REG - Harmony Energy Inc. - Results for Financial Year Ended 31 October 2024
26/02/2025 07:15
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RNS Number : 4514Y Harmony Energy Income Trust PLC 26 February 2025
26 February 2025
Harmony Energy Income Trust plc
(the "Company" or "HEIT")
Results for the Financial Year Ended 31 October 2024
Harmony Energy Income Trust plc, which invests in commercial scale battery
energy storage systems ("BESS") in Great Britain, announces its results for
the financial year ended the 31 October 2024 (the "Period").
Highlights for the Period include:
· 235.8 MWh / 117.9 MW of BESS assets energised;
· Portfolio 100% operational (790.8 MWh / 395.4 MW) across eight
projects (the "Portfolio");
· 147% increase in operational revenue driven by increased operational
capacity;
· First bp optimised assets commenced trading; and
· Estimated 51,945 tonnes of CO(2)e emissions avoided.
During the Period, the Company reached a key milestone as the final projects
in the Portfolio became operational, bringing total operational capacity to
790.8 MWh / 395.4 MW. The Company continues to operate the largest exclusively
2-hour duration BESS portfolio in GB. Whilst BESS revenues across GB have
remained relatively low, there has been a recovery from the lows seen in
winter 2023/24. Encouragingly, multiple instances of strong revenue
performance were seen, particularly in spring and summer when high renewable
generation coincided with periods of low consumer demand.
Post-Period, the 2024/25 winter has seen strong revenue performance during
periods when high consumer demand has coincided with low renewable generation.
This demonstrates BESS's ability to perform well across different economic and
meteorological conditions. Portfolio revenues have continued to be derived
more from Arbitrage than Ancillary Services, a trend expected to continue,
validating the Company's focus on 2-hour duration BESS assets.
Throughout the Period, the Company's shares have continued to trade at a
significant discount to NAV. In response to this disconnect between the share
price and the underlying asset value, the Board resolved to explore the sale
of some or all of the Company's assets. An update on this process was
announced on 20 February 2025.
Environment, Social, and Governance (ESG) highlights for the Period include:
· Stored 96,073 MWh renewable energy and avoided an estimated
51,945 tCO(2)e;
· Improved landscaping plans to target 16% biodiversity net gain
and had zero reportable environmental incidents;
· Supported 36 local causes with £35,000 through five Community
Funds;
· Published first Environmental Policy and Human Rights Policy;
· Conducted enhanced due diligence on battery supply chain, where
67% of key suppliers signed its Supplier Code of Conduct;
· Published first SFDR Article 8 aligned Disclosure, first UN PRI
Transparency Report and second integrated TCFD and TNFD Report; and
· Recognised by winning the Association of Investment Companies
Best ESG Communication Award and shortlisting for ESG Initiative Award at
Tamarindo Energy Storage Investment Awards.
Norman Crighton, Chair of Harmony Energy Income Trust plc, said:
"This year has seen the Company reach a key milestone, energising 235.8 MWh /
117.9 MW during the Period and in doing so, making the Portfolio 100%
operational at an opportune moment to take advantage of an improving revenue
environment during the first quarter of the current financial year. It has
been encouraging to see the Portfolio show resilience and perform well in a
variety of economic and meteorological circumstances over the past 12 months.
"Increasing investment in BESS is an essential course of action in
decarbonising the UK energy system and a crucial component of the nation's net
zero strategy."
Results presentation
Paul Mason and Max Slade, being the Managing Director and Commercial Director
(respectively) of the Investment Adviser, will provide a live investor
presentation via the Investor Meet Company platform on 27 February 2025 at
10am GMT.
The presentation is open to all existing and potential Shareholders. Questions
can be submitted pre-event via your Investor Meet Company dashboard up until
26 March 2025 at 9am GMT, or at any time during the live presentation.
Investors can sign up to Investor Meet Company for free and meet Harmony
Energy Income Trust Plc via:
https://www.investormeetcompany.com/harmony-energy-income-trust-plc/register-investor
(https://www.investormeetcompany.com/harmony-energy-income-trust-plc/register-investor)
Investors who already follow Harmony Energy Income Trust Plc on the Investor
Meet Company platform will automatically be invited.
In accordance with UK Listing Rule 6.4.1 a copy of the 2024 Financial
Statements will shortly be available for inspection from the National Storage
Mechanism at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) .
END
For further information, please contact:
Harmony Energy Advisors Limited (the "IA")
Paul Mason
Max Slade
Peter Kavanagh
James Ritchie
info@harmonyenergy.co.uk (mailto:info@harmonyenergy.co.uk)
Panmure Liberum Ltd +44 (0)20 3100 2222
Chris Clarke
Darren Vickers
Will King
Stifel Nicolaus Europe Limited +44 (0)20 7710 7600
Mark Young
Edward Gibson-Watt
Rajpal Padam
Madison Kominski
Camarco +44 (0)20 3757 4980
Eddie Livingstone-Learmonth
Andrew Turner
+44 (0)20 3832 3877
JTC (UK) Limited
Uloma Adighibe
Harmony.CoSec@jtcgroup.com (mailto:Harmony.CoSec@jtcgroup.com)
LEI: 254900O3XI3CJNTKR453
About Harmony Energy Advisors Limited (the "Investment Adviser")
The Investment Adviser is a wholly owned subsidiary of Harmony Energy Limited.
The management team of the Investment Adviser have been exclusively focussed
on the energy storage sector (across multiple projects) in GB for over eight
years, both from the point of view of asset owner/developer and in a
third-party advisory capacity. The Investment Adviser is an appointed
representative of Laven Advisors LLP, which is authorised and regulated by the
Financial Conduct Authority.
Chair's Statement
Welcome, on behalf of the board of directors (the "Board"), to the third
Annual Report and Accounts of the Company for the financial year ("FY") ending
31 October 2024 (the "Period").
NORMAN CRIGHTON
CHAIR
PORTFOLIO 100% OPERATIONAL
The Company's remaining construction assets were successfully energised during
the Period, taking the Portfolio to 100% operational. The Portfolio consists
of eight 2-hour duration BESS projects totalling 790.8 MWh / 395.4 MW, the
largest exclusively 2-hour duration operating BESS portfolio in GB. The
increase in operational capacity coincided with a recovery in revenue levels
over the final quarter of the Period and this recovery has accelerated over
the first quarter of FY 2024/25.
DIVIDEND POLICY AND NAV IMPACTED BY CHALLENGING REVENUE ENVIRONMENT
As has been well reported, a challenging environment for GB BESS assets
emerged during the first quarter of the Period. Mild temperatures over the
winter kept consumer demand low, and this demand was sufficiently met by
moderate and consistent levels of wind generation. This lack of volatility,
coupled with low wholesale gas prices, reduced wholesale spreads and Ancillary
Service prices. With GB BESS market revenues being significantly weaker than
short-term independent forecasts, the Board resolved to take a prudent
approach to capital allocation and cash management, culminating in the
cancellation of the Q1 dividend for the Period and the amendment of the
Company's dividend policy to be more aligned with the Company's performance.
In addition, Harmony Energy Advisors Limited ("HEAL", the "IA" or the
"Investment Adviser") promptly incorporated reduced third-party revenue
projections into asset valuations. These reductions in third-party revenue
projections are a key driver of net asset value which reduced over the Period
from 115.40 pence per Ordinary Share to 88.52 pence per Ordinary Share - a 23%
reduction.
SHARE PRICE PERFORMANCE
Despite a successful renegotiation of the Company's debt facilities in
February 2024 to reflect the Portfolio's evolution from a construction
portfolio into an operating one and to reassure Shareholders of its continued
solvency amidst a low revenue environment, these lower revenues coupled with
rising government bond yields placed downward pressure on the share price.
The share price recovered by circa 70% between February 2024 and June 2024
before stabilising at around 50 pence per Ordinary Share during the final
third of the Period. Post-Period end, the share price has rallied further as
investors have reacted to positive updates regarding the Company's asset sale
process.
RECOVERY OF PORTFOLIO REVENUES
Portfolio revenues have also improved, with revenues over the second quarter
of the Period 48% above those experienced in the first quarter. A key driver
for this was a threefold increase in captured Balancing Mechanism ("BM")
volumes in the spring versus the winter, as software and process enhancements
at National Energy System Operator ("NESO") began to take effect. The
Portfolio continued to capture a high level of BM volumes over the remainder
of the Period. The Investment Adviser has engaged with NESO (independently and
in collaboration with other industry stakeholders) to drive positive reform
aimed at maximising the utilisation of BESS, to create efficiencies and cost
savings for consumers. NESO continues to design and launch new revenue
products and strategies which are targeting the improvement in BESS
utilisation, the latest being Quick Reserve launched in November 2024.
Another key driver of revenue recovery was the high level of renewable
penetration during the second half of the Period. The strong correlation
between wind generation and BESS revenues during this time is a compelling
illustration of the underlying long-term investment case for 2-hour duration
BESS in GB: as wind and solar generation increase their proportionate share of
the GB electricity "stack", wholesale power spreads are becoming wider and
more volatile, increasing Arbitrage opportunities for BESS. Multiple periods
of high wind generation and low demand created wide peak and off-peak power
spreads, most notably in April and August. Total net revenue generation for
the Period was £16.3 million (£58.2k/MW/Yr) based on a weighted average
operational capacity of 280.4 MW. The portfolio is now fully operational,
increasing the operating capacity by 40% compared to the weighted average over
the Period, which is anticipated to result in a proportionate rise in revenue
generation in future periods.
POST-PERIOD END REVENUE PERFORMANCE
The revenue recovery during the Period has since been supplemented with strong
revenue performance in the first quarter of FY 2024/25 (£97.8k/MW/Yr), a
stark contrast to the same quarter in the Period (£46.3k/MW/Yr). The key
driver of this difference is a return to the more traditional winter
conditions where the system has experienced periods of short-term tight supply
margins, where there is a risk of generation being insufficient to meet
demand. If a spell of cold weather (i.e. high power demand) coincides with low
wind output (low generation), NESO must rely upon gas-fired power stations to
meet demand. Given the current relatively high wholesale gas prices, these
tight margin events create wide wholesale spreads. Interestingly, in these
conditions the correlation between wind output and BESS revenues observed
during the warmer months is reversed, with BESS revenues inversely
proportionate to wind generation levels. This showcases the adaptability of
BESS and its potential to perform in multiple economic and meteorological
environments. Further analysis of these trends is explored in the Investment
Adviser's report.
ENVIRONMENTAL, SOCIAL, AND GOVERNANCE ("ESG")
During the Period, BESS received both national and international recognition
for its vital role in global decarbonisation. The Clean Power 2030 Action Plan
commits the UK to increase its energy storage capacity to 23-27 GW by 2030,
with the majority to come from grid-scale batteries. In addition, 58 countries
signed the COP 29 Global Energy Storage and Grids Pledge, aiming to deploy
1,500 GW of energy storage capacity globally by 2030.
BESS assets play a critical role in mitigating climate change by allowing the
integration of more renewable electricity into the grid network, reducing a
country's reliance on fossil fuels and lowering the grid's carbon intensity.
During the Period, the Company's assets stored 96,073 MWh of renewable energy,
preventing approximately 51,945 tonnes of CO(2)e emissions from being released
into the atmosphere and demonstrating the Portfolio's tangible value to UK
decarbonisation efforts.
The Company has always emphasised the importance of developing and operating
our assets safely and responsibly. In furtherance of this, the Company
continued to embed its ESG strategy across its operations and supply chain.
The Company is proud to have published its first Environmental Policy and its
first Human Rights Policy during the Period. 67% of key suppliers signed our
Supplier Code of Conduct, and the majority of suppliers that have not signed
have confirmed they adhere to equivalent standards.
This year the Company met its goal to report its first United Nations
Principles for Responsible Investment ("UN PRI") Transparency Report. The
Company also reported for the first time in line with the UK's newly
implemented Sustainability Disclosure Regulation ("SDR") and with the
Sustainable Finance Disclosure Regulation ("SFDR"). The Company believes such
disclosures are important for demonstrating continuing commitment to
integrating sustainability risks, opportunities and potential impacts across
and beyond its operations.
EMERGING RISKS
Whilst the general GB BESS market appears to be turning a corner, challenges
remain, and new risks continue to emerge as the market evolves. The merchant
(and therefore volatile) nature of the revenues remains a key factor, and the
Investment Adviser continues to explore and analyse various revenue "tolling"
products - an emerging sub-market in this sector - which could provide an
element of fixed pricing in an otherwise volatile revenue class. A
higher-than-expected amount of asset downtime caused by Distribution Network
Operators' ("DNOs", each a "DNO") technical works at local substations has
suppressed revenue performance during the second half of the Period and the
Investment Adviser's continued close engagement with each DNO (with support
from Tesla and bp as the revenue optimisers to the Portfolio) remains crucial
for future performance. The Company has also recently received unexpected and
unwelcome increases in network charges, increasing forecast opex for the
current financial year. This is a regulatory issue, and the Company is
engaging with Ofgem and the Department of Energy Security and Net Zero
("DESNZ") to ensure that BESS are charged fairly and proportionately.
OUTLOOK AND ASSET SALE PROCESS
With 2-hour duration BESS continuing to demonstrate its ability to outperform
shorter-duration peers in Arbitrage strategies, the Company and its assets
remain well placed to capitalise on the continuing trends of greater
utilisation of BESS and greater renewables penetration. Now that the Portfolio
is 100% operational, the Company has a more secure foundation and positive
outlook. If revenue levels going forward are in line with assumptions used in
the Company's valuation models, the Board would expect this to allow a
meaningful covered dividend in relation to this financial year. However, the
Company (along with the wider renewable infrastructure listed sector)
continues to trade at a discount to published NAV, impacting shareholder
returns and limiting opportunities for capital raisings and growth. After a
prolonged period of trading at a significant discount to NAV, the Board
considered all strategic options and proactively moved to maximise Shareholder
value by exploring the potential for one or more asset sales, with the
objective of proving that the true fair market value of the assets is not
fully reflected in the market capitalisation of the Company.
On 19 December 2024, the Company announced that it was progressing to a final
stage of negotiations with a preferred bidder on an exclusive basis and in
relation to the Company's full Portfolio. The Company announced on 20 February
2025 that the substantial due diligence requirements of the preferred bidder
had resulted in an extension of exclusivity until 10 March 2025. Both parties
are continuing to progress towards the conclusion of a definitive agreement
which will be conditional upon Shareholder approval. Should such agreement be
approved by Shareholders, the Company would seek to return net sale proceeds
to Shareholders via a members' voluntary liquidation process as soon as
practicable.
The Company is required to hold an AGM on or before 30 April 2025 and I look
forward to engaging with our Shareholders at that meeting. In light of the
Company's asset sale process, further details regarding the date and location
of the Company's 2025 AGM will be published at a later date. As set out in our
Prospectus, a continuation resolution will be put at that AGM if the sales
process does not progress.
Norman Crighton
Chair
Investment Adviser's Report
The Investment Adviser is pleased to deliver its third annual Investment
Adviser's Report.
HIGHLIGHTS
235.8 MWh / 117.9 MW Current portfolio size: 790.8 MWh / 395.4 MW
energised during the Period, taking the Portfolio to 100% operational
First bp optimised assets commenced trading Eight BESS projects
147% INCREASE in operational revenue driven by increased operational capacity 51,945 tCO(2)e avoided (estimated)
OVERVIEW
The Period saw the Company hit a significant milestone, with the final
projects in the Portfolio becoming operational, taking the full operational
capacity to 790.8 MWh / 395.4 MW. The Company continues to operate the largest
exclusively 2-hour duration BESS portfolio, and the second largest BESS
portfolio (any duration, by MWh) in GB.
Whilst BESS revenues across GB have remained at relatively low levels, there
has been a recovery from the lows seen in the 2023/24 winter (being the first
quarter of the Period), and it has been encouraging to see multiple instances
of strong revenue performance during the Period, particularly during spring
and summer when high renewable generation coincided with periods of low
consumer demand. Post-Period, the 2024/25 winter has also seen strong revenue
performance during periods when high consumer demand has coincided with low
renewable generation. This demonstrates how BESS can perform well in a variety
of economic and meteorological circumstances.
Portfolio revenues have continued to be derived more from Arbitrage than
Ancillary Services, a trend which is expected to continue, and which validates
the Company's focus on 2-hour duration BESS assets.
Throughout the Period, the Company's shares have continued to trade at a
significant discount to NAV, impacting shareholder returns and limiting
opportunities for capital raisings and growth. In response to this, the Board
resolved to explore the sale of some or all of the Company's assets. The IA
was encouraged by the responses received over two phases of bidding via a
highly competitive process.
On 19 December 2024, the Company announced that it was progressing to a final
stage of negotiations with a preferred bidder on an exclusive basis and in
relation to the Company's full Portfolio. The Company announced on 20 February
2025 that the substantial due diligence requirements of the preferred bidder
had resulted in an extension of exclusivity until 10 March 2025. Both parties
are continuing to progress towards the conclusion of a definitive agreement
which will be conditional upon Shareholder approval. Should such agreement be
approved by Shareholders, the Company would seek to return net sale proceeds
to Shareholders via a members' voluntary liquidation process as soon as
practicable.
PORTFOLIO UPDATE
The Portfolio is now fully operational and consists of eight 2-hour duration
BESS projects totalling 790.8 MWh / 395.4 MW.
As previously reported, the Company's Wormald Green and Hawthorn Pit projects
suffered delays to energisation, caused by the Balance-of-plant contractor
running behind schedule. The Company has successfully settled a claim for
liquidated damages, totalling £1.5 million across the two projects to
compensate for the lost revenue opportunity.
Hawthorn Pit and Wormald Green are the Company's first projects to be
optimised by bp and the first to utilise Envision Energy batteries. Whilst
some initial challenges relating to the technical interface between bp's
system and the Envision Energy batteries were experienced (delaying the
ability to perform some Ancillary Services), these challenges have now been
overcome and the IA is encouraged by the optimisation performance to date,
noting especially the significant volume of activity in the BM.
FINANCING UPDATE
DEBT RESTRUCTURING
The Company drew down the balance of its £130 million of senior debt
facilities during the Period in order to fund construction milestone payments.
On 21 February 2024, the Company successfully completed an amendment and
restatement of its debt facilities with NatWest plc and Coöperatieve Rabobank
U.A. The revised structure was put in place in recognition that the Portfolio
would, during the Period, evolve from a construction portfolio into an
operating portfolio. The previous term loan and revolving credit facility were
consolidated into a single long-term facility with the following key terms:
· facility size of £130 million;
· an extension of the legal maturity date from June 2027 to
February 2031;
· a reduction in margin to 275 bps over SONIA for the first two
years, rising over time to a maximum of 350 bps in the final year; and
· a re-sizing of market standard debt covenant ratios against
conservative revenue forecasts to ensure sufficient headroom in the low
revenue environment experienced during the first quarter of the Period.
The structure allows for voluntary prepayments during the term (subject to a
fee) and for cash sweeps in favour of the lenders in the event of material
revenue outperformance above pre-agreed thresholds, enabling an acceleration
of de‑gearing in a cost-efficient manner whilst also reserving operational
free cash flow for shareholder distributions.
When coupled with the new interest rate swap referred to below, the aggregate
cost of debt equates to 6.85% per annum for the first two years.
HEDGING
At the beginning of the Period, the Company benefitted from an interest rate
cap at a rate of 5.25%. As part of the debt restructure described above, the
Company terminated its interest rate cap in February 2024 (receiving a payment
of £0.5 million) and replaced it with an interest rate swap for the SONIA
element of the loan. The new interest rate swap fixes the SONIA element of the
loan at a rate of 4.101% per annum.
DIVIDEND POLICY
The Company announced a change to its dividend policy on 30 May 2024. The
updated policy replaces the previous fixed 8 pence per Ordinary Share annual
dividend target with one more aligned with the Company's performance.
The Board further resolved to cancel the (previously postponed) first FY
2023/24 quarterly dividend. As reported elsewhere in this report, the Company
has experienced a recent recovery in revenue levels. If revenues going forward
are in line with assumptions used in the Company's valuation models, the Board
would expect this to allow a covered dividend of circa 4 pence per Ordinary
Share in relation to this current financial year. This guidance will be
reviewed at the financial year end depending upon revenue performance and
availability of cash over the second half of the year.
INTRA-GROUP CAPITAL RESTRUCTURE
The Company has to date injected cash into subsidiaries predominantly through
shareholder loans, rather than equity subscriptions. As a result of this
structure, the accounting income recorded by the Company, which is driven
mainly by accrued (but not necessarily paid) interest on shareholder loans,
may not match the actual cash received from subsidiaries (which is dependent
upon Special Purpose Vehicle ("SPV" / project income). As an investment trust,
the Company is required to distribute the majority of gross income as
dividends to shareholders.
In October 2024, the Company and its subsidiaries (together, the "Group")
completed a restructuring of its capital composition (comprising debt and
equity), and reduced interest income recognised by the Company by writing off
accrued but unpaid interest with the intention of:
a) optimising the Group's tax position; and
b) more closely aligning the Company's accounting income to the underlying
performance of its subsidiaries and therefore ensuring any required dividend
payment under investment trust rules better aligns to the cash generated
through operations.
MARKET COMMENTARY
OVERVIEW
A range of revenue streams is available to BESS projects in GB. These can be
split into three broad categories:
1. Capacity Market ("CM") (see more detailed information below): BESS
projects receive an availability payment for being ready to respond to a
period of potential energy shortfall, over a contract period of 1 - 15 years;
2. Wholesale Electricity Trading: Buying wholesale electricity during
cheap periods (e.g. overnight when demand is low and wind generation is high),
storing it for a period of time and then selling when the price increases
(e.g. in the evening when gas-fired power stations are being used). The spread
between the "buy price" and "sell price" determines the net revenue from the
trade. Typically, high renewable penetration increases spreads as there are
likely to be periods when renewable electricity supply exceeds demand, pushing
pricing close to zero (and sometimes even negative), whilst gas-fired power
stations will still be required to cover peak demand periods. This in turn
leads to greater revenue opportunities for BESS projects;
3. Balancing Mechanism: Wholesale markets close one hour before delivery
of power. At this point, NESO analyses the supply and demand position and
balances this by buying and selling electricity. Spreads in the BM are
typically much wider than those seen in wholesale markets, however BESS has
traditionally struggled to capitalise on this due to legacy systems used by
NESO. The Company has witnessed significant improvements in BESS utilisation
in the BM during the Period as a result of new software developed by NESO.
BESS still has a relatively small share of this lucrative, and growing market.
4. Ancillary Services: Short-term contracts with NESO to provide grid
stability.
a. Dynamic Frequency Response ("DFR"): Contracts are awarded a day-ahead
and are generally awarded in 4-hour blocks. BESS projects receive an
availability payment in return for responding rapidly (either charging or
discharging) to deviations in frequency of the electricity system.
b. Balancing Reserve ("BR"): Launched in March 2024, this mechanism allows
BESS projects to reserve their capacity to be available via the BM. They
receive an availability payment for doing so and this commitment gives NESO
additional comfort that sufficient BESS capacity will be available to respond
to an imbalance in the supply and demand of electricity throughout the day.
c. Quick Reserve: Launched in November 2024, this new service is similar
in nature to BR but requires a much faster response time meaning BESS is the
only technology currently able to provide this service.
GB BESS REVENUES
Revenues for 2-hour duration BESS over the Period were on average 14% lower
than the previous financial year. January and February 2024 were the lowest
revenue months, predominantly as a result of low wholesale power price spreads
which in turn led to low Ancillary Service pricing. Revenues recovered from
these lows in the spring, with April, June, August and October 2024 being the
highest revenue-generating months.
The low revenues at the beginning of the Period were largely driven by low
wholesale spreads as a result of low gas and carbon pricing which in turn
determined the running cost of gas generators. Since gas was the marginal fuel
for electricity generation throughout the 2023/24 winter, these low commodity
prices translated to relatively low peak electricity prices, limiting the
wholesale spread (the difference between peak and off-peak pricing) and
therefore the revenue opportunity for BESS.
Over a typical winter, the wholesale spread is often increased from time to
time by extreme price spikes. Price spikes are caused when the forecast margin
between electricity supply and demand is very low, and the system relies on
less efficient (and therefore more expensive) sources of electricity
generation in order to ensure the lights stay on. Analysis by Modo Energy
highlighted that there were significantly fewer price spikes in the 2023/24
winter compared to the previous two winters.
MARKET COMMENTARY
The lack of price spikes was a result of lower demand during a mild winter
(demand has generally been falling year on year, though is predicted to
increase in the future as a result of the electrification of heat and
transport as well as rising demand from energy intense data centres), coupled
with (generally consistent) generation from wind and interconnectors at levels
sufficient to meet such demand without the need to call on expensive sources
of electricity generation.
It was hoped that the launch of the Open Balancing Platform ("OBP") in
December 2023 would unlock significant additional value for BESS in the BM.
However, the initial launch in December 2023 was disrupted by some software
bugs resulting in a brief pause before a re-launch in January 2024. OBP
resulted in a modest increase in BESS volume, however it was not until the
launch of BR in March 2024 that BM volume captured by BESS increased to a
meaningful extent, with 2-hour duration BESS seeing the largest increase. This
increase has been maintained throughout the year with the BM becoming an
increasingly meaningful part of the Company's revenue stack.
Whilst high wind output over the winter drove wholesale spreads lower, the
opposite occurred during the spring and summer months. Electricity demand is
typically lower during warmer months, and we increasingly observe periods
during which demand is entirely met by renewable generation. Normal market
principles of supply and demand mean that an oversupply of renewable (i.e.
cheap) generation drives wholesale prices lower, to discourage further supply.
However, since many renewable projects benefit from government subsidies, it
can make sense for generation to continue even when wholesale pricing is
negative - i.e. the project will pay to generate power provided the subsidy
received is greater than the "cost" of such generation. Negative power prices
create wide wholesale spreads and ideal trading conditions for the Company as
BESS can be paid to import as well as export electricity. Wholesale prices
were negative for a record 176 hours in 2024 - a 65% increase compared to
2023.
Post-Period, revenues have increased further during the first quarter of FY
2024/25. Wholesale spreads in January 2025 hit their highest level since
December 2022. In contrast to the 2023/24 winter, peak wholesale pricing was
driven up due to two key factors: (i) increased commodity (i.e. gas) prices,
which pushed up the spreads, as described above; and (ii) low wind
generation, which caused increased use of gas peakers (which are relatively
small, less efficient gas-fired power stations designed to run when the system
is short of supply and prices are high). This created multiple days of price
spikes which were absent during the 2023/24 winter. Wind generation levels did
increase in December 2024, but this was during the Christmas period which
typically sees very low demand, leading to more instances of negative pricing,
widening spreads and boosting BESS revenues.
BALANCING MECHANISM, BALANCING RESERVE AND QUICK RESERVE
Reserve products are a different type of Ancillary Service procured by NESO,
compared to the DFR suite of products which have formed the bulk of BESS
revenues in recent years. NESO procures two types of reserve:
BR launched in March 2024 and Quick Reserve launched in November 2024. Both
contracts allow BM participants to receive (i) an "availability" fee to keep
some capacity in "reserve", ready for instruction from NESO; and (ii) the
normal "pay-as-bid" price for utilisation in the BM (if/when called upon).
Participating BESS must store enough energy to export/import in line with
their contract requirements, so BESS operators must manage their state of
charge carefully, and a 2-hour duration BESS is better placed to do this than
a shorter-duration BESS.
Since the launch of BR, the Portfolio has seen BM volume increase by nearly
400%. The month of September 2024 is an exception to this, but this reduction
in captured BM volume was deliberate. Various assets in the Portfolio were
undergoing firmware upgrades during September and required short periods of
"resting" to balance the state of charge of the individual battery cells in
advance of routine "state-of health" tests. The launch of Quick Reserve has
increased the volume of Ancillary Services being procured by NESO and has
provided welcome additional revenue opportunities. However, as the period
since the launch of Quick Reserve has coincided with high wholesale spreads,
it is too early to assess the full impact.
REGULATORY UPDATE
In October 2024, the National Grid Electricity System Operator was taken into
public ownership and replaced with NESO. On 5 November 2024, NESO published
the Clean Power 2030 ("CP30") report outlining advice to the Government on how
to achieve a clean power system by 2030 in which less than 5% of generation
comes from unabated gas.
On 13 December 2024, DESNZ published the CP30 Action Plan setting out a
pathway to a clean power system by 2030. This ambitious plan requires an
unprecedented acceleration of renewable plant build-out. For example, offshore
wind deployment would need to accelerate by five times. In addition,
significant upgrades to the transmission network would also be needed.
The IA believes that CP30 is broadly positive for BESS, with 23-27 GW required
by 2030 (compared to 4.9 GW currently operational). CP30 highlights Northern
England and Southern England as priority areas for BESS which aligns well with
the Portfolio.
Modo Energy forecast that BESS revenues would be 10% higher than their central
forecast if CP30 is achieved.
The IA has engaged regularly with NESO since its launch in 2024 and is
encouraged by the attitude and approach to industry collaboration - in
particular the focus on improving the use of BESS in the BM.
In addition to NESO, the IA has also been engaging with Ofgem and DESNZ in
order to highlight some of the challenges faced by BESS in GB and identify
areas for future improvement. This dialogue has been constructive, and we look
forward to continuing this discussion in the coming year.
FINANCIAL PERFORMANCE
The NAV as at 31 October 2024 was £201.05 million (88.52 pence per Ordinary
Share), a reduction of 23.30% (-26.89 pence per Ordinary Share) from the NAV
reported as at 31 October 2023. The NAV total return over the Period was
‑21.57%. NAV total return since IPO is -2.43%.
Material factors which influenced the NAV over the Period included:
a) lower revenue assumptions based on the latest revenue forecasts
published by independent providers. The IA pre‑emptively revised its revenue
forecast downwards in January 2024 (prior to the release of updated
third-party revenue curves). However, subsequent revisions were also made in
April and October 2024. The revision to the forecasts captures a reduction in
near-term electricity demand as well as lower commodity pricing between 2024
and 2029 amounting to a reduction of 21.11 pence per Ordinary Share;
b) "Other Project Assumptions" refers to increased operating costs and
delays in construction of the Company's remaining projects, which in aggregate
led to a reduction of 6.04 pence per Ordinary Share. The changes to operating
cost assumptions relate largely to network charges which are set by DNOs and
are not within the control of the Company;
c) a reduction in discount rates as projects were revalued when they moved
from construction into operations was offset by a 25 bps increase in discount
rates applied across all projects, leading to a net reduction of 0.70 pence
per Ordinary Share;
d) positive movements from:
a. free cash flow generated by project operations amounting to 4.06 pence
per Ordinary Share; and
b. the "NAV roll forward" impact (which captures the time value of money
as the projects progress) amounting to 6.04 pence per Ordinary Share; and
e) negative movements from:
a. interim dividend payments amounting to 2 pence per Ordinary Share
relating to the fourth quarter of FY 2022/23;
b. debt service over the Period amounting to 4.65 pence per Ordinary
Share;
c. a reduction in the mark-to-market value of the Company's interest rate
swap amounting to 0.56 pence per Ordinary Share; and
d. fund costs and other impacts totalling 1.93 pence per Ordinary Share.
REVENUE DURING THE PERIOD
The Company's operational Portfolio generated revenue (net of all electricity
import charges and state of charge management costs) of £16.3 million over
the Period (£58.2k/MW/Yr). This is despite the Portfolio encountering a
higher-than-usual number of outage events during the Period as described in
more detail below. The Investment Adviser estimates that, had the Portfolio
not suffered these outages, revenue would have been around 13.5% higher
(£63k/MW/Yr).
Revenue is expected to continue to increase throughout the year, with the
Portfolio now fully operational. Being fully operational has increased the
operating capacity by 40% compared to the weighted average over the Period,
which is anticipated to result in a proportionate rise in revenue generation.
Based on the average revenue during the Period, a fully operational portfolio
would have generated £23m in revenue.
Wholesale trading and BM accounted for 78% of Portfolio revenue during the
Period, compared to 42% for the previous financial year. This increase is in
line with the IA's expectation as the Ancillary Services markets remain
largely saturated.
Although only representing 4% of total revenue over the Period, BR has helped
to unlock some of the potential within the BM since its launch in March 2024,
reducing the relative attractiveness of Ancillary Services.
Ancillary Services are now predominantly used to charge the batteries, as this
is often cheaper than procuring electricity through wholesale markets. As a
result of this strategy, the net Ancillary Services revenue appears as a
negative element in the revenue stack.
The Portfolio continues to perform well in the context of the market
conditions and the wider GB BESS fleet. According to BESS Analytics, over the
12-month period from January 2024 to January 2025, the Portfolio achieved an
annualised weighted average revenue of £70k/MW/year. This represents a 25.5%
outperformance compared to the weighted average annualised revenue of
£55.9k/MW/year recorded by the GB BESS fleet as a whole, highlighting the
value of 2-hour BESS. The Portfolio outperformed comparable 2-hour BESS
portfolios by 5.4%.
CAPACITY MARKET
T-4 Contract Status
All of the Company's assets hold T-4 contracts as shown in the table below.
T-4 contracts are index-linked for a period of up to 15 years. None of the
Company's projects are participating in the T-4 Auction which is due to take
place in March 2025.
The IA has decided to reduce the term of T-4 contracts for the Broadditch and
the Farnham projects from 15 years to 3 years. These projects were awarded
T-4 contracts on the basis of their full 2-hour duration, however testing
requirements have subsequently become more onerous and the Company does not
believe the ongoing cost required to maintain this duration would represent
value for money. In relation to delivery years 2027-28 and onwards, these
projects will participate in auctions on an annual basis.
Projects which secured T-4 contracts for delivery from 2025 onwards were
awarded contracts on the basis of 1.5-hour duration and therefore are expected
to comply with their obligations without incurring additional expenditure. The
IA is therefore not intending to reduce the duration of T-4 contracts in
relation to any other projects.
T-1 Contract Status
As shown in the table below, the only projects which do not have a CM contract
in place for 2025/26 delivery are Bumpers, Wormald Green and Hawthorn Pit.
Bumpers has successfully pre-qualified for the T-1 Auction due to take place
in March 2025 and it is anticipated that this will result in additional CM
revenue for the 2025/26 delivery period. Unfortunately, due to CM
qualification rules, the Hawthorn Pit and Wormald Green projects were not able
to pre-qualify for this auction and will seek to secure secondary CM contracts
to provide additional income in this period.
CHART 9: OVERVIEW OF CM CONTRACT INCOME
Capacity Contract Value (£m) 2024-25 2025-26 2026-27 2027-28 2028-29 2029-30 2030-31 2031-32 2032-33 2033-34 2034-35 2035-36 2036-37 2037-38 2038-39 2039-40 2040-41
Pillswood 0.8 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9
Broadditch 0.1 0.1 0.1
Farnham 0.2 0.2 0.2
Rusholme 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3
Little Raith 0.4 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5
Bumpers 0.8 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1
Wormald Green 0.3 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4
Hawthorn Pit 0.4 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6
Total 3.3 2.0 4.1 3.8 3.8 3.8 3.8 3.8 3.8 3.8 3.8 3.8 3.8 3.8 3.8 3.8 2.0
Source: Harmony Energy Advisors Limited
OPERATING FREE CASH FLOW
Average revenue per MW reduced from £65.8k/MW in FY 2023 to £58.2k/MW in the
Period, a reduction of 11.6%. Despite this, total revenue in the Period rose
to £16.3m, a £9.3m (147%) increase compared to the prior year, driven by the
higher operational capacity.
The final projects commenced commercial operations in October 2024, bringing
the operational capacity to 395.4 MW, which will lead to further revenue
growth in the coming financial year. This represents a 40% increase in
operational capacity compared to the weighted average for the Period.
The increase in operational capacity will not increase the Company's operating
costs or interest costs, so operational free cash is expected to be positive
in future financial years, even under poor market conditions such as those
seen at times during the Period.
Post Period revenue per MW has been strong, and the first quarter of FY 2025
has seen average revenue of £97.8k/MW (a 70% increase compared to the average
during the Period and 97% higher than the same period during the Period).
As a result of higher operating capacity and stronger market conditions, the
Company has earned an estimated £9.7m of revenue between 1 November 2024 and
31 January 2025, equal to 63% of the total revenue earned during FY 2024.
TECHNICAL PERFORMANCE
The Portfolio suffered a number of outages due to DNO technical works,
predominantly impacting the March to June 2024 period. As previously reported:
· the Company's Little Raith project was curtailed by the DNO
during April whilst the DNO addressed reactive power oscillation issues at the
local substation; and
· the Bumpers project also experienced low availability in March,
May and June as the DNO performed a series of scheduled outages required to
connect a nearby new solar farm.
Other projects in the Portfolio experienced short "rest" periods whilst the
Company's equipment supplier, Tesla, performed firmware upgrades, standard
annual capacity tests and Extended Performance Tests required to comply with
CM obligations.
As discussed, availability has been impacted by a number of grid outages which
predominantly related to connection of neighbouring projects. This work is now
complete and these issues are not expected to repeat going forward. Across the
Portfolio, availability averaged 95% during the Period (including grid
outages), which is slightly lower than the IA's expectation of 98% under
normal operating conditions. Excluding grid outages, the Portfolio's equipment
performed well, achieving greater than 99% availability. The Portfolio's
round-trip efficiency was in line with expectation at 88%.
"Cycles" are a common measure of battery utilisation, with one cycle being
equal to the battery discharging its full energy capacity (for example, one
cycle for a 50 MW, 2-hour duration battery is equal to 100 MWh). During the
Period, the Portfolio has averaged 0.95 cycles per day, which is lower than
assumed in the Company's business plan. Lower cycling leads to lower
degradation, which in turn increases the operational life of a project.
CHART 10: UNAUDITED CONSOLIDATED FINANCIALS
FY2023 FY2024
Revenue 6,607,254 16,324,033
Liquidated Damages - 1,500,000
SPV Costs (2,637,322) (6,389,061)
HEIT Costs (2,009,133) (1,713,494)
Management Fee (2,163,222) (1,093,542)
Interest Cost (3,248,173) (10,369,280)
Tax (26,624) (741,270)
Operational Free Cash Flow (3,477,219) (2,482,614)
Weighted Average Operational MW 100.4 280.4
Annualised Revenue / MW (£k/MW/Yr) 65,823 58,216
Annualised SPV Costs / MW (£k//MW/Yr) 26,274 22,785
Source: Harmony Energy Advisors Limited
MARKET OUTLOOK
The IA expects to see the continued correlation between renewable penetration
and BESS revenues as we move through 2025. Following on from 2024's record
number of negatively priced hours in the wholesale market, we expect that this
record will be broken in 2025, providing continued opportunities for BESS.
The encouraging progress made in relation to BESS activations in the BM is
expected to continue with further updates to NESO's OBP system and greater
transparency in relation to decisions made by NESO's control room.
The revenues generated in the first quarter of FY 2024/25 demonstrate the
inherent value of the Portfolio but also highlight its potential volatility
(recovering from record lows in January 2024). To this end the IA continues to
explore options to smooth this volatility whilst continuing to benefit from
market opportunities as they arise. This includes continuously reviewing the
trading and optimisation arrangements across the Portfolio.
The BESS market is well-served by a large number of specialist revenue
optimiser service providers. These companies employ large teams to ensure they
can deliver in an increasingly complex market with a growing number of
products. At the same time, the cost charged by these third parties is
reducing and there are increasingly interesting opportunities for BESS to
procure increased revenue certainty through the strategic use of tolling or
other hedging agreements.
Whilst the IA has direct experience designing trading algorithms for BESS, it
does not believe that it is in shareholder interest to bring this function
in-house and is therefore focussed on using its expertise to procure,
collaborate with and monitor strong optimisation partners.
CHART 11: KEY PERFORMANCE INDICATORS
As at As at
31 October 2024
31 October 2023
Key Performance Indicators
NAV (£) 201,047,350 262,108,092
NAV per Ordinary Share (p/share) 88.52 115.40
Dividends paid (£) 4,542,566 15,727,698
Dividends per Ordinary Share (p/share) 2p 7p
Alternative Performance Measures
Adjusted NAV (£) 201,039,406 262,108,092
Adjusted NAV Total Return (%) -21.6% 1.2%
Revenues from Operations (£) 15,963,023 6,698,540
Dividends per Ordinary Share declared and paid in relation to 0p 8p
Period (p/share)
Other Performance Measures
Operational Capacity (Period end) (MWh / MW) 790.8 MWh / 395.4MW 555 MWh / 277.5 MW
Weighted Average Operational Capacity (MW) 280.4 100.5
Weighted Average Revenue per MW Operational (£/MW/Year) 58,217 66,631
Source: Harmony Energy Advisors Limited
POST-PERIOD EVENTS
Despite the positive market outlook, the Company continues to trade at a
discount to published NAV, impacting shareholder returns and limiting
opportunities for capital raisings, growth, and shareholder returns. In order
to explore opportunities to deliver value to Shareholders, the Board engaged
Jones Lang LaSalle ("JLL") in May 2024 with a mandate to seek offers for some
or all of the Portfolio. This exercise attracted strong interest from multiple
bidders, reflecting the quality of the assets as well as their scarcity value,
with no other portfolio of 2-hour duration operational assets available for
sale in the GB market. On 19 December 2024, the Company announced that it was
progressing to a final stage of negotiations with a preferred bidder on an
exclusive basis and in relation to the Company's full Portfolio. The Company
announced on 20 February 2025 that the substantial due diligence requirements
of the preferred bidder had resulted in an extension of exclusivity until 10
March 2025. Both parties are continuing to progress towards the conclusion of
a definitive agreement which will be conditional upon Shareholder approval.
Should such agreement be approved by Shareholders, the Company would seek to
return net sale proceeds to Shareholders via a members' voluntary liquidation
process as soon as practicable.
Alternative Investment Fund Manager's Report
BACKGROUND
The Alternative Investment Fund Manager's Directive (the "AIFMD") came into
force on 22 July 2013. The objective of the AIFMD was to ensure a common
regulatory regime for funds marketed in or into the EU which are not regulated
under the UCITS regime. This was primarily for investors' protection and also
to enable European regulators to obtain adequate information in relation to
funds being marketed in or into the EU to assist their monitoring and control
of systemic risk issues.
JTC Global AIFM Solutions Limited (the "AIFM") is a non-EU Alternative
Investment Fund Manager (a "Non-EU AIFM"), the Company is a non-EU Alternative
Investment Fund (a "Non-EU AIF") and the Company is currently marketed only
into the UK. Although the AIFM is a non-EU AIFM, so the depositary rules in
Article 21 of the AIFMD do not apply, the transparency requirements of
Articles 22 (Annual report) and 23 (Disclosure to investors) of the AIFMD do
apply to the AIFM and therefore to the Company. In compliance with those
articles, the following information is provided to the Company's Shareholders
by the AIFM.
1. Material Changes in the Disclosures to Investors
During the financial year under review, there were no material changes to the
information required to be made available to investors under Article 23 of the
AIFMD before they invest in the Company, from the information set out in the
Company's prospectus dated 15 October 2021. The only exceptions are those
disclosed below and in certain sections of the annual financial report, being
the Chair's Statement, Investment Adviser's Report, the sections headed
"Environmental, Social, and Governance", "Principal Risks and Uncertainties",
"Section 172 Statement" and "Viability and Going Concern", the Directors'
Report and Corporate Governance Report and note 2 to the financial statements.
2. Risks and Risk Management Policy
The current principal risks facing the Company and the main features of the
risk management systems employed by the AIFM and the Company to manage those
risks are set out in the section headed "Principal Risks and Uncertainties",
the Directors' Report, the Report of the Audit and Risk Committee (the "ARC"
or "Committee") and in note 15 to the financial statements.
3. Leverage and Borrowing
The Company is entitled to employ leverage in accordance with its investment
policy as set out in the Company's prospectus. At the start of the year under
review, the Company had via its subsidiaries £130 million of senior debt
facilities, consisting of a £20 million unhedged revolving credit facility
and a £110 million term loan facility, hedged by way of an interest rate cap
of 5.25%. As part of the debt restructure detailed in the Investment Advisor's
report, the Company terminated its interest rate cap in February 2024,
receiving a payment of £0.5 million, and replaced it with an interest rate
swap for the SONIA element of the loan. The new interest rate swap fixed the
SONIA element of the loan at a rate of 4.101% per annum. As at the balance
sheet date and as at the date of this report, the Company's subsidiary HEIT
Holdings Ltd had drawn down £130 million. Other than the non-material
amendment described in the paragraph entitled "Borrowing Policy" in the
Strategic Report, there were no changes in the Company's borrowing powers and
policies.
4. ESG
Because the AIFM is a non-EU AIFM and the Company is not marketed into the
European Economic Area ("EEA"), the AIFM is not required to comply with
Regulation (EU) 2019/2099 on Sustainability-Related Disclosures in the
Financial Services Sector (the "SFDR"). However, the Company has voluntarily
chosen to report in line with Article 8 of the SFDR and details of the
Company's and its advisers' ESG objectives and actions taken are reported on
in the section of this annual financial report entitled "Environmental,
Social, and Governance."
As a member of the JTC group of Companies, the AIFM's ultimate beneficial
owner and controlling party is JTC Plc, a Jersey-incorporated company whose
shares have been admitted to the Official List of the UK's Financial Conduct
Authority ("FCA") and to trading on the London Stock Exchange's Main Market
for Listed Securities (mnemonic JTC LN, LEI 213800DVUG4KLF2ASK33). In the
conduct of its own affairs, the AIFM is committed to best practice in relation
to ESG matters and has therefore adopted JTC Plc's ESG framework (the "ESG
Framework") and a copy of the ESG Framework can be viewed online at
https://www.jtcgroup.com/esg/.
As at the date of this report, JTC Plc is a signatory of the UN PRI. The JTC
group is also carbon neutral, works to support the achievement of various U.N.
Sustainable Development Goals and reports under the Task Force on
Climate-related Financial Disclosures ("TCFD") and the SASB framework.
The AIFM is also cognisant of the announcement published by H.M. Treasury in
the UK of its intention to make mandatory by 2025 disclosures aligned with the
recommendations of the Task Force on Climate-Related Disclosures, with a
significant proportion of disclosures mandatory by 2023. The AIFM also notes
the roadmap and interim report of the UK's Joint Government-Regulator TCFD
Taskforce published by H.M. Treasury on 9 November 2020. The AIFM continues to
monitor developments and intends to comply with the UK's regime to the extent
either mandatory or desirable as a matter of best practice.
The AIFM and Harmony Energy Advisors Limited ("HEAL") as the Company's
alternative investment fund manager and investment adviser respectively do
consider ESG matters in their respective capacities, as explained in the
Company's prospectus dated 15 October 2021, a copy of which can be found on
the AIFM's website at
https://www.jtcgroup.com/services/funds/aifmd/harmony-energy-income-trust-plc/.
Since the publication of those documents, the AIFM, HEAL and the Company have
continued to enhance their collective approach to ESG matters and detailed
reporting on (a) enhancements made to each party's policies, procedures and
operational practices and (b) our collective future intentions and aspirations
is included in the TCFD report, the Task Force on Nature-related Financial
Disclosures ("TNFD") report, the ESG section and the Section 172 Statement.
The AIFM also has a comprehensive risk matrix (the "Matrix"), which is used to
identify, monitor and manage material risks to which the Company is exposed,
including ESG and sustainability risks, the latter being an ESG event or
condition that, if it occurred, could cause an actual or a potential material
negative impact on the value of an investment. We also consider sustainability
factors, those being environmental, social and employee matters, respect for
human rights, anti‑corruption and anti-bribery matters.
5. Remuneration of the AIFM's Directors and Employees
During the FY, no separate remuneration was paid by the AIFM to two of its
executive directors, Graham Taylor and Kobus Cronje, because they were both
employees of the JTC group of companies, of which the AIFM forms part. The
third executive director, Matthew Tostevin, is paid a fixed fee of £10,000
for acting as a director. Mr Tostevin is paid additional remuneration on a
time spent basis for services rendered to the AIFM and its clients. Other than
the directors, the AIFM has no employees. The Company has no agreement to pay
any carried interest to the AIFM. During the year under review, the AIFM paid
£10,000 in fixed fees and £40,050.79 in variable remuneration to Mr
Tostevin.
6. Remuneration of the AIFM Payable by the Company
The AIFM was during the Period paid a fee of 0.03% per annum of the equity
capital raised by the Company, subject to a minimum of £30,000 per annum,
such fee being payable quarterly in arrears. Subsequent secondary issues of
shares of the Company in the primary market are supported on a time spent
basis, subject to a cap of £10,000 per each such issue. Other significant
non-routine work may be agreed between the AIFM and the Company from time to
time and charged for on a time spent basis. The total fees paid to the AIFM
during the year under review were £67,434.
JTC Global AIFM Solutions Limited
Alternative Investment Fund Manager
25 February 2025
Strategic Report
INVESTMENT OBJECTIVE
The Company's investment objective is to provide an attractive and sustainable
level of income returns, with the potential for capital growth, by investing
in commercial scale storage and renewable energy generation projects, with an
initial focus on a diversified portfolio of BESS located in Great Britain
("Projects").
INVESTMENT POLICY
The Company seeks to achieve its investment objective through investment in
energy storage and complementary renewable energy generation assets, with an
initial focus on commercial scale BESS located in diverse locations across
Great Britain.
For the purposes of this policy, unless the context otherwise requires, words
and expressions defined in the Company's Prospectus shall have the same
meanings where used in this policy.
The Company may invest in "operational", "under construction" or "shovel
ready" projects, and may also provide development finance to pipeline
projects.
PROJECTS WHICH ARE "SHOVEL READY" WILL HAVE IN PLACE:
· completed lease, lease option or agreement for lease in relation
to the land upon which that project is situated;
· planning permission enabling the construction of a suitable
project on that land (subject to any amendments to reflect final technical
specifications);
· an industry standard grid connection offer from a DNO or
Transmission System Operator ("TSO"); and
· a BESS supply & installation contract with material terms
agreed with a reputable counterparty.
PROJECTS WHICH ARE "UNDER CONSTRUCTION" WILL IN ADDITION, HAVE IN PLACE:
· an agreed lease on satisfactory terms;
· an accepted industry standard grid connection offer from a DNO or
TSO, and having made at least one milestone payment; and
· a fully executed BESS supply & installation contract with a
reputable counterparty.
PROJECTS WHICH ARE "OPERATIONAL" WILL, IN ADDITION, HAVE IN PLACE:
· completed lease on satisfactory terms in relation to the land
upon which that project is situated;
· an executed grid connection agreement with a DNO; and
· satisfactory completion of relevant commissioning tests.
TARGET REVENUE SOURCES
It is intended that, once operational, the main revenue streams from the
Company's portfolio of Projects will be from the following sources:
· Ancillary Services - Projects may generate revenues from
short-term contracts procured via regular competitive auctions through which
the Company and/or its subsidiaries will provide, on a firm basis, dynamic or
non-dynamic response services to NESO as part of its efforts to cater for
changes in network system frequency, balancing the grid and avoiding power
outages;
· Asset optimisation - Projects may generate revenues from
importing and exporting power in the wholesale market and the
NESO-administered BM; and
· Capacity Markets - Projects may generate revenues by access to
the benefit of contracts, or through entering into new contracts, to provide
back-up capacity power to NESO as the Electricity Market Reform delivery body
via Capacity Market contracts of varying terms between 1 year and 15 years in
duration.
The contractual arrangements which the Company will put in place in respect of
its portfolio of Projects are expected to benefit from diversification across
a number of different income streams with various contract lengths,
counterparties and return profiles.
These revenue sources will inevitably evolve as the UK energy and energy
storage markets and NESO policy and practice develop, and as such the Company
intends to adapt its contractual arrangements to procure what it considers to
be the most advantageous revenue streams as the market develops. If suitably
attractive terms were available, this could include the Company engaging with
third-party service providers to increase levels of contracted income across
the Portfolio.
BESS TECHNOLOGY
The Company intends to invest primarily in BESS projects using 2-hour
lithium-ion battery technology, as such technology is believed by the
Investment Adviser to offer the most efficient operation and return profile
and has a number of advantages over shorter duration batteries. However, the
Company remains agnostic as to which energy storage and generation technology
is used by the projects in which it invests and will monitor projects and may
invest in projects with alternative technologies (including different duration
batteries and combinations and co-location of such technologies), where they
meet the Company's investment objective and policy.
Each BESS project will contain a battery system with a number of battery
modules in each stack, each of which is independent and can be replaced
separately. This reduces the impact of failure of one or more battery modules
and therefore offers protection against the potential risk of the operation of
a project being interrupted.
INVESTMENT IN AND OWNERSHIP OF PROJECTS
The Company intends to invest with a view to holding assets until the end of
their useful life. However, projects may also be disposed of, or otherwise
realised, where the Investment Adviser recommends that such realisation is in
the interests of the Company. Such circumstances may include (without
limitation) disposals for the purposes of realising or preserving value, or of
realising cash resources for reinvestment or otherwise.
The Company may also consider investing in the re-powering of projects by
replacing degraded cells in order to extend project cash flows or increasing
the capacity of projects where the grid connection is under-utilised.
The Company will typically achieve legal and operational control of projects
through direct or indirect stakes of 100% in the relevant Project Companies
and may use a range of investment instruments in the pursuit of its investment
objective, including but not limited to debt and equity instruments.
In certain circumstances, the Company may participate in joint ventures or
co-investments, including (without limitation) with other investors or
entities with whom members of the Harmony Group have developed assets, where
this approach enables the Company, within its investment policy, to gain
exposure to assets which the Company would not otherwise be able to acquire on
a wholly-owned basis. In such circumstances the Company will seek to secure
its shareholder rights through contractual and other arrangements to, inter
alia, ensure that the projects are operated and managed in a manner that is
consistent with the Company's investment policy.
DEVELOPMENT FINANCE
The Company may provide loan finance to Pipeline Projects prior to an
anticipated acquisition ("Pre-Acquisition Development Loans"). Such finance
may be for the commissioning of design works, pre-construction studies
(including but not limited to geotechnical studies), acquisition of equipment
or other development costs for the furtherance of the relevant project,
provided that no more than 10% of Gross Asset Value (calculated at the time
that finance is provided based on the latest available valuations) may be
exposed in aggregate to such loans.
The Company may also provide funding via loans or equity contributions to
Project Companies which are owned by the Company ("Post-Acquisition
Development Finance") for the purposes of:
a) evaluating and/or executing asset management initiatives which the
Investment Adviser reasonably believes to be value accretive and supportive of
the Company's overall target return, such as extension or amendment of leases
and/or renegotiation of consents or grid connection agreements to increase
import/ export capacity; or
b) developing complementary renewable generation infrastructure to be
owned and operated by the relevant Project Company. This funding may be used
for any reasonable development expenses such as preliminary design work,
planning applications and/ or commercial studies, provided in all cases that
no more than 10% of Gross Asset Value (calculated at the time that finance is
provided based on the latest available valuations) may be exposed in aggregate
to such finance.
The total aggregate exposure of the Company to Pre-Acquisition Development
Loans and Post-Acquisition Development Finance will not exceed 15% of Gross
Asset Value (calculated at the time that finance is provided based on the
latest available valuations).
COMPLEMENTARY RENEWABLE GENERATION ASSETS
Whilst the Company's primary focus under its investment policy is to invest in
BESS and other energy storage projects, the Company may also invest in
renewable generation assets where it would be attractive to do so.
This may include projects with co-located BESS and solar PV generation sharing
the same grid connection or stand-alone solar PV projects, where these would
be complementary to the Company's other investments and support the Company's
overall target return, subject to the investment restrictions below.
INVESTMENT RESTRICTIONS
The Company aims to achieve diversification principally through investing in a
range of projects benefitting from different income streams with different
counterparties and located in different regions of Great Britain. The Company
will observe the following investment restrictions when making investments:
· following the acquisition of the Seed Projects by the Company,
the acquisition price of any single project shall not exceed 20% of the
Company's Gross Asset Value measured at the time of investment;
· following the acquisition of the Seed Projects, the Company will
seek to ensure that it has holding interests in not less than five separate
projects at any one time;
· no more than 35% of Gross Asset Value, calculated immediately
following each investment, will be invested in Projects which are not BESS
projects;
· no more than 25% of Gross Asset Value, calculated immediately
following each investment, will be invested in assets in relation to which the
Company does not hold a direct or indirect stake of 100%;
· no more than 10%, in aggregate, of the value of the total assets
of the Company at Initial Admission will be invested in UK listed closed-ended
investment funds;
· the Company will not conduct any trading activity which is
significant in the context of the Group as a whole; and
· no investments will be made in fossil fuel assets, including
fossil fuel-powered generators.
Compliance with the above restrictions will be measured at the time of
investment and non-compliance resulting from changes in the price or value of
assets following investment will not be considered as a breach of the
investment restrictions.
Individual projects will be held within special purpose vehicles into which
the Company will invest through equity and/or debt instruments. It is intended
that each Project Company will hold one project but a Project Company may own
more than one project.
The investment restrictions will be applied on a look-through basis.
BORROWING POLICY
The Company may raise debt and may consider having leverage (at the Company
level and/or the Project Company level) provided that it has sufficient assets
and to the extent funding is available on acceptable terms. In addition, it
may from time-to-time use borrowing for short-term liquidity purposes which
could be achieved through a loan facility or other types of collateralised
borrowing instruments. The Company is permitted to provide security to lenders
in order to borrow money, which may be by way of mortgages, charges or other
security interests or by way of outright transfer of title to the Company's
assets. The Directors will restrict borrowing (excluding letters of credit
issued on behalf of the Company in favour of either Elexon or EPEX) to an
amount not exceeding 49% of the Company's net asset value at the time of
drawdown. On 28 January 2025 the Board approved a non-material amendment to
the Company's borrowing policy so that, in the unlikely event of a call under
any letter of credit issued from time to time by the Company's lenders in
favour of Elexon and/or EPEX (in relation to imbalance settlement processing
and/or trading collateral, respectively) such event would not count towards
the Company's borrowing limit.
In circumstances where these aforementioned limits are exceeded as a result of
gearing of one or more Project Companies in which the Company has a
non-controlling interest, the borrowing restrictions will not be deemed to be
breached. However, in such circumstances, the matter will be brought to the
attention of the Board who will determine the appropriate course of action.
CURRENCY, HEDGING POLICY AND DERIVATIVES
Efficient portfolio management techniques may be employed by the Company, and
this may include (as relevant) currency hedging, interest rate hedging and
power price hedging. Derivatives may be used for currency, interest rate and
power price hedging purposes as set out below and for efficient portfolio
management. However, the Directors do not anticipate that extensive use of
derivatives will be necessary.
CASH MANAGEMENT
The Company may hold cash on deposit and may invest in cash equivalent
investments, which may include short-term investments in money market type
funds ("Cash and Cash Equivalents").
There is no restriction on the amount of Cash and Cash Equivalents that the
Company may hold and there may be times when it is appropriate for the Company
to have a significant Cash and Cash Equivalents position. For the avoidance of
doubt, the restrictions set out above in relation to investing in UK listed
closed-ended investment companies do not apply to money market type funds.
CHANGES TO AND COMPLIANCE WITH THE INVESTMENT POLICY
Any material change to the Company's investment policy set out above will
require the approval of Shareholders by way of an ordinary resolution at a
general meeting.
In the event of a breach of the investment guidelines and the investment
restrictions set out above, the AIFM shall inform the Board upon becoming
aware of the same and if the Board considers the breach to be material,
notification will be made to a Regulatory Information Service.
For the purposes of the investment policy, "Gross Asset Value" means the
aggregate of (i) the fair value of the Company's underlying investments
(whether or not subsidiaries), valued on an unlevered basis, (ii) the
Company's proportionate share of the cash balances and cash equivalents of
assets and non-subsidiary companies in which the Company holds an interest and
(iii) other relevant assets and liabilities of the Company (including cash)
valued at fair value (other than third-party borrowings) to the extent not
included in (i) or (ii) above.
BUSINESS MODEL
The Company expects to invest predominantly in projects at the "shovel ready"
stage since these are likely to provide the most attractive returns. The
Company may also invest in projects at the "operational" and "under
construction" stage where such projects are available for acquisition in line
with the Company's investment policy.
The Company seeks to enhance further the efficacy of its Portfolio by
targeting 2-hour duration storage technologies.
The Company has the unfettered ability to purchase qualifying assets from any
seller. The Investment Adviser is experienced in sourcing and advising on BESS
transactions and continues to evaluate potential opportunities on the open
market. However, at least over the near-term, it is anticipated that the
Company will continue to take advantage of its exclusive arrangements
described below.
The Company benefits from exclusive access to a well-developed pipeline of
BESS projects at various stages of development in Great Britain. Each project
within this pipeline is controlled by Harmony Energy Limited either solely or
in conjunction with its joint venture partner, Ritchie-Bland Energy (number 2)
Ltd ("RBE") (the "Sellers"). This exclusivity is in the form of:
a) ROFR to acquire up to 1 GW of BESS projects from the Sellers; and
b) a right of first offer ("ROFO") in relation to (i) BESS projects once
the 1 GW ROFR threshold has been reached; (ii) BESS projects co-located with
solar photovoltaics ("PV"); or (iii) stand- alone solar PV projects.
The processes under which these rights are exercised are set out in a pipeline
agreement dated 14 October 2021 and entered into between the Company and the
Sellers (the "Pipeline Agreement"). The Sellers have an obligation to keep the
Company informed as to the development progress of potential projects. This
provides the Company with an element of transparency which, in turn, allows
the Company a reasonable level of certainty around funding timetable and
portfolio growth planning.
The terms of the Pipeline Agreement provide that the Sellers shall be
prohibited from selling any qualifying projects to any other party during the
term of the agreement without first offering them to the Company. Upon any
projects becoming "shovel ready", the Sellers shall give notice of such status
to the Company. The Company will then be entitled to either (i) if the ROFR
applies, acquire the relevant project pursuant to the terms of the pro forma
share purchase agreement (and subject to a valuation calculated using a
minimum discount rate); or (ii) if the ROFO applies, make an offer to the
Sellers pursuant to the Pro Forma Share Purchase Agreement.
The Company has, as at the date of publication of this report, either acquired
or waived its right to acquire 630.6 MW of "shovel ready" BESS projects,
leaving 369.4 MW still capable of acquisition under the ROFR.
All acquisitions are subject to satisfactory external due diligence,
independent valuation and board approval.
The Company will continue to target BESS projects with 2-hour duration
capability. As demonstrated in the "Market Commentary" section, the Investment
Adviser believes that 2-hour duration BESS offers potential for revenue
outperformance relative to a shorter-duration BESS across a range of market
conditions.
DIVIDEND POLICY
As previously reported, the Company announced a change to its dividend policy
on 30 May 2024. The new policy replaced the previous fixed 8 pence per
Ordinary Share annual dividend target with a dynamic policy which is more able
to reflect the market at any given time. The new dividend policy provides for
an ongoing commitment to distribute, by way of interim dividends and subject
to maintenance of a suitable working capital buffer, a minimum of 85% of
operational free cash flow, such amounts to be determined by the Board,
declared and paid on a semi-annual basis.
Principal Risks and Uncertainties
The Board recognises the importance of effective risk management in enabling
the Company to deliver its strategic objectives. The investment policy, as set
out in the Prospectus and as amended from time to time, details the risk
boundaries within which the Board wishes to operate.
WHAT WE MONITOR
The Company's risk register was prepared based on the risks stated in the
Prospectus and is regularly reviewed by the Investment Adviser, the AIFM and
the Board and updated to reflect any emerging risks or changes to the
identified risks. Day-to-day ownership of risk sits with named individuals at
the Investment Adviser, who monitor and assess both current and emerging
risks. Risks are categorised and assessed to determine likelihood and impact.
Ratings are applied to the risks before any mitigating action and again
following consideration of the adequacy of mitigating actions. Mitigating
actions are summarised in the risk register and are subject to review and
monitoring.
HOW WE MONITOR RISK
The Board retains ultimate responsibility for the Company's activities and
board meetings are held at least four times a year, at which the risk register
of the Company is reviewed and updates are reported by the AIFM on any changes
to the risks or their ratings.
The ARC meets at least three times each year. The Committee reviews the
adequacy and effectiveness of the Company's internal controls and risk
management systems and every six months it carries out a reassessment of the
principal risks facing the Company.
The AIFM provides risk management services to the Company, including
implementation of risk management policies to identify, measure, manage and
monitor the risks that the Company is or might be exposed to and ensuring that
the Company's risk management policy and implementation comply with applicable
regulations.
Representatives of the AIFM meet with representatives of the Investment
Adviser at least quarterly to review the risk register and discuss any changes
proposed. The proposed updates to the Company's risk register are further
reviewed and approved by the AIFM's internal Risk Committee in advance of
circulation to the Board.
The identified risk owners within the Investment Adviser are responsible for
formal quarterly reporting of current and emerging risks and issues to the
Investment Adviser's leadership. A formal quarterly review of the risk
register is carried out by the Investment Adviser and any recommendations for
updates are made to the AIFM. Any major emerging risks and issues are
escalated outside of the quarterly review framework.
TABLE OF PRINCIPAL RISKS AND UNCERTAINTIES
The Board considers the following to be the principal risks and uncertainties
facing the Company as at the date of approval of the accounts. The risks are
presented in order of significance based on net residual risk, following
mitigations.
Due to the nature of the Company's activities, climate and the natural
environment are central to its key strategic, investment, and operational
decisions. During the Period, the Company conducted a screening assessment
with specialist third-party consultants to identify material climate- and
nature-related financial risks, opportunities, dependencies and impacts. HEAL
has worked closely with the AIFM to integrate the risks identified as part of
the recent screening into the risk register. Following careful consideration
of these risks by the Board, none of the risks identified was considered to be
sufficiently material to qualify as a principal risk.
EXISTING RISKS
RISK DESCRIPTION POSSIBLE CONSEQUENCES MITIGATING ACTIONS
MERCHANT NATURE OF BESS REVENUES
Lower-than-expected market price of Ancillary Services, revenues generated • Reduced revenue. • Subscriptions to Aurora for long- term revenue forecasts, regular market
from wholesale trading and/or the BM. NESO is responsible for the structure
intelligence and understanding of macro-drivers.
and the operation of both the BM and the Ancillary Service markets, and • Reduced NAV.
wholesale trading prices are influenced by factors outside of the Company's
• Engagement with industry stakeholders and policymakers, including NESO.
control. In addition, revenue optimisers may not perform as effectively as • Inability to declare future dividends.
expected.
• Scrutiny of revenue optimiser performance to maintain high standards.
• Inability to pay debts as they become due. The Company uses various revenue optimisers, reducing the impact of any one
optimiser not performing as effectively as expected.
• Close monitoring of cash flow levels and scenario modelling to ensure
mitigating actions can be implemented in a timely manner to improve cash
position if necessary.
CONTINUATION VOTE
By the end of 2024, HEIT's NAV was lower than £250m, which triggered a · Commencement of HEIT managed wind down. · The Board, the IA and the Joint Brokers continue to engage with
continuation vote to be proposed at the 2025 AGM. Shareholders to keep them abreast of the market conditions and the Portfolio
performance.
RELIANCE ON GRID NETWORK
Grid network power lines may fail. Impedance to battery charge/discharge. • Reduced revenue. • The Investment Adviser works closely with DNOs to manage and schedule
planned outages to times when they would least affect revenues.
• Inability to declare future dividends.
• Business interruption claims with its insurance underwriter can be
• Inability to pay debts as they become due. brought by HEIT after 30 days of inactivity.
• Reduced energy storage/ supply to the off-taker. • HEIT has several 50 MW or less sites that are spread geographically
rather than focusing on a few 100 MW+ sites.
RELIANCE ON THE HARMONY ENERGY GROUP
The Portfolio requires significant management time and resources provided by, • In the case of loss of key personnel, the quality of the services • The management of the IA and HEL have made significant personal
among others, the IA and HEL in order for HEIT to meet its Investment provided by the IA to HEIT may be adversely affected. investment into the Company and have therefore aligned their interests with
Objective.
those of Shareholders.
• In the case of loss of key personnel, the quality of the Portfolio
assets may decline. • The IA has committed to always have sufficient resources in place to
manage the Portfolio and failure to do so may result in the Company appointing
another investment adviser.
• The Management Engagement Committee is to ensure that the management
fees paid to Harmony are sufficient for them to maintain appropriate staff.
GENERAL RISKS AFFECTING THE SHARES
The value of the shares in the secondary market may fluctuate due to factors • Inability to raise additional equity capital. • The Joint Brokers and Investment Adviser monitor the share price daily
outside the control of the Company.
in the secondary market and report to the Board regularly and where necessary.
• Inability to purchase additional projects.
It may be difficult for Shareholders to realise their shares at close to NAV
• The Board actively considers a range of options to address the discount.
and there may not be a liquid market. The market price of the shares may not • Reduced returns to investors. These include, inter-alia: share buy backs, asset sales, gearing reduction and
reflect their underlying NAV. increased marketing.
Share buy backs may not adequately influence the discount in the secondary • The Board will discuss share buy backs at every quarterly Board meeting
market. whilst shares are trading at a significant discount to NAV.
• Stifel and Panmure Liberum have been appointed as Joint Brokers and
there is an increased focus on marketing HEIT to new investors. The Board, the
Joint Brokers and the Investment Adviser monitor the market on a regular basis
with a view to taking actions if and when it is necessary.
VALUATION RISK
HEIT invests in unquoted assets and valuations will involve the Investment • The possible sale of assets for less than market value. • The Investment Adviser has subscribed to services from Aurora to provide
Adviser, AIFM and Board.
support for quarterly NAV valuations.
• Errors in NAV calculations and announcements.
The Company is relying on the judgement of the Investment Adviser. • Semi-annual valuations are provided by an Independent Valuer. The
Independent Valuer regularly updates its valuation of each project based upon,
Errors in valuations could lead to shareholder complaints or suits for losses among other things, recent market comparables and the relative liquidity of
and regulatory censure. the assets.
EMERGING RISKS
INCREASE IN NETWORK CHARGES
Unpredictable increased network charges may result in increased capital • Reduced revenue. • This risk cannot be mitigated, as it is outside of the Company's
expenditure or lower net revenue.
control.
• Inability to declare future dividends.
• Reduced cash availability.
RELATED-PARTY TRANSACTIONS
Information on related-party transactions can be found in this report.
Viability and Going Concern Statement
GOING CONCERN
As at 31 October 2024, the Company and its subsidiaries had net current assets
of £10.9 million which was sufficient to meet commitments made under
construction contracts signed by subsidiaries.
The Company is a guarantor to its wholly owned subsidiary HEIT Holdings Ltd in
respect of the debt facilities and also provides parent company guarantees to
subsidiaries in relation to certain construction and/or battery supply
contracts. As at the date of publication the aggregate outstanding value of
such guarantees is £5.9 million.
As previously announced, the Company remains in advanced negotiations in
relation to the sale of the entire Portfolio. Should negotiations conclude
successfully, the transaction would require an amendment to the Company's
investment policy and the agreement of Shareholders and would therefore be
subject to a Shareholder vote. The Directors have taken into account the
probability of negotiations concluding successfully and the probability of a
subsequent Shareholder vote passing, which may result in a subsequent members'
voluntary liquidation, in making their assessment.
The Company's prospectus at the time of IPO commits the Directors to put
forward a continuation vote at the subsequent annual general meeting of the
Company if the NAV of the Company was below £250 million at the end of 2024.
The NAV of the Company was below £250 million at the end of 2024, and whilst
it is possible that the Shareholder vote in relation to the proposed asset
sale would remove the requirement for a continuation vote, the possibility and
the probability of a continuation vote passing have also been taken into
account by the Directors in making their assessment.
The Directors are aware and understand that the Company's revenues can be
volatile and therefore have reviewed the results of financial models analysing
the expected position of the Company under a prudent scenario as well as a
reasonably possible worst case scenario. Both scenarios take into account the
availability of cash reserves and receivables during the Going Concern Period.
The prudent scenario assumes revenue performance of the Company's operating
projects are in line with third-party forecasts of revenue. In previous
assessments, the IA had based the prudent scenario on a reduction to
third-party revenue forecasts, however as noted in the description of NAV
movements, these forecasts have been reduced significantly over the past year
and are now deemed a prudent forecast for the coming year.
In addition, the Directors have considered a reasonably possible worst case
scenario which assumes non-contracted revenue earned by underlying investee
companies is c.38% lower than in the prudent scenario.
Under both scenarios the financial model shows that sufficient cash is
expected to be available to meet the Company's obligations and commitments
(including but not limited to construction contracts, working capital
requirements and debt service).
Having considered the results of the modelled scenarios, the Directors have a
reasonable expectation that the Company is able to manage cash flow and meet
its working capital and debt service commitments via a combination of
operating revenues, and/or contracted revenue products over the Going Concern
Period, and are working with the Investment Adviser to assess the optimal
combination of such options so as to ensure that the Company can maximise
returns to Shareholders. The Company also has the option of selling an
asset(s) if it wishes to do so. The Directors are confident that key risks
have been considered in this assessment.
The Directors have concluded that the Company's available funding and expected
income are sufficient for the Company to continue its operations for at least
12 months from the date of signing these financial statements (the "Going
Concern Period") and therefore believe it remains appropriate to prepare the
financial statements on a going concern basis. However, when taking into
account probability of a Shareholder vote passing in favour of a possible
asset sale and subsequent members' voluntary liquidation, the Directors note
that this represents a material uncertainty that may cast significant doubt on
the Company's ability to continue as a going concern during the Going Concern
Period. The financial statements do not include any adjustments that would
result from the basis of preparation being inappropriate.
VIABILITY STATEMENT
The Directors have considered the period to October 2026 for the purposes of
assessing the Company's viability (the "Viability Period"). As noted above,
the Company's revenues and revenue projections can be volatile and the chosen
period allows current market trends to be taken into account when defining
appropriate modelling scenarios. The same prudent and reasonably possible
worst case scenario described above have been reviewed over the Viability
Period.
The Directors note that a key mitigant against a sustained period of low
revenues is the sale of an individual asset, with sales proceeds being used
predominantly to reduce leverage and therefore reduce debt service. Whilst the
Directors have not relied upon an asset sale in order to reach their
conclusion, this mitigant provides additional comfort regarding the Company's
viability
Having considered the Company's principal risks and the results of the
financial models, also taking into account projected debt covenants which
could impact the Company's viability if triggered, the Directors have a
reasonable expectation that the Company will continue to be able to operate
and to meet its liabilities as they fall due over the Viability Period or
until the date of a potential members' voluntary liquidation (if earlier)
following either the possible asset sale transaction or a continuation vote.
Directors' Responsibility Statement
The Directors are responsible for preparing the Annual Report and Financial
Statements in accordance with applicable law and regulations.
As a company traded on the London Stock Exchange, the Company is subject to
the FCA's UK Listing Rules and Disclosure Guidance and Transparency Rules, as
well as to all applicable laws and regulations in England and Wales where it
is registered.
The Annual Report and Financial Statements have been prepared in accordance
with UK-adopted international accounting standards. Under company law, the
Directors must not approve the Financial Statements unless they are satisfied
that they give a true and fair view of the state of affairs of the Company and
of the profit or loss for the Period. In preparing these Financial Statements,
the Directors should:
· select suitable accounting policies in accordance with IAS 8 and
then apply them consistently;
· make judgements and estimates that are reasonable and prudent;
· specify which generally accepted accounting principles have been
adopted in their preparation;
· prepare the Financial Statements on the going concern basis,
unless it is inappropriate to presume that the Company will continue in
business; and
· prepare a directors' report, a strategic report and directors'
remuneration report which comply with the requirements of the Act.
The Directors are responsible for keeping proper accounting records which are
sufficient to show and explain the Company's transactions and disclose, with
reasonable accuracy at any time, the financial position of the Company and
enable them to ensure that the Financial Statements comply with the
requirements of the Act. They are also responsible for safeguarding the assets
of the Company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities. The Directors are responsible for
ensuring that the Annual Report and Accounts, taken as a whole, are fair,
balanced, and understandable, and provide the information necessary for
Shareholders to assess the Company's position and performance, business model
and strategy.
WEBSITE PUBLICATION
The Directors are responsible for ensuring the Annual Report and the Financial
Statements are made available on the Company's website. Financial statements
are published on the Company's website in accordance with legislation in the
UK governing the preparation and dissemination of financial statements, which
may vary from legislation in other jurisdictions. The maintenance and
integrity of the Company's website is the responsibility of the Directors. The
Directors' responsibility also extends to the ongoing integrity of the
financial statements contained therein.
DIRECTORS' RESPONSIBILITY STATEMENT PURSUANT TO DISCLOSURE GUIDANCE AND
TRANSPARENCY RULE 4
The Directors confirm to the best of their knowledge that:
· the financial statements have been prepared in accordance with
UK-adopted international accounting standards and give a true and fair view of
the assets, liabilities, financial position and profit and loss of the
Company; and
· the Annual Report includes a fair review of the development and
performance of the business and the financial position of the Company,
together with a description of the principal risks and uncertainties that it
faces.
DISCLOSURE OF INFORMATION TO THE AUDITOR
The Directors confirm that:
· so far as each Director is aware, there is no relevant audit
information of which the Company's auditor is unaware; and
· the Directors have taken all the steps that they ought to have
taken as Directors in order to make themselves aware of any relevant audit
information and to establish that the Company's auditor is aware of that
information.
Signed by order of the Board,
Norman Crighton
Chair
25 February 2025
Financial Statements
Statement of Comprehensive Income
For the year ended 31 October 2024
Notes Revenue Capital For the year Revenue Capital For the year
£ £ ended £ £ ended
31 October 31 October
2024 2023
Total Total
£ £
Income
Net loss on investments at fair value through profit and loss 10 - (63,833,218) (63,833,218) - (7,161,610) (7,161,610)
Service fee income 6 1,468,830 - 1,468,830 1,837,458 - 1,837,458
Investment Income 6 12,880,688 - 12,880,688 11,936,674 - 11,936,674
Investment income write off 6 & 10 (4,335,532) - (4,335,532)
Other income 6 389 - 389
10,014,375 (63,833,218) (53,818,843) 13,774,132 (7,161,610) 6,612,522
Expenses
Administrative and other expenses 7 (2,699,333) - (2,699,333) (3,475,884) - (3,475,884)
Profit/(loss) before taxation 7,315,042 (63,833,218) (56,518,176) 10,298,248 (7,161,610) 3,136,638
Taxation 8 - - - - - -
Profit/(loss) after tax and Total Comprehensive Income for the year 7,315,042 (63,833,218) (56,518,176) 10,298,248 (7,161,610) 3,136,638
Earnings per share (basic and diluted): Ordinary Shares 9 (0.25) 0.01
All Revenue and Capital items in the above statement are derived from
continuing operations.
The Total column of this statement represents the Company's Statement of
Comprehensive Income prepared in accordance with UK adopted international
accounting standards ("IAS"). The return on ordinary activities after taxation
is the total comprehensive income and therefore no additional statement of
other comprehensive income is presented.
The supplementary revenue and capital columns are presented for information
purposes in accordance with the Statement of Recommended Practice issue by the
Association of Investment Companies ("AIC").
The notes form an integral part of these Financial Statements.
Statement of Financial Position
As at 31 October 2024
31 October 2024 31 October 2023
Notes £ £
Non-current assets
Investments held at fair value 10 194,764,869 240,025,781
194,764,869 240,025,781
Current assets
Cash and cash equivalents 12 4,211,249 18,093,379
Trade and other receivables 11 2,444,923 4,452,273
6,656,172 22,545,652
Total assets 201,421,041 262,571,433
Current liabilities
Trade and other payables 13 373,691 463,341
Net current assets 6,282,481 22,082,311
Total net assets 201,047,350 262,108,092
Shareholders' equity
Share capital 17 2,271,283 2,271,283
Share premium 17 21,370,889 21,370,889
Capital reduction reserve 18 191,822,914 194,094,197
Revenue reserve 18 8,150,155 3,106,396
Capital reserve 18 (22,567,891) 41,265,327
Total Shareholders' equity 201,047,350 262,108,092
Net asset value per Ordinary share (pence) 19 88.52 115.40
The Financial Statements of Harmony Energy Income Trust Plc (registered number
13656587) were approved by the Board of Directors and signed on its behalf on
25 February 2025 by:
Norman Crighton
Chair
25 February 2025
The notes form an integral part of these Financial Statements.
Statement of Changes in Equity
For the year ended 31 October 2024
Capital Total
Share Share reduction Revenue Capital Shareholders'
capital premium reserve reserve reserve equity
Notes £ £ £ £ £ £
Balance at 31 October 2022 2,100,000 - 202,693,046 (63,003) 48,426,937 253,156,980
Transactions with owners:
Conversion of C Shares to Ordinary Shares 17 171,283 21,370,889 - - - 21,542,172
Dividends paid 20 - - (8,598,849) (7,128,849) - (15,727,698)
Total comprehensive income for the year:
Profit/(loss) for the year - - 10,298,248 (7,161,610) 3,136,638
Balance at 31 October 2023 2,271,283 21,370,889 194,094,197 3,106,396 41,265,327 262,108,092
Transactions with owners:
Dividends paid 20 - - (2,271,283) (2,271,283) - (4,542,566)
Total comprehensive income for the year:
Profit/(loss) for the year - - 7,315,042 (63,833,218) (56,518,176)
Balance at 31 October 2024 2,271,283 21,370,889 191,822,914 8,150,155 (22,567,891) 201,047,350
The notes form an integral part of these Financial Statements.
Statement of Cash Flows
For the year ended 31 October 2024
For the year ended For the year ended
31 October 2024 31 October 2023
Notes £ £
Cash flows from operating activities
(Loss)/profit for the year (56,518,176) 3,136,638
Adjustments for non-cash items:
Net loss on investments at fair value through profit and loss 10 63,833,218 7,161,610
Investment Income 6 (12,880,688) (11,582,996)
Investment income write off 6 4,335,532
Service fee income 6 (1,468,830) (1,837,458)
Operating cash flows before movements in working capital (2,698,944) (3,122,206)
Increase in trade and other receivables 11 (287,760) (1,233,122)
Decrease in trade and other payables 13 (89,650) (267,023)
Net cash outflow from operating activities (3,076,353) (4,622,351)
Cash flows used in investing activities
Loan to shareholder discharged - 1,443,506
Loan advanced to subsidiary 10 (6,263,212) -
Purchase of Investments 10 - (101,223,411)
Proceeds from sale of investment 10 - 13,651,707
Net cash outflow from investing activities (6,263,212) (86,128,198)
Cash flows used in financing activities
Dividends paid 20 (4,542,566) (15,727,698)
Net cash outflow from financing activities (4,542,566) (15,727,698)
Net decrease in cash and cash equivalents for the year (13,882,130) (106,478,247)
Cash and cash equivalents at the beginning of the year 18,093,379 124,571,626
Cash and cash equivalents at the end of the year 12 4,211,249 18,093,379
The notes form an integral part of these Financial Statements.
Notes to the Financial Statements
For the year from 1 November 2023 to 31 October 2024
1. GENERAL INFORMATION
Harmony Energy Income Trust Plc, (the "Company") was incorporated as a public
company, limited by shares, in England and Wales on 1 October 2021 with
registered number 13656587. The registered office of the Company is The
Scalpel 18th Floor, 52 Lime Street, London, England EC3M 7AF. Its share
capital is denominated in British Pounds Sterling (£) and currently consists
of Ordinary Shares. The Company's principal activity is to invest in
commercial scale battery energy storage and renewable energy generation
projects, with an initial focus on a portfolio of utility scale battery energy
storage systems ("BESS"), located in diverse locations across Great Britain.
2. BASIS OF PREPARATION
The audited Annual Report and Financial Statements have been prepared in
accordance with UK-adopted international accounting standards and in
conformity with the requirements of the Companies Act 2006 and also considers
the Statement of Recommended Practice ("SORP") "Financial Statements of
Investment Trust Companies and Venture Capital Trusts", updated by the AIC in
July 2022. The principal accounting policies are set out in Note 4.
In terms of the AIC SORP, the Company presents a Statement of Comprehensive
Income, which shows amounts split between balances which are revenue and
capital in nature. The determination of the revenue or capital nature of a
transaction is determined by giving consideration to the underlying elements
of the transaction. Capital transactions are considered to be those arising as
a result of the appreciation or depreciation in the value of assets due to the
fair value movements on investments held at fair value through profit and loss
as well as any gains or losses occurred on the sale of investments. Revenue
transactions are all transactions, other than those which have been identified
as capital in nature.
The Company is an investment entity in accordance with IFRS 10 'Consolidated
Financial Statements' which holds all its subsidiaries at fair value and
therefore only prepares separate accounts. The Financial Statements are also
prepared on the assumption that approval as an investment trust will continue
to be granted.
The Directors considered the impact of climate change on the investments
included in the Company's Financial Statements and have assessed that it does
not materially impact the estimates and assumptions used in determining the
fair value of the investments.
FUNCTIONAL AND PRESENTATION CURRENCY
The currency of the primary economic environment in which the Company operates
(the functional currency) is British Pounds Sterling (£) which is also the
presentation currency.
GOING CONCERN
A fundamental principle of the preparation of financial statements in
accordance with UK-adopted international accounting standards is the judgement
that an entity will continue in existence as a going concern for a period of
at least 12 months from signing of the Annual Report, which contemplates
continuity of operations and the realisation of assets and settlement of
liabilities occurring in the ordinary course of business.
In reaching its conclusion, the Board has considered the risks that could
impact the Company's liquidity over the period for at least 12 months from the
approval of the Annual Report (the "Going Concern Period").
As at 31 October 2024, the Company and its subsidiaries had net current assets
of £10.9 million which was sufficient to meet commitments made under
construction contracts signed by subsidiaries.
The Company is a guarantor to its wholly owned subsidiary HEIT Holdings Ltd in
respect of the debt facilities and also provides parent company guarantees to
subsidiaries in relation to certain construction and/or battery supply
contracts. As at the date of publication the aggregate outstanding value of
such guarantees is £5.9 million.
As previously announced, the Company remains in advanced negotiations in
relation to the sale of the entire Portfolio. Should negotiations conclude
successfully, the transaction would require an amendment to the Company's
investment policy and the agreement of Shareholders and would therefore be
subject to a Shareholder vote. The Directors have taken into account the
probability of negotiations concluding successfully and the probability of a
subsequent Shareholder vote passing, which may result in a subsequent members'
voluntary liquidation, in making their assessment.
The Company's prospectus at the time of IPO commits the Directors to put
forward a continuation vote at the subsequent annual general meeting of the
Company if NAV of the Company is below £250 million at the end of 2024. The
NAV of the Company was below £250 million at the end of 2024, and whilst it
is possible that the Shareholder vote in relation to the proposed asset sale
transaction would remove the requirement for a continuation vote, the
possibility, and the probability of a continuation vote passing have also been
taken into account by the Directors in making their assessment.
The Directors are aware and understand that the Company's revenues can be
volatile and therefore have reviewed the results of financial models analysing
the expected position of the Company under a prudent scenario as well as a
reasonably possible worst case scenario. Both scenarios take into account the
availability of cash reserves and receivables during the Going Concern Period.
The prudent scenario assumes that the revenue performance of the Company's
operating projects is in line with third-party forecasts of revenue. In
previous assessments, the IA had based the prudent scenario on a reduction to
third-party revenue forecasts, however as noted in the description of NAV
movements, these forecasts have been reduced significantly over the past year
and are now deemed a prudent forecast for the coming year.
In addition, the Directors have considered a reasonably possible worst
scenario which assumes non-contracted revenue earned by underlying investee
companies is c.38% lower than in the prudent scenario.
Under both scenarios the financial model shows that sufficient cash is
expected to be available to meet the Company's obligations and commitments
(including but not limited to construction contracts, working capital
requirements and debt service).
Having considered the results of the modelled scenarios, the Directors have a
reasonable expectation that the Company is able to manage cash flow and meet
its working capital and debt service commitments via a combination of
operating revenues, and/or contracted revenue products over the Going Concern
Period, and are working with the Investment Adviser to assess the optimal
combination of such options so as to ensure that the Company can maximise
returns to Shareholders. The Company also has the option of selling an
asset(s) if it wishes to do so. The Directors are confident that key risks
have been considered in this assessment.
The Directors have concluded that the Company's available funding and expected
income are sufficient for the Company to continue its operations for at least
12 months from the date of signing these financial statements and therefore
believe it remains appropriate to prepare the financial statements on a going
concern basis. However, when taking into account the probability of a
Shareholder vote passing in favour of the proposed asset sale and subsequent
members' voluntary liquidation, the Directors note that this represents a
material uncertainty that may cast significant doubt on the Company's ability
to continue as a going concern during the Going Concern Period. The financial
statements do not include any adjustments that would result from the basis of
preparation being inappropriate.
3. NEW AND REVISED STANDARDS AND INTERPRETATIONS
NEW AND REVISED STANDARDS AND INTERPRETATIONS
The below amendments came into force during the year. None of these had a
material impact on these financial statements.
· IAS 1 (amended) - Amendment to IAS 1 - Non-Current liabilities
with covenants - effective from 1 January 2024
NEW AND REVISED IFRS IN ISSUE BUT NOT YET EFFECTIVE
The following standards have been issued but are not effective for this
accounting year and have not been adopted early:
· IFRS 18 - Presentation and Disclosures in Financial Statements -
effective from 1 January 2027
· IAS 8 (amended) - Amendment to IAS 7 and IFRS 7 - Supplier
finance - effective from 1 January 2024
Adoption of the new and revised standards and relevant interpretations in
future periods is not expected to have a material impact on the Financial
Statement of the Company.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unless detailed below, the accounting policies used in the preparation of the
Financial Statements have been consistently applied during the year ended 31
October 2024.
The principal accounting policies applied in the preparation of the Financial
Statements are set out below.
SEGMENTAL INFORMATION
The Board is of the opinion that the Group is engaged in a single segment
business, being the investment in energy storage and complementary renewable
energy generation assets, with an initial focus in a diversified portfolio of
utility scale BESS assets, located in diverse locations across Great Britain.
INCOME
Income comprises Investment income and Service fee income. Investment income
arising from fair value gains pertaining to interest on the portfolio assets
loan investments is recognised in the Revenue account of the Statement of
Comprehensive Income. The remaining fair value gains and losses are disclosed
in net gain on investments at fair value through profit and loss and recorded
in the Capital account. Service fee income is recognised on an accruals basis
from fees charged to each portfolio company regarding the Company's resources
used for project related matters. The Service fee income is recognised in the
Revenue account of the Statement of Comprehensive Income.
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 and charged to the
Statement of Comprehensive Income. Expenses are charged through the Revenue
account except those which are capital in nature, these include those which
are incidental to the acquisition, disposal or enhancement of an investment,
which are accounted for through the Capital account. In terms of the AIC SORP
the Company applies the general accounting basis and charges the full
Investment Adviser fees to revenue ("the non-allocation approach"). Costs
directly relating to the issue of Ordinary Shares are charged to share
premium.
TAXATION
The Company is approved as an Investment Trust Company ("ITC") under sections
1158 and 1159 of the Corporation Taxes Act 2010 and Part 2 Chapter 1 of
Statutory Instrument 2011/2999 for accounting periods commencing on or after
25 May 2018. The approval is subject to the Company continuing to meet the
eligibility conditions of the Corporations Tax Act 2010 and the Statutory
Instrument 2011/29 99. The Company intends to ensure that it complies with the
ITC regulations on an ongoing basis and regularly monitors the conditions
required to maintain ITC status.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise cash at bank.
TRADE AND OTHER RECEIVABLES
Trade and other receivables are recognised initially at fair value and
subsequently stated at amortised cost less loss allowance which is determined
using the simplified approach to measuring expected credit losses, the effect
of which is considered immaterial.
TRADE AND OTHER PAYABLES
Trade and other payables are recognised initially at fair value and
subsequently stated at amortised cost.
EQUITY
Equity instruments issued by the Company are recorded as the amount of the
proceeds received, net of directly attributable issue costs. Costs not
directly attributable to the issue are immediately expensed in the Statement
of Comprehensive Income.
FINANCIAL INSTRUMENTS
In accordance with IFRS 9, the Company classifies its financial assets and
financial liabilities at initial recognition into the categories of amortised
cost or fair value through profit or loss. Derivative instruments are measured
at fair value through profit and loss.
FINANCIAL ASSETS
The Company's financial assets, other than cash and cash equivalents and trade
and other receivables, are measured at fair value through profit or loss as
they are held in the business model whose performance is evaluated and
assessed on a fair value basis.
FINANCIAL LIABILITIES MEASURED AT AMORTISED COST
The Company classifies all financial liabilities as financial liabilities at
amortised cost.
RECOGNITION AND DERECOGNITION
Financial assets are recognised on trade date, the date on which the Company
commits to purchase or sell an asset. A financial asset is derecognised where
the rights to receive cash flows from the asset have expired, or the Company
has transferred its rights to receive cash flows from the asset. The Company
derecognises a financial liability when the obligation under the liability is
discharged, cancelled or expired.
IMPAIRMENT OF FINANCIAL ASSETS
The Company holds trade receivables with no financing component and which have
maturities of less than 12 months at amortised cost and, as such has chosen
to apply the simplified approach to measuring expected credit losses,
as permitted by IFRS 9, which uses a lifetime expected loss allowance for all
trade receivables.
DIVIDENDS PAYABLE
Dividends are recognised when they become legally payable, as a reduction in
equity in the Financial Statements. Interim equity dividends are recognised
when paid. Dividends on the shares are paid in the form of interim dividends.
5. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
The preparation of the Financial Statements requires management to make
judgements, estimates and assumptions that affect the application of
accounting policies and the reported amount of assets, liabilities, income and
expenses. Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to the accounting estimates are recognised in the year in
which the estimates are revised and in any future periods affected.
During the year the Directors considered the following significant judgements,
estimates and assumptions:
SIGNIFICANT JUDGEMENT
Assessment as an Investment Entity
Entities that meet the definition of an investment entity within IFRS 10 are
required to measure their subsidiaries at fair value through profit or loss
rather than consolidate them unless their main purpose and activities are
providing services related to the Company's investment activities. To
determine that the Company continues to meet the definition of an investment
entity, the Company is required to satisfy the following three criteria:
a) the Company obtains funds from one or more investors for the purpose of
providing those investors with investment management services;
b) the Company commits to its investors that its business purpose is to
invest funds solely for returns from capital appreciation, investment income,
or both; and
c) the Company measures and evaluates the performance of substantially all
of its investments on a fair value basis.
The Company meets the criteria as follows:
· the Company's investment objective is to provide investors with
an attractive and sustainable level of income returns, with the potential for
capital growth, by investing in commercial scale energy storage and renewable
energy generation projects, with an initial focus on a diversified portfolio
of BESS projects located in Great Britain ("Projects");
· the Company provides investment management services and has
several investors who pool their funds to gain access to infrastructure
related investment opportunities that they might not have had access to
individually; and
· the Company has elected to measure and evaluate the performance
of all of its investments on a fair value basis. The fair value method is used
to represent the Company's performance in its communication to the market,
including investor presentations. In addition, the Company reports fair value
information internally to Directors, who use fair value as the primary
measurement attribute to evaluate performance.
In respect of the second criterion, Projects may also be disposed of, or
otherwise realised, where the AIFM recommends (acting upon advice given by the
Investment Adviser) that such realisation is in the interests of the Company.
Such circumstances may include (without limitation) disposals for the purposes
of realising or preserving value, or of realising cash resources for
reinvestment or otherwise. The Directors are responsible for the determination
of the Company's investment policy and strategy and have overall
responsibility for the Company's activities including the review of investment
activity and performance. The Board will also make the decision to acquire or
dispose of Projects, based on recommendations made by the AIFM acting upon
advice given by the Investment Adviser.
A further indicator of whether a Company is an investment entity is the
expectation they hold more than one asset. The Company holds one investment
directly but several indirectly, as there is a portfolio of assets within HEIT
Holdings Ltd.
The Directors have evaluated whether the Company is an investment entity and
concluded that it meets the definition set out in IFRS 10. Therefore, its
subsidiaries are measured at fair value through profit or loss, in accordance
with IFRS 9 'Financial Instruments'.
ASSESSMENT OF HEIT HOLDINGS LTD AS AN INVESTMENT ENTITY
HEIT Holdings Ltd is not consolidated as the company is also considered to be
an investment entity (see Note 10). The board of directors of HEIT Holdings
Ltd has considered the requirements of IFRS 10 as shown above and confirmed
that HEIT Holdings Ltd meets these criteria.
SIGNIFICANT ESTIMATION UNCERTAINTY
Valuation of Investments
Significant estimates in the Company's Financial Statements include the
amounts recorded for the fair value of the investments in the subsidiary of
the Company, HEIT Holdings Ltd. These estimates and assumptions are subject to
measurement uncertainty by their nature. The impact on the Company's Financial
Statements of changes in the next financial year may be significant. These
estimates and sensitivities are further discussed in note 16.
6. INCOME
31 October 2024 31 October 2023
£ £
Service fee income 1,468,830 1,837,458
Investment Income 12,880,688 11,582,996
Bank interest income 389 340,939
Investment income write off (4,335,532) -
Interest income on loan to shareholder - 12,739
10,014,375 13,774,132
Refer to note 10 for further detail on interest on loan to subsidiary
recognised in Investment income and the Investment income write off.
7. ADMINISTRATIVE AND OTHER EXPENSES
31 October 2024 31 October 2023
£ £
Administrative fees 107,204 57,300
AIFM fees 67,434 67,424
Director and officer insurance 30,196 40,725
Directors' fees 237,038 225,750
Fees payable to the auditor for the audit of the Company's Financial 222,550 184,000
Statements
Legal and professional fees 609,715 519,464
Investment adviser fees 1,093,542 2,163,222
Secretarial fees 56,250 82,097
Sundry expenses 275,404 135,902
2,699,333 3,475,884
The Company has no employees and therefore no employee related costs have been
incurred.
The audit fees for the Company's Financial Statements for the 2024 financial
year totalled to £190,550 (2023: £184,000) as shown in note in 13. During
the year, £32,000 relates to the 2023 financial year audit fees. No non-audit
fees were paid to the auditors.
During the year the year the audit fees relating to the statutory audits of
HEIT Holdings Ltd and its subsidiaries totalled £74,907 (2023: £64,675).
ADMINISTRATIVE AND SECRETARIAL FEES
JTC (UK) Limited has been appointed to act as administrator and secretary for
the Company through the Administration and Company Secretarial Agreement with
effect from 14 October 2021. JTC (UK) Limited is entitled to a minimum fee of
£48,000 per annum for accounting and administration services to the Company
as well as a minimum fee of £45,000 per annum for the provision of Governance
and Company Secretarial services.
During the year, fees incurred with JTC (UK) Limited amounted to £163,454
(2023: £139,397) and £5,007 (2023: £28,000) remained payable as at 31
October 2024.
AIFM
JTC Global AIFM Solutions Limited has been appointed to act as the AIFM for
the Company through the AIFM Agreement with effect from 14 October 2021. The
AIFM is entitled to charge an annual rate of 0.03% of the Company's equity
raised subject to a minimum annual fee of £30,000.
During the year, fees incurred with the AIFM amounted to £67,434 (2023:
£67,434) and £5,620 (2023: £5,620) remained payable as at 31 October 2024.
INVESTMENT ADVISER
Investment Adviser fees are payable monthly in arrears. Details on how the
fees are charged are disclosed in note 21.
8. TAXATION
The Company is recognised as an Investment Trust Company ("ITC") for
accounting years beginning on or after 1 October 2021 and is taxed at the
main rate of 19% until 31 March 2023 and then at 25% until 31 October 2024. An
ITC may claim a tax deduction for the distribution of income that arises from
interest receipts on the loan notes. Therefore, no corporation tax charge has
been recognised for the Company for the year ended 31 October 2024.
31 October 31 October
Revenue Capital 2024 Revenue Capital 2023
£ £ £ £ £ £
a) Tax charge in profit or loss UK corporation tax - - - - - -
b) Reconciliation of the tax charge for the year
Profit before tax 7,315,042 (63,833,218) (56,518,176) 10,298,248 (7,161,610) 3,136,638
Tax at UK main rate of 25% (2023: 22.52%) 1,828,761 (15,958,305) (14,129,544) (2,318,940) (1,612,638) 706,302
Tax effect of:
Non-taxable investment gains on investments - 15,958,305 15,958,305 - 1,612,638 1,612,638
Non-deductible expenses 1,084,656 - 1,084,656 56,343 - 56,343
Tax deductible interest distributions paid (1,290,639) - (1,290,639) (2,476,959) - (2,476,959)
Group relief claimed (1,590,893) - (1,590,893) - - -
Movement in deferred tax not recognised (31,884) - (31,884) 101,676 101,676
Tax charge for the year - - - - - -
FACTORS THAT AFFECT FUTURE TAX CHARGES
ITCs which have been approved by HM Revenue & Customs are exempt from UK
corporation tax on their capital gains. Due to the Company's status as an
approved ITC, and the intention to continue meeting the conditions required to
maintain that approval for the foreseeable future, the Company has not
provided for deferred tax in respect of any gains or losses arising on the
revaluation of its investments. Taxes are based on the UK Corporate tax rates
which existed as of the balance sheet date which was 25%.
As at 31 October 2024, the Company had not provided deferred tax assets or
liabilities. At that date, based on current estimates and including the
accumulation of net allowable losses, the Company had unrelieved losses of
£Nil.
9. BASIC AND DILUTED EARNINGS PER SHARE
Earnings per share ("EPS") amounts are calculated by dividing the profit or
loss for the year attributable to ordinary equity holders of the Company by
the weighted average number of Ordinary Shares in issue during the year. As
there are no dilutive instruments outstanding, basic and diluted earnings per
share are identical.
Weighted Net loss
average attributable EPS
number of to Shareholders 31 October 2024
Ordinary Shares £ £
Ordinary Shares 227,128,295 (56,518,176) (0.25)
Weighted Net profit
average attributable to EPS
number of Shareholders 31 October 2023
Ordinary Shares £ £
Ordinary Shares 223,045,660 3,136,638 0.01
10. INVESTMENTS HELD AT FAIR VALUE
The Company held the following investments in subsidiary at 31 October 2024:
Subsidiary Place of business Percentage ownership Equity Loan Closing balance:
£ £ equity and loan
£
HEIT Holdings Ltd Grimbald Crag Court, 100% 122,638,125 72,126,744 194,764,869
Knaresborough
The Company held the following investments in subsidiary at 31 October 2023:
Subsidiary Place of business Percentage ownership Equity Loan Closing balance:
£ £ equity and loan
£
HEIT Holdings Ltd Grimbald Crag Court, 100% 84,185,808 155,839,973 240,025,781
Knaresborough
The Company meets the definition of an investment entity. Therefore, it does
not consolidate its subsidiaries but, rather, recognises them as investments
at fair value through profit or loss.
On 18 October 2024, the Company subscribed for 102,285,533 ordinary shares in
HEIT Holdings Ltd for an amount of £102,285,533, the consideration for which
was settled by reducing the value of its loan to HEIT Holdings Ltd by the same
amount. Interest from the investment in subsidiary loan incurred amounted to
£12,880,683, and £4,335,532 was written off. During the year the Company
settled £3,763,939 of outstanding management fees due from HEIT Holdings Ltd
to the loan account and made cash loan advances of £6,263,211.
On 31 March 2023, the Company sold its investments in HEIT PW Limited, HEIT PW
2 Limited, HEIT BD Limited, HEIT FM Limited, HEIT RH Limited, HEIT LR Limited,
HEIT BF Limited to its subsidiary HEIT Holdings Ltd for a total consideration
of £91,105,212, which was the fair value of the projects at the date of
transfer. HEIT Holdings Ltd satisfied this transfer by issuing and allotting
91,105,212 ordinary shares of £1 each to the Company.
On 4 May 2023, the Company sold two further investments in HEIT HP Limited and
HEIT WG Limited to its subsidiary HEIT Holdings Ltd for a total consideration
of £8,893,079, which was the fair value of the projects at the date of
transfer. HEIT Holdings Ltd satisfied this transfer by issuing and allotting
8,893,079 ordinary shares of £1 each to the Company.
On 4 September 2023, the Company announced the sale of its investment Rye
Common project, Harmony RC Limited, to Pulse Clean Energy Limited at a premium
to its carrying value.
The table below summarises the movement of investments held at fair value for
the year ended 31 October 2024:
31 October 2024 31 October 2023
£ £
Opening balance 240,025,781 141,032,691
Investments purchased during the year - 21,936,818
Investment in equity of HEIT Holdings Ltd 102,285,533 99,998,291
Loans advanced during the year 10,027,150 86,286,593
Loan converted to equity (102,285,533) -
Interest on loans 12,880,688 11,582,996
Loan interest written off (4,335,532) -
Sale of equity of subsidiaries to HEIT Holdings Ltd - (99,998,291)
Sale of Harmony RC Limited - (13,651,707)
Net loss on investments held at fair value through profit or loss (63,833,218) (7,161,610)
Closing balance 194,764,869 240,025,781
INVESTMENT HELD IN HEIT HOLDINGS LTD
The Company owns 100% of the ordinary share capital of HEIT Holdings Ltd which
holds investments in the following underlying subsidiaries. The Company has
several indirectly held subsidiaries held by HEIT Holdings Ltd. The investment
totalling £194,764,868 (31 October 2023: £240,025,781) in HEIT Holdings Ltd
comprises of the underlying investments in the following subsidiaries. The
fair value measurements and sensitivities used to measure these investments
are disclosed in note 16.
Underlying Subsidiaries Project Place of business Percentage Fair value Fair value
ownership 31 October 31 October
2024 2023
£ £
HEIT PW Limited Pillswood 1 Grimbald Crag Court, 100% 38,708,062 48,918,397
Knaresborough
HEIT PW2 Limited Pillswood 2 Grimbald Crag Court, 100% 38,025,163 49,012,689
Knaresborough
HEIT BD Limited Broadditch Grimbald Crag Court, 100% 10,334,834 11,516,954
Knaresborough
HEIT FM Limited Farnham Grimbald Crag Court, 100% 19,108,999 20,578,103
Knaresborough
HEIT RH Limited Rusholme Grimbald Crag Court, 100% 27,770,369 27,130,822
Knaresborough
HEIT LR Limited Little Raith Grimbald Crag Court, 100% 41,860,051 42,789,696
Knaresborough
HEIT BF Limited Bumpers Grimbald Crag Court, 100% 90,935,939 87,028,196
Knaresborough
HEIT HP Limited Hawthorn Grimbald Crag Court, 100% 33,748,519 27,508,395
Knaresborough
HEIT WG Limited Wormald Green Grimbald Crag Court, 100% 20,300,944 17,402,843
Knaresborough
Total fair value of projects 320,792,880 331,886,095
Working capital 3,971,988 3,196,508
Senior loan facility (130,000,000) (95,056,822)
Total investment 194,764,868 240,025,781
As at 31 October 2024 ("Valuation Date"), the Company's subsidiary HEIT
Holdings Ltd had live investments in the following nine BESS projects in the
UK - Pillswood 1, Pillswood 2, Broadditch, Farnham, Rusholme, Little Raith,
Bumpers, Wormald Green and Hawthorn Pit. These projects, taken together, have
a combined rated power capacity of 395.4 MW and an energy storage capacity of
c.790.8 MWh.
Wormald Green (66 MWh / 33 MW) and Hawthorn Pit (99.8 MWh / 49.9 MW) were
successfully energised during the Period and have commenced trading, taking
the Company's total operational capacity to 790.8 MWh / 395.4 MW (100% of the
portfolio). Revenue for these projects is recognised from November 2024
onwards.
Two of these providers focus on long-term fundamental-based forecasts whereas
one is focused on shorter-term battery specific performance.
The projects attract four different streams of revenues: trading revenue
(wholesale, Balancing Mechanism and churn), Ancillary Services (Frequency
Response Revenue, Dynamic Containment and Dynamic Regulation), CM revenue and
embedded benefits (via the Embedded Export Tariff).
11. TRADE AND OTHER RECEIVABLES
31 October 2024 31 October 2023
£ £
Prepayments 72,210 48,486
VAT receivable 1,493,988 1,367,690
Intercompany loans receivable 820,131 748,668
Amounts due from related parties 56,520 2,247,402
Other receivables 2,074 40,027
2,444,923 4,452,273
12. CASH AND CASH EQUIVALENTS
31 October 2024 31 October 2023
£ £
Cash at bank 4,211,249 18,093,379
4,211,249 18,093,379
13. TRADE AND OTHER PAYABLES
31 October 2024 31 October 2023
£ £
Trade creditors and operating accruals 85,504 101,599
Administrator fees 5,007 28,000
AIFM fees 5,620 5,621
Audit fees 190,550 184,000
Investment adviser fee accrual 87,010 144,121
373,691 463,341
14. CATEGORIES OF FINANCIAL INSTRUMENTS
31 October 2024 31 October 2023
£ £
Financial assets
Financial assets at fair value through profit and loss:
Investments 194,764,868 240,025,781
Financial assets at amortised cost:
Trade and other receivables 2,444,923 4,452,273
Cash and cash Equivalents 4,211,249 18,093,379
Total financial assets 201,421,040 262,571,433
Financial liabilities
Financial liabilities at amortised cost:
Trade and other payables 373,691 463,341
Total financial liabilities 373,691 463,341
At the balance sheet date, all financial assets and liabilities were measured
at amortised cost except for the investment in subsidiary which is measured at
fair value as further explained in note 16. The carrying amount for the
financial assets and liabilities measured at amortised costs approximates fair
value.
15. FINANCIAL RISK MANAGEMENT
The Company is exposed to certain risks through the ordinary course of
business and the Company's financial risk management objective is to minimise
the effect of these risks. The management of risks is performed by the
Directors of the Company and the exposure to each financial risk considered
potentially material to the Company, how it arises and the policy for managing
it is summarised below:
CREDIT RISK
The Company is exposed to third-party credit risk in several instances and the
possibility that counterparties with which the Company and its subsidiaries,
together the "Group", contracts may fail to perform their obligations in the
manner anticipated by the Group.
Counterparty credit risk exposure limits are determined based on the credit
rating of the counterparty. Counterparties are assessed and monitored on the
basis of their ratings from Standard & Poor's and/or Moody's. No financial
transactions are permitted with counterparties with a credit rating of less
than BBB- from Standard & Poor's or Baa3 from Moody's unless specifically
approved by the Board. Cash and bank deposits are held with major
international financial institutions who each hold a Moody's credit rating of
A2 or higher.
Cash and other assets that are required to be held in custody will be held at
a bank. In the event of the insolvency of the bank, the Company will rank as a
general creditor in relation thereto and may not be able to recover such cash
in full, or at all.
In addition, credit risk relating to receivables at subsidiary level is
managed by diversifying exposures among a portfolio of counterparties and
through the setting and monitoring of credit limits.
The Company's only financial liabilities are trade and other payables. The
Company intends to hold sufficient cash across the Company and subsidiaries'
operating accounts to meet the working capital needs.
CURRENCY RISK
The Company is not exposed to currency risk as all its assets, liabilities and
transactions during the current year were denominated in British Pound
Sterling.
LIQUIDITY RISK
The objective of liquidity management is to ensure that all commitments which
are required to be funded can be met out of readily available and secure
sources of funding. The Company's only financial liabilities are trade and
other payables.
The Company intends to hold sufficient cash across the Company and
subsidiaries' operating accounts to meet the working capital needs.
As at 31 October 2024, the Company held cash at bank of £4,211,249 (2023:
£18,093,379) and had trade and other payables totalling £373,691 (2023:
£463,341). The following table reflects the maturity analysis of financial
assets and liabilities.
Although the Company has no direct external debt, it has indirect external
debt through its subsidiary as described in note 2 under Going Concern and in
the interest rate risk note. The Board and Investment Adviser review the
projected cash flow for the group on a regular basis to ensure that there is
sufficient cash flow to cover the debt and interest repayments of the external
debt as they fall due.
<1 year 1 to 2 years 2 to 5 years >5 years Total
As at 31 October 2024 £ £ £ £ £
Financial assets
Financial assets at fair value through profit and loss:
Loan investment to subsidiary - - - 72,126,744 72,126,744
Financial assets at amortised cost:
Trade and other receivables 2,444,923 - - - 2,444,923
Cash at bank 4,211,249 - - - 4,211,249
Total financial assets 6,656,172 - - 72,126,744 78,782,916
<1 year 1 to 2 years 2 to 5 years >5 years Total
As at 31 October 2024 £ £ £ £ £
Financial liabilities
Financial liabilities at amortised cost:
Trade and other payables 373,691 - - - 373,691
Total financial liabilities 373,691 - - - 373,691
<1 year 1 to 2 years 2 to 5 years >5 years Total
As at 31 October 2023 £ £ £ £ £
Financial assets
Financial assets at fair value through profit and loss:
Loan investment to subsidiary - - - 155,839,973 155,839,973
Financial assets at amortised cost:
Cash at bank 18,093,379 - - - 18,093,379
Total financial assets 18,093,379 - - 155,839,973 173,933,352
<1 year 1 to 2 years 2 to 5 years >5 years Total
As at 31 October 2023 £ £ £ £ £
Financial liabilities
Financial liabilities at amortised cost:
Trade and other payables 463,341 - - - 463,341
Total financial liabilities 463,341 - - - 463,341
* Includes the interest on loans advanced and excludes the equity
portion of the investment.
MARKET RISK
Market risk is the risk that the fair value or cash flows of a financial
instrument will fluctuate due to changes in market prices. Market risk
reflects: (i) other price risks, and (ii) interest rate risk. The objective is
to minimise market risk through managing and controlling these risks to
acceptable parameters, while optimising returns. The Company uses financial
instruments in the ordinary course of business in order to manage market
risks. Further commentary on financial and market risks is provided in the
Principal Risks and Uncertainties section, including inflation.
(i) PRICE RISK
The Company's investments are susceptible to market price risk arising from
uncertainties about future values of its portfolio assets. The Company's
Investment Adviser provides the Company with investment recommendations. The
Company relies on market knowledge of the Investment Adviser, the valuation
expertise of the third-party valuer and the use of third-party market forecast
information to provide comfort with regard to fair market values of
investments reflected in the Financial Statements.
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 October 2024,
if the valuation of investments had been 10% higher with all other variables
held constant, the increase in net assets attributable to Shareholders for the
year would have been £19,475,427 (2023: £24,002,578) higher, arising due to
the increase in the fair value of financial instruments. A 10% decrease would
have the equal and opposite effect.
The impact of changes in unobservable inputs to the underlying investments is
considered in note 16.
(ii) INTEREST RATE RISK
Interest rate risk arises from the possibility that changes in interest rates
will affect future cash flows or the fair values of financial instruments.
The Company is exposed to interest rate risk on its cash balances held with
counterparties, and through loans to related parties. As at 31 October 2024
the Company held no fixed bank deposits. The loan to its subsidiary is carried
at a fixed rate of interest. Therefore, the Company is not exposed to changes
in variable market rates of interest and has therefore not considered any
sensitivity to interest rates.
As described in the Going Concern note, the Company is guarantor to its wholly
owned subsidiary, HEIT Holdings Ltd in respect of the long-term facility of
£130m.
HEIT Holdings Ltd uses interest rate swaps to mitigate the interest rate risk
on its external borrowings. At the beginning of the Reporting Period, HEIT
Holdings Ltd benefitted from an interest rate cap at a rate of 5.25%. HEIT
Holdings Ltd terminated its interest rate cap in February 2024 (receiving a
payment of £0.5 million) and replaced it with an interest rate swap for the
SONIA element of the loan. The new interest rate swap (the "Swap") fixes the
SONIA element of the loan at a rate of 4.101% per annum.
As at 31 October 2024, the swap in place in HEIT Holdings Ltd was fair valued
as a liability of £413,349.
The interest rate cap previously held of 5.25% was put in place in relation to
the variable SONIA element of the increased facility, at a cost of £2.8
million.
The Company does not have any borrowings as at 31 October 2024 however the
Company has access to a long-term facility through its subsidiary HEIT
Holdings Ltd. As at 31 October 2024 HEIT Holdings Ltd had successfully
negotiated an amendment and restatement of its debt facilities with NatWest
and Rabobank. The term loan and revolving credit facility have been
consolidated into a single long-term facility with a facility size of
£130,000,000, an extension of the legal maturity date from June 2027 to
February 2031 and a reduction in margin to 275bps over SONIA for the first two
years, rising over time to a maximum of 350bps in the final year. HEIT
Holdings Ltd had drawdowns of £34,943,178 on its long‑term facility during
the year.
As at 31 October 2023, HEIT Holdings Ltd had drawn £10,629,073 on its RCF and
£84,427,749 on its long-term facility. It was a five-year facility with an
initial margin of 300bps over SONIA, rising over time to a maximum of 375bps
by year 5.
At 31 October 2024, the Company is indirectly exposed to interest rate risk
through its investment in the subsidiary. The Company may be exposed to
changes in variable market rates of interest and this could impact the
discount rate and therefore the valuation of the projects that underpin the
value of its investment in subsidiary. The sensitivity of the valuation of the
investment projects due to discount rates is disclosed in note 16.
CAPITAL RISK MANAGEMENT
The capital structure of the Company at year end consists of equity
attributable to equity holders of the Company of £201,047,350 (2023:
£262,108,092), comprising issued capital and reserves. The Board continues to
monitor the balance of the overall capital structure so as to maintain
investor and market confidence. The Company is not subject to any external
capital requirements.
16. FAIR VALUE MEASUREMENT
FAIR VALUE MEASUREMENT AND HIERARCHY
Fair value is the price that would be received on the sale of an asset, or
paid to transfer a liability, in an orderly transaction between market
participants at the measurement date. If a fair value measurement uses
observable inputs that require significant adjustment based on unobservable
inputs or any other significant unobservable inputs, that measurement is a
Level 3 measurement.
The following table analyses within the fair value hierarchy the Company's
assets measured at fair value at 31 October 2024:
Level 1 Level 2 Level 3
£ £ £
Investment in subsidiary - - 194,764,868
The following table analyses within the fair value hierarchy the Company's
assets measured at fair value at 31 October 2023:
Level 1 Level 2 Level 3
£ £ £
Investment in subsidiary - - 240,025,781
The Company only invests in assets at fair value through profit or loss that
are Level 3 in the fair value hierarchy and the reconciliation in the movement
of this Level 3 investment is presented in note 10. No transfer between levels
took place during the year.
The Company's policy is to recognise transfers into and transfers out of fair
value hierarchy levels as of the date of the event or change in circumstances
that caused the transfer.
VALUATION METHODOLOGY
The fair value of the investment in HEIT Holdings Ltd represents its net
assets as determined by the Company's administrator (reviewed by the
Investment Adviser) and further presented by the Investment Adviser and
reviewed by the Company's Board of Directors.
The Investment Adviser's assessment of fair value of investments in the
underlying projects in HEIT Holdings Ltd is determined in accordance with the
International Private Equity and Venture Capital 2022 ("IPEV") Valuation
Guidelines, using levered and unlevered discounted cash flow principles.
The valuation of all the Company's subsidiary's investments is based primarily
on a DCF methodology, "Income Approach", which indicates value based on the
sum of the economic income that an asset, or group of assets, is anticipated
to produce in the future. Free cash flow to total invested capital is
typically the appropriate measure of economic income.
The method discounts free cash flows using an estimated discount rate Weighted
Average Cost of Capital ("WACC"). The selected discount rate is supported by
the benchmarking of discount rates for assets in the same, or analogous
sectors as the portfolio.
VALUATION PROCESS
Valuations are the responsibility of the Board of Directors. The Investment
Adviser is responsible for submitting fair market valuations of the Company's
assets to the Directors. The Directors review and approve these valuations
following appropriate challenge and examination. Valuations are carried out
quarterly, with Forvis Mazars acting as independent valuer providing a
valuation report semi-annually. The current portfolio consists of non-market
traded investments and valuations are based on a DCF methodology.
The Board, supported by the Audit and Risk Committee, reviews the operating
and financial assumptions, including the discount rates, used in the valuation
of the Company's underlying portfolio and approves them based on the
recommendation of the Investment Adviser.
The AIFM acts as an oversight function in order to ascertain whether the
valuation risk is being appropriately managed.
As at 31 October 2024, the fair values of all the investments held within the
portfolio of the Company's subsidiary HEIT Holdings Ltd, have been determined
by Mazars LLP (reviewed by the Investment Adviser) and further presented by
the Investment Adviser and reviewed by the Company's Board of Directors.
SENSITIVITY ANALYSIS
The following tables reflect the range of sensitivities in respect of the fair
value movements of the underlying projects held by HEIT Holdings Ltd. The
individual project valuations are disclosed in note 10.
The Directors consider the changes in inputs to be within a reasonable
expected range based on their understanding of market transactions. This is
not intended to imply that the likelihood of change or that possible changes
in value would be restricted to this range.
Investment Project Investment Valuation technique Significant Sensitivity 31 October 2024 Estimated effect on fair value £ 31 October 2023 Estimated effect on fair value £
fair value £
input
description
HEIT PW Limited Pillswood 1 38,708,062 DCF Discount rate +0.5% (1,659,098) (1,962,728)
-0.5% 1,783,978 2,116,324
Revenue +10% 4,320,222 5,061,300
-10% (4,500,514) (5,090,193)
HEIT PW2 Limited Pillswood 2 38,025,163 DCF Discount rate +0.5% (1,620,450) (1,918,210)
-0.5% 1,741,488 2,067,967
Revenue +10% 4,250,728 5,052,974
-10% (4,393,470) (5,096,376)
HEIT BD Limited Broadditch 10,334,834 DCF Discount rate +0.5% (433,936) (454,100)
-0.5% 466,655 488,989
Revenue +10% 1,088,471 1,135,280
-10% (1,107,223) (1,138,960)
HEIT FM Limited Farnham 19,108,999 DCF Discount rate +0.5% (818,743) (880,030)
-0.5% 881,149 947,875
Revenue +10% 2,094,519 2,136,741
-10% (2,061,817) (2,157,962)
HEIT RH Limited Rusholme 27,770,369 DCF Discount rate +0.5% (1,250,954) (1,356,277)
-0.5% 1,349,139 1,461,224
Revenue +10% 3,331,897 3,450,997
-10% (3,435,915) (3,503,648)
HEIT LR Limited Little Raith 41,860,051 DCF Discount rate +0.5% (1,745,884) (1,819,262)
-0.5% 1,877,039 1,957,919
Revenue +10% 4,745,004 4,941,061
-10% (4,825,519) (5,053,689)
HEIT BF Limited Bumpers 90,935,939 DCF Discount rate +0.5% (3,889,947) (4,010,981)
-0.5% 4,183,997 4,318,710
Revenue +10% 9,881,199 9,685,739
-10% (10,022,580) (9,930,227)
HEIT HP Limited Hawthorne Pit 33,748,519 DCF Discount rate +0.5% (1,630,106) (1,733,055)
-0.5% 11,756,926 1,870,705
Revenue +10% 4,606,023 4,708,722
-10% (4,720,732) (4,804,294)
HEIT WG Limited Wormald Green 20,300,944 DCF Discount rate +0.5% (1,010,267) (1,154,003)
-0.5% 1,090,394 1,246,378
Revenue +10% 3,168,375 3,170,805
-10% (3,168,516) (3,354,679)
PORTFOLIO SENSITIVITY
The below table reflects a range of sensitivities which the Directors consider
to have a significant impact on the portfolio of investments held by the
Company:
31 October 31 October
2024 2023
Estimated Estimated
effect on fair effect on fair
value value
Investment Sensitivity £ £
Inflation +0.5% 15,677,071 18,522,081
-0.5% (14,976,606) (18,269,983)
Construction Costs +15% - (9,880,088)
-15% - 11,205,647
Operating costs +15% (10,563,465) (9,251,227)
-15% 10,110,183 9,031,841
Cell replacement costs +15% (2,695,698) (2,769,237)
-15% 2,530,323 2,786,110
The capex sensitivity has been applied to projects which have not yet achieved
substantial completion. The proportionate change has been applied to the full
capex budget even though most works have now been completed and the scope for
increase is therefore limited. In the context of capex increase, this is
viewed as a highly conservative methodology, however it is consistent with
previously reported sensitivity results.
17. SHARE CAPITAL, SHARE PREMIUM AND CAPITAL REDUCTION RESERVE
Number of ordinary Share Share Capital reduction reserve Total
shares
capital
premium
£
£
£
£
As at 1 November 2023 227,128,295 2,271,283 21,370,889 194,094,197 217,736,369
Dividends paid - - - (2,271,283) (2,271,283)
As at 31 October 2024 227,128,295 2,271,283 21,370,889 191,822,914 215,465,086
Number of Share Share Capital reduction Total
ordinary
capital
premium
reserve
£
shares
£
£
£
As at 1 November 2022 210,000,000 2,100,000 - 202,693,046 204,793,046
Conversion of C Shares to Ordinary Shares 17,128,295 171,283 21,370,889 - 21,542,172
Dividends paid - - - (8,598,849) (8,598,849)
As at 31 October 2023 227,128,295 2,271,283 21,370,889 194,094,197 217,736,369
SHARE CAPITAL, SHARE PREMIUM ACCOUNT AND CAPITAL REDUCTION RESERVE
On 26 January 2023, the Company announced the conversion of its C Shares. The
total number of C Shares that was converted into new Ordinary Shares with
voting rights was 17,128,295. Immediately following admission, the total
number of the Ordinary Shares in issue was 227,128,295.
There were no changes to the share capital during the year ended 31 October
2024.
18. RESERVES
The nature and purpose of each of the reserves included within equity at 31
October 2024 are as follows:
· Share premium: represents the surplus of the gross proceeds of
share issues over the nominal value of the shares, net of the direct costs of
equity issues and net of conversion amount.
· Capital reduction reserve: represents a distributable reserve
created following a Court approved reduction in capital. This reserve is
distributable and may be used, where the Board considers it appropriate, by
the Company for the purpose of paying dividends to Shareholders.
· Revenue reserve: represents a distributable reserve of cumulative
net gains and losses recognised in the Revenue account of the Statement of
Comprehensive Income.
· Capital reserve: represents a non-distributable reserve of
cumulative net capital gains and losses recognised in the Statement of
Comprehensive Income.
The movements in these reserves during the year are disclosed in the statement
of changes in equity. The distributable reserves as at 31 October 2024 were
£199,967,619 (2023:£197,200,593).
19. NET ASSET VALUE PER SHARE
Basic Net Asset Value ("NAV") per share is calculated by dividing the
Company's net assets as shown in the statement of financial position that are
attributable to the ordinary equity holders of the Company by the number of
ordinary shares outstanding at the end of the year. As there are no dilutive
instruments outstanding, basic and diluted NAV per share are identical.
Shares in Assets Liabilities NAV Pence per
issue £ £ £ Share
Ordinary Shares at 31 October 2024 227,128,295 201,421,041 373,691 201,047,350 88.52
Ordinary Shares at 31 October 2023 227,128,295 262,571,433 463,341 262,108,092 115.40
20. DIVIDENDS
Dividend per Share is a measure to show the distributions made or declared to
shareholders during the year.
Dividend 31 October
per share
2024
Total
£
For the 3-month period ended 31 October 2023 (paid 22 December 2023) 2 pence 4,542,566
Total 4,542,566
Dividend 31 October
per share
2023
Total
£
For the 6-month period ended 31 October 2022 (paid December 2022) 1 pence 2,100,000
For the 3-month period ended 31 January 2023 (paid March 2023) 2 pence 4,542,566
For the 3-month period ended 30 April 2023 (paid June 2023) 2 pence 4,542,566
For the 3-month period ended 31 July 2023 (paid September 2023) 2 pence 4,542,566
Total 15,727,698
The distributions paid during the year were paid out of the capital reduction
reserve and revenue reserve.
On 30 November 2023, the Company declared a distribution of 2 pence per
Ordinary Share £4,542,566 in relation to the period 1 August 2023 to 31
October 2023 which was paid on or around 22 December 2023 to Shareholders on
the register as at the close of business on 7 December 2023. There were no
further dividends declared or paid for the financial year.
The table below sets out the final interim dividend, together with the interim
dividends paid, in respect of the financial year, which is the basis on which
the requirements of Section 1158 of the Corporation Tax Act 2010 are
considered.
31 October 31 October
2024
2023
£ £
Interim dividends paid 2024 (2023: 6 pence) - 13,627,698
Final interim dividend for 2024 (2023: 2 pence) - 4,542,566
- 18,170,264
21. TRANSACTIONS WITH RELATED PARTIES
The Company and the Directors are not aware of any person who, directly or
indirectly, jointly or severally, exercises or could exercise control over the
Company. The Company does not have an ultimate controlling party.
Details of related parties are set out below:
NON-EXECUTIVE DIRECTORS
Details of the fees paid to Directors in the year are set out in the
Directors' Report.
Total Directors' fees of £237,038 (2023: £225,750) were incurred in respect
of the year with none being outstanding and payable at the end of the year.
The cost for director and officer insurance for the year was £30,186 (2023:
£40,725).
SUBSIDIARIES
Included in note 11 are amounts receivable from HEIT Holdings Ltd and its
subsidiaries. These amounts are interest free and repayable on demand.
On 18 October 2024, the Company subscribed for 102,285,533 ordinary shares at
a nominal value of £1 per share, £102,285,533 from HEIT Holdings Ltd, which
was settled via the loan and waived £4,335,532 of interest receivable.
HEIT Holdings Ltd subscribed for 83,434,981 ordinary shares from its wholly
owned subsidiaries at the subscription price by the release of the
subsidiaries' liability and waived £32,895,965 interest receivable.
As described in the going concern note in note 2, the Company was a guarantor
to its wholly owned subsidiary, HEIT Holdings Ltd in respect of the £130
million debt facility. The Company also provides parent company guarantees to
subsidiaries in relation to certain construction and/or battery supply
contracts.
As at 31 October 2024, total committed funding to subsidiaries was £18
million.
INVESTMENT ADVISER
The Investment Adviser is entitled to advisory fees under the terms of an
investment advisory agreement dated 14 October 2021. The Company shall pay to
the Investment Adviser an annual fee (exclusive of value added tax, which
shall be added where applicable) payable monthly in arrears calculated at the
rate of:
a. one twelfth of 0.9% per calendar month of the lesser of the (i) NAV or
(ii) Average Market Capitalisation of the Company up to the threshold of
£250,000,000; and
b. one twelfth of 0.8% per calendar month of the lesser of the (i) NAV or
(ii) Average Market Capitalisation of the Company in excess of £250,000,000
An advisory fee of £1,093,542 (2023: £2,163,222) was incurred during the
year and £87,010 (2023: £144,121) remained payable as at 31 October 2024.
Harmony Energy Limited is the parent of the Investment Adviser and therefore
an entity with significant control over the Investment Adviser. Harmony Energy
Limited is also a significant shareholder of the Company. See transactions
with subsidiaries for further details.
OTHER RELATED PARTIES
James Ritchie-Bland is a director of Harmony Energy Limited as well as an
indirect shareholder of Harmony Energy Limited through Ritchie-Bland Energy
(Number 1) Limited. He is also a director of the Investment Adviser and a
shareholder in the Company.
Ritchie-Bland Energy (Number 2) Limited, of which James Ritchie-Bland is also
a director and an indirect shareholder (through Renewable Environmental
Investments Limited) is party to a joint venture agreement with Harmony Energy
Limited in regard to the three projects of the Company.
22. CAPITAL COMMITMENTS
As described in the going concern note in note 2, the Company is a guarantor
to its wholly owned subsidiary, HEIT Holdings Ltd in respect of the £130
million debt facility.
The Company also provides parent company guarantees to subsidiaries in
relation to certain construction and/or battery supply contracts. As at 31
October 2024, total committed funding to subsidiaries was £18.0 million.
Other than as reported above, the Company had no contingent liabilities and no
significant capital commitments at the reporting date.
23. POST BALANCE SHEET EVENTS
There were no events after the reporting date that require disclosure.
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