REG - NextEnergy Solar Fnd - Full Year Results for period ended 31 March 2023
19/06/2023 07:00
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RNS Number : 1169D NextEnergy Solar Fund Limited 19 June 2023
LEI: 213800ZPHCBDDSQH5447
19 June 2023
NextEnergy Solar Fund Limited
("NESF" or the "Company")
Full Year Results for period ended 31 March 2023
Portfolio continues to outperform, 11% dividend target increase
well placed to deliver shareholders attractive, inflation-protected income
NextEnergy Solar Fund, the specialist solar+ fund, is pleased to announce it
has today published its full year results as at 31 March 2023.
Financial Highlights:
Net Asset Value ("NAV") and Capital Position:
· NAV per ordinary share increased to 114.3p (31 March 2022, as
reported: 113.5p).
· Ordinary shareholders' NAV increased to £674.4m (31 March 2022,
as reported: £668.5m).
· Ordinary shareholder annualised total return for the year of 8.6%
(31 March 2022: 11%).
· Earnings per ordinary share of 8.2p (31 March 2022: 21.7p).
· Total gearing (including preference shares) of 45% (31 March 2022:
42%).
· Weighted average cost of capital of 5.7% (31 March 2022: 5.3%).
· Weighted average discount rate of 7.3% (31 March 2022: 6.3%).
Dividend:
· Total dividend of 7.52p per ordinary share declared for the
period (31 March 2022: 7.16p).
· Cash dividend cover for the period 1.4x (31 March 2023: 1.2x).
· 11% dividend target increase to 8.35p per ordinary share for the
financial year ending 31 March 2024.
· Forecasted target cash dividend cover of 1.3x-1.5x, of which
1x-1.1x is from fixed revenues for the financial year ending 31 March 2024.
· Total dividends declared since IPO of £305.8m or 55.72p per share.
Strategic Highlights:
· Announced NESF's Capital Recycling Programme, to deliver long-term
sustainable value to shareholders by committing to sell a 236MW subsidy-free
portfolio, the proceeds of which will be used to reduce gearing, provide
optionality on future higher yielding investment opportunities, and
potentially to buy back shares.
· Launched NESF's Energy Storage Strategy, setting out the compelling
rationale behind the Company's intention to raise its investment limit in
energy storage from 10% to 25% of Gross Asset Value.
· Formed Two Joint Venture Partnerships with Eelpower Limited, a
specialist in the battery sector, to advance the Company's position in the UK
energy storage sector, targeting a £300m pipeline of UK energy storage
opportunities.
· Announced a Retrofit Programme to add co-located battery storage
assets to the Company's existing solar assets.
ESG Highlights:
· Classified as an Article 9 Fund under the EU Sustainable Finance
Disclosure Regulation and EU Taxonomy Regulation.
· Powered an estimated 242,000 UK homes for the period (31 March
2022: 216,300).
· Generated 870GWh of clean electricity during the period,
contributing to the avoidance of 363,000 tonnes of CO(2)e emission (31 March
2022: 773GWh, 328,700 tonnes of CO(2)e)
· Released first standalone sustainability report, which highlights
NESF's contribution to biodiversity, climate change and ethical supply chains
through its operations.
· Released a biodiversity position statement that underpins the
biodiversity approach for the fund.
· Became forum members of the Taskforce on Nature-related Financial
Disclosures ("TNFD") to go above and beyond the Company's sustainability
reporting requirements, alongside commitment to disclose under the new TNFD
framework.
Portfolio Highlights:
· Total installed operating capacity of 889MW(1) (31 March 2022:
884MW).
· 99 operating solar assets (31 March 2022: 99).
· Portfolio generation outperformance of +3.8% (31 March 2022:
1.8%) against budget for twelve months ended 31 March 2023, translating into
additional revenues of c.£4.8m (31 March 2022: c.£2.0m).
· A $50m investment into a private solar infrastructure fund,
NextPower III ESG, targeting IRR's of between 13-15%. To date, NextPower III
ESG has acquired 1.8GW made up of 149 individual solar projects across the
USA, Chile, Portugal, Spain, Greece, Poland, and India. This investment
provided NESF with instant international solar exposure and unlocked unique
solar co-investment opportunities alongside some of the largest institutional
investors in the world.
· Two solar co-investments totalling 260MW alongside NextPower III
ESG, (a 13% stake into a 210MW solar asset in Portugal and a 25% stake into a
50MW solar asset in Spain).
· Initiated construction of the Company's first standalone 50MW
battery storage project, due to be energised this year.
· Acquired the development rights for a high-quality 250MW
lithium-ion battery storage project in the East of England.
· Remaining weighted average useful life of 26.3 years (31 March
2022: 27.3 years).
Footnote:
(1) Includes 6.21% share in private equity vehicle (NextPower III ESG).
As at 31 March 2023, share of NextPower III ESG increases total installed
capacity by 24MW (2022: 19MW) to 889MW (2022: 884MW).
Kevin Lyon, Chairman of NextEnergy Solar Fund Limited, commented:
"The twelve months to 31 March 2023 were a productive period as the Company
made strong
progress across various strategic initiatives announced during the year to
generate value and
provide future growth for investors.
It is a real testament to the Company's performance during the period that we
were able to announce an 11% dividend target increase to 8.35p per share,
which remains well covered as one of the largest dividend increases in the
peer group.
Looking forward, the Board and I were delighted to welcome Helen Mahy as a
Non-Executive Director and NESF Chair-elect, a vital component of succession
planning. As my last full year results for the Company before stepping down
from the Board, I would like to give personal thanks for the support from
colleagues and investors alike over the years, and I leave feeling extremely
proud of what NESF has achieved since IPO and of the bright future it has in
continuing to supply clean energy to the benefit of all our stakeholders."
Michael Bonte-Friedheim, CEO of NextEnergy Group said:
"The last twelve months has seen rising inflationary pressure, economic
uncertainly, and increased interest rates, and NESF was well positioned to
mitigate risks and capture elevated power prices during this period, whilst
providing vital low-cost of production power generation to the UK.
The Company announced key strategic initiatives during the year, such as the
capital recycling programme and the energy storage strategy, to capture value
and reposition the portfolio for the next stage of its evolution. This is
truly an exciting time for the Company as it prepares for its next wave of
growth and expansion into energy storage, and NextEnergy Capital, as the
Company's investment adviser and manager, has the right skillset and track
record to deliver this whilst adding value for NextEnergy Solar Fund
investors. NESF remains well placed to deliver shareholders an attractive,
inflation-protected income, and currently offers an attractive share price
entry point for investors."
Full Year Results Presentation
The Company will stream its full year results presentation this morning via
the London Stock Exchange Spark Live platform, where it is accessible to all
investors and analysts. The presentation will be followed by a Q&A
session, questions can also be submitted prior to the presentation via email
to ir@nextenergysolarfund.com. NextEnergy Capital will endeavour to answer
submitted questions during the Q&A session. If this is not possible due to
time constraints, the investment adviser will follow up separately after the
presentation.
The presentation will be hosted by:
· Michael Bonte-Friedheim (CEO and Founder of NextEnergy Group,
Investment Adviser)
· Ross Grier (COO and Head of UK Investments, Investment Adviser)
Presentation details and registration link:
· Time: 9:30am (BST)
· Date: Monday 19 June 2023
· Registration and Webcast link: NextEnergy Solar Fund Full Year
Results Presentation
(https://www.lsegissuerservices.com/spark/NextEnergySolarFundLtd/events/cd8b04de-116e-40ca-a2e0-454b2a2976c3)
A recording of the presentation will also be made available on the Company's
website shortly after the event.
Dividend Target
The Board of NESF has approved a dividend target of 8.35p per ordinary share
for the financial year ending 31 March 2024, representing an 11% increase from
the previous year's dividend of 7.52p per ordinary share. The dividend
target is forecasted to be 1.3x-1.5x covered, of which 1x-1.1x is from fixed
revenues, supported by the high degree of visibility of the Company's
revenues. The dividend target increase is not dependent on completion of the
Company's recently announced Capital Recycling Programme and dividend cover
forecasts do not assume revenues from, or sale proceeds connected with, the
Capital Recycling Programme.
Capital Recycling Strategy
The Company announced its Capital Recycling Programme (the "Programme") on 27
April 2023 to accelerate the next phase of the Company's growth. Through the
Programme, the Company aims to capture value from the divestment of a 236MW
portfolio of subsidy-free UK solar assets, the proceeds from which will be
used to:
· Reduce gearing: reduce current drawings of the Company's revolving
credit facilities ("RCF");
· Invest in future long-term growth opportunities: provide
flexibility to capture higher returning investment opportunities in the
future, such as energy storage; and
· Buyback shares: establish a share buyback programme in the future
if the share price continues to trade at a material discount to the Company's
net asset value per share.
To capture the significant value of these solar assets, NESF has initiated
this Programme to divest a portfolio of five subsidy-free assets (Hatherden,
Whitecross, Staughton, The Grange, and South Lowfield) and has launched a
sales process to find buyers for these assets, over the coming months. The
Programme is expected to deliver NAV accretive returns by realising the value
generated through these investments.
Breakdown of 236MW subsidy-free portfolio:
Subsidy-free solar asset Installed Capacity Status Location
Hatherden 50MW Ready-to-build Hampshire, UK
Whitecross 36MW Under construction Lincolnshire, UK
Staughton 50MW Operational Bedfordshire, UK
The Grange 50MW Operational Nottinghamshire, UK
South Lowfield 50MW Operational Yorkshire, UK
The Company will retain two operational subsidy-free assets and remains
committed to its remaining subsidy-free solar pipeline.
Energy Storage Strategy
On 22 February 2022, the Company announced its Energy Storage Strategy
providing details on how it will take advantage of energy storage
opportunities in the UK to complement and diversify the Company's existing
large portfolio of 99 solar assets. Energy storage is a complementary
technology to the existing large solar portfolio which provides access to
additional and diversified opportunities to derive value delivering attractive
returns. The market environment continues to be favourable for the Company
to increase its allocation to energy storage within the portfolio. The
Company is confident in its ability to successfully deliver energy storage and
continues to benefit from its investment adviser's experience and track record
in securing import capacity and in realising operational assets and unlocking
optionality in existing solar assets.
The Company actively engaged with investors around its ambition to increase
the Company's energy storage investment policy limit from 10% of Gross Asset
Value to 25%, where conversations remain positive and supportive. A further
update will be provided to the market over the coming months.
The Company continues to demonstrate its expansion into energy storage through
its strong relationship with Eelpower Limited ("Eelpower"), which has provided
the Company with access to leading expertise in the energy storage industry,
targeting £300m of energy storage investments through the Joint Venture
Partnerships.
Joint Venture Partnership breakdown:
Joint Venture Partnership 1 ("JVP1") Joint Venture Partnership 2 ("JVP2")
£100m £200m
Owned 70% by NESF and 30% by Eelpower Owned 75% by NESF and 25% by Eelpower
Energy storage assets:
Camilla: The Company's first 50MW battery storage project through JVP1, Project Lion: First acquisition as part of JVP2 secured for £32.5m. The
currently under construction in Fife, Scotland, and is expected to be project includes the development rights, permits, and initial grid milestones
energised and grid-connected shortly. for a 250MW portfolio of high-quality battery storage projects and grid
connections in the East of England.
Camilla was selected to provide battery storage capacity in the UK
Government's latest Capacity Market Auction. The contracts are expected to Once constructed, the project will provide vital grid balancing services.
deliver revenues of £557k over winter 2023 and £576k per annum over 2026 to Furthermore, the project will harness electricity at low import prices and
2032, adding to Camilla's existing Capacity Market contract for delivery in export electricity at times of low generation and high prices, benefiting from
winter 2025-26 worth £305k. excess generation from neighbouring offshore wind.
Net Asset Value
Twelve-month Net Asset Value bridge:
NAV p/share NAV
At 31 March 2022 (as originally announced) 113.5p £668.5m
NAV correction (1.3p) (7.6m)
At 31 March 2022 (as corrected) 112.2p £660.9m
Investment in new assets
New assets at cost 16.3p 96.2m
RCF drawdown (11.9p) (70.1m)
Utilisation of cash on hand to fund investment (4.4p) (26.1m)
Power price forecasts, net of Electricity Generator Levy impact 14.6p 86.1m
Ordinary share dividends paid (7.2p) (42.4m)
Discount rate increase (7.0p) (41.2m)
Change in short-term inflation 5.6p 33.4m
Strategic provisions (2.3p) (13.2m)
Residual movements including preference share dividends and fund operating (1.6p) (9.2m)
costs
At 31 March 2023 114.3p £674.4m
Inflation Linkage and Updates
The Company continues to take a consistent approach to its inflation
assumptions, using external third-party, independent inflation data from HM
Treasury Forecasts
(https://www.gov.uk/government/statistics/forecasts-for-the-uk-economy-march-2023)
and long-term implied rates
(https://www.bankofengland.co.uk/statistics/yield-curves) from the Bank of
England for its UK assets. For international assets, IMF forecasts are used.
Inflation Rate (UK RPI) Assumptions
Calendar Year 31 March 2023
2023/24 4.90%
2024/25 3.40%
2025/26 3.30%
2026/27 3.20%
2027/28 3.70%
2028/29 -2029/30 3.00%
2030/31 onwards 2.25%
Discount Rate Assumptions
31 March 2023
UK unlevered 6.75%
UK levered 7.45-7.75%
Italy unlevered (1) 8.25%
Subsidy-free (uncontracted) (2) 7.75%
Life extensions (3) 7.75%
Footnotes:
(1) Unlevered discount rate for Italian operating assets implying 1.50%
country risk premium.
(2) Unlevered discount rate for subsidy-free uncontracted operating assets
implying 1.0% risk premium.
(3) 1.0% risk premium for cash flows after 30 years where leases have been
extended.
Power Sales Strategy
To manage the sale of power into the electricity market, the Company utilises
its investment adviser's specialist power sales desk. This team actively
manages the Company's power price contracting strategy and activities. In
the current environment, the power sales desk has enabled the Company to
mitigate market price volatility whilst incrementally growing weighted average
prices through forward hedging above forecast prices. Aggregating the
amount of revenue derived from subsidies and the power hedges, the Company has
a high degree of comfort around forward revenue projections underpinning
dividend cover for the current financial year. Given the high degree of
contracted revenues in future years, the Company is confident in its ability
to continue to provide investors with a well-covered dividend going forward.
In addition to NESF's budgeted revenues from ROCs and FITs (c.50%), the
Company's hedging positions (covering its 716MW UK portfolio) as at 1 June
2023 were:
Financial Year UK budgeted generation hedged Average fix price
2023/24 88% £79MWh
2024/25 44% £91MWh
2025/26 13% £147MWh
Available Capital
Out of the total £205m immediate Revolving Credit Facilities available to the
Company, c.£39m remains undrawn and available for deployment as at 31 March
2023. The Company also has c.£14m immediate cash balance available at Fund
level (this is separate from the cash currently held at Holdco/SPV level).
In addition, the Company actively assesses capital deployment options as part
of ongoing optimisation of the composition of the portfolio.
Future Pipeline
The Company has exclusivity over, or owns the project rights for, the majority
of its pipeline of c.£500m domestic and international solar and energy
storage assets. This includes ownership of the development rights for a
high-quality 250MW lithium-ion battery storage project in the East of England,
which when approved and constructed will be one of the UK's largest
operational standalone battery storage assets.
Annual Report
The 31 March 2023 annual report and quarterly factsheet are now available on
the Company's website.
For further information:
NextEnergy Capital 020 3746 0700
Michael Bonte-Friedheim ir@nextenergysolarfund.com
Ross Grier
Stephen Rosser
Peter Hamid (Investor Relations)
020 7653 4000
RBC Capital Markets
Matthew Coakes
Elizabeth Evans
Kathryn Deegan
Cenkos Securities 020 7397 8900
James King
William Talkington
020 7379 5151
H/Advisors Maitland
Neil Bennett
Finlay Donaldson
014 8174 2642
Ocorian Administration (Guernsey) Limited
Kevin Smith
Notes to Editors(1):
About NextEnergy Solar Fund
NESF is a specialist solar+ fund listed on the premium segment of the London
Stock Exchange and is a constituent of the FTSE 250. NESF's investment
objective is to provide ordinary shareholders with attractive risk-adjusted
returns, principally in the form of regular dividends, by investing in a
diversified portfolio of utility-scale solar energy and energy storage
infrastructure assets. The majority of NESF's long-term cash flows are
inflation-linked via UK government subsidies.
The NESF portfolio has a combined installed power capacity of 865MW (excluding
NextPower III MW on an equivalent look-through basis). NESF may invest up to
30% of its gross asset value in non-UK OECD countries, 15% in solar-focused
private infrastructure funds, and 10% in energy storage assets. As at 31
March 2023, the Company had an audited gross asset value of £1,218m. For
further information on NESF please visit www.nextenergysolarfund.com
(http://nextenergysolarfund.com/)
Article 9 Fund
NESF is classified under Article 9 of the EU Sustainable Finance Disclosure
Regulation and EU Taxonomy Regulation. NESF's sustainability-related
disclosures in the financial services sector in accordance with Regulation
(EU) 2019/2088 can be accessed on the ESG section of both the NESF & NEC
website.
About NextEnergy Group
NESF is managed by NextEnergy Capital, part of the NextEnergy Group.
NextEnergy Group was founded in 2007 to become a leading market participant in
the international solar sector. Since its inception, it has been active in
the development, construction, and ownership of solar assets across multiple
jurisdictions. NextEnergy Group operates via its three business units:
NextEnergy Capital (Investment Management), WiseEnergy (Operating Asset
Management), and Starlight (Asset Development).
· NextEnergy Capital: Has over 16 years specialist solar expertise
having invested in over 350 individual solar plants across the world.
NextEnergy Capital currently manages four institutional funds with a total
capacity in excess of 2.4GW+ and has asset under management of $3.3bn.
www.nextenergycapital.com (http://www.nextenergycapital.com/)
· WiseEnergy®: Provides solar asset management, monitoring and
technical due diligence services to over 1,350 utility-scale solar power
plants with an installed capacity in excess of 1.8GW. WiseEnergy clients
comprise leading banks and equity financiers in the energy and infrastructure
sector. www.wise-energy.com (http://www.wise-energy.com)
· Starlight: Has developed over 100 utility-scale projects
internationally and continues to progress a large pipeline of c.10GW of both
green and brownfield project developments across global geographies.
Notes:
(1:) All financial data is audited at 31 March 2023, being the latest date in
respect of which NESF has published financial information
Annual Report
for the year ended 31 March 2023
Our Objectives
Investment Objective
To provide ordinary shareholders with attractive risk-adjusted returns,
principally in the form of regular dividends, through a diversified portfolio
of solar energy infrastructure assets with the addition of complementary
technologies, such as energy storage.
Strategic Objectives
Investment
Expand and strengthen the portfolio in line with the Company's Investment
Policy.
Enhance growth and diversification through the introduction of solar+
technologies (such as energy storage) and international solar assets.
Operational
Consistently achieve operational outperformance of the portfolio through
active asset management.
Pursue continuous improvement in the management of operating costs associated
with the portfolio.
Environmental
Contribute towards a net zero sustainable future and help mitigate climate
change.
Enhance local biodiversity in the areas where we operate.
Social
Provide a positive social impact.
Contribute to lowering power prices in the UK and other markets where we
operate by increasing energy supplied to the energy market.
Continue to actively engage with and support the communities located close to
our solar assets.
Governance
Act in a manner consistent with our values of integrity, fairness and
transparency.
Maintain strong and constructive relationships with our shareholders and other
key stakeholders.
OVERVIEW
NextEnergy Solar Fund Overview
Performance Highlights
Snapshot of Our Diversified Portfolio
Why Invest in NextEnergy Solar Fund?
STRATEGIC REPORT
Chairman's Statement
Our Business Model
Five Year Record
Our Investment Strategy and Track Record
Investment Adviser's Report
Operating Portfolio
Portfolio Generation Performance
Sustainability and ESG
Stakeholder Engagement
Risks and Risk Management
Going Concern and Viability
GOVERNANCE
Introduction from the Chairman
Governance Framework
Board of Directors
Corporate Governance Statement
Directors' Remuneration Report
Audit Committee Report
Directors' Report
Statement of Directors' Responsibilities
Independent Auditor's Report
FINANCIAL STATEMENTS
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
ADDITIONAL INFORMATION
Alternative Performance Measures
General Shareholder Information
Glossary and Definitions
Corporate Information
NextEnergy
Solar Fund Overview
A specialist solar+ fund listed on the premium segment of the London Stock
Exchange and a constituent of the FTSE 250
Provides shareholders with attractive risk-adjusted returns, principally in
the form of regular dividends, by investing in a diversified portfolio of
utility-scale solar energy and energy storage infrastructure assets
Managed by solar specialists:
• NextEnergy Capital, Investment Adviser
• WiseEnergy, Asset Manager
Both leading managers in the solar energy infrastructure sector
Diversified portfolio:
• 99 operating solar assets
• 1 International private equity solar fund investment
• 2 European solar co-investments
• 2 joint venture partnerships into UK standalone energy storage
Powering the equivalent of 242,000 homes (equivalent to Nottingham and
Brighton combined) with renewable energy for the year
Continuous asset outperformance since IPO
Performance Highlights
Financial Highlights(1)
NAV per ordinary share Ordinary shareholders' Financial debt gearingas at 31 March 2023(2)
as at 31 March 2023
NAV as at 31 March 2023
114.3p £674.4m 28%
(31 March 2022: 113.5p) (31 March 2022: £668.5m) (31 March 2022: 25%)
Dividends per ordinary Cash dividend cover (pre-scrip Total gearing as at
share for the year ended31 March 2023
dividends) for the year ended
31 March 2023 (3)
31 March 2023
7.52p 1.4x 45%
(31 March 2022: 7.16p) (31 March 2022: 1.2x) (31 March 2022: 42%)
NAV total return per ordinary share for the year ended31 March 2023 Ordinary shareholder total return for the year ended31 March 2023 Ordinary shareholder
annualised total return
since IPO
7.3% 8.6% 7.0%
(31 March 2022: 22%) (31 March 2022: 11%) (31 March 2022: 6.7%)
Operational Highlights ESG Highlights
Total capacity installed as at 31 March 2023(5) Total electricity generation for the year ended 31 March 2023 Tonnes of CO(2)e emissions avoided p.a.(4)
865MW 870GWh 363,000
(31 March 2022: 865MW) (31 March 2022: 773GWh) (31 March 2022: 328,700)
Operating solar assetsas at 31 March 2023(6) Generation above budget for the year ended 31 March 2023 Equivalent UK homes powered for one year(4)
99 3.8% 242,000
(31 March 2022: 99) (31 March 2022: 1.8%) (31 March 2022: 216,300)
1 Refer to the Alternative Performance Measures for calculation basis
2 Financial debt gearing excludes the £200m preference shares on a look
through basis
3 Total gearing is the aggregate of financial debt, look through debt and
£200m of preference shares. The preference shares are equivalent to
non-amortising debt with repayment in shares
4 www.greeninvestmentgroup.com/green-impact/green-investment-handbook
5 Excluding share in private equity vehicle (NPIII LP). Inclusion of NESF's
6.21% share of NPIII LP on a look through equivalent basis would increase
total capacity by 24MW (2022: 19MW) to 889MW (2022: 884MW)
6 Excluding the $50m commitment into private equity vehicle (NPIII LP)
Why Invest in NextEnergy Solar Fund?
RELIABLE INVESTMENT WITH ATTRACTIVE GROWTH PROSPECTS
• Provides a regular attractive dividend for income-seeking
investors.
• Offers a natural hedge against inflation with a high
proportion of regulated revenues linked to RPI.
• Large diversified operating portfolio with incremental
growth prospects through the introduction of complementary technologies, such
as energy storage.
PROVEN AND STABLE TECHNOLOGY
• Reliable and predictable source of electricity due to high
consistency in yearly irradiation and minimal moving parts.
• Long useful life (25-40 years) with high proportion of
contracted cash flows from operating solar assets.
ABUNDANT CLEAN ENERGY SOURCE
• Enough solar energy hits the Earth in a single hour to power
the energy needs of the entire human population for a year.
• Provides increased energy independence and security.
COST-EFFECTIVE ELECTRICITY GENERATION
• Active portfolio management provides prudent cost of
operation, maintenance and replacement of assets.
• Solar is one of the cheapest forms of renewable energy
generation and quickest to construct.
CLIMATE CHANGE SOLUTION
• Fundamental to achieving a more sustainable future by
accelerating the transition to clean and sustainable energy.
• Meaningful contribution to reducing CO(2) emissions through
the generation and storage of clean electricity, reducing reliance on fossil
fuels across the grid.
• Investment in solar provides significant biodiversity
benefits to the communities that surround our assets.
Chairman's Statement
"The twelve months to 31 March 2023 were a productive period as the Company
made significant progress across various strategic initiatives announced
during the year to generate value and provide future growth for investors,
whilst maintaining a well-covered and attractive dividend.
Elevated energy prices, inflation rates and NESF's portfolio outperformance
contributed to generating additional revenue for the Company, with NAV growing
to £674m, a successful result in the face of the UK Government's Electricity
Generator Levy, high interest rates and an uncertain UK energy policy.
NESF's expansion into energy storage saw construction work started at the
Company's first stand-alone 50MW battery storage project in Fife, Scotland,
due to be energised in the summer of 2023. The Company also acquired the
development rights for one of the UK's largest lithium-ion battery storage
projects in the East of England at 250MW. The Company actively engaged with
investors over the period regarding an increase in its energy storage
investment policy limit from 10% of GAV, up to 25%, with the view to
increasing this limit later in the year through a vote by shareholders.
Since year end, the Company was the first in the renewables sector to announce
a capital recycling programme to accelerate the next phase of the Company's
growth. The programme aims to capture significant value from the divestment of
a 236MW portfolio of subsidy-free UK solar assets, the proceeds from which
will be used to reduce gearing in the short-term, buyback shares to control
the Company's current discount if appropriate and lock in optionality for
long-term growth opportunities.
The Board and I were delighted to welcome Helen Mahy to the Board of NESF as
Chair-elect, a vital component of the Boards succession planning. Helen brings
extensive experience in the renewables space and from her role as Chair of The
Renewables Infrastructure Group, and I have every confidence that Helen will
continue to lead NESF to success in the future.
In a year where the importance of affordable energy was brought to the
forefront of everyone's minds, NESF's purpose has never felt so relevant. In
recognition of the immediate challenges faced by many across the UK, NESF is
supporting those in fuel poverty via its donation to the NextEnergy Foundation
("NEF"). The Company's portfolio continues to contribute towards UK energy
security and reduce the impacts of volatile global energy markets on domestic
consumers.
As my last statement before stepping down from the Board, I would like to give
personal thanks for the support from colleagues and investors alike over the
years, and I leave feeling extremely proud of what NESF has achieved since IPO
and of the bright future it has in continuing to supply clean energy to the
benefit of all our stakeholders."
I am pleased to present the ninth Annual Report for NextEnergy Solar Fund
Limited (the "Company", "Fund" or "NESF") for the year ended 31 March 2023.
The Company's performance has been strong throughout the year, despite
significant volatility and economic uncertainty. The Company has benefited
from elevated power prices and inflation rates that were higher than
anticipated. This was combined with outperformance from its existing portfolio
of operational assets and progression of a diverse pipeline of solar and
battery storage projects currently under development or construction.
Furthermore, the Board is delighted that NESF was promoted back to the FTSE
250 index on 16 September 2022, which reflects the resilience of the Company.
Despite many ongoing challenges, the current environment presents a very
attractive backdrop for investment in clean energy infrastructure. Increased
deployment of renewables is integral to energy independence and security in
the UK and globally, the benefits of which are reduced reliance on volatile
global power markets and, in turn, reduced costs for consumers. As renewable
energy generation capacity increases on the grid there is need for battery
storage to bring about stability and flexibility and the company has taken
important steps in this space over the period.
Governments around the world continue to drive forward their net zero targets
and the production of renewable energy is playing a key role in helping to
achieve these ambitions. Indeed, strategies recently published by the UK
Government, such as Powering Up Britain and the Green Finance Strategy,
clearly outline its goals to support deployment of solar and energy storage
capacity. Furthermore, in line with the Independent Review of Net Zero
recommendations, the Government plans to develop and publish a solar roadmap
to 2035 to support the significant increase in deployment needed to achieve
its 70GW ambition. NESF is in a strong position to contribute to these
strategies, providing an alternative to fossil fuels, and capitalise on the
opportunities associated with the energy transition in the UK and across
Europe.
On 12 May 2023, the Board disclosed to the market that the Company had
identified an issue with automated reports, which had led to overstatements of
the NAV by up to 2.7p. It is important to note that this was not an issue
within the accounting system and it had no impact on the cash flow generated
by the business or on its dividend cover. As part of the Board's review, the
Audit Committee worked with the Investment Adviser to conduct a full
investigation of this issue. The Board is satisfied that this was an isolated
incident and has agreed a number of additional steps to further strengthen
controls.
The Company's Net Asset Value ("NAV") has remained strong throughout the year,
growing to £674.4m (31 March 2022: £668.5m) over the 12 months, even when
accounting for the government's Electricity Generator Levy ("EGL"). The
combined impact of interest rate increases and uncertainty surrounding UK
energy policy amongst other macroeconomic factors has led to the share price
trading at a discount to the NAV for a sustained period, offering an
attractive entry point for potential investors.
During the year, the Company published its first standalone sustainability
report. The report goes beyond the Company's immediate sustainability
obligations by providing in-depth details on the Company's sustainability
journey, its proprietary approach to biodiversity, and its industry leading
ESG initiatives. These deliver a real environmental and social impact. Going
forward, the Company intends to publish its sustainability report on an annual
basis.
For the year ended 31 March 2023, the Ordinary Shareholder Total Return was
8.6% (31 March 2022: 11.0%) and the Ordinary Shareholder NAV total return was
7.3% (31 March 2022: 22%). The NESF portfolio has continued to outperform
budgeted generation, whilst continuing to deliver on its electricity sales
strategy to remove short term price volatility and strengthen the Company's
dividend cover.
Since IPO, NESF has made a material difference to the UK energy landscape,
growing a portfolio of renewable assets of 865MW capacity that has generated a
total of 4.9 TWh of clean energy, supporting global net zero goals and
generated value to our shareholders. As at 31 March 2023, the annualised
Ordinary Shareholder Total Return since IPO was 7.0% (31 March 2022: 6.7%) and
the annualised Ordinary Shareholder Net Asset Value ("NAV") total return since
IPO was 8.0% (31 March 2022: 8.0%).
The Company has been a pioneer in UK Solar Infrastructure and will continue to
define the future of renewable energy as it explores new geographies and
technologies. The Company is in a strong position to continue to be a market
leader in renewables whilst generating further positive environmental and
social impact.
Board Succession Planning
Following the year end, NESF appointed Helen Mahy to the Board of Directors as
a non-executive Director and Chair Designate. The board is delighted to
welcome Helen to NESF and is looking forward to benefiting from her wealth of
experience in the renewable energy and infrastructure sectors. Helen has
previously served as Group General Counsel and more recently as Chair of The
Renewables Infrastructure Group where she served her full nine-year tenure.
Helen will stand for election as Chair of NESF from the next AGM in August
2023.
Results and Key Events
The Company has made progress towards its growth goals whilst continuing to
offer financial stability during the year. NextEnergy Capital Limited (the
"Investment Adviser"), continues to provide dedicated support to the Company.
During the year ended 31 March 2023, the Company made significant progress
across a range of areas.
To advance its position in battery energy storage, the Company:
• Started construction on the Company's first battery storage
project (50MW) in Fife, Scotland through a Joint Venture Partnership ("JVP1")
with energy storage specialist EelPower Limited ("EelPower"). The project
subsequently achieved selection in the UK Government's latest Capacity Market
Auction which secured a proportion of its revenues following energisation and
grid-connection in the second half of 2023;
• Advanced its position in the energy storage sector through a
75% stake in the new £200m Joint Venture Partnership with EelPower ("JVP2");
• Acquired the development rights for a high-quality 250MW
lithium-ion battery storage project in the East of England through JVP2 for
£32.5m; and
• Commenced a co-located battery retrofit programme,
identifying potential sites across NESF's current UK operating solar
portfolio.
To progress its UK and international solar PV pipeline, the Company:
• Signed its second international co-investment with NPIII LP
taking a 13.6% stake in a 210MW solar project currently under construction in
Santarém, Portugal; and
• Commenced construction works for Whitecross (36MW) and grid
connection preparation works for Hatherden (50MW) and secured Contracts for
Difference ("CfD") for 100% of the generating capacity of both these new-build
UK solar projects.
To deliver value for shareholders, the Company:
• Achieved a dividend cover of 1.4x for the year ended 31
March 2023;
• Continues to engage with investors positively to increase
the Company's energy storage investment policy limit from 10% of Gross Asset
Value up to 25%;
• Continued to implement its electricity sales strategy to
increase the certainty of revenue streams by locking in strong pricing whilst
reducing power price volatility; and
• Secured a £60m increase to its existing £75m Revolving
Credit Facility ("RCF") with AIB Group (UK) p.l.c. ("AIB") & NatWest, in
addition to signing a two-year extension to its £70m RCF with Santander UK to
fund the investment pipeline.
To demonstrate its environmental and social impact, the Company:
• Gained classification under Article 9 of the EU Sustainable
Finance Disclosure Regulation and EU Taxonomy Regulation; and
• Released its first standalone sustainability report, which
highlights NESF's contribution to biodiversity, climate change and ethical
supply chains through its operations.
Following the year ended 31 March 2023, the Company:
• Announced a capital recycling programme and initiated the
process for the sale of five UK subsidy-free assets;
• Formally welcomed Helen Mahy CBE to the Board of Directors
as a non-executive Director; and
• Announced a long-term Power Purchase Agreement ("PPA") was
signed with Statkraft, a leading renewable producer in Europe's energy market,
for its international solar co-investment named Santarém.
Increased Dividend Target
In May 2023, the Board of NESF approved a target dividend increase of 11% to
8.35 pence per ordinary share for the year ending 31 March 2024. NESF
continues to maintain a progressive annual dividend policy, and when
appropriate, the Board considers increasing the target dividend paid to
shareholders. To date, the Board has increased the target dividend every year
since the Company listed in 2014 with all annual dividend targets successfully
being achieved whilst remaining well-covered.
Capital Recycling Programme
In April 2023, the Board announced a capital recycling programme to accelerate
the next phase of the Company's growth. Through the programme, the Company
aims to capture significant value from the divestment of a 236MW portfolio of
subsidy-free UK solar assets, the proceeds from which will be used to:
• Reduce gearing in the short term to materially reduce
current drawings of the Company's revolving credit facilities ("RCF"). Given
the significant increase in interest rates in recent months, the Board
anticipates using net proceeds from the programme to reduce the amount of
drawn RCF where the Company has exposure to the high interest rate environment
in the near term. The reduction in gearing will reduce debt service burden,
strengthen free cash flows, and further increase dividend cover.
• Secure optionality for future long-term growth opportunities
providing flexibility to capture higher returning investment opportunities in
the future, such as energy storage. The net proceeds of the Programme will
also create capacity for the Company to position itself for its next phase of
growth, including into value-accretive energy storage. The Company has
exclusivity over, or owns the project rights for, the majority of its pipeline
of c.£500m UK and international assets across the solar and energy storage
space. This includes ownership of the development rights for a high-quality
250MW lithium-ion battery storage project in the East of England, which when
constructed will be one of the UK's largest operational standalone battery
storage assets.
• Buyback shares to control the discount if the share price
continues to trade at a material discount to the Company's NAV per share. The
Board operates robust discount monitoring and management controls and has
noted the prolonged period over which the Company's shares have been trading
at a discount to its NAV. The Board continues closely to monitor the current
discount and confirms its commitment to buy back shares if the share price
continues to trade at a material discount to the Company's net asset value per
share.
The Company continues to run a competitive sales process on the five
subsidy-free assets that are being sold (breakdown below) and we look forward
to updating the market on our progress shortly.
Table breakdown of 236MW subsidy-free portfolio:
Subsidy-free solar asset Installed Capacity Status Location
Hatherden 50MW Ready-to-build Hampshire, UK
Whitecross 36MW Under construction Lincolnshire, UK
Staughton 50MW Operational Bedfordshire, UK
The Grange 50MW Operational Nottinghamshire, UK
South Lowfield 50MW Operational Yorkshire, UK
Battery Storage Mandate Increase
NESF has been investing in energy storage projects since 2018 and has built up
considerable expertise in managing energy storage assets and running them in
conjunction with solar plants. NESF is also progressing projects to retrofit
energy storage assets onto its existing assets where feasible.
NESF intends to expand its energy storage activities later in the year having
consulted with investors over the period. The Company aims to increase its
limit in standalone energy storage from 10% of the Gross Asset Value ("GAV"),
up to 25%, with all other policy limits remaining the same.
This increase will enable NESF to take advantage of existing energy storage
opportunities in the UK via its relationship with EelPower Ltd, which will
complement and diversify NESF's existing large portfolio of solar assets.
Standalone Battery Storage Progress
The Company's first 50MW battery storage project, known as Camilla, is
currently under construction in Fife, Scotland. The project will initially
operate at one hour duration. The Company intends to increase the duration of
the project to two hours and current construction works include the
infrastructure necessary for that extension.
The project was sourced last year through a Joint Venture Partnership vehicle
("JVP1") with Eelpower Limited ("Eelpower") worth £100m. JVP1 was announced
last year and is owned 70% by NESF and 30% by Eelpower. During the year,
Camilla was selected to provide battery storage capacity in the UK
Government's latest Capacity Market Auction.
In September 2022, the Company announced that it had advanced its position in
the energy storage sector through a new £200m JVP2 with Eelpower. JVP2
reflects the successful relationship built with Eelpower, offering enhanced
terms by increasing NESF ownership to 75%, with Eelpower holding the remaining
25%. The Company has since announced its first investment through JVP2, the
development rights for a high-quality 250MW lithium-ion battery storage
project in the East of England, one of the largest energy storage projects
announced in the UK to date. The project will take the total current announced
standalone battery storage projects in the portfolio to 300MW.
The recent developments in battery storage, including Camilla's success in the
Capacity Market Auction, exemplifies the importance of deploying energy
storage at scale in conjunction with solar and other grid-scale renewable
technologies, strengthening the UK's energy security and supporting the
transition to a net-zero carbon economy. The Company's growth strategy
anticipated this evolution of the market and the Company has well-developed
plans to introduce additional energy storage into its portfolio.
Co-Located Battery Storage Progress
In April 2022, NESF announced a new co-located battery storage retrofit
programme across the Company's UK operating solar farms. As part of this
programme the first site for a co-located battery project was identified,
extending the existing 11MW North Norfolk solar farm to include a 6MW/12MWh
battery system. Planning permission for the co-located battery system has been
secured and the Company is in discussions with the local Distribution Network
Operator ("DNO") to confirm an energisation date. An additional four potential
locations for co-located battery storage systems have been identified to date
and are being progressed into their development stage.
Generating Value from UK Solar
Since IPO, the Company has been a market leader in capturing value from UK
solar. The market continues to evolve significantly over time and, since 2019,
the Company has pursued a portfolio of subsidy-free projects, to which it has
added significant value. The success of the Company's subsidy-free portfolio
demonstrates its ability to respond efficiently and effectively to a changing
UK solar market through its expertise in identifying opportunities and
maximising risk-adjusted returns.
During the year ended 31 March 2023, the Company commenced grid connection
works and construction mobilisation phase at Hatherden, a 50MW subsidy-free
solar farm. The Company also commenced construction of Whitecross, a 36MW
utility solar asset, located in Lincolnshire. The original construction date
of the asset was deferred from H2 2021 due to supply chain risks post Covid-19
which have been sufficiently addressed.
Whitecross and Hatherden have also been selected to be part of the fourth CfD
Allocation Round (AR4). The CfDs last for 15-years, are index linked to
inflation (CPI) annually, and are scheduled to commence from 31 March 2025 at
the AR4 solar PV strike price of £45.99/MWh (set in 2012 equivalent prices).
Through its capital recycling programme, NESF intends to cystalise the value
it has created for shareholders through these assets.
During the year, NESF also added a 0.18MW commercial rooftop solar asset,
Holiday Inn, to its portfolio. It is part of an agreement made with the
renewable energy developer, Zestec. The asset is located on a Holiday Inn
hotel in Nottinghamshire and benefits from an attractive 25-year PPA for 100%
of its generated volume.
Capturing Co-Investments Opportunities
Through its investment in NextPower III ESG ("NPIII LP"), a NextEnergy Capital
managed private equity solar infrastructure fund that invests in OECD markets
globally, NESF benefits from international diversification in addition to
unique co-investment opportunities. Co-investments allow NESF to take direct
stakes in international solar assets alongside large international
institutional investors on a no fee, no carry basis. This is particularly
beneficial as it provides the Company with access to an attractive new
pipeline of potential international assets not available to other market
participants or investors. To date, co- investments with NPIII LP have
amounted to a total of c.€33.5m alongside the Company's US$50m commitment to
NPIII LP.
Energisation of the Company's first co-investment, a 24.5% stake in a Spanish
50MW solar project, Agenor Hive S.L. ("Agenor"), is expected to occur in Q3
2023 following its announcement in January 2022.
In May 2022, the Company announced a second co-investment in Portugal,
Santarém. The Company acquired a 13.6% stake in the 210MW solar asset in
Portugal for a consideration of €22.5m. Energisation of this project is
expected to take place in 2023.
Following the year end, the Company announced that Santarém had secured a
long-term Power Purchase Agreement ("PPA") with Statkraft, a leading renewable
producer in Europe's energy market. Under this agreement, Statkraft will
acquire the electricity production from Santarém for eight years. The PPA
builds on the existing successful relationship between NextEnergy Capital and
Statkraft, following an earlier signed PPA between the two covering Agenor.
NAV and Operating Results
At the year end, the ordinary shareholders' NAV was £674.4m equivalent to
114.3p per ordinary share (31 March 2022: £668.5m, 113.5p per ordinary
share). The change in NAV over the year reflects a large increase in power
price forecasts (+14.6p per ordinary share) and changes in inflation (+5.6p
per ordinary share). The above NAV drivers were offset by an increase of 1.0%
in the discount rate for unlevered operating UK solar assets. The decision was
driven by the increasing UK long-term gilt yields, driven by the Bank of
England ("BoE") base rate increases over the period. The resulting impact on
the NAV was -7.0p per ordinary share. The NAV increase includes the impact of
the EGL, announced by the UK government towards the end of 2022.
Profit and comprehensive income for the year was £48.3m (2022: £127.6m) with
earnings per ordinary share of 8.2p (2022: 21.7p). Cash dividend cover
(pre-scrip dividends) was 1.4x (2022: 1.2x).
Power Prices
The increases in UK and European wholesale power prices from the previous year
has continued during the current year. The volatility is attributable to
reduced gas supply due to the conflict in Ukraine, which led to widespread
import sanctions on Russian oil, gas and related products. This was
exacerbated by pre-existing low levels of gas storage across the EU. More
recently, the Organisation of the Petroleum Exporting Countries ("OPEC")
announced reductions in oil output. Mitigating risk and increasing visibility
of future cash flows remains a priority for the Fund. The increase in power
price volatility during the calendar year and also in forward pricing has
underlined the benefit and value of the Company's power sales strategy through
the Investment Adviser's active energy sales desk.
NESF's portfolio's robust performance is backed by inflation-linked subsidies
as well as a proactive energy sales strategy, which includes long-term PPAs
and rolling short-term hedges over a 36-month period. This strategy of
proactive risk mitigation helps to underpin the Company's dividend cover,
increase the certainty of revenue streams and mitigate the negative impact of
short-term fluctuations in the power markets.
Of the Company's revenues during the year, 52% were derived from government
subsidies and long-term PPAs and, at the end of the year, the average
remaining weighted life of the subsidies was 12 years.
The remaining 48% of the Company's revenues were derived from selling the
electricity generated in the open market and, therefore, are exposed to market
power price movements until the price has been locked ('hedged'). The Asset
Manager's energy sales desk is focused on securing the best terms for NESF's
electricity sales to carefully selected counterparties. This flexible approach
is designed to protect against adverse short-term price movements whilst also
enabling the Company to secure attractive fixed prices for specified future
time periods which provides increased certainty on dividend cover.
Looking towards the next three financial years, as at 1 June 2023, the Company
has agreed pricing of:
UK hedging summary(1) FY23/24 FY24/25 FY25/26
Generation hedged 87.9% 44.3% 13.0%
(%)
Average fixed price £79.0 £91.4 £147.2
(£/MWh)
(1) Covers 83% of the total portfolio (716MW)
Portfolio Performance
Energy generated during the year was 870 GWh (2022: 773 GWh) and the portfolio
achieved a generation outperformance vs budget of 3.8% (2022: 1.8%),
increasing revenues by an estimated £4.8m against budget (2022: £2.0m).
During the year, solar irradiation across the portfolio was 7.5% above budget
(2022: 3.4%).
The Company's UK portfolio performed above expectations with generation
outperformance of 3.8% (2022: 1.9%) and the Italian portfolio performed above
expectations with generation outperformance of 3.3% (2022: 1.1%).
Capital Structure Strategy
During the year, the Company announced that it had increased the commitments
available under its Revolving Credit Facility ("RCF") with AIB Group (UK)
p.l.c. ("AIB") & NatWest from £75m to £135m. The additional commitments
have been agreed on attractive terms with a margin of 120bps over SONIA
("Sterling Overnight Index Average"), available until June 2024. The Company
also signed a two-year extension to its £70m RCF with Santander UK to fund
the investment pipeline.
Given the high interest rate environment, the Company is pursuing a prudent
capital allocation strategy. The fixed coupon rate for preference shares
shelters the Company from continued interest rates volatility in the future.
As such, the addition of preference shares has provided value through
diversification of it capital stack since their inclusion in 2018. The careful
use of RCFs is critical to limit exposure to unhedged interest rates and the
Company continues to closely monitor the market to manage the risks
effectively. One of the benefits of the capital recycling programme, announced
following the year end will be a reduction in gearing and reduced exposure to
high interest rates.
As at 31 March 2023, the Company had £200m of preference shares within its
capital structure (2022: £200m). The preference shares, which are counted as
financial debt, effectively shield the Company from increases in interest
rates and contribute to the Company's strong financial performance for
shareholders. The preference shares also reduce the exposure to secured debt
financing and provide protection against diminishing power prices compared to
traditional debt financing used by peers. The Company continues to benefit
from the low cash cost of the preference shares that pay a fixed preferred
dividend of 4.75% with no redemption requirements and the Company maintains
attractive optionality to redeem at nominal value from 1 April 2030 for a six
year period.
The total financial debt represented 28% of Gross Asset Value ("GAV"), on a
look through basis, as at 31 March 2023 (2022: 25%). At the same reporting
date, the total gearing comprising the total financial debt and the preference
shares represented 45% of GAV (2022: 42%) which is within the 50% limit per
the investment policy.
Dividends Paid
The Directors have approved a fourth interim dividend of 1.88p per ordinary
share, which will be paid on 30 June 2023 to ordinary shareholders on the
register as at the close of business on 19 May 2023. Following the payment of
the fourth interim dividend, the Company will have paid total dividends of
7.52p per ordinary share in respect of the year ended 31 March 2023 (2022:
7.16p). Since IPO the Company has declared total dividends of £305.8m.
The Company continues to offer a scrip dividend alternative as approved by
ordinary shareholders at the 2022 Annual General Meeting ("AGM"), details of
which can be found on the Company's website (nextenergysolarfund.com).
Environmental, Social and Governance (ESG)
NESF's commitment to ESG and sustainability remains at the forefront of its
strategy and purpose. During the year, the board formed an ESG committee,
chaired by Josephine Bush, to dedicate additional standalone discussions
towards the progression of the Company's ESG strategy. The Investment Adviser
is a signatory of the United Nations' Principles for Responsible Investments,
and integrates ESG principles into all aspects of the NextEnergy Group's
investment and asset management processes. NESF incorporates ESG factors into
all investment decisions by implementing the Investment Adviser's Sustainable
Investment Policy throughout the investment process, from preliminary
screening through to risk management during the ownership phases.
Net Zero Alignment
Aligned with the Company's commitment to support the UK Government's net zero
ambitions (introduced at COP26 and refreshed in the recent Independent Review
of Net Zero), NESF's portfolio generated 870 GWh of clean electricity during
the year ended 31 March 2023 (2022: 773 GWh), contributing to the avoidance of
363,000 tonnes of CO(2)e emissions (2022: 328,700 tonnes CO(2)e) and
equivalent to powering 242,000 UK homes for an entire year (2022: 216,300).
This is roughly equivalent to powering a city with 571,120 inhabitants (e.g.
Nottingham and Brighton combined) or removing 120,000 cars off the road for an
entire year (2022: 108,690 cars). The above data has been verified by the
Green Analytics team of the Macquarie Green Investment Group, a third-party
climate related data provider.
Biodiversity
NESF recognises the urgency for action to be taken to reduce the intensity and
drivers of biodiversity loss. By valuing the biodiversity baseline condition
and understanding nature-dependencies, it is possible to effectively manage
nature impacts and ecological footprint to reduce habitat loss.
The Investment Adviser is actively engaged in developing a global biodiversity
strategy that will outline the Fund's ambition for biodiversity and set out a
framework, which will guide disclosures under the Taskforce for Nature-
related Financial Disclosures (TNFD) with informed Science- Based Targets
(SBT).
The Investment Adviser is engaged with applying environmental due diligence
and governance across all aspects of NESF's investment lifecycle to ensure
consistent management of biodiversity risk and opportunity.
This continues to provide auditability, compliance and alignment with
international drivers such as the Global Biodiversity Framework, and national
policy including the Environmental Improvement Plan 2023. Please refer to our
Sustainability Report on the NESF website:
nextenergysolarfund.com/esg/transparency-and- reporting/.
Supply Chain Management
Since inception, the ESG Team of the Investment Adviser has been involved as a
sponsor and supporter of the Solar Stewardship Initiative (SSI), a
multi-stakeholder forum created by Solar Power Europe and Solar Energy UK to
promote responsible sourcing in the solar value chain.
The public launch of the SSI took place in October 2022, and the Investment
Adviser continues to be involved in the development of the SSI. The initiative
is anticipated to be operational by the end of 2023. The Investment Adviser
also continues to strengthen its supply chain risk management, with its ESG,
procurement, construction and investment teams working closely together to
ensure that contractors and suppliers abide by the Adviser's code of conduct
and ESG standards.
Positive Social Contribution
NESF contributes to domestic growth and development wherever its assets are
located. The Company is dedicated to ensuring best-practice labour standards
are applied by all its contractors. In addition to the ESG activities on
behalf of NESF and other clients, the NextEnergy Group continues to donate at
least 5% of its net profits to the NextEnergy Foundation ("NEF"), which was
established in 2017. The Board and I are proud that NESF also supports the
Foundation, which included donations totaling £400k for the year ended 31
March 2023. The Foundation participates proactively in the global effort to
reduce carbon emissions, provide clean power sources in regions where they are
not available, and contribute to alleviate poverty.
EU Taxonomy and Sustainable Finance Disclosure Regulation
NESF complies with the requirements of the EU Taxonomy and Sustainable Finance
Disclosure Regulation ("SFDR"). The Company's legal adviser has confirmed that
NESF is classified under Article 9 of the SFDR, as the Company is marketed in
the EU and has sustainable investment as its objective. The Company's
sustainable investment objectives arise from its contribution to climate
change mitigation, addressed through its focus on investments in solar assets
and battery storage assets. In addition, the Company has a robust ESG
integrated process which is aligned with the "Do No Significant Harm" (DNSH)
criteria of the EU Taxonomy, and implements strong safeguard on social,
community and human right impact across its value chain. In light of this
classification, NextEnergy Group has made the relevant disclosures (SFDR Annex
III and V) for NESF, available on the Company's website.
Task Force on Climate-Related Financial Disclosures
NESF recognises the importance of reporting on the impacts of climate change
and has been an official supporter of the goals of the Task Force on
Climate-related Financial Disclosures ("TCFD") since September 2019. The
Company has included its full TCFD report in this annual report and has also
disclosed the report as a stand-alone document on its website.
Appreciation
The Board would like to thank the Investment Manager and the Investment
Adviser, and their employees for their continued hard work during the year;
continuing to deliver substantial value to the Company's ambitions to deliver
sustained high performance and significant positive impact.
Outlook
The Board, Investment Manager and Investment Adviser believe that the market
environment continues to be favourable for the Company. Undoubtedly,
macroeconomic and political events have impacted and will continue to impact
the renewable energy sector in which the Company operates. The current
economic climate provides further evidence for the benefits of solar energy,
providing national energy security and independence, which in turn shelters
consumers from the volatile global energy markets. As renewables are deployed,
the business case for energy storage also strengthens. Battery storage is a
highly complementary portfolio technology to Solar PV, and as the profiles are
uncorrelated, this provides further diversification to the Company's portfolio
from a technology, revenue and geographic perspective.
The Company has a strong pipeline of international growth opportunities on a
direct and co-investment basis, as well as its pipeline of solar and energy
storage assets in the UK. The pipeline has been composed to complement the
existing portfolio, diversify the risk profile and enhance shareholder
returns.
The Company has positioned itself well through its strategic initiatives and
active management throughout the year, and I am excited to see NESF expand
into its next stage of growth, going from strength to strength over the coming
years.
Kevin Lyon
Chairman
16 June 2023
Our Business Model
Structure
The Company is regulated by the Guernsey Financial Services Commission as a
registered closed-ended investment company. It has an indefinite life.
The Company's capital structure comprises ordinary shares and preference
shares. The ordinary shares are listed on the premium segment of the Official
List and traded on the London Stock Exchange's Main Market. The preference
shares are not listed or traded on any public market. The rights attaching to
each class of shares are summarised in note 13(b) to the Financial Statements.
The Company makes its investments through intermediate holding companies
("HoldCos"), underlying special purpose vehicles ("SPVs") and a singular
direct investment that hold the solar assets. The NESF Group comprises the
Company, the HoldCos, the SPVs and the direct investments.
As explained in note 2(d) to the Financial Statements, as the Company is an
investment entity as described by International Financial Reporting Standards
("IFRS") 10, the Company does not prepare consolidated Financial Statements
and, instead, holds its investments at fair value.
The Company has the ability to use short- and long-term debt at the Company,
HoldCo and SPV levels. Debt at the HoldCo and SPV levels is non-recourse.
Operating Model
The Company's business model follows that of an externally managed investment
company. Therefore, the Company does not have any employees and outsources its
activities to third party service providers, including the Investment Manager,
Asset Manager and Administrator who are the principal service providers. The
Investment Manager outsources specific services to the Investment Adviser.
Management of the Company
The independent Board is responsible to shareholders for the overall
management of the Company, including strategy and strategic aims, corporate
governance, risk management and financial reporting.
The Company has outsourced the management of its day-to-day activities to the
Investment Manager and the Administrator, which operate within clearly
defined terms of agreements that set out their roles, responsibilities and
authorities. The Investment Manager, operating under guidelines determined by
the Board, has direct responsibility for certain decisions relating to the
day-to-day running of the Company and is accountable to the Board for the
investment and operating performance of the Company. The Administrator
provides the Company with company secretarial, fund accounting and
administration services.
Further information on the division of responsibilities for the management of
the Company can be found in the Corporate Governance Statement.
Management of the Company's Investment Activities and Assets
The Investment Manager, Investment Adviser and Asset Manager are shown in the
diagram and their key roles are shown below. They are all members of the
NextEnergy Group.
The NextEnergy Group, which is privately owned, was founded in 2007 and has
evolved into a leading specialist investment and asset manager in the
renewable energy infrastructure and battery storage sectors. Since its
inception, it has been active in the development, construction and ownership
of solar and battery storage assets.
As at 31 March 2023 the NextEnergy Group had assets under management of c.$3.4
billion with a cumulative operating generating capacity of more than 1.4GW. In
addition to the Company, it manages the private equity fund, NPIII LP, which
invests in solar assets globally. The fund achieved a total capital raise of
$896m, which exceeded its target of $750m. NPIII LP currently has an operating
capacity of c.390MW.
In January 2022, the Investment Manager divested the entire portfolio of
operating solar projects owned by the private equity fund, NextPower II. At
sale, NextPower II was among the ten largest portfolios of operating solar
assets in Italy (c.149MW) and achieved an exceptional net Internal Rate of
Return ("IRR") for investors.
The Investment Adviser has since secured the UK Infrastructure Bank as a
cornerstone investor for a private 10-year solar infrastructure fund,
NextPower UK ESG ("NP UK"). The fund, which focuses on subsidy-free UK solar,
has currently secured £595m in committed capital, which exceeds its target of
£500m, and will continue to fundraise up to the hard cap of £1bn.
The NextEnergy Group's team of over 270 individuals has significant
experience in energy and infrastructure transactions across international
jurisdictions. The Investment Adviser's Investment Committee comprises Michael
Bonte-Friedheim, Aldo Beolchini, Giulia Guidi and Ross Grier who have over 70
years' industry experience between them.
Since it was founded, the NextEnergy Group has provided asset management,
technical due diligence and other services to over 2,855 solar power and
energy storage assets, totalling an installed capacity in excess of 4.3GW. Its
asset management clients include listed solar funds (in addition to the
Company), banks, private equity funds and other specialist investors. The
Asset Manager has created a proprietary asset management platform which
integrates technical, financial and commercial data to analyse clients' data
and generate insights, all of which help to protect and enhance the long-term
quality and performance. This software, its systems and processes, together
with specialist staff with extensive renewables experience, allows the Asset
Manager to deliver market leading results.
The collective experience of the NextEnergy Group of investing and managing
renewables assets enables NESF to implement efficiencies at both the
investment and operating asset levels. The technical and operating
outperformance of the Company's portfolio to date underlines the benefits of
this comprehensive strategic relationship.
Administration of the Company
The Board has delegated administration, fund accounting and company
secretarial services to the Administrator. Ocorian Administration (Guernsey)
Limited, is part of the Ocorian Group which was established in Jersey in 1971
as Bedell Trust, and is a global financial services provider. It operates in
20 key locations globally and has 4,000+ employees.
Further details on the Administrator's responsibilities can be found in the
Corporate Governance Report.
Michael Bonte-Friedheim is Founding Partner and CEO of the NextEnergy Group.He
has over 25 years' specialist experience in the power and energy sector.
Aldo Beolchini is Managing Partner and CIOof the NextEnergy Group.He has over
21 years' experience in investment banking and renewable energy. Prior to
joining the NextEnergy Group in 2008, he was Vice President at Morgan Stanley
Investment Banking.
Investment Manager
Acting as the Company's Alternative Investment Fund Manager ("AIFM")
Management Agreement with Discretion to make investments in accordance with the Company's Investment
Policy, subject to investment recommendations by the Investment Adviser
the Company
Portfolio and risk management services as required by the EU's AIFM Directive
see note 1 in the
Reporting to the Board on all operational, financial and technical issues and
Financial Statements the valuation of the investments
Investment Adviser Provide investment and other advice and recommendations to the Investment
Manager in respect of the Company's existing and potential investments
Identify investment opportunities for the Company
Advisory Agreement with the
Evaluate investment opportunities and co-ordinate external due diligence
Investment Manager activities
Negotiate all project contracts with counterparties
Prepare investment proposals and provide general advice and recommendations to
the Investment Manager concerning the Company's portfolio, financing,
strategy, market developments, etc
Review performance of the Company's portfolio together with the Asset Manager
Manage Investor Relations for the Company
Asset Manager Asset management of solar power assets
Technical and financial analysis of each site to assess performance and
identify potential improvements. Periodic site visits on each plant
Asset Management Agreements
Ensure each SPV's suppliers perform in accordance with contracts
with the HoldCos and SPVs
Managing unexpected occurrences at assets and ensures prompt response to any
asset management requirements of the Company
Manage each SPV's administrative and financial functions and requirements
Periodic financial, technical and administrative reports to the Investment
Adviser
Dividend Policy, Scrip Dividends and Dividend Target for Financial Year Ending
31 March 2024
The Company's principal purpose is to provide ordinary shareholders with
attractive risk-adjusted returns, principally in the form of dividends with a
progressive annual dividend policy in place. In respect of each financial
year, the Company pays quarterly interim dividends of equal amount, with
dividends declared in August, November, February and May and paid in or around
September, December, March and June respectively.
The Company offers a scrip dividend alternative to ordinary Scrip shareholders
and currently anticipates that it will continue to do so. Scrip dividends
provide ordinary shareholders with the flexibility to receive their quarterly
dividend in cash or newly issued ordinary shares. Details of the scrip
dividend alternative for the year ending 31 March 2024 will be set out in a
separate circular that is expected to be sent to ordinary shareholders in or
around August 2023. Once published, a copy of the circular will also be
available on the Company's website (nextenergysolarfund.com).
The target dividend for the financial year ending 31 March 2024 is 8.35 pence
per ordinary share, an increase of 11% compared to the financial year ended
31 March 2023.
Five Year Record
Year Ended 31 March
Financial Key Performance Indicators 2019 2020 2021 2022 2023
Ordinary shares in issue 581.7m 584.2m 586.9m 589.1m 590.3m
Ordinary share price 117.5p 101.5p 99.6p 103.4p 104.8p
Market capitalisation of ordinary shares £683m £593m £585m £609m £619m
NAV per ordinary share (1) 110.9p 99.0p 98.9p 113.5p 114.3p
Total ordinary NAV (1) £645m £579m £581m £668m £674m
Premium/(discount) to NAV (1) 6.0% 2.5% 0.7% (8.9%) (8.3%)
Earnings per ordinary share 12.37p (5.09p) 6.87p 21.69p 8.20p
Dividend per ordinary share 6.65p 6.87p 7.05p 7.16p 7.52p
Dividend yield (1) 5.7% 6.8% 7.1% 6.9% 7.2%
Cash dividend cover - pre scrip dividends (1) 1.3x 1.2x 1.1x 1.2x 1.4x
Preference shares in issue 100m 200m 200m 200m 200m
Financial debt outstanding at subsidiaries level £269m £214m £246m £283m £345m
Financial debt (financial debt/GAV)(1) 27% 22% 24% 25% 28%
Gearing (financial debt + preference shares/GAV) (1) 36% 42% 43% 42% 45%
GAV £1,014m £991m £1,025m £1,150m £1,218m
Weighted average cost of capital 5.4% 5.5% 5.4% 5.3% 5.7%
Ordinary shareholder total return - cumulative since IPO (3) 46.7% 37.5% 42.6% 53.6% 62.4%
Ordinary shareholder total return - annualised since IPO (3) 9.5% 6.3% 6.1% 6.7% 7.0%
Ordinary shareholder total return 11.8% -7.8% 5.1% 11.0% 8.6%
Ordinary NAV total return (1) 11.8% -4.5% 7.0% 22.0% 7.3%
Ordinary NAV total return - annualised since IPO (3) 8.1% 5.9% 6.0% 8.0% 8.0%
Ongoing charges ratio (1) 1.1% 1.1% 1.1% 1.1% 1.1%
Weighted average discount rate 7.0% 6.8% 6.3% 6.3% 7.3%
Operational Key Performance Indicators
Invested capital (1) £896m £950m £999m £1,039m £1,134m
Number of operating assets 87 90 94 99 99
Total installed capacity 691 MW 755 MW 814 MW 865 MW(2) 865 MW(2)
Annual generation 693 GWh 712 GWh 738 GWh 773 GWh 870 GWh
% increase (year-on-year) 54% 3% 3% 4% 13%
Generation since IPO 1.8 TWh 2.5 TWh 3.2 TWh 4.0 TWh 4.9 TWh
Solar irradiation (delta vs. budget) 9.0% 4.0% 5.5% 3.4% 7.5%
Generation (delta vs. budget) 9.1% 4.7% 6.2% 1.8% 3.8%
Asset Management Alpha (1) 0.1% 0.7% 0.7% -1.6% -3.7%
Remaining weighted average useful life 25.2 years 26.9 years 27.5 years 27.3 years 26.3 years
1 Alternative performance measures
2 Excludes share in private equity vehicle (NPIII LP). Inclusion of NESF's
share of NPIII LP would increase capacity by 24MW (2022: 19MW) to 889MW
(2022: 884MW)
3 Return figures since IPO calculated based on dividends paid
Our Investment Strategy and Track Record
Investment Strategy
Our strategy is straightforward:
• Investment: We seek to own a broad range of large scale
solar energy infrastructure assets, but may invest up to 10% of GAV in
standalone energy storage systems and are looking to increase this up to 25%.
• Location: Primarily located in the UK but with up to 30% of
GAV in other OECD countries, that generate reliable cash flows over their
useful lives (typically, at least 25-40 years from energisation).
• Asset management: We seek to enhance the returns from our
assets through pro-active effective asset management, including rigorously
controlling costs, delivering operational efficiencies, extending their
useful lives and executing short and medium-term electricity sales hedges to
mitigate power price risk.
• Financing: We seek to optimise the risk-adjusted returns to
our ordinary shareholders by funding our activities through an appropriate mix
of shareholder equity and debt, subject to debt being capped at 50% of GAV.
• Risk management: We seek to actively manage potential risks,
including maintaining a diversified exposure by location, third-party
suppliers, service providers and other commercial counterparties to improve
the resilience of the Company's portfolio and contributing to its long-term
sustainable success.
Further details of our investment strategy are included in the Investment
Adviser's Report.
Investment Policy
The Company seeks to achieve its investment objective by investing
predominantly in solar PV assets.
The Company invests in solar PV assets primarily in the UK. Not more than 30%
of the Company's GAV (calculated at the time of investment) may be invested in
solar PV assets that are located outside the UK. Investments in solar PV
assets outside the UK will be made in OECD countries that the Investment
Manager and Investment Adviser believe have a stable solar energy regulatory
environment and provide investment opportunities with similar, or better,
investment characteristics and returns relative to investments in the UK,
although the Company may acquire an interest in solar PV assets located in
non-OECD countries where those assets form part of a portfolio of solar PV
assets in which the Company acquires an interest and where the Company's
aggregate investment in any such assets is, at the time any such investment is
made, not greater than 3% of the GAV.
The Company intends to continue to acquire solar PV assets that are primarily
ground-based and utility-scale and which are on sites that may be
agricultural, industrial or commercial. The Company may also acquire
portfolios of residential or commercial building-integrated installations. The
Company targets solar PV assets that are anticipated to generate stable cash
flows over their asset lifespan.
The Company typically seeks to acquire sole ownership of individual solar PV
assets through SPVs, but may invest in solar PV assets through entering into
joint ventures, acquiring minority interests or via private equity structures,
provided that not more than 15% of the GAV may be invested in private equity
structures (calculated at the time of investment). Where a controlling
interest of less than 100% in a particular solar PV asset is acquired, the
Company intends to secure controlling shareholder rights through shareholders'
agreements or other legal arrangements. Where a non-controlling interest is
being acquired (either directly in a solar PV asset or through a private
equity structure) the Company intends to secure minority protection rights or
protections through limited partnership agreements in line with typical
private equity structures. Investments by the Company in solar PV assets may
be either by way of equity or a mix of equity and shareholder loans.
The Company has built up a diversified portfolio of solar PV assets and its
investment policy contains restrictions to ensure risk diversification. No
single investment (or, if an additional stake in an existing investment is
acquired, the combined value of both the existing and the additional stake) by
the Company in any one solar PV asset will constitute (at the time of
investment) more than 30% of the GAV. In addition, the four largest solar PV
assets will not constitute (at the time of investment) more than 75% of the
GAV.
The Company will continue, primarily, to acquire assets, but may also invest
in solar PV assets that are under development (that is, at the stage of
origination, project planning or construction) when acquired. Such assets will
constitute (at the time of investment) not more than 10% of the GAV in
aggregate.
The Company may also agree to forward-fund by way of secured loans the
construction costs of solar PV assets where it retains the right (but not the
obligation) to acquire the relevant asset once operational. Such
forward-funding will not fall within the 10% development restriction above but
will be restricted to no more than 25% of the GAV (at the time such
arrangement is entered into) in aggregate and will only be undertaken where
supported by appropriate security (which may include financial instruments as
well as asset-backed guarantees).
The right to forward-fund, subject to the above limitations, enables the
Company to retain flexibility in the event of changes in the development
pipeline over time. In addition, the Company will not employ forward funding
and engage in development activity in relation to the same project or asset.
A significant proportion of the NESF Group's income is expected to result from
the sale of the entirety of the electricity generated by the solar PV assets
within the terms of PPAs to be executed from time to time. These are expected
to include the monetisation of Renewable Obligation Certificates ("ROC") and
other regulated benefits and the sale of electricity generated by the assets
to energy consumers and energy suppliers (Merchant Power). Within this
context, the Company expects to execute PPAs with creditworthy counterparties
at the appropriate time.
The Company will continue to diversify its third-party suppliers, service
providers and other commercial counterparties, such as developers, engineering
and procurement contractors, technical component manufacturers, PPA providers
and landlords.
In pursuit of the Company's investment objective, the Company may employ
leverage, which together with the aggregate subscription monies paid in
respect of all Preference Shares in issue and including any unpaid or
undeclared dividends thereon will not exceed (at the time the relevant
arrangement is entered into) 50% of the GAV in aggregate. Such leverage will
be deployed for the acquisition of further solar PV assets in accordance with
the Company's investment policy. The Company may seek to raise leverage at any
of the SPV, UK Holdco or Company level.
The Company invests with a view to holding its solar PV assets until the end
of their useful life. However, assets may be disposed of or otherwise realised
where the Investment Manager determines, in its discretion, that such
realisation is in the best 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 will seek to optimise and extend the lifespan of its assets and
may invest in their repowering and/or integration of ancillary technologies
(e.g. energy storage) on its solar PV assets to fully utilise grid connections
and balance the electricity grid with a view to generating greater revenues.
The Company may also invest in standalone energy storage systems (not
ancillary to or co-located with solar PV assets owned by the Company) up to an
aggregate limit of 10% of the GAV (calculated at the time of investment). The
Company expects to re-invest any cash surplus (in excess of that required to
meet the Company's dividend target and ongoing operating expenses) in further
investments, thereby supporting its long-term net asset value.
The Company may invest cash held for working capital purposes and pending
investment or distribution in cash or near-cash equivalents, including money
market funds.
The Company may (but is not obliged to) enter into hedging arrangements in
relation to interest rates and/or power prices.
Where investments are made in currencies other than sterling, currency hedging
may be carried out to seek to provide protection to the level of sterling
dividends and other distributions that the Company aims to pay on its shares
and in order to reduce the risk of currency fluctuations and the volatility of
returns that may result from such currency exposure. This may involve the use
of forward foreign exchange contracts to hedge the income from assets that are
exposed to exchange rate risk against sterling and foreign currency borrowings
to finance foreign currency assets.
Hedging transactions (if carried out) will only be undertaken for the purpose
of efficient portfolio management to protect or enhance returns from the
Company's portfolio and will not be carried out for speculative purposes.
As required by the Listing Rules, any material change to the Investment Policy
of the Company will be made only with the approval of the Financial Conduct
Authority ("FCA") and of the Company's Ordinary Shareholders by ordinary
resolution.
In the event of any breach of the Company's Investment Policy, shareholders
will be informed of the actions to be taken by the Investment Manager by an
announcement issued through a Regulatory Information Service or a notice sent
to Shareholders at their registered addresses in accordance with the Articles.
Installed Capacity since IPO(1)
1 Includes 6.21% share in private equity vehicle (NPIII LP). As at 31 March
2023, NESF's share of NPIII LP increases total installed capacity by 24MW
(2022: 19MW) to 889MW (2022: 884MW)
Investment Adviser's Report
NextEnergy Group is a leading specialist solar and energy storage investment
manager and asset manager. The NextEnergy Group is responsible for the
acquisition and management of the Company's portfolio, including the sourcing
and structuring of new investments and advising on the Company's financing
strategy. It has c. $3.4 bn of assets under management and employs over 270
people worldwide.
Investment Adviser's Investment Committee
The Investment Adviser's Investment Committee comprises Michael
Bonte-Friedheim, Aldo Beolchini, Giulia Guidi and Ross Grier, who have in
excess of 70 years' combined industry experience.
Michael Bonte-Friedheim is Founding Partner and CEO of NextEnergy Group
Aldo Beolchini is Managing Partner and Chief Investment Officer of NextEnergy
Capital
Giulia Guidi is Head of ESG at NextEnergy Capital
Ross Grier is Chief Operating Officer of NextEnergy Capital
Introduction
NextEnergy Capital Limited, the Investment Adviser, continues to provide
dedicated support to the Company. This has enabled NESF to deliver a strong
performance, capitalise on value-accretive opportunities and successfully
navigate the complex challenges faced during a year characterised by
significant market volatility and political instability. The Investment
Adviser closely monitors political and economic developments and continues to
dynamically assess potential future opportunities and risks for
the Company.
As at 31 March 2023, the NAV per ordinary share was 114.3p (2022: 113.5p). The
change in NAV over the annual period includes increases in both power price
forecasts (+14.6p per ordinary share) and short-term inflation forecasts
(+5.6p per ordinary share). A rising interest rate environment and increases
in UK long-term gilt yields led to a 1.0% increase to the discount rate
applied to unlevered operating UK solar assets, offsetting some of the
positive movement from power prices and inflation (-7.0p per ordinary share).
As disclosed in the RNS dated 12 May 2023, the Board and the Investment
Adviser identified a historic overstatement in the NAV. This issue has been
fully addressed and the current and historic NAV has been adjusted
accordingly. As a result the Investment Adviser has completed a full
investigation of this issue and of the Company's controls and processes,
working in conjunction with the Audit Committee. Based on the detailed and
thorough work undertaken by the Investment Adviser and the Audit Committee,
the Board is satisfied that this was an isolated incident and that the
controls and valuation tools remain robust. The Investment Adviser has also
incorporated additional controls to provide the Board with further
reassurance. In addition, the Investment Manager has repaid the management fee
that had been based on the higher NAV figure, which amounted to a total of
£133,000. Further details can be found below.
Investment Highlights
During the year, the Company has continued to advance a significant pipeline
of UK solar assets, international solar assets, UK battery storage assets as
well as international solar co-investment opportunities through NESF's
commitment to NPIII LP.
UK Solar Investments
NESF has pioneered investment into UK subsidy-free solar since 2017, paving
the way for continued renewable investment in the UK following the withdrawal
of subsidy regimes. This effort has been crucial in attracting new investment
into the sector, advancing the UK's net zero ambitions and energy security.
NESF has made substantial progress across its pipeline of post-subsidy solar
assets and accrued significant value. Following a successful year of
progressing the portfolio, the Company plans to crystallise the returns by
divesting five subsidy free assets and recycling the capital into further
value-accretive opportunities.
During the year, the Company commenced construction of Whitecross, a 36MW
utility solar asset, located in Lincolnshire. The Company also commenced grid
connection works and the construction mobilisation phase of Hatherden, a 50MW
subsidy-free solar farm in Hampshire. Alongside three other assets in the NESF
portfolio, Whitecross and Hatherden contribute towards a selection of
subsidy-free projects totaling 150MW. The other three assets being High
Garrett (8.4MW), Hall Farm 2 (5.4MW) and Staughton (50MW). The successful
selection of the 150MW subsidy-free portfolio demonstrates the Company's
ability to respond efficiently and effectively to a changing UK solar market.
Whitecross and Hatherden have been selected to be part of the fourth CfD
Allocation Round (AR4). The CfD programme lasts for 15-years and is annually
index linked to inflation (CPI). It is scheduled to commence from 31 March
2025 at the AR4 solar PV strike price of £45.99/MWh (set in 2012 equivalent
prices).
During the year, NESF added a commercial rooftop solar asset to its portfolio,
secured through an existing agreement made with the renewable energy
developer, Zestec. Holiday Inn is a 0.18MW asset located on a Holiday Inn in
Nottinghamshire and benefits from an attractive 25-year power purchase
agreement ("PPA") for 100% of its generated volume.
Newfield, a 0.18MW commercial rooftop solar asset, was removed from the
portfolio following termination of the lease by the landlord. The Company has
received appropriate compensation in line with the termination clause in the
lease agreement.
The NextEnergy Group's Energy Sales desk is responsible for managing the
strategy for the sale of electricity from the subsidy-free operating assets
without long-term contracts. Details on the power price risk management
strategy can be found in note 22b of the Financial Statements.
International Solar Co-investments
The Company has continued to pursue geographical diversification through its
existing $50m commitment ($38.1m drawn as at 31 March 2023) into NPIII LP.
NPIII LP is a US$806m private equity solar fund focused on utility scale solar
assets in OECD markets with a portfolio of operational and in-construction
solar assets. Its US$50m commitment provides the Company with access to
attractive co-investment opportunities on a direct investment basis alongside
NPIII LP and other limited partners in the NPIII LP fund, on a no-fee, no
carry basis.
In May 2022, the Company announced its second co‑investment alongside NPIII
LP, taking a 13.6% stake in a 210MW solar asset known as Santarém in
Portugal. Energisation of the project is expected to take place in 2023. Once
energised, Santarém will benefit from a long-term PPA for the sale of
electricity which has been signed with Statkraft, a leading renewable producer
in Europe's energy market.
Energisation of the Company's first co-investment, a 25% stake in a Spanish
50MW solar project, Agenor Hive S.L. ("Agenor"), is expected to occur in Q3
2023 following its announcement in January 2022. These co-investments will
enable the fund to benefit from:
• Low revenue risk through entering PPAs with high-credit
counterparties; and
• Additional geographical diversification.
Standalone UK Battery Storage Investments
NESF has continued its strategic expansion into energy storage through its
strong relationship with Eelpower Limited ("Eelpower"), which has provided the
Company with access to leading expertise in the industry.
The Company's first £100m Joint Venture Partnership ("JVP1") was announced on
26 April 2022 and is owned 70% by NESF and 30% by Eelpower. Its first 50MW
battery storage project through JVP1, called Camilla, is currently under
construction in Fife, Scotland. Camilla has been selected to provide battery
storage capacity in the UK Government's latest Capacity Market Auction. The
contracts are expected to deliver revenues of £557k over winter 2023 and
£576k per annum over 2026 to 2032, adding to Camilla's existing Capacity
Market contract for delivery in winter 2025-26 worth £305k. As a result,
Camilla will support the grid with critical flexibility during stress events
in winter 2023 and for six winters from October 2026. These contracts will
provide a stable foundation for the operation of the asset.
In September 2022, NESF entered its second £200m Joint Venture Partnership
("JVP2") with Eelpower. NESF owns 75% of JVP2, with Eelpower holding the
remaining 25%. The Company subsequently announced its first successful
acquisition through JVP2 of the development rights, permits, and initial grid
milestones for a 250MW portfolio of high-quality battery storage projects and
grid connections in the East of England for £32.5m.
Once constructed, the project will provide vital grid balancing services.
Furthermore, the project will harness electricity at low import prices and
export electricity at times of low generation and high prices, benefiting from
excess generation from neighbouring offshore wind. The project provides a very
attractive return profile for the Company's portfolio.
The Directors have concluded that both Joint Venture Partnerships meet the
control requirements of the relative accounting standards and are therefore
accounted for as subsidiaries (see note 4 of the Financial Statements).
Co-located UK Battery Storage Investments
Due to the high complementarity between solar generation and battery storage,
the Company is also pursuing a co-located battery storage retrofit programme
for its existing portfolio of 99 UK operational assets. Solar assets exhibit a
very predictable generation profile throughout the day; therefore, batteries
can better optimise when it charges and subsequently dispatches power
throughout the day, allowing the battery to capture arbitrage opportunities.
In April 2022, the Company selected the first site for a co-located battery
storage project and has plans to extend the existing 11MW North Norfolk solar
farm within the NESF portfolio to include a 6MW/12MWh battery system. Planning
permission for the co-located battery system has been secured and discussions
are ongoing with the local distribution network operator to confirm an
energisation date. Implementing co-located batteries across the portfolio
presents an attractive growth opportunity as these assets offer both synergies
with PV assets, as well as offering diversification to portfolio income.
Outlook and Capital Recycling Programme
Market research published during the reporting period, such as the IEA World
Energy Outlook 2022, supports the Company's goals for deployment of new clean
energy projects and forecasts substantial increases in capacity of renewables
out to 2030. Furthermore, the UK national grid's future energy scenarios
forecasts growth in capacity to continue, with energy storage increasing the
most from 1.6 GW in 2021 to as much as 20 GW by 2030 and 35 GW by 2050. This
economic and political landscape strengthen the case for investment in
renewables for the foreseeable future. It is in this context that the Company
is seeking to maximise the value of its existing portfolio and capture higher
returning investment opportunities through a capital recycling programme (the
"Programme") that was launched in April 2023.
The Company has been a market leader in subsidy-free UK solar and has created
value through the construction and energisation of its pipeline. The Board and
Investment Adviser do not consider this value to be truly reflected in the
Company's recent share price. Therefore, NESF is aiming to divest a portfolio
of five subsidy-free assets (Hatherden, Whitecross, Staughton, The Grange, and
South Lowfield). The Programme is expected to deliver NAV accretive returns by
realising the value generated through these investments. The Company will
retain two operational subsidy-free assets and remains committed to its
remaining subsidy-free solar pipeline.
The proceeds from this transaction will be utilised in the following ways:
• Reduce Gearing: In light of significant increases in
interest rates over the year, the Board anticipates using net proceeds from
the Programme to reduce the amount of drawn RCF where the Company has exposure
to the high interest rate environment in the near term. The reduction in
gearing will reduce debt service burden, strengthen free cash flows, and
further increase dividend cover.
• Growth Opportunities: Some of the proceeds from the
Programme will allow the Company to position itself ready for its next phase
of growth, including value-accretive energy storage. Battery storage is a
highly complementary technology to Solar PV, and the profiles of both are
uncorrelated, providing further diversification to the Company's portfolio
from a technology, revenue and geographic perspective. The Company has
exclusivity over, or owns the project rights for, the majority of its pipeline
of c.£500m UK and international assets across the solar and energy storage
space. This includes ownership of the development rights for a high-quality
250MW battery storage project in the East of England, which when constructed
will be one of the UK's largest operational standalone battery storage assets.
• The investment opportunities aim to achieve robust financial
returns, increase dividend cover and add geographical, technological, and
revenue diversification to the NESF portfolio.
• Commitment to buyback shares: The Board and the Investment
Adviser continue to closely monitor the current discount and confirms its
commitment to buy back shares if the share price continues to trade at a
material discount to the Company's NAV per share.
Portfolio Performance
During the year, solar irradiation across the entire portfolio was 7.5% above
expectation (2022: 3.4%), and generation was 3.8% above budget (2022: 1.8%).
The additional generation increased revenues by an estimated £4.8m (2022:
£2.0m) and provided an additional +31.6GWh of clean electricity across the
portfolio (providing enough energy to power 8,500 homes for the year).
Generation Alpha during the year has been impacted by supply chain
constraints, particularly due to continuing delays and long lead times as a
result of the Covid-19 pandemic.
The outperformance of the portfolio during the year was strong and involved
navigation of significant challenges. Without Distribution Network Operator
Outages ("DNOOs"), portfolio generation would have been c.4.8% above budget.
Distribution Network Operators ("DNOs") are regionally based licensed
companies (there are six across Great Britain) with each responsible for a
specific region. DNOs complete rolling programmes of preventative maintenance
and upgrade works to ensure stability of the energy supplied to consumers. In
order to keep their staff safe, they often need to de-energise power lines to
complete these works.
The Asset Manager delivers dynamic monitoring and active performance
management for assets that have successfully passed Preliminary Acceptance
Certificate ("PAC") in accordance with the Engineering, Procurement and
Construction ("EPC") contract. The three rooftop portfolios have been excluded
as the monitoring of small assets is not economically viable. Similarly, the
generation performance of assets that are yet to pass PAC are not reported by
the Asset Manager.
FY2023 Irradiation (delta vs. budget) Asset Management Alpha) Generation
(delta vs. budget)
UK portfolio +7.7% -3.8% +3.8%
Italy portfolio +5.9% -2.6% +3.3%
Total +7.5% -3.7% +3.8%
12 months ended 31 March No. of assets monitored Irradiation Asset Management Alpha Generation
(delta vs. budget)
(delta vs. budget)
2018 55 -0.9% +1.8% +0.9%
2019 84 +9.0% +0.1% +9.1%
2020 85 +4.0% +0.7% +4.7%
2021 88 +5.5% +0.7% +6.2%
2022 90 +3.4% -1.6% +1.8%
2023 90 +7.5% -3.7% +3.8%
Cumulative from IPO to March 2023 90 +3.5% +0.9% +4.4%
Portfolio Optimisation
The Asset Manager focusses on implementing technical improvements across the
portfolio, reducing operating costs through utilising existing insurance
contracts and re-negotiating contractual terms by entering into new agreements
with suppliers. Throughout the year, the Asset Manager has leveraged on its
experience and understanding of renewables to deliver high levels of
performance across NESF's operating portfolio.
Asset Optimisation
During 2022, NESF conducted a market leading tender aiming to drive down the
cost of O&M. 18 assets totalling c.165 MWp have been rolled into the new
framework, driving down costs from £6.7/MWp to £5.8/MWp, a saving of 14%,
despite the high levels of inflation during the year.
The Company's Asset Manager utilised its understanding of the challenges faced
by the O&M industry and the subsequent impacts to costs. The approach
facilitates cost reductions whilst helping to further drive the leading
performance of the assets. Overall, through the O&M tender process, six
leading O&M contractors were selected to deliver in the short to medium
term for NESF. These O&Ms have been strategically selected to offer:
• Economies of scale whilst simultaneously not exposing the
fund to over-consolidation risk;
• Coverage of all technologies across the NESF portfolio in
order to drive performance; and
• Appropriate geographical coverage for the fund.
During the year, six insurance claims were successfully settled and closed out
for storm damages. The Company received a total settlement of £537k.
The Company has initiated a programme to replace aging inverters across its
portfolio, prioritising those which have experienced increased failure rates,
such as Emerson inverters. In total the Company currently anticipates
replacing inverters for up to 13 assets (with a combined capacity of up to
135MW) over the next three years. The Investment Adviser and Asset Manager
regularly review performance across the portfolio to identify opportunities to
support and enhance long-term asset health as part of a rolling programme of
strategic re-investment.
OFGEM Audits
During the year, no material adjustments to the NAV were made as a result of
Office of Gas and Electricity Markets ("OFGEM") audits. Since IPO, 25 OFGEM
audits have been successfully concluded without adverse impact to ROC or FiT
accreditations. The NextEnergy Group has staff who are experienced in dealing
with the ongoing audits. Engagement with OFGEM is through professional
advisers and senior NextEnergy Group staff. The Asset Manager has identified
and mapped contractual recourse associated with identified risk of loss for
completed and ongoing audits.
Short/Medium-term Power Purchase Agreements
NESF continues to lock in power price hedges over a 36-month period. This risk
mitigation helps secure and underpin both dividend commitments and dividend
cover, whilst reducing volatility and increasing visibility of cash flows.
NextEnergy Group's energy sales desk ensures that the Company's electricity
sales strategy increases the certainty of revenue streams whilst mitigating
the negative impact of short-term fluctuations in the power markets. Secured
pricing comprises fixed price contracts and hedging under trading frameworks.
PPA sourcing and structuring Energy and market risk management Market and pricing analysis
Run competitive off-taker selection processes through our extensive network in Measure, monitor and manage merchant exposure through selling at spot, The Investment Adviser provides pricing for NESF projects, supported by
the solar industry entering into short-term, medium- term and long-term PPAs multiple independent short and long-term third-party power price forecasts
Quantitative evaluation of the offers in term of risk and reward and devise Constant dialogue with investors, banks and off-takers on developing new and Undertake rigorous analysis and monitoring of the main drivers for power
optimal project-specific solutions innovative structures for risk diversification to enable us to increase prices in target markets
portfolio returns
Individual view of market price risks and opportunities and delivery Monitor policy/regulatory developments in the UK and other OECD target markets
obligations in order to find the optimal PPA structure to obtain an holistic energy market overview
UK hedging summary(1) FY2023/ 2024 FY2024/ 2025 FY2025/ 2026
Generation hedged (%) 87.9% 44.3% 13.0%
Average fixed price £79.0 £91.4 £147.2
(£/MWh)
(1) covers 83% of the total portfolio (716MW) as at 1 June 2023
For the year ended 31 March 2023, the Italian portfolio derived c. 81% of
revenues from subsidies (principally FiTs) and c.19% of revenues resulted from
the sale of electricity under fixed price agreements. For calendar year 2023,
c.62% of the Italian portfolio has fixed price agreements in place for H1 2023
at a weighted average fixed price of €84.0/MWh. For H2 2023, 100% of the
Italian portfolio has fixed price agreements in place at a weighted average
fixed price of €135.2/MWh.
Portfolio Valuation
Introduction
The Investment Adviser carries out the fair market valuation of the Company's
underlying investment portfolio in line with its accounting policies. This
valuation is then presented to the Company's Board for review and approval.
The valuation is carried out quarterly (ad hoc valuations may also be
undertaken from time to time, for example in conjunction with an equity fund
raising).
The valuation principles used are based on a discounted cash flow
methodology except for NPIII LP which is valued using the estimated
attributable NAV. Assets which are not yet operational, or where the
completion of the acquisition is not imminent at the time of valuation, use
the acquisition cost as a proxy for fair value.
The Company incorporates third parties in the process. A review is arranged
with the auditors on a semi-annual basis. The auditors conduct an independent
review of the interim financial statements and an audit of the annual report
and financial statements. On a periodic basis, a specialist third-party
modelling company conducts a detailed review and validates the Fund's model,
to provide assurance of its structural integrity and confirms it is correctly
updated and maintained.
The Board reviews the operating and financial assumptions used in the
valuation of the Company's underlying portfolio.
Processes and Controls
Corporate governance of the Fund is critical to the process surrounding the
valuation and involves many stakeholders. On a quarterly basis, the fund model
is used to produce a valuation of the Investments, which involves an extensive
internal review performed by the Investment Adviser. Following production of
the NAV, multiple reviewers are responsible for ensuring that all changes to
the Company's portfolio are reflected and explained appropriately. These
changes include:
• Inputs and assumptions, which are updated to correctly
reflect the project documents and the acquisition case. For new assets
acquired since the previous valuation, the main input source is the
acquisition documents used to build the acquisition model created by the
Investment Analyst. The Investment Adviser will therefore be responsible for
ensuring that the inputs of their acquisition model have been correctly
transferred to the Fund model and the acquisition contracts are cross-checked
against one another;
• Changes to inputs for existing assets, which must be
explained by project documents. These changes might include:
• Project Life: Planning and lease extensions secured since
the acquisition of the asset;
• Project Yield: Remediation performed after acquisition;
• Project Operating Expenses: New or amended contracts for
O&M, Asset Management, Insurance and G&A secured during the period;
and
• Project Capital expenditures (actual costs incurred and
changes to expected milestone dates); and
• Updates to data provided by third party advisers and
sources. The Company continues to capitalise on the expertise of third-parties
and ensure fairness in the process through the independence of assumptions.
Following internal review, the Investment Adviser arranges a committee meeting
to scrutinise movements in the valuation during the period and consider
long-term assumptions, such as the discount rate. The Investment Adviser
subsequently presents the valuation to the Board of Directors of the
Investment Manager, explaining the movements in the portfolio valuation and
the NAV during the period. Following approval, the Investment Adviser presents
to the NESF Board of Directors. Both presentations show the valuation of the
portfolio, split by asset and include the NAV bridges. If satisfied with the
responses to queries, the NAV is approved for public dissemination. All board
and committee meetings are minuted and documented.
Portfolio valuation - key assumptions As at 31 March 2023 As at 31 March 2022
UK long-term inflation 2.25% 2.25%
UK short-term inflation (1 year horizon) 4.9% 8.0%
Weighted average discount rate 7.3% 6.3%
Remaining weighted average useful life 26.3 years 27.3 years
UK short-term power price average (2023-2027) £105.2/MWh £86.1/MWh (real 2023)
UK long-term power price average (2028-2042) £50.9/MWh £50.6/MWh (real 2023)
Italy power price average (20 years) €92.6/MWh €64.0/MWh (real 2023)
UK corporation tax rate 25% 19% until 2023, 25% thereafter
Forecast power price methodology
For the UK portfolio, the Company uses multiple sources for UK power price
forecasts. Where PPAs exist, PPA prices are used where they have been secured.
For periods where there are no PPAs in place, short-term market forward prices
are used. After two years, the Company integrates a rolling blended average of
three leading independent energy market consultants' long-term central case
projections. This approach allows mitigation of any delay in response from the
three independent market forecasters ("Consultants") used by the Company in
publishing quarterly or ad hoc updates following any significant market
development.
For the Italian portfolio, a leading independent energy market consultant's
long-term projections are used to derive the power curve adopted in the
valuation.
The power price forecasts used also include a 'solar capture' discount which
reflects the difference between the prices available in the market in the
daylight hours of operation of a solar asset versus the baseload prices
included in the power price estimates. This solar capture discount is provided
by the Consultants on the basis of a typical load profile of a solar asset and
is reviewed as frequently as the baseload power price forecasts. The
application of such a discount results in a lower long-term price being
assumed for the energy generated by NESF's portfolio.
Valuation Correction
As part of the Company's continual improvement of internal systems, an
internal review identified that a report generated by a new reporting module
had overstated historic NAV calculations, leading to an excess of working
capital being reported. This was not an issue with the accounting system; the
Board and the Investment Adviser have investigated it fully and are confident
that the accounting across the Company and its SPVs remains robust.
Discount rate
During the year, the UK rate of inflation increased significantly. In the
context of higher interest rates in response to changes to the Bank of England
("BoE") base rate, the yield on UK long-term gilts has also increased, putting
upward pressure on discount rates. The BoE Monetary Policy Committee announced
on 23 March 2023 an increase to the BOE base rate to 4.25%. Therefore, during
the year, the Company increased the discount rate for unlevered operating UK
solar assets by 1.0% to 6.75% (31 March 2022: 5.75%). This change is in line
with the increases in discount rates observed by the Investment Adviser in the
sector in which the Company operates, and continues its robust approach to
valuing the portfolio.
Discount rate assumptions Premium As at As at
31 March 2023
31 March 2022
UK unlevered - 6.75% 5.75%
UK levered 0.7-1.0% 7.45-7.75% 6.45-6.75%
Italy unlevered(1) 1.5% 8.25% 7.25%
Subsidy-free (uncontracted)(2) 1.0% 7.75% 6.75%
Life extensions(3) 1.0% 7.75-8.75% 6.75-7.75%
1 Unlevered discount rate for Italian operating assets implying 1.5% country
risk premium
2 Unlevered discount rate for subsidy-free uncontracted operating assets
implying 1.0% risk premium
3 1.0% risk premium for cash flows after 30 years where leases have been
extended
The resulting weighted average discount rate for the Company's portfolio was
7.3% (31 March 2022: 6.3%). The Company does not use the weighted average cost
of capital ("WACC") as the discount rate for its investments as it believes
that the reduction in WACC deriving from the introduction of long-term debt
financing does not reflect the greater level of risk to equity investors
associated with leveraged assets or levered portfolios. However, for the
purposes of transparency, the Company's pre-tax WACC as at 31 March 2023 was
5.7% (31 March 2022: 5.3%).
The Company has not included the impact of the discount rates used in the
NPIII LP investment, as the Company has no control or influence over these
rates and a weighted average discount rate is not produced by NPIII LP, as its
underlying investments are in multiple geographies.
Asset life
The discounted cash flow methodology implemented in the portfolio valuation
assumes a valuation time horizon capped to the current terms of the lease and
planning permission on the properties where each individual solar asset is
located. These leases have been typically entered into for a 25-year period
from commissioning of the relevant solar asset (specific terms may vary).
However, the useful operating life of the Company's portfolio of solar assets
is expected to be longer than 25 years. This is due to many factors,
including:
• Solar assets with technology components similar to the ones
deployed in the Company's portfolio have been demonstrated to be capable of
operating for over 45 years, with levels of the technical degradation lower
than those assumed or guaranteed by the manufacturers. Local planning
authorities have already granted initial planning consents that do not expire
and/or have granted permissions to extend initial consented periods;
• The Company owns rights to supply electricity into the grid
through connection agreements that do not expire; and
• Discounted cash flow valuation assumes a zero-terminal value
at the end of the lease term for each asset or the end of the planning
permission, whichever is the earlier.
Operating performance
The Company initially values each solar asset on the basis of the minimum
performance ratio ("PR") guaranteed by the vendor, or that estimated by the
appointed technical adviser during the acquisition due diligence. These
estimates have been generally lower than the actual PR that the Company has
been experiencing during subsequent operations. We therefore deem it
appropriate to adopt the actual PR after two years of operating history when,
typically, the plants have satisfied tests and received Final Acceptance
Certification ("FAC").
As at 31 March 2023, 71 solar assets (totalling 630MW) have achieved FAC and
their actual PR was used in the discounted cash flow valuation.
FAC timeline for remaining assets Capacity
(MW)
Financial quarter ending December 2023 75
2024 onwards 138
Total 213
Net Asset Value
The Company's NAV is calculated quarterly and based on the valuation of the
investment portfolio provided by the Investment Adviser and the other assets
and liabilities of the Company calculated by the Administrator. The NAV is
reviewed and approved by the Investment Manager and the Board. All variables
relating to the performance of the underlying assets are reviewed and
incorporated in the process of identifying relevant drivers of the discounted
cash flow valuation.
In accordance with IFRS 10, the Company reports its financial results as an
Investment entity and on a non-consolidated basis (see note 2d to the
Financial Statements). The change in fair value of its assets during the
period is taken through the Statement of Comprehensive Income.
The movement in the NAV was driven primarily by the following factors:
• An increase in short-term (2023-2027) UK power price
forecasts provided by Consultants, being 22.2% higher than assumptions at 31
March 2022;
• The increase in discount rate for unlevered operating UK
solar assets;
• The upward revision in short-term inflation forecasts;
• The operating results achieved by the Company's solar
assets; and
• The dividends declared and operating costs incurred during
the year.
NAV bridge for the year ended 31 March 2023
NAV sensitivity analysis as at 31 March 2023
The chart below shows the impact of the key sensitivities on the NAV per
ordinary share. Additional sensitivity analyses can be found in note 19b to
the Financial Statements.
Cash Flow generation
The Company generates revenues through the sale of electricity to the markets
and the subsidies provided under various subsidy regimes (ROC, NIROC and FiT).
Both revenue streams are underpinned by two main factors:
• The actual energy generated (measured as amount of KWh of
energy generated), which is mainly driven by the solar irradiation, technical
performance and availability of the plant; and
• The actual price at which the energy generated is sold to
the markets, as well as the subsidies received for the same generation.
The performance of a plant in terms of revenues is therefore a product of both
the operational performance and the commercial terms of the PPAs in place.
Before taking into account tax payments and financing considerations, the cash
flow generation of solar assets is also influenced by operating expenses,
which are usually governed by long-term contracts and characterised by low
volatility over the long-term.
Year ended Actual per MW(1) Budget per MW(1) Delta vs. Budget Comments
31 March 2023
Solar Irradiation A (kWh/m(2)) 1,277 1,188 +7.5% Actual solar irradiation for the year
Conversion Factor(2) B (%) 78.8% 81.6% (3.5%) Represents Performance Ratiofor the year
Metered Generation C = (kWh) 1,007 970 +3.8% Actual generation measured at the meter for the year
[A x B]
Power price Subsidies Power price Subsidies
Realised Prices D (£/ MWh) 88.0 75.2 97.8 76.3 (1.4%) Implied average power price and subsidies across entire portfolio (including
subsidies ROC recycle and Embedded benefits)
(10.1%)
power price
Revenues (Subsidies, PPAs, Etc.) E =[C x D] (£'000) 88.6 75.7 94.9 74.0 2.3% Actual revenues at portfolio level for the year (unaudited figures per MW)
subsidies
(6.7%)
power price
Total Revenues E (£'000) 164.3 168.9 (2.8%)
Operating Expenses F (£'000) (34.7) (34.2)(4) +1.6% Actual costs at portfolio level for the year (unaudited figures per MW)
EBITDA(3) G = [E - F] (£'000) 129.5 134.7 (3.9%) Actual EBITDA for the year (unaudited figures per MW)
EBITDA Margin(3) 78.9% 79.8%
1 Based on the average installed capacity 865 MW over the financial year.
Given the different composition of the growing portfolio, this information is
not directly comparable with what was provided in the previous Annual Report
2 Ratio captures the solar plant performance ratio with availability issues
incorporated, which reflects all system shut-downs for maintenance, failures
or grid outages
3 EBITDA is a reference to EBITDA at the SPV levels
4 Budgeted operating expenses are based on the acquisition case of the assets
Operating results
Profit before tax was £48.3m (2022: £127.6m) with earnings per ordinary
share of 8.20p (2022: 21.69p).
Operating expenses and ongoing charges
The operating expenses, excluding preference share dividends paid by the
Company, for the year amounted to £8.2m (2022: £6.7m). The Company's ongoing
charges was 1.1% (2022: 1.1%). The budgeted ongoing charges for the financial
year ending 31 March 2024 is 1.1%. The ongoing charges has been calculated in
accordance with the Association of Investment Companies recommended
methodology and is an Alternative Performance Measure.
Cash flow analysis
As at 31 March 2023, the Company held cash of £14.4m at an A+ credit rated
financial institution (2022: £19.6m).
Cash received from assets in the period covered the operating expenses, the
preference share dividends, dividends declared to ordinary shareholders in
respect of the year ended 31 March 2023 and part of the investment into
HoldCos.
Cash flows of the Company Year end 31 March 2023 £'000 Year end 31 March 2022 £'000
Company cash balance at 1 April 19,608 10,809
Investment in HoldCos (26,920) 6,877
Received from HoldCos 81,460 57,735
Directors' fees (293) (212)
Investment Management fees (5,875) (4,979)
Administrative Expenses (1,730) (1,281)
Dividends paid in cash to ordinary shareholders (42,396) (39,841)
Preference share dividends (9,500) (9,500)
Company cash balance at 31 March 14,354 19,608
Group Operating SPV's
The below table represents the unaudited consolidated financial results of the
Company's SPVs.
Year end 31 March 2023 (unaudited) Year end 31 March 2022 (audited)
£'000
£'000
Total NESF Group revenue 141,205 114,220
EBITDA 111,332 89,819
EBIT 52,819 38,575
Cash income for the year 78,519 65,792
Cash Dividend Cover
Year ended £'000 Pre-scrip dividends £'000
31 March 2023
Cash income for year(1) 78,519
Net operating expenses for year (8,209)
Preference shares dividend (9,500)
Net cash income available for distribution 60,810
Ordinary shares dividend paid during year 43,807
Cash dividend cover(2) 1.4x
1 Cash income differs from the Income in the Statement of Comprehensive Income
as the latter is prepared on an accruals basis. See below for further
information.
2 Alternative Performance Measures
Financing
Financial debt
In June 2022, the NESF Group signed a two-year extension to its £70m RCF with
Santander UK, now available until July 2024. In September 2022, the NESF Group
secured £60m additional commitments under an existing RCF from £75m to
£135m, available until June 2024.
At 31 March 2023, the Company's subsidiaries (including NPIII LP) had
financial debt outstanding of £345m (2022: £283m), on a look-through basis,
as shown in the table overleaf. Due to a combination of low debt levels and
RPI linked subsidies, debt covenants at the HoldCos level would only be
breached at very low power prices (less than c.£20/MWh). No covenant breaches
have occurred during the period.
Preference shares
At 31 March 2023, the Company had £200m of preference shares outstanding
(2022: £200m). The preference shares are non-redeemable (except in limited
exceptional circumstances), non-voting and convertible into ordinary shares
from 1 April 2036 at their issue price (£200m in aggregate) plus any unpaid
preference share dividends at the date of conversion. For financial accounting
purposes, and in line with IFRS the preference shares are classified as
long-term liabilities.
The preference shares are equivalent to non-amortising debt with repayment in
shares, and the Company is not required to use cash flow, or raise funds, to
repay them at the end of their life. The absence of amortisation enhances the
ability to pay the ordinary share dividend, and repayment in shares removes
refinancing risk.
From 1 April 2030, the Company may elect to redeem all or some of the
preference shares. Redemption of the preference shares by the Company would
provide an attractive uplift if the share price is trading at a healthy
premium. Benefits of the preference shares for NESF include:
• A reduction in the exposure to secured debt financing;
• The fixed preferred dividend of 4.75p per preference share
being a significantly lower all-in annual cash cost to the Company compared to
issuing ordinary shares; and
• The further optimisation of the Company's capital structure
and, over the long term, increase in cash flows available to fund ordinary
share dividends or for reinvestment compared to refinancing with conventional
long-term amortising financial debt, thereby increasing the cash dividend
cover.
• The Investment management fee is calculated based on the
ordinary share NAV and, accordingly, no fee is payable in respect of the
preference shares. The terms of the preference shares can be found in note 23
to the Financial Statements.
Total gearing
The financial debt, together with the preference shares, represented a total
gearing level of 45% (2022: 42%), which is below the maximum limit of 50% in
the Company's Investment Policy.
Provider / arranger Type Borrower No. of power assets secured(1) Loan to Value(2) Tranches Facility Amount Amount Outstanding (£m) Termination (inc. options to extend) Applicable rate
(%)
(£m)
MIDIS / Fully-amortising NESH 21 (241MW) 43.0% Medium-term 48.4 35.1 Dec-26 2.91%(4)
CBA / NAB
long-term debt(3)
Floating long-term 24.2 24.2 Jun-35 3.68%(4)
Index-linked 38.7 33.4(5) Jun-35 RPI + 0.36%
long-term
Fixed long-term 38.7 38.7 Jun-35 3.82%
Debt service reserve facility 7.5 - Jun-26 1.50%
MIDIS Fully-amortising NESH IV 5 (84MW) 38.8% Inflation-linked 27.5 18.9(5) Sep-34 RPI + 1.44%
long-term debt(3)
Fixed long-term 27.5 21.7 Sep-34 4.11%
Total long-term debt 212.5 171.3
Banco Santander Revolving credit facility NESH VI 13 (100MW) N/a N/a 70.0 31.3 Jun-24 SONIA + 1.60%
Natwest/AIB Revolving credit facility NESH III 19 (226MW) N/a N/a 135.0 135.0 Jun-24 SONIA + 1.20%
Total short-term debt 205.0 166.3
NPIII LP look through debt N/a N/a N/a N/a N/a 7.7(6)
Total debt 345.3
1NESF has 326MW under long-term debt financing, 326MW under short-term debt
financing and 214MW without debt financing (excludes NPIII LP look through
debt)
2 Loan to Value defined as 'Debt outstanding / GAV'
3 Long-term debt is fully amortised over the period secured assets receive
subsidies (ROCs and others)
4 Applicable rate represents the swap rate
5 Represents the "real" outstanding debt balance. The "nominal" outstanding
debt balances are included in the debt balances provided in Note 22b to the
financial statements
6 The total combined short and long-term debt in relation to NESF's commitment
into NPIII (on a look through equivalent basis)
Alignment of interest
As at 1 June 2023, NextEnergy Group employees held 1,532,060 shares in NESF.
Events After the Balance Sheet Date
On 11 May 2023, the NESF Board approved a dividend of 1.88 pence per ordinary
share for the quarter ended 31 March 2023 to be paid on 30 June 2023 to
ordinary shareholders on the register as at the close of business on 19 May
2023.
NextEnergy Capital Limited
16 June 2023
Operating Portfolio
Power Plant Location Acquisition date Subsidy/PPA(1) Installed capacity (MW) Cost (£m) Remaining useful life of asset (Years)
1 Higher Hatherleigh Somerset Apr-14 1.6 6.1 7.3(3) 15.0
2 Shacks Barn Northamptonshire May-14 2.0 6.3 8.2(3) 14.3
3 Gover Farm Cornwall Jan-15 1.4 9.4 11.1(3) 16.7
4 Bilsham West Sussex Jan-15 1.4 15.2 18.9(3) 21.2
5 Brickyard Warwickshire Jan-15 1.4 3.8 4.1(3) 16.6
6 Ellough Suffolk Jul-14 1.6 14.9 20.0(3) 25.9
7 Poulshot Wiltshire Apr-15 1.4 14.5 15.7(3) 15.9
8 Condover Shropshire May-15 1.4 10.2 11.7(3) 16.6
9 Llwyndu Ceredigion Jul-15 1.4 8.0 9.4 26.7
10 Cock Hill Farm Wiltshire Jul-15 1.4 20.0 23.6(3) 16.4
11 Boxted Airfield Essex Apr-15 1.4 18.8 20.6(3) 17.0
12 Langenhoe Essex Apr-15 1.4 21.2 22.9(3) 32.0
13 Park View Devon Jul-15 1.4 6.5 7.7(3) 31.8
14 Croydon Cambridgeshire Apr-15 1.4 16.5 17.8(3) 16.7
15 Hawkers Farm Somerset Jun-15 1.4 11.9 14.5(3) 17.0
16 Glebe Farm Bedfordshire Apr-15 1.4 33.7 40.5(3) 26.7
17 Bowerhouse Somerset May-15 1.4 9.3 11.1(3) 32.0
18 Wellingborough Northamptonshire Jun-15 1.4 8.5 10.8(3) 16.2
19 Birch Farm Essex Sep-15 FiTs UK 5.0 5.3(3) 17.2
20 Thurlestone Leicester Leicestershire Oct-15 FiTs UK 1.8 2.3 10.1
21 North Farm Dorset Oct-15 1.4 11.5 14.5(3) 31.7
22 Ellough Phase 2 Suffolk Aug-16 1.3 8.0 8.0(3) 32.6
23 Hall Farm Leicestershire Nov-15 FiTs UK 5.0 5.0(3) 37.4
24 Decoy Farm Lincolnshire Mar-16 FiTs UK 5.0 5.2(3) 33.0
25 Green Farm Essex Dec-16 FiTs UK 5.0 5.8 18.0
26 Fenland Cambridgeshire Jan-16 1.4 20.4 23.9(2,4) 17.3
27 Green End Cambridgeshire Jan-16 1.4 24.8 29.0(2,4) 17.4
28 Tower Hill Gloucestershire Jan-16 1.4 8.1 8.8(2,4) 17.0
29 Branston Lincolnshire Mar-16 1.4 18.9 31.9
30 Great Wilbraham Cambridgeshire Mar-16 1.4 38.1 31.9
31 Berwick East Sussex Mar-16 1.4 8.2 97.9(2,5) 18.5
32 Bottom Plain Dorset Mar-16 1.4 10.1 32.2
33 Emberton Buckinghamshire Mar-16 1.4 9.0 37.1
34 Kentishes Essex Jul-17 1.2 5.0 4.5 37.0
35 Mill Farm Hertfordshire Jul-17 1.2 5.0 4.2 33.8
36 Bowden Somerset Sep-17 1.2 5.0 5.6 33.9
37 Stalbridge Dorset Jan-17 1.2 5.0 5.4 33.8
38 Aller Court Somerset Sep-17 1.2 5.0 5.5 19.0
39 Rampisham Dorset Sep-17 1.2 5.0 5.8 19.5
40 Wasing Berkshire Aug-17 1.2 5.0 5.3 23.7
41 Flixborough South Humberside Aug-17 1.2 5.0 5.1 24.8
42 Hill Farm Oxfordshire Mar-17 1.2 5.0 5.5 28.9
43 Forest Farm Hampshire Mar-17 FiTs UK 3.0 3.3 29.0
44 Birch CIC Essex May-17 FiTs UK 1.7 1.7 17.2
45 Barnby Nottinghamshire Aug-17 1.2 5.0 5.4 19.3
46 Bilsthorpe Nottinghamshire Aug-17 1.2 5.0 5.4 19.7
47 Wickfield Wiltshire Mar-17 1.2 4.9 5.6 20.1
48 Bay Farm Suffolk Sep-17 1.6 8.1 10.5 31.9
49 Honnington Suffolk Sep-17 1.6 13.6 16.0 31.8
50 Macchia Rotonda Apulia Dec-17 FiTs Italy 6.6 12.8
51 Lacovangelo Apulia Dec-17 FiTs Italy 3.5 13.1
52 Armiento Apulia Dec-17 FiTs Italy 1.9 13.1
53 Inicorbaf Apulia Dec-17 FiTs Italy 3.0 116.2(2,6) 12.9
54 Gioia del Colle Campania Dec-17 FiTs Italy 6.5 13.6
55 Carinola Apulia Dec-17 FiTs Italy 3.0 13.6
56 Marcianise Campania Dec-17 FiTs Italy 5.0 13.5
57 Riardo Campania Dec-17 FiTs Italy 5.0 13.5
58 Gilley's Dam Cornwall Nov-17 1.3 5.0 6.4 31.7
59 Pickhill Bridge Clwyd Dec-17 1.2 3.6 3.7 34.5
60 North Norfolk Norfolk Dec-17 1.6 11.0 14.6 21.6
61 Axe View Devon Dec-17 1.2 5.0 5.6 24.4
62 Low Bentham Lancashire Dec-17 1.2 5.0 5.4 22.9
63 Henley Shropshire Jan-18 1.2 5.0 5.2 23.2
64 Pierces Farm Berkshire May-18 FiTs UK 1.7 1.2 16.1
65 Salcey Farm Buckinghamshire May-18 1.4 5.5 6.5 16.1
66 Thornborough Buckinghamshire Jul-18 1.2 5.0 5.7 18.7
67 Temple Normanton Derbyshire Jul-18 1.2 4.9 5.6 18.3
68 Fiskerton Phase 1 Lincolnshire Jul-18 1.3 13.0 16.6 27.0
69 Huddlesford HF Staffordshire Jul-18 1.2 0.9 0.9 17.8
70 Little Irchester Northamptonshire Jul-18 1.2 4.7 5.9 18.8
71 Balhearty Clackmannanshire Jul-18 FiTs UK 4.8 2.6 27.8
72 Brafield Northamptonshire Jul-18 1.2 4.9 5.8 33.2
73 Huddlesford PL Staffordshire Jul-18 1.2 0.9 0.9 18.0
74 Sywell Northamptonshire Jul-18 1.2 5.0 5.9 18.1
75 Coton Park Derbyshire Jul-18 FiTs UK 2.5 1.1 18.1
76 Hook Somerset Aug-18 1.6 15.3 21.8(2) 31.0
77 Blenches Wiltshire Aug-18 1.6 6.1 7.8(2) 15.7
78 Whitley Somerset Aug-18 1.6 7.6 10.4(2) 30.8
79 Burrowton Devon Aug-18 1.6 5.4 7.3(2) 30.5
80 Saundercroft Devon Aug-18 1.6 7.2 9.6(2) 30.9
81 Raglington Hampshire Aug-18 1.6 5.7 8.1(2) 30.8
82 Knockworthy Cornwall Aug-18 FiTs UK 4.6 6.6(2) 15.0
83 Chilton Cantello Somerset Aug-18 FiTs UK 5.0 9.0(2) 29.3
84 Crossways Dorset Aug-18 FiTs UK 5.0 10.0(2) 29.3
85 Wyld Meadow Dorset Aug-18 FiTs UK 4.8 7.1(2) 29.8
86 Ermis Rooftop Portfolio Jul-18 FiTs UK 1.0 3.0 13.6
87 Angelia Rooftop Portfolio Jul-18 FiTs UK 0.2 0.6 13.5
88 Ballygarvey County Antrim Jul-19 1.4 NIROCs 8.2 8.5 24.8
89 Hall Farm2 Leicestershire Aug-19 Subsidy-free 5.4 2.5 36.3
90 Staughton Bedfordshire Dec-19 Subsidy-free 50.0 27.4 35.9
91 High Garrett Essex Oct-20 Subsidy-free 8.4 4.1 37.1
92 Marham Norfolk Jan 21 Long-term PPA 1.0 0.7 22.8
93 Sutterton Lincolnshire Mar 21 Long-term PPA 0.4 0.3 22.9
94 The Grange Nottinghamshire Feb 21 Long-term PPA 50.0 32.1 37.8
95 South Lowfield Yorkshire Jun-21 Long-term PPA 50.0 29.6 38.2
96 JSC (NZ) (1) Worcestershire Mar-19 FiTs UK 0.04 0.04 16.4
97 Karcher (NZ)(1) Oxfordshire Nov-19 Subsidy-free 0.3 0.2 22.0
98 Dolphin (NZ)(1) East Sussex Jul-21 Subsidy-free 0.2 0.2 23.6
Holiday Inn (NZ)(1) Northamptonshire Apr-22 Long-term PPA 0.18 0.2 24.1
99
Subtotal 865.0 999.4 26.3(7)
OECD Markets Jun-21 Multiple long-term PPAs 24.0(8) 31.0 n/a
100 NPIII LP
Total 889.0 1030.4 26.3(7)
1 ROCs, unless otherwise stated. An explanation of the ROC subsidy is
available at
www.ofgem.gov.uk/environmental-programmes/renewables-obligation-ro
2 With project level debt
3 Part of the Apollo portfolio
4 Part of the Thirteen Kings portfolio
5 Part of the Radius portfolio
6 Part of the Solis portfolio
7 Average years remaining
8 24MW represents the proportion of NPIII operational assets owned by NESF on
a look through equivalent basis as at 31 March 2023. NPIII is a portfolio of
assets at different stages of their project life cycle
Portfolio Generation Performance
Year Ended 31 March 2023 Since acquisition
Power Plant Operational Generation Irradiation Generation Irradiation Generation
date
(GWh)
delta
delta
delta
delta
(%)
(%)
(%)
(%)
1 Higher Hatherleigh Apr-13 5.6 3.7 -1.6 1.7 3.8
2 Shacks Barn Mar-13 6.2 5.9 10.8 3.0 8.3
3 Gover Farm Oct-14 8.5 8.6 -4.8 3.9 0.5
4 Bilsham Nov-14 16.7 8.7 10.1 5.5 6.4
5 Brickyard Nov-14 3.5 6.1 4.0 3.6 5.7
6 Ellough Mar-14 14.8 6.4 4.8 1.5 5.1
7 Poulshot Mar-15 13.7 2.4 3.9 1.0 5.0
8 Condover Mar-15 9.3 2.6 0.2 0.6 0.9
9 Llwyndu Feb-15 8.0 -0.5 8.7 -2.7 4.4
10 Cock Hill Farm Mar-15 20.2 4.4 7.8 3.2 5.4
11 Boxted Airfield Mar-15 19.0 7.1 8.8 3.7 5.9
12 Langenhoe Mar-15 22.5 11.4 13.7 6.7 9.6
13 Park View Mar-15 6.6 2.6 3.3 -0.9 1.5
14 Croydon Mar-15 16.5 11.5 12.9 6.8 7.5
15 Hawkers Farm Mar-15 12.3 3.3 6.7 1.0 4.1
16 Glebe Farm Mar-15 35.2 13.7 16.8 7.3 12.6
17 Bowerhouse Mar-15 8.4 6.1 -4.5 3.5 -0.7
18 Wellingborough Mar-14 8.7 8.3 13.7 3.2 6.2
19 Birch Farm Jun-15 5.1 9.8 9.5 4.9 6.7
20 Thurlestone Leicester(1) Apr-13 1.5 -0.6 2.7 -0.6 0.2
21 North Farm Mar-15 11.5 0.5 -4.7 -2.2 -4.3
22 Ellough Phase 2 Jan-16 8.7 12.4 16.7 8.8 13.2
23 Hall Farm Aug-16 4.4 6.8 2.9 4.2 0.8
24 Decoy Farm Nov-15 5.2 10.6 15.1 5.6 10.3
25 Green Farm Mar-16 5.0 6.5 2.7 3.9 3.8
26 Fenland Feb-15 20.6 9.3 8.5 5.6 9.1
27 Green End Mar-15 24.0 9.1 4.3 5.2 3.2
28 Tower Hill Mar-15 8.1 3.1 8.0 3.3 7.1
29 Branston Mar-15 19.5 10.9 12.8 6.7 7.7
30 Great Wilbraham Mar-15 37.6 9.6 5.9 5.8 5.4
31 Berwick Mar-15 9.1 5.6 7.0 4.7 9.0
32 Bottom Plain Dec-14 10.1 6.5 0.0 3.8 3.2
33 Emberton Mar-15 8.8 9.3 4.1 4.8 2.6
34 Kentishes Dec-16 5.3 10.1 8.1 6.1 6.5
35 Mill Farm Dec-16 5.4 13.4 15.8 8.9 11.2
36 Bowden Mar-17 5.2 1.9 -0.3 0.5 0.9
37 Stalbridge Mar-17 5.3 1.5 4.9 0.8 5.9
38 Aller Court Mar-17 5.2 3.5 4.0 3.4 4.8
39 Rampisham Mar-17 5.3 -0.9 -0.2 -1.8 -1.0
40 Wasing Mar-17 5.3 7.1 8.8 5.7 8.9
41 Flixborough Mar-17 5.1 8.5 10.0 5.9 8.2
42 Hill Farm Mar-17 5.3 7.1 11.8 6.2 9.0
43 Forest Farm Mar-17 3.2 6.8 10.6 4.8 8.9
44 Birch CIC Jun-15 1.7 9.8 6.9 5.8 5.0
45 Barnby Mar-17 5.0 8.3 9.2 5.1 5.5
46 Bilsthorpe Mar-17 5.0 7.5 8.3 4.7 6.4
47 Wickfield Mar-17 4.8 5.7 2.0 5.2 4.2
48 Bay Farm Mar-14 8.1 8.9 11.1 6.9 8.7
49 Honnington Mar-14 14.1 8.8 10.9 4.4 5.1
50 Macchia Rotonda Feb-11 9.1 8.2 -2.2 6.5 1.8
51 Iacovangelo Apr-11 5.2 6.4 3.8 4.8 5.6
52 Armiento Apr-11 2.9 7.2 7.7 5.6 7.5
53 Inicorbaf Mar-11 4.7 9.1 7.7 6.2 6.7
54 Gioia del Colle Oct-11 9.4 3.8 2.2 1.5 3.5
55 Carinola Oct-11 4.3 4.5 6.7 2.8 4.4
56 Marcianise Sep-11 7.3 5.0 7.5 3.0 4.4
57 Riardo Sep-11 7.1 4.5 1.3 2.5 0.5
58 Gilley's Dam Mar-16 4.7 -4.3 -9.0 -4.4 -3.6
59 Pickhill Bridge Mar-17 3.6 4.5 7.8 4.7 8.1
60 North Norfolk Jan-14 9.6 11.7 -7.1 7.2 4.0
61 Axe View Mar-17 5.1 6.5 6.9 5.8 7.2
62 Low Bentham Mar-17 4.4 -0.9 -2.9 1.8 2.2
63 Henley Mar-17 4.8 3.1 4.7 3.2 5.8
64 Pierces Farm Mar-15 1.7 4.7 7.4 3.3 7.0
65 Salcey Farm Sep-14 5.3 8.8 2.8 8.0 4.8
66 Thornborough Mar-16 4.3 3.5 -9.2 4.4 -8.0
67 Temple Normanton Mar-16 4.0 5.2 -11.1 4.5 -6.2
68 Fiskerton Phase 1 Mar-15 12.0 9.5 -3.2 8.0 -0.1
69 Huddlesford HF Mar-16 0.9 7.0 7.4 5.9 5.4
70 Little Irchester Mar-16 3.9 4.8 -15.5 4.3 -7.4
71 Balhearty(4) Mar-16 - - - -0.7 -31.7
72 Brafield Mar-16 4.9 11.4 1.3 7.7 1.2
73 Huddlesford PL Mar-16 0.9 6.1 3.0 5.4 2.5
74 Sywell Dec-15 5.2 8.1 8.0 6.3 3.5
75 Coton Park Dec-15 2.3 1.4 5.2 2.5 4.7
76 Hook Mar-14 14.1 3.8 -8.5 3.5 -1.2
77 Blenches Mar-14 5.6 5.0 0.2 4.6 4.5
78 Whitley Mar-14 6.9 11.3 -7.6 6.9 -1.8
79 Burrowton Mar-14 11.8 3.7 -7.5 4.2 -0.7
80 Saundercroft Mar-14
81 Raglington Mar-13 4.9 5.2 -18.8 3.6 -12.5
82 Knockworthy Mar-13 3.5 4.8 -26.0 2.4 -13.4
83 Chilton Cantello Jul-12 4.9 10.1 -5.3 6.0 2.9
84 Crossways Jul-12 4.9 5.1 -10.8 3.9 0.2
85 Wyld Meadow Jul-12 3.9 1.2 -23.4 -0.5 -7.6
86 Ermis(1) Oct-11 0.8 4.0 4.8 3.9 -2.0
87 Angelia(1) Oct-11 0.2 9.4 4.3 8.6 4.9
88 Ballygarvey Mar-18 5.9 -0.7 -6.1 1.2 -2.8
89 Hall Farm 2 Aug-19 4.9 12.6 9.3 11.3 2.3
90 Staughton Dec-19 53.4 18.0 16.3 12.8 10.2
91 High Garrett Oct-20 8.9 12.9 11.4 9.6 5.3
92 Marham Jan-21 1.0 0.0 2.5 -0.9 -3.9
93 Sutterton Mar-21 0.5 6.4 6.6 3.1 6.2
94 The Grange Jan-21 52.6 9.1 0.5 6.7 -4.3
95 South Lowfield Jun-21 48.8 3.3 -0.9 -0.1 -3.3
96 JSC (NZ) (1) Mar-19 0.0 -2.9 -1.0 -3.0 -0.9
97 Karcher (NZ) (1) Nov-19 0.3 2.6 -3.3 2.5 -3.4
98 Dolphin (NZ)(1) Jul-21 0.2 7.9 0.8 7.3 0.2
99 Holiday Inn (NZ(1) Apr-22 0.2 6.5 1.5 -0.9 1.5
Subtotal 870 7.5 3.8 3.5 4.4
NPIII LP (3) Multiple - - - - -
Total 870 7.5 3.8 3.5 4.4
1 Rooftop asset which is not monitored for irradiation
2 An asset which is yet to pass provisional acceptance clearance (PAC) are not
reported by the Asset Manager
3 NPIII LP performance not included
4 Due to damage caused by Storm Arwen in November 2021 and Storm Eunice in
February 2022, Balhearty was taken offline and is in the process of being
repaired by a chosen EPC contractor
Sustainability and ESG
Foreword from ESG Committee Chair
In 2022, the world emerged from the Pandemic, only to enter an energy crisis.
Simultaneously, the increasing impact of climate change continued to be felt,
with a record-breaking heatwave across Europe, and the war in Ukraine making
the energy trilemma more challenging to address.
The importance of transitioning to clean energy generation is only increasing.
Solar PV and energy storage are vital to this transition. Both technologies
contribute to global energy security and independence, while ensuring
affordable power for homes and businesses. Policy developments have recognised
this: the British government outlined an ambition for the UK to deploy 70GW of
solar capacity by 2035 - to which NESF will make a major contribution - while
the EU has declared a target of 600GW of solar by 2030.
The level of these targets is a welcome reflection of the importance of a
clean energy supply. Furthermore, it comes with a responsibility to ensure the
highest Environmental, Social and Governance ("ESG") standards. For example,
debates on land use, biodiversity loss and social standards in supply chains
have accompanied the setting of these deployment targets, as policymakers
grapple with how to expand the role of solar in global energy systems. It is
vital that as we make progress on climate change, we also drive
accountability, and ensure everyone benefits. By way of example, through its
leadership of, and significant resource commitment to, the Solar Stewardship
Initiative, NEC is able to contribute to the development of market leading
practices in end to end supply chain transparency.
The climate and local communities are at the heart of our decision-making, and
NESF is determined to deliver a positive ESG impact across its operations.
NESF is particularly proud of the work it is doing across its landed estate to
assess its biodiversity footprint. This includes the development of
methodologies for the assessment of biodiversity impacts and dependencies,
data gathering and enhancement opportunities with the potential to enable the
issuance of biodiversity credits, which are potentially traceable instruments.
Our commitment to ensuring that our work reflects the evolving international
ESG agenda and standards is reflected in our public disclosures and commitment
to enhanced reporting under frameworks such as the Taskforce for Nature
Related Financial Disclosures. This includes disclosure of our robust ESG risk
management and proprietary due diligence procedures.
The Company's ESG performance continues to be led by NextEnergy Capital's Head
of ESG, Giulia Guidi. This is monitored by the Board, including through the
creation of the ESG Committee, which I chair. The ESG team has expanded
further in the last year (including a dedicated biodiversity specialist), and
is continuing to deliver on NESF's comprehensive ESG strategy. NESF also
contributes to the NextEnergy Foundation, which supports environmental and
social impact projects around the world.
NESF is classified as an Article 9 Fund under the EU Sustainable Finance
Disclosure Regulation, and has sustainable investment as its objective. ESG is
central to NESF's mission, and I am confident that NESF will continue
expanding on its positive impact into the future.
Josephine Bush
16 June 2023
An introduction to NESF ESG achievements by Ross Grier, UK Managing Director,
and Michael Bonte-Friedheim, CEO and Founder of NextEnergy Group
Over the last 12 months, the Fund progressed its pipeline of solar assets and
expanded into battery storage in line with our core mission to deliver new
clean energy for Britain's society. We believe in showing the impact of this
in detail, and as such, our new reporting and disclosure initiatives in 2022
included the publication of our first-ever dedicated NESF Sustainability
Report.
The Report illustrates that the breadth and depth of our sustainability work
continues to increase, and so we are delighted that the NESF ESG team has
doubled in size. As well as ensuring that our ESG approach is best in class,
the team is deeply involved in industry-wide projects, such as the Solar
Stewardship Initiative, which launched publicly in October 2022 and is
developing a solar-specific supply chain assurance mechanism.
Further progress identified in our 2022 Sustainability Report includes the
development of a proprietary due diligence tool. This tool is focused on
environmental and social screening and will be used to understand the
nature-related, climate, and social impacts of potential NESF investments;
including the continued collection of granular data on our emissions avoided -
which is independently calculated by the Macquarie Green Investment Group -
and developing our engagement with contractors on their performance. As NESF
is an EU SFDR Article 9 classified fund, we continue to ensure that all
relevant disclosures are made. We have also updated the NESF website to
include a dedicated ESG section, including all related reporting, enabling
clear access for investors to the information they need to understand our ESG
approach in detail.
NESF goes from strength to strength, and we are excited to present further
information on our current and future impact in this year's Annual
Sustainability Report, which will be published in summer 2023.
NESF ESG at a Glance 2022/23
Environmental Performance
870GWh clean energy generated 363 ktCO(2)e avoided 45 Universal Biodiversity Management Plan sites
C. 50% of the NESF portfolio is grazed Habitat provisions: 65 bird boxes installed, 66 bug hotels, 22 bat boxes, 24
raptor boxes, 6 owl boxes, 22 hibernacula created and c.26 beehives, all of
which are additional to statutory planning obligations.
Social Performance
£103,668 community funding (through SPVs) £400,000
donated to the
Foundation
Governance Performance
27 Board Meetings, including Committee of Board and ad-hoc meetings Gender diversity 50% female at board level 2 ESG Board Committee meetings
ESG Approach
Our Priorities
There are three pillars to NESF's responsible business activities: climate
change, biodiversity and human rights. Each pillar is materially relevant to
NESF, and presents opportunities to make a positive impact. NESF assets are
helping to address climate change, and ensure future generations can enjoy the
planet in the same state that it is now. They support the local environment,
because NESF champions biodiversity on its solar farms, which transforms
energy infrastructure into a haven for flora and fauna. NESF also reports on
potential climate risk, via the Task Force on Climate-related Financial
Disclosures, and monitors water management and the circular economy as part of
its investments. NESF works to promote and protect human rights, in its own
activities and throughout the supply chain. The Company also promotes strong
community engagement, and supports broader positive social impact, through the
employment and other opportunities which NESF assets generate for local
communities.
A key priority is also to continue to promote diversity and inclusion and good
governance practice: NESF has no direct employees, but data on governance
indicators relating to the NextEnergy Group was included in the first NESF
Sustainability Report, and the Fund will continue to increase transparency on
this topic.
These priorities are incorporated at every stage of NESF's work:
• NESF pursues robust risk management, and proactively
contributes to the environment
and society: ESG due diligence is fully integrated into investment
decision-making and projects are developed to the highest ethical standards.
This includes seeking every opportunity to address climate change, improve
biodiversity, monitor water impacts, follow circular economy best practices,
and support local communities. NESF support to communities also includes
grantmaking via the NextEnergy Group charitable arm, the NextEnergy
Foundation. More information on the Foundation is available at
nextenergyfoundation.org.
• NESF provides thought leadership and supports industry
action: the Investment Adviser is an active member of the UK and EU solar
trade associations, Solar Energy UK (SEUK) and SolarPower Europe (SPE). It is
also a signatory to the UN Principles for Responsible Investment, a supporter
of the Task Force on Climate Related Transparency Disclosures, and Terra
Carta, and a member of the Institutional Investors Group on Climate Change.
NESF's SPV Director is Chair of the SEUK Natural Capital Working Group, and
the Head of ESG is Chair of the Responsible Sourcing Task Group. She is also a
member of the coordination group for the Solar Stewardship Initiative, of
which NextEnergy Capital is a sponsor and supporter.
• The Investment Adviser engages independent experts to verify
impact: for example, carbon emissions avoided are calculated by the Macquarie
Green Investment Group. NESF makes extensive public disclosures to UK and
international regulators, and to international bodies such as the UN, and
takes on new reporting responsibilities on a rolling basis.
Team expansion: The NESF ESG team has doubled in size in the last 12 months,
to six people. This reflects our commitment to ensuring a robust
sustainability approach is maintained at the heart of our work as the Fund
expands. In 2022 the team recruited a mix of internal and external hires, and
now consists of a Head of ESG, Vice President, two Associates and two
Analysts. Overall, the team has 50 years of combined experience across a range
of social, environmental and sustainability issues relating to the energy
sector.
Keeping Current
As global approaches to ESG evolve and mature, it is important to ensure that
our processes are continually monitored and updated in line with best
practice. The Investment Adviser is committed to ensuring that priorities such
as its three pillars of responsible business remain up to date, and that it is
proactively identifying areas to contribute to including: people, the planet
and society. As such, the Fund's Investment Adviser is currently undertaking a
strategic review of its sustainability strategy and approach. This is being
carried out with external assistance and is due to be completed by the end of
2023. The outcome of this review will provide valuable insights on NESF's
overall approach to ESG, ensuring it reflects the current and future ESG
landscape, and is relevant to its business objectives. Details of this will be
outlined in future reporting.
Governance
Responsibility for NESF's ESG risk management, reporting and stakeholder
engagement falls within the Investment Adviser's ESG team. The Head of ESG,
Giulia Guidi, reports to NextEnergy Capital's CEO and she actively engages
with the NESF ESG Committee, to discuss the strategy, performance, and
reporting of the Fund, including implementing the Sustainable Investment
Policy for NESF. She sits on the Company's Investment Committee, and takes an
active role in the investment decision-making process, meeting weekly with the
investment team and at least bi-weekly with senior managers of the Company to
discuss emerging ESG issues and how best NESF can have a positive impact on
global society.
NESF has built strong governance around the issues described in this report,
based on a four-step process: identify, manage, report and engage.
The ESG team works alongside the investment and development teams,
construction and procurement managers, asset operators, portfolio and SPV
managers, and our dedicated biodiversity specialists.
An overview of the NESF Governance structure is below.
NESF has made strong progress against its ESG objectives in the last 12
months. In 2022/23, the Investment Adviser developed a proprietary screening
and due diligence tool to examine potential assets for risks and
opportunities. The Investment Adviser also initiated an enhanced review of its
supply chain partners, to understand the potential upstream impact in more
detail. 53 NESF sites now have additional biodiversity enhancements in place
or planned to be fully implemented by the end of 2023. Sites such as the
Condover solar farm simultaneously produce clean energy, provide new habitats
for flora and fauna, and enable seasonal grazing by livestock. The Investment
Adviser was pleased to show Government officials the Condover site in Spring
2023 to discuss these benefits.
Work to quantify the environmental impact of these initiatives continues, and
the investment benefits will accrue, with, for example, the anticipated launch
in Autumn 2023 of the UK's biodiversity credits trading scheme. This has the
potential to create a direct mechanism to monetise the natural capital
benefits NESF generates.
NEC has also commissioned an external study that will culminate in a strategy
and approach for nature and biodiversity. This assessment will identify the
interface between NESF assets and nature, to establish key impacts and
dependencies across the business. Metrics to measure biodiversity performance
will be established as part of science-based target setting, and these will be
designed to align with international standards, TNFD disclosure requirements,
and organisational goals. For NESF, this will provide an ambitious but
achievable plan for biodiversity, together with a framework for delivery.
NESF is also at the heart of industry initiatives to advance sustainability.
For example, a major supply chain achievement which NextEnergy Capital has
contributed to is the public launch of the Solar Stewardship Initiative (SSI)
in October 2022. The SSI is a joint initiative of Solar Energy UK (SEUK) and
SolarPower Europe (SPE) to further develop a sustainable solar sector,
including establishing a mechanism for end-to-end supply chain transparency.
The launch of the SSI was a significant milestone, and the ambition of the
initiative to have a supply chain assurance system in place by the end of
2023. NESF's Investment Adviser, NextEnergy Capital, has provided strategic,
operational and financial input to the SSI as one of its sponsors and
supporters, and the NextEnergy Capital Head of ESG, Giulia Guidi, is one of
its coordinators.
Reflecting this progress, NESF is considering new endorsements: for example by
preparing applications to schemes which designate and endorse investment into
initiatives which promote nature.
NESF Contribution to Community Impacts
The NextEnergy Foundation ("NEF", "the Foundation") is an international
charity which was founded in 2016. The Foundation's mission is to participate
proactively in the global effort to reduce carbon emissions, provide clean
power sources in regions where they are not yet available, and contribute to
poverty alleviation. NextEnergy Group donates at least 5% of its net annual
profits to the Foundation, and NESF has supported the Foundation since 2019.
This year, the Company donated £400,000 to the Foundation, four times as much
as the 2022 total of £100,000. The donation is being deployed into projects
which are directly aligned to NESF's sustainability pillars and objectives.
Approved projects include installing solar systems on schools in Ghana and
Malawi; financing a pilot for pay-as-you-go solar home systems in last mile
communities in Malawi; and, supporting refugee-led energy solutions in refugee
and internally-displaced peoples camps in sub-Saharan Africa.
In addition, NESF's donation in 2022 was directed towards fuel poverty
alleviation in the UK and emergency responses to the war between Russia and
Ukraine. The NextEnergy Foundation is identifying projects to extend its
support to these causes this year with the Company's donation.
Quarterly meetings are held between the Chair of the NESF ESG Committee
Josephine Bush, and NESF Director Jo Peacegood, and NEF's Secretary and
selected Trustees. The meetings strengthen the governance around the
identification of, monitoring and reporting on projects supported with NESF's
funds.
Biodiversity
In addition to the continued roll-out of the Universal Biodiversity Management
Plan and Exemplar Site programme, NESF supports a range of nature research and
conservation initiatives. For example, in collaboration with Wildlife Windows,
last year two owl boxes at Bottom Plain Solar farm, Dorset, were fitted with
cameras. Powered by solar panels, the cameras provide a live stream via a 4G
broadband connection, with the aim of recording any nesting activity. A
highlight this year has been the successful uptake of a nest box by a breeding
pair of barn owls, demonstrating that NESF sites provide suitable nesting and
foraging habitat for this species, which is protected under the Wildlife and
Countryside Act 1981. NESF will continue to monitor activity throughout the
breeding season to ensure that its sites adopt appropriate nature-positive
management and design solutions, and support the Global Biodiversity Framework
in the recovery and conservation of species.
Further Information
The dedicated NESF Sustainability Report, due to be published in summer 2023,
will include a comprehensive description of NESF ESG work, including further
detail on project due diligence, supplier review and environmental and social
management procedures. This will build on the 2022 edition of the NESF
Sustainability Report, the first such dedicated publication.
More broadly, NESF and NextEnergy Capital make extensive disclosures relating
to their sustainable investments. These include policies on climate change and
supplier expectations, reporting against the UN Principles for Responsible
Investment and Sustainable Development Goals, and submissions to the Task
Force on Climate Related Financial Disclosures and the EU's Sustainable
Finance Disclosures Regulation.
The latest publications relating to these, and other initiatives are linked
below. NESF will continue to report
in detail, and this information will be updated on a rolling basis.
NESF disclosure and reporting:
NESF Sustainability Report 2022
NESF TCFD Report 2022
NESF - Annex III Pre-Contractual Disclosure For Article 9 Fund
NESF - Annex V Periodic Disclosure for Article 9 Fund
NESF - ESG Disclosures
NESF Investment Adviser disclosure and reporting:
NextEnergy Capital UN Sustainable Development Goals Report 2022
NextEnergy Capital PRI 2021 report
NextEnergy Capital Sustainable Investment Policies
NextEnergy Capital Supplier Code of Conduct
NextEnergy Capital ESG Disclosure 09.03.21
Solar Energy UK supply chain statement
Solar Industry Forced Labor Prevention Pledge
Solar Stewardship Initiative Joint Industry Endorsement Statement
NESF ESG in Figures:
Tonnes of CO(2)e emissions Equivalent UK homes powered Total emissions avoided Since 2014 (ktCO(2)e)
avoided p.a.
for one year
363,000 242,000 2,181
(31 March 2022: 328,700) (31 March 2022: 216,300) (31 March 2022: 1,818)
Total fossil fuel avoided since 2015 kilotonnes of oil equivalent (ktoe) Universal Biodiversity Management Plan sites (1) Total exemplar biodiversity projects (2)
929.4 45 8
(31 March 2022: 769.1) (31 March 2022: 30) (31 March 2022: 6)
Community funding Proportion of the portfolio grazed Donation to the NextEnergy Foundation
(through SPVs)
£104k c.50% £400k
(31 March 2022: £91k) (31 March 2022: N/A) (31 March 2022: £100k)
1. With a further 15 to be implemented in Autumn 2023
2. Six sites are fully implemented. The remaining two are in
progress and are proposed for completion in 2023
Metric Units FY2018 FY2019 FY2020 FY2021 FY2022 FY2023
GHG avoided ktCO(2)e 211.2 299.4 307.7 317.6 328.7 363.0
NOx avoided tonnes 193.1 267.5 274.4 283.4 296.3 331.1
SOx avoided tonnes 365.9 499.2 511.9 527.5 549.7 612.4
PM2,5 tonnes 15.9 22.6 23.2 24.0 25.2 28.3
PM10 tonnes 4.0 5.6 5.8 5.9 6.2 6.9
Fossil Fuels avoided kilotonnes of oil equivalent (ktoe) 90.0 127.7 131.2 135.9 142.8 160.3
million barrels 0.66 0.94 0.96 1.00 1.05 1.20
Task Force on Climate-related Financial Disclosures ("TCFD")
The challenge posed by climate change necessitates a complete transformation
of the way the world produces and consumes energy. In August 2021, the United
Nations' Intergovernmental Panel on Climate Change ("IPCC") published its
Sixth Assessment Report, which stated "global warming of 1.5˚C and 2˚C
(before pre-industrial levels) will be exceeded during the 21st century unless
deep reductions in CO2 and other greenhouse gas emissions occur in the coming
decades". This was further reinforced by the IPCC's AR6 Synthesis Report,
released in March 2023. The transition to a low-carbon economy is central to
making meaningful reductions in global greenhouse gas concentrations,
minimising long-term climate change impacts, and enabling a development
trajectory that is sustainable on a global scale. This is reinforced by the UK
government's recent commitment to 70GW of installed solar capacity by 2035.
NESF sees renewable energy as having a crucial role to play in the low-carbon
transition and in providing economic opportunities that support governmental
mandates such as the EU and UK net-zero target by 2050.
To be a leader in ESG and responsible investment, accountability is paramount.
The Investment Adviser has continued to deliver transparent reporting and
enhanced existing disclosures, reporting on the Company's impact and
contribution to the Sustainable Development Goals and an ESG disclosures
document to confirm compliance with EU SDFR, particularly Article 9, as well
as fund-level EU SFDR Principle Adverse Indicators and Green Impact Reports,
which disclose our contribution to climate mitigation.
The Company endeavours to communicate progress as we expand our low-carbon
businesses capabilities, develop our policy engagements, build on our climate
risk management strategies, expand our core ESG metrics, and pursue
engagements with investors, stakeholders, and the wider solar industry in
order to collectively address the climate challenge and promote the transition
to a low-carbon economy.
Introduction
NESF and NextEnergy Capital recognise that climate impacts should no longer be
considered non-financial and have been an official supporter of the goals of
the TCFD since September 2019. TCFD was established in 2015, with the aim of
developing a comprehensive and uniform framework for climate reporting,
enabling investors and other stakeholders to assess the companies'
climate-related financial risk. These risks may be categorised as follows:
• Physical Risk: These are risks related to the changes to the
physical environment from the impacts of climate change in terms of
intensity/frequency of extreme events (acute risks) and longer-term changes in
climate (chronic risks)
• Transition Risk: Moving towards a low carbon economy will
entail political, technological, legal, market and social changes that can
create risks and opportunities to existing businesses and their underlying
revenue streams
The Investment Adviser has been a leader within its sector for integrating
considerations on climate throughout its organisation and within its
decision-making processes. For the year ended 31 March 2023, the Company
responded to the 11 recommendations set out by TCFD, with the ambition of
continually expanding and evolving its implementation and reporting in line
with TCFD recommendations into future reports.
Governance
1. The Board oversees climate-related risks and opportunities
2. The Investment Manager assesses and manages climate-related
risks and opportunities
Board
The NESF board has overall responsibility for NESF's performance and
management. Understanding climate risk management processes is critical to the
Board. ESG matters are more important than ever to investors, stakeholders,
and society. Tracking progress and reporting changes in climate risk
throughout the NESF value chain is a crucial step in tackling climate change,
driving accountability, and ultimately delivering a sustainable future for
generations to come. Climate considerations and progress updates are discussed
during ESG Committee meetings and quarterly meetings with the Investment
Manager. During such meetings risks related to climate change are discussed.
The Governance Framework in the Governance section of the Annual Report sets
out the board and committee structure, as well as the chair and
responsibilities of the ESG Committee.
Investment Manager/Adviser
The Investment Manager and Investment Adviser realise that the integration of
a climate and ESG strategy into NESF's governance structures is imperative to
effectively identify and manage potential risks. Under the leadership of
NextEnergy Capital's CEO, climate-related matters have been integrated into
the corporate Sustainability Framework, which is based on three pillars -
Climate Change, Biodiversity and Human Rights. Continuing this emphasis on
business principles, the NextEnergy Capital ESG team has developed a Climate
Change Position Statement, which was first published in March 2021. The
Statement sets the ambitions, the reference standards, and the practice that
the Manager adopts when dealing with climate-related risks and opportunities.
The Manager's commitment to minimising both physical and transitional climate
risks is evident not only in the nature of the business as a leading solar
investment manager, but also in the activities undertaken by the individual
departments of the business. The CEO and senior management of the Investment
Adviser are responsible for actioning NESF's climate ambitions, while the Head
of ESG is responsible for the strategy execution and for updating the NESF
Board and Investment Committee members on recent climate-related activities
and progress. The Head of ESG is a member of the NextEnergy Group Risk
Committee which meets quarterly. The risk register includes climate-related
risks and other ESG risks. The implementation of ESG and climate strategy is
facilitated by a Sustainability Framework, which draws on SDGs as the
structure by which risks are identified, managed, and reported across on a
broad range of ESG issues that encompasses climate change and beyond.
NextEnergy Capital coordinates stewardship practices amongst senior management
with an external public affairs agency. This partnership enables NextEnergy
Capital, as an Investment Manager, to work closely with the government and its
advisers to highlight the benefits of solar as an asset class, and an
important part of the energy mix. In addition, NEC has participated in panel
sessions on the natural capital value of solar farms and has contributed to
the Department for Environment, Food and Rural Affairs ("DEFRA") consultation
on biodiversity net gain. The Investment Adviser is also a member of the
Institutional Investor Group on Climate Change ("IIGCC") and is currently
participating in the Working Groups for the Paris Alignment Investment
Initiative. The Head of ESG also sits on the board of Solar Energy UK ("SEUK")
and was recently appointed chair of the SEUK Supply Chain Working Group that
is tasked with setting auditable ESG standards and a traceability programme
for improving transparency and business ethics in the global solar supply.
Asset Manager
Climate risks are assessed during each pre-acquisition and development phase
through a screening questionnaire. When potential risks are identified, the
ESG team, together with the investment team and, where relevant, external
advisers, undertake a further risk assessment and agree upon the necessary
mitigation measures to manage and minimise the impacts. Usually, an action
plan that includes these mitigation measures is put forward and presented to
the Investment Committee for approval. The action plan is then negotiated with
contractors, including Engineering, Procurement, and Construction ("EPC") and
Operations and Maintenance ("O&M"), and then handed over to the asset
manager of NESF, WiseEnergy. The Asset Manager oversees the implementation of
these measures, including biodiversity management, land management, community
engagement, and health and safety, amongst others. Reports on any progress
towards these plans on a regular basis and, in addition, will measure and
manage several selected KPIs based on the SDGs and the EU SFDR and Taxonomy
Regulatory Technical Standards which have been identified as material to
NESF's business and operations.
Strategy
1. Describe the climate-related risks and opportunities the
organisation has identified over the short, medium and long term
2. Describe the impact of climate-related risks and opportunities
on the organisation's businesses, strategy, and financial planning
3. Describe the resilience of the organisation's strategy, taking
into consideration different future climate scenarios, including a 2°C or
lower scenario
Climate-Related Risks and Opportunities
The Company understands that climate change poses risks and opportunities
across all asset investments and can interact with multiple stakeholders.
Through its commitment to providing clean energy, the Company is well-placed
to help curb global carbon emissions, support biodiversity and maintain or
improve land quality. Conversely, there are risks associated with such a
transition and the potential physical consequences associated with rising
temperatures.
The table below covers the key risks and opportunities, identified by NESF,
faced over the short, medium and long term.
Term Risk Type Risks Opportunities
Short Physical The short-term risks are limited in severity as climate change risks are Increased irradiation should enhance the energy yield from the portfolio.
< 5 years expected to develop over the medium to long term. Observed weather events to Coupled with storage this could represent a positive cash flow opportunity.
date suggest that the short term would see a continuation and slight increase Short-term planning and monitoring of the actual climate pathway will enable
in extreme weather events (flash floods and heat waves). These have the the portfolio to be positioned for resilience to future physical risks.
potential to interrupt cash flows and damage assets. There is an expectation Adaption can take many forms and there are opportunities to enhance resilience
that higher irradiance, whilst increasing yield, will increase wear and whilst also improving biodiversity, which in turn helps to mitigate climate
degradation of parts, shortening useful life and increasing failure rates. To change. Early mitigation actions, such as those described in the risk section,
mitigate, this requires a maturation of the spare parts strategy and other can provide a competitive advantage vs organisations who do not take action
investments in asset health as well as strategic assessment of relationships (ensuring robust spare part supply chains, securing access to parts and
with key component manufacturers, installers, and maintenance providers. ensuring ongoing operation of plants).
Transition Government policy in jurisdictions the portfolio is exposed to, is to achieve Renewable energy is clearly a vital component of meeting government net zero
net zero by 2050. This can primarily be considered an opportunity, but these policies. The increase in demand for clean energy is the primary transition
policies will cause significant disruption to the energy mix and that can opportunity for the portfolio and future development.
present a risk to power prices.
Medium Physical These risks are dependent on which climate pathway develops but potential The primary opportunity that climate change presents for the portfolio is an
5-10 years risks include: expected increase in electricity demand. Industrial cooling, in particular,
can be linked to physical climate change and will increase electricity demand.
Water stress - Italian assets exposed to extreme annual water stress, cleaning This is in addition to further demands through the transition opportunities
panels becomes difficult, efficiency drops and power output declines. (eg electric cars).
There are innovations, such as agrivoltaics(1), that can develop into
Flooding - UK assets are exposed to a heightened risk of flooding with the opportunities depending on asset-specific micro-climates. Raising panels
potential damage assets and restrict access to sites for maintenance. provides adaption to flood risk and presents an agriculture/biodiversity
opportunity beneath them. In hotter climates the shade presents an opportunity
Temperature - Italian assets exposed to rising temperatures and an increase in for crop growth which wouldn't otherwise be possible and evaporation from the
days with +35⁰C, reducing efficiency and power output declines. crops cools the panels.
The interplay with transition opportunity will also develop as physical
climate change impacts become more observable, they will spur increased policy
reaction and create transition opportunities (eg an increase in clean energy
demand).
Transition There is a high degree of ambition in some transitional policies and as the Government policy across a range of sectors will take effect in this period.
implementation deadlines move closer there is a risk that policies are In the UK, the Government has adopted a policy of transitioning to electric
delayed. This may mean expected increases in demand for renewable electricity vehicles by banning the sale of new fossil fuel cars (excluding hybrids) by
do not occur. 2030. They have also banned the installation of gas boilers in new build homes
from 2025, promoting low-carbon alternatives. They are also promoting the
uptake of low carbon alternatives to gas boilers in homes, (such as heat
pumps), with the government setting a target of 600,000 installations per year
by 2028. The impact of this is an increase on overall clean electricity
demand, especially when coupled with net zero policy, instigating a
significant shift to renewables. This will create an opportunity for clean
energy generation and storage.
Term Risk Type Risks Opportunities
Long Physical The long-term risks are highly dependent on the climate change pathway that As with risks, the physical opportunities will develop in line with the
> 10 years develops. The IPCC released their latest AR6 Synthesis Report in 2023, climate pathway that manifests. These will be in line with those that have
modelled pathways based on policies implemented by the end of 2020 are been identified in the medium term.
consistent with global warming of 3.2(o)C. This level of warming will
exacerbate all of the risks identified in the medium term. In addition,
instances of extreme weather events will increase significantly and resulting
disruption will likely interrupt cash flows and damage assets. Adaption costs
would be significant.
Transition The levels of uncertainty around long term policy positions create a risk. If a controlled, orderly transition to net zero is enacted then the portfolio
Depending on climate pathways that transpire, there could be dramatic shifts should benefit from high demand for clean energy. The impact of economies
in policy. For example, if the expected impacts of an RCP8.5 scenario start to moving to net zero should limit temperature increases to below 2⁰C and
play out then governments may take emergency actions with far reaching reduce the physical risks too.
consequences to try and recover the situation. The portfolio should naturally
be positioned well, as the demand for clean energy should be ever present, but
this would still present a challenging policy landscape to navigate and could
have broader economic impacts.
1 What's agrivoltaic farming? Growing crops under solar panels | World
Economic Forum (weforum.org)
Supply Chain
The solar PV supply chain has a high degree of concentration risk in China
with certain stages of the supply chain further concentrated within specific
regions of China. This is demonstrated in the figure below(1).
1 China's market share of the polysilicon, ingot, and water stages of the
supply chain will soon reach 95% of the global market. The Xinjiang province
accounts for 40% of global polysilicon manufacturing.
The concentration of polysilicon production in Xinjiang province (40% of
global production) creates a particular vulnerability. The Xinjiang province
already experiences extreme heat (temperatures of 40 (o)C) and significant
floods. Should manufacturing and supply of polysilicon be disrupted by an
increase in such events, then it is likely there would be a significant
decrease in the supply of solar PV panels and a corresponding price increase.
The actual panel manufacturing is also highly concentrated with 80% of global
supply coming from China and one in seven panels manufactured by a single
company.
As the risk for climate to materially impact the global solar PV supply is so
high, it requires consideration at the sector and governmental level on an
international basis. NESF, through the Investment Adviser, actively
participates in sector-wide initiatives to address supply chain
vulnerabilities.
For operational assets, the supply chain considerations above become relevant
for sites where repairs or upgrades are required. The demand for parts is
expected to increase as irradiation increases but the vulnerability of the
supply chain for these parts also increases in certain climate scenarios. The
concentration risk on parts suppliers means that interruptions due to extreme
events are possible and this can lead to loss of revenue if sites are not
operational. Additional considerations for operational sites are the impact on
the operations and maintenance suppliers. These suppliers are diversified
across the portfolio but one activity these contractors undertake is the
cleaning of panels to improve their performance. For assets located in Italy,
where temperature increase will exacerbate water scarcity, it is likely
cleaning the panels will become less frequent and efficiency will drop as a
result. Water efficient alternatives are being actively explored (e.g. dry
cleaning and water recycling).
Portfolio Investments
The productivity of a solar asset is highest when irradiance and temperature
conditions are optimal. As temperature increases, the efficiency of solar
assets falls because heat stress impacts critical equipment, such as inverters
and transformers. The consistent and relatively cool climate makes the UK a
strong location for the efficiency of solar assets. However, increased
temperatures could lead to increased heat losses and inefficiency of NESF
assets. Likewise, the Company's portfolio of eight Italian assets and its
co-investment in Spain could face similar challenges.
These challenges can be mitigated with active asset management, ensuring the
optimal condition of parts through maintenance and securing supply of
replacement parts as required. This will enable the portfolio to take
advantage of increased irradiation for higher yields. When coupled with
storage and noting the expected increase in clean energy demand, the portfolio
should be well positioned to exploit these opportunities.
The Company's asset manager, WiseEnergy, closely monitors the portfolio's
assets throughout the year, measuring and monitoring many parameters,
indicators and metrics covering both proactive and reactive considerations.
This includes, but is not limited to, irradiation, generation, maintenance
routines, audits and availability. This enables the Company to identify assets
at risk and implement mitigation strategies to maximise optimal production in
the future.
Increased greenhouse gas emissions are not simply associated with increased
temperatures, but also with other extreme weather conditions, such as storms,
flooding and fires. All of NESF's assets have been constructed with a 1 in a
100-year assessment of likely wind conditions for the specific location of
construction. One of the key benefits of the portfolio of distributed energy
assets that NESF has is its resilience to any localised issues.
Water-related risks
The portfolio is concentrated in southern England and southern Italy. These
two geographies will have different exposures to the physical risks of climate
change. One of the primary considerations is water which can take the form of
a surplus (flooding) or deficit (drought/stress).
Water stress
The assets in southern Italy have particular exposure to water stress as a
result of increasing temperatures. Using the World Resource Institute's
Aqueduct tool the change in water stress has been assessed. The tool uses a
baseline of c.50 years of actual data (last updated in 2019). The forecast
change periods are up to 2030 and 2040 using a range of climate scenarios. The
maps below show the change in a pessimistic scenario, SSP3 RCP8.5.
Italy 2030(1) Water Stress:
The 2030 map shows a 1.4x increase in water stress across the region where the
Italian solar assets are located with some small areas reaching 2x. This
directly impacts the ability to clean panels, impairing their efficiency. It
also makes the region more vulnerable to extreme events (flash floods from
storms, earthquake vulnerabilities and socio-economic impacts as labour moves
away from the area).
Italy 2040(1) Water Stress:
The 2040 map shows the expansion of regions with a 2x increase in water stress
and some regions exceeding a 2.8x increase over baseline. This exacerbates the
issues identified in the 2030 map.
Both these maps show a pessimistic or what can be considered a worst-case
scenario based on inaction from governments globally. Understanding the
impacts of this scenario means mitigation actions can be planned if this
scenario plays out.
The water stress levels observed in Italy correlate to expected temperature
increases in those regions, essentially the heat is causing the stress. In the
UK, where the majority of assets are located, the expected heat increase has a
different impact. Water stress levels are expected to decrease vs the
baseline. This inverse movement is due to an increase in precipitation in the
UK in that scenario.
(1 Source: World Resource Institute's Aqueduct 3.0 database)
Flood risk
Water risk in the UK is based more on a surplus rather than a deficit so flood
impact needs to be considered. The whole portfolio (including the Italian
assets) has been assessed for location-specific flood risk in a variety of
different climate scenarios. The flood risk assessment considers pluvial
(precipitation related), fluvial (river overflows) and coastal sources of
flooding. These are analysed at three different points in time (2030, 2040 and
2050) across three different climate scenarios (SSP1 2.6, SSP2 4.5 and SSP5
8.5 degrees). The data set is analysed to identify the sites at highest risk
of flooding from a 1 in 100 year event under those scenarios.
Flood risk results:
The analysis identified four sites at risk of flooding in 2030 and 2040 and
five sites in 2050. Of these, only one site was at risk of flooding by more
than 50cm in depth in 2030 and 2040 but in 2050 for SSP2 4.5 and SSP5
8.5-degree scenarios two sites faced a flooding risk of more than 50cm in
depth. Further analysis identified that the risk for one site in all scenarios
was fluvial and the additional site in 2050 was costal flooding.
The initial data sweep is based on a radius around the site. For those sites
identified at risk of flooding, a terrain mapping analysis has been
undertaken. This shows the specific areas of the site which are at risk based
on the terrain and proximity to source (rivers or coast). In most cases, it is
only part of the site that is at risk. This level of detail allows
consideration of appropriate flood defence measures. The situation can then be
monitored over time and if the temperature scenario develops then the
likelihood of the risk materialising increases, and mitigating action may need
to be taken. At this stage, the cost of mitigation adjusted for the
probability of the scenarios occurring and discounted back to present value
would not be a material financial risk to the portfolio.
Pluvial Flooding SSP4.5 2040(1):
Coastal Flooding SSP4.5 2040(1):
The example flood maps are for the same site in an SSP4.5 degree scenario in
2040. They show two different types of flooding, the first is Pluvial. This
type of flooding does not directly impact the site but does cut off access to
it from the only two approaches. Whilst this limits the damage to the panels
and equipment it does mean that no maintenance can be done during the flooding
period. Flooding of surrounding areas can indirectly impact site performance
and restricted maintenance could lead to a loss of revenue.
The second map shows the impact of coastal flooding in the same scenario and
time period. This particular site is located on the coast of East Anglia. The
coastal flooding is expected to be severe and whilst most of the site is
clear, there a few incursions of water onto the site. This will likely cause
damage and, as in the pluvial flooding, access to the site is also restricted.
The analysis highlights the sites most at risk and helps to identify the
specific impacts from the risk. If these temperature scenarios become likely
the fund is in a better position to plan adaption or mitigation actions.
(1 Source: World Resource Institute's Aqueduct 3.0 database)
Financial Planning
The Company continues to monitor risks in the linkage between financing, cash
flows and climate change. There are some key challenges to the Company in
relation to finances and cash flows because of climate change. The wholesale
market price of electricity is affected by factors including demand,
subsidies, fuel commodity prices and foreign exchange. As renewables become a
greater proportion of the energy mix, the volatility in the availability of
these renewable resources is expected to drive volatility in power prices and,
subsequently, distributions to the fund and its shareholders. Increased
concentration of solar assets also leads to cannibalisation, and the price
captured on the market by solar is eroded over time.
The Company's hedging strategy aims to eliminate these risks associated with
power price volatility. Some of the Company's investments benefit from
subsidies and short-term PPA hedges that fix prices, with the remaining
revenue streams subject to electricity price fluctuations. The Company has
agreed fixed UK pricing (hedged) covering 88% of budgeted generation for the
2023/24 financial year, 44% of budgeted generation for the 2024/25 financial
year and 13% for the 2025/26 financial year.
By contrast, this volatility could provide a significant opportunity for
battery storage assets, which generate returns through such volatility.
Optimising through its arbitrage involves charging the battery when energy
prices are low and discharging during more expensive peak hours. The Company's
investment objective allows investment in standalone energy storage systems
(not ancillary to or co-located with solar PV assets owned by the Company) up
to an aggregate limit of 10% of the Gross Asset Value, with active discussions
with investors relating to increasing this limit to 25%.
The Intergovernmental Panel on Climate Change ("IPCC") uses Representative
Concentration Pathways ("RCPs") as a basis for modelling future consequences
of man-made greenhouse gas emissions and reflects a wide range of possible
outcomes. There are 4 key scenarios: RCP2.6, RCP 4.5, RCP6, and RCP8.5. The
four scenarios are outlined in the table below.
Scenarios RCP2.6 and RCP4.5 refer to pathways whereby significant efforts are
made to reduce man-made climate change. These scenarios assume the greater
deployment of renewable energy and subsequently pose greater transition risks
to businesses. As previously mentioned, this is associated with greater power
price volatility and cannibalisation as solar (and other renewable
technologies) becomes a greater proportion of the energy mix. However, as
industries (such as transport) move away from fossil fuels and towards
electrification, the subsequent demand increase is expected to offset such
changes to the supply. However, insurance premiums may increase significantly
if the instances of losses go up due to extreme weather.
The Company's Net Asset Value ("NAV") sensitivity analysis shows that a 10%
decrease in power prices lead to a 6.6% decrease in the NAV and a 10% increase
in power prices leads to a 8.9p decrease in the NAV per share and a 10%
increase in power prices leads to a 8.6p increase in the NAV per share.
Alongside increased support for green investment, another key part of the
RCP2.6 and RCP4.5 scenarios likely involve increased regulations aimed at
actively mitigating CO(2) emissions. These include carbon pricing that will
impact organisations in countries that take part in emissions trading schemes
or are subject to emissions taxes. The purpose of such strategies is to charge
the hidden cost of carbon emissions to the source. It is expected that in low
emissions scenarios, prices in existing emissions trading schemes are likely
to increase. Whilst this could improve the commercial viability of renewable
technologies, it may simultaneously drive up costs within the supply chain of
solar infrastructure assets. By contrast, under scenarios where limited
efforts are made to reduce emissions (RCP6 and RCP8.5), global temperature
increases are significantly higher than 2°C. This leads to several physical
risk factors, such as extreme weather conditions, floods, and heat stress.
Storms may put solar assets at risk of physical damage that could drive up
operational costs and lead to losses in generation due to periods of repair.
The existing portfolio of assets has a weighted average useful life of 26.3
and is designed to be extremely resilient to different weather conditions.
There is also insurance in place to cover physical damage to plants that may
lead to large financial and environmental losses.
Furthermore, higher emissions scenarios are expected to both increase average
temperatures and the variance in irradiation. As previously mentioned,
increased temperatures reduce the efficiency and productivity of assets due to
heat losses and higher volatility in irradiation directly impacts the
volatility of the Company's revenues. Our NAV sensitivity analysis shows that
a 5% decrease in irradiation leads to an 5.6% decrease in the NAV and a 5%
increase in irradiation lead to a 5.4% increase in the NAV.
Radiative Forcing Atmospheric CO(2) equivalent (parts per million) Description
8.5 >1,370 Worst-case emissions scenario, whereby no effort is made to curb climate
change and emissions continue to rise throughout the 21st century
6 850 Emissions peak around 2080, then decline
4.5 650 Emissions in RCP 4.5 peak around 2040, then decline
2.6 490 Ambitious pathway, whereby emissions go to zero by 2100
Risk Management
1. Describe the organisation's processes for identifying and
assessing climate-related risk
2. Describe the organisation's processes for managing
climate-related risks
3. Describe how processes for identifying, assessing, and managing
climate-related risks are integrated into the organisation's overall risk
management
The core business of the investment manager of NESF is focused on generating
positive climate-related impacts through the reduction of carbon emissions
associated with the clean energy generated by renewable energy assets. Despite
no direct exposure to carbon-intensive sectors, the investment manager has
identified certain physical climate risks as material to the business. NEC has
reviewed the Company's risk appetite to reflect the climate ambitions that has
been expressed to stakeholders and have aligned it with NEC's group-wide Risk
Management framework. The Company will continue to refine its climate risk
assessment approach in order to reflect the constantly evolving nature of
climate factors and impacts.
Potential physical and climatic risks associated with the asset acquired or
developed after 2020, are screened by the ESG team, and where there is
evidence of potential risks, an external climate risk advisor is appointed for
further assessment during the pre-acquisition stage. The Adviser will provide
a climate change risk assessment report, which will inform the final
investment decision. As a member of both the NEC Group Risk Committee and the
NESF Investment Committee, during Committee meetings, the Head of ESG is
responsible for advising on the ESG risks and opportunities associated with
each acquisition and or development, including those related to climate.
Risk Factors and Risk Assessment
The level of risk assigned to an investment is determined by investigating and
engaging with involved parties over a wide range of factors throughout the due
diligence process. While the risk level varies depending on the asset being
acquired, certain risk factors can be more easily mitigated than others and as
such, are classified with a lower risk rating due to their ability to be more
readily managed.
The Investment Adviser's ESG team have worked with an external consultant to
develop an internal climate risk rating system that is aligned with the TCFD
guidelines , a summary of which is overleaf. Carrying out this procedure
enables the ESG team to highlight the severity of any climate-related risks
associated with the portfolio during the acquisition process and to determine
which assets will require a third-party assessment to be carried out
post-acquisition. Based on the findings of the assessment, it is expected that
mitigation measures will be presented by the advisor and passed onto the Asset
Manager, ensuring the risk is monitored and reported on for as long as
required and, where relevant, for the entire lifetime of the Project.
General classification Physical risks Possible consequences Risk rating
Increased severity and frequency of extreme weather events (hurricanes, storm Damage to property and infrastructure resulting in environmental damage, Medium (Likely + Moderate)
surge, heat waves) increased capital costs (e.g. repairs, cleaning, write-offs and possible early
retirement of assets), decreased power generation, worker incidents (e.g.
unable to access site).
Acute Fires Low (Unlikely + Minimal)
Flooding Low (Unlikely + Minimal)
Changes in precipitation patterns, solar irradiation and cloudiness Reduction of anticipated power generation, increased losses in transmission Low (Unlikely + Minimal)
lines, increased costs associated with more frequent or intense cleaning
requirements and an increase in health and safety incidents as a result of
increased changed weather conditions (e.g. heat stress, associated with hot
days)
Chronic Changes in dirt, dust, snow, atmospheric particles and others Low (Unlikely + Minimal)
Changes in mean temperatures Low (Unlikely + Minimal)
Water stress and drought Decreased water availability increases cost to clean panels and domestic water Low (Unlikely + Minimal)
to site
Metrics and Targets
1. Disclose the metrics used by the organisation to assess
climate-related risks and opportunities
2. Disclose Scope 1, Scope 2, and if appropriate, Scope 3
greenhouse gas emissions, and the related risks
3. Describe the targets used by the organisation to manage
climate-related risks and opportunities and performance against targets
We recognise the value in considering ESG metrics when identifying potential
investment risks or opportunities. In terms of NESF's asset emissions, the
Greenhouse Gas (GHG) Protocol has outlined the most effective framework for
reporting on carbon emissions. The framework separates emissions into the
following categories:
• Scope 1: Direct emissions from the activities of a company
under its control, include fuel company-owned vehicles and air-conditioning
leaks.
• Scope 2: Indirect emissions from the purchase of
electricity, steam heating, and cooling by the company.
• Scope 3: All other indirect emissions that are embedded
within the Company's value chain.
NESF and its fund manager aim to obtain the GHG emission data directly from
suppliers, although it is anticipated that this process will take time to
achieve 100% coverage.
Material GHG emission inventory
Note: This graph is limited to operational emissions only. Supply chain and
construction emissions are currently not included within this graph. NESF is
in the process of expanding its coverage to include these considerations
moving forward.
The chart above shows that total emissions were 1,319 tCO(2)e of which the
majority relates to scope 2 imported electricity. The sites import electricity
for operational activities (CCTV, monitoring equipment etc). The Company is
actively exploring opportunities to source renewable energy to reduce these
emissions. Scope 3 activities relate to outsourced arrangements with
operations and maintenance contractors (service visits etc).
Description Metric
Scope 1 GHG Emissions NA(1)
Scope 2 GHG Emissions 1,169 tCO(2)e
Scope 3 GHG Emissions 150 tCO(2)e
Carbon Footprint 1.02 tCO(2)e
GHG Intensity 6.68 tCO(2)e
1 The investee companies are SPVs that hold solar PV projects. The
construction and operation of these are outsourced to third parties so no
scope 1 emissions are incurred
The calculation of these emissions is based on data collected from suppliers.
The chart below shows the response rate in the current year's collection
process. Overall coverage is approximately 80% and the Company is actively
engaging with suppliers to improve this going forward.
Data collection response rate analysis
Within the responses, there are further limitations. Rooftop/micro solar sites
and sites with construction activity (repairs etc.) are not included in the
current year. A collection plan is being implemented to capture this data in
the future. Further limitations exist where data fields collected are
unavailable (for example, fuel usage isn't tracked by all suppliers).
Data gaps and limitations have been addressed through estimates (except
rooftop/micro solar sites and construction, which are omissions in the current
year). For the remaining activities, estimates were developed in accordance
with relevant guidance and standards (e.g. the Greenhouse Gas Protocol).
Electricity imported is based on metered data and emission factors from the
utility provider or DEFRA.
Data collection and quality is a complex and evolving process. The Company has
taken significant steps during the year to improve this process and plans
further such steps in the coming year.
Targets
The Science Based Targets initiative ("SBTi") was established in 2015, with
the goal of helping companies to set emission reduction targets in line with
climate science and Paris Agreement goals. The Company is in the process of
evaluating its target commitments.
Outlook
The Company is aware of the potential for the effective management of climate
risks and opportunities to impact returns and has therefore improved its
disclosures in the current year and will seek to further enhance its TCFD
disclosures in the future. The Company continued to develop a comprehensive
scenario analysis during the year that will help quantify climate risks faced
over time. Insights into water stress and flooding risk have been developed
already, representing a significant step forward in scenario analysis. This
work continues and will involve a deeper assessment of supply chain
vulnerability in climate scenarios, considering location specific factors.
Mitigation actions for risks identified in this report, and as a result of
further analysis, will be investigated so that the timing and cost
implications can be factored into future planning.
The Company intends to expand its metrics to include scope 3 emissions, which
will give clarity on upstream and downstream emissions within its value chain.
The Investment Manager has begun engaging with its suppliers in order to take
action to reduce such emissions. The emissions calculated may then be used as
a baseline for future performance and will be used to inform its SBTi-aligned
targets. The Company is continuously striving to improve on its disclosures
and processes to ensure risks are effectively identified and, where possible,
mitigated.
Stakeholder Engagement
We recognise the importance of maintaining a high standard of business conduct
and strong and constructive relationships with our key stakeholders in order
to deliver the Company's strategic objectives over the longer term.
As the Company has no employees and given the nature of its services, the
Investment Adviser (in addition to the Board) has significant dealings with
our other stakeholders and, therefore, is an integral point of contact between
the Company and our stakeholders. The Company's Corporate Brokers, Cenkos
Securities plc and RBC Capital Markets Ltd, are also an integral point of
contact between the Company and our shareholders and, together with the
Investment Adviser, ensure that any shareholder feedback or observations is
collated.
Our key stakeholders are shown in the table below, in no particular order. The
table explains why those stakeholders are important to us and how we seek to
engage with them, which we may do either directly or through the Investment
Adviser or our Corporate Brokers as appropriate.
Key Stakeholders Why they are important to us How we engage with them
Shareholders A well-informed and supportive shareholder base is crucial to the long-term • Annual and Interim Reports
sustainability of our business. Understanding the views and priorities of our
(All investors in the Company- institutional investors, wealth managers and shareholders is, therefore, fundamental to retaining their continued support • Quarterly factsheets
retail investors (including private individuals)) and to having the potential to access equity capital in order to continue to
expand the Company's portfolio over time in order to further diversify the • Market announcements, including quarterly NAV
investment portfolio and create economies of scale. announcements
• Website
• Institutional investor meetings (one-to-one and
group), primarily through our Investment Adviser and Corporate Brokers, to
keep communications open (including annual and interim results presentations)
and gauge their opinions on specific matters (e.g. strategy and capital
raisings)
• Regular institutional investor feedback received from
our Investment Adviser and Corporate Brokers
• Chairman meetings and other communications with
substantial shareholders
• Research analyst presentations
• Dialogue with research analysts through our Investment
Adviser, as and when required
• AGM
• Rothschild & Co shareholder perception study
Investment Adviser The Investment Adviser's performance is critical for the Company to deliver • Board and Committee meetings
its investment strategy successfully and meet its investment and strategic
objectives. Accordingly, the Company relies on the Investment Adviser's • Ad hoc meetings and calls with the Board
expertise, and needs to ensure the quality and sustainability of its services,
to deliver the necessary performance. The Investment Adviser's culture and • External Board evaluation, which includes feedback
reputation is also important when it is representing the Company and its from the Investment Adviser
subsidiaries.
• Informal meetings
Investment Manager The Investment Manager's role is important to ensure all acquisitions and • Quarterly reports to the Board
divestments meet the Company's investment and strategic objectives.
• Annual evaluation by the Management Engagement
Committee
• Ad hoc meetings and calls with Directors
Key Stakeholders Why they are important to us How we engage with them
Administrator As the Company has no employees, we rely on the Administrator to provide us • Board and Committee meetings
with administrative, fund accounting and company secretarial services. In
particular, we rely on the Administrator maintaining the accuracy of our
• Ad hoc meetings and calls with the Board
accounting records and ensuring our compliance with applicable laws, rules and
regulations. • Quarterly reports to the Board
• Annual evaluation of the Administrator by the
Management Engagement Committee and the Audit Committee
Other Key Service Providers and Advisers A strong and constructive working relationship with our other key service • Board and Committee meetings
providers and advisers ensures that we receive high quality services to help
(Registrar, Financial Advisers, Legal advisers, Corporate Brokers, Public deliver our investment and strategic objectives. • One-to-one meetings and calls
Relations and Auditors)
• Provision of relevant information to or by
the Company
• Annual evaluation of key service providers and
advisers by the Management Engagement Committee and Audit Committee
Lenders An appropriate amount of gearing is required to achieve our target returns. It • Provision of information to lenders in accordance with
(Provider of the Company's credit facilities) is important to maintain a strong working relationship with our existing the terms of the relevant facility agreements
lenders in case we may need, at some point, their consent for, e.g., strategic
initiatives. We also look to build strong relationships with lenders, • Consultation in advance on matters which may require
including our existing lenders, who may provide debt facilities in the future. their consent under the relevant facility agreements
Local Communities Ensuring our investment creates a positive social impact is core to our • See the ESG Report
sustainability approach.
• Review and challenge by the ESG Committee
Asset Manager The Asset Manager's performance is critical for the operating solar assets to • Monthly and ad-hoc meetings with the Investment
deliver operational outperformance versus the budget. The Asset Manager also Adviser
provides the administration and fund accounting for the Company's
subsidiaries, as well as providing an energy sales desk to manage our
• Monthly reports to the Investment Adviser
electricity price and sales strategy.
• Quarterly reports to the Investment Manager, which is
reported to the Board
Risks and Risk Management
We recognise that effective risk management is important to the Company's
long-term sustainable success.
Approach to Managing Risk
Our risk management process is designed to identify, evaluate, manage and
mitigate (rather than eliminate) the significant risks we face. The process
can therefore only provide reasonable, and not absolute, assurance. The Audit
Committee formally reviews, on the Board's behalf, the approach to and
effectiveness of our risk management and internal control systems bi-annually
as a minimum.
Risk Appetite
The Board is ultimately responsible for defining the level and type of risk
that the Company considers appropriate, ensuring it remains in line with the
Company's Investment Objective and Investment Policy that sets out the key
components of its risk appetite.
The Company's risk appetite is considered in light of the emerging and
principal risks that the Company faces, including having regard to, amongst
other things, the level of exposure to power prices, gearing and financing
risk and solar resource risk.
Principal and Emerging Risks
Details of the emerging and principal risks we face that have the potential to
materially affect our business are set out below. All risks are principal
risks, except those specifically stated. There are some risks that we
currently regard as less material and, therefore, they have not been included
below but they may become material in the future. Additionally, other risks
may be unknown to us at present.
Portfolio Management and Performance Risk
Risks Summary Mitigation
Electricity generation falling below expectation Solar is an intermittent energy source compared to traditional energy There is a level of predictability for solar irradiation compared to other
resources such as coal and gas. The volume of solar irradiation available on a renewables, in that solar irradiation levels tend to follow a set trend
given day is out of the Company's control and this is a risk on the throughout the year and exhibits low inter-year volatility.
performance of the assets.
The geographical location of the asset has an impact on solar irradiation
Unplanned DNO outages, weather patterns and technical issues can impact levels, due to climate variations and small differences in day lengths across
generation. regions. Assets are chosen with this in mind.
The Asset Manager has value-enhancing tools that optimise the Company's
portfolio generation and resolve interruptions efficiently.
The diversity of the underlying solar module and inverter manufacturers and
O&M suppliers.
Portfolio valuation Valuation of a solar PV asset is dependent on financial models based on The Company's model and the internal controls thereon are reviewed in detail
several drivers, principally: discount rates, rate of inflation, power price on a periodic basis by a third party modelling specialist to ensure the
curves and amount of electricity the solar assets are expected to produce. Company's model is robust and compliant with the latest modelling standards
Certain assumptions may prove to be inaccurate, particularly during periods of and controls.
volatility.
Documentation supporting the fair values model is presented to the Board
quarterly for approval and adoption.
To manage the impact of the power price volatility, the Investment Adviser
uses an average of the power price curves from three Consultants.
Operational and Strategic Risks
Risks Summary Mitigation
A decline in the price of electricity Revenues of solar assets are dependent on the electricity market. Exposure to The Investment Adviser uses the most recent quarterly reports from the
the wholesale energy market impacts the prices received for energy generated Consultants to be kept informed of long-term electricity prices, and uses this
by and revenues forecast for the operating assets of the Company. For the year information to formulate the Company's electricity sales and hedging
ended 31 March 2023, 52% of revenues were derived from government subsidies strategies.
and long-term PPAs. The remaining 48% of the Company's revenues were derived
from selling the electricity generated to carefully selected counterparties in Short-term: The Company enters into PPAs and forward contracts to fix
the open market. electricity prices for a future period ranging from six to 12 months. The
The acquisition of subsidy-free assets will increase this risk as currently NextEnergy Group has an Energy Sales desk which is responsible for hedging
most of their revenues are derived from the wholesale energy market with only generation produced in the short-term. As at 1 June 2023, the Company had
a part benefiting from short-term PPAs. secured fixed price agreements covering 87.9% of its electricity generation
for the 2023/24 financial year and 44.3% for the 2024/25 financial year.
The recent supply chain issues associated with the conflict in Ukraine,
alongside wider macroeconomic and geopolitical uncertainty has led to volatile Long-term: Wholesale power prices are beyond the control of the Company.
power prices. Factors that could increase the price of electricity including the roll-out of
electric vehicles and the electrification of domestic heating and
transportation networks. The Investment Adviser reviews wholesale electricity
price forecasts and enters into long-term PPAs where appropriate.
Subsidy-free assets: The Investment Adviser will plan for short-term and
long-term contracts before the asset is operational.
Counterparty risk This is the risk of counterparty failure. The Company has entered into O&M The Asset Manager continuously monitors NESF's contracts in line with the
contracts and PPAs, which affect the costs and revenues of the Company. The market.
Company has also contracted with various EPCs for construction of the
There are contractual arrangements in place that have warranties in case of
subsidy-free assets. defaults.
If the counterparty becomes insolvent there is a risk of disruption and
The Asset Manager ensures that counterparties are of an acceptable financial
financial loss until the counterparty is replaced. standing to minimise risk.
Plant operational risk The Company relies on third-party contractors to provide corrective and The Company can seek legal recourse against failure by an O&M contractor.
preventative maintenance through O&M contracts.
The Asset Manager monitors and ensures that the O&M contract maintains a
The O&M contractor could fail to fulfil its obligation and the solar detailed preventative schedule, with contract warranties and penalty payments
asset's performance could deteriorate. in the event of failure.
Degradation of the solar modules reduce the performance of the plant over
NESF looks at technological improvements on an ongoing basis to reduce the
time. An increase in the rate of degradation may lead to under performance. effect of degradation. Also, NESF has contract warranties to secure the design
performance of the assets.
External and Market Risks
Risks Summary Mitigation
Adverse changes in government policy and political uncertainty (principal or International conflicts and geopolitical tensions may impact trade of The Investment Manager and the Board believe Brexit to have a very limited
emerging) commodities, such as oil and gas, which have subsequent downstream impacts on effect on the Company's financial and operating prospects. The Investment
power price volatility and supply chain stability for solar equipment. Manager continue to closely monitor the impact on the underlying portfolio.
The conflict in Ukraine has led to global volatility in supply chains and
The global consequences of international conflict on power prices emphasises
power prices. the importance of national energy independence, which the Company believes it
is well placed to facilitate.
Supply chain shortages in solar equipment could prohibit construction of new
The Investment Manager has a wealth of experience and a strong network built
projects and drive-up acquisition prices of existing assets. through its global presence that enables it to source the best projects and
contracts for the NESF portfolio.
The geopolitical expectations known at the time of acquisition of an asset are
built into the Company's strategy and projected financial returns for the
asset.
Adverse changes to regulatory framework for solar PV (principal or emerging) Uncertainty for the future regulatory framework for solar PV creates a risk The Company actively monitors regulatory changes within the industry and
that further planned acquisitions do not take place. This would affect the participates in contributing towards government discussions on the industry in
Company's growth potential, valuation and profitability. the UK, and Italy and other countries in which investments are located.
Changes to tax legislation and rates (principal or emerging) Changes to the existing rates and rules could have an adverse effect on the NESF has tax advisers to ensure constant awareness of any upcoming changes to
valuation of the portfolio and levels of dividends paid to shareholders. tax legislation and rates, to implement the necessary changes as required.
As a result of the elevated power prices exhibited during 2022, the UK
Investment in multiple jurisdictions diversifies exposure to individual
government announced the Electrical Generator Levy ("EGL"), which is a country regulations and hence risk.
temporary 45% charge on exceptional receipts generated from the production of
Increase in subsidy free assets in the portfolio reduces exposure to regulated
wholesale electricity. Exceptional receipts will be defined as wholesale revenues, supported by the hedging strategy.
electricity sold at an average price in excess of £75 per MWh over an
accounting period.
Changes to current subsidies based on findings of the regulator would impact
the Company's revenue streams.
Health and Safety (principal or emerging) The physical location, maintenance and operation of a solar power plant may Health and safety practices are in place that conform to local governmental
pose health and safety risks to those involved. standards. The Investment Manager, Investment Adviser and the Asset Manager
monitor adherence to the standards.
Insurance policies are in place and reviewed to increase cover where
necessary.
Climate-related risks (emerging risk) These are detailed in the Task-Force on Climate-Related Financial Disclosure
("TCFD") report.
Going Concern and Viability
Going Concern
This Strategic Report describes the Company's business activities, together
with the factors likely to affect its future performance, position and
prospects. The financial position of the Company, its cash flows, liquidity
position and borrowing facilities are referred to in the Chairman's Statement,
Investment Adviser Report and notes to the Financial Statements.
The Company's cash balance as at 31 March 2023 was £14.4m, all of which was
readily available. It also had immediately available but undrawn amounts under
the Group's debt facilities of a further £39m. The NESF Group had capital
commitments totalling £26.5m at the year end. A significant portion of the
NESF Group's revenues are derived from government subsidies. A large portion
of the NESF Group's borrowings are on a non-recourse basis. The Company's
portfolio is diversified by geography, components, plant size, subsidy
schemes and revenue streams.
A thorough evaluation of the cash flow impact, for the going concern period to
16 June 2024, of the following individual and combined two scenarios were
reviewed by the Directors and were deemed appropriate market standard stress
tests:
• Sale of Subsidy Free Assets as part of the capital recycling
programme
• Sale of Subsidy Free Assets and Share Buyback as part of the
capital recycling programme
The Board is satisfied that the Company has sufficient financial resources
available to be able to manage the Company's business effectively and pursue
the Company's principal activities and investment objective. In particular,
the Board is not currently aware of any material uncertainties in relation to
the Company's ability to continue for a period of at least 12 months from the
date of approval of this Annual Report. The Board is of the opinion,
therefore, that the going concern basis adopted in the preparation of the
Financial Statements is appropriate.
Assessment of Viability
In accordance with The AIC Code of Corporate Governance (February 2019) ("AIC
Code") and the FCA's Listing Rules, the Directors have assessed the prospects
of the Company over a longer period than the 12 months required when preparing
financial statements on a going concern basis. The Board has also carried out
a robust assessment of the emerging and principal risks.
In reviewing the Company's viability, the Directors have assessed its
viability for the period to 31 March 2028. The Board believes this period,
being approximately five years, is an appropriate period over which to assess
the Company's viability as it is consistent with the five year period used by
the Board when considering the Company's investment strategy and medium-term
business plans, including cash flows, and is considered reasonable having
regard to the long-term nature of the Company's investment strategy.
The Company owns a portfolio of solar energy infrastructure assets in the UK,
Italy, Portugal and Spain that are predominantly fully constructed,
operational and generating renewable electricity, and entered into the battery
storage asset market this year. As a result, it benefits from predictable and
reliable long-term cash flows and is subject to a set of risks that can be
identified and assessed. Each solar asset is supported by a detailed
financial model at acquisition and incorporated into the Company's valuation
model for quarterly valuations. The Directors believe that the
diversification within the Company's portfolio of solar assets helps to
withstand and mitigate the emerging and principal risks the Company is most
likely to face. The Company's revenues from investments provide substantial
cover to the operating expenses of the SPVs, HoldCos and the Company and any
other costs likely to be faced by any of them over the viability assessment
period.
NESF prepares a five-year cash flow forecast annually and the Investment
Adviser and the Board review this as part of their business planning and to
assess the sustainability of the dividends. This forecast is based on the
Investment Manager's expectations of future asset performance, income and
costs, and are consistent with the methodology applied to provide the
valuation of the investments. The forecast considers the Company's cash
balances, cash flows, dividend cover, other financial ratios, compliance,
investment policy and key operational and financial indicators over the
period. Furthermore, the forecast also considers the terms of the Company's
borrowing facilities (mainly interest payable, amortisation and financial
covenants) and the terms of the preference shares and their limited redemption
rights. Apart from any drawings under two revolving credit facilities for an
aggregate of up to £205m that expire in 2024, there are no borrowings by the
Company or any of the HoldCos or SPVs that are expected to be refinanced.
However, the forecast considers raising further short-term debt and equity to
acquire future assets.
The viability assessment assumes continued government support for existing
subsidy arrangements for the assets within the portfolio.
The key assumptions underpinning the cash flows and covenant compliance
forecasts are subject to sensitivity analysis to explore and evaluate the
Company's resilience to the potential impact of those emerging and principal
risks summarised above that, both individually and in aggregate, could prevent
the Company from delivering on its investment strategy. The emerging and
principal risks that are subject to the sensitivity analysis are outlined in
note 19b of the Financial Statements, as these could have a material negative
impact on valuations and cash flows and give rise to a reduction in the
availability of finance. The remaining emerging and principal risks, whilst
having an impact on the Company's business model and future performance,
position and prospects, are not considered by the Directors to have a
reasonable likelihood of impacting the Company's viability over the five-year
period to 31 March 2028.
The sensitivities performed were designed to be severe but plausible; and to
take full account of the availability and likely effectiveness of mitigating
actions that could be taken to reduce or avoid the impact or occurrence of the
underlying risks.
If the ordinary shares trade, on average, at a discount to the NAV in excess
of 10% over any financial year of the Company, the Board is required to
propose, at the next AGM, a special resolution that the Company ceases in its
current form. In assessing the likelihood of a discontinuation resolution
being triggered, the Board has had regard to the historic average
premium/discounts of the Company's ordinary shares and its peers over rolling
12 month periods since the Company's IPO in 2014.
Viability Statement
Having considered the five-year forecast cash flows and covenant compliance,
the impact of the sensitivities in combination and the emerging and principal
risks facing the Company, the Directors confirm that they have a reasonable
expectation that the Company will be able to continue in operation and meet
its liabilities as they fall due over the period to 31 March 2028.
Ukraine Conflict
The Company's portfolio has no direct exposure to either Ukraine or Russia.
The Board and Investment Adviser continue to monitor the situation closely and
consider the wider consequences on power prices and energy affordability.
Approval
This Strategic Report was approved by the Board on 16 June 2023 and signed on
its behalf by:
Kevin Lyon
Chairman
Governance
Introduction from the Chairman
I am pleased to present the Company's Corporate Governance Report for the year
ended 31 March 2023.
We believe that strong corporate governance gives the Company's shareholders
and other key stakeholders confidence in the Company's trustworthiness,
fairness and transparency. The practice of good governance is, therefore, an
integral part of the way we manage the Company and plays an important role in
shaping the Company's long-term sustainable success and achieving our
strategic objectives.
Corporate Governance Regime
This Corporate Governance Report explains how we apply the principles and
provisions of the AIC Code. It provides details of the key aspects of our
corporate governance framework and seeks to demonstrate how the Board and its
Committees have operated during the year and how we exercise effective
stewardship over the Company's activities for the benefit of our shareholders
as a whole, whilst having regard to the interests of wider stakeholders. The
Board also considers other updated guidance and
best practice.
Board Composition and Evaluation
We continued to keep the Board's composition under review and appointed Helen
Mahy in April 2023 to add to the energy sector experience of the Board.
The AIC Code requires us to undertake externally facilitated Board evaluations
at least every three years and the most recent review was undertaken by
Lintstock Limited in 2021. Further information on this year's evaluation
process and its findings can be found under 'Annual Performance Evaluations'.
Audit Committee
Patrick Firth is the appointed Chair of the Audit Committee. Further
information on the Audit Committee can be found below.
Remuneration and Nominations Committee
Vic Holmes is the appointed Chair of the Remuneration and Nominations
Committee. Further information on the Remuneration and Nominations Committee
can be found below.
Management Engagement Committee
Joanne Peacegood is the appointed Chair of the Management Engagement
Committee. Further information on the Management Engagement Committee can be
found below.
ESG Committee
The ESG Committee was formed in October 2022, with Josephine Bush appointed
Chair. Further information on the ESG committee can be found below.
Engagement with Our Key Stakeholders
We recognise the importance of engaging with our key stakeholders and
information on how we do this can be found under 'Engagement with Our
Stakeholders'. The most recent shareholder perception study was undertaken by
Rothschild & Co in April 2021. We continue to look at how we engage with
all of our key stakeholders to ensure that our engagement is both appropriate
for the Company's business and dynamic so that we can respond as the business
and our key stakeholders' views evolve.
Kevin Lyon
Chairman
16 June 2023
Governance Framework
Our governance framework reflects the fact that, as an investment company, the
Company has no employees, its Directors are all Non-Executive and its
day-to-day activities, including investment management and administration, are
outsourced to external service providers.
Board of Directors
Kevin Lyon Relevant Skills and Experience: Principal External Appointments:
Chairman
Over 35 years of experience in private equity and Director positions in a
Chairman of KultraLab Limited, a technology led behavioural science
number of different companies. consultancy.
Resident:
UK
Qualified Chartered Accountant.
Chairman of AMG Vango, an owner & distributor of outdoor brands.
Appointed:
Spent approximately 17 years with 3i Group, responsible for their core private
Non-Executive Director of retailer SpaceNK.
22 January 2014 equity business across the UK, with a team of 10 directors and 40 executives.
Independent:
Independent Non-Executive Director and Chairman of more than 30 companies over
Yes the last 15 years, including Smart Metering Systems plc, Valiant Petroleum
plc, Wyndeham Press Group, Craneware plc, Booker plc, David Lloyd Leisure and
Phase 8.
Attended management courses of INSEAD, IESE and Ashridge.
Won the Institute of Directors Scotland Non-Executive Director of the Year
Award in 2013.
Vic Holmes Relevant Skills and Experience: Principal External Appointments:
Senior Independent Director
Over 40 years of experience in financial services.
Chairman of Permira Holdings Limited, Utmost Worldwide Limited, Highbridge
Tactical Credit Fund Limited and Ocorian Administration (Guernsey) Limited.
Resident: Guernsey
Qualified Chartered Certified Accountant.
Non-Executive Director of DBG Management GP (Guernsey) Limited,
Appointed:
Joined the Board of Guernsey International Fund Management Limited, Guernsey's
22 January 2014 largest fund administration company, in 1986.
Rothschild & Co BI Limited and a range of Ashmore funds.
Independent:
Senior roles in the international fund administration services business of the
Yes Baring Asset Management group of companies from 1990 to 2005 (based in Dublin)
including Head of Fund Administration Services with responsibility for
services out of London, Dublin, Guernsey, Isle of Man and Jersey.
Head of Northern Trust's Irish businesses (2005 to 2007) and Channel Island
businesses (2007 to 2011).
Chairman of the Guernsey Investment Fund Association's executive committee
from 2013 to 2015.
Patrick Firth Relevant Skills and Experience: Principal External Appointments:
Non-Executive Director
Has worked in the fund industry in Guernsey since joining Rothschild Asset
Non-Executive Director of Riverstone Energy Limited, India Capital Growth Fund
Resident: Management C.I. Limited in 1992. Limited and CT UK Capital and Income Investment Trust plc.
UK
Qualified Chartered Accountant.
Appointed:
22 January 2014
Managing Director at Butterfield Fund Services (Guernsey) Limited
(subsequently Butterfield Fulcrum Group (Guernsey Limited), a Company
Independent: providing third party fund administration services, from 2002 to 2009.
Yes
Former Chairman of the Guernsey International Business Association and of the
Guernsey Investment Fund Association.
Joanne Peacegood Relevant Skills and Experience: Principal External Appointments:
Non-Executive Director
Over 20 years of experience in the Investment Management sector including
Non-Executive Director roles include Private Equity, Debt, Hedge, Real Estate,
Resident: Guernsey Premium Listed Funds and Alternative assets. Utilities, Asset Managers, Volta Finance Limited and Chair of Castelnau Group
Limited.
Appointed:
Worked for 'Big Four' accounting firms in the Channel Islands, UK and Canada
20 February 2020 for 20 years.
Immediate past Chair of the Guernsey Investment & Fund Association and
Deputy Chair of the Guernsey International Business Association.
Independent:
Qualifications include Chartered Accountant (FCA), Institute of Directors
Yes Diploma and BA honours degree in Accounting.
Member of the AIC Channel Islands Committee.
Previously Audit Engagement Leader, Risk & Quality Director, Controls
Assurance and Innovation & Technology Director.
Expertise in Valuations, Accounting, Auditing, Risk, Controls, Corporate
Governance and Regulations.
Josephine Bush Relevant Skills and Experience: Principal External Appointments:
Non-Executive Director
Over 14 years of experience in the renewable energy sector.
Chair of the Audit, Risk and ESG committee, of Vulcan Energy Resources Limited
Resident:
(ASX listed).
UK
Was a senior partner at Ernst & Young LLP for 14 years specialising in the
renewable energy sector and amongst other things was responsible for
Non-Executive director of Net Zero Now Limited and Foresight Sustainable
Appointed: developing the Ernst & Young LLP global renewables business plan. She was Forestry Company PLC.
1 January 2022 a member of the Ernst & Young LLP Power and Utilities Board and UK&I
Member of the investment committee of Gresham House's British Sustainable
Governance Board. Infrastructure Fund.
Independent:
Yes
Qualified Solicitor and Chartered Tax Adviser and CFA ESG investing
qualification. Passed the Cambridge Institute of Sustainable Leadership
Sustainable Finance course.
Josephine founded a not for profit, Sustainability & You, to raise
awareness of climate change challenges and opportunities.
Helen Mahy CBE Relevant Skills and Experience: Principal External Appointments:
Over 20 years of experience in the energy sector.
Non-Executive Director of SSE plc and chairs the Safety, Sustainability,
Non-Executive Director
Health and Environment Advisory Committee.
Helen has previously served as Group General Counsel and Company Secretary of
Resident: National Grid plc, and more recently as Chairman of The Renewables
Non-Executive Director of Gowling WLG (UK) LLP.
UK Infrastructure Group having served her full nine-year tenure.
Chair of the Global Media Campaign to End FGM.
Appointed:
Helen is a qualified barrister and was an Associate of the Chartered Insurance
1 April 2023 Institute. In 2015, she was awarded a CBE for services to business,
particularly relating to diversity in the workplace.
Independent:
Yes
Previous Directorships include SVG Capital plc, Primary Health Properties plc,
Bonheur ASA and she was also Chair of MedicX Fund Limited
Corporate Governance Statement
Statement of Compliance
The Board considers that the principles and provisions set out in the AIC Code
provide the most appropriate framework for the Company's governance and
reporting to shareholders. The AIC Code addresses the principles and
provisions set out in the UK Corporate Governance Code (July 2018) as well as
setting out additional principles and recommendations on issues that are of
specific relevance to investment companies. The AIC Code includes an
explanation of how the AIC Code adapts the principles and provisions set out
in the UK Corporate Governance Code to make them relevant for investment
companies. The AIC Code is available on the AIC's website (theaic.co.uk).
The AIC Code has been endorsed by the Financial Reporting Council and the
Guernsey Financial Services Commission. By reporting against the AIC Code, the
Board is meeting its obligations in relation to:
• the UK Corporate Governance Code (and associated disclosure
requirements under the FCA's Listing Rule 9.8.6R) and, accordingly, the
Company does not need to report further on issues contained in the UK
Corporate Governance Code which are irrelevant to it; and
• the Guernsey Financial Services Commission's Finance Sector
Code of Corporate Governance (June 2021).
The Company has complied with the principles and has complied with the
provisions of the AIC Code during the year ended 31 March 2023.
Board Leadership and
Company Purpose
Board Leadership
The role of the Board is to promote the long-term sustainable success of the
Company, generating value for our shareholders whilst having regard to the
interests of wider stakeholders.
The Investment Manager, Investment Adviser and Administrator are responsible
for implementing the Company's strategy and managing the Company's day-to-day
activities and operations. The Company's success is based on such
implementation and management being effective. The Board leads and provides
direction for the Investment Manager, Investment Adviser and Administrator by
setting the Company's strategic objectives within a robust framework of risk
management and internal controls. The Board oversees the execution of the
Company's strategy and implementation of its key investment, financial,
operational and compliance policies, enabling it to scrutinise robustly and
challenge constructively the performance of the Investment Manager, Investment
Adviser and Administrator.
Company Purpose, Values and Strategy
The Company's principal purpose is to provide ordinary shareholders with
attractive risk-adjusted returns, principally in the form of regular
dividends, by investing in a diversified portfolio of primarily UK-based
solar energy infrastructure assets managed in accordance with its Investment
Policy. Details of the Company's investment and strategic objectives and its
investment strategy are set out in 'Our Objectives' and 'Our Investment
Strategy and Track Record' respectively. In setting the Company's strategic
objectives, the Board had regard to the interests of the Company's key
stakeholders.
The Strategic Report describes:
• how the Company seeks to generate and preserve value over
the long-term (see 'Portfolio Optimisation' in the Investment Adviser's
Report);
• the key considerations relating to new investment
opportunities (see 'Investment Highlights' in the Investment Adviser's
Report);
• the emerging and principal risks to the future success of
the Company and how we seek to manage and mitigate them (see 'Risks and Risk
Management'); and
• the sustainability of the Company's business model (see 'the
Going Concern and Viability section').
We aim to ensure the Company is run in a manner that is consistent with our
belief in integrity, fairness and transparency and responsive to the views of
the Company's shareholders and wider stakeholders.
Board Culture
Our culture is based on openness, trust and candour between Board members,
respect for differing opinions and areas of expertise and individual and
collective accountability. We believe that this culture encourages
constructive and robust challenge and debate, generates strong collective
wisdom, and ultimately leads to good decision making, all of which are
important to the successful implementation of the Company's strategy.
We seek to ensure that our culture is aligned with the Company's purpose,
values and strategy principally through ongoing and regular dialogue and
engagement with the Investment Manager, Investment Adviser and Administrator,
whose efforts are collectively directed towards delivering returns to
shareholders in line with the Company's purpose, and monitoring the
performance and management of the Company.
Section 172 Statement
Section 172 of the Companies Act 2006 ("Section 172") applies directly to UK
domiciled companies. Nonetheless, the intention of the AIC Code is that the
matters set out in Section 172 are reported on by all companies, irrespective
of domicile, provided this does not conflict with local company law. Under
Section 172, directors have a duty to promote the success of their company for
the benefit of its members as a whole, whilst having regard to (amongst
others) the likely consequences of their decisions in the long-term and the
interests of the Company's wider stakeholders.
Information on how we have acted in accordance with the requirements of
Section 172 is included throughout the Strategic Report and this Corporate
Governance Report.
In particular:
• information on the Company's values and business model and
our culture can be found under 'Our Business Model' and under 'Company
Purpose, Values and Strategy' above;
• details of how the Company seeks to generate and preserve
value over the long-term can be found in the Investment Adviser's Report;
• information on the emerging and principal risks that could
disrupt the long-term success of the Company and how we seek to manage and
mitigate them are considered under "Risks and Risk Management";
• details of the Company's key stakeholders, why they are
important to us and how we engage with them can be found in 'Engagement with
Our Stakeholders';
• in relation to the Company's solar assets, the Asset Manager
and the Investment Adviser have day-to day responsibility for the Company's
dealings with suppliers, contractors, customers and others and information on
how they foster these relationships are included;
• information on how the Company's operations impact on the
environment and the communities in which its solar assets are located are
included in the Sustainability and ESG section; and
• a summary of the Board's principal activities during the
year under review is included under 'Principal Roles'.
In making decisions, our aim is always to ensure the long-term sustainable
success of the Company and, therefore, the likely long-term consequences of
any decision are a key consideration. In relation to the decisions we took
during the year under review, we acted in the way we considered, in good
faith, would be most likely to promote the Company's long-term sustainable
success and achieve its wider objectives for the benefit of our shareholders
as a whole, having had regard to our wider stakeholders and the other matters
set out in Section 172.
Conflicts of Interest
The Directors have a duty to avoid situations where they have, or could have,
a direct or indirect interest that conflicts, or possibly could conflict,
with the Company's interests ('conflict situations'). A Director must inform
the Chair (or, in the case of the Chairman, the Senior Independent Director)
as soon as they become aware of the possibility of a conflict situation.
Where it is deemed appropriate, the Board may approve conflict situations. In
deciding whether to approve a conflict situation, the Board will act in a way
it considers, in good faith, will be most likely to promote the Company's
long-term sustainable success. The Board can impose limits or conditions when
giving approval if it considers this appropriate.
We believe that our arrangements for approving and monitoring of potential
conflict situations is operating effectively, including Vic Holmes in his
role as the non-executive chairman of Ocorian Administration (Guernsey)
Limited, Administrator of the Company.
There were no other conflict situations during the year under review (or
since the end of the year).
Division of Responsibilities
Board
The Board comprises six Directors, all of whom are Non-Executive and
Independent, and is chaired by Kevin Lyon. The biographies of the Directors
are above.
The Board's principal responsibilities include:
• promoting the Company's long-term sustainable success,
generating value for our shareholders whilst having regard to the interests of
wider stakeholders;
• setting the Company's strategic objectives and ensuring that
the necessary resources are in place for the Company to meet its objectives;
• establishing a framework of effective controls that enable
risk to be managed and continually assessed;
• establishing a framework of high standards of corporate
governance;
• overseeing the execution of the Company's strategy and
implementation of its key investment, financial, operational and compliance
policies;
• overseeing the performance of our Investment Manager,
Investment Adviser, Administrator and other key service providers and
advisers;
• ensuring effective engagement with shareholders and other
key stakeholders; and
• robustly scrutinising and constructively challenging all
matters that come before the Board.
The Board has overall responsibility for the Company's activities. However, it
has delegated or outsourced various matters to its standing Committees and
day-to-day activities to the Investment Manager and the Administrator, all of
which operate within clearly defined terms of reference or agreements that
set out their roles, responsibilities and authorities. All other matters are
reserved for consideration and approval by the Board (including those matters
listed in a formal schedule of reserved matters approved by the Board), thus
enabling the Board to maintain full and effective control over appropriate
strategic, financial, operational and compliance issues. The reserved matters
include:
• the overall management and leadership of the Company,
including setting of the strategic objectives;
• changes to the Company's equity and debt capital structures;
• the Company's dividend policy and declaration of dividends;
• the Company's financial reporting and controls;
• ensuring that appropriate systems of internal control and
risk management strategy are in place;
• approval of material contracts and agreements entered into,
varied or terminated;
• approval of related party transactions;
• approval of quarterly and any ad hoc net asset value and
related announcements;
• the Company's operating and marketing budgets;
• Board and Committee memberships; and
• all corporate governance matters.
To enable the Board to fulfil its responsibilities, the Directors are
expected to provide strategic guidance, constructive challenge, offer
specialist advice and hold the Investment Manager, Investment Adviser,
Administrator and other service providers and advisers to account.
The Directors have access to the advice and services of the Administrator.
Where necessary, in carrying out their duties, the Directors may also seek
independent professional advice and services at the expense of the Company.
Chairman
The current Chairman is Kevin Lyon. His primary role as Chairman is to provide
leadership to the Board. The principal responsibilities of the Chairman
include:
• the overall effectiveness of the Board in directing the
Company;
• taking a leading role in setting the Company's strategic
objectives;
• promoting behaviours and attributes that make up the Board's
culture (details of which can be found under 'Board Culture');
• ensuring the Company is meeting its responsibilities to
shareholders and wider stakeholders; and
• engaging with shareholders to ensure that the Board has a
clear understanding of their views.
The effectiveness and independence of the Chairman is evaluated on an annual
basis as part of the Board's performance evaluation. Information on the 2023
appraisal of the Chairman can be found under 'Annual Performance Evaluations'.
Senior Independent Director
The current Senior Independent Director is Vic Holmes. His primary role as
such is to serve as a sounding board for the Chairman, act as an intermediary
for other Directors and be available to respond to shareholders' concerns if
they cannot be resolved through the normal channels of communication (i.e.
through the Chairman). The Senior Independent Director leads the annual
evaluation of the Chairman (see 'Annual Performance Evaluations' below for
information on the 2023 annual evaluation).
Board Committees
The Board has four standing Committees:
• Audit Committee: The Audit Committee is chaired by Patrick
Firth. Information on the Audit Committee's membership, roles and
responsibilities is included in the Audit Committee Report.
• Management Engagement Committee: The Management Engagement
Committee is chaired
by Joanne Peacegood.
• ESG Committee: The ESG Committee is chaired by Josephine
Bush.
• Remuneration and Nominations Committee: The Remuneration and
Nominations Committee is chaired by Vic Holmes. Information on the membership
and the remuneration-related roles and responsibilities of the Committee are
included in the Directors' Remuneration Report.
Board Nominations
The Committee's nomination-related responsibilities include:
• reviewing the Board composition and assessing whether the
balance of skills, experience, knowledge, diversity and independence is
appropriate to enable the Board to discharge its responsibilities effectively
and efficiently;
• succession planning;
• leading the process for new appointments to the Board; and
• leading the annual evaluation of the Board and its
Committees.
A copy of the terms of reference of each Committee is available on the
Company's website
(nextenergysolarfund.com).
The Committees review their terms of reference at least annually, with any
proposed changes recommended to the Board for approval.
The Board also establishes additional Committees from time to time to take
operational responsibility on specific matters following 'in principle'
approval from or with subsequent ratification by the Board. These Committees
ensure that key matters are dealt with efficiently.
Helen Mahy's Appointment as Chair Designate
A rigorous process was undertaken with the assistance of an independent 3rd
party recruitment specialist to select a Director that demonstrates board
experience at FTSE‑level, Chair experience, sector-specific knowledge and a
strong track record of delivering results to fill the role of the Chair
following the end of the current Chair's tenure since IPO. The process
involved selecting a candidate with this skillset to help deliver the
Company's growth strategy.
Investment Manager and Investment Adviser
A Management Agreement between the Company and the Investment Manager sets out
the matters over which the Investment Manager has authority and
responsibility. Under the Management Agreement, but subject to the overall
control and supervision of the Board, the Investment Manager has full
discretion to make investments in solar assets that have been recommended by
the Investment Adviser and meet the requirements of the Company's Investment
Policy.
The Investment Manager is also the Company's AIFM for the purpose of the EU's
AIFM Directive. As the AIFM, the Investment Manager also has responsibility
for all risk management and portfolio management activities. In addition, the
Investment Manager has been granted powers by the Company as regards its
HoldCos, SPVs and NPIII LP in order to facilitate the performance of its
obligations.
The Investment Adviser's role primarily entails the origination, evaluation,
co-ordination and recommendation of investment opportunities for the Company
and the related provision of investment advice to the Investment Manager in
respect of strategy, acquisitions and disposals, portfolio efficiencies,
financing, market developments and other matters that may affect the
Company's portfolio or the Company's ability to meet its investment or
strategic objectives. In addition, the Investment Adviser is responsible for
overseeing the performance of the Company's portfolio.
In advance of Board meetings, the Investment Manager provides regular reports,
which include operating updates on the Company's solar assets, information on
potential new investment opportunities, cash flow forecasts and other
financial information, industry updates and other relevant information.
Senior representatives of the Investment Manager and the Investment Adviser
attend Board meetings. In addition, there is regular contact between the
Board, Investment Manager and Investment Adviser, including informal meetings
between Board meetings. Our active engagement and supportive working
relationship with the Investment Manager and Investment Adviser create an open
and collaborative culture that ensures that we have a thorough understanding
of the Company's business and facilitates our robust scrutiny and constructive
challenge of the activities and performance of the Investment Manager and
Investment Adviser.
The Investment Manager's appointment is terminable by the Investment Manager
or the Company on not less than 12 months' notice. The Investment Adviser's
appointment is terminable by the Investment Adviser or the Company on not less
than 12 months' notice.
Administrator
The Company has appointed the Administrator to provide company secretarial,
fund accounting and administration services. The Administrator's
responsibilities include:
• ensuring that the Company complies with applicable Guernsey
laws, rules and regulations and also the FCA's rules and regulations
applicable to investment companies with a premium listing and of the London
Stock Exchange's rules and regulations;
• advising on all governance matters;
• supporting the Board to ensure that it has the policies,
processes and information it needs in order to function effectively and
efficiently;
• under the direction of the Chairman, facilitating the flow
of information between the Board, Committees, Investment Manager, Investment
Adviser and other service providers and advisers; and
• ensuring that Board procedures are followed.
In advance of Board meetings, the Administrator provides regular reports,
which include financial and other operational information, details of any
breaches or complaints and relevant legal, regulatory, corporate governance
and other technical updates. There is also regular contact between the
Directors and the Administrator between Board and Committee meetings. Our
working relationship and dialogue with the Administrator provides us with a
thorough understanding of the Company's operational activities, ensures we
comply with relevant legal, regulatory, corporate governance and other
technical requirements and facilitates our effective oversight and scrutiny of
the activities and performance of the Administrator.
Board and Committee Meetings and Activities
Meetings
The Board and its standing Committees hold regular scheduled meetings and
additional meetings as required. The agenda for each meeting is prepared by
the Administrator and approved by the Chairman of the relevant meeting.
Representatives of the Investment Manager, Investment Adviser and
Administrator attend all scheduled meetings, although the Directors may meet
without all or some of them being present.
Agendas, along with reports and other papers containing relevant, concise and
clear information, are circulated to the Board and Committees in a timely
manner to enable review and consideration prior to scheduled and ad hoc
meetings. This ensures that the Directors are capable of contributing to and
making informed decisions. The Board or a Committee may also seek, as
required, further clarification of matters from the Investment Manager,
Investment Adviser, Administrators and other service providers or advisers by
means of additional reports and/or in-depth discussions.
The primary focus at the quarterly Board meetings is:
• a review of the Company's investments, including their
performance and any operational issues and asset management initiatives;
• any investment opportunities and how they fit within the
Company's strategy;
• legal, regulatory and market developments that may impact
the Company or its investments;
• valuation of investments and NAV calculation;
• the Company's financial performance;
• the Company's financial and regulatory compliance;
• investor relations, shareholder analysis and marketing; and
• peer group benchmarking and other relevant sector
information.
Board Activities
In addition to routine business at the quarterly Board meetings, matters
considered by the Board during the year under review included:
• consideration of the Company's dividend policy (see
'Dividend Policy' in the Strategic Report);
• the Company's strategy and strategic aims, including in
respect of UK subsidy-free solar and international assets (see 'Portfolio
Update' in the Chairman's Statement and in the portfolio highlights);
• assessment of key service providers;
• approving the Annual and Interim Reports;
• the Board and Committee Composition and Evaluation (see
'Board Composition and Evaluation'); and
• recommendations from its Committees.
Committee Activities
Information on the activities of the Audit Committee during the year under
review can be found under 'Responsibilities and Activities' in the Audit
Committee Report. The Management Engagement Committee completed the annual
evaluation of the Company's key service providers, including the Investment
Manager, Investment Adviser and Administrator in Q2 2023.
Matters considered by the Remuneration and Nominations
Committee during the year under review included:
• Board Composition: The Committee will continue to keep the
Board's composition under review. Details of the Board Composition are
discussed under 'Board Composition and Independence' below.
• Annual evaluation of the effectiveness of the Board and its
Committees: Details of the evaluation process and the outcomes can be found
under 'Annual Performance Board Evaluations'.
• Succession planning: Details of the intended succession plan
can be found under "Succession Planning".
Meeting Attendance
The number of scheduled Board and Committee meetings during the year under
review which each Director was entitled to attend, and the attendance of the
individual Directors at those meetings, is shown in the table below.
In addition to the scheduled Board meetings, there were 15 ad hoc Board
meetings, 1 ad hoc meeting of the Audit Committee and 1 ad hoc meeting for
each of the Remuneration and Nominations Committee, Management Engagement
Committee and Environmental, Social & Governance Committee during the year
under review. These meetings were convened to conclude a number of matters
previously discussed at scheduled meetings and to deal with administrative and
process matters. Ad hoc meetings are typically convened at relatively short
notice and are held in Guernsey. It is not always feasible or necessary,
therefore, for all the Directors to attend the ad hoc meetings. However,
Directors who are unable to attend an ad hoc meeting communicate their views
on any matters to be discussed to their fellow Directors ahead of the meeting.
Director Board Audit Committee Management Remuneration Environmental, Social & Governance Committee
Engagement
and Nominations
Committee
Committee
Kevin Lyon 4/4 3/3 1 1 1
Vic Holmes 4/4 3/3 1 1 1
Patrick Firth 4/4 3/3 1 1 1
Joanne Peacegood 4/4 3/3 1 1 1
Josephine Bush 4/4 2/3 1 1 1
Helen Mahy* n/a n/a n/a n/a n/a
*Helen Mahy was not yet an appointed Director during the year ended 31 March
2023
Board Composition, Independence and Succession
The Board currently comprises six Directors, all of whom are Non-Executive and
Independent of the Investment Manager and the Investment Adviser. Details of
the Directors' skills, experience and principal external appointments are
included in their biographies.
The current Chairman, Kevin Lyon, Senior Independent Director, Vic Holmes, and
Audit Committee Chairman, Patrick Firth, have held their positions since the
Company's IPO in 2014. Jo Peacegood has held her position since 20 February
2020, Josephine Bush has held her position since 1 January 2022, and Helen
Mahy has held her position since 1 April 2023. The Chairman (or any other of
the Directors) does not have, and has not had, any relationships or
circumstances that may create a conflict of interest between their interests
and those of the shareholders.
Appointments to the Board
The Remuneration and Nominations Committee oversees the recruitment process,
which includes the use of a firm of Non-Executive Director recruitment
consultants.
When considering new appointments, the Committee takes into account other
demands on the candidates' time. In advance of joining the Board, new
Directors are asked to disclose any existing significant commitments with an
indication of the time involved and to confirm that they are able to allocate
sufficient time to the business of the Company and that there are no
situations where they have, or could have, a direct or indirect interest that
conflicts, or possibly could conflict, with the Company's interests.
At the time of appointment, a new Director receives a letter of appointment
that sets out their duties and obligations. Copies of the letters of
appointment of the current Directors are available for inspection at the
Company's registered office and at each AGM.
An induction programme for new Directors is in place. This includes meetings
with the senior members of the NextEnergy Capital team involved in the
management of the Company and the Administrator, as well as visiting at least
one of the Company's solar PV assets.
Details of changes to the Board during the year under review can be found
under 'Board Composition and Evaluation'.
Board Commitments
Prior to taking on any new listed board, time consuming, conflicted or
otherwise significant appointments, a Director must seek the prior approval,
on behalf of the Board, of the Chairman (or, in the case of the Chairman, the
Senior Independent Director). If the Chairman (or Senior Independent Director)
believes the relevant appointment causes a conflict or potential conflict of
interest, they will refer the appointment for consideration and, if
appropriate, approval of the Board. A Director must promptly notify the
Administrator of any new board appointments that they take on.
When considering whether to recommend the election or re-election of a
Director at any AGM, the Board assesses the Director's continuing ability to
meet the time requirements of the role by considering, amongst other things,
their attendance at Board, Committee and other ad hoc meetings held during the
year as well as the nature and complexity of their other external roles.
The Directors' attendance at all scheduled Board and Committee meetings held
during the year is shown in the table above. Neither the Chairman nor any of
the other Directors took on any other new appointments that would impact their
ability to meet their board responsibilities to the Company during the year
under review (or since the end of the year). The Board believes all the
Directors have sufficient time to meet their Board responsibilities.
Board Diversity
Appointments to the Board are made on merit, having due regard to the benefits
of diversity in its widest sense (including gender, age, social and ethnic
backgrounds and cognitive and personal skills, experience and strengths) and
with the objective of ensuring that the Board and its Committees have the
skills, experience and knowledge necessary to bring a wide range of
perspectives and to discharge their responsibilities effectively. The priority
when making new appointments is to identify the candidate with the best range
of skills, experience and knowledge to complement those of the existing
Directors.
At the date of this report the Board comprised 3 men and 3 women, all
Non-Executive Directors who are considered to be independent of the Investment
Manager and free from any business or other relationship that could materially
interfere with the exercise of their independent judgement. Currently, the
Management and Engagement Committee and Environmental, Social & Governance
Committee are both chaired by women. It is intended that Helen Mahy will be
appointed as Chair of the Board following the Company's Annual General Meeting
in August 2023. The Board are cognisant that it does not currently have ethnic
representation, contrary to the new FCA diversity guidelines, and this will be
a key focus during future succession planning.
Board Tenure
Three of our six Directors reached their ninth anniversary simultaneously in
January 2023. We have considered succession planning and also concluded that
no Director should normally remain in office beyond the date of the AGM
following the ninth anniversary of their first appointment to the Board.
However, this period may be extended for a limited time to facilitate
effective succession planning, as outlined in the section below.
The date of appointment of each Director can be found in their biographies
above.
Succession Planning
The Board remains aware of the AIC guidance around Board member tenure and
continues to take positive action to address this by implementing a carefully
devised succession plan that facilitates in the transition of corporate
knowledge and Board independence, whilst ensuring the benefits of bringing new
perspectives and diversity.
The Remuneration and Nominations Committee is responsible for reviewing the
succession plans for the Board. Kevin Lyon, Vic Holmes and Patrick Firth are
the longest standing Directors, having been appointed at the time of the
Company's IPO in 2014. Whilst the Board does not consider that length of
service in itself necessarily undermines a Director's independence, the
Remuneration and Nominations Committee has reviewed and recommended to the
Board a succession plan to replace each of Patrick Firth and Kevin Lyon during
2023 and Vic Holmes during 2024. Helen Mahy was appointed to the Board on 1
April 2023 and, upon election, will succeed Kevin Lyon as chair from the
August 2023 AGM.
Election and Re-election by Shareholders
All Directors stand for re-election at each AGM of the Company, save that, at
the first AGM following their appointment, a new Director stands for election.
The Board has reviewed the outcome of the annual Board evaluation, information
on which is set out under 'Annual Performance Evaluations' below. The Board
has also assessed each Director's independence, time commitment to the
Company, contribution (outside of the usual meeting cycle as well as in
scheduled meetings) since they were last elected or re-elected, and tenure, as
well as the nature and complexity of their other external roles and whether
their election or re-election would be in the best interests of the Company.
We believe that the Board is well balanced and possesses the necessary breadth
of skills, experience and knowledge and diversity of gender and cognitive and
personal strengths to ensure it functions effectively and efficiently in
discharging its responsibilities, which is important to the long-term
sustainable success of the Company. We are also satisfied that each Director
continues to perform effectively, to be independent and to demonstrate
commitment to their role. Therefore, resolutions will be proposed at this
year's AGM to re-elect four Directors, and elect one Director.
Removal of Directors
The Directors' letters of appointment do not impose any maximum limit on the
period for which they may serve, although the continuation of their
appointment is contingent on satisfactory performance evaluation and annual
re-election (or, in the case of a Director appointed since the previous AGM,
election) by shareholders at the AGM.
Under their letter of appointment, a Director's appointment may be terminated
at any time by either the Company or the Director giving not less than six
months' notice or otherwise in accordance with the Company's Articles
of Incorporation.
Annual Performance Evaluations
Board, Committees and Directors
The Board's balance and skills is reviewed on an annual basis. During the year
the Board undertakes an internal evaluation of its performance and, in
addition, an evaluation focusing on individual commitment, performance and
contribution of each Director was conducted. The Chairman then meets with each
Director to fully understand their views of the Company's strengths and to
identify potential weaknesses. If appropriate, new members would be proposed
to resolve any perceived issues, or a resignation sought. Following
discussions and review of the Chairman's evaluation by the other Directors,
the Senior Independent Director reviews the Chairman's performance. Training
and development needs are identified as part of this process, thereby ensuring
that all Directors are able to discharge their duties effectively.
Following the annual performance evaluation, the Board confirms that each
Director has proved their ability to fulfil all legal responsibilities and to
provide effective independent judgement on issues of strategy, performance,
resources and conduct. The Board therefore has no hesitation in recommending
to the shareholders that Helen Mahy be elected and all other Directors be
re-elected at the AGM, apart from Mr Lyon who is due to step down as Chairman
at the AGM as his tenure comes to an end. Following the latest Board
evaluation process, the Board recommended that Ms Mahy and Ms Bush visit the
Company's various solar and battery power sites located throughout the UK.
Chairman
The Chair is Kevin Lyon. His primary role as Chair is to provide leadership to
the Board. The principal responsibilities of the Chair are set out above.
Upon the review of the Chairman, the Directors concluded that the Chairman
continued to chair the Board effectively.
Investment Manager and Investment Adviser
The services provided by the Investment Manager and Investment Adviser are
kept under continual review by the Board. When considering the performance of
the Investment Manager and Investment Adviser the Board considers the
Company's track record in terms of NAV and share price performance and
achievement of performance objectives, the quality of the services provided,
the resources that they committed to the Company's affairs, the continuity of
the personnel assigned to handle the Company's affairs and the relationship
between the Board and the Investment Manager and Investment Adviser. The Board
also considered the terms of the Management Agreement, and in particular the
fees payable to the Investment Manager (no fees are payable by the Company to
the Investment Adviser). The Board consider that, having regard to NextEnergy
Capital's proven track record in, and sole focus on, the solar energy
infrastructure sector, the specialist nature of the Company's investment remit
was best served by the Investment Manager. The Board agree that the continuing
appointment of the Investment Manager on the terms set out in the Management
Agreement and its continued appointment of the Investment Adviser were in the
best interests of shareholders as a whole and the Company's wider
stakeholders.
Details of the fees payable to the Investment Manager and related entities can
be found in notes 5 and 26 to the Financial Statements.
Other Key Service Providers and Advisers
The Board continually monitors the service levels of the Administrator and the
Company's other key party service providers and advisers throughout the year.
This review is undertaken by the Management Engagement Committee, chaired by
Joanne Peacegood. A formal review took place in Q2 2023 to align with the
Board's calendar of events for the year ended 31 March 2023.
Directors' Remuneration
The Directors' Remuneration Report includes the Directors' remuneration policy
and details of the Directors' remuneration during the year under review.
Risk, Internal Controls and Internal Audit Introduction
The Board is responsible for promoting the long-term sustainable success of
the Company and generating value for our shareholders whilst having regard to
the interests of wider stakeholders. A critical factor in achieving long-term
sustainable success is understanding the risks that the Company faces and
ensuring that controls are in place to manage and mitigate them. The Company's
principal and emerging risks, together with details of how we seek to manage
and mitigate them, are set out under 'Risks and Risk Management'. The
Company's financial instrument risks are discussed in note 22 to the Financial
Statements.
Responsibility for, and Review of, Risk Management and Internal Controls
The Board is responsible for determining the nature and extent of the emerging
and principal risks the Company is willing to take in order to achieve its
long-term strategic objectives. The Board is also responsible for maintaining
the Company's systems of risk management and internal controls (such as
financial, operational and compliance controls). The AIC Code requires the
Board to review the effectiveness of the Company's systems of risk management
and internal controls at least annually.
The Board, through the Audit Committee, has established, in conjunction with
the Investment Manager, Investment Adviser and Administrator, an ongoing
process designed to meet the particular needs of the Company in managing the
risks to which it is exposed. The process is based on a risk-based approach to
internal controls and risk management through a matrix that identifies each of
the key risk areas associated with the Company's business and activities and
the controls employed to minimise and mitigate those risks. The matrix
assigns, in relation to each risk, a rating (high, medium or low) of the risk
value, risk probability and effectiveness of control.
The Audit Committee is responsible for monitoring and regularly reviewing the
Company's systems of internal controls and risk management and reports its
findings and conclusions to the Board (see 'Risk management and internal
control processes' in the Audit Committee Report), taking into account the
information under 'Risks and Risk Management' above.
The ongoing work of the Audit Committee in monitoring the risk management and
internal control systems on behalf of the Board and the Audit Committee's
reports to the Board on its findings and conclusions regarding the risk
management and internal control systems, the Board:
• is satisfied that it has carried out a robust assessment of
the principal and emerging risks facing the Company, including those that
could threaten its business model, future performance, solvency, liquidity or
reputation; and
• has reviewed the adequacy and effectiveness of the risk
management and internal control systems and no significant failings or
weaknesses were identified.
Risk Management and Internal Control Systems
The Company's risk management and internal control systems are designed to
identify, manage and mitigate on a timely basis both the key principal risks
and the emerging risks inherent to the Company's business and safeguarding the
Company's assets. The systems are also designed to manage, rather than
eliminate, the risk of failure to achieve the Company's investment and
strategic objectives and can only provide reasonable, but not absolute,
assurance against material misstatement or loss.
The Company has delegated its day-to-day activities to the Investment Manager,
Investment Adviser and Administrator and has clearly defined their roles,
responsibilities and authorities. The Board oversees the ongoing performance
and work of the Investment Manager, Investment Adviser and Administrator at
its quarterly meetings.
The Board monitors the actions of the Investment Manager and Investment
Adviser at quarterly and relevant ad hoc Board meetings. At each quarterly
Board meeting, the Investment Manager and Investment Adviser report on the
performance of the Company's investments, activities since the last Board
meeting, any specific new risks identified relating to the Company's
portfolio, investment valuations and cash projections. The Board also receives
updates from the Investment Manager and Investment Adviser on material
developments affecting the Company or its investments between quarterly Board
meetings.
The Board, Investment Manager and Investment Adviser, together, review all
financial performance and results notifications.
The Investment Manager reports to the Board twice a year regarding the
Company's longer-term viability, which includes financial sensitivities and
stress testing of the business to ensure that the adoption of the going
concern basis is appropriate.
The Board is made aware of the business controls of the Investment Manager and
Investment Adviser during periodic Board updates enabling oversight of the key
business processes. The Investment Adviser also provides an update of the
control environment for the UK HoldCos, SPVs and NPIII LP to ensure the Board
has oversight of business controls for the entire NESF Group.
The Administrator, which provides administrative, accounting, compliance and
company secretarial services to the Company, has its own internal control
systems relating to these matters. At each quarterly Board meeting, the Board
receives reports from the Administrator, which include an outline of the
Company's corporate activity and information on financial, compliance,
governance, legal and regulatory matters.
The Company is ultimately dependent upon the quality and integrity of the
management and staff of the Investment Manager, Investment Adviser and
Administrator. In each case, qualified and able individuals have been selected
at all levels. The Investment Manager, Investment Adviser and Administrator
are aware of the internal controls relevant to their activities and are
collectively accountable for the operation of those controls. Appropriate
segregation and delegation of duties is in place.
Each year a detailed review of the quality of services and performance of the
Investment Manager, Investment Adviser and Administrator and other key service
providers and advisers pursuant to their terms of engagement is undertaken by
the Management Engagement Committee.
Internal Audit Function
For the reasons stated under 'Internal audit requirements' in the Audit
Committee Report, the Board does not currently consider that an internal audit
function is required.
Approval
This Corporate Governance Statement was approved by the Board on 16 June 2023
and signed on its behalf by:
Kevin Lyon
Chairman
16 June 2023
Directors' Remuneration Report
Remuneration and Nominations Committee Report
Vic Holmes
Remuneration and Nominations Committee Chairman
I am pleased to present the Directors' Remuneration Report for the year ended
31 March 2023.
Introduction
This Directors' Remuneration Report has been prepared by the Remuneration and
Nominations Committee and approved by the Board. The Committee deals with both
remuneration-related matters and nominations. This Directors' Remuneration
Report covers the remuneration-related activities of the Committee and shows
how the current remuneration policy, which was approved by shareholders at the
AGM in 2022, was implemented during the year ended 31 March 2023.
Remuneration and Nominations Committee
Chaired by Vic Holmes, the Remuneration and Nominations Committee comprise all
of the Directors. The Board is satisfied that, as all of the Directors are
Non-Executive, it is appropriate for all of them to be members of the
Committee. All of the Directors are, and have been since appointment,
independent.
In respect of remuneration-related matters, the Remuneration and Nominations
Committee's responsibilities include:
• setting the policy for the remuneration of the Directors;
• reviewing the ongoing appropriateness and relevance of the
remuneration policy;
• within the terms of the approved policy, determining the
remuneration of the Chairman and reviewing the quantum of the other Directors'
remuneration and, if considered appropriate, recommending any changes to the
Board;
• appointing and setting the terms of reference for any
remuneration consultants to advise the Committee;
• agreeing policy on the recovery by the Directors of expenses
incurred in performance of their duties; and
• drafting the Directors' Remuneration Report and reporting to
shareholders on the implementation of the Company's remuneration policy in
accordance with relevant corporate governance requirements.
Full details of the Committee's roles and responsibilities are set out in
formal terms of reference. The terms of reference are regularly reviewed by
the Committee and are available on the Company's website
(nextenergysolarfund.com).
Remuneration Policy
The Directors' remuneration policy is designed to support the strategic
objectives of the Company and to promote its long-term success. In this
context, the remuneration policy is designed to enable the Company to attract
and retain Directors of high calibre with suitable skills, experience and
knowledge and to ensure that their remuneration is set at a reasonable level
commensurate with their duties and responsibilities and the time commitment
required to carry out their duties effectively.
As all Directors are Non-Executive, there are:
• no service contracts with the Company;
• no bonuses or other performance-related payments;
• no pensions or pension-related benefits, medical or life
insurance schemes, share options, long-term incentive plans or other benefits;
and
• no payments for loss of office save for payment of any fees
or expenses due but unpaid at the time of termination and for any unexpired
notice period.
The Directors have letters of appointment that provide that their appointment
can be terminated by no more than six months' notice by either party. In
normal circumstances, the Directors are expected to serve up to a maximum of
nine years, subject to satisfactory performance, which is reviewed annually by
the Remuneration and Nominations Committee. The Company requires that all
Directors are re-elected at each AGM and, if any Director is not re-elected,
their appointment ceases immediately and without the requirement for any
notice. A Director's appointment may also be terminated with immediate effect
in certain other circumstances as detailed in the Company's Articles of
Incorporation.
The Directors' remuneration:
• will reflect their duties, responsibilities, experience and
time spent on the Company's affairs, taking into account the nature of the
Company's activities;
• will allow those chairing the Board and key Committees, as
well as the Senior Independent Director, to be paid higher fees than other
Directors in recognition of their more demanding roles and increased
accountability;
• will be paid quarterly in arrears;
• at the discretion of the Board, may include additional fees
for any further specific work undertaken on behalf of the Company which is
outside of their normal duties and requires a meaningful time commitment
(details of any additional fees paid and the associated work undertaken will
be disclosed in the Directors' Remuneration Report in the next Annual Report);
and
• will be reviewed by an independent professional consultant
with relevant experience at least every
three years.
The aggregate fees payable to the Directors will not exceed £400,000 per
annum. The level of this limit provides, in particular, flexibility in respect
of the recruitment of additional Board members. Whilst the Board currently
considers six Directors sufficient for the Company, the number of Directors
may increase in future periods, either permanently or for a limited time in
order to aid succession and to ensure an orderly transition.
The Remuneration and Nominations Committee reviews the quantum of Directors'
remuneration at least every three years, with the last review having taken
place in 2023. In reviewing whether to recommend any changes to the Board, the
Committee has regard to the outcome of latest Directors' remuneration review
by an independent remuneration consultant appointed by the Company, the level
of fees paid by other UK-listed renewable energy infrastructure investment
companies and other comparator UK-listed investment companies and any views
expressed by shareholders on Directors' fees. The Board also considers wider
factors such as any change in the Directors responsibilities (including
additional time commitments due to increased legal, regulatory or corporate
governance requirements) and the rate of inflation over the period since the
previous review. No Director is present when their own fee is being
determined.
The Directors are entitled to be reimbursed all reasonable travel, hotel and
other expenses incurred in attending meetings or in carrying out any other
duties incumbent on them as Directors.
Directors' and officers' liability insurance cover is maintained by the
Company, at its expense, on behalf of the Directors.
The Company is committed to engagement with shareholders and will seek major
shareholders' views in advance of making significant changes to its
remuneration policy or how it is implemented. The Chairman of the Remuneration
and Nominations Committee will attend the AGM to answer any questions in
relation to remuneration.
The Remuneration and Nominations Committee has the discretion to amend the
remuneration policy with regard to minor or administrative matters where it
would be, in the opinion of the Committee, in the best interests of the
Company and disproportionate to seek or await shareholder approval.
Directors' Remuneration
The table below shows the Directors' remuneration for the financial year ended
31 March 2023, together with the comparative figures for 2022.
No additional fees were paid to the Directors during the year ended 31 March
2023 (2022: none).
The total amount of Directors expenses reimbursed during the year ended 31
March 2023 was £5,451 (2022: £1,429).
Director Role 2023 2022
Kevin Lyon Chairman £75,000 £70,000
Patrick Firth Audit Committee Chairman £55,000 £50,000
Vic Holmes Senior Independent Director/ Remuneration and Nominations Committee Chairman £50,000 £46,000
Joanne Peacegood Management Engagement Committee Chair £48,500 £45,000
Josephine Bush(1) ESG Committee Chair £48,292 £10,500
Helen Mahy(2) Chair-elect N/A N/A
1 The annual fee payable to Josephine Bush was increased to £45,000 on 1 May
2022 to reflect her appointment as Chair of the newly formed ESG Committee
2 Helen Mahy was appointed to the Board of Directors on 1 April 2023 and is
being proposed as Chair following the Annual General Meeting in August 2023
Directors' and Officers' Liability Insurance
The Company maintains Directors' and Officers' liability insurance, at its
expense, on behalf of the Directors.
Directors' Interests
There is no requirement under the Company's Articles of Incorporation or
letters of appointment for Directors to hold shares in the Company.
Director 2023 2022
Kevin Lyon 210,000 210,000
Patrick Firth 91,207 91,207
Vic Holmes 158,400 158,400
Joanne Peacegood 50,000 50,000
Josephine Bush 10,000 10,000
Helen Mahy(1) 38,586 N/A
1 Helen Mahy was appointed to the Board of Directors on 1 April 2023 and is
being proposed as Chair following the Annual General Meeting in August 2023
The interests of the Directors (and their connected persons) in the ordinary
shares of the Company at 31 March 2023, together with the comparative figures
for 2022, are shown in the table above.
All holdings of the Directors (and their connected persons) are beneficial.
There have been no changes in the interests shown in the table above since the
Company's financial year end to the date of this Directors' Remuneration
Report.
None of the Directors (nor any of their connected persons) had or has any
interest in the Company's preference shares.
Relative Importance of Spend on Directors' Remuneration
To enable shareholders to assess the relative importance of spend on
Directors' remuneration, the following table shows the total remuneration paid
to the Directors and the total dividends paid or payable to shareholders for
the financial year ended 31 March 2023, together with the comparative figures
for 2022.
2023 2022 Change
£'000
£'000
£'000
Directors' total remuneration 277 222 55
Total dividends paid or payable(1) 43,807 41,940 1,867
1 Including the cash equivalent of scrip dividends
Shareholder Approval of Remuneration Policy
The Company seeks shareholder approval of the Directors' remuneration policy
at every third AGM. The Directors' remuneration policy for the three year
period to 31 March 2023 was approved at the AGM held in 2020. There are no
material differences in the substance of the remuneration policy set out in
this Directors' remuneration report from that approved by shareholders in
2020. The Remuneration policy will be tabled at the upcoming AGM in August
2023.
An advisory ordinary resolution to approve the Directors' Remuneration Report
(excluding the Directors' remuneration policy) is put to members at each AGM.
At the AGM held on 17 August 2022, of the 393,570,140 votes cast by proxy and
at the meeting (including votes cast at the Chairman's discretion), 99.98%
were in favour of the resolution to approve the Directors' remuneration
report, as set out in the Annual Report for the year ended 31 March 2022, and
0.02% were against. 103,119 votes were withheld.
Approval
This Directors' Remuneration Report was approved by the Board on 16 June 2023
and signed on its behalf by:
Signature
Vic Holmes
Remuneration and Nominations
Committee Chairman
16 June 2023
Audit Committee Report
Audit Committee Report
Patrick Firth
Audit Committee Chairman
I am pleased to present the Audit Committee's Report for the year ended 31
March 2023.
Introduction
The Audit Committee aims to serve the interests of the Company's shareholders
and other stakeholders through its independent oversight of the Company's
financial reporting process, its systems of internal controls and effective
management of risk and the appointment and ongoing review of the independence
and quality of the work of the Company's external auditor.
Composition
Chaired by Patrick Firth, the membership of the Audit Committee comprises all
of the Directors including Helen Mahy who was appointed on 1 April 2023. As
permissible under the AIC Code the Chairman of the Board is a member of the
Committee to enable their greater understanding of the issues facing the
Company and also to benefit from his valuable contributions. All of the
Directors are, and have been since appointment, independent. The Board has
considered the composition of the Audit Committee.
Four of the members of the Committee are qualified accountants. The Board is
satisfied that the Committee, as a whole, has:
• recent and relevant financial experience;
• competence relevant to the sector in which the Company
operates, and
• the skills, experience and objectivity to be an effective
Audit Committee.
Details of the skills and experience of all of the Committee members are
outlined in their biographies above.
Meetings
The Audit Committee meets no less than three times a year and at such other
times as the Committee shall require, or any member may request. The
Administrator, Investment Manager and Investment Adviser are invited to attend
meetings, as the Committee deems appropriate.
The external auditor attends the Audit Committee meetings at which the annual
and interim financial statements are considered, and at which the auditor has
the opportunity to meet with the Committee without representatives of the
Investment Manager, the Investment Adviser or the Administrator being present.
The auditor also attends the planning meeting for the annual audit. The
auditor may request that a meeting of the Committee be convened if it deems it
necessary.
The Audit Committee met four times (three scheduled and one ad hoc) during the
year ended 31 March 2023 (details of the Committee members' attendance at the
meetings can be found under 'Meeting Attendance').
Responsibilities and Activities
The Audit Committee's responsibilities include:
• monitoring the integrity of the Company's financial
statements and any formal announcements relating to its financial performance;
• reviewing significant financial reporting judgements;
• evaluating the effectiveness of the systems of internal
control and risk management;
• assessing the effectiveness and independence of the
Company's external auditor; and
• making recommendations to the Board on the appointment and
remuneration of the external auditor.
Full details of the Committee's roles and responsibilities are set out in
formal terms of reference and include all of the roles and responsibilities
recommended by the AIC Code. The terms of reference are regularly reviewed by
the Committee and are available on the Company's website
(nextenergysolarfund.com).
The Audit Committee is required to report formally to the Board on its
findings after each meeting on all matters within its roles and
responsibilities, identifying any matters on which it considers that action or
improvement is needed and making recommendations on the steps and decisions to
be taken. In discharging its duties over the course of the year under review,
the Audit Committee's principal activities included the following:
• Risk management and internal control processes: The
Committee assessed the principal and emerging risks facing the Company
(details of which are included under 'Risks and Risk Management'). The
Committee also reviewed and, where necessary, amended and updated the
Company's risk matrix and its record of internal control processes. The
Committee was satisfied with the adequacy and effectiveness of the risk
management framework and internal control processes, details of which are
included under 'Risk, Internal Controls and Internal Audit'. The committee
reviewed the ongoing workstreams in relation to the valuation correction
detected above and is working with the Investment Adviser to strengthen
controls, processes and reporting going forward. The Committee also reviewed
the most recent ISAE 3402 reports from the Administrator and sought additional
assurances where required including confirmation that there had been no
material changes from the date of the report to the date on which the Annual
Report was signed.
• Interim review and annual audit: The Committee reviewed and
approved the interim review and annual audit plans of the external auditor,
including their scope and the auditor's engagement terms and fees. The
Committee monitored the implementation of the plans and discussed the
auditor's reports and findings. The Committee also evaluated, and reviewed the
objectivity, and independence of the auditor and the overall quality and
effectiveness of the external audit process.
• Annual and Interim Reports: The Committee reviewed the
Company's accounting policies and considered the format and content of the
Company's Interim and Annual Reports before recommending their approval to the
Board. As part of the review process, the Committee:
• considered the continuing appropriateness of the Company's
accounting policies, including the potential implications of forthcoming
changes in accounting standards for the Company;
• reviewed the significant financial reporting judgements used
in preparing the Financial Statements; and
• discussed and challenged the forecasts, assumptions and
other information provided by the Investment Manager to support the going
concern and viability statements.
• Internal audit requirements: The Committee considered the
Company's internal audit requirements. Due to the Company having no employees
and the outsourcing of its investment and administrative arrangements to third
parties who have their own internal controls and procedures, the Committee
concluded that there continued to be no need for an internal audit function.
• Whistleblowing: The Committee reviewed the whistleblowing
policy in place for each of the Investment Manager, the Investment Adviser and
the Administrator and was satisfied the relevant staff could raise concerns,
in confidence, about possible improprieties relating to financial reporting or
other matters that may affect the Company.
• Performance evaluation: The Committee reviewed the outcome
of the annual evaluation of its performance and concluded that it continued to
provide effective challenge and oversight.
The Audit Committee Chairman will be attending the AGM to answer any
shareholder questions on the
Committee's activities.
Significant Issues Considered Relating to Financial Statements
Following discussions with the Investment Manager, the Investment Adviser and
the external auditor, the Committee determined that the significant area
connected with the preparation of the financial statements of the Company
related to the valuation of investments. The Company is required to calculate
the fair value of its underlying investments. Whilst there is a relatively
active market for financial assets of this nature, there are no suitable
listed or other public market quotations against which the value of the
Company's investments can be benchmarked. Accordingly, the valuation of the
Company's underlying investments is undertaken using a discounted cash flow
methodology in line with IFRS 9 Financial Instruments and IFRS 13 Fair Value
Measurement and takes into account the International Private Equity and
Venture Capital's valuation guidelines. As further explained in note 4(a) to
the Financial Statements, the valuation of the Company's investments using a
discounted cash flow methodology requires a series of material judgements to
be made regarding the assumptions and estimates underlying the discounted cash
flow calculations. As such judgements are subjective, they carry elements of
risk.
The Investment Manager undertakes the valuation of the Company's investments
and provides the Board with a detailed valuation report, which includes
information on the assumptions and other factors that have a material impact
on the valuation and the rationale for any proposed changes to them since the
previous valuation. The key assumptions and other factors include (but are not
limited to):
• Discount rates: A discount rate is applied to the expected
future cash flows for each investment's financial forecasts derived using,
among others, the key assumptions referred to above to arrive at its
valuation. The Investment Manager recommends to the Board the discount rates
to be used based on the Investment Adviser's extensive experience of the
current market for transactions in solar assets in the relevant jurisdictions.
• Power price assumptions: A significant proportion of the
income from the Company's investments is fixed for a period of time in
accordance with the terms of the relevant ROC or FiT subsidy and power price
volatility is managed through NESF's electricity sales hedging strategy. The
Company's flexible hedging approach is designed to protect against adverse
short-term price movements whilst also enabling the Company to
opportunistically capture favourable market conditions by securing high fixed
prices for specified future time periods. The balance of the income has
exposure to wholesale electricity prices, although the Investment Manager
seeks to reduce this exposure through entering into short- or long-term power
purchase agreements with fixed price mechanisms. Over time the proportion of
income that is fixed in accordance with the terms of subsidies will reduce,
increasing the proportion of the income with exposure to changes in wholesale
electricity prices.
The Investment Adviser uses the average of three of the leading independent
energy market consultants' long-term projections to derive, by jurisdiction,
the future assumed wholesale electricity prices used in the valuation of the
Company's investments.
• Lease life extensions: Assets where the lease life has been
extended beyond the life of the subsidy have additional risk.
• Operating performance and costs assumptions: These include
assumptions regarding the remaining operating life of each investment, the
energy generated by each investment over its life and operating costs.
• Macroeconomic assumptions: These include inflation, foreign
exchange rate, interest rate and tax rate assumptions. Further details on the
key assumptions and other factors, together with a sensitivity analysis
showing the impact of changing some of them, are included in the Investment
Adviser's Report.
The Board considers in detail each valuation report received from the
Investment Manager, challenges the key assumptions and other factors used in
calculating the valuation of the Company's investments and monitors the
changes in them over time. The Board also requests additional information to
support the valuation assumptions where required.
Annual Report for Year Ended
31 March 2023
The production of the Annual Report, including the audit of the Company's
financial statements, for the year ended 31 March 2023 was a comprehensive
process requiring input from a number of different contributors.
One of the key corporate governance requirements is that the Annual Report,
taken as a whole, must be fair, balanced and understandable and provide the
information necessary for shareholders to assess the Company's position and
performance, business model and strategy. Another requirement is that the
narrative and numerical disclosures in the Annual Report must be consistent.
Having reviewed the Annual Report and considered the work undertaken in
producing it, the Committee concluded that the Annual Report did pass these
tests and, in recommending approval of the Annual Report to the Board, it
reported accordingly.
Audit Related Services in line with
FRC Ethical Standard
The Company may only use its external auditor for non-audit work with the
prior approval of the Audit Committee. The Committee's policy regarding the
provision of non-audit services by the auditor is aligned to the Financial
Reporting Council Ethical Standard 2019 which precludes the auditor from
providing certain prohibited non-audit services. Furthermore, the Committee
will not approve the use of the auditor for non-audit services where there may
be perceived to be a conflict with the auditor's role as such or which may
compromise its independence or objectivity.
During the year ended 31 March 2023, the only non-audit work carried out by
the independent auditor to the Company ("KPMG") was in relation to its review
of the Interim Report for which it was paid fees of £47,300.
Annual Assessment of Effectiveness of External Audit Process
Following the conclusion of the audit process for the Company's financial
statements for the year ended 31 March 2023, the Audit Committee evaluated the
quality and effectiveness of the external audit process. In order to form a
view, the Committee considered its own observations and interactions with
KPMG, as well as feedback from KPMG, the Investment Manager, the Investment
Adviser and the Administrator. The Committee reviewed the robustness of the
audit process and the quality of delivery, reporting, people and service. The
Committee also considered KPMG's technical competence, understanding of the
Company's business and the sector in which it operates and whether KPMG
demonstrated an appropriate level of diligence, professional scepticism and
challenge of assumptions where necessary. In addition, the Committee
considered the cost effectiveness of the audit process. The Committee also
reviewed the independence of KPMG, having regard to matters such as its report
describing its arrangements to identify, report and manage any conflicts of
interest and the extent of non-audit services provided by it. Having completed
the evaluation, the Committee was satisfied with the effectiveness, including
performance and objectivity, and independence of KPMG and the overall quality
and effectiveness of the external audit process. Consequently, the Committee
recommended to the Board that a resolution to appoint KPMG as the Company's
auditor be put to shareholders at this year's AGM.
Auditor's Fees for NESF and Subsidiaries
The fees payable to KPMG for audit services and audit related services to the
Company and its subsidiaries for the year ended 31 March 2023 were as follows:
2023 2022
£'000
£'000
NESF 92 84
Subsidiaries 518 497
Total audit fees 610 581
Interim review 52 45
Total fees 662 626
External Auditor's Tenure
There are no contractual obligations that restrict the Company's choice of
external auditor and the auditor's appointment is subject to shareholder
approval at each AGM. As KPMG was first appointed as the Company's external
auditor for the year end 31 March 2020 following a competitive tender, the
Committee will consider the need for a competitive tender for the role of
external auditor in, or before, 2025. In any event, the Committee will carry
out a competitive tender in, or before, 2028 in respect of the audit for the
year ending 31 March 2029. The audit partner for the Company, Dermot Dempsey,
has been in place for four years and, therefore, the Committee expects that
there will be an audit partner rotation for, or before, the audit for the year
ending 31 March 2025.
Approval
This Audit Committee Report was approved by the Audit Committee on 16 June
2023 and signed on its behalf by:
Signature
Patrick Firth
Audit Committee Chairman
16 June 2023
Directors' Report
Introduction
The Directors are pleased to present their Annual Report, including the
Company's audited financial statements, for the year ended 31 March 2023. This
Directors' Report and the Strategic Report comprise the 'management report',
for the purposes of the FCA's Disclosure Guidance and Transparency Rule
4.1.5R.
Information Contained Elsewhere in this Annual Report
Information
Directors
Directors' interests in shares
Appointment and removal of directors
Financial Instruments
Principal and emerging risks
Going concern and viability
Annual Review of systems of risk management and internal control
Disclosure of Information to Auditor
Annual Evaluation of the Investment Manager and Investment Adviser
Section 172 Statement
Financial Results and Dividends
The financial results for the year can be found in the Statement of
Comprehensive Income.
Details of the four interim dividends that have been declared in respect of
the year ended 31 March 2023 are set out in note 15(b) to the Financial
Statements. As the last dividend in respect of any financial period is payable
prior to the relevant AGM, it is declared as an interim dividend and,
accordingly, there is no final dividend payable. This means that shareholders
are not given the opportunity to vote on the payment of a final dividend.
Accordingly, in accordance with good corporate governance, the Board asks
shareholders to approve the Company's dividend policy at each AGM. The
dividend policy is set out under 'Dividend Policy, Scrip Dividends and
Dividend Target for the Financial Year Ending 31 March 2024'.
In addition to being asked to approve the Company's dividend policy at this
year's AGM, shareholders will also be asked to renew the Company's scrip
dividend facility that gives ordinary shareholders the opportunity to elect to
receive new ordinary shares (these being scrip shares) in place of their cash
dividend payments. Information on the scrip dividend alternative can be found
under 'Dividend Policy, Scrip Dividends and Dividend Target for the Financial
Year Ending 31 March 2024'.
Share Capital
During the year, the Company issued 1,176,937 ordinary shares as scrip shares.
As at 31 March 2023 and the date of this Directors' Report, there were
590,254,181 ordinary shares in issue.
The Company issued no preference shares within the year ended 31 March 2023.
As at 31 March 2023 and the date of this Directors' Report, there were 200m
preference shares in issue. Details of the private placement and further
information regarding the rights of the preference shares can be found in note
23(a) to the Financial Statements.
Substantial Shareholdings
As at 31 March 2023, the Company had been notified under the FCA's Disclosure
Guidance and Transparency Rules of the following substantial holdings in its
ordinary shares:
Ordinary Shares
Investor No. %
Artemis Investment Management 63,719,056 10.80%
LLP on behalf of discretionary funds
under management
M&G Investments 55,859,697 9.46%
Gravis Capital Mgt 40,429,010 6.85%
Legal & General Investment Mgt 31,786,109 5.39%
Baillie Gifford & Co 30,430,980 5.16%
Foresight Group 25,977,689 4.40%
Investec Wealth & Investment (RS) 25,951,430 4.40%
Privium Fund Management 21,236,546 3.60%
Powers to Issue and Buy-back Ordinary Shares
At the Company's AGM held on 9 August 2021, the Directors were granted general
authority to issue ordinary shares or sell Treasury Shares, non-pre-emptively,
in accordance with the Articles of Incorporation up to, in aggregate,
117,624,954 ordinary shares, equivalent to 20% of the ordinary shares in issue
at the date the authority was granted, less one. Save for the scrip shares
referred to under "Share Capital" above no ordinary shares have been issued
and no Treasury Shares have been sold under this authority, which will expire
at the conclusion of this
year's AGM.
At last year's AGM, the Directors were also granted authority to make one or
more market purchases of ordinary shares, in accordance with section 315 of
the Companies (Guernsey) Law, 2008, up to, in aggregate, 88,159,902 ordinary
shares, equivalent to 14.99% of the ordinary shares in issue at the date the
authority was granted. No ordinary shares have been purchased under this
authority, which will expire at the conclusion of this year's AGM.
The Directors will be seeking similar issuance and purchase authorities at
this year's AGM. The Directors do not currently have any authority to issue
any further preference shares.
Treasury Shares
Under section 315 of the Companies (Guernsey) Law, 2008, the Company is
allowed to hold shares acquired by market purchase as Treasury Shares, rather
than having to cancel them. It is the Company's policy to hold up to a maximum
of 10% of the ordinary shares in issue as Treasury Shares, which may be either
sold in the market or cancelled subsequently. This gives the Company the
ability to re-issue shares quickly and cost efficiently, thereby providing the
Company with additional flexibility in the management of its capital base. The
Board would only authorise the sale of Treasury Shares at prices at or above
the prevailing NAV per ordinary share (plus any costs of the relevant sale),
so there would be no dilution of the NAV per ordinary shares. There are
currently no Treasury Shares.
Restrictions on Transfer of Shares
There are no restrictions on the transfer of shares in the Company, except
pursuant to:
• the Listing Rules, which require certain individuals to have
approval to deal in the Company's shares; and
• the Company's Articles of Incorporation, which allow the
Board to decline to register a transfer of shares or otherwise impose a
restriction on shares, to prevent the Company breaching any law or regulation.
The Company is not aware of any agreements between holders of securities that
may result in restrictions on the transfer of shares in the Company.
Shares Carrying Special Rights
No person holds shares in the Company carrying special rights with regard to
control of the Company.
Amendment of Articles of Incorporation
The Articles may be amended by a special resolution of the Company's
shareholders.
Powers of the Directors
Subject to the Articles of Incorporation, the Companies (Guernsey) Law, 2008
and any directions given by the Company by special resolution, the business of
the Company will be managed by the Board, which may exercise all the powers of
the Company.
Greenhouse Gas Emissions
As the Company has outsourced its day-to-day activities to third parties,
there are no significant greenhouse gas emissions from its operations. In
relation to the Company's investments, the level of greenhouse gas emissions
arising from the low volume of electricity imports and from operation and
maintenance activity is not considered material for disclosure purposes.
Furthermore, as the assets are renewable energy generators, they reduce carbon
dioxide emissions on a net basis.
Political Donations
The Company made no political donations during the year.
Charitable Donations
The Company donated £400,000 (2022: £100,000) to NextEnergy Foundation, (the
"Foundation") information on which can be found in the Sustainability and ESG
section. Community funding of £104,000 was also made through the SPVs during
the year.
Events after the Balance Sheet Date
Details of events occurring since 31 March 2023 can be found in note 28 to the
Financial Statements.
Independent Auditor
KPMG has indicated its willingness to continue as auditor for the year ending
31 March 2024 and resolutions to re-appoint KPMG and to authorise the
Directors to determine KPMG's remuneration, will be proposed at this year's
AGM.
2023 AGM
A separate notice convening this year's AGM will be sent to shareholders in
due course. The notice will include an explanation of the resolutions to be
considered at the meeting. A copy of the notice will also be published on the
Company's website (nextenergysolarfund.com).
Approval
This Directors' Report was approved by the Board on 16 June 2023 and signed on
its behalf by:
Signature
Kevin Lyon
Chairman
16 June 2023
Statement of Directors' Responsibilities in Respect of the Annual Report and
the Financial Statements
Directors' Responsibilities
The Directors are responsible for preparing the Annual Report and financial
statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law they are required to prepare the financial
statements in accordance with IFRS and applicable law.
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 its profit or loss for that period. In preparing
these financial statements, the directors are required to:
• select suitable accounting policies and then apply them
consistently;
• make judgements and estimates that are reasonable, relevant
and reliable;
• state whether applicable accounting standards have been
followed, subject to any material departures disclosed and explained in the
financial statements;
• assess the Company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern; and
• use the going concern basis of accounting unless they either
intend to liquidate the Company or to cease operations, or have no realistic
alternative but to do so.
The Directors are responsible for keeping proper accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that its financial statements comply with the Companies
(Guernsey) Law, 2008. They are responsible for such internal control as they
determine is necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error, and have
general responsibility for taking such steps as are reasonably open to them to
safeguard the assets of the Company and to prevent and detect fraud and other
irregularities.
Website Publication
The Directors are responsible for ensuring the Annual Report is made available
on a website. Annual Reports are published on the Company's website
(nextenergysolarfund.com). Legislation in Guernsey governing the preparation
and dissemination of financial statements 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 on the website.
Directors' Confirmations
In accordance with the FCA's Disclosure Guidance and Transparency Rule
4.1.12R, we confirm that, to the best of our knowledge:
• the Financial Statements have been prepared in accordance
with IFRS and give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Company; and
• the management report (comprising the Strategic Report, the
Directors' Report and any other sections of the Annual Report referred to in
the Strategic Report or the Directors' Report) includes a fair review of the
development and performance of the Company and its position, together with a
description of the emerging and principal risks that it faces.
In addition, in accordance with the AIC Code, we confirm that, to the best of
our knowledge, the Annual Report, taken as a whole, is fair, balanced and
understandable and provides the information necessary for shareholders to
assess the Company's performance, business model and strategy.
On behalf of the Board of Directors of
NextEnergy Solar Fund Limited
Kevin Lyon
Chairman
16 June 2023
Independent Auditor's Report to the Members of NextEnergy Solar Fund Limited
Our opinion is unmodified
We have audited the financial statements of NextEnergy Solar Fund
Limited (the "Company"), which comprise the statement of financial position
as at 31 March 2023, the statements of comprehensive income, changes in
equity and cash flows for the year then ended, and notes, comprising
significant accounting policies and other explanatory information.
In our opinion, the accompanying financial statements:
· give a true and fair view of the financial position of the Company as
at 31 March 2023, and of the Company's financial performance and cash
flows for the year then ended;
· are prepared in accordance with International Financial Reporting
Standards; and
· comply with the Companies (Guernsey) Law, 2008.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) ("ISAs (UK)") and applicable law. Our responsibilities are described
below. We have fulfilled our ethical responsibilities under, and are
independent of the Company in accordance with, UK ethical requirements
including the FRC Ethical Standard as required by the Crown Dependencies'
Audit Rules and Guidance. We believe that the audit evidence we have obtained
is a sufficient and appropriate basis for our opinion.
Key audit matters: our assessment of the risks of material misstatement
Key audit matters are those matters that, in our professional judgment, were
of most significance in the audit of the financial statements and include the
most significant assessed risks of material misstatement (whether or not due
to fraud) identified by us, including those which had the greatest effect on:
the overall audit strategy; the allocation of resources in the audit; and
directing the efforts of the engagement team. These matters were addressed in
the context of our audit of the financial statements as a whole, and in
forming our opinion thereon, and we do not provide a separate opinion on these
matters. In arriving at our audit opinion above, the key audit matter was
as follows (unchanged from 2022):
The risk Our response
Valuation of investments at fair value through profit and loss Basis: Our audit procedures included the following:
£854.35 million; (2022: £842.35 million) The Company's investments in its immediate holding companies are carried at Control evaluation:
fair value through profit or loss and represent 127% of the Company's net
Refer to Audit Committee Report) accounting policies and financial instrument assets. We assessed the design and implementation of the Investment Manager's review
disclosures.
control over the valuation of investments at fair value through profit and
The fair value of those immediate holding companies, which reflects their net loss.
asset values, incorporates the fair value of underlying special purpose
vehicles ("SPVs") which hold renewable assets for which there is no liquid Valuation model integrity and model inputs:
market.
- we tested the valuation model for mathematical accuracy including but not
The SPVs operational renewable assets (£707.5 million) are fair valued using limited to material formulae errors;
an income approach which forecasts the cash flows of each individual renewable
asset and discounts them at a rate that reflects their risk profile (the - we verified key inputs into the valuation model, such as power price
"Valuations"). The Valuations also include other specific SPVs assets and forecasts, energy yield, contracted revenue and operating costs to supporting
liabilities. documentation;
The Valuations incorporate assumptions including discount rates, power price - we agreed a value driven sample of balances within the residual net asset
forecasts and inflation. amounts at subsidiary level to supporting documentation such as independent
bank confirmations, post year end receipts and other source documentation;
The SPVs non operational renewable assets (£103.3 million) are valued at
their cost as an approximation of their fair value. - we obtained and vouched all significant additions to non operational
renewable assets during the year to supporting documentation; and
£12.5m of investments held at fair value through profit and loss relates to
the residual net assets of the immediate holding companies. - in order to assess the reliability of management's forecasts we completed a
retrospective assessment by recalculating current year's revenue and comparing
The Company holds one direct investment in a private equity solar fund the result to the historical forecasted amounts.
("Private Investment") with a carrying value of £31.0 million. The fair value
of the Private Investment is based on the Company's proportionate share of the Benchmarking valuation model assumptions:
net asset value ("NAV") of the private investment.
With support from our KPMG valuation specialist we challenged the
Risk: appropriateness of the Company's valuation methodology and assumptions
including the discount rate, power price forecasts, energy yield and other
The valuation of the Company's investments is considered a significant area of macro-economic assumptions applied, by:
our audit, given that it represents the majority of the net assets of the
Company and also taking into account the associated audit effort. - assessing the appropriateness of the valuation methodology applied by the
Investment Manager;
The use of the income approach incorporates a risk of fraud and error where
the selection and application of significant assumptions, including discount - benchmarking against independent market data and relevant peer group
rates and power price forecasts, involves the exercise of significant companies, and
judgement by the Company.
- using our KPMG valuation specialist's experience in valuing similar
We determined that the Valuations have a high degree of estimation uncertainty investments.
giving rise to a potential range of reasonable outcomes greater than our
materiality for the financial statements as a whole. The financial statements Assessing fair value - Private Investment:
disclose in note 19(b) the sensitivities estimated by the Company.
- we obtained a confirmation of the fair value as at the year end from the
manager of the Private Investment;
- we agreed the fair value to the unaudited capital account received from the
manager of the Private Investment;
- we obtained the audited financial statements of the Private Investment as at
31 December 2022 to assess the basis of preparation together with accounting
policies applied and whether the audit opinion is unmodified; and
- in order to assess reliability of the Private Investment's NAV, we
recalculated the Company's proportionate share of the Private Investment's NAV
based on the audited financial statements as at 31 December 2022 and compared
to the unaudited capital account as at 31 December 2022.
Assessing transparency:
We considered the appropriateness of the Company's investment valuation
policies and the adequacy of the Company's disclosures in relation to the use
of estimates and judgements in arriving at fair value (see note 19).
We assessed whether the disclosures around the sensitivities to changes in key
assumptions reflect the risks inherent in the valuation of the underlying
investment portfolio and the Private Investment.
Our application of materiality and an overview of the scope of our audit
Materiality for the financial statements as a whole was set at £13.4m,
determined with reference to a benchmark of net assets of £674.4m, of which
it represents approximately 2% (2022: 2%).
In line with our audit methodology, our procedures on individual account
balances and disclosures were performed to a lower threshold, performance
materiality, so as to reduce to an acceptable level the risk that individually
immaterial misstatements in individual account balances add up to a material
amount across the financial statements as a whole. Performance materiality for
the Company was set at 75% (2022: 75%) of materiality for the financial
statements as a whole, which equates to £10.1m. We applied this percentage in
our determination of performance materiality because we did not identify any
factors indicating an elevated level of risk.
We reported to the Audit Committee any corrected or uncorrected identified
misstatements exceeding £0.6m, in addition to other identified misstatements
that warranted reporting on qualitative grounds.
Our audit of the Company was undertaken to the materiality level specified
above, which has informed our identification of significant risks of material
misstatement and the associated audit procedures performed in those areas as
detailed above.
Going concern
The directors have prepared the financial statements on the going concern
basis as they do not intend to liquidate the Company or to cease its
operations, and as they have concluded that the Company's financial position
means that this is realistic. They have also concluded that there are no
material uncertainties that could have cast significant doubt over its ability
to continue as a going concern for at least a year from the date of approval
of the financial statements (the "going concern period").
In our evaluation of the directors' conclusions, we considered the inherent
risks to the Company's business model and analysed how those risks might
affect the Company's financial resources or ability to continue operations
over the going concern period. The risks that we considered most likely to
affect the Company's financial resources or ability to continue operations
over this period were:
· Availability of capital to meet operating costs and other financial
commitments;
· The ability of the Company's subsidiaries to successfully refinance
or repay debt and to comply with debt covenants.
We considered whether these risks could plausibly affect the liquidity in the
going concern period by comparing severe, but plausible downside scenarios
that could arise from these risks individually and collectively against the
level of available financial resources indicated by the Company's financial
forecasts.
We considered whether the going concern disclosure in note 2(c) to the
financial statements gives a full and accurate description of the directors'
assessment of going concern.
Our conclusions based on this work:
· we consider that the directors' use of the going concern basis of
accounting in the preparation of the financial statements is appropriate;
· we have not identified, and concur with the directors' assessment
that there is not, a material uncertainty related to events or conditions
that, individually or collectively, may cast significant doubt on the
Company's ability to continue as a going concern for the going concern period;
and
· we have nothing material to add or draw attention to in relation to
the directors' statement in the notes to the financial statements on the use
of the going concern basis of accounting with no material uncertainties that
may cast significant doubt over the Company's use of that basis for the going
concern period, and that statement is materially consistent with the financial
statements and our audit knowledge.
However, as we cannot predict all future events or conditions and as
subsequent events may result in outcomes that are inconsistent with judgements
that were reasonable at the time they were made, the above conclusions are not
a guarantee that the Company will continue in operation.
Fraud and breaches of laws and regulations - ability to detect
Identifying and responding to risks of material misstatement due to fraud
To identify risks of material misstatement due to fraud ("fraud risks") we
assessed events or conditions that could indicate an incentive or pressure to
commit fraud or provide an opportunity to commit fraud. Our risk assessment
procedures included:
· enquiring of management as to the Company's policies and procedures
to prevent and detect fraud as well as enquiring whether management have
knowledge of any actual, suspected or alleged fraud;
· reading minutes of meetings of those charged with governance; and
· using analytical procedures to identify any unusual or unexpected
relationships.
As required by auditing standards, and taking into account possible incentives
or pressures to misstate performance and our overall knowledge of the control
environment, we perform procedures to address the risk of management override
of controls, in particular the risk that management may be in a position to
make inappropriate accounting entries, and the risk of bias in accounting
estimates such as valuation of unquoted investments. On this audit we do not
believe there is a fraud risk related to revenue recognition because the
Company's revenue streams are simple in nature with respect to accounting
policy choice, and are easily verifiable to external data sources or
agreements with little or no requirement for estimation from management. We
did not identify any additional fraud risks.
We performed procedures including:
· identifying journal entries and other adjustments to test based on
risk criteria and comparing any identified entries to supporting
documentation;
· incorporating an element of unpredictability in our audit procedures;
and
· assessing significant accounting estimates for bias
Further detail in respect of valuation of unquoted investments is set out in
the key audit matter section of this report.
Identifying and responding to risks of material misstatement due to non-compliance with laws and regulations
We identified areas of laws and regulations that could reasonably be expected
to have a material effect on the financial statements from our sector
experience and through discussion with management (as required by auditing
standards), and from inspection of the Company's regulatory and legal
correspondence, if any, and discussed with management the policies and
procedures regarding compliance with laws and regulations. As the Company is
regulated, our assessment of risks involved gaining an understanding of the
control environment including the entity's procedures for complying with
regulatory requirements.
The Company is subject to laws and regulations that directly affect the
financial statements including financial reporting legislation and taxation
legislation and we assessed the extent of compliance with these laws and
regulations as part of our procedures on the related financial statement
items.
The Company is subject to other laws and regulations where the consequences of
non-compliance could have a material effect on amounts or disclosures in the
financial statements, for instance through the imposition of fines or
litigation or impacts on the Company's ability to operate. We identified
financial services regulation as being the area most likely to have such an
effect, recognising the regulated nature of the Company's activities and its
legal form. Auditing standards limit the required audit procedures to identify
non-compliance with these laws and regulations to enquiry of management and
inspection of regulatory and legal correspondence, if any. Therefore if a
breach of operational regulations is not disclosed to us or evident from
relevant correspondence, an audit will not detect that breach.
Context of the ability of the audit to detect fraud or breaches of law or regulation
Owing to the inherent limitations of an audit, there is an unavoidable risk
that we may not have detected some material misstatements in the financial
statements, even though we have properly planned and performed our audit in
accordance with auditing standards. For example, the further removed
non-compliance with laws and regulations is from the events and transactions
reflected in the financial statements, the less likely the inherently limited
procedures required by auditing standards would identify it.
In addition, as with any audit, there remains a higher risk of non-detection
of fraud, as this may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal controls. Our audit procedures
are designed to detect material misstatement. We are not responsible for
preventing non-compliance or fraud and cannot be expected to detect
non-compliance with all laws and regulations.
Other information
The directors are responsible for the other information. The other
information comprises the information included in the annual report but does
not include the financial statements and our auditor's report thereon. Our
opinion on the financial statements does not cover the other information and
we do not express an audit opinion or any form of assurance conclusion
thereon.
In connection with our audit of the financial statements, our responsibility
is to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our
knowledge obtained in the audit, or otherwise appears to be materially
misstated. If, based on the work we have performed, we conclude that there is
a material misstatement of this other information, we are required to report
that fact. We have nothing to report in this regard.
Disclosures of emerging and principal risks and longer term viability
We are required to perform procedures to identify whether there is a material
inconsistency between the directors' disclosures in respect of emerging and
principal risks and the viability statement, and the financial statements
and our audit knowledge. We have nothing material to add or draw attention to
in relation to:
· the directors' confirmation within the viability statement that they
have carried out a robust assessment of the emerging and principal risks
facing the Company, including those that would threaten its business model,
future performance, solvency or liquidity;
· the emerging and principal risks disclosures describing these risks
and explaining how they are being managed or mitigated;
· the directors' explanation in the viability statement as to how they
have assessed the prospects of the Company, over what period they have done so
and why they consider that period to be appropriate, and their statement as to
whether they have a reasonable expectation that the Company will be able to
continue in operation and meet its liabilities as they fall due over the
period of their assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
We are also required to review the viability statement, set out above under
the Listing Rules. Based on the above procedures, we have concluded that the
above disclosures are materially consistent with the financial statements and
our audit knowledge.
Corporate governance disclosures
We are required to perform procedures to identify whether there is a material
inconsistency between the directors' corporate governance disclosures and the
financial statements and our audit knowledge.
Based on those procedures, we have concluded that each of the following is
materially consistent with the financial statements and our audit
knowledge:
· the directors' statement that they consider that the annual report
and financial statements taken as a whole is fair, balanced and
understandable, and provides the information necessary for shareholders to
assess the Company's position and performance, business model and strategy;
· the section of the annual report describing the work of the Audit
Committee, including the significant issues that the audit committee
considered in relation to the financial statements, and how these issues were
addressed; and
· the section of the annual report that describes the review of the
effectiveness of the Company's risk management and internal control systems.
We are required to review the part of Corporate Governance Statement relating
to the Company's compliance with the provisions of the UK Corporate Governance
Code specified by the Listing Rules for our review. We have nothing to report
in this respect.
We have nothing to report on other matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the
Companies (Guernsey) Law, 2008 requires us to report to you if, in our
opinion:
· the Company has not kept proper accounting records; or
· the financial statements are not in agreement with the accounting
records; or
· we have not received all the information and explanations, which to
the best of our knowledge and belief are necessary for the purpose of our
audit.
Respective responsibilities
Directors' responsibilities
As explained more fully in their statement set out above, the directors are
responsible for: the preparation of the financial statements including being
satisfied that they give a true and fair view; such internal control as they
determine is necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error; assessing
the Company's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern; and using the going concern
basis of accounting unless they either intend to liquidate the Company or to
cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue our opinion in an auditor's report. Reasonable
assurance is a high level of assurance, but does not guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of the financial statements.
A fuller description of our responsibilities is provided on the FRC's website
at www.frc.org.uk/auditorsresponsibilities
(http://www.frc.org.uk/auditorsresponsibilities) .
The purpose of this report and restrictions on its use by persons other than the Company's members as a body
This report is made solely to the Company's members, as a body, in accordance
with section 262 of the Companies (Guernsey) Law, 2008. Our audit work has
been undertaken so that we might state to the Company's members those matters
we are required to state to them in an auditor's report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company's members, as
a body, for our audit work, for this report, or for the opinions we have
formed.
Dermot Dempsey
For and on behalf of KPMG Channel Islands Limited
Chartered Accountants and Recognised Auditors
Guernsey
16 June 2023
Statement of Comprehensive Income
For the year ended 31 March 2023
Notes 2023 2022
£'000
£'000
Income
Income comprises:
Interest income 12,346 12,799
Investment income 56,287 42,009
Administrative services income 10,390 10,226
Net changes in fair value of investments 17 (13,199) 78,665
Unrealised foreign exchange gain 201 -
Total net income 66,025 143,699
Expenditure
Preference share dividends 9,500 9,454
Management fees 5 5,828 5,041
Legal and professional fees 766 744
Directors' fees 7 277 222
Administration fees 6 346 227
Other expenses 9 311 122
Audit fees 8 144 138
Charitable donation 10 400 100
Regulatory fees 114 79
Insurance 23 22
Total expenses 17,709 16,149
Profit and comprehensive income for the year 48,316 127,550
Earnings per ordinary share - basic 14 8.20p 21.69p
Earnings per ordinary share - diluted 14 7.55p 17.34p
All activities are derived from ongoing operations.
There is no other comprehensive income or expense apart from those disclosed
above and consequently a Statement of Other Comprehensive Income has not been
prepared.
The accompanying notes are an integral part of these audited financial
statements.
Statement of Financial Position
As at 31 March 2023
Notes 2023 2022
£'000
£'000
Non-current assets
Investments 17 854,352 842,346
Total non-current assets 854,352 842,346
Current assets
Cash and cash equivalents 14,354 19,608
Trade and other receivables 11 6,524 16,389
Total current assets 20,878 35,997
Total assets 875,230 878,343
Current liabilities
Trade and other payables 12 (2,613) (11,785)
Total current liabilities (2,613) (11,785)
Non-current liabilities
Preference shares 23 (198,197) (198,058)
Total non-current liabilities (198,197) (198,058)
Net assets 674,420 668,500
Equity
Share capital and premium 13 609,448 608,037
Retained earnings 64,972 60,463
Equity attributable to ordinary shareholders 674,420 668,500
Total equity 674,420 668,500
Net assets per ordinary share 16 114.3p 113.5p
The accompanying notes are an integral part of these audited financial
statements.
The audited financial statements were approved and authorised for issue by the
Board of Directors on 16 June 2023 and signed on its behalf by:
Kevin Lyon Chairman Patrick Firth Director
Statement of Changes in Equity
For the year ended 31 March 2023
Share capital Retained Total equity
and premium
earnings
£'000
£'000
£'000
Ordinary shareholders' equity at 1 April 2021 605,938 (25,147) 580,791
Profit and comprehensive income for the year - 127,550 127,550
Scrip shares issued in lieu of dividends 2,099 - 2,099
Ordinary dividends declared - (41,940) (41,940)
Ordinary shareholders' equity at 31 March 2022 608,037 60,463 668,500
Ordinary shareholders' equity at 1 April 2022 608,037 60,463 668,500
Profit and comprehensive income for the year - 48,316 48,316
Scrip shares issued in lieu of dividends 1,411 - 1,411
Ordinary dividends declared - (43,807) (43,807)
Ordinary shareholders' equity at 31 March 2023 609,448 64,972 674,420
Statement of Cash Flows
For the year ended 31 March 2023
Notes 2023 2022
£'000
£'000
Cash flows from operating activities
Profit and comprehensive income for the year 48,316 127,550
Adjustments for:
Interest income receivable (12,346) (12,799)
Interest income received 12,326 12,799
Investment income receivable (56,287) (42,009)
Investment income received 58,429 34,019
Change in fair value of investments 17 13,199 (78,665)
Proceeds from HoldCos 17 71,584 82,443
Payments to HoldCos 17 (84,977) (58,370)
Financing proceeds from HoldCos 17 5,000 42,100
Financing proceeds returned to HoldCos 17 (5,000) (42,100)
Proceeds from NPIII LP 17 - 10,502
Payments to NPIII LP (12,708) (27,716)
Net changes in unrealised foreign exchange (201) (32)
Financial debt amortisation 139 139
Dividends paid on preference shares 9,500 9,454
Operating cash flows before movements in working capital 46,974 57,315
Changes in working capital
Movement in trade and other receivables (531) 694
Movement in trade and other payables (2) 131
Net cash generated from operating activities 46,441 58,140
Cash flows from financing activities
Dividends paid on preference shares (9,500) (9,500)
Dividends paid on ordinary shares (42,396) (39,841)
Net cash used in financing activities (51,896) (49,341)
Net movement in cash and cash equivalents during year (5,455) 8,799
Cash and cash equivalents at the beginning of the year 19,608 10,809
Effect of foreign exchange rates 201 -
Cash and cash equivalents at the end of the year 14,354 19,608
The accompanying notes are an integral part of these audited financial
statements.
Notes to the Financial Statements
For the year ended 31 March 2023
1. General Information
The Company was incorporated with limited liability in Guernsey under the
Companies (Guernsey) Law, 2008 on 20 December 2013 with registered number
57739, and is regulated by the Guernsey Financial Services Commission as a
registered closed-ended investment company. The registered office of the
Company is Floor 2 Trafalgar Court, Les Banques, St Peter Port, Guernsey,
Channel Islands GY1 4LY.
The Company's ordinary shares are publicly traded on the London Stock Exchange
under a premium listing. The Company seeks to provide ordinary shareholders
with attractive risk-adjusted returns, principally in the form of regular
dividends, by investing in a diversified portfolio of primarily UK and OECD
based solar energy infrastructure assets. The Company currently makes its
investments either directly or through HoldCos and SPVs which are directly or
indirectly wholly owned by the Company.
The Company has appointed NextEnergy Capital IM Limited as its Investment
Manager pursuant to the Management Agreement dated 18 March 2014. The
Investment Manager is a Guernsey registered company, incorporated under the
Companies (Guernsey) Law, 2008 with registered number 57740 and is licensed
and regulated by the Guernsey Financial Services Commission and is a member of
the NextEnergy Group. The Investment Manager acts as the Alternative
Investment Fund Manager of the Company.
The Investment Manager has appointed NextEnergy Capital Limited as its
Investment Adviser pursuant to the Investment Advisory Agreement dated 18
March 2014. The Investment Adviser is a company incorporated in England with
registered number 05975223 and is authorised and regulated by the FCA.
2. Summary of Significant Accounting Policies
a) Basis of Preparation
The financial statements, which give a true and fair view, have been prepared
in compliance with the Companies (Guernsey) Law, 2008 and on a going concern
basis in accordance with IFRS.
The financial statements have been prepared using the historical cost
convention with the exception of financial assets held at fair value through
profit and loss. The principal accounting policies adopted are set out below.
These policies have been consistently applied.
b) Functional and presentation currency
The financial statements are presented in pounds sterling which is the
Company's functional and presentation currency. Functional currency is the
currency of the primary economic environment in which the Company operates.
The Company's shares were issued in pounds sterling and the listing of the
shares on the Main Market is in pounds sterling. The performance of the
Company is measured and reported to investors in pounds sterling and dividends
received from the primarily UK-based assets are in pounds sterling. The Board
considers the pound sterling as the currency that most faithfully represents
the economic effects of the underlying transactions, events and conditions.
c) Going Concern
The Company owns a portfolio of solar energy infrastructure assets in the UK,
Italy, Spain and Portugal and that are predominantly fully constructed,
operational and generating renewable electricity. A significant proportion of
the income from the Company's investments is fixed for a long period of time
in accordance with the terms of the relevant ROC or FiT subsidy. The balance
of the income has exposure to wholesale electricity prices, although the
Investment Manager seeks to reduce this exposure through entering into short-
or long-term power purchase agreements with fixed price mechanisms.
The Directors have reviewed the current and projected financial position of
the Company making reasonable assumptions about future performance. The key
areas reviewed were:
• maturity of debt facilities;
• future investment transactions; and
• expenditure and capital commitment.
The Company's cash balance as at 31 March 2023 was £14m, all of which was
readily available. The NESF Group also had immediately available but undrawn
amounts under its debt facilities of a further £38.7m. The NESF Group had
capital commitments totalling £26.5m at the year end. The majority of the
NESF Group's revenues are derived from government subsidies. A significant
part of the NESF Group's borrowings are on a non-recourse basis. The Company's
portfolio is diversified by geography, components, plant size, subsidy schemes
and revenue streams.
The Board is satisfied that the Company has sufficient financial resources
available to be able to manage the Company's business effectively and pursue
the Company's principal activities and investment objective. In particular,
the Board is not currently aware of any material uncertainties in relation to
the Company's ability to continue for a period of at least 12 months from the
date of approval of this Annual Report. The Board is of the opinion,
therefore, that the going concern basis adopted in the preparation of the
financial statements is appropriate.
d) Basis of Non-Consolidation
The Company has set up/acquired SPVs through its investment in the holding
companies. The Company meets the definition of an investment entity as
described by IFRS 10. Under IFRS 10 investment entities are required to hold
subsidiaries at fair value through profit or loss rather than consolidate
them. There are four holding companies (NextEnergy Solar Holdings Limited,
NextEnergy Solar Holdings III Limited, NextEnergy Solar Holdings IV Limited
and NextEnergy Solar Holdings V Limited, collectively the "HoldCos"). The
HoldCos are also investment entities and, as required under IFRS 10, value
their investments at fair value.
Under the definition of an investment entity, the entity should satisfy all
three of the following tests:
• obtains funds from one or more investors for the purpose of
providing these investors with investment management services; and
• commits to its investors that its business purpose is to
invest funds solely for returns from capital appreciation, investment income,
or both (including having an exit strategy for investments); and
• measures and evaluates the performance of substantially all
of its investments on a fair value basis.
In assessing whether the Company meets the definition of an investment entity
set out in IFRS 10, the Directors note that:
• the Company is an investment company that invests funds
obtained from multiple investors in a diversified portfolio of solar energy
infrastructure assets and related infrastructure assets and has appointed the
Investment Manager to manage the Company's investments;
• the Company's purpose is to invest funds for investment
income and potential capital appreciation and will exit its investments at the
end of their economic lives or when their planning permissions or leasehold
land interests expire (unless it has repowered their sites) and may also exit
investments earlier for reasons of portfolio balance or profit; and
• the Board evaluates the performance of the Company's
investments on a fair value basis as part of the quarterly management accounts
review and the Company values its investments on a fair value basis twice a
year for inclusion in its annual and interim financial statements with the
movement in the valuations taken to the Statement of Comprehensive Income.
Taking these factors into account, the Directors are of the opinion that the
Company has all the typical characteristics of an investment entity and meets
the definition set out in IFRS 10.
The Directors believe the treatment outlined above provides the most relevant
information to investors.
e) Taxation
Under the current system of taxation in Guernsey, the Company is exempt from
paying taxes on income, profit or capital gains. Therefore, income from
investments in solar assets is not subject to any tax in Guernsey, although
NPIII LP, the HoldCos and SPVs are subject to tax in their country of
incorporation.
f) Segmental Reporting
IFRS 8 Operating Segments requires a 'management approach' under which segment
information is presented on the same basis as that used for internal reporting
purposes.
The Chief Operating Decision Maker, which is the Board, is of the opinion that
the Company is engaged in a single segment of business, being investment in
solar and energy storage infrastructure assets via its HoldCos and SPVs and
holding in a private equity fund. Therefore, the financial information used by
the Chief Operating Decision Maker to allocate resources and manage the
Company presents the business as a single segment.
g) Dividends
Dividends to the Company's shareholders are recognised when they become
legally payable.
h) Income
Income includes investment income from financial assets at fair value through
profit or loss, administrative service fee income, interest income from
equalisation of investments and Eurobonds and finance income.
Investment income, predominantly dividends received from financial assets at
fair value through profit or loss is recognised in the Statement of
Comprehensive Income within income when the Company's right to receive
payments is established.
Administrative service fee income and interest income from Eurobonds is
recognised in the Statement of Comprehensive Income within income on an
accruals basis.
Finance income comprises interest earned on cash held on deposit. Finance
income is recognised in the Statement of Comprehensive Income within income on
an accruals basis.
Interest income from equalisations comprises equalisations from subsequent
investors into NPIII LP and is recognised in the Statement of Comprehensive
Income within income when the Company's right to receive payments is
established.
i) Expenses
All expenses are accounted for on an accruals basis.
j) Cash and Cash Equivalents
Cash and cash equivalents includes deposits held at call with banks and other
short-term deposits with original maturities of three months or less.
k) Trade and Other Payables
Trade and other payables are initially recognised at fair value, and
subsequently re-measured at amortised cost using the effective interest method
where necessary.
l) Financial Instruments
Classification
The Company classifies its investments based on both the Company's business
model for managing these financial assets and the contractual cash flow
characteristics of the financial assets. The portfolio of financial assets is
managed and performance is evaluated on a fair value basis. The Company is
primarily focused on fair value information and uses that information to
assess the assets' performance and to make decisions. The Company has not
taken the option to designate irrevocably any equity securities at fair value
through other comprehensive income.
Recognition, Derecognition and Measurement
Purchases and sales of investments are recognised on the trade date, being the
date on which the Company commits to purchase or sell the investment.
Financial assets at fair value through profit or loss are initially recognised
at fair value. Transaction costs are expensed as incurred in the Statement of
Comprehensive Income.
Financial assets are derecognised when the rights to receive cash flows from
the investments have expired or the Company has transferred substantially all
risks and rewards of ownership.
Subsequent to initial recognition, all financial assets at fair value through
profit or loss are measured at fair value. Gains and losses arising from
changes in the fair value of investments are presented in the Statement of
Comprehensive Income within 'Net changes in fair value of investments' in the
period in which they arise.
Dividend income from financial assets at fair value through profit or loss are
recognised in the Statement of Comprehensive Income within 'Income' when the
Company's right to receive payments is established. Interest on debt
securities at fair value through profit or loss is recognised in the Statement
of Comprehensive Income on an accruals basis.
Fair Value Estimation
The fair value of financial assets that are not traded on an active market is
determined using valuation techniques and takes into account the International
Private Equity and Venture Capital's ("IPEV") valuation guidelines. The
Company's private equity solar fund investment (NPIII LP) has been valued
using the estimated attributable NAV and the remainder of investments have
been valued on a look through basis based on the discounted cash flows of the
solar assets (except for those solar assets not yet operational) and the
residual value of net assets at the HoldCos level. These valuations are
reviewed regularly by the Investment Manager who reports to the Board on a
periodic basis. The Board considers the appropriateness of the valuation model
and inputs, as well as the valuation result.
Fair value is the price that would be received from a sale of an asset or paid
to transfer a liability in an orderly transaction between market participants
at the measurement date, regardless of whether that price is directly
observable or estimated using other valuation techniques. In estimating the
fair value of an asset or liability, the Company takes into account the
characteristics of the asset or liability if market participants would take
those characteristics into account when pricing the asset or liability at the
measurement date. Fair value for measurement and/or disclosure purposes in
these Financial Statements is determined on such a basis.
In addition, for financial reporting purposes, fair value measurements are
categorised into Level 1, 2 or 3 based on the degree to which inputs to the
fair value measurements are observable and the significance of the inputs to
the fair value measurement in its entirety which are described as follows:
• Level 1 inputs are quoted prices in active markets for
identical assets or liabilities that the Company can access at the measurement
date;
• Level 2 inputs are inputs other than quoted prices included
within Level 1, that are observable for the asset or liability, either
directly or indirectly; and
• Level 3 inputs are unobservable inputs for the asset or
liability.
m) Ordinary Share Capital and Share Premium
Ordinary shares are classified as equity. Costs directly attributable to the
issue of new shares (that would have been avoided if there had not been a new
issue of new shares) are written off against the value of the ordinary share
premium. Dividends paid on the ordinary shares are recognised in the Statement
of Changes in Equity.
n) Preference Shares
In accordance with International Accounting Standard 32, preference shares are
classified as liabilities and are held at amortised cost. Dividends paid on
the preference shares are recognised in the Statement of Comprehensive Income
as an interest expense.
o) Trade and Other Receivables
Trade and other receivables are recognised initially at fair value and
subsequently measured at amortised cost. At each reporting date, the Company
shall measure the loss allowance on trade and other receivables at an amount
equal to the lifetime expected credit losses if the credit risk has increased
significantly since initial recognition. If, at the reporting date, the credit
risk had not increased significantly since initial recognition, the Company
shall measure the loss allowance at an amount equal to 12-month expected
credit losses. Significant financial difficulties of the counterparty,
probability that the counterparty will enter bankruptcy or financial
reorganisation and default in payments are all considered indicators that a
loss allowance may be required.
p) Offsetting Financial Instruments
Financial assets and liabilities are offset, and the net amount reported in
the Statement of Financial Position when there is a legally enforceable right
to offset the recognised amounts and there is an intention to settle on a net
basis or realise the asset and settle the liability simultaneously. The
legally enforceable right must not be contingent on future events and must be
enforceable in the normal course of business and in the event of default,
insolvency or bankruptcy of the company or the counterparty.
3. New and Revised Standards
a) New and Revised IFRSs Adopted by the Company
The Directors have assessed all new standards and amendments to standards and
interpretations which are effective for annual periods commencing on or after
1 April 2022 and noted no material impact on the Company.
b) New and Revised IFRSs in Issue but not yet Effective
The Directors have considered new standards and amendments to standards and
interpretations in issue and effective for annual periods commencing after 1
April 2023 and do not expect that their adoption will result in a material
impact on the financial statements of the Company in future periods.
4. Critical Accounting Estimates and Judgements
The Company makes estimates and assumptions that affect the reported amounts
of assets and liabilities. Estimates and judgements are continually evaluated
and based on historic experience and other factors believed to be reasonable
under the circumstances.
a) Critical Accounting Estimate: Investments at Fair Value Through Profit or
Loss
The Company's investments are measured at fair value for financial reporting
purposes. The Board has appointed the Investment Manager to produce investment
valuations based on projected future cash flows for all investments except
NPIII LP and solar projects not yet operational which are valued at estimated
attributable NAV and cost as an approximation of fair value respectively.
These valuations are reviewed and approved by the Board. The investments are
held through SPVs and NPIII LP is held directly.
IFRS 13 establishes a single source of guidance for fair value measurements
and disclosures about fair value measurements. Fair value is defined as the
price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date.
The Board bases the fair value of the investments on the information received
from the Investment Manager.
The Company classified its investments at fair value through profit or loss as
level 3 within the fair value hierarchy. Level 3 investments amount to
£854.4m (2022: £842.4m) and consist of one private equity solar fund
investment (NPIII LP) which has been valued using its estimated attributable
NAV and 99 (2022: 99) investments in solar PV assets (held indirectly through
the HoldCos), all of which have been valued on a look through basis based on
the discounted cash flows of the solar assets (except for those solar and
energy storage assets not yet operational) and the residual value of net
assets at the HoldCos level.
The discount rate is a significant Level 3 input and a change in the discount
applied could have a material effect on the value of the investments. The
ongoing conflict in Ukraine continues to have a sustained positive impact on
the long-term power price projections, which is also a significant Level 3
input. Investments in solar assets that are not yet operational are held at
fair value, where the cost of the investment is used as an appropriate
approximation of fair value. Level 3 valuations are reviewed regularly by the
Investment Manager who reports to the Board on a periodic basis. The Board
considers the appropriateness of the valuation model and inputs, as well as
the valuation result.
Information about the unobservable inputs used at 31 March 2023 in measuring
financial instruments categorised as Level 3 in the fair value hierarchy and
their sensitivities are disclosed in note 19. Unlisted investments reconcile
to the 'Total investments at fair value' in the table in note 17.
b) Significant Judgement: Consolidation of Entities
The Company, under the investment entity exemption rule, holds its investments
at fair value. The Company meets the definition of an investment entity per
IFRS 10 as detailed in note 2(d).
The Company does not have any other subsidiaries other than those determined
to be controlled subsidiary investments. Controlled subsidiary investments are
measured at fair value through profit or loss and are not consolidated in
accordance with IFRS 10. The fair value of controlled subsidiary investments
is determined as described in note 19.
The Company and the HoldCos operate as an integrated structure whereby the
Company invests in the HoldCos and a singular direct investment. Under IFRS
10, there is a requirement for the Board to assess whether the HoldCos are
themselves investment entities. The Board has performed this assessment and
concluded that each of the HoldCos is an investment entity for the following
reasons:
• the HoldCos have obtained funds for the purpose of investing
in equity or other similar interests in multiple investments and providing the
Company (and its investors) with investment income; and
• the performance of investments made through the HoldCos are
measured and evaluated on a fair value basis.
Furthermore, the HoldCos themselves are not deemed to be operating entities
providing services to the Company and, therefore, are able to apply the
exemption to consolidation.
The Company's HoldCos directly hold investments in joint venture partnerships
(classified as subsidiaries) and co‑investments (classified as investments
or associates).
5. Management Fees
The Investment Manager is entitled to receive an annual fee, accruing daily
and calculated on a sliding scale, as follows below:
• 1% of NAV up to £200m;
• 0.9% of NAV above £200m and up to and including £300m; and
• 0.8% of NAV above £300m.
The NAV for the purpose of calculation is reduced by an amount equivalent to
US$50m for NESF's investment in NPIII LP. For the year ended 31 March 2023 the
Company incurred £5.8m in management fees, of which £14k was outstanding at
31 March 2023 (2022: £5m in management fees of which £62k was outstanding at
31 March 2022).
The Investment Management Agreement is terminable by not less than 12 month's
written notice.
6. Administration Fees
Under the Administration Agreement with the previous administrator the
administration fee was a fixed fee of £220k per annum and the fixed fee was
to increase annually in line with the annual increase in Guernsey RPI from 1
January 2022. For the period up to 30 March 2022, the previous administrator
was also entitled to additional fees for attendance at ad hoc Board and Board
Committee meetings.
With effect from 30 March 2022 Ocorian Administration (Guernsey) Limited was
appointed administrator to the Company. The administration fee changed to a
fixed fee of £275k per annum with effect from 30 March 2022. On 1 January
2023, the fixed fee increased in line with the annual increase in Guernsey
RPI.
For the year ended 31 March 2023 the previous administrator was entitled to
administration fees of £59k (2022: £227k), of which £nil was outstanding at
31 March 2023 (2022: £115k). For the year ended 31 March 2023 the current
administrator was entitled to administration fees of £287k (2022: £nil), of
which £nil was outstanding at 31 March 2023 (2022: £nil).
The fee payable to the previous administrator was payable quarterly in
arrears. The fee payable to the new administrator is payable quarterly in
advance.
7. Directors' Fees
The Directors are all Non-Executive, and their remuneration is solely in the
form of fees. The Directors' fees for the year were £277k (2022: £222k), of
which £nil was outstanding at 31 March 2023 (2022: £11k).
8. Audit Fees
The analysis of the auditor's remuneration is as follows:
31 March 2023 31 March 2022
£'000
£'000
Fees payable to the auditor for the audit of the Company 92 84
Fees payable to the auditor for the interim review of the Company 52 45
Additional audit fee and disbursements for prior year - 9
Total 144 138
The figures noted in the table above do not include audit fees incurred by
subsidiary entities.
9. Other Expenses
31 March 2023 31 March 2022
£'000
£'000
Amortisation expense 139 139
Sundry expenses 167 (18)
Directors' expenses 5 1
Total 311 122
10. Charitable Donation
During the year ended 31 March 2023, the Company made a charitable donation of
£400k (31 March 2022: £100k). Information on the NextEnergy Foundation and
how it used the donation can be found on our website
(nextenergysolarfund.com).
11. Trade and Other Receivables
31 March 2023 31 March 2022
£'000
£'000
Administrative service fee income receivable 504 -
Accrued Income 40 20
Prepayments 101 74
Due from HoldCos 5,879 16,295
Total trade and other receivables 6,524 16,389
Amounts due from HoldCos are interest free and payable on demand.
12. Trade and Other Payables
31 March 2023 31 March 2022
£'000
£'000
Other payables 271 273
Due to NPIII LP - 896
Preference dividends payable 2,342 2,342
Due to HoldCos - 8,274
Total trade and other payables 2,613 11,785
Amounts due to HoldCos are interest free and payable on demand. During the
year, an amount of £8.3m (2022: £13.1m) representing a non-cash deemed
dividend was set-off against amounts due to HoldCos as these transactions are
with the same Holdco.
13. Share Capital and Reserves
a) Ordinary Shares
The share capital of the Company comprises solely of ordinary shares of no par
value and preference shares of no par value.
Ordinary shares issuance 31 March 2023 31 March 2022 Shares
Shares
Opening balance 589,077,244 586,987,678
Scrip shares issued during the year 1,176,937 2,089,566
Total issued at 31 March 590,254,181 589,077,244
Issued ordinary shares - share capital and premium 31 March 2023 31 March 2022
£'000
£'000
Opening balance 608,037 605,938
Value of scrip shares issued during the year 1,411 2,099
Total issued at 31 March 609,448 608,037
All the holders of the ordinary shares are entitled to receive dividends as
declared from time to time. At any general meeting of the Company, each
ordinary shareholder will have, on a show of hands, one vote and, on a poll,
one vote in respect of each ordinary share held.
b) Preference Shares
In accordance with International Accounting Standard 32, the preference shares
are classified as liabilities. Details of the preference shares can be found
in note 23(a).
c) Retained Reserves
Retained reserves comprise the retained earnings as detailed in the Statement
of Changes in Equity.
Under Guernsey law, the Company can pay dividends in excess of its retained
earnings provided it satisfies the solvency test prescribed by the Companies
(Guernsey) Law, 2008. The solvency test considers whether the Company is able
to pay its debts when they fall due, and whether the value of the Company's
assets is greater than its liabilities. The Company satisfied the solvency
test in respect of all dividends declared or paid in the year.
14. Earnings per Ordinary Share
a) Basic
31 March 31 March
2023
2022
Profit and comprehensive income for the year (£'000) 48,316 127,550
Basic weighted average number of issued ordinary shares 589,518,997 588,014,946
Earnings per share basic 8.20p 21.69p
b) Diluted
From 1 April 2036 the preference shares have the right to convert, based on
100p per preference share and the NAV per ordinary share at the time of
conversion, into new ordinary shares or a new class of unlisted B shares with
dividend and capital rights ranking pari passu with the ordinary shares.
31 March 31 March
2023
2022
Profit and comprehensive income for the year (£'000) 48,316 127,550
Plus: preference share dividends paid during the year (£'000) 9,500 9,454
Profit for the year attributable to ordinary shareholders (£'000) 57,816 137,004
Weighted average number of issued ordinary shares 589,518,997 588,014,946
Plus: weighted number of ordinary shares issuable on any conversion of 176,211,454 202,224,469
preference shares, based on the NAV per ordinary share as at the year end
Adjusted weighted average number of ordinary shares 765,730,451 790,239,415
Earnings per share diluted 7.55p 17.34p
15. Ordinary Share Dividends
a) Paid During the Year
31 March 31 March 31 March 31 March
2023
2023
2022
2022
£'000
Pence per share
£'000
Pence per share
Quarter 1 10,550 1.7900 10,346 1.7625
Quarter 2 11,080 1.8800 10,527 1.7900
Quarter 3 11,086 1.8800 10,529 1.7900
Quarter 4 11,091 1.8800 10,538 1.7900
Total 43,807 7.4300 41,940 7.1325
b) Declared in Respect of the Year
31 March 31 March 31 March 31 March
2023
2023
2022
2022
£'000
Pence per share
£'000
Pence per share
Quarter 1 11,080 1.8800 10,527 1.7900
Quarter 2 11,086 1.8800 10,529 1.7900
Quarter 3 11,091 1.8800 10,538 1.7900
Quarter 4 11,097 1.8800 10,544 1.7900
Total 44,354 7.5200 42,138 7.1600
16. Net Assets per Ordinary Share
31 March 2023 31 March 2022
Ordinary shareholders' equity (£'000) 674,420 668,500
Number of issued ordinary shares 590,254,181 589,077,244
Net assets per ordinary share 114.3p 113.5p
17. Investments at Fair Value Through Profit or Loss
The Company owns its portfolio of solar assets through its investments in the
HoldCos and a direct investment in NPIII LP. The Company's investments
comprise of its portfolio of solar assets and the residual net assets of the
HoldCos. As explained in note 4(a), all of the Company's investments are held
at fair value through profit or loss and classified as Level 3 in the fair
value hierarchy. There were no movements between the hierarchy levels during
the year ended 31 March 2023 (2022: none).
The Company's total investments at fair value are recorded under 'Non-current
assets' in the Statement of Financial Position.
31 March 2023 31 March 2022
£'000
£'000
Brought forward cost of investments 809,531 815,494
Investment proceeds from HoldCos (71,584) (82,443)
Investment payments to HoldCos 84,977 58,370
Investment proceeds from NPIII LP - (10,502)
Investments in NPIII LP 11,812 28,612
Carried forward cost of investments 834,736 809,531
Brought forward unrealised losses on valuation 32,815 (45,850)
Movement in unrealised gains on valuation 21,981 95,004
Movement in unrealised losses on valuation (35,180) (16,339)
Carried forward unrealised gains on valuation 19,616 32,815
Total investments at fair value 854,352 842,346
Non-cash transactions: On 23 February 2022, NESH V issued Eurobonds listed on
The International Stock Exchange totalling £6.6m. During the year ended 31
March 2023, no new Eurobonds were listed on The International Stock Exchange.
To facilitate the acquisition of various investments at 31 March 2023, £5.0m
(2022: £42.1m) was drawn down at subsidiary level, remitted to the Company
before £5.0m was returned to a subsidiary (2022: £42.1m).
The total change in the value of the investments in the HoldCos is recorded
through profit and loss in the Statement of Comprehensive Income. Information
about the principal unobservable inputs used in valuing the Company's
investments and their sensitivities is included in note 19.
18. Subsidiaries and Other Investments
The Company holds investments through subsidiary companies (the HoldCos) which
have not been consolidated as a result of the adoption of IFRS 10: Investment
entities exemption to consolidation. The Company holds its investment of NPIII
LP directly. The HoldCos are all incorporated in the UK and 100% directly
owned. There are no cross guarantees amongst Group entities. During the year
to 31 March 2023, NextEnergy Solar Holdings II Limited and its subsidiaries
were transferred to RRAM Energy Limited (a subsidiary of NextEnergy Solar
Holdings III Limited). Below are the legal names for the SPVs, all owned
directly or indirectly through the HoldCos listed below at 31 March 2023.
Agenor (24.5%) and NP III Co Invest LP (18%) are owned by NextEnergy Solar
Holdings V Limited. Camilla Battery Storage Limited and Lapwing Fen II Limited
are owned by NextPower EelPower Limited and NextPower EelPower (2) Limited,
both of which are owned by NextEnergy Solar Holdings III Limited (70% and 75%
respectively). All other SPVs are owned 100%.
Name Country of Name Country of
incorporation
incorporation
NextEnergy Solar Holdings Limited UK
BL Solar 2 Limited UK North Farm Solar Park Limited UK
Bowerhouse Solar Limited UK Push Energy (Birch) Limited UK
Ellough Solar 2 Limited UK Push Energy (Boxted Airfield) Limited UK
Glebe Farm SPV Limited UK Push Energy (Croydon) Limited UK
Glorious Energy Limited UK Push Energy (Decoy) Limited UK
Greenfields (A) Limited UK Push Energy (Hall Farm) Limited UK
NESF-Ellough Limited UK Push Energy (Langenhoe) Limited UK
Nextpower Ellough LLP UK SSB Condover Limited (Condover) UK
Nextpower Gover Farm Limited UK ST Solarinvest Devon 1 Limited UK
Nextpower Higher Hatherleigh UK Sunglow Power Limited UK
Nextpower Shacks Barn Limited UK Wellingborough Solar Limited UK
NextEnergy Solar Holdings III Limited UK
Balhearty Solar Limited UK Lapwing Fen II Limited UK
Ballygarvey Solar Limited UK Burcroft Solar Parks Limited UK UK
Birch Solar Farm CIC UK Burrowton Farm Solar Park Limited UK
Blenches Mill Farm Solar Park Limited UK Camilla Battery Storage Limited UK
Brafield Solar Limited UK Chilton Cantello Solar Park Limited UK
Greenfields (T) Limited UK Crossways Solar Park Limited UK
Helios Solar 1 Limited UK Empyreal Energy Limited UK
Helios Solar 2 Limited UK Fiskerton Limited UK
Hook Valley Farm Solar Park Limited UK NextZest Limited UK
Knockworthy Solar Park Limited UK
Lark Energy Bilsthorpe Limited UK Pierces Solar Limited UK
Le Solar 51 Limited UK Raglington Farm Solar Park Limited UK
Little Irchester Solar Limited UK RRAM Energy Limited UK
Little Staughton Airfield Solar Limited UK Saundercroft Farm Solar Park Limited UK
Micro Renewables Domestic Limited UK SL Solar Services Limited UK
Micro Renewables Limited UK Sywell Solar Limited UK
NESH 3 Portfolio A Limited UK Tau Solar Limited UK
Nextpower Bosworth Limited UK Temple Normanton Solar Limited UK
Nextpower Eelpower Limited UK NextPower Grange Limited UK
NextPower High Garrett Limited UK Thornborough Solar Limited UK
Nextpower Hops Energy UK NextPower South Lowfield Limited UK
Nextpower SPV 4 Limited UK Thurlestone-Leicester Solar Limited UK
Nextpower SPV 6 Limited UK UK Solar (Fiskerton) LLP UK
Nextpower SPV 10 Limited UK Wheb European Solar (UK) 2 Limited UK
Nextpower Water Projects Limited UK Wheb European Solar (UK) 3 Limited UK
Nextpower Eelpower (2) Limited UK Whitley Solar Park (Ashcott Farm) Limited UK
Wyld Meadow Farm UK Wickfield Solar Limited UK
ESF Llwyndu Limited UK NextEnergy Solar Holdings II Limited UK
NextEnergy Solar Holdings VI Limited UK Trowbridge PV Limited UK
Green End Renewables Limited UK Bowden Lane Solar Park Limited UK
Fenland Renewables Limited UK Green End Renewables Limited UK
Tower Hill Farm Renewables Limited UK
NextEnergy Solar Holdings IV Limited UK
Berwick Solar Park Limited UK Emberton Solar Park Limited UK
Bottom Plain Solar Park Limited UK Great Wilbraham Solar Park Limited UK
Branston Solar Park Limited UK Nextpower Radius Limited UK
NextEnergy Solar Holdings V Limited UK
Agrosei S.r.l Italy Starquattro S.r.l Italy
Fotostar 6 S.r.l Italy SunEdison Med. 6 S.r.l Italy
Macchia Rotonda Solar S.r.l Italy Agenor Hive S.L. * Spain
NextPower III LP Co-Invest LP** Portugal
* Agenor Hive S.L. is an associate of the HoldCo, not a subsidiary
** NextPower III LP Co-Invest LP is an investment of the HoldCo, not a
subsidiary or associate
19. Fair Value of Investment in Unconsolidated Subsidiaries
a) Valuation process
The valuation process is described in note 4(a).
The Directors and the Investment Manager consider that the discounted cash
flow methodology used in deriving the fair value of investments in operating
solar assets is in accordance with the fair value requirements of IFRS 13 and
that the valuation methodology used, including the key estimates and
assumptions applied, is appropriate. As at 31 March 2023, investments held at
fair value using the discounted cash flow methodology totalled £707.5m
(2022:£699.6m).
During the prior year the Company invested directly in a private equity fund
NPIII LP. The fair value of the Company's investment in private equity funds
is generally considered to be the Company's attributable portion of the NAV of
the private equity fund, as determined by the General Partner/Manager of such
funds, adjusted if considered necessary by the Board of Directors, including
any adjustment necessary for carried interest. The Board of Directors and the
Investment Manager consider the IPEV guidelines when valuing private equity
fund investments. As at 31 March 2023, investments held at fair value using
NAV totalled £31.0m (31 March 2022: £17.3m).
Investments in assets that are not yet operational (this includes the
co-investment into Project Agenor and NPIII LP Co-Invest LP) are also held at
fair value, where the cost of the investment is used as an appropriate
approximation of fair value. These investments are not included in the
sensitivity analyses in note 19(b). As at 31 March 2023, investments held at
cost which approximates fair value totalled £103.3m (2022: £21.9m).
Another £12.5m of investments held at fair value relates to the residual net
assets of the HoldCos. Therefore, the total operational fair value to which
the sensitivity analysis has been applied in the below tables is £707.5m.
b) Sensitivity Analyses of Changes in Significant Unobservable Inputs to the
Discounted Cash Flow Calculation
(i) Sensitivity analysis of changes in significant unobservable inputs of
underlying operating solar assets
Most of the Company's investments are valued using the discounted cash flow
methodology. Information on this methodology is included in note 4(a). The
Directors consider the following to be significant unobservable inputs to the
discounted cash flows calculation on a look through basis.
Discount Rates
Discount rates used in the valuation of the Company's investments represent
the Investment Adviser's and Board's assessment of the rate of return in the
market for assets with similar characteristics and risk profile.
31 March 2023 31 March 2022
Weighted average discount rate 7.3% 6.3%
Range of discount rates (unlevered to levered) 6.75% to 8.25% 5.75% to 7.25%
Premium applied to cash flows earned 30 years after grid connection date 1.0% 1.0%
The table below shows the sensitivity of the portfolio valuation to a change
to the weighted average discount rate by plus or minus 0.5%, with all other
variables held constant.
Discount rate sensitivity +0.5% change Investments -0.5% change
31 March 2023
Directors' valuation (£18.8m) £707.5m £20.0m
Directors' valuation - percentage movement (2.7%) 2.8%
Change in NAV per ordinary share (3.2p) 3.4p
31 March 2022
Directors' valuation (£20.1m) £699.6m £21.6m
Directors' valuation - percentage movement (2.9%) 3.1%
Change in NAV per ordinary share (3.4p) 3.7p
The 2022 balance has been reclassified to conform to the current year
presentation which includes operational assets only
Power Price
As at 31 March 2023, estimates implied an average rate of growth of UK
electricity prices (2023-2042) of approximately -5.5% (2022: -7.7%) in 2023
real terms and an average rate of growth of Italian electricity prices
(2023-2042) of approximately -6.4% (2022: -4.7%) in 2023 real terms. As at 31
March 2023, estimates implied a long-term inflation rate of 2.3% (2022: 2.3%).
The power price environment has remained high in 2023, heightened by the
ongoing conflict in Ukraine, leading to continued higher power prices. The
blended average of the 'central case' scenarios have been applied to the
valuation which includes the impact of the current high power price
environment.
The table below shows the sensitivity of the portfolio valuation to a
sustained decrease or increase in the power price by plus or minus 10% on the
valuation, with all other variables held constant.
Power price sensitivity -10% change Investments +10% change
31 March 2023
Directors' valuation (£52.5m) £707.5m £50.9m
Directors' valuation - percentage movement (7.4%) 7.2%
Change in NAV per ordinary share (8.9p) 8.6p
31 March 2022
Directors' valuation (£48.9m) £699.6m £46.5m
Directors' valuation - percentage movement (7.0%) 6.6%
Change in NAV per ordinary share (8.3p) 7.9p
The 2022 balance has been reclassified to conform to the current year
presentation which includes operational assets only
Energy Generation
The portfolios aggregate energy generation yield depends on the combination of
solar irradiation and technical performance of the solar assets. The table
below shows the sensitivity of the portfolio valuation to a sustained decrease
or increase of energy generation plus or minus 5% on the valuation, with all
other variables held constant.
Energy generation sensitivity -5% underperformance Investments +5% outperformance
31 March 2023
Directors' valuation (£43.9m) £707.5m £43.1m
Directors' valuation - percentage movement (6.2%) 6.1%
Change in NAV per ordinary share (7.4p) 7.3p
31 March 2022
Directors' valuation (£46.2m) £699.6m £43.9m
Directors' valuation - percentage movement (6.6%) 6.3%
Change in NAV per ordinary share (7.8p) 7.5p
The 2022 balance has been reclassified to conform to the current year
presentation which includes operational assets only
Inflation Rates
The portfolio valuation assumes long-term inflation of 2.3% (2022: 2.3%) p.a.
for investments (based on UK RPI).
The table below shows the sensitivity of the portfolio valuation to a change
to the inflation rate by plus or minus 1.0% (2022: 3.0%), with all other
variables held constant.
Inflation rate sensitivity -1.0% change Investments +1.0% change
31 March 2023
Directors' valuation (£45.8m) £707.5m £51.3m
Directors' valuation - percentage movement (6.5%) 7.3%
Change in NAV per ordinary share (7.8p) 8.7p
31 March 2022 -3.0% change Investments +3.0% change
Directors' valuation (£132.9m) £699.6m £191.1m
Directors' valuation - percentage movement (19.0%) 27.3%
Change in NAV per ordinary share (22.6p) 32.4p
The 2022 balance has been reclassified to conform to the current year
presentation which includes operational assets only
Operating Costs
The table below shows the sensitivity of the portfolio to changes in operating
costs by plus or minus 5% (2022: 5%) at the SPVs level, with all other
variables held constant.
Operating costs sensitivity +5% change Investments -5% change
31 March 2023
Directors' valuation (£6.4m) £707.5m £6.5m
Directors' valuation - percentage movement (0.9%) 0.9%
Change in NAV per ordinary share (1.1p) 1.1p
31 March 2022
Directors' valuation (£6.5m) £699.6m £6.5m
Directors' valuation - percentage movement (0.9%) 0.9%
Change in NAV per ordinary share (1.1p) 1.1p
The 2022 balance has been reclassified to conform to the current year
presentation which includes operational assets only
Tax Rates
The UK corporation tax rate used in the portfolio valuation is 19% until April
2023 and 25% thereafter (2022: 19% until 2023 and 25% thereafter), in
accordance with the latest UK Budget announcements.
(ii) Sensitivity analysis of changes in significant unobservable inputs of
Private Equity Investments
The NAV of NPIII LP, the direct private equity investment as at 31 March 2023
was £31.0m (2022: £17.3m). The valuation of private equity investments is
subject to changes in the valuations of the underlying portfolio companies.
These can be exposed to a number of risks, including liquidity risk, price
risk, currency risk and interest rate risk.
A movement of 10% in the value of the private equity investment would move the
Company's investments held at fair value at the year end by 0.4% (2022: 0.2%).
20. Non-investment Financial Assets and Liabilities
Cash and cash equivalents are Level 1 items in the fair value hierarchy.
Current assets and current liabilities are Level 2 items in the fair value
hierarchy, with their carrying value being approximates for their fair values
as these are short-term items.
The preference shares are held at amortised cost using the effective interest
method and are measured at gross proceeds net of transaction costs incurred,
as at 31 March 2023 they are held at £198.2m (2022: £198.1m). The
transaction costs are amortised over the expected life of the preference
shares to 2036. Preference shares are a Level 3 item in the fair value
hierarchy with their carrying value approximating their fair value of £198.2m
as at 31 March 2023. The fair value of the preference shares was calculated
based on projected future cash flows for the preference shares using a market
related discount rate adjusted for risk factors.
21. Capital Management
a) Capital Structure
The NESF Group, which comprises the Company and its unconsolidated
subsidiaries (being the direct investment in NPIII LP, HoldCos and SPVs),
manages its capital to ensure that it will be able to continue as a going
concern whilst maximising the return to ordinary shareholders through the
optimisation of the debt and equity balances. The NESF Group's principal use
of cash has been to fund investments in accordance with the Company's
Investment Policy as well as ongoing operational expenses.
The capital structure of the Company consists entirely of equity (comprising
issued ordinary share capital and retained earnings) and preference share
capital (which, for accounting purposes is treated as a liability). The
capital structure of each of the Company's subsidiaries consists entirely of
equity or a combination of equity and debt, which may be short- or long-term.
The Board, with the assistance of the Investment Adviser, monitors and reviews
the NESF Group's capital structure on an ongoing basis.
b) Debt
The Company's Investment Adviser reviews the debt structure of the Company and
its subsidiaries on an ongoing basis. The Company and its subsidiaries use
leverage for financing the acquisition of solar investments and working
capital purposes. In accordance with the Company's Investment Policy, the NESF
Group may employ leverage, provided that it does not exceed (at the time the
relevant arrangement is entered into) 50% of GAV. For this purpose, leverage
includes all short- and long-term debt raised by the Company or any of its
subsidiaries, as well as the aggregate subscription monies paid in respect of
all preference shares in issue and any unpaid dividends due in respect of the
preference shares.
As at 31 March 2023, the Company had £200m of preference shares in issue
(2022: £200m) and no financial debt outstanding. The subsidiaries had
£345.3m in long-term debt, look through debt and revolving credit facilities
outstanding (2022: £283.3m) (see note 23(b), representing a gearing level of
45% (2022: 42%).
22. Financial Risk Management Objectives
The Board, with the assistance of the Investment Manager and Investment
Adviser, monitors and manages the financial risks relating to the operations
of the NESF Group through an internal risk map and the Investment Manager's
reports. These risks include capital risk, market risk (including price risk,
power price risk, currency risk and interest rate risk), credit risk and
liquidity risk. The objective of the risk management programme is to minimise
the potential adverse effects on the financial performance of the NESF Group.
For the Company and its subsidiaries, financial risks are managed by the
Investment Manager and Investment Adviser, which operate within Board-approved
policies. The various types of financial risk which affect the Company, its
subsidiaries or both are managed as described below. Risks that affect the
Company's unconsolidated subsidiaries may affect in turn the fair value of
investments held by the Company.
a) Capital Risk (Company Only)
The Company has put in place a financing structure that enables it to manage
its capital effectively. The Company's capital structure comprises equity
(issued ordinary share capital and retained earnings) and preference share
capital. As at 31 March 2023 the Company had no recourse financial debt,
although the Company is a guarantor for two financing and hedging facilities
of its subsidiaries (see note 25).
b) Market Price Risk (Company and Subsidiaries)
Market price risk is the risk that the fair value of future cash flows of a
financial instrument held by the Company, through its subsidiaries, will
fluctuate because of changes in market prices. Changes in market prices will
affect the discount rate applied to the expected future cash flows from the
Company's investments and, therefore, the fair value of those investments. The
impact of changes in the discount rate is considered in note 19.
Power Price Risk (Company and Subsidiaries)
The wholesale market price of electricity is volatile and is affected by
multiple factors, including demand for electricity, the generation across the
entire grid and government subsidies, as well as fluctuations in the market
prices of fuel commodities and foreign exchange. Whilst some of the Company's
investments benefit from subsidies and short-term PPA hedges that fix prices,
other revenue streams are not hedged and subject to wholesale electricity
prices.
The Investment Adviser monitors these factors and hedges the price at which
the subsidiaries sell electricity as necessary.
Currency Risk (Company and NESH V)
Foreign currency risk, as defined in IFRS 7, arises as the values of
recognised monetary assets and monetary liabilities denominated in other
currencies fluctuate due to changes in foreign exchange rates. The Company
has no material exposure to currency risk as all its assets and liabilities
are in pounds sterling, the Company's functional and presentational currency.
A substantial majority of the cash flows from the Company's solar assets in
Italy to NESH V are hedged and so the cash flows to the Company from that
HoldCo are exposed to limited currency risk and therefore the currency risk on
the unhedged portion of Company cash flows is not considered to be
significant.
Interest Rate Risk (Company and Subsidiaries)
The Company is indirectly exposed to interest rate risk from the credit
facilities of the HoldCos, as at 31 March 2023. Of the £345.3m (2022:
£278.5m) credit facilities outstanding (excluding NPIII LP look through debt
of £7.7m), £112.0m (2022: £115.8m) had fixed interest rates and the
remaining £225.6m (2022: £162.7m) had floating interest rates. For the
floating amount, interest rate swaps were implemented over the term of the
loans to mitigate interest rate risks for £59.3m (2022: £66.5m). The
counterparties to these swaps are all Investment grade financial institutions.
The remaining £166.3m (2022: £96.2m) had floating rates which are not hedged
and a change in interest rates would not have a material impact to the
Company.
c) Credit Risk (Company and Subsidiaries)
Credit risk is the risk that a counterparty will default on its contractual
obligations resulting in a financial loss to the Company or the subsidiary
that is a party to the contract. Credit risk arises from cash and cash
equivalents and derivative financial instruments, as well as credit exposures
to customers.
The Company and its subsidiaries mitigate their risk of cash and derivative
transactions by only transacting with major international financial
institutions with high credit ratings assigned by international credit rating
agencies. At the investment level, the credit risk relating to significant
counterparties is reviewed on a regular basis, in conjunction with monitoring
the credit ratings issued by recognised credit rating agencies, and potential
adjustments to the discount rate are considered to recognise changes to credit
risk where applicable. The Directors believe that the NESF Group is not
significantly exposed to the risk that the customers of its investments do not
fulfil their payment obligations because of the NESF Group's policy to invest
in jurisdictions and with customers with satisfactory credit ratings.
The Company's maximum exposure to credit risk is the carrying amounts of the
respective financial assets set out below:
31 March 2023 31 March 2022
£'000
£'000
Cash and cash equivalents 14,354 19,608
Trade and other receivables 6,524 16,389
Debt investments 306,554 306,554
Total 327,432 342,551
Debt investments relate to Eurobonds which have been valued at fair value as
part of the Company's investments as disclosed in note 17. No collateral is
received from NESH III or NESH V in relation to the Eurobonds. The credit
quality of these investments is based on the financial performance of NESH
III and NESH V as well as the underlying investments they own. The risk of
default is deemed low, and the principal repayments and interest payments are
expected to be made in accordance with the agreed terms and conditions.
The Company does not have any significant credit risk exposure to any single
counterparty in relation to trade and other receivables. In respect of the
Company's subsidiaries, ongoing credit evaluation is performed on the
financial condition of accounts receivable. As at 31 March 2023, the
probability of default of the Company's subsidiaries was considered low and so
no allowance has been recognised based on 12-month expected credit loss as any
impairment would be insignificant to the subsidiary (2022: none). The
Investment Adviser has sufficient oversight of the subsidiary's receivables
to assess the probability of default.
Details of the Company's cash and cash equivalent balances at the year end are
set out in the table below.
Credit rating Cash
Standard & Poor's
£'000
31 March 2023
Barclays Bank PLC Long - A+ 14,354
Short - A-1
31 March 2022
Barclays Bank PLC Long - A 19,608
Short - A/A-1
d) Liquidity Risk (Company and subsidiaries)
Liquidity risk is the risk that the NESF Group will not be able to meet its
financial obligations as they fall due as a result of the maturity of assets
and liabilities not matching. The Board has established an appropriate
liquidity risk management framework for the management of the NESF Group's
short-, medium- and long-term funding and liquidity management requirements.
The Company and its subsidiaries manage liquidity risk by monitoring forecast
and actual cash flows and matching the maturity profiles of assets and
liabilities and maintaining sufficient cash balances to meet their operating
needs.
The following table shows the maturity of the Company's non-derivative
financial assets and liabilities. The amounts disclosed are contractual,
undiscounted cash flows and may differ from the actual cash flows received
or paid in the future as a result of early repayments.
Carrying amount Up to 3 months £'000 3 to 12 months £'000 Greater than 12 months £'000
£'000
31 March 2023
Assets
Cash and cash equivalents 14,354 14,354 - -
Trade and other receivables 6,524 6,524 - -
Liabilities
Contractual preference shares repayment and dividends payable(1) (198,197) (2,342) (7,158) (323,500)
Trade and other payables (2,613) (2,613) - -
31 March 2022
Assets
Cash and cash equivalents 19,608 19,608 - -
Trade and other receivables 16,389 16,389 - -
Liabilities
Contractual preference shares repayment and dividends payable(1) (200,400) (2,342) (7,132) (333,000)
Trade and other payables (9,443) (9,443) - -
1 Assumes no conversion of preference shares in 2036
23. Preference Shares and Revolving Credit and Debt Facilities
a) Preference shares
On each of 12 November 2018 and 12 August 2019, the Company issued 100,000,000
preference shares at a price of 100p per preference share. The preference
shares pay a preferred dividend of 4.75% p.a. until March 2036, after which
they have the right to convert, based on 100p per preference share and the NAV
per ordinary share at the time of conversion, into new ordinary shares or a
new class of unlisted B shares with dividend and capital rights ranking pari
passu with the ordinary shares. The preference shares do not confer any voting
rights, except in limited circumstances.
The preference shares are redeemable at the option of the Company at any time
after 1 April 2030, in full or in part. The redemption price will be the
subscription price plus any unpaid dividends. In addition, the preference
shares may be redeemed in full at the option of the holders in the event of a
delisting or change of control of the Company.
Opening Amortisation Carrying Amount
£'000
£'000
£'000
31 March 2023
Preference shares 198,058 139 198,197
31 March 2022
Preference shares 197,919 139 198,058
b) Revolving credit and debt facilities
The Company's HoldCos have revolving credit and debt facilities which are
factored into the calculation of the fair value of the underlying investments.
In January 2017, NESH closed a syndicated loan with MIDIS, NAB and CBA for
£157.5m ('Project Apollo') to refinance its revolving credit facility. As
part of the facility agreement, the lenders provide an additional Debt Service
Reserve Facility of £7.5m and hold a charge over the assets of NESH. As at 31
March 2023, the nominal outstanding amount was £141.9m (2022: £145.1m).
In June 2021, NESH III closed a RCF with National Westminster Bank plc and AIB
Group (UK) p.l.c. for £75.0m which £75.0m was subsequently drawn down. In
September 2022, the facility was increased to total commitment of £135.0m. As
at 31 March 2023, the outstanding amount was £135.0m (2022: £75.0m).
In March 2016, NESH IV agreed the purchase of Project Radius. The acquisition
was part funded by a debt facility entered between NESH IV and Macquarie Bank
Limited for £55.0m, which was fully drawn down in April 2016. As part of the
debt facility agreement Macquarie Bank Limited holds a charge over the assets
of NESH IV. As at 31 March 2023, the nominal outstanding amount was £46.8m
(2022: £47.3m).
In July 2018, NESH VI closed a RCF with Santander for £40.0m which was
subsequently fully drawn down. In January 2019, the facility was increased to
a total commitment of £70.0m with a subsequent £30.0m drawdown. In August
2019, £56.0m was repaid. In February 2021 £35.2m was drawn down. As at 31
March 2023, the outstanding amount was £31.3m (2022: £21.1m).
24. Reconciliation of Financing Activities
Opening Cash Flows Net Income Allocation Non-cash Flows Carrying Amount
£'000
£'000
£'000
£'000
£'000
31 March 2023
Preference shares 198,058 (9,500) 9,500 139 198,197
31 March 2022
Preference shares 197,919 (9,500) 9,500 139 198,058
25. Commitments and Guarantees
The Company had parental guarantees in place with two financial institutions
for its subsidiaries, debt obligations and a currency hedge transaction
executed through subsidiaries.
The Company, through its Holdco, had forward and development funding
facilities in relation to the construction of subsidy-free development
projects. As at 31 March 2023, the facilities amounted to nil and nil
respectively (2022: £3m and £1.4m).
On 19 November 2018, the Company entered into a counter-indemnity deed with
Banco Santander ("Santander") regarding borrowings by NextPower Radius
Limited. Under the terms of the deed the Company may request Santander to
issue a letter of credit for no more than £2,500,000. As at 31 March 2023, a
letter of credit of £2,500,000 was in issue (2022: £2,374,426).
On 1 December 2017, the Company provided a guarantee to Intesa Sanpaolo S.p.A.
("ISP") relating to derivative transactions made available to NESH V. The
guarantee covers all present and future obligations of NESH V to ISP relating
to the derivative transactions. As at 31 March 2023 the Company has no
outstanding commitments related to this guarantee (2022: none).
The Company has a remaining commitment to NPIII LP of US$11.9m as at 31 March
2023 (2022: $25.9m). The Company, through its subsidiary, has a remaining
commitment of EUR €0.0m in relation to the co-investment in Project Agenor
as at 31 March 2023 (2022: €1.0m). The Company, through its subsidiary, has
a remaining commitment of EUR€2.0m in relation to the co-investment in
Project Santarem as at 31 March 2023 (2022: none). The Company, through its
HoldCos, had other project spending commitments totalling £26.5m as at 31
March 2023.
26. Related Parties
The Investment Manager, the Investment Adviser and the Asset Manager are
considered to be related parties in light of their responsibilities in
implementing the investment strategy set by the Board of Directors and
directing the activities of Group entities. All management fee transactions
with the Investment Manager are disclosed in note 5.
Fees of £94,049 (2022: £nil) were charged by the Investment Adviser for ESG
related services and this is included in legal and professional fees in the
Statement of Comprehensive Income. £nil was outstanding at year end (2022:
£nil).
Under existing arrangements with the Asset Manager, each of the operating
subsidiaries of the Company entered into an asset management agreement with
the Asset Manager and each of the HoldCos entered into on accounting services
agreement with the Asset Manager. The total value of recurring and one-off
services paid to the Asset Manager by the subsidiaries during the period
amounted to £7.6m (2022: £6.6m).
At 31 March 2023 £5.9m (2022: £8.3m) was owed from the subsidiaries in
relation to their restructuring, £5.9m being cash trapped within the
structure at year end (2022: £8.0m). £10.4m of administrative service fees
were received from the subsidiaries during the year (2022: £10.2m), £504k of
which was outstanding at 31 March 2023 (2022: £nil). During the year,
dividends of £56.3m (2022: £42.0m) were received from the subsidiaries.
Refer to note 11 and 12 for terms and conditions on amounts due from and to
subsidiaries.
During the prior year the Company committed US$50m to NPIII LP, as a Limited
Partner governed by a Limited Partnership Agreement, with US$38.1m drawn as at
31 March 2023 (2022: US$24.1m). The Investment Manager, the Investment Adviser
and the Asset Manager are all professionally engaged to provide services to
this fund. Equalisation interest of nil (2022: £0.8m) was received due to
subsequent closes of NPIII LP. The principal activity of NPIII LP is to invest
in solar photovoltaic plants globally (primarily in OECD countries). The
Company has committed a fixed amount of capital which may be drawn (and
returned) over the life of NPIII LP. The Company pays capital calls when due
and receives distributions from NPIII LP over the life of the fund. The
outstanding commitment to NPIII LP is disclosed in note 25.
During the year to 31 March 2023, NextEnergy Solar Holdings II Limited and its
subsidiaries were sold to RRAM Energy Limited (a subsidiary of NextEnergy
Solar Holdings III Limited) for consideration of £33.4m.
The Directors' fees for the year ended 31 March 2023 amounted to £277k (2022:
£222k).
As at 1 June 2023, NextEnergy Capital Group employees held 1,532,060 shares in
NESF.
27. Controlling Parties
In the opinion of the Directors, on the basis of shareholdings disclosed to
them, the Company has no immediate nor ultimate controlling party.
28. Events After the Balance Sheet Date
On 11 May 2023, the Directors approved a dividend of 1.88 pence per ordinary
share for the quarter ended 31 March 2023 to be paid on 30 June 2023 to
ordinary shareholders on the register as at the close of business on 19 May
2023.
On 27 April 2023, the Board announced a capital recycling programme. Through
the programme, the Company aims to capture significant value from the
divestment of a 236MW portfolio of subsidy-free UK solar assets, the proceeds
from which will be used to reduce gearing, invest in future long-term growth
opportunities and, if appropriate, buyback shares.
Alternative Performance Measures ( "APMs")
We assess our performance using a variety of measures that are not
specifically defined under IFRS and are therefore termed APMs. The APMs that
we use may not be directly comparable with those used by other companies. Our
APMs, which are shown below, are used to present a clearer picture of how the
Company has performed over the year and are all financial measures of
historical performance.
Asset Management Alpha
Asset Management Alpha measures the operating performance of the portfolio. It
is the performance of the portfolio relative to budget due to active
management and excludes the effect of variation in solar irradiation.
Year ended Year ended
31 Mar 2023
31 Mar 2022
%
%
Delta of generation vs. budget (A) 3.8 1.8
Delta of irradiation vs. budget (B) 7.5 3.4
Asset Management Alpha (A - B) (3.7) (1.6)
Invested Capital
Invested capital measures the capital deployed into solar assets through the
HoldCos and SPVs to generate investment returns for shareholders.
31 March 2023 31 March 2022
£'000
£'000
Invested capital 1,133,769 1,038,648
Total Gearing
Total gearing measures the aggregate of the NESF Group's financial debt and
fair value of the preference shares relative to GAV.
31 March 2023 31 March 2022
£'000
£'000
NESF Group's outstanding financial debt (A) 345,275 283,304
Preference shares as per Statement of Financial Position (B) 198,197 198,058
Net assets as per Statement of Financial Position (C) 674,420 668,500
Total gearing ((A + B) / (A + B + C)), expressed as a percentage) 44.6% 41.9%
Financial Debt Gearing
Financial debt gearing measures the aggregate of the NESF Group's financial
debt relative to GAV.
31 March 2023 31 March 2022
£'000
£'000
NESF Group's outstanding financial debt (A) 345,275 283,304
Preference shares as per Statement of Financial Position (B) 198,197 198,058
Net assets as per Statement of Financial Position (C) 674,420 668,500
Financial debt gearing ((A) / (A + B + C)), expressed as a percentage) 28.4% 24.6%
Cash Income
Cash income measures the cash generated from the Company's operations.
31 March 2023 31 March 2022
£'000
£'000
Income as per Statement of Comprehensive Income (A) 79,023 65,034
Trade and other receivables - administrative service fee income accrual at - 758
beginning of year (B)
Trade and other receivables - administrative service fee income accrual at end (504) -
of year (C)
Cash income (A + B - C) 78,519 65,792
Cash Dividend Cover (Pre-scrip Dividends)
Cash dividend cover (pre-scrip dividends) measures the cash available to pay
ordinary share dividends, treating all scrip dividends as if they had been
paid as cash dividends.
31 March 2023 31 March 2022
£'000
£'000
Cash Income as per the table above (A) 78,519 65,792
Total expenses as per Statement of Comprehensive Income (B) 17,709 16,190
Pre-scrip ordinary dividends paid as per Statement of Changes in Equity (C) 43,807 41,940
Cash dividend cover (pre-scrip dividends) ((A - B) / C) 1.4x 1.2x
Dividend Yield
Dividend yield is a measure of the return to the ordinary shareholders.
31 March 2023 31 March 2022
£'000
£'000
Dividend per ordinary share (A) 7.52 7.16
Ordinary share price at end of year (B) 104.8 103.4
Dividend yield (A / B, expressed as a percentage) 7.18% 6.92%
NAV per Ordinary Share
NAV per ordinary share is a measure of the value of one ordinary share.
31 March 2023 31 March 2022
pence
pence
Net assets as per Statement of Financial Position (£'000) (A) 674,420 668,500
Number of ordinary shares in issue at year end (B) 590,254,181 589,077,244
NAV per ordinary share ((A / B) x 100) 114.3p 113.5p
NAV Total Return per Ordinary Share
NAV total return per ordinary share is a measure of the overall financial
performance of the Company and measures the combined effect of dividends paid
together with the rise or fall in the NAV.
Year ended 31 Mar 2023 Year ended 31 Mar 2022
pence
pence
Basic NAV per ordinary share at year end as per Statement of Financial 114.3 113.5
Position (A)
Annual dividend per ordinary share declared in respect of year (B) 7.52 7.16
Basic NAV per ordinary share at beginning of year as per Statement of 113.5 98.9
Financial Position (C)
NAV total return per ordinary share ((A + B - C) / C, expressed as a 7.33% 21.98%
percentage)
Ordinary Shareholder Total Return
Ordinary shareholder total return is a measure of the overall performance of
the ordinary shares and measures the combined effect of dividends paid
together with the rise or fall in the share price.
31 March 2023 31 March 2022
pence
Pence
Ordinary share price at year end (A) 104.8 103.4
Annual dividend per ordinary share declared/paid in respect of year (B) 7.52 7.16
Ordinary share price at beginning of year (C) 103.4 99.6
Ordinary shareholder total return per share ((A + B - C) / C, expressed as a 8.63% 11.0%
percentage)
Discount to NAV per Ordinary Share
Discount to NAV per ordinary share is a measure of the performance of the
ordinary share price relative to the NAV per ordinary share.
31 March 2023 31 March 2022
pence
Pence
Ordinary share price at year end (A) 104.8 103.4
NAV per ordinary share at year end as per Statement of Financial Position (B) 114.3 113.5
Discount to NAV per Ordinary Share ((A - B) / B, expressed as a percentage) (8.3%) (8.9%)
Ongoing Charges
Ongoing charges measures the Company's recurring operating costs (excluding
the costs of acquisition or disposal of investments, financing charges and
gains or losses arising on investments) as a percentage of the average of the
net assets at the end of each of the last four consecutive quarters ending at
the period end.
31 March 2023 31 March 2022
£'000
£'000
Total expenses as per Statement of Comprehensive Income (A) 17,709 16,181
Preference share dividends as per Statement of Comprehensive Income (B) 9,500 9,454
Non- recurring expenses (C) 700 248
Average of quarterly net assets (D) 705,851 595,637
Ongoing charges ratio ((A - B - C) / D, expressed as a percentage) 1.06% 1.09%
General Shareholder Information
Alternative Investment Fund Management Directive ("AIFMD")
The AIFMD aims to harmonise the regulation of Alternative Investment Fund
Managers ("AIFMs") and imposes obligations on managers who manage or market
Alternative Investment Funds ("AIFs") in the EU or who market shares in such
funds to EU investors.
The Company is a non-EU AIF and has appointed NextEnergy Capital IM Limited as
its non-EU AIFM. The Company's marketing activities in the UK and the EU are
subject to regulation under the AIFMD and any applicable National Private
Placement Regimes ("NPPRs"). NPPRs provide a mechanism to market non- EU AIFs
that are not allowed to be marketed under the AIFMD domestic marketing
regimes. The Board uses NPPRs to market the Company, specifically in the UK,
the Republic of Ireland, the Netherlands and Sweden.
In accordance with the AIFMD, information in relation to the Company's
leverage and remuneration of the Investment Manager, as the Company's AIFM,
are required to be made available to investors. These disclosures, including
those on the AIFM's remuneration policy, are available on request from the
Investment Manager.
Packaged Retail and Insurance-Based Investment Products ("PRIIPs")
Regulation/Key Information Document ("KID")
The PRIIPs Regulation aims to ensure retail investors are provided with
transparent and consistent information across different types of financial
products.
The Company is a PRIIP. The PRIIPs Regulation requires the Investment Manager
to publish a KID in respect of the Company that includes standardised
illustrations of theoretical risk and returns. The KID is available on the
Company's website under Investor Relations (nextenergysolarfund.com).
The Company is not responsible for the information contained in the KID and
investors should note that the procedures for calculating the risks, costs and
potential returns are prescribed by law. The figures in the KID may not
reflect the expected returns for the Company and anticipated performance
returns cannot be guaranteed.
Foreign Account Tax Compliance Act ("FATCA")/ OECD Common Reporting Standard
("CRS")
FATCA is a United States federal law enacted in 2010, the intent of which is
to enforce the requirement for United States persons (including those living
outside the US) to file yearly reports on their non-US financial accounts.
Developed and approved by the OECD in 2014, the CRS is a global standard for
the automatic exchange of financial account information between governments
around the world to help fight against tax evasion and protect the integrity
of systems.
The Board, in conjunction with the Company's service providers and advisers,
will ensure the Company's compliance with the FATCA and CRS requirements to
the extent relevant to the Company.
Markets in Financial Instruments Directive II ("MiFID II") Status
MiFID II requires retail investors in complex products to be assessed for
"knowledge and understanding" by distributing firms if they are buying them
without advice.
The Company's ordinary shares are considered as "non-complex" in accordance
with MiFID II.
Retail Distribution of the Company's Shares Via Financial Advisers and Other
Third-Party Promoters
The FCA's rules restrict the promotion of investment products classified as
"non-mainstream pooled investment products" to retail investors. The
restrictions do not apply to ordinary shares in a UK investment trust or
non-UK investment company which would qualify for approval as an investment
trust under section 1158 of the Corporation Tax Act 2010 if resident and
listed in the UK.
The Board has been advised that the Company would qualify as an investment
trust if it was resident in the UK. Accordingly, the promotion and
distribution of the Company's ordinary shares are not subject to the FCA's
restrictions referred to above.
The Company currently conducts its affairs so that its ordinary shares can be
recommended by financial advisers to retail investors and intends to continue
to do so for the foreseeable future.
ISA Status
NESF's ordinary shares are eligible for stocks and shares ISAs.
The Company intends to continue to manage its affairs so that its ordinary
shares qualify as an eligible investment for a stocks and shares ISA.
Net Asset Value per Ordinary Share
The NAV per ordinary share is calculated on a quarterly basis and published
through a stock exchange announcement.
Scrip Dividends
The Company offers a scrip dividend alternative to shareholders. For further
information, please see the scrip dividend alternative circular for the year
ended
31 March 2023, which is available under "Publications" in the Investor
Relations section of the Company's website (nextenergysolarfund.com).
Additional Information
Copies of the Company's Annual and Interim Reports, quarterly fact sheets and
stock exchange announcements, together with information on the Company's
ordinary
share price, NAV per ordinary share, historic ordinary
share and NAV performance, along with further information, is available on the
Company's website (nextenergysolarfund.com).
Financial Calendar for Year Ending 31 March 2024
Interim results announced November 2023
Annual results announced June 2024
Annual General Meeting August 2024
Interim dividends
In the absence of unforeseen circumstances, the Directors expect to declare
and pay the following interim dividends per ordinary share in respect of the
financial year ending 31 March 2024.
Dividend Announcement Ex-dividend Payment date Amount
date
date
1st 17 Aug 23 24 Aug 23 30 Sept 23 2.09p
2nd 16 Nov 23 23 Nov 23 31 Dec 23 2.09p
3rd Feb 24 Feb 24 31 Mar 24 2.09p
4th May 24 May 24 30 Jun 24 2.09p
Cautionary Statement
This Annual Report and the Company's website may contain certain
"forward-looking statements" with respect to the Company's financial
condition, results of its operations and business, and certain plans,
strategies, objectives, goals and expectations with respect to these items and
the markets in which the Company invests. Forward-looking statements are
sometimes, but not always, identified by their use of a date in the future or
such words as "aims", "anticipates", "believes", "estimates", "expects",
"intends", "targets", "objective", "could", "may", "should", "will" or "would"
or, in each case, their negative or other variations or comparable
terminology.
Forward-looking statements are not guarantees of future performance. By their
very nature forward-looking statements are inherently unpredictable,
speculative and involve risk and uncertainty because they relate to events and
depend on circumstances that will occur in the future. Many of these
assumptions, risks and uncertainties relate to factors that are beyond the
Company's ability to control or estimate precisely. There are a number of such
factors that could cause the Company's actual investment performance, results
of operations, financial condition, liquidity, dividend policy and financing
strategy to differ materially from those expressed or implied by these
forward-looking statements. These factors include, but are not limited to:
changes in the economies and markets in which the Company operates; changes in
the legal, regulatory and competition frameworks in which the Company
operates; changes in the markets from which the Company raises finance; the
impact of legal or other proceedings against or which affect the Company;
changes in accounting practices and interpretation of accounting standards
under IFRS; and changes in power prices and interest and exchange rates.
Any forward-looking statements made in this Annual Report or the Company's
website, or made subsequently, which are attributable to the Company, or
persons acting on its behalf (including the Investment Manager and Investment
Adviser), are expressly qualified in their entirety by the factors referred to
above. Each forward-looking statement speaks only as of the date it is made.
Except as required by its legal or statutory obligations, the Company does not
intend to update any forward-looking statements.
Nothing in this Annual Report or the Company's website should be construed as
a profit forecast or an invitation to deal in the securities of the Company.
Glossary and Definitions
Administrator Ocorian Administration (Guernsey) Limited
AGM Annual General Meeting
AIC The Association of Investment Companies
AIC Code The AIC Code of Corporate Governance (February 2019)
AIFM Alternative Investment Fund Manager for the purpose of the EU's Alternative
Investment Fund Management Directive (see above for further information)
Asset Management Alpha The difference between (i) the delta of generation vs. budget and (ii) the
delta of irradiation vs. budget
Apollo portfolio 21 UK solar plants held within NESH (see the Operating Portfolio - Overview
above for further details)
Asset Manager or WiseEnergy (Great Britain) Limited and WiseEnergy Italia Srl
WiseEnergy
Brexit The withdrawal of the United Kingdom from the European Union
Capacity Market Auction The Capacity Market is a UK Government initiative that ensures security of
electricity supply by providing a payment for reliable sources of capacity
Cash dividend cover The ratio of the Company's cash income to dividends paid or payable in respect
of the financial period/year
CBA Commonwealth Bank of Australia
Company or NESF NextEnergy Solar Fund Limited
Consultants The three independent market forecasters used by the Company
CO2e or A term for describing different greenhouse gases in a common unit. For any
carbon dioxide equivalent quantity and type of greenhouse gas, CO2e signifies the amount of CO2 which
would have the equivalent global warming impact
DNO Distribution Network Operators ("DNOs") are regionally based licensed
companies responsible for completing rolling programmes of preventative
maintenance and upgrade works to ensure stability of the energy supplied to
consumers
DNOO Distribution Network Operator Outages
EBITDA Earnings before interest, tax, depreciation and amortisation
Embedded benefits Supplier costs that are reduced or avoided via contracting with small-scale
generation connected at the distribution network level instead of the national
transmission system
EPC Engineering, Procurement and Construction
ESG Environmental, Social and Governance
FCA Financial Conduct Authority
FiT Feed-in-Tariff schemes are financial mechanisms by which the UK Government
incentivised the deployment of small-scale renewable energy generation and the
Italian Government incentivised the deployment of large-scale renewable energy
generation by requiring participating licensed electricity suppliers to make
payments on both generation and export from eligible installations
GAV Gross asset value, being the aggregate of the net asset value of the ordinary
shares, the fair value of the preference shares and the amount of NESF Group
debt outstanding
GW Gigawatt, a unit of power equal to 1,000 MW
GWh GW hour, a measure of electricity generated per hour
HoldCos Intermediate holding companies used by the Company as pass-through vehicles to
invest in underlying solar energy infrastructure assets, currently being NESH,
NESH III, NESH IV, NESH V and NESH VI
IFRS International Financial Reporting Standards
Investment Adviser or NextEnergy Capital Limited
NEC
Investment Manager NextEnergy Capital IM Limited
IPO Initial Public Offering
IRR Internal Rate of Return
KPMG KPMG Channel Islands Limited, independent auditor to the Company
KWh Kilowatt hour, being a measure of electricity generated per hour
MIDIS Macquarie Infrastructure Debt Investment Solutions
MW A Megawatt is unit of power equal to one million watts and is used as a
measure of the output of a power plant
MWh MW hour, being a measure of electricity generated per hour
NAB National Australia Bank
Net assets or NAV Net asset value
NAV total return The actual rate of return from dividends paid and any increase or reduction in
the NAV per ordinary share over a given period of time
NEC or NEC Group The NextEnergy Capital group of companies, including the Investment Manager,
Investment Adviser and Asset Manager
NESF Group The Company, HoldCos and SPVs
NESH NextEnergy Solar Holding Limited
NESH III NextEnergy Solar Holding III Limited
NESH IV NextEnergy Solar Holding IV Limited
NESH V NextEnergy Solar Holding V Limited
NESH VI NextEnergy Solar Holding VI Limited
NIROC Like the ROCs in Great Britain, the Northern Ireland Renewable Obligation
Certificate scheme obliges electricity suppliers to produce a certain number
of NIROCs for each MWh of electricity which they supply to their customers in
Northern Ireland or to pay a buy-out fee that is proportionate to any
shortfall in the number of NIROCs being so presented
NPIII LP NextPower III LP
NZ NextZest
O&M Operations and Maintenance
OECD Organisation for Economic Co-operation and Development
OFGEM Office of Gas and Electricity Markets
Ongoing charges ratio The regular, recurring annual costs of running the Company (excluding the
costs of acquisition or disposal of investments, financing charges and gains
or losses arising on investments), expressed as a percentage of average net
assets, calculated in accordance with the AIC's methodology
Ordinary shareholder total return The actual rate of return from dividends paid and any increase or reduction in
the ordinary share price over a given period of time
Ordinary shares The issued ordinary share capital of the Company
Performance ratio Describes the relationship between the actual and theoretical energy outputs
of a solar plant (expressed as a percentage)
PPA Power purchase agreement
Premium/discount to NAV The amount, expressed as a percentage, by which the Company's ordinary shares
trade above or below the NAV per ordinary share
Preference shares The issued preference share capital of the Company
PV Photovoltaic
Radius portfolio Five UK solar plants held within NESH IV (see the Operating Portfolio -
Overview above for further details)
RCF Revolving Credit Facility
ROC Renewable Obligation Certificates (the Renewable Obligation scheme is the
financial mechanism by which the UK Government incentivised the deployment of
large-scale renewable electricity generation by placing a mandatory
requirement on licensed UK electricity suppliers to source a specified and
annually increasing proportion of the electricity they supply to customers
from eligible renewable sources or pay a penalty)
ROC recycle The payment received by generators from the redistribution of the buy-out fund
(payments are made into the buy-out fund when suppliers do not have sufficient
ROCs or NIROCs to cover their obligation)
RPI Retail Price Index
RRAM portfolio 10 UK solar plants held in NESH III (see the Operating Portfolio - Overview
above for further details)
Scrip shares Ordinary shares issued pursuant to the Company's scrip dividend alternative
SDG The Sustainable Development Goals are a set of ambitious global developmental
targets adopted by the United Nations Member States in 2015 to be achieved by
2030 and seek to address the global challenges we face through the promotion
of development as a balance of social, economic, and environmental
sustainability
Solis portfolio Eight Italian solar plants held within NESH V (see the Operating Portfolio -
Overview above for further details)
SONIA Sterling Overnight Index Average
SPVs Special purpose vehicles that hold the Company's investment portfolio of
underlying solar energy infrastructure assets
Thirteen Kings portfolio 13 plants held in NESH III (see the Operating Portfolio - Overview above for
further details)
Treasury shares Ordinary shares which are bought back by the Company, reducing the number of
outstanding shares on the open market, and held by the Company for resale at a
future date
Wholesale revenue Revenue from energy sold in the wholesale power market which is not connected
with subsidy schemes or PPAs
Corporate Information
The Company
NextEnergy Solar Fund Limited
Registered Office:
Floor 2
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 4LY
Registered no.: 57739
LEI: 213800ZPHCBDDSQH5447
Ordinary Share ISIN: GG00BJ0JVY01
Ordinary Share SEDOL: BJ0JVY0
London Stock Exchange Ticker: NESF
Website: www.nextenergysolarfund.com
Directors
Kevin Lyon, Chairman
Vic Holmes, Senior Independent Director
Patrick Firth
Josephine Bush
Joanne Peacegood
Helen Mahy (appointed 1 April 2023)
(All Non-Executive and Independent)
Investment Manager
NextEnergy Capital IM Limited
PO Box 656, East Wing
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3PP
Investment Adviser
NextEnergy Capital Limited
75 Grosvenor Street
Mayfair
London W1K 3JS
Asset Manager
WiseEnergy
75 Grosvenor Street
Mayfair
London W1K 3JS
Company Secretary and Administrator
Ocorian Administration (Guernsey) Limited
Floor 2
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 4LY
Independent Auditor
KPMG Channel Islands Limited
Glategny Court
Glategny Esplanade
St Peter Port
Guernsey GY1 1WR
Registrar
Link Market Services (Guernsey) Limited
Mont Crevelt House
Bulwer Avenue
St Sampson
Guernsey GY2 4LH
Legal Advisers
As to UK Law
Stephenson Harwood LLP
1 Finsbury Square
London EC2M 7SH
As to Guernsey Law
Carey Olsen (Guernsey) LLP
PO Box 98
Carey House
Les Banques
St Peter Port
Guernsey GY1 4BZ
Sponsor and Joint Broker
Cenkos Securities plc
6, 7, 8 Tokenhouse Yard
London EC2R 7AS
Joint Broker
RBC Capital Markets Limited
100 Bishopsgate
London EC2N 4AA
Media and Public Relations Adviser
Camarco
107 Cheapside
London EC2V 6DN
The Maitland Consultancy Limited
(appointed June 2023)
3 Pancras Square
London N1C 4AG
Principal Bankers
Barclays Bank plc
6/8 High Street
St Peter Port
Guernsey GY1 3BE
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. END FR GPUBWQUPWPURRecent news on NextEnergy Solar Fund
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