REG - NextEnergy Solar Fnd - Full Year Results for the year ended 31 March 2022
27/06/2022 07:00
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RNS Number : 2059Q NextEnergy Solar Fund Limited 27 June 2022
LEI: 213800ZPHCBDDSQH5447
27 June 2022
NextEnergy Solar Fund Limited
("NESF" or the "Company")
Full Year Results for the year ended 31 March 2022
NextEnergy Solar Fund, the specialist renewable energy investment company, is
pleased to announce its full year results and annual report, for the year
ended 31 March 2022.
Financial Highlights
· +14.6p (c.15%) increase in NAV per ordinary share to 113.5p (31 March
2021: 98.9p).
· Increased ordinary shareholders' NAV of £668.5m (31 March 2021:
£580.8m).
· Ordinary shareholder annualised total return for the year of 11% (31
March 2021: 5.1%).
· Gearing (including preference shares) of 42% (31 March 2021: 43%).
· Dividends per ordinary share of 7.16p (31 March 2021: 7.05p).
· Increased cash dividend cover before scrip to 1.2x (31 March 2021:
1.1x).
· 5.0% increase in FY22/23 target dividend to 7.52p per ordinary share.
· Estimated dividend cover of between 1.3x and 1.5x for the FY22/23.
Portfolio Highlights
During the year, total group portfolio revenue increased c.19% to £114m (31
March 2021: £96m) and EBITDA of the portfolio increased c.22% to £90m (31
March 2021: £74m). The portfolio performed strongly and expanded through
acquisitions in international solar assets and battery storage. These
acquisitions help the Company enhance revenues and add potential future NAV
accretive growth.
1 April 2021 to 31 March 2022:
UK solar:
· Energised South Lowfield, a 50MW solar asset located in North
Yorkshire.
· Established a strong foothold in the long-term, high-credit UK
corporate power purchase agreement ("PPA") market with a 15-year corporate PPA
with AB InBev, the world's largest brewer, on 100MW covering c.75% of
electricity generated.
Energy storage:
· Strategic step into the energy storage sector in the United Kingdom
via a £100m Joint Venture Partnership ("JVP") with Eelpower Limited
("Eelpower"). The JVP is targeting the establishment of up to 250MW in
projects. The Company has sufficient secured pipeline to complete the initial
target spend of £100m.
· First stand-alone 50MW battery asset under construction as part of
the JVP and is expected to be energised early 2023. The battery will
initially feature a one-hour duration system but has been prepped for
evolution to a two-hour duration system.
Private solar infrastructure solar fund:
· Commitment of US$50m to NextPower III LP ("NPIII"), a private ESG
solar infrastructure fund established to invest in solar infrastructure
projects primarily in OECD countries. Providing an opportunity for NESF's
shareholders to, efficiently and cost-effectively, access an established
portfolio of operational and under construction international assets and
co-investment opportunities.
International solar:
· First co-investment alongside NPIII, for a 50MW Spanish solar plant
currently under construction.
1 April 2022 to date:
UK solar:
· Initiated construction of Whitecross, a 36MW subsidy free solar farm
in Lincolnshire.
· Commenced with the grid connection works and construction preparation
of Hatherden, a 50MW subsidy free solar farm.
· These two-subsidy free UK solar farms will complete the Company's
150MW subsidy free solar target.
· Announced NESF's 100(th) operating solar asset.
Energy storage:
· Co-located battery retrofit programme introduced across the
portfolio. Starting with North Norfolk, an 11MW, 1.6ROC asset located near
to Cromer, where a c.6MW two-hour duration battery will be developed.
· An additional four potential co-located battery locations have been
identified in the existing NESF solar portfolio and moved into development
stage.
Private solar infrastructure fund:
· NPIII progress as at 27 June 2022: 92 solar projects totalling c.1GW
capacity secured across the USA, Spain, Portugal, Chile, India, and Poland,
with a further 300MW under exclusivity.
International solar:
· Second co-investment alongside NPIII, for a 210MW solar portfolio in
Portugal. The portfolio will be constructed across 2022 into 2023.
NAV Movements
The main contributor to the change in the Company's NAV during the year was an
increase in power price forecast assumptions (+9.5p per ordinary share) driven
by an uplift in the short to medium term power forecasts provided by the
Company's three independent advisers and Power Purchase Agreements ("PPAs").
Other changes included updating short-term inflation assumptions (+6.1p per
ordinary share).
31 March 2021 to 31 March 2022, NAV p/share movement:
NAV p/share at 31 March 2021 98.9p
Power Forecasts and PPA's +9.5p
Inflation +6.1p
Operating Result Net Distributions to Fund +0.2p
RCF Drawdown -7.1p
New Assets at Cost +6.9p
Revaluation of New Assets +0.1p
Other(1) -1.1p
NAV p/share at 31 March 2022 113.5p
(1)movements in residual value of holding companies
Operational Highlights
· Total installed capacity of 865MW (31 March 2021: 814MW).
· Reached 99 fully operating solar assets during the year, this has
increased to 100 since year end (31 March 2021: 94).
· Signed a new £100m (£75m committed + £25m accordion) Revolving
Credit Facility with a 3-year duration on attractive terms with lenders
NatWest and AIB.
· Portfolio generation outperformance of +1.8% for the financial year
ended 31 March 2022, translating into additional revenues of c.£2.0m.
· NextEnergy Capital's power sales desk continues to successfully
manage risk and opportunistically secure power prices higher than forecasts in
line with NESF's power sales strategy. In addition to NESF's budgeted
revenues from ROCs and FITs, the Company's hedging positions (covering 716MW
UK portfolio) as at 15 June 2022 were:
o 2022/23: 85% of UK budgeted generation, (average fix price of £78MWh).
o 2023/24: 74% of UK budgeted generation, (average fix price of £73MWh).
o 2024/25: 42% of UK budgeted generation, (average fix price of £86MWh).
Power Sales Strategy
Approximately 50% of the Company's revenues are made up of government-backed
subsidies via ROCs and FITs, and this component of revenue increases in-line
with RPI, whilst the remaining revenues in the portfolio are generated through
the sale of budgeted power generation into the market. This portion of
revenues continues to benefit from the sustained high power price environment
and increases the unsubsidised revenue portion of the portfolio.
To manage the sale of power into the market, NextEnergy Capital has a
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 allowing optimum weighted average price by forward hedging above
forecast prices. Aggregating the amount of revenue derived from
subsidies and the power hedged (as noted above), the Company has a high degree
of comfort around forward revenue projections and strengthening dividend cover
for the current financial year.
Inflation
The Company continues to be consistent in its inflation assumption approach,
using third party, independent inflation data from the HM Treasury Forecasts
and long-term implied rates from the Bank of England estimates for its UK
assets. For international assets, IMF forecasts are used.
Assumptions as at 31 March 2022:
Financial year ending Inflation assumption used
2022 4.10%
2023 8.00%
2024 3.70%
2025 3.30%
2026 3.40%
2027 3.30%
2028-2030 3.00%
2030 onwards 2.25%
ESG Highlights
· Establishment of the NESF ESG Board Committee, chaired by Josephine
Bush.
· Qualifies under Article 9 of the Sustainable Finance Disclosures
Regulation ("SFDR").
· NESF continues to provide the fund's substantial contribution to
climate change mitigation by disclosing the carbon emission reduction
associated with the fund's clean energy generation.
· In compliance with the requirement of Article 9 of the SFDR, the fund
is disclosing its periodic reporting in accordance with Annex V on its
website: [https://www.nextenergysolarfund.com/esg/transparency-and-reporting/
(https://www.nextenergysolarfund.com/esg/transparency-and-reporting/) ]
· 773GWh clean electricity generated (31 March 2021: 738GWh).
· 328,700 tonnes of CO2e emissions avoided (31 March 2021: 317,600 t
CO2e avoided).
· Equivalent to 216,300 UK homes powered for one year (31 March 2021:
195,000 UK homes).
· GHG emissions data is provided by the Green Investment Group (GIG)
and is calculated using their Green Impact methodology based on information
provided by NextEnergy Capital and on the UNFCCC - IFI Approach to GHG
accounting for renewable energy project:
[https://unfccc.int/sites/default/files/resource/Renewable%20Energy_GHG%20accounting%20approach.pdf
(https://unfccc.int/sites/default/files/resource/Renewable%20Energy_GHG%20accounting%20approach.pdf)
]
· A new standalone NESF ESG/Sustainability Report will be released in
August 2022.
Biodiversity Highlights
· 15 Universal Biodiversity Management Plans (UBMPs) were launched in
the NESF portfolio, going above and beyond local planning to enhance and
promote biodiversity net gain. These measures consist of the introduction of
wildflowers, hibernacula, bird, bat and owl boxes and bug hotels.
· A further 15 UBMP sites have been identified and are in the process
of being implemented in the NESF portfolio over the current financial year.
· Wildflowers, crucial for pollinators, continue to be planted across
the portfolio, covering a total area of 34 acres to date.
· 45% of portfolio has enhanced biodiversity measures in place to date.
· 47% of portfolio grazed by sheep currently.
· 37 average plant species across the portfolio.
Future Pipeline
The Company has exclusivity over an immediate attractive pipeline of £350m of
domestic and international assets across the solar and battery space.
Available Capital
The Company has capital to pursue its short-term immediate pipeline, including
bringing online a secured battery storage project and completing the
construction of its post-subsidy solar. Out of the total £145m Revolving
Credit Facilities ("RCF") available to the Company, £49m remains undrawn and
available for deployment. The Company may look to raise capital in the near
future to fund attractive growth opportunities it has identified and is
pursuing.
Market Outlook
The UK power market continues to experience sustained high prices.
Prevailing market conditions around the supply of gas continue to look
challenging given recent macroeconomic and geo-political events, highlighting
the importance of energy security. Against this backdrop, NESF offers strong
diversification and protection for investors in their portfolios, in
conjunction with helping accelerate Net Zero ambitions following COP26. For
the current financial year, NESF is targeting an attractive dividend of 7.52p
per ordinary share, supported by a strong expected dividend cover.
Results Presentation
There will be a webcast and conference call this morning at 9.00am hosted by:
· Michael Bonte-Friedheim (CEO and Founder of NextEnergy Group)
· Ross Grier (UK Managing Director of NextEnergy Capital)
To register for the webcast please use this link:
https://webcast.openbriefing.com/nesf-june22
(https://webcast.openbriefing.com/nesf-june22)
The presentation will be followed by a Q&A session for analysts.
Investor questions can be submitted prior to the presentation via email to
ir@nextenergysolarfund.com. NextEnergy Capital will endeavour to answer
submitted questions during the Q&A section, if this is not possible due to
time constraints, the investment advisor will follow up separately after the
presentation.
A recording of the analyst presentation will also be made available on the
Company's website shortly after the event.
Kevin Lyon, Chairman of NextEnergy Solar Fund commented:
"The twelve months to 31 March 2022 marked the second year of living with
COVID-19, alongside macroeconomic and geopolitical uncertainty, and rising
inflation. Despite these challenges, NESF has generated a steady revenue
stream and provided investors with a reliable attractive dividend, with the
Company's portfolio performing strongly throughout the year.
Having underwritten a commitment to NextPower III ("NPIII"), a private solar
infrastructure fund, NESF made its first international solar co-investments in
Spain and Portugal alongside NPIII and finalised its first stand-alone
investment into the battery storage sector.
NESF weathered the turbulence that the past year has thrown at it and
capitalised on rising power prices, with ordinary shareholders' NAV at
£668.5m compared to 2021's figure of £580.8m, a significant uplift.
I would like to take a moment to thank everyone who has continued to support
NESF over the last year. The Board and I firmly believe that NESF is both
well positioned and low risk due to our significant and expanding footprint in
the solar sector, combined with our proactive hedging strategy."
Michael Bonte-Friedheim, CEO and Founder of NextEnergy Group commented:
"Over the course of twelve months there has been a dynamic shift in the UK and
other power markets. We saw exceptional support from COP26 promoting the
continued roll out of renewable technology, alongside increased market
volatility, and record power prices in the UK and abroad.
NESF's portfolio continues to outperform technically, financially and
operationally, providing vital low-cost of production power generation to the
UK, in an environment of rising inflationary pressure, with increased focus on
energy security. NESF remains well placed to deliver shareholders an
attractive, inflation-protected income, while pursuing more of the exciting
growth prospects the sector offers. NESF continues to build new solar
projects in the UK, which will contribute to the decarbonisation of the power
generation sector and the reduction of imported hydrocarbons."
For further information:
NextEnergy Capital Group 020 3746 0700
Michael Bonte-Friedheim ir@nextenergysolarfund.com
Aldo Beolchini
Ross Grier
Peter Hamid (Investor Relations)
RBC Capital Markets 020 7653 4000
Matthew Coakes
Kathryn Deegan
Cenkos Securities 020 7397 8900
James King
William Talkington
Camarco 020 3781 8334
Owen Roberts
Eddie Livingstone-Learmonth
Ocorian Administration (Guernsey) Limited 014 8174 2642
Kevin Smith
NextEnergy Solar Fund
Generating a more sustainable future
Annual Report for the year ended 31 March 2022
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 and 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 energy
storage and international solar assets.
Operational
• Consistently achieve operational outperformance of the portfolio
attributable to 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 for the surrounding areas where we operate.
Social
• Provide a positive social impact.
• 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.
Financial Highlights1
NAV per ordinary share
as at 31 March 2022
113.5p
(31 March 2021: 98.9p)
Ordinary shareholders' NAV
as at 31 March 2022
£668.5m
(31 March 2021: £580.8m)
Financial debt gearing
as at 31 March 2022(2)
25%
(31 March 2021: 24%)
Total dividend per ordinary share
for the year ended
31 March 2022
7.16p
(31 March 2021: 7.05p)
Cash dividend cover (pre-scrip dividends)
for the year ended
31 March 2022
1.2x
(31 March 2021: 1.1x)
Total gearing
as at 31 March 2022(3)
42%
(31 March 2021: 43%)
NAV total return per ordinary share
for the year ended 31 March 2022
22.0%
(31 March 2021: 7.0%)
Ordinary Shareholder Total Return
for the year ended 31 March 2022
11.0%
(31 March 2021: 5.1%)
Ordinary shareholder
annualised total return
since IPO
6.7%
(31 March 2021: 6.1%)
Operational Highlights
Total capacity installed
as at 31 March 2022(5)
865MW
(31 March 2021: 814MW)
Total electricity generation
for the year ended
31 March 2022
773GWh
(31 March 2021: 738GWh)
Operating solar assets
as at 31 March 2022(6)
99
(31 March 2021: 94)
Generation above budget
for the year ended
31 March 2022
1.8%
(31 March 2021: 6.2%)
ESG Highlights
Tonnes of CO(2)e emissions
avoided p.a.(4)
328,700
(31 March 2021: 317,600)
UK homes powered
for one year(4)
216,300
(31 March 2021: 195,000)
1 Refer to the Alternative Performance Measures below for calculation
basis
2 Financial debt gearing excludes the £200m preference shares
3 Total gearing is the aggregate of financial 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 (NextPower III). Inclusion of
NESF's 6.21% share of NextPower III on a look through equivalent basis would
increase total capacity by 19.2MW to 884MW
6 Not including the $50m commitment into private equity vehicle (NextPower
III)
NextEnergy Solar Fund Overview
A SOLAR POWER RENEWABLE ENERGY INVESTMENT COMPANY WITH A DIVERSIFIED
HIGH-QUALITY PORTFOLIO, MANDATE FOR GROWTH AND A DIVERSE PIPELINE OF NEW
OPPORTUNITIES
• NEXTENERGY CAPITAL, INVESTMENT MANAGER
• 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
• 250MW JOINT VENTURE PARTNERSHIP INTO UK STANDALONE ENERGY STORAGE
POWERING THE EQUIVALENT OF 216,300 UK HOMES (EQUIVALENT TO NEWCASTLE AND
BRIGHTON) ANNUALLY WITH GREEN RENEWABLE ENERGY CONTINUED ASSET OUTPERFORMANCE
SINCE IPO
Why Invest in NextEnergy Solar Fund?
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.
• Solar is the cheapest form of renewable energy generation and
quickest to construct.
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.
COST-EFFECTIVE ELECTRICITY GENERATION
• Active portfolio management provides prudent cost of
operation, maintenance and replacement of assets.
• Solar technology has benefited from a significant reduction in
costs, falling over 90% in the last ten years. Subsidy-free solar assets are
economically competitive and provide attractive financial returns.
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)e emissions through
the generation of clean electricity.
• Investment in solar provides significant biodiversity benefits
to the local surrounding areas.
Strategic Report
Chairman's Statement
"The twelve months to 31 March 2022 marked the second year of living with
COVID-19, alongside macroeconomic and geopolitical uncertainty, and rising
inflation. Despite these challenges, NESF has generated a steady revenue
stream and provided our investors with a reliable attractive dividend, with
the Company's portfolio performing strongly throughout the year.
NESF made its first international solar co-investments in Spain and Portugal,
its first material investment into the battery storage sector, as well as
committing $50m into Next Power III, a private equity infrastructure solar
fund investment.
NESF managed to weather the turbulence that the past year has thrown at us and
capitalise on rising power prices, with ordinary shareholders' NAV at £668.5m
compared to 2021's figure of £580.8m, a significant uplift.
I would like to take a moment to thank everyone who has continued to support
NESF over the last year, employees and shareholders alike. The Board and I
firmly believe that NESF is well positioned due to NESF's proactive hedging
strategy and our significant footprint in the solar sector. Thank you."
Kevin Lyon,
Chairman
I am pleased to present the eighth Annual Report for NextEnergy Solar Fund
Limited (the "Company" or "NESF") for the year ended 31 March 2022.
The year under review has witnessed sustained global economic challenges
associated with the Covid-19 pandemic and, most recently, the conflict in
Ukraine and its global impact on energy prices. The Board would like to extend
their deepest sympathies to all those impacted by the conflict.
Towards the end of 2021, power prices reached record high levels across both
the UK and Europe, as countries recovered from prolonged periods of economic
restrictions as a result of multiple lockdowns, alongside global gas
shortages. In the first quarter of 2022, geopolitical events resulting from
the conflict in Ukraine added additional pressure on oil and gas supplies,
creating further volatility, resulting in sustained increases in power prices
in Europe and the UK. High power prices are forecast to continue in the short
to medium-term and are a driving factor in the current high inflationary
environment.
For the year, the Ordinary Shareholder Total Return was 11.0% (31 March
2021:5.1%) and the ordinary share Net Asset Value ("NAV") total return was
22.0% (31 March 2021: 7.0%). During March 2022, NESF's share price began
recovering towards pre-pandemic levels. The share price recovery continued
post the year end, with the share price reaching 107.2p as at 23 June 2022
(up from 103.4p on 31 March 2022).
The Company continues to present investors, both current and new, with an
attractive opportunity to invest, particularly as the Company strategically
positions itself for the next stage of technological and geographic growth.
The Company also offers investors inflation-linked protection, as a large
proportion of revenues are linked to Retail Price Index ("RPI") via government
subsidies.
Furthermore, NESF continues to play a part in tackling global climate change
and enhancing local biodiversity, as well as helping reduce the use of
hydrocarbons in generating electricity in the UK and further afield.
NESF's portfolio has demonstrated robust performance over the year. Since IPO,
the portfolio has continued to outperform budgeted generation, whilst ensuring
power price volatility is managed through NESF's electricity sales hedging
strategy. This strategy also gives the Company high certainty of future
revenues due to power price hedges already in place. It also allows NESF to
both reduce risk and take advantage of temporary higher forward power prices,
which is currently the case.
Results and Key Events
The Company has made substantial progress towards its growth goals whilst
continuing to offer financial stability during the financial year. NextEnergy
Capital Limited (the "Investment Adviser"), continues to provide dedicated
support to the Company. During the year ended 31 March 2022, the Company:
• Expanded into standalone battery storage through a 250MW
Joint-Venture Partnership ("JVP") with EelPower;
• The JVP announced construction of its first standalone 50MW battery
storage asset in Fife, Scotland;
• Committed $50m into its first private equity infrastructure solar
fund, NextPower III L.P. ("NextPower III"); and
• Entered the Spanish solar market through its first co-investment
alongside NextPower III.
Since the end of the financial year, the Company has also:
• Announced a highly attractive target dividend for the financial year
ending 31 March 2023, which is expected to be fully covered with an estimated
dividend cover of between 1.3x - 1.5x;
• Introduced a co-located battery retrofit program, identifying
potential sites across NESF's current 91 UK operating solar assets; and
• Entered the Portuguese solar market through its second
co‑investment alongside NextPower III.
Dividend Target:
NESF provides a regular attractive dividend for income seeking investors. For
the financial year ended 31 March 2022, the Company declared a total dividend
of 7.16p per ordinary share, with the dividend remaining covered throughout
the year. The Company has 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. The Board of NESF recently approved a target
dividend of 7.52 pence per ordinary share for the year ending 31 March 2023,
representing a 5.0% increase from the previous year. This increase is above
the 4.1% calculated RPI rise forecast by HM Treasury for the 2022 calendar
year.
The Company has achieved all its dividend targets whilst maintaining a covered
dividend throughout the eight years and continues to target a covered dividend
beyond this financial year.
Standalone Battery Storage:
In September 2021, NESF entered the standalone battery storage space by
agreeing a £100m JVP, with Eelpower Limited, a leading battery storage
specialist in the UK. The JVP signed its first acquisition during the period
for a 50MW storage facility that is currently expected to be energised in
2022. The project is a ready-to-build standalone battery storage, located in
Scotland, which will provide additional stability and flexibility to the grid.
This investment has multiple revenue opportunities such as arbitrage trading
(battery dispatch and re-optimisation using asset backed financial trades) and
capacity markets. The JVP includes a framework for future acquisitions of up
to 250MW, enabling the Company to invest in opportunities that offer
complementary revenue streams to the existing portfolio of solar assets.
Private Equity Solar Infrastructure Fund Commitment:
In June 2021, NESF announced a commitment of US$50m to NextPower III, a
NextEnergy Capital managed private equity Environmental, Social and Governance
("ESG") solar infrastructure fund that invests in solar assets globally
(primarily in Organisation for Economic Co-operation and Development ("OECD")
countries. NextPower III benefits from NextEnergy Capital's ability to source
and secure solar assets that deliver attractive risk-adjusted target returns.
This investment has enabled NESF to benefit from access to a geographically
well diversified portfolio of operational, in construction and
pre-construction solar assets spread across the United States, India, Poland,
Chile, Spain and Portugal (on a look through equivalent basis, NESF owns
19.2MW of these operational assets as at 31 March 2022). The commitment also
provides NESF with increased diversification across regulatory regimes,
technology providers and offtake counterparties. NESF's Investment Manager,
has agreed to rebate to NESF its full investment management fee relating to
NESF's US$50m commitment to NextPower III, thereby providing a cost-effective
investment from NESF's perspective, with the elimination of 'fees-on-fees'
because of the commonality of the Investment Manager.
Co-Investments:
As a result of being an investor in NextPower III, NESF benefits from
co-investment opportunities through direct stakes in solar photovoltaic ("PV")
assets alongside large international institutional investors on a no fee, no
carry basis. This is particularly beneficial as it provides NESF access to an
attractive new pipeline of potential international assets not available to
other market participants or investors. The Company announced its first
co-investment in January 2022, a 24.5% stake for c.€11m in a Spanish 50MW
solar project, Agenor Hive S.L.U ("Agenor"). Once energised in 2022, the
co-investment will benefit from a 5-year Power Purchase Agreement ("PPA")
covering approximately 70% of contracted revenues. Post the year end, in May
2022, the Company announced a second co‑investment in Portugal, Santarém.
The Company acquired a c.13% 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. Once energised, Santarém is expected to benefit from a
long-term PPA for the sale of electricity which is currently being negotiated
with a robust creditworthy counterparty. Co-investments with NextPower III
have thus already amounted to a total of c.€33.5m alongside the Company's
US$50m commitment to NextPower III.
Co-Located Battery Storage:
In April 2022, post the year end, NESF announced a new co-located battery
storage retrofit program across the Company's 91 UK operating solar farms. As
part of this program the first site for a co-located battery project was
identified, extending the existing 11MW North Norfolk solar farm to include a
6MWh/12MWh battery system. Planning permission for the co-located battery
system has been secured, with construction expected to commence on site later
this year. An additional four potential locations for co-located battery
storage systems have been identified to date and are being progressed into
development stage.
Continued Growth in UK Solar:
In summer 2021, the Company energised South Lowfield, a 50MW solar asset
located in North Yorkshire. The energisation represents a significant
milestone for NESF's strategy of establishing a foothold in the long-term,
high-credit UK corporate PPA market. The Camden portfolio, comprising The
Grange (50MW) and South Lowfield (50MW), has a 15-year PPA in place covering
c.75% of the electricity to be generated over the next 15 years. The PPA
counterparty is AB InBev, the world's largest brewer. The portfolio also
demonstrates the Company's ability to establish itself as a leader in this
subsidy-free space.
Post the year end, the Company commenced construction of subsidy-free site
Whitecross, a 36MW, utility solar asset, located in Lincolnshire. The original
construction date of the asset was deferred from H2 2021 due to material
volatility in the supply chain post Covid-19 which has since stabilised. The
asset is now expected to be energised during Q1 2023 and will generate
electricity for approximately 10,000 households' yearly electricity
consumption with renewable power. Whitecross will join the Company's other
three operating subsidy-free solar assets, Staughton (50MW), High Garret
(8.4MW), and Hall Farm 2 (5.4MW), which together with Whitecross comprise
c.100MW of NESF's 150MW target in subsidy-free solar capacity. The Company has
also commenced with the grid connection works and construction mobilisation
phase of Hatherden, a 50MW subsidy-free solar farm. Whitecross and Hatherden
will complete the Company's 150MW subsidy-free solar allocation. The Company
anticipates these assets to be energised early in 2023.
NAV and Operating Results
At the year end, the ordinary shareholders' NAV was £668.5m equivalent to
113.5p per ordinary share (2021: £580.8m, 98.9p per ordinary share).
The main contributors to changes in NAV over the 12 month period were a large
increase in power price forecasts (+5.0p per ordinary share), power purchase
agreements (+4.5p per ordinary share) and an upward revision in HM Treasury's
short-term inflation forecasts (+6.1p per ordinary share).
Profit and comprehensive income for the year was £127.6m (2021: £40.2m) with
earnings per ordinary share of 21.69p (2021: 6.87p). Cash dividend cover
(pre-scrip dividends) was 1.2x (2021: 1.1x).
As at 31 March 2022, NESF had an annualised Ordinary Shareholder Total Return
since IPO of 6.7% (31 March 2021: 6.1%) and an annualised NAV total return
since IPO of 8.0% (31 March 2021: 6.0%). At the year end, the NESF share
price was 103.4p, which was a 8.9% discount to the NAV per ordinary share of
113.5p.
Power Prices
During 2021, extreme power price volatility led to dramatic increases in UK
and European wholesale power prices attributable to reduced gas supply and
storage levels, outages at UK nuclear and interconnector facilities and the
impact of low UK wind resource. The conflict in Ukraine further contributed to
gas supply and storage issues, leading to continued power price highs up to
31 March 2022, which has continued into FY2022/23. These factors resulted in
the March 2022 UK day ahead auction price monthly average reaching a record of
£250/MWh.
Of the Company's revenues during the year, 57% 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 13 years.
The remaining 43% of the Company's revenues were derived from selling the
electricity generated to carefully selected counterparties in the open market
and, therefore, are exposed to market power price movements until the price
has been locked ('hedged'). The Asset Manager's electricity sales desk is
focused on securing the best terms for NESF's electricity sales. This flexible
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. Looking forward to the next three financial years, as at 15 June
2022, the Company has agreed pricing covering:
• 85% of UK budgeted generation for the 2022/23 financial year (average
fix price of £78MWh);
• 74% of UK budgeted generation for the 2023/24 financial year (average
fix price of £73MWh); and
• 42% of UK budgeted generation for the 2024/25 financial year (average
fix price of £86MWh).
Portfolio Performance
Energy generated during the year was 773 GWh (2021: 738GWh) and the portfolio
achieved a generation outperformance of 1.8% (2021: 6.2%), increasing revenues
by an estimated £2.0m against budget (2021: £4.8m). Portfolio generation was
significantly impacted by Distribution Network Operator Outages ("DNOOs");
without this disruption, portfolio generation would have been 3.6% above
budget.
Distribution Network Operators ("DNOs") are regionally based licensed
companies (there are six across Great Britain) with each responsible for a
specific region. They own and operate the power lines and infrastructure that
connects consumers and embedded generators to the power system and the
national grid.
DNOs complete rolling programs of preventative maintenance and upgrade works
to ensure stability of the energy supplied to consumers. In order to keep
their staff safe, they often have to de-energise power lines to complete these
works. As part of this, they have the right to ask generators such as NESF to
isolate certain assets for periods of time. The distributed nature of NESF's
assets does well to mitigate the impact of this in normal years, however,
during the coronavirus pandemic (2020) the DNOs were not able to complete
their periodic maintenance works and therefore rolled these forward into
2021/22. This created a concentration on the number of DNOOs within this year
resulting in an adverse impact on the portfolio's performance, a trend which
is not anticipated to continue.
During the year, solar irradiation across the portfolio was 3.4% above budget
(2021: 5.5%). Asset Management Alpha which measures the operating performance
of the portfolio for the year was -1.6% (2021: 0.7%) caused by DNOOs of which
the Company has no control over. If distributor network outages were excluded,
the Asset Management Alpha would have been 0.2% (2021: 1.3%).
The Company's UK portfolio performed above expectations with generation
outperformance of 1.9% (2021: 6.3%) and the Italian portfolio performed above
expectations with generation outperformance of 1.1% (2021: 5.1%).
Summary Portfolio Update
During the year, the Investment Adviser and Asset Manager continued to
optimise portfolio returns by:
• Energising projects with attractive long-term PPAs;
• Executing the electricity sales strategy to maximise revenue and
reduce shorter-term power price risk;
• Preparing the remaining subsidy-free portfolio for construction;
• Securing a low-cost £75m Revolving Credit Facility ("RCF") (plus
accordion) to fund the investment pipeline (margin of 120bps over SONIA
("Sterling Overnight Index Average"));
• Implementing technical improvements across the portfolio; and
• Reducing operating costs through utilising existing insurance
contracts, re-negotiating contractual terms and entering into new agreements
In line with its investment policy, the Company is advancing a significant
pipeline of both domestic and international solar assets, including
co-investments in private equity structures and domestic energy storage asset
opportunities, which complement its existing portfolio, with a view to
achieving higher financial returns, additional geographical, technology, and
revenue diversification.
Debt Strategy
As at 31 March 2022, the Company had £200m of preference shares (2021:
£200m). The Company's subsidiaries also had financial debt outstanding of
£283.3m, inclusive of NextPower III debt of £4.8m (2021: £246m).
Of the financial debt, £182.3m represented two long-term fully amortising
debt facilities, £96.2m was drawn under two RCFs and £4.8m was the look
through debt in relation to the US$50m commitment into NextPower III.
At the year end, the Company's subsidiaries had £49m (2021: £36m) undrawn
(excluding the accordion) from two RCFs and the Company had a cash balance of
c.£19.6m (2021: £11m).
The total financial debt represented 25% of Gross Asset Value ("GAV") as at
31 March 2022 (2021: 24%). At the same reporting date, the total gearing
comprising the total financial debt and the preference shares represented 42%
of GAV (2021: 43%) within the 50% limit contained within the investment
policy.
Dividends Paid
The Directors have approved a fourth interim dividend of 1.79p per ordinary
share, which will be paid on 30 June 2022 to ordinary shareholders on the
register as at the close of business on 20 May 2022. Following the payment of
the fourth interim dividend, the Company will have paid total dividends of
7.16p per ordinary share in respect of the year ended 31 March 2022 (2021:
7.05p), achieving its target for the year.
The Company continues to offer a scrip dividend alternative as approved by
ordinary shareholders at the 2021 Annual General Meeting ("AGM"), details of
which can be found on the Company's website (www.nextenergysolarfund.com).
During the year, the Company paid a total of £39.8m of cash dividends (2021:
£38.1m) and, in addition, issued £2.1m of scrip shares to ordinary
shareholders who elected for the scrip dividend alternative (2021: £2.9m),
making a total of £41.9m of distributions (2021: £41.0m).
Environmental, Social and Governance Matters
NESF's commitment to ESG and sustainability remains at the forefront of its
strategy and purpose. The Investment Adviser, NextEnergy Capital, 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 Policy1 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 presented at COP26, NESF's portfolio during the year ended 31 March
2022 has generated 773 GWh of clean electricity, contributing to avoiding the
emission of 328,700 tonnes of CO(2)e (2021: 317,600 tonnes CO(2)e) and
equivalent to powering 216,300 UK homes for an entire year (2021: 195,000).
This is roughly equivalent to powering a city with 541,000 inhabitants (e.g.
Newcastle and Brighton combined) or taking 108,690 cars off the road for an
entire year (2021: 102,000 cars). The above data has been verified by the
Green Analytics team of the Green Investment Group, a reputable third-party
climate related data provider.
Biodiversity Net Gain
NESF's 91 UK operating solar assets provide a great opportunity to enhance
local biodiversity, above and beyond local planning requirements. The
Investment Adviser engages in activities that enhance the environment and
community surrounding its solar assets, including, where feasible, on-site
biodiversity activities such as encouraging wildflower meadows, installing bug
hotels, partnering with local beekeepers and other initiatives to improve the
local biodiversity, as well as local community programmes. Please refer to the
ESG report below.
Positive Social Contribution
We contribute to local growth and development wherever our assets are located.
We are dedicated to ensuring labour standards are applied by all our
contractors. In addition to the ESG activities on behalf of NESF and other
clients, the NEC Group continues to donate at least 5% of its net profits to
the NextEnergy Foundation ("Foundation"), which was established in 2017. My
fellow board members and I are proud that the Company supports the Foundation.
The Foundation participates proactively in the global effort to reduce carbon
emissions, providing clean power sources in regions where they are not
available and contributing to poverty alleviation. To find out more
information please scan the below QR code.
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 focus on investments in solar
PV and battery storage assets and its investment decision making processes. In
light of this classification, NextEnergy Group has made the relevant
disclosures for NESF available on the fund 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 the Company's full TCFD report below.
Board Changes
The Board was delighted to announce the appointment of Josephine Bush as a
Non-Executive Director with effect from 1 January 2022. The appointment
broadens the Board's expertise, especially within the renewable energy and
sustainable finance sector harnessing Josephine's wealth of knowledge and
insight, with Josephine having spent 14 years at Ernst & Young LLP
specialising in this sector. Josephine's appointment also helps maintain
appropriate Board diversity levels and provides enhanced governance to the
Company's ESG activities and reporting.
Appreciation
On behalf of the entire Board, I would like to express my sincere thanks and
appreciation to the numerous people who have worked in the field and from home
under difficult and testing conditions to enable the Company to continue to
operate successfully during the Covid-19 pandemic.
The Board fully appreciates the hard work of the Investment Adviser and its
employees, who continue to deliver substantial value to the Company's growth
ambitions and sustained high performance.
Outlook
The Board, Investment Manager and Investment Adviser believe that the market
environment continues to be favourable for the Company and its Investment
Policy is appropriate for the market conditions.
Undoubtedly, the aftermath of the Covid-19 pandemic and the conflict in
Ukraine continue to have a profound impact on the sector in which the Company
operates. The increase in power price volatility during the year and beyond
has underlined the benefit and value of the Company's hedging strategy through
the Investment Adviser's active electricity trading desk, locking in future
revenues and reducing uncertainty in times of volatile power prices. The price
for electricity is driven by several factors that are inherently difficult to
predict in the current dynamic environment but is ultimately dependent on
supply and demand. The Company continues to monitor the media speculation
around a potential windfall tax on UK renewable electricity generators. Whilst
the details remain unclear, the Company continues to actively promote the
importance of renewable energy penetration in the UK, which continues to
strengthen the UK's energy independence and will help the governments in
achieving its net zero ambitions.
ESG continues to be a core part of NESF's purpose, as activities mitigating
climate change accelerate globally. The execution of an ESG policy is not just
integrated into NESF investment decisions, it ensures the Company continues to
lead by example and that stakeholders are fully aligned to create a better
environment for both current and future generations.
In the current unstable economic climate, the Board continues to closely
monitor both macro and micro economic indicators and governmental information
to assess the potential future impact on the Company's activities. The Company
will continue to focus on generating attractive financial returns for
shareholders, while having positive social and environmental impacts.
NESF continues to consolidate its leadership position in the growing UK
long-term corporate PPA market, building upon the landmark 100MW Camden
acquisition with PPA off taker AB InBev. This emerging PPA market can provide
long-term, reliable cashflows for the Company, whilst supporting large
corporates' energy needs through their desire to consume renewable green
energy and to help tackle climate change.
NESF is progressing its power price hedging strategies for the sale of
electricity from subsidy-free assets to secure attractive risk-adjusted
returns. 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 through its expertise in identifying opportunities
and maximising risk-adjusted returns.
The Company continues to identify additional co-located battery storage
opportunities through its retrofit program, in addition to its existing 250MW
joint venture with Eelpower for standalone battery storage. Working closely
with leading delivery partners in the UK battery sector, NESF expects that
co-location of battery storage systems alongside the Company's existing solar
portfolio will provide additional asset, technology and revenue
diversification, whilst also accessing the favourable future revenue
opportunities that battery storage systems present.
The Company also continues to pursue a strong pipeline of international growth
opportunities on a direct and co-investment basis, as well as its pipeline of
electricity storage assets in the UK. The pipeline has been composed to
complement the existing portfolio, diversify some asset-specific/market risks,
and enhance shareholder returns.
NESF is aiming to extend the useful life of further assets during the current
financial year, adding to the 35 UK assets (337MW) which have already secured
extensions since IPO. These extensions will be value accretive by increasing
long-term revenues.
The Company has demonstrated that it can be resilient to the volatility that
the Covid-19 pandemic has posed, and the Company remains well placed to
continue to meet its investment objectives and harness growth opportunities in
the future which are in line with the Company's strategic goals.
Lastly, as demonstrated at last year's COP26 conference, the UK is setting an
example to the rest of the world on how economies can change their energy mix
to tackle climate change. The next six months provide an exciting opportunity
for NESF as it continues to invest in both solar assets and energy storage.
The Board strongly believes that the Company is making a real difference to
the UK energy landscape and looks forward to helping deliver both global net
zero goals and value to our shareholders.
Kevin Lyon,
Chairman
24 June 2022
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(a) to the Financial Statements
below.
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 and the SPVs.
As explained in Note 2(d) to the Financial Statements below, as the Company is
an investment entity as described by International Financial Reporting
Standards ("IFRS") 10, the Company does not prepare consolidated accounts and,
instead, holds its investments in its HoldCos and SPVs 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 the 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 below.
Management of the Company's Investment Activities and Assets
The Investment Manager, Investment Adviser and Asset Manager are shown in the
diagram previously and their key roles are shown next. They are all members of
the NextEnergy Group (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 sector and battery storage. Since its
inception, it has been active in the development, construction and ownership
of solar and battery storage assets.
As at 31 March 2022 the NextEnergy Group had assets under management of c.$2.8
billion with a cumulative operating generating capacity of more than c.1.3GW.
In addition to the Company, it manages a private equity fund, NextPower III,
which invests in solar assets globally. The fund recently announced its final
close, which brought the total capital raised to $896m, exceeding its target
of $750m. In December 2021, the Investment Manager secured the UK
Infrastructure Bank as a cornerstone investor for a private 10-year solar
infrastructure fund, NextPower UK ESG (subsidy-free UK solar). 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 NextEnergy Group's team of some 200 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 a total
of 69 years' industry experience between them.
Since it was founded, the NextEnergy Group has provided operating asset
management, monitoring, technical due diligence and other services to over
1,400 utility-scale solar power assets with an installed capacity in excess of
1.8GW. 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 all technical, financial and commercial data to analyse clients'
data in real-time and generate insight, all of which help to protect and
enhance the long-term quality and performance. This software and systems which
have been refined over the past 14 years, together with specialist staff with
extensive renewables experience, allows WiseEnergy to be at the forefront of
the 'digitalisation of energy'.
The collective experience of the NextEnergy Group of investing and managing
renewables assets best positions the Company 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. On 30 March 2022, the Company
announced that it had transferred administration services to Ocorian
Administration (Guernsey) Limited. Prior to the appointment, Apex Fund and
Corporate Services (Guernsey) Limited were the designated administrator for
the Company.
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 below in
the Corporate Governance Report.
Michael Bonte-Friedheim is Founding Partner and CEO of the NextEnergy Group.
He has over 21 years' specialist experience in the power and energy sector and
was previously Managing Director in Goldman Sachs' energy and power investment
banking team in London and non-executive Chairman and CEO of a number of
listed energy companies.
Aldo Beolchini is Managing Partner and CIO of the NextEnergy Group. He has
over 20 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.
Entity Principal Roles
Investment Manager • Acting as the Company's Alternative Investment Fund Manager ("AIFM").
(Management Agreement with the Company - see note 1 in the Financial • Discretion to make investments in accordance with the Company's
Statements below) Investment Policy, subject to them having been recommended by the Investment
Adviser.
• Portfolio and risk management services as required by the EU's AIFM
Directive.
• Reporting to the Board on all operational, financial and technical
issues and 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
(Advisory Agreement with the Investment Manager) investments.
• Identify investment opportunities for the Company.
• Evaluate investment opportunities and co-ordinate external due
diligence 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.
(Asset Management Agreements with the SPVs) • Technical and financial analysis of each site to assess performance
and identify potential improvements. Periodic site visits on each plant.
• Ensure each SPV's suppliers perform in accordance with contracts.
• 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
Company.
Dividend Policy, Scrip Dividends and Dividend Target for Financial Year Ending 31 March 2023
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 2023 will be set out in a
separate circular that is expected to be sent to ordinary shareholders on or
around August 2022. Once published, a copy of the circular will also be
available on the Company's website (www.nextenergysolarfund.com).
The target dividend for the financial year ending 31 March 2023 is 7.52 pence
per ordinary share, an increase of 5.1% compared to the financial year ended
31 March 2022.
Five Year Record
Year Ended 31 March
Financial Key Performance Indicators 2018 2019 2020 2021 2022
Ordinary shares in issue 575.7m 581.7m 584.2m 586.9m 589.1m
Ordinary share price 111.0p 117.5p 101.5p 99.6p 103.4p
Market capitalisation of ordinary shares £639m £683m £593m £585m £609m
NAV per ordinary share 1 105.1p 110.9p 99.0p 98.9p 113.5p
Total ordinary NAV 1 £605m £645m £579m £581m £668m
Premium/(discount) to NAV 1 5.6% 6.0% 2.5% 0.7% (8.9%)
Earnings per ordinary share 5.88p 12.37p -5.09p 6.87p 21.69p
Dividend per ordinary share 6.42p 6.65p 6.87p 7.05p 7.16p
Dividend yield 1 5.8% 5.7% 6.8% 7.1% 6.9%
Cash dividend cover - pre scrip dividends 1 1.1x 1.3x 1.2x 1.1x 1.2x
Preference shares in issue - 100m 200m 200m 200m
Financial debt outstanding at subsidiaries level £270m £269m £214m £246m £283m
Financial debt (financial debt/GAV) 1 31% 27% 22% 24% 25%
Gearing (financial debt + preference shares/GAV) 1 31% 36% 42% 43% 42%
GAV £875m £1,014m £991m £1,025m £1,150m
Weighted average cost of capital 5.8% 5.4% 5.5% 5.4% 5.3%
Ordinary Shareholder Total Return - cumulative since IPO 33.6% 46.7% 37.5% 42.6% 53.6%
Ordinary Shareholder Total Return - annualised since IPO 8.5% 9.5% 6.3% 6.1% 6.7%
Ordinary Shareholder Total Return 6.2% 11.8% -7.8% 5.1% 11.0%
Ordinary NAV total return 1 6.3% 11.8% -4.5% 7.0% 22.0%
Ordinary NAV total return - annualised since IPO 1 7.0% 8.1% 5.9% 6.0% 8.0%
Ongoing Charges Ratio 1 1.1% 1.1% 1.1% 1.1% 1.1%
Weighted average discount rate 7.3% 7.0% 6.8% 6.3% 6.3%
Operational Key Performance Indicators
Invested capital 1 £734m £896m £950m £999m £1,039m
Number of operating assets 63 87 90 94 99
Total installed capacity 569MW 691MW 755MW 814MW 865MW 2
Annual generation 451 GWh 693 GWh 712 GWh 738 GWh 773 GWh
% increase (year-on-year) 14% 54% 3% 3% 4%
Generation since IPO 1.1 TWh 1.8 TWh 2.5 TWh 3.2 TWh 4.0 TWh
Solar irradiation (delta vs. budget) -0.9% 9.0% 4.0% 5.5% 3.4%
Generation (delta vs. budget) 0.9% 9.1% 4.7% 6.2% 1.8%
Asset Management Alpha 1 1.8% 0.1% 0.7% 0.7% -1.6%
Weighted average lease life 23.3 years 25.2 years 26.9 years 27.5 years 27.3 years
1 Alternative performance measures - see below
2 Excludes share in private equity vehicle (NextPower III). Inclusion of
NESF's share of NextPower III would increase capacity by 19.2MW to 884MW
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.
• 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 below.
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.
Investments and Future Pipeline
The Company has made significant progress in executing additional
dividend-enhancing acquisitions. The Company's latest investments comprise a
$50m commitment ($24.1m currently drawn as at 31 March 2022) into NextPower
III, a battery storage Joint Venture Partnership with Eelpower Limited
(£100m), UK subsidy-free solar investments (Whitecross and Hatherden) and
international solar co-investments (Agenor and Santerem).
In line with the investment policy, the Company continues to advance a
significant pipeline of UK solar assets, international solar assets and UK
energy storage assets. These investment opportunities aim to achieve robust
financial returns and increase dividend cover whilst adding geographical,
technological, and revenue diversification to the NESF portfolio. The Company
envisages the future pipeline will be funded through a mixture of drawdowns on
existing and future RCF facilities and future equity issuances.
Installed Capacity since IPO(1)
1 Excluding share in private equity vehicle (NextPower III). Inclusion of
NESF's 6.21% share of NextPower III on a look through equivalent basis would
increase total capacity by 19.2MW to 884MW
Capital Deployment Timeline since IPO
Total Cumulative Generation since IPO (TWh)(1)
Annual Generation since IPO (GWh)(1)
1 Excluding share in private equity vehicle (NextPower III) on a
look through basis.
Performance since IPO(1)
NESF Total Return vs FTSE All-Share Index Total Return
Compound Annual Return (%)
Cumulative Performance (%)
Source: Morningstar
(1) To ensure like-for-like comparisons, all the total returns in the charts
assume dividends have been reinvested.
Investment Advisers Report - Introduction
NextEnergy Group is a leading solar 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. $2.8bn of assets
under management and employs over 200 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 combined
have in excess of 70 years' industry experience.
Michael Bonte-Friedheim is Founding Partner and CEO of NextEnergy Group and
member of the Investment Committee for NextEnergy Solar Fund.
Aldo Beolchini is Managing Partner and Chief Investment Officer of NextEnergy
Capital and a member of the Investment Committee for NextEnergy Solar Fund.
Giulia Guidi is Head of ESG at NextEnergy Capital and a member of the
Investment Committee for NextEnergy Solar Fund.
Ross Grier is UK Managing Director of NextEnergy Capital and a member of the
Investment Committee for NextEnergy Solar Fund.
Introduction
As at 31 March 2022, the NAV per ordinary share was 113.5p (2021: 98.9p). The
substantial change in NAV over 12 months reflects a large increase in power
price forecasts (+5.0p per ordinary share), power purchase agreements (+4.5p
per ordinary share) and an upward revision in short-term inflation forecasts
(+6.1p per ordinary share).
At the year end, the UK blended average power curve corresponded to an average
solar capture price of approximately £105.2/MWh (2021: £47.1/MWh) for the
period 2022-2026 and £44.3/MWh (2021: £47.8/MWh) for the period 2027-2041
(at 2022 prices).
We continue to follow government guidelines and monitor the impact of Covid-19
on our global workforce, and the countries in which we operate and pursue
investment opportunities. Similarly, with the ongoing conflict in Ukraine, we
are monitoring the macro-economic environment and considering any potential
impact to NESF, and the industry in which we operate.
Investment Advisers Report
Portfolio Highlights
During the year, we continued to explore new opportunities in different
technologies, asset classes and geographies whilst actively managing NESF's
existing portfolio of operating solar assets and development projects.
To progress its investment pipeline, the NESF Group secured a new RCF of
£100m in June 2021 (£75m committed + £25m accordion) with a 3-year duration
to June 2024. The RCF was on attractive terms with lenders NatWest and AIB
with agreed margin of 120bps over SONIA. The facility increased NESF's overall
RCF capacity to £145m (not including the £25m accordion). In February 2022,
the NESF Group chose not to extend a £20m RCF with NIBC Bank N.V. in order to
pursue more cost-effective financing opportunities.
In June 2021, NESF announced a commitment of US$50m to NextPower III LP
("NextPower III"), a private equity ESG solar infrastructure fund established
to invest in solar assets primarily in OECD countries. The investment benefits
from diversification across regulatory regime, technology provider, offtake
counterparty and geographic location (with access to solar assets in the
United States, India, Portugal, Spain, Poland and Chile). NextPower III
recently announced its final close, bringing the total capital raised to
$896m, outperforming its target of $750m. At final close, NESF's commitment
reflected a 6.21% ownership share in NextPower III, adding 19.2MW to NESF's
installed capacity on a look-through equivalent basis as at 31 March 2022.
NESF's investment in NextPower III represents 2.0% of NESF's GAV as at
31 March 2022.
The investment into NextPower III provides access to attractive co-investment
opportunities, of which the Company has already begun to take advantage. These
are direct investments alongside NextPower III and other investors in the
fund, on a no-fee, no carry basis. In January 2022, the Company announced its
first co-investment for a 24.5% stake in a Spanish 50MW utility scale solar
project, Agenor. It is currently under construction in Cádiz, Spain and is
expected to be energised in 2022. Agenor will benefit from a five year PPA for
the sale of electricity with a high-credit counterparty for c.70% of
contracted volumes for an initial five-year period. This co-investment further
strengthens the Company's portfolio, providing additional geographical and
revenue diversification, whilst offering an attractive return profile with a
high proportion of contracted revenues locked in via the PPA.
Post the year end, the Company also announced a c.13% stake in Santarem,
another co-investment with NextPower III, a 210MW solar asset in Portugal.
Energisation of the project is expected to take place in Q2 2023. Once
energised, Santarém is expected to benefit from a long-term PPA for the sale
of electricity which is currently being negotiated with a robust creditworthy
counterparty.
In June 2021, NESF energised South Lowfield, a 50MW subsidy-free asset in
North Yorkshire. The asset is part of the Camden acquisition of two projects
totalling 100MW that was made in March 2021. The projects will produce enough
clean energy combined to power the equivalent of c.29,000 UK households per
year. Both assets benefit from a long-term 15-year PPA with AB InBev for c.75%
of the electricity generated.
In September 2021, NESF made its first strategic step into the energy storage
sector through a £100m JVP, with Eelpower Limited, a leading battery storage
specialist in the UK. The JVP signed its first acquisition of a 50MW
ready-to-build, standalone battery, located in Fife, Scotland, which will
provide additional stability to the grid via its export capacity. It is
expected to be energised and grid-connected in 2023. The JVP, owned 70% by
NESF and 30% by Eelpower, also includes a framework for the acquisition of up
to 250MW (including this initial 50MW project) of battery storage assets. The
Directors have concluded that the JVP meets the control requirements of the
relative accounting standards and is therefore accounted for as a subsidiary
(see note 18). The Company is permitted to invest 10% of its GAV into
standalone energy storage systems.
During the year, NESF also added four rooftop solar assets, as part of an
agreement made with the renewable energy developer, Zestec. The four assets
have a combined capacity of 0.7MW and are located in Cheshire, Worcestershire,
Oxfordshire and East Sussex. The remaining assets will benefit from the
Company's hedging strategy. This venture requires small individual investments
(typically £0.2m-£0.3m per rooftop) but yields attractive risk-weighted
financial returns. It is also a good avenue to deploy cash flows generated by
the portfolio in excess of the dividend and operating cost base.
Post the year end, the Company announced the commencement of construction of a
36MW subsidy-free utility solar asset in Lincolnshire, Whitecross. The asset
is now expected to be energised during the first quarter of 2023 and will
generate electricity for approximately 10,000 households' yearly electricity
consumption with renewable power. Whitecross will join the Company's other
three operating subsidy-free solar assets, Staughton (50MW), High Garret
(8.4MW), and Hall Farm 2 (5.4MW), which together with Whitecross comprise
c.100MW of NESF's 150MW target in subsidy-free solar capacity. The Company has
also commenced with the grid connection works and construction mobilisation
phase of Hatherden, a c.50MW subsidy-free solar farm. These two subsidy-free
solar farms will complete the Company's 150MW subsidy-free solar target. The
Company anticipates these assets to be energised early in 2023.
Similarly, selection of the first site for a co-located battery storage
project occurred post the year end. The project will 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, with construction expected to commence on site later this year.
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.
Financial year ended 31 March No. of assets monitored Solar irradiation (delta vs. budget) Asset Management Alpha Generation (delta vs. budget)
2015 6 -0.4% +5.2% +4.8%
2016 23 +0.4% +3.7% +4.1%
2017 31 -0.3% +3.6% +3.3%
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%
Cumulative from IPO to 31 March 2022 90 +3.0% +1.6% +4.6%
Portfolio Performance
During the year, solar irradiation across the entire portfolio was 3.4% above
expectation (2021: 5.5%), and generation was 1.8% above budget (2021: 6.2%),
increasing revenues by an estimated £2.0m. Portfolio generation was
significantly impacted by Distribution Network Operator Outages without such
DNOOs, portfolio generation would have been c.3.6% above budget.
DNOOs were driven by extraordinary grid maintenance undertaken by DNOs during
the year, primarily reflecting backlog from the pandemic-impacted 2020/21
financial year and activities to reinforce grid reliability.
Throughout the pandemic, workers in the electricity sector have been
considered 'key workers' and this enabled the Asset Manager to ensure that the
technical and operational integrity of NESF's solar assets was maintained and
DNOOs impact was minimised as far as possible.
DNOOs significantly disrupted generation during the year, reducing Asset
Management Alpha by 1.8%. For illustrative purposes, DNOOs reduced generation
by 3.4% in September 2021, the largest monthly impact since IPO, with at least
two 5MW assets completely taken off-line for the entire month.
The Asset Manager monitors actual performance versus expectations for assets
operational for at least two months post completion. The three rooftop
portfolios have been excluded as solar irradiation is not monitored.
Similarly, the generation performance of assets that are yet to pass
Preliminary Acceptance Certificate ("PAC") in accordance with the engineering,
procurement and construction ("EPC") contract is not reported by the Asset
Manager.
Asset Management Alpha
The Asset Management Alpha is an important metric that allows the Company to
identify the "real" outperformance of the portfolio due to effective asset
management and excludes the effect of variation in irradiation. The "nominal"
outperformance is calculated as the GWh generated by the portfolio versus the
GWh expected in the assumptions used at the time of acquisition. This metric
can be used for comparison with other peers in the solar industry.
Year ended 31 March 2022 Solar irradiation (delta vs. budget) Asset Management Alpha Generation (delta vs. budget)
UK portfolio +3.4% -1.5% +1.9%
Italy portfolio +3.7% -2.6% +1.1%
Total +3.4% -1.6% +1.8%
Portfolio Optimisation
Asset life extensions
As at 31 March 2022, 35 UK assets (337MW), comprising c.41% of the Company's
portfolio, had secured 5, 10 or 15 year lease extensions. We continue to work
on extending the life of the remaining assets and are targeting a further
three assets for the remainder of the current financial year to 31 March 2023.
Asset Optimisation
During the year, nine sites entered into new Operating and Maintenance
("O&M") contracts. Eight of these contracts were O&M replacements of
which the Investment Adviser actively negotiated a reduction in price
achieving an average of £5,300/MW. This resulted in aggregate annualised cost
savings of c.£92,000 equivalent to a 27% reduction in contract price.
A further two sites, entered into new O&M Contracts, for which a reduction
in price was negotiated to £5,500/MW. This has resulted in an aggregate
annualised cost savings of c.£54,000 equivalent to a 33% reduction in
contract price.
Initially six sites entered into new O&M contracts, that disaggregated its
services across a number of contractors which specialise in land management,
monitoring, panel cleaning, CCTV and security and electrical services known as
O&M 2.0 sites. O&M 2.0 has achieved c.£5k/MWp (c. 10% under NESF's
target) for these six sites. A further three sites, entered into the O&M
2.0 programme, that has achieved c.£4.5k/MWp saving which is c.20% saving
under NESF's target.
Due to Storm Arwen in November 2021 and further damage caused by Storm Eunice
in February 2022, Balhearty solar farm was damaged and will be repaired by a
chosen EPC contractor, appointed by the Investment Adviser. An insurance claim
has been initiated, which the Investment Adviser expects to cover the majority
of reconstruction costs and lost revenue resulting from plant downtime.
Short/Medium-Term Power Purchase Agreements
NESF continues to lock in power price hedges over a 36-month period at levels
above the independent market consultant's predicted levels. This proactive
risk mitigation helps secure and underpin both dividend commitments and
dividend cover, whilst reducing volatility and increasing visibility of cash
flows.
NextEnergy Group's specialist energy trading desk, along with external energy
brokers, ensures that the Company's electricity sales strategy maximises
revenues whilst mitigating the negative impact of short-term fluctuations in
the power markets. Secured pricing comprises fixed price contracts, hedging
under the trading contracts and nine FiT sites opted into the export tariff.
UK hedging summary(1) FY2022/ 2023 FY2023/ 2024 FY2024/ 2025
Generation hedged (%) 85% 74% 42%
Average fixed price (£/MWh) £78 £73 £86
1 Covers 83% of total portfolio (716MW) as at 15 June 2022
For the year ended 31 March 2022, the Italian portfolio derived c. 85% of
revenues from subsidised revenues (principally FiTs) and c. 15% of revenues
resulted from the sale of electricity under fixed price agreements covering
100% of its Italian electricity generation for calendar year 2022 at a
weighted average fixed price of c.€64/MWh (2021: €45/MWh).
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, the
majority of OFGEM audits have been successfully signed-off without impacting
ROC accreditations. The NextEnergy Group has experienced staff who deal with
the ongoing audits. Engagement with OFGEM is through professional advisers and
senior NextEnergy Group staff. The team has identified and mapped contractual
recourse associated with identified risk of loss for completed and ongoing
audits.
Subsidy-Free Portfolio
Starting in 2018, the Company sourced a pipeline of projects to be developed
into operating subsidy-free assets and set a target of c. 150MW to add to its
portfolio. As at 31 March 2022, the Company had 64MW of operating subsidy-free
assets. Whitecross, a 36MW, subsidy-free utility solar asset, located in
Lincolnshire, has now commenced construction. The Company has also commenced
with the grid connection works and construction mobilisation phase of
Hatherden, a 50MW subsidy-free solar farm.
Whitecross (36MW) will join the Company's other three operating subsidy-free
solar assets, Staughton (50MW), High Garret (8.4MW), and Hall Farm 2 (5.4MW),
which together with Whitecross comprise c.100MW of NESF's 150MW target in
subsidy-free solar capacity.
The original construction date of the asset was deferred from H2 2021 due to
material volatility in the solar PV module supply chain post Covid-19 which
has since stabilised. The asset is now expected to be energised during the
first quarter of 2023 and will generate electricity for approximately 10,000
households' yearly electricity consumption with renewable power.
Following a rigorous selection process, NESF selected Jinko Solar to supply
solar modules to Whitecross, having agreed to the adoption of NESF's Supplier
Code of Conduct policies and procedures. NESF continues to implement high ESG
and technical standards within its supply chain process, as well as its
investment decision making processes.
Whitecross will benefit from the latest available solar technology from Jinko
Solar called 'N-type solar cells', a bi-facial solar technology offering
superior power density and efficiency with a recently set world record for
solar cell efficiency. NESF will receive long-term benefits from this
technology as it decreases the land footprint necessary for Whitecross's
installed capacity, optimising land use and performance of the solar asset.
Crucially, Whitecross will rapidly bring extra power capacity to the market
and contribute to the reduction of fossil fuels used for power generation in
the UK, against the current backdrop of unprecedented and sustained higher
power prices.
NextEnergy Capital is one of the leading constructors of post-subsidy solar in
the UK market. We continue to push forward with the next wave of solar
deployment in the UK, delivering tangible progress in the UK's drive to Net
Zero power production.
The NextEnergy Group's Head of Energy Sales is responsible for managing the
strategy for the sale of electricity from all assets. Details on the power
price risk management strategy can be found at the bottom of this section and
in note 22(b) to the Financial Statements below.
Managing NESF's merchant market exposure
PPA sourcing and structuring Energy and market risk management Market and pricing analysis
Run competitive off-taker selection processes through our extensive network in We measure, monitor and manage merchant exposure through selling at spot, NEC provides pricing for NESF projects, supported by multiple independent
the solar industry entering into short-term, medium-term and long-term PPAs short and long-term third-party power price forecasts
Quantitative evaluation of the offers in terms 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
The Italian Solis Portfolio
In December 2017 the Company acquired the portfolio of eight operating solar
assets with an installed capacity of 34.5MW located in Italy for a total value
of €131.9m (equivalent to £116.2m). The portfolio represented 10% of the
Company's GAV as at 31 March 2022.
The key benefits of the Solis portfolio continue to be:
• High risk-adjusted return: As at the 31 March 2022 valuation, the net
IRR of the Solis portfolio was 8.3%.
• Low risk-profile: The Company benefits from the portfolio's operating
history and the high quality of its components. In addition, it reduces NESF's
exposure to merchant energy markets, as c. 85% of its revenues are fixed for
15 years following the acquisition.
• Positive contribution to dividend cover: The higher return on investment
is coupled with an attractive cashflow generation profile, which is higher
than ROC assets, and evenly spread over the life of the investment, as the
Italian FiT is fully fixed. For the purposes of comparison, the Solis
portfolio has a cash dividend cover equivalent metric of 1.4x.
• NAV accretion: As at 31 March 2022, the Solis portfolio was valued on a
DCF basis with a discount rate of 7.25% (2021: 7.25%) as a result of the
increasing competition to acquire solar PV assets in Italy.
• Diversifying market risk: Italy is supported by a FiT incentive
mechanism. The FiT is granted by a state-owned company which promotes and
supports renewable energy in Italy, where the sole shareholder is the Ministry
of Economy and Finance. Tariffs differ depending on the capacity, type of
plant and the time of commissioning which range between €195/ MWh to
€318/MWh. Once a PV plant is accredited, the FiT is granted over a period of
20 years and is not inflated.
• Low revenue risk: Of the Solis portfolio revenues, c.85% result from
FiTs. The FiTs specific to this portfolio expire in 2031. The remaining 15% is
from the sale of the merchant electricity fed into the grid at market price or
via PPAs to other market participants thus there is low revenue risk. In
addition, low operating costs result in stable EBITDA margins in excess of
80%.
International Solar Co-investments
In June 2021, the Company made a commitment of US$50m to NextPower III
("NextPower III"), a private equity solar fund focused on utility scale solar
assets in OECD markets to provide an opportunity to efficiently access an
established portfolio of operational and in-construction international solar
assets. This commitment also unlocked attractive co-investment opportunities
on a direct investment basis alongside NextPower III and other investors in
the fund, on a no-fee, no carry basis.
In January 2022, the Company announced its first co-investment consisting of a
24.5% stake in a Spanish 50MW utility scale solar project, Agenor. The
commitment allows NESF to take advantage of the vehicle's expertise in
sourcing attractive international opportunities through access to its pipeline
of assets. Agenor is currently under construction in Cádiz, Spain and is
expected to be energised during 2022. The opportunity will benefit NESF in the
following ways:
• Low revenue risk via an initial 5-year PPA with a high-credit
counterparty for c.70% of contracted volumes
• Additional geographical diversification, complementing the Company's
commitment into the international solar private equity fund, NextPower III,
and its investment in the Italian portfolio, Solis.
Post the year end, the Company also announced a c.13% stake in Santarem,
another co-investment with NextPower III, a 210MW solar asset in Portugal.
Energisation of the project is expected to take place in Q2 2023. Once
energised, Santarém is expected to benefit from a long-term PPA for the sale
of electricity which is currently being negotiated with a robust creditworthy
counterparty.
NESF's RPI inflation assumptions
Year ending 2022 2023 2024 2025 2026 2027 2028- 2030
2030
onwards
31 March 2021 3.00% 2.90% 2.90% 2.80% 2.80% 3.00% 3.00% 3.00%
31 March 2022 4.10% 8.00% 3.70% 3.30% 3.40% 3.30% 3.00% 2.25%
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 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 NextPower III which is valued using the estimated attributable NAV.
Assets 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 Board reviews the operating and financial assumptions used in the
valuation of the Company's underlying portfolio.
Portfolio valuation - key assumptions As at 31 March 2022 As at 31 March 2021
UK long-term inflation 2.25% 3.0%
UK short-term inflation (1 year horizon) 8.0% 3.0%
Weighted average discount rate 6.3% 6.3%
Weighted average asset life 27.3 years 27.5 years
UK short-term power price average (2022-2026) £105.2/MWh (real 2022) £47.1/MWh (real 2022)
UK long-term power price average (2027-2041) £44.3/MWh (real 2022) £47.8/MWh (real 2022)
Italy power price average (20 years) €60.8/MWh (real 2022) €46.1/MWh (real 2022)
UK corporation tax rate 19% until 2023, 25% thereafter 19%
Portfolio valuation bridge for the year ended 31 March 2022
Forecasted power prices methodology
For the UK portfolio, we use multiple sources for UK power price forecasts. At
the short end (up to three years), where PPAs exist we use the PPA prices that
have been achieved, for periods where there are no PPAs in place, we use the
short-term market forward prices. After year two we use 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 used by the Company
("Consultants") in publishing periodic (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.
Historic - UK power prices
UK electricity day ahead prices increase from c. £66.4/MWh in April 2021 to
£250.4/MWh in March 2022 (see graph below).
Forecast UK power prices (real 2022)
On average, the Company's current UK long-term power price represents an
increase of 25.1% compared to last year (and -37.2% below the average price
used at IPO).
Historic - Italian power prices
The Italian price of electricity increased from approximately €69.0/MWh in
April 2021 to €308.9/MWh in March 2022 (see graph below).
Forecast Italian power price (real 2022)
On average, the Company's current Italian long-term power price represents an
increase of 23.8% compared to that used at the end of the previous financial
year.
% of NESF revenue fixed until 31 March 2023
NESF 10-year forecast revenue breakdown
Discount rate
During the year, the Company maintained the discount rate for unlevered
operating UK solar assets at 5.75% (2021: 5.75%)
In the context of high liquidity provided by international investors, a
maturing renewable energy market, a scarcity of subsidised assets and the lack
of any incentive framework for new installations, the demand for operating
solar assets remained strong resulting in sustained pressure on prices in the
last twelve months. These dynamics were evidenced by the experience of the
Investment Adviser when bidding for solar assets in the UK.
Discount rate Premium As at 31 March 2022 As at 31 March 2021
assumptions
UK unlevered - 5.75% 5.75%
UK levered 0.7-1.0% 6.45-6.75% 6.45-6.75%
Italy unlevered(1) 1.5% 7.25% 7.25%
Subsidy-free (uncontracted)(2) 1.0% 6.75% 6.75%
Life extensions(3) 1.0% 6.75-7.75% 6.75-7.75%
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.
The resulting weighted average discount rate for the Company's portfolio was
6.3% (2021: 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 geared portfolios. However, for the
purposes of transparency, the Company's pre-tax WACC as at 31 March 2022 was
5.3% (2021: 5.4%).
The Company has not included the impact of the discount rates used in the
NextPower III investment, as the Company has no control or influence over
these rates and a weighted average discount rate is not produced by NextPower
III, as their 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 assets (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 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 assets
have satisfied tests and received Final Acceptance Certification ("FAC").
During the year, FACs were closed for nine sites, across 89.95MW with a
retention of £417k secured across all the projects.
As at 31 March 2022, 78 UK solar assets and all eight Italian solar assets
(totalling 647MW) achieved FAC and their actual PR was used in the discounted
cash flow valuation.
FAC timeline for remaining assets Capacity
(MW)
Financial quarter ending June 2022 -
Financial quarter ending September 2022 50
Financial quarter ending December 2022 90
2023 onwards 154
Total 294
NAV
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 2(d) to the
Financial Statements below). The change in fair value of its assets during the
year is taken through the Statement of Comprehensive Income.
NAV Bridge for the year ended 31 March 2022
The movement in the NAV was driven by the following factors:
• An increase in UK power prices forecasts provided by three Consultants,
being on average 25% higher than the prior year. The Company used the
forecasts released by the Consultants up to the date of preparation of this
Annual Report;
• the upward revision in short-term inflation forecasts;
• the operating results achieved by the Company's solar assets; and
• the dividends and operating costs paid during the year.
NAV sensitivity analysis as at 31 March 2022
The chart below shows the impact of the key sensitivities on the NAV per
ordinary share. Additional sensitivity analyses can be found in note 19(b) to
the Financial Statements below.
Cash flow generation
The Company generates revenues through the sale of electricity to the markets
and the subsidies provided under different subsidy regimes (ROC, NIROC and
FiT). Both revenue streams are underpinned by two main factors:
• the actual energy output (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 31 March 2022 Actual per MW(1) Budget per MW(1) Delta vs. Budget Comments
Solar Irradiation A (kWh/m2) 1,241 1,200 +3.4% Actual solar irradiation for the year
Conversion Factor(2) B (%) 72.2% 73.4% (1.6%) Represents Asset Management Alpha for the year(5)
Metered Generation C = (kWh) 896 880 +1.8% Actual generation measured at the meter for the year
[A x B]
Power price Subsidies Power price Subsidies
Realised Prices D (£/ MWh) 70.6 77.2 51.2 76.3 +1.3% Implied average power price and subsidies across entire portfolio (including
ROCC Recycle and Embedded Benefits
Revenues (Subsidies, PPAs, Etc.) E = (£'000) 63.3 69.2 45.0 67.1 +3.1%
[C x D]
Total Revenues E (£'000) 132.5 112.2 +18.1% Actual revenues at portfolio level for the year (unaudited figures per MW)
Operating Expenses F (£'000) (28.0) (30.4)(4) (7.9%) Actual costs at portfolio level for the year (unaudited figures per MW)
EBITDA(3) G = (£'000) 104.5 81.7 +27.8% Actual EBITDA for the year (unaudited figures per MW)
[E - F]
EBITDA Margin(3) 78.8% 72.9%
(1) Based on the average installed capacity 860 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 asset performance ratio as well as the
availability (which reflects all system shut downs for maintenance or one-off
events such as DNO 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.
(5) Asset Management Alpha for the year was negative due to abnormal DNOO
activity as explained above on the Investment Adviser's report.
Operating results
Profit and comprehensive income for the year was £127.6m (2021: £40.2m) with
earnings per ordinary share of 21.69p (2021: 6.87p).
Operating expenses and ongoing charges
The operating expenses, excluding preference share dividends paid by the
Company, for the year amounted to £6.7m (2021: £6.7m). The Company's Ongoing
Charges Ratio was 1.1% (2021: 1.1%). The budgeted Ongoing Charges Ratio for
the financial year ending 31 March 2023 is 1.1%. The Ongoing Charges Ratio,
which has been calculated in accordance with the Association of Investment
Companies recommended methodology, is an Alternative Performance Measure (see
below).
For the year ended 31 March 2022, the fourth quarterly dividend of 1.79p per
ordinary share is expected to be paid on 30 June 2022 to ordinary shareholders
on the register at the close of business on 20 May 2022. The Company offers
scrip dividends, details of which can be found on the Company's website
(nextenergysolarfund.com).
Cash flow analysis
As at 31 March 2022, the Company held cash of £19.6m at high credit rated
financial institutions.
Cash received from assets in the year covered the operating expenses, the
preference shares dividend, the dividends declared to ordinary shareholders in
respect of the year ended 31 March 2022 and part of the Investment in HoldCos.
Cash flows of the Company Year end 31 March 2022 £'000 Year end 31 March 2021 £'000
Company cash balance at 1 April 10,809 25,128
Investment in HoldCos 6,877 (35,570)
Received from HoldCos 57,735 77,814
Director's fees (212) (253)
Investment Manager fees (4,979) (5,157)
Administrative expenses (1,281) (3,565)
Dividends paid in cash to ordinary shareholders (39,841) (38,062)
Preference share dividends (9,500) (9,526)
Company cash balance at 31 March 19,608 10,809
NESF Group operating SPV's
The below table represents the unaudited consolidated financial results of the
Company's SPVs.
Year ended 31 March 2022 Year ended 31 March 2021
Unaudited
£'000 £'000
Total NESF Group revenue 114,286 96,384
EBITDA 89,966 74,433
EBIT 90,247 29,734
Cash income for the year(1) 65,792 59,490
(1) Cash distributed to the fund during the year.
Cash dividend cover
Year ended £'000 Pre-scrip dividends
31 March 2022
£'000
Cash income for year(1, 2) 65,792
Net operating expenses for year 6,690
Preference shares dividend 9,500
Net cash income available for distribution 49,602
Ordinary shares dividend paid during year 41,940
Cash dividend cover(2) 1.2x
(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 Measure.
Dividend per ordinary share track record
(1) The period 2014/2015 was the first financial year following the
Company's IPO.
(2) Target dividends for the financial year ending 31 March 2023.
Financing
Financial debt
At 31 March 2022, the NESF Group had financial debt outstanding of £283m
(2021: £246m), including NextPower III debt calculated on a look-through
basis, as shown in the table below. Due to a combination of low debt levels,
and RPI linked subsidies, debt covenants at the HoldCos level would only be
breached at extraordinarily low power prices (less than c.£20/MWh). No
covenants breaches have occurred during the year.
Preference shares
At 31 March 2022, the Company had £200m of preference shares outstanding
(2021: £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 cashflow, 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 included:
• 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 management fee is payable in respect of the preference
shares. The terms of the preference shares can be found in note 23(a) to the
Financial Statements below.
Total gearing
The financial debt, together with the preference shares, represented a total
gearing level of 42% (2021: 43%), which is below the maximum limit of 50% in
the Company's Investment Policy.
Provider/ Type Borrower No. of power assets secured(1) Loan to Value(2) Tranches Facility amount (£m) Amount out- Termi- Applicable rate
arranger
standing (£m)
nation (inc. options to extend)
(%)
MIDIS / CBA / NAB Fully-amortising long-term debt(3) NESH 21 (241MW) 44.2% Medium-term 48.4 42.3 Dec-26 2.91%(4)
Floating long-term 24.2 24.2 Jun-35 3.68%(4)
Index-linked long-term 38.7 34.2(5) Jun-35 RPI + 0.36%
Fixed long-term 38.7 38.7 Jun-35 3.82%
Debt service reserve facility 7.5 - Jun-26 1.50%
MIDIS Fully-amortising long-term debt(3) NESH IV 5 (84MW) 40.9% Inflation-linked 27.5 19.9(5) Sep-34 RPI + 1.44%
Fixed long-term 27.5 23.0 Sep-34 4.11%
Total long-term debt 182.3
Banco Santander Revolving credit facility NESH VI 13 (100MW) N/a N/a 70.0 21.2 Jul-22 LIBOR + 1.90%
Natwest/AIB(7) Revolving credit facility NESH III 15 (98MW) N/a N/a 75.0 75.0 Jun-24 SONIA + 1.20%
Total short-term debt 96.2
NextPower III look through debt N/a N/a N/a N/a 4.8(6)
Total debt 283.3
1 NESF has 326MW under long-term debt financing, 198MW under short-term
debt financing and 343MW without debt financing (excludes NextPower III look
through debt).
2 Loan to Value defined as 'Debt outstanding / GA'.
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 NextPower III (on a look through equivalent basis).
7 Plus £25m accordion options.
Alignment of interest
As at 15 June 2022, NextEnergy Group employees held 317,961 shares in
NextEnergy Solar Fund.
NextEnergy Capital Limited
24 June 2022
Operating Portfolio
Power plant Location Announcement Subsidy/PPA1 Installed capacity Cost Remaining life of plant
date
(MW)
(£m)
(Years)
1 Higher Hatherleigh(3) Somerset May-14 1.6 6.1 7.3 16.0
2 Shacks Barn3 Northamptonshire May-14 2.0 6.3 8.2 15.3
3 Gover Farm3 Cornwall Jun-14 1.4 9.4 11.1 17.6
4 Bilsham3 West Sussex Jul-14 1.4 15.2 18.9 22.2
5 Brickyard3 Warwickshire Jul-14 1.4 3.8 4.1 17.6
6 Ellough3 Suffolk Jul-14 1.6 14.9 20.0 26.9
7 Poulshot3 Wiltshire Sep-14 1.4 14.5 15.7 16.9
8 Condover3 Shropshire Oct-14 1.4 10.2 11.7 17.6
9 Llywndu Ceredigion Dec-14 1.4 8.0 9.4 27.7
10 Cock Hill Farm Wiltshire Dec-14 1.4 20.0 23.6 17.4
11 Boxted Airfield3 Essex Dec-14 1.4 18.8 20.6 18.0
12 Langenhoe3 Essex Mar-15 1.4 21.2 22.9 33.0
13 Park View3 Devon Mar-15 1.4 6.5 7.7 32.8
14 Croydon3 Cambridgeshire Mar-15 1.4 16.5 17.8 17.7
15 Hawkers Farm3 Somerset Apr-15 1.4 11.9 14.5 18.0
16 Glebe Farm3 Bedfordshire Apr-15 1.4 33.7 40.5 27.7
17 Bowerhouse3 Somerset Apr-15 1.4 9.3 11.1 33.0
18 Wellingborough3 Northamptonshire Jun-15 1.4 8.5 10.8 17.2
19 Birch Farm3 Essex Oct-15 FiTs UK 5.0 5.3 18.2
20 Thurlestone Leicester Leicestershire Oct-15 FiTs UK 1.8 2.3 11.1
21 North Farm3 Dorset Oct-15 1.4 11.5 14.5 32.7
22 Ellough Phase 23 Suffolk Nov-15 1.3 8.0 8.0 33.6
23 Hall Farm3 Leicestershire Nov-15 FiTs UK 5.0 5.0 38.4
24 Decoy Farm3 Lincolnshire Nov-15 FiTs UK 5.0 5.2 34.0
25 Green Farm Essex Nov-15 FiTs UK 5.0 5.8 19.0
26 Fenland2,4 Cambridgeshire Jan-16 1.4 20.4 23.9 18.3
27 Green End2,4 Cambridgeshire Jan-16 1.4 24.8 29.0 19.0
28 Tower Hill2,4 Gloucestershire Jan-16 1.4 8.1 8.8 18.0
29 Branston2,5 Lincolnshire Apr-16 1.4 18.9 32.6
30 Great Wilbraham2,5 Cambridgeshire Apr-16 1.4 38.1 23.0
31 Berwick2,5 East Sussex Apr-16 1.4 8.2 97.9 19.5
32 Bottom Plain2,5 Dorset Apr-16 1.4 10.1 33.2
33 Emberton2,5 Buckinghamshire Apr-16 1.4 9.0 38.1
34 Kentishes Essex Nov-16 1.2 5.0 4.5 39.5
35 Mill Farm Hertfordshire Jan-17 1.2 5.0 4.2 34.8
36 Bowden Somerset Jan-17 1.2 5.0 5.6 34.7
37 Stalbridge Dorset Jan-17 1.2 5.0 5.4 34.7
38 Aller Court Somerset Apr-17 1.2 5.0 5.5 20.0
39 Rampisham Dorset Apr-17 1.2 5.0 5.8 20.5
40 Wasing Berkshire Apr-17 1.2 5.0 5.3 24.7
41 Flixborough South Humberside Apr-17 1.2 5.0 5.1 25.8
42 Hill Farm Oxfordshire Apr-17 1.2 5.0 5.5 29.9
43 Forest Farm Hampshire Apr-17 FiTs UK 3.0 3.3 30.0
44 Birch CIC Essex Jun-17 FiTs UK 1.7 1.7 18.2
45 Barnby Nottinghamshire Jun-17 1.2 5.0 5.4 20.3
46 Bilsthorpe Nottinghamshire Jun-17 1.2 5.0 5.4 20.7
47 Wickfield Wiltshire Jun-17 1.2 4.9 5.6 21.1
48 Bay Farm Suffolk Aug-17 1.6 8.1 10.5 31.9
49 Honington Suffolk Aug-17 1.6 13.6 16.0 31.3
50 Macchia Rotonda2,6 Apulia Nov-17 FiTs Italy 6.6 13.8
51 Iacovangelo2,6 Apulia Nov-17 FiTs Italy 3.5 14.1
52 Armiento2,6 Apulia Nov-17 FiTs Italy 1.9 14.1
53 Inicorbaf2,6 Apulia Nov-17 FiTs Italy 3.0 116.2 13.9
54 Gioia del Colle2,6 Campania Nov-17 FiTs Italy 6.5 14.6
55 Carinola2,6 Apulia Nov-17 FiTs Italy 3.0 14.6
56 Marcianise2,6 Campania Nov-17 FiTs Italy 5.0 14.5
57 Riardo2,6 Campania Nov-17 FiTs Italy 5.0 14.5
58 Gilley's Dam Cornwall Dec-17 1.3 5.0 6.4 32.7
59 Pickhill Bridge Clwyd Dec-17 1.2 3.6 3.7 19.9
60 North Norfolk Norfolk Feb-18 1.6 11.0 14.6 22.6
61 Axe View Devon Feb-18 1.2 5.0 5.6 25.4
62 Low Bentham Lancashire Feb-18 1.2 5.0 5.4 23.9
63 Henley Shropshire Feb-18 1.2 5.0 5.2 24.2
64 Pierces Farm Berkshire May-18 FiTs UK 1.7 1.2 17.1
65 Salcey Farm Buckinghamshire May-18 1.4 5.5 6.5 17.1
66 Thornborough Buckinghamshire Jun-18 1.2 5.0 5.7 19.0
67 Temple Normaton Derbyshire Jun-18 1.2 4.9 5.6 19.3
68 Fiskerton Phase 1 Lincolnshire Jun-18 1.3 13.0 16.6 28.0
69 Huddlesford HF Staffordshire Jun-18 1.2 0.9 0.9 18.8
70 Little Irchester Northamptonshire Jun-18 1.2 4.7 5.9 19.8
71 Balhearty Clackmannanshire Jun-18 FiTs UK 4.8 2.6 28.8
72 Brafield Northamptonshire Jun-18 1.2 4.9 5.8 19.7
73 Huddlesford PL Staffordshire Jun-18 1.2 0.9 0.9 19.0
74 Sywell Northamptonshire Jun-18 1.2 5.0 5.9 19.1
75 Coton Park Derbyshire Jun-18 FiTs UK 2.5 1.1 19.1
76 Hook2,4 Somerset Jul-18 1.6 15.3 21.8 32.0
77 Blenches2,4 Wiltshire Jul-18 1.6 6.1 7.8 16.7
78 Whitley2,4 Somerset Jul-18 1.6 7.6 10.4 31.7
79 Burrowton2,4 Devon Jul-18 1.6 5.4 7.3 16.5
80 Saundercroft2,4 Devon Jul-18 1.6 7.2 9.6 31.9
81 Raglington2,4 Hampshire Jul-18 1.6 5.7 8.1 31.8
82 Knockworthy2,4 Cornwall Jul-18 FiTs UK 4.6 6.6 16.0
83 Chilton Canetello2,4 Somerset Jul-18 FiTs UK 5.0 9.0 30.3
84 Crossways2,4 Dorset Jul-18 FiTs UK 5.0 10.0 30.3
85 Wyld Meadow2,4 Dorset Jul-18 FiTs UK 4.8 7.1 31.3
86 Ermis Rooftop Portfolio Aug-18 FiTs UK 1.0 3.0 14.6
87 Angelia Rooftop Portfolio Aug-18 FiTs UK 0.2 0.6 14.5
88 Ballygarvey County Antrim Aug-19 1.4 NIROCs 8.2 8.5 25.8
89 Hall Farm(2) Leicestershire Aug-19 Subsidy-free 5.4 2.5 37.3
90 Staughton Bedfordshire Dec-19 Subsidy-free 50.0 27.4 36.9
91 High Garret Essex Oct-20 Subsidy-free 8.4 4.1 33.0
92 Marham Norfolk Mar-21 Long-term PPA 1.0 0.7 23.7
93 Sutterton Lincolnshire Mar-21 Long-term PPA 0.4 0.3 23.9
94 The Grange Nottinghamshire Mar-21 Long-term PPA 50.0 32.1 38.8
95 South Lowfield Yorkshire Mar-21 Long-term PPA 50.0 29.6 39.2
96 Newfield Cheshire May-21 FiTs UK 0.2 0.2 22.4
97 JSC Worcestershire May-21 FiTs UK 0.04 0.04 17.4
98 Karcher Oxfordshire Aug-21 Subsidy-free 0.3 0.2 23.0
99 Dolphin East Sussex Aug-21 Subsidy-free 0.2 0.2 24.6
Subtotal 865.0 999.4 27.3(7)
Private Equity Investment (NextPower III)8 OECD Markets Jun-21 Multiple long-term PPAs 19.2 17.4 n/a
Total 884.2 1,016.8 27.3(7)
(1) ROCs, unless otherwise stated. An explanation of the ROC subsidy is (5) Part of the Radius portfolio.
available at
www.ofgem.gov.uk/environmental-programmes/renewables-obligation-ro. (6) Part of the Solis portfolio.
(2) With project level debt. (7) Average years remaining.
(3) Part of the Apollo portfolio. (8) 19.2MW represents the proportion of NextPower III operational assets
owned by NESF on a look through equivalent basis as at 31 March 2022.
(4) Part of the Thirteen Kings portfolio. NextPower III is a portfolio of assets at different stages of their project
life cycle.
Portfolio Generation Performance
Power plant Operational Acquisition Year ended 31 March 2022 Since acquisition
date
date
Generation Solar Generation delta Solar Generation delta
(GWh)
irradiation delta
(%)
irradiation delta
(%)
(%)
(%)
1 Higher Hatherleigh Apr-14 May-14 5.7 4.1 1.1 1.4 4.5
2 Shacks Barn May-14 May-14 5.9 1.2 5.4 2.6 7.9
3 Gover Farm Jan-15 Jun-14 9.2 6.4 2.6 3.2 1.2
4 Bilsham Jan-15 Jul-14 16.7 6.4 9.7 5.0 5.9
5 Brickyard Jan-15 Jul-14 3.6 2.7 5.9 3.2 6.0
6 Ellough Jul-14 Jul-14 14.0 1.6 -1.9 0.8 5.1
7 Poulshot Apr-15 Sep-14 13.8 0.5 4.7 0.8 5.1
8 Condover May-15 Oct-14 9.6 1.8 3.3 0.3 1.0
9 Llywndu Jul-15 Dec-14 8.1 0.2 9.9 -3.0 3.8
10 Cock Hill Farm Jul-15 Dec-14 20.3 3.5 7.4 3.0 5.0
11 Boxted Airfield Apr-15 Dec-14 18.2 1.7 4.0 3.3 5.5
12 Langenhoe Apr-15 Mar-15 21.6 5.5 8.5 6.0 9.0
13 Park View Jul-15 Mar-15 6.7 1.9 4.5 -1.4 1.2
14 Croydon Apr-15 Mar-15 15.1 5.8 2.5 6.1 6.8
15 Hawkers Farm Jun-15 Apr-15 12.0 2.9 3.6 0.6 3.7
16 Glebe Farm May-15 Apr-15 33.8 7.7 11.6 6.4 12.0
17 Bowerhouse Jul-15 Jun-15 8.4 5.3 -5.9 3.1 -0.1
18 Wellingborough Jun-15 Jun-15 8.3 2.6 7.0 2.4 5.1
19 Birch Farm Sep-15 Oct-15 5.0 3.4 6.5 4.2 6.3
20 Thurlestone Leicester(1) Oct-15 Oct-15 1.5 0.0 -1.1 0.0 -0.1
21 North Farm Oct-15 Oct-15 10.8 -1.5 -11.4 -2.7 -4.3
22 Ellough Phase 2 Aug-16 Nov-15 8.5 7.3 14.5 8.2 12.6
23 Hall Farm Apr-16 Nov-15 3.7 4.1 -14.0 3.8 0.4
24 Decoy Farm Mar-16 Nov-15 4.9 4.4 9.1 4.7 9.4
25 Green Farm Dec-16 Nov-15 4.9 2.6 1.6 3.4 4.0
26 Fenland Jan-16 Jan-16 20.7 4.4 8.3 5.0 9.2
27 Green End Jan-16 Jan-16 21.7 2.9 -6.3 4.6 3.1
28 Tower Hill Jan-16 Jan-16 8.1 3.5 7.6 3.4 6.9
29 Branston Mar-16 Apr-16 19.1 6.1 10.0 6.0 6.8
30 Great Wilbraham Mar-16 Apr-16 36.1 3.7 1.1 5.1 5.3
31 Berwick Mar-16 Apr-16 9.1 1.9 7.3 4.6 9.3
32 Bottom Plain Mar-16 Apr-16 10.4 5.1 2.8 3.4 3.8
33 Emberton Mar-16 Apr-16 7.9 2.7 -6.3 4.1 2.3
34 Kentishes Jul-17 Nov-16 5.2 3.5 5.4 5.3 6.1
35 Mill Farm Jul-17 Jan-17 5.0 5.8 6.5 8.0 10.3
36 Bowden Sep-17 Jan-17 5.2 -0.2 0.2 0.2 1.2
37 Stalbridge Sep-17 Jan-17 5.3 -0.2 5.0 0.6 6.1
38 Aller Court Sep-17 Apr-17 5.3 3.3 4.6 3.4 5.0
39 Rampisham Sep-17 Apr-17 5.2 -2.8 -0.9 -2.0 -1.2
40 Wasing Aug-17 Apr-17 5.1 1.2 5.0 5.4 8.9
41 Flixborough Aug-17 Apr-17 5.0 6.1 8.0 5.3 7.9
42 Hill Farm Mar-17 Apr-17 5.1 2.1 7.4 6.0 8.4
43 Forest Farm Mar-17 Apr-17 3.1 2.0 6.9 4.3 8.4
44 Birch CIC May-17 Jun-17 1.7 3.1 3.6 5.0 4.6
45 Barnby Aug-17 Jun-17 4.9 3.8 7.7 4.3 4.7
46 Bilsthorpe Aug-17 Jun-17 4.9 4.0 5.4 4.1 6.0
47 Wickfield Mar-17 Jun-17 4.9 1.9 3.0 5.1 4.7
48 Bay Farm Sep-17 Aug-17 8.0 2.2 8.4 6.5 8.2
49 Honington Sep-17 Aug-17 13.2 0.4 3.7 3.4 3.8
50 Macchia Rotonda Nov-17 Nov-17 9.0 6.9 -3.7 6.1 2.7
51 Iacovangelo Nov-17 Nov-17 5.2 5.0 4.2 4.4 6.0
52 Armiento Nov-17 Nov-17 2.9 5.9 7.4 5.2 7.4
53 Inicorbaf Nov-17 Nov-17 4.6 6.0 5.4 5.5 6.4
54 Gioia del Colle Nov-17 Nov-17 9.6 2.6 3.8 0.9 3.8
55 Carinola Nov-17 Nov-17 4.0 2.5 -1.3 2.4 3.9
56 Marcianise Nov-17 Nov-17 7.0 1.4 2.6 2.5 3.7
57 Riardo Nov-17 Nov-17 6.8 1.4 -3.3 2.1 0.4
58 Gilley's Dam Nov-17 Dec-17 5.0 -3.2 -2.2 -4.4 -2.3
59 Pickhill Bridge Dec-17 Dec-17 3.7 5.5 9.2 4.7 8.1
60 North Norfolk Dec-17 Feb-18 10.3 4.0 -0.7 6.1 6.6
61 Axe View Dec-17 Feb-18 5.2 6.4 7.7 5.6 7.2
62 Low Bentham Dec-17 Feb-18 4.7 6.2 4.5 2.5 3.5
63 Henley Jan-18 Feb-18 4.9 4.0 6.5 3.3 6.0
64 Pierces Farm May-18 May-18 1.7 -1.0 4.1 2.9 6.8
65 Salcey Farm May-18 May-18 5.3 2.6 2.4 7.8 5.4
66 Thornborough Jun-18 Jun-18 3.8 -1.0 -21.2 4.6 -7.6
67 Temple Normaton Jun-18 Jun-18 3.9 3.4 -14.1 4.3 -4.8
68 Fiskerton Phase 1 Jun-18 Jun-18 12.0 5.0 -2.9 7.6 0.7
69 Huddlesford HF Jun-18 Jun-18 0.9 4.2 7.6 5.6 4.9
70 Little Irchester Jun-18 Jun-18 4.3 -0.2 -6.8 4.1 -5.3
71 Balhearty Jun-18 Jun-18 3.4 3.6 -2.1 0.1 -9.0
72 Brafield Jun-18 Jun-18 4.8 4.0 -0.2 6.7 1.2
73 Huddlesford PL Jun-18 Jun-18 0.9 3.6 1.8 5.2 2.3
74 Sywell Jun-18 Jun-18 5.1 1.5 4.9 5.9 2.3
75 Coton Park Jun-18 Jun-18 2.3 -0.4 3.8 2.8 4.5
76 Hook Jul-18 Jul-18 15.2 2.5 -1.6 3.4 0.9
77 Blenches Jul-18 Jul-18 5.7 2.9 0.1 4.4 5.7
78 Whitley Jul-18 Jul-18 7.5 8.2 0.0 5.7 -0.2
79 Burrowton Jul-18 Jul-18 12.8 5.1 -0.2 4.3 1.1
80 Saundercroft Jul-18 Jul-18
81 Raglington Jul-18 Jul-18 4.9 -0.6 -19.1 3.1 -10.8
82 Knockworthy Jul-18 Jul-18 3.8 1.6 -20.5 1.8 -9.9
83 Chilton Canetello Jul-18 Jul-18 5.4 5.4 3.2 4.8 5.2
84 Crossways Jul-18 Jul-18 5.5 3.6 0.8 3.5 3.2
85 Wyld Meadow Jul-18 Jul-18 4.7 0.2 -8.5 -1.0 -3.3
86 Ermis1 Aug-18 Aug-18 0.8 0.0 2.2 0.0 0.1
87 Angelia1 Aug-18 Aug-18 0.2 0.0 -2.6 0.0 2.4
88 Ballygarvey Mar-18 Aug-19 6.4 4.7 1.3 2.0 -1.5
89 Hall Farm Aug-19 Aug-19 4.0 10.4 -11.1 10.7 -1.2
90 Staughton Dec-19 Dec-19 49.4 10.2 7.2 8.4 5.2
91 High Garrett Oct-20 Oct-20 7.9 5.6 -0.4 6.3 -0.6
92 Marham2 Jan-21 Mar 21 - - - - -
93 Sutterton(2) Mar-21 Mar 21 - - - - -
94 The Grange Jan-21 Mar 21 11.0 -13.4 -12.7 -13.4 -12.7
95 South Lowfield Jun-21 Jun-21 6.1 -7.1 -32.4 -7.1 -32.4
96 Newfield (NZ)1 Apr-19 Apr-19 - - - - -
97 JSC (NZ)1 Mar-19 Mar-19 - - - - -
98 Karcher (NZ)1 Nov-19 Nov-19 - - - - -
99 Dolphin (NZ)(1) Jul-21 Jul-19 - - - - -
Subtotal 773 3.4 1.8 3.0 4.6
Private Equity Investment Multiple Jun-21 - - - - -
(NextPower III)3
Total 773 3.4 1.8 3.0 4.6
(1) Rooftop asset which is not monitored for solar irradiation.
(2) Assets which are yet to pass provisional acceptance clearance (PAC)
are not reported by the Asset Manager.
(3) NextPower III performance not included.
Sustainability and ESG
NESF Chairman ESG Foreword
The last 12 months has accelerated the need for and understanding of, global
renewable energy generation. Governments and major economies around the world
continue to step up their support, with the UK becoming the first major
economy to pass net-zero emission laws, requiring all greenhouse gas emissions
to be net-zero by 2050. There has never been a more important time to
transition away from carbon emitting forms of energy and towards a green,
clean, energy supply.
Solar PV and Energy Storage play a huge part in this transition and NESF is in
a great position to continue providing a positive impact. The Investment
Adviser, NextEnergy Capital Limited, continues to drive NESF forward,
harnessing the team's in-depth knowledge and skillset to add value and achieve
the Company's sustainability goals.
The year has been defined by a range of challenges, including the ongoing
impact of the global pandemic as well as the recent supply chain consequences
associated with the conflict in Ukraine. Despite this continued uncertainty,
NESF continues to see a systemic shift towards the need for rapid action in
recognition of a stronger reliance on national, renewable, and sustainable
energy source, not only to address climate change. The current geopolitical
landscape has emphasised the importance of UK energy security and
independence. NESF's has 91 operating solar assets in the UK, with additional
operating solar assets in Italy and Spain, and with its expansion into UK
energy storage, strengthens the UK's energy independence supply.
Environmental, Social and Governance matters are more important than ever to
our stakeholders and society. Tracking progress and reporting impact change
throughout NESF's value chain is a crucial step in tackling climate change,
driving accountability, and ultimately delivering a sustainable future for
generations to come.
NESF's ESG reporting continues to benefit from the extensive experience of
NextEnergy Capital's Head of ESG, Giulia Guidi. Giulia continues to drive real
change at NESF, not only incorporating ESG into the heart of all investment
decisions but also providing valuable insight as an adviser on the NESF
investment committee. NextEnergy Capital's ESG team is also expanding, which
will bring in new expertise and knowledge to help implement and expand NESF's
ESG strategy.
I am pleased that NESF achieved Article 9 status, having met the strict
requirements of the European Union Sustainable Finance Disclosure Regulations
this year. NESF is committed to continuing any disclosure requirements for
funds classified under Article 9. Separate to this, NESF use the Macquarie
Green Investment Group to review and independently audit NESF's carbon related
data to ensure a high standard of transparency and continuity in relation to
our positive contribution to climate mitigation.
Josephine Bush joining during the year brings extensive ESG knowledge to the
NESF board of directors. Since her appointment, the board has introduced an
ESG Committee, which is chaired by Josephine and supported by Giulia Guidi.
The ESG committee ensures constant dialogue and provides frequent updates on
ESG issues to the Board, ensuring ESG remains at the heart of NESF's strategy.
This is an exciting period for NESF and we look forward to continuing our
leading and transparent approach in this space.
Kevin Lyon
24 June 2022
Introduction from Michael Bonte-Friedheim, CEO and Founder of NextEnergy Group
As the world continues to adapt to the challenges of living with an evolving
geopolitical, environmental and social landscape, we have learnt just how
responsive and adaptable governments, businesses, communities and individuals
can be in the face of such a crisis. It is this responsiveness which is
necessary to redouble efforts to achieving the 17 UN Sustainable Development
Goals ("SDGs"), progress against many of which has been detrimentally affected
by Covid-19. Furthermore, the conflict in Ukraine has highlighted the
importance of maintaining supply chain security, delivering low risk economic
returns and safeguarding social inclusion. We believe that NESF's experience
and global presence will help to mitigate any ESG risks associated with
sourcing and securing contracts with global suppliers that have become more
prevalent in light of the challenges faced during the year and in the future.
The development of reliable, sustainable and resilient infrastructure is at
the core of the recovery plan and NextEnergy Group has the technical
experience to play an instrumental role in this transition. The commitment to
our mission of generating a more sustainable future is unwavering, and the UN
SDGs remain core to our ESG approach and operational practices. This, coupled
with evolving our framework for managing, measuring, and reporting our
contribution to the UN SDGs, as well as evaluating our impact on the world
around us, is central to guiding our sustainable investment strategy and
approach to ensure we continue to do things right for the future.
Our sustainability framework is built on three pillars:
1) Climate Change
2) Biodiversity
3) Human Rights
This framework applies to the whole value chain of our business, from our
clients' investments and our employees to our suppliers and services
providers, our business partners, and the broader communities we operate in.
NESF actively supports the UK Government's net zero ambitions: NESF can offer
investors the opportunity to decarbonize their portfolio and transition to a
net zero economy. For the past 12 months, NESF has contributed to avoid
emitting 328.7 ktCO(2)e to the atmosphere. NESF also presented the benefits
that an investment in solar PV and sustainable energy provides beyond climate
mitigation: in particular, it explained how it continues to contribute to the
economic growth of the local area, increase biodiversity value and encourages
local community engagement.
NESF continues to be committed to enhance biodiversity and achieve positive
gain, contributing to build climate resilient infrastructure. The core of
NextEnergy Group's sustainability framework is our Sustainable Investment
Policy, which articulates the value-creating ability of ESG considerations in
our business and operations, and the solar sector more broadly, as well as our
commitment to the United Nations Principles for Responsible Investment. Our
Sustainable Investment Policy applies to both NESF and our private equity
funds; it outlines our business principles and explains how we integrate ESG
factors throughout the investment process.
We continue to increase our transparency in line with the EU SFDR. NESF
classifies under Article 9 of the SFDR, as a sustainable investment with an
environmental objective of climate mitigation: in addition to the ESG Document
published in March 2021, NESF is committed to provide the relevant disclosure
according to the requirements of Article 9 of the SFDR. The Company has
included its full TCFD report below.
NESF ESG at a Glance 2021/22
Environmental Performance
773GWh clean energy generated 328.7ktCO(2)e avoided 216,300 equivalent homes powered
Social Performance
£91,400 community funding (through SPVs) 6 new O&M contracts signed for a total of £223k, generating new jobs £100,000 donated to the Foundation
Governance performance
Total board meetings during the year - 31 Gender diversity
40% female at
board level
NESF's Sustainability Framework
Solar energy has a pivotal role to play in responding to rapidly increasing
energy demand while addressing the global climate agenda. In their recent 'Net
Zero by 2050' report, the International Energy Agency ("IEA") forecasted
annual additions of 630 gigawatts of solar PV installations by 2030,
four-times the record levels set in 2020. NESF's commitment to contribute to
climate change mitigation ties into our broader ESG objectives we have set
within NextEnergy Group's business practices in order to develop a sustainable
energy investment strategy.
Following a materiality assessment, we built NESF and NextEnergy Group's
sustainability commitment around three fundamental pillars (see below):
climate change, biodiversity and human rights. These are macro drivers for our
sustainable agenda, either because they represent an opportunity, or because
they represent a risk. We believe that only by acknowledging the
interconnections that exist between the three pillars and addressing them
together, can we make a meaningful contribution to global sustainable
development.
Based on these three pillars, and in line with the NESF Group's sustainability
framework, NESF refers to the UN SDGs as the underlying framework by which to
identify, measure and report on key ESG impacts and opportunities associated
with our assets.
Our Commitment to the United Nations Sustainable Development Goals
The SDGs form the basis of our sustainability strategy.
NESF's Approach to ESG
Our ESG approach is based on integration and is applied in three different
steps: identify, manage, and report.
NESF pays particular attention to any ESG risks associated with its supply
chain and maintains active dialogue by engaging with key stakeholders.
Integration of ESG factors occurs throughout NESF's investment and development
process, from an initial screening to full due diligence, risk management,
implementation, and finally to measuring and reporting on the factors during
the asset management phase.
Sustainability Pillars
Climate Change:
NESF is committed to supporting the UK Government in its ambitious objective
of bringing all greenhouse gas emissions to net zero by 2050 and limiting
global average temperature rise to 2°C from pre-industrial levels. NESF
communicates its positive contributions to climate change mitigation via
reporting annually on its clean energy generation and the greenhouse gas
("GHG") emissions avoided for the portfolio. NESF has expanded its reporting
to include also historical GHG emission avoided as well as the carbon emission
associated with its portfolio, namely the GHG emission scope 1, 2 and 3 with
the objective of increasing transparency towards net-zero ambitions.
Biodiversity:
A key focus for NESF has been the opportunity to enhance biodiversity across
the portfolio's sites. The Fund's commitment to leading best practice in
biodiversity within the solar industry begins during the site selection phase
and extends to the life cycle of each asset. NESF aims to align its practice
with the objective of the TNFD, and considers the framework throughout all
stages of investment and asset management.
Human Rights and Modern Slavery:
NESF respects fundamental human rights principles and is against any form of
slavery and forced labour, as stated in its Modern Slavery Statement(1). The
NESF Group's commitment to respecting human rights is guided by the United
Nations Declaration of Human Rights; NESF also recognises both the OECD
Guidelines on Multinational Enterprise and the UN Guiding Principles of
Business and Human Rights as key frameworks through which to identify and
manage human rights associated with our operations, our supply chain, and our
business relationships.
NESF pays particular attention to any ESG risks associated with its supply
chain and maintains active dialogue by engaging with key stakeholders.
Excluded Activities & Site Selection
In accordance with the international, national and local landscape
designations recognised by the UK Government, NESF does not invest in areas of
high biodiversity or landscape character value. The NextEnergy Group team
confirms this exclusion at the earliest stage of site selection.
In line with NextEnergy Group's policy, no activity will be undertaken if it
would impact upon indigenous people or cause potential relocation of
communities where no Free Prior Informed Consent ("FPIC") has occurred prior
to construction. These two exclusions are very unlikely to happen in the UK.
ESG responsibilities reside with the Head of ESG at NextEnergy Capital
Limited, the Investment Adviser. The Head of ESG reports directly to
NextEnergy Group's CEO and is also a member of the Company's investment
committee. More details on the governance of ESG can be found in the
governance sector below.
1 https://www.nextenergysolarfund.com/modern-slavery-statement/
ESG Integration
By integrating NextEnergy Group's Sustainable Investment Policy into NESF's
investment and development process, we are ensuring sustainable growth can be
delivered over the long-term. A dedicated team works alongside the investment
team to ensure any Principal Adverse Impact ("PAI") is identified, managed,
and reported. As NESF is involved in secondary market acquisition as well as
new developments; we have defined a process by which we identify, manage, and
report on any ESG risks and opportunities for both types of activities. An
outline of our approach is set out below.
For new developments, a comprehensive set of national and local data sets are
considered to avoid sensitive areas and to comply with the applicable
guidelines for the deployment of solar projects. This development phase is
supported using computer-based geographic information system modelling tools,
and site assessments are used to review and exclude inappropriate sites during
early stages of development.
Supply chain
In line with our mission of creating a more sustainable future by leading the
transition to clean energy, NextEnergy Group has been at the forefront of
integrating ESG considerations into its investment process, including the
supply chain.
A supply chain risk management approach consistent with the NESF Group's
sustainability framework has been developed and applied from an early stage.
We approach supply chain considerations through two parallel processes:
ongoing ESG due diligence at asset and portfolio level and an extensive
stakeholder engagement process.
NESF's suppliers have to fulfil two main conditions: abide by the NESF Group
Code of Conduct for Suppliers and respond satisfactorily to our ESG due
diligence.
In addition to due diligence for each individual investment, the supply chain
specific due diligence is undertaken with key selected manufacturers with
which NESF and the NESF Group have signed a master framework agreement. NESF
has developed module framework agreements as the structure through which to
identify and select top-tier, reputable manufacturers with a proven track
record of delivering high quality products of the supply chain and materials
used during production. In addition, in 2021, the ESG team has worked closely
with the procurement team and with WiseEnergy's commercial team to define the
ESG criteria for the selection of O&M's to manage NESF solar assets.
Finally, NESF consistently applies a contractual obligation in each agreement
for suppliers to abide by our Code of Conduct.
NESF is strongly committed to preventing modern slavery in our own activities
and those related to our business relationships, including supply chain. This
is supported by our public policy and statements but also by our active
participation in sector-level initiatives aimed to increase transparency and
traceability of the sector.
NESF strongly believes that supply chain management can be tackled
collectively through a process that requires a long-term commitment and
willingness to influence market changes to eradicate human rights abuses and
raise labour practices and standard globally. This is particularly true for
our Tier 2 and 3 suppliers, for which it is not always possible to obtain
transparent and verifiable information. NextEnergy Group's head of ESG
continues to act as the chair of the SEUK task group on Responsible Sourcing
and to contribute to the supply chain monitoring programme set up jointly by
SEUK and Solar Power Europe ("SPE"). The programme has started in September
2021 and aims to progress in Q2 2022 with the launch of a pilot phase through
which key suppliers will be audited according to selected ESG standards. Full
details of this initiative should be made publicly available by the end 2022.
Furthermore, NextEnergy Group continued to extend our due diligence process to
our supply chain, including module, inverter and battery suppliers,
strengthening the existing due diligence questionnaire to align it to the SEUK
and SPE programme.
We continue to monitor our suppliers and engage with them to ensure the
highest levels of ESG standards are adhered to. Given our track record and the
track record of our dedicated ESG team, we believe we are at the forefront of
ensuring engagement and change where unacceptable practices are identified
throughout our sector and supply chain.
Transparency
NESF & SFDR - Article 9 Fund
The Sustainable Finance Disclosure Regulation ("SFDR") has come into force on
10 March 2021, requiring financial market participants to disclose on ESG
policies and practices. NESF has published an ESG Disclosure document on its
website and has made the relevant disclosure in the annual report as well as
pre-contractual disclosure. This document outlines how NESF aligns with the EU
Taxonomy, in particular how it substantially contributes to climate
mitigation, how it does no significant harm ("DNSH") to the other
environmental objectives applicable to the solar PV sector (climate
adaptation, water management, circular economy and biodiversity), and how it
complies with the minimum safeguarding standards, including, but not limited
to, implementation of the OECD Guidelines for Multinational Enterprises, and
the UN Guiding Principles on Business and Human Rights.
NESF classify under Article 9 of the SFDR and starting from this year, it has
disclosed according to Annex III and V of the SFDR and Taxonomy Regulatory
Technical Standard ("RTS"). Please refer to the NESF website for the relevant
disclosure. To continue to increase transparency, an FAQ document has been
published on the fund website to clarify how NESF is planning to comply with
future EU SFDR requirements.
Stakeholder Engagement and Stewardship
NESF regularly engages with key stakeholders, including the UK Government and
leading UK industry associations, such as Solar Energy UK ("SEUK"). During the
reporting year, several members of NESF's staff engaged with SEUK across
various workstreams, including one employee who chairs the SEUK Natural
Capital Working Group, while others are involved with supporting SEUK on their
engagement with the Department for Business, Energy and Industrial Strategy
("BEIS") on the technical interpretation of the Nationally Significant
Infrastructure Projects ("NSIP") threshold. Lastly, other employees have been
working with Ofgem around the Renewables Obligation ("RO") audits program.
NESF's Stewardship efforts have seen the Fund involved in several
consultations with the UK Government on the Contracts for Difference scheme,
as well as leading negotiations with the Valuation Office Agency on the
revised ratings list for solar, network charging and cost modelling. In
addition, the NextEnergy Group is a signatory of the United Nations Principles
for Responsible Investment ("UNPRI"), and a member of the Institutional
Investors Group on Climate Change ("IIGCC"). The ESG Team actively engages and
collaborates with both organisations to promote best practice within the solar
industry, and regularly discusses any relevant recommendations and important
trends for NESF with colleagues who are responsible for investment and asset
management of the Company's portfolio. NESF also engages with an extended set
of stakeholders to continuously improve its approach to ESG and supply chain
matters in the solar sector. These include conservation groups, such as IBAT
Alliance, experts on climate change, human rights and biodiversity, and
non-profit organisations, such as the Business and Human Rights Resource
Centre
Accountability and Governance
Responsibility for NESF's ESG risk management, reporting and stakeholder
engagement falls within NextEnergy Group's ESG team.
The Head of ESG, Giulia Guidi, reports to NextEnergy Group's CEO and is
responsible for setting the strategy and for implementing the Sustainable
Investment Policy for the NESF Group and in particular, for the Company. She
sits on the Company's investment committee and takes an active role in the
investment decision-making process. She meets weekly with the investment team
and at least bi-weekly with senior managers of the Company to continue to
raise awareness around global societal issues, discuss new trends, review the
stakeholder engagement strategy, and the wider NESF Group business strategy.
NESF has built strong governance around these issues, ensuring that the team
works not only alongside the investment and development teams, but also meets
regularly with the procurement offices, the operational team, the biodiversity
team, the portfolio managers, and the SPV's managers, in order to ensure that
ESG is integrated at the different stages of investment and development.
The ESG team consists of three resources, Giulia Guidi, with more than 20
years of combined experience in ESG risk management in the financial sector,
David Hawkins, with 10 years of sustainability and environmental experience in
the energy sector, and Phoebe Wright, the ESG Analyst for the NextEnergy
Group. The team plans to hire an associate by Q4 2022. An additional resource
is responsible for NextEnergy Foundation.
ktCO2e avoided since IPO Units
1,818 ktCO(2)e
Green impact: historic performance
Metric Units FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021 FY2022
GHG ktCO(2)e 30.6 110.0 191.4 211.2 299.4 307.7 317.6 328.7
avoided
NOx avoided tonnes 41.3 108.3 176.3 193.1 276.5 274.4 283.4 296.3
Sox avoided tonnes 94.1 214.4 335.8 365.9 499.2 511.9 527.5 549.7
PM2,5 tonnes 2.4 8.4 14.5 15.9 22.6 23.2 24.0 25.2
PM10 tonnes 0.9 2.3 3.7 4.0 5.6 5.8 5.9 6.2
Fossil Fuels avoided tonnes oil equivalent 13.0 46.9 81.6 90.0 127.7 131.2 135.9 142.8
million barrels 0.10 0.34 0.60 0.66 0.94 0.96 1.00 1.05
Environmental, Social and Governance Factors
This year we have decided to publish a standalone ESG report to provide an
extensive overview on our sustainability strategy and a deep dive on how the
Company consider E, S and G factors. Here below is a summary of the key ESG
aspects that are driving our business.
Environmental
In the context of our business, environmental factors considered throughout
the investment and ownership phase include climate change, biodiversity and
landscape, potential water impacts, as well as circular economy
considerations.
Climate change: NESF contributes to positive climate mitigation and it is
committed to reporting its CO2e avoided emission on a year-on-year basis, as
well as through employing historical data. GIG has also supported us in
estimating the carbon footprint associated with the lifecycle of our
portfolio, including our greenhouses scope 1, 2 and 3. NESF's carbon footprint
throughout the lifecycle is minor, and we aim to start collecting additional
data from SPV's suppliers in the future to assess how we can achieve a net
zero objective. Climate-related risks, such as areas that according to the
Environment Agency's datasets are at risk of flooding, are identified during
the pre-investment phase via a consistent Climate Change Risk Screening
process. All sites are designed using a 100-year flood projection to account
for projected climate-induced risks.
More information on how the Company considers climate related risks is
included in the TCFD report below.
Biodiversity: NextEnergy Group has a dedicated Biodiversity team that is
working with organisations such as Wychwood and Twig to ensure that land
management and native fauna and flora are being considered throughout the
investment and ownership phases. These specialists help to design and
implement bespoke and effective measures that develop, repair and connect
local wildlife, habitats and ecosystems. In Q1 2022 a new Environmental Impact
Manager has been hired within the investment team to give stronger
consideration on how the Company contributes to value its natural capital. A
set of proven biodiversity solutions are included within planning-controlled
site proposals, with the view of ecologically enhancing the project area and
any additional land held under the project ground lease. NextEnergy Group has
developed a specific Universal Biodiversity Management Plan ("UBMP") for NESF
sites with the objective of extending it to a larger number of assets over
years. Our UBMP also exists to improve local stakeholder relationships by
educating the community on the benefits of transforming solar assets into
ecosystem-friendly assets. During the asset's operational lifetime, schemes
are also designed to allow sheep grazing and employ densities which work
within the land's natural carrying capacity. They are devised in conjunction
with the broader environmental, landscape and ecological objectives of
site-specific measures.
This approach makes up part of NextEnergy Group's wider Biodiversity Strategy
which works to support the UK Government's 25-year Environmental Plan1. The
Company aims to align its already strong biodiversity strategy with the
framework proposed by the Task Force on Nature related Financial Disclosure
"TNFD".
Circular economy: where possible, biodegradable or recyclable materials are
sourced. At the end of the solar farm's life, we expect there to be a residual
value in most of the materials used in the modules, for example glass,
silicon, steel, aluminium and copper. The value of these materials is expected
to pay in full for the decommissioning costs of the solar farm.
Social
NESF pays particular attention to any social impacts that could arise in the
communities we operate in, as well as to broader impacts that could be present
throughout our supply chain. NESF focuses its attention on the following
factors:
Community engagement: during the pre-acquisition phase, NESF closely engages
with local parishes and councils to ensure the suitability of site proposals.
Where possible, community feedback is incorporated into the transaction
proposals so that we can work on long-term community development plans. We
also commit to employing people locally where practical and possible. In
addition, community funds are established to promote development and support
community renewable energy projects and initiatives. NESF is dedicated to
using our solar farms as educational opportunities, particularly regarding the
promotion of the value of biodiversity and clean energy.
Health and safety: Regarding occupational and environmental health and safety
standards, we uphold minimum construction and production-related industry
standards, such as those set out in the Construction, Design and Management
Regulations 2015 and the International Organisation for Standardisation's
requirements. These standards are incorporated into the main service delivery
contracts and impose contractual obligations on our suppliers.
Labour and human rights: NESF work with our counterparties to ensure that they
abide by our human rights related principles, as outlined in NESF's Modern
Slavery Statement, NextEnergy Group's Sustainable Investment Policy and NESF
Human Rights Statement. To this extent, NextEnergy Group has included human
rights related criteria into our solar PV module framework agreements (see
'Supply chain'). We have also added an obligation for our EPC and O&M
contractors and all suppliers to respond to our ESG Due Diligence and to abide
by our Code of Conduct for suppliers, which include amongst others,
environmental, working condition and human rights related standards.
Governance
As part of our ESG approach we want to engage with counterparties that have the highest standards in terms of transparency and governance.
Anti-bribery, Anti Money Laundering, Corruption and Tax Evasion: It is both NESF's and NextEnergy Group's policy to conduct all of its business in an honest and ethical manner. We have a zero-tolerance policy towards bribery, corruption and the criminal facilitation of tax evasion. As part of the investment process, NESF undertakes due diligence on each counterparty to ensure they act professionally, fairly and with integrity in all business dealings.
(1) https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/693158/25-year-environment-plan.pdf
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 their 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. The transition to a low-carbon economy is imperative to make meaningful reductions in global greenhouse gas concentrations, minimise long-term climate change impacts, and enable a development trajectory that is sustainable on a global scale.
The Company 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 UK net-zero target by 2050.
To be a leader in ESG and responsible investment space, accountability is paramount. The Investment Manager has delivered on increased transparency and reporting as this constitutes a valuable addition to existing disclosures, including a broad set of policies and position statements, a set of SDGs to report on our impact and contribution to the SDGs and an ESG disclosures document to confirm compliance with EU SFDR particularly Article 8 and Article 9, as well as fund-level Green Impact Reports, which discloses 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
The Company recognises that climate impacts should no longer be considered non-financial and has 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 or 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 Company 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 2022, 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 oversights climate related risks and opportunities.
2. The Investment Manager assesses and manages climate related risks and
opportunities.
Board
Overall responsibility for NESF's performance and management falls on the NESF
board. 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 impact change 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.
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
their corporate Sustainability Framework, which is based on three pillars -
Climate Change, Biodiversity and Human Rights. Continuing this emphasis within
business principles, the ESG team has developed a Climate Change Position
Statement, which was first published in March 20211. The Statement sets the
ambitions, the reference standards, and the practice that the Manager adopts
when dealing with climate-related risks and opportunities. The Investment
Manager's commitment to minimising both physical and transitional climatic
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 are the driving force behind the conception of
NESF's climate ambitions, while the Head of ESG is responsible for the
strategy execution and for updating the Board and Investment Committee members
on recent climate-related activities and progress. The Head of ESG is a member
of the 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.
The Investment Manager coordinates stewardship practices amongst senior
management with an external collaborator. This partnership enables the
Investment Manager to have political influence over the climate-related
policies, mandates and consultations that are most material to us. These
include engaging with the UK Department for Business, Energy and Industrial
Strategy ("BEIS") on consultations such as UK carbon pricing. In addition, the
Investment Manager 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 Manager 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 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. WiseEnergy report 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.
The Company understands that climate change poses risks and opportunities
across all stakeholders. Through its commitment to providing clean energy, the
Company is well placed to help curb global carbon emissions. Conversely, there
are risks associated with such a transition and the potential physical
consequences associated with rising temperatures.
The table below covers some of the key risks and opportunities faced over the
short, medium and long term.
Climate-Related Risks and Opportunities
Risks Opportunities
Short-Term • Lower power prices due to over-deployment of renewables and • Increased governmental support for renewables as nations aim to curb
cannibalisation climate emissions in line with commitments made
• Saturated market and increased competition for investments leading to • Increased public support for decarbonisation increases the volume of
a reduction in financial returns of new projects ESG investing in public markets
• Increased temperatures reducing energy demand and driving down power • Increased deployment of renewables drives the benefits and importance
prices of battery storage assets
Medium-Term • Extreme weather events (storms and flooding) causing physical damage • Technological advancements driving down levelised cost of energy
to assets within portfolio ("LCOE")
• Increased temperatures reducing the efficiency and productivity of • Implementation of carbon pricing and taxation could help direct
assets due to heat losses capital towards renewable technologies, such as solar and battery storage, and
away from carbon-intensive sources
• Implementation of carbon pricing and taxation could impact companies
within the supply chain, leading to price increases and reduced profitability
Long-Term • Adverse changes in yearly irradiation averages and variances impacting • As transport, industry and heating move away from fossil fuels and
the commercial viability of solar rely on electricity, demand increases could increase power prices
• New technologies leading to early obsolescence of solar assets
Portfolio Investments
Productivity of a solar asset is a balance between maximising irradiation and
minimising heat losses. 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
uniquely strong location for efficiency of solar assets. However, increased
temperatures could lead to increased heat losses and inefficiency of the
portfolio's assets. Likewise, the Company's portfolio of eight Italian assets
and its co-investment in Spain could face similar challenges.
The Company's asset manager, WiseEnergy, closely monitors the portfolio's
assets throughout the year, measuring metrics such as irradiation, generation,
and availability. This enables the Company to identify assets at risk and
implement mitigation strategies to limit heat loss 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. As a result
of recent UK weather events (storms Arwen, Dudley and Eunice), the ESG team
aims to engage with an external expert to carry out a high-level climate risk
screening for the entire portfolio of UK assets to be better prepared against
any future physical climate risks.
Strategy
The political and social climate is currently very supportive of climate
change action, of which the deployment of solar and other renewable assets is
an essential part. Subsequently, there are significant capital flows being
directed towards sustainable investments and the deployment of green
infrastructure. There is strong evidence to suggest this trend is likely to
continue. Indeed, at the UN Climate Change Conference ("COP26") in October
2021, the Glasgow Financial Alliance for Net Zero ("GFANZ") stated that the
financial sector commitments to net zero over the next three decades will
exceed $130 trillion.
Alongside the opportunities this brings, there are also some risks. High
levels of investment lead to increased competition and, subsequently,
acquisition costs of assets can be driven up and lead to a reduction in
returns. The Company has seen this within the UK market over recent years. The
Company has been able to draw upon the expertise of the Investment Manager to
diversify its portfolio into new jurisdictions as well as assets classes (such
as construction and development assets), in line with the Company's investment
limits.
Financial Planning
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 several 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 wholesale electricity prices. The Company has
agreed fixed UK pricing (hedged) covering 85% of budgeted generation for the
2022/23 financial year and 74% of budgeted generation for the 2023/24
financial year.
By contrast, this volatility could provide a significant opportunity to
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 GAV. In September 2021, NESF entered the
standalone battery storage space by agreeing a £100m 'JVP' with Eelpower
Limited, a leading battery storage specialist in the UK. The JVP includes a
framework for acquisitions up to 250MW, providing ample opportunities to offer
complementary revenue streams to our existing portfolio of solar assets.
The Intergovernmental Panel on Climate Change ("IPCC") use Representative
Concentration Pathways ("RCPs") as a basis for modelling future consequences
of anthropogenic greenhouse gas emissions and reflect a wide range of possible
outcomes. There are 4 key scenarios: RCP2.6, RCP4.5, 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 anthropogenic climate change. These scenarios assume 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.
The Company's '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
lead to a 6.3% increase in the NAV.
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 CO2 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 expected life of 27.3 years and are 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 6.3% decrease in the NAV and a 5% increase in irradiation lead to a 6.0%
increase in the NAV.
Radiative Forcing Atmospheric CO(2) equivalent Description
(parts per million)
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 is focused on generating positive
climate-related impacts through the reduction of carbon emissions associated
with the clean energy generated by the 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. The
Investment Manager has reviewed the Company's risk appetite to reflect its
climate ambitions that has been expressed to stakeholders and have aligned it
with NextEnergy Group'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 climatic risks associated with an 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 advisor will provide
a climate change risk assessment report, which will inform 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 Manager's ESG team have worked with an external consultant to
develop an internal climate risk rating system that is aligned with the TCFD
guidelines. It is expected that this will be implemented by Q4 2022. 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
Acute 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).
Fires Low (Unlikely + Minimal)
Flooding Low (Likely + Minimal)
Chronic Changes in precipitation patterns, solar irradiation and cloudiness Reduction of anticipated power generation, increased losses in transmission Low (Likely + 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)
Changes in dirt, dust, snow, atmospheric particles and others Low (Likely + Minimal)
Changes in mean temperatures Low (Likely + 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 risk 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, includes fuel company-owned vehicles and air-conditioning leaks.
• Scope 2: Indirect emissions from 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 Investment Manager aim to obtain the GHG emission data directly
from suppliers, although it is anticipated that this process will take time.
Until then, NESF has commissioned the Green Investment Group to estimate the
Scope 1 and 2 GHG emissions associated with the Company's solar assets.
The Company's estimated lifecycle GHG emissions are 37.6 ktCO2e/yr. The
Company aims to incorporate measured scope 3
emissions into its reporting in due course.
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 targets commitments.
Outlook
The Company is aware of the potential for the effective management of climate
risks and opportunities to impact returns and has therefore identified a few
areas to expand on its current TCFD disclosures in the future. The Company is
aiming to introduce a comprehensive scenario analysis that will help quantify
climate risks faced over time. This analysis will involve projections of
irradiation levels and power prices under two different emissions pathways,
one with high physical risk (e.g. RCP8.5) and another with high transition
risk (e.g. RCP2.6). This deeper analysis would provide greater clarity on the
potential revenue impacts across different outcomes.
The Green Investment Group has been instrumental in providing metrics for the
Companies reports and disclosures, including scope 1 and 2 emissions as well
as the number of homes powered through the Company's electricity generated.
The Company therefore intends to expand its metrics to include scope 3
emissions, which will give clarity on upstream and downstream emissions within
its value chain. Once identified, the Investment Manager can begin engaging
with its suppliers in order to take action to reduce such emissions from its
suppliers. 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
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 from the Investment
reputation is also important when it is representing the Company and its 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.
Shareholders A well-informed and supportive shareholder base is crucial to the long-term • Annual and Interim Reports.
(All investors in the Company- institutional investors, wealth managers and sustainability of our business. Understanding the views and priorities of our
retail investors (including private individuals)) shareholders is, therefore, fundamental to retaining their continued support • Quarterly factsheets.
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 announcements.
investment portfolio and create economies of scale.
• 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.
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 (Registrar, Financial Advisers, Legal A strong and constructive working relationship with our other key service • Board and Committee meetings.
advisers, Corporate Brokers, Public Relations and Auditors) providers and advisers ensures that we receive high quality services to help
deliver our investment and strategic objectives. • One-to-one meetings and calls.
• 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.
Some of our Key Stakeholders Why they are important to us How we engage with them
Lenders An appropriate amount of gearing is required to achieve our target returns. It • Provision of information to lenders in accordance with the terms of
(Provider of the Company's credit facilities) is important to maintain a strong working relationship with our existing 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 their consent
including our existing lenders, who may provide debt facilities in the future. under the relevant facility agreements.
Local Communities Ensuring our investment creates a positive social impact is core to our • See the ESG Report below.
sustainability approach.
Asset Manager The Asset Manager's performance is critical for the operating solar assets to • Monthly and ad-hoc meetings with the Investment Adviser.
deliver operational outperformance versus the budget. The Asset Manager also
provides the administration and fund accounting for the Company's • Monthly reports to the Investment Adviser.
subsidiaries, as well as providing an energy sales desk to manage our
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 effectiveness
of our risk management and internal control systems bi-annually. During the
course of these reviews, the Audit Committee has not identified or been
advised of any material failings or weaknesses that it has determined to be
material.
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.
Emerging and Principal Risks
Details of the emerging and principal risks we face that have the potential to
materially affect our business are set out below. 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
1. 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.
performance of the assets.
The geographical location of the asset has an impact on
Unplanned DNO outages, weather patterns and technical issues can impact
solar irradiation levels, due to climate variations and small differences in
generation. day lengths across 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.
2. 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
1. 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. information to formulate the Company's electricity sales and hedging
strategies.
The acquisition of subsidy-free assets will increase this risk as currently
most of their revenues are derived from the wholesale energy market with only Short-term: The Company enters into PPAs and forward contracts to fix
a part benefiting from short-term PPAs. electricity prices for a future period ranging from six to 12 months. The
NextEnergy Group has an Energy Sales desk which is responsible for hedging
The Company is exposed to a reduction in the price of electricity. The generation produced in the short-term. As at 15 June 2022, the Company had
Covid-19 pandemic has resulted in a decline in demand for energy which has secured fixed price agreements covering 85% of its electricity generation for
exacerbated recent declines in the price of electricity. This risk exists with the 2022/23 financial year and 74% for the 2023/24 financial year.
future pandemics.
Long-term: Wholesale power prices are beyond the control of the Company.
The recent supply chain issues associated with the conflict in Ukraine, Factors that could increase the price of electricity including the roll-out of
alongside wider macroeconomic and geopolitical uncertainty has led to volatile electric vehicles and the electrification of domestic heating and
power prices. 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.
The introduction of battery storage enables generated electricity to be fed in
to the grid at optimum pricing levels.
2. 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
subsidy-free assets. There are contractual arrangements in place that have warranties in case of
defaults.
If the counterparty becomes insolvent there is a risk of disruption and
financial loss until the counterparty is replaced. The Asset Manager ensures that counterparties are of an acceptable financial
standing to minimise risk.
3. 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 offset 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
1. Adverse changes in government policy and political uncertainty On 31 January 2020 the UK left the European Union. Uncertainty remains The Investment Manager and the Board believe the withdrawal of the United
regarding the impact of the agreement to the UK energy market, the regulatory Kingdom from the European Union ("Brexit") to have a very limited effect on
environment and the legal and commercial operations of the portfolio assets. the Company's financial and operating prospects. The Investment Manager
continue to closely monitor the impact on the underlying portfolio.
Changes in policies by the coalition government in Italy could affect the
value of the Italian assets. The global consequences of international conflict on power prices emphasises
the importance of national energy independence, which the Company believes it
International conflicts and geopolitical tensions may impact trade of is well placed to facilitate.
commodities, such as oil and gas, which have subsequent downstream impacts on
power price volatility and supply chain stability for solar equipment. Supply chain shortages in solar equipment could prohibit construction of new
projects and drive-up acquisition prices of existing assets. The Investment
The conflict in Ukraine has led to global volatility in supply chains and Manager has a wealth of experience and a strong network built through its
power prices. global presence that enables it to source the best projects and contracts for
the NESF portfolio.
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.
2. Adverse changes to regulatory framework for solar PV 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.
3. Changes to tax legislation and rates 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.
Media speculation remains around a potential windfall tax on UK renewable Investment in multiple jurisdictions diversifies exposure to individual
electricity generators. country regulations and hence risk.
Changes to current subsidies based on findings of the regulator would impact Increase in subsidy free assets in the portfolio reduces exposure to regulated
the Company's revenue streams. revenues, supported by the hedging strategy.
4. Health and Safety 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.
Insurance policies are in place and reviewed to increase cover where
necessary.
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 Manager's Report and notes to the Financial Statements.
The NESF Group's cash balance as at 31 March 2022 was £19.6m, all of which
was readily available. It also had immediately available but undrawn amounts
under its debt facilities of a further £49m. The NESF Group had capital
commitments totalling £59m at the year end. The majority 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,
of the following individual and combined two scenarios was reviewed by the
Directors and were deemed appropriate market standard stress tests:
• All investments consistently generate at 5% below budgeted level of
electricity output
• Power prices (on the unhedged portion of the portfolio) were reduced by
10% across the portfolio
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.
In reviewing the Company's viability, the Directors have performed a robust
assessment of its viability for the period to 31 March 2027. 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 the long-term nature of the Company's
investment strategy.
The Company owns a portfolio of solar energy infrastructure assets in the UK,
Italy 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
Manager and the Board review this as part of their business planning and to
address 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 £145m that expire in 2022 and 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 19(b), 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 2027.
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 2027.
Covid-19 Pandemic
The pandemic has affected all levels of business and society for the past two
years. The Directors believe that the Company has effective measures in place
for the risks to the business and continue to monitor developments and follow
governmental guidelines.
Ukraine Conflict
The Company's portfolio has no exposure to either Ukraine or Russia. Whilst
the Board and Investment Advisor continue to monitor the situation, it remains
too early to assess the implications on the wider supply chain.
Approval
This Strategic Report was approved by the Board on 24 June 2022 and signed on
its behalf by:
Kevin Lyon
Chairman
Governance
Introduction from the Chairman
Kevin Lyon
Chairman
I am pleased to present the Company's Corporate Governance Report, which
comprises the below, for the year ended 31 March 2022.
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
Josephine Bush during the year to add to the ESG and renewables 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
Linstock Limited in 2021. Further information on this year's evaluation
process and its findings can be found under 'Annual Performance Evaluations'
below.
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 ("Jo") 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 shortly after year end, 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' below. The most recent shareholder perception study was
undertaken by Rothschild & Co in April 2021. We will 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
24 June 2022
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
(All independent of the Investment Manager, Investment Adviser and
Administrator)
Independent Chair: Kevin Lyon (since 22 January 2014)
Principal Responsibilities: To lead the board; to ensure the board's overall
effectiveness in directing NESF
Senior Independent Director: Vic Holmes (since 22 January 2014)
Principal Responsibilities: To provide a sounding board for the chair and
serve as an intermediary for the other directors and shareholders
Non-executive Directors: Patrick Firth (since 22 January 2014), Joanne
Peacegood (since 20 February 2020) and Josephine Bush (since 1 January 2022)
SCHEDULED MEETINGS: 4 p.a.
PRINCIPAL RESPONSIBILITIES:
To promote the long-term sustainable success of NESF, generating value for
shareholders whilst having regard to the interests of wider stakeholders
To set NESF's strategic objectives and ensure that the necessary resources are
available for it to meet its objectives
To establish a framework of prudent and effective controls that enable risk to
be assessed and managed
To ensure effective engagement with shareholders and other key stakeholders
To robustly scrutinise and constructively challenge all matters that come
before the board
To identify, monitor and report on Environmental, Social and Governance (ESG)
risks and opportunities throughout NESF's value chain
AUDIT COMMITTEE
MEMBERSHIP: All Directors
CHAIR: Patrick Firth
(since 2014)
SCHEDULED MEETINGS: 3 p.a.
PRINCIPAL RESPONSIBILITIES:
To oversee the quality of financial reporting
To review and monitor the risks the company is exposed to, its risk appetite
and the effectiveness of its risk management framework
To review the effectiveness of the external audit process and independence of
the external auditor
MANAGEMENT ENGAGEMENT COMMITTEE
MEMBERSHIP: All Directors
CHAIR: Jo Peacegood
(since 2021)
SCHEDULED MEETINGS: 1 p.a.
PRINCIPAL RESPONSIBILITIES:
To evaluate at least annually, the performance and continuing appointments of
the Investment Manager and other key service providers and advisers
RENUMERATION AND NOMINATIONS COMMITTEE
MEMBERSHIP: All Directors
CHAIR: Vic Holmes
(since 2014)
SCHEDULED MEETINGS: 1 p.a.
PRINCIPAL RESPONSIBILITIES:
To keep under review the Directors remuneration policy
To review and evaluate regularly the Board's composition and succession
planning and lead the process for new Board appointments
To lead the annual evaluation of the Board and Committees
ESG COMMITTEE
MEMBERSHIP: All Directors
CHAIR: Josephine Bush
(since 2022)
SCHEDULED MEETINGS: 2 p.a.
PRINCIPAL RESPONSIBILITIES:
To provide strategic advice to the Board on ESG matters
Support and challenge NEC with respect to ESG matters including investment,
divestment and asset management activities
Board of Directors
Kevin Lyon
Non-executive Director
Resident: UK
Appointed: 22 January 2014
Independent: Yes
Relevant Skills and Experience:
Over 30 years of experience in private equity and Director positions in a
number of different companies.
Qualified Chartered Accountant.
Spent approximately 17 years with 3i Group, responsible for their core private
equity business across the UK, with a team of 10 directors and 40 executives.
Independent Non-executive Director and Chairman of more than 20 companies over
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.
Principal External Appointments:
Chairman of Inoapps Ltd, a vendor of Oracle software.
Chairman of KultraLab Ltd, a technology led behavioural science consultancy.
Chairman of AMG Vango, an owner & distributor of outdoor brands.
Non-executive Director of retailer SpaceNK.
Josephine Bush
Non-executive Director
Resident: UK
Appointed: 1 January 2022
Independent: Yes
Relevant Skills and Experience:
Over 14 years of experience in the renewable energy sector.
Was a senior partner at Ernst & Young LLP for 14 years specialising in the
renewable energy sector and amongst other things was responsible for
developing the Ernst & Young LLP global renewables business plan. She was
a member of the Ernst & Young LLP Power and Utilities Board and UK&I
Governance Board.
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.
Principal External Appointments:
Chair of the Audit, Risk and ESG committee, of Vulcan Energy Resources Ltd
(ASX listed).
Non-executive director of Net Zero Now Ltd and Foresight Sustainable Forestry
Company PLC.
Member of the investment committee of Gresham House's British Sustainable
Infrastructure Fund.
Patrick Firth
Non-executive Director
Resident: UK
Appointed: 22 January 2014
Independent: Yes
Relevant Skills and Experience:
Has worked in the fund industry in Guernsey since joining Rothschild Asset
Management C.I. Limited in 1992.
Qualified Chartered Accountant.
Managing Director at Butterfield Fund Services (Guernsey) Limited
(subsequently Butterfield Fulcrum Group (Guernsey Limited), a Company
providing third party fund administration services, from 2002 to 2009.
Former Chairman of the Guernsey International Business Association and of the
Guernsey Investment Fund Association.
A member of the Chartered Institute of Securities and Investment.
Principal External Appointments:
Non-executive Director of Riverstone Energy Limited and India Capital Growth
Fund Limited.
Vic Holmes
Non-executive Director
Resident: Guernsey
Appointed: 22 January 2014
Independent: Yes
Relevant Skills and Experience:
Over 30 years of experience in financial services.
Qualified Chartered Certified Accountant.
Joined the Board of Guernsey International Fund Management Limited, Guernsey's
largest fund administration company, in 1986.
Senior roles in the international fund administration services business of the
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.
Principal External Appointments:
Chairman of Permira Holdings Limited, Utmost Worldwide Limited, Highbridge
Tactical Credit Fund Limited and Ocorian Administration (Guernsey) Limited.
Non-executive Director of DBG Management GP (Guernsey) Limited, Rothschild
& Co BI Limited and a range of Ashmore funds.
Joanne Peacegood
Non-executive Director
Resident: Guernsey
Appointed: 20 February 2020
Independent: Yes
Relevant Skills and Experience:
Over 20 years of experience in the Investment Management sector including
Premium Listed Funds and Alternative assets.
Worked for big four accounting firms in the Channel Islands, UK and Canada for
20 years.
Qualifications include Chartered Accountant (FCA), Institute of Directors
Diploma and BA honours degree in Accounting.
Led hundreds of audits for reputable Asset Management clients and Controls
Assurance engagements.
Expertise in Valuations, Risk, Controls, Corporate Governance and Regulations.
Innovation & Technology Director overseeing technology solutions to enable
businesses to operate more efficiently.
Principal External Appointments:
Non-executive Director roles include Private Equity, Debt, Hedge, Real Estate,
Utilities, Asset Manager and Chair of Castelnau Group Limited.
Chair of the Guernsey Investment & Fund Association and Council member of
the Guernsey International Business Association.
Member of the AIC Channel Islands Committee.
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 (www.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 2022.
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, through investment in a diversified
portfolio of solar 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' above. 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 above);
• the key considerations relating to new investment opportunities (see
"Portfolio Highlights" in the Investment Adviser's Report above);
• 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'
above); and
• the sustainability of the Company's business model (see 'the Going
Concern and Viability section' above).
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' above 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 above;
• 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' above;
• 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'
above;
• 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 of how they
foster these relationships are included above;
• 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 above; and
• a summary of the Board's principal activities during the year under
review is included below.
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 Chairman (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.
There were no conflict situations during the year under review (or since the
end of the year).
Division of Responsibilities
Board
The Board comprises five 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' above);
• 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 2022
appraisal of the Chairman can be found under 'Annual Performance Evaluations'
above.
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' above for
information on the 2022 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 below.
• 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 below.
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 (www.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.
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 NextPower III 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 Advisor's
appointment is terminable by the Investment Advisor 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 above);
• 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 above and in the portfolio highlights above);
• assessment of key service providers including transferring the
administration of the Company to Ocorian Administration (Guernsey) Limited
during the year;
• approving the Annual and Interim Reports;
• the Board and Committee Composition and Evaluation (see 'Board
Composition and Evaluation' above); 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 below. 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 2022. 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' above.
• Succession planning: Details of the intended succession plan can be
found under 'Succession Planning' above.
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, one ad hoc meeting of the Audit Committee and two ad hoc meetings
for each of the Remuneration and Nominations Committee and Management
Engagement 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 Engagement Committee Remunerations and Nominations Committee
Kevin Lyon 4/4 3/3 1/1 1/1
Vic Holmes 4/4 3/3 1/1 1/1
Patrick Firth 4/4 3/3 1/1 1/1
Joanne Peacegood 4/4 3/3 1/1 1/1
Josephine Bush* 1/1 1/1 1/1 0/0
*Josephine Bush has attended all meetings since her appointment on 1 January
2022.
Board Composition, Independence and Succession
The Board currently comprises five 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 on above.
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 and Josephine Bush has held her position since 1 January 2022. 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 as far as practical in light of Covid-19.
Details of changes to the Board during the year under review can be found
under 'Board Composition and Evaluation' above.
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. Our 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. Accordingly, we do not believe it is in the interests of the
Company or its shareholders to set prescriptive targets for diversity on the
Board.
Board Tenure
We have considered the question of tenure for Directors, including the
Chairman, and are mindful that three of our five Directors will reach 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.
None of the Directors have been on the Board for nine years or more. The date
of appointment of each Director can be found in their biographies above.
Succession Planning
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.
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 three
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 undertook 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 met 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 reviewed 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 Josephine Bush be elected and all other Directors be
re-elected at the AGM.
Chairman
Led by the Senior Independent Director the review of the Chairman was very
positive, with the other Directors commenting favourably on, in particular,
the Chairman's leadership, his facilitation of constructive Board relations
and his encouragement of open and inclusive Boardroom discussions. The other
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 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 below.
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.
The formal review took place in Q2 2022 to align with the Board's calendar of
events for the year ended 31 March 2022. The Board remain satisfied that the
Administrator and the Company's other key service providers were all operating
effectively and providing a good level of service.
Directors' Remuneration
The Directors' Remuneration Report below 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' above. The
Company's financial instrument risks are discussed in note 22 to the Financial
Statements below.
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
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' of the Audit Committee Report), taking into account the
information under 'Risks and Risk Management' below.
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 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 NextPower III 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 below, the Board does not currently consider that an internal
audit function is required.
Approval
This Corporate Governance Statement was approved by the Board on
24 June 2022 and signed on its behalf by:
Kevin Lyon
Chairman
24 June 2022
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 2022.
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 2021, was implemented during the year ended 31 March 2022.
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
(www.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 three 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 five 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 2020. 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 2022, together with the comparative figures for 2021.
No additional fees were paid to the Directors during the year ended
31 March 2022 (2021: none).
The total amount of Directors expenses reimbursed during the year ended
31 March 2022 was £1,429 (2021: £839).
Director Role 2022 2021
Kevin Lyon Chairman £70,000 £70,000
Patrick Firth Audit Committee Chairman £50,000 £50,000
Vic Holmes Senior Independent £46,000 £46,000
Director/
Remuneration and
Nominations
Committee
Chairman
Joanne Peacegood Management Engagement Committee Chairman £45,000 £42,000
Josephine Bush(1) ESG Committee Chairman £10,500(3) -
Sue Inglis(2) Management - £45,000
Engagement
Committee
Chairman
(1) Appointed with effect from 1 January 2022
(2) Resigned with effect from 31 March 2021.
(3) 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.
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 2022 2021
Kevin Lyon 210,000 160,000
Patrick Firth 91,207 89,641
Vic Holmes 158,400 110,000
Joanne Peacegood 50,000 10,000
Josephine Bush 10,000 N/A
Sue Inglis N/A 50,000
The interests of the Directors (and their connected persons) in the ordinary
shares of the Company at 31 March 2022, together with the comparative
figures for 2021, 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 2022, together with the comparative figures
for 2021.
2022 2021 Change
£'000 £'000 £'000
Directors' total remuneration 222 253 (31)
Total dividends paid or payable(3) 41,940 41,011 929
(3) 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.
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 9 August 2021, of the 366,216,711 votes cast by proxy and
at the meeting (including votes cast at the Chairman's discretion), 99.95%
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 2021,
and 0.03% were against. 85,399 votes were withheld.
Approval
This Directors' Remuneration Report was approved by the Board on
24 June 2022 and signed on its behalf by:
Vic Holmes
Remuneration and Nominations
Committee Chairman
24 June 2022
Audit Committee Report
Patrick Firth
Audit Committee Chairman
I am pleased to present the Audit Committee's Report for the year ended
31 March 2022.
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 comprise all
of the Directors including Josephine Bush who was appointed during the year.
As permissible under the AIC Code the Chairman of the Board is a member of the
Committee to enable his 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 and interim
review. 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 2022 (details of the Committee members' attendance at the
meetings can be found under 'Meeting Attendance' above).
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
(www.nextenergysolarfund.com (http://www.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' above). 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' above. The Committee also reviewed the most
recent ISAE 3402 reports from each administrator and sought additional
assurances where required including confirmation from the previous and new
Administrator 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 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 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
below, 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, 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 above.
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 2022
The production of the Annual Report, including the audit of the Company's
financial statements, for the year ended 31 March 2022 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 any 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 2022, 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 £45,000 (equivalent to
7.2% of the audit fee for the year ended 31 March 2022).
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 2022, 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 2022 were as
follows:
2022
£'000
NESF 84
Subsidiaries 497
Total audit fees 581
Interim review 45
Total fees 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 in 2019 following a competitive tender, the Committee will consider
the need for a competitive tender for the role of external auditor in, or
before, 2024. 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 three 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
24 June 2022 and signed on its behalf by:
Patrick Firth
Audit Committee Chairman
24 June 2021
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 2022.
This Directors' Report and the Strategic Report respectively comprise the
'management report', for the purposes of the FCA's Disclosure Guidance and
Transparency Rule 4.1.5R.
Financial Results and Dividends
The financial results for the year can be found in the Statement of
Comprehensive Income below.
Details of the four interim dividends that have been declared in respect of
the year ended 31 March 2022 are set out in note 15(b) to the Financial
Statements below. 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 2023' above.
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 2023' above.
Share Capital
During the year, the Company issued 2,089 566 ordinary shares as scrip shares.
As at 31 March 2022 and the date of this Directors' Report, there were
589,077,244 ordinary shares in issue.
The Company issued no preference shares within the year ended 31 March 2022.
As at 31 March 2022 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 below.
Substantial Shareholdings
As at 31 March 2022, 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 79,568,646 13.52
LLP on behalf of discretionary funds
under management
M&G Investments 56,283,295 9.56
Gravis Capital Mgt 40,429,010 6.87
Legal & General Investment Mgt 37,040,554 6.29
Baillie Gifford & Co 33,482,097 5.69
Investec Wealth & Investment (RS) 30,085,492 5.11
Between 31 March 2022 and the date of this Directors' Report, the Company
was notified that Baillie Gifford & Co has an interest in 1,202,381
ordinary shares (0.2% of the issued ordinary shares). There have been no
other notifications during that period.
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 £100,000 (2021: £80,000) to the Foundation. No other
charitable donations were made during the year.
Events after the Balance Sheet Date
Details of events occurring since 31 March 2022 can be found in note 28 to the
Financial Statements below.
Independent Auditor
The Company appointed KPMG Channel Islands Limited ("KPMG") to act as its
independent auditor on 27 September 2019 and re-appointed KPMG in the same
capacity at the AGM in August 2021.
KPMG has indicated its willingness to continue as auditor for the year ending
31 March 2023 and resolutions to re-appoint KPMG and to authorise the
Directors to determine KPMG's remuneration, will be proposed at this year's
AGM.
2022 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 (www.nextenergysolarfund.com).
Approval
This Directors' Report was approved by the Board on 24 June 2022 and signed
on its behalf by:
Kevin Lyon
Chairman
24 June 2022
Statement of Directors' Responsibilities
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
(www.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
24 June 2022
Independent Auditor's Report to the Members of NextEnergy Solar Fund Limited
Our opinion is unmodified
We have audited the financial statements of Next Energy Solar Fund
Limited (the "Company"), which comprise the statement of financial position
as at 31 March 2022, 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 2022, 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 2021):
The risk Our response
Valuation of investments at fair value through profit and loss Basis Our audit procedures included the following:
£842.3 million; (2021: £769.6 million) The Company's investments in its direct subsidiaries are carried at fair value Control evaluation:
through profit or loss and represent 123% of the Company's net assets. Those
Refer to the Audit Committee Report, accounting policies and financial direct subsidiaries hold equity interests in special purpose vehicles which in We assessed the design and implementation of the Investment Manager's review
instrument disclosures. turn own solar photovoltaic assets (the "underlying investment portfolio") for control over the valuation of the underlying investment portfolio and the
which there is no liquid market. Private Investment.
The fair value of these investments has been determined as the sum of the fair Valuation model integrity and model inputs:
value of the underlying investment portfolio and the other residual net assets
within the subsidiaries. The fair value of the underlying investment portfolio - we tested the valuation model for mathematical accuracy including but not
has been determined using the income approach whereby the long term forecasted limited to material formula errors;
cash flows of each individual solar photovoltaic asset is discounted at a rate
that reflects their risk profile. - we verified key inputs into the valuation model, such as power price
forecasts, energy yield, contracted revenue and operating costs to supporting
Inherent in these long term forecasted cash flows are macro-economic documentation;
assumptions including power price forecasts, future energy yields and
inflation. - we agreed a value driven sample of balances within the residual net asset
amounts at subsidiary level to supporting documentation such as independent
The Company's sole investment in a private equity solar fund ("Private bank confirmations, post year end receipts and other source documentation;
Investment") represents 3% of the Company's net assets. The fair value of the
Private Investment is based on the Company's proportionate share of the - we obtained and vouched all significant acquisitions during the year to
reported net asset value ("NAV") of the Private Investment. supporting documentation; and
Risk - in order to assess the reliability of management's forecasts we completed a
retrospective assessment by recalculating current year's revenue and comparing
In relation to the underlying investment portfolio, the valuation risk the result to the historical forecasted amounts.
represents a risk of fraud and error associated with estimating the timing and
amount of long term forecasted cash flows alongside the selection and Benchmarking valuation model assumptions:
application of appropriate assumptions. Changes to long term forecasted cash
flows and/or the selection and application of different assumptions may result With support from our KPMG valuation specialist we challenged the
in a materially different valuation for the underlying investment portfolio appropriateness of the Company's valuation methodology and assumptions
which in turn would impact the valuation of the Company's investments at fair including the discount rate, power price forecasts and other macro-economic
value through profit or loss. assumptions applied, by:
In relation to the Private Investment, the valuation risk arises as a result - assessing the appropriateness of the valuation methodology applied by the
of judgements made by management in estimating the fair value of the Company's Investment Manager;
investment in that Private Investment.
- benchmarking against independent market data and relevant peer group
companies, and
- using our KPMG valuation specialist's experience in valuing similar
investments.
Assessing fair value - Private Investment
- we obtained a confirmation of the fair value as at the year end from the
manager of that Private Investment;
- we agreed the fair value to the unaudited capital account received from the
manager of that Private Investment; and
- we obtained the audited financial statements of the Private Investment as at
31 December 2021 to assess the basis of preparation together with accounting
polices applied and whether the audit opinion is unmodified.
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 £13.3m,
determined with reference to a benchmark of net assets of £668.5m, of which
it represents approximately 2% (2021: 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% (2021: 75%) of materiality for the financial
statements as a whole, which equates to £10m. 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:
· the availability of capital to meet operating costs and other
financial commitments; and
· 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 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 disclosures describing these emerging and principal 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 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 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
24 June 2022
Statement of Comprehensive Income
For the year ended 31 March 2022
Notes 2022 2021
£'000
£'000
Income
Income comprises:
Interest income 12,799 12,000
Investment income 42,009 38,868
Administrative services income 10,226 9,128
Net changes in fair value of investments 17 78,665 (3,421)
Total net income 143,699 56,575
Expenditure
Preference share dividends 9,454 9,526
Management fees 5 5,041 5,157
Legal and professional fees 744 716
Directors' fees 7 222 253
Administration fees 6 227 237
Other expenses 9 122 142
Audit Fees 8 138 110
Charitable donation 10 100 80
Regulatory fees 79 75
Insurance 22 55
Total expenses 16,149 16,351
Profit and comprehensive income for the year 127,550 40,224
Earnings per ordinary share - basic 14 21.69p 6.87p
Earnings per ordinary share - diluted 14 17.34p 6.32p
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 2022
Notes 2022 2021
£'000
£'000
Non-current assets
Investments 17 842,346 769,644
Total non-current assets 842,346 769,644
Current assets
Cash and cash equivalents 19,608 10,809
Trade and other receivables 11 16,389 22,211
Total current assets 35,997 33,020
Total assets 878,343 802,664
Current liabilities
Trade and other payables 12 (11,785) (23,953)
Total current liabilities (11,785) (23,953)
Non-current liabilities
Preference shares 23 (198,058) (197,920)
Total non-current liabilities (198,058) (197,920)
Net assets 668,500 580,791
Equity
Share capital and premium 13 608,037 605,938
Retained earnings 60,463 (25,147)
Equity attributable to ordinary shareholders 668,500 580,791
Total equity 668,500 580,791
Net assets per ordinary share 16 113.5p 98.9p
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 24 June 2022 and signed on its behalf by:
Kevin
Lyon
Patrick Firth
Chairman
Director
Statement of Changes in Equity
For the year ended 31 March 2022
Share capital Retained Total equity
and premium
earnings
£'000
£'000
£'000
Ordinary shareholders' equity at 1 April 2020 602,989 (24,360) 578,629
Profit and comprehensive income for the year - 40,224 40,224
Scrip shares issued in lieu of dividends 2,949 - 2,949
Ordinary dividends declared - (41,011) (41,011)
Ordinary shareholders' equity at 31 March 2021 605,938 (25,147) 580,791
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
Statement of Changes in Cash Flows
For the year ended 31 March 2022
Notes 2022 2021
£'000
£'000
Cash flows from operating activities
Profit and comprehensive income for the year 127,550 40,224
Adjustments for:
Interest income receivable (12,799) (12,000)
Interest income received 12,799 12,000
Investment income receivable (42,009) (38,868)
Investment income received 34,019 41,164
Change in fair value of investments 17 (78,665) 3,421
Proceeds from HoldCos 17 82,443 9,546
Payments to HoldCos 17 (58,370) (29,051)
Financing proceeds from HoldCos 42,100 35,200
Financing proceeds returned to HoldCos (42,100) (35,200)
Proceeds from NextPower III 17 10,502 -
Payments to NextPower III (27,716) -
Net changes in unrealised foreign exchange (32) -
Financial debt amortisation 139 139
Dividends paid on preference shares as finance costs 9,454 9,526
Operating cash flows before movements in working capital 57,315 36,101
Changes in working capital
Movement in trade and other receivables 694 (514)
Movement in trade and other payables 131 (2,344)
Net cash generated from operating activities 58,140 33,242
Cash flows from financing activities
Dividends paid from preference shares (9,500) (9,499)
Dividends paid on ordinary shares (39,841) (38,062)
Net cash used in financing activities (49,341) (47,561)
Net movement in cash and cash equivalents during year 8,799 (14,319)
Cash and cash equivalents at the beginning of the year 10,809 25,128
Cash and cash equivalents at the end of the year 19,608 10,809
The accompanying notes are an integral part of these audited financial
statements
Notes to the Financial Statements
For the year ended 31 March 2022
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
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
in 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 and Spain and that are predominantly fully constructed, operational and
generating renewable electricity and entered into the battery storage asset
market this year. 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:
• current net asset position;
• maturity of debt facilities;
• future investment transactions;
• expenditure and capital commitment; and
• forecast income and cash flows.
The NESF Group's cash balance as at 31 March 2022 was £19.6m, all of which
was readily available. It also had immediately available but undrawn amounts
under its debt facilities of a further £48.8m. The NESF Group had capital
commitments totalling £59m 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 six holding companies (NextEnergy Solar Holdings Limited,
NextEnergy Solar Holdings II Limited, NextEnergy Solar Holdings III Limited,
NextEnergy Solar Holdings IV Limited and NextEnergy Solar Holdings V Limited
and NextEnergy Solar Holdings VI 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 Income Statement.
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
NextPower III, 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 energy 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.
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 valuation guidelines. The Company's
Private Equity Solar fund investment (NextPower III) 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 2021 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 2022 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 protected future cash flows. These valuations are reviewed
and approved by the Board. The investments are held through SPVs and NextPower
III 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
£842.4m (2021: £769.6m) and consist of one Private Equity Solar fund
investment (NextPower III) which has been valued using estimated attributable
NAV and 99 (2021: 94) 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 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
conflict in Ukraine has had an unprecedented and 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 2022 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 17.The Company has one associate
investment, Agenor, which is measured at cost since it is not yet operational
per note 19(a).
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.
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 NextPower III. For the year ended 31 March
2022 the Company incurred £5.0m in management fees, of which £62k was
outstanding at 31 March 2022. (2021: £5.2m in management fees of which nil
was outstanding at 31 March 2021).
The Investment Management Agreement is terminable by not less than 12 month's
written notice.
6. Administration Fees
Under an amended Administration Agreement with the previous administrator the
administration fee was a fixed fee of £220k per annum with effect from 1
October 2020. With effect from 1 January 2022, the fixed fee was to increase
annually in line with the annual increase in Guernsey RPI. 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. With effect from
1 January 2023, the fixed fee will increase annually in line with the annual
increase in Guernsey RPI.
For the year ended 31 March 2022 the previous administrator was entitled to
administration fees of £227k (2021: £237k), of which £115k was outstanding
at 31 March 2022 (2021: £57k).
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 £222k (2021: £253k), of
which £11k was outstanding at 31 March 2022 (2021: £nil).
8. Audit Fees
The analysis of the auditor's remuneration is as follows:
31 March 31 March
2022
2021
£'000
£'000
Fees payable to the auditor for the audit of the Company 84 80
Additional audit fee and disbursements for prior year 54 30
Total 138 110
9. Other Expenses
31 March 31 March
2022
2021
£'000
£'000
Amortisation expense 139 139
Sundry expenses (18) 2
Director's expenses 1 1
Total 122 142
10. Charitable Donation
During the year ended 31 March 2022, the Company made a charitable donation of
£100k to the Foundation (2021: £80k). Information on the Foundation and how
it used the donation can be found on our website
(www.nextenergysolarfund.com).
11. Trade and Other Receivables
31 March 31 March
2022
2021
£'000
£'000
Administrative service fee income receivable - 759
Accrued Income 20 -
Prepayments 74 29
Due from HoldCos 16,295 21,423
Total trade and other receivables 16,389 22,211
Amounts due from HoldCos are interest free and payable on demand.
12. Trade and Other Payables
31 March 31 March
2022
2021
£'000
£'000
Other payables 273 142
Due to NextPower III 896 -
Preference dividends payable 2,342 2,388
Due to HoldCos 8,274 21,423
Total trade and other payables 11,785 23,953
Amounts due to HoldCos are interest free and payable on demand.
During the year, an amount of £13.1m representing a non-cash dividend was
set-off against amounts due to Holdco 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 31 March
2022
2021
Shares
Shares
Opening balance 586,987,678 584,205,931
Scrip shares issued during the year 2,089,566 2,781,747
Total issued at 31 March 2022 589,077,244 586,987,678
Issued ordinary shares - share capital and premium 31 March 31 March
2022
2021
£'000
£'000
Opening balance 605,938 602,989
Value of scrip shares issued during the year 2,099 2,949
Total issued at 31 March 2022 608,037 605,938
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
2022
2021
Profit and comprehensive income for the year (£'000) 127,550 40,224
Basic weighted average number of issued ordinary shares 588,014,946 585,423,190
Earnings per share basic 21.69p 6.87p
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
2022
2021
Profit and comprehensive income for the year (£'000) 127,550 40,224
Plus: preference share dividends paid during the year (£'000) 9,454 9,526
Profit for the year attributable to ordinary shareholders (£'000) 137,004 49,750
Weighted average number of issued ordinary shares 588,014,946 585,423,190
Plus: weighted number of ordinary shares issuable on any conversion of 202,224,469 202,020,202
preference shares, based on the NAV per ordinary share as at the year end
Adjusted weighted average number of ordinary shares 790,239,415 787,443,392
Earnings per share diluted 17.34p 6.32p
15. Ordinary Share Dividends
a) Paid During the year
31 March 31 March 31 March 31 March
2022
2022
2021
2021
£'000
Pence per
£'000
Pence per
share
share
Quarter 1 10,346 1.7625 10,034 1.7175
Quarter 2 10,527 1.7900 10,310 1.7625
Quarter 3 10,529 1.7900 10,324 1.7625
Quarter 4 10,538 1.7900 10,343 1.7625
Total 41,940 7.1325 41,011 7.005
b) Declared in Respect of the year
31 March 31 March 31 March 31 March
2022
2022
2021
2021
£'000
Pence per
£'000
Pence per
share
share
Quarter 1 10,527 1.7900 10,310 1.7625
Quarter 2 10,529 1.7900 10,324 1.7625
Quarter 3 10,538 1.7900 10,343 1.7625
Quarter 4 10,544 1.7900 10,346 1.7625
Total 42,138 7.1600 41,323 7.0500
16. Net Assets per Ordinary Share
31 March 31 March
2022
2021
Ordinary shareholders' equity (£'000) 668,500 580,791
Number of issued ordinary shares 589,077,244 586,987,678
Net assets per ordinary share 113.5p 98.9p
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 NextPower III. 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 2022 (2021: none).
The Company's total investments at fair value are recorded under 'Non-current
assets' in the Statement of Financial Position.
31 March 31 March
2022
2021
£'000
£'000
Brought forward cost of investments 815,494 795,989
Investment proceeds from HoldCos (82,443) (9,546)
Investment payments to HoldCos 58,370 29,051
Investment proceeds from NextPower III (10,502) -
Investment payments to NextPower III 28,612 -
Carried forward cost of investments 809,531 815,494
Brought forward unrealised losses on valuation (45,850) (42,429)
Movement in unrealised gains/(losses) on valuation 78,665 (3,421)
Carried forward unrealised gains/(losses) on valuation 32,815 (45,850)
Total investments at fair value 842,346 769,644
Non-cash transactions: On 23 February 2022, NESH V issued Eurobonds listed on
The International Stock Exchange totalling £6.6m.
To facilitate the acquisition of various investments, £42.1m was drawn down
at subsidiary level, remitted to the Company before being returned to a
subsidiary.
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 Associates
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
NextPower III directly. The HoldCos are all incorporated in the UK and 100%
directly owned. There are no cross guarantees amongst NESF Group entities.
During the year a subsidiary of the Company invested in Camilla Battery
Storage Limited with another company, management have assessed the substance
of this investment and have concluded that it meets the control requirements
of IFRS 10 Consolidated Financial Statements and is therefore treated as a
subsidiary not a joint venture as per IFRS 11 Investments in Associates and
Joint Ventures. Below is the legal entity name for the SPVs, all owned 100% at
31 March 2022 directly or indirectly through the HoldCos listed below (besides
Agenor which is owned 24.5% by Next Energy Solar Holdings V Limited).
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 Ltd 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 Ltd UK Wellingborough Solar Limited UK
NextEnergy Solar Holdings II Limited UK
ESF Llwyndu Limited UK Trowbridge PV Limited UK
NextEnergy Solar Holdings III Limited UK
Balhearty Solar Limited UK Burcroft Solar Parks Ltd UK
Ballygarvey Solar Ltd UK Burrowton Farm Solar Park Ltd UK
BESS Pierces Ltd UK Camilla Battery Storage Limited UK
Birch Solar Farm CIC UK Chilton Cantello Solar Park Ltd UK
Blenches Mill Farm Solar Park Ltd UK Crossways Solar Park Ltd UK
Brafield Solar Limited UK Empyreal Energy Limited UK
Francis Lane Solar Limited UK Fiskerton Limited UK
Gourton Hall Solar Limited UK NextZest Ltd UK
Greenfields (T) Limited UK PF Solar Limited UK
Helios Solar 1 Limited UK Pierces Solar Limited UK
Helios Solar 2 Limited UK Raglington Farm Solar Park Ltd UK
Hook Valley Farm Solar 2 Park Ltd UK Renewable Energy HoldCo Ltd UK
Knockworthy Solar Park Ltd UK RRAM Energy Limited UK
Lark Energy Bilsthorpe Ltd UK Saundercroft Farm Solar Park Ltd UK
Le Solar 51 Limited UK SL Solar Services Ltd UK
Little Irchester Solar Limited UK Sywell Solar Limited UK
Little Staughton Airfield Solar Limited UK Tau Solar Limited UK
Micro Renewables Domestic Ltd UK Temple Normanton Solar Limited UK
Micro Renewables Ltd UK TGC Solar Radbrook Ltd UK
Moss Farm Solar Limited UK NextPower Grange Limited UK
NESH 3 Portfolio A Limited UK Thornborough Solar Limited UK
Nextpower Bosworth Ltd UK NextPower South Lowfield Limited UK
Nextpower Eelpower Ltd UK Thurlestone-Leicester Solar Limited UK
Nextpower Higher Farm Ltd UK UK Solar (Fiskerton) LLP UK
Nextpower High Garrett Ltd UK Warmingham Solar Limited UK
NextPower Hops Energy UK Wheb European Solar (UK) 2 Ltd UK
Nextpower SPV 4 Ltd UK Wheb European Solar (UK) 3 Ltd UK
Nextpower SPV 6 Ltd UK Whitley Solar Park (Ashcott Farm) Ltd UK
Nextpower SPV 10 Ltd UK Wickfield Solar Ltd UK
Nextpower SPV Water Projects Ltd UK Wyld Meadow Farm 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* Spain
NextEnergy Solar Holdings VI Limited UK
Bowden Lane Solar Park Ltd UK Green End Renewables Limited UK
Fenland Renewables Limited UK Tower Hill Farm Renewables Limited UK
* Agenor is an associate of the Company, not a subsidiary.
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 2022, investments held at
fair value using the discounted cash flow methodology totalled £803.2m (2021:
£740.3m).
During the year the Company invested directly in a private equity fund
NextPower III 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 2022, investments held at fair
value using NAV totalled £17.3m (31 March 2021: £nil).
Investments in assets that are not yet operational (this includes the
co-investment into Project Agenor) 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 2022, investments held at fair value using the cost methodology
totalled £21.9m (2021: £29.3m).
b) Sensitivity Analyses of Changes in Significant Unobservable Inputs
(i) Sensitivity analysis of changes in significant unobservable inputs of
underlying operating solar assets
The operating solar assets 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 31 March
2022
2021
Weighted average discount rate 6.3% 6.3%
Range of discount rates (unlevered to levered) 5.75% to 7.25% 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 2022
Directors' valuation (£20.1m) £842.4m £21.6m
Directors' valuation - percentage movement (2.7%) 2.9%
Change in NAV per ordinary share (3.4p) 3.7p
31 March 2021
Directors' valuation (£20.6m) £769.6m £22.3m
Directors' valuation - percentage movement (3.4%) 3.7%
Change in NAV per ordinary share (3.5p) 3.8p
Power Price
As at 31 March 2022, estimates implied an average rate of growth of UK
electricity prices (2022-2041) of approximately -7.7% (2021: -0.2%) in 2022
real terms and an average rate of growth of Italian electricity prices
(2022-2041) of approximately -4.7% (2021: -1.4%) in 2022 real terms. As at 31
March 2022, estimates implied a long-term inflation rate of 2.3% (2021: 3.0%).
The impact of the current higher power price environment, heightened by the
conflict in Ukraine, on 2022 power prices has been unprecedented. 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 2022
Directors' valuation (£48.9m) £842.4m £46.5m
Directors' valuation - percentage movement (6.6%) 6.3%
Change in NAV per ordinary share (8.3p) 7.9p
31 March 2021
Directors' valuation (£42.2m) £769.6m £40.9m
Directors' valuation - percentage movement (6.9%) 6.7%
Change in NAV per ordinary share (7.2p) 7.0p
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 2022
Directors' valuation (£46.2m) £842.4m £43.9m
Directors' valuation - percentage movement (6.3%) 6.0%
Change in NAV per ordinary share (7.8p) 7.5p
31 March 2021
Directors' valuation (£40.4m) £769.6m £39.6m
Directors' valuation - percentage movement (6.6%) 6.5%
Change in NAV per ordinary share (6.9p) 6.8p
Inflation Rates
The portfolio valuation assumes long-term inflation of 2.3% (2021: 3.0%) 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 3.0% (2021:0.5%), with all other
variables held constant.
Inflation rate sensitivity -3.0% change Investments +3.0% change
31 March 2022
Directors' valuation (£132.9m) £842.4m £191.1m
Directors' valuation - percentage movement (18.0%) 25.9%
Change in NAV per ordinary share (22.6p) 32.4p
31 March 2021 -0.5% change Investments +0.5% change
Directors' valuation (£30.6m) £769.6m £28.8m
Directors' valuation - percentage movement (4.7%) 5.0%
Change in NAV per ordinary share (4.9p) 5.3p
Operating Costs
The table below shows the sensitivity of the portfolio to changes in operating
costs by plus or minus 5% (2021:10%) at the SPVs level, with all other
variables held constant.
Operating costs sensitivity +5% change Investments -5% change
31 March 2022
Directors' valuation (£6.5m) £842.4m £6.5m
Directors' valuation - percentage movement (0.9%) 0.9%
Change in NAV per ordinary share (1.1p) 1.1p
31 March 2021 +10% change Investments -10% change
Directors' valuation (£11.9m) £769.6m £11.8m
Directors' valuation - percentage movement (2.0%) 1.9%
Change in NAV per ordinary share (2.0p) 2.0p
Tax Rates
The UK corporation tax rate used in the portfolio valuation is 19% until 2023
and 25% thereafter (2021: 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 NextPower III, the direct private equity investment as at 31 March
2022 was £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, credit
risk, currency risk and interest rate risk.
A movement of 10% in the value of the private equity investment would move the
Company NAV at the year end by 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 2022 they are held at £198.1m (2021: £197.9m). The
transaction costs are amortised over the expected life of the preference
shares to 2036. The carrying value of the preference shares approximate their
fair value as at 31 March 2022.
21. Capital Management
a) Capital Structure
The NESF Group, which comprises the Company and its unconsolidated
subsidiaries (being the HoldCos and SPVs) and NextPower III, manages its
capital to ensure that it will be able to continue as a going concern while
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, are 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 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
HoldCos or SPVs, 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 2022, the Company had £200m of preference shares in issue
(2021: £200m) and no financial debt outstanding. The subsidiaries had
£283.3m in long-term debt, look through debt and revolving credit facilities
outstanding (2021: £246.3m) (see note 23(b), representing a gearing level of
42% (2021: 43%).
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 matrix 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 2022 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(b).
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 direct 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 value of the assets 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 2022. Of the £278.5m (2021:
£246.3m) credit facilities outstanding (excluding NextPower III look through
debt of £4.8m), £115.8m (2021: £119.6m) had fixed interest rates and the
remaining £162.7m (2021: £126.7m) 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 £66.5m (2021: £72.6m). The
counterparties to these swaps are all Investment grade financial institutions.
The remaining £96.2m (2021: £54.1m) had floating rates which are not hedged
and are not considered by the Directors to be significant.
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 on 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 31 March
2022
2021
£'000
£'000
Cash and cash equivalents 19,608 10,809
Trade and other receivables 16,389 22,211
Debt investments 306,554 300,000
Total 342,551 333,020
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 2022, 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 (2021: 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 Standard & Poor's Cash
£'000
31 March 2022
Barclays Bank PLC Long - A 19,608
Short - A/A-1
31 March 2021
Barclays Bank PLC Long - A 5,809
Short - A/A-1
Northern Trust Long - AA- 5,000
Short - 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 Up to 3 months £'000 3 to 12 months £'000 Greater than 12 months
amount
£'000
£'000
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) - -
31 March 2021
Assets
Cash and cash equivalents 10,809 10,809 - -
Trade and other receivables 22,211 22,211 - -
Liabilities
Contractual preference shares repayment and dividends payable(1) (200,308) (2,388) (7,132) (335,376)
Trade and other payables (21,565) (21,565) - -
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 Carry Amount
£'000
£'000
£'000
31 March 2022
Preference shares 197,920 139 198,058
31 March 2021
Preference shares 197,781 139 197,920
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 2022, the nominal outstanding amount was £145.1m (2021: £150.3m).
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. As at
31 March 2022, the outstanding amount was £75.0m (2021: £nil).
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 2022, the nominal outstanding amount was £47.3m
(2021: £48.7m).
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 2022, the outstanding amount was £21.1m (2021: £54.1m).
24. Reconciliation of Financing Activities
Opening Cash Flows Net Income Allocation Non-cash Flows Carry Amount
£'000
£'000
£'000
£'000
£'000
31 March 2022
Share capital and premium 605,938 - - 2,098 608,036
Preference shares 197,920 - - (139) 197,781
Retained earnings (25,147) (39,841) 127,550 (2,099) 60,465
31 March 2021
Share capital and premium 602,989 - - 2,949 605,938
Preference shares 197,781 - - 139 197,920
Retained earnings (24,360) (38,062) 40,224 (2,949) (25,147)
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, has forward and development funding
facilities in relation to the construction of subsidy-free development
projects. As at 31 March 2022, the facilities amounted to £3m and £1.4m
respectively (2021: £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 2022, a
letter of credit of £2,374,426 was in issue (2021: none).
On 1 December 2017, the Company provided a guarantee to Intesa Sanpaolo S.p.A.
('ISP') relating to derivative transactions made available by NESH V. The
guarantee covers all present and future obligations of NESH V to ISP relating
to the derivative transactions. As at 31 March 2022 the Company has no
outstanding commitments related to this guarantee (2021: none).
The Company has a remaining commitment to NextPower III of $25.9m as at 31
March 2022. The Company, through its subsidiary, has a remaining commitment of
€1.0m in relation to the co-investment in Project Agenor as at 31 March
2022.
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 NESF Group entities. All management fee
transactions with the Investment Manager are disclosed in note 5.
There are no fee transactions between the Company and the Investment Adviser.
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 year
amounted to £6.6m (2021: £6.2m).
At 31 March 2022 £8.3m (2021: £21.4m) was owed from/to the subsidiaries in
relation to their restructuring, £8.0m being cash trapped within the
structure at year end (2021: £nil). £10.2m of administrative service fees
were received from the subsidiaries during the year (2021: £9.1m), none of
which was outstanding at 31 March 2022 (2021: £nil). During the year,
dividends of £42.0m (2021: £38.9m) were received from the subsidiaries.
Refer to note 11 and 12 for terms and conditions on amounts due from and to
subsidiaries.
During the year the Company committed US$50m to NextPower III LP, as a limited
Partner governed by a Limited Partnership Agreement, with US$24.1m drawn as at
31 March 2022. The Investment Manager, the Investment Adviser and the Asset
Manager are all professionally engaged to provide services to this fund.
Equalisation interest of £0.8m was received due to subsequent closes of
NextPower III LP. The principal activity of NextPower III 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 NextPower III. The Company pays capital calls when due and
receives distributions from NextPower III over the life of the fund. The
outstanding commitment to NextPower III is disclosed in note 25.
The Directors' fees for the year ended 31 March 2022 amounted to £221,500
(2021: £253,000).
27. Controlling Party
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 9 May 2022, the Company announced its second international co-investment
for an investment of €22.5m, acquiring a c.13% interest in a 210MW solar
project currently under construction in Santarém, Portugal.
On 11 May 2022, the Directors approved a dividend of 1.79 pence per ordinary
share for the quarter ended 31 March 2022 to be paid on 30 June 2022 to
ordinary shareholders on the register as at the close of business on 20 May
2022.
Additional Information
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.
31 March 31 March
2022 2021
% %
Delta of generation vs. budget (A) 1.8 6.2
Delta of solar irradiation vs. budget (B) 3.4 5.5
Asset Management Alpha (A - B) (1.6) 0.7
Invested Capital
Invested capital measures the capital deployed into solar assets through the
HoldCos and SPVs, and private equity investments and battery storage assets to
generate investment returns for shareholders.
31 March 31 March
2022 2021
£'000 £'000
Invested capital 1,038,648 998,809
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 31 March
2022 2021
£'000 £'000
NESF Group's outstanding financial debt (A) 283,304 246,300
Preference shares as per Statement of Financial Position (B) 198,058 197,920
Net assets as per Statement of Financial Position (C) 668,500 580,791
Total Gearing (((A + B) / (A + B + C)), expressed as a percentage) 41.9% 43.3%
Financial Debt Gearing
Financial debt gearing measures the aggregate of the NESF Group's financial
debt relative to GAV.
31 March 31 March
2022 2021
£'000 £'000
NESF Group's outstanding financial debt (A) 283,304 246,300
Preference shares as per Statement of Financial Position (B) 198,058 197,920
Net assets as per Statement of Financial Position (C) 668,500 580,791
Financial Debt Gearing (((A) / (A + B + C)), expressed as a percentage) 24.6% 24.0%
Cash Income
Cash income measures the cash generated from the Company's operations.
31 March 31 March
2022 2021
£'000 £'000
Income as per Statement of Comprehensive Income (A) 65,034 59,996
Trade and other receivables - administrative service fee income accrual at 758 252
beginning of year (B)
Trade and other receivables - administrative service fee income accrual at end - 758
of year (C)
Cash income (A + B - C) 65,792 59,490
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 31 March
2022 2021
£'000 £'000
Cash Income as per the able above (A) 65,792 59,490
Total expenses as per Statement of Comprehensive Income (B) 16,190 16,351
Pre-scrip ordinary dividends paid as per Statement of Changes in Equity (C) 41,940 41,011
Cash dividend cover (pre-scrip dividends) ((A - B) / C) 1.2x 1.1x
Dividend Yield
Dividend yield is a measure of the return to the ordinary shareholders.
31 March 31 March
2022 2021
Pence Pence
Dividend per ordinary share (A) 7.16 7.05
Ordinary share price at end of year (B) 103.4 99.6
Dividend yield (A / B, expressed as a percentage) 6.92% 7.10%
NAV per Ordinary Share
NAV per ordinary share is a measure of the value of one ordinary share.
31 March 31 March
2022 2021
Pence Pence
Net assets as per Statement of Financial Position (£'000) (A) 668,500 580,791
Number of ordinary shares in issue at year end (B) 589,077,244 586,987,678
NAV per ordinary share ((A / B) x 1,000) 113.5p 98.9p
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.
31 March 31 March
2022 2021
Pence Pence
Basic NAV per ordinary share at year end as per Statement of Financial 113.5 98.9
Position (A)
Annual dividend per ordinary share declared in respect of year (B) 7.16 7.05
Basic NAV per ordinary share at beginning of year as per Statement of 98.9 99.0
Financial Position (C)
NAV total return per ordinary share ((A + B - C) / C, expressed as a 21.98% 7.00%
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 31 March
2022 2021
Pence Pence
Ordinary share price at year end (A) 103.4 99.6
Annual dividend per ordinary share declared/paid in respect of year (B) 7.16 7.05
Ordinary share price at beginning of year (C) 99.6 101.5
Ordinary Shareholder Total Return per share ((A + B - C) / C, expressed as a
percentage)
11.00% 5.1%
(Discount)/Premium to NAV per Ordinary Share
(Discount)/premium 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 31 March
2022 2021
Pence Pence
Ordinary share price at year end (A) 103.4 99.6
NAV per ordinary share at year end as per Statement of Financial Position (B) 113.5 98.9
(Discount)/premium to NAV per Ordinary Share ((A - B) / B, expressed as a (8.9%) 0.7%
percentage)
Ongoing Charges Ratio
Ongoing Charges Ratio measures 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.
31 March 31 March
2022 2021
£'000 £'000
Total expenses as per Statement of Comprehensive Income (A) 16,181 16,351
Preference share dividends as per Statement of Comprehensive Income (B) 9,454 9,526
Non- recurring expenses (C) 248 253
Average of quarterly net assets (D) 595,637 582,823
Ongoing Charges Ratio ((A - B - C) / D, expressed as a percentage) 1.09% 1.10%
General Shareholder Information
Alternative Investment Fund Management Directive ("AIFMD")
The AIFMD aims to harmonise the regulation of 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 (www.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.
NAV 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
ending 31 March 2022, which is available under 'Publications' in the Investor
Relations section of the Company's website (www.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, together with further information, is available on the Company's
website (www.nextenergysolarfund.com (http://www.nextenergysolarfund.com) ).
Financial Calendar for Year Ending 31 March 2023
Interim results announced November 2022
Annual results announced June 2023
AGM August 2023
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 2023.
Announcement Ex-dividend Payment
Dividend date Date date Amount
1st 21 Aug 22 22 Aug 22 30 Sep 22 1.88p
2nd 19 Nov 22 20 Nov 22 31 Dec 22 1.88p
3rd 18 Feb 23 19 Feb 23 31 Mar 23 1.88p
4th 20 May 23 21 May 23 30 Jun 23 1.88p
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 (since 30 March 2022)
Apex Fund and Corporate Services (Guernsey) Limited (prior to 29 March 2022)
Agenor Agenor Hive S.L.U
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
Asset Management Alpha The difference between (i) the delta of generation vs. budget and (ii) the
delta of solar irradiation vs. budget
Apollo portfolio 21 UK solar assets held within NESH (see the Operating Portfolio - Overview
above for further details)
Asset Manager or WiseEnergy WiseEnergy (Great Britain) Limited and WiseEnergy Italia Srl
Cash dividend cover The ratio of the Company's cash income to dividends paid or payable in respect
of the financial year
CBA Commonwealth Bank of Australia
Company or NESF NextEnergy Solar Fund Limited
Company law Guernsey Commpany Law, 2008
Consultants The three independent market forecasters used by the Company
CO(2)e or carbon dioxide equivalent A term for describing different greenhouse gases in a common unit. For any
quantity and type of greenhouse gas, CO(2)e signifies the amount of CO(2)
which would have the equivalent global warming impact
DNO Distribution Network Operators
DNOO Distribution Network Operators 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
Foundation NextEnergy Foundation
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
GHG Greenhouse Gas
GW A unit of power equal to 1,000 MW
GWH GW hour, being 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 II, NESH III, NESH IV, NESH V and NESH VI
IFRS International Financial Reporting Standards
Investment Adviser NextEnergy Capital Limited
Investment Manager NextEnergy Capital IM Limited
IPO Initial Public Offering
IRR Internal Rate of Return
JVP Joint Venture Partnership
KPMG KPMG Channel Islands Limited, independent auditor to the Company
KWh Kilowatt hour, being a measure of electricity generated per hour
LIBOR London Interbank Offered Rate
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
NextEnergy Group The NextEnergy 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 II NextEnergy Solar Holding II 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
NP III NextPower III L.P.
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
PR Describes the relationship between the actual and theoretical energy outputs
of a solar asset (expressed as a percentage)
PPA Power purchase agreement
Preference shares The issued preference share capital of the Company
PV Photovoltaic
Radius portfolio Five UK solar assets 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)
ROCC 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 assets 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
SFRD Sustainable Finance Disclosure Regulation
Solis portfolio Eight Italian solar assets 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
TCFD Task Force on Climate-related Financial Disclosures
Thirteen Kings portfolio 13 assets 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
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 (http://www.nextenergysolarfund.com/)
Directors
Kevin Lyon, Chairman
Vic Holmes, Senior Independent Director
Patrick Firth
Joanne Peacegood
Josephine Bush
(All non-executive and independent)
Investment Manager
NextEnergy Capital IM Limited
1 Royal Plaza
Royal Avenue
St Peter Port
Guernsey GY1 2HL
Investment Adviser
NextEnergy Capital Limited
20 Savile Row
London W1S 3PR
Asset Manager
WiseEnergy
Heathcoat House,
20 Savile Row
London W1S 3PR
Company Secretary and Administrator
Ocorian Administration (Guernsey) Limited**
Floor 2
Trafalgar Court
Les Banques St Peter Port
Guernsey GY1 4LY
Apex Fund and Corporate Services (Guernsey) Limited***
1 Royal Plaza
Royal Avenue
St Peter Port
Guernsey GY1 2HL
Independent Auditor
KPMG Channel Islands Limited
Glategny Court
Glategny Esplanade
St Peter Port
Guernsey GY1 1WR
Registrar
Link Market Services (Guernsey) Ltd
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 Ltd (appointed 8 November 2021)
100 Bishopsgate
London EC2N 4AA
Media and Public Relations Adviser
Camarco
107 Cheapside
London EC2V 6DN
Principal Bankers
Barclays Bank plc
6/8 High Street
St Peter Port
Guernsey GY1 3BE
* on 30 March 2022 the registered office of the Company changed from 1
Royal Plaza, Royal Avenue, St Peter Port, Guernsey GY1 2HL
** appointed 30 March 2022
*** resigned 29 March 2022
Notes to Editors(1):
About NextEnergy Solar Fund
NESF is a specialist renewable energy investment company listed on the premium
segment of the London Stock Exchange that invests in utility-scale solar power
plants and energy storage. The Company may invest up to 30% of its gross
asset value in non-UK OECD countries, 15% in solar-focused private equity
structures, and 10% in energy storage.
NESF currently has a diversified portfolio comprising of the following:
Solar PV:
· 100 operating solar assets across the UK and Italy (primarily on
agricultural, industrial, and commercial sites)
· A 50MW co-investment into a Spanish solar project alongside NextPower
III ESG, currently under construction
· A 210MW co-investment into a Portuguese solar project alongside
NextPower III ESG, currently under construction
· A subsidy-free UK solar project under construction (Whitecross 36MW)
· A ready-to-build subsidy-free UK solar project (Hatherden 50MW)
· A $50m commitment into NextPower III ESG (a private solar
infrastructure fund providing exposure to both operating and under
construction, international solar assets)
Energy Storage:
· A 50MW standalone battery storage project in Fife, Scotland,
currently under construction (part of a 250MW joint venture with Eelpower)
· A 6MW co-located battery storage project at North Norfolk Solar Farm
The NESF portfolio has a combined installed power capacity of 865MW (excluding
NextPower III MW on an equivalent look-through basis).
As at 31 March 2022, the Company had a gross asset value of £1,150 million,
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,
and a net asset value of £668.5 million.
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 solar energy and energy
storage infrastructure assets. The majority of NESF's long-term cash flows
are inflation-linked via UK government subsidies.
For further information on NESF please visit www.nextenergysolarfund.com
(http://nextenergysolarfund.com/)
Commitment to ESG
NESF is committed to ESG principles and responsible investment which make a
meaningful contribution to reducing CO2 emissions through the generation of
clean solar power. NESF will only select investments that meet the
requirements of NEC Group's Sustainable Investment Policy. Based on this
policy, NESF benefits from NEC's rigorous ESG due diligence on each
investment. NESF is committed to reporting on its ESG performance in
accordance with the UN Sustainable Development Goals framework and the EU
Sustainable Finance Disclosure Regulation.
NESF has been awarded the London Stock Exchange's Green Economy Mark and has
been designated a Guernsey Green Fund by the Guernsey Financial Services
Commission.
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 website
(nextenergysolarfund.com/esg/ (http://www.nextenergysolarfund.com/esg/) )
& NEC Group website
(nextenergycapital.com/sustainability/transparency-and-reporting/
(https://www.nextenergycapital.com/sustainability/transparency-and-reporting/)
).
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
NextEnergy Capital comprises the Group's investment management activities.
To date, NEC has invested in over 325 individual solar plants for a capacity
in excess of 2.3GW across it institutional funds.
www.nextenergycapital.com (http://www.nextenergycapital.com)
· NextEnergy Solar Fund ("NESF") is a solar infrastructure investment
company focused on the UK and other OECD countries, which is listed on the
premium segment of the London Stock Exchange. It currently owns 865MW spread
among 100 individual operating assets in the UK and Italy, comprising a gross
asset value of £1,150m. NESF is one of the largest listed solar energy
investment companies in the world.
· NextPower II ("NPII") a private fund made up of 105 individual
operating solar power plants and an installed capacity of 149MW, focused on
consolidating the substantial, highly fragmented Italian solar market. NPII
was successfully divested in January 2022, a 2016 vintage vehicle that
generated net IRRs in excess of its gross target of 10-12%.
· NextPower III ESG ("NPIII ESG") is a private fund exclusively focused
on the international solar infrastructure sector, principally targeting
projects in carefully selected OECD countries, including the US, Portugal,
Spain, Chile, Poland and Italy. NPIII ESG is a fund that provides a positive
social and environmental impact to the countries it has and will invest
into. NPIII completed its fundraise with a total of $896m, including a SMA
raised. The target of the fund was $750m.
· NextPower UK ESG ("NPUK ESG") is a private unlevered fund investing
in greenfield subsidy-free solar projects, with PPA's, in the UK. NPUK ESG
was launched in December 2021. The UK Infrastructure Bank is providing
financing to the initial seed assets of the fund, and plans to invest up to
£250m, half of the fund's total target fund size, on a match-funding basis.
WiseEnergy
WiseEnergy® is NextEnergy Capital Group's operating asset manager.
WiseEnergy is a leading specialist operating asset manager in the solar
sector. Since its founding, WiseEnergy has provided solar asset management,
monitoring and technical due diligence services to over 1,400 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
Starlight is NextEnergy Group's development company that is active in the
development phase of solar projects. It has developed over 100 utility-scale
projects internationally and continues to progress a large pipeline of c.2.5GW
of both green and brownfield project developments across global geographies.
Notes:
(1:) All financial data is at 31 March 2022, being the latest date in respect
of which NESF has published financial information
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