energy generated from renewable sources
(2021: 100%)
Board gender diversity
● 40% female
(2021: 40% female)
Average ratio of female to male board members
● 60% male
(2021: 60% male)
Average ratio of male to female board members
Emissions reporting
Emissions avoided
As demonstrated, the Company tracks and reports on the tonnes of CO(2)e(1)
emissions avoided as a result of its investments.
The Investment Manager has been undertaking a full review of the GHG emissions
avoidance calculation methodology to reflect best practice and, going forward,
intends to calculate them using country-specific grid emissions factors for
the geography in which the asset is based, rather than the previous approach
of using coal as the sole comparator.
This adjustment follows the International Financial Institutions ("IFI")
Approach to GHG Accounting for Renewable Energy Projects and uses the
Harmonised IFI Default Grid Factors for calculation. The modification will
result in a lower number of avoided emissions being reported but they will be
calculated using a more standardised approach to GHG accounting.
Absolute emissions
Although the Company's investment activities make a significant and
quantifiable contribution to climate change mitigation through decarbonisation
of the energy system, there are still emissions associated with the operation
and maintenance of the portfolio.
The table below represents the key Scope 1, Scope 2 and Scope 3 carbon
emissions statistics for the Company's operational assets. Scope 1 and Scope 2
data have been collected as part of the quarterly operational reporting and
then calculated in accordance with GHG Protocol guidance.
Meanwhile, the Investment Manager continues to work with its supply chain to
gain a better understanding of their emissions and enable more accurate
calculation of associated Scope 3 emissions.
In the interim, the Scope 3 emissions presented below have been calculated
using the Partnership for Carbon Accounting Financials ("PCAF") methodology, a
financial industry-led group that aims to develop and implement a harmonised
approach to assess and disclose greenhouse gas emissions associated with
investments and loans. The calculation is based on project-specific revenues
and on the official statistical PCAF information that provides region and
sector-specific average emissions factors. The database has been created to
provide PCAF participants with a large set of publicly available emission
factors, enabling them to perform an initial assessment of emissions
associated with their investment activities. Even though it is a widely
accepted approach, it has its limitations, and the data remains generic. The
intention is to continually refine this analysis as more of the Company's
supply chain begins to report their emissions data.
Emissions avoided:
● Compared to coal generation
859,486 tCO(2)e avoided
● Compared to country-specific grid intensity(2)
414,341 tCO(2)e avoided
Absolute emissions:
● Scope 1: 0 tCO(2)e
● Scope 2: 897 tCO(2)e
● Scope 3(4): 21,410 tCO(2)e
● Total: 22,307 tCO(2)e
(1) CO2e, or carbon dioxide equivalent, is a standard unit for measuring carbon
footprints which uses CO2 equivalencies for all greenhouse gases ("GHGs") to
enable a single figure for emissions reporting.
(2) For consistency of reporting, both figures will be presented for both this
Annual Report and the subsequent Interim Report, after which the previous
methodology will cease to be used.
(3) Partnership for Carbon Accounting Financials.
(4) Data quality is assessed to be Data Quality 5.
Case study:
Nature Recovery Blueprint in collaboration with the Eden Project
Towards the end of 2022, the Investment Manager launched its Nature Recovery
Ambition Statement. Written in collaboration with the Eden Project, its
sustainability partner. The statement sets out the Investment Manager's
ambition to drive nature recovery and deliver biodiversity enhancements across
its portfolio.
One of the larger initiatives underway with the Eden Project is the
composition of a "Nature Recovery Blueprint," which will seek to guide land
managers on the practical actions they can take to measure, manage and improve
nature and biodiversity across their land holdings. The Company's solar
portfolio is acting as the basis for this blueprint, and specific sites have
been selected as potential pilot projects, where targeted approaches to
sustainable land management and proactive, nature-focused interventions will
be applied to try and maximise biodiversity gain.
As mentioned in the 2022 Interim Report, Sandridge solar farm is the first of
these projects. As one of the Company's larger sites, it offers huge potential
for the implementation of nature recovery interventions that have the ability
to create meaningful change to the site's biodiversity.
The Company will continue to provide progress updates on the partnership with
the Eden Project and the associated plans for the portfolio.
Supply chain due diligence
The Company believes there is no "one-size-fits-all" approach to solving
supply chain issues. As such, the Investment Manager takes a layered approach
to the mitigation of sustainability and ESG risks. The cumulative effect of
this overlay is a combination of actions that helps diminish exposure to
prevalent risks within the supply chain. These actions include, for example:
● Selective fund geographies - Setting investment strategies focused on
geographies with strong regulatory frameworks
● Robust internal DD processes - Interrogating key counterparties and their
governance frameworks at the project level
● Promulgation of a Supplier Code of Conduct - Referencing directly the "UN
Guiding Principles on Business and Human Rights" and the "OECD Guidelines for
Multinational Enterprises," and contractually binding counterparties to uphold
the Code of Conduct
● Direct engagement - Interacting with primary, secondary and tertiary suppliers
to interrogate their approaches to risk mitigation within their own supply
chains
● Enhanced DD - Using specialist third-parties to conduct in-person audits of
higher-risk counterparties and their facilities
● Collaboration - Working with industry partners and peers to deliver more
effective engagement with key suppliers
● Ethixbase platform - Enabling indirect interrogation of suppliers across
regulatory and ESG risk via a specialised service
● Selective fund geographies - Setting investment strategies focused on
geographies with strong regulatory frameworks
As an investment trust managed by Foresight Group, the Company's policy and
practices in relation to modern slavery and human trafficking are covered by
the Investment Manager's Modern Slavery Act statement. The statement sets out
Foresight Group's approach to matters such as services and supply chain due
diligence, training of employees, recruitment and welfare and can be found on
the Foresight website: https://www.foresightgroup.eu/modern-slavery-statement.
Case study:
ethiXbase and FSFL's primary suppliers
As part of the ongoing work with Ethixbase, the Company committed to use the
platform to conduct enhanced due diligence on its primary suppliers for solar
panels, inverters and O&M service provision. This obligation also forms
part of the Company's sustainability-linked revolving credit facility. During
2022, Foresight Solar conducted enhanced due diligence reporting on 93% of the
contractors in the above-mentioned groups.
The Enhanced Due Diligence reports for the Company's existing suppliers
contained no material red flags.
Having proactively submitted prospective suppliers through the same Enhanced
Due Diligence reporting process, two panel manufacturers were identified as
having enhanced levels of human rights risk. These findings were sent to the
Investment Manager's compliance team for review. They deemed that until these
suppliers could demonstrate that satisfactory measures were in place to
address these red flags, they would need to proactively engage with the
Investment Manager on enhanced due diligence and be subject to ongoing
monitoring if they wished to be considered for any future transaction.
Direct engagement activity with these suppliers has taken place and, since
then, the points discussed have been remedied, showing the willingness of
providers to address what has become an ever-increasing concern for investors
and investment managers.
FSFL suppliers by service category
● Panel manufacturers - Merchant - 50%
● Inverter manufacturers - 30%
● O&Ms - 20%
Suppliers submitted to enhanced DD via Ethixbase
● Undergone Ethixbase enhanced due diligence - 93%
● Not submitted to Ethixbase - 7%
Case Study:
measuring the social value the Company generates in financial terms
Social value looks to capture and quantify the additional positive value that
a business creates. Historically, quantifying social value in financial terms
has been difficult to do, but increased visibility of inequality and unrest
has been a key factor in driving capital towards socially impactful and
community-focused investment strategies. The growing awareness has meant a
greater need for this type of assessment.
In 2022, the Investment Manager conducted an exercise to quantify the social
value attributable to the Company's portfolio using the themes, outcomes and
measures ("TOMs") framework, managed by the Social Value Portal. This
methodology ties specific measures to social outcomes, all of which have an
associated monetary value, allowing for the calculation in sterling terms.
Each monetary value is broken down and apportioned into three areas: benefit
to individuals, benefit to the community and benefit to the government.
The Investment Manager identified the commonalities between the TOMs framework
and the metrics the Company reports, resulting in the calculation of the
portfolio's total social value. The results are set out in the table below.
As integration of sustainability and ESG factors into investment and asset
management processes continues to advance, social value potential may be
included as a contributing factor to investment decision-making to inform
where capital can be best directed.
● Savings in CO(2) emissions worth: £101,360,495
● Donations/contributions to local community projects: £177,602
● Measures to promote local skills and employment worth: £67,228
● Total: £101,605,325
Climate change-related risk - Task Force on Climate-related Financial
Disclosures ("TCFD") reporting
The Company recognises that risks traditionally considered to be
non-financial, such as climate change, have the potential to impact long-term
shareholder returns across many sectors. The Company's investments are making
a meaningful contribution towards decarbonisation efforts in the countries in
which it operates and the Investment Manager is working to assess
climate-related risks and opportunities within the portfolio.
The Company also acknowledges that climate change is one of the defining
challenges of our time and is supportive of the framework established by the
Task Force on Climate-related Financial Disclosures. TCFD creates a uniform
approach for organisations to report on how they expect climate-related risks
and opportunities to impact their business over time.
As a result, the Company is voluntarily reporting on the Task Force on
Climate-related Financial Disclosures for the second year. This will continue
to develop over time to identify and share both risks and opportunities the
Company faces because of climate change.
The Company has sought to ensure that the consideration of climate-related
matters is appropriately embedded throughout its governance, strategy and risk
management processes. The Company has responded to all 11 of the recommended
disclosures for the period to December 2022, while also recognising that its
TCFD reporting will continue to develop and be enhanced in the future.
Governance
Disclose the Company's governance around climate-related risks and
opportunities.
● Describe the Company's governance around climate-related risks and
opportunities
● Describe management's role in assessing and managing climate-related risks and
opportunities
Board governance
The Board assumes overall responsibility and accountability for the management
of the Company's climate-related risks and opportunities. It also sets the
risk appetite for new investments and provides oversight for the management of
the existing
portfolio, where physical and other risks are monitored.
In conjunction with the Investment Manager, the Board shapes the Company's
strategy, reviews performance and authorises new initiatives. A key aspect of
the Board's role is to ensure that sustainability and ESG considerations,
along with the frameworks to manage them, are incorporated in the Company's
investment processes. The Board also ensures that the asset management
activities are effective and aligned with market best practices.
Meeting at least once a quarter, the Board and the Investment Manager discuss
broader strategic risks and opportunities, ensuring they are monitored and
managed. Climate-related risks are incorporated in the Company's Business Risk
Assessment (BRA) framework, are reported against on an ongoing basis and are
considered in the Company's broader strategy, as well as in its specific
assets.
The Board also monitors the performance of the Investment Manager, which is
formally reviewed by the Management Engagement Committee on an annual basis.
The Investment Manager's performance on tracking climate-related risks and
opportunities forms part of this review.
Role of the Investment Manager
The Company's consideration of climate-related risks covers both the existing
portfolio and the assessment of new investment opportunities.
In targeting new investments, the Investment Manager's Investment Committee
(IC) is ultimately responsible for considering the market, regulatory and
physical issues pertaining to climate-related risks relevant to a given
investment, and the opportunities open to that investment. The IC will
formally consider and review each proposed investment during a series of
meetings that apply increasing scrutiny as a transaction progresses towards
completion.
It is the responsibility of the Investment Manager to track all sustainability
and climate change related issues and collaborate with the deal teams
assessing new transactions and the IC to ensure that material issues are
systematically integrated into the investment, asset management and reporting
processes. The Investment Manager's in-house sustainability function also
supports the due diligence process for sub-contractors on new investments,
such as liaising with third-party consultants to undertake supply chain
auditing.
To assist with fully assessing the sustainability impact of an investment and
asset, the Investment Manager has developed its own in-house Sustainability
Evaluation Tool ("SET"). (Refer to page 56 for further details on the SET.)
Role of the Asset Manager
The asset management team is responsible for closely monitoring the
performance of, and risks relating to, the Company's assets, and reviewing
climate-related factors that may pose a threat to long-term project forecasts
or present new opportunities.
This includes regular inspections of the physical assets themselves and, where
specific issues become more frequent, highlighting potential systemic risk.
The Asset Manager acts proactively to mitigate such risks.
For example, on certain project sites the Asset Manager has previously
overseen the installation of cooling systems to transformers in response to
changing irradiation patterns and higher average temperatures.
The Asset Manager also collects key sustainability performance indicators for
the operational portfolio, including data for Scope 1 and Scope 2 emissions.
This tracking enables the Company to directly monitor aspects of its impact on
climate change whilst its solar and battery assets significantly reduce
reliance on fossil fuel technologies, contributing to the decarbonisation of
the energy system.
It is acknowledged at this stage that further work is required to better
understand Scope 3 emissions and the ability to reduce them. Since Scope 3
factors in emissions created by third-party providers, it naturally requires
working with partners such as operations and maintenance suppliers to
understand their carbon footprints and their plans to reduce them. As
previously mentioned, Scope 3 emissions in this report have been calculated
using the PCAF methodology, and the associated sector and geography-specific
emissions factors.
Strategy
Disclose the actual and potential impacts of climate-related risks and
opportunities on the Company's business, strategy and financial planning where
such information is material.
● Describe the climate-related risks and opportunities the Company has
identified over the short, medium and long term
● Describe the impact of climate-related risks and opportunities on the
Company's businesses, strategy and financial planning
● Describe the resilience of the Company's strategy, taking into consideration
different climate-related scenarios, including a 2°C or lower scenario
Impacts of climate-related risks and opportunities on the Company
The Company recognises that climate change presents both risks and
opportunities for its investments, asset management and Shareholders. The
Company's business objective is aligned with investing in the opportunities
created by the deployment of renewable energy technology and energy
efficiency, specifically in the solar and battery storage markets.
Time period key:
● S Short term (0-5 yrs)
● M Medium term (5-10 yrs)
● L Long term (10+ yrs)
Impact key:
● S Strategy
● F Financial planning
● E Existing portfolio
The table below sets out a non-exhaustive list of the strategic
climate-related risks and opportunities that the Company has identified over
the short, medium and long term:
Climate-related risks
Risk: Lower than forecast power prices due to warmer winters will place
pressure on the revenue streams of the generating assets
Description
● Climate-driven changes in prevailing seasonal temperatures may result in
changes in typical seasonal demand and reduce electricity prices at certain
times of the year.
● This could result in less predictable, more volatile market pricing.
Category
Transition - Market
Likelihood
Likely
Time period
S M L
Impact
S F E
Investment Manager response
● The portfolio's geographic diversification and strategic composition provides
some resilience to changing power prices.
● Increased market volatility promotes the case for flexible storage assets,
such as batteries, which realise greater trading revenues during periods of
heightened volatility.
Risk: Significant competition for investments as the number of funds and
corporates focused on renewable assets increases
Description
● Increased competition for investment leads to higher acquisition and
construction costs.
● Positive regulatory environment incentivises growth of renewables, which
requires basic resources, raising commodity prices and increasing costs to
construct the Company's assets.
Category
Transition - Market
Likelihood
Likely
Time period
S M L
Impact
S F
Investment Manager response
● The Company has changed its investment mandate to include a modest level of
development exposure, enabling it to minimise competition by investing in
assets at an earlier stage, or to take advantage of enhanced risk-adjusted
returns by bringing assets from development to ready-to-build or operational
status.
Risk: Over-deployment of renewables resulting in mass power price
cannibalisation
Description
● Increased focus on renewables leads to overbuild of renewable capacity.
● Low power prices might limit investor appetite because of potential
insufficient returns, limiting capital available to continue the build-out of
renewables.
● Regulators and policymakers may intervene in markets to decouple low marginal
cost generation from fossil fuel marginally priced whole-sale markets or to
alter market signalling (e.g. REMA in UK).
Category
Transition - Market, Policy and legal
Likelihood
Likely
Time period
L
Impact
S F E
Investment Manager response
● FSFL reviews its strategy in line with market analysis and movements. It is
also actively engaged in regulatory discussions.
● The Company introduced battery storage, diversifying the portfolio. In
addition, the portfolio comprises a well-diversified set of solar assets by
location and points of connection within the UK.
● Current investor sentiment indicates that decarbonisation and the renewables
sector remain attractive investment opportunities.
● National energy movement analyses disagree with discussed levels of
cannibalisation.
Risk: Extreme weather-related events causing damage to Company assets or
negatively impacting their production (e.g. heat stress, flooding, poor
irradiation, storms, bush fires)
Description
● Risk of unforeseen weather events interrupting site construction, resulting in
delays; or operations, leading to downtime or reduced power exportation.
Category
Physical - Acute
Likelihood
Likely
Time period
S M L
Impact
S F E
Investment Manager's response:
● During the investment decision-making process, site topography is considered
alongside susceptibility to certain weather events such as flooding. This aims
to minimise flood risk and limit the effects of extreme wind, for example.
● The full range of acute physical weather risks is assessed through
sustainability and ESG-focused due diligence during the acquisition pro-cess.
(See heatmap on page 57.)
Risk: Changing climate patterns fundamentally altering the availability of
renewable resource
Description
● Unprecedented changes to weather patterns, as observable in Australia - which
has been experiencing La Niña-caused events over recent years.
Category
Physical - Chronic
Likelihood
Likely
Time period
S M L
Impact
S F E
Investment Manager response
● Asset construction factors in geographical diversity, which ensures the
portfolio's exposure to any one market is limited. If chronic patterns
persist, models can be updated and markets can be reviewed.
Risk: Climate change placing a greater strain on natural resources required
for the construction and operation of Company assets
Description
● Increased risk across international markets should prices for core commodities
soar.
● Positive regulatory environment, increased climate focus and popularity of
renewables could lead to supply issues and price pressures on raw materials.
● Increased prevalence of climate-related natural disasters could result in
scarcity of commodities if production or supply is disrupted.
Category
Transition - Market, Technology
Likelihood
Possible
Time period
M L
Impact
S F
Investment Manager response
● The development of greenfield assets is an important step forward in the
Company's strategy of geographic and revenue diversification. This is
currently limited to up to 5% of the GAV of the Company and subsidiaries.
● The ability to be agile in its investments protects the Company from a
market-wide increase in the price of core commodities required in
construction.
● The Company considers the risk of supply chain disruptions, procuring and
stocking extra parts crucial for operations. This ensures cost savings on the
purchases and limits maintenance downtime.
Risk: Continued global focus on climate change mitigation, driving
technological enhancements and causing displacement of existing assets of the
Fund by new technologies
Description
● Portfolio technology no longer being the most efficient in the market.
● Risk of obsolescence or being outcompeted by more efficient technology.
Category
Transition - Market, Policy and legal, Reputation
Likelihood
Unlikely
Time period
M L
Impact
S E
Investment Manager response
● New, more efficient renewable generation or storage technologies would most
likely present an opportunity for the Company since it is well placed to
invest in such technologies once proven due to its experience and presence in
the market.
● Substituting technologies would take a long time to deploy at sufficient scale
to render the existing portfolio obsolete. The Company would likely be able to
explore repowering opportunities over this timescale.
Climate-related opportunities
Opportunity: Increased capital flows directed towards sustainable investing
Description
● Continued and accelerated disinvestment from fossil fuels and shift towards
renewable energy infrastructure opportunities across capital markets.
Category
Transition - Market
Likelihood
Very likely
Time period
S M L
Impact
S F
Investment Manager response
● Continued deployment of capital into solar and battery storage is advantageous
for FSFL since it can enable future fundraising.
● This environment sparks a more competitive debt market for assets which are
attractive to lenders.
Opportunity: Enhanced focus on battery storage to enable the continued
build-out of renewables
Description
● Increased need for grid flexibility and greater demand for battery storage
systems ("BSS") infrastructure to help balance the intermittent generation
profile of renewables as low-carbon national grids are built out at scale.
Category
Resource efficiency, Products and services, Markets, Resilience
Likelihood
Very likely
Time period
S M L
Impact
S F
Investment Manager response
● The Company can currently invest up to 10% of the GAV into BSS. In time, it
may be attractive to review the investment mandate's allocation to BSS so the
Company can take more active steps in this sector.
Opportunity: Increasing volatility in power prices benefits the trading
strategies of battery storage assets
Description
● Increased penetration of renewable generation leads to more volatility in
electricity markets. More storage is required to both balance and stabilise
the grid.
Category
Markets
Likelihood
Very likely
Time period
S M L
Impact
S F E
Investment Manager response
● The Company believes these market conditions would provide additional revenue
opportunities. Specifically, increased trading revenue
for the battery storage assets.
Opportunity: Changing GHG emissions prices
Description
● GHG prices rise, leading to greater demand for renewables as more governments,
corporates and individuals look to decarbonise.
● Enhanced emissions reporting obligations create a more transparent market,
resulting in a market shift towards low-carbon intensity funds.
Category
Markets
Likelihood
Very likely
Time period
S M L
Impact
S F E
Investment Manager response
● FSFL predominantly invests in European and Australian solar, so it is well
placed to benefit from greater demand for solar power.
● As a fund with a low carbon intensity, FSFL is in a good position compared to
the wider market. Emissions reporting could become a differentiator for the
Company.
Opportunity: Political and societal support for the energy transition
Description
● Government policies aimed at facilitating the transition to a net zero carbon
economy may subsidise certain technologies to increase their uptake or
buildout.
Category
Markets, Products and services
Likelihood
Likely
Time period
S M L
Impact
S E
Investment Manager response
● This would create further opportunities for investment.
Opportunity: Growth of sustainability-linked credit facilities
Description
● A growing number of lenders targeting sustainability-led companies that can
demonstrate climate change mitigation activities.
Category
Markets, Products and services
Likelihood
Likely
Time period
S M L
Impact
F
Investment Manager response
● FSFL's sustainable investment track record gives it an edge to take advantage
of the greater availability of funding. This can help facilitate future
portfolio development.
Opportunity: A supportive regulatory and planning environment
Description
● A favourable regulatory environment reduces barriers to extensions and
optimisations of existing assets and opportunities for new projects. For
example: co-location and BSS plans; opportunities for refinancing extensions;
and a greater ability to repower.
Category
Markets, Resilience
Likelihood
Likely
Time period
S M L
Impact
S E
Investment Manager response
● This can help drive the Company's NAV growth and asset life extension.
Ultimately, these ensure the longevity of the Fund and offer a greater level
of resilience.
Opportunity: Greater promulgation of and alignment to international regulation
that supports decarbonisation and sustainable investment
Description
● The facilitation of more efficient investment into renewables and lower
barriers of entry to growing markets.
Category
Markets, Products and services, Resilience
Likelihood
Likely
Time period
M L
Impact
S F
Investment Manager response
● The Company is well placed to raise capital in debt and equity markets in new
geographies, resulting from lower barriers to entry.
Opportunity: Technological developments in energy generation and storage that
complement the existing Company portfolio
Description
● Advances in new and existing technologies, both solar and storage, improve
efficiency.
Category
Resource efficiency, Energy source
Likelihood
Likely
Time period
M L
Impact
S E
Investment Manager response.
● FSFL would benefit from improvements in solar technologies for future
projects. Any advances in solar, energy storage and grid technologies would
complement the existing portfolio.
Opportunity: Further development of renewable markets in Europe and other OECD
markets
Description
● Driven by the international communities' increased focus on climate action, a
stronger competitive market for offtakers and O&Ms emerges. This offers
greater market opportunities and selection.
Category
Markets, Resilience
Likelihood
Possible
Time period
M L
Impact
S F E
Investment Manager response
● FSFL predominantly invests in European and Australian solar, so it is well
placed to benefit from greater demand for solar power.
● As a fund with a low carbon intensity, FSFL is in a good position compared to
the wider market. Emissions reporting could become a differentiator for the
Company.
Existing portfolio
The business of the Company is to invest in solar power plants and battery
storage facilities with the intention of holding the assets for the long term
as part of a growing portfolio. Strategically, the business seeks to grow
organically whilst continuing to deliver a stable and progressive dividend.
With respect to the existing portfolio, there is a risk that extreme weather
conditions may become more commonplace in the future, affecting the assets
directly as well as the markets they operate in.
The UK, for example, has experienced a higher frequency of severe flooding in
recent years. To stay ahead of it, the Asset Manager continues to carry out
flood risk assessments across sites as part of its operational due diligence
and management.
On the other hand, in extreme heat, the efficiency of solar panels can also be
reduced. In countries such as Australia, severe drought and bush fires may
become increasingly commonplace, affecting production. Even in more temperate
climates such as the UK, higher temperatures can lead to heat stress on
critical equipment. Where this has been observed, fans have been fitted to
force cool inverters and transformers. This has been completed at Spriggs Farm
and High Fields, for example, but with heat stress likely to become a more
prominent issue in the future, sites will continue to be adapted.
Volatility in wholesale power prices is forecast to increase with the
retirement of coal and nuclear baseload generation and intermittent renewable
power will deliver an increasing proportion of electricity supply. Such high
volatility is beneficial to the arbitrage trading strategies of battery
storage projects and is likely to become an increasingly relevant component of
their revenue stack.
Over the longer term, the Company will have to more actively monitor new
technologies to ensure that its core assets are not displaced. Solar is
currently well placed, offering one of the most cost-effective sources of
energy production, but generating technologies will continue to evolve.
Strategy
In the short term, renewable energy is expected to enjoy continued political
and societal support for further investment to drive the energy transition
away from fossil fuels. The regulatory and planning environments for solar and
battery storage in target markets are also expected to continue to develop
favourably.
Alongside the ever-greater focus on sustainability, increased flows of capital
are being directed into all areas of renewable energy. Significant further
investment into solar and battery storage is forecast in the Company's core
markets. Russia's invasion of Ukraine in February 2022 also reignited the
energy security debate in many Western nations, pushing the renewable agenda
higher up governments' priority lists.
All these factors contribute to create an environment supportive of steady
growth for the Company as long as it can continue to source investments with
attractive returns and acceptable risk profiles. Assuming so, this positive
environment should help to improve the Company's success in attracting more
capital.
There is, however, risk in the excessive flow of money to the sector. High
levels of investment into both solar generation and battery storage can lead
to intensified competition for assets as more renewable-focused investment
funds are launched in the drive towards decarbonisation and net zero. Greater
competition for renewable projects could place downward pressure on returns
and heighten the risk of overpayment. In this regard, maintaining discipline
is key to ensuring the Company continues to make investments that are value
accretive.
Financial planning
The impact of climate-related changes and the energy transition presents both
opportunities and challenges for the Company's finances.
Increasing power price volatility is a key example. A prolonged fall in
electricity prices and the associated merchant revenues for the generating
solar portfolio is a significant risk. The Company manages this by
forward-hedging. In other words, it secures a significant proportion of
income with price agreements up to four years ahead. It retains a level of
merchant exposure to make sure it can capture the upside in case prices rise -
as was seen in 2022.
Significant deployment of renewable energy generation in a short period of
time could lead to greater power price cannibalisation. The Company's
forecasters currently estimate a stagnation of real power price growth in the
medium to long term. A significant build-out of renewable generation at
marginal cost may push those assumptions well below expected levels. However,
this will likely result in a reduction in the number of new projects, as many
would become economically unviable, and thus re-balance development.
The Company has entered a sustainability-linked credit facility, which
provides the opportunity to achieve savings on margins if several
sustainability criteria are met.
Enhanced disclosure of ESG metrics presents an opportunity for clean energy
generators to further differentiate their offering to current and prospective
Shareholders. It is reasonable to assume that investors will increasingly
screen opportunities and allocate capital based on sustainable criteria,
including TCFD compliance, and to assume that the companies that score well on
those standards will be more successful in attracting capital from such
investors.
Analysis of climate-related scenarios on the Company's resilience
Overview
In the Company's TCFD disclosure in the 2021 Annual Report, it referenced the
work with market advisors to establish a more robust and quantitative approach
to scenario analysis under different potential climate futures.
The Investment Manager has since identified the S&P Global Climanomics
platform as offering the most comprehensive analysis across four climate
scenarios, integrating not only physical and transition risks, but also
climate-related opportunities.
The basis for Climanomics' analysis is the Representative Concentration
Pathways ("RCPs") generated by the Intergovernmental Panel on Climate Change
("IPCC"). The RCPs represent a wide range of possible changes in future
anthropogenic greenhouse gas emissions ("GHGs") and their impact on
atmospheric concentrations of CO(2). The scenarios are best summarised as:
● RCP 2.5 assumes that emissions peak early and then fall due to the active
removal of GHGs from the atmosphere. It is estimated that end-of-century
increases in global mean surface temperature will be in the range of 0.9 to
2.3°C.
● RCP 4.5 implies coordinated action to limit GHG emissions to achieve a global
temperature warming limit of approximately 2°C, wherein global emissions peak
around 2040 and then decline by 2045.
● RCP 6.0 assumes a high GHG emission rate with radiative forcing stabilisation
only after 2100. It is estimated that end-of-century increases in global mean
surface temperature will be in the range of 2.0 to 3.7°C.
● RCP 8.5 assumes that no major global effort to limit GHG emissions will be
brought into effect. It is estimated that end-of-century increases in global
mean surface temperature will be in the range of 3.2 to 5.4°C.
Climanomics integrates econometric assumptions driven by high resolution
geographic, climate, socioeconomic, business and sector-specific data to the
RCPs to quantify climate risk. The models assess both the risks and the
opportunities associated with each scenario and generate outputs dependent on
asset type. These outputs can then be applied to the Company's valuation model
to estimate the potential financial impact in the four different scenarios.
This landscape of scenario analysis is evolving quickly, and current
assessments are made with the most credible existing frameworks and input data
available. Given the very nature of this analysis, limitations remain.
However, the Company is committed to using best-in-class methodologies to
accurately estimate its performance under different climate futures and will
continue making the necessary adjustments as the methodologies progress.
Estimates
Assuming the RCP 4.5 scenario as the most likely outcome due to the current
global emissions trajectory, the below chart shows the assessed central case
and the potential variations between the three remaining scenarios:
Applying these estimates to the Company's Net Asset Value ("NAV")(1), it is
possible to make an assessment of the potential financial impact in each of
the RCPs over the years until 2050:
+0.16p/share
RCP 2.6
Central case
RCP 4.5
+0.13p/share
RCP 6.0
-2.1p/share
RCP 8.5
In terms of categorisation of risks and opportunities, the Climanomics
platform fully aligns with the TCFD framework:
● Physical risk - Analysing atmospheric data related to acute and chronic
climate hazards across temperature, precipitation, drought, wildfire, coastal
flooding, tropical cyclones, water stress and fluvial-basin flooding to
provide a rigorous estimate of risk under various conditions.
● Transition risk - Incorporating modelling of hazards associated with a global
transition to a low-carbon economy via litigation, reputational, technology
and market risk(2).
● Opportunity modelling - Calculating opportunities derived from resource
efficiencies, energy sourcing, changing markets and resilience.
Climanomics' methodology estimates direct financial impacts that the hazards
are expected to incur on each asset type. Each asset type's vulnerability is
characterised by the specific ways in which it is likely to be impacted
(i.e."impact pathway") by a given climate-related variable. An asset type's
overall "impact function" is comprised of these individual impact pathways.
The platform has developed an extensive library of detailed impact functions
for a wide variety of sectors, all of which are based on peer-reviewed and
government-published research papers.
(1) Refer to the Alternative Performance Measures (APMs) shown on page 152 for
more details.
(2) Due to the immaterial emissions associated with the portfolio's business
activities (disclosed on page 40), carbon pricing has been excluded.
Risk management
Disclose how the Company identifies, assesses and manages climate-related
risks.
● Describe the Company's processes for identifying and assessing climate-related
risks
● Describe the Company's processes for managing climate-related risks
● Describe how processes for identifying, assessing and managing climate-related
risks are integrated into the Company's overall risk management
Risk framework
The Investment Manager is responsible for creating and managing the framework
that ensures the systematic integration and assessment of climate-related
risks and opportunities. The primary system for achieving this is Foresight's
proprietary Sustainability Evaluation Tool ("SET") (described on page 56)
which ensures that a given asset's resilience to climate-related risk is
considered from the earliest stages of due diligence during the investment
process. This is covered under the "Climate Change Resilience" parameter
within the tool and is completed for all assets, both at the investment stage
and during each asset's periodic review as part of ongoing management.
Climate-related risks are identified in the Company's Business Risk
Assessment.
As is industry standard, the Company's climate-related risks can be
categorised in two principal ways:
Transition risks: Risks related to the transition to a lower-carbon economy
Policy and legal Technology Market Reputation
Transition risks · Increased pricing of greenhouse gas ("GHG") emissions · Substitution of existing products and services with lower emissions · Changing customer behaviour · Shifts in consumer preferences
options
· Enhanced emissions-reporting obligations
· Uncertainty in market signals · Stigmatisation of sector
· Costs to transition to lower emissions technology
· Mandates on, and regulation of, existing products and services · Increased cost of raw materials · Increased stakeholder concern or negative stakeholder feedback
· Exposure to litigation · Increased competition for solar and battery assets
Physical risks: Risks related to the physical impacts of climate change
Temperature related Wind related Water related Solid mass related
Chronic · Changing temperatures · Changing wind patterns · Changing precipitation · Landslide
· Heat stress
Acute · Heat wave · Storm · Heavy precipitation/Flood
· Wildfire
These relevant physical risks are placed onto a risk heatmap (see the solar
risk heatmap below). A suite of tools can then be employed to assess the
severity of an asset's susceptibility to the most material risks and identify
mitigation measures to reduce the overall risk score.
Impact
SOLAR 1 Negligible 2 Minor 3 Major 4 Hazardous 5 Catastrophic
Probability 5 Almost Certain
4 Likely Changing precipitation patterns Heat stress/Changing temperatures
Heat wave
3 Possible Storm Changing wind patterns
2 Unlikely Heavy precipitation/Flood
Wildfire
1 Rare Landslide
Managing climate risk
All potential investments are evaluated in accordance with the SET to ensure
that they meet the Investment Manager's definition of sustainable
infrastructure and that climate-related risks are systematically identified,
assessed and subsequently managed. The SET comprises five criteria that cover
the key areas of sustainability and ESG considerations to be assessed:
● Sustainable development contribution: The contribution made towards the global
sustainability agenda, including an assessment of its resilience to climate
change-related risk and opportunity
● Environmental footprint: The environmental impacts of an investment
● Social welfare: The interaction with local communities and the welfare of
employees
● Governance: The compliance with relevant laws and regulations
● Third-party interactions: The sustainability of key counterparties and the
broader supply chain
The SET is an evolving tool. It has been designed with flexibility in mind,
making it adaptable to new sectors, industry frameworks and impact standards
as sustainability, ESG and climate change agendas continue to develop. The
materiality of certain issues within each of these areas is subject to change,
therefore a framework that can adapt easily to reflect these alterations is
important. The Investment Manager carries out regular in-house consultations
to decide on the individual "weighting" for each metric within the assessment
parameters. The weighting dictates the materiality of the metric in the
overall asset score, which can be updated based on new information obtained.
The SET draws on IRIS+ indicators, which are an aggregation of several widely
recognised sustainability and climate-related frameworks to measure, manage
and optimise sustainability and climate-related performance.
These frameworks include GRESB, the Global Reporting Initiative ("GRI"), the
Sustainability Accounting Standards Board ("SASB"), the UN SDGs, the Global
Impact Investing Network ("GIIN") and Principles for Responsible
Investment ("PRI").
Before any new investment proceeds, an assessment of both physical and
transition climate-related risk is made in the Climate Change Resilience
assessment parameter of the SET.
This parameter is made up of multiple metrics, with each weighted based on
internal materiality assessments and scored in line with response bands
corresponding to a five-point scale:
5 = High performance
4 = Above average
3 = Average performance
2 = Below average
1 = Low performance
An average is then calculated to produce an overall score for the Climate
Change Resilience parameter, which is reviewed and updated periodically by the
asset management team to track a project's sustainability performance. This
can be tabled at the Company's Board meetings to enable implementation of an
asset-specific plan to manage any material risks as required.
Every solar or battery asset the Company invests in must be justified as
contributing to a set of measurable sustainability goals and must demonstrate
how its resilience to climate change-related risk has been assessed. If the
information required to complete the assessment is not readily available
through project documentation, technical advisors may be tasked with
conducting further investigation to address any specific queries.
The above-mentioned physical risks are assessed as part of the climate Change
Resilience assessment parameter. A climate risk heatmap is then produced and
used to identify the most material physical risks assets face from
climate-related extreme weather events. This allows for further investigation
to be conducted or mitigation measures to be put in place.
During the investment stage, it is the responsibility of the Investment
Manager's team to complete the SET and use it to inform their understanding of
a given asset's sustainability credentials, including its exposure to
climate-related risks. Furthering this understanding may require augmenting
the scope of a technical advisor during due diligence to comment on and assess
specific risks. Crucially, it will need to be satisfactorily addressed in the
final submission to the Investment Committee with an accompanying risk
re-profiling or mitigation measures detailed as appropriate.
Via the various IC processes, relevant issues will be reported to the
Investment Manager's senior leadership, wherein any updated thinking can be
more effectively applied across the wider portfolio of assets.
Once the investment has been made, the asset undergoes a comprehensive
handover to the asset management team wherein the responsibility for
identifying and assessing climate-related risks and opportunities also
transfers. It is the role of this team to ensure periodic updates of the SET
are completed as a means of systematically reassessing the physical and
transition risks the asset is exposed to.
The Investment Manager is responsible for the periodic review of the
portfolio's exposure to risk, ranging from health and safety to climate
change. Material changes to the ratings of any risk are considered in line
with the periodic reassessment and, where possible, are mitigated accordingly.
Metrics and targets
Disclose the metrics and targets used to assess and manage relevant
climate-related risks and opportunities where such information is material.
● Disclose the metrics used by the Company to assess climate-related risks and
opportunities in line with its strategy and risk management process.
● Disclose Scope 1, Scope 2 and, if appropriate, Scope 3 greenhouse gas (GHG)
emissions and the related risks.
● Describe the targets used by the Company to manage climate-related risks and
opportunities and performance against targets.
TCFD core metrics
The Company's focus for quantitative reporting on exposure to climate-related
risk is achieved using the universally accepted core metrics, as recommended
by the TCFD. These include:
● Weighted average carbon intensity
● Total carbon emissions
● Carbon footprint
● Carbon intensity
● Exposure to carbon-related assets
In line with current guidance from the Financial Conduct Authority ("FCA"),
the UK markets regulator, the calculation of these metrics is performed using
Scope 1 and Scope 2 emissions only. In using these core metrics, the Company
is able to compare performance, not only amongst its own assets, but also
against those of its wider peer group, further incentivising the
decarbonisation of the Company's portfolio.
Data drawn from the calculation of the core metrics will be used as an aid to
drive decarbonisation further across the portfolio, and to highlight carbon
hotspots in specific business areas as a means of influencing decision making
across the business.
For FSFL, the results are:
TCFD core metrics
Weighted average carbon intensity (tCO(2)e/£m revenue) Total carbon emissions (tCO(2)e) Carbon footprint (tCO(2)e/£m invested) Carbon intensity (tCO(2)e/£m revenue) Exposure to carbon-related assets (%)
5.17 897.11 1.16 5.51 0
Absolute Emissions (page 40)
The Greenhouse Gas Protocol separates emissions into the
following categories:
Scope 1 Scope 2 Scope 3
· All direct emissions from the activities of a company under its · Indirect emissions from electricity purchased and used by the · All other indirect emissions, occurring from sources that are not
control Company owned or controlled
· Includes purchased goods and services, business travel, employee · Emissions are created during the production of the energy · Includes fuel combustion on site such as gas boilers, fleet
commuting, waste disposal, use of sold products, transportation, distribution eventually used by the Company vehicles and air-conditioning leaks
and investments
The portfolio sustainability metrics, collected quarterly at the asset level,
enable accurate calculation of both Scope 1 and Scope 2 emissions. Meanwhile,
the Investment Manager continues to cultivate its relationships with suppliers
to gain a more granular understanding of its Scope 3 emissions. It has used
the PCAF methodology and the associated geographical and sector-specific
emissions factors to estimate its Scope 3 emissions in throughout this report.
Sustainable impact reporting (page 36)
Tracked against the SDGs, these demonstrate the positive environmental and
social benefits created as a result of the Company's investment activities,
helping drive forward the global sustainability agenda. This has included the
Investment Manager's review of the methodology used to quantify the
decarbonisation benefit of the portfolio, which is now aligned to the IFI's
Harmonised GHG Accounting methodology.This is used in conjunction with
lifecycle emissions intensity figures, drawing on the data presented in the
IPCC's Special Report on Renewable Energy (SRREN)(1). The report uses a
variety of peer-reviewed research papers to establish median figures for the
lifecycle CO(2) intensities of different renewable energy technologies
(measured in kgCO(2)e/MWh).
The Company intends to continue delivering sustainable impact in line with its
growth to ensure it is regularly driving forward the decarbonisation agenda.
(1) Annex III:
https://www.ipcc.ch/site/assets/uploads/2018/02/ipcc_wg3_ar5_annex-iii.pdf
STAKEHOLDERS
The Board seeks to encourage a culture that promotes integrity and openness,
values diversity, and is responsive to the views of Shareholders and other
stakeholders.
Stakeholder engagement
Directors are required to always act in good faith and to act in a way that
promotes the long-term success of the Company for the benefit of all
stakeholders. While Foresight Solar is an investment company with no
employees, it has identified its key stakeholders. A description of these main
groups, their interests and how the Board has taken these interests into
account when making decisions is set out in the following pages.
Shareholders
Shareholders are the Company's primary stakeholders, and all key Board
decisions are carefully considered with their long-term interests in mind. The
Company, supported by its Investment Manager, communicates with Shareholders
through a variety of means and always welcomes their views. This regular
engagement includes the publication of comprehensive Annual and Interim
Reports, market announcements, investor factsheets and through the Company's
dedicated website.
All Shareholders are invited to the Annual General Meeting, where they have
the opportunity to ask the Directors, including the Chairman, questions, as
well as the Chairs of the Audit and Risk, Remuneration, Nomination and
Management Engagement Committees.
Shareholders are also invited to submit questions to the Company, its
Directors and the Investment Manager in advance of the AGM to maximise this
engagement opportunity.
The Board also makes itself available to meet with key Shareholders at their
request and welcomes this engagement.
The Investment Manager undertakes Shareholder roadshows following the
publication of annual and interim results, giving Shareholders the opportunity
to meet key members of the team responsible for portfolio management. The
Investment Manager also makes itself available to meet Shareholders and
analysts throughout the year as required.
During the year, the Investment Manager and the Company's broker held multiple
direct engagement sessions with major Shareholders. The main topics covered
during these sessions were the operational performance of the portfolio and
the factors influencing the Company's Net Asset Value, as well as the
methodology implemented in calculating it. Towards the end of the year,
Shareholders were also interested in understanding the potential impacts of
the UK government's Electricity Generator Levy on Company performance and on
the Investment Manager's power price forecasts. Consistent with previous
years, Shareholders were also interested in understanding the Company's growth
ambitions in the UK and internationally, dividend growth and dividend cover.
In addition, the Investment Manager and the Company's broker report to the
Board at least quarterly and provide an overview of Shareholders' feedback,
along with recommendations on how to address any concerns they might have
raised.
Investment Manager
The Company, supported by its Management Engagement Committee, conducts an
annual review of the Investment Manager's performance and the terms of
engagement of the Investment Manager.
This review is focused on constructive engagement to ensure Shareholders'
expectations are being met and that the Board is cognisant of challenges the
Investment Manager may be facing.
The Board and the Investment Manager maintain an ongoing and open dialogue
about the Company's key issues to ensure that the latter's recommendations and
the former's decisions are aligned with achieving long-term Shareholder value.
More details on the Management Engagement Committee's review of the Investment
Manager can be found on page 92.
Communities
The Company remains committed to proactively engaging with the communities in
which it operates.
Business partners and key service providers
The Company, supported by its Management Engagement Committee, reviews all key
service providers and the terms of their engagement. During the year, the
Company enhanced its review process by proactively seeking feedback from its
key service providers.
This process allows for two-way communication between the Board and the key
providers on service delivery expectations and on important issues experienced
during the year. The intention of the Company is to maintain high standards of
business conduct across all key service providers.
Summary of key stakeholders
Stakeholder group Key stakeholder interests Key decisions impacting stakeholder group during the year
Shareholders · Delivery of a sustainable, progressive quarterly dividend. · Achieved dividend target of 7.12 pence per share for 2022.
· Institutional and retail Shareholders. · Investment into a diversified portfolio of ground-based solar power · Amended the Investment Policy to allow the Company to deploy up to
plants in the UK and internationally. 5% of its Gross Asset Value (GAV) in development-stage projects.
· Financial and operational performance. · Acquisition of 50% equity stake in Clayfords Energy Storage
Limited, a 50MW BSS development opportunity.
· Acquisition of a 50% equity stake in Project Lunanhead, a 50MW BSS
development opportunity.
Lenders · Diversification and resilience of income streams. · New three-year RCF facility of £150 million with an uncommitted
accordion facility of up to £30 million.
· Banks. · Quality of security provided for liabilities.
· Ability to meet debt servicing requirements.
Investment Manager · Maintain a strong, long-term commercial relationship. · Additional flexibility to deploy capital to development-stage
projects.
· Foresight Group. · Growth of the Company's portfolio.
· Diversification of the portfolio with additional BSS purchases.
· Improved financial performance.
· Effective management of the Company's portfolio.
· Resilience of business model to ensure mutual long-term success.
Commercial service providers · Maintenance of long-term commercial relationships. · Retained services of all key service providers.
· Administrator and Company Secretary. · Open and transparent engagement.
· Corporate broker. · Resilience of business model to ensure mutual long-term success.
· Legal advisors. · Open, continued engagement with service providers through the
Company's Management Engagement Committee.
· Public Relations agency.
· Tax advisors.
Regulators · Maintain Jersey's position as a leading international finance · Ongoing oversight of all service providers to support the Company's
centre with high regulatory standards. successful operations and regulatory reporting.
· Jersey Financial Services Commission.
· Financial services businesses adhere to high regulatory standards · Quarterly reporting from the Company's Compliance Officer on
aimed at: compliance monitoring and updates to the Jersey Regulations, Codes and
Handbook.
· Reducing risk to the public of financial loss due to dishonesty,
incompetence, malpractice or the financial unsoundness of financial service · Open and transparent engagement with the JFSC on regulatory
providers matters.
· Protecting and enhancing the reputation and integrity of Jersey in
commercial and financial matters
· Safeguarding the best economic interests of Jersey
· Countering financial crime both in Jersey and elsewhere
Asset-level counterparties · Maintenance of long-term commercial relationships. · Continued engagement through the Investment Manager.
· Operations and maintenance ("O&M") contractors. · Frequent communication with O&M providers to ensure adequate · Growth of commercial relationships through new acquisitions and
oversight of portfolio operations. development opportunities.
· Supply chain counterparties.
· Focused engagement on value enhancement opportunities, including
· Landowners. rationalisation of service provision for cost savings and/or improved
services.
· PPA counterparties.
· Increased scrutiny of and resource allocation to emerging risks
identified.
· Monitoring of counterparty creditworthiness and exposure.
Local communities · Frequent engagement with local authorities to ensure safe and · Details of the Company's community initiatives can be found on page
compliant operation of assets. 43.
· Local authorities and agencies.
· Active engagement with local authorities on construction planning
· Area residents. and permissions.
· Landowners. · Regular interaction between the owners of land on which assets
operate and the asset management team.
· Community funds.
· Educational site visits for local community schools and colleges.
RISK AND RISK MANAGEMENT
Risks are identified according to the Company's investment objectives and
existing policies, with the levels of risk tolerance ultimately defined by the
Board.
The Company is exposed to multiple risks that have the potential to materially
affect its valuation, reputation and financial or operational performance. The
nature and levels of risk are identified according to the Company's investment
objectives and existing policies, with the levels of risk tolerance ultimately
defined by the Board.
The Investment Manager and the Administrator have a comprehensive Risk
Management Framework in place to reduce the likelihood and the impact of
principal and emerging risks. Reliance is placed on the internal systems and
controls of the Investment Manager and on external service providers, such as
the Administrator, to effectively manage risk across the portfolio and
maintain an up-to-date risk register.
Risk management, as well as the Risk Management Framework, are regularly
reviewed by the Audit and Risk Committee and then checked in detail by the
Board at least annually.
Principal risks
Set out on the next page are the principal risks and uncertainties, along with
their mitigants, which the Company believes are most relevant given the nature
of its business.
During the year, the risks that have been most closely monitored are those
related to direct government market intervention, such as windfall taxes; the
effects of a higher interest rate environment; and volatile power prices.
These risks are meticulously tracked because of their potentially significant
impact on cash flow generation in the short and medium term.
Whilst the Company has benefited from elevated power prices and strong cash
generation in 2022, the Investment Manager is closely monitoring the level of
risk posed by sustained higher costs if electricity prices fall back to
historic averages.
The Directors also note the potential effects of higher costs for the
short-term financing facilities in place across the portfolio, as well as
access to capital more broadly given the challenging state of equity markets.
More information on the risks that should be considered before investing in
the Company are contained in the Prospectus, available at:
https://fsfl.foresightgroup.eu/investor-relations/publications/prospectus/
(https://fsfl.foresightgroup.eu/investor-relations/publications/prospectus/)
Emerging risks
Emerging risks are those that are characterised by a greater degree of
uncertainty. They are regularly reviewed by the Board, with the support of the
Investment Manager, the Administrator and other relevant advisors.
The Board continues to monitor and review the geopolitical environment and its
wider impact on the Company's business in what has the potential to be a more
turbulent period in international relations. Attention has also been given to
challenges in supply chains that may impact the construction and operation of
solar farms and battery storage systems. The risk of forced labour being used
anywhere in the supply chain is something the Company is especially alert to
and is part of its Risk Management Framework.
Finally, the Company is poised to engage in a new form of investment risk as
it enters projects in the development stage. This constitutes an area where
the Fund is actively assuming a higher level of risk, albeit one that is
mitigated via project structuring and limited upfront investment to benefit
from potentially greater upside returns.
Business area and Mitigant Trend and outlook
Risk summary
1. Risks relating to regulatory changes, including changes to subsidies
The risk: Changes to the level of political support may result in adjustments The Investment Manager monitors relevant regulatory developments and political Record-high power prices in the UK and in Europe led governments to intervene
to the levels of subsidy and incentives for renewable generation, whether on a statements on an ongoing basis across all jurisdictions the Company operates in energy markets via various windfall taxes and price caps.
prospective or retrospective basis. in.
It was positive that changes to existing subsidy regimes were not included in
Why it exists: Whilst subsidy regimes are underwritten by government support, It is acknowledged that the Investment Manager's ability to influence recent legislation, however, this may be considered as part of a wider review
they are also open to prevailing political pressure. There are well-known political decision-making on its own is highly limited, and it has, therefore, of energy market arrangements.
examples in which they have been retrospectively reduced, albeit with become a member of select investor groups and trade associations which lobby
subsequent legal challenges (i.e. Spain). on behalf of the industry.
As part of the discussions related to UK government's intervention in energy The Investment Manager keeps the Board informed of risk issues relating to
markets at the end of 2022, the option of moving UK ROC subsidy-backed political activity, status and mitigants by way of formal quarterly board
projects onto another mechanism, such as CfDs, was discussed. This may present meetings and periodically, in real time, as appropriate.
both a risk and an opportunity, depending upon the approach.
Following the UK government's signal that existing ROC generators may be moved
Potential impact: Any changes having a retrospective effect may adversely onto new CfD mechanisms, the Investment Manager took part in direct
impact the Company's valuation and its ability to meet return targets. discussions with the government via industry representatives. The goal was to
ensure any changes did not result in a worse position for investors or result
in unintended consequences, as well as to communicate the risk to long-term
investment from hastily-prepared policy.
2. Risk relating to energy prices
a) Long-term energy prices
The risk: Downward adjustments to long-term power forecasts have the potential Whilst the Company can readily fix power prices under its current PPA Long-term power prices remain difficult to predict as they are a function of
to significantly impact NAV and the Company's ability to meet its future agreements out to around five years, beyond this becomes more challenging. supply and demand.
obligations and dividend payments.
The Company uses a blended rate of three specialist power price forecasters There has been incentive to deploy renewable generation at scale, though it is
Why it exists: Power curve forecasters assume the mass deployment of renewable that estimate market prices to 2050. unclear whether the introduction of windfall taxes on the industry will slow
generation - with a low marginal cost of production - will limit real price
roll-out to meet 2030 targets.
increases.
There is a developing corporate PPA market that the Investment Manager is
tracking and is beginning to offer longer-term offtake agreements; however,
Potential impact: A greater reduction in future power curves than currently the maximum length of these is generally 10 years to 15 years. The trade-off
forecast may have a significant negative downside effect on the Company's NAV will also be locking in acceptable pricing compared to the forward curves.
in the short term and reduce dividend cover in the medium and the long term.
Notwithstanding the above, risk remains that the long-term power curves drop
significantly. That will then be reflected on the long-term PPA market as
well.
2. b) Near-term energy prices
The risk: Generally, the price at which a solar PV plant sells its electricity In the short and medium term the Company manages energy price risk by actively During 2022, power prices reached record highs following a significant rise in
is determined by market prices. hedging electricity prices. The Company has adopted a strategy with the aim of natural gas prices. Following a market adjustment, it is expected that they
minimising the impact of power price volatility to future cashflows by will fall back during the next few years; however, upward pressure remains.
entering fixed price arrangements for the sale of electricity. The goal is to
achieve:
Why it exists: The price of electricity can be broadly separated into supply
side risks, demand side risks and regulatory risk. A decline in the market
price of electricity could materially adversely affect the price of
electricity generated by solar PV assets and the Company's financial position. · A minimum percentage of annual fixed revenues of 60% of expected
Power prices sustained record highs throughout 2022, which became the prompt total annual revenues
for governments to implement windfall taxes and/or price caps on what was
deemed to be "excessive profits." · A target percentage of annual fixed revenues of 75% of expected
total annual revenues on a two-year rolling basis
Potential impact: A sudden fall in power prices that are largely unhedged
could result in the Company not generating sufficient cashflow to pay its The Investment Manager continually monitors the Company's merchant exposure to
dividends. power price movements and, depending on market conditions, will seek to fix
pricing up to five years ahead.
Looking over the viability assessment period, the Company has already fixed
more than the minimum 60% target for total annual revenues and does not
perceive there to be a significant risk in fixing further amounts at
attractive rates in the near term.
The risk that a windfall tax cuts across price fixes already implemented by
the Company with its offtakers was realised following confirmation that the
UK's Electricity Generator Levy would apply to the sale of all electricity
above the reference price of £75/MWh (indexed). Following clarification, the
impact is to reduce net revenues in the near term, and the tax's implications
have been reflected in the NAV and in expected cash flows.
3: Access to capital
The risk: There has been a significant increase in renewable energy investment The growth of the renewable energy fund sector was predictable as technologies Equity markets for the entire infrastructure and renewables markets have been
in recent years, which itself creates far greater competition for available became more established and investors sought greater exposure to green exceptionally challenging since mid-2022.
capital. Additionally, risk exists that there may be a change in perception of investments. In many ways, this can be viewed as a validation of the industry,
the Company or the wider market because of significant macroeconomic shifts, to which the Company and its peers were early entrants.
causing investors to view the investment case less favourably. The primary
risk for the Company is weaker demand for its shares due to a perceived Investors are likely re-appraising portfolios given the significant change in
opportunity to earn more attractive returns elsewhere.
macroeconomic factors and keenly watching movements in inflation and
To an extent, there will always be interest in new sector launches as they are government bond yields.
marketed to serve certain niches. However, many of these platforms have yet to
establish themselves.
Why it exists: Increased opportunities and demand for renewable energy
investment has led to what was a handful of listed funds at the time of the
Company's launch to become several dozen specialist and generalist, listed and
unlisted funds. In addition, a significant rise in government bond yields It should also be highlighted that this risk is not unique to the Company as
reduces the spread between the risk-free rate and yield available from the it can similarly impact other established funds in the sector.
Company, potentially making it less attractive to investors.
The Company's best response to this threat is to improve the narrative on its
Potential impact: The risk of reduced appetite for the Company's shares is strong track record of delivering dividend growth and high relative yield,
that it may struggle to raise additional capital for new investments and be which few other funds can match, and continue to offer an attractive
unable to grow, which would result in a long-term decline in the NAV. risk/return proposition.
Negative shareholder sentiment, including short selling, can also result in Having altered its Investment Mandate, the Company is now also able to invest
shares trading at a discount to NAV, creating a risk of capital raise failure in a broader range of assets to offer a differentiated proposition.
and the reputational risk that this accompanies.
The Investment Manager and the Company's broker employ a strategy of investor
communication that aims to be frequent, clear and transparent, and includes
regular meetings.
4: Counterparty risk
The risk: The Company's main contractual counterparties either fail or perform The Investment Manager structures its decisions with counterparty risk as a Pressure on counterparties from additional debt or refinancing costs will
poorly, resulting in them being unable to fulfil their obligations. key consideration in the procurement and contracting arrangements. likely become evident in the next 12 months to 24 months.
Why it exists: The Company outsources key services, such as construction When selecting construction contractors, their credit rating, balance sheet
(EPC), operations and maintenance ("O&M") and offtake arrangements (via strength and payment record are all taken into consideration. Parent company
PPAs) to third-party specialists in these areas. In addition, the Company has guarantees or performance bonds are also typically sought to provide downside
financial hedging with banking counterparties. The market volatility in the protection to the project; however, delays would be expected if a contractor
energy sector and the increasing inflation and interest rates during 2022 failed during construction.
likely placed enhanced pressure on their balance sheets.
The Investment Manager regularly monitors the market for O&M providers and
Potential impact: If the counterparty fails, without sufficient protections offtakers, benchmarking costs and terms. Standard contracts include
the Company is left with the risk of continuing the services and the potential termination provisions for insolvency or poor performance.
associated additional costs.
Replacement risk is relatively well mitigated by an actively competitive
In the event of a PPA offtaker failing, the Fund would be able to replace the market. The Investment Manager has carried out additional enquiries with the
agreement in a liquid market relatively quickly, however, the primary risk Company's counterparties during the last year to ascertain whether current
would be that of the market being lower than previously contracted prices. market conditions are placing strain on them. Discussions with any potential
new counterparties have also been paused when there was insufficient
confidence about their financial position.
5. New market participants
The risk: The Company faces significant competition for assets in the markets The Investment Manager regularly updates the Board on the options available to Notwithstanding the forecast significant increase in renewable deployment, it
it operates in. This is currently more pronounced in the solar market than for respond to the changing market, and the strategic positioning of the Company can be expected that competition for assets will remain high in markets such
battery storage projects, but competition for assets continues to increase and in the competitive landscape. The Fund strategy is reviewed at the quarterly as the UK and Spain.
drive down returns. Board meetings and periodically in dedicated strategy updates.
Why it exists: Large European and international utility companies, financial Alongside this, the Company also can make further changes to the Investment
organisations and many of the Company's competitors are participants in the Mandate; however, this process requires Shareholder support, and the
solar power sector - and potentially have lower returns requirements. perception of such changes must be carefully weighed up in advance.
Competition for appropriate investment opportunities may, therefore, increase.
The Investment Manager continuously monitors the Company's competitiveness in
Potential impact: This could potentially lead to a risk of overpaying for bidding processes and updates the Board with its recommendations, including
assets in competitive processes. The broader risk is a failure to continue to potential evolution of the current mandate. The Manager also restricts itself
grow the NAV in a more highly competitive environment. to pricing that meets the Company's requirements (based on all reasonable
assumptions at the time), so this risk is viewed as limited.
6. Financial gearing
The risk: The Company's subsidiaries and its investments have in place Prior to introducing third-party debt to the portfolio, the Investment Manager It is likely that the era of "near zero" interest rates is over. Whilst yields
third-party debt facilities that can create greater potential for loss as cash carefully sizes the level of gearing to ensure the risk of missing debt on government bonds have eased back from their highs in the second half of
may be insufficient to meet repayments and the Company may not be able to repayments is as low as possible. This includes a process of running a suite 2022, there is no expectation that they will return to the lows experienced
refinance existing borrowing on equal terms, or at all. of downside risk scenarios. during the last decade anytime soon.
Why it exists: The yield payable to Shareholders relies on banks making The Investment Manager also aims to reduce the exposure to benchmark rates by
project finance facilities on normal terms. Any change to the availability of entering interest rate hedging arrangements for a minimum of 80% of the
these facilities or significant alterations to the terms would impact on the outstanding debt balances, reducing the risk of cash flow volatility resulting
level of yield to Shareholders. The variable interest payable by the Company from interest rate movements.
(directly or through its holding entities) on revolving credit facilities as a
function of SONIA movements is unpredictable.
Once the debt is arranged, the Investment Manager continually monitors the
covenants on the various facilities as a way to flag and mitigate risks.
At present, the Company has not deemed it necessary to hedge this element of
interest rate exposure. However, it will continue to monitor this position.
The Investment Manager keeps the Board informed of risks related to leverage,
compliance with facility agreement covenants and mitigants by way of formal
Potential impact: A reduction in available cash flow at borrower level can quarterly Board meetings and periodically, in real time, as appropriate.
impact the ability to cover debt service obligations on a periodic basis and
affect the Company's financial capacity to pay dividends. There is also the
risk of a significant rise in interest rates that will make short-term
facilities (i.e. RCF, Australian debt) materially more expensive at the point It is now increasingly likely that the shorter-term debt in the portfolio will
of refinancing. be refinanced at a higher overall rate at the time of the next negotiation. It
is positive that both the RCF and the Australian facilities were refinanced
during a period of lower rates in 2021/22, and, while some subsidiary loans
are due in 2023, a significant part of the overall debt will only need to be
refinanced between 2025 and 2027.
7. Risks relating to the construction of assets
The risk: There is a risk to delays in the construction timetable, which may The Investment Manager carries out due diligence on the third-parties that it Many contractors are keen to enter the renewables space post-pandemic. This is
result in projects not being able to start generating power; the risk of bad contracts for asset construction. Their use exposes the Company to various welcome competition as deployment increases.
workmanship in constructing plants; and delays in the connection of solar risks associated with the delegation of responsibility to a third-party, such
projects to the grid. as non-performance, but this is mitigated through the negotiation of
construction contracts in which the key risks of delivery are borne by the
contractor. Contractual risks will typically be mitigated by performance bonds
and the use of milestone payments, with funds only being transferred once
Why it exists: The Company invests in construction-stage projects that are certain conditions are met.
inherently riskier than investing in projects that are already operational.
In addition, the Investment Manager employs a dedicated in-house asset
Potential impact: If protracted, delays to generating revenue can negatively management team to oversee construction, with support from independent
impact returns. Projects may also have debt obligations that they are required technical advisors to ensure milestones are achieved on schedule and in line
to service or a PPA. with the specifications. Because of the time required to construct each solar
project, there will be a period when each site is unable to generate any
operational cash flow, but during which it will still be accruing interest on
the repayment of financing.
Given the increased proportion of construction assets in the portfolio, the
Investment Manager has strengthened both its investment and asset management
teams with construction experience.
8. The risk of portfolio under-performance
The risk: Significant operational underperformance of the portfolio versus Portfolio diversification is one of the primary mitigants to the risk of The Company is continuing to progress its diversification strategy that
budgeted expectations. systematic underperformance. This covers: geography, technology and includes geographies, technologies, and stages of investment, alongside a
diversification of revenues streams, equipment manufacturers and offtakers for diversified group of key contractors and suppliers.
example. The Company's portfolio is sufficiently well diversified that no one
single issue should itself be large enough to threaten its resilience.
Why it exists: There are multiple factors that could result in
underperformance of the assets, including poor technical performance, network
issues, low input resource (i.e. irradiation) or overly optimistic initial
assumptions. The Asset Manager also closely monitors the performance of the Operations and
Maintenance contractors to ensure a high quality of service. The portfolio has
a variety of providers, and services are periodically re-tendered.
Potential impact: Underperformance of a significant proportion of the
portfolio or systemic issues resulting in high levels of asset downtime may
threaten the ability of the Company to meet its obligations to Shareholders
and creditors.
9. Supply chain procurement risks
The risk: The Company inadvertently acquires equipment required for a solar In response to supply chain issues, Solar Energy UK ("SEUK") developed a The Company has found that engagement with the manufacturers is beginning to
park or BSS project that has had input from forced labour or modern slavery in toolkit to help ensure a sustainable and ethical global solar supply chain. yield greater transparency.
the supply chain.
The approach laid out by SEUK directly requests that companies assess
suppliers on their transparency and
Manufacturers understand the risk to their own business model by potential
Why it exists: The solar supply chain has been under increased scrutiny public disclosure on ESG matters as well as tracking improvements and action blacklisting and have begun to shift their behaviour accordingly.
following press articles about the use of forced labour and modern slavery in taken over time.
China.
To understand the risk posed by the Company's existing supply chain, the
Potential impact: As a leading renewable investment fund, there is a serious Investment Manager has engaged with consultant Ethixbase for a subscription
reputational and share price risk of connection to firms that are suspected of package that includes the following services:
using forced labour in their supply chains. That's why the Investment Manager,
as a major renewable energy investor, is proactively seeking to shed greater
light on the supply chain that supports the manufacture of solar panels and
battery storage cells. · Due diligence and ESG reports for up to 250 suppliers;
· Dashboard analytics that can be split between assets, locations
etc.;
· Ongoing monitoring and remediation service;
· Modern Slavery Questionnaire and Dashboard/Analytics;
· Managed service to follow up on the questionnaires directly with
the suppliers (on the Investment Manager/Company behalf); and
· Potential to roll out varying levels of due diligence to other
asset types including battery storage.
Whilst it is acknowledged that there are limitations in the Consultant's
ability to penetrate the full supply chain, the Ethixbase subscription will
significantly improve the Company's ability to identify risk areas and
suppliers that may require further support or work to ensure their processes
are more robust.
10. Climate and weather-related risks
The risk: A change in climate or weather-related events may have a direct The impact of climate and weather-related risks are assessed by the Investment Climate risks specifically have the potential to become to become far more
impact on the Fund's assets or ability to generate and thus a negative impact Manager on an ongoing basis. These also tend to merge between short-term disruptive if global warming continues unabated.
on its abilities to meet its obligations. weather issues, which may themselves transpire to be longer term shifts in
climate. An example of this is the low irradiance that has been experienced in
Australia for three summers in a row now. Whilst there are limited actions the
Company can take to address weather and broader climate shifts, aside from To this end the Company has included climate-related scenario analysis on
Why it exists: In the short-medium term there is heightened risk of specific protective measures at sites, it can ensure that it is prepared for page 54.
weather-related catastrophic events damaging or impacting performance of the impact of future issues.
Company assets, causing disruption to the business model. On a longer time
horizon, Climate Change impacts place a greater strain on natural resources
required for the operation of Company assets or changing climate patterns can
fundamentally alter the availability of renewable resources such as solar Performance of actual vs forecast irradiance is an inherent risk of investing
irradiation. in solar projects and one that has been clearly documented to investors since
the listing of the Fund.
Potential impact: Assets may be directly damaged by climate conditions leading
to a loss of generation. The Fund's financial projections are based on The Investment Manager monitors the actual generation of all portfolio assets
historic irradiation data and if actual sunshine hours are lower than versus the base case assumptions on an ongoing basis. If there is a divergence
forecast, less revenue will be generated. from the forecast generation then the Investment Manager will investigate the
reasons for such deviation and, if appropriate, update the forecasts for the
asset that will be reflected in the underlying valuation.
The Investment Manager keeps the Board informed of significant changes from
the base case assumptions by way of formal quarterly board meetings and
periodically, in real time, as appropriate.
GOING CONCERN AND VIABILITY STATEMENT
Going concern
The Directors are confident that the Company will have sufficient funds to
continue to meet its liabilities as they fall due for the going concern
assessment period and have therefore prepared the Financial Statements on a
going concern basis.
The Board has decided the going concern assessment period should be the period
to 30 June 2024. Due to the nature of the fixed price subsidised revenues
and the long-term debt in place across the portfolio, the Board believes it is
appropriate to evaluate a period longer than the required 12 months.
The Company's business activities, together with the factors likely to affect
its future development, performance and position, are set out in this report.
The financial position of the Company, including its financial performance,
cash flows, liquidity and borrowing facilities are referred to in the
Chairman's Statement, Investment Manager's Report and Notes to the Financial
Statements. The Financial Statements also include the Company's objectives,
policies and procedures for managing its capital, its financial risk
management objectives and its exposure to credit risk and liquidity risk.
A detailed evaluation of the cash flow impact for the going concern period
took into consideration the following elements individually and combined:
● All assets consistently generate a P90 level (90% probability of exceeding
expected production over a 10-year period) of electricity output. The
Directors consider this is an appropriate, market standard stress test with a
relevant example being the UK onshore wind market, which experienced a
low-yielding year in 2021.
● Power prices were reduced by 50% across the portfolio. This downside scenario
emulates the power price volatility seen in 2022, when prices reached four
times the Company's forecast before dropping significantly.
● Inflation-linked debt and the portfolio's costs are assumed to increase by 15%
per annum. This downside test represents the possibility of the high inflation
registered in 2022 continues into the going concern assessment period.
● The PPA provider that the group is most exposed to fails to settle merchant
revenue under its contract. This downside evaluation represents the risk of
offtaker insolvencies in response to the high number of bankruptcies during
2021 and 2022, which could continue into 2023 because of the high power prices
in the market.
If any of these sensitivities or scenarios were to materialise, the Company
could still meet its target dividend paid per share for the going concern
assessment period. However, the Board would continue to review on a periodic
basis whether paying the dividend would be appropriate considering the reduced
cash flow. The downside scenario forecasts show that operating costs would
still be covered, but the cash balance would fall gradually during the going
concern assessment period, albeit without causing any issues with operational
ability.
The evaluation demonstrated the Company would be able to meet its liabilities
and could continue to meet its dividend target in the going concern assessment
period. It was also noted no debt covenants would be breached in the period.
Viability statement
The Directors confirm that they have a reasonable expectation the Company will
be able to continue operating and meet its liabilities as they fall due
through 2027. In accordance with the UK Corporate Governance Code, the
Directors have assessed the viability of the Company over a five-year period
to 31 December 2027, on the basis that the Company has significant long-term
fixed and subsidised revenues and long-term debt, both extending beyond the
half decade timeframe.
This is the period focused on by the Board during the strategic planning
process and is considered reasonable for a business of the Company's size and
nature. Whilst the Directors have no reason to believe the Company will not be
viable over a longer period, they believe this presents readers of the Annual
Report with a reasonable degree of confidence whilst still providing a
longer-term perspective.
The Directors have considered the emerging and principal risks, identified on
pages 64 to 73, in relation to the Company's resilience over a five-year
period. In doing so, the Directors believe the key direct principal risks to
the Company's viability for the five-year period are: changes to the level of
political support for subsidies across the geographies the Company operates,
energy prices, and the impact of climate and weather-related risks.
In addition to these principal risks, the Directors have also reviewed the
sustainability-related risks that consider environmental, social and
governance factors in line with the recommendations of the Task Force on
Climate-related Financial Disclosures ("TCFD"), discussed in detail on pages
43 to 60.
Government-backed subsidy revenue comprises 40% of the portfolio's revenue for
the period to December 2027. Whilst this is a considerable proportion, the
subsidies are split across two different jurisdictions (United Kingdom and
Australia). It is expected the respective governments, in light of global
commitments to tackling the climate emergency and the rapid growth of the
sector, will continue to meet their obligations under the respective subsidy
regimes. In terms of prospective regime changes, such as the closure of the
Renewable Obligation scheme for projects commissioned after 31 March 2017,
these may affect the availability of the assets for acquisition, but not the
viability of the Company. In the UK, the government has been considering more
fundamental changes to energy markets with the former Department for Business,
Energy, and Industrial Strategy ("BEIS") publishing its consultation on the
Review of Electricity Market Arrangements ("REMA"). Any potential change will
develop over the five-year period, and the outcome remains unclear. However,
the Directors do not expect this process or related outcomes to materially
weaken the existing subsidy regime as this would significantly undermine
investment in the UK renewable energy market. Whilst changes are possible,
they are not expected to threaten the viability of the Company.
For the period to December 2027, 70% of the portfolio revenue is contracted
through government subsidies or forward electricity sales at a fixed price,
leaving 30% of revenues exposed to power price volatility. Excluding any
battery storage revenues, all other UK electricity sales above the £75/MWh
reference price are subject to the Electricity Generator Levy during the
five-year period. The Directors believe this risk is sufficiently mitigated
through the Company's price fixing strategy, which is reviewed on a regular
basis by the Investment Manager.
The Company owns assets across three jurisdictions globally, and therefore
considers short and medium-term changes in localised weather patterns to be a
risk. Australia, for example, has experienced three consecutive La Niña
summers with low irradiation, which could be a result of climate change.
Whilst very limited action can be taken by the Company to address weather and
broader climate shifts, aside from specific protective measures locally at
each asset, the Directors and Investment Manager continue to monitor and
assess the potential impacts on an ongoing basis.
In making this statement, the Directors have reviewed the summary five-year
cash projections of the Company, considering cash balances, dividend cover and
debt covenants. Sensitivity analysis covers the potential impact of the
Company's principal risks occurring and how those risks would threaten its
business model, future performance, solvency or liquidity. A summary of key
valuation sensitivities is set out earlier in the Annual Report. These
forecasts are based on the Investment Manager's view of future asset
performance, income and costs, and are consistent with the methodology applied
to produce the valuation of the investments.
The Board also considers the ability of the Company to raise debt and equity
and deploy capital. As part of this process, the Directors have also
considered the ongoing viability of the Company's long-term and short-term
debt strategies.
FINANCIAL REVIEW
The Company applies IFRS 10 and Investment Entities: Amendments to IFRS 10,
IFRS 12 and IAS 28, which states that investment entities should measure all
their subsidiaries that are themselves investment entities at fair value. The
Company accounts for its interest in its wholly owned direct subsidiary
Foresight Solar (UK Holdco) Limited as an investment at fair value through
profit or loss.
The primary impact of this application, in comparison to consolidating
subsidiaries, is that the balances, the working capital balances and the
borrowings in the intermediate holding companies are presented as part of the
Company's fair value of investments.
The Company's intermediate holding companies provide services that relate to
the Company's investment activities on behalf of the parent which are
incidental to the management of the portfolio.
The Company and its intermediate holding companies (the "Group") hold
investments in 61 assets which make distributions in the form of interest on
loans and dividends of equity as well as loan repayments and equity
redemptions.
For more information on the basis of accounting and Company structure please
refer to the Notes to the Financial Statements starting on page 120.
Key metrics for the year ended 31 December 2022
Year ended Year ended
31 December 31 December
All amounts presented in £million (except as noted) 2022 2021
Net Asset Value ("NAV")(1) 771.5 660.0
Gross Asset Value ("GAV")(2) 1,296.3 1,172.0
Operating income and gains on fair value of investments 163.0 124.9
Net assets per share (pence) 126.5 108.2
Distributions from and on behalf of solar investments 111.8 82.9
Profit after tax 154.5 117.9
(1) Total net assets as per the Statement of Financial Position on page 117.
(2) Calculated as the sum of the NAV and total outstanding debt.
Net assets
Net assets increased by 16.9% to £771.5 million at 31 December 2022 from
£660.0 million at 31 December 2021, primarily driven by power price forecasts
and the impact of actual inflation on future cash flows, which are detailed in
the Investment Manager's Report on page 26.
The net assets of £771.5 million comprise the £1,196.9 million portfolio of
UK, Australian and Spanish solar and UK battery investments and the Group's
cash balance of £101.2 million, offset by £409.8 million long-term debt,
£115.0 million of RCF outstanding debt and group net liabilities of £1.8
million.
Analysis of the Group's net assets at 31 December 2022
Year ended Year ended
31 December 31 December
All amounts presented in £million (except as noted) 2022 2021
Gross portfolio value(1) 1,196.9 1,107.8
Intermediate holding companies' cash 90.1 56.4
Intermediate holding companies' long-term debt (409.8) (388.6)
Intermediate holding companies' revolving credit facility (115.0) (123.4)
Intermediate holding companies' other liabilities (1.5) (3.0)
Company's cash 11.1 11.0
Company's other net liabilities (0.3) (0.2)
Net Asset Value 771.5 660.0
Number of shares 609,958,720 609,958,720
Net Asset Value per share 126.5p 108.2p
(1) Gross portfolio value is equal to the sum of the portfolio value, intermediate
holding companies' cash, intermediate holding companies' other liabilities,
Company's cash and Company's other liabilities
Third-party debt arrangements and gearing position
As at 31 December 2022, total outstanding long-term debt was £409.8 million,
representing 31.6% of the GAV (calculated as NAV plus outstanding debt) of the
Company and its subsidiaries (31 December 2021: £388.6 million or 33.2% of
GAV).
As at 31 December 2022, total outstanding debt including RCFs was £524.8
million, representing 40.5% of GAV (31 December 2021: £512.0 million or
43.7% of GAV).
The Group's net debt position, after deducting existing cash balances, is
£423.7 million, representing 32.7% of GAV (31 December 2021: £444.6
million or 37.9% of GAV).
Long-term facilities
As at 31 December 2022, £409.8 million of long-term debt facilities were
outstanding.
Inflation-linked debt facilities represent £89.6 million of total long-term
debt outstanding as at 31 December 2022.
On that same date, the average cost of long-term debt was 2.53% per annum,
including the cost of inflation-linked facilities of 1.23% per annum. The cost
of the inflation-linked facilities is expected to increase over time in line
with the Company's long-term RPI expectations of 3.00% in the medium term and
2.25% post-2030.
The refinancing of the senior debt facilities for the Longreach and Oakey 1
assets took place in April 2022, with facility terms reflective of an
investment grade offtaker on both projects.
Revolving credit facilities
During the year, the Company announced it had refinanced and replaced two
existing revolving credit facilities ("RCFs") with a new single £150.0
million facility. As at 31 December 2022, the Company had used £115.0 million
of its RCF, with £35.0 million remaining undrawn following £8.4 million net
repayments during the year. Of the undrawn balance, £11.8 million was
allocated to letters of credit due to expire in 2023.
At 31 December 2022, the weighted total cost of the RCF was 2.08% per annum
(2021: 1.69%).
Debt structure
Foresight Solar (UK Holdco) Limited
Foresight Solar (UK Holdco) Limited
RCF Debtco
Includes £150.0 million RCF loan
FS Holdco FS Holdco 2 FS Holdco 3 FS Holdco 4
Project Investments Project Investments Project Investments Project Investments
Includes first 16 UK asset acquisitions. Original long-term debt facility of Includes 28 assets following refinancing in August 2019. Original long-term Includes Coombeshead, Park Farm, Sawmills, Tengore, Verwood and Yardwall. Includes Australian and Spanish assets and respective debt at project level
£160.0 million debt facility of £170 million at FS Debtco Also includes original long-term debt facilities of £45.1 million
Note: simplified for illustrative purposes. For outstanding debt balances
please refer to the table on the following page.
The following table summarises the debt position of the Company as at 31
December 2022.
Holding Outstanding Interest
Borrower vehicle Provider Facility type (m) Maturity rate hedge Applicable rate
FS Holdco FIHC MIDIS Fixed rate, fully amortising £55.9 Mar-34 100% 3.78%
MIDIS Inflation linked, fully amortising £63.1(1) Mar-34 N/A RPI Index + 1.08%
Santander Term loan, fully amortising £7.5 Mar-24 80% SONIA + 1.70%
Total £126.5
FS Debtco FS Holdco 2 Helaba Term loan, fully amortising £150.5(2) Mar-36 100% SONIA + 1.30% (margin step to 1.35% in 2029)
Total £150.52
Second Generation Portfolio 1 FS Holdco 3 MIDIS Fixed rate, fully amortising £3.3 Aug-34 100% 4.40%
Inflation linked, fully amortising £26.51 Aug-34 N/A RPI Index + 1.70%
Total £29.8
Global Solar Energy 27 SL (Lorca) FS Holdco 4 BayernLB Senior loan €26.53 Dec-31 100% Double tranche: €20m at 1.61% fixed rate, €8m at Euribor + 210 bps
Foresight Solar Australia Pty Ltd FS Holdco 4 CEFC Term loan A$37.9(4) Jun-26 100% Base rate (0.96375%) + margin (2.00%)
Longreach ANZ/Deutsche Term loan A$22.3 Apr-27 100% BBSY Base rate + margin (1.20%)
Oakey 1 ANZ/Deutsche Term loan A$36.1 Apr-27 100% BBSY Base rate + margin (1.20%)
Oakey 2 Finco Pty Ltd CEFC Term loan A$44.6 Jun-23 100% Base rate (2.48%) + 2.25%
Total A$140.9
Total long-term debt £409.8(5)
FS RCF Debtco UK Hold Co Santander Revolving credit £115.0 Mar-25 0% SONIA + 1.9%
Total revolving debt £115.0
Total debt £524.8
(1) Nominal loan balance as at 31 December 2022 with the applicable RPI applied.
(2) Interest rate swap for 100% of the outstanding debt during the initial five
years, 75% from years six to ten and 50% thereafter.
(3) EUR/GBP exchange rate of 0.8868 as at 31 December 2022.
(4) Australian debt prorated for Company's share of asset ownership.
(5) AUD/GBP exchange rate of 0.5647 as at 31 December 2022.
The Company continues to have limited exposure to benchmark interest rate
movements in the UK, Australia and Spain as a result of the long-term interest
rate swaps in place to protect the Company from underlying interest rate
movements. In total, 99.5% of the £409.8 million of long-term debt is not
exposed to interest rates movements. The short-term £115.0 million RCF is
subject to interest rate volatility.
Sterling-denominated debt facilities priced over SONIA benefit from interest
rate swaps hedging between 80% and 100% of the outstanding debt during the
terms of the loans, depending on the facility.
In Australia, debt facilities with CEFC have no exposure to the Bank Bill Swap
Bid Rate ("BBSY") as the rate was fixed at financial close. The remaining debt
facilities have interest rate swaps on a decreasing nominal amount for a
notional tenor of 20 years in place.
In Spain, the debt facility priced over Euribor benefits from 100% interest
rate swaps of the outstanding debt during the term of the loan.
Profit and loss
The Company's profit after tax for the year ended 31 December 2022 is £154.5
million, generating profits of 25.3 pence per share (31 December 2021:
£117.9 million or 19.7 pence per share).
In the year to 31 December 2022, the operating income and gains on fair value
of investments was £163.0 million (31 December 2021: £124.9 million), which
comprised the receipt of £36.2 million of interest on the Foresight Solar
loan notes and £126.8 million net profits on investments at fair value in the
year.
Operating expenses included in the income statement for the year were £8.5
million, in line with expectations. These comprise Investment Management fees
of £7.4 million and £1.1 million of operating expenses. The details on how
the Investment Management fees are charged are set out in note 5 to the
Financial Statements.
Year ended Year ended
31 December 31 December
All amounts presented in £million (except as noted) 2022 2021
Interest received on Foresight Solar (UK Holdco) Limited loan notes 36.2 38.1
Net profits on investments at fair value 126.8 86.8
Operating income and gains/losses on fair value of investments 163.0 124.9
Operating expenses (8.5) (7.0)
Profit after tax 154.5 117.9
Earnings per share 25.3p 19.7p
Cash flow
The Company had a total cash balance at 31 December 2022 of £11.1 million (31
December 2021: £11.0 million). This amount excludes cash held in
subsidiaries. The breakdown of the movements in cash during the year is shown
below.
Cash flows of the Company only for the year to 31 December 2022 (£million)
Year ended Year ended
31 December 31 December
2022 2021
Cash balance at 1 January 11.0 16.9
Interest on loan notes received from Foresight Solar (UK Holdco) Limited 51.5 41.1
Directors' fees and expenses (0.3) (0.3)
Investment Management fees (7.4) (6.0)
Administrative expenses (0.7) (0.7)
Dividends paid in cash to Shareholders (43.0) (40.0)
Company cash balance at 31 December 11.1 11.0
Combined profit and loss of underlying investments
2021
UK Australia Consolidated Consolidated
For the year ended 31 December 2022 £m A$m £m £m
Revenue
Wholesale revenue 85.9 16.9 95.4 54.5
Subsidised revenue 61.4 8.2 66.0 54.4
Other income 2.8 0.5 3.1 1.2
Total revenue 150.0 25.7 164.5 110.1
Operating expenditure
O&M quarterly (5.9) (1.5) (6.8) (6.4)
O&M variable (1.2) (0.2) (1.3) (1.3)
Other operating expenditure (12.6) (4.6) (15.2) (11.8)
Total expenditure (19.8) (6.3) (23.3) (19.5)
Total operating profit 130.2 19.4 141.2 90.6
The Australian assets are consolidated based on the Fund's ownership, using an
average AUD/GBP exchange rate of 0.5618.
Subsidised revenues consist of ROC, ROC recycle, Feed-in Tariff, embedded
benefits and Large-Scale Generation Certificates ("LGCs").
The Spanish assets have not been included in the above analysis due to their
recent commissioning date.
Cash flows of the Company and intermediate holding companies for the year to
31 December 2022
During the year to 31 December 2022, the underlying solar assets paid £111.8
million of ordinary distributions to the intermediate holding companies.
Cash received from underlying solar investments covers the long-term debt
repayments, financing costs and the operating and administrative expenses of
the Company and the intermediate holding companies, as well as the dividends
declared and paid to Shareholders.
The acquisition costs of £12.2 million relate to the investment in Sandridge
Battery Storage Limited, Clayfords Energy Storage Limited and Lunanhead Energy
Storage Limited, and further investment to fund construction milestones at the
Spanish portfolio acquired in December 2020.
The Group received £24.5 million following the refinancing of the Lorca
portfolio in Spain and Longreach and Oakey 1 assets in Australia.
During the year, £10.9 million was repaid on the RCF, with an additional
£2.5 million drawn for refinancing costs.
Year ended
31 December
2022
Cash distributions from solar investments 111.8
Administrative expenses (1.7)
Directors' fees and expenses (0.3)
Investment Management fees (7.4)
Financing costs (net of interest income) (9.7)
Repayments of long-term debt facilities (18.0)
Cash flow from operations 74.7
Acquisition of new assets (12.2)
Refinancing proceeds 24.5
Net drawings and repayments of RCF (8.4)
Debt arrangement fees and refinancing fees (1.9)
Movement on FX collateral account (0.2)
FX gains on cash flows 0.3
Dividends paid in cash to Shareholders (43.0)
Cash movement in the period 33.8
Group cash balance at 1 January 67.4
Group cash balance at 31 December 101.2
Dividend cover
Total dividends of £43.0 million were paid during the year ended 31 December
2022. Compared with the relevant net cash flows from operations of the Company
and underlying investments of £74.7 million, these dividends were covered
1.74 times (31 December 2021: 1.21 times). During the year, the Board
exercised its right to cancel the scrip dividend alternative.
Dividends
The Company has declared dividends of 7.12 pence for the year ended 31
December 2022, representing a 2% increase to the dividend paid relative to
2021.
The Company has met all target dividends since IPO and follows a progressive
dividend policy, aiming to grow its payouts over time.
Dividend timetable for FY2022
Dividend Amount Status Payment date
Interim 1 1.78p Paid 26 August 2022
Interim 2 1.78p Paid 25 November 2022
Interim 3 1.78p Paid 24 February 2023
Interim 4 1.78p Declared 26 May 2023
Total 7.12p
On 15 March 2023, the Company announced its final interim dividend of 1.78
pence per share for the 2022 financial year. The timetable for this payment is
set out below:
Dividend timetable - Final Date
Ex-dividend date 20 April 2023
Record date 21 April 2023
Dividend payment date 26 May 2023
The Board will keep the re-instatement of the Scrip Offer in respect of future
quarterly dividends under consideration, subject to an assessment of the
relevant prices and to a determination that a re-instatement of the Scrip
Offer would be for the benefit of all Shareholders.
Foreign exchange
The Company is exposed to foreign exchange movements in respect to its
investments in Australia and Spain. As such, the Company continues to
implement a hedging strategy to reduce the possible impact of currency
fluctuations and to minimise the volatility of equity returns and cash flow
distributions.
Foreign exchange hedging will not be applied to the cost of the equity
investments, considering the long-term investment strategy of the Company.
For the Australian assets, the Company has entered a rolling two-year forward
contracts strategy for an amount equivalent to approximately 75% of its
expected distributable foreign currency cash flows at project level. For the
Spanish assets, the Company has implemented a ten-year rolling foreign
currency hedging strategy covering c.80% of the annual future cash flows
generated.
The Company reviews its foreign exchange strategy on a regular basis with the
objective of limiting the short-term volatility in sterling distributable cash
flows caused by foreign exchange fluctuations and optimising the costs of the
hedging instruments.
Ongoing charges
The ongoing charges ratio for the year to 31 December 2022 was 1.14% (31
December 2021: 1.14%). This has been calculated using methodology as
recommended by the Association of Investment Companies ("AIC"). Asset
management fees charged by Foresight Group LLP on an arm's length basis at
project level are excluded from the ongoing charges ratio.
FSFL UK Hold Co
Ongoing charges (£'000) (£'000)
Investment Management fees 7,418 -
Director fees 283 -
Administration fees 200 20
Audit fees 155 8
Other legal and professional fees 316 -
Other ongoing expenses 129 62
Total 8,591
Ongoing charges ratio 1.14%
NAV
£m
31 March 2022 714.4
30 June 2022 754.9
30 September 2022 771.2
31 December 2022 771.5
Average 753.0
BOARD OF DIRECTORS
The Directors are responsible for the determination of the investment policy,
have overall responsibility for the Company's investment activities and for
reviewing the performance of the portfolio.
Alexander Ohlsson
Chairman
Background
Mr Ohlsson is Group Managing Partner of the international offshore law firm
Carey Olsen. He is recognised as a leading expert in corporate and finance law
in Jersey, and is regularly instructed by leading global law firms and
financial institutions. He sits on the boards of several companies and is also
Chairman of GCP Asset Backed Income Fund Limited. He is an Advisory Board
member of Jersey Finance, Jersey's promotional body, and Treasurer of the
Jersey Law Society. He has previously served as the independent Chairman of
the States of Jersey's Audit Committee. He was educated at Victoria College,
Jersey and at Queens' College, Cambridge, where he obtained an MA (Hons) in
Law. He has also been an Advocate of the Royal Court of Jersey since 1995.
Mr Ohlsson was appointed as a Non-Executive Director and Chairman on
16 August 2013 and was re-elected on 15 June 2022.
External directorships
GCP Asset Backed Income Fund Limited.
Chris Ambler
Senior Independent Director
Background
Mr Ambler has been the Chief Executive of Jersey Electricity Plc since 1
October 2008. He has extensive experience from several senior positions in the
global industrial, energy and materials sectors, where he worked for major
corporations including ICI/Zeneca, The BOC Group and Centrica/British Gas, as
well as from strategic consulting roles. He is a Director on other boards,
including a Non-Executive Director of Apax Global Alpha Limited, a listed fund
which launched on the London Stock Exchange on 15 June 2015. Mr Ambler is a
Chartered Director, a Chartered Engineer and a Member of the Institution of
Mechanical Engineers. He holds a First Class Honours Degree from Queens'
College, Cambridge and an MBA from INSEAD.
Mr Ambler was appointed as a Non-Executive Director on 16 August 2013 and
was re-elected on 15 June 2022.
External directorships
Jersey Electricity Plc, Apax Global Alpha Limited.
Ann Markey
Non-Executive Director
Background
Ms Markey is an experienced business leader and Non-Executive Director with a
strong financial background and over 25 years' experience as a senior
executive and board Director in multiple businesses. Ms Markey has extensive
experience in the electricity industry, particularly in thermal and renewable
generation, including PV solar and wind. She was a senior executive with ESB,
a leading Irish electricity utility, and with Greencoat Capital, a leading
renewable energy investment manager. She holds a number of Non-Executive
Director positions where she is also Chair of Audit and Risk Committees. She
is a Chartered Accountant, having trained and qualified with Arthur Andersen.
Ms Markey was appointed as a Non-Executive Director on 1 September 2020 and
was re-elected on 15 June 2022.
External directorships
Velocys Plc, Sustainable Energy Authority of Ireland, Land Development Agency,
member of the Audit and Risk Committee of the Health Services Executive
(Ireland's national health service).
Monique O'Keefe
Non-Executive Director
Background
Mrs O'Keefe is the co-founder of investment consultancy business Kairos Wealth
Limited. She is an Executive Director of Arrow Global Group Capital Management
Limited, the fund manager for the Arrow Global Group business. Mrs O'Keefe
also sits on the Board of Commissioners at the Jersey Financial Services
Commission and on the board of the Jersey Resolution Authority.
Mrs O'Keefe was appointed as a Non-Executive Director on 1 June 2019 and was
re-elected on 15 June 2022.
External directorships
Kairos Wealth Limited, Arrow Global Group Capital Management Limited, Board of
Commissioners at the Jersey Financial Services Commission and Board of the
Jersey Resolution Authority.
Peter Dicks
Non-Executive Director
Background
Mr Dicks is currently a Director of a number of quoted and unquoted companies.
He is also on the Board of Mercia Fund 1 General Partnership Limited and Miton
UK Microcap Trust plc, and Chairman of SVM Emerging Fund plc.
Mr Dicks was appointed as a Non-Executive Director on 16 August 2013 and was
re-elected on 15 June 2022.
External directorships
Mercia Fund 1 General Partnership Limited, Miton UK Microcap Trust plc, SVM
Emerging Fund plc.
Investment manager
>390
infrastructure assets under management
200+
institutional clients
4.3GW
total green energy technology capacity
The Company's Investment Manager, Foresight Group LLP, is responsible for the
acquisition and management of the Company's assets, including the sourcing and
structuring of new acquisitions and advising on the Company's borrowing
strategy. Foresight Group is authorised and regulated by the Financial Conduct
Authority.
Foresight Group was founded in 1984 and is a leading listed infrastructure and
private equity investment manager. With a long-established focus on ESG and
sustainability-led strategies, it aims to provide attractive returns to its
institutional and private investors from hard-to-access private markets.
Foresight manages over 350 infrastructure assets with a focus on solar and
onshore wind assets, bioenergy and waste, as well as renewable energy enabling
projects, energy efficiency management solutions, social and core
infrastructure projects and sustainable forestry assets.
Its private equity team manages 11 regionally focused investment funds across
the UK and an SME impact fund supporting Irish SMEs. This team reviews over
2,500 business plans each year and currently supports more than 250
investments in SMEs.
Foresight Capital Management manages four strategies across six investment
vehicles with assets under management ("AUM") of £1.4 billion.
Foresight operates across seven countries in Europe and Australia with AUM of
£12.3 billion. Foresight Group Holdings Limited listed on the Main Market of
the London Stock Exchange in February 2021.
Foresight Infrastructure's team consists of 163 investment, portfolio and
technical professionals as at 31 December 2022. The team is comprised of:
(i) An investment management team responsible for originating, assessing and
pricing assets, managing due diligence and executing transactions
(ii) An asset management team with expertise across electrical and civil
engineering, finance and legal disciplines
The Foresight infrastructure team has substantial experience in sourcing and
executing all required elements of the capital structure of an investment
across geographies, including project-level debt finance and other required
forms of finance
The key strengths of the infrastructure investment team include: (i) sourcing
and execution of asset acquisitions; (ii) experience of pricing complex
revenue streams; (iii) pricing wholesale power exposure; (iv) managing
construction projects; and (v) finance and structuring, including bank debt
and project finance.
The asset management team consists of individuals with engineering, consulting
and operations backgrounds, accountants and in-house personnel responsible for
the process of "on-boarding" and managing acquired assets as well as a
technical team of specialist infrastructure engineers that help by evaluating
an asset's operational and physical characteristics during due diligence,
construction management and assist the asset management team to manage the
assets by identifying and implementing optimisations post-acquisition. Members
of these teams work together throughout the investment lifecycle.
The asset management services provided ensure the day-to-day operation of the
sites is robust, with commercial and strategic decisions clearly communicated
to the O&M counterparties. The services also include:
● Portfolio optimisation including negotiation of project contracts, component
warranties and insurance policies, spare part and replacement strategy and
technology improvements
● Oversight of O&M counterparties and operational performance
● Contractual compliance of all contracts
● Reporting to debt providers and other debt compliance services
● Accounting, bookkeeping, tax compliance and statutory reporting of all SPVs
● Corporate governance activities including health and safety compliance
Foresight Group LLP is responsible for the acquisition and management of the
Company's assets.
Key FSFL professionals
Ricardo Piñeiro
Partner, Co-Head of Infrastructure
Background
Mr Piñeiro joined Foresight in 2011 and is a Partner and Co-Head of
Infrastructure. A member of the firm's Executive Committee, he has 18 years of
experience in fund management, sustainable infrastructure investment and
financing in the UK and internationally. During his time at Foresight, Mr
Piñeiro has led the Company's investment management team since its IPO.
Prior to joining Foresight, Mr Piñeiro worked at Espirito Santo Investment,
where he focused on lending and advisory for the energy infrastructure and
transportation sectors.
Gary Fraser
Partner, CFO & COO
Background
Mr Fraser joined Foresight in 2004 and is an Executive Director and CFO of
Foresight Group Holdings Limited, which listed on the London Stock Exchange in
February 2021. He has 30 years of experience. Mr Fraser is the Head of Finance
and Administration within Foresight Group LLP, providing or facilitating
specialist financial input into corporate, portfolio and VCT decisions. Prior
to Foresight, Mr Fraser worked at F&C Asset Management as a Company
Secretary, where he focused on legal and tax compliance, financial compliance,
technical and financial reporting and corporate finance. He has also worked at
EY, focusing on audit and risk assurance.
Mr Fraser is a Chartered Fellow of the Securities Institute, Chartered
Accountant, Bacc from the University of Stirling.
Ross Driver
Managing Director, Infrastructure
Background
Mr Driver joined Foresight in 2021 to oversee delivery of all aspects of the
Investment Mandate. He has over 17 years' infrastructure and renewable energy
investment experience, covering deal structuring and execution, debt financing
and asset management across multiple asset classes. Prior to Foresight, Mr
Driver spent eight years at InfraRed Capital Partners, where he focused on
greenfield renewable energy and infrastructure investments. He has also worked
at John Laing Investments and KPMG Corporate Finance.
Mr Driver holds an MBA from the University of Chicago, Booth School of
Business and BA in Finance, Accounting and Management from the University of
Nottingham.
BOARD LEADERSHIP AND COMPANY PURPOSE
CORPORATE GOVERNANCE REPORT
A successful company is led by an effective board. The Directors promote the
long-term sustainable success of the Company, generating value for
Shareholders and contributing to society.
On behalf of the Board, I am pleased to introduce the Company's Corporate
Governance Statement for the reporting period ended 31 December 2022.
Board leadership
The Board has overall responsibility for the management of the affairs of the
Company and is responsible for its long-term sustainable success.
The Company has a Board of five Non-Executive Directors, and all of them are
considered to be independent. Profiles of each of the Non-Executive Directors
are set out on pages 84 and 85.
During the year, the Board conducted an externally facilitated Board
effectiveness assessment and, as part of that analysis, all Directors have
confirmed that they have adequate time to commit to their roles and
responsibilities to the Company. Further details of this assessment are set
out in the Nomination Committee Report on pages 94 to 96.
The Board believes that, as a whole, it has an appropriate balance of skills,
experience and knowledge. The Board also understands that diversity of
experience and approach amongst members is important, and it is the Company's
policy to give careful consideration to issues of Board balance and diversity
when making new appointments.
Board operation
The Board is responsible to Shareholders for the proper management of the
Company and Board meetings are held on at least a quarterly basis. Further ad
hoc meetings are scheduled as required. In the year under review, eight Board
meetings were held, over and above the normal four quarterly Board meetings.
The Board monitors the investment performance of the Company in comparison to
its objectives at each Board meeting. The Board also reviews the Company's
activities since the last meeting to ensure that the Investment Manager
adheres to the agreed investment policy and approved investment guidelines,
and, if necessary, approves changes to such policy and guidelines.
At the Company's quarterly Board meetings, the Board typically considers the
following business:
● Update from the Investment Manager, including:
○ Market commentary
○ Company portfolio overview
○ Portfolio performance reports
○ Financial performance reports, including cash flow analysis and dividend cover
forecasts
○ Pipeline, acquisitions and disposals
○ Health and safety
○ Gearing and debt compliance
○ Shareholder and analyst feedback and reports
○ Sustainability reporting
○ Independent power price reports
● Update from the Company's Broker, including:
○ Market commentary
○ Share price performance against the Company's peers
○ Sales and trading commentary
● Report from the Compliance Officer and Company Secretary, including:
○ Compliance monitoring
○ Regulatory and governance updates
The Investment Management Agreement between the Company and the Investment
Manager sets out the matters over which the Investment Manager has authority,
including monitoring and managing the existing investment portfolio and the
limits above which Board approval must be sought.
Full details of the Directors' duties and obligations are provided at the time
of appointment and are supplemented by further details as requirements change.
A formal induction programme for all new appointees remains in place. The
Board has also instigated an ongoing annual training programme for its
Directors on topics relevant to the Company's business.
The Board has access to the officers of the Company Secretary, who also attend
all Board meetings. Representatives of the Investment Manager attend all Board
meetings, although the Directors may meet without the Investment Manager being
present. Informal meetings between the Board and the Investment Manager are
also held in between formal Board meetings as required.
Purpose and culture
The Company's purpose is to offer investors access to a sustainable,
progressive quarterly dividend and enhanced capital value through investing in
a diversified portfolio of ground-based solar PV and battery storage systems
("BSS") assets, including development-stage solar and BSS assets, in the UK
and internationally.
The Company's culture is aimed at achieving this purpose and creating an
environment of proactive engagement between the Board and stakeholders,
constructive challenge of the Investment Manager, holding key service
providers accountable, and encouraging openness, integrity and transparency in
all business relationships.
The Board recognises its sustainability and ESG responsibilities and aims,
with the support of its Investment Manager, to continually improve the
Company's ability to deliver attractive financial returns to investors
alongside strong environmental, social and governance ("ESG") benefits.
Governance
The Board has continued to improve its governance framework throughout the
year by working closely with the Company Secretary to review and refresh the
Company's policies and procedures to ensure that they remain up to date and
fit for purpose.
Statement of compliance with the AIC Code
The Company is a member of the Association of Investment Companies ("AIC").
The Board has considered the Principles and Provisions of the AIC Code of
Corporate Governance ("AIC Code").
The AIC Code addresses the relevant Principles and Provisions set out in the
UK Corporate Governance Code (the "UK Code"), as well as setting out
additional Provisions on issues that are of specific relevance to Foresight
Solar Fund Limited.
The AIC Code is available on the AIC website
(https://www.theaic.co.uk/aic-code-of-corporate-governance
(https://www.theaic.co.uk/aic-code-of-corporate-governance) ).
The AIC Code includes an explanation of how it adapts the Principles and
Provisions set out in the UK Code to make them relevant for investment
companies.
The Board considers that reporting against the Principles and Provisions of
the AIC Code, which has been endorsed by the Financial Reporting Council and
is supported by the Jersey Financial Services Commission ("JFSC"), provides
more relevant information to Shareholders.
The Company has applied the Principles and complied with the Provisions of the
AIC Code published in February 2019.
Attendance by Directors at Board and Committee meetings is detailed in the
table below.
Audit and Management
Board Risk Engagement Remuneration Nomination
Alexander Ohlsson 10/12 n/a 3/3 n/a 2/2
Ann Markey 12/12 4/4 3/3 n/a n/a
Chris Ambler(1) 10/12 4/4 1/1 2/2 2/2
Monique O'Keefe(2) 10/12 3/4 1/1 2/2 2/2
Peter Dicks 12/12 4/4 3/3 2/2 n/a
(1) As part of the Committee composition review, Mr Ambler was reappointed to the
Management Engagement Committee with effect from 16 June 2022.
(2) As part of the Committee composition review, Mrs O'Keefe was reappointed to
the Management Engagement Committee with effect from 16 June 2022
The Company's governance structure is aimed at achieving the Company's purpose
and creating a framework that supports the Company's intended culture and
sustainability, and ESG initiatives.
Our governance framework:
The role of the Board
The role of the Board is to support the Company's Investment Manager in
delivering the Company's purpose, engage with key stakeholders to understand
how the Company can best respect their interests in the pursuit of its
purpose, and work closely with key service providers to maintain a robust
platform on which the Company's operational activities are supported.
Board roles Role overview
Chairman The Chairman leads the Board and is responsible for its overall effectiveness
in directing the Company.
Senior Independent Director The Senior Independent Director provides a sounding board for the Chairman and
serves as an intermediary for the other Directors and Shareholders.
Non-Executive Director Non-Executive Directors provide constructive challenge, strategic guidance,
offer specialist advice and hold third-party service providers to account.
Company Secretary The Company Secretary supports the Board and ensures that the Company has the
policies, processes, information, time and resources it needs to function
effectively and efficiently.
Board Committees
The Board has four standing Committees: the Audit and Risk Committee, the
Management Engagement Committee, the Remuneration Committee and the Nomination
Committee. The Board has adopted formal terms of reference for the four
standing Committees, which make recommendations to the Board in specific
areas. These terms of reference are available to view by writing to the
Company Secretary at the Company's registered office.
During the year, the Board has resolved to amend the constitution of the
Management Engagement Committee in light of the Committee's work and of the
usefulness of including all Directors in the review process of Foresight, as
well as other key service providers. The composition of the Board's Committees
is set out below.
Board Committees
Audit and Risk Management Engagement Committee Nomination Remuneration
Committee Committee Committee
Responsible for ensuring the Company maintains the highest standards of Responsible for reviewing the performance of the Investment Manager in the Responsible for leading the process for Board appointments, Board evaluation, Responsible for the development of remuneration policies and practices that
integrity, financial reporting, internal and risk management systems and context of the Investment Management Agreement between the Company and the succession planning and ensuring a diverse succession pipeline. support the Company's strategy and promote its long-term success.
corporate governance. Investment Manager, as well as evaluating other key service providers.
Composition: Composition: Composition: Composition:
Ann Markey (Chair) Alexander Ohlsson (Chair) Monique O'Keefe (Chair) Monique O'Keefe (Chair)
Monique O'Keefe Peter Dicks Alexander Ohlsson Peter Dicks
Chris Ambler Ann Markey Chris Ambler Chris Ambler
Peter Dicks Monique O'Keefe
Chris Ambler
Reports from the Company's Committees are set out on pages 92 to 107.
AIFM Directive
The Company is categorised as a self-managed non-EEA AIF for the purposes of
the Alternative Investment Fund Managers Regulation 2013 and the AIFM
Directive. As such, neither it nor the Investment Manager are required to seek
authorisation under the AIFM Directive. The Board retains responsibility for
the majority of the Company's risk management and portfolio management
functions and performs a number of its management functions through the
various committees described above.
MANAGEMENT ENGAGEMENT COMMITTEE REPORT
The Committee is responsible for reviewing the performance of the Investment
Manager and key service providers to ensure that the Company is effectively
supported.
The main roles and responsibilities of the Committee are to:
● Review the terms of appointment and fees paid to the Investment Manager
● Review the performance of the Investment Manager and hold the Investment
Manager accountable for its performance
● Review the terms of appointment and fees paid to key service providers,
including the Company Secretary, registrar, legal advisors and broker
● Review the performance of the key service providers and hold them accountable
for their performance
The Management Engagement Committee's main responsibility is reviewing the
performance of the Investment Manager in the context of the Investment
Management Agreement between the Company and the Investment Manager. Further,
the Committee is also charged with reviewing the performance of key service
providers as considered appropriate. This Committee meets at least annually.
Performance of the Investment Manager
During the year, the Committee considered the Investment Manager's overall
performance, its ability to support the Board in delivering the Company's
purpose, the Investment Manager's relative performance against its peers and
the remuneration of the Investment Manager for services to the Company for the
year under review.
The Committee conducted a detailed review and was able to conclude that, while
the Board should continue to challenge the Investment Manager on its ability
to deliver growth, financial performance for the desired risk profile,
effective management of the Company's assets and a sustainable, progressive
dividend, the ongoing retention of the Investment Manager, at the remuneration
levels paid to the Investment Manager, remained in the Company's best
interests.
The Investment Manager is responsible for supporting the Company in developing
its environmental, social and corporate governance framework and reporting.
More details on this can be found in the sustainability and ESG section on
pages 36 to 60.
Performance of key service providers
The Committee also conducted a review of the Company's key service providers,
including its Company Secretary and Administrator, broker, PR agency, legal
advisors and registrar. The Committee concluded that it would continue to work
with service providers to address any performance concerns and to ensure that
the fees paid to these advisors remained in line with the agreed budget and
agreements with those providers. Further, the Committee was comfortable that
the fees paid to key service providers were broadly in line with market rates
for comparable services.
Conclusion
The Committee, following its review of the performance of the Investment
Manager, was satisfied that the Investment Manager's ongoing appointment, on
its current terms as set out in the Investment Management Agreement, was in
the best interests of the Company's Shareholders and other stakeholders.
Alexander Ohlsson
Chair of the Management Engagement Committee
14 March 2023
COMPOSITION, SUCCESSION AND EVALUATION
NOMINATION COMMITTEE REPORT
The Committee is responsible for ensuring rigorous and transparent procedures
along with objective selection criteria for Board appointments and succession
plans.
The main roles and responsibilities of the Committee are to:
● Lead the process for new appointments to the Board
● Ensure plans are in place for orderly succession to the Board
● Oversee the development of a diverse pipeline for succession
● Lead Board effectiveness review annually
The Nomination Committee is responsible for ensuring that the Company sets
formal, rigorous and transparent procedures along with objective selection
criteria that also seek to promote diversity of gender, social and ethnic
backgrounds, cognitive and personal strengths for Board appointments and
succession plans.
Appointments and succession planning
All appointments to the Board are subject to a formal, rigorous and
transparent procedure and are typically supported by external search
consultants. The requirements for appointments to fill vacancies on the Board
are set with reference to objective criteria and promote diversity of gender,
social and ethnic backgrounds, cognitive and personal strengths. Further, the
Board reviews, at least annually, its effectiveness and its combination of
skills, experience and knowledge.
In light of the continued strong performance of the Directors, the longer-term
nature of the Company's assets and the desire to retain corporate history,
knowledge and experience, the Nomination Committee has recommended to the
Board that the continued service of these Directors be welcomed. The Board
notes that it is in the process of implementing a phased succession plan in
respect to some of its members, as discussed in detail below.
During the year, the Committee engaged the Green Recruitment Company to
support the first part of the Company's phased succession plan. This first
phase will be the rotation off the Board of Peter Dicks, who will be succeeded
by an appropriate candidate with a similar skillset. The next phase of the
Company's succession plan is expected to focus on the succession of one of the
Jersey-based Directors. The Committee expects to continue to implement this
plan throughout 2023 and 2024. The Company has engaged Satori Executive Search
to support its recruitment initiatives in Jersey.
Board and Committee composition
The Committee reviewed the composition of the current Board and concluded that
the Directors work well together and possess a desirable balance of skills,
experience and expertise. The Committee will continue to pursue the Company's
succession plan with due regard to maintaining the effective working dynamics
achieved by the current Board.
The Committee has considered the tenure of Alexander Ohlsson, Chris Ambler and
Peter Dicks, who have all been in position since the Company's IPO in 2013,
and understands they remain independent. While it is Mr Dicks' intention to
step down in the first half of 2023, Messrs Ohlsson and Ambler are expected to
remain on the Board for the next 18 to 24 months. While the Company recognises
the value of refreshing its Board composition, it still benefits from the
Directors' experience and expertise. Because of the long-term nature of the
Company's business, it stands to gain from leadership continuity at the Board
level. Messrs Ohlsson and Ambler's retention is also considered beneficial to
support the Company's phased succession plan as it ensures an orderly handover
to new Directors.
The Committee also reviewed the composition of the Company's Committees and,
following this analysis, recommended that all Directors be members of the
Company's Management Engagement Committee. The recommendation seeks to
leverage the different skills and experiences held by the Directors and the
expectation that this diversity of background is beneficial to the discussions
and evaluations happening in the Management Engagement Committee. Further,
allowing all Directors to be members of the Management Engagement Committee
enabled each Director to provide immediate input into the performance and the
review of the Investment Manager and other key service providers.
Board performance evaluation
The Board undertakes an annual evaluation of its own performance and of its
Committees through an initial evaluation questionnaire. The Chair then
discusses the results with the Board and its Committees and takes appropriate
action to address any issues arising from the process.
During 2022, the Board, supported by the Committee, instigated an externally
facilitated Board effectiveness evaluation and appointed Aspida Group to
conduct this process. The review involved the completion of a questionnaire by
all Directors, one-on-one interviews with each of them, the Investment
Manager, the Company Secretary and the broker, in-person meeting observation,
a document review and a governance review. The key recommendations from the
evaluation were:
● The Company's policies should be reviewed annually and be further refined to
the business of the Company
● The Board could benefit from further clarification of the division of
responsibilities and the matters reserved for the Board
● The Board's Committees should more clearly and formally report to the Board
with a summary of their work and key recommendations and decisions
Aspida concluded that the Board has a good standard of Corporate Governance
and, in all areas reviewed, it was observed that the Board was compliant with
the Codes. Aspida did note that succession planning was now a key area of
focus for the Board.
The Committee will continue to support the Board with the implementation and
review of these recommendations throughout 2023. The Board will conduct
another externally facilitated evaluation in 2025.
Overall, the Board is of the view that the Board, the Chairman, each of the
Directors and all Committees have performed well during the year. The Board
continues to work well with the Investment Manager in developing the Company's
growth strategy and promoting its long-term success.
Directors' professional development
Full details of duties and obligations are provided to the Directors at the
time of appointment and are supplemented by further details as requirements
change. A formal induction programme for new appointees is now in place.
Directors are also provided with key information on the Company's policies,
regulatory and statutory requirements, and internal controls on a regular
basis. Changes affecting Directors' responsibilities are advised to the Board
as they arise. Directors also participate in industry seminars annually, as
well as participating in an ongoing annual training programme on topics
relevant to the Company's business. Further, as Directors of a Regulated Fund
in Jersey, the members of the Board are required to undertake a minimum of 25
hours' continuous professional development per year and all Directors met this
requirement in 2022.
Diversity
The Board has adopted a formal Diversity Policy to support the Company's
commitment to increased diversity as an essential element in maintaining
effective operations. This policy is reviewed by the Nomination Committee each
year to ensure that it remains fit for purpose.
During the year, the Committee noted that the Company retained 40% female
representation on the Board but had limited ethnic diversity.
The Committee confirmed that it remained committed to ensuring diversity in
all forms, including gender and ethnicity, and it remains a key component of
the Company's recruitment and succession plans.
With reference to the Company's phased succession plan, the Committee was
satisfied with the interest received from multiple female candidates. It was,
however, disappointed with the lack of ethnic diversity among appropriate
candidates reviewed during the process. The Board, along with its external
recruitment adviser, will continue to focus on attracting and appointing
diverse candidates.
For the first phase of the succession plan, the Committee considered
candidates from the UK and continental Europe. For the next phase, it will
look to secure Jersey residents to support the Company's Jersey Economic
Substance requirements. In these subsequent rounds, and despite a more limited
pool of potential candidates, the Company continues to be committed to run a
process targeted at attracting the most qualified, most diverse applicant pool
possible.
Conflicts of interest
The Directors are obligated to notify the Company Secretary as soon as they
become aware of any actual or potential new conflict of interest. Only
Directors who have no material interest in the matter being considered will be
able to participate in the Board approval process.
Other business relationships, including those that conflict or may potentially
conflict with the interests of the Company, are considered when appointing
Board members and are monitored on a regular basis. The terms of each
Director's appointment letter with the Company require that they seek prior
approval from the Board before taking up any additional external appointments.
The Board recognises the holdings of Ordinary Shares in the Company held by
the relevant Directors, details of which are set out on page 139. The Board
considers these interests at each scheduled meeting and remains satisfied that
they do not affect their objectivity or the ability of the Directors to
exercise independent judgement.
Re-election of Directors
Mr Ohlsson, Mr Ambler, Mrs O'Keefe, Ms Markey and Mr Dicks were all
reappointed at the Annual General Meeting of the Company held on 15 June 2022.
It was noted with disappointment by the Committee that Mrs O'Keefe received a
significant number of votes against her reappointment (>10%). Through
engagement with the relevant Shareholders who submitted ballots against
Mrs O'Keefe's reappointment, the Board established that this was due to
inadequate ethnic diversity on the Company's Board.
As described above, the Company is continuously looking for opportunities to
improve its diversity and will continue to do so. The Committee recognises
that diversity is an important consideration, along with a candidate's balance
of skills, experience and expertise, and these remain a key element for the
Company's recruitment and succession plans.
With the exception of Mr Dicks, who, as announced in the Company's Interim
Report, will be rotating off the Board during 2023, all Directors will offer
themselves for re-election at the Company's 2023 Annual General Meeting.
Monique O'Keefe
Chair of the Nomination Committee
14 March 2023
AUDIT, RISK AND INTERNAL CONTROL
AUDIT AND RISK COMMITTEE REPORT
The Committee ensures the Company maintains the highest standards of
integrity, financial reporting, internal and risk management systems, and
corporate governance.
The main roles and responsibilities of the Committee are to:
● Monitor the integrity of the Financial Statements of the Company and approve
the accounts
● Review the Company's internal control and risk management systems
● Make recommendations to the Board in relation to the appointment of the
external Auditor
● Review and monitor the external Auditor's independence
● Implement and review the Company's policy on the engagement of the external
Auditor to supply non-audit services
The Audit and Risk Committee comprises four Directors: Ann Markey (Chair),
Monique O'Keefe, Chris Ambler and Peter Dicks. Alexander Ohlsson, as Chairman
of the Board, is not a formal member of the Audit and Risk Committee but is
invited to attend meetings.
The Committee operates within clearly defined terms of reference, which were
confirmed again during the year and were updated to include additional scope
to analyse the Company's reporting on ESG and sustainability, as well as to
empower the Committee to review the controls associated with the Company's ESG
and sustainability activities and reporting.
During the year, the Committee reviewed and continued to develop its framework
on risk management and internal control. The Committee's work in this area has
improved the transparency of the Company's risk management systems and
processes, and has more clearly delineated risk responsibilities.
The Committee is charged with maintaining an open and effective relationship
with the Company's Auditor. The Chair of the Committee keeps in regular
contact with the Auditor throughout the audit process and the Auditor attends
the Committee meetings at which the Company's Annual Financial Statements are
considered. The Committee reports directly to the Board, which retains the
ultimate responsibility for the Financial Statements of the Company.
KPMG LLP ("KPMG") has completed the Company's external audit for the year and
has not performed any non-audit services in 2022. JTC (Jersey) Limited
prepares all necessary tax returns following sign-off of the annual accounts.
Meetings are scheduled to coincide with the reporting cycle of the Company and
the Committee met four times during the year. The function of the Committee is
to ensure that the Company maintains the highest standards of integrity,
financial reporting, internal and risk management systems, and corporate
governance.
None of the members of the Committee have any involvement in the preparation
of the Company's Financial Statements.
Significant issues considered
The Committee has identified and considered the following principal key risk
in relation to the business activities and to the Annual Financial Statements:
● Valuation of unquoted investments. This issue was discussed with the
Investment Manager and the Auditor at the planning and conclusion of the audit
of the Annual Financial Statements, as explained below. (It is also considered
by the Committee in relation to the Interim Financial Statements.)
Valuation of unquoted investments
The unquoted investment is a 100% controlling interest in Foresight Solar (UK
Holdco) Limited ("UK Holdco"), a non-consolidated subsidiary company which is
measured at fair value. The majority of UK Hold Co's total assets (by value)
are in companies in which no quoted market price is available.
The total controlling interests of the Company's assets are held through its
subsidiary Foresight Solar (UK Holdco) Limited (UK Holdco): FS Top Holdco 1
Limited ("FS Topco 1"), FS Top Holdco 2 Limited ("FS Topco 2"), FS Holdco
Limited ("FS Holdco") and FS Holdco 3 Limited ("FS Holdco 3") (through RCF
Debtco), FS Holdco 4 Limited ("FS Holdco 4") and SBSHL. (See Note 1 for
further detail.) FS Topco 1 in turn holds an indirect 100% controlling
interest in FS Holdco Limited ("FS Holdco"). FS Topco 2 has an indirect 100%
controlling interest investment in FS Debtco Limited ("FS Debtco"). FS Holdco
3 has an indirect 100% controlling interest in SGP 1.
These are all non-consolidated subsidiary companies which are also measured at
fair value, established by using the fair value of the net assets of the
aforementioned.
The majority of the total assets (by value) of FS Holdco, FS Debtco, SGP1 and
FS Holdco 4 are held in investments in which no quoted market price is
available and are valued by using discounted cash flow models. SBSHL's
investments are held at cost as they are not yet operational.
These valuations of underlying investments are seen to be an area of inherent
risk and judgement. There is an inherent risk of the Investment Manager
unfairly valuing the investment due to the Investment Manager's fee being
linked directly to the Net Asset Value of the Company.
During the valuation process, the Board, the Committee and the Investment
Manager follow the valuation methodologies for unlisted investments as set out
in the International Private Equity and Venture Capital Valuation guidelines,
as well as appropriate industry valuation benchmarks. These valuation policies
are set out in note 2 of the accounts.
The Investment Manager's valuations, including changes in assumptions, are
reviewed by the Committee. The Investment Manager confirmed to the Audit and
Risk Committee that the underlying investment valuations had been calculated
consistently throughout the year and in accordance with published industry
guidelines, taking account of the latest available information about investee
companies and current market data. Furthermore, the Investment Manager held
discussions regarding the investment valuations with the Auditor.
The Investment Manager has agreed the valuation assumptions with the
Committee.
Key assumptions used in the valuation forecasts are detailed in note 16 of the
Financial Statements. The Investment Manager has provided sensitivities around
those assumptions which are also detailed in note 16.
The Investment Manager employs three independent energy consultants to provide
forward-looking power price forecasts which are a key input into portfolio
valuations.
Annual Financial Statements
The Investment Manager confirmed to the Committee that they were not aware of
any material misstatements in the Company's financial reporting. Having
reviewed the reports from the Investment Manager and from the Auditor, the
Committee is satisfied that the key areas of risk and judgement have been
addressed appropriately in the Annual Financial Statements and that the
significant assumptions used in determining the value of assets and
liabilities have been properly appraised and are sufficiently robust.
The Committee has concluded that the Annual Report and Financial Statements
are fair, balanced and understandable, and that they provide the information
necessary for Shareholders to assess the Company's position, performance,
business model and strategy.
External Auditor
During the year, the Committee assessed the effectiveness of the current
external audit process by assessing and discussing specific audit
documentation presented to it in accordance with the relevant guidance. It
also assessed the quality and effectiveness of the engagement between the
Auditor and the Investment Manager and the Administrator.
The Committee considered the performance of the Auditor during the year and
agreed that KPMG provided a high level of service and maintained a good
knowledge of the market, making sure audit quality continued to be maintained.
The Committee considers that KPMG has carried out its duties as Auditor in a
diligent and professional manner.
The Committee conducted a review of KPMG's independence and objectivity, which
included an analysis of the firm's own assessment of objectivity and
independence, and concluded it was satisfied that KPMG was independent and
objective.
The current audit partner was rotated onto the Company audit in November 2020
and so is within the five-year permitted period. There were no non-audit
services provided by the Company's Auditor during the year.
Further, the Committee was satisfied that it could recommend the reappointment
of KPMG as the Company's Auditor at the upcoming AGM.
Audit tender
KPMG has audited the Company since its IPO in 2013, the first financial year
end being 31 December 2014. During 2023, the Company will be required to
re-tender for audit services for the reporting year ending 31 December 2024.
This will be done through an Invitation to Tender (ITT) sent to audit firms.
The Company's current auditors, KPMG, will be asked to re-tender as part of
the ITT. To manage that process, the Committee has appointed Ann Markey and
Chris Ambler as members of a steering committee. Foresight will project-manage
the tender on behalf of the Company and the steering committee, and in
accordance with the relevant guidance on the issue.
Internal control and risk management
The Directors of the Company have overall responsibility for its system of
internal controls and the review of their effectiveness. The internal controls
system is designed to manage, rather than eliminate, the risks of failure to
achieve the Company's business objectives.
The system is designed to meet the Company's particular needs and the risks to
which it is exposed. By its nature, however, it can provide reasonable but not
absolute assurance against misstatement or loss.
The Board's appointment of JTC (Jersey) Limited as Accountant and
Administrator has delegated the financial administration of the Company. There
is an established system of financial controls in place to ensure that proper
accounting records are maintained and that financial information for use
within the business and for reporting to Shareholders is accurate and
reliable, and that the Company's assets are safeguarded.
Directors have access to the advice and services of the Company Secretary, who
is responsible to the Board for ensuring that procedures and applicable rules
and regulations are complied with.
Pursuant to the terms of its appointment, the Investment Manager provides the
Company's Board with a pipeline of potential energy infrastructure investments
for it to consider and has physical custody of documents of title relating to
the equity investments involved.
The Investment Manager confirms that there is a continuous process for
identifying, evaluating and managing the significant risks faced by the
Company. This has been in place for the year under review and up to the date
of approval of the Annual Report and Financial Statements. This process is
also regularly reviewed by the Audit and Risk Committee and the Board.
The risk management process uses a risk-based approach to internal control
whereby a Business Risk Assessment is maintained with a risk matrix that
identifies the key functions carried out by the Investment Manager and by
other service providers, the individual activities undertaken within those
functions, the risks associated with each activity, and the controls employed
to minimise those risks.
The Board is provided with reports highlighting all material changes to the
risk ratings and confirming the action that has or is being taken. This
process covers consideration of the key business, operational, compliance and
financial risks facing the Company and includes consideration of the risks
associated with the Company's arrangements with professional advisors.
The Audit and Risk Committee has carried out a review of the effectiveness of
the system of internal control, together with a review of the operational and
compliance controls and risk management. The Audit and Risk Committee has
reported its conclusions to the Board, which was satisfied with the outcome
of the review.
The Audit and Risk Committee has reviewed the need for an internal audit
function. It has decided that the systems and procedures employed by the
Investment Manager, the Accountant and Administrator, the Audit and Risk
Committee and other third-party advisors provide sufficient assurance that a
sound system of internal control to safeguard Shareholders' investment and the
Company's assets is in place. In addition, the Company's Annual Financial
Statements are audited by external providers and, thus, an internal audit
function specific to the Company is considered unnecessary.
Other matters considered
During the year, the Committee considered the benefit of having the Company's
Interim Report and Financial Statements reviewed by the external auditor and
concluded that, on balance, there was limited advantage in such review. The
Committee will keep this decision under consideration annually to ensure that
the Company's position on an interim audit remains appropriate.
The Committee also considered developments arising from the UK government's
response to the consultation on restoring trust in audit and corporate
governance, and its potential impact. It is keeping these developments under
review so that the Company is positioned to respond to any new obligations in
a timely manner.
Cyber security risks and measures were also considered by the Audit and Risk
Committee during the year and the Committee was satisfied that the Company has
adequate measures in place through the operations of the Investment Manager
and the Administrator. The Committee recognised the continued threat of a
cyber security breach and continues to work with its key service providers and
contractors to ensure that cyber security measures remain effective and fit
for purpose.
Ann Markey
Chair of the Audit and Risk Committee
14 March 2023
REMUNERATION
Directors' Remuneration report
The Committee has responsibility for reviewing the remuneration of the
Directors, specifically reflecting the responsibilities and time commitment of
the role.
The main roles and responsibilities of the Committee are to:
● Set remuneration policies and practices to support strategy
● Determine the remuneration policy
● Set remuneration for the Directors and Chairman
Introduction
The Board has prepared this report in line with the AIC Code. An ordinary
resolution to approve this report will be put to the members at the
forthcoming 2023 Annual General Meeting.
Annual statement from the Chair of the Remuneration Committee
The Board, which is profiled on pages 84 and 85, consists solely of
Non-Executive Directors. The Committee considers, at least annually, the
level of the Board's fees.
Consideration by the Directors of matters relating to Directors' remuneration
The Remuneration Committee comprises three Directors: Monique O'Keefe (Chair),
Chris Ambler and Peter Dicks. The Committee has responsibility for reviewing
the remuneration of the Directors, specifically reflecting the time commitment
and responsibilities of the role.
The Committee also, when necessary, undertakes external comparisons and
reviews to ensure that the levels of remuneration paid are in line with
industry standards and members have access to independent advice where they
consider it appropriate.
During the year, neither the Board nor the Committee has been provided with
external advice or services by any person in relation to remuneration but has
received industry comparison information from the Investment Manager about
Directors' remuneration. The remuneration policy set by the Board is described
below. Individual remuneration packages are determined by the Remuneration
Committee within the framework of this policy.
The Committee reviewed the Directors' fees and noted that Directors had an
increase of c.9% in 2022. The Committee also noted that fees had remained
unchanged since 2018. The Committee analysed the proposed fees for 2023 and
concluded that a 5% increase should be applied to Directors' remuneration.
When determining the appropriate level of fees for the Directors, the
Committee took into consideration a multitude of factors, including the high
inflationary landscape, the complex regulatory environment, the significant
increase in Directors' responsibilities due to the Company's growth agenda and
the increase in the time commitment required of Directors. The Committee also
considered benchmarking information in respect of directors' fees, and
feedback received during the process of recruiting for new directors to
support the Company's succession plans.
The detailed fees proposed for 2023 are set out below. The Committee
considered these fees to be justified against the available peer data and the
performance of the Company. The Committee also concluded that these fees
enabled the Company to competitively pursue its succession plan within the
overall limit set out in the Company's Articles.
The Committee considered the fee levels for the Senior Independent Director
("SID") and considered that, while this role came with additional
responsibility, no additional ongoing remuneration was required. However, the
Committee recognised that one-off compensation may be paid for additional work
should the SID be required to provide extra support to the Board or to the
Chairman on a temporary basis.
The Committee also reviewed the cap on Directors' fees under the Company's
Articles of Association, currently set at £350,000 per year. To achieve the
Company's succession plan, and in anticipation that the Board may, for a
period, grow in number to enable an orderly handover amongst Directors, the
Committee has recommended its amendment to £400,000. A resolution proposing
such change to the Company's Articles of Association will be proposed at the
upcoming AGM.
The Committee considered seeking external guidance from an independent
remuneration consultant during 2023 and concluded that, due to the analysis
provided by the Investment Manager and the availability of appropriate
benchmark data, an independent remuneration consultant was not required. The
Committee will review the requirement to seek external guidance in relation to
remuneration annually.
The Directors are not involved in deciding their own individual remuneration,
with each Director abstaining from voting on their own compensation.
Remuneration policy
The Board's policy is that the remuneration of Non-Executive Directors should
reflect time spent and the responsibilities borne by the Directors for the
Company's affairs. It should also be sufficient to enable candidates of high
calibre to be recruited. The levels of Directors' fees paid by the Company for
the year ended 31 December 2022 were agreed in 2022. It is considered
appropriate that no aspect of Directors' remuneration should include share
options or should be performance related due to the Directors' Non-Executive
status.
The Board's policy is to determine the level of Directors' fixed annual fees
in accordance with the Company's Articles of Association. In terms of the
Company's Articles of Association, the aggregate remuneration for all the
Directors shall not exceed the limit set out in the Company's Articles of
Association.
The Company's policy is to pay the Directors personally (or to a third party
if requested) every quarter, in arrears. Mr Ohlsson's remuneration is paid to
Carey Olsen Corporate Services Jersey Limited. Mr Ambler is obliged to pay 20%
of the fee he receives to Jersey Electricity plc. None of the Directors have a
service contract but, under their individual letters of appointment, may
resign at any time by mutual consent. No compensation is payable to Directors
leaving office. As the Directors are not appointed for a fixed length of time,
there is no unexpired term to their appointment. The Directors are also
entitled to be paid their reasonable expenses incurred while engaged on the
business of the Company.
The above remuneration policy was approved by the Shareholders at the Annual
General Meeting held on 15 June 2022 for the financial year to 31 December
2022 and will apply in subsequent years. Shareholders' views in respect to
Directors' remuneration are communicated at the Company's Annual General
Meeting and are considered in formulating the Directors' remuneration policy.
The above remuneration policy will be put to the Shareholders for approval at
the 2023 Annual General Meeting for the financial year ending on 31 December
2023 and will apply in subsequent years.
Shareholders' views in respect to Directors' remuneration are communicated at
the Company's Annual General Meeting and are taken into account in formulating
the Directors' Remuneration Policy.
Details of individual emoluments and compensation
The emoluments in respect of qualifying services of each person who served as
a Director during the year and those forecast for the year ahead are shown
below. No Director has waived or agreed to waive any emoluments from the
Company in the year under review. No other remuneration was paid or payable by
the Company during the current year nor were any expenses claimed by or paid
to them other than for expenses incurred wholly, necessarily and exclusively
in furtherance of their duties as Directors of the Company. The Company's
Articles of Association set a limit on the level of Directors' fees at
£350,000 per annum, but fees must also be considered within the wider
remuneration policy noted above. Directors' liability insurance is held by the
Company.
Anticipated Directors' Directors' fees Directors' fees
fees for the year ending for the year ended for the year ended
31 December 2023 31 December 2022 31 December 2021
(Unaudited) (Audited) (Audited)
Alexander Ohlsson (Chairman) £79,800 £76,000 £70,000
Chris Ambler £51,450 £49,000 £48,890
Peter Dicks £51,450 £49,000 £45,000
Monique O'Keefe £51,450 £49,000 £45,000
Ann Markey £63,000 £60,000 £51,110
Total £297,150 £283,000 £260,000
Directors' interests
Directors who had interests in the shares of the Company on 31 December 2022
are shown below. The Directors do not have any options over shares. Mr Dicks
had an investment programme in place during the year whereby the dividends
paid to him were used to acquire further shares in the Company.
Ordinary Shares Ordinary Shares
of nil par of nil par
value held on value held on
31 December 2022 31 December 2021
Alexander Ohlsson (Chairman)(1) 25,000 25,000
Chris Ambler 36,162 36,162
Peter Dicks2 81,838 77,062
Monique O'Keefe - -
Ann Markey - -
(1) Shares legally and beneficially owned by a personal pension company.
(2) At the time of publication Mr Dicks held 83,105 Ordinary Shares.
Approval of report
The Board will propose a resolution at the forthcoming AGM that this
Directors' Remuneration Report be approved, including the remuneration of the
Directors at the levels shown above for the year to 31 December 2023.
Monique O'Keefe
Chair of the Remuneration Committee
14 March 2023
DIRECTORS' REPORT
The Directors present their report and the audited Financial Statements of the
Company for the year ended 31 December 2022.
The Company
Foresight Solar Fund Limited (the "Company") is a closed-ended public company
with an indefinite life and was incorporated in Jersey under the Companies Law
(Jersey) 1991, as amended, on 13 August 2013, with registered number 113721.
The address of the registered office is: 28 Esplanade, St. Helier, Jersey, JE4
2QP.
The Company operates under the Companies Law and is regulated in Jersey as a
listed fund in accordance with the JFSC's Listed Fund Guide.
Share capital and voting rights
The Company's capital structure and details of Share movements during the year
are shown in note 17 to the Financial Statements.
As at 14 March 2023 there were 609,958,720 Ordinary Shares ("Shares") in issue
of nil par value.
The Shares are quoted on the Premium Listing Segment of the Official List of
the Main Market of the London Stock Exchange.
Significant Shareholders
The Company's Shareholders include a large mix of institutional and retail
investors.
Shareholders in the Company with more than a 5% holding as at 31 December 2022
are as follows:
% shareholding
in Fund as at
Investor 31 December 2022
BlackRock Investment Management Ltd 11.99%
Gravis Capital Management Ltd 6.83%
CCLA Investment Management Ltd 5.84%
Cazenove Capital Management Ltd 5.42%
Legal & General Investment Management Ltd 5.16%
Total 35.24%
Allotment of Shares
The Shareholders have authorised the Directors to issue Shares in the
Company's Share capital of up to 10% of the Company's issued Share capital. It
is the Directors' intention to seek the renewal of this authority by
Shareholder resolution which will be set out in the notice of the forthcoming
AGM.
The Shareholders further authorised the Directors to allot Shares without
application of the pre-emption rights, as set out in Article 10.2 of the
Articles of Association of the Company and in the Listing Rules made by the
Financial Conduct Authority under Part VI of the Financial Services and
Markets Act 2000 (as amended), equivalent to 10% of the Company's issued Share
capital until the conclusion of the forthcoming AGM. The Directors will also
seek to renew this extra authority by proposing a special resolution be passed
at the forthcoming AGM.
No Shares were allotted under this authority during the year.
Purchase of own Shares
The Company has been authorised to make market purchases of its own Ordinary
Shares of up to 14.99% of the Company's issued Ordinary Share capital
immediately prior to the passing of the resolution (excluding treasury shares)
on such terms and in such manner as the Directors of the Company shall from
time to time determine, subject always to the terms of any class rights in the
Articles and provided that:
a. The maximum aggregate number of Ordinary Shares hereby authorised to be
purchased shall be such number as represents 14.99% of the aggregate number of
Ordinary Shares in issue as at 21 May 2022
b. The minimum price which may be paid for an Ordinary Share shall be £0.01
c. The maximum price exclusive of any expenses which may be paid for an Ordinary
Share is an amount equal to the higher of (i) 14.99% of the average of the
middle market quotations for an Ordinary Share (as derived from the Daily
Official List of the London Stock Exchange plc) for the five business days
immediately preceding the date on which such Ordinary Share is contracted to
be purchased; and (ii) the higher of the last independent trade and the
highest current independent bid on the trading venue on which the purchase is
carried out
d. The authority hereby conferred is in addition to all and any authorities in
place in respect of market purchases by the Company and shall expire at the
conclusion of the Company's next Annual General Meeting or on the date falling
18 months from the date of the passing of this resolution, whichever is
earlier, unless previously revoked, varied or renewed by the Company in
general meeting
e. The Company may at any time prior to the expiry of such authority make a
contract or contracts to purchase Ordinary Shares under such authority which
will or might be completed or executed wholly or partly after the expiration
of such authority and may make a purchase of Ordinary Shares in pursuance of
any such contract or contracts
f. The Directors of the Company provide a statement of solvency in accordance
with Articles 55 and 57 of the Law
The Board does not currently have any intention of exercising the authority to
repurchase Shares. In normal market circumstances the Directors intend to
favour dividend distributions ahead of Ordinary Share repurchases in the
market. However, if the Ordinary Shares have traded at a significant discount
to Net Asset Value per share, the Board may seek to prioritise the use of net
income after the payment of dividends on market repurchases.
If the Board does decide that the Company should repurchase Ordinary Shares,
purchases will only be made through the market for cash at prices below the
estimated prevailing Net Asset Value per Ordinary Share. These transactions
will only happen in the instances in which the Directors believe such
purchases will result in an increase in the Net Asset Value per Ordinary Share
and where the Board believes such purchases are in Shareholders' interests
because they are addressing an imbalance in the demand and supply of Shares
available in the market at a particular point in time.
No Shares have been repurchased during the period under this authority and
this authority will expire on the earlier of 15 September 2023 or the
Company's next Annual General Meeting.
Treasury shares
Jersey Company Law allows companies to hold shares acquired by market purchase
as treasury shares, rather than having to cancel them.
Up to 10% of the issued shares may be held in treasury and may be subsequently
cancelled or sold for cash in the market. This gives the Company the ability
to reissue shares quickly and cost efficiently, thereby improving liquidity
and providing the Company with additional flexibility in the management of its
capital base.
Dividends
Under the Articles, the Board is authorised to approve the payment of interim
dividends without the need for the prior approval of Shareholders. However,
having regard to best practice, it is the Company's policy to seek express
approval from Shareholders of its dividend policy to pay four interim
dividends per year at each Annual General Meeting. This authority was duly
approved by Shareholders at the Company's AGM on 15 June 2022.
Scrip dividend option
At the Company's 2019 Annual General Meeting, held on 25 June of that year,
Shareholders granted approval for Directors to offer Shareholders the
opportunity to take dividends in the form of new Ordinary Shares in the
capital of the Company rather than cash. Further, the Company was also
authorised to offer an ongoing Scrip Dividend Scheme for a period of three
years. This authority was renewed at the Company's latest AGM, on 15 June
2022.
To date, under the Company's Scrip Dividend Scheme, approximately 6.1 million
new Ordinary Shares have been allotted to existing Shareholders, and this has
resulted in a cash saving, net of admission fees, of £5.9 million.
While the Scrip Dividend Scheme has been suspended, the Directors intend to
continue to review this suspension with a view to reinstating the Scrip
Dividend Scheme as soon as it is appropriate to do so.
Share dealing code, policy and manual
In accordance with the UK Market Abuse Regulations ("UK MAR"), the Company has
adopted a share dealing code, policy and manual for ensuring compliance with
UK MAR when the Company's Directors, being PDMRs (Persons Discharging
Managerial Responsibilities), deal in the Company's shares.
Financial risk management
Information about the Company's financial risk management objectives and
policies is set out in note 19 to the Financial Statements.
Bribery Act 2010
The Company is committed to carrying out business fairly, honestly and openly.
The Investment Manager has established policies and procedures to prevent
bribery within its organisation.
Criminal Finances Act 2017
The Company has committed to a policy to conduct all its business in an honest
and ethical manner. The Company takes a zero-tolerance approach to
facilitation of tax evasion, whether under UK law or under the law of any
foreign country.
The Company is committed to acting professionally, fairly and with integrity
in all its business dealings and relationships wherever it operates, and
implementing and enforcing effective systems to counter tax evasion
facilitation.
The Company will uphold all laws relevant to countering tax evasion in all the
jurisdictions in which it operates, including the Criminal Finances Act 2017.
Requirements of the Listing Rules
Listing Rule 9.8.4 requires the Company to include specified information in a
single identifiable section of the Annual Report or a cross-reference table
indicating where the information is set out. The Directors confirm that there
are no other disclosures required in relation to Listing Rule 9.8.4.
Directors' indemnity
The Company has procured a Directors' and Officers' liability insurance policy
on behalf of the Directors, indemnifying them in respect of certain
liabilities which may be incurred by them in connection with the activities of
the Company. This policy does not provide cover for fraudulent or dishonest
actions by the Directors.
Articles of Association
The Company's Articles of Association are available upon request from the
Group Company Secretary and at the AGM.
Website publication
The Board is responsible for publishing the audited Annual Report and the
Financial Statements on the Company's website in accordance with applicable
legislation governing the preparation and dissemination of Financial
Statements. The Board is responsible for the maintenance and integrity of the
Company's website, as well as the information published therein, including the
Company's Financial Statements.
Legislation in Jersey governing the preparation and dissemination of Financial
Statements may differ from legislation in other jurisdictions.
Post-balance sheet events
Further details on these events can be found in note 25 of the Financial
Statements.
AGM
The Annual General Meeting will be held on 14 June 2023 at the Company's
registered office at 28 Esplanade, St. Helier, Jersey, JE2 3QA.
Further details on how Shareholders can participate at the Company's AGM will
be set out in the Notice of Annual General Meeting that will be made available
on the Company's website and published in due course.
By order of the Board
Alexander Ohlsson
Chairman
For and on behalf of Foresight Solar Fund Limited
14 March 2023
STATEMENT OF DIRECTORS' RESPONSIBILITIES
IN RESPECT OF THE ANNUAL REPORT AND FINANCIAL STATEMENTS
The Directors are responsible for preparing the Company's Financial Statements
in accordance with applicable law and regulations.
Jersey Company Law requires the Directors to prepare Company Financial
Statements for each financial year which give a true and fair view of the
state of affairs of the Company and of the profit or loss of the Company for
that year. Under that law, and as permitted by UK Disclosure Guidance and
Transparency Rules, they have elected to prepare the Company Financial
Statements in accordance with International Financial Reporting Standards
issued by the International Accounting Standards Board ("IASB") and applicable
law.
In preparing these Financial Statements, the Directors are required to:
● Select suitable accounting policies and then apply them consistently
● Make judgements and estimates that are reasonable, relevant and reliable
● State whether applicable accounting standards have been followed, subject to
any material departures disclosed and explained in the Financial Statements
● Assess the Company's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern
● Use the going concern basis of accounting unless they either intend to
liquidate the Company or to cease operations, or have no realistic alternative
but to do so
The Directors are responsible for keeping sufficient accounting records that
disclose with reasonable accuracy at any time the financial position of the
Company and to enable them to ensure that the Financial Statements comply with
the Companies (Jersey) Law 1991. They are responsible for such internal
control as they determine is necessary to enable the preparation of Financial
Statements that are free from material misstatement, whether due to fraud or
error, and have general responsibility for taking such steps as are reasonably
open to them to safeguard the assets of the Company and to prevent and detect
fraud and other irregularities.
The Directors have decided to prepare voluntarily a Directors' Remuneration
Report in accordance with Schedule 8 to The Large and Medium-sized Companies
and Groups (Accounts and Reports) Regulations 2008 made under the UK Companies
Act 2006, as if those requirements applied to the Company.
The maintenance and integrity of the corporate and financial information
included on the Company's website is the responsibility of the directors; the
work carried out by auditors does not involve consideration of these matters
and accordingly, KPMG LLP accepts no responsibility for any changes that may
have occurred to the financial statements or our audit report since 14 March
2023. KPMG LLP has carried out no procedures of any nature subsequent to 14
March 2023 which in any way extends this date.
Legislation in Jersey governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions. The directors
shall remain responsible for establishing and controlling the process for
doing so, and for ensuring that the financial statements are complete and
unaltered in any way.
Responsibility statement of the Directors in respect of the Annual Financial
Report
We confirm that to the best of our knowledge:
● The Financial Statements, prepared in accordance with the applicable set of
accounting standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company
● The Directors' Report includes a fair review of the development and
performance of the business and the position of the issuer, together with a
description of the principal risks and uncertainties that they face
We consider the Annual Report and Financial Statements, taken as a whole, is
fair, balanced and understandable and provides the information necessary for
Shareholders to assess the Company's position and performance, business model
and strategy.
Alexander Ohlsson
Chairman
For and on behalf of
Foresight Solar Fund Limited
14 March 2023
Financial statements
INDEPENDENT AUDITOR'S REPORT
TO THE MEMBERS OF FORESIGHT SOLAR FUND LIMITED
1. Our opinion is unmodified
We have audited the financial statements of Foresight Solar Fund Limited ("the
Company") for the year ended 31 December 2022 which comprise the Statement of
Profit and Loss and Other Comprehensive Income, Statement of Financial
Position, Statement of Changes in Equity, Statement of Cash Flows, and the
related notes, including the accounting policies in note 2.
In our opinion the Financial Statements:
● give a true and fair view, in accordance with International Financial
Reporting Standards issued by the International Accounting Standards Board
("IASB"), of the state of the Company's affairs as at 31 December 2022 and of
its profit for the year then ended;
● have been prepared in accordance with the requirements of the Companies
(Jersey) Law,1991.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) ("ISAs (UK)") and applicable law. Our responsibilities are described in
section 9. We have fulfilled our ethical responsibilities under, and are
independent of the Company in accordance with, UK ethical requirements
including the FRC Ethical Standard as applied to other listed entities. We
believe that the audit evidence we have obtained is a sufficient and
appropriate basis for our opinion.
2. Key audit matters: our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgement, were
of most significance in the audit of the Financial Statements and include the
most significant assessed risks of material misstatement (whether or not due
to fraud) identified by us, including those which had the greatest effect on:
the overall audit strategy; the allocation of resources in the audit; and
directing the efforts of the engagement team. We summarise below the key audit
matter (unchanged from 2021), in arriving at our audit opinion above, together
with our key audit procedures to address that matter and our findings from
those procedures in order that the Company's members, as a body, may better
understand the process by which we arrived at our audit opinion. This matter
was addressed, and our results are based on procedures undertaken, in the
context of, and solely for the purpose of, our audit of the Financial
Statements as a whole, and in forming our opinion thereon, and consequently
are incidental to that opinion, and we do not provide a separate opinion on
this matter.
Valuation of unquoted investments Subjective valuation: Our procedures included:
(£715.9 million; 2020: £589.1 million) 93% (2021: 89%) of the Company's total assets (by value) are held in Control design:
investments where no quoted market price is available.
· We obtained an understanding of the Company's processes for
determining the fair value of unquoted investments. We evaluated the design
Refer to page 99 (Audit & Risk Committee Report), page 123 (accounting
and implementation of the investment valuation processes and controls.
policy) and page 129 (financial disclosures). The unquoted investment at fair value through profit or loss represents a 100%
holding in Foresight Solar (UK Holdco) Ltd. This entity in turn makes its · We performed the tests below rather than seeking to rely on any of
investments through intermediate holding companies and underlying Special the Company's controls because the nature of the balance is such that we would
Purpose Vehicles. expect to obtain audit evidence primarily through the detailed procedures
Risk level remains unchanged from prior year.
described.
As these investments are unquoted and illiquid, in order to determine the fair
value, management adopted a number of assumptions and data points which are Our procedures for significant assumptions included:
unobservable in the market.
Our valuations experience:
These include:
· We critically evaluated and challenged the significant assumptions
affecting the valuation of the underlying assets, discount rates and power
price curves (including the capture discount curve). We assessed whether the
Significant assumptions: discount rates are within a reasonable range independently developed by us
based on market data. We assessed if the power price curve used is in line
The discount rate and power price curve assumptions have a high degree of with external consultants forecasted curves, with reference to publicly
estimation uncertainty with a potential range of reasonable outcomes available market information.
(valuations) greater than our materiality for the financial statements as a
whole, and possibly many times that amount.
Our procedures in respect of the non-significant assumptions and data points
included:
Non-significant assumptions and data points:
Whilst we do not consider other assumptions and data points to be at a
significant risk of misstatement, due to the relevance of these elements in Test of detail:
terms of the overall valuation and associated audit effort, we consider the
following areas to also have the greatest effect on the overall audit strategy · We agreed key inputs to the forecast cash flows for each investment
and planning of the audit: to external sources, such as the due diligence reports prepared by third party
engineers. We evaluated the competence, objectivity and independence of the
· Useful economic life assumption third party engineers. We agreed the subsidy revenue and wholesale revenue to
agreements in place such as Power Purchase Agreements. Material expenses were
· Inflation assumption agreed to the supplier invoices received and where possible to underlying
agreements for leases and operations and maintenance contracts.
· Revenue and costs data
· We reperformed the valuation using the Company's inputs and
assumptions. We constructed our own discounted cash flow models for each
underlying asset and compared the results with the Company's valuation.
The financial statements (note 16) disclose the sensitivity estimated by the
Company.
Our valuations experience:
· We critically evaluated and challenged other assumptions affecting
the valuation of the underlying assets, useful economic life and inflation
rates. We evaluated the appropriateness of the useful economic life for
individual assets, taking into consideration factors such as the life cycle of
the asset and length of the leases. We compared the inflation rates assumption
to the relevant forecast.
Assessing transparency:
· We considered the appropriateness, in accordance with relevant
accounting standards, of the disclosures in respect of unquoted investments
and the effect of changing one or more inputs to reasonably possible
alternative valuation assumptions.
Our findings:
· We found the Company's valuation of unquoted investments to be
balanced (2021: balanced).
3. Our application of materiality and an overview of the scope of our audit
Materiality for the financial statements as a whole was set at £7.70 million
(2021: £5.97 million), determined with reference to a benchmark of total
assets, of which it represents 1% (2021: 0.9%).
In line with our audit methodology, our procedures on individual account
balances and disclosures were performed to a lower threshold, performance
materiality, so as to reduce to an acceptable level the risk that individually
immaterial misstatements in individual account balances add up to a material
amount across the financial statements as a whole.
Performance materiality was set at 75% (2021: 75%) of materiality for the
financial statements as a whole, which equates to £5.77 million (2021: £4.47
million). We applied this percentage in our determination of performance
materiality because we did not identify any factors indicating an elevated
level of risk.
We agreed to report to the Audit & Risk Committee any corrected or
uncorrected identified misstatements exceeding £0.38 million (2021: £0.30
million) in addition to other identified misstatements that warranted
reporting on qualitative grounds.
Our audit of the Company was undertaken to the materiality level specified
above and was performed by a single audit team.
The scope of the audit work performed was fully substantive as we did not rely
upon the Company's internal control over financial reporting.
4. The impact of climate change on our audit
In planning our audit, we have considered the potential impacts of climate
change on the Company's business and its Financial Statements.
Climate change impacts the Company principally through the valuation of
investments and through potential reputational risk associated with the
Company's strategy. The Company's exposure to climate change is primarily
through the solar farms invested through SPVs, as the key valuation
assumptions and estimates could be impacted by climate risks, for example
where a new legislation on solar farms is introduced and have an impact on the
forecast cashflow.
As part of our audit, we have made enquiries of directors to understand the
extent of the potential impact of climate change risk on the Company's
Financial Statements and the Company's preparedness. We have performed a risk
assessment of how the impact of climate change may affect the financial
statements and our audit, in particular over the valuation of unquoted
investments and the related key audit matter above.
Given the nature of the current investment portfolio, the valuation methods
and investing strategy of the Company, we consider that climate risks do not
have a significant effect on our key audit matter.
We have read the disclosure of climate related information in the front half
of the annual report and considered consistency with the Financial Statements
and our audit knowledge.
5. We have nothing to report on going concern
The Directors have prepared the Financial Statements on the going concern
basis as they do not intend to liquidate the Company or to cease its
operations, and as they have concluded that the Company's financial position
means that this is realistic. They have also concluded that there are no
material uncertainties that could have cast significant doubt over its ability
to continue as a going concern for at least a year from the date of approval
of the financial statements ("the going concern period").
We used our knowledge of the Company, its industry, and the general economic
environment to identify the inherent risks to its business model and analysed
how those risks might affect the Company's financial resources or ability to
continue operations over the going concern period. The risks that we
considered most likely to adversely affect the Company's available financial
resources, metrics relevant to debt covenants and its ability to operate over
this period were:
● The impact of a significant reduction in the valuation of the assets in the
portfolio, driven predominately by decreases in revenue and production, which
impact the Company and its subsidiaries ability to meet the covenants in
place; and
● The deterioration of the liquidity of the investment portfolio which will
impact the Company and its subsidiaries' ability to meet their liabilities as
they fall due.
We considered whether these risks could plausibly affect the liquidity and
covenant compliance of the Company and its subsidiaries in the going concern
period by comparing severe, but plausible downside scenarios that could arise
from these risks individually and collectively against the level of available
financial resources and covenants indicated by the Company's financial
forecasts.
We considered whether the going concern disclosure in note 2.2 to the
financial statements gives a full and accurate description of the Directors'
assessment of going concern, including the identified risks and related
sensitivities.
Our conclusions based on this work:
● we consider that the Directors' use of the going concern basis of accounting
in the preparation of the Financial Statements is appropriate;
● we have not identified, and concur with the Directors' assessment that there
is not, a material uncertainty related to events or conditions that,
individually or collectively, may cast significant doubt on the Company's
ability to continue as a going concern for the going concern period;
● we have nothing material to add or draw attention to in relation to the
Directors' statement in Note 2.2 to the Financial Statements on the use of the
going concern basis of accounting with no material uncertainties that may cast
significant doubt over the Company's use of that basis for the going concern
period, and we found the going concern disclosure in note 2.2 to be
acceptable.
However, as we cannot predict all future events or conditions and as
subsequent events may result in outcomes that are inconsistent with judgements
that were reasonable at the time they were made, the above conclusions are not
a guarantee that the Company will continue in operation.
6. Fraud and breaches of laws and regulations - ability to detect
Identifying and responding to risks of material misstatement due to fraud
To identify risks of material misstatement due to fraud ("fraud risks") we
assessed events or conditions that could indicate an incentive or pressure to
commit fraud or provide an opportunity to commit fraud. Our risk assessment
procedures included:
● Enquiring of the Directors and Administrator as to the Company's high-level
policies and procedures to prevent and detect fraud, as well as whether they
have knowledge of any actual, suspected or alleged fraud;
● Assessing the segregation of duties in place between the Directors, the
Administrator and the Company's Investment Manager; and
● Reading Board minutes and Audit & Risk Committee minutes.
We communicated identified fraud risks throughout the audit team and remained
alert to any indications of fraud throughout the audit.
As required by auditing standards, we perform procedures to address the risk
of management override of controls, in particular to the risk that management
may be in a position to make inappropriate accounting entries. We evaluated
the design and implementation of the controls over journal entries and other
adjustments and made inquiries of the Administrator about inappropriate or
unusual activity relating to the processing of journal entries and other
adjustments.
We substantively tested all material post-closing entries by comparing the
identified entries to supporting documentation and, based on the results of
our risk assessment procedures and understanding of the process, including
evaluating the design & implementation of controls over journals entries
at the Administrator.
On this audit we have rebutted the fraud risk related to revenue recognition
because the revenue is non-judgemental and straightforward, with limited
opportunity for manipulation. We did not identify any additional fraud risks.
Identifying and responding to risks of material misstatement due to
non-compliance with laws and regulations
We identified areas of laws and regulations that could reasonably be expected
to have a material effect on the financial statements from our general
commercial and sector experience and through discussion with the Directors and
the Administrator (as required by auditing standards) and discussed with the
Directors the policies and procedures regarding compliance with laws and
regulations.
As the Company is regulated, our assessment of risks involved gaining an
understanding of the control environment including the entity's procedures for
complying with regulatory requirements.
The potential effect of these laws and regulations on the financial statements
varies considerably.
Firstly, the Company is subject to laws and regulations that directly affect
the financial statements including financial reporting legislation (including
related Companies legislation) as set out by Companies (Jersey) Law 1991, and
the Listing Rules, and we assessed the extent of compliance with these laws
and regulations as part of our procedures on the related financial statement
items.
Secondly, the Company is subject to many other laws and regulations where the
consequences of non-compliance could have a material effect on amounts or
disclosures in the financial statements, for instance through the imposition
of fines or litigation. We identified the following areas as those most likely
to have such an effect: anti-bribery, data protection, anti-money laundering,
market abuse regulations and certain aspects of Company legislation
recognising the financial and regulated nature of the Company's activities and
its legal form.
Auditing standards limit the required audit procedures to identify
non-compliance with these laws and regulations to enquiry of the Directors and
the Administrator and inspection of regulatory and legal correspondence, if
any. Therefore, if a breach of operational regulations is not disclosed to us
or evident from relevant correspondence, an audit will not detect that breach.
Context of the ability of the audit to detect fraud or breaches of law or
regulation
Owing to the inherent limitations of an audit, there is an unavoidable risk
that we may not have detected some material misstatements in the financial
statements, even though we have properly planned and performed our audit in
accordance with auditing standards. For example, the further removed
non-compliance with laws and regulations is from the events and transactions
reflected in the financial statements, the less likely the inherently limited
procedures required by auditing standards would identify it.
In addition, as with any audit, there remained a higher risk of non-detection
of fraud, as these may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal controls. Our audit procedures
are designed to detect material misstatement. We are not responsible for
preventing non-compliance or fraud and cannot be expected to detect
non-compliance with all laws and regulations.
7. We have nothing to report on the other information in the Annual Report
The Directors are responsible for the other information presented in the
Annual Report together with the financial statements. Our opinion on the
financial statements does not cover the other information and, accordingly, we
do not express an audit opinion or, except as explicitly stated below, any
form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider
whether, based on our financial statements audit work, the information therein
is materially misstated or inconsistent with the financial statements or our
audit knowledge. Based solely on that work we have not identified material
misstatements in the other information.
Directors' remuneration report
In addition to our audit of the Financial Statements, the Directors have
engaged us to audit the information in the Directors' Remuneration Report that
is described as having been audited, which the Directors have decided to
prepare as if the Company were required to comply with the requirements of
Schedule 8 to The Large and Medium-sized Companies and Groups (Accounts and
Reports) Regulations 2008 (SI 2008 No. 410) made under the UK Companies Act
2006.
In our opinion, the part of the Directors' Remuneration Report to be audited
has been properly prepared in accordance with the UK Companies Act 2006, as if
those requirements applied to the Company.
Disclosures of emerging and principal risks and longer-term viability
We are required to perform procedures to identify whether there is a material
inconsistency between the Directors' disclosures in respect of emerging and
principal risks and the viability statement, and the financial statements and
our audit knowledge.
Based on those procedures, we have nothing material to add or draw attention
to in relation to:
● the Directors' confirmation within the viability statement on page 60 that
they have carried out a robust assessment of the emerging and principal risks
facing the Company, including those that would threaten its business model,
future performance, solvency and liquidity;
● the Principal and Emerging Risks disclosures describing these risks and how
emerging risks are identified, and explaining how they are being managed and
mitigated; and
● the Directors' explanation in the viability statement of how they have
assessed the prospects of the Company, over what period they have done so and
why they considered that period to be appropriate, and their statement as to
whether they have a reasonable expectation that the Company will be able to
continue in operation and meet its liabilities as they fall due over the
period of their assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
Our work is limited to assessing these matters in the context of only the
knowledge acquired during our financial statements audit. As we cannot predict
all future events or conditions and as subsequent events may result in
outcomes that are inconsistent with judgements that were reasonable at the
time they were made, the absence of anything to report on these statements is
not a guarantee as to the Company's longer-term viability.
Corporate governance disclosures
We are required to perform procedures to identify whether there is a material
inconsistency between the Directors' corporate governance disclosures and the
financial statements and our audit knowledge.
Based on those procedures, we have concluded that each of the following is
materially consistent with the financial statements and our audit knowledge:
● the directors' statement that they consider that the annual report and
financial statements taken as a whole is fair, balanced and understandable,
and provides the information necessary for shareholders to assess the
Company's position and performance, business model and strategy;
● the section of the annual report describing the work of the Audit & Risk
Committee, including the significant issues that the Audit & Risk
Committee considered in relation to the financial statements, and how these
issues were addressed; and
● the section of the annual report that describes the review of the
effectiveness of the Company's risk management and internal control systems.
We are required to review the part of the Corporate Governance Statement
relating to the Company's compliance with the provisions of the UK Corporate
Governance Code specified by the Listing Rules for our review. We have nothing
to report in this respect.
8. We have nothing to report on the other matters on which we are required to
report by exception
Under the Companies (Jersey) Law 1991, we are required to report to you if, in
our opinion:
● adequate accounting records have not been kept by the Company, or
● proper returns adequate for our audit have not been received from branches not
visited by us; or
● the Company's accounts are not in agreement with the accounting records and
returns; or
● we have not received all the information and explanations we require for our
audit.
We have nothing to report in these respects.
9. Respective responsibilities
Directors' responsibilities
As explained more fully in their statement set out on page 110, the Directors
are responsible for: the preparation of the financial statements including
being satisfied that they give a true and fair view; such internal control as
they determine is necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to fraud or error;
assessing the Company's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern; and using the going concern
basis of accounting unless they either intend to liquidate the Company or to
cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue our opinion in an auditor's report. Reasonable
assurance is a high level of assurance, but does not guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of the financial statements.
A fuller description of our responsibilities is provided on the FRC's website
at www.frc.org.uk/auditorsresponsibilities.
10. The purpose of our audit work and to whom we owe our responsibilities
This report is made solely to the Company's members, as a body, in accordance
with Article 113A of the Companies (Jersey) Law 1991 and terms of our
engagement by the Company. Our audit work has been undertaken so that we might
state to the Company's members those matters we are required to state to them
in an auditor's report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other
than the Company and the Company's members, as a body, for our audit work, for
this report, or for the opinions we have formed.
Fang Fang Zhou
for and on behalf of KPMG LLP
Chartered Accountants and Recognised Auditor
15 Canada Square
Canary Wharf
London
E14 5GL
14 March 2023
STATEMENT OF PROFIT AND LOSS AND OTHER COMPREHENSIVE INCOMe
FOR THE YEAR ENDED 31 DECEMBER 2022
31 December 31 December
2022 2021
Notes £'000 £'000
Revenue
Interest earned on cash in bank 6 -
Interest income 4 36,146 38,066
Gains on investments held at fair value through profit or loss 14 126,840 86,816
162,992 124,882
Expenditure
Administration fees 6 (200) (199)
Directors' fees 7 (283) (260)
Management fees 5 (7,418) (5,854)
Other expenses 8 (620) (677)
Total expenditure (8,521) (6,990)
Profit after tax for the year 154,471 117,892
Taxation 2.7 - -
Profit for the year 154,571 117,892
Other comprehensive income - -
Profit and other comprehensive profit for the year 154,471 117,892
Earnings per Ordinary Share (pence per share) 9 25.32 19.37
All items above arise from continuing operations; there have been no
discontinued operations during the year.
The accompanying notes on pages 120 to 148 form an integral part of these
Financial Statements.
STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2022
31 December 31 December
2022 2021
Notes £'000 £'000
Assets
Non-current assets
Investments held at fair value through profit or loss 14 715,942 589,102
Total non-current assets 715,942 589,102
Current assets
Interest receivable 10 44,731 60,103
Trade and other receivables 11 279 275
Cash and cash equivalents 12 11,052 10,964
Total current assets 56,062 71,342
Total assets 772,004 660,444
Equity
Retained earnings 141,575 30,108
Stated capital and share premium 17 629,892 629,892
Total equity 771,467 660,000
Liabilities
Current liabilities
Trade and other payables 13 537 444
Total current liabilities 537 444
Total liabilities 537 444
Total equity and liabilities 772,004 660,444
Net Asset Value per Ordinary Share 18 126.5 108.2
The Financial Statements on pages 116 to 119 were approved by the Board of
Directors and signed on its behalf on 14 March 2023 by:
Alexander Ohlsson
Chairman
The accompanying notes on pages 120 to 148 form an integral part of these
Financial Statements.
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2022
Stated capital
and share Retained
premium earnings Total
Notes £'000 £'000 £'000
Balance as at 1 January 2022 629,892 30,108 660,000
Total comprehensive profit for the year:
Profit for the year - 154,471 154,471
Transactions with owners, recognised directly in equity:
Dividends paid in the year 21 - 43,004 (43,004)
Balance as at 31 December 2022 629,892 141,575 771,467
FOR THE YEAR ENDED 31 DECEMBER 2021
Stated capital
and share Retained
premium earnings Total
Notes £'000 £'000 £'000
Balance as at 1 January 2021 627,649 (45,491) 582,158
Total comprehensive profit for the year:
Profit for the year - 117,892 117,892
Transactions with owners, recognised directly in equity:
Dividends paid in the year 21 - (40,050) (40,050)
Issue of scrip dividends 17 2,243 (2,243) -
Balance as at 31 December 2021 629,892 30,108 660,000
The accompanying notes on pages 120 to 148 form an integral part of these
Financial Statements.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2022
31 December 31 December
2022 2021
Notes £'000 £'000
Profit for the year after tax 154,471 117,892
Adjustments for:
Unrealised gains on investments 14 (126,840) (86,816)
Operating cash flows before changes in working capital 27,631 31,076
Decrease in interest receivables 10 15,372 3,034
Increase in trade and other receivables 11 (4) -
Increase in trade and other payables 13 93 29
Net cash inflow from operating activities 43,092 34,139
Financing activities
Dividends paid 21 (43,004) (40,050)
Net cash outflow from financing activities (43,004) (40,050)
Net increase in cash and cash equivalents 88 (5,911)
Cash and cash equivalents at the beginning of the year 10,964 16,875
Cash and cash equivalents at the end of the year 12 11,052 10,964
The accompanying notes on pages 120 to 148 form an integral part of these
Financial Statements.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
1. Company information
Foresight Solar Fund Limited (the "Company") is a closed-ended public company
with an indefinite life and was incorporated in Jersey under the Companies Law
(Jersey) 1991, as amended, on 13 August 2013, with registered number 113721.
The address of the registered office is: 28 Esplanade, St. Helier, Jersey, JE4
2QP.
The Company has one investment, Foresight Solar (UK Holdco) Limited ("UK Hold
Co"). The principal activity of the Company through its direct and indirect
subsidiaries, as per the structure chart, is investing in operational and
development-stage ground-based solar power plants and battery storage systems
in the UK, Australia and Spain.
UK Hold Co has three investments: FS RCF Debtco Limited ("RCF Debtco"), FS
Holdco 4 Limited ("FS Holdco 4") and Sandridge Battery Storage Holdings
Limited ("SBSHL").
RCF Debtco has three investments: FS Top Holdco 1 Limited ("FS Topco 1"), FS
Top Holdco 2 Limited ("FS Topco 2") and FS Holdco 3 Limited ("FS Holdco 3").
FS Topco 1 has one investment in FS Intermediate Holdco Limited ("FIHC"). FIHC
in turn has one investment in FS Holdco Limited ("FS Holdco").
FS Topco 2 has one investment in Foresight Intermediate Solar Holdings Limited
("FISH"). In turn, FISH has one investment in FS Holdco 2 Limited ("FS Holdco
2") which has one investment in FS Debtco Limited ("FS Debtco").
FS Holdco 3 has one investment in Second Generation Portfolio 1 Holdings
Limited ("SGP Holdings 1").
FS Holdco, FS Debtco, SGP Holdings 1, FS Holdco 4 and SBSHL invest in further
holding companies (the "SPVs") which then invest in the underlying solar and
battery storage investments.
In February 2022, the Group underwent a reorganisation of its structure ahead
of the refinancing of the revolving credit facilities on 28 February 2022.
On 10 February 2022, FIHC acquired the whole of the issued share capital of FS
Holdco and issued consideration shares to UK Hold Co in exchange.
FS Topco 1 then acquired consideration shares in FISH and issued consideration
shares to UK Hold Co. RCF Debtco then acquired the consideration shares in FS
Topco 1 and issued consideration shares to UK Hold Co in exchange.
On the same date, RCF Debtco acquired the total issued share capital of FS
Topco 1 and issued consideration shares to UK Hold Co in exchange.
Following that, RCF Debtco then acquired the whole of the issued share capital
of FS Holdco 3 and issued consideration shares to UK Hold Co in exchange.
After the reorganisation, UK Hold Co owns 100% of the share capital of RCF
Debtco.
Structure chart
The following chart shows the Group structure as at 31 December 2022 after the
reorganisation:
Foresight Solar Fund Limited
UK Hold Co
RCF Debtco
FS Topco 1 FS Topco 2 FS Holdco 3 SBSHL FS Holdco 4
50%
FIHC FISH SGP Holdings 1
FS Holdco 2
FS Holdco FS Debtco SGP 1
SPVs SPVs SPVs SPVs SPVs
2. Summary of significant accounting policies
2.1 Basis of presentation
The Financial Statements for the year ended 31 December 2022 (the "Financial
Statements") have been prepared in accordance with International Financial
Reporting Standards as adopted by the European Union ("IFRS") which comprise
standards and interpretations issued by the International Accounting Standards
Board ("IASB"). The Financial Statements have been prepared on the historical
cost convention as modified for the measurement of certain financial
instruments at fair value through profit or loss and in accordance with the
provisions of the Companies (Jersey) Law 1991. The investment in UK Hold Co is
held at Net Asset Value on the Statement of Financial Position in line with
the International Private Equity and Venture Capital 2018 ("IPEVC") Valuation
Guidelines.
2.2 Going concern
Towards the end of 2021, high power prices were largely attributable to
increased demand following the easing of COVID-19 lockdown restrictions, the
tightening of the supply of natural gas with low reserves as well as a low
wind-yielding year across Northern Europe. However, high prices at the start
of 2022 were pushed even higher by the Ukraine conflict and the subsequent
sanctions on Russia and reduced reliance on its fossil fuel exports.
The Company's exposure to wholesale power prices is reduced in the medium term
by maintaining a substantial proportion of electricity generation on fixed
price arrangements. This provides protection if power prices are to decline.
As the Company's Power Purchase Agreements ("PPAs") are all contracted across
a pool of five UK energy suppliers and a further five energy suppliers in the
Australian market, the counterparty risk on existing energy suppliers is
required to be continually monitored by the Investment Manager.
The high-power price environment has increased the potential risk of
insolvency of the energy suppliers that provide PPAs to renewable energy
generators. This is a key risk for the Company due to the high proportion of
revenues that are contracted with these energy suppliers. Accordingly, the
Investment Manager periodically monitors the counterparty risk on the
Company's energy suppliers and will consider replacing PPA providers if the
counterparty risk of existing energy suppliers is of concern.
The Review of Electricity Market Arrangements ("REMA") review of Britain's
electricity market was launched on 18 July 2022. This review aims to enhance
energy security and reduce long-term electricity costs for consumers.
As a result, the Investment Manager expects any market changes will take years
to implement and will therefore fall outside of the going concern assessment
period.
The Investment Manager has concluded that it is not possible to assess the
impact of the REMA review until there is further clarity upon the direction of
travel and it is therefore not considered in this going concern assessment.
The Investment Manager awaits further government feedback in relation to the
REMA review, which is expected to be announced during 2023.
In November 2022, HM Treasury published a technical note confirming plans to
charge electricity generators in the UK exceeding 50GWh per annum, a tax on
extraordinary returns. The intention of the Electricity Generator Levy ("EGL")
is to reduce costs for electricity customers by taxing the deemed
extraordinary returns being realised by non-gas-fired electricity generators.
These returns are due to inflated electricity prices driven by the marginal
cost of the most expensive form of electricity generation: gas-fired
generation.
The Investment Manager acknowledges the significant levy payable by Hold Co is
due to the high fixes achieved across the UK portfolio of assets and elevated
merchant revenues. Accordingly, due to the EGL being only applied to
extraordinary profits, the EGL does not result in the basis of preparation
being inappropriate.
The Company's business activities, together with the factors likely to affect
its future development, performance and position are set out in this report.
The financial position of the Company, the financial performance, its cash
flows, liquidity position and borrowing facilities are referred to in the
Chairman's Statement, Investment Manager's Report and Notes to the Financial
Statements.
In addition, the Financial Statements include the Company's objectives,
policies and procedures for managing its capital; its financial risk
management objectives; and its exposures to credit and liquidity risk.
Three group subsidiaries, FS Holdco, FS Debtco and RCF Debtco are all
required to complete quarterly debt compliance reporting. The covenants that
FS Holdco and FS Debtco are required to report on are the six-month look-back
debt service cover ratio, the six months look-forward debt service cover ratio
and the loan life cover ratio.
The Debt Service Cover Ratio ("DSCR") is a measure of how each portfolio can
use its generated cash to repay its debt obligations in any given six-month
calculation period. It is calculated as the cash generated from operations and
available to pay debt service divided by the debt principal and interest in
any given six-month period.
FS RCF Debtco is required to report an Interest Cover Ratio ("ICR"). ICR is a
measure of how the cash generated by the borrower can be used to repay the RCF
interest generated in a six-month calculation period. Pursuant to the 2022
refinancing of the revolving credit facilities and resultant reorganisation of
the FSFL Group structure, there are now debt covenants at FS RCF Debtco which
must be compliant each quarter to permit the movement of UK project company
distributions to UK Hold Co Limited and FSFL. Without these project
distributions, FSFL would be unlikely to be able to pay quarterly dividends to
investors at the current dividend per share.
While the Investment Manager considers the chance of non-compliance of the RCF
facility covenants remote, it has been considered prudent to investigate the
lowest UK asset distributions and highest interest rate costs (driven by
rising SONIA rates) that would lead to a breach of the Interest Cover Ratio.
The Board is happy to confirm that there were no instances of non-compliance
of debt covenants throughout the year or during the scenarios tested in the
going concern assessment period to 30 June 2024, as explained in the
paragraph below.
An evaluation of the going concern was prepared by the Company's Investment
Manager, then approved by the Audit and Risk Committee and subsequently by the
Board. This included cash flow workings from 1 January 2023 until 30 June 2024
clearly demonstrating that the Company can continue operations for the going
concern assessment period, even when five separate downside economic
sensitivities and two severe but plausible downside economic scenarios were
applied.
Cash flow analysis was completed to consider the following negative scenarios.
These scenarios were completed individually as well as combined. In each of
the scenarios, the forecasts display a significant level of headroom above
minimum cash and debt covenant requirements throughout the going concern
assessment period.
(1) All investments consistently generate a P90 level (90% probability of
exceeding expected production over a 10-year period) of electricity output.
The Directors deem this is an appropriate, market standard stress test with a
relevant example being the UK onshore wind market experiencing a very
low-yielding year in recent years.
(2) Power prices were reduced by 50% across the portfolio. This downside scenario
represents the volatility of power prices seen during 2022 with prices
reaching four times the forecasted price within the portfolio before dropping
again.
(3) Inflation-linked debt and the portfolio's costs are assumed to be increased by
15% per annum. This downside scenario represents the possibility
that the high inflation of 2022 continues into the going concern assessment
period.
(4) The PPA provider that the Group is most exposed to fails to settle merchant
revenue under the PPA contract. This downside scenario represents the risk of
insolvencies of PPA offtakers in response to the high number of energy company
insolvencies during 2021 and 2022, which continue into 2022 linked to the
extremely high-power price market.
If any of these sensitivities or scenarios were to materialise, the Company
could still meet its target dividend paid per share for the going concern
assessment period. However, the Board would continue to review on a periodic
basis whether the dividend paid per share is appropriate considering the
reduced cash flow. The cash flow forecasts show that operating costs would
still be covered, but the cash balance would reduce gradually during the going
concern assessment period, without causing any issues with operational
ability.
Consequently, the Board is confident that the Company will have sufficient
funds to continue to meet its liabilities as they fall due for the going
concern assessment period and has therefore prepared the Financial Statements
on a going concern basis.
The Financial Statements do not include any adjustments that would result from
the basis of preparation being inappropriate.
2.3 Changes in accounting policies and disclosures
New and revised IFRSs adopted by the Company
The accounting policies adopted are consistent with those of the previous
financial year. Management have assessed all new standards and amendments to
standards and interpretations that are effective for annual periods after
1 January 2022 and considered none to be applicable to the Company.
The following standards have been issued but are not effective for this
accounting period and have not been adopted early:
● IAS 1 (amended) - Amendments regarding classifications of liabilities, and
disclosure of accounting policies - effective from 1 January 2023
● IAS 8 (amended) - Amendments regarding the definition of accounting estimates
- effective from 1 January 2023
These standards are not expected to have a material impact on the Financial
Statements.
2.4 Consolidation
Subsidiaries
Subsidiaries are entities over which the Company has control. The Company
controls an entity when the Company is exposed to, or has the rights to,
variable returns from its involvement with the entity and has the ability to
affect those returns through its power over the entity.
Associates
Associates are entities over which the Company has significant influence,
being the power to participate in the financial and operating policy decisions
of the investee (but not control or joint control).
Investment entity exemption
Qualifying entities that meet the definition of an investment entity are not
required to produce a consolidated set of Financial Statements and instead
account for subsidiaries, joint ventures and associates at fair value through
profit or loss.
Under the definition of an investment entity, the entity should satisfy all
three of the following tests:
● Obtains funds from one or more investors for the purpose of providing those
investors with investment management services
● Commits to its investors that its business purpose is to invest funds solely
for returns from capital appreciation, investment income, or both (including
having an exit strategy for investments)
● Measures and evaluates the performance of substantially all of its investments
on a fair value basis
In assessing whether the Company meets the definition of an investment entity
set out in IFRS 10, the Directors note that:
● The Company is an investment company that invests funds obtained from multiple
investors in a diversified portfolio of solar energy infrastructure assets and
related infrastructure assets and has appointed the Investment Manager to
manage the Company's investments
● The Company's purpose is to invest funds for investment income and potential
capital appreciation and will exit its investments at the end of their
economic lives or when their planning permissions or leasehold land interests
expire (unless it has repowered their sites) and may also exit investments
earlier for reasons of portfolio balance or profit
● The Board evaluates the performance of the Company's investments on a fair
value basis as part of the quarterly management accounts review and the
Company values its investments on a fair value basis twice a year for
inclusion in its annual and interim Financial Statements with the movement in
the valuations taken to the Income Statement and, therefore, is measured
within its earnings
Taking these factors into account, the Directors are of the opinion that the
Company has all the typical characteristics of an investment entity and meets
the definition set out in IFRS 10.
The Directors believe the treatment outlined above provides the most relevant
information to investors.
As UK Hold Co is not consolidated, its subsidiaries (plus their underlying
investments) are not separately presented at fair value through profit or loss
in the Company's accounts. The Directors have evaluated whether the
subsidiaries are investment entities and have concluded that they meet the
definition set out in IFRS 10. Should subsidiaries fail to meet the definition
of an investment entity the Company would have to consolidate its
subsidiaries.
2.5 Income
Income comprises interest income (loan interest) and income in the form of
realised and/or unrealised gains on investments held at fair value through
profit or loss. Interest income is recognised when it is probable that the
economic benefits will flow to the Company and the amount of revenue can be
measured reliably. Loan interest income is accrued on a time basis, by
reference to the principal outstanding and at the effective interest rate
applicable. Unrealised gains arising from changes in the fair value of the
investments held at fair value through profit or loss are recognised in the
period in which they arise.
2.6 Expenses
Operating expenses are the Company's costs incurred in connection with the
ongoing management of the Company's investments and administrative costs.
Operating expenses are accounted for on an accruals basis.
The Company's operating expenses are charged through the Statement of Profit
and Loss and Other Comprehensive Income.
Acquisition costs of assets are capitalised on purchase of assets. Costs
directly relating to the issue of Ordinary Shares are charged to the Company's
share capital and share premium reserve.
2.7 Taxation
The Company is currently registered in Jersey. The Company is taxed at 0%
which is the general rate of corporation tax in Jersey. No tax has been
charged in the current year (2021: £nil).
The Directors consider the Company's functional currency to be pounds sterling
("GBP") as this is the currency in which the majority of the Company's assets
and liabilities and significant transactions are denominated. The Directors
have selected GBP as the Company's presentation currency.
2.8 Functional and presentational currency
Indirect subsidiaries of the Company may have assets and liabilities relating
to foreign operations which will impact the investment value on the Company's
balance sheet. The assets and liabilities relating to these foreign
operations, including fair value adjustments arising on investments, are
translated into GBP at the exchange rates at the reporting date. The income
and expenses relating to foreign operations are translated into GBP at the
exchange rates at the dates of the transactions.
2.9 Financial instruments
Recognition and initial measurement
Financial assets and financial liabilities are initially recognised when the
Company becomes a party to the contractual provisions of the instrument.
A financial asset or financial liability is initially measured at fair value
plus, for an item not at fair value through profit or loss, transactions
costs that are directly attributable to its acquisition or issue.
Classification and subsequent measurement
Investments held at fair value through profit or loss
The investments held at fair value through profit or loss consist of one
investment in UK Hold Co. The asset in this category is classified as
non-current.
Fair value is defined as the amount for which an asset could be exchanged
between knowledgeable willing parties in an arm's length transaction.
The fair value of UK Hold Co is made up of the fair value of its net assets
which are in turn determined by the fair value of its underlying assets. The
subsidiaries of UK Hold Co are disclosed in note 1 under the Company
Information. FS Holdco and FS Debtco are fair valued using their Net Asset
Value as reported at year end, with adjustments to their long-term external
debt to reflect the fact that the carrying value at amortised cost is not
considered to be the best approximation of their fair value. FS Holdco 3, FS
Holdco 4, FS Topco 2, FISH and FS Holdco 2, FS Topco 1, FIHC, SBSHL and RCF
Debtco are fair valued using their Net Asset Value as reported at year end.
The fair value of the underlying investments held by the Company's
subsidiaries, which impact the value of the Company's subsidiaries, are
determined by using valuation techniques. The Directors calculate the fair
value of the investments based on information received from the Investment
Manager. In accordance with IFRS 13, the Investment Manager's assessment of
fair value of investments is determined in accordance with the International
Private Equity and Venture Capital 2018 ("IPEVC") Valuation Guidelines, using
a discounted cash flow valuation methodology.
The Board and the Investment Manager consider that the discounted cash flow
valuation methodology used in deriving a fair value of the underlying assets
is in accordance with the fair value requirements of IFRS 9. Investments not
yet operational are measured at cost less any impairment as this is considered
the best approximation of fair value.
Gains or losses arising from changes in the fair value of the 'investments
held at fair value through profit or loss' are presented in the Statement of
Profit and Loss and Other Comprehensive Income within 'gains/(losses) on
investments held at fair value through profit or loss' in the period in which
they arise.
The financial instruments at amortised cost are non-derivative financial
assets and liabilities with fixed or determinable payments that are not quoted
in an active market. They comprise trade and other receivables, interest
receivable, cash and cash equivalents and trade and other payables.
Trade and other receivables are rights to receive compensation for goods or
services that have been provided in the ordinary course of business to
customers. Accounts receivable are classified as current assets if receipt is
due within one year or less (or in the normal operating cycle of the business
if longer). If not, they are presented as non-current assets.
Other financial instruments at amortised cost
Interest receivable is the right to receive payments at fixed or variable
interest rates on loans issued by the Company. Interest receivable is
classified as current if the receipt is due within one year or less. If not,
it is presented as a non-current asset.
Cash and cash equivalents comprise cash on hand.
Trade and other payables are obligations to pay for goods or services that
have been acquired in the ordinary course of business from suppliers. Accounts
payable are classified as current liabilities if payment is due within one
year or less (or in the normal operating cycle of the business if longer). If
not, they are presented as non-current liabilities.
All of the above are subsequently held at amortised cost.
Derecognition
The Company derecognises a financial asset when the contractual rights to the
cash flows from the financial asset expire. The Company also derecognises a
financial asset when it transfers the rights to receive the contractual cash
flows in a transaction in which substantially all of the risks and rewards of
ownership of the financial asset are transferred.
Lastly, the Company also derecognises the financial asset when it neither
transfers nor retains substantially all of the risks and rewards of ownership
and it does not retain control of the financial asset.
The Company derecognises a financial liability when its contractual
obligations are discharged or cancelled, or expire. The Company also
derecognises a financial liability when its terms are modified and the cash
flows or the modified liability are subsequently different, in which case a
new financial liability based on the modified terms is recognised at fair
value. Any gain or loss on derecognition is recognised in profit or loss.
Impairment of financial assets
The Company applies the simplified approach to measuring expected credit
losses, as permitted by IFRS 9, which uses a 12-month expected loss allowance
for all trade receivables and interest receivable.
2.10 Share capital
Ordinary Shares are classified as equity. Incremental costs directly
attributable to the issue of new Ordinary Shares are shown in equity as a
deduction, net of tax, from the proceeds. Ordinary Shares have a nil par
value.
2.11 Dividend distribution
Dividend distributions to the Company's Shareholders are recognised through
equity in the Company's Financial Statements in the period in which the
dividends are approved by the Company's Shareholders.
Under Jersey law, the Company can pay dividends in excess of its retained
earnings provided it satisfies the solvency test prescribed under the
Companies Law (Jersey) 1991. The solvency test considers whether the Company
is able to pay its debts when they fall due, and whether the value of the
Company's assets is greater than its liabilities. The Company satisfied the
solvency test in respect of all dividends declared or paid in the year.
3. Critical accounting estimates and judgements
The preparation of Financial Statements in conformity with IFRS requires the
use of certain critical accounting estimates. It also requires management to
exercise its judgement in the process of applying the Company's
accounting policies.
The Board considers that the only areas where management make critical
estimates that may have a significant effect on the Financial Statements are
in relation to the valuation of investments held at fair value through profit
and loss; the most significant judgement is related to the determination that
the Company meets the definition of an investment entity.
The estimates and associated assumptions are based on historical experience
and various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making judgements about
the carrying value of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates and
underlying assumptions are reviewed on an ongoing basis.
Key judgements
The Board considers that the determination that the Company meets the
definition of an investment entity involves significant judgement. The Board
has concluded that the Company continues to meet the definition of an
investment entity, as its strategic objective of investing in portfolio
investments and providing investment management services to investors for the
purpose of generating returns in the form of investment income and capital
appreciation remains unchanged.
Key source of estimation uncertainty: Investments at fair value through profit
or loss
The Company recognises its investment in UK Hold Co at fair value, which
requires the determination of fair value of the underlying investments. The
Board considers that determining the fair value of the underlying investments
not quoted in an active market involves critical accounting estimates. The
discount rate, power price curve, inflation and useful economical life of
assets are considered the most significant unobservable inputs through which
an increase or decrease would have a material impact on the fair value of the
investments at fair value through profit or loss.
The discount rates are subjective and therefore it is feasible that a
reasonable alternative assumption may be used resulting in a different value.
The discount rates applied to the cash flow are reviewed by the Investment
Manager and approved by the Board on a quarterly basis, taking into
consideration market transactions with similar nature. Independent advisors
are used to provide evidenced forward power price curves and therefore it is
feasible that a reasonable alternative assumption may be used resulting in a
different value. The power price curves are reviewed by the Investment Manager
and approved by the Board on a quarterly basis. The power price curves are
adjusted by the Investment manager for an estimated capture price discount as
considered appropriate. The capture price discount, which forms part of the
power price curve, is also reviewed by the Investment Manager and approved by
the board on a quarterly basis. Inflation forecasts, such as that of the
Office for Budget Responsibility ("OBR"), are used alongside in-house views of
the Investment Manager to determine this assumption, therefore it is feasible
that a reasonable alternative assumption may be used resulting in a different
value. The inflation assumptions are reviewed by the Investment Manager and
approved by the Board on a quarterly basis.
Useful economic life ("UEL") of assets are based on the Investment Manager's
estimates of the period over which the assets will generate revenue, which are
periodically reviewed for continued appropriateness. The UEL of the assets are
based on the underlying investment entity exemption lease contract of the
individual assets. The expected weighted average life of the UK portfolio as
at 31 December 2022 is 30.8 years from the date of commissioning. The UEL
of the Australian and Spanish portfolio is 34.4 and 40 years respectively.
The Investment Manager fully expects to be able to renew any lease of the
underlying investments. These key assumptions used in determining the fair
value of underlying investment and the associated sensitivities are disclosed
in note 16 Fair values of the investments in unconsolidated entities.
4. Interest income
31 December 31 December
2022 2021
£'000 £'000
Interest on loan notes 29,975 31,895
Interest on Shareholder loans 6,171 6,171
36,146 38,066
Loan notes were issued by the Company to UK Hold Co for the purchase of
investments. Interest accrues at 9% per annum in arrears on each Interest
Payment Date (28/29 February and 31 August each year). Where interest is not
paid on the payment date, it will compound and future interest shall accrue at
11% per annum from the due date up to the date of actual payment compounding
on each Interest Payment Date. The loan notes balance at year end on which
interest is charged is £250,000,000 (2021: £250,000,000). These loans form
part of the fair value of the investments as per note 14. On 12 December 2022,
UK Hold Co fully repaid its accumulative interest payable up to 31 August
2022, reducing the interest rate from 12 December 2022 to 9%.
A Shareholder loan is created when the total amount paid by the Company on
behalf of UK Hold Co to acquire the underlying investments is more than the
total loan notes issued by the Company to UK Hold Co. Interest accrues at 2%
per annum, and is repayable in full on demand. The Shareholder loan balance at
period end is £304,316,450 (2021: £304,316,450). These loans form part of
the fair value of the investments as per note 14.
5. Management fees
The investment manager of the Fund is Foresight Group LLP (the "Investment
Manager").
The Investment Manager of the Company receives an annual fee of 1% of the Net
Asset Value (NAV) of the Company up to £500 million - NAV in excess to this
is charged at 0.9% per annum. This is payable quarterly in arrears and is
calculated based on the published quarterly NAV. For the year ended 31
December 2022, the Investment Manager was entitled to a management fee of
£7,418,165 (2021: £5,854,281) of which £nil was outstanding as at 31
December 2022 (2021: £nil).
6. Administration fees
Under an Administration Agreement, the Administrator of the Company, JTC
(Jersey) Limited, is entitled to receive minimum annual administration and
accountancy fees of £156,000 payable quarterly in arrears. For the year ended
31 December 2022, total administration and accountancy fees were £199,711
(2021: £198,822) of which £91,000 was outstanding as at 31 December 2022
(2021: £91,000).
7. Staff costs and Directors' fees
No members of staff were employed during the year (2021: nil).
Total Directors' fees were £283,000 (2021: £260,000).
8. Other expenses
31 December 31 December
2022 2021
£'000 £'000
Legal and professional fees 491 432
General expenses 129 245
620 677
Included within legal and professional fees is £154,554 (2021: £129,216)
relating to the audit of these Financial Statements. The total audit fee paid
to KPMG LLP in relation to the audit of the Group is £302,120 for the year
ended 31 December 2022 (2021: £229,000). There were no other fees paid to the
auditors for non-audit services during the year (2021: £nil).
9. Earnings per Ordinary Share -- basic and diluted
The basic earnings per Ordinary Share for the Company is 25.32 pence per share
(2021: 19.37 pence per share). This is based on the profit for the year of
£154,470,462 (2021: £117,891,220) and on 609,958,720 (2021: 608,759,067)
Ordinary Shares, being the weighted average number of shares in issue during
the year.
There is no difference between the weighted average ordinary or diluted number
of shares.
10. Interest receivable
31 December 31 December
2022 2021
£'000 £'000
Interest receivable on loan notes 8,429 30,131
Interest receivable on Shareholder loans 36,302 29,972
44,731 60,103
Information about the Company's exposure to credit and market risk and
impairment losses for interest receivable is included in note 19.
11. Trade and other receivables
31 December 31 December
2022 2021
£'000 £'000
Prepaid expenses 23 25
Other receivables 256 250
279 275
Information about the Company's exposure to credit and market risk and
impairment losses for trade and other receivables is included in note 19.
12. Cash and cash equivalents
31 December 31 December
2022 2021
£'000 £'000
Cash at bank 11,052 10,964
11,052 10,964
Information about the Company's exposure to credit and market risk and
impairment losses for cash and cash equivalents is included in note 19.
13. Trade and other payables
31 December 31 December
2022 2021
£'000 £'000
Accrued expenses 350 257
Amounts due to subsidiaries(1) 18 187
537 444
(1) Amounts due to subsidiaries are unsecured, interest free and repayable on
demand.
14. Investments held at fair value through profit or loss
The following table presents the Company's investments held at fair value
through profit or loss:
31 December 31 December
2022 2021
£'000 £'000
Investment in UK Hold Co - -
- Equity
- Loans 715,942 589,102
715,942 589,102
Book cost as at 1 January 554,315 554,315
Opening investment holding gains/(loss) 34,787 (52,029)
Valuation as at 1 January 589,102 502,286
Movements during the year
Unrealised investment holding gains 126,840 86,816
Valuation as at 31 December 715,942 589,102
Book cost as at 31 December 554,315 554,315
Closing investment holding gains 161,627 34,787
715,942 589,102
The Company has one investment in Foresight Solar (UK Holdco) Limited ("UK
Hold Co"). This investment consists of both debt and equity (share capital of
£100) and is not quoted in an active market. Accordingly, the investment in
UK Hold Co has been valued using its net assets.
In turn, UK Hold Co has three investments in RCF Debtco, FS Holdco 4 and
SBSHL. RCF Debtco has three investments in FS Top Holdco 1, FS Top Holdco 2
and FS Holdco 3. FS Topco 1 has one investment in FIHC. FIHC has one
investment in FS Holdco. FS Topco 2 has one investment in FISH. FISH has one
investment in FS Holdco 2. FS Holdco 2 has one investment FS Debtco. FS Holdco
3 has one investment in SGP Holdings 1 which in turn has one investment in
Second Generation Portfolio 1 ("SGP 1"). These investments also consist of
both debt and equity and are not quoted in an active market. FS Holdco and FS
Debtco are fair valued using their Net Asset Value as reported at year end,
with adjustments to their long-term external debt to reflect the fact that the
carrying value at amortised cost is not considered to be the best
approximation of their fair value. FS Topco 1, FS Topco 2, FS Holdco 4, FIHC,
FS Holdco 3 and FISH are fair valued using their Net Asset Value as reported
at period end.
FS Holdco, FS Debtco, SGP Holdings 1 and FS Holdco 3's investment portfolios
consist of unquoted investments in solar projects, the valuations of which are
based on a discounted cash flow methodology (as set out in note 16) for solar
projects that are operational. FS Holdco 4 consists of operational Australian
and Spanish assets, the valuations of which are also based on a discounted
cash flow methodology.
SBSL is also held at cost as it is not yet operational and the price of the
recent investment acquired by the Group, SBSHL, approximates its fair value.
Fair value hierarchy
IFRS 13 "Fair Value Measurement" requires disclosures relating to fair value
measurements using a three-level fair value hierarchy. The level within which
the fair value measurement is categorised in its entirety is determined on the
basis of the lowest level input that is significant to the fair value
measurement. Assessing the significance of a particular input requires
judgement, considering factors specific to the asset or liability. The
following table shows investments recognised at fair value:
● Level 1 - Quoted (unadjusted) market prices in active markets for identical
assets or liabilities.
● Level 2 - Valuation techniques for which the lowest level input that is
significant to the fair value measurement is directly or indirectly
observable.
● Level 3 - Valuation techniques for which any input that is significant to the
fair value measurement is unobservable.
All investments held at fair value through profit or loss are classified as
level 3 within the fair value hierarchy.
As UK Hold Co's Net Asset Value is not considered observable market data the
investment in UK Hold Co has been classified as level 3. There were no
movements between levels during the year categorised between those whose fair
value is based on:
As at 31 December 2022:
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Investments held at fair value through profit or loss - - 715,942 715,942
- - 715,942 715,942
As at 31 December 2021:
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Investments held at fair value through profit or loss - - 589,102 589,102
- - 589,102 589,102
Sensitivity analysis
Due to the nature of the Group structure and the underlying valuation basis of
UK Hold Co, RCF Debtco, FS Topco 1, FIHC, FS Holdco, FS Topco 2, FS Debtco, FS
Holdco 3, FS Holdco 4 and the underlying solar project investments, the
valuation of the Company's investment at fair value through profit or loss is
directly linked to the valuation of the underlying solar and battery storage
investments. Therefore, the unobservable inputs driving the valuation of the
Company's investments in UK Hold Co are directly attributable to the valuation
of the unquoted investments in FS Holdco, FS Debtco, FS Holdco 3 and FS
Holdco 4, which are discussed further in note 16.
15. Subsidiaries and associates
Investments in subsidiaries
Proportion
Direct or of shares
indirect Country of Principal and voting
Name holding incorporation activity rights held
Foresight Solar (UK Holdco) Limited ("UK Hold Co") Direct UK Holding Company 100%
FS Holdco Limited ("FS Holdco") Indirect UK Holding Company 100%
FS Top Holdco 2 Limited ("FS Topco 2") Indirect UK Holding Company 100%
Foresight Intermediate Solar Holdings Limited ("FISH") Indirect UK Holding Company 100%
FS Holdco 2 Limited ("FS Holdco 2") Indirect UK Holding Company 100%
FS Debtco Limited ("FS Debtco") Indirect UK Holding Company 100%
FS Holdco 3 Limited ("FS Holdco 3") Indirect UK Holding Company 100%
FS Holdco 4 Limited ("FS Holdco 4") Indirect UK Holding Company 100%
Sandridge Battery Storage Holding Limited ("SBSHL") Indirect UK Holding Company 50%
FS RCF DebtCo Limited ("RCF Debtco") Indirect UK Holding Company 100%
FS Top Holdco 1 Limited ("FS Topco 1") Indirect UK Holding Company 100%
FS Intermediate Holdco Limited ("FIHC") Indirect UK Holding Company 100%
FS Wymeswold Limited Indirect UK SPV Holding Company 100%
FS Castle Eaton Limited Indirect UK SPV Holding Company 100%
FS Pitworthy Limited Indirect UK SPV Holding Company 100%
Foresight Solar Germany Holding GmbH Indirect Germany SPV Holding Company 100%
FS Highfields Limited Indirect UK SPV Holding Company 100%
FS High Penn Limited Indirect UK SPV Holding Company 100%
FS Hunter's Race Limited Indirect UK SPV Holding Company 100%
FS Spriggs Limited Indirect UK SPV Holding Company 100%
FS Bournemouth Limited Indirect UK SPV Holding Company 100%
FS Landmead Limited Indirect UK SPV Holding Company 100%
FS Kencot Limited Indirect UK SPV Holding Company 100%
FS Copley Limited Indirect UK SPV Holding Company 100%
FS Port Farms Solar Limited Indirect UK SPV Holding Company 100%
FS Membury Limited Indirect UK SPV Holding Company 100%
FS Southam Solar Limited Indirect UK SPV Holding Company 100%
FS Atherstone Solar Limited Indirect UK SPV Holding Company 100%
FS Paddock Wood Solar Farm Limited Indirect UK SPV Holding Company 100%
Southam Holdco Limited Indirect UK SPV Holding Company 100%
Atherstone Holdco Limited Indirect UK SPV Holding Company 100%
Paddock Wood Holdco Limited Indirect UK SPV Holding Company 100%
FS Shotwick Limited Indirect UK SPV Holding Company 100%
FS Sandridge Limited Indirect UK SPV Holding Company 100%
FS Wally Corner Limited Indirect UK SPV Holding Company 100%
Acquisition Co 4 Limited Indirect UK SPV Holding Company 100%
FS Welbeck Limited Indirect UK SPV Holding Company 100%
FS Trehawke Limited Indirect UK SPV Holding Company 100%
FS Homeland Limited Indirect UK SPV Holding Company 100%
FS Marsh Farm Limited Indirect UK SPV Holding Company 100%
FS Steventon Limited Indirect UK SPV Holding Company 100%
FS Fields Farm Limited Indirect UK SPV Holding Company 100%
FS Gedling Limited Indirect UK SPV Holding Company 100%
FS Sheepbridge Limited Indirect UK SPV Holding Company 100%
FS Tengore Limited Indirect UK SPV Holding Company 100%
FS Cuckoo Limited Indirect UK SPV Holding Company 100%
FS Field House Limited Indirect UK SPV Holding Company 100%
FS Upper Huntingford Limited Indirect UK SPV Holding Company 100%
FS Abergelli Limited Indirect UK SPV Holding Company 100%
FS Crow Trees Limited Indirect UK SPV Holding Company 100%
FS Yarburgh Limited Indirect UK SPV Holding Company 100%
FS Nowhere Solar Limited Indirect UK SPV Holding Company 100%
FS Bilsthorpe Solar Limited Indirect UK SPV Holding Company 100%
FS Bulls Head Solar Limited Indirect UK SPV Holding Company 100%
FS Roskrow Solar Limited Indirect UK SPV Holding Company 100%
FS Abbeyfields Solar Limited Indirect UK SPV Holding Company 100%
FS Lindridge Solar Limited Indirect UK SPV Holding Company 100%
FS Misson Solar Limited Indirect UK SPV Holding Company 100%
FS Playters Solar Limited Indirect UK SPV Holding Company 100%
FS Misson Solar Limited Indirect UK SPV Holding Company 100%
FS Playters Solar Limited Indirect UK SPV Holding Company 100%
FS PS Manor Farm Solar Limited Indirect UK SPV Holding Company 100%
FS SV Ash Solar Park Limited Indirect UK SPV Holding Company 100%
FS Pen Y Cae Solar Limited Indirect UK SPV Holding Company 100%
Second Generation Portfolio Holdings 1 Limited Indirect UK SPV Holding Company 100%
("SGP Holdings 1")
Second Generation Portfolio 1 Limited ("SGP 1") Indirect UK SPV Holding Company 100%
FS Oakey 2 Pty Limited Indirect Australia SPV Holding Company 100%
Foresight Solar Spain Holding S.L ("FSSH") Indirect Spain SPV Holding Company 100%
Wymeswold Solar Farm Limited ("Wymeswold") Indirect UK Investment 100%
Castle Eaton Solar Farm Limited ("Castle Eaton") Indirect UK Investment 100%
Pitworthy Solar Farm Limited ("Pitworthy") Indirect UK Investment 100%
Highfields Solar Farm Limited ("Highfields") Indirect UK Investment 100%
High Penn Solar Farm Limited ("High Penn") Indirect UK Investment 100%
Hunter's Race Solar Farm Limited ("Hunter's Race") Indirect UK Investment 100%
Spriggs Solar Farm Limited ("Spriggs") Indirect UK Investment 100%
Bournemouth Solar Farm Limited ("Bournemouth") Indirect UK Investment 100%
Landmead Solar Farm Limited ("Landmead") Indirect UK Investment 100%
Kencot Hill Solar Farm Limited ("Kencot") Indirect UK Investment 100%
Copley Solar Limited (Copley) Indirect UK Investment 100%
Ports Farms Limited (Port Farms) Indirect UK Investment 100%
Membury Solar Limited ("Membury") Indirect UK Investment 100%
Atherstone Solar Farm Ltd ("Atherstone") Indirect UK Investment 100%
Southam Solar Farm Ltd ("Southam") Indirect UK Investment 100%
Paddock Wood Solar Farm Ltd ("Paddock Wood") Indirect UK Investment 100%
Shotwick Solar Limited ("Shotwick Solar") Indirect UK Investment 100%
Sandridge Solar Power Limited ("Sandridge") Indirect UK Investment 100%
Wally Corner Limited ("Wally") Indirect UK Investment 100%
Foresight Solar Australia Pty Limited Indirect Australia Investment 100%
RE Oakey Pty Limited Indirect Australia Investment 100%
Oakey Network Pty Limited Indirect Australia Investment 100%
Longreach Asset Company Pty Limited Indirect Australia Investment 100%
Second Generation Yardwall Limited ("Yardwall") Indirect UK Investment 100%
Second Generation Verwood Limited ("Verwood") Indirect UK Investment 100%
Second Generation Park Farm Limited ("Park Farm") Indirect UK Investment 100%
Second Generation Coombeshead Limited ("Coombeshead") Indirect UK Investment 100%
Second Generation Sawmills Limited ("Sawmills") Indirect UK Investment 100%
Welbeck Limited ("Welbeck") Indirect UK Investment 100%
Trehawke Limited ("Trehawke") Indirect UK Investment 100%
Homeland Limited ("Homeland") Indirect UK Investment 100%
Marsh Farm Limited ("Marsh Farm") Indirect UK Investment 100%
Steventon Limited ("Steventon") Indirect UK Investment 100%
Fields Farm Limited ("Fields Farm") Indirect UK Investment 100%
Gedling Limited ("Gedling") Indirect UK Investment 100%
Sheepbridge Limited ("Sheepbridge") Indirect UK Investment 100%
Tengore Limited ("Tengore") Indirect UK Investment 100%
Cuckoo Limited ("Cuckoo") Indirect UK Investment 100%
Field House Limited ("Field House") Indirect UK Investment 100%
Upper Huntingford Limited ("Upper Huntingford") Indirect UK Investment 100%
Abergelli Limited ("Abergelli") Indirect UK Investment 100%
Crow Trees Limited ("Crow Trees") Indirect UK Investment 100%
Yarburgh Limited ("Yarburgh") Indirect UK Investment 100%
Nowhere Solar Limited ("Nowhere Solar") Indirect UK Investment 100%
Bilsthorpe Solar Limited ("Bilsthorpe Solar") Indirect UK Investment 100%
Bulls Head Solar Limited ("Bulls Head Solar") Indirect UK Investment 100%
Roskrow Solar Limited ("Roskrow Solar") Indirect UK Investment 100%
Lindridge Solar Limited ("Lindridge Solar") Indirect UK Investment 100%
Misson Solar Limited ("Misson Solar") Indirect UK Investment 100%
Abbeyfields Solar Limited ("Abbeyfields Solar") Indirect UK Investment 100%
Playters Solar Limited ("Playters Solar") Indirect UK Investment 100%
PS Manor Farm Solar Limited ("PS Manor Farm Solar") Indirect UK Investment 100%
SV Ash Solar Park Limited ("SV Ash Solar Park") Indirect UK Investment 100%
Pen Y Cae Solar Limited ("Pen Y Cae Solar") Indirect UK Investment 100%
Global Solar Energy Veintisiete, S.L Indirect Spain Investment 100%
Virgen del Carmen Solar S.L ("Virgen") Indirect Spain Investment 100%
Solar Energy Veintisiete S.L ("Lorca") Indirect Spain Investment 100%
Solar de la Contraviesa 5 S.L.U Indirect Spain Investment 100%
Solar de la Contraviesa 6 S.L.U Indirect Spain Investment 100%
Solar de la Contraviesa 7 S.L.U Indirect Spain Investment 100%
Fotovoltaica Puerto Cruz II.SI Indirect Spain Investment 100%
Longreach New Holdco Pty Limited Indirect Australia SPV Holding Company 100%
Oakey 1 New Holdco Pty Limited Indirect Australia SPV Holding Company 100%
Investments in associates
Proportion
Direct or of shares
indirect Country of Principal and voting
Name holding incorporation activity rights held
Kiamco Hanwha Foresight Bannerton Pty Limited Indirect Australia SPV Holding Company 48.50%
Lunanhead Energy Storage Limited Indirect UK Investment 50%
Clayfords Energy Storage Limited ("CESL") Indirect UK Investment 50%
Sandridge Battery Storage Limited ("SBSL") Indirect UK Investment 50%
16. Fair value of the investments in unconsolidated entities
Valuation process
Valuations are the responsibility of the Board of Directors. The Investment
Manager is responsible for submitting fair market valuations of Group assets
to the Directors. The Directors review and approve these valuations following
appropriate challenge and examination. Valuations are carried out quarterly.
The current portfolio consists of non-market traded investments and valuations
are based on a discounted cash flow methodology. The Investment Manager's
assessment of fair value of investments is determined in accordance with the
International Private Equity and Venture Capital 2018 ("IPEVC") Valuation
Guidelines, using levered and unlevered discounted cash flow principles. The
Investment Manager and Directors consider that the discounted cash flow
methodology used in deriving a fair value is in accordance with the fair value
requirements of IFRS 13. The assets in construction were valued at cost at 31
December 2022 and have therefore been omitted from the sensitivity analysis on
the following pages.
Sensitivity analysis of significant changes in unobservable inputs within
level hierarchy of underlying investments
The majority of the Company's underlying investments (indirectly held through
its unconsolidated subsidiaries FS Holdco, FS Debtco, FS Holdco 3 and FS
Holdco 4) are valued with reference to the discounted value of future cash
flows. The Directors consider the valuation methodology used, including the
key assumptions and discount rate applied, to be appropriate. The Board
reviews, at least annually, the valuation inputs and, where possible, makes
use of observable market data to ensure valuations reflect the fair value of
the investments. A broad range of assumptions are used in the valuation
models. These assumptions are based on long-term forecasts and are not
affected by short-term fluctuations in inputs, be it economic or technical.
The Investment Manager has adjusted the sensitivities calculation methodology
from an asset level cash flows only basis to a calculation based on asset
level cash flow less holding company level debt cash outflows. This has
resulted mainly in a reduction of the discount rate sensitivity disclosed
below.
The base valuation of £740.5 million represents the levered discounted value
of future cash flows of the underlying operational assets with assets under
construction held at cost, less the long-term debt held at holding company
level. The valuation of the Australian assets is net of debt. The base
valuation of £740.5 million is equal to the NAV of £771.5 million less
items deemed not subject to the sensitivities applied.
31 December
2022
Base case for sensitivities 740.5
Items not subject to sensitivities:
Cash in UK and Australian assets 33.0
Assets in construction valued at cost 9.5
Company and intermediate holding companies' cash 101.2
RCF outstanding (115.0)
Other group net assets and DCF adjustments 2.3
Net Asset Value at 31 December 2022 771.5
The Directors consider the following to be the most significant inputs to the
discounted cash flows ("DCF") calculation.
Discount rate
The weighted average discount rate used is 7.16% (2021: 6.26%). The Directors
do not expect to see a significant change in the discount rates applied within
the solar infrastructure sector. Therefore, a variance of +/-0.5% is
considered reasonable factored into the analysis. In terms of the climate
change risk, the discount rate is benchmarked against a similar asset base to
ensure the underlying climate risk exposure is factored into the analysis.
-0.50% -0.25% Base +0.25% +0.50%
Portfolio valuation (£m) 767.2 753.6 740.5 727.8 715.5
Change in portfolio valuation (£m) 26.6 13.1 - 12.7 -25.0
NAV per share change (pence) 4.4 2.1 126.5 -2.1 -4.1
Power price
Power price DCF models assume power prices that are consistent with the Power
Purchase Agreements ("PPAs") currently in place. At the PPA end date, the
model reverts to the power price forecast. The power price forecasts are
updated quarterly and based on power price forecasts from leading independent
sources, adjusted by the Investment Manager for the expected capture price
discounts for solar generation as considered appropriate.
The forecast assumes an average annual decrease in power prices in real terms
of approximately 5.5% (2021: decrease of 3.1%). During the period, c.39% of
the investments' operational revenues came from regulatory support mechanisms.
The remaining c.61% of revenue is derived from electricity sales which are
partially subject to power price movements. On a net present value basis,
future electricity sales which are subject to price movements represent c.51%
of total revenues.
-20.0% -10.0% Base +10.0% +20.0%
Portfolio valuation (£m) 630.1 686.2 740.5 790.1 840.3
Change in portfolio valuation (£m) 110.4 54.3 - 49.5 99.8
NAV per share change (pence) 18.1 -8.9 126.5 8.1 16.4
Inflation
A variable of 0.5% to 1.0% is considered reasonable given the long-term
inflation rate of 3.00% (2021: 3.00%).
-1.0% -0.5% Base +0.5% +1.0%
Portfolio valuation (£m) 679.8 710.5 740.5 771.2 802.9
Change in portfolio valuation (£m) 60.7 30.0 - 30.7 62.4
NAV per share change (pence) -10.0 -4.9 126.5 5.0 10.2
Useful economic lives ("UELs")
The valuation of the Company's investments is determined based on the
discounted value of future cash flows of those investments over their UELs.
The UEL of individual assets is determined by reference to a fixed contractual
lease term. The Board notes that if extended contractual lease terms were
negotiated for individual assets, this would increase the value of those
assets. Similarly, if the assets did not operate for the duration of the fixed
contractual period, this would reduce the value of those assets.
-1 year Base +1 year
Portfolio valuation (£m) 735.2 740.5 756.4
Change in portfolio valuation (£m) -5.3 - 4.1
NAV per share change (pence) -0.9 126.5 0.7
Production
Base case production is a function of a number of separate assumptions
including irradiation levels, availability of the sites and technical
performance of the equipment. A sensitivity of +/-10% is considered reasonable
given stable levels of irradiation, contractual availability guarantees and
understanding of future performance levels of the equipment.
-10% Base +10%
Portfolio valuation (£m) 621.4 740.5 850.2
Change in portfolio valuation (£m) -119.1 - 109.7
NAV per share change (pence) -19.5 126.5 18.0
Operating costs (investment level)
Operating costs include operating and maintenance ("O&M") insurance and
lease costs. Other costs are fixed and are therefore not considered to be
sensitive to changes in unobservable inputs. Base case costs are based on
current commercial agreements. We would not expect these costs to fluctuate
widely over the life of the assets and are comfortable that the base case is
prudent. A variance of +/- 5.0% is considered reasonable, a variable of 10.0%
is shown for information purposes.
-10.0% -5.0% Base +5.0% +10.0%
Portfolio valuation (£m) 758.2 748.2 740.5 729.7 719.6
Change in portfolio valuation (£m) 17.6 7.7 - -10.8 -20.9
NAV per share change (pence) 2.9 1.3 126.5 1.8 3.4
Tax rate
In spring 2021, the UK government announced its intention to increase the rate
of UK corporation tax from 19% to 25% from 2023. The impact of this proposal
is reflected in the 31 December 2022 valuation. On that basis, a variable of
1.0% is considered reasonable given historic information.
-1.0% Base +1.0%
Portfolio valuation (£m) 744.7 740.5 736.3
Change in portfolio valuation (£m) 4.2 - -4.2
NAV per share change (pence) 0.7 126.5 -0.7
Exchange rate
The Fund is directly exposed to fluctuations in foreign currency due to its
investments in Australian dollar denominated assets. Whilst the Group
mitigates its exposure to fluctuations in AUD through the use of forward
contracts, the valuations of these assets will be directly impacted. Whilst we
would not expect to see fluctuations quite this large, a variable of 20% is
considered appropriate. Following the acquisition of the Spanish assets, the
Fund is also exposed to fluctuations in EUR. The Group also mitigates its
exposure to fluctuations in EUR through the use of forward contracts.
AUD/GBP -20.0% -10.0% Base +10.0% +20.0%
Portfolio valuation (£m) 731.6 736.1 740.5 745.0 749.4
Change in portfolio valuation (£m) -8.9 -4.5 - 4.5 8.9
NAV per share change (pence) -1.5 -0.7 126.5 0.7 1.5
EUR/GBP -20.0% -10.0% Base +10.0% +20.0%
Portfolio valuation (£m) 726.7 733.6 740.5 747.4 754.4
Change in portfolio valuation (£m) -13.9 -6.9 - 6.9 13.9
NAV per share change (pence) -2.3 -1.1 126.5 1.1 2.3
17. Stated capital and share premium
The share capital and share premium of the Company consists solely of Ordinary
Shares of nil par value and therefore the value of the stated capital relates
only to share premium. At any General Meeting of the Company each Shareholder
will have on a show of hands, one vote and on a poll one vote in respect of
each Ordinary Share held. Stated capital is the net proceeds received from the
issue of Ordinary Shares (net of issue costs capitalised). The holders of the
Ordinary Shares are entitled to receive dividends from time to time.
Authorised Ordinary Shares
31 December 31 December
2022 2021
Shares Shares
Ordinary Shares - nil par value Unlimited Unlimited
Issued Ordinary Shares
31 December 31 December
2022 2021
Shares Shares
Opening balance 609,958,720 607,711,311
Scrip dividends issued during the year - 2,247,409
Closing balance 609,958,720 609,958,720
31 December 31 December
2022 2021
£'000 £'000
Opening balance 629,892 627,649
Value of scrip dividends issued - 2,243
Closing balance 629,892 629,892
18. NAV per Ordinary Share
The Net Asset Value ("NAV") per redeemable Ordinary Share for the Company is
126.5 (2021: 108.2) pence per Ordinary Share. This is based on the Net Asset
Value at the reporting date of £771,597,780 (2021: £659,999,331) and
on 609,958,720 (2021: 609,958,720) redeemable Ordinary Shares, being the
number of Ordinary Shares in issue at the end of the year.
19. Financial instruments and risk profile
The Company holds cash and liquid resources as well as having receivables and
payables that arise directly from its operations. The underlying investments
of the Company's investment activities indirectly expose it to various types
of risks associated with solar power. The main risks arising from the
Company's financial instruments are market risk, liquidity risk and credit
risk. The Directors regularly review and agree policies for managing each of
these risks and these are summarised below:
19.1 Market risk
(a) Foreign currency risk
Foreign currency risk, as defined in IFRS 7, arises as the values of
recognised monetary assets and monetary liabilities denominated in other
currencies fluctuate due to changes in foreign exchange rates. Transactions in
foreign currency are translated at the foreign exchange rate ruling at the
date of the transaction. Monetary assets and liabilities denominated in
foreign currencies at the balance sheet date are translated to pounds sterling
at the foreign exchange rate ruling at that date. Foreign exchange differences
arising on translation are recognised in income.
The Company has no direct exposure to foreign currency risk, however through
its underlying investment in FS Holdco 4 it has indirect exposure. FS Holdco 4
is directly exposed to fluctuations in foreign currency due to its investments
in euro and Australian dollar denominated assets. The Group mitigates its
exposure to fluctuations in foreign currency through the use of forward
exchange contracts.
The carrying amount of FS Holdco 4's foreign currency exposure at the
reporting date is as follows:
31 December 31 December
2022 2021
£'000 £'000
AUD 55,432 53,567
EUR 69,296 77,816
The FX rate applied at 31 December 2022 was AUD/GBP 0.5647 (2021: 0.5369) and
EUR/GBP 0.8868 (2021: 0.8407).
The sensitivities linked to the assets denominated in Australian dollars and
euros are set out in note 16 as these assets are held in the underlying
investments.
(b) Price risk
The Company's investments are susceptible to market price risk arising from
uncertainties about future values of the instruments. The Company's Investment
Manager provides the Company with investment recommendations. The Company's
Investment Manager's recommendations are reviewed and approved by the Board
before the investment decisions are implemented. To manage the market price
risk, the Company's Investment Manager reviews the performance of the
investments on a regular basis and is in regular contact with the management
of the non-current investments for business and operational matters.
Price risk is the risk that the fair value or cash flows of a financial
instrument will fluctuate due to changes in market prices. At 31 December
2022, the Company's only investment was valued at net assets excluding the
outstanding loans issued by the Company. Were this value to increase by 10%,
the increase in net assets attributable to Shareholders for the year would
have been £71,594,174 (2021: £59,105,831). Were this value to decrease by
10%, the decrease in net assets attributable to Shareholders for the year
would have been £71,594,174 (2021: £59,105,831). The impact of changes in
unobservable inputs to the underlying investments is considered in note 16.
(c) Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a
financial instrument will fluctuate because of changes in market interest
rates. The Company's exposure to the risk of changes in market interest rates
relates primarily to the Company's long-term lending to its subsidiary. At
year end the Company had no long-term borrowings with third parties (2021:
£nil).
Weighted
Weighted average time
Total average for which
portfolio interest rate rate is fixed
31 December 2022 31 December 2022 31 December 2022
£'000 % Days
Loan notes 250,000 10.90 1,516
Shareholder loans 304,316 2.00 2,748
Cash and cash equivalents 11,052 0.05 -
565,368
Weighted
Weighted average time
Total average for which
portfolio interest rate rate is fixed
31 December 2021 31 December 2021 31 December 2021
£'000 % Days
Loan notes 250,000 11.00 1,876
Shareholder loans 304,316 2.00 2,383
Cash as cash equivalents 10,964 0.05 -
565,280
The Company is also indirectly exposed to interest rate risk through its
investment in UK Hold Co. Details of the indirect interest rate risk exposure
are as follows:
Weighted
Total Weighted average time
indirect average for which
exposure interest rate rate is fixed
31 December 31 December 31 December
2022 2022 2022
£'000 % Days
Investment - RCF Debtco 689,582 6.00 365(2)
Investment - FS Holdco 4(1) 93,401 5.00 2,781
Cash and cash equivalents 27,409 0.05 -
Total indirect exposure interest rate risk 810,392
Weighted
Total Weighted average time
indirect average for which
exposure interest rate rate is fixed
31 December 31 December 31 December
2021 2021 2021
£'000 % Days
Investment - FS Holdco(1) 343,731 8.00 365(2)
Investments - FS Topco 1, FS Holdco 3 and FS Holdco 4(1) 422,922 5.00 2,416
Cash and cash equivalents 5,947 0.05 -
Total indirect exposure interest rate risk 772,600
(1) Although interest is charged on the loan portion of the investments, the risk
is low as the loans are inter-group and therefore not subject to significant
fluctuations.
(2) These loans do not have a repayment date and are repayable on demand. However,
the Directors do not intend to demand repayment within at least 12 months
after year end
19.2 Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its
financial obligations as they fall due as a result of the maturity of assets
and liabilities not matching. An unmatched position potentially enhances
profitability but can also increase the risk of losses. Liquidity could be
impaired by an inability to access secured and/or unsecured sources of
financing to meet financial commitments. The Board monitors the Company's
liquidity requirements to ensure there is sufficient cash to meet the
Company's operating needs.
The following are the expected maturities of the financial assets and
liabilities at year end based on contractual undiscounted payments:
31 December 2022
Carrying Contractual Less than 6 to Greater than
amount total 6 months 12 months 12 months
£'000 £'000 £'000 £'000 £'000
Financial assets
Investments 715,942 715,942 - - 715,942
Trade and other receivables 279 279 - 279 -
Interest receivable 44,731 44,731 - 44,731 -
Cash and cash equivalents 11,052 11,052 11,052 - -
Total financial assets 772,004 772,004 11,052 45,010 715,942
Financial liabilities
Trade and other payables 537 537 537 - -
Total financial liabilities 537 537 537 - -
Net position 771,467 771,467 10,515 45,010 715,942
31 December 2021
Carrying Contractual Less than 6 to Greater than
amount total 6 months 12 months 12 months
£'000 £'000 £'000 £'000 £'000
Financial assets
Investments 589,102 589,102 - - 589,102
Trade and other receivables 275 275 275 - -
Interest receivable 60,103 60,103 60,103 - -
Cash and cash equivalents 10,964 10,964 10,964 - -
Total financial assets 660,444 660,444 71,342 - 589,102
Financial liabilities
Trade and other payables 444 444 444 - -
Total financial liabilities 444 444 444 - -
Net position 660,000 660,000 70,898 - 589,102
19.3 Credit risk
a) Exposure to credit risk
Credit risk refers to the risk that a counterparty will default on its
contractual obligations resulting in financial loss to the Company.
The Company and its subsidiaries place cash with authorised deposit takers and
is therefore potentially at risk from the failure of such institutions.
In respect of credit risk arising from other financial assets and liabilities,
which mainly comprise of cash and cash equivalents, exposure to credit risk
arises from default of the counterparty with a maximum exposure equal to the
carrying amounts of these instruments. In order to mitigate such risks, cash
is maintained with major international financial institutions. During the year
and at the reporting date, the Company maintained relationships with the
following financial institutions:
31 December
Moody's 2022
credit rating £'000
Cash in bank:
Royal Bank of Scotland International Limited P2 11,052
Total cash and cash equivalents 11,052
31 December
Moody's 2021
credit rating £'000
Cash in bank:
Royal Bank of Scotland International Limited P2 10,964
Total cash and cash equivalents 10,964
The Company is also indirectly exposed to credit risk through its investment
in UK Hold Co. The Board of UK Hold Co has determined that the maximum
exposure to credit risk in relation to investments is £782,983,492
(2021: £766,652,395), being the portion of UK Hold Co investments that are
made up of loans as at 31 December 2022; these loans are, however, all
within the Group. Included within this are the related party loans as
disclosed within note 22. An external long-term debt facility was entered into
by FS Holdco, FS Debtco and FISH with Santander and NatWest respectively. The
balance of the external debt facility as at year end amounted to £374,514,646
(2021: £400,155,598). The Company's ability to meet the debt covenants
described in note 2.2 going concern is directly impacted by power prices. If
the debt covenants were not met, the Company may not be able to repatriate
cash through the structure. However, during 2022, the debt covenants were not
breached. In the debt calculation period to 30 September 2022, the last
calculation date before the date of this report, the DSCR for FS Holdco was
2.93:1 and for FS Debtco it was 6.07:1 and the Loan Life Coverage Ratio
("LLCR") for FS Holdco was 2.60:1.
For the calculation date of 31 December 2022 for the RCF, the interest cover
ratio was 19.51:1. The minimum threshold ratio is 3.00:1.
b) Expected credit loss assessment
Investments held at fair value through profit or loss are not subject to IFRS
9 impairment requirements. The Company applies the simplified approach to
measuring expected credit losses, as permitted by IFRS 9, which uses a
lifetime expected credit loss allowance for all trade receivables. The
expected credit loss on trade receivables and the balance at year end was
deemed by management to be not material and therefore no impairment
adjustments were accounted for.
19.4 Other risks
Political and economic risk
The value of Ordinary Shares may be affected by uncertainties such as
political or diplomatic developments, social and religious instability,
changes in government policies, taxation or interest rates, currency
repatriation and other political and economic developments in law or
regulations and, in particular, the risk of expropriation, nationalisation,
and confiscation of assets and changes in legislation relating to the level of
foreign ownership.
Governmental authorities at all levels are actively involved in the
promulgation and enforcement of regulations relating to taxation, land use and
zoning and planning restrictions, environmental protection, safety and other
matters. The introduction and enforcement of such regulations could have the
effect of increasing the expense and lowering the income or rate of return
from, as well as adversely affecting the value of, the Company's assets.
Since the emergence of COVID-19, the pandemic has prompted the Directors and
the Investment Manager to assess the direct and indirect risks to the Company
and the portfolio. The key risk COVID-19 continues to pose to the Company is a
negative impact on the power price market, therefore adversely affecting the
distributions received from underlying investments.
In 2021 the UK and the Company experienced a surge in power prices partly
because of the tightening of the supply of natural gas into the EU. In
February 2022, Russia invaded Ukraine, which caused many countries, including
the UK, to place sanctions on the usage of Russian fossil fuels; as a result,
power prices continued to be affected.
The Board continues to monitor and review the geopolitical environment and its
wider impact on the Company's business in what has the potential to be a more
turbulent period in international relations.
Challenges also remain in the supply chain that might impact construction and
operation of solar farms and battery storage systems. The risk of forced
labour being used anywhere in the supply chain is something the Company is
especially alert to and is part of its Risk Management Framework.
During the year, the risks that have been most closely monitored are those
related to direct government market intervention, such as windfall taxes; the
effects of a higher interest rate environment; and volatile power prices.
In November 2022, the UK government published a technical note on the
Electricity Generator Levy, the method the government is using to obtain what
it sees as excess profits being made in the wholesale electricity market by
renewable energy and low carbon generators in the UK. The levy will impact the
Company's UK operational assets and result in a proportion of its generated
profits to be surrendered. The Directors continue to monitor and review all
risks associated with long- and near-term power prices through the risk
management framework.
The UK government has also started a consultation process in 2022 around the
future of the electricity market in Great Britain (REMA), with the aim of
providing affordable and secured electricity for consumers through changes
to the current market arrangements. The results of the consultation are not
expected to be shared until 2023 with the expectation of any radical changes
not to be in place much before 2030.
Changes to the level of political support may result in adjustments to the
levels of subsidy and incentives for renewable generation, whether on a
prospective or retrospective basis. The Directors continue to monitor and
review this risk under the risk management framework.
The risk management framework is outlined on page 64.
20. Capital management
The Company's objectives when managing capital are to safeguard the Group's
ability to continue as a going concern in order to provide returns for
Shareholders and benefits for other stakeholders and to maintain an optimal
capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Company may adjust
the amount of dividends paid to Shareholders, return capital to Shareholders,
issue new shares (up to its authorised number of shares) or sell assets
to reduce debt.
21. Dividends
2022 2021
Pence/ Pence/
2022 Ordinary 2021 Ordinary
£'000 Share £'000 Share
Quarter 1 10,644 1.745 10,345 1.730
Quarter 2 10,644 1.745 9,646 1.730
Quarter 3 10,858 1.780 9,607 1.745
Quarter 4 10,858 1.780 10,452 1.745
43,004 40,050
On 24 November 2022, the Company announced the third interim dividend, in
respect of the period 1 July 2022 to 30 September 2022, of 1.78 pence per
Ordinary Share. The shares went ex-dividend on 26 January 2023 and the
dividend was paid on 24 February 2023 to Shareholders on the register as at
the close of business on 26 January 2023.
No shares were issued in lieu of cash dividends during the year.
22. Related party disclosures
For the purposes of these Financial Statements, a related party is an entity
or entities who are able to exercise significant influence directly or
indirectly on the Company's operations.
As noted in note 2, the Company does not consolidate its subsidiary. However,
the Company and its subsidiaries (direct and indirect) are a Group and,
therefore, are considered to be related parties.
Transactions with UK Hold Co
For the year ended 31 December 2022:
Closing
Opening Movements balance as at
balance as at during 31 December
1 January 2022 the year 2022
£'000 £'000 £'000
Interest bearing loans and outstanding interest payable to UK Hold Co 614,419 (15,369) 599,050
Non-interest bearing loans payable to UK Hold Co 187 - 187
For the year ended 31 December 2021:
Closing Movements Opening balance as at
balance as at during 31 December
1 January 2021 the year 2021
£'000 £'000 £'000
Interest bearing loans and outstanding interest 617,453 (3,034) 614,419
Non-interest bearing loans 187 - 187
Transactions between UK Hold Co and its underlying subsidiaries
Transactions with RCF Debtco
For the year ended 31 December 2022:
Closing
Opening Movements balance as at
balance as at during 31 December
1 January 2022 the year 2022
£'000 £'000 £'000
Interest bearing loans and outstanding interest - 589,262 589,262
Non-interest bearing loans - 300,459 300,459
There are no prior period transactions with RCF Debtco due to the company not
being incorporated until 9 November 2021.
Transactions with FS Holdco
For the year ended 31 December 2022:
Closing
Opening Movements balance as at
balance as at during 31 December
1 January 2022 the year 2022
£'000 £'000 £'000
Interest bearing loans and outstanding interest payable 406,930 (406,930) -
Interest bearing loans and outstanding interest receivable (45,253) 45,253 -
Non-interest bearing loans receivable (143,504) 143,504 -
Non-interest bearing loans payable 875 (875) -
For the year ended 31 December
2021:
Closing
Opening Movements balance as at
balance as at during 31 December
1 January 2021 the year 2021
£'000 £'000 £'000
Interest bearing loans and outstanding interest payable 403,505 3,425 406,930
Interest bearing loans and outstanding interest receivable (43,253) (2,000) (45,253)
Non-interest bearing loans receivable (143,504) - (143,504)
Non-interest bearing loans payable 875 - 875
Transactions with FS Topco 2
For the year ended 31 December 2022:
Closing
Opening Movements balance as at
balance as at during 31 December
1 January 2022 the year 2022
£'000 £'000 £'000
Interest bearing loans and outstanding interest 271,167 (271,167) -
Non-interest bearing loan (26,524) 26,524 -
For the year ended 31 December 2021:
Closing
Opening Movements balance as at
balance as at during 31 December
1 January 2021 the year 2021
£'000 £'000 £'000
Interest bearing loans and outstanding interest 208,123 63,044 271,167
Non-interest bearing loan (22,288) (4,236) (26,524)
Transactions with FS Debtco
For the year ended 31 December 2022:
Closing
Opening Movements balance as at
balance as at during 31 December
1 January 2022 the year 2022
£'000 £'000 £'000
Interest bearing loans and outstanding interest 68,019 (68,019) -
Non-interest bearing loan 140 (140) -
For the year ended 31 December 2021:
Closing
Opening Movements balance as at
balance as at during 31 December
1 January 2021 the year 2021
£'000 £'000 £'000
Interest bearing loans and outstanding interest 65,269 2,750 68,019
Non-interest bearing loan 140 - 140
Transactions with FISH
There were no transactions between UK Hold Co and FISH.
Transactions with FS Holdco 2
There were no transactions between UK Hold Co and FS Holdco 2.
Transactions with FS Holdco 3
For the year ended 31 December 2022:
Closing
Opening Movements balance as at
balance as at during 31 December
1 January 2022 the year 2022
£'000 £'000 £'000
Interest bearing loans and outstanding interest 37,930 (37,930) -
Non-interest bearing loan (6,165) 6,165 -
For the year ended 31 December 2021:
Closing
Opening Movements balance as at
balance as at during 31 December
1 January 2021 the year 2021
£'000 £'000 £'000
Interest bearing loans and outstanding interest 36,124 1,806 37,930
Non-interest bearing loan (6,165) - (6,165)
Transactions with FS Holdco 4
For the year ended 31 December 2022:
Closing
Opening Movements balance as at
balance as at during 31 December
1 January 2022 the year 2022
£'000 £'000 £'000
Interest bearing loans and outstanding interest 159,683 (11,958) 147,725
Non-interest bearing loan 1,434 (11,099) (9,665)
For the year ended 31 December 2021:
Closing
Opening Movements balance as at
balance as at during 31 December
1 January 2021 the year 2021
£'000 £'000 £'000
Interest bearing loans and outstanding interest 99,249 60,434 159,683
Non-interest bearing loan 1,243 191 1,434
Transactions between FS Holdco, FS Debtco, FS Holdco 3, FS Holdco 4 and their
SPVs
All of the SPVs are cash-generating solar farms (except for the
non-operational Spanish investments). On occasion, revenues are received and
expenses are paid on their behalf by FS Holdco, FS Holdco 2, FS Debtco, FS
Holdco 3 and FS Holdco 4. All of these transactions are related party
transactions.
For the year ended 31 December 2022:
Opening balance Amounts Net amount
receivable/(payable) paid on behalf Amounts received (payable)/receivable
as at 1 January 2022 of SPV 2022 from SPV 2022 as at 31 December 2022
£'000 £'000 £'000 £'000
FS Holdco and its SPVs (34,191) 11,934 (28,320) (50,577)
FS Debtco and its SPVs (20,538) 1,230 (29,619) (48,927)
For the year ended 31 December 2021:
Opening balance Amounts Net amount
receivable/(payable) paid on behalf Amounts received (payable)/receivable
as at 1 January 2021 of SPV 2021 from SPV 2021 as at 31 December 2021
£'000 £'000 £'000 £'000
FS Holdco and its SPVs (33,646) 33,612 (34,157) (34,191)
FS Debtco and its SPVs (11,092) 29,729 (39,175) (20,538)
Transactions with the Investment Manager
The investment manager of the Fund is Foresight Group LLP (the "Investment
Manager").
The Investment Manager charged asset management fees to the underlying
projects of £1,780,100 during the period (2021: £1,610,038).
23. Commitments and contingent liabilities
There are no commitments or contingent liabilities in the current year (2021:
£nil).
24. Controlling party
In the opinion of the Directors, there is no controlling party as no one party
has the ability to direct the financial and operating policies of the Company
with a view to gaining economic benefits from its direction.
25. Post balance sheet events
There were no post balance sheet events requiring disclosure.
AIFMD DISCLOSURES (UNAUDITED)
Overview of investment activities
The Company's investment activities during the year are disclosed in full in
the Investment Manager's Report on pages 23 to 29 of the Annual Report.
The performance of the Company's portfolio during the year is disclosed in
full in the Operational Review on pages 30 to 33 of the Annual Report.
A list of the Company's portfolio investments is included on pages 20 and 21
of the Annual Report.
Leverage and borrowing
Leverage is defined as any method by which the Company increases its exposure
through debt, borrowed capital or the use of derivatives.
The Company and its subsidiaries' leverage position and third-party debt
arrangements are disclosed in full in the Financial Review on pages 76 to 82
of the Annual Report.
"Exposure" is defined in two ways - "Gross method" and "Commitment method" -
and the Company must not exceed maximum exposures under both methods.
The Directors are required to calculate and monitor the Company's leverage,
expressed as a ratio between the exposure of the Company and its Net Asset
Value (Exposure/NAV), under both the Gross method and the Commitment method.
"Gross method" exposure is calculated as the sum of all positions of the
Company (both positive and negative), that is, all eligible assets,
liabilities and derivatives, including derivatives held for risk reduction
purposes.
"Commitment method" exposure is also calculated as the sum of all positions of
the Company (both positive and negative), but after netting off derivative and
security positions as specified by the Directive.
For the "Gross method", the following has been excluded:
● The value of any cash and cash equivalents which are highly liquid investments
held in the local currency of the Company that are readily convertible to a
known amount of cash, subject to an insignificant risk of changes in value and
which provide a return no greater than the rate of the three-month high
quality government bond
● Cash borrowings that remain in cash or cash equivalents as defined above and
where the amounts of that payable are known
The total amount of leverage calculated as at 31 December 2022 is as follows:
● Gross method: 27%
● Commitment method: 40%
Liquidity
Liquidity risk is the risk that the Company will not be able to meet its
financial obligations as they fall due as a result of the maturity of assets
and liabilities not matching. An unmatched position potentially enhances
profitability but can also increase the risk of losses. Liquidity could be
impaired by an inability to access secured and/or unsecured sources of
financing to meet financial commitments. The Board monitors the Company's
liquidity requirements to ensure there is sufficient cash to meet the
Company's operating needs.
The financial position of the Company, its cash flows, liquidity position and
borrowing facilities are referred to in the Chairman's Statement, Strategic
Report and Notes to the Financial Statements. In addition, the Financial
Statements include the Company's objectives, policies and processes for
managing its capital; its financial risk management objectives; and its
exposures to credit risk and liquidity risk.
The Company has sufficient financial resources together with investments and
income generated. As a consequence, the Directors believe that the Company is
able to manage its business risks.
Risk management policy note
Please refer to the principal risks section on pages 64 to 73 of the Annual
Report.
Remuneration
As an AIFM, the Company is subject to a remuneration code which is consistent
with the requirements of the FCA. The remuneration policy is designed to
ensure that any relevant conflicts of interest can be managed appropriately at
all times and that the remuneration of the Directors and senior management is
in line with the risk policies and objectives of the funds managed by the
AIFM.
The Company does not directly employ any staff members. The services in this
regard are provided by staff members of Foresight Group LLP.
In accordance with the AIFMD, information in relation to the remuneration of
the Company's AIFM is required to be made available to investors. In
accordance with the Directive, the AIFM's remuneration policy and the
numerical remuneration disclosures in respect of the AIFM's relevant reporting
period (year ending December 2017) are available from the AIFM on request.
ADVISORS
Administrator & Company Secretary
JTC (Jersey) Limited
JTC House
28 Esplanade
St. Helier
Jersey JE4 2QP
Registrar
Computershare Investor Services (Jersey)
Queensway House
Hilgrove Street
St. Helier
Jersey JE1 1ES
Corporate Broker
Jefferies
100 Bishopsgate
London EC2N 4JL
Investment Manager
Foresight Group LLP
The Shard
32 London Bridge Street
London SE1 9SG
Legal Advisors to the Company as to English Law
Dickson Minto W.S.
Broadgate Tower
20 Primrose Street
London EC2A 2EW
Legal Advisors to the Company as to Jersey Law
Ogier
Ogier House
The Esplanade
St. Helier
Jersey JE4 9WG
Legal Advisors to the Company as to the acquisition of solar assets
Osborne Clarke
One London Wall
London EC2Y 5EB
Independent Auditor
KPMG LLP
15 Canada Square
London E14 5GL
Glossary of terms
AEMO Australian Energy Market Operator
AIC The Association of Investment Companies
AIC Code The Association of Investment Companies Code of Corporate Governance
AIC Guide The Association of Investment Companies Corporate Governance Guide for
Investment Companies
AIFs Alternative Investment Funds
AIFMs Alternative Investment Fund Managers
AIFMD The Alternative Investment Fund Managers Directive
Asset Manager The Company's underlying investments have appointed Foresight Group LLP, a
subsidiary of Foresight Group CI, to act as Asset Manager
BBSY Bank Bill Swap Bid Rate
CEFC The Clean Energy Finance Corporation
Company Foresight Solar Fund Limited
CPIH Consumer Prices Index including owner occupiers' housing costs
DCF Discounted cash flow
EEA European Economic Area
EPC Engineering, Procurement & Construction
ESG Environmental, Social and Governance
EUA European Emission Allowances
FiT Feed-in Tariff. The Feed-in Tariff scheme is the financial mechanism
introduced on 1 April 2010 by which the UK Government incentivises the
deployment of renewable and low-carbon electricity generation of up to 5MW of
installed capacity
GAV Gross Asset Value on investment basis including debt held at SPV level
GFSC Guernsey Financial Services Commission
Group borrowing Group borrowing refers to all third-party debt by the Company and its
subsidiaries
GWh Gigawatt hour
IAS International Accounting Standard
IFRS International Financial Reporting Standards issued by the International
Accounting Standards Board
Investment Manager Foresight Group CI Limited
IPEV International Private Equity and Venture Capital
IPO Initial Public Offering
KID Key Information Document
KPMG LLP KPMG is the Company's Auditor
LGC Large-Scale Generation Certificate
LIBOR London Interbank Offered Rate
Listing Rules The set of FCA rules which must be followed by all companies listed in the UK
LRET Large-Scale Renewable Energy Target. The LRET creates a financial incentive in
Australia for the establishment and growth of renewable energy power stations,
such as wind and solar farms, or hydro electric power stations
Main Market The main securities market of the London Stock Exchange
MIDIS Macquarie Infrastructure Debt Investment Solutions
MUFG Bank of Tokyo-Mitsubishi UFJ
MWh Megawatt hour
NAV Net Asset Value
NEG National Energy Guarantee
OBR Office for Budget Responsibility
Official List The Premium Segment of the UK Listing Authority's Official List
O&M Operation and maintenance
P90 A measure of expected production exceeding 90% probability over a 10-year
period
PPA Power Purchase Agreements
PR Performance Ratio
PRIIPS Packaged Retail and Insurance-Based Investment Products
PV Photovoltaic
RET Renewables Energy Target
RO Scheme The financial mechanism by which the UK Government incentivises the deployment
of large-scale renewable electricity generation by placing a mandatory
requirement on licensed UK electricity suppliers to source a specified and
annually increasing proportion of electricity they supply to customers from
eligible renewable sources or pay a penalty
ROC Renewable Obligation Certificates
RPI The Retail Price Index
SCR Significant Code Review
SPVs The Special Purpose Vehicles which hold the Company's investment portfolio of
underlying operating assets
TCR Targeted Charging Review
UK The United Kingdom of Great Britain and Northern Ireland
ALTERNATIVE PERFORMANCE MEASURES ("APMs")
Performance is assessed using measures that are not specifically defined under
IFRS and are therefore referred to as APMs. The APMs used may not be directly
comparable with those used by other companies.
APM Purpose Calculation APM value Reconciliation to IFRS
Annualised Total NAV Return Since IPO Annualised measure of financial performance, indicating the movement of the Closing NAV per share as at 31 December 2022 plus all dividends since IPO 9.0% The calculation uses the closing NAV per Ordinary Share as per the Statement
value of the Fund since IPO and expressed as a percentage. assumed reinvested, divided by the NAV at IPO, to the power of 1 over the of Financial Position on page 117.
number of years since IPO, expressed as a percentage.
Annualised Total Shareholder Return Since IPO Annualised measure of financial performance, indicating the total return Closing share price as at 31 December 2022 plus all dividends since IPO 7.8% The calculation uses the closing share price as per key investment metric
derived from holding the stock since IPO and expressed as a percentage. assumed reinvested, divided by the share price at IPO, to the power of 1 over table on page 24.
the number of years since IPO, expressed as a percentage.
Cash Distributions from solar investments A measure of performance from the underlying portfolio. Total cash received from investments in the period. £111.8 million As per cash flows of the Company and intermediate holding companies on page
81.
Cash Dividend Cover A measure of excess cash generated from the Group after payment of dividend. Net operating cash flow divided by dividend paid within the period, including 1.74x The calculation uses the net cash flows from operations as per cash flows of
scrip impact. the Company and intermediate holding companies on page 81 and the cash
dividends paid as per the Statement of Cash Flows on page 119.
Gearing A measure of financial risk on the balance sheet of the Company. Total debt of the Group and underlying investments as shown on page 78 as a 40.5% The calculation uses the Total Debt on page 78 and the Net Asset Value as per
percentage of GAV. Statement of Financial Position on page 117.
Gross Asset Value ("GAV") A measure of the value of the Company's total assets. The sum of total assets of the Company as shown on the Statement of Financial £1,296.3 million The calculation uses the Total Debt on page 78 and the Net Asset Value as per
Position and the total debt of the Group and underlying investments as shown Statement of Financial Position on page 117.
on page 78.
Market Capitalisation Provides an indication of the size of the company. Closing share price as at 31 December 2022 multiplied by the closing number £724.6 million The calculation uses the closing share price as per key investment metric
of Ordinary Shares in issuance. table on page 24 and closing number of Ordinary shares as per Note 17 of the
financial statements on page 139.
NAV per Ordinary Share A measure of the value of one Ordinary Share. The net assets divided by the total number of Ordinary Shares. 126.5p As per the Closing NAV per Ordinary Share and as per the Statement of
Financial Position on page 117.
Ongoing Charges Ratio A measure of the annual reduction in shareholder returns because of Total ongoing expenses including Investment Manager fees, legal and 1.14% Detailed calculation on page 82.
operational expenses based on historical data. professional fees, administration fees, Director's fees and audit fees
expressed as a percentage of average NAV through the year shown on page 76.
Total NAV Return Measure of financial performance, indicating the movement of the value of the Closing NAV per share as at 31 December 2022 plus all dividends in the year 24.0% The calculation uses the Net Asset Value as per the Statement of Financial
Fund in the year and expressed as a percentage. assumed reinvested, divided by the NAV at 31 December 2021, expressed as a Position on page 117 and the cash dividends paid as per the Statement of Cash
percentage. Flows on page 119.
Total Shareholder Return Annualised measure of financial performance, indicating the total return Closing share price as at 31 December 2022 plus all dividends in the year 24.8% The calculation uses the closing share price as per key investment metric
derived from holding the stock in the year and expressed as a percentage. assumed reinvested, divided by the share price at 31 December 2021, expressed table on page 24 and the cash dividends paid as per the Statement of Cash
as a percentage. Flows on page 119.
ENDS
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