TIDMNESF
RNS Number : 1169D
NextEnergy Solar Fund Limited
19 June 2023
LEI: 213800ZPHCBDDSQH5447
19 June 2023
NextEnergy Solar Fund Limited
("NESF" or the "Company")
Full Year Results for period ended 31 March 2023
Portfolio continues to outperform, 11% dividend target
increase
well placed to deliver shareholders attractive,
inflation-protected income
NextEnergy Solar Fund, the specialist solar+ fund, is pleased to
announce it has today published its full year results as at 31
March 2023.
Financial Highlights:
Net Asset Value ("NAV") and Capital Position:
-- NAV per ordinary share increased to 114.3p (31 March 2022, as reported: 113.5p).
-- Ordinary shareholders' NAV increased to GBP674.4m (31 March 2022, as reported: GBP668.5m).
-- Ordinary shareholder annualised total return for the year of 8.6% (31 March 2022: 11%).
-- Earnings per ordinary share of 8.2p (31 March 2022: 21.7p).
-- Total gearing (including preference shares) of 45% (31 March 2022: 42%).
-- Weighted average cost of capital of 5.7% (31 March 2022: 5.3%).
-- Weighted average discount rate of 7.3% (31 March 2022: 6.3%).
Dividend:
-- Total dividend of 7.52p per ordinary share declared for the period (31 March 2022: 7.16p).
-- Cash dividend cover for the period 1.4x (31 March 2023: 1.2x).
-- 11% dividend target increase to 8.35p per ordinary share for
the financial year ending 31 March 2024.
-- Forecasted target cash dividend cover of 1.3x-1.5x, of which
1x-1.1x is from fixed revenues for the financial year ending 31
March 2024.
-- Total dividends declared since IPO of GBP305.8m or 55.72p per share.
Strategic Highlights:
-- Announced NESF's Capital Recycling Programme, to deliver
long-term sustainable value to shareholders by committing to sell a
236MW subsidy-free portfolio, the proceeds of which will be used to
reduce gearing, provide optionality on future higher yielding
investment opportunities, and potentially to buy back shares.
-- Launched NESF's Energy Storage Strategy, setting out the
compelling rationale behind the Company's intention to raise its
investment limit in energy storage from 10% to 25% of Gross Asset
Value.
-- Formed Two Joint Venture Partnerships with Eelpower Limited,
a specialist in the battery sector, to advance the Company's
position in the UK energy storage sector, targeting a GBP300m
pipeline of UK energy storage opportunities.
-- Announced a Retrofit Programme to add co-located battery
storage assets to the Company's existing solar assets.
ESG Highlights:
-- Classified as an Article 9 Fund under the EU Sustainable
Finance Disclosure Regulation and EU Taxonomy Regulation.
-- Powered an estimated 242,000 UK homes for the period (31 March 2022: 216,300).
-- Generated 870GWh of clean electricity during the period,
contributing to the avoidance of 363,000 tonnes of CO(2) e emission
(31 March 2022: 773GWh, 328,700 tonnes of CO(2) e)
-- Released first standalone sustainability report, which
highlights NESF's contribution to biodiversity, climate change and
ethical supply chains through its operations.
-- Released a biodiversity position statement that underpins the
biodiversity approach for the fund.
-- Became forum members of the Taskforce on Nature-related
Financial Disclosures ("TNFD") to go above and beyond the Company's
sustainability reporting requirements, alongside commitment to
disclose under the new TNFD framework.
Portfolio Highlights:
-- Total installed operating capacity of 889MW(1) (31 March 2022: 884MW).
-- 99 operating solar assets (31 March 2022: 99).
-- Portfolio generation outperformance of +3.8% (31 March 2022:
1.8%) against budget for twelve months ended 31 March 2023,
translating into additional revenues of c.GBP4.8m (31 March 2022:
c.GBP2.0m).
-- A $50m investment into a private solar infrastructure fund,
NextPower III ESG, targeting IRR's of between 13-15%. To date,
NextPower III ESG has acquired 1.8GW made up of 149 individual
solar projects across the USA, Chile, Portugal, Spain, Greece,
Poland, and India. This investment provided NESF with instant
international solar exposure and unlocked unique solar
co-investment opportunities alongside some of the largest
institutional investors in the world.
-- Two solar co-investments totalling 260MW alongside NextPower
III ESG, (a 13% stake into a 210MW solar asset in Portugal and a
25% stake into a 50MW solar asset in Spain).
-- Initiated construction of the Company's first standalone 50MW
battery storage project, due to be energised this year.
-- Acquired the development rights for a high-quality 250MW
lithium-ion battery storage project in the East of England.
-- Remaining weighted average useful life of 26.3 years (31 March 2022: 27.3 years).
Footnote:
(1) Includes 6.21% share in private equity vehicle (NextPower
III ESG). As at 31 March 2023, share of NextPower III ESG increases
total installed capacity by 24MW (2022: 19MW) to 889MW (2022:
884MW).
Kevin Lyon, Chairman of NextEnergy Solar Fund Limited,
commented:
"The twelve months to 31 March 2023 were a productive period as
the Company made strong
progress across various strategic initiatives announced during
the year to generate value and
provide future growth for investors.
It is a real testament to the Company's performance during the
period that we were able to announce an 11% dividend target
increase to 8.35p per share, which remains well covered as one of
the largest dividend increases in the peer group.
Looking forward, the Board and I were delighted to welcome Helen
Mahy as a Non-Executive Director and NESF Chair-elect, a vital
component of succession planning. As my last full year results for
the Company before stepping down from the Board, I would like to
give personal thanks for the support from colleagues and investors
alike over the years, and I leave feeling extremely proud of what
NESF has achieved since IPO and of the bright future it has in
continuing to supply clean energy to the benefit of all our
stakeholders."
Michael Bonte-Friedheim, CEO of NextEnergy Group said:
"The last twelve months has seen rising inflationary pressure,
economic uncertainly, and increased interest rates, and NESF was
well positioned to mitigate risks and capture elevated power prices
during this period, whilst providing vital low-cost of production
power generation to the UK.
The Company announced key strategic initiatives during the year,
such as the capital recycling programme and the energy storage
strategy, to capture value and reposition the portfolio for the
next stage of its evolution. This is truly an exciting time for the
Company as it prepares for its next wave of growth and expansion
into energy storage, and NextEnergy Capital, as the Company's
investment adviser and manager, has the right skillset and track
record to deliver this whilst adding value for NextEnergy Solar
Fund investors. NESF remains well placed to deliver shareholders an
attractive, inflation-protected income, and currently offers an
attractive share price entry point for investors."
Full Year Results Presentation
The Company will stream its full year results presentation this
morning via the London Stock Exchange Spark Live platform, where it
is accessible to all investors and analysts. The presentation will
be followed by a Q&A session, questions can also be submitted
prior to the presentation via email to ir@nextenergysolarfund.com.
NextEnergy Capital will endeavour to answer submitted questions
during the Q&A session. If this is not possible due to time
constraints, the investment adviser will follow up separately after
the presentation.
The presentation will be hosted by:
-- Michael Bonte-Friedheim (CEO and Founder of NextEnergy Group, Investment Adviser)
-- Ross Grier (COO and Head of UK Investments, Investment Adviser)
Presentation details and registration link:
-- Time: 9:30am (BST)
-- Date: Monday 19 June 2023
-- Registration and Webcast link: NextEnergy Solar Fund Full Year Results Presentation
A recording of the presentation will also be made available on
the Company's website shortly after the event.
Dividend Target
The Board of NESF has approved a dividend target of 8.35p per
ordinary share for the financial year ending 31 March 2024,
representing an 11% increase from the previous year's dividend of
7.52p per ordinary share. The dividend target is forecasted to be
1.3x-1.5x covered, of which 1x-1.1x is from fixed revenues,
supported by the high degree of visibility of the Company's
revenues. The dividend target increase is not dependent on
completion of the Company's recently announced Capital Recycling
Programme and dividend cover forecasts do not assume revenues from,
or sale proceeds connected with, the Capital Recycling Programme
.
Capital Recycling Strategy
The Company announced its Capital Recycling Programme (the
"Programme") on 27 April 2023 to accelerate the next phase of the
Company's growth. Through the Programme, the Company aims to
capture value from the divestment of a 236MW portfolio of
subsidy-free UK solar assets, the proceeds from which will be used
to:
-- Reduce gearing: reduce current drawings of the Company's
revolving credit facilities ("RCF");
-- Invest in future long-term growth opportunities: provide
flexibility to capture higher returning investment opportunities in
the future, such as energy storage; and
-- Buyback shares: establish a share buyback programme in the
future if the share price continues to trade at a material discount
to the Company's net asset value per share.
To capture the significant value of these solar assets, NESF has
initiated this Programme to divest a portfolio of five subsidy-free
assets (Hatherden, Whitecross, Staughton, The Grange, and South
Lowfield) and has launched a sales process to find buyers for these
assets, over the coming months. The Programme is expected to
deliver NAV accretive returns by realising the value generated
through these investments.
Breakdown of 236MW subsidy-free portfolio :
Subsidy-free solar Installed Status Location
asset Capacity
Hatherden 50MW Ready-to-build Hampshire, UK
---------- ------------------- -----------------
Whitecross 36MW Under construction Lincolnshire, UK
---------- ------------------- -----------------
Staughton 50MW Operational Bedfordshire, UK
---------- ------------------- -----------------
The Grange 50MW Operational Nottinghamshire,
UK
---------- ------------------- -----------------
South Lowfield 50MW Operational Yorkshire, UK
---------- ------------------- -----------------
The Company will retain two operational subsidy-free assets and
remains committed to its remaining subsidy-free solar pipeline.
Energy Storage Strategy
On 22 February 2022, the Company announced its Energy Storage
Strategy providing details on how it will take advantage of energy
storage opportunities in the UK to complement and diversify the
Company's existing large portfolio of 99 solar assets. Energy
storage is a complementary technology to the existing large solar
portfolio which provides access to additional and diversified
opportunities to derive value delivering attractive returns. The
market environment continues to be favourable for the Company to
increase its allocation to energy storage within the portfolio. The
Company is confident in its ability to successfully deliver energy
storage and continues to benefit from its investment adviser's
experience and track record in securing import capacity and in
realising operational assets and unlocking optionality in existing
solar assets.
The Company actively engaged with investors around its ambition
to increase the Company's energy storage investment policy limit
from 10% of Gross Asset Value to 25%, where conversations remain
positive and supportive. A further update will be provided to the
market over the coming months.
The Company continues to demonstrate its expansion into energy
storage through its strong relationship with Eelpower Limited
("Eelpower"), which has provided the Company with access to leading
expertise in the energy storage industry, targeting GBP300m of
energy storage investments through the Joint Venture
Partnerships.
Joint Venture Partnership breakdown :
Joint Venture Partnership 1 Joint Venture Partnership 2
("JVP1") ("JVP2")
GBP100m GBP200m
---------------------------------------
Owned 70% by NESF and 30% by Owned 75% by NESF and 25% by
Eelpower Eelpower
---------------------------------------
Energy storage assets:
Camilla : The Company's first Project Lion: First acquisition
50MW battery storage project as part of JVP2 secured for
through JVP1, currently under GBP32.5m. The project includes
construction in Fife, Scotland, the development rights, permits,
and is expected to be energised and initial grid milestones
and grid-connected shortly. for a 250MW portfolio of high-quality
battery storage projects and
Camilla was selected to provide grid connections in the East
battery storage capacity in of England.
the UK Government's latest Capacity
Market Auction. The contracts Once constructed, the project
are expected to deliver revenues will provide vital grid balancing
of GBP557k over winter 2023 services. Furthermore, the project
and GBP576k per annum over 2026 will harness electricity at
to 2032, adding to Camilla's low import prices and export
existing Capacity Market contract electricity at times of low
for delivery in winter 2025-26 generation and high prices,
worth GBP305k. benefiting from excess generation
from neighbouring offshore wind.
---------------------------------------
Net Asset Value
Twelve-month Net Asset Value bridge:
NAV p/share NAV
At 31 March 2022 (as originally announced) 113.5p GBP668.5m
------------ ---------
NAV correction (1.3p) (7.6m)
------------ ---------
At 31 March 2022 (as corrected) 112.2p GBP660.9m
------------ ---------
Investment in new assets
------------ ---------
New assets at cost 16.3p 96.2m
------------ ---------
RCF drawdown (11.9p) (70.1m)
------------ ---------
Utilisation of cash on hand to fund investment (4.4p) (26.1m)
------------ ---------
Power price forecasts, net of Electricity
Generator Levy impact 14.6p 86.1m
------------ ---------
Ordinary share dividends paid (7.2p) (42.4m)
------------ ---------
Discount rate increase (7.0p) (41.2m)
------------ ---------
Change in short-term inflation 5.6p 33.4m
------------ ---------
Strategic provisions (2.3p) (13.2m)
------------ ---------
Residual movements including preference share
dividends and fund operating costs (1.6p) (9.2m)
------------ ---------
At 31 March 2023 114.3p GBP674.4m
------------ ---------
Inflation Linkage and Updates
The Company continues to take a consistent approach to its
inflation assumptions, using external third-party, independent
inflation data from HM Treasury Forecasts and long-term implied
rates from the Bank of England for its UK assets. For international
assets, IMF forecasts are used.
Inflation Rate (UK RPI) Assumptions
Calendar Year 31 March 2023
2023/24 4.90%
-------------
2024/25 3.40%
-------------
2025/26 3.30%
-------------
2026/27 3.20%
-------------
2027/28 3.70%
-------------
2028/29 -2029/30 3.00%
-------------
2030/31 onwards 2.25%
-------------
Discount Rate Assumptions
31 March 2023
UK unlevered 6.75%
-------------
UK levered 7.45-7.75%
-------------
Italy unlevered (1) 8.25%
-------------
Subsidy-free (uncontracted)
(2) 7.75%
-------------
Life extensions (3) 7.75%
-------------
Footnotes:
(1) Unlevered discount rate for Italian operating assets
implying 1.50% country risk premium.
(2) Unlevered discount rate for subsidy-free uncontracted
operating assets implying 1.0% risk premium.
(3) 1.0% risk premium for cash flows after 30 years where leases
have been extended.
Power Sales Strategy
To manage the sale of power into the electricity market, the
Company utilises its investment adviser's specialist power sales
desk. This team actively manages the Company's power price
contracting strategy and activities. In the current environment,
the power sales desk has enabled the Company to mitigate market
price volatility whilst incrementally growing weighted average
prices through forward hedging above forecast prices. Aggregating
the amount of revenue derived from subsidies and the power hedges,
the Company has a high degree of comfort around forward revenue
projections underpinning dividend cover for the current financial
year. Given the high degree of contracted revenues in future years,
the Company is confident in its ability to continue to provide
investors with a well-covered dividend going forward.
In addition to NESF's budgeted revenues from ROCs and FITs
(c.50%), the Company's hedging positions (covering its 716MW UK
portfolio) as at 1 June 2023 were:
Financial Year UK budgeted generation Average fix price
hedged
2023/24 88% GBP79MWh
----------------------- ------------------
2024/25 44% GBP91MWh
----------------------- ------------------
2025/26 13% GBP147MWh
----------------------- ------------------
Available Capital
Out of the total GBP205m immediate Revolving Credit Facilities
available to the Company, c.GBP39m remains undrawn and available
for deployment as at 31 March 2023. The Company also has c.GBP14m
immediate cash balance available at Fund level (this is separate
from the cash currently held at Holdco/SPV level). In addition, the
Company actively assesses capital deployment options as part of
ongoing optimisation of the composition of the portfolio.
Future Pipeline
The Company has exclusivity over, or owns the project rights
for, the majority of its pipeline of c.GBP500m domestic and
international solar and energy storage assets. This includes
ownership of the development rights for a high-quality 250MW
lithium-ion battery storage project in the East of England, which
when approved and constructed will be one of the UK's largest
operational standalone battery storage assets.
Annual Report
The 31 March 2023 annual report and quarterly factsheet are now
available on the Company's website.
For further information:
NextEnergy Capital 020 3746 0700
Michael Bonte-Friedheim ir@nextenergysolarfund.com
Ross Grier
Stephen Rosser
Peter Hamid (Investor Relations)
RBC Capital Markets 020 7653 4000
Matthew Coakes
Elizabeth Evans
Kathryn Deegan
Cenkos Securities 020 7397 8900
James King
William Talkington
H/Advisors Maitland 020 7379 5151
Neil Bennett
Finlay Donaldson
Ocorian Administration (Guernsey) Limited 014 8174 2642
Kevin Smith
Notes to Editors(1) :
About NextEnergy Solar Fund
NESF is a specialist solar+ fund listed on the premium segment
of the London Stock Exchange and is a constituent of the FTSE 250.
NESF's investment objective is to provide ordinary shareholders
with attractive risk-adjusted returns, principally in the form of
regular dividends, by investing in a diversified portfolio of
utility-scale solar energy and energy storage infrastructure
assets. The majority of NESF's long-term cash flows are
inflation-linked via UK government subsidies.
The NESF portfolio has a combined installed power capacity of
865MW (excluding NextPower III MW on an equivalent look-through
basis). NESF may invest up to 30% of its gross asset value in
non-UK OECD countries, 15% in solar-focused private infrastructure
funds, and 10% in energy storage assets. As at 31 March 2023, the
Company had an audited gross asset value of GBP1,218m. For further
information on NESF please visit www. nextenergysolarfund.com
Article 9 Fund
NESF is classified under Article 9 of the EU Sustainable Finance
Disclosure Regulation and EU Taxonomy Regulation. NESF's
sustainability-related disclosures in the financial services sector
in accordance with Regulation (EU) 2019/2088 can be accessed on the
ESG section of both the NESF & NEC website.
About NextEnergy Group
NESF is managed by NextEnergy Capital, part of the NextEnergy
Group. NextEnergy Group was founded in 2007 to become a leading
market participant in the international solar sector. Since its
inception, it has been active in the development, construction, and
ownership of solar assets across multiple jurisdictions. NextEnergy
Group operates via its three business units: NextEnergy Capital
(Investment Management), WiseEnergy (Operating Asset Management),
and Starlight (Asset Development).
-- NextEnergy Capital: Ha s over 16 years specialist solar
expertise having invested in over 350 individual solar plants
across the world. NextEnergy Capital currently manages four
institutional funds with a total capacity in excess of 2.4GW+ and
has asset under management of $3.3bn. www.nextenergycapital.com
-- WiseEnergy(R): Provides solar asset management, monitoring
and technical due diligence services to over 1,350 utility-scale
solar power plants with an installed capacity in excess of 1.8GW.
WiseEnergy clients comprise leading banks and equity financiers in
the energy and infrastructure sector. www.wise-energy.com
-- Starlight: H as d eveloped over 100 utility-scale projects
internationally and continues to progress a large pipeline of
c.10GW of both green and brownfield project developments across
global geographies.
Notes:
(1:) All financial data is audited at 31 March 2023, being the
latest date in respect of which NESF has published financial
information
Annual Report
for the year ended 31 March 2023
Our Objectives
Investment Objective
To provide ordinary shareholders with attractive risk-adjusted
returns, principally in the form of regular dividends, through a
diversified portfolio of solar energy infrastructure assets with
the addition of complementary technologies, such as energy
storage.
Strategic Objectives
Investment
Expand and strengthen the portfolio in line with the Company's
Investment Policy.
Enhance growth and diversification through the introduction of
solar+ technologies (such as energy storage) and international
solar assets.
Operational
Consistently achieve operational outperformance of the portfolio
through active asset management.
Pursue continuous improvement in the management of operating
costs associated with the portfolio.
Environmental
Contribute towards a net zero sustainable future and help
mitigate climate change.
Enhance local biodiversity in the areas where we operate.
Social
Provide a positive social impact.
Contribute to lowering power prices in the UK and other markets
where we operate by increasing energy supplied to the energy
market.
Continue to actively engage with and support the communities
located close to our solar assets.
Governance
Act in a manner consistent with our values of integrity,
fairness and transparency.
Maintain strong and constructive relationships with our
shareholders and other key stakeholders.
OVERVIEW
NextEnergy Solar Fund Overview
Performance Highlights
Snapshot of Our Diversified
Portfolio
Why Invest in NextEnergy Solar
Fund?
STRATEGIC REPORT
Chairman's Statement
Our Business Model
Five Year Record
Our Investment Strategy and
Track Record
Investment Adviser's Report
Operating Portfolio
Portfolio Generation Performance
Sustainability and ESG
Stakeholder Engagement
Risks and Risk Management
Going Concern and Viability
GOVERNANCE
Introduction from the Chairman
Governance Framework
Board of Directors
Corporate Governance Statement
Directors' Remuneration Report
Audit Committee Report
Directors' Report
Statement of Directors' Responsibilities
Independent Auditor's Report
FINANCIAL STATEMENTS
Statement of Comprehensive Income
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
ADDITIONAL INFORMATION
Alternative Performance Measures
General Shareholder Information
Glossary and Definitions
Corporate Information
NextEnergy
Solar Fund Overview
A specialist solar+ fund listed on the premium segment of the
London Stock Exchange and a constituent of the FTSE 250
Provides shareholders with attractive risk-adjusted returns,
principally in the form of regular dividends, by investing in a
diversified portfolio of utility-scale solar energy and energy
storage infrastructure assets
Managed by solar specialists:
-- NextEnergy Capital, Investment Adviser
-- WiseEnergy, Asset Manager
Both leading managers in the solar energy infrastructure
sector
Diversified portfolio:
-- 99 operating solar assets
-- 1 International private equity solar fund investment
-- 2 European solar co-investments
-- 2 joint venture partnerships into UK standalone energy
storage
Powering the equivalent of 242,000 homes (equivalent to
Nottingham and Brighton combined) with renewable energy for the
year
Continuous asset outperformance since IPO
Performance Highlights
Financial Highlights(1)
NAV per ordinary share Ordinary shareholders' Financial debt
as at 31 March 2023 NAV as at 31 March gearingas at 31
2023 March 2023(2)
114.3p GBP674.4m 28%
(31 March 2022: 113.5p) (31 March 2022: (31 March 2022:
GBP668.5m) 25%)
Dividends per ordinary Cash dividend cover Total gearing as
share for the year ended31 (pre-scrip at
March 2023 dividends) for 31 March 2023
the year ended (3)
31 March 2023
7.52p 1.4x 45%
(31 March 2022: 7.16p) (31 March 2022: (31 March 2022:
1.2x) 42%)
NAV total return per ordinary Ordinary shareholder Ordinary shareholder
share for the year ended31 total return for annualised total
March 2023 the year ended31 return
March 2023 since IPO
7.3% 8.6% 7.0%
(31 March 2022: 22%) (31 March 2022: (31 March 2022:
11%) 6.7%)
Operational Highlights ESG Highlights
Total capacity installed as Total electricity Tonnes of CO(2)
at 31 March 2023(5) generation for the e emissions avoided
year ended 31 March p.a.(4)
2023
865MW 870GWh 363,000
(31 March 2022: 865MW) (31 March 2022: (31 March 2022:
773GWh) 328,700)
Operating solar assetsas at Generation above Equivalent UK homes
31 March 2023(6) budget for the year powered for one
ended 31 March 2023 year(4)
99 3.8% 242,000
(31 March 2022: 99) (31 March 2022: (31 March 2022:
1.8%) 216,300)
1 Refer to the Alternative Performance Measures for calculation
basis
2 Financial debt gearing excludes the GBP200m preference shares
on a look through basis
3 Total gearing is the aggregate of financial debt, look through
debt and GBP200m of preference shares. The preference shares are
equivalent to non-amortising debt with repayment in shares
4
www.greeninvestmentgroup.com/green-impact/green-investment-handbook
5 Excluding share in private equity vehicle (NPIII LP).
Inclusion of NESF's 6.21% share of NPIII LP on a look through
equivalent basis would increase total capacity by 24MW (2022: 19MW)
to 889MW (2022: 884MW)
6 Excluding the $50m commitment into private equity vehicle
(NPIII LP)
Why Invest in NextEnergy Solar Fund?
RELIABLE INVESTMENT WITH ATTRACTIVE GROWTH PROSPECTS
-- Provides a regular attractive dividend for income-seeking investors.
-- Offers a natural hedge against inflation with a high
proportion of regulated revenues linked to RPI.
-- Large diversified operating portfolio with incremental growth
prospects through the introduction of complementary technologies,
such as energy storage.
PROVEN AND STABLE TECHNOLOGY
-- Reliable and predictable source of electricity due to high
consistency in yearly irradiation and minimal moving parts.
-- Long useful life (25-40 years) with high proportion of
contracted cash flows from operating solar assets.
ABUNDANT CLEAN ENERGY SOURCE
-- Enough solar energy hits the Earth in a single hour to power
the energy needs of the entire human population for a year.
-- Provides increased energy independence and security.
COST-EFFECTIVE ELECTRICITY GENERATION
-- Active portfolio management provides prudent cost of
operation, maintenance and replacement of assets.
-- Solar is one of the cheapest forms of renewable energy
generation and quickest to construct.
CLIMATE CHANGE SOLUTION
-- Fundamental to achieving a more sustainable future by
accelerating the transition to clean and sustainable energy.
-- Meaningful contribution to reducing CO(2) emissions through
the generation and storage of clean electricity, reducing reliance
on fossil fuels across the grid.
-- Investment in solar provides significant biodiversity
benefits to the communities that surround our assets.
Chairman's Statement
"The twelve months to 31 March 2023 were a productive period as
the Company made significant progress across various strategic
initiatives announced during the year to generate value and provide
future growth for investors, whilst maintaining a well-covered and
attractive dividend.
Elevated energy prices, inflation rates and NESF's portfolio
outperformance contributed to generating additional revenue for the
Company, with NAV growing to GBP674m, a successful result in the
face of the UK Government's Electricity Generator Levy, high
interest rates and an uncertain UK energy policy.
NESF's expansion into energy storage saw construction work
started at the Company's first stand-alone 50MW battery storage
project in Fife, Scotland, due to be energised in the summer of
2023. The Company also acquired the development rights for one of
the UK's largest lithium-ion battery storage projects in the East
of England at 250MW. The Company actively engaged with investors
over the period regarding an increase in its energy storage
investment policy limit from 10% of GAV, up to 25%, with the view
to increasing this limit later in the year through a vote by
shareholders.
Since year end, the Company was the first in the renewables
sector to announce a capital recycling programme to accelerate the
next phase of the Company's growth. The programme aims to capture
significant value from the divestment of a 236MW portfolio of
subsidy-free UK solar assets, the proceeds from which will be used
to reduce gearing in the short-term, buyback shares to control the
Company's current discount if appropriate and lock in optionality
for long-term growth opportunities.
The Board and I were delighted to welcome Helen Mahy to the
Board of NESF as Chair-elect, a vital component of the Boards
succession planning. Helen brings extensive experience in the
renewables space and from her role as Chair of The Renewables
Infrastructure Group, and I have every confidence that Helen will
continue to lead NESF to success in the future.
In a year where the importance of affordable energy was brought
to the forefront of everyone's minds, NESF's purpose has never felt
so relevant. In recognition of the immediate challenges faced by
many across the UK, NESF is supporting those in fuel poverty via
its donation to the NextEnergy Foundation ("NEF"). The Company's
portfolio continues to contribute towards UK energy security and
reduce the impacts of volatile global energy markets on domestic
consumers.
As my last statement before stepping down from the Board, I
would like to give personal thanks for the support from colleagues
and investors alike over the years, and I leave feeling extremely
proud of what NESF has achieved since IPO and of the bright future
it has in continuing to supply clean energy to the benefit of all
our stakeholders."
I am pleased to present the ninth Annual Report for NextEnergy
Solar Fund Limited (the "Company", "Fund" or "NESF") for the year
ended 31 March 2023.
The Company's performance has been strong throughout the year,
despite significant volatility and economic uncertainty. The
Company has benefited from elevated power prices and inflation
rates that were higher than anticipated. This was combined with
outperformance from its existing portfolio of operational assets
and progression of a diverse pipeline of solar and battery storage
projects currently under development or construction. Furthermore,
the Board is delighted that NESF was promoted back to the FTSE 250
index on 16 September 2022, which reflects the resilience of the
Company.
Despite many ongoing challenges, the current environment
presents a very attractive backdrop for investment in clean energy
infrastructure. Increased deployment of renewables is integral to
energy independence and security in the UK and globally, the
benefits of which are reduced reliance on volatile global power
markets and, in turn, reduced costs for consumers. As renewable
energy generation capacity increases on the grid there is need for
battery storage to bring about stability and flexibility and the
company has taken important steps in this space over the
period.
Governments around the world continue to drive forward their net
zero targets and the production of renewable energy is playing a
key role in helping to achieve these ambitions. Indeed, strategies
recently published by the UK Government, such as Powering Up
Britain and the Green Finance Strategy, clearly outline its goals
to support deployment of solar and energy storage capacity.
Furthermore, in line with the Independent Review of Net Zero
recommendations, the Government plans to develop and publish a
solar roadmap to 2035 to support the significant increase in
deployment needed to achieve its 70GW ambition. NESF is in a strong
position to contribute to these strategies, providing an
alternative to fossil fuels, and capitalise on the opportunities
associated with the energy transition in the UK and across
Europe.
On 12 May 2023, the Board disclosed to the market that the
Company had identified an issue with automated reports, which had
led to overstatements of the NAV by up to 2.7p. It is important to
note that this was not an issue within the accounting system and it
had no impact on the cash flow generated by the business or on its
dividend cover. As part of the Board's review, the Audit Committee
worked with the Investment Adviser to conduct a full investigation
of this issue. The Board is satisfied that this was an isolated
incident and has agreed a number of additional steps to further
strengthen controls.
The Company's Net Asset Value ("NAV") has remained strong
throughout the year, growing to GBP674.4m (31 March 2022:
GBP668.5m) over the 12 months, even when accounting for the
government's Electricity Generator Levy ("EGL"). The combined
impact of interest rate increases and uncertainty surrounding UK
energy policy amongst other macroeconomic factors has led to the
share price trading at a discount to the NAV for a sustained
period, offering an attractive entry point for potential
investors.
During the year, the Company published its first standalone
sustainability report. The report goes beyond the Company's
immediate sustainability obligations by providing in-depth details
on the Company's sustainability journey, its proprietary approach
to biodiversity, and its industry leading ESG initiatives. These
deliver a real environmental and social impact. Going forward, the
Company intends to publish its sustainability report on an annual
basis.
For the year ended 31 March 2023, the Ordinary Shareholder Total
Return was 8.6% (31 March 2022: 11.0%) and the Ordinary Shareholder
NAV total return was 7.3% (31 March 2022: 22%). The NESF portfolio
has continued to outperform budgeted generation, whilst continuing
to deliver on its electricity sales strategy to remove short term
price volatility and strengthen the Company's dividend cover.
Since IPO, NESF has made a material difference to the UK energy
landscape, growing a portfolio of renewable assets of 865MW
capacity that has generated a total of 4.9 TWh of clean energy,
supporting global net zero goals and generated value to our
shareholders. As at 31 March 2023, the annualised Ordinary
Shareholder Total Return since IPO was 7.0% (31 March 2022: 6.7%)
and the annualised Ordinary Shareholder Net Asset Value ("NAV")
total return since IPO was 8.0% (31 March 2022: 8.0%).
The Company has been a pioneer in UK Solar Infrastructure and
will continue to define the future of renewable energy as it
explores new geographies and technologies. The Company is in a
strong position to continue to be a market leader in renewables
whilst generating further positive environmental and social
impact.
Board Succession Planning
Following the year end, NESF appointed Helen Mahy to the Board
of Directors as a non-executive Director and Chair Designate . The
board is delighted to welcome Helen to NESF and is looking forward
to benefiting from her wealth of experience in the renewable energy
and infrastructure sectors. Helen has previously served as Group
General Counsel and more recently as Chair of The Renewables
Infrastructure Group where she served her full nine-year tenure.
Helen will stand for election as Chair of NESF from the next AGM in
August 2023.
Results and Key Events
The Company has made progress towards its growth goals whilst
continuing to offer financial stability during the year. NextEnergy
Capital Limited (the "Investment Adviser"), continues to provide
dedicated support to the Company. During the year ended 31 March
2023, the Company made significant progress across a range of
areas.
To advance its position in battery energy storage, the
Company:
-- Started construction on the Company's first battery storage
project (50MW) in Fife, Scotland through a Joint Venture
Partnership ("JVP1") with energy storage specialist EelPower
Limited (" EelPower "). The project subsequently achieved selection
in the UK Government's latest Capacity Market Auction which secured
a proportion of its revenues following energisation and
grid-connection in the second half of 2023;
-- Advanced its position in the energy storage sector through a
75% stake in the new GBP200m Joint Venture Partnership with
EelPower ("JVP2");
-- Acquired the development rights for a high-quality 250MW
lithium-ion battery storage project in the East of England through
JVP2 for GBP32.5m; and
-- Commenced a co-located battery retrofit programme,
identifying potential sites across NESF's current UK operating
solar portfolio.
To progress its UK and international solar PV pipeline, the
Company:
-- Signed its second international co-investment with NPIII LP
taking a 13.6% stake in a 210MW solar project currently under
construction in Santarém, Portugal; and
-- Commenced construction works for Whitecross (36MW) and grid
connection preparation works for Hatherden (50MW) and secured
Contracts for Difference ("CfD") for 100% of the generating
capacity of both these new-build UK solar projects.
To deliver value for shareholders, the Company:
-- Achieved a dividend cover of 1.4x for the year ended 31 March 2023;
-- Continues to engage with investors positively to increase the
Company's energy storage investment policy limit from 10% of Gross
Asset Value up to 25%;
-- Continued to implement its electricity sales strategy to
increase the certainty of revenue streams by locking in strong
pricing whilst reducing power price volatility; and
-- Secured a GBP60m increase to its existing GBP75m Revolving
Credit Facility ("RCF") with AIB Group (UK) p.l.c. ("AIB") &
NatWest, in addition to signing a two-year extension to its GBP70m
RCF with Santander UK to fund the investment pipeline.
To demonstrate its environmental and social impact, the
Company:
-- Gained classification under Article 9 of the EU Sustainable
Finance Disclosure Regulation and EU Taxonomy Regulation; and
-- Released its first standalone sustainability report, which
highlights NESF's contribution to biodiversity, climate change and
ethical supply chains through its operations.
Following the year ended 31 March 2023, the Company:
-- Announced a capital recycling programme and initiated the
process for the sale of five UK subsidy-free assets;
-- Formally welcomed Helen Mahy CBE to the Board of Directors as
a non-executive Director; and
-- Announced a long-term Power Purchase Agreement ("PPA") was
signed with Statkraft, a leading renewable producer in Europe's
energy market, for its international solar co-investment named
Santarém.
Increased Dividend Target
In May 2023, the Board of NESF approved a target dividend
increase of 11% to 8.35 pence per ordinary share for the year
ending 31 March 2024. NESF continues to maintain a progressive
annual dividend policy, and when appropriate, the Board considers
increasing the target dividend paid to shareholders. To date, the
Board has increased the target dividend every year since the
Company listed in 2014 with all annual dividend targets
successfully being achieved whilst remaining well-covered.
Capital Recycling Programme
In April 2023, the Board announced a capital recycling programme
to accelerate the next phase of the Company's growth. Through the
programme, the Company aims to capture significant value from the
divestment of a 236MW portfolio of subsidy-free UK solar assets,
the proceeds from which will be used to:
-- Reduce gearing in the short term to materially reduce current
drawings of the Company's revolving credit facilities ("RCF").
Given the significant increase in interest rates in recent months,
the Board anticipates using net proceeds from the programme to
reduce the amount of drawn RCF where the Company has exposure to
the high interest rate environment in the near term. The reduction
in gearing will reduce debt service burden, strengthen free cash
flows, and further increase dividend cover.
-- Secure optionality for future long-term growth opportunities
providing flexibility to capture higher returning investment
opportunities in the future, such as energy storage. The net
proceeds of the Programme will also create capacity for the Company
to position itself for its next phase of growth, including into
value-accretive energy storage. The Company has exclusivity over,
or owns the project rights for, the majority of its pipeline of
c.GBP500m UK and international assets across the solar and energy
storage space. This includes ownership of the development rights
for a high-quality 250MW lithium-ion battery storage project in the
East of England, which when constructed will be one of the UK's
largest operational standalone battery storage assets.
-- Buyback shares to control the discount if the share price
continues to trade at a material discount to the Company's NAV per
share. The Board operates robust discount monitoring and management
controls and has noted the prolonged period over which the
Company's shares have been trading at a discount to its NAV. The
Board continues closely to monitor the current discount and
confirms its commitment to buy back shares if the share price
continues to trade at a material discount to the Company's net
asset value per share.
The Company continues to run a competitive sales process on the
five subsidy-free assets that are being sold (breakdown below) and
we look forward to updating the market on our progress shortly.
Table breakdown of 236MW subsidy-free portfolio:
Subsidy-free solar
asset Installed Capacity Status Location
Hatherden 50MW Ready-to-build Hampshire, UK
------------------ ------------------ ------------------ ----------------
Whitecross 36MW Under construction Lincolnshire, UK
------------------ ------------------ ------------------ ----------------
Staughton 50MW Operational Bedfordshire, UK
------------------ ------------------ ------------------ ----------------
Nottinghamshire,
The Grange 50MW Operational UK
------------------ ------------------ ------------------ ----------------
South Lowfield 50MW Operational Yorkshire, UK
------------------ ------------------ ------------------ ----------------
Battery Storage Mandate Increase
NESF has been investing in energy storage projects since 2018
and has built up considerable expertise in managing energy storage
assets and running them in conjunction with solar plants. NESF is
also progressing projects to retrofit energy storage assets onto
its existing assets where feasible.
NESF intends to expand its energy storage activities later in
the year having consulted with investors over the period. The
Company aims to increase its limit in standalone energy storage
from 10% of the Gross Asset Value ("GAV"), up to 25%, with all
other policy limits remaining the same.
This increase will enable NESF to take advantage of existing
energy storage opportunities in the UK via its relationship with
EelPower Ltd, which will complement and diversify NESF's existing
large portfolio of solar assets.
Standalone Battery Storage Progress
The Company's first 50MW battery storage project, known as
Camilla, is currently under construction in Fife, Scotland. The
project will initially operate at one hour duration. The Company
intends to increase the duration of the project to two hours and
current construction works include the infrastructure necessary for
that extension.
The project was sourced last year through a Joint Venture
Partnership vehicle ("JVP1") with Eelpower Limited ("Eelpower")
worth GBP100m. JVP1 was announced last year and is owned 70% by
NESF and 30% by Eelpower. During the year, Camilla was selected to
provide battery storage capacity in the UK Government's latest
Capacity Market Auction.
In September 2022, the Company announced that it had advanced
its position in the energy storage sector through a new GBP200m
JVP2 with Eelpower. JVP2 reflects the successful relationship built
with Eelpower, offering enhanced terms by increasing NESF ownership
to 75%, with Eelpower holding the remaining 25%. The Company has
since announced its first investment through JVP2, the development
rights for a high-quality 250MW lithium-ion battery storage project
in the East of England, one of the largest energy storage projects
announced in the UK to date. The project will take the total
current announced standalone battery storage projects in the
portfolio to 300MW.
The recent developments in battery storage, including Camilla's
success in the Capacity Market Auction, exemplifies the importance
of deploying energy storage at scale in conjunction with solar and
other grid-scale renewable technologies, strengthening the UK's
energy security and supporting the transition to a net-zero carbon
economy. The Company's growth strategy anticipated this evolution
of the market and the Company has well-developed plans to introduce
additional energy storage into its portfolio.
Co-Located Battery Storage Progress
In April 2022, NESF announced a new co-located battery storage
retrofit programme across the Company's UK operating solar farms.
As part of this programme the first site for a co-located battery
project was identified, extending the existing 11MW North Norfolk
solar farm to include a 6MW/12MWh battery system. Planning
permission for the co-located battery system has been secured and
the Company is in discussions with the local Distribution Network
Operator ("DNO") to confirm an energisation date. An additional
four potential locations for co-located battery storage systems
have been identified to date and are being progressed into their
development stage.
Generating Value from UK Solar
Since IPO, the Company has been a market leader in capturing
value from UK solar. The market continues to evolve significantly
over time and, since 2019, the Company has pursued a portfolio of
subsidy-free projects, to which it has added significant value. The
success of the Company's subsidy-free portfolio demonstrates its
ability to respond efficiently and effectively to a changing UK
solar market through its expertise in identifying opportunities and
maximising risk-adjusted returns.
During the year ended 31 March 2023, the Company commenced grid
connection works and construction mobilisation phase at Hatherden,
a 50MW subsidy-free solar farm. The Company also commenced
construction of Whitecross, a 36MW utility solar asset, located in
Lincolnshire. The original construction date of the asset was
deferred from H2 2021 due to supply chain risks post Covid-19 which
have been sufficiently addressed.
Whitecross and Hatherden have also been selected to be part of
the fourth CfD Allocation Round (AR4). The CfDs last for 15-years,
are index linked to inflation (CPI) annually, and are scheduled to
commence from 31 March 2025 at the AR4 solar PV strike price of
GBP45.99/MWh (set in 2012 equivalent prices). Through its capital
recycling programme, NESF intends to cystalise the value it has
created for shareholders through these assets.
During the year, NESF also added a 0.18MW commercial rooftop
solar asset, Holiday Inn, to its portfolio. It is part of an
agreement made with the renewable energy developer, Zestec. The
asset is located on a Holiday Inn hotel in Nottinghamshire and
benefits from an attractive 25-year PPA for 100% of its generated
volume.
Capturing Co-Investments Opportunities
Through its investment in NextPower III ESG ("NPIII LP"), a
NextEnergy Capital managed private equity solar infrastructure fund
that invests in OECD markets globally, NESF benefits from
international diversification in addition to unique co-investment
opportunities. Co-investments allow NESF to take direct stakes in
international solar assets alongside large international
institutional investors on a no fee, no carry basis. This is
particularly beneficial as it provides the Company with access to
an attractive new pipeline of potential international assets not
available to other market participants or investors. To date, co-
investments with NPIII LP have amounted to a total of c.EUR33.5m
alongside the Company's US$50m commitment to NPIII LP.
Energisation of the Company's first co-investment, a 24.5% stake
in a Spanish 50MW solar project, Agenor Hive S.L. ("Agenor"), is
expected to occur in Q3 2023 following its announcement in January
2022.
In May 2022, the Company announced a second co-investment in
Portugal, Santarém. The Company acquired a 13.6% stake in the 210MW
solar asset in Portugal for a consideration of EUR22.5m.
Energisation of this project is expected to take place in 2023.
Following the year end, the Company announced that Santarém had
secured a long-term Power Purchase Agreement ("PPA") with
Statkraft, a leading renewable producer in Europe's energy market.
Under this agreement, Statkraft will acquire the electricity
production from Santarém for eight years. The PPA builds on the
existing successful relationship between NextEnergy Capital and
Statkraft, following an earlier signed PPA between the two covering
Agenor.
NAV and Operating Results
At the year end, the ordinary shareholders' NAV was GBP674.4m
equivalent to 114.3p per ordinary share (31 March 2022: GBP668.5m,
113.5p per ordinary share). The change in NAV over the year
reflects a large increase in power price forecasts (+14.6p per
ordinary share) and changes in inflation (+5.6p per ordinary
share). The above NAV drivers were offset by an increase of 1.0% in
the discount rate for unlevered operating UK solar assets. The
decision was driven by the increasing UK long-term gilt yields,
driven by the Bank of England ("BoE") base rate increases over the
period. The resulting impact on the NAV was -7.0p per ordinary
share. The NAV increase includes the impact of the EGL, announced
by the UK government towards the end of 2022.
Profit and comprehensive income for the year was GBP48.3m (2022:
GBP127.6m) with earnings per ordinary share of 8.2p (2022: 21.7p).
Cash dividend cover (pre-scrip dividends) was 1.4x (2022:
1.2x).
Power Prices
The increases in UK and European wholesale power prices from the
previous year has continued during the current year. The volatility
is attributable to reduced gas supply due to the conflict in
Ukraine, which led to widespread import sanctions on Russian oil,
gas and related products. This was exacerbated by pre-existing low
levels of gas storage across the EU. More recently, the
Organisation of the Petroleum Exporting Countries ("OPEC")
announced reductions in oil output. Mitigating risk and increasing
visibility of future cash flows remains a priority for the Fund.
The increase in power price volatility during the calendar year and
also in forward pricing has underlined the benefit and value of the
Company's power sales strategy through the Investment Adviser's
active energy sales desk.
NESF's portfolio's robust performance is backed by
inflation-linked subsidies as well as a proactive energy sales
strategy, which includes long-term PPAs and rolling short-term
hedges over a 36-month period. This strategy of proactive risk
mitigation helps to underpin the Company's dividend cover, increase
the certainty of revenue streams and mitigate the negative impact
of short-term fluctuations in the power markets.
Of the Company's revenues during the year, 52% were derived from
government subsidies and long-term PPAs and, at the end of the
year, the average remaining weighted life of the subsidies was 12
years.
The remaining 48% of the Company's revenues were derived from
selling the electricity generated in the open market and,
therefore, are exposed to market power price movements until the
price has been locked ('hedged'). The Asset Manager's energy sales
desk is focused on securing the best terms for NESF's electricity
sales to carefully selected counterparties. This flexible approach
is designed to protect against adverse short-term price movements
whilst also enabling the Company to secure attractive fixed prices
for specified future time periods which provides increased
certainty on dividend cover.
Looking towards the next three financial years, as at 1 June
2023, the Company has agreed pricing of:
UK hedging summary(1) FY23/24 FY24/25 FY25/26
Generation hedged
(%) 87.9% 44.3% 13.0%
---------------------- ------- ------- --------
Average fixed price
(GBP/MWh) GBP79.0 GBP91.4 GBP147.2
---------------------- ------- ------- --------
(1) Covers 83% of the total portfolio (716MW)
Portfolio Performance
Energy generated during the year was 870 GWh (2022: 773 GWh) and
the portfolio achieved a generation outperformance vs budget of
3.8% (2022: 1.8%), increasing revenues by an estimated GBP4.8m
against budget (2022: GBP2.0m). During the year, solar irradiation
across the portfolio was 7.5% above budget (2022: 3.4%).
The Company's UK portfolio performed above expectations with
generation outperformance of 3.8% (2022: 1.9%) and the Italian
portfolio performed above expectations with generation
outperformance of 3.3% (2022: 1.1%).
Capital Structure Strategy
During the year, the Company announced that it had increased the
commitments available under its Revolving Credit Facility ("RCF")
with AIB Group (UK) p.l.c. ("AIB") & NatWest from GBP75m to
GBP135m. The additional commitments have been agreed on attractive
terms with a margin of 120bps over SONIA ("Sterling Overnight Index
Average"), available until June 2024. The Company also signed a
two-year extension to its GBP70m RCF with Santander UK to fund the
investment pipeline.
Given the high interest rate environment, the Company is
pursuing a prudent capital allocation strategy. The fixed coupon
rate for preference shares shelters the Company from continued
interest rates volatility in the future. As such, the addition of
preference shares has provided value through diversification of it
capital stack since their inclusion in 2018. The careful use of
RCFs is critical to limit exposure to unhedged interest rates and
the Company continues to closely monitor the market to manage the
risks effectively. One of the benefits of the capital recycling
programme, announced following the year end will be a reduction in
gearing and reduced exposure to high interest rates.
As at 31 March 2023, the Company had GBP200m of preference
shares within its capital structure (2022: GBP200m). The preference
shares, which are counted as financial debt, effectively shield the
Company from increases in interest rates and contribute to the
Company's strong financial performance for shareholders. The
preference shares also reduce the exposure to secured debt
financing and provide protection against diminishing power prices
compared to traditional debt financing used by peers. The Company
continues to benefit from the low cash cost of the preference
shares that pay a fixed preferred dividend of 4.75% with no
redemption requirements and the Company maintains attractive
optionality to redeem at nominal value from 1 April 2030 for a six
year period.
The total financial debt represented 28% of Gross Asset Value
("GAV") , on a look through basis, as at 31 March 2023 (2022: 25%).
At the same reporting date, the total gearing comprising the total
financial debt and the preference shares represented 45% of GAV
(2022: 42%) which is within the 50% limit per the investment
policy.
Dividends Paid
The Directors have approved a fourth interim dividend of 1.88p
per ordinary share, which will be paid on 30 June 2023 to ordinary
shareholders on the register as at the close of business on 19 May
2023. Following the payment of the fourth interim dividend, the
Company will have paid total dividends of 7.52p per ordinary share
in respect of the year ended 31 March 2023 (2022: 7.16p). Since IPO
the Company has declared total dividends of GBP305.8m.
The Company continues to offer a scrip dividend alternative as
approved by ordinary shareholders at the 2022 Annual General
Meeting ("AGM"), details of which can be found on the Company's
website (nextenergysolarfund.com).
Environmental, Social and Governance (ESG)
NESF's commitment to ESG and sustainability remains at the
forefront of its strategy and purpose. During the year, the board
formed an ESG committee, chaired by Josephine Bush, to dedicate
additional standalone discussions towards the progression of the
Company's ESG strategy. The Investment Adviser is a signatory of
the United Nations' Principles for Responsible Investments, and
integrates ESG principles into all aspects of the NextEnergy
Group's investment and asset management processes. NESF
incorporates ESG factors into all investment decisions by
implementing the Investment Adviser's Sustainable Investment Policy
throughout the investment process, from preliminary screening
through to risk management during the ownership phases.
Net Zero Alignment
Aligned with the Company's commitment to support the UK
Government's net zero ambitions (introduced at COP26 and refreshed
in the recent Independent Review of Net Zero), NESF's portfolio
generated 870 GWh of clean electricity during the year ended 31
March 2023 (2022: 773 GWh), contributing to the avoidance of
363,000 tonnes of CO(2) e emissions (2022: 328,700 tonnes CO(2) e)
and equivalent to powering 242,000 UK homes for an entire year
(2022: 216,300). This is roughly equivalent to powering a city with
571,120 inhabitants (e.g. Nottingham and Brighton combined) or
removing 120,000 cars off the road for an entire year (2022:
108,690 cars). The above data has been verified by the Green
Analytics team of the Macquarie Green Investment Group, a
third-party climate related data provider.
Biodiversity
NESF recognises the urgency for action to be taken to reduce the
intensity and drivers of biodiversity loss. By valuing the
biodiversity baseline condition and understanding
nature-dependencies, it is possible to effectively manage nature
impacts and ecological footprint to reduce habitat loss.
The Investment Adviser is actively engaged in developing a
global biodiversity strategy that will outline the Fund's ambition
for biodiversity and set out a framework, which will guide
disclosures under the Taskforce for Nature- related Financial
Disclosures (TNFD) with informed Science- Based Targets (SBT).
The Investment Adviser is engaged with applying environmental
due diligence and governance across all aspects of NESF's
investment lifecycle to ensure consistent management of
biodiversity risk and opportunity.
This continues to provide auditability, compliance and alignment
with international drivers such as the Global Biodiversity
Framework, and national policy including the Environmental
Improvement Plan 2023. Please refer to our Sustainability Report on
the NESF website: nextenergysolarfund.com/esg/transparency-and-
reporting/.
Supply Chain Management
Since inception, the ESG Team of the Investment Adviser has been
involved as a sponsor and supporter of the Solar Stewardship
Initiative (SSI), a multi-stakeholder forum created by Solar Power
Europe and Solar Energy UK to promote responsible sourcing in the
solar value chain.
The public launch of the SSI took place in October 2022, and the
Investment Adviser continues to be involved in the development of
the SSI. The initiative is anticipated to be operational by the end
of 2023. The Investment Adviser also continues to strengthen its
supply chain risk management, with its ESG, procurement,
construction and investment teams working closely together to
ensure that contractors and suppliers abide by the Adviser's code
of conduct and ESG standards.
Positive Social Contribution
NESF contributes to domestic growth and development wherever its
assets are located. The Company is dedicated to ensuring
best-practice labour standards are applied by all its contractors.
In addition to the ESG activities on behalf of NESF and other
clients, the NextEnergy Group continues to donate at least 5% of
its net profits to the NextEnergy Foundation ("NEF"), which was
established in 2017. The Board and I are proud that NESF also
supports the Foundation, which included donations totaling GBP400k
for the year ended 31 March 2023. The Foundation participates
proactively in the global effort to reduce carbon emissions,
provide clean power sources in regions where they are not
available, and contribute to alleviate poverty.
EU Taxonomy and Sustainable Finance Disclosure Regulation
NESF complies with the requirements of the EU Taxonomy and
Sustainable Finance Disclosure Regulation ("SFDR"). The Company's
legal adviser has confirmed that NESF is classified under Article 9
of the SFDR, as the Company is marketed in the EU and has
sustainable investment as its objective. The Company's sustainable
investment objectives arise from its contribution to climate change
mitigation, addressed through its focus on investments in solar
assets and battery storage assets. In addition, the Company has a
robust ESG integrated process which is aligned with the "Do No
Significant Harm" (DNSH) criteria of the EU Taxonomy, and
implements strong safeguard on social, community and human right
impact across its value chain. In light of this classification,
NextEnergy Group has made the relevant disclosures (SFDR Annex III
and V) for NESF, available on the Company's website.
Task Force on Climate-Related Financial Disclosures
NESF recognises the importance of reporting on the impacts of
climate change and has been an official supporter of the goals of
the Task Force on Climate-related Financial Disclosures ("TCFD")
since September 2019. The Company has included its full TCFD report
in this annual report and has also disclosed the report as a
stand-alone document on its website.
Appreciation
The Board would like to thank the Investment Manager and the
Investment Adviser, and their employees for their continued hard
work during the year; continuing to deliver substantial value to
the Company's ambitions to deliver sustained high performance and
significant positive impact.
Outlook
The Board, Investment Manager and Investment Adviser believe
that the market environment continues to be favourable for the
Company. Undoubtedly, macroeconomic and political events have
impacted and will continue to impact the renewable energy sector in
which the Company operates. The current economic climate provides
further evidence for the benefits of solar energy, providing
national energy security and independence, which in turn shelters
consumers from the volatile global energy markets. As renewables
are deployed, the business case for energy storage also
strengthens. Battery storage is a highly complementary portfolio
technology to Solar PV, and as the profiles are uncorrelated, this
provides further diversification to the Company's portfolio from a
technology, revenue and geographic perspective.
The Company has a strong pipeline of international growth
opportunities on a direct and co-investment basis, as well as its
pipeline of solar and energy storage assets in the UK. The pipeline
has been composed to complement the existing portfolio, diversify
the risk profile and enhance shareholder returns.
The Company has positioned itself well through its strategic
initiatives and active management throughout the year, and I am
excited to see NESF expand into its next stage of growth, going
from strength to strength over the coming years.
Kevin Lyon
Chairman
16 June 2023
Our Business Model
Structure
The Company is regulated by the Guernsey Financial Services
Commission as a registered closed-ended investment company. It has
an inde nite life.
The Company's capital structure comprises ordinary shares and
preference shares. The ordinary shares are listed on the premium
segment of the Of cial List and traded on the London Stock
Exchange's Main Market. The preference shares are not listed or
traded on any public market. The rights attaching to each class of
shares are summarised in note 13(b) to the Financial
Statements.
The Company makes its investments through intermediate holding
companies ("HoldCos"), underlying special purpose vehicles ("SPVs")
and a singular direct investment that hold the solar assets. The
NESF Group comprises the Company, the HoldCos, the SPVs and the
direct investments.
As explained in note 2(d) to the Financial Statements, as the
Company is an investment entity as described by International
Financial Reporting Standards ("IFRS") 10, the Company does not
prepare consolidated Financial Statements and, instead, holds its
investments at fair value.
The Company has the ability to use short- and long-term debt at
the Company, HoldCo and SPV levels. Debt at the HoldCo and SPV
levels is non-recourse.
Operating Model
The Company's business model follows that of an externally
managed investment company. Therefore, the Company does not have
any employees and outsources its activities to third party service
providers, including the Investment Manager, Asset Manager and
Administrator who are the principal service providers. The
Investment Manager outsources speci c 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 nancial
reporting.
The Company has outsourced the management of its day-to-day
activities to the Investment Manager and the Administrator, which
operate within clearly de ned terms of agreements that set out
their roles, responsibilities and authorities. The Investment
Manager, operating under guidelines determined by the Board, has
direct responsibility for certain decisions relating to the
day-to-day running of the Company and is accountable to the Board
for the investment and operating performance of the Company. The
Administrator provides the Company with company secretarial, fund
accounting and administration services.
Further information on the division of responsibilities for the
management of the Company can be found in the Corporate Governance
Statement.
Management of the Company's Investment Activities and Assets
The Investment Manager, Investment Adviser and Asset Manager are
shown in the diagram and their key roles are shown below. They are
all members of the NextEnergy Group.
The NextEnergy Group, which is privately owned, was founded in
2007 and has evolved into a leading specialist investment and asset
manager in the renewable energy infrastructure and battery storage
sectors. Since its inception, it has been active in the
development, construction and ownership of solar and battery
storage assets.
As at 31 March 2023 the NextEnergy Group had assets under
management of c.$3.4 billion with a cumulative operating generating
capacity of more than 1.4GW. In addition to the Company, it manages
the private equity fund, NPIII LP, which invests in solar assets
globally. The fund achieved a total capital raise of $896m, which
exceeded its target of $750m. NPIII LP currently has an operating
capacity of c.390MW.
In January 2022, the Investment Manager divested the entire
portfolio of operating solar projects owned by the private equity
fund, NextPower II. At sale, NextPower II was among the ten largest
portfolios of operating solar assets in Italy (c.149MW) and
achieved an exceptional net Internal Rate of Return ("IRR") for
investors.
The Investment Adviser has since secured the UK Infrastructure
Bank as a cornerstone investor for a private 10-year solar
infrastructure fund, NextPower UK ESG ("NP UK"). The fund, which
focuses on subsidy-free UK solar, has currently secured GBP595m in
committed capital, which exceeds its target of GBP500m, and will
continue to fundraise up to the hard cap of GBP1bn.
The NextEnergy Group's team of over 270 individuals has signi
cant experience in energy and infrastructure transactions across
international jurisdictions. The Investment Adviser's Investment
Committee comprises Michael Bonte-Friedheim, Aldo Beolchini, Giulia
Guidi and Ross Grier who have over 70 years' industry experience
between them.
Since it was founded, the NextEnergy Group has provided asset
management, technical due diligence and other services to over
2,855 solar power and energy storage assets, totalling an installed
capacity in excess of 4.3GW. Its asset management clients include
listed solar funds (in addition to the Company), banks, private
equity funds and other specialist investors. The Asset Manager has
created a proprietary asset management platform which integrates
technical, financial and commercial data to analyse clients' data
and generate insights, all of which help to protect and enhance the
long-term quality and performance. This software, its systems and
processes, together with specialist staff with extensive renewables
experience, allows the Asset Manager to deliver market leading
results.
The collective experience of the NextEnergy Group of investing
and managing renewables assets enables NESF to implement ef
ciencies at both the investment and operating asset levels. The
technical and operating outperformance of the Company's portfolio
to date underlines the bene ts of this comprehensive strategic
relationship.
Administration of the Company
The Board has delegated administration, fund accounting and
company secretarial services to the Administrator. Ocorian
Administration (Guernsey) Limited, is part of the Ocorian Group
which was established in Jersey in 1971 as Bedell Trust, and is a
global nancial services provider. It operates in 20 key locations
globally and has 4,000+ employees.
Further details on the Administrator's responsibilities can be
found in the Corporate Governance Report.
Michael Bonte-Friedheim is Founding Partner and CEO of the
NextEnergy Group.He has over 25 years' specialist experience in the
power and energy sector.
Aldo Beolchini is Managing Partner and CIOof the NextEnergy
Group.He has over 21 years' experience in investment banking and
renewable energy. Prior to joining the NextEnergy Group in 2008, he
was Vice President at Morgan Stanley Investment Banking.
Investment Manager
Acting as the Company's Alternative Investment
Management Agreement Fund Manager ("AIFM")
with Discretion to make investments in accordance
the Company with the Company's Investment Policy, subject
see note 1 in the to investment recommendations by the Investment
Financial Statements 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
Advisory Agreement with in respect of the Company's existing and
the potential investments
Investment Manager 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
Technical and financial analysis of each
Asset Management Agreements site to assess performance and identify
with the HoldCos and potential improvements. Periodic site visits
SPVs 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 Investment Adviser
Dividend Policy, Scrip Dividends and Dividend Target for
Financial Year Ending 31 March 2024
The Company's principal purpose is to provide ordinary
shareholders with attractive risk-adjusted returns, principally in
the form of dividends with a progressive annual dividend policy in
place. In respect of each nancial 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
exibility to receive their quarterly dividend in cash or newly
issued ordinary shares. Details of the scrip dividend alternative
for the year ending 31 March 2024 will be set out in a separate
circular that is expected to be sent to ordinary shareholders in or
around August 2023. Once published, a copy of the circular will
also be available on the Company's website
(nextenergysolarfund.com).
The target dividend for the nancial year ending 31 March 2024 is
8.35 pence per ordinary share, an increase of 11% compared to the
nancial year ended 31 March 2023.
Five Year Record
Year Ended 31 March
Financial Key Performance
Indicators 2019 2020 2021 2022 2023
------------------------------- ---------- ---------- ---------- ---------- ----------
Ordinary shares in
issue 581.7m 584.2m 586.9m 589.1m 590.3m
------------------------------- ---------- ---------- ---------- ---------- ----------
Ordinary share price 117.5p 101.5p 99.6p 103.4p 104.8p
------------------------------- ---------- ---------- ---------- ---------- ----------
Market capitalisation
of ordinary shares GBP683m GBP593m GBP585m GBP609m GBP619m
------------------------------- ---------- ---------- ---------- ---------- ----------
NAV per ordinary share
(1) 110.9p 99.0p 98.9p 113.5p 114.3p
------------------------------- ---------- ---------- ---------- ---------- ----------
Total ordinary NAV
(1) GBP645m GBP579m GBP581m GBP668m GBP674m
------------------------------- ---------- ---------- ---------- ---------- ----------
Premium/(discount)
to NAV (1) 6.0% 2.5% 0.7% (8.9%) (8.3%)
------------------------------- ---------- ---------- ---------- ---------- ----------
Earnings per ordinary
share 12.37p (5.09p) 6.87p 21.69p 8.20p
------------------------------- ---------- ---------- ---------- ---------- ----------
Dividend per ordinary
share 6.65p 6.87p 7.05p 7.16p 7.52p
------------------------------- ---------- ---------- ---------- ---------- ----------
Dividend yield (1) 5.7% 6.8% 7.1% 6.9% 7.2%
------------------------------- ---------- ---------- ---------- ---------- ----------
Cash dividend cover
- pre scrip dividends
(1) 1.3x 1.2x 1.1x 1.2x 1.4x
------------------------------- ---------- ---------- ---------- ---------- ----------
Preference shares in
issue 100m 200m 200m 200m 200m
------------------------------- ---------- ---------- ---------- ---------- ----------
Financial debt outstanding
at subsidiaries level GBP269m GBP214m GBP246m GBP283m GBP345m
------------------------------- ---------- ---------- ---------- ---------- ----------
Financial debt (financial
debt/GAV)(1) 27% 22% 24% 25% 28%
------------------------------- ---------- ---------- ---------- ---------- ----------
Gearing (financial
debt + preference shares/GAV)
(1) 36% 42% 43% 42% 45%
------------------------------- ---------- ---------- ---------- ---------- ----------
GAV GBP1,014m GBP991m GBP1,025m GBP1,150m GBP1,218m
------------------------------- ---------- ---------- ---------- ---------- ----------
Weighted average cost
of capital 5.4% 5.5% 5.4% 5.3% 5.7%
------------------------------- ---------- ---------- ---------- ---------- ----------
Ordinary shareholder
total return - cumulative
since IPO (3) 46.7% 37.5% 42.6% 53.6% 62.4%
------------------------------- ---------- ---------- ---------- ---------- ----------
Ordinary shareholder
total return - annualised
since IPO (3) 9.5% 6.3% 6.1% 6.7% 7.0%
------------------------------- ---------- ---------- ---------- ---------- ----------
Ordinary shareholder
total return 11.8% -7.8% 5.1% 11.0% 8.6%
------------------------------- ---------- ---------- ---------- ---------- ----------
Ordinary NAV total
return (1) 11.8% -4.5% 7.0% 22.0% 7.3%
------------------------------- ---------- ---------- ---------- ---------- ----------
Ordinary NAV total
return - annualised
since IPO (3) 8.1% 5.9% 6.0% 8.0% 8.0%
------------------------------- ---------- ---------- ---------- ---------- ----------
Ongoing charges ratio
(1) 1.1% 1.1% 1.1% 1.1% 1.1%
------------------------------- ---------- ---------- ---------- ---------- ----------
Weighted average discount
rate 7.0% 6.8% 6.3% 6.3% 7.3%
------------------------------- ---------- ---------- ---------- ---------- ----------
Operational Key Performance
Indicators
------------------------------- ---------- ---------- ---------- ---------- ----------
Invested capital (1) GBP896m GBP950m GBP999m GBP1,039m GBP1,134m
------------------------------- ---------- ---------- ---------- ---------- ----------
Number of operating
assets 87 90 94 99 99
------------------------------- ---------- ---------- ---------- ---------- ----------
Total installed capacity 691 MW 755 MW 814 MW 865 MW(2) 865 MW(2)
------------------------------- ---------- ---------- ---------- ---------- ----------
Annual generation 693 GWh 712 GWh 738 GWh 773 GWh 870 GWh
------------------------------- ---------- ---------- ---------- ---------- ----------
% increase (year-on-year) 54% 3% 3% 4% 13%
------------------------------- ---------- ---------- ---------- ---------- ----------
Generation since IPO 1.8 TWh 2.5 TWh 3.2 TWh 4.0 TWh 4.9 TWh
------------------------------- ---------- ---------- ---------- ---------- ----------
Solar irradiation (delta
vs. budget) 9.0% 4.0% 5.5% 3.4% 7.5%
------------------------------- ---------- ---------- ---------- ---------- ----------
Generation (delta vs.
budget) 9.1% 4.7% 6.2% 1.8% 3.8%
------------------------------- ---------- ---------- ---------- ---------- ----------
Asset Management Alpha
(1) 0.1% 0.7% 0.7% -1.6% -3.7%
------------------------------- ---------- ---------- ---------- ---------- ----------
Remaining weighted
average useful life 25.2 years 26.9 years 27.5 years 27.3 years 26.3 years
1 Alternative performance measures
2 Excludes share in private equity vehicle (NPIII LP). Inclusion
of NESF's share of NPIII LP would increase capacity by 24MW (2022:
19MW) to 889MW (2022: 884MW)
3 Return figures since IPO calculated based on dividends
paid
Our Investment Strategy and Track Record
Investment Strategy
Our strategy is straightforward:
-- Investment: We seek to own a broad range of large scale solar
energy infrastructure assets, but may invest up to 10% of GAV in
standalone energy storage systems and are looking to increase this
up to 25%.
-- Location: Primarily located in the UK but with up to 30% of
GAV in other OECD countries, that generate reliable cash ows 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 ef ciencies,
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 diversi ed exposure by location,
third-party suppliers, service providers and other commercial
counterparties to improve the resilience of the Company's portfolio
and contributing to its long-term sustainable success.
Further details of our investment strategy are included in the
Investment Adviser's Report.
Investment Policy
The Company seeks to achieve its investment objective by
investing predominantly in solar PV assets.
The Company invests in solar PV assets primarily in the UK. Not
more than 30% of the Company's GAV (calculated at the time of
investment) may be invested in solar PV assets that are located
outside the UK. Investments in solar PV assets outside the UK will
be made in OECD countries that the Investment Manager and
Investment Adviser believe have a stable solar energy regulatory
environment and provide investment opportunities with similar, or
better, investment characteristics and returns relative to
investments in the UK, although the Company may acquire an interest
in solar PV assets located in non-OECD countries where those assets
form part of a portfolio of solar PV assets in which the Company
acquires an interest and where the Company's aggregate investment
in any such assets is, at the time any such investment is made, not
greater than 3% of the GAV.
The Company intends to continue to acquire solar PV assets that
are primarily ground-based and utility-scale and which are on sites
that may be agricultural, industrial or commercial. The Company may
also acquire portfolios of residential or commercial
building-integrated installations. The Company targets solar PV
assets that are anticipated to generate stable cash flows over
their asset lifespan.
The Company typically seeks to acquire sole ownership of
individual solar PV assets through SPVs, but may invest in solar PV
assets through entering into joint ventures, acquiring minority
interests or via private equity structures, provided that not more
than 15% of the GAV may be invested in private equity structures
(calculated at the time of investment). Where a controlling
interest of less than 100% in a particular solar PV asset is
acquired, the Company intends to secure controlling shareholder
rights through shareholders' agreements or other legal
arrangements. Where a non-controlling interest is being acquired
(either directly in a solar PV asset or through a private equity
structure) the Company intends to secure minority protection rights
or protections through limited partnership agreements in line with
typical private equity structures. Investments by the Company in
solar PV assets may be either by way of equity or a mix of equity
and shareholder loans.
The Company has built up a diversified portfolio of solar PV
assets and its investment policy contains restrictions to ensure
risk diversification. No single investment (or, if an additional
stake in an existing investment is acquired, the combined value of
both the existing and the additional stake) by the Company in any
one solar PV asset will constitute (at the time of investment) more
than 30% of the GAV. In addition, the four largest solar PV assets
will not constitute (at the time of investment) more than 75% of
the GAV.
The Company will continue, primarily, to acquire assets, but may
also invest in solar PV assets that are under development (that is,
at the stage of origination, project planning or construction) when
acquired. Such assets will constitute (at the time of investment)
not more than 10% of the GAV in aggregate.
The Company may also agree to forward-fund by way of secured
loans the construction costs of solar PV assets where it retains
the right (but not the obligation) to acquire the relevant asset
once operational. Such forward-funding will not fall within the 10%
development restriction above but will be restricted to no more
than 25% of the GAV (at the time such arrangement is entered into)
in aggregate and will only be undertaken where supported by
appropriate security (which may include financial instruments as
well as asset-backed guarantees).
The right to forward-fund, subject to the above limitations,
enables the Company to retain flexibility in the event of changes
in the development pipeline over time. In addition, the Company
will not employ forward funding and engage in development activity
in relation to the same project or asset.
A significant proportion of the NESF Group's income is expected
to result from the sale of the entirety of the electricity
generated by the solar PV assets within the terms of PPAs to be
executed from time to time. These are expected to include the
monetisation of Renewable Obligation Certificates ("ROC") and other
regulated benefits and the sale of electricity generated by the
assets to energy consumers and energy suppliers (Merchant Power).
Within this context, the Company expects to execute PPAs with
creditworthy counterparties at the appropriate time.
The Company will continue to diversify its third-party
suppliers, service providers and other commercial counterparties,
such as developers, engineering and procurement contractors,
technical component manufacturers, PPA providers and landlords.
In pursuit of the Company's investment objective, the Company
may employ leverage, which together with the aggregate subscription
monies paid in respect of all Preference Shares in issue and
including any unpaid or undeclared dividends thereon will not
exceed (at the time the relevant arrangement is entered into) 50%
of the GAV in aggregate. Such leverage will be deployed for the
acquisition of further solar PV assets in accordance with the
Company's investment policy. The Company may seek to raise leverage
at any of the SPV, UK Holdco or Company level.
The Company invests with a view to holding its solar PV assets
until the end of their useful life. However, assets may be disposed
of or otherwise realised where the Investment Manager determines,
in its discretion, that such realisation is in the best interests
of the Company. Such circumstances may include (without limitation)
disposals for the purposes of realising or preserving value, or of
realising cash resources for reinvestment or otherwise.
The Company will seek to optimise and extend the lifespan of its
assets and may invest in their repowering and/or integration of
ancillary technologies (e.g. energy storage) on its solar PV assets
to fully utilise grid connections and balance the electricity grid
with a view to generating greater revenues. The Company may also
invest in standalone energy storage systems (not ancillary to or
co-located with solar PV assets owned by the Company) up to an
aggregate limit of 10% of the GAV (calculated at the time of
investment). The Company expects to re-invest any cash surplus (in
excess of that required to meet the Company's dividend target and
ongoing operating expenses) in further investments, thereby
supporting its long-term net asset value.
The Company may invest cash held for working capital purposes
and pending investment or distribution in cash or near-cash
equivalents, including money market funds.
The Company may (but is not obliged to) enter into hedging
arrangements in relation to interest rates and/or power prices.
Where investments are made in currencies other than sterling,
currency hedging may be carried out to seek to provide protection
to the level of sterling dividends and other distributions that the
Company aims to pay on its shares and in order to reduce the risk
of currency fluctuations and the volatility of returns that may
result from such currency exposure. This may involve the use of
forward foreign exchange contracts to hedge the income from assets
that are exposed to exchange rate risk against sterling and foreign
currency borrowings to finance foreign currency assets.
Hedging transactions (if carried out) will only be undertaken
for the purpose of efficient portfolio management to protect or
enhance returns from the Company's portfolio and will not be
carried out for speculative purposes.
As required by the Listing Rules, any material change to the
Investment Policy of the Company will be made only with the
approval of the Financial Conduct Authority ("FCA") and of the
Company's Ordinary Shareholders by ordinary resolution.
In the event of any breach of the Company's Investment Policy,
shareholders will be informed of the actions to be taken by the
Investment Manager by an announcement issued through a Regulatory
Information Service or a notice sent to Shareholders at their
registered addresses in accordance with the Articles.
Installed Capacity since IPO(1)
1 Includes 6.21% share in private equity vehicle (NPIII LP). As
at 31 March 2023, NESF's share of NPIII LP increases total
installed capacity by 24MW (2022: 19MW) to 889MW (2022: 884MW)
Investment Adviser's Report
NextEnergy Group is a leading specialist solar and energy
storage investment manager and asset manager. The NextEnergy Group
is responsible for the acquisition and management of the Company's
portfolio, including the sourcing and structuring of new
investments and advising on the Company's financing strategy. It
has c. $3.4 bn of assets under management and employs over 270
people worldwide.
Investment Adviser's Investment Committee
The Investment Adviser's Investment Committee comprises Michael
Bonte-Friedheim, Aldo Beolchini, Giulia Guidi and Ross Grier, who
have in excess of 70 years' combined industry experience.
Michael Bonte-Friedheim is Founding Partner and CEO of
NextEnergy Group
Aldo Beolchini is Managing Partner and Chief Investment Officer
of NextEnergy Capital
Giulia Guidi is Head of ESG at NextEnergy Capital
Ross Grier is Chief Operating Officer of NextEnergy Capital
Introduction
NextEnergy Capital Limited, the Investment Adviser, continues to
provide dedicated support to the Company. This has enabled NESF to
deliver a strong performance, capitalise on value-accretive
opportunities and successfully navigate the complex challenges
faced during a year characterised by significant market volatility
and political instability. The Investment Adviser closely monitors
political and economic developments and continues to dynamically
assess potential future opportunities and risks for
the Company.
As at 31 March 2023, the NAV per ordinary share was 114.3p
(2022: 113.5p). The change in NAV over the annual period includes
increases in both power price forecasts (+14.6p per ordinary share)
and short-term inflation forecasts (+5.6p per ordinary share). A
rising interest rate environment and increases in UK long-term gilt
yields led to a 1.0% increase to the discount rate applied to
unlevered operating UK solar assets, offsetting some of the
positive movement from power prices and inflation (-7.0p per
ordinary share).
As disclosed in the RNS dated 12 May 2023, the Board and the
Investment Adviser identified a historic overstatement in the NAV.
This issue has been fully addressed and the current and historic
NAV has been adjusted accordingly. As a result the Investment
Adviser has completed a full investigation of this issue and of the
Company's controls and processes, working in conjunction with the
Audit Committee. Based on the detailed and thorough work undertaken
by the Investment Adviser and the Audit Committee, the Board is
satisfied that this was an isolated incident and that the controls
and valuation tools remain robust. The Investment Adviser has also
incorporated additional controls to provide the Board with further
reassurance. In addition, the Investment Manager has repaid the
management fee that had been based on the higher NAV figure, which
amounted to a total of GBP133,000. Further details can be found
below.
Investment Highlights
During the year, the Company has continued to advance a
significant pipeline of UK solar assets, international solar
assets, UK battery storage assets as well as international solar
co-investment opportunities through NESF's commitment to NPIII
LP.
UK Solar Investments
NESF has pioneered investment into UK subsidy-free solar since
2017, paving the way for continued renewable investment in the UK
following the withdrawal of subsidy regimes. This effort has been
crucial in attracting new investment into the sector, advancing the
UK's net zero ambitions and energy security. NESF has made
substantial progress across its pipeline of post-subsidy solar
assets and accrued significant value. Following a successful year
of progressing the portfolio, the Company plans to crystallise the
returns by divesting five subsidy free assets and recycling the
capital into further value-accretive opportunities.
During the year, the Company commenced construction of
Whitecross, a 36MW utility solar asset, located in Lincolnshire.
The Company also commenced grid connection works and the
construction mobilisation phase of Hatherden, a 50MW subsidy-free
solar farm in Hampshire. Alongside three other assets in the NESF
portfolio, Whitecross and Hatherden contribute towards a selection
of subsidy-free projects totaling 150MW. The other three assets
being High Garrett (8.4MW), Hall Farm 2 (5.4MW) and Staughton
(50MW). The successful selection of the 150MW subsidy-free
portfolio demonstrates the Company's ability to respond efficiently
and effectively to a changing UK solar market.
Whitecross and Hatherden have been selected to be part of the
fourth CfD Allocation Round (AR4). The CfD programme lasts for
15-years and is annually index linked to inflation (CPI). It is
scheduled to commence from 31 March 2025 at the AR4 solar PV strike
price of GBP45.99/MWh (set in 2012 equivalent prices).
During the year, NESF added a commercial rooftop solar asset to
its portfolio, secured through an existing agreement made with the
renewable energy developer, Zestec. Holiday Inn is a 0.18MW asset
located on a Holiday Inn in Nottinghamshire and benefits from an
attractive 25-year power purchase agreement ("PPA") for 100% of its
generated volume.
Newfield, a 0.18MW commercial rooftop solar asset, was removed
from the portfolio following termination of the lease by the
landlord. The Company has received appropriate compensation in line
with the termination clause in the lease agreement.
The NextEnergy Group's Energy Sales desk is responsible for
managing the strategy for the sale of electricity from the
subsidy-free operating assets without long-term contracts. Details
on the power price risk management strategy can be found in note
22b of the Financial Statements.
International Solar Co-investments
The Company has continued to pursue geographical diversification
through its existing $50m commitment ($38.1m drawn as at 31 March
2023) into NPIII LP. NPIII LP is a US$806m private equity solar
fund focused on utility scale solar assets in OECD markets with a
portfolio of operational and in-construction solar assets. Its
US$50m commitment provides the Company with access to attractive
co-investment opportunities on a direct investment basis alongside
NPIII LP and other limited partners in the NPIII LP fund, on a
no-fee, no carry basis.
In May 2022, the Company announced its second co--investment
alongside NPIII LP, taking a 13.6% stake in a 210MW solar asset
known as Santarém in Portugal. Energisation of the project is
expected to take place in 2023. Once energised, Santarém will
benefit from a long-term PPA for the sale of electricity which has
been signed with Statkraft, a leading renewable producer in
Europe's energy market.
Energisation of the Company's first co-investment, a 25% stake
in a Spanish 50MW solar project, Agenor Hive S.L. ("Agenor"), is
expected to occur in Q3 2023 following its announcement in January
2022. These co-investments will enable the fund to benefit
from:
-- Low revenue risk through entering PPAs with high-credit counterparties; and
-- Additional geographical diversification.
Standalone UK Battery Storage Investments
NESF has continued its strategic expansion into energy storage
through its strong relationship with Eelpower Limited ("Eelpower"),
which has provided the Company with access to leading expertise in
the industry.
The Company's first GBP100m Joint Venture Partnership ("JVP1")
was announced on 26 April 2022 and is owned 70% by NESF and 30% by
Eelpower. Its first 50MW battery storage project through JVP1,
called Camilla, is currently under construction in Fife, Scotland.
Camilla has been selected to provide battery storage capacity in
the UK Government's latest Capacity Market Auction. The contracts
are expected to deliver revenues of GBP557k over winter 2023 and
GBP576k per annum over 2026 to 2032, adding to Camilla's existing
Capacity Market contract for delivery in winter 2025-26 worth
GBP305k. As a result, Camilla will support the grid with critical
flexibility during stress events in winter 2023 and for six winters
from October 2026. These contracts will provide a stable foundation
for the operation of the asset.
In September 2022, NESF entered its second GBP200m Joint Venture
Partnership ("JVP2") with Eelpower. NESF owns 75% of JVP2, with
Eelpower holding the remaining 25%. The Company subsequently
announced its first successful acquisition through JVP2 of the
development rights, permits, and initial grid milestones for a
250MW portfolio of high-quality battery storage projects and grid
connections in the East of England for GBP32.5m.
Once constructed, the project will provide vital grid balancing
services. Furthermore, the project will harness electricity at low
import prices and export electricity at times of low generation and
high prices, benefiting from excess generation from neighbouring
offshore wind. The project provides a very attractive return
profile for the Company's portfolio.
The Directors have concluded that both Joint Venture
Partnerships meet the control requirements of the relative
accounting standards and are therefore accounted for as
subsidiaries (see note 4 of the Financial Statements ).
Co-located UK Battery Storage Investments
Due to the high complementarity between solar generation and
battery storage, the Company is also pursuing a co-located battery
storage retrofit programme for its existing portfolio of 99 UK
operational assets. Solar assets exhibit a very predictable
generation profile throughout the day; therefore, batteries can
better optimise when it charges and subsequently dispatches power
throughout the day, allowing the battery to capture arbitrage
opportunities.
In April 2022, the Company selected the first site for a
co-located battery storage project and has plans to extend the
existing 11MW North Norfolk solar farm within the NESF portfolio to
include a 6MW/12MWh battery system. Planning permission for the
co-located battery system has been secured and discussions are
ongoing with the local distribution network operator to confirm an
energisation date. Implementing co-located batteries across the
portfolio presents an attractive growth opportunity as these assets
offer both synergies with PV assets, as well as offering
diversification to portfolio income.
Outlook and Capital Recycling Programme
Market research published during the reporting period, such as
the IEA World Energy Outlook 2022, supports the Company's goals for
deployment of new clean energy projects and forecasts substantial
increases in capacity of renewables out to 2030. Furthermore, the
UK national grid's future energy scenarios forecasts growth in
capacity to continue, with energy storage increasing the most from
1.6 GW in 2021 to as much as 20 GW by 2030 and 35 GW by 2050. This
economic and political landscape strengthen the case for investment
in renewables for the foreseeable future. It is in this context
that the Company is seeking to maximise the value of its existing
portfolio and capture higher returning investment opportunities
through a capital recycling programme (the "Programme") that was
launched in April 2023.
The Company has been a market leader in subsidy-free UK solar
and has created value through the construction and energisation of
its pipeline. The Board and Investment Adviser do not consider this
value to be truly reflected in the Company's recent share price.
Therefore, NESF is aiming to divest a portfolio of five
subsidy-free assets (Hatherden, Whitecross, Staughton, The Grange,
and South Lowfield). The Programme is expected to deliver NAV
accretive returns by realising the value generated through these
investments. The Company will retain two operational subsidy-free
assets and remains committed to its remaining subsidy-free solar
pipeline.
The proceeds from this transaction will be utilised in the
following ways:
-- Reduce Gearing: In light of significant increases in interest
rates over the year, the Board anticipates using net proceeds from
the Programme to reduce the amount of drawn RCF where the Company
has exposure to the high interest rate environment in the near
term. The reduction in gearing will reduce debt service burden,
strengthen free cash flows, and further increase dividend
cover.
-- Growth Opportunities: Some of the proceeds from the Programme
will allow the Company to position itself ready for its next phase
of growth, including value-accretive energy storage. Battery
storage is a highly complementary technology to Solar PV, and the
profiles of both are uncorrelated, providing further
diversification to the Company's portfolio from a technology,
revenue and geographic perspective. The Company has exclusivity
over, or owns the project rights for, the majority of its pipeline
of c.GBP500m UK and international assets across the solar and
energy storage space. This includes ownership of the development
rights for a high-quality 250MW battery storage project in the East
of England, which when constructed will be one of the UK's largest
operational standalone battery storage assets.
-- The investment opportunities aim to achieve robust financial
returns, increase dividend cover and add geographical,
technological, and revenue diversification to the NESF
portfolio.
-- Commitment to buyback shares: The Board and the Investment
Adviser continue to closely monitor the current discount and
confirms its commitment to buy back shares if the share price
continues to trade at a material discount to the Company's NAV per
share.
Portfolio Performance
During the year, solar irradiation across the entire portfolio
was 7.5% above expectation (2022: 3.4%), and generation was 3.8%
above budget (2022: 1.8%). The additional generation increased
revenues by an estimated GBP4.8m (2022: GBP2.0m) and provided an
additional +31.6GWh of clean electricity across the portfolio
(providing enough energy to power 8,500 homes for the year).
Generation Alpha during the year has been impacted by supply chain
constraints, particularly due to continuing delays and long lead
times as a result of the Covid-19 pandemic.
The outperformance of the portfolio during the year was strong
and involved navigation of significant challenges. Without
Distribution Network Operator Outages ("DNOOs"), portfolio
generation would have been c.4.8% above budget. Distribution
Network Operators ("DNOs") are regionally based licensed companies
(there are six across Great Britain) with each responsible for a
specific region. DNOs complete rolling programmes of preventative
maintenance and upgrade works to ensure stability of the energy
supplied to consumers. In order to keep their staff safe, they
often need to de-energise power lines to complete these works.
The Asset Manager delivers dynamic monitoring and active
performance management for assets that have successfully passed
Preliminary Acceptance Certificate ("PAC") in accordance with the
Engineering, Procurement and Construction ("EPC") contract. The
three rooftop portfolios have been excluded as the monitoring of
small assets is not economically viable. Similarly, the generation
performance of assets that are yet to pass PAC are not reported by
the Asset Manager.
Irradiation Generation
(delta Asset Management (delta
FY2023 vs. budget) Alpha) vs. budget)
UK portfolio +7.7% -3.8% +3.8%
Italy portfolio +5.9% -2.6% +3.3%
Total +7.5% -3.7% +3.8%
No. of Irradiation Generation
assets (delta Asset Management (delta
12 months ended 31 March monitored vs. budget) Alpha vs. budget)
2018 55 -0.9% +1.8% +0.9%
2019 84 +9.0% +0.1% +9.1%
2020 85 +4.0% +0.7% +4.7%
2021 88 +5.5% +0.7% +6.2%
2022 90 +3.4% -1.6% +1.8%
2023 90 +7.5% -3.7% +3.8%
Cumulative from IPO to March
2023 90 +3.5% +0.9% +4.4%
Portfolio Optimisation
The Asset Manager focusses on implementing technical
improvements across the portfolio, reducing operating costs through
utilising existing insurance contracts and re-negotiating
contractual terms by entering into new agreements with suppliers.
Throughout the year, the Asset Manager has leveraged on its
experience and understanding of renewables to deliver high levels
of performance across NESF's operating portfolio.
Asset Optimisation
During 2022, NESF conducted a market leading tender aiming to
drive down the cost of O&M. 18 assets totalling c.165 MWp have
been rolled into the new framework, driving down costs from
GBP6.7/MWp to GBP5.8/MWp, a saving of 14%, despite the high levels
of inflation during the year.
The Company's Asset Manager utilised its understanding of the
challenges faced by the O&M industry and the subsequent impacts
to costs. The approach facilitates cost reductions whilst helping
to further drive the leading performance of the assets. Overall,
through the O&M tender process, six leading O&M contractors
were selected to deliver in the short to medium term for NESF.
These O&Ms have been strategically selected to offer:
-- Economies of scale whilst simultaneously not exposing the
fund to over-consolidation risk;
-- Coverage of all technologies across the NESF portfolio in order to drive performance; and
-- Appropriate geographical coverage for the fund.
During the year, six insurance claims were successfully settled
and closed out for storm damages. The Company received a total
settlement of GBP537k.
The Company has initiated a programme to replace aging inverters
across its portfolio, prioritising those which have experienced
increased failure rates, such as Emerson inverters. In total the
Company currently anticipates replacing inverters for up to 13
assets (with a combined capacity of up to 135MW) over the next
three years. The Investment Adviser and Asset Manager regularly
review performance across the portfolio to identify opportunities
to support and enhance long-term asset health as part of a rolling
programme of strategic re-investment.
OFGEM Audits
During the year, no material adjustments to the NAV were made as
a result of Office of Gas and Electricity Markets ("OFGEM") audits.
Since IPO, 25 OFGEM audits have been successfully concluded without
adverse impact to ROC or FiT accreditations. The NextEnergy Group
has staff who are experienced in dealing with the ongoing audits.
Engagement with OFGEM is through professional advisers and senior
NextEnergy Group staff. The Asset Manager has identified and mapped
contractual recourse associated with identified risk of loss for
completed and ongoing audits.
Short/Medium-term Power Purchase Agreements
NESF continues to lock in power price hedges over a 36-month
period. This risk mitigation helps secure and underpin both
dividend commitments and dividend cover, whilst reducing volatility
and increasing visibility of cash flows.
NextEnergy Group's energy sales desk ensures that the Company's
electricity sales strategy increases the certainty of revenue
streams whilst mitigating the negative impact of short-term
fluctuations in the power markets. Secured pricing comprises fixed
price contracts and hedging under trading frameworks.
PPA sourcing and structuring Energy and market risk Market and pricing
management analysis
Run competitive off-taker Measure, monitor and The Investment Adviser
selection processes manage merchant exposure provides pricing for
through our extensive through selling at spot, NESF projects, supported
network in the solar entering into short-term, by multiple independent
industry medium- term and long-term short and long-term
Quantitative evaluation PPAs third-party power price
of the offers in term Constant dialogue with forecasts
of risk and reward and investors, banks and Undertake rigorous analysis
devise optimal project-specific off-takers on developing and monitoring of the
solutions new and innovative structures main drivers for power
Individual view of market for risk diversification prices in target markets
price risks and opportunities to enable us to increase Monitor policy/regulatory
and delivery obligations portfolio returns developments in the
in order to find the UK and other OECD target
optimal PPA structure markets to obtain an
holistic energy market
overview
------------------------------------ ----------------------------------
FY2023/ FY2024/ FY2025/
UK hedging summary(1) 2024 2025 2026
Generation hedged (%) 87.9% 44.3% 13.0%
Average fixed price
(GBP/MWh) GBP79.0 GBP91.4 GBP147.2
(1) covers 83% of the total portfolio (716MW) as at 1 June
2023
For the year ended 31 March 2023, the Italian portfolio derived
c. 81% of revenues from subsidies (principally FiTs) and c.19% of
revenues resulted from the sale of electricity under fixed price
agreements. For calendar year 2023, c.62% of the Italian portfolio
has fixed price agreements in place for H1 2023 at a weighted
average fixed price of EUR84.0/MWh. For H2 2023, 100% of the
Italian portfolio has fixed price agreements in place at a weighted
average fixed price of EUR135.2/MWh.
Portfolio Valuation
Introduction
The Investment Adviser carries out the fair market valuation of
the Company's underlying investment portfolio in line with its
accounting policies. This valuation is then presented to the
Company's Board for review and approval. The valuation is carried
out quarterly (ad hoc valuations may also be undertaken from time
to time, for example in conjunction with an equity fund
raising).
The valuation principles used are based on a discounted cash
flow methodology except for NPIII LP which is valued using the
estimated attributable NAV. Assets which are not yet operational,
or where the completion of the acquisition is not imminent at the
time of valuation, use the acquisition cost as a proxy for fair
value.
The Company incorporates third parties in the process. A review
is arranged with the auditors on a semi-annual basis. The auditors
conduct an independent review of the interim financial statements
and an audit of the annual report and financial statements. On a
periodic basis, a specialist third-party modelling company conducts
a detailed review and validates the Fund's model, to provide
assurance of its structural integrity and confirms it is correctly
updated and maintained.
The Board reviews the operating and financial assumptions used
in the valuation of the Company's underlying portfolio.
Processes and Controls
Corporate governance of the Fund is critical to the process
surrounding the valuation and involves many stakeholders. On a
quarterly basis, the fund model is used to produce a valuation of
the Investments, which involves an extensive internal review
performed by the Investment Adviser. Following production of the
NAV, multiple reviewers are responsible for ensuring that all
changes to the Company's portfolio are reflected and explained
appropriately. These changes include:
-- Inputs and assumptions, which are updated to correctly
reflect the project documents and the acquisition case. For new
assets acquired since the previous valuation, the main input source
is the acquisition documents used to build the acquisition model
created by the Investment Analyst. The Investment Adviser will
therefore be responsible for ensuring that the inputs of their
acquisition model have been correctly transferred to the Fund model
and the acquisition contracts are cross-checked against one
another;
-- Changes to inputs for existing assets, which must be
explained by project documents. These changes might include:
-- Project Life: Planning and lease extensions secured since the acquisition of the asset;
-- Project Yield: Remediation performed after acquisition;
-- Project Operating Expenses: New or amended contracts for
O&M, Asset Management, Insurance and G&A secured during the
period; and
-- Project Capital expenditures (actual costs incurred and
changes to expected milestone dates); and
-- Updates to data provided by third party advisers and sources.
The Company continues to capitalise on the expertise of
third-parties and ensure fairness in the process through the
independence of assumptions.
Following internal review, the Investment Adviser arranges a
committee meeting to scrutinise movements in the valuation during
the period and consider long-term assumptions, such as the discount
rate. The Investment Adviser subsequently presents the valuation to
the Board of Directors of the Investment Manager, explaining the
movements in the portfolio valuation and the NAV during the period.
Following approval, the Investment Adviser presents to the NESF
Board of Directors. Both presentations show the valuation of the
portfolio, split by asset and include the NAV bridges. If satisfied
with the responses to queries, the NAV is approved for public
dissemination. All board and committee meetings are minuted and
documented.
As at 31 March As at 31 March
Portfolio valuation - key assumptions 2023 2022
UK long-term inflation 2.25% 2.25%
UK short-term inflation (1
year horizon) 4.9% 8.0%
Weighted average discount rate 7.3% 6.3%
Remaining weighted average
useful life 26.3 years 27.3 years
UK short-term power price average GBP86.1/MWh (real
(2023-2027) GBP105.2/MWh 2023)
UK long-term power price average GBP50.6/MWh (real
(2028-2042) GBP50.9/MWh 2023)
Italy power price average (20 EUR64.0/MWh (real
years) EUR92.6/MWh 2023)
19% until 2023,
UK corporation tax rate 25% 25% thereafter
Forecast power price methodology
For the UK portfolio, the Company uses multiple sources for UK
power price forecasts. Where PPAs exist, PPA prices are used where
they have been secured. For periods where there are no PPAs in
place, short-term market forward prices are used. After two years,
the Company integrates a rolling blended average of three leading
independent energy market consultants' long-term central case
projections. This approach allows mitigation of any delay in
response from the three independent market forecasters
("Consultants") used by the Company in publishing quarterly or ad
hoc updates following any significant market development.
For the Italian portfolio, a leading independent energy market
consultant's long-term projections are used to derive the power
curve adopted in the valuation.
The power price forecasts used also include a 'solar capture'
discount which reflects the difference between the prices available
in the market in the daylight hours of operation of a solar asset
versus the baseload prices included in the power price estimates.
This solar capture discount is provided by the Consultants on the
basis of a typical load profile of a solar asset and is reviewed as
frequently as the baseload power price forecasts. The application
of such a discount results in a lower long-term price being assumed
for the energy generated by NESF's portfolio.
Valuation Correction
As part of the Company's continual improvement of internal
systems, an internal review identified that a report generated by a
new reporting module had overstated historic NAV calculations,
leading to an excess of working capital being reported. This was
not an issue with the accounting system; the Board and the
Investment Adviser have investigated it fully and are confident
that the accounting across the Company and its SPVs remains
robust.
Discount rate
During the year, the UK rate of inflation increased
significantly. In the context of higher interest rates in response
to changes to the Bank of England ("BoE") base rate, the yield on
UK long-term gilts has also increased, putting upward pressure on
discount rates. The BoE Monetary Policy Committee announced on 23
March 2023 an increase to the BOE base rate to 4.25%. Therefore,
during the year, the Company increased the discount rate for
unlevered operating UK solar assets by 1.0% to 6.75% (31 March
2022: 5.75%). This change is in line with the increases in discount
rates observed by the Investment Adviser in the sector in which the
Company operates, and continues its robust approach to valuing the
portfolio.
As at As at
Discount rate assumptions Premium 31 March 2023 31 March 2022
UK unlevered - 6.75% 5.75%
UK levered 0.7-1.0% 7.45-7.75% 6.45-6.75%
Italy unlevered(1) 1.5% 8.25% 7.25%
Subsidy-free (uncontracted)(2) 1.0% 7.75% 6.75%
Life extensions(3) 1.0% 7.75-8.75% 6.75-7.75%
1 Unlevered discount rate for Italian operating assets implying
1.5% country risk premium
2 Unlevered discount rate for subsidy-free uncontracted
operating assets implying 1.0% risk premium
3 1.0% risk premium for cash flows after 30 years where leases
have been extended
The resulting weighted average discount rate for the Company's
portfolio was 7.3% (31 March 2022: 6.3%). The Company does not use
the weighted average cost of capital ("WACC") as the discount rate
for its investments as it believes that the reduction in WACC
deriving from the introduction of long-term debt financing does not
reflect the greater level of risk to equity investors associated
with leveraged assets or levered portfolios. However, for the
purposes of transparency, the Company's pre-tax WACC as at 31 March
2023 was 5.7% (31 March 2022: 5.3%).
The Company has not included the impact of the discount rates
used in the NPIII LP investment, as the Company has no control or
influence over these rates and a weighted average discount rate is
not produced by NPIII LP, as its underlying investments are in
multiple geographies.
Asset life
The discounted cash flow methodology implemented in the
portfolio valuation assumes a valuation time horizon capped to the
current terms of the lease and planning permission on the
properties where each individual solar asset is located. These
leases have been typically entered into for a 25-year period from
commissioning of the relevant solar asset (specific terms may
vary). However, the useful operating life of the Company's
portfolio of solar assets is expected to be longer than 25 years.
This is due to many factors, including:
-- Solar assets with technology components similar to the ones
deployed in the Company's portfolio have been demonstrated to be
capable of operating for over 45 years, with levels of the
technical degradation lower than those assumed or guaranteed by the
manufacturers . Local planning authorities have already granted
initial planning consents that do not expire and/or have granted
permissions to extend initial consented periods;
-- The Company owns rights to supply electricity into the grid
through connection agreements that do not expire; and
-- Discounted cash flow valuation assumes a zero-terminal value
at the end of the lease term for each asset or the end of the
planning permission, whichever is the earlier.
Operating performance
The Company initially values each solar asset on the basis of
the minimum performance ratio ("PR") guaranteed by the vendor, or
that estimated by the appointed technical adviser during the
acquisition due diligence. These estimates have been generally
lower than the actual PR that the Company has been experiencing
during subsequent operations. We therefore deem it appropriate to
adopt the actual PR after two years of operating history when,
typically, the plants have satisfied tests and received Final
Acceptance Certification ("FAC").
As at 31 March 2023, 71 solar assets (totalling 630MW) have
achieved FAC and their actual PR was used in the discounted cash
flow valuation.
Capacity
FAC timeline for remaining assets (MW)
Financial quarter ending December 2023 75
2024 onwards 138
Total 213
Net Asset Value
The Company's NAV is calculated quarterly and based on the
valuation of the investment portfolio provided by the Investment
Adviser and the other assets and liabilities of the Company
calculated by the Administrator. The NAV is reviewed and approved
by the Investment Manager and the Board. All variables relating to
the performance of the underlying assets are reviewed and
incorporated in the process of identifying relevant drivers of the
discounted cash flow valuation.
In accordance with IFRS 10, the Company reports its financial
results as an Investment entity and on a non-consolidated basis
(see note 2d to the Financial Statements). The change in fair value
of its assets during the period is taken through the Statement of
Comprehensive Income.
The movement in the NAV was driven primarily by the following
factors:
-- An increase in short-term (2023-2027) UK power price
forecasts provided by Consultants, being 22.2% higher than
assumptions at 31 March 2022;
-- The increase in discount rate for unlevered operating UK solar assets;
-- The upward revision in short-term inflation forecasts;
-- The operating results achieved by the Company's solar assets; and
-- The dividends declared and operating costs incurred during the year.
NAV bridge for the year ended 31 March 2023
NAV sensitivity analysis as at 31 March 2023
The chart below shows the impact of the key sensitivities on the
NAV per ordinary share. Additional sensitivity analyses can be
found in note 19b to the Financial Statements.
Cash Flow generation
The Company generates revenues through the sale of electricity
to the markets and the subsidies provided under various subsidy
regimes (ROC, NIROC and FiT). Both revenue streams are underpinned
by two main factors:
-- The actual energy generated (measured as amount of KWh of
energy generated), which is mainly driven by the solar irradiation,
technical performance and availability of the plant; and
-- The actual price at which the energy generated is sold to the
markets, as well as the subsidies received for the same
generation.
The performance of a plant in terms of revenues is therefore a
product of both the operational performance and the commercial
terms of the PPAs in place. Before taking into account tax payments
and financing considerations, the cash flow generation of solar
assets is also influenced by operating expenses, which are usually
governed by long-term contracts and characterised by low volatility
over the long-term.
Year ended
31 March 2023 Actual per MW(1) Budget per MW(1) Delta vs. Budget Comments
Actual solar
irradiation for
Solar Irradiation [A] (kWh/m(2) ) 1,277 1,188 +7.5% the year
Represents
Conversion Performance
Factor(2) [B] (%) 78.8% 81.6% (3.5%) Ratiofor the year
Metered Generation [C] = (kWh) 1,007 970 +3.8% Actual generation
[A x B] measured at the
meter for the year
Power price Subsidies Power price Subsidies
Realised Prices [D] (GBP/ MWh) 88.0 75.2 97.8 76.3 (1.4%) Implied average
subsidies power price and
subsidies across
(10.1%) entire portfolio
power price (including ROC
recycle and
Embedded benefits)
Revenues [E] =[C x D] (GBP'000) 88.6 75.7 94.9 74.0 2.3% Actual revenues at
(Subsidies, subsidies portfolio level
PPAs, Etc.) for the year
(6.7%) (unaudited figures
power price per MW)
Total Revenues [E] (GBP'000) 164.3 168.9 (2.8%)
Actual costs
at portfolio
level for
the year
(unaudited
Operating figures
Expenses [F] (GBP'000) (34.7) (34.2)(4) +1.6% per MW)
Actual EBITDA
for the
year (unaudited
[G] = [E figures
EBITDA(3) - F] (GBP'000) 129.5 134.7 (3.9%) per MW)
EBITDA
Margin(3) 78.9% 79.8%
1 Based on the average installed capacity 865 MW over the
financial year. Given the different composition of the growing
portfolio, this information is not directly comparable with what
was provided in the previous Annual Report
2 Ratio captures the solar plant performance ratio with
availability issues incorporated, which reflects all system
shut-downs for maintenance, failures or grid outages
3 EBITDA is a reference to EBITDA at the SPV levels
4 Budgeted operating expenses are based on the acquisition case
of the assets
Operating results
Profit before tax was GBP48.3m (2022: GBP127.6m) with earnings
per ordinary share of 8.20p (2022: 21.69p).
Operating expenses and ongoing charges
The operating expenses, excluding preference share dividends
paid by the Company, for the year amounted to GBP8.2m (2022:
GBP6.7m). The Company's ongoing charges was 1.1% (2022: 1.1%). The
budgeted ongoing charges for the financial year ending 31 March
2024 is 1.1%. The ongoing charges has been calculated in accordance
with the Association of Investment Companies recommended
methodology and is an Alternative Performance Measure.
Cash flow analysis
As at 31 March 2023, the Company held cash of GBP14.4m at an A+
credit rated financial institution (2022: GBP19.6m).
Cash received from assets in the period covered the operating
expenses, the preference share dividends, dividends declared to
ordinary shareholders in respect of the year ended 31 March 2023
and part of the investment into HoldCos.
Year end Year end
31 March 31 March
Cash flows of the Company 2023 GBP'000 2022 GBP'000
Company cash balance at 1 April 19,608 10,809
Investment in HoldCos (26,920) 6,877
Received from HoldCos 81,460 57,735
Directors' fees (293) (212)
Investment Management fees (5,875) (4,979)
Administrative Expenses (1,730) (1,281)
Dividends paid in cash to ordinary shareholders (42,396) (39,841)
Preference share dividends (9,500) (9,500)
Company cash balance at 31 March 14,354 19,608
Group Operating SPV's
The below table represents the unaudited consolidated financial
results of the Company's SPVs.
Year end Year end
31 March 31 March
2023 (unaudited) 2022 (audited)
GBP'000 GBP'000
Total NESF Group revenue 141,205 114,220
EBITDA 111,332 89,819
EBIT 52,819 38,575
Cash income for the year 78,519 65,792
Cash Dividend Cover
Pre-scrip
Year ended dividends
31 March 2023 GBP'000 GBP'000
Cash income for year(1) 78,519
Net operating expenses for year (8,209)
Preference shares dividend (9,500)
Net cash income available for distribution 60,810
Ordinary shares dividend paid during year 43,807
Cash dividend cover(2) 1.4x
1 Cash income differs from the Income in the Statement of
Comprehensive Income as the latter is prepared on an accruals
basis. See below for further information.
2 Alternative Performance Measures
Financing
Financial debt
In June 2022, the NESF Group signed a two-year extension to its
GBP70m RCF with Santander UK, now available until July 2024. In
September 2022, the NESF Group secured GBP60m additional
commitments under an existing RCF from GBP75m to GBP135m, available
until June 2024.
At 31 March 2023, the Company's subsidiaries (including NPIII
LP) had financial debt outstanding of GBP345m (2022: GBP283m), on a
look-through basis, as shown in the table overleaf. Due to a
combination of low debt levels and RPI linked subsidies, debt
covenants at the HoldCos level would only be breached at very low
power prices (less than c.GBP20/MWh). No covenant breaches have
occurred during the period.
Preference shares
At 31 March 2023, the Company had GBP200m of preference shares
outstanding (2022: GBP200m). 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 (GBP200m in aggregate) plus any unpaid
preference share dividends at the date of conversion. For financial
accounting purposes, and in line with IFRS the preference shares
are classified as long-term liabilities.
The preference shares are equivalent to non-amortising debt with
repayment in shares, and the Company is not required to use cash
flow, or raise funds, to repay them at the end of their life. The
absence of amortisation enhances the ability to pay the ordinary
share dividend, and repayment in shares removes refinancing
risk.
From 1 April 2030, the Company may elect to redeem all or some
of the preference shares. Redemption of the preference shares by
the Company would provide an attractive uplift if the share price
is trading at a healthy premium. Benefits of the preference shares
for NESF include:
-- A reduction in the exposure to secured debt financing;
-- The fixed preferred dividend of 4.75p per preference share
being a significantly lower all-in annual cash cost to the Company
compared to issuing ordinary shares; and
-- The further optimisation of the Company's capital structure
and, over the long term, increase in cash flows available to fund
ordinary share dividends or for reinvestment compared to
refinancing with conventional long-term amortising financial debt,
thereby increasing the cash dividend cover.
-- The Investment management fee is calculated based on the
ordinary share NAV and, accordingly, no fee is payable in respect
of the preference shares. The terms of the preference shares can be
found in note 23 to the Financial Statements.
Total gearing
The financial debt, together with the preference shares,
represented a total gearing level of 45% (2022: 42%), which is
below the maximum limit of 50% in the Company's Investment
Policy.
Provider Type Borrower No. of Loan
/ arranger power to Value(2)
assets Facility
secured(1) Amount
(%) Termination
Amount (inc.
Outstanding options Applicable
Tranches (GBPm) (GBPm) to extend) rate
----------------- --------- ----------- ----------- ---------------- -------- ----------- ----------- ----------
Fully-amortising
MIDIS / long-term
CBA / NAB debt(3) NESH 21 (241MW) 43.0% Medium-term 48.4 35.1 Dec-26 2.91%(4)
Floating
long-term 24.2 24.2 Jun-35 3.68%(4)
Index-linked RPI +
long-term 38.7 33.4(5) Jun-35 0.36%
Fixed
long-term 38.7 38.7 Jun-35 3.82%
Debt
service
reserve
facility 7.5 - Jun-26 1.50%
Fully-amortising
long-term NESH RPI +
MIDIS debt(3) IV 5 (84MW) 38.8% Inflation-linked 27.5 18.9(5) Sep-34 1.44%
Fixed
long-term 27.5 21.7 Sep-34 4.11%
Total long-term
debt 212.5 171.3
Revolving
Banco credit NESH SONIA
Santander facility VI 13 (100MW) N/a N/a 70.0 31.3 Jun-24 + 1.60%
----------------- --------- ----------- ----------- ---------------- -------- ----------- ----------- ----------
Revolving
credit NESH SONIA
Natwest/AIB facility III 19 (226MW) N/a N/a 135.0 135.0 Jun-24 + 1.20%
----------------- --------- ----------- ----------- ---------------- -------- ----------- ----------- ----------
Total short-term
debt 205.0 166.3
----------- ---------------- -------- ----------- ----------- ----------
NPIII LP
look
through
debt N/a N/a N/a N/a N/a 7.7(6)
---------------------------- ---------- ----------- ---------------- -------- ----------- ----------- ----------
Total debt 345.3
----------- ---------------- -------- ----------- ----------- ----------
1NESF has 326MW under long-term debt financing, 326MW under
short-term debt financing and 214MW without debt financing
(excludes NPIII LP look through debt)
2 Loan to Value defined as 'Debt outstanding / GAV'
3 Long-term debt is fully amortised over the period secured
assets receive subsidies (ROCs and others)
4 Applicable rate represents the swap rate
5 Represents the "real" outstanding debt balance. The "nominal"
outstanding debt balances are included in the debt balances
provided in Note 22b to the financial statements
6 The total combined short and long-term debt in relation to
NESF's commitment into NPIII (on a look through equivalent
basis)
Alignment of interest
As at 1 June 2023, NextEnergy Group employees held 1,532,060
shares in NESF.
Events After the Balance Sheet Date
On 11 May 2023, the NESF Board approved a dividend of 1.88 pence
per ordinary share for the quarter ended 31 March 2023 to be paid
on 30 June 2023 to ordinary shareholders on the register as at the
close of business on 19 May 2023.
NextEnergy Capital Limited
16 June 2023
Operating Portfolio
Remaining
Installed useful life
Acquisition capacity of asset
Power Plant Location date Subsidy/PPA(1) (MW) Cost (GBPm) (Years)
Higher
1 Hatherleigh Somerset Apr-14 1.6 6.1 7.3(3) 15.0
Shacks
2 Barn Northamptonshire May-14 2.0 6.3 8.2(3) 14.3
3 Gover Farm Cornwall Jan-15 1.4 9.4 11.1(3) 16.7
4 Bilsham West Sussex Jan-15 1.4 15.2 18.9(3) 21.2
5 Brickyard Warwickshire Jan-15 1.4 3.8 4.1(3) 16.6
6 Ellough Suffolk Jul-14 1.6 14.9 20.0(3) 25.9
7 Poulshot Wiltshire Apr-15 1.4 14.5 15.7(3) 15.9
8 Condover Shropshire May-15 1.4 10.2 11.7(3) 16.6
9 Llwyndu Ceredigion Jul-15 1.4 8.0 9.4 26.7
Cock Hill
10 Farm Wiltshire Jul-15 1.4 20.0 23.6(3) 16.4
Boxted
11 Airfield Essex Apr-15 1.4 18.8 20.6(3) 17.0
12 Langenhoe Essex Apr-15 1.4 21.2 22.9(3) 32.0
13 Park View Devon Jul-15 1.4 6.5 7.7(3) 31.8
14 Croydon Cambridgeshire Apr-15 1.4 16.5 17.8(3) 16.7
Hawkers
15 Farm Somerset Jun-15 1.4 11.9 14.5(3) 17.0
16 Glebe Farm Bedfordshire Apr-15 1.4 33.7 40.5(3) 26.7
17 Bowerhouse Somerset May-15 1.4 9.3 11.1(3) 32.0
18 Wellingborough Northamptonshire Jun-15 1.4 8.5 10.8(3) 16.2
19 Birch Farm Essex Sep-15 FiTs UK 5.0 5.3(3) 17.2
Thurlestone
20 Leicester Leicestershire Oct-15 FiTs UK 1.8 2.3 10.1
21 North Farm Dorset Oct-15 1.4 11.5 14.5(3) 31.7
Ellough
22 Phase 2 Suffolk Aug-16 1.3 8.0 8.0(3) 32.6
23 Hall Farm Leicestershire Nov-15 FiTs UK 5.0 5.0(3) 37.4
24 Decoy Farm Lincolnshire Mar-16 FiTs UK 5.0 5.2(3) 33.0
25 Green Farm Essex Dec-16 FiTs UK 5.0 5.8 18.0
26 Fenland Cambridgeshire Jan-16 1.4 20.4 23.9(2,4) 17.3
27 Green End Cambridgeshire Jan-16 1.4 24.8 29.0(2,4) 17.4
28 Tower Hill Gloucestershire Jan-16 1.4 8.1 8.8(2,4) 17.0
29 Branston Lincolnshire Mar-16 1.4 18.9 31.9
30 Great Wilbraham Cambridgeshire Mar-16 1.4 38.1 31.9
31 Berwick East Sussex Mar-16 1.4 8.2 97.9(2,5) 18.5
Bottom
32 Plain Dorset Mar-16 1.4 10.1 32.2
33 Emberton Buckinghamshire Mar-16 1.4 9.0 37.1
34 Kentishes Essex Jul-17 1.2 5.0 4.5 37.0
35 Mill Farm Hertfordshire Jul-17 1.2 5.0 4.2 33.8
36 Bowden Somerset Sep-17 1.2 5.0 5.6 33.9
37 Stalbridge Dorset Jan-17 1.2 5.0 5.4 33.8
38 Aller Court Somerset Sep-17 1.2 5.0 5.5 19.0
39 Rampisham Dorset Sep-17 1.2 5.0 5.8 19.5
40 Wasing Berkshire Aug-17 1.2 5.0 5.3 23.7
41 Flixborough South Humberside Aug-17 1.2 5.0 5.1 24.8
42 Hill Farm Oxfordshire Mar-17 1.2 5.0 5.5 28.9
Forest
43 Farm Hampshire Mar-17 FiTs UK 3.0 3.3 29.0
44 Birch CIC Essex May-17 FiTs UK 1.7 1.7 17.2
45 Barnby Nottinghamshire Aug-17 1.2 5.0 5.4 19.3
46 Bilsthorpe Nottinghamshire Aug-17 1.2 5.0 5.4 19.7
47 Wickfield Wiltshire Mar-17 1.2 4.9 5.6 20.1
48 Bay Farm Suffolk Sep-17 1.6 8.1 10.5 31.9
49 Honnington Suffolk Sep-17 1.6 13.6 16.0 31.8
Macchia
50 Rotonda Apulia Dec-17 FiTs Italy 6.6 12.8
51 Lacovangelo Apulia Dec-17 FiTs Italy 3.5 13.1
52 Armiento Apulia Dec-17 FiTs Italy 1.9 13.1
53 Inicorbaf Apulia Dec-17 FiTs Italy 3.0 116.2(2,6) 12.9
Gioia del
54 Colle Campania Dec-17 FiTs Italy 6.5 13.6
55 Carinola Apulia Dec-17 FiTs Italy 3.0 13.6
56 Marcianise Campania Dec-17 FiTs Italy 5.0 13.5
57 Riardo Campania Dec-17 FiTs Italy 5.0 13.5
Gilley's
58 Dam Cornwall Nov-17 1.3 5.0 6.4 31.7
Pickhill
59 Bridge Clwyd Dec-17 1.2 3.6 3.7 34.5
60 North Norfolk Norfolk Dec-17 1.6 11.0 14.6 21.6
61 Axe View Devon Dec-17 1.2 5.0 5.6 24.4
62 Low Bentham Lancashire Dec-17 1.2 5.0 5.4 22.9
63 Henley Shropshire Jan-18 1.2 5.0 5.2 23.2
Pierces
64 Farm Berkshire May-18 FiTs UK 1.7 1.2 16.1
Salcey
65 Farm Buckinghamshire May-18 1.4 5.5 6.5 16.1
66 Thornborough Buckinghamshire Jul-18 1.2 5.0 5.7 18.7
Temple
67 Normanton Derbyshire Jul-18 1.2 4.9 5.6 18.3
Fiskerton
68 Phase 1 Lincolnshire Jul-18 1.3 13.0 16.6 27.0
Huddlesford
69 HF Staffordshire Jul-18 1.2 0.9 0.9 17.8
Little
70 Irchester Northamptonshire Jul-18 1.2 4.7 5.9 18.8
71 Balhearty Clackmannanshire Jul-18 FiTs UK 4.8 2.6 27.8
72 Brafield Northamptonshire Jul-18 1.2 4.9 5.8 33.2
Huddlesford
73 PL Staffordshire Jul-18 1.2 0.9 0.9 18.0
74 Sywell Northamptonshire Jul-18 1.2 5.0 5.9 18.1
75 Coton Park Derbyshire Jul-18 FiTs UK 2.5 1.1 18.1
76 Hook Somerset Aug-18 1.6 15.3 21.8(2) 31.0
77 Blenches Wiltshire Aug-18 1.6 6.1 7.8(2) 15.7
78 Whitley Somerset Aug-18 1.6 7.6 10.4(2) 30.8
79 Burrowton Devon Aug-18 1.6 5.4 7.3(2) 30.5
80 Saundercroft Devon Aug-18 1.6 7.2 9.6(2) 30.9
81 Raglington Hampshire Aug-18 1.6 5.7 8.1(2) 30.8
82 Knockworthy Cornwall Aug-18 FiTs UK 4.6 6.6(2) 15.0
Chilton
83 Cantello Somerset Aug-18 FiTs UK 5.0 9.0(2) 29.3
84 Crossways Dorset Aug-18 FiTs UK 5.0 10.0(2) 29.3
85 Wyld Meadow Dorset Aug-18 FiTs UK 4.8 7.1(2) 29.8
Rooftop
86 Ermis Portfolio Jul-18 FiTs UK 1.0 3.0 13.6
Rooftop
87 Angelia Portfolio Jul-18 FiTs UK 0.2 0.6 13.5
County
88 Ballygarvey Antrim Jul-19 1.4 NIROCs 8.2 8.5 24.8
89 Hall Farm2 Leicestershire Aug-19 Subsidy-free 5.4 2.5 36.3
90 Staughton Bedfordshire Dec-19 Subsidy-free 50.0 27.4 35.9
91 High Garrett Essex Oct-20 Subsidy-free 8.4 4.1 37.1
Long-term
92 Marham Norfolk Jan 21 PPA 1.0 0.7 22.8
Long-term
93 Sutterton Lincolnshire Mar 21 PPA 0.4 0.3 22.9
Long-term
94 The Grange Nottinghamshire Feb 21 PPA 50.0 32.1 37.8
Long-term
95 South Lowfield Yorkshire Jun-21 PPA 50.0 29.6 38.2
JSC (NZ)
96 (1) Worcestershire Mar-19 FiTs UK 0.04 0.04 16.4
Karcher
97 (NZ)(1) Oxfordshire Nov-19 Subsidy-free 0.3 0.2 22.0
Dolphin
98 (NZ)(1) East Sussex Jul-21 Subsidy-free 0.2 0.2 23.6
Holiday Long-term
99 Inn (NZ)(1) Northamptonshire Apr-22 PPA 0.18 0.2 24.1
----- --------------- ---------------- ----------- -------------- --------- ----------- --------------
Subtotal 865.0 999.4 26.3(7)
Multiple
long-term
100 NPIII LP OECD Markets Jun-21 PPAs 24.0(8) 31.0 n/a
----- --------------- ---------------- ----------- -------------- --------- ----------- --------------
Total 889.0 1030.4 26.3(7)
1 ROCs, unless otherwise stated. An explanation of the ROC
subsidy is available at
www.ofgem.gov.uk/environmental-programmes/renewables-obligation-ro
2 With project level debt
3 Part of the Apollo portfolio
4 Part of the Thirteen Kings portfolio
5 Part of the Radius portfolio
6 Part of the Solis portfolio
7 Average years remaining
8 24MW represents the proportion of NPIII operational assets
owned by NESF on a look through equivalent basis as at 31 March
2023. NPIII is a portfolio of assets at different stages of their
project life cycle
Portfolio Generation Performance
Year Ended 31 March
2023 Since acquisition
Irradiation Generation Irradiation Generation
Operational Generation delta delta delta delta
Power Plant date (GWh) (%) (%) (%) (%)
Higher
1 Hatherleigh Apr-13 5.6 3.7 -1.6 1.7 3.8
Shacks
2 Barn Mar-13 6.2 5.9 10.8 3.0 8.3
3 Gover Farm Oct-14 8.5 8.6 -4.8 3.9 0.5
4 Bilsham Nov-14 16.7 8.7 10.1 5.5 6.4
5 Brickyard Nov-14 3.5 6.1 4.0 3.6 5.7
6 Ellough Mar-14 14.8 6.4 4.8 1.5 5.1
7 Poulshot Mar-15 13.7 2.4 3.9 1.0 5.0
8 Condover Mar-15 9.3 2.6 0.2 0.6 0.9
9 Llwyndu Feb-15 8.0 -0.5 8.7 -2.7 4.4
Cock Hill
10 Farm Mar-15 20.2 4.4 7.8 3.2 5.4
Boxted
11 Airfield Mar-15 19.0 7.1 8.8 3.7 5.9
12 Langenhoe Mar-15 22.5 11.4 13.7 6.7 9.6
13 Park View Mar-15 6.6 2.6 3.3 -0.9 1.5
14 Croydon Mar-15 16.5 11.5 12.9 6.8 7.5
Hawkers
15 Farm Mar-15 12.3 3.3 6.7 1.0 4.1
16 Glebe Farm Mar-15 35.2 13.7 16.8 7.3 12.6
17 Bowerhouse Mar-15 8.4 6.1 -4.5 3.5 -0.7
18 Wellingborough Mar-14 8.7 8.3 13.7 3.2 6.2
19 Birch Farm Jun-15 5.1 9.8 9.5 4.9 6.7
Thurlestone
20 Leicester(1) Apr-13 1.5 -0.6 2.7 -0.6 0.2
21 North Farm Mar-15 11.5 0.5 -4.7 -2.2 -4.3
Ellough
22 Phase 2 Jan-16 8.7 12.4 16.7 8.8 13.2
23 Hall Farm Aug-16 4.4 6.8 2.9 4.2 0.8
24 Decoy Farm Nov-15 5.2 10.6 15.1 5.6 10.3
25 Green Farm Mar-16 5.0 6.5 2.7 3.9 3.8
26 Fenland Feb-15 20.6 9.3 8.5 5.6 9.1
27 Green End Mar-15 24.0 9.1 4.3 5.2 3.2
28 Tower Hill Mar-15 8.1 3.1 8.0 3.3 7.1
29 Branston Mar-15 19.5 10.9 12.8 6.7 7.7
30 Great Wilbraham Mar-15 37.6 9.6 5.9 5.8 5.4
31 Berwick Mar-15 9.1 5.6 7.0 4.7 9.0
Bottom
32 Plain Dec-14 10.1 6.5 0.0 3.8 3.2
33 Emberton Mar-15 8.8 9.3 4.1 4.8 2.6
34 Kentishes Dec-16 5.3 10.1 8.1 6.1 6.5
35 Mill Farm Dec-16 5.4 13.4 15.8 8.9 11.2
36 Bowden Mar-17 5.2 1.9 -0.3 0.5 0.9
37 Stalbridge Mar-17 5.3 1.5 4.9 0.8 5.9
38 Aller Court Mar-17 5.2 3.5 4.0 3.4 4.8
39 Rampisham Mar-17 5.3 -0.9 -0.2 -1.8 -1.0
40 Wasing Mar-17 5.3 7.1 8.8 5.7 8.9
41 Flixborough Mar-17 5.1 8.5 10.0 5.9 8.2
42 Hill Farm Mar-17 5.3 7.1 11.8 6.2 9.0
Forest
43 Farm Mar-17 3.2 6.8 10.6 4.8 8.9
44 Birch CIC Jun-15 1.7 9.8 6.9 5.8 5.0
45 Barnby Mar-17 5.0 8.3 9.2 5.1 5.5
46 Bilsthorpe Mar-17 5.0 7.5 8.3 4.7 6.4
47 Wickfield Mar-17 4.8 5.7 2.0 5.2 4.2
48 Bay Farm Mar-14 8.1 8.9 11.1 6.9 8.7
49 Honnington Mar-14 14.1 8.8 10.9 4.4 5.1
Macchia
50 Rotonda Feb-11 9.1 8.2 -2.2 6.5 1.8
51 Iacovangelo Apr-11 5.2 6.4 3.8 4.8 5.6
52 Armiento Apr-11 2.9 7.2 7.7 5.6 7.5
53 Inicorbaf Mar-11 4.7 9.1 7.7 6.2 6.7
Gioia del
54 Colle Oct-11 9.4 3.8 2.2 1.5 3.5
55 Carinola Oct-11 4.3 4.5 6.7 2.8 4.4
56 Marcianise Sep-11 7.3 5.0 7.5 3.0 4.4
57 Riardo Sep-11 7.1 4.5 1.3 2.5 0.5
Gilley's
58 Dam Mar-16 4.7 -4.3 -9.0 -4.4 -3.6
Pickhill
59 Bridge Mar-17 3.6 4.5 7.8 4.7 8.1
60 North Norfolk Jan-14 9.6 11.7 -7.1 7.2 4.0
61 Axe View Mar-17 5.1 6.5 6.9 5.8 7.2
62 Low Bentham Mar-17 4.4 -0.9 -2.9 1.8 2.2
63 Henley Mar-17 4.8 3.1 4.7 3.2 5.8
Pierces
64 Farm Mar-15 1.7 4.7 7.4 3.3 7.0
Salcey
65 Farm Sep-14 5.3 8.8 2.8 8.0 4.8
66 Thornborough Mar-16 4.3 3.5 -9.2 4.4 -8.0
Temple
67 Normanton Mar-16 4.0 5.2 -11.1 4.5 -6.2
Fiskerton
68 Phase 1 Mar-15 12.0 9.5 -3.2 8.0 -0.1
Huddlesford
69 HF Mar-16 0.9 7.0 7.4 5.9 5.4
Little
70 Irchester Mar-16 3.9 4.8 -15.5 4.3 -7.4
71 Balhearty(4) Mar-16 - - - -0.7 -31.7
72 Brafield Mar-16 4.9 11.4 1.3 7.7 1.2
Huddlesford
73 PL Mar-16 0.9 6.1 3.0 5.4 2.5
74 Sywell Dec-15 5.2 8.1 8.0 6.3 3.5
75 Coton Park Dec-15 2.3 1.4 5.2 2.5 4.7
76 Hook Mar-14 14.1 3.8 -8.5 3.5 -1.2
77 Blenches Mar-14 5.6 5.0 0.2 4.6 4.5
78 Whitley Mar-14 6.9 11.3 -7.6 6.9 -1.8
79 Burrowton Mar-14
80 Saundercroft Mar-14 11.8 3.7 -7.5 4.2 -0.7
81 Raglington Mar-13 4.9 5.2 -18.8 3.6 -12.5
82 Knockworthy Mar-13 3.5 4.8 -26.0 2.4 -13.4
Chilton
83 Cantello Jul-12 4.9 10.1 -5.3 6.0 2.9
84 Crossways Jul-12 4.9 5.1 -10.8 3.9 0.2
85 Wyld Meadow Jul-12 3.9 1.2 -23.4 -0.5 -7.6
86 Ermis(1) Oct-11 0.8 4.0 4.8 3.9 -2.0
87 Angelia(1) Oct-11 0.2 9.4 4.3 8.6 4.9
88 Ballygarvey Mar-18 5.9 -0.7 -6.1 1.2 -2.8
Hall Farm
89 2 Aug-19 4.9 12.6 9.3 11.3 2.3
90 Staughton Dec-19 53.4 18.0 16.3 12.8 10.2
91 High Garrett Oct-20 8.9 12.9 11.4 9.6 5.3
92 Marham Jan-21 1.0 0.0 2.5 -0.9 -3.9
93 Sutterton Mar-21 0.5 6.4 6.6 3.1 6.2
94 The Grange Jan-21 52.6 9.1 0.5 6.7 -4.3
95 South Lowfield Jun-21 48.8 3.3 -0.9 -0.1 -3.3
JSC (NZ)
96 (1) Mar-19 0.0 -2.9 -1.0 -3.0 -0.9
Karcher
97 (NZ) (1) Nov-19 0.3 2.6 -3.3 2.5 -3.4
Dolphin
98 (NZ)(1) Jul-21 0.2 7.9 0.8 7.3 0.2
Holiday
99 Inn (NZ(1) Apr-22 0.2 6.5 1.5 -0.9 1.5
--------------- ----------- ---------- ----------- ---------- ----------- ----------
Subtotal 870 7.5 3.8 3.5 4.4
NPIII LP
(3) Multiple - - - - -
--------------- ----------- ---------- ----------- ---------- ----------- ----------
Total 870 7.5 3.8 3.5 4.4
1 Rooftop asset which is not monitored for irradiation
2 An asset which is yet to pass provisional acceptance clearance
(PAC) are not reported by the Asset Manager
3 NPIII LP performance not included
4 Due to damage caused by Storm Arwen in November 2021 and Storm
Eunice in February 2022, Balhearty was taken offline and is in the
process of being repaired by a chosen EPC contractor
Sustainability and ESG
Foreword from ESG Committee Chair
In 2022, the world emerged from the Pandemic, only to enter an
energy crisis. Simultaneously, the increasing impact of climate
change continued to be felt, with a record-breaking heatwave across
Europe, and the war in Ukraine making the energy trilemma more
challenging to address.
The importance of transitioning to clean energy generation is
only increasing. Solar PV and energy storage are vital to this
transition. Both technologies contribute to global energy security
and independence, while ensuring affordable power for homes and
businesses. Policy developments have recognised this: the British
government outlined an ambition for the UK to deploy 70GW of solar
capacity by 2035 - to which NESF will make a major contribution -
while the EU has declared a target of 600GW of solar by 2030.
The level of these targets is a welcome reflection of the
importance of a clean energy supply. Furthermore, it comes with a
responsibility to ensure the highest Environmental, Social and
Governance ("ESG") standards. For example, debates on land use,
biodiversity loss and social standards in supply chains have
accompanied the setting of these deployment targets, as
policymakers grapple with how to expand the role of solar in global
energy systems. It is vital that as we make progress on climate
change, we also drive accountability, and ensure everyone benefits.
By way of example, through its leadership of, and significant
resource commitment to, the Solar Stewardship Initiative, NEC is
able to contribute to the development of market leading practices
in end to end supply chain transparency.
The climate and local communities are at the heart of our
decision-making, and NESF is determined to deliver a positive ESG
impact across its operations. NESF is particularly proud of the
work it is doing across its landed estate to assess its
biodiversity footprint. This includes the development of
methodologies for the assessment of biodiversity impacts and
dependencies, data gathering and enhancement opportunities with the
potential to enable the issuance of biodiversity credits, which are
potentially traceable instruments.
Our commitment to ensuring that our work reflects the evolving
international ESG agenda and standards is reflected in our public
disclosures and commitment to enhanced reporting under frameworks
such as the Taskforce for Nature Related Financial Disclosures.
This includes disclosure of our robust ESG risk management and
proprietary due diligence procedures.
The Company's ESG performance continues to be led by NextEnergy
Capital's Head of ESG, Giulia Guidi. This is monitored by the
Board, including through the creation of the ESG Committee, which I
chair. The ESG team has expanded further in the last year
(including a dedicated biodiversity specialist), and is continuing
to deliver on NESF's comprehensive ESG strategy. NESF also
contributes to the NextEnergy Foundation, which supports
environmental and social impact projects around the world.
NESF is classified as an Article 9 Fund under the EU Sustainable
Finance Disclosure Regulation, and has sustainable investment as
its objective. ESG is central to NESF's mission, and I am confident
that NESF will continue expanding on its positive impact into the
future.
Josephine Bush
16 June 2023
An introduction to NESF ESG achievements by Ross Grier, UK
Managing Director, and Michael Bonte-Friedheim, CEO and Founder of
NextEnergy Group
Over the last 12 months, the Fund progressed its pipeline of
solar assets and expanded into battery storage in line with our
core mission to deliver new clean energy for Britain's society. We
believe in showing the impact of this in detail, and as such, our
new reporting and disclosure initiatives in 2022 included the
publication of our first-ever dedicated NESF Sustainability
Report.
The Report illustrates that the breadth and depth of our
sustainability work continues to increase, and so we are delighted
that the NESF ESG team has doubled in size. As well as ensuring
that our ESG approach is best in class, the team is deeply involved
in industry-wide projects, such as the Solar Stewardship
Initiative, which launched publicly in October 2022 and is
developing a solar-specific supply chain assurance mechanism.
Further progress identified in our 2022 Sustainability Report
includes the development of a proprietary due diligence tool. This
tool is focused on environmental and social screening and will be
used to understand the nature-related, climate, and social impacts
of potential NESF investments; including the continued collection
of granular data on our emissions avoided - which is independently
calculated by the Macquarie Green Investment Group - and developing
our engagement with contractors on their performance. As NESF is an
EU SFDR Article 9 classified fund, we continue to ensure that all
relevant disclosures are made. We have also updated the NESF
website to include a dedicated ESG section, including all related
reporting, enabling clear access for investors to the information
they need to understand our ESG approach in detail.
NESF goes from strength to strength, and we are excited to
present further information on our current and future impact in
this year's Annual Sustainability Report, which will be published
in summer 2023.
NESF ESG at a Glance 2022/23
Environmental Performance
870GWh clean energy 363 ktCO(2) e avoided 45 Universal Biodiversity
generated Management Plan sites
Habitat provisions: 65 bird boxes
installed, 66 bug hotels, 22 bat
boxes, 24 raptor boxes, 6 owl boxes,
22 hibernacula created and c.26
C. 50% of the NESF portfolio is beehives, all of which are additional
grazed to statutory planning obligations.
Social Performance
GBP103,668 community funding (through GBP400,000
SPVs) donated to the
Foundation
Governance Performance
27 Board Meetings, including Gender diversity 50% 2 ESG Board Committee
Committee of Board and female at board level meetings
ad-hoc meetings
ESG Approach
Our Priorities
There are three pillars to NESF's responsible business
activities: climate change, biodiversity and human rights. Each
pillar is materially relevant to NESF, and presents opportunities
to make a positive impact. NESF assets are helping to address
climate change, and ensure future generations can enjoy the planet
in the same state that it is now. They support the local
environment, because NESF champions biodiversity on its solar
farms, which transforms energy infrastructure into a haven for
flora and fauna. NESF also reports on potential climate risk, via
the Task Force on Climate-related Financial Disclosures, and
monitors water management and the circular economy as part of its
investments. NESF works to promote and protect human rights, in its
own activities and throughout the supply chain. The Company also
promotes strong community engagement, and supports broader positive
social impact, through the employment and other opportunities which
NESF assets generate for local communities.
A key priority is also to continue to promote diversity and
inclusion and good governance practice: NESF has no direct
employees, but data on governance indicators relating to the
NextEnergy Group was included in the first NESF Sustainability
Report, and the Fund will continue to increase transparency on this
topic.
These priorities are incorporated at every stage of NESF's
work:
-- NESF pursues robust risk management, and proactively contributes to the environment
and society: ESG due diligence is fully integrated into
investment decision-making and projects are developed to the
highest ethical standards. This includes seeking every opportunity
to address climate change, improve biodiversity, monitor water
impacts, follow circular economy best practices, and support local
communities. NESF support to communities also includes grantmaking
via the NextEnergy Group charitable arm, the NextEnergy Foundation.
More information on the Foundation is available at
nextenergyfoundation.org.
-- NESF provides thought leadership and supports industry
action: the Investment Adviser is an active member of the UK and EU
solar trade associations, Solar Energy UK (SEUK) and SolarPower
Europe (SPE). It is also a signatory to the UN Principles for
Responsible Investment, a supporter of the Task Force on Climate
Related Transparency Disclosures, and Terra Carta, and a member of
the Institutional Investors Group on Climate Change. NESF's SPV
Director is Chair of the SEUK Natural Capital Working Group, and
the Head of ESG is Chair of the Responsible Sourcing Task Group.
She is also a member of the coordination group for the Solar
Stewardship Initiative, of which NextEnergy Capital is a sponsor
and supporter.
-- The Investment Adviser engages independent experts to verify
impact: for example, carbon emissions avoided are calculated by the
Macquarie Green Investment Group. NESF makes extensive public
disclosures to UK and international regulators, and to
international bodies such as the UN, and takes on new reporting
responsibilities on a rolling basis.
Team expansion: The NESF ESG team has doubled in size in the
last 12 months, to six people. This reflects our commitment to
ensuring a robust sustainability approach is maintained at the
heart of our work as the Fund expands. In 2022 the team recruited a
mix of internal and external hires, and now consists of a Head of
ESG, Vice President, two Associates and two Analysts. Overall, the
team has 50 years of combined experience across a range of social,
environmental and sustainability issues relating to the energy
sector.
Keeping Current
As global approaches to ESG evolve and mature, it is important
to ensure that our processes are continually monitored and updated
in line with best practice. The Investment Adviser is committed to
ensuring that priorities such as its three pillars of responsible
business remain up to date, and that it is proactively identifying
areas to contribute to including: people, the planet and society.
As such, the Fund's Investment Adviser is currently undertaking a
strategic review of its sustainability strategy and approach. This
is being carried out with external assistance and is due to be
completed by the end of 2023. The outcome of this review will
provide valuable insights on NESF's overall approach to ESG,
ensuring it reflects the current and future ESG landscape, and is
relevant to its business objectives. Details of this will be
outlined in future reporting.
Governance
Responsibility for NESF's ESG risk management, reporting and
stakeholder engagement falls within the Investment Adviser's ESG
team. The Head of ESG, Giulia Guidi, reports to NextEnergy
Capital's CEO and she actively engages with the NESF ESG Committee,
to discuss the strategy, performance, and reporting of the Fund,
including implementing the Sustainable Investment Policy for NESF.
She sits on the Company's Investment Committee, and takes an active
role in the investment decision-making process, meeting weekly with
the investment team and at least bi-weekly with senior managers of
the Company to discuss emerging ESG issues and how best NESF can
have a positive impact on global society.
NESF has built strong governance around the issues described in
this report, based on a four-step process: identify, manage, report
and engage.
The ESG team works alongside the investment and development
teams, construction and procurement managers, asset operators,
portfolio and SPV managers, and our dedicated biodiversity
specialists.
An overview of the NESF Governance structure is below.
NESF has made strong progress against its ESG objectives in the
last 12 months. In 2022/23, the Investment Adviser developed a
proprietary screening and due diligence tool to examine potential
assets for risks and opportunities. The Investment Adviser also
initiated an enhanced review of its supply chain partners, to
understand the potential upstream impact in more detail. 53 NESF
sites now have additional biodiversity enhancements in place or
planned to be fully implemented by the end of 2023. Sites such as
the Condover solar farm simultaneously produce clean energy,
provide new habitats for flora and fauna, and enable seasonal
grazing by livestock. The Investment Adviser was pleased to show
Government officials the Condover site in Spring 2023 to discuss
these benefits.
Work to quantify the environmental impact of these initiatives
continues, and the investment benefits will accrue, with, for
example, the anticipated launch in Autumn 2023 of the UK's
biodiversity credits trading scheme. This has the potential to
create a direct mechanism to monetise the natural capital benefits
NESF generates.
NEC has also commissioned an external study that will culminate
in a strategy and approach for nature and biodiversity. This
assessment will identify the interface between NESF assets and
nature, to establish key impacts and dependencies across the
business. Metrics to measure biodiversity performance will be
established as part of science-based target setting, and these will
be designed to align with international standards, TNFD disclosure
requirements, and organisational goals. For NESF, this will provide
an ambitious but achievable plan for biodiversity, together with a
framework for delivery.
NESF is also at the heart of industry initiatives to advance
sustainability. For example, a major supply chain achievement which
NextEnergy Capital has contributed to is the public launch of the
Solar Stewardship Initiative (SSI) in October 2022. The SSI is a
joint initiative of Solar Energy UK (SEUK) and SolarPower Europe
(SPE) to further develop a sustainable solar sector, including
establishing a mechanism for end-to-end supply chain transparency.
The launch of the SSI was a significant milestone, and the ambition
of the initiative to have a supply chain assurance system in place
by the end of 2023. NESF's Investment Adviser, NextEnergy Capital,
has provided strategic, operational and financial input to the SSI
as one of its sponsors and supporters, and the NextEnergy Capital
Head of ESG, Giulia Guidi, is one of its coordinators.
Reflecting this progress, NESF is considering new endorsements:
for example by preparing applications to schemes which designate
and endorse investment into initiatives which promote nature.
NESF Contribution to Community Impacts
The NextEnergy Foundation ("NEF", "the Foundation") is an
international charity which was founded in 2016. The Foundation's
mission is to participate proactively in the global effort to
reduce carbon emissions, provide clean power sources in regions
where they are not yet available, and contribute to poverty
alleviation. NextEnergy Group donates at least 5% of its net annual
profits to the Foundation, and NESF has supported the Foundation
since 2019.
This year, the Company donated GBP400,000 to the Foundation,
four times as much as the 2022 total of GBP100,000. The donation is
being deployed into projects which are directly aligned to NESF's
sustainability pillars and objectives. Approved projects include
installing solar systems on schools in Ghana and Malawi; financing
a pilot for pay-as-you-go solar home systems in last mile
communities in Malawi; and, supporting refugee-led energy solutions
in refugee and internally-displaced peoples camps in sub-Saharan
Africa.
In addition, NESF's donation in 2022 was directed towards fuel
poverty alleviation in the UK and emergency responses to the war
between Russia and Ukraine. The NextEnergy Foundation is
identifying projects to extend its support to these causes this
year with the Company's donation.
Quarterly meetings are held between the Chair of the NESF ESG
Committee Josephine Bush, and NESF Director Jo Peacegood, and NEF's
Secretary and selected Trustees. The meetings strengthen the
governance around the identification of, monitoring and reporting
on projects supported with NESF's funds.
Biodiversity
In addition to the continued roll-out of the Universal
Biodiversity Management Plan and Exemplar Site programme, NESF
supports a range of nature research and conservation initiatives.
For example, in collaboration with Wildlife Windows, last year two
owl boxes at Bottom Plain Solar farm, Dorset, were fitted with
cameras. Powered by solar panels, the cameras provide a live stream
via a 4G broadband connection, with the aim of recording any
nesting activity. A highlight this year has been the successful
uptake of a nest box by a breeding pair of barn owls, demonstrating
that NESF sites provide suitable nesting and foraging habitat for
this species, which is protected under the Wildlife and Countryside
Act 1981. NESF will continue to monitor activity throughout the
breeding season to ensure that its sites adopt appropriate
nature-positive management and design solutions, and support the
Global Biodiversity Framework in the recovery and conservation of
species .
Further Information
The dedicated NESF Sustainability Report, due to be published in
summer 2023, will include a comprehensive description of NESF ESG
work, including further detail on project due diligence, supplier
review and environmental and social management procedures. This
will build on the 2022 edition of the NESF Sustainability Report,
the first such dedicated publication.
More broadly, NESF and NextEnergy Capital make extensive
disclosures relating to their sustainable investments. These
include policies on climate change and supplier expectations,
reporting against the UN Principles for Responsible Investment and
Sustainable Development Goals, and submissions to the Task Force on
Climate Related Financial Disclosures and the EU's Sustainable
Finance Disclosures Regulation.
The latest publications relating to these, and other initiatives
are linked below. NESF will continue to report
in detail, and this information will be updated on a rolling
basis.
NESF disclosure and reporting:
NESF Sustainability Report 2022
NESF TCFD Report 2022
NESF - Annex III Pre-Contractual Disclosure For Article 9
Fund
NESF - Annex V Periodic Disclosure for Article 9 Fund
NESF - ESG Disclosures
NESF Investment Adviser disclosure and reporting:
NextEnergy Capital UN Sustainable Development Goals Report
2022
NextEnergy Capital PRI 2021 report
NextEnergy Capital Sustainable Investment Policies
NextEnergy Capital Supplier Code of Conduct
NextEnergy Capital ESG Disclosure 09.03.21
Solar Energy UK supply chain statement
Solar Industry Forced Labor Prevention Pledge
Solar Stewardship Initiative Joint Industry Endorsement
Statement
NESF ESG in Figures:
Tonnes of CO(2) e emissions Equivalent UK homes Total emissions avoided
avoided p.a. powered Since 2014 (ktCO(2)
for one year e)
--------------------------- ---------------------------
363,000 242,000 2,181
(31 March 2022: 328,700) (31 March 2022: 216,300) (31 March 2022: 1,818)
Total fossil fuel avoided Universal Biodiversity Total exemplar biodiversity
since 2015 kilotonnes Management Plan sites projects (2)
of oil equivalent (ktoe) (1)
929.4 45 8
(31 March 2022: 769.1) (31 March 2022: 30) (31 March 2022: 6)
Community funding Proportion of the portfolio Donation to the NextEnergy
(through SPVs) grazed Foundation
GBP104k c.50% GBP400k
(31 March 2022: GBP91k) (31 March 2022: N/A) (31 March 2022: GBP100k)
--------------------------- ---------------------------
1. With a further 15 to be implemented in Autumn 2023
2. Six sites are fully implemented. The remaining two are in
progress and are proposed for completion in 2023
Metric Units FY2018 FY2019 FY2020 FY2021 FY2022 FY2023
GHG ktCO(2)
avoided e 211.2 299.4 307.7 317.6 328.7 363.0
NOx
avoided tonnes 193.1 267.5 274.4 283.4 296.3 331.1
SOx
avoided tonnes 365.9 499.2 511.9 527.5 549.7 612.4
PM2,5 tonnes 15.9 22.6 23.2 24.0 25.2 28.3
PM10 tonnes 4.0 5.6 5.8 5.9 6.2 6.9
kilotonnes
of oil
equivalent
(ktoe) 90.0 127.7 131.2 135.9 142.8 160.3
Fossil
Fuels million
avoided barrels 0.66 0.94 0.96 1.00 1.05 1.20
Task Force on Climate-related Financial Disclosures ("TCFD")
The challenge posed by climate change necessitates a complete
transformation of the way the world produces and consumes energy.
In August 2021, the United Nations' Intergovernmental Panel on
Climate Change ("IPCC") published its Sixth Assessment Report,
which stated "global warming of 1.5˚C and 2˚C (before
pre-industrial levels) will be exceeded during the 21st century
unless deep reductions in CO2 and other greenhouse gas emissions
occur in the coming decades". This was further reinforced by the
IPCC's AR6 Synthesis Report, released in March 2023. The transition
to a low-carbon economy is central to making meaningful reductions
in global greenhouse gas concentrations, minimising long-term
climate change impacts, and enabling a development trajectory that
is sustainable on a global scale. This is reinforced by the UK
government's recent commitment to 70GW of installed solar capacity
by 2035.
NESF sees renewable energy as having a crucial role to play in
the low-carbon transition and in providing economic opportunities
that support governmental mandates such as the EU and UK net-zero
target by 2050.
To be a leader in ESG and responsible investment, accountability
is paramount. The Investment Adviser has continued to deliver
transparent reporting and enhanced existing disclosures, reporting
on the Company's impact and contribution to the Sustainable
Development Goals and an ESG disclosures document to confirm
compliance with EU SDFR, particularly Article 9, as well as
fund-level EU SFDR Principle Adverse Indicators and Green Impact
Reports, which disclose our contribution to climate mitigation.
The Company endeavours to communicate progress as we expand our
low-carbon businesses capabilities, develop our policy engagements,
build on our climate risk management strategies, expand our core
ESG metrics, and pursue engagements with investors, stakeholders,
and the wider solar industry in order to collectively address the
climate challenge and promote the transition to a low-carbon
economy.
Introduction
NESF and NextEnergy Capital recognise that climate impacts
should no longer be considered non-financial and have been an
official supporter of the goals of the TCFD since September 2019.
TCFD was established in 2015, with the aim of developing a
comprehensive and uniform framework for climate reporting, enabling
investors and other stakeholders to assess the companies'
climate-related financial risk. These risks may be categorised as
follows:
-- Physical Risk: These are risks related to the changes to the
physical environment from the impacts of climate change in terms of
intensity/frequency of extreme events (acute risks) and longer-term
changes in climate (chronic risks)
-- Transition Risk: Moving towards a low carbon economy will
entail political, technological, legal, market and social changes
that can create risks and opportunities to existing businesses and
their underlying revenue streams
The Investment Adviser has been a leader within its sector for
integrating considerations on climate throughout its organisation
and within its decision-making processes. For the year ended 31
March 2023, the Company responded to the 11 recommendations set out
by TCFD, with the ambition of continually expanding and evolving
its implementation and reporting in line with TCFD recommendations
into future reports.
Governance
1. The Board oversees climate-related risks and opportunities
2. The Investment Manager assesses and manages climate-related risks and opportunities
Board
The NESF board has overall responsibility for NESF's performance
and management. Understanding climate risk management processes is
critical to the Board. ESG matters are more important than ever to
investors, stakeholders, and society. Tracking progress and
reporting changes in climate risk throughout the NESF value chain
is a crucial step in tackling climate change, driving
accountability, and ultimately delivering a sustainable future for
generations to come. Climate considerations and progress updates
are discussed during ESG Committee meetings and quarterly meetings
with the Investment Manager. During such meetings risks related to
climate change are discussed. The Governance Framework in the
Governance section of the Annual Report sets out the board and
committee structure, as well as the chair and responsibilities of
the ESG Committee.
Investment Manager/Adviser
The Investment Manager and Investment Adviser realise that the
integration of a climate and ESG strategy into NESF's governance
structures is imperative to effectively identify and manage
potential risks. Under the leadership of NextEnergy Capital's CEO,
climate-related matters have been integrated into the corporate
Sustainability Framework, which is based on three pillars - Climate
Change, Biodiversity and Human Rights. Continuing this emphasis on
business principles, the NextEnergy Capital ESG team has developed
a Climate Change Position Statement, which was first published in
March 2021. The Statement sets the ambitions, the reference
standards, and the practice that the Manager adopts when dealing
with climate-related risks and opportunities. The Manager's
commitment to minimising both physical and transitional climate
risks is evident not only in the nature of the business as a
leading solar investment manager, but also in the activities
undertaken by the individual departments of the business. The CEO
and senior management of the Investment Adviser are responsible for
actioning NESF's climate ambitions, while the Head of ESG is
responsible for the strategy execution and for updating the NESF
Board and Investment Committee members on recent climate-related
activities and progress. The Head of ESG is a member of the
NextEnergy Group Risk Committee which meets quarterly. The risk
register includes climate-related risks and other ESG risks. The
implementation of ESG and climate strategy is facilitated by a
Sustainability Framework, which draws on SDGs as the structure by
which risks are identified, managed, and reported across on a broad
range of ESG issues that encompasses climate change and beyond.
NextEnergy Capital coordinates stewardship practices amongst
senior management with an external public affairs agency. This
partnership enables NextEnergy Capital, as an Investment Manager,
to work closely with the government and its advisers to highlight
the benefits of solar as an asset class, and an important part of
the energy mix. In addition, NEC has participated in panel sessions
on the natural capital value of solar farms and has contributed to
the Department for Environment, Food and Rural Affairs ("DEFRA")
consultation on biodiversity net gain. The Investment Adviser is
also a member of the Institutional Investor Group on Climate Change
("IIGCC") and is currently participating in the Working Groups for
the Paris Alignment Investment Initiative. The Head of ESG also
sits on the board of Solar Energy UK ("SEUK") and was recently
appointed chair of the SEUK Supply Chain Working Group that is
tasked with setting auditable ESG standards and a traceability
programme for improving transparency and business ethics in the
global solar supply.
Asset Manager
Climate risks are assessed during each pre-acquisition and
development phase through a screening questionnaire. When potential
risks are identified, the ESG team, together with the investment
team and, where relevant, external advisers, undertake a further
risk assessment and agree upon the necessary mitigation measures to
manage and minimise the impacts. Usually, an action plan that
includes these mitigation measures is put forward and presented to
the Investment Committee for approval. The action plan is then
negotiated with contractors, including Engineering, Procurement,
and Construction ("EPC") and Operations and Maintenance
("O&M"), and then handed over to the asset manager of NESF,
WiseEnergy. The Asset Manager oversees the implementation of these
measures, including biodiversity management, land management,
community engagement, and health and safety, amongst others.
Reports on any progress towards these plans on a regular basis and,
in addition, will measure and manage several selected KPIs based on
the SDGs and the EU SFDR and Taxonomy Regulatory Technical
Standards which have been identified as material to NESF's business
and operations.
Strategy
1. Describe the climate-related risks and opportunities the
organisation has identified over the short, medium and long
term
2. Describe the impact of climate-related risks and
opportunities on the organisation's businesses, strategy, and
financial planning
3. Describe the resilience of the organisation's strategy,
taking into consideration different future climate scenarios,
including a 2degC or lower scenario
Climate-Related Risks and Opportunities
The Company understands that climate change poses risks and
opportunities across all asset investments and can interact with
multiple stakeholders. Through its commitment to providing clean
energy, the Company is well-placed to help curb global carbon
emissions, support biodiversity and maintain or improve land
quality. Conversely, there are risks associated with such a
transition and the potential physical consequences associated with
rising temperatures.
The table below covers the key risks and opportunities,
identified by NESF, faced over the short, medium and long term.
Term Risk Type Risks Opportunities
----------- ---------- ---------------------------- -----------------------------
Short Physical The short-term risks Increased irradiation
< 5 years are limited in severity should enhance the
as climate change energy yield from
risks are expected the portfolio. Coupled
to develop over with storage this
the medium to long could represent
term. Observed weather a positive cash
events to date suggest flow opportunity.
that the short term Short-term planning
would see a continuation and monitoring of
and slight increase the actual climate
in extreme weather pathway will enable
events (flash floods the portfolio to
and heat waves). be positioned for
These have the potential resilience to future
to interrupt cash physical risks.
flows and damage Adaption can take
assets. There is many forms and there
an expectation that are opportunities
higher irradiance, to enhance resilience
whilst increasing whilst also improving
yield, will increase biodiversity, which
wear and degradation in turn helps to
of parts, shortening mitigate climate
useful life and change. Early mitigation
increasing failure actions, such as
rates. To mitigate, those described
this requires a in the risk section,
maturation of the can provide a competitive
spare parts strategy advantage vs organisations
and other investments who do not take
in asset health action (ensuring
as well as strategic robust spare part
assessment of relationships supply chains, securing
with key component access to parts
manufacturers, installers, and ensuring ongoing
and maintenance operation of plants).
providers.
Transition Government policy Renewable energy
in jurisdictions is clearly a vital
the portfolio is component of meeting
exposed to, is to government net zero
achieve net zero policies. The increase
by 2050. This can in demand for clean
primarily be considered energy is the primary
an opportunity, transition opportunity
but these policies for the portfolio
will cause significant and future development.
disruption to the
energy mix and that
can present a risk
to power prices.
Medium Physical These risks are The primary opportunity
5-10 years dependent on which that climate change
climate pathway presents for the
develops but potential portfolio is an
risks include: expected increase
Water stress - in electricity demand.
Italian assets exposed Industrial cooling,
to extreme annual in particular, can
water stress, cleaning be linked to physical
panels becomes difficult, climate change and
efficiency drops will increase electricity
and power output demand. This is
declines. in addition to further
Flooding - UK assets demands through
are exposed to a the transition opportunities
heightened risk (eg electric cars).
of flooding with There are innovations,
the potential damage such as agrivoltaics(1)
assets and restrict , that can develop
access to sites into opportunities
for maintenance. depending on asset-specific
Temperature - Italian micro-climates.
assets exposed to Raising panels provides
rising temperatures adaption to flood
and an increase risk and presents
in days with +35 an agriculture/biodiversity
C, reducing efficiency opportunity beneath
and power output them. In hotter
declines. climates the shade
presents an opportunity
for crop growth
which wouldn't otherwise
be possible and
evaporation from
the crops cools
the panels.
The interplay with
transition opportunity
will also develop
as physical climate
change impacts become
more observable,
they will spur increased
policy reaction
and create transition
opportunities (eg
an increase in clean
energy demand).
Transition There is a high Government policy
degree of ambition across a range of
in some transitional sectors will take
policies and as effect in this period.
the implementation In the UK, the Government
deadlines move closer has adopted a policy
there is a risk of transitioning
that policies are to electric vehicles
delayed. This may by banning the sale
mean expected increases of new fossil fuel
in demand for renewable cars (excluding
electricity do not hybrids) by 2030.
occur. They have also banned
the installation
of gas boilers in
new build homes
from 2025, promoting
low-carbon alternatives.
They are also promoting
the uptake of low
carbon alternatives
to gas boilers in
homes, (such as
heat pumps), with
the government setting
a target of 600,000
installations per
year by 2028. The
impact of this is
an increase on overall
clean electricity
demand, especially
when coupled with
net zero policy,
instigating a significant
shift to renewables.
This will create
an opportunity for
clean energy generation
and storage.
Term Risk Type Risks Opportunities
----------- ---------- ---------------------------- -----------------------------
Long Physical The long-term risks As with risks, the
> 10 years are highly dependent physical opportunities
on the climate change will develop in
pathway that develops. line with the climate
The IPCC released pathway that manifests.
their latest AR6 These will be in
Synthesis Report line with those
in 2023, modelled that have been identified
pathways based on in the medium term.
policies implemented
by the end of 2020
are consistent with
global warming of
3.2(o) C. This level
of warming will
exacerbate all of
the risks identified
in the medium term.
In addition, instances
of extreme weather
events will increase
significantly and
resulting disruption
will likely interrupt
cash flows and damage
assets. Adaption
costs would be significant.
Transition The levels of uncertainty If a controlled,
around long term orderly transition
policy positions to net zero is enacted
create a risk. Depending then the portfolio
on climate pathways should benefit from
that transpire, high demand for
there could be dramatic clean energy. The
shifts in policy. impact of economies
For example, if moving to net zero
the expected impacts should limit temperature
of an RCP8.5 scenario increases to below
start to play out 2 C and reduce the
then governments physical risks too.
may take emergency
actions with far
reaching consequences
to try and recover
the situation. The
portfolio should
naturally be positioned
well, as the demand
for clean energy
should be ever present,
but this would still
present a challenging
policy landscape
to navigate and
could have broader
economic impacts.
1 What's agrivoltaic farming? Growing crops under solar panels |
World Economic Forum (weforum.org)
Supply Chain
The solar PV supply chain has a high degree of concentration
risk in China with certain stages of the supply chain further
concentrated within specific regions of China. This is demonstrated
in the figure below(1) .
1 China's market share of the polysilicon, ingot, and water
stages of the supply chain will soon reach 95% of the global
market. The Xinjiang province accounts for 40% of global
polysilicon manufacturing.
The concentration of polysilicon production in Xinjiang province
(40% of global production) creates a particular vulnerability. The
Xinjiang province already experiences extreme heat (temperatures of
40 (o) C) and significant floods. Should manufacturing and supply
of polysilicon be disrupted by an increase in such events, then it
is likely there would be a significant decrease in the supply of
solar PV panels and a corresponding price increase.
The actual panel manufacturing is also highly concentrated with
80% of global supply coming from China and one in seven panels
manufactured by a single company.
As the risk for climate to materially impact the global solar PV
supply is so high, it requires consideration at the sector and
governmental level on an international basis. NESF, through the
Investment Adviser, actively participates in sector-wide
initiatives to address supply chain vulnerabilities.
For operational assets, the supply chain considerations above
become relevant for sites where repairs or upgrades are required.
The demand for parts is expected to increase as irradiation
increases but the vulnerability of the supply chain for these parts
also increases in certain climate scenarios. The concentration risk
on parts suppliers means that interruptions due to extreme events
are possible and this can lead to loss of revenue if sites are not
operational. Additional considerations for operational sites are
the impact on the operations and maintenance suppliers. These
suppliers are diversified across the portfolio but one activity
these contractors undertake is the cleaning of panels to improve
their performance. For assets located in Italy, where temperature
increase will exacerbate water scarcity, it is likely cleaning the
panels will become less frequent and efficiency will drop as a
result. Water efficient alternatives are being actively explored
(e.g. dry cleaning and water recycling).
Portfolio Investments
The productivity of a solar asset is highest when irradiance and
temperature conditions are optimal. As temperature increases, the
efficiency of solar assets falls because heat stress impacts
critical equipment, such as inverters and transformers. The
consistent and relatively cool climate makes the UK a strong
location for the efficiency of solar assets. However, increased
temperatures could lead to increased heat losses and inefficiency
of NESF assets. Likewise, the Company's portfolio of eight Italian
assets and its co-investment in Spain could face similar
challenges.
These challenges can be mitigated with active asset management,
ensuring the optimal condition of parts through maintenance and
securing supply of replacement parts as required. This will enable
the portfolio to take advantage of increased irradiation for higher
yields. When coupled with storage and noting the expected increase
in clean energy demand, the portfolio should be well positioned to
exploit these opportunities.
The Company's asset manager, WiseEnergy, closely monitors the
portfolio's assets throughout the year, measuring and monitoring
many parameters, indicators and metrics covering both proactive and
reactive considerations. This includes, but is not limited to,
irradiation, generation, maintenance routines, audits and
availability. This enables the Company to identify assets at risk
and implement mitigation strategies to maximise optimal production
in the future.
Increased greenhouse gas emissions are not simply associated
with increased temperatures, but also with other extreme weather
conditions, such as storms, flooding and fires. All of NESF's
assets have been constructed with a 1 in a 100-year assessment of
likely wind conditions for the specific location of construction.
One of the key benefits of the portfolio of distributed energy
assets that NESF has is its resilience to any localised issues.
Water-related risks
The portfolio is concentrated in southern England and southern
Italy. These two geographies will have different exposures to the
physical risks of climate change. One of the primary considerations
is water which can take the form of a surplus (flooding) or deficit
(drought/stress).
Water stress
The assets in southern Italy have particular exposure to water
stress as a result of increasing temperatures. Using the World
Resource Institute's Aqueduct tool the change in water stress has
been assessed. The tool uses a baseline of c.50 years of actual
data (last updated in 2019). The forecast change periods are up to
2030 and 2040 using a range of climate scenarios. The maps below
show the change in a pessimistic scenario, SSP3 RCP8.5.
Italy 2030(1) Water Stress:
The 2030 map shows a 1.4x increase in water stress across the
region where the Italian solar assets are located with some small
areas reaching 2x. This directly impacts the ability to clean
panels, impairing their efficiency. It also makes the region more
vulnerable to extreme events (flash floods from storms, earthquake
vulnerabilities and socio-economic impacts as labour moves away
from the area).
Italy 2040(1) Water Stress:
The 2040 map shows the expansion of regions with a 2x increase
in water stress and some regions exceeding a 2.8x increase over
baseline. This exacerbates the issues identified in the 2030
map.
Both these maps show a pessimistic or what can be considered a
worst-case scenario based on inaction from governments globally.
Understanding the impacts of this scenario means mitigation actions
can be planned if this scenario plays out.
The water stress levels observed in Italy correlate to expected
temperature increases in those regions, essentially the heat is
causing the stress. In the UK, where the majority of assets are
located, the expected heat increase has a different impact. Water
stress levels are expected to decrease vs the baseline. This
inverse movement is due to an increase in precipitation in the UK
in that scenario.
(1 Source: World Resource Institute's Aqueduct 3.0 database)
Flood risk
Water risk in the UK is based more on a surplus rather than a
deficit so flood impact needs to be considered. The whole portfolio
(including the Italian assets) has been assessed for
location-specific flood risk in a variety of different climate
scenarios. The flood risk assessment considers pluvial
(precipitation related), fluvial (river overflows) and coastal
sources of flooding. These are analysed at three different points
in time (2030, 2040 and 2050) across three different climate
scenarios (SSP1 2.6, SSP2 4.5 and SSP5 8.5 degrees). The data set
is analysed to identify the sites at highest risk of flooding from
a 1 in 100 year event under those scenarios.
Flood risk results:
The analysis identified four sites at risk of flooding in 2030
and 2040 and five sites in 2050. Of these, only one site was at
risk of flooding by more than 50cm in depth in 2030 and 2040 but in
2050 for SSP2 4.5 and SSP5 8.5-degree scenarios two sites faced a
flooding risk of more than 50cm in depth. Further analysis
identified that the risk for one site in all scenarios was fluvial
and the additional site in 2050 was costal flooding.
The initial data sweep is based on a radius around the site. For
those sites identified at risk of flooding, a terrain mapping
analysis has been undertaken. This shows the specific areas of the
site which are at risk based on the terrain and proximity to source
(rivers or coast). In most cases, it is only part of the site that
is at risk. This level of detail allows consideration of
appropriate flood defence measures. The situation can then be
monitored over time and if the temperature scenario develops then
the likelihood of the risk materialising increases, and mitigating
action may need to be taken. At this stage, the cost of mitigation
adjusted for the probability of the scenarios occurring and
discounted back to present value would not be a material financial
risk to the portfolio.
Pluvial Flooding SSP4.5 2040(1) :
Coastal Flooding SSP4.5 2040(1) :
The example flood maps are for the same site in an SSP4.5 degree
scenario in 2040. They show two different types of flooding, the
first is Pluvial. This type of flooding does not directly impact
the site but does cut off access to it from the only two
approaches. Whilst this limits the damage to the panels and
equipment it does mean that no maintenance can be done during the
flooding period. Flooding of surrounding areas can indirectly
impact site performance and restricted maintenance could lead to a
loss of revenue.
The second map shows the impact of coastal flooding in the same
scenario and time period. This particular site is located on the
coast of East Anglia. The coastal flooding is expected to be severe
and whilst most of the site is clear, there a few incursions of
water onto the site. This will likely cause damage and, as in the
pluvial flooding, access to the site is also restricted.
The analysis highlights the sites most at risk and helps to
identify the specific impacts from the risk. If these temperature
scenarios become likely the fund is in a better position to plan
adaption or mitigation actions.
(1 Source: World Resource Institute's Aqueduct 3.0 database)
Financial Planning
The Company continues to monitor risks in the linkage between
financing, cash flows and climate change. There are some key
challenges to the Company in relation to finances and cash flows
because of climate change. The wholesale market price of
electricity is affected by factors including demand, subsidies,
fuel commodity prices and foreign exchange. As renewables become a
greater proportion of the energy mix, the volatility in the
availability of these renewable resources is expected to drive
volatility in power prices and, subsequently, distributions to the
fund and its shareholders. Increased concentration of solar assets
also leads to cannibalisation, and the price captured on the market
by solar is eroded over time.
The Company's hedging strategy aims to eliminate these risks
associated with power price volatility. Some of the Company's
investments benefit from subsidies and short-term PPA hedges that
fix prices, with the remaining revenue streams subject to
electricity price fluctuations. The Company has agreed fixed UK
pricing (hedged) covering 88% of budgeted generation for the
2023/24 financial year, 44% of budgeted generation for the 2024/25
financial year and 13% for the 2025/26 financial year.
By contrast, this volatility could provide a significant
opportunity for battery storage assets, which generate returns
through such volatility. Optimising through its arbitrage involves
charging the battery when energy prices are low and discharging
during more expensive peak hours. The Company's investment
objective allows investment in standalone energy storage systems
(not ancillary to or co-located with solar PV assets owned by the
Company) up to an aggregate limit of 10% of the Gross Asset Value,
with active discussions with investors relating to increasing this
limit to 25%.
The Intergovernmental Panel on Climate Change ("IPCC") uses
Representative Concentration Pathways ("RCPs") as a basis for
modelling future consequences of man-made greenhouse gas emissions
and reflects a wide range of possible outcomes. There are 4 key
scenarios: RCP2.6, RCP 4.5, RCP6, and RCP8.5. The four scenarios
are outlined in the table below.
Scenarios RCP2.6 and RCP4.5 refer to pathways whereby
significant efforts are made to reduce man-made climate change.
These scenarios assume the greater deployment of renewable energy
and subsequently pose greater transition risks to businesses. As
previously mentioned, this is associated with greater power price
volatility and cannibalisation as solar (and other renewable
technologies) becomes a greater proportion of the energy mix.
However, as industries (such as transport) move away from fossil
fuels and towards electrification, the subsequent demand increase
is expected to offset such changes to the supply. However,
insurance premiums may increase significantly if the instances of
losses go up due to extreme weather.
The Company's Net Asset Value ("NAV") sensitivity analysis shows
that a 10% decrease in power prices lead to a 6.6% decrease in the
NAV and a 10% increase in power prices leads to a 8.9p decrease in
the NAV per share and a 10% increase in power prices leads to a
8.6p increase in the NAV per share .
Alongside increased support for green investment, another key
part of the RCP2.6 and RCP4.5 scenarios likely involve increased
regulations aimed at actively mitigating CO(2) emissions. These
include carbon pricing that will impact organisations in countries
that take part in emissions trading schemes or are subject to
emissions taxes. The purpose of such strategies is to charge the
hidden cost of carbon emissions to the source. It is expected that
in low emissions scenarios, prices in existing emissions trading
schemes are likely to increase. Whilst this could improve the
commercial viability of renewable technologies, it may
simultaneously drive up costs within the supply chain of solar
infrastructure assets. By contrast, under scenarios where limited
efforts are made to reduce emissions (RCP6 and RCP8.5), global
temperature increases are significantly higher than 2degC. This
leads to several physical risk factors, such as extreme weather
conditions, floods, and heat stress. Storms may put solar assets at
risk of physical damage that could drive up operational costs and
lead to losses in generation due to periods of repair. The existing
portfolio of assets has a weighted average useful life of 26.3 and
is designed to be extremely resilient to different weather
conditions. There is also insurance in place to cover physical
damage to plants that may lead to large financial and environmental
losses.
Furthermore, higher emissions scenarios are expected to both
increase average temperatures and the variance in irradiation. As
previously mentioned, increased temperatures reduce the efficiency
and productivity of assets due to heat losses and higher volatility
in irradiation directly impacts the volatility of the Company's
revenues. Our NAV sensitivity analysis shows that a 5% decrease in
irradiation leads to an 5.6% decrease in the NAV and a 5% increase
in irradiation lead to a 5.4% increase in the NAV.
Radiative Forcing Atmospheric CO(2) equivalent 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
----------------- ---------------------------- -----------------------------
Emissions peak around
6 850 2080, then decline
----------------- ---------------------------- -----------------------------
Emissions in RCP 4.5
peak around 2040, then
4.5 650 decline
----------------- ---------------------------- -----------------------------
Ambitious pathway, whereby
emissions go to zero
2.6 490 by 2100
Risk Management
1. Describe the organisation's processes for identifying and assessing climate-related risk
2. Describe the organisation's processes for managing climate-related risks
3. Describe how processes for identifying, assessing, and
managing climate-related risks are integrated into the
organisation's overall risk management
The core business of the investment manager of NESF is focused
on generating positive climate-related impacts through the
reduction of carbon emissions associated with the clean energy
generated by renewable energy assets. Despite no direct exposure to
carbon-intensive sectors, the investment manager has identified
certain physical climate risks as material to the business. NEC has
reviewed the Company's risk appetite to reflect the climate
ambitions that has been expressed to stakeholders and have aligned
it with NEC's group-wide Risk Management framework. The Company
will continue to refine its climate risk assessment approach in
order to reflect the constantly evolving nature of climate factors
and impacts.
Potential physical and climatic risks associated with the asset
acquired or developed after 2020, are screened by the ESG team, and
where there is evidence of potential risks, an external climate
risk advisor is appointed for further assessment during the
pre-acquisition stage. The Adviser will provide a climate change
risk assessment report, which will inform the final investment
decision. As a member of both the NEC Group Risk Committee and the
NESF Investment Committee, during Committee meetings, the Head of
ESG is responsible for advising on the ESG risks and opportunities
associated with each acquisition and or development, including
those related to climate.
Risk Factors and Risk Assessment
The level of risk assigned to an investment is determined by
investigating and engaging with involved parties over a wide range
of factors throughout the due diligence process. While the risk
level varies depending on the asset being acquired, certain risk
factors can be more easily mitigated than others and as such, are
classified with a lower risk rating due to their ability to be more
readily managed.
The Investment Adviser's ESG team have worked with an external
consultant to develop an internal climate risk rating system that
is aligned with the TCFD guidelines , a summary of which is
overleaf. Carrying out this procedure enables the ESG team to
highlight the severity of any climate-related risks associated with
the portfolio during the acquisition process and to determine which
assets will require a third-party assessment to be carried out
post-acquisition. Based on the findings of the assessment, it is
expected that mitigation measures will be presented by the advisor
and passed onto the Asset Manager, ensuring the risk is monitored
and reported on for as long as required and, where relevant, for
the entire lifetime of the Project.
General classification Physical risks Possible consequences Risk rating
---------------------- ------------------------ --------------------------- ----------------
Increased severity Damage to property Medium (Likely +
and frequency of and infrastructure Moderate)
extreme weather resulting in environmental
events (hurricanes, damage, increased
storm surge, heat capital costs (e.g.
waves) repairs, cleaning,
write-offs and possible
early retirement
of assets), decreased
power generation,
worker incidents
(e.g. unable to
access site).
---------------------------
Acute Fires Low (Unlikely +
Minimal)
---------------------------
Flooding Low (Unlikely +
Minimal)
---------------------- ------------------------ --------------------------- ----------------
Changes in precipitation Reduction of anticipated Low (Unlikely +
patterns, solar power generation, Minimal)
irradiation and increased losses
cloudiness in transmission
lines, increased
costs associated
with more frequent
or intense cleaning
requirements and
an increase in health
and safety incidents
as a result of increased
changed weather
conditions (e.g.
heat stress, associated
with hot days)
Chronic Changes in dirt, Low (Unlikely +
dust, snow, atmospheric Minimal)
particles and others
Changes in mean Low (Unlikely +
temperatures Minimal)
Water stress and Decreased water Low (Unlikely +
drought availability increases Minimal)
cost to clean panels
and domestic water
to site
Metrics and Targets
1. Disclose the metrics used by the organisation to assess
climate-related risks and opportunities
2. Disclose Scope 1, Scope 2, and if appropriate, Scope 3
greenhouse gas emissions, and the related risks
3. Describe the targets used by the organisation to manage
climate-related risks and opportunities and performance against
targets
We recognise the value in considering ESG metrics when
identifying potential investment risks or opportunities. In terms
of NESF's asset emissions, the Greenhouse Gas (GHG) Protocol has
outlined the most effective framework for reporting on carbon
emissions. The framework separates emissions into the following
categories:
-- Scope 1: Direct emissions from the activities of a company
under its control, include fuel company-owned vehicles and
air-conditioning leaks.
-- Scope 2: Indirect emissions from the purchase of electricity,
steam heating, and cooling by the company.
-- Scope 3: All other indirect emissions that are embedded within the Company's value chain.
NESF and its fund manager aim to obtain the GHG emission data
directly from suppliers, although it is anticipated that this
process will take time to achieve 100% coverage.
Material GHG emission inventory
Note: This graph is limited to operational emissions only.
Supply chain and construction emissions are currently not included
within this graph. NESF is in the process of expanding its coverage
to include these considerations moving forward.
The chart above shows that total emissions were 1,319 tCO (2) e
of which the majority relates to scope 2 imported electricity. The
sites import electricity for operational activities (CCTV,
monitoring equipment etc). The Company is actively exploring
opportunities to source renewable energy to reduce these emissions.
Scope 3 activities relate to outsourced arrangements with
operations and maintenance contractors (service visits etc).
Description Metric
Scope 1 GHG Emissions NA(1)
--------------------- ------------
1,169 tCO(2)
Scope 2 GHG Emissions e
--------------------- ------------
150 tCO(2)
Scope 3 GHG Emissions e
--------------------- ------------
1.02 tCO(2)
Carbon Footprint e
--------------------- ------------
6.68 tCO(2)
GHG Intensity e
--------------------- ------------
1 The investee companies are SPVs that hold solar PV projects.
The construction and operation of these are outsourced to third
parties so no scope 1 emissions are incurred
The calculation of these emissions is based on data collected
from suppliers. The chart below shows the response rate in the
current year's collection process. Overall coverage is
approximately 80% and the Company is actively engaging with
suppliers to improve this going forward.
Data collection response rate analysis
Within the responses, there are further limitations.
Rooftop/micro solar sites and sites with construction activity
(repairs etc.) are not included in the current year. A collection
plan is being implemented to capture this data in the future.
Further limitations exist where data fields collected are
unavailable (for example, fuel usage isn't tracked by all
suppliers).
Data gaps and limitations have been addressed through estimates
(except rooftop/micro solar sites and construction, which are
omissions in the current year). For the remaining activities,
estimates were developed in accordance with relevant guidance and
standards (e.g. the Greenhouse Gas Protocol). Electricity imported
is based on metered data and emission factors from the utility
provider or DEFRA.
Data collection and quality is a complex and evolving process.
The Company has taken significant steps during the year to improve
this process and plans further such steps in the coming year.
Targets
The Science Based Targets initiative ("SBTi") was established in
2015, with the goal of helping companies to set emission reduction
targets in line with climate science and Paris Agreement goals. The
Company is in the process of evaluating its target commitments.
Outlook
The Company is aware of the potential for the effective
management of climate risks and opportunities to impact returns and
has therefore improved its disclosures in the current year and will
seek to further enhance its TCFD disclosures in the future. The
Company continued to develop a comprehensive scenario analysis
during the year that will help quantify climate risks faced over
time. Insights into water stress and flooding risk have been
developed already, representing a significant step forward in
scenario analysis. This work continues and will involve a deeper
assessment of supply chain vulnerability in climate scenarios,
considering location specific factors. Mitigation actions for risks
identified in this report, and as a result of further analysis,
will be investigated so that the timing and cost implications can
be factored into future planning.
The Company intends to expand its metrics to include scope 3
emissions, which will give clarity on upstream and downstream
emissions within its value chain. The Investment Manager has begun
engaging with its suppliers in order to take action to reduce such
emissions. The emissions calculated may then be used as a baseline
for future performance and will be used to inform its SBTi-aligned
targets. The Company is continuously striving to improve on its
disclosures and processes to ensure risks are effectively
identified and, where possible, mitigated.
Stakeholder Engagement
We recognise the importance of maintaining a high standard of
business conduct and strong and constructive relationships with our
key stakeholders in order to deliver the Company's strategic
objectives over the longer term.
As the Company has no employees and given the nature of its
services, the Investment Adviser (in addition to the Board) has
signi cant 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 How we engage with them
to us
Shareholders A well-informed and supportive
(All investors shareholder base is crucial * Annual and Interim Reports
in the Company- to the long-term sustainability
institutional of our business. Understanding
investors, wealth the views and priorities * Quarterly factsheets
managers and of our shareholders is,
retail investors therefore, fundamental
(including private to retaining their continued * Market announcements, including quarterly NAV
individuals)) support and to having the announcements
potential to access equity
capital in order to continue
to expand the Company's * Website
portfolio over time in
order to further diversify
the investment portfolio * Institutional investor meetings (one-to-one and
and create economies of group), primarily through our Investment Adviser and
scale. Corporate Brokers, to keep communications open
(including annual and interim results presentations)
and gauge their opinions on speci c matters (e.g.
strategy and capital raisings)
* Regular institutional investor feedback received from
our Investment Adviser and Corporate Brokers
* Chairman meetings and other communications with
substantial shareholders
* Research analyst presentations
* Dialogue with research analysts through our
Investment Adviser, as and when required
* AGM
* Rothschild & Co shareholder perception study
Investment The Investment Adviser's
Adviser performance is critical * Board and Committee meetings
for the Company to deliver
its investment strategy
successfully and meet its * Ad hoc meetings and calls with the Board
investment and strategic
objectives. Accordingly,
the Company relies on the * External Board evaluation, which includes feedback
Investment Adviser's expertise, from the Investment Adviser
and needs to ensure the
quality and sustainability
of its services, to deliver * Informal meetings
the necessary performance.
The Investment Adviser's
culture and reputation
is also important when
it is representing the
Company and its subsidiaries.
Investment The Investment Manager's
Manager role is important to ensure * Quarterly reports to the Board
all acquisitions and divestments
meet the Company's investment
and strategic objectives. * Annual evaluation by the Management Engagement
Committee
* Ad hoc meetings and calls with Directors
Key Stakeholders Why they are important How we engage with them
to us
Administrator As the Company has no employees,
we rely on the Administrator * Board and Committee meetings
to provide us with administrative,
fund accounting and company
secretarial services. In
particular, we rely on * Ad hoc meetings and calls with the Board
the Administrator maintaining
the accuracy of our accounting
records and ensuring our * Quarterly reports to the Board
compliance with applicable
laws, rules and regulations.
* Annual evaluation of the Administrator by the
Management Engagement Committee and the Audit
Committee
----------------------------------- -----------------------------------------------------------
Other Key Service A strong and constructive
Providers and working relationship with * Board and Committee meetings
Advisers our other key service providers
(Registrar, and advisers ensures that
Financial Advisers, we receive high quality * One-to-one meetings and calls
Legal advisers, services to help deliver
Corporate Brokers, our investment and strategic
Public Relations objectives. * Provision of relevant information to or by the
and Auditors) Company
* Annual evaluation of key service providers and
advisers by the Management Engagement Committee and
Audit Committee
Lenders An appropriate amount of
(Provider of gearing is required to * Provision of information to lenders in accordance
the Company's achieve our target returns. with the terms of the relevant facility agreements
credit facilities) It is important to maintain
a strong working relationship
with our existing lenders * Consultation in advance on matters which may require
in case we may need, at their consent under the relevant facility agreements
some point, their consent
for, e.g., strategic initiatives.
We also look to build strong
relationships with lenders,
including our existing
lenders, who may provide
debt facilities in the
future.
Local Communities Ensuring our investment
creates a positive social * See the ESG Report
impact is core to our
sustainability
approach. * Review and challenge by the ESG Committee
Asset Manager The Asset Manager's performance
is critical for the operating * Monthly and ad-hoc meetings with the Investment
solar assets to deliver Adviser
operational outperformance
versus the budget. The
Asset Manager also provides
the administration and * Monthly reports to the Investment Adviser
fund accounting for the
Company's subsidiaries,
as well as providing an * Quarterly reports to the Investment Manager, which is
energy sales desk to manage reported to the Board
our electricity price and
sales strategy.
----------------------------------- -----------------------------------------------------------
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 signi cant risks we
face. The process can therefore only provide reasonable, and not
absolute, assurance. The Audit Committee formally reviews, on the
Board's behalf, the approach to and effectiveness of our risk
management and internal control systems bi-annually as a
minimum.
Risk Appetite
The Board is ultimately responsible for de ning 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 nancing risk and solar resource risk.
Principal and Emerging Risks
Details of the emerging and principal risks we face that have
the potential to materially affect our business are set out below.
All risks are principal risks, except those specifically stated.
There are some risks that we currently regard as less material and,
therefore, they have not been included below but they may become
material in the future. Additionally, other risks may be unknown to
us at present.
Portfolio Management and Performance Risk
Risks Summary Mitigation
-------------------------- ---------------------------- -------------------------------
Electricity generation Solar is an intermittent There is a level of
falling below expectation energy source compared predictability for solar
to traditional energy irradiation compared
resources such as coal to other renewables,
and gas. The volume in that solar irradiation
of solar irradiation levels tend to follow
available on a given a set trend throughout
day is out of the Company's the year and exhibits
control and this is low inter-year volatility.
a risk on the performance The geographical location
of the assets. of the asset has an
Unplanned DNO outages, impact on solar irradiation
weather patterns and levels, due to climate
technical issues can variations and small
impact generation. differences in 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
ef ciently.
The diversity of the
underlying solar module
and inverter manufacturers
and O&M suppliers.
Portfolio valuation Valuation of a solar The Company's model
PV asset is dependent and the internal controls
on nancial models based thereon are reviewed
on several drivers, in detail on a periodic
principally: discount basis by a third party
rates, rate of in ation, modelling specialist
power price curves and to ensure the Company's
amount of electricity model is robust and
the solar assets are compliant with the latest
expected to produce. modelling standards
Certain assumptions and controls.
may prove to be inaccurate, Documentation supporting
particularly during the fair values model
periods of volatility. is presented to the
Board quarterly for
approval and adoption.
To manage the impact
of the power price volatility,
the Investment Adviser
uses an average of the
power price curves from
three Consultants.
Operational and Strategic Risks
Risks Summary Mitigation
---------------------- ------------------------------ ------------------------------
A decline in the price Revenues of solar assets The Investment Adviser
of electricity are dependent on the uses the most recent
electricity market. quarterly reports from
Exposure to the wholesale the Consultants to be
energy market impacts kept informed of long-term
the prices received electricity prices,
for energy generated and uses this information
by and revenues forecast to formulate the Company's
for the operating assets electricity sales and
of the Company. For hedging strategies.
the year ended 31 March Short-term: The Company
2023, 52% of revenues enters into PPAs and
were derived from government forward contracts to
subsidies and long-term x electricity prices
PPAs. The remaining for a future period
48% of the Company's ranging from six to
revenues were derived 12 months. The NextEnergy
from selling the electricity Group has an Energy
generated to carefully Sales desk which is
selected counterparties responsible for hedging
in the open market. generation produced
The acquisition of in the short-term. As
subsidy-free assets at 1 June 2023, the
will increase this risk Company had secured
as currently most of xed price agreements
their revenues are derived covering 87.9% of its
from the wholesale energy electricity generation
market with only a part for the 2023/24 financial
bene ting from short-term year and 44.3% for the
PPAs. 2024/25 financial year.
Long-term: Wholesale
The recent supply chain power prices are beyond
issues associated with the control of the Company.
the conflict in Ukraine, Factors that could increase
alongside wider macroeconomic the price of electricity
and geopolitical uncertainty including the roll-out
has led to volatile of electric vehicles
power prices. and the electri cation
of domestic heating
and transportation networks.
The Investment Adviser
reviews wholesale electricity
price forecasts and
enters into long-term
PPAs where appropriate.
Subsidy-free assets:
The Investment Adviser
will plan for short-term
and long-term contracts
before the asset is
operational.
Counterparty risk This is the risk of The Asset Manager continuously
counterparty failure. monitors NESF's contracts
The Company has entered in line with the market.
into O&M contracts and There are contractual
PPAs, which affect the arrangements in place
costs and revenues of that have warranties
the Company. The Company in case of defaults.
has also contracted The Asset Manager ensures
with various EPCs for that counterparties
construction of the are of an acceptable
subsidy-free assets. nancial standing to
If the counterparty minimise risk.
becomes insolvent there
is a risk of disruption
and nancial loss until
the counterparty is
replaced.
Plant operational risk The Company relies on The Company can seek
third-party contractors legal recourse against
to provide corrective failure by an O&M contractor.
and preventative maintenance The Asset Manager monitors
through O&M contracts. and ensures that the
The O&M contractor O&M contract maintains
could fail to ful l a detailed preventative
its obligation and the schedule, with contract
solar asset's performance warranties and penalty
could deteriorate. payments in the event
Degradation of the of failure.
solar modules reduce NESF looks at technological
the performance of the improvements on an ongoing
plant over time. An basis to reduce the
increase in the rate effect of degradation.
of degradation may lead Also, NESF has contract
to under performance. warranties to secure
the design performance
of the assets.
External and Market Risks
Risks Summary Mitigation
---------------------------- ---------------------------------- -------------------------------
Adverse changes in International conflicts The Investment Manager
government policy and and geopolitical tensions and the Board believe
political uncertainty may impact trade of Brexit to have a very
(principal or emerging) commodities, such as limited effect on the
oil and gas, which have Company's financial
subsequent downstream and operating prospects.
impacts on power price The Investment Manager
volatility and supply continue to closely
chain stability for monitor the impact on
solar equipment. the underlying portfolio.
The conflict in Ukraine The global consequences
has led to global volatility of international conflict
in supply chains and on power prices emphasises
power prices. the importance of national
Supply chain shortages energy independence,
in solar equipment could which the Company believes
prohibit construction it is well placed to
of new projects and facilitate.
drive-up acquisition The Investment Manager
prices of existing assets. has a wealth of experience
and a strong network
built through its global
presence that enables
it to source the best
projects and contracts
for the NESF portfolio.
The geopolitical expectations
known at the time of
acquisition of an asset
are built into the Company's
strategy and projected
financial returns for
the asset.
Adverse changes to Uncertainty for the The Company actively
regulatory framework future regulatory framework monitors regulatory
for solar PV (principal for solar PV creates changes within the industry
or emerging) a risk that further and participates in
planned acquisitions contributing towards
do not take place. This government discussions
would affect the Company's on the industry in the
growth potential, valuation UK, and Italy and other
and pro tability. countries in which investments
are located.
Changes to tax legislation Changes to the existing NESF has tax advisers
and rates (principal rates and rules could to ensure constant awareness
or emerging) have an adverse effect of any upcoming changes
on the valuation of to tax legislation and
the portfolio and levels rates, to implement
of dividends paid to the necessary changes
shareholders. as required.
As a result of the Investment in multiple
elevated power prices jurisdictions diversifies
exhibited during 2022, exposure to individual
the UK government announced country regulations
the Electrical Generator and hence risk.
Levy ("EGL"), which Increase in subsidy
is a temporary 45% charge free assets in the portfolio
on exceptional receipts reduces exposure to
generated from the production regulated revenues,
of wholesale electricity. supported by the hedging
Exceptional receipts strategy.
will be defined as wholesale
electricity sold at
an average price in
excess of GBP75 per
MWh over an accounting
period.
Changes to current
subsidies based on findings
of the regulator would
impact the Company's
revenue streams.
Health and Safety (principal The physical location, Health and safety practices
or emerging) maintenance and operation are in place that conform
of a solar power plant to local governmental
may pose health and standards. The Investment
safety risks to those Manager, Investment
involved. Adviser and the Asset
Manager monitor adherence
to the standards.
Insurance policies
are in place and reviewed
to increase cover where
necessary.
Climate-related risks These are detailed in
(emerging risk) the Task-Force on Climate-Related
Financial Disclosure
("TCFD") report.
Going Concern and Viability
Going Concern
This Strategic Report describes the Company's business
activities, together with the factors likely to affect its future
performance, position and prospects. The nancial position of the
Company, its cash ows, liquidity position and borrowing facilities
are referred to in the Chairman's Statement, Investment Adviser
Report and notes to the Financial Statements.
The Company's cash balance as at 31 March 2023 was GBP14.4m, all
of which was readily available. It also had immediately available
but undrawn amounts under the Group's debt facilities of a further
GBP39m. The NESF Group had capital commitments totalling GBP26.5m
at the year end. A significant portion of the NESF Group's revenues
are derived from government subsidies. A large portion of the NESF
Group's borrowings are on a non-recourse basis. The Company's
portfolio is diversi ed by geography, components, plant size,
subsidy schemes and revenue streams.
A thorough evaluation of the cash flow impact, for the going
concern period to 16 June 2024, of the following individual and
combined two scenarios were reviewed by the Directors and were
deemed appropriate market standard stress tests:
-- Sale of Subsidy Free Assets as part of the capital recycling programme
-- Sale of Subsidy Free Assets and Share Buyback as part of the capital recycling programme
The Board is satis ed that the Company has suf cient 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 nancial
statements on a going concern basis. The Board has also carried out
a robust assessment of the emerging and principal risks.
In reviewing the Company's viability, the Directors have
assessed its viability for the period to 31 March 2028. The Board
believes this period, being approximately ve years, is an
appropriate period over which to assess the Company's viability as
it is consistent with the ve year period used by the Board when
considering the Company's investment strategy and medium-term
business plans, including cash ows, and is considered reasonable
having regard to the long-term nature of the Company's investment
strategy.
The Company owns a portfolio of solar energy infrastructure
assets in the UK, Italy, Portugal and Spain that are predominantly
fully constructed, operational and generating renewable
electricity, and entered into the battery storage asset market this
year. As a result, it bene ts from predictable and reliable
long-term cash ows and is subject to a set of risks that can be
identi ed and assessed. Each solar asset is supported by a detailed
nancial model at acquisition and incorporated into the Company's
valuation model for quarterly valuations. The Directors believe
that the diversi cation 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 ve-year cash ow forecast annually and the
Investment Adviser and the Board review this as part of their
business planning and to assess the sustainability of the
dividends. This forecast is based on the Investment Manager's
expectations of future asset performance, income and costs, and are
consistent with the methodology applied to provide the valuation of
the investments. The forecast considers the Company's cash
balances, cash ows, dividend cover, other nancial ratios,
compliance, investment policy and key operational and nancial
indicators over the period. Furthermore, the forecast also
considers the terms of the Company's borrowing facilities (mainly
interest payable, amortisation and nancial covenants) and the terms
of the preference shares and their limited redemption rights. Apart
from any drawings under two revolving credit facilities for an
aggregate of up to GBP205m that expire in 2024, there are no
borrowings by the Company or any of the HoldCos or SPVs that are
expected to be re nanced. 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 ows and covenant
compliance forecasts are subject to sensitivity analysis to explore
and evaluate the Company's resilience to the potential impact of
those emerging and principal risks summarised above that, both
individually and in aggregate, could prevent the Company from
delivering on its investment strategy. The emerging and principal
risks that are subject to the sensitivity analysis are outlined in
note 19b of the Financial Statements, as these could have a
material negative impact on valuations and cash ows and give rise
to a reduction in the availability of nance. 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 ve-year period to 31
March 2028.
The sensitivities performed were designed to be severe but
plausible; and to take full account of the availability and likely
effectiveness of mitigating actions that could be taken to reduce
or avoid the impact or occurrence of the underlying risks.
If the ordinary shares trade, on average, at a discount to the
NAV in excess of 10% over any nancial 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 ve-year forecast cash ows and covenant
compliance, the impact of the sensitivities in combination and the
emerging and principal risks facing the Company, the Directors con
rm that they have a reasonable expectation that the Company will be
able to continue in operation and meet its liabilities as they fall
due over the period to 31 March 2028.
Ukraine Conflict
The Company's portfolio has no direct exposure to either Ukraine
or Russia. The Board and Investment Adviser continue to monitor the
situation closely and consider the wider consequences on power
prices and energy affordability.
Approval
This Strategic Report was approved by the Board on 16 June 2023
and signed on its behalf by:
Kevin Lyon
Chairman
Governance
Introduction from the Chairman
I am pleased to present the Company's Corporate Governance
Report for the year ended 31 March 2023.
We believe that strong corporate governance gives the Company's
shareholders and other key stakeholders confidence in the Company's
trustworthiness, fairness and transparency. The practice of good
governance is, therefore, an integral part of the way we manage the
Company and plays an important role in shaping the Company's
long-term sustainable success and achieving our strategic
objectives.
Corporate Governance Regime
This Corporate Governance Report explains how we apply the
principles and provisions of the AIC Code. It provides details of
the key aspects of our corporate governance framework and seeks to
demonstrate how the Board and its Committees have operated during
the year and how we exercise effective stewardship over the
Company's activities for the benefit of our shareholders as a
whole, whilst having regard to the interests of wider stakeholders.
The Board also considers other updated guidance and
best practice.
Board Composition and Evaluation
We continued to keep the Board's composition under review and
appointed Helen Mahy in April 2023 to add to the energy sector
experience of the Board.
The AIC Code requires us to undertake externally facilitated
Board evaluations at least every three years and the most recent
review was undertaken by Lintstock Limited in 2021. Further
information on this year's evaluation process and its findings can
be found under 'Annual Performance Evaluations'.
Audit Committee
Patrick Firth is the appointed Chair of the Audit Committee.
Further information on the Audit Committee can be found below.
Remuneration and Nominations Committee
Vic Holmes is the appointed Chair of the Remuneration and
Nominations Committee. Further information on the Remuneration and
Nominations Committee can be found below.
Management Engagement Committee
Joanne Peacegood is the appointed Chair of the Management
Engagement Committee. Further information on the Management
Engagement Committee can be found below.
ESG Committee
The ESG Committee was formed in October 2022, with Josephine
Bush appointed Chair. Further information on the ESG committee can
be found below.
Engagement with Our Key Stakeholders
We recognise the importance of engaging with our key
stakeholders and information on how we do this can be found under
'Engagement with Our Stakeholders'. The most recent shareholder
perception study was undertaken by Rothschild & Co in April
2021. We continue to look at how we engage with all of our key
stakeholders to ensure that our engagement is both appropriate for
the Company's business and dynamic so that we can respond as the
business and our key stakeholders' views evolve.
Kevin Lyon
Chairman
16 June 2023
Governance Framework
Our governance framework reflects the fact that, as an
investment company, the Company has no employees, its Directors are
all Non-Executive and its day-to-day activities, including
investment management and administration, are outsourced to
external service providers.
Board of Directors
Kevin Lyon Relevant Skills and Principal External Appointments:
Chairman Experience: Chairman of KultraLab
Over 35 years of experience Limited, a technology
Resident: in private equity and led behavioural science
UK Director positions in consultancy.
Appointed: a number of different
22 January 2014 companies. Chairman of AMG Vango,
Independent: an owner & distributor
Yes Qualified Chartered of outdoor brands.
Accountant.
Non-Executive Director
Spent approximately of retailer SpaceNK.
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 30 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.
----------------------- ---------------------------------- --------------------------------
Vic Holmes Relevant Skills and Principal External
Senior Independent Experience: Appointments:
Director Over 40 years of experience Chairman of Permira
in financial services. Holdings Limited, Utmost
Resident: Guernsey Worldwide Limited, Highbridge
Appointed: Qualified Chartered Tactical Credit Fund
22 January 2014 Certified Accountant. Limited and Ocorian
Independent: Administration (Guernsey)
Yes Joined the Board of Limited.
Guernsey International
Fund Management Limited, Non-Executive Director
Guernsey's largest fund of DBG Management GP
administration company, (Guernsey) Limited,
in 1986.
Rothschild & Co BI
Senior roles in the Limited and a range
international fund administration of Ashmore funds.
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.
----------------------- ---------------------------------- --------------------------------
Patrick Firth Relevant Skills and Principal External
Non-Executive Director Experience: Appointments:
Resident: Has worked in the fund Non-Executive Director
UK industry in Guernsey of Riverstone Energy
Appointed: since joining Rothschild Limited, India Capital
22 January 2014 Asset Management C.I. Growth Fund Limited
Independent: Limited in 1992. and CT UK Capital and
Yes Income Investment Trust
Qualified Chartered plc.
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.
Joanne Peacegood Relevant Skills and Principal External
Non-Executive Director Experience: Appointments:
Resident: Guernsey Over 20 years of experience Non-Executive Director
in the Investment Management roles include Private
Appointed: sector including Premium Equity, Debt, Hedge,
20 February 2020 Listed Funds and Alternative Real Estate, Utilities,
Independent: assets. Asset Managers, Volta
Yes Finance Limited and
Worked for 'Big Four' Chair of Castelnau Group
accounting firms in Limited.
the Channel Islands,
UK and Canada for 20 Immediate past Chair
years. of the Guernsey Investment
& Fund Association and
Qualifications include Deputy Chair of the
Chartered Accountant Guernsey International
(FCA), Institute of Business Association.
Directors Diploma and
BA honours degree in Member of the AIC Channel
Accounting. Islands Committee.
Previously Audit Engagement
Leader, Risk & Quality
Director, Controls Assurance
and Innovation & Technology
Director.
Expertise in Valuations,
Accounting, Auditing,
Risk, Controls, Corporate
Governance and Regulations.
----------------------- ---------------------------------- --------------------------------
Josephine Bush Relevant Skills and Principal External
Non-Executive Director Experience: Appointments:
Resident: Over 14 years of experience Chair of the Audit,
UK in the renewable energy Risk and ESG committee,
sector. of Vulcan Energy Resources
Appointed: Limited (ASX listed).
1 January 2022 Was a senior partner
Independent: at Ernst & Young LLP Non-Executive director
Yes for 14 years specialising of Net Zero Now Limited
in the renewable energy and Foresight Sustainable
sector and amongst other Forestry Company PLC.
things was responsible Member of the investment
for developing the Ernst committee of Gresham
& Young LLP global renewables House's British Sustainable
business plan. She was Infrastructure Fund.
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.
----------------------- ---------------------------------- --------------------------------
Helen Mahy CBE Relevant Skills and Principal External
Non-Executive Director Experience: Appointments:
Resident: Over 20 years of experience Non-Executive Director
UK in the energy sector. of SSE plc and chairs
Appointed: the Safety, Sustainability,
1 April 2023 Helen has previously Health and Environment
Independent: served as Group General Advisory Committee.
Yes Counsel and Company
Secretary of National Non-Executive Director
Grid plc, and more recently of Gowling WLG (UK)
as Chairman of The Renewables LLP.
Infrastructure Group
having served her full Chair of the Global
nine-year tenure. Media Campaign to End
FGM.
Helen is a qualified
barrister and was an
Associate of the Chartered
Insurance Institute.
In 2015, she was awarded
a CBE for services to
business, particularly
relating to diversity
in the workplace.
Previous Directorships
include SVG Capital
plc, Primary Health
Properties plc, Bonheur
ASA and she was also
Chair of MedicX Fund
Limited
Corporate Governance Statement
Statement of Compliance
The Board considers that the principles and provisions set out
in the AIC Code provide the most appropriate framework for the
Company's governance and reporting to shareholders. The AIC Code
addresses the principles and provisions set out in the UK Corporate
Governance Code (July 2018) as well as setting out additional
principles and recommendations on issues that are of speci c
relevance to investment companies. The AIC Code includes an
explanation of how the AIC Code adapts the principles and
provisions set out in the UK Corporate Governance Code to make them
relevant for investment companies. The AIC Code is available on the
AIC's website (theaic.co.uk).
The AIC Code has been endorsed by the Financial Reporting
Council and the Guernsey Financial Services Commission. By
reporting against the AIC Code, the Board is meeting its
obligations in relation to:
-- the UK Corporate Governance Code (and associated disclosure
requirements under the FCA's Listing Rule 9.8.6R) and, accordingly,
the Company does not need to report further on issues contained in
the UK Corporate Governance Code which are irrelevant to it;
and
-- the Guernsey Financial Services Commission's Finance Sector
Code of Corporate Governance (June 2021).
The Company has complied with the principles and has complied
with the provisions of the AIC Code during the year ended 31 March
2023.
Board Leadership and
Company Purpose
Board Leadership
The role of the Board is to promote the long-term sustainable
success of the Company, generating value for our shareholders
whilst having regard to the interests of wider stakeholders.
The Investment Manager, Investment Adviser and Administrator are
responsible for implementing the Company's strategy and managing
the Company's day-to-day activities and operations. The Company's
success is based on such implementation and management being
effective. The Board leads and provides direction for the
Investment Manager, Investment Adviser and Administrator by setting
the Company's strategic objectives within a robust framework of
risk management and internal controls. The Board oversees the
execution of the Company's strategy and implementation of its key
investment, nancial, 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 diversi ed
portfolio of primarily UK-based solar energy infrastructure assets
managed in accordance with its Investment Policy. Details of the
Company's investment and strategic objectives and its investment
strategy are set out in 'Our Objectives' and 'Our Investment
Strategy and Track Record' respectively. In setting the Company's
strategic objectives, the Board had regard to the interests of the
Company's key stakeholders.
The Strategic Report describes:
-- how the Company seeks to generate and preserve value over the
long-term (see 'Portfolio Optimisation' in the Investment Adviser's
Report);
-- the key considerations relating to new investment
opportunities (see 'Investment Highlights' in the Investment
Adviser's Report);
-- the emerging and principal risks to the future success of the
Company and how we seek to manage and mitigate them (see 'Risks and
Risk Management'); and
-- the sustainability of the Company's business model (see 'the
Going Concern and Viability section').
We aim to ensure the Company is run in a manner that is
consistent with our belief in integrity, fairness and transparency
and responsive to the views of the Company's shareholders and wider
stakeholders.
Board Culture
Our culture is based on openness, trust and candour between
Board members, respect for differing opinions and areas of
expertise and individual and collective accountability. We believe
that this culture encourages constructive and robust challenge and
debate, generates strong collective wisdom, and ultimately leads to
good decision making, all of which are important to the successful
implementation of the Company's strategy.
We seek to ensure that our culture is aligned with the Company's
purpose, values and strategy principally through ongoing and
regular dialogue and engagement with the Investment Manager,
Investment Adviser and Administrator, whose efforts are
collectively directed towards delivering returns to shareholders in
line with the Company's purpose, and monitoring the performance and
management of the Company.
Section 172 Statement
Section 172 of the Companies Act 2006 ("Section 172") applies
directly to UK domiciled companies. Nonetheless, the intention of
the AIC Code is that the matters set out in Section 172 are
reported on by all companies, irrespective of domicile, provided
this does not con ict with local company law. Under Section 172,
directors have a duty to promote the success of their company for
the bene t of its members as a whole, whilst having regard to
(amongst others) the likely consequences of their decisions in the
long-term and the interests of the Company's wider
stakeholders.
Information on how we have acted in accordance with the
requirements of Section 172 is included throughout the Strategic
Report and this Corporate Governance Report.
In particular:
-- information on the Company's values and business model and
our culture can be found under 'Our Business Model' and under
'Company Purpose, Values and Strategy' above;
-- details of how the Company seeks to generate and preserve
value over the long-term can be found in the Investment Adviser's
Report;
-- information on the emerging and principal risks that could
disrupt the long-term success of the Company and how we seek to
manage and mitigate them are considered under "Risks and Risk
Management";
-- details of the Company's key stakeholders, why they are
important to us and how we engage with them can be found in
'Engagement with Our Stakeholders';
-- in relation to the Company's solar assets, the Asset Manager
and the Investment Adviser have day-to day responsibility for the
Company's dealings with suppliers, contractors, customers and
others and information on how they foster these relationships are
included;
-- information on how the Company's operations impact on the
environment and the communities in which its solar assets are
located are included in the Sustainability and ESG section; and
-- a summary of the Board's principal activities during the year
under review is included under 'Principal Roles'.
In making decisions, our aim is always to ensure the long-term
sustainable success of the Company and, therefore, the likely
long-term consequences of any decision are a key consideration. In
relation to the decisions we took during the year under review, we
acted in the way we considered, in good faith, would be most likely
to promote the Company's long-term sustainable success and achieve
its wider objectives for the bene t of our shareholders as a whole,
having had regard to our wider stakeholders and the other matters
set out in Section 172.
Con icts of Interest
The Directors have a duty to avoid situations where they have,
or could have, a direct or indirect interest that con icts, or
possibly could con ict, with the Company's interests ('con ict
situations'). A Director must inform the Chair (or, in the case of
the Chairman, the Senior Independent Director) as soon as they
become aware of the possibility of a con ict situation.
Where it is deemed appropriate, the Board may approve con ict
situations. In deciding whether to approve a con ict 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 con ict situations is operating effectively, including
Vic Holmes in his role as the non-executive chairman of Ocorian
Administration (Guernsey) Limited, Administrator of the
Company.
There were no other con ict situations during the year under
review (or since the end of the year).
Division of Responsibilities
Board
The Board comprises six Directors, all of whom are Non-Executive
and Independent, and is chaired by Kevin Lyon. The biographies of
the Directors are above.
The Board's principal responsibilities include:
-- promoting the Company's long-term sustainable success,
generating value for our shareholders whilst having regard to the
interests of wider stakeholders;
-- setting the Company's strategic objectives and ensuring that
the necessary resources are in place for the Company to meet its
objectives;
-- establishing a framework of effective controls that enable
risk to be managed and continually assessed;
-- establishing a framework of high standards of corporate governance;
-- overseeing the execution of the Company's strategy and
implementation of its key investment, nancial, 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 de ned 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, nancial,
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 nancial 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 ful l its responsibilities, the Directors
are expected to provide strategic guidance, constructive challenge,
offer specialist advice and hold the Investment Manager, Investment
Adviser, Administrator and other service providers and advisers to
account.
The Directors have access to the advice and services of the
Administrator. Where necessary, in carrying out their duties, the
Directors may also seek independent professional advice and
services at the expense of the Company.
Chairman
The current Chairman is Kevin Lyon. His primary role as Chairman
is to provide leadership to the Board. The principal
responsibilities of the Chairman include:
-- the overall effectiveness of the Board in directing the Company;
-- taking a leading role in setting the Company's strategic objectives;
-- promoting behaviours and attributes that make up the Board's
culture (details of which can be found under 'Board Culture');
-- ensuring the Company is meeting its responsibilities to
shareholders and wider stakeholders; and
-- engaging with shareholders to ensure that the Board has a
clear understanding of their views.
The effectiveness and independence of the Chairman is evaluated
on an annual basis as part of the Board's performance evaluation.
Information on the 2023 appraisal of the Chairman can be found
under 'Annual Performance Evaluations'.
Senior Independent Director
The current Senior Independent Director is Vic Holmes. His
primary role as such is to serve as a sounding board for the
Chairman, act as an intermediary for other Directors and be
available to respond to shareholders' concerns if they cannot be
resolved through the normal channels of communication (i.e. through
the Chairman). The Senior Independent Director leads the annual
evaluation of the Chairman (see 'Annual Performance Evaluations'
below for information on the 2023 annual evaluation).
Board Committees
The Board has four standing Committees:
-- Audit Committee: The Audit Committee is chaired by Patrick
Firth. Information on the Audit Committee's membership, roles and
responsibilities is included in the Audit Committee Report.
-- Management Engagement Committee: The Management Engagement Committee is chaired
by Joanne Peacegood.
-- ESG Committee: The ESG Committee is chaired by Josephine Bush.
-- Remuneration and Nominations Committee: The Remuneration and
Nominations Committee is chaired by Vic Holmes. Information on the
membership and the remuneration-related roles and responsibilities
of the Committee are included in the Directors' Remuneration
Report.
Board Nominations
The Committee's nomination-related responsibilities include:
-- reviewing the Board composition and assessing whether the
balance of skills, experience, knowledge, diversity and
independence is appropriate to enable the Board to discharge its
responsibilities effectively and ef ciently;
-- succession planning;
-- leading the process for new appointments to the Board; and
-- leading the annual evaluation of the Board and its Committees.
A copy of the terms of reference of each Committee is available
on the Company's website
(nextenergysolarfund.com).
The Committees review their terms of reference at least
annually, with any proposed changes recommended to the Board for
approval.
The Board also establishes additional Committees from time to
time to take operational responsibility on speci c matters
following 'in principle' approval from or with subsequent rati
cation by the Board. These Committees ensure that key matters are
dealt with ef ciently.
Helen Mahy's Appointment as Chair Designate
A rigorous process was undertaken with the assistance of an
independent 3rd party recruitment specialist to select a Director
that demonstrates board experience at FTSE--level, Chair
experience, sector-specific knowledge and a strong track record of
delivering results to fill the role of the Chair following the end
of the current Chair's tenure since IPO. The process involved
selecting a candidate with this skillset to help deliver the
Company's growth strategy.
Investment Manager and Investment Adviser
A Management Agreement between the Company and the Investment
Manager sets out the matters over which the Investment Manager has
authority and responsibility. Under the Management Agreement, but
subject to the overall control and supervision of the Board, the
Investment Manager has full discretion to make investments in solar
assets that have been recommended by the Investment Adviser and
meet the requirements of the Company's Investment Policy.
The Investment Manager is also the Company's AIFM for the
purpose of the EU's AIFM Directive. As the AIFM, the Investment
Manager also has responsibility for all risk management and
portfolio management activities. In addition, the Investment
Manager has been granted powers by the Company as regards its
HoldCos, SPVs and NPIII LP in order to facilitate the performance
of its obligations.
The Investment Adviser's role primarily entails the origination,
evaluation, co-ordination and recommendation of investment
opportunities for the Company and the related provision of
investment advice to the Investment Manager in respect of strategy,
acquisitions and disposals, portfolio ef ciencies, nancing, 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 ow forecasts and other nancial information,
industry updates and other relevant information. Senior
representatives of the Investment Manager and the Investment
Adviser attend Board meetings. In addition, there is regular
contact between the Board, Investment Manager and Investment
Adviser, including informal meetings between Board meetings. Our
active engagement and supportive working relationship with the
Investment Manager and Investment Adviser create an open and
collaborative culture that ensures that we have a thorough
understanding of the Company's business and facilitates our robust
scrutiny and constructive challenge of the activities and
performance of the Investment Manager and Investment Adviser.
The Investment Manager's appointment is terminable by the
Investment Manager or the Company on not less than 12 months'
notice. The Investment Adviser's appointment is terminable by the
Investment Adviser or the Company on not less than 12 months'
notice.
Administrator
The Company has appointed the Administrator to provide company
secretarial, fund accounting and administration services. The
Administrator's responsibilities include:
-- ensuring that the Company complies with applicable Guernsey
laws, rules and regulations and also the FCA's rules and
regulations applicable to investment companies with a premium
listing and of the London Stock Exchange's rules and
regulations;
-- advising on all governance matters;
-- supporting the Board to ensure that it has the policies,
processes and information it needs in order to function effectively
and ef ciently;
-- under the direction of the Chairman, facilitating the ow 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 nancial 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 clari cation 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 t 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 nancial performance;
-- the Company's nancial and regulatory compliance;
-- investor relations, shareholder analysis and marketing; and
-- peer group benchmarking and other relevant sector information.
Board Activities
In addition to routine business at the quarterly Board meetings,
matters considered by the Board during the year under review
included:
-- consideration of the Company's dividend policy (see 'Dividend
Policy' in the Strategic Report);
-- the Company's strategy and strategic aims, including in
respect of UK subsidy-free solar and international assets (see
'Portfolio Update' in the Chairman's Statement and in the portfolio
highlights);
-- assessment of key service providers;
-- approving the Annual and Interim Reports;
-- the Board and Committee Composition and Evaluation (see
'Board Composition and Evaluation'); and
-- recommendations from its Committees.
Committee Activities
Information on the activities of the Audit Committee during the
year under review can be found under 'Responsibilities and
Activities' in the Audit Committee Report. The Management
Engagement Committee completed the annual evaluation of the
Company's key service providers, including the Investment Manager,
Investment Adviser and Administrator in Q2 2023.
Matters considered by the Remuneration and Nominations
Committee during the year under review included:
-- Board Composition: The Committee will continue to keep the
Board's composition under review. Details of the Board Composition
are discussed under 'Board Composition and Independence' below.
-- Annual evaluation of the effectiveness of the Board and its
Committees: Details of the evaluation process and the outcomes can
be found under 'Annual Performance Board Evaluations'.
-- Succession planning: Details of the intended succession plan
can be found under "Succession Planning".
Meeting Attendance
The number of scheduled Board and Committee meetings during the
year under review which each Director was entitled to attend, and
the attendance of the individual Directors at those meetings, is
shown in the table below.
In addition to the scheduled Board meetings, there were 15 ad
hoc Board meetings, 1 ad hoc meeting of the Audit Committee and 1
ad hoc meeting for each of the Remuneration and Nominations
Committee, Management Engagement Committee and Environmental,
Social & Governance Committee during the year under review.
These meetings were convened to conclude a number of matters
previously discussed at scheduled meetings and to deal with
administrative and process matters. Ad hoc meetings are typically
convened at relatively short notice and are held in Guernsey. It is
not always feasible or necessary, therefore, for all the Directors
to attend the ad hoc meetings. However, Directors who are unable to
attend an ad hoc meeting communicate their views on any matters to
be discussed to their fellow Directors ahead of the meeting.
Environmental,
Management Remuneration Social
Engagement and Nominations & Governance
Director Board Audit Committee Committee Committee Committee
----------------- ----- --------------- ----------- ---------------- --------------
Kevin Lyon 4/4 3/3 1 1 1
Vic Holmes 4/4 3/3 1 1 1
Patrick Firth 4/4 3/3 1 1 1
Joanne Peacegood 4/4 3/3 1 1 1
Josephine Bush 4/4 2/3 1 1 1
Helen Mahy* n/a n/a n/a n/a n/a
*Helen Mahy was not yet an appointed Director during the year
ended 31 March 2023
Board Composition, Independence and Succession
The Board currently comprises six Directors, all of whom are
Non-Executive and Independent of the Investment Manager and the
Investment Adviser. Details of the Directors' skills, experience
and principal external appointments are included in their
biographies.
The current Chairman, Kevin Lyon, Senior Independent Director,
Vic Holmes, and Audit Committee Chairman, Patrick Firth, have held
their positions since the Company's IPO in 2014. Jo Peacegood has
held her position since 20 February 2020, Josephine Bush has held
her position since 1 January 2022, and Helen Mahy has held her
position since 1 April 2023. The Chairman (or any other of the
Directors) does not have, and has not had, any relationships or
circumstances that may create a conflict of interest between their
interests and those of the shareholders.
Appointments to the Board
The Remuneration and Nominations Committee oversees the
recruitment process, which includes the use of a firm of
Non-Executive Director recruitment consultants.
When considering new appointments, the Committee takes into
account other demands on the candidates' time. In advance of
joining the Board, new Directors are asked to disclose any existing
significant commitments with an indication of the time involved and
to confirm that they are able to allocate sufficient time to the
business of the Company and that there are no situations where they
have, or could have, a direct or indirect interest that conflicts,
or possibly could conflict, with the Company's interests.
At the time of appointment, a new Director receives a letter of
appointment that sets out their duties and obligations. Copies of
the letters of appointment of the current Directors are available
for inspection at the Company's registered office and at each
AGM.
An induction programme for new Directors is in place. This
includes meetings with the senior members of the NextEnergy Capital
team involved in the management of the Company and the
Administrator, as well as visiting at least one of the Company's
solar PV assets.
Details of changes to the Board during the year under review can
be found under 'Board Composition and Evaluation'.
Board Commitments
Prior to taking on any new listed board, time consuming,
conflicted or otherwise significant appointments, a Director must
seek the prior approval, on behalf of the Board, of the Chairman
(or, in the case of the Chairman, the Senior Independent Director).
If the Chairman (or Senior Independent Director) believes the
relevant appointment causes a conflict or potential conflict of
interest, they will refer the appointment for consideration and, if
appropriate, approval of the Board. A Director must promptly notify
the Administrator of any new board appointments that they take
on.
When considering whether to recommend the election or
re-election of a Director at any AGM, the Board assesses the
Director's continuing ability to meet the time requirements of the
role by considering, amongst other things, their attendance at
Board, Committee and other ad hoc meetings held during the year as
well as the nature and complexity of their other external
roles.
The Directors' attendance at all scheduled Board and Committee
meetings held during the year is shown in the table above. Neither
the Chairman nor any of the other Directors took on any other new
appointments that would impact their ability to meet their board
responsibilities to the Company during the year under review (or
since the end of the year). The Board believes all the Directors
have sufficient time to meet their Board responsibilities.
Board Diversity
Appointments to the Board are made on merit, having due regard
to the benefits of diversity in its widest sense (including gender,
age, social and ethnic backgrounds and cognitive and personal
skills, experience and strengths) and with the objective of
ensuring that the Board and its Committees have the skills,
experience and knowledge necessary to bring a wide range of
perspectives and to discharge their responsibilities effectively.
The priority when making new appointments is to identify the
candidate with the best range of skills, experience and knowledge
to complement those of the existing Directors.
At the date of this report the Board comprised 3 men and 3
women, all Non-Executive Directors who are considered to be
independent of the Investment Manager and free from any business or
other relationship that could materially interfere with the
exercise of their independent judgement. Currently, the Management
and Engagement Committee and Environmental, Social & Governance
Committee are both chaired by women. It is intended that Helen Mahy
will be appointed as Chair of the Board following the Company's
Annual General Meeting in August 2023. The Board are cognisant that
it does not currently have ethnic representation, contrary to the
new FCA diversity guidelines, and this will be a key focus during
future succession planning.
Board Tenure
Three of our six Directors reached their ninth anniversary
simultaneously in January 2023. We have considered succession
planning and also concluded that no Director should normally remain
in office beyond the date of the AGM following the ninth
anniversary of their first appointment to the Board. However, this
period may be extended for a limited time to facilitate effective
succession planning, as outlined in the section below.
The date of appointment of each Director can be found in their
biographies above.
Succession Planning
The Board remains aware of the AIC guidance around Board member
tenure and continues to take positive action to address this by
implementing a carefully devised succession plan that facilitates
in the transition of corporate knowledge and Board independence,
whilst ensuring the benefits of bringing new perspectives and
diversity.
The Remuneration and Nominations Committee is responsible for
reviewing the succession plans for the Board. Kevin Lyon, Vic
Holmes and Patrick Firth are the longest standing Directors, having
been appointed at the time of the Company's IPO in 2014. Whilst the
Board does not consider that length of service in itself
necessarily undermines a Director's independence, the Remuneration
and Nominations Committee has reviewed and recommended to the Board
a succession plan to replace each of Patrick Firth and Kevin Lyon
during 2023 and Vic Holmes during 2024. Helen Mahy was appointed to
the Board on 1 April 2023 and, upon election, will succeed Kevin
Lyon as chair from the August 2023 AGM.
Election and Re-election by Shareholders
All Directors stand for re-election at each AGM of the Company,
save that, at the first AGM following their appointment, a new
Director stands for election.
The Board has reviewed the outcome of the annual Board
evaluation, information on which is set out under 'Annual
Performance Evaluations' below. The Board has also assessed each
Director's independence, time commitment to the Company,
contribution (outside of the usual meeting cycle as well as in
scheduled meetings) since they were last elected or re-elected, and
tenure, as well as the nature and complexity of their other
external roles and whether their election or re-election would be
in the best interests of the Company. We believe that the Board is
well balanced and possesses the necessary breadth of skills,
experience and knowledge and diversity of gender and cognitive and
personal strengths to ensure it functions effectively and
efficiently in discharging its responsibilities, which is important
to the long-term sustainable success of the Company. We are also
satisfied that each Director continues to perform effectively, to
be independent and to demonstrate commitment to their role.
Therefore, resolutions will be proposed at this year's AGM to
re-elect four Directors, and elect one Director.
Removal of Directors
The Directors' letters of appointment do not impose any maximum
limit on the period for which they may serve, although the
continuation of their appointment is contingent on satisfactory
performance evaluation and annual re-election (or, in the case of a
Director appointed since the previous AGM, election) by
shareholders at the AGM.
Under their letter of appointment, a Director's appointment may
be terminated at any time by either the Company or the Director
giving not less than six months' notice or otherwise in accordance
with the Company's Articles
of Incorporation.
Annual Performance Evaluations
Board, Committees and Directors
The Board's balance and skills is reviewed on an annual basis.
During the year the Board undertakes an internal evaluation of its
performance and, in addition, an evaluation focusing on individual
commitment, performance and contribution of each Director was
conducted. The Chairman then meets with each Director to fully
understand their views of the Company's strengths and to identify
potential weaknesses. If appropriate, new members would be proposed
to resolve any perceived issues, or a resignation sought. Following
discussions and review of the Chairman's evaluation by the other
Directors, the Senior Independent Director reviews the Chairman's
performance. Training and development needs are identified as part
of this process, thereby ensuring that all Directors are able to
discharge their duties effectively.
Following the annual performance evaluation, the Board confirms
that each Director has proved their ability to fulfil all legal
responsibilities and to provide effective independent judgement on
issues of strategy, performance, resources and conduct. The Board
therefore has no hesitation in recommending to the shareholders
that Helen Mahy be elected and all other Directors be re-elected at
the AGM, apart from Mr Lyon who is due to step down as Chairman at
the AGM as his tenure comes to an end. Following the latest Board
evaluation process, the Board recommended that Ms Mahy and Ms Bush
visit the Company's various solar and battery power sites located
throughout the UK.
Chairman
The Chair is Kevin Lyon. His primary role as Chair is to provide
leadership to the Board. The principal responsibilities of the
Chair are set out above.
Upon the review of the Chairman, the Directors concluded that
the Chairman continued to chair the Board effectively.
Investment Manager and Investment Adviser
The services provided by the Investment Manager and Investment
Adviser are kept under continual review by the Board. When
considering the performance of the Investment Manager and
Investment Adviser the Board considers the Company's track record
in terms of NAV and share price performance and achievement of
performance objectives, the quality of the services provided, the
resources that they committed to the Company's affairs, the
continuity of the personnel assigned to handle the Company's
affairs and the relationship between the Board and the Investment
Manager and Investment Adviser. The Board also considered the terms
of the Management Agreement, and in particular the fees payable to
the Investment Manager (no fees are payable by the Company to the
Investment Adviser). The Board consider that, having regard to
NextEnergy Capital's proven track record in, and sole focus on, the
solar energy infrastructure sector, the specialist nature of the
Company's investment remit was best served by the Investment
Manager. The Board agree that the continuing appointment of the
Investment Manager on the terms set out in the Management Agreement
and its continued appointment of the Investment Adviser were in the
best interests of shareholders as a whole and the Company's wider
stakeholders.
Details of the fees payable to the Investment Manager and
related entities can be found in notes 5 and 26 to the Financial
Statements.
Other Key Service Providers and Advisers
The Board continually monitors the service levels of the
Administrator and the Company's other key party service providers
and advisers throughout the year. This review is undertaken by the
Management Engagement Committee, chaired by Joanne Peacegood. A
formal review took place in Q2 2023 to align with the Board's
calendar of events for the year ended 31 March 2023.
Directors' Remuneration
The Directors' Remuneration Report includes the Directors'
remuneration policy and details of the Directors' remuneration
during the year under review.
Risk, Internal Controls and Internal Audit Introduction
The Board is responsible for promoting the long-term sustainable
success of the Company and generating value for our shareholders
whilst having regard to the interests of wider stakeholders. A
critical factor in achieving long-term sustainable success is
understanding the risks that the Company faces and ensuring that
controls are in place to manage and mitigate them. The Company's
principal and emerging risks, together with details of how we seek
to manage and mitigate them, are set out under 'Risks and Risk
Management'. The Company's financial instrument risks are discussed
in note 22 to the Financial Statements.
Responsibility for, and Review of, Risk Management and Internal
Controls
The Board is responsible for determining the nature and extent
of the emerging and principal risks the Company is willing to take
in order to achieve its long-term strategic objectives. The Board
is also responsible for maintaining the Company's systems of risk
management and internal controls (such as financial, operational
and compliance controls). The AIC Code requires the Board to review
the effectiveness of the Company's systems of risk management and
internal controls at least annually.
The Board, through the Audit Committee, has established, in
conjunction with the Investment Manager, Investment Adviser and
Administrator, an ongoing process designed to meet the particular
needs of the Company in managing the risks to which it is exposed.
The process is based on a risk-based approach to internal controls
and risk management through a matrix that identifies each of the
key risk areas associated with the Company's business and
activities and the controls employed to minimise and mitigate those
risks. The matrix assigns, in relation to each risk, a rating
(high, medium or low) of the risk value, risk probability and
effectiveness of control.
The Audit Committee is responsible for monitoring and regularly
reviewing the Company's systems of internal controls and risk
management and reports its findings and conclusions to the Board
(see 'Risk management and internal control processes' in the Audit
Committee Report), taking into account the information under 'Risks
and Risk Management' above.
The ongoing work of the Audit Committee in monitoring the risk
management and internal control systems on behalf of the Board and
the Audit Committee's reports to the Board on its findings and
conclusions regarding the risk management and internal control
systems, the Board:
-- is satisfied that it has carried out a robust assessment of
the principal and emerging risks facing the Company, including
those that could threaten its business model, future performance,
solvency, liquidity or reputation; and
-- has reviewed the adequacy and effectiveness of the risk
management and internal control systems and no significant failings
or weaknesses were identified.
Risk Management and Internal Control Systems
The Company's risk management and internal control systems are
designed to identify, manage and mitigate on a timely basis both
the key principal risks and the emerging risks inherent to the
Company's business and safeguarding the Company's assets. The
systems are also designed to manage, rather than eliminate, the
risk of failure to achieve the Company's investment and strategic
objectives and can only provide reasonable, but not absolute,
assurance against material misstatement or loss.
The Company has delegated its day-to-day activities to the
Investment Manager, Investment Adviser and Administrator and has
clearly defined their roles, responsibilities and authorities. The
Board oversees the ongoing performance and work of the Investment
Manager, Investment Adviser and Administrator at its quarterly
meetings.
The Board monitors the actions of the Investment Manager and
Investment Adviser at quarterly and relevant ad hoc Board meetings.
At each quarterly Board meeting, the Investment Manager and
Investment Adviser report on the performance of the Company's
investments, activities since the last Board meeting, any specific
new risks identified relating to the Company's portfolio,
investment valuations and cash projections. The Board also receives
updates from the Investment Manager and Investment Adviser on
material developments affecting the Company or its investments
between quarterly Board meetings.
The Board, Investment Manager and Investment Adviser, together,
review all financial performance and results notifications.
The Investment Manager reports to the Board twice a year
regarding the Company's longer-term viability, which includes
financial sensitivities and stress testing of the business to
ensure that the adoption of the going concern basis is
appropriate.
The Board is made aware of the business controls of the
Investment Manager and Investment Adviser during periodic Board
updates enabling oversight of the key business processes. The
Investment Adviser also provides an update of the control
environment for the UK HoldCos, SPVs and NPIII LP to ensure the
Board has oversight of business controls for the entire NESF
Group.
The Administrator, which provides administrative, accounting,
compliance and company secretarial services to the Company, has its
own internal control systems relating to these matters. At each
quarterly Board meeting, the Board receives reports from the
Administrator, which include an outline of the Company's corporate
activity and information on financial, compliance, governance,
legal and regulatory matters.
The Company is ultimately dependent upon the quality and
integrity of the management and staff of the Investment Manager,
Investment Adviser and Administrator. In each case, qualified and
able individuals have been selected at all levels. The Investment
Manager, Investment Adviser and Administrator are aware of the
internal controls relevant to their activities and are collectively
accountable for the operation of those controls. Appropriate
segregation and delegation of duties is in place.
Each year a detailed review of the quality of services and
performance of the Investment Manager, Investment Adviser and
Administrator and other key service providers and advisers pursuant
to their terms of engagement is undertaken by the Management
Engagement Committee.
Internal Audit Function
For the reasons stated under 'Internal audit requirements' in
the Audit Committee Report, the Board does not currently consider
that an internal audit function is required.
Approval
This Corporate Governance Statement was approved by the Board on
16 June 2023 and signed on its behalf by:
Kevin Lyon
Chairman
16 June 2023
Directors' Remuneration Report
Remuneration and Nominations Committee Report
Vic Holmes
Remuneration and Nominations Committee Chairman
I am pleased to present the Directors' Remuneration Report for
the year ended 31 March 2023.
Introduction
This Directors' Remuneration Report has been prepared by the
Remuneration and Nominations Committee and approved by the Board.
The Committee deals with both remuneration-related matters and
nominations. This Directors' Remuneration Report covers the
remuneration-related activities of the Committee and shows how the
current remuneration policy, which was approved by shareholders at
the AGM in 2022, was implemented during the year ended 31 March
2023.
Remuneration and Nominations Committee
Chaired by Vic Holmes, the Remuneration and Nominations
Committee comprise all of the Directors. The Board is satisfied
that, as all of the Directors are Non-Executive, it is appropriate
for all of them to be members of the Committee. All of the
Directors are, and have been since appointment, independent.
In respect of remuneration-related matters, the Remuneration and
Nominations Committee's responsibilities include:
-- setting the policy for the remuneration of the Directors;
-- reviewing the ongoing appropriateness and relevance of the remuneration policy;
-- within the terms of the approved policy, determining the
remuneration of the Chairman and reviewing the quantum of the other
Directors' remuneration and, if considered appropriate,
recommending any changes to the Board;
-- appointing and setting the terms of reference for any
remuneration consultants to advise the Committee;
-- agreeing policy on the recovery by the Directors of expenses
incurred in performance of their duties; and
-- drafting the Directors' Remuneration Report and reporting to
shareholders on the implementation of the Company's remuneration
policy in accordance with relevant corporate governance
requirements.
Full details of the Committee's roles and responsibilities are
set out in formal terms of reference. The terms of reference are
regularly reviewed by the Committee and are available on the
Company's website (nextenergysolarfund.com).
Remuneration Policy
The Directors' remuneration policy is designed to support the
strategic objectives of the Company and to promote its long-term
success. In this context, the remuneration policy is designed to
enable the Company to attract and retain Directors of high calibre
with suitable skills, experience and knowledge and to ensure that
their remuneration is set at a reasonable level commensurate with
their duties and responsibilities and the time commitment required
to carry out their duties effectively.
As all Directors are Non-Executive, there are:
-- no service contracts with the Company;
-- no bonuses or other performance-related payments;
-- no pensions or pension-related benefits, medical or life
insurance schemes, share options, long-term incentive plans or
other benefits; and
-- no payments for loss of office save for payment of any fees
or expenses due but unpaid at the time of termination and for any
unexpired notice period.
The Directors have letters of appointment that provide that
their appointment can be terminated by no more than six months'
notice by either party. In normal circumstances, the Directors are
expected to serve up to a maximum of nine years, subject to
satisfactory performance, which is reviewed annually by the
Remuneration and Nominations Committee. The Company requires that
all Directors are re-elected at each AGM and, if any Director is
not re-elected, their appointment ceases immediately and without
the requirement for any notice. A Director's appointment may also
be terminated with immediate effect in certain other circumstances
as detailed in the Company's Articles of Incorporation.
The Directors' remuneration:
-- will reflect their duties, responsibilities, experience and
time spent on the Company's affairs, taking into account the nature
of the Company's activities;
-- will allow those chairing the Board and key Committees, as
well as the Senior Independent Director, to be paid higher fees
than other Directors in recognition of their more demanding roles
and increased accountability;
-- will be paid quarterly in arrears;
-- at the discretion of the Board, may include additional fees
for any further specific work undertaken on behalf of the Company
which is outside of their normal duties and requires a meaningful
time commitment (details of any additional fees paid and the
associated work undertaken will be disclosed in the Directors'
Remuneration Report in the next Annual Report); and
-- will be reviewed by an independent professional consultant
with relevant experience at least every
three years.
The aggregate fees payable to the Directors will not exceed
GBP400,000 per annum. The level of this limit provides, in
particular, flexibility in respect of the recruitment of additional
Board members. Whilst the Board currently considers six Directors
sufficient for the Company, the number of Directors may increase in
future periods, either permanently or for a limited time in order
to aid succession and to ensure an orderly transition.
The Remuneration and Nominations Committee reviews the quantum
of Directors' remuneration at least every three years, with the
last review having taken place in 2023. In reviewing whether to
recommend any changes to the Board, the Committee has regard to the
outcome of latest Directors' remuneration review by an independent
remuneration consultant appointed by the Company, the level of fees
paid by other UK-listed renewable energy infrastructure investment
companies and other comparator UK-listed investment companies and
any views expressed by shareholders on Directors' fees. The Board
also considers wider factors such as any change in the Directors
responsibilities (including additional time commitments due to
increased legal, regulatory or corporate governance requirements)
and the rate of inflation over the period since the previous
review. No Director is present when their own fee is being
determined.
The Directors are entitled to be reimbursed all reasonable
travel, hotel and other expenses incurred in attending meetings or
in carrying out any other duties incumbent on them as
Directors.
Directors' and officers' liability insurance cover is maintained
by the Company, at its expense, on behalf of the Directors.
The Company is committed to engagement with shareholders and
will seek major shareholders' views in advance of making
significant changes to its remuneration policy or how it is
implemented. The Chairman of the Remuneration and Nominations
Committee will attend the AGM to answer any questions in relation
to remuneration.
The Remuneration and Nominations Committee has the discretion to
amend the remuneration policy with regard to minor or
administrative matters where it would be, in the opinion of the
Committee, in the best interests of the Company and
disproportionate to seek or await shareholder approval.
Directors' Remuneration
The table below shows the Directors' remuneration for the
financial year ended 31 March 2023, together with the comparative
figures for 2022.
No additional fees were paid to the Directors during the year
ended 31 March 2023 (2022: none).
The total amount of Directors expenses reimbursed during the
year ended 31 March 2023 was GBP5,451 (2022: GBP1,429).
Director Role 2023 2022
----------------------- --------- ---------
Kevin Lyon Chairman GBP75,000 GBP70,000
Audit Committee
Patrick Firth Chairman GBP55,000 GBP50,000
Senior Independent
Director/ Remuneration
and Nominations
Vic Holmes Committee Chairman GBP50,000 GBP46,000
Management Engagement
Joanne Peacegood Committee Chair GBP48,500 GBP45,000
Josephine Bush(1) ESG Committee Chair GBP48,292 GBP10,500
Helen Mahy(2) Chair-elect N/A N/A
1 The annual fee payable to Josephine Bush was increased to
GBP45,000 on 1 May 2022 to reflect her appointment as Chair of the
newly formed ESG Committee
2 Helen Mahy was appointed to the Board of Directors on 1 April
2023 and is being proposed as Chair following the Annual General
Meeting in August 2023
Directors' and Officers' Liability Insurance
The Company maintains Directors' and Officers' liability
insurance, at its expense, on behalf of the Directors.
Directors' Interests
There is no requirement under the Company's Articles of
Incorporation or letters of appointment for Directors to hold
shares in the Company.
Director 2023 2022
------- -------
Kevin Lyon 210,000 210,000
Patrick Firth 91,207 91,207
Vic Holmes 158,400 158,400
Joanne Peacegood 50,000 50,000
Josephine Bush 10,000 10,000
Helen Mahy(1) 38,586 N/A
1 Helen Mahy was appointed to the Board of Directors on 1 April
2023 and is being proposed as Chair following the Annual General
Meeting in August 2023
The interests of the Directors (and their connected persons) in
the ordinary shares of the Company at 31 March 2023, together with
the comparative figures for 2022, are shown in the table above.
All holdings of the Directors (and their connected persons) are
beneficial. There have been no changes in the interests shown in
the table above since the Company's financial year end to the date
of this Directors' Remuneration Report.
None of the Directors (nor any of their connected persons) had
or has any interest in the Company's preference shares.
Relative Importance of Spend on Directors' Remuneration
To enable shareholders to assess the relative importance of
spend on Directors' remuneration, the following table shows the
total remuneration paid to the Directors and the total dividends
paid or payable to shareholders for the financial year ended 31
March 2023, together with the comparative figures for 2022.
2023 2022 Change
GBP'000 GBP'000 GBP'000
-------- -------- --------
Directors' total remuneration 277 222 55
Total dividends paid or payable(1) 43,807 41,940 1,867
-------- -------- --------
1 Including the cash equivalent of scrip dividends
Shareholder Approval of Remuneration Policy
The Company seeks shareholder approval of the Directors'
remuneration policy at every third AGM. The Directors' remuneration
policy for the three year period to 31 March 2023 was approved at
the AGM held in 2020. There are no material differences in the
substance of the remuneration policy set out in this Directors'
remuneration report from that approved by shareholders in 2020. The
Remuneration policy will be tabled at the upcoming AGM in August
2023.
An advisory ordinary resolution to approve the Directors'
Remuneration Report (excluding the Directors' remuneration policy)
is put to members at each AGM.
At the AGM held on 17 August 2022, of the 393,570,140 votes cast
by proxy and at the meeting (including votes cast at the Chairman's
discretion), 99.98% were in favour of the resolution to approve the
Directors' remuneration report, as set out in the Annual Report for
the year ended 31 March 2022, and 0.02% were against. 103,119 votes
were withheld.
Approval
This Directors' Remuneration Report was approved by the Board on
16 June 2023 and signed on its behalf by:
[Signature]
Vic Holmes
Remuneration and Nominations
Committee Chairman
16 June 2023
Audit Committee Report
Audit Committee Report
Patrick Firth
Audit Committee Chairman
I am pleased to present the Audit Committee's Report for the
year ended 31 March 2023.
Introduction
The Audit Committee aims to serve the interests of the Company's
shareholders and other stakeholders through its independent
oversight of the Company's financial reporting process, its systems
of internal controls and effective management of risk and the
appointment and ongoing review of the independence and quality of
the work of the Company's external auditor.
Composition
Chaired by Patrick Firth, the membership of the Audit Committee
comprises all of the Directors including Helen Mahy who was
appointed on 1 April 2023. As permissible under the AIC Code the
Chairman of the Board is a member of the Committee to enable their
greater understanding of the issues facing the Company and also to
benefit from his valuable contributions. All of the Directors are,
and have been since appointment, independent. The Board has
considered the composition of the Audit Committee.
Four of the members of the Committee are qualified accountants.
The Board is satisfied that the Committee, as a whole, has:
-- recent and relevant financial experience;
-- competence relevant to the sector in which the Company operates, and
-- the skills, experience and objectivity to be an effective Audit Committee.
Details of the skills and experience of all of the Committee
members are outlined in their biographies above.
Meetings
The Audit Committee meets no less than three times a year and at
such other times as the Committee shall require, or any member may
request. The Administrator, Investment Manager and Investment
Adviser are invited to attend meetings, as the Committee deems
appropriate.
The external auditor attends the Audit Committee meetings at
which the annual and interim financial statements are considered,
and at which the auditor has the opportunity to meet with the
Committee without representatives of the Investment Manager, the
Investment Adviser or the Administrator being present. The auditor
also attends the planning meeting for the annual audit. The auditor
may request that a meeting of the Committee be convened if it deems
it necessary.
The Audit Committee met four times (three scheduled and one ad
hoc) during the year ended 31 March 2023 (details of the Committee
members' attendance at the meetings can be found under 'Meeting
Attendance').
Responsibilities and Activities
The Audit Committee's responsibilities include:
-- monitoring the integrity of the Company's financial
statements and any formal announcements relating to its financial
performance;
-- reviewing significant financial reporting judgements;
-- evaluating the effectiveness of the systems of internal control and risk management;
-- assessing the effectiveness and independence of the Company's external auditor; and
-- making recommendations to the Board on the appointment and
remuneration of the external auditor.
Full details of the Committee's roles and responsibilities are
set out in formal terms of reference and include all of the roles
and responsibilities recommended by the AIC Code. The terms of
reference are regularly reviewed by the Committee and are available
on the Company's website (nextenergysolarfund.com).
The Audit Committee is required to report formally to the Board
on its findings after each meeting on all matters within its roles
and responsibilities, identifying any matters on which it considers
that action or improvement is needed and making recommendations on
the steps and decisions to be taken. In discharging its duties over
the course of the year under review, the Audit Committee's
principal activities included the following:
-- Risk management and internal control processes: The Committee
assessed the principal and emerging risks facing the Company
(details of which are included under 'Risks and Risk Management').
The Committee also reviewed and, where necessary, amended and
updated the Company's risk matrix and its record of internal
control processes. The Committee was satisfied with the adequacy
and effectiveness of the risk management framework and internal
control processes, details of which are included under 'Risk,
Internal Controls and Internal Audit'. The committee reviewed the
ongoing workstreams in relation to the valuation correction
detected above and is working with the Investment Adviser to
strengthen controls, processes and reporting going forward. The
Committee also reviewed the most recent ISAE 3402 reports from the
Administrator and sought additional assurances where required
including confirmation that there had been no material changes from
the date of the report to the date on which the Annual Report was
signed.
-- Interim review and annual audit: The Committee reviewed and
approved the interim review and annual audit plans of the external
auditor, including their scope and the auditor's engagement terms
and fees. The Committee monitored the implementation of the plans
and discussed the auditor's reports and findings. The Committee
also evaluated, and reviewed the objectivity, and independence of
the auditor and the overall quality and effectiveness of the
external audit process.
-- Annual and Interim Reports: The Committee reviewed the
Company's accounting policies and considered the format and content
of the Company's Interim and Annual Reports before recommending
their approval to the Board. As part of the review process, the
Committee:
-- considered the continuing appropriateness of the Company's
accounting policies, including the potential implications of
forthcoming changes in accounting standards for the Company;
-- reviewed the significant financial reporting judgements used
in preparing the Financial Statements; and
-- discussed and challenged the forecasts, assumptions and other
information provided by the Investment Manager to support the going
concern and viability statements.
-- Internal audit requirements: The Committee considered the
Company's internal audit requirements. Due to the Company having no
employees and the outsourcing of its investment and administrative
arrangements to third parties who have their own internal controls
and procedures, the Committee concluded that there continued to be
no need for an internal audit function.
-- Whistleblowing: The Committee reviewed the whistleblowing
policy in place for each of the Investment Manager, the Investment
Adviser and the Administrator and was satisfied the relevant staff
could raise concerns, in confidence, about possible improprieties
relating to financial reporting or other matters that may affect
the Company.
-- Performance evaluation: The Committee reviewed the outcome of
the annual evaluation of its performance and concluded that it
continued to provide effective challenge and oversight.
The Audit Committee Chairman will be attending the AGM to answer
any shareholder questions on the
Committee's activities.
Significant Issues Considered Relating to Financial
Statements
Following discussions with the Investment Manager, the
Investment Adviser and the external auditor, the Committee
determined that the significant area connected with the preparation
of the financial statements of the Company related to the valuation
of investments. The Company is required to calculate the fair value
of its underlying investments. Whilst there is a relatively active
market for financial assets of this nature, there are no suitable
listed or other public market quotations against which the value of
the Company's investments can be benchmarked. Accordingly, the
valuation of the Company's underlying investments is undertaken
using a discounted cash flow methodology in line with IFRS 9
Financial Instruments and IFRS 13 Fair Value Measurement and takes
into account the International Private Equity and Venture Capital's
valuation guidelines. As further explained in note 4(a) to the
Financial Statements, the valuation of the Company's investments
using a discounted cash flow methodology requires a series of
material judgements to be made regarding the assumptions and
estimates underlying the discounted cash flow calculations. As such
judgements are subjective, they carry elements of risk.
The Investment Manager undertakes the valuation of the Company's
investments and provides the Board with a detailed valuation
report, which includes information on the assumptions and other
factors that have a material impact on the valuation and the
rationale for any proposed changes to them since the previous
valuation. The key assumptions and other factors include (but are
not limited to):
-- Discount rates: A discount rate is applied to the expected
future cash flows for each investment's financial forecasts derived
using, among others, the key assumptions referred to above to
arrive at its valuation. The Investment Manager recommends to the
Board the discount rates to be used based on the Investment
Adviser's extensive experience of the current market for
transactions in solar assets in the relevant jurisdictions.
-- Power price assumptions: A significant proportion of the
income from the Company's investments is fixed for a period of time
in accordance with the terms of the relevant ROC or FiT subsidy and
power price volatility is managed through NESF's electricity sales
hedging strategy. The Company's flexible hedging approach is
designed to protect against adverse short-term price movements
whilst also enabling the Company to opportunistically capture
favourable market conditions by securing high fixed prices for
specified future time periods. The balance of the income has
exposure to wholesale electricity prices, although the Investment
Manager seeks to reduce this exposure through entering into short-
or long-term power purchase agreements with fixed price mechanisms.
Over time the proportion of income that is fixed in accordance with
the terms of subsidies will reduce, increasing the proportion of
the income with exposure to changes in wholesale
electricity prices.
The Investment Adviser uses the average of three of the leading
independent energy market consultants' long-term projections to
derive, by jurisdiction, the future assumed wholesale electricity
prices used in the valuation of the Company's investments.
-- Lease life extensions: Assets where the lease life has been
extended beyond the life of the subsidy have additional risk.
-- Operating performance and costs assumptions: These include
assumptions regarding the remaining operating life of each
investment, the energy generated by each investment over its life
and operating costs.
-- Macroeconomic assumptions: These include inflation, foreign
exchange rate, interest rate and tax rate assumptions. Further
details on the key assumptions and other factors, together with a
sensitivity analysis showing the impact of changing some of them,
are included in the Investment Adviser's Report.
The Board considers in detail each valuation report received
from the Investment Manager, challenges the key assumptions and
other factors used in calculating the valuation of the Company's
investments and monitors the changes in them over time. The Board
also requests additional information to support the valuation
assumptions where required.
Annual Report for Year Ended
31 March 2023
The production of the Annual Report, including the audit of the
Company's financial statements, for the year ended 31 March 2023
was a comprehensive process requiring input from a number of
different contributors.
One of the key corporate governance requirements is that the
Annual Report, taken as a whole, must be fair, balanced and
understandable and provide the information necessary for
shareholders to assess the Company's position and performance,
business model and strategy. Another requirement is that the
narrative and numerical disclosures in the Annual Report must be
consistent. Having reviewed the Annual Report and considered the
work undertaken in producing it, the Committee concluded that the
Annual Report did pass these tests and, in recommending approval of
the Annual Report to the Board, it reported accordingly.
Audit Related Services in line with
FRC Ethical Standard
The Company may only use its external auditor for non-audit work
with the prior approval of the Audit Committee. The Committee's
policy regarding the provision of non-audit services by the auditor
is aligned to the Financial Reporting Council Ethical Standard 2019
which precludes the auditor from providing certain prohibited
non-audit services. Furthermore, the Committee will not approve the
use of the auditor for non-audit services where there may be
perceived to be a conflict with the auditor's role as such or which
may compromise its independence or objectivity.
During the year ended 31 March 2023, the only non-audit work
carried out by the independent auditor to the Company ("KPMG") was
in relation to its review of the Interim Report for which it was
paid fees of GBP47,300.
Annual Assessment of Effectiveness of External Audit Process
Following the conclusion of the audit process for the Company's
financial statements for the year ended 31 March 2023, the Audit
Committee evaluated the quality and effectiveness of the external
audit process. In order to form a view, the Committee considered
its own observations and interactions with KPMG, as well as
feedback from KPMG, the Investment Manager, the Investment Adviser
and the Administrator. The Committee reviewed the robustness of the
audit process and the quality of delivery, reporting, people and
service. The Committee also considered KPMG's technical competence,
understanding of the Company's business and the sector in which it
operates and whether KPMG demonstrated an appropriate level of
diligence, professional scepticism and challenge of assumptions
where necessary. In addition, the Committee considered the cost
effectiveness of the audit process. The Committee also reviewed the
independence of KPMG, having regard to matters such as its report
describing its arrangements to identify, report and manage any
conflicts of interest and the extent of non-audit services provided
by it. Having completed the evaluation, the Committee was satisfied
with the effectiveness, including performance and objectivity, and
independence of KPMG and the overall quality and effectiveness of
the external audit process. Consequently, the Committee recommended
to the Board that a resolution to appoint KPMG as the Company's
auditor be put to shareholders at this year's AGM.
Auditor's Fees for NESF and Subsidiaries
The fees payable to KPMG for audit services and audit related
services to the Company and its subsidiaries for the year ended 31
March 2023 were as follows:
2023 2022
GBP'000 GBP'000
-------- --------
NESF 92 84
Subsidiaries 518 497
Total audit fees 610 581
Interim review 52 45
Total fees 662 626
-------- --------
External Auditor's Tenure
There are no contractual obligations that restrict the Company's
choice of external auditor and the auditor's appointment is subject
to shareholder approval at each AGM. As KPMG was first appointed as
the Company's external auditor for the year end 31 March 2020
following a competitive tender, the Committee will consider the
need for a competitive tender for the role of external auditor in,
or before, 2025. In any event, the Committee will carry out a
competitive tender in, or before, 2028 in respect of the audit for
the year ending 31 March 2029. The audit partner for the Company,
Dermot Dempsey, has been in place for four years and, therefore,
the Committee expects that there will be an audit partner rotation
for, or before, the audit for the year ending 31 March 2025.
Approval
This Audit Committee Report was approved by the Audit Committee
on 16 June 2023 and signed on its behalf by:
[Signature]
Patrick Firth
Audit Committee Chairman
16 June 2023
Directors' Report
Introduction
The Directors are pleased to present their Annual Report,
including the Company's audited financial statements, for the year
ended 31 March 2023. This Directors' Report and the Strategic
Report comprise the 'management report', for the purposes of the
FCA's Disclosure Guidance and Transparency Rule 4.1.5R.
Information Contained Elsewhere in this Annual Report
Information
Directors
Directors' interests in shares
Appointment and removal of directors
Financial Instruments
Principal and emerging risks
Going concern and viability
Annual Review of systems of risk management and internal
control
Disclosure of Information to Auditor
Annual Evaluation of the Investment Manager and Investment
Adviser
Section 172 Statement
Financial Results and Dividends
The financial results for the year can be found in the Statement
of Comprehensive Income.
Details of the four interim dividends that have been declared in
respect of the year ended 31 March 2023 are set out in note 15(b)
to the Financial Statements. As the last dividend in respect of any
financial period is payable prior to the relevant AGM, it is
declared as an interim dividend and, accordingly, there is no final
dividend payable. This means that shareholders are not given the
opportunity to vote on the payment of a final dividend.
Accordingly, in accordance with good corporate governance, the
Board asks shareholders to approve the Company's dividend policy at
each AGM. The dividend policy is set out under 'Dividend Policy,
Scrip Dividends and Dividend Target for the Financial Year Ending
31 March 2024'.
In addition to being asked to approve the Company's dividend
policy at this year's AGM, shareholders will also be asked to renew
the Company's scrip dividend facility that gives ordinary
shareholders the opportunity to elect to receive new ordinary
shares (these being scrip shares) in place of their cash dividend
payments. Information on the scrip dividend alternative can be
found under 'Dividend Policy, Scrip Dividends and Dividend Target
for the Financial Year Ending 31 March 2024'.
Share Capital
During the year, the Company issued 1,176,937 ordinary shares as
scrip shares. As at 31 March 2023 and the date of this Directors'
Report, there were 590,254,181 ordinary shares in issue.
The Company issued no preference shares within the year ended 31
March 2023. As at 31 March 2023 and the date of this Directors'
Report, there were 200m preference shares in issue. Details of the
private placement and further information regarding the rights of
the preference shares can be found in note 23(a) to the Financial
Statements.
Substantial Shareholdings
As at 31 March 2023, the Company had been notified under the
FCA's Disclosure Guidance and Transparency Rules of the following
substantial holdings in its ordinary shares:
Ordinary Shares
Investor No. %
---------- ------
Artemis Investment Management
LLP on behalf of discretionary funds
under management 63,719,056 10.80%
M&G Investments 55,859,697 9.46%
Gravis Capital Mgt 40,429,010 6.85%
Legal & General Investment Mgt 31,786,109 5.39%
Baillie Gifford & Co 30,430,980 5.16%
Foresight Group 25,977,689 4.40%
Investec Wealth & Investment (RS) 25,951,430 4.40%
Privium Fund Management 21,236,546 3.60%
---------- ------
Powers to Issue and Buy-back Ordinary Shares
At the Company's AGM held on 9 August 2021, the Directors were
granted general authority to issue ordinary shares or sell Treasury
Shares, non-pre-emptively, in accordance with the Articles of
Incorporation up to, in aggregate, 117,624,954 ordinary shares,
equivalent to 20% of the ordinary shares in issue at the date the
authority was granted, less one. Save for the scrip shares referred
to under "Share Capital" above no ordinary shares have been issued
and no Treasury Shares have been sold under this authority, which
will expire at the conclusion of this
year's AGM.
At last year's AGM, the Directors were also granted authority to
make one or more market purchases of ordinary shares, in accordance
with section 315 of the Companies (Guernsey) Law, 2008, up to, in
aggregate, 88,159,902 ordinary shares, equivalent to 14.99% of the
ordinary shares in issue at the date the authority was granted. No
ordinary shares have been purchased under this authority, which
will expire at the conclusion of this year's AGM.
The Directors will be seeking similar issuance and purchase
authorities at this year's AGM. The Directors do not currently have
any authority to issue any further preference shares.
Treasury Shares
Under section 315 of the Companies (Guernsey) Law, 2008, the
Company is allowed to hold shares acquired by market purchase as
Treasury Shares, rather than having to cancel them. It is the
Company's policy to hold up to a maximum of 10% of the ordinary
shares in issue as Treasury Shares, which may be either sold in the
market or cancelled subsequently. This gives the Company the
ability to re-issue shares quickly and cost efficiently, thereby
providing the Company with additional flexibility in the management
of its capital base. The Board would only authorise the sale of
Treasury Shares at prices at or above the prevailing NAV per
ordinary share (plus any costs of the relevant sale), so there
would be no dilution of the NAV per ordinary shares. There are
currently no Treasury Shares.
Restrictions on Transfer of Shares
There are no restrictions on the transfer of shares in the
Company, except pursuant to:
-- the Listing Rules, which require certain individuals to have
approval to deal in the Company's shares; and
-- the Company's Articles of Incorporation, which allow the
Board to decline to register a transfer of shares or otherwise
impose a restriction on shares, to prevent the Company breaching
any law or regulation.
The Company is not aware of any agreements between holders of
securities that may result in restrictions on the transfer of
shares in the Company.
Shares Carrying Special Rights
No person holds shares in the Company carrying special rights
with regard to control of the Company.
Amendment of Articles of Incorporation
The Articles may be amended by a special resolution of the
Company's shareholders.
Powers of the Directors
Subject to the Articles of Incorporation, the Companies
(Guernsey) Law, 2008 and any directions given by the Company by
special resolution, the business of the Company will be managed by
the Board, which may exercise all the powers of the Company.
Greenhouse Gas Emissions
As the Company has outsourced its day-to-day activities to third
parties, there are no significant greenhouse gas emissions from its
operations. In relation to the Company's investments, the level of
greenhouse gas emissions arising from the low volume of electricity
imports and from operation and maintenance activity is not
considered material for disclosure purposes. Furthermore, as the
assets are renewable energy generators, they reduce carbon dioxide
emissions on a net basis.
Political Donations
The Company made no political donations during the year.
Charitable Donations
The Company donated GBP400,000 (2022: GBP100,000) to NextEnergy
Foundation, (the "Foundation") information on which can be found in
the Sustainability and ESG section. Community funding of GBP104,000
was also made through the SPVs during the year.
Events after the Balance Sheet Date
Details of events occurring since 31 March 2023 can be found in
note 28 to the Financial Statements.
Independent Auditor
KPMG has indicated its willingness to continue as auditor for
the year ending 31 March 2024 and resolutions to re-appoint KPMG
and to authorise the Directors to determine KPMG's remuneration,
will be proposed at this year's AGM.
2023 AGM
A separate notice convening this year's AGM will be sent to
shareholders in due course. The notice will include an explanation
of the resolutions to be considered at the meeting. A copy of the
notice will also be published on the Company's website
(nextenergysolarfund.com).
Approval
This Directors' Report was approved by the Board on 16 June 2023
and signed on its behalf by:
[Signature]
Kevin Lyon
Chairman
16 June 2023
Statement of Directors' Responsibilities in Respect of the
Annual Report and the Financial Statements
Directors' Responsibilities
The Directors are responsible for preparing the Annual Report
and financial statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law they are
required to prepare the financial statements in accordance with
IFRS and applicable law.
Under Company Law the directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Company and of its profit or
loss for that period. In preparing these financial statements, the
directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable, relevant and reliable;
-- state whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements;
-- assess the Company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern;
and
-- use the going concern basis of accounting unless they either
intend to liquidate the Company or to cease operations, or have no
realistic alternative but to do so.
The Directors are responsible for keeping proper accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
its financial statements comply with the Companies (Guernsey) Law,
2008. They are responsible for such internal control as they
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error, and have general responsibility for taking such
steps as are reasonably open to them to safeguard the assets of the
Company and to prevent and detect fraud and other
irregularities.
Website Publication
The Directors are responsible for ensuring the Annual Report is
made available on a website. Annual Reports are published on the
Company's website (nextenergysolarfund.com). Legislation in
Guernsey governing the preparation and dissemination of financial
statements may vary from legislation in other jurisdictions. The
maintenance and integrity of the Company's website is the
responsibility of the Directors. The Directors' responsibility also
extends to the ongoing integrity of the financial statements
contained on the website.
Directors' Confirmations
In accordance with the FCA's Disclosure Guidance and
Transparency Rule 4.1.12R, we confirm that, to the best of our
knowledge:
-- the Financial Statements have been prepared in accordance
with IFRS and give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company; and
-- the management report (comprising the Strategic Report, the
Directors' Report and any other sections of the Annual Report
referred to in the Strategic Report or the Directors' Report)
includes a fair review of the development and performance of the
Company and its position, together with a description of the
emerging and principal risks that it faces.
In addition, in accordance with the AIC Code, we confirm that,
to the best of our knowledge, the Annual Report, taken as a whole,
is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company's performance,
business model and strategy.
On behalf of the Board of Directors of
NextEnergy Solar Fund Limited
Kevin Lyon
Chairman
16 June 2023
Independent Auditor's Report to the Members of NextEnergy Solar
Fund Limited
Our opinion is unmodified
We have audited the financial statements of NextEnergy Solar
Fund Limited (the "Company"), which comprise the statement of
financial position as at 31 March 2023, the statements of
comprehensive income, changes in equity and cash flows for the year
then ended, and notes, comprising significant accounting policies
and other explanatory information.
In our opinion, the accompanying financial statements:
-- give a true and fair view of the financial position of the
Company as at 31 March 2023, and of the Company's financial
performance and cash flows for the year then ended;
-- are prepared in accordance with International Financial Reporting Standards; and
-- comply with the Companies (Guernsey) Law, 2008.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our
responsibilities are described below. We have fulfilled our ethical
responsibilities under, and are independent of the Company in
accordance with, UK ethical requirements including the FRC Ethical
Standard as required by the Crown Dependencies' Audit Rules and
Guidance. We believe that the audit evidence we have obtained is a
sufficient and appropriate basis for our opinion.
Key audit matters: our assessment of the risks of material
misstatement
Key audit matters are those matters that, in our professional
judgment, were of most significance in the audit of the financial
statements and include the most significant assessed risks of
material misstatement (whether or not due to fraud) identified by
us, including those which had the greatest effect on: the overall
audit strategy; the allocation of resources in the audit; and
directing the efforts of the engagement team. These matters were
addressed in the context of our audit of the financial statements
as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters. In arriving at our
audit opinion above, the key audit matter was as follows (unchanged
from 2022):
The risk Our response
Valuation of investments at fair Basis: Our audit procedures included the
value through profit and loss The Company's investments in its following:
GBP854.35 million; (2022: GBP842.35 immediate holding companies are Control evaluation:
million) carried at fair value through We assessed the design and
Refer to Audit Committee Report) profit or loss and represent 127% of implementation of the Investment
accounting policies and financial the Company's net assets. Manager's review control over
instrument disclosures. The fair value of those immediate the valuation of investments at fair
holding companies, which reflects value through profit and loss.
their net asset values, Valuation model integrity and model
incorporates the fair value of inputs:
underlying special purpose vehicles - we tested the valuation model for
("SPVs") which hold renewable mathematical accuracy including but
assets for which there is no liquid not limited to material
market. formulae errors;
The SPVs operational renewable assets - we verified key inputs into the
(GBP707.5 million) are fair valued valuation model, such as power price
using an income approach forecasts, energy yield,
which forecasts the cash flows of contracted revenue and operating
each individual renewable asset and costs to supporting documentation;
discounts them at a - we agreed a value driven sample of
rate that reflects their risk profile balances within the residual net
(the "Valuations"). The Valuations asset amounts at subsidiary
also include other level to supporting documentation
specific SPVs assets and liabilities. such as independent bank
The Valuations incorporate confirmations, post year end receipts
assumptions including discount rates, and other source documentation;
power price forecasts and - we obtained and vouched all
inflation. significant additions to non
The SPVs non operational renewable operational renewable assets during
assets (GBP103.3 million) are valued the year to supporting documentation;
at their cost as an and
approximation of their fair value. - in order to assess the reliability
GBP12.5m of investments held at fair of management's forecasts we
value through profit and loss relates completed a retrospective
to the residual assessment by recalculating current
net assets of the immediate holding year's revenue and comparing the
companies. result to the historical
The Company holds one direct forecasted amounts.
investment in a private equity solar Benchmarking valuation model
fund ("Private Investment") assumptions:
with a carrying value of GBP31.0 With support from our KPMG valuation
million. The fair value of the specialist we challenged the
Private Investment is based appropriateness of the Company's
on the Company's proportionate share valuation methodology and assumptions
of the net asset value ("NAV") of the including the discount rate, power
private investment. price forecasts ,
Risk : energy yield and other macro-economic
The valuation of the Company's assumptions applied, by:
investments is considered a - assessing the appropriateness of
significant area of our audit, the valuation methodology applied by
given that it represents the majority the Investment Manager;
of the net assets of the Company and - benchmarking against independent
also taking into market data and relevant peer group
account the associated audit effort. companies, and
The use of the income approach - using our KPMG valuation
incorporates a risk of fraud and specialist's experience in valuing
error where the selection similar investments.
and application of significant Assessing fair value - Private
assumptions, including discount rates Investment:
and power price forecasts, - we obtained a confirmation of the
involves the exercise of significant fair value as at the year end from
judgement by the Company. the manager of the
We determined that the Valuations Private Investment;
have a high degree of estimation - we agreed the fair value to the
uncertainty giving rise unaudited capital account received
to a potential range of reasonable from the manager of the
outcomes greater than our materiality Private Investment;
for the financial - we obtained the audited financial
statements as a whole. The financial statements of the Private Investment
statements disclose in note 19(b) the as at 31 December
sensitivities estimated 2022 to assess the basis of
by the Company. preparation together with accounting
policies applied and whether
the audit opinion is unmodified; and
- in order to assess reliability of
the Private Investment's NAV, we
recalculated the Company's
proportionate share of the Private
Investment's NAV based on the audited
financial statements
as at 31 December 2022 and compared
to the unaudited capital account as
at 31 December 2022.
Assessing transparency :
We considered the appropriateness of
the Company's investment valuation
policies and the adequacy
of the Company's disclosures in
relation to the use of estimates and
judgements in arriving
at fair value (see note 19).
We assessed whether the disclosures
around the sensitivities to changes
in key assumptions
reflect the risks inherent in the
valuation of the underlying
investment portfolio and the
Private Investment.
Our application of materiality and an overview of the scope of
our audit
Materiality for the financial statements as a whole was set at
GBP13.4m, determined with reference to a benchmark of net assets of
GBP674.4m, of which it represents approximately 2% (2022: 2%).
In line with our audit methodology, our procedures on individual
account balances and disclosures were performed to a lower
threshold, performance materiality, so as to reduce to an
acceptable level the risk that individually immaterial
misstatements in individual account balances add up to a material
amount across the financial statements as a whole. Performance
materiality for the Company was set at 75% (2022: 75%) of
materiality for the financial statements as a whole, which equates
to GBP10.1m. We applied this percentage in our determination of
performance materiality because we did not identify any factors
indicating an elevated level of risk.
We reported to the Audit Committee any corrected or uncorrected
identified misstatements exceeding GBP0.6m, in addition to other
identified misstatements that warranted reporting on qualitative
grounds.
Our audit of the Company was undertaken to the materiality level
specified above, which has informed our identification of
significant risks of material misstatement and the associated audit
procedures performed in those areas as detailed above.
Going concern
The directors have prepared the financial statements on the
going concern basis as they do not intend to liquidate the Company
or to cease its operations, and as they have concluded that the
Company's financial position means that this is realistic. They
have also concluded that there are no material uncertainties that
could have cast significant doubt over its ability to continue as a
going concern for at least a year from the date of approval of the
financial statements (the "going concern period").
In our evaluation of the directors' conclusions, we considered
the inherent risks to the Company's business model and analysed how
those risks might affect the Company's financial resources or
ability to continue operations over the going concern period. The
risks that we considered most likely to affect the Company's
financial resources or ability to continue operations over this
period were:
-- Availability of capital to meet operating costs and other financial commitments;
-- The ability of the Company's subsidiaries to successfully
refinance or repay debt and to comply with debt covenants.
We considered whether these risks could plausibly affect the
liquidity in the going concern period by comparing severe, but
plausible downside scenarios that could arise from these risks
individually and collectively against the level of available
financial resources indicated by the Company's financial
forecasts.
We considered whether the going concern disclosure in note 2(c)
to the financial statements gives a full and accurate description
of the directors' assessment of going concern.
Our conclusions based on this work:
-- we consider that the directors' use of the going concern
basis of accounting in the preparation of the financial statements
is appropriate;
-- we have not identified, and concur with the directors'
assessment that there is not, a material uncertainty related to
events or conditions that, individually or collectively, may cast
significant doubt on the Company's ability to continue as a going
concern for the going concern period; and
-- we have nothing material to add or draw attention to in
relation to the directors' statement in the notes to the financial
statements on the use of the going concern basis of accounting with
no material uncertainties that may cast significant doubt over the
Company's use of that basis for the going concern period, and that
statement is materially consistent with the financial statements
and our audit knowledge.
However, as we cannot predict all future events or conditions
and as subsequent events may result in outcomes that are
inconsistent with judgements that were reasonable at the time they
were made, the above conclusions are not a guarantee that the
Company will continue in operation.
Fraud and breaches of laws and regulations - ability to
detect
Identifying and responding to risks of material misstatement due
to fraud
To identify risks of material misstatement due to fraud ("fraud
risks") we assessed events or conditions that could indicate an
incentive or pressure to commit fraud or provide an opportunity to
commit fraud. Our risk assessment procedures included:
-- enquiring of management as to the Company's policies and
procedures to prevent and detect fraud as well as enquiring whether
management have knowledge of any actual, suspected or alleged
fraud;
-- reading minutes of meetings of those charged with governance; and
-- using analytical procedures to identify any unusual or unexpected relationships.
As required by auditing standards, and taking into account
possible incentives or pressures to misstate performance and our
overall knowledge of the control environment, we perform procedures
to address the risk of management override of controls, in
particular the risk that management may be in a position to make
inappropriate accounting entries, and the risk of bias in
accounting estimates such as valuation of unquoted investments. On
this audit we do not believe there is a fraud risk related to
revenue recognition because the Company's revenue streams are
simple in nature with respect to accounting policy choice, and are
easily verifiable to external data sources or agreements with
little or no requirement for estimation from management. We did not
identify any additional fraud risks.
We performed procedures including:
-- identifying journal entries and other adjustments to test
based on risk criteria and comparing any identified entries to
supporting documentation;
-- incorporating an element of unpredictability in our audit procedures; and
-- assessing significant accounting estimates for bias
Further detail in respect of valuation of unquoted investments
is set out in the key audit matter section of this report.
Identifying and responding to risks of material misstatement due
to non-compliance with laws and regulations
We identified areas of laws and regulations that could
reasonably be expected to have a material effect on the financial
statements from our sector experience and through discussion with
management (as required by auditing standards), and from inspection
of the Company's regulatory and legal correspondence, if any, and
discussed with management the policies and procedures regarding
compliance with laws and regulations. As the Company is regulated,
our assessment of risks involved gaining an understanding of the
control environment including the entity's procedures for complying
with regulatory requirements.
The Company is subject to laws and regulations that directly
affect the financial statements including financial reporting
legislation and taxation legislation and we assessed the extent of
compliance with these laws and regulations as part of our
procedures on the related financial statement items.
The Company is subject to other laws and regulations where the
consequences of non-compliance could have a material effect on
amounts or disclosures in the financial statements, for instance
through the imposition of fines or litigation or impacts on the
Company's ability to operate. We identified financial services
regulation as being the area most likely to have such an effect,
recognising the regulated nature of the Company's activities and
its legal form. Auditing standards limit the required audit
procedures to identify non-compliance with these laws and
regulations to enquiry of management and inspection of regulatory
and legal correspondence, if any. Therefore if a breach of
operational regulations is not disclosed to us or evident from
relevant correspondence, an audit will not detect that breach.
Context of the ability of the audit to detect fraud or breaches
of law or regulation
Owing to the inherent limitations of an audit, there is an
unavoidable risk that we may not have detected some material
misstatements in the financial statements, even though we have
properly planned and performed our audit in accordance with
auditing standards. For example, the further removed non-compliance
with laws and regulations is from the events and transactions
reflected in the financial statements, the less likely the
inherently limited procedures required by auditing standards would
identify it.
In addition, as with any audit, there remains a higher risk of
non-detection of fraud, as this may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of
internal controls. Our audit procedures are designed to detect
material misstatement. We are not responsible for preventing
non-compliance or fraud and cannot be expected to detect
non-compliance with all laws and regulations.
Other information
The directors are responsible for the other information. The
other information comprises the information included in the annual
report but does not include the financial statements and our
auditor's report thereon. Our opinion on the financial statements
does not cover the other information and we do not express an audit
opinion or any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit, or otherwise appears to be materially misstated. If, based
on the work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report
that fact. We have nothing to report in this regard.
Disclosures of emerging and principal risks and longer term
viability
We are required to perform procedures to identify whether there
is a material inconsistency between the directors' disclosures in
respect of emerging and principal risks and the viability
statement, and the financial statements and our audit knowledge. We
have nothing material to add or draw attention to in relation
to:
-- the directors' confirmation within the viability statement
that they have carried out a robust assessment of the emerging and
principal risks facing the Company, including those that would
threaten its business model, future performance, solvency or
liquidity;
-- the emerging and principal risks disclosures describing these
risks and explaining how they are being managed or mitigated;
-- the directors' explanation in the viability statement as to
how they have assessed the prospects of the Company, over what
period they have done so and why they consider that period to be
appropriate, and their statement as to whether they have a
reasonable expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the period
of their assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
We are also required to review the viability statement, set out
above under the Listing Rules. Based on the above procedures, we
have concluded that the above disclosures are materially consistent
with the financial statements and our audit knowledge.
Corporate governance disclosures
We are required to perform procedures to identify whether there
is a material inconsistency between the directors' corporate
governance disclosures and the financial statements and our audit
knowledge.
Based on those procedures, we have concluded that each of the
following is materially consistent with the financial statements
and our audit knowledge:
-- the directors' statement that they consider that the annual
report and financial statements taken as a whole is fair, balanced
and understandable, and provides the information necessary for
shareholders to assess the Company's position and performance,
business model and strategy;
-- the section of the annual report describing the work of the
Audit Committee, including the significant issues that the audit
committee considered in relation to the financial statements, and
how these issues were addressed; and
-- the section of the annual report that describes the review of
the effectiveness of the Company's risk management and internal
control systems.
We are required to review the part of Corporate Governance
Statement relating to the Company's compliance with the provisions
of the UK Corporate Governance Code specified by the Listing Rules
for our review. We have nothing to report in this respect.
We have nothing to report on other matters on which we are
required to report by exception
We have nothing to report in respect of the following matters
where the Companies (Guernsey) Law, 2008 requires us to report to
you if, in our opinion:
-- the Company has not kept proper accounting records; or
-- the financial statements are not in agreement with the accounting records; or
-- we have not received all the information and explanations,
which to the best of our knowledge and belief are necessary for the
purpose of our audit.
Respective responsibilities
Directors' responsibilities
As explained more fully in their statement set out above, the
directors are responsible for: the preparation of the financial
statements including being satisfied that they give a true and fair
view; such internal control as they determine is necessary to
enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error; assessing the
Company's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern; and using the going
concern basis of accounting unless they either intend to liquidate
the Company or to cease operations, or have no realistic
alternative but to do so.
Auditor's responsibilities
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue our
opinion in an auditor's report. Reasonable assurance is a high
level of assurance, but does not guarantee that an audit conducted
in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in aggregate,
they could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial
statements.
A fuller description of our responsibilities is provided on the
FRC's website at www.frc.org.uk/auditorsresponsibilities .
The purpose of this report and restrictions on its use by
persons other than the Company's members as a body
This report is made solely to the Company's members, as a body,
in accordance with section 262 of the Companies (Guernsey) Law,
2008. Our audit work has been undertaken so that we might state to
the Company's members those matters we are required to state to
them in an auditor's report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company's
members, as a body, for our audit work, for this report, or for the
opinions we have formed.
Dermot Dempsey
For and on behalf of KPMG Channel Islands Limited
Chartered Accountants and Recognised Auditors
Guernsey
16 June 2023
Statement of Comprehensive Income
For the year ended 31 March 2023
2023 2022
Notes GBP'000 GBP'000
----------------------------------------- ----- -------- --------
Income
Income comprises:
Interest income 12,346 12,799
Investment income 56,287 42,009
Administrative services income 10,390 10,226
Net changes in fair value of investments 17 (13,199) 78,665
Unrealised foreign exchange gain 201 -
----------------------------------------- -------- --------
Total net income 66,025 143,699
----------------------------------------- -------- --------
Expenditure
Preference share dividends 9,500 9,454
Management fees 5 5,828 5,041
Legal and professional fees 766 744
Directors' fees 7 277 222
Administration fees 6 346 227
Other expenses 9 311 122
Audit fees 8 144 138
Charitable donation 10 400 100
Regulatory fees 114 79
Insurance 23 22
----------------------------------------- -------- --------
Total expenses 17,709 16,149
----------------------------------------- -------- --------
Profit and comprehensive income for the
year 48,316 127,550
----------------------------------------- -------- --------
Earnings per ordinary share - basic 14 8.20p 21.69p
Earnings per ordinary share - diluted 14 7.55p 17.34p
----------------------------------------- -------- --------
All activities are derived from ongoing operations.
There is no other comprehensive income or expense apart from
those disclosed above and consequently a Statement of Other
Comprehensive Income has not been prepared.
The accompanying notes are an integral part of these audited
financial statements.
Statement of Financial Position
As at 31 March 2023
2023 2022
Notes GBP'000 GBP'000
--------------------------------------------- ----- --------- ---------
Non-current assets
Investments 17 854,352 842,346
--------------------------------------------- --------- ---------
Total non-current assets 854,352 842,346
--------------------------------------------- --------- ---------
Current assets
Cash and cash equivalents 14,354 19,608
Trade and other receivables 11 6,524 16,389
--------------------------------------------- --------- ---------
Total current assets 20,878 35,997
--------------------------------------------- --------- ---------
Total assets 875,230 878,343
--------------------------------------------- --------- ---------
Current liabilities
Trade and other payables 12 (2,613) (11,785)
--------------------------------------------- --------- ---------
Total current liabilities (2,613) (11,785)
--------------------------------------------- --------- ---------
Non-current liabilities
Preference shares 23 (198,197) (198,058)
--------------------------------------------- --------- ---------
Total non-current liabilities (198,197) (198,058)
--------------------------------------------- --------- ---------
Net assets 674,420 668,500
--------------------------------------------- --------- ---------
Equity
Share capital and premium 13 609,448 608,037
Retained earnings 64,972 60,463
--------------------------------------------- --------- ---------
Equity attributable to ordinary shareholders 674,420 668,500
--------------------------------------------- --------- ---------
Total equity 674,420 668,500
--------------------------------------------- --------- ---------
Net assets per ordinary share 16 114.3p 113.5p
--------------------------------------------- --------- ---------
The accompanying notes are an integral part of these audited
financial statements.
The audited financial statements were approved and authorised
for issue by the Board of Directors on 16 June 2023 and signed on
its behalf by:
Kevin Lyon Chairman Patrick Firth Director
Statement of Changes in Equity
For the year ended 31 March 2023
Share capital Retained
and premium earnings Total equity
GBP'000 GBP'000 GBP'000
----------------------------------------- ------------- --------- ------------
Ordinary shareholders' equity at 1
April 2021 605,938 (25,147) 580,791
Profit and comprehensive income for
the year - 127,550 127,550
Scrip shares issued in lieu of dividends 2,099 - 2,099
Ordinary dividends declared - (41,940) (41,940)
----------------------------------------- ------------- --------- ------------
Ordinary shareholders' equity at 31
March 2022 608,037 60,463 668,500
----------------------------------------- ------------- --------- ------------
Ordinary shareholders' equity at 1
April 2022 608,037 60,463 668,500
Profit and comprehensive income for
the year - 48,316 48,316
Scrip shares issued in lieu of dividends 1,411 - 1,411
Ordinary dividends declared - (43,807) (43,807)
----------------------------------------- ------------- --------- ------------
Ordinary shareholders' equity at 31
March 2023 609,448 64,972 674,420
----------------------------------------- ------------- --------- ------------
Statement of Cash Flows
For the year ended 31 March 2023
2023 2022
Notes GBP'000 GBP'000
--------------------------------------------- ----- -------- --------
Cash flows from operating activities
Profit and comprehensive income for the
year 48,316 127,550
Adjustments for:
Interest income receivable (12,346) (12,799)
Interest income received 12,326 12,799
Investment income receivable (56,287) (42,009)
Investment income received 58,429 34,019
Change in fair value of investments 17 13,199 (78,665)
Proceeds from HoldCos 17 71,584 82,443
Payments to HoldCos 17 (84,977) (58,370)
Financing proceeds from HoldCos 17 5,000 42,100
Financing proceeds returned to HoldCos 17 (5,000) (42,100)
Proceeds from NPIII LP 17 - 10,502
Payments to NPIII LP (12,708) (27,716)
Net changes in unrealised foreign exchange (201) (32)
Financial debt amortisation 139 139
Dividends paid on preference shares 9,500 9,454
--------------------------------------------- -------- --------
Operating cash flows before movements in working
capital 46,974 57,315
Changes in working capital
Movement in trade and other receivables (531) 694
Movement in trade and other payables (2) 131
--------------------------------------------- -------- --------
Net cash generated from operating activities 46,441 58,140
--------------------------------------------- -------- --------
Cash flows from financing activities
Dividends paid on preference shares (9,500) (9,500)
Dividends paid on ordinary shares (42,396) (39,841)
--------------------------------------------- -------- --------
Net cash used in financing activities (51,896) (49,341)
--------------------------------------------- -------- --------
Net movement in cash and cash equivalents
during year (5,455) 8,799
Cash and cash equivalents at the beginning
of the year 19,608 10,809
Effect of foreign exchange rates 201 -
--------------------------------------------- -------- --------
Cash and cash equivalents at the end of
the year 14,354 19,608
--------------------------------------------- -------- --------
The accompanying notes are an integral part of these audited
financial statements.
Notes to the Financial Statements
For the year ended 31 March 2023
1. General Information
The Company was incorporated with limited liability in Guernsey
under the Companies (Guernsey) Law, 2008 on 20 December 2013 with
registered number 57739, and is regulated by the Guernsey Financial
Services Commission as a registered closed-ended investment
company. The registered office of the Company is Floor 2 Trafalgar
Court, Les Banques, St Peter Port, Guernsey, Channel Islands GY1
4LY.
The Company's ordinary shares are publicly traded on the London
Stock Exchange under a premium listing. The Company seeks to
provide ordinary shareholders with attractive risk-adjusted
returns, principally in the form of regular dividends, by investing
in a diversified portfolio of primarily UK and OECD based solar
energy infrastructure assets. The Company currently makes its
investments either directly or through HoldCos and SPVs which are
directly or indirectly wholly owned by the Company.
The Company has appointed NextEnergy Capital IM Limited as its
Investment Manager pursuant to the Management Agreement dated 18
March 2014. The Investment Manager is a Guernsey registered
company, incorporated under the Companies (Guernsey) Law, 2008 with
registered number 57740 and is licensed and regulated by the
Guernsey Financial Services Commission and is a member of the
NextEnergy Group. The Investment Manager acts as the Alternative
Investment Fund Manager of the Company.
The Investment Manager has appointed NextEnergy Capital Limited
as its Investment Adviser pursuant to the Investment Advisory
Agreement dated 18 March 2014. The Investment Adviser is a company
incorporated in England with registered number 05975223 and is
authorised and regulated by the FCA.
2. Summary of Significant Accounting Policies
a) Basis of Preparation
The financial statements, which give a true and fair view, have
been prepared in compliance with the Companies (Guernsey) Law, 2008
and on a going concern basis in accordance with IFRS.
The financial statements have been prepared using the historical
cost convention with the exception of financial assets held at fair
value through profit and loss. The principal accounting policies
adopted are set out below. These policies have been consistently
applied.
b) Functional and presentation currency
The financial statements are presented in pounds sterling which
is the Company's functional and presentation currency. Functional
currency is the currency of the primary economic environment in
which the Company operates. The Company's shares were issued in
pounds sterling and the listing of the shares on the Main Market is
in pounds sterling. The performance of the Company is measured and
reported to investors in pounds sterling and dividends received
from the primarily UK-based assets are in pounds sterling. The
Board considers the pound sterling as the currency that most
faithfully represents the economic effects of the underlying
transactions, events and conditions.
c) Going Concern
The Company owns a portfolio of solar energy infrastructure
assets in the UK, Italy, Spain and Portugal and that are
predominantly fully constructed, operational and generating
renewable electricity. A significant proportion of the income from
the Company's investments is fixed for a long period of time in
accordance with the terms of the relevant ROC or FiT subsidy. The
balance of the income has exposure to wholesale electricity prices,
although the Investment Manager seeks to reduce this exposure
through entering into short- or long-term power purchase agreements
with fixed price mechanisms.
The Directors have reviewed the current and projected financial
position of the Company making reasonable assumptions about future
performance. The key areas reviewed were:
-- maturity of debt facilities;
-- future investment transactions; and
-- expenditure and capital commitment.
The Company's cash balance as at 31 March 2023 was GBP14m, all
of which was readily available. The NESF Group also had immediately
available but undrawn amounts under its debt facilities of a
further GBP38.7m. The NESF Group had capital commitments totalling
GBP26.5m at the year end. The majority of the NESF Group's revenues
are derived from government subsidies. A signi cant 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 satis ed that the Company has suf cient financial
resources available to be able to manage the Company's business
effectively and pursue the Company's principal activities and
investment objective. In particular, the Board is not currently
aware of any material uncertainties in relation to the Company's
ability to continue for a period of at least 12 months from the
date of approval of this Annual Report. The Board is of the
opinion, therefore, that the going concern basis adopted in the
preparation of the financial statements is appropriate.
d) Basis of Non-Consolidation
The Company has set up/acquired SPVs through its investment in
the holding companies. The Company meets the definition of an
investment entity as described by IFRS 10. Under IFRS 10 investment
entities are required to hold subsidiaries at fair value through
profit or loss rather than consolidate them. There are four holding
companies (NextEnergy Solar Holdings Limited, NextEnergy Solar
Holdings III Limited, NextEnergy Solar Holdings IV Limited and
NextEnergy Solar Holdings V Limited, collectively the "HoldCos").
The HoldCos are also investment entities and, as required under
IFRS 10, value their investments at fair value.
Under the definition of an investment entity, the entity should
satisfy all three of the following tests:
-- obtains funds from one or more investors for the purpose of
providing these investors with investment management services;
and
-- commits to its investors that its business purpose is to
invest funds solely for returns from capital appreciation,
investment income, or both (including having an exit strategy for
investments); and
-- measures and evaluates the performance of substantially all
of its investments on a fair value basis.
In assessing whether the Company meets the definition of an
investment entity set out in IFRS 10, the Directors note that:
-- the Company is an investment company that invests funds
obtained from multiple investors in a diversified portfolio of
solar energy infrastructure assets and related infrastructure
assets and has appointed the Investment Manager to manage the
Company's investments;
-- the Company's purpose is to invest funds for investment
income and potential capital appreciation and will exit its
investments at the end of their economic lives or when their
planning permissions or leasehold land interests expire (unless it
has repowered their sites) and may also exit investments earlier
for reasons of portfolio balance or profit; and
-- the Board evaluates the performance of the Company's
investments on a fair value basis as part of the quarterly
management accounts review and the Company values its investments
on a fair value basis twice a year for inclusion in its annual and
interim financial statements with the movement in the valuations
taken to the Statement of Comprehensive Income.
Taking these factors into account, the Directors are of the
opinion that the Company has all the typical characteristics of an
investment entity and meets the definition set out in IFRS 10.
The Directors believe the treatment outlined above provides the
most relevant information to investors.
e) Taxation
Under the current system of taxation in Guernsey, the Company is
exempt from paying taxes on income, profit or capital gains.
Therefore, income from investments in solar assets is not subject
to any tax in Guernsey, although NPIII LP, the HoldCos and SPVs are
subject to tax in their country of incorporation.
f) Segmental Reporting
IFRS 8 Operating Segments requires a 'management approach' under
which segment information is presented on the same basis as that
used for internal reporting purposes.
The Chief Operating Decision Maker, which is the Board, is of
the opinion that the Company is engaged in a single segment of
business, being investment in solar and energy storage
infrastructure assets via its HoldCos and SPVs and holding in a
private equity fund. Therefore, the financial information used by
the Chief Operating Decision Maker to allocate resources and manage
the Company presents the business as a single segment.
g) Dividends
Dividends to the Company's shareholders are recognised when they
become legally payable.
h) Income
Income includes investment income from financial assets at fair
value through profit or loss, administrative service fee income,
interest income from equalisation of investments and Eurobonds and
finance income.
Investment income, predominantly dividends received from
financial assets at fair value through profit or loss is recognised
in the Statement of Comprehensive Income within income when the
Company's right to receive payments is established.
Administrative service fee income and interest income from
Eurobonds is recognised in the Statement of Comprehensive Income
within income on an accruals basis.
Finance income comprises interest earned on cash held on
deposit. Finance income is recognised in the Statement of
Comprehensive Income within income on an accruals basis.
Interest income from equalisations comprises equalisations from
subsequent investors into NPIII LP and is recognised in the
Statement of Comprehensive Income within income when the Company's
right to receive payments is established.
i) Expenses
All expenses are accounted for on an accruals basis.
j) Cash and Cash Equivalents
Cash and cash equivalents includes deposits held at call with
banks and other short-term deposits with original maturities of
three months or less.
k) Trade and Other Payables
Trade and other payables are initially recognised at fair value,
and subsequently re-measured at amortised cost using the effective
interest method where necessary.
l) Financial Instruments
Classification
The Company classifies its investments based on both the
Company's business model for managing these financial assets and
the contractual cash flow characteristics of the financial assets.
The portfolio of financial assets is managed and performance is
evaluated on a fair value basis. The Company is primarily focused
on fair value information and uses that information to assess the
assets' performance and to make decisions. The Company has not
taken the option to designate irrevocably any equity securities at
fair value through other comprehensive income.
Recognition, Derecognition and Measurement
Purchases and sales of investments are recognised on the trade
date, being the date on which the Company commits to purchase or
sell the investment. Financial assets at fair value through profit
or loss are initially recognised at fair value. Transaction costs
are expensed as incurred in the Statement of Comprehensive
Income.
Financial assets are derecognised when the rights to receive
cash flows from the investments have expired or the Company has
transferred substantially all risks and rewards of ownership.
Subsequent to initial recognition, all financial assets at fair
value through profit or loss are measured at fair value. Gains and
losses arising from changes in the fair value of investments are
presented in the Statement of Comprehensive Income within 'Net
changes in fair value of investments' in the period in which they
arise.
Dividend income from financial assets at fair value through
profit or loss are recognised in the Statement of Comprehensive
Income within 'Income' when the Company's right to receive payments
is established. Interest on debt securities at fair value through
profit or loss is recognised in the Statement of Comprehensive
Income on an accruals basis.
Fair Value Estimation
The fair value of financial assets that are not traded on an
active market is determined using valuation techniques and takes
into account the International Private Equity and Venture Capital's
("IPEV") valuation guidelines. The Company's private equity solar
fund investment (NPIII LP) has been valued using the estimated
attributable NAV and the remainder of investments have been valued
on a look through basis based on the discounted cash flows of the
solar assets (except for those solar assets not yet operational)
and the residual value of net assets at the HoldCos level. These
valuations are reviewed regularly by the Investment Manager who
reports to the Board on a periodic basis. The Board considers the
appropriateness of the valuation model and inputs, as well as the
valuation result.
Fair value is the price that would be received from a sale of an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date, regardless of
whether that price is directly observable or estimated using other
valuation techniques. In estimating the fair value of an asset or
liability, the Company takes into account the characteristics of
the asset or liability if market participants would take those
characteristics into account when pricing the asset or liability at
the measurement date. Fair value for measurement and/or disclosure
purposes in these Financial Statements is determined on such a
basis.
In addition, for financial reporting purposes, fair value
measurements are categorised into Level 1, 2 or 3 based on the
degree to which inputs to the fair value measurements are
observable and the significance of the inputs to the fair value
measurement in its entirety which are described as follows:
-- Level 1 inputs are quoted prices in active markets for
identical assets or liabilities that the Company can access at the
measurement date;
-- Level 2 inputs are inputs other than quoted prices included
within Level 1, that are observable for the asset or liability,
either directly or indirectly; and
-- Level 3 inputs are unobservable inputs for the asset or liability.
m) Ordinary Share Capital and Share Premium
Ordinary shares are classified as equity. Costs directly
attributable to the issue of new shares (that would have been
avoided if there had not been a new issue of new shares) are
written off against the value of the ordinary share premium.
Dividends paid on the ordinary shares are recognised in the
Statement of Changes in Equity.
n) Preference Shares
In accordance with International Accounting Standard 32,
preference shares are classified as liabilities and are held at
amortised cost. Dividends paid on the preference shares are
recognised in the Statement of Comprehensive Income as an interest
expense.
o) Trade and Other Receivables
Trade and other receivables are recognised initially at fair
value and subsequently measured at amortised cost. At each
reporting date, the Company shall measure the loss allowance on
trade and other receivables at an amount equal to the lifetime
expected credit losses if the credit risk has increased
significantly since initial recognition. If, at the reporting date,
the credit risk had not increased significantly since initial
recognition, the Company shall measure the loss allowance at an
amount equal to 12-month expected credit losses. Significant
financial difficulties of the counterparty, probability that the
counterparty will enter bankruptcy or financial reorganisation and
default in payments are all considered indicators that a loss
allowance may be required.
p) Offsetting Financial Instruments
Financial assets and liabilities are offset, and the net amount
reported in the Statement of Financial Position when there is a
legally enforceable right to offset the recognised amounts and
there is an intention to settle on a net basis or realise the asset
and settle the liability simultaneously. The legally enforceable
right must not be contingent on future events and must be
enforceable in the normal course of business and in the event of
default, insolvency or bankruptcy of the company or the
counterparty.
3. New and Revised Standards
a) New and Revised IFRSs Adopted by the Company
The Directors have assessed all new standards and amendments to
standards and interpretations which are effective for annual
periods commencing on or after 1 April 2022 and noted no material
impact on the Company.
b) New and Revised IFRSs in Issue but not yet Effective
The Directors have considered new standards and amendments to
standards and interpretations in issue and effective for annual
periods commencing after 1 April 2023 and do not expect that their
adoption will result in a material impact on the financial
statements of the Company in future periods.
4. Critical Accounting Estimates and Judgements
The Company makes estimates and assumptions that affect the
reported amounts of assets and liabilities. Estimates and
judgements are continually evaluated and based on historic
experience and other factors believed to be reasonable under the
circumstances.
a) Critical Accounting Estimate: Investments at Fair Value
Through Profit or Loss
The Company's investments are measured at fair value for
financial reporting purposes. The Board has appointed the
Investment Manager to produce investment valuations based on
projected future cash flows for all investments except NPIII LP and
solar projects not yet operational which are valued at estimated
attributable NAV and c ost as an approximation of fair value
respect ively. These valuations are reviewed and approved by the
Board. The investments are held through SPVs and NPIII LP is held
directly.
IFRS 13 establishes a single source of guidance for fair value
measurements and disclosures about fair value measurements. Fair
value is defined as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The Board
bases the fair value of the investments on the information received
from the Investment Manager.
The Company classified its investments at fair value through
profit or loss as level 3 within the fair value hierarchy. Level 3
investments amount to GBP854.4m (2022: GBP842.4m) and consist of
one private equity solar fund investment (NPIII LP) which has been
valued using its estimated attributable NAV and 99 (2022: 99)
investments in solar PV assets (held indirectly through the
HoldCos), all of which have been valued on a look through basis
based on the discounted cash flows of the solar assets (except for
those solar and energy storage assets not yet operational) and the
residual value of net assets at the HoldCos level.
The discount rate is a significant Level 3 input and a change in
the discount applied could have a material effect on the value of
the investments. The ongoing conflict in Ukraine continues to have
a sustained positive impact on the long-term power price
projections, which is also a significant Level 3 input. Investments
in solar assets that are not yet operational are held at fair
value, where the cost of the investment is used as an appropriate
approximation of fair value. Level 3 valuations are reviewed
regularly by the Investment Manager who reports to the Board on a
periodic basis. The Board considers the appropriateness of the
valuation model and inputs, as well as the valuation result.
Information about the unobservable inputs used at 31 March 2023
in measuring financial instruments categorised as Level 3 in the
fair value hierarchy and their sensitivities are disclosed in note
19. Unlisted investments reconcile to the 'Total investments at
fair value' in the table in note 17.
b) Significant Judgement: Consolidation of Entities
The Company, under the investment entity exemption rule, holds
its investments at fair value. The Company meets the definition of
an investment entity per IFRS 10 as detailed in note 2(d).
The Company does not have any other subsidiaries other than
those determined to be controlled subsidiary investments.
Controlled subsidiary investments are measured at fair value
through profit or loss and are not consolidated in accordance with
IFRS 10. The fair value of controlled subsidiary investments is
determined as described in note 19.
The Company and the HoldCos operate as an integrated structure
whereby the Company invests in the HoldCos and a singular direct
investment. Under IFRS 10, there is a requirement for the Board to
assess whether the HoldCos are themselves investment entities. The
Board has performed this assessment and concluded that each of the
HoldCos is an investment entity for the following reasons:
-- the HoldCos have obtained funds for the purpose of investing
in equity or other similar interests in multiple investments and
providing the Company (and its investors) with investment income;
and
-- the performance of investments made through the HoldCos are
measured and evaluated on a fair value basis.
Furthermore, the HoldCos themselves are not deemed to be
operating entities providing services to the Company and,
therefore, are able to apply the exemption to consolidation.
The Company's HoldCos directly hold investments in joint venture
partnerships (classified as subsidiaries) and co--investments
(classified as investments or associates).
5. Management Fees
The Investment Manager is entitled to receive an annual fee,
accruing daily and calculated on a sliding scale, as follows
below:
-- 1% of NAV up to GBP200m;
-- 0.9% of NAV above GBP200m and up to and including GBP300m; and
-- 0.8% of NAV above GBP300m.
The NAV for the purpose of calculation is reduced by an amount
equivalent to US$50m for NESF's investment in NPIII LP. For the
year ended 31 March 2023 the Company incurred GBP5.8m in management
fees, of which GBP14k was outstanding at 31 March 2023 (2022: GBP5m
in management fees of which GBP62k was outstanding at 31 March
2022).
The Investment Management Agreement is terminable by not less
than 12 month's written notice.
6. Administration Fees
Under the Administration Agreement with the previous
administrator the administration fee was a xed fee of GBP220k per
annum and the xed fee was to increase annually in line with the
annual increase in Guernsey RPI from 1 January 2022. For the period
up to 30 March 2022, the previous administrator was also entitled
to additional fees for attendance at ad hoc Board and Board
Committee meetings.
With effect from 30 March 2022 Ocorian Administration (Guernsey)
Limited was appointed administrator to the Company. The
administration fee changed to a fixed fee of GBP275k per annum with
effect from 30 March 2022. On 1 January 2023, the xed fee increased
in line with the annual increase in Guernsey RPI.
For the year ended 31 March 2023 the previous administrator was
entitled to administration fees of GBP59k (2022: GBP227k), of which
GBPnil was outstanding at 31 March 2023 (2022: GBP115k). For the
year ended 31 March 2023 the current administrator was entitled to
administration fees of GBP287k (2022: GBPnil), of which GBPnil was
outstanding at 31 March 2023 (2022: GBPnil).
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
GBP277k (2022: GBP222k), of which GBPnil was outstanding at 31
March 2023 (2022: GBP11k).
8. Audit Fees
The analysis of the auditor's remuneration is as follows:
31 March 31 March
2023 2022
GBP'000 GBP'000
--------------------------------------------- -------- --------
Fees payable to the auditor for the audit of
the Company 92 84
Fees payable to the auditor for the interim
review of the Company 52 45
Additional audit fee and disbursements for
prior year - 9
--------------------------------------------- -------- --------
Total 144 138
--------------------------------------------- -------- --------
The figures noted in the table above do not include audit fees
incurred by subsidiary entities.
9. Other Expenses
31 March 31 March
2023 2022
GBP'000 GBP'000
--------------------- -------- --------
Amortisation expense 139 139
Sundry expenses 167 (18)
Directors' expenses 5 1
--------------------- -------- --------
Total 311 122
--------------------- -------- --------
10. Charitable Donation
During the year ended 31 March 2023, the Company made a
charitable donation of GBP400k (31 March 2022: GBP100k).
Information on the NextEnergy Foundation and how it used the
donation can be found on our website (nextenergysolarfund.com).
11. Trade and Other Receivables
31 March 31 March
2023 2022
GBP'000 GBP'000
--------------------------------------------- -------- --------
Administrative service fee income receivable 504 -
Accrued Income 40 20
Prepayments 101 74
Due from HoldCos 5,879 16,295
--------------------------------------------- -------- --------
Total trade and other receivables 6,524 16,389
--------------------------------------------- -------- --------
Amounts due from HoldCos are interest free and payable on
demand.
12. Trade and Other Payables
31 March 31 March
2023 2022
GBP'000 GBP'000
------------------------------- -------- --------
Other payables 271 273
Due to NPIII LP - 896
Preference dividends payable 2,342 2,342
Due to HoldCos - 8,274
------------------------------- -------- --------
Total trade and other payables 2,613 11,785
------------------------------- -------- --------
Amounts due to HoldCos are interest free and payable on demand.
During the year, an amount of GBP8.3m (2022: GBP13.1m) representing
a non-cash deemed dividend was set-off against amounts due to
HoldCos as these transactions are with the same Holdco.
13. Share Capital and Reserves
a) Ordinary Shares
The share capital of the Company comprises solely of ordinary
shares of no par value and preference shares of no par value.
31 March
2023 31 March
Ordinary shares issuance Shares 2022 Shares
------------------------------------ ----------- ------------
Opening balance 589,077,244 586,987,678
Scrip shares issued during the year 1,176,937 2,089,566
------------------------------------ ----------- ------------
Total issued at 31 March 590,254,181 589,077,244
------------------------------------ ----------- ------------
31 March 31 March
Issued ordinary shares - share capital and 2023 2022
premium GBP'000 GBP'000
--------------------------------------------- -------- --------
Opening balance 608,037 605,938
Value of scrip shares issued during the year 1,411 2,099
--------------------------------------------- -------- --------
Total issued at 31 March 609,448 608,037
--------------------------------------------- -------- --------
All the holders of the ordinary shares are entitled to receive
dividends as declared from time to time. At any general meeting of
the Company, each ordinary shareholder will have, on a show of
hands, one vote and, on a poll, one vote in respect of each
ordinary share held.
b) Preference Shares
In accordance with International Accounting Standard 32, the
preference shares are classified as liabilities. Details of the
preference shares can be found in note 23(a).
c) Retained Reserves
Retained reserves comprise the retained earnings as detailed in
the Statement of Changes in Equity.
Under Guernsey law, the Company can pay dividends in excess of
its retained earnings provided it satisfies the solvency test
prescribed by the Companies (Guernsey) Law, 2008. The solvency test
considers whether the Company is able to pay its debts when they
fall due, and whether the value of the Company's assets is greater
than its liabilities. The Company satisfied the solvency test in
respect of all dividends declared or paid in the year.
14. Earnings per Ordinary Share
a) Basic
31 March 31 March
2023 2022
------------------------------------------------- ----------- -----------
Profit and comprehensive income for the year
(GBP'000) 48,316 127,550
Basic weighted average number of issued ordinary
shares 589,518,997 588,014,946
Earnings per share basic 8.20p 21.69p
------------------------------------------------- ----------- -----------
b) Diluted
From 1 April 2036 the preference shares have the right to
convert, based on 100p per preference share and the NAV per
ordinary share at the time of conversion, into new ordinary shares
or a new class of unlisted B shares with dividend and capital
rights ranking pari passu with the ordinary shares.
31 March 31 March
2023 2022
-------------------------------------------------- ----------- -----------
Profit and comprehensive income for the year
(GBP'000) 48,316 127,550
Plus: preference share dividends paid during
the year (GBP'000) 9,500 9,454
-------------------------------------------------- ----------- -----------
Profit for the year attributable to ordinary
shareholders (GBP'000) 57,816 137,004
-------------------------------------------------- ----------- -----------
Weighted average number of issued ordinary
shares 589,518,997 588,014,946
Plus: weighted number of ordinary shares issuable
on any conversion of preference shares, based
on the NAV per ordinary share as at the year
end 176,211,454 202,224,469
-------------------------------------------------- ----------- -----------
Adjusted weighted average number of ordinary
shares 765,730,451 790,239,415
-------------------------------------------------- ----------- -----------
Earnings per share diluted 7.55p 17.34p
-------------------------------------------------- ----------- -----------
15. Ordinary Share Dividends
a) Paid During the Year
31 March 31 March
31 March 2023 31 March 2022
2023 Pence 2022 Pence
GBP'000 per share GBP'000 per share
---------- -------- ---------- -------- ----------
Quarter 1 10,550 1.7900 10,346 1.7625
Quarter 2 11,080 1.8800 10,527 1.7900
Quarter 3 11,086 1.8800 10,529 1.7900
Quarter 4 11,091 1.8800 10,538 1.7900
---------- -------- ---------- -------- ----------
Total 43,807 7.4300 41,940 7.1325
---------- -------- ---------- -------- ----------
b) Declared in Respect of the Year
31 March 31 March
31 March 2023 31 March 2022
2023 Pence 2022 Pence
GBP'000 per share GBP'000 per share
---------- -------- ---------- -------- ----------
Quarter 1 11,080 1.8800 10,527 1.7900
Quarter 2 11,086 1.8800 10,529 1.7900
Quarter 3 11,091 1.8800 10,538 1.7900
Quarter 4 11,097 1.8800 10,544 1.7900
---------- -------- ---------- -------- ----------
Total 44,354 7.5200 42,138 7.1600
---------- -------- ---------- -------- ----------
16. Net Assets per Ordinary Share
31 March 31 March
2023 2022
---------------------------------------- ----------- -----------
Ordinary shareholders' equity (GBP'000) 674,420 668,500
Number of issued ordinary shares 590,254,181 589,077,244
Net assets per ordinary share 114.3p 113.5p
---------------------------------------- ----------- -----------
17. Investments at Fair Value Through Profit or Loss
The Company owns its portfolio of solar assets through its
investments in the HoldCos and a direct investment in NPIII LP. The
Company's investments comprise of its portfolio of solar assets and
the residual net assets of the HoldCos. As explained in note 4(a),
all of the Company's investments are held at fair value through pro
t or loss and classi ed as Level 3 in the fair value hierarchy.
There were no movements between the hierarchy levels during the
year ended 31 March 2023 (2022: none).
The Company's total investments at fair value are recorded under
'Non-current assets' in the Statement of Financial Position.
31 March 31 March
2023 2022
GBP'000 GBP'000
----------------------------------------------- -------- --------
Brought forward cost of investments 809,531 815,494
Investment proceeds from HoldCos (71,584) (82,443)
Investment payments to HoldCos 84,977 58,370
Investment proceeds from NPIII LP - (10,502)
Investments in NPIII LP 11,812 28,612
----------------------------------------------- -------- --------
Carried forward cost of investments 834,736 809,531
----------------------------------------------- -------- --------
Brought forward unrealised losses on valuation 32,815 (45,850)
Movement in unrealised gains on valuation 21,981 95,004
Movement in unrealised losses on valuation (35,180) (16,339)
----------------------------------------------- -------- --------
Carried forward unrealised gains on valuation 19,616 32,815
----------------------------------------------- -------- --------
Total investments at fair value 854,352 842,346
----------------------------------------------- -------- --------
Non-cash transactions: On 23 February 2022, NESH V issued
Eurobonds listed on The International Stock Exchange totalling
GBP6.6m. During the year ended 31 March 2023, no new Eurobonds were
listed on The International Stock Exchange.
To facilitate the acquisition of various investments at 31 March
2023, GBP5.0m (2022: GBP42.1m) was drawn down at subsidiary level,
remitted to the Company before GBP5.0m was returned to a subsidiary
(2022: GBP42.1m).
The total change in the value of the investments in the HoldCos
is recorded through pro t and loss in the Statement of
Comprehensive Income. Information about the principal unobservable
inputs used in valuing the Company's investments and their
sensitivities is included in note 19.
18. Subsidiaries and Other Investments
The Company holds investments through subsidiary companies (the
HoldCos) which have not been consolidated as a result of the
adoption of IFRS 10: Investment entities exemption to
consolidation. The Company holds its investment of NPIII LP
directly. The HoldCos are all incorporated in the UK and 100%
directly owned. There are no cross guarantees amongst Group
entities. During the year to 31 March 2023, NextEnergy Solar
Holdings II Limited and its subsidiaries were transferred to RRAM
Energy Limited (a subsidiary of NextEnergy Solar Holdings III
Limited). Below are the legal names for the SPVs, all owned
directly or indirectly through the HoldCos listed below at 31 March
2023. Agenor (24.5%) and NP III Co Invest LP (18%) are owned by
NextEnergy Solar Holdings V Limited. Camilla Battery Storage
Limited and Lapwing Fen II Limited are owned by NextPower EelPower
Limited and NextPower EelPower (2) Limited, both of which are owned
by NextEnergy Solar Holdings III Limited (70% and 75%
respectively). All other SPVs are owned 100%.
Country Country
of of
Name incorporation Name incorporation
---------------------------- -------------- ----------------------------- --------------
NextEnergy Solar Holdings
Limited UK
North Farm Solar Park
BL Solar 2 Limited UK Limited UK
Bowerhouse Solar Limited UK Push Energy (Birch) Limited UK
Push Energy (Boxted Airfield)
Ellough Solar 2 Limited UK Limited UK
Push Energy (Croydon)
Glebe Farm SPV Limited UK Limited UK
Glorious Energy Limited UK Push Energy (Decoy) Limited UK
Push Energy (Hall Farm)
Greenfields (A) Limited UK Limited UK
Push Energy (Langenhoe)
NESF-Ellough Limited UK Limited UK
SSB Condover Limited
Nextpower Ellough LLP UK (Condover) UK
Nextpower Gover Farm ST Solarinvest Devon
Limited UK 1 Limited UK
Nextpower Higher Hatherleigh UK Sunglow Power Limited UK
Nextpower Shacks Barn Wellingborough Solar
Limited UK Limited UK
NextEnergy Solar Holdings
III Limited UK
Balhearty Solar Limited UK Lapwing Fen II Limited UK
Burcroft Solar Parks
Ballygarvey Solar Limited UK Limited UK UK
Burrowton Farm Solar
Birch Solar Farm CIC UK Park Limited UK
Blenches Mill Farm Solar Camilla Battery Storage
Park Limited UK Limited UK
Chilton Cantello Solar
Brafield Solar Limited UK Park Limited UK
Crossways Solar Park
Greenfields (T) Limited UK Limited UK
Helios Solar 1 Limited UK Empyreal Energy Limited UK
Helios Solar 2 Limited UK Fiskerton Limited UK
Hook Valley Farm Solar
Park Limited UK NextZest Limited UK
Knockworthy Solar Park
Limited UK
Lark Energy Bilsthorpe
Limited UK Pierces Solar Limited UK
Raglington Farm Solar
Le Solar 51 Limited UK Park Limited UK
Little Irchester Solar
Limited UK RRAM Energy Limited UK
Little Staughton Airfield Saundercroft Farm Solar
Solar Limited UK Park Limited UK
Micro Renewables Domestic
Limited UK SL Solar Services Limited UK
Micro Renewables Limited UK Sywell Solar Limited UK
NESH 3 Portfolio A Limited UK Tau Solar Limited UK
Temple Normanton Solar
Nextpower Bosworth Limited UK Limited UK
Nextpower Eelpower Limited UK NextPower Grange Limited UK
NextPower High Garrett
Limited UK Thornborough Solar Limited UK
NextPower South Lowfield
Nextpower Hops Energy UK Limited UK
Thurlestone-Leicester
Nextpower SPV 4 Limited UK Solar Limited UK
UK Solar (Fiskerton)
Nextpower SPV 6 Limited UK LLP UK
Wheb European Solar (UK)
Nextpower SPV 10 Limited UK 2 Limited UK
Nextpower Water Projects Wheb European Solar (UK)
Limited UK 3 Limited UK
Nextpower Eelpower (2) Whitley Solar Park (Ashcott
Limited UK Farm) Limited UK
Wyld Meadow Farm UK Wickfield Solar Limited UK
NextEnergy Solar Holdings
ESF Llwyndu Limited UK II Limited UK
NextEnergy Solar Holdings
VI Limited UK Trowbridge PV Limited UK
Green End Renewables Bowden Lane Solar Park
Limited UK Limited UK
Green End Renewables
Fenland Renewables Limited UK Limited UK
Tower Hill Farm Renewables
Limited UK
NextEnergy Solar Holdings
IV Limited UK
Berwick Solar Park Limited UK Emberton Solar Park Limited UK
Bottom Plain Solar Park Great Wilbraham Solar
Limited UK Park Limited UK
Branston Solar Park Limited UK Nextpower Radius Limited UK
NextEnergy Solar Holdings
V Limited UK
Agrosei S.r.l Italy Starquattro S.r.l Italy
Fotostar 6 S.r.l Italy SunEdison Med. 6 S.r.l Italy
Macchia Rotonda Solar
S.r.l Italy Agenor Hive S.L. * Spain
NextPower III LP Co-Invest
LP** Portugal
* Agenor Hive S.L. is an associate of the HoldCo, not a
subsidiary
** NextPower III LP Co-Invest LP is an investment of the HoldCo,
not a subsidiary or associate
19. Fair Value of Investment in Unconsolidated Subsidiaries
a) Valuation process
The valuation process is described in note 4(a).
The Directors and the Investment Manager consider that the
discounted cash ow methodology used in deriving the fair value of
investments in operating solar assets is in accordance with the
fair value requirements of IFRS 13 and that the valuation
methodology used, including the key estimates and assumptions
applied, is appropriate. As at 31 March 2023, investments held at
fair value using the discounted cash flow methodology totalled
GBP707.5m (2022:GBP699.6m).
During the prior year the Company invested directly in a private
equity fund NPIII LP. The fair value of the Company's investment in
private equity funds is generally considered to be the Company's
attributable portion of the NAV of the private equity fund, as
determined by the General Partner/Manager of such funds, adjusted
if considered necessary by the Board of Directors, including any
adjustment necessary for carried interest. The Board of Directors
and the Investment Manager consider the IPEV guidelines when
valuing private equity fund investments. As at 31 March 2023,
investments held at fair value using NAV totalled GBP31.0m (31
March 2022: GBP17.3m).
Investments in assets that are not yet operational (this
includes the co-investment into Project Agenor and NPIII LP
Co-Invest LP) are also held at fair value, where the cost of the
investment is used as an appropriate approximation of fair value.
These investments are not included in the sensitivity analyses in
note 19(b). As at 31 March 2023, investments held at cost which
approximates fair value totalled GBP103.3m (2022: GBP21.9m).
Another GBP12.5m of investments held at fair value relates to
the residual net assets of the HoldCos. Therefore, the total
operational fair value to which the sensitivity analysis has been
applied in the below tables is GBP707.5m.
b) Sensitivity Analyses of Changes in Signi cant Unobservable
Inputs to the Discounted Cash Flow Calculation
(i) Sensitivity analysis of changes in significant unobservable
inputs of underlying operating solar assets
Most of the Company's investments are valued using the
discounted cash ow methodology. Information on this methodology is
included in note 4(a). The Directors consider the following to be
signi cant unobservable inputs to the discounted cash ows
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
2023 2022
----------------------------------------------- -------- --------
Weighted average discount rate 7.3% 6.3%
6.75% to 5.75% to
Range of discount rates (unlevered to levered) 8.25% 7.25%
Premium applied to cash flows earned 30 years
after grid connection date 1.0% 1.0%
----------------------------------------------- -------- --------
The table below shows the sensitivity of the portfolio valuation
to a change to the weighted average discount rate by plus or minus
0.5%, with all other variables held constant.
Discount rate sensitivity +0.5% change Investments -0.5% change
------------------------------------------- ------------ ----------- ------------
31 March 2023
Directors' valuation (GBP18.8m) GBP707.5m GBP20.0m
Directors' valuation - percentage movement (2.7%) 2.8%
Change in NAV per ordinary share (3.2p) 3.4p
31 March 2022
Directors' valuation (GBP20.1m) GBP699.6m GBP21.6m
Directors' valuation - percentage movement (2.9%) 3.1%
Change in NAV per ordinary share (3.4p) 3.7p
------------------------------------------- ------------ ----------- ------------
The 2022 balance has been reclassified to conform to the current
year presentation which includes operational assets only
Power Price
As at 31 March 2023, estimates implied an average rate of growth
of UK electricity prices (2023-2042) of approximately -5.5% (2022:
-7.7%) in 2023 real terms and an average rate of growth of Italian
electricity prices (2023-2042) of approximately -6.4% (2022: -4.7%)
in 2023 real terms. As at 31 March 2023, estimates implied a
long-term inflation rate of 2.3% (2022: 2.3%).
The power price environment has remained high in 2023,
heightened by the ongoing conflict in Ukraine, leading to continued
higher power prices. The blended average of the 'central case'
scenarios have been applied to the valuation which includes the
impact of the current high power price environment.
The table below shows the sensitivity of the portfolio valuation
to a sustained decrease or increase in the power price by plus or
minus 10% on the valuation, with all other variables held
constant.
Power price sensitivity -10% change Investments +10% change
------------------------------------------- ----------- ----------- -----------
31 March 2023
Directors' valuation (GBP52.5m) GBP707.5m GBP50.9m
Directors' valuation - percentage movement (7.4%) 7.2%
Change in NAV per ordinary share (8.9p) 8.6p
31 March 2022
Directors' valuation (GBP48.9m) GBP699.6m GBP46.5m
Directors' valuation - percentage movement (7.0%) 6.6%
Change in NAV per ordinary share (8.3p) 7.9p
------------------------------------------- ----------- ----------- -----------
The 2022 balance has been reclassified to conform to the current
year presentation which includes operational assets only
Energy Generation
The portfolios aggregate energy generation yield depends on the
combination of solar irradiation and technical performance of the
solar assets. The table below shows the sensitivity of the
portfolio valuation to a sustained decrease or increase of energy
generation plus or minus 5% on the valuation, with all other
variables held constant.
Energy generation sensitivity -5% underperformance Investments +5% outperformance
------------------------------------------- -------------------- ----------- ------------------
31 March 2023
Directors' valuation (GBP43.9m) GBP707.5m GBP43.1m
Directors' valuation - percentage movement (6.2%) 6.1%
Change in NAV per ordinary share (7.4p) 7.3p
31 March 2022
Directors' valuation (GBP46.2m) GBP699.6m GBP43.9m
Directors' valuation - percentage movement (6.6%) 6.3%
Change in NAV per ordinary share (7.8p) 7.5p
------------------------------------------- -------------------- ----------- ------------------
The 2022 balance has been reclassified to conform to the current
year presentation which includes operational assets only
Inflation Rates
The portfolio valuation assumes long-term inflation of 2.3%
(2022: 2.3%) p.a. for investments (based on UK RPI).
The table below shows the sensitivity of the portfolio valuation
to a change to the inflation rate by plus or minus 1.0% (2022:
3.0%), with all other variables held constant.
Inflation rate sensitivity -1.0% change Investments +1.0% change
------------------------------------------- ------------ ----------- ------------
31 March 2023
Directors' valuation (GBP45.8m) GBP707.5m GBP51.3m
Directors' valuation - percentage movement (6.5%) 7.3%
Change in NAV per ordinary share (7.8p) 8.7p
31 March 2022 -3.0% change Investments +3.0% change
Directors' valuation (GBP132.9m) GBP699.6m GBP191.1m
Directors' valuation - percentage movement (19.0%) 27.3%
Change in NAV per ordinary share (22.6p) 32.4p
------------------------------------------- ------------ ----------- ------------
The 2022 balance has been reclassified to conform to the current
year presentation which includes operational assets only
Operating Costs
The table below shows the sensitivity of the portfolio to
changes in operating costs by plus or minus 5% (2022: 5%) at the
SPVs level, with all other variables held constant.
Operating costs sensitivity +5% change Investments -5% change
------------------------------------------- ---------- ----------- ----------
31 March 2023
Directors' valuation (GBP6.4m) GBP707.5m GBP6.5m
Directors' valuation - percentage movement (0.9%) 0.9%
Change in NAV per ordinary share (1.1p) 1.1p
31 March 2022
Directors' valuation (GBP6.5m) GBP699.6m GBP6.5m
Directors' valuation - percentage movement (0.9%) 0.9%
Change in NAV per ordinary share (1.1p) 1.1p
------------------------------------------- ---------- ----------- ----------
The 2022 balance has been reclassified to conform to the current
year presentation which includes operational assets only
Tax Rates
The UK corporation tax rate used in the portfolio valuation is
19% until April 2023 and 25% thereafter (2022: 19% until 2023 and
25% thereafter), in accordance with the latest UK Budget
announcements.
(ii) Sensitivity analysis of changes in significant unobservable
inputs of Private Equity Investments
The NAV of NPIII LP, the direct private equity investment as at
31 March 2023 was GBP31.0m (2022: GBP17.3m). The valuation of
private equity investments is subject to changes in the valuations
of the underlying portfolio companies. These can be exposed to a
number of risks, including liquidity risk, price risk, currency
risk and interest rate risk.
A movement of 10% in the value of the private equity investment
would move the Company's investments held at fair value at the year
end by 0.4% (2022: 0.2%).
20. Non-investment Financial Assets and Liabilities
Cash and cash equivalents are Level 1 items in the fair value
hierarchy.
Current assets and current liabilities are Level 2 items in the
fair value hierarchy, with their carrying value being approximates
for their fair values as these are short-term items.
The preference shares are held at amortised cost using the
effective interest method and are measured at gross proceeds net of
transaction costs incurred, as at 31 March 2023 they are held at
GBP198.2m (2022: GBP198.1m). The transaction costs are amortised
over the expected life of the preference shares to 2036. Preference
shares are a Level 3 item in the fair value hierarchy with their
carrying value approximating their fair value of GBP198.2m as at 31
March 2023. The fair value of the preference shares was calculated
based on projected future cash flows for the preference shares
using a market related discount rate adjusted for risk factors.
21. Capital Management
a) Capital Structure
The NESF Group, which comprises the Company and its
unconsolidated subsidiaries (being the direct investment in NPIII
LP, HoldCos and SPVs), manages its capital to ensure that it will
be able to continue as a going concern whilst maximising the return
to ordinary shareholders through the optimisation of the debt and
equity balances. The NESF Group's principal use of cash has been to
fund investments in accordance with the Company's Investment Policy
as well as ongoing operational expenses.
The capital structure of the Company consists entirely of equity
(comprising issued ordinary share capital and retained earnings)
and preference share capital (which, for accounting purposes is
treated as a liability). The capital structure of each of the
Company's subsidiaries consists entirely of equity or a combination
of equity and debt, which may be short- or long-term. The Board,
with the assistance of the Investment Adviser, monitors and reviews
the NESF Group's capital structure on an ongoing basis.
b) Debt
The Company's Investment Adviser reviews the debt structure of
the Company and its subsidiaries on an ongoing basis. The Company
and its subsidiaries use leverage for financing the acquisition of
solar investments and working capital purposes. In accordance with
the Company's Investment Policy, the NESF Group may employ
leverage, provided that it does not exceed (at the time the
relevant arrangement is entered into) 50% of GAV. For this purpose,
leverage includes all short- and long-term debt raised by the
Company or any of its subsidiaries, as well as the aggregate
subscription monies paid in respect of all preference shares in
issue and any unpaid dividends due in respect of the preference
shares.
As at 31 March 2023, the Company had GBP200m of preference
shares in issue (2022: GBP200m) and no financial debt outstanding.
The subsidiaries had GBP345.3m in long-term debt, look through debt
and revolving credit facilities outstanding (2022: GBP283.3m) (see
note 23(b), representing a gearing level of 45% (2022: 42%).
22. Financial Risk Management Objectives
The Board, with the assistance of the Investment Manager and
Investment Adviser, monitors and manages the financial risks
relating to the operations of the NESF Group through an internal
risk map and the Investment Manager's reports. These risks include
capital risk, market risk (including price risk, power price risk,
currency risk and interest rate risk), credit risk and liquidity
risk. The objective of the risk management programme is to minimise
the potential adverse effects on the financial performance of the
NESF Group.
For the Company and its subsidiaries, financial risks are
managed by the Investment Manager and Investment Adviser, which
operate within Board-approved policies. The various types of
financial risk which affect the Company, its subsidiaries or both
are managed as described below. Risks that affect the Company's
unconsolidated subsidiaries may affect in turn the fair value of
investments held by the Company.
a) Capital Risk (Company Only)
The Company has put in place a financing structure that enables
it to manage its capital effectively. The Company's capital
structure comprises equity (issued ordinary share capital and
retained earnings) and preference share capital. As at 31 March
2023 the Company had no recourse financial debt, although the
Company is a guarantor for two financing and hedging facilities of
its subsidiaries (see note 25).
b) Market Price Risk (Company and Subsidiaries)
Market price risk is the risk that the fair value of future cash
flows of a financial instrument held by the Company, through its
subsidiaries, will fluctuate because of changes in market prices.
Changes in market prices will affect the discount rate applied to
the expected future cash flows from the Company's investments and,
therefore, the fair value of those investments. The impact of
changes in the discount rate is considered in note 19.
Power Price Risk (Company and Subsidiaries)
The wholesale market price of electricity is volatile and is
affected by multiple factors, including demand for electricity, the
generation across the entire grid and government subsidies, as well
as fluctuations in the market prices of fuel commodities and
foreign exchange. Whilst some of the Company's investments benefit
from subsidies and short-term PPA hedges that fix prices, other
revenue streams are not hedged and subject to wholesale electricity
prices.
The Investment Adviser monitors these factors and hedges the
price at which the subsidiaries sell electricity as necessary.
Currency Risk (Company and NESH V)
Foreign currency risk, as de ned in IFRS 7, arises as the values
of recognised monetary assets and monetary liabilities denominated
in other currencies uctuate due to changes in foreign exchange
rates. The Company has no material exposure to currency risk as all
its assets and liabilities are in pounds sterling, the Company's
functional and presentational currency. A substantial majority of
the cash ows from the Company's solar assets in Italy to NESH V are
hedged and so the cash ows to the Company from that HoldCo are
exposed to limited currency risk and therefore the currency risk on
the unhedged portion of Company cash flows is not considered to be
signi cant.
Interest Rate Risk (Company and Subsidiaries)
The Company is indirectly exposed to interest rate risk from the
credit facilities of the HoldCos, as at 31 March 2023. Of the
GBP345.3m (2022: GBP278.5m) credit facilities outstanding
(excluding NPIII LP look through debt of GBP7.7m), GBP112.0m (2022:
GBP115.8m) had fixed interest rates and the remaining GBP225.6m
(2022: GBP162.7m) 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 GBP59.3m (2022:
GBP66.5m). The counterparties to these swaps are all Investment
grade financial institutions. The remaining GBP166.3m (2022:
GBP96.2m) had floating rates which are not hedged and a change in
interest rates would not have a material impact to the Company.
c) Credit Risk (Company and Subsidiaries)
Credit risk is the risk that a counterparty will default on its
contractual obligations resulting in a financial loss to the
Company or the subsidiary that is a party to the contract. Credit
risk arises from cash and cash equivalents and derivative financial
instruments, as well as credit exposures to customers.
The Company and its subsidiaries mitigate their risk of cash and
derivative transactions by only transacting with major
international financial institutions with high credit ratings
assigned by international credit rating agencies. At the investment
level, the credit risk relating to significant counterparties is
reviewed on a regular basis, in conjunction with monitoring the
credit ratings issued by recognised credit rating agencies, and
potential adjustments to the discount rate are considered to
recognise changes to credit risk where applicable. The Directors
believe that the NESF Group is not significantly exposed to the
risk that the customers of its investments do not fulfil their
payment obligations because of the NESF Group's policy to invest in
jurisdictions and with customers with satisfactory credit
ratings.
The Company's maximum exposure to credit risk is the carrying
amounts of the respective financial assets set out below:
31 March 31 March
2023 2022
GBP'000 GBP'000
---------------------------- -------- --------
Cash and cash equivalents 14,354 19,608
Trade and other receivables 6,524 16,389
Debt investments 306,554 306,554
---------------------------- -------- --------
Total 327,432 342,551
---------------------------- -------- --------
Debt investments relate to Eurobonds which have been valued at
fair value as part of the Company's investments as disclosed in
note 17. No collateral is received from NESH III or NESH V in
relation to the Eurobonds. The credit quality of these investments
is based on the nancial 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 signi cant 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 nancial condition of accounts receivable. As at
31 March 2023, the probability of default of the Company's
subsidiaries was considered low and so no allowance has been
recognised based on 12-month expected credit loss as any impairment
would be insigni cant to the subsidiary (2022: none). The
Investment Adviser has suf cient 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 Cash
& Poor's GBP'000
------------------ --------------- --------
31 March 2023
Long - A+
Barclays Bank PLC Short - A-1 14,354
31 March 2022
Long - A
Barclays Bank PLC Short - A/A-1 19,608
------------------ --------------- --------
d) Liquidity Risk (Company and subsidiaries)
Liquidity risk is the risk that the NESF Group will not be able
to meet its nancial 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 ows and matching the maturity pro les of assets and
liabilities and maintaining suf cient cash balances to meet their
operating needs.
The following table shows the maturity of the Company's
non-derivative nancial assets and liabilities. The amounts
disclosed are contractual, undiscounted cash ows and may differ
from the actual cash ows received or paid in the future as a result
of early repayments.
Greater
Carrying Up to 3 3 to 12 than 12
amount months months months
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------ --------- -------- -------- ---------
31 March 2023
Assets
Cash and cash equivalents 14,354 14,354 - -
Trade and other receivables 6,524 6,524 - -
Liabilities
Contractual preference shares
repayment and dividends payable(1) (198,197) (2,342) (7,158) (323,500)
Trade and other payables (2,613) (2,613) - -
------------------------------------ --------- -------- -------- ---------
31 March 2022
Assets
Cash and cash equivalents 19,608 19,608 - -
Trade and other receivables 16,389 16,389 - -
Liabilities
Contractual preference shares
repayment and dividends payable(1) (200,400) (2,342) (7,132) (333,000)
Trade and other payables (9,443) (9,443) - -
------------------------------------ --------- -------- -------- ---------
1 Assumes no conversion of preference shares in 2036
23. Preference Shares and Revolving Credit and Debt Facilities
a) Preference shares
On each of 12 November 2018 and 12 August 2019, the Company
issued 100,000,000 preference shares at a price of 100p per
preference share. The preference shares pay a preferred dividend of
4.75% p.a. until March 2036, after which they have the right to
convert, based on 100p per preference share and the NAV per
ordinary share at the time of conversion, into new ordinary shares
or a new class of unlisted B shares with dividend and capital
rights ranking pari passu with the ordinary shares. The preference
shares do not confer any voting rights, except in limited
circumstances.
The preference shares are redeemable at the option of the
Company at any time after 1 April 2030, in full or in part. The
redemption price will be the subscription price plus any unpaid
dividends. In addition, the preference shares may be redeemed in
full at the option of the holders in the event of a delisting or
change of control of the Company.
Carrying
Opening Amortisation Amount
GBP'000 GBP'000 GBP'000
------------------ -------- ------------ --------
31 March 2023
Preference shares 198,058 139 198,197
31 March 2022
Preference shares 197,919 139 198,058
------------------ -------- ------------ --------
b) Revolving credit and debt facilities
The Company's HoldCos have revolving credit and debt facilities
which are factored into the calculation of the fair value of the
underlying investments.
In January 2017, NESH closed a syndicated loan with MIDIS, NAB
and CBA for GBP157.5m ('Project Apollo') to refinance its revolving
credit facility. As part of the facility agreement, the lenders
provide an additional Debt Service Reserve Facility of GBP7.5m and
hold a charge over the assets of NESH. As at 31 March 2023, the
nominal outstanding amount was GBP141.9m (2022: GBP145.1m).
In June 2021, NESH III closed a RCF with National Westminster
Bank plc and AIB Group (UK) p.l.c. for GBP75.0m which GBP75.0m was
subsequently drawn down. In September 2022, the facility was
increased to total commitment of GBP135.0m. As at 31 March 2023,
the outstanding amount was GBP135.0m (2022: GBP75.0m).
In March 2016, NESH IV agreed the purchase of Project Radius.
The acquisition was part funded by a debt facility entered between
NESH IV and Macquarie Bank Limited for GBP55.0m, which was fully
drawn down in April 2016. As part of the debt facility agreement
Macquarie Bank Limited holds a charge over the assets of NESH IV.
As at 31 March 2023, the nominal outstanding amount was GBP46.8m
(2022: GBP47.3m).
In July 2018, NESH VI closed a RCF with Santander for GBP40.0m
which was subsequently fully drawn down. In January 2019, the
facility was increased to a total commitment of GBP70.0m with a
subsequent GBP30.0m drawdown. In August 2019, GBP56.0m was repaid.
In February 2021 GBP35.2m was drawn down. As at 31 March 2023, the
outstanding amount was GBP31.3m (2022: GBP21.1m).
24. Reconciliation of Financing Activities
Net Income Non-cash Carrying
Opening Cash Flows Allocation Flows Amount
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------ -------- ---------- ----------- -------- --------
31 March 2023
Preference shares 198,058 (9,500) 9,500 139 198,197
31 March 2022
Preference shares 197,919 (9,500) 9,500 139 198,058
25. Commitments and Guarantees
The Company had parental guarantees in place with two financial
institutions for its subsidiaries, debt obligations and a currency
hedge transaction executed through subsidiaries.
The Company, through its Holdco, had forward and development
funding facilities in relation to the construction of subsidy-free
development projects. As at 31 March 2023, the facilities amounted
to nil and nil respectively (2022: GBP3m and GBP1.4m).
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 GBP2,500,000. As at 31 March 2023, a letter of credit
of GBP2,500,000 was in issue (2022: GBP2,374,426).
On 1 December 2017, the Company provided a guarantee to Intesa
Sanpaolo S.p.A. ("ISP") relating to derivative transactions made
available to NESH V. The guarantee covers all present and future
obligations of NESH V to ISP relating to the derivative
transactions. As at 31 March 2023 the Company has no outstanding
commitments related to this guarantee (2022: none).
The Company has a remaining commitment to NPIII LP of US$11.9m
as at 31 March 2023 (2022: $25.9m). The Company, through its
subsidiary, has a remaining commitment of EUR EUR0.0m in relation
to the co-investment in Project Agenor as at 31 March 2023 (2022:
EUR1.0m). The Company, through its subsidiary, has a remaining
commitment of EUREUR2.0m in relation to the co-investment in
Project Santarem as at 31 March 2023 (2022: none). The Company,
through its HoldCos, had other project spending commitments
totalling GBP26.5m as at 31 March 2023.
26. Related Parties
The Investment Manager, the Investment Adviser and the Asset
Manager are considered to be related parties in light of their
responsibilities in implementing the investment strategy set by the
Board of Directors and directing the activities of Group entities.
All management fee transactions with the Investment Manager are
disclosed in note 5.
Fees of GBP94,049 (2022: GBPnil) were charged by the Investment
Adviser for ESG related services and this is included in legal and
professional fees in the Statement of Comprehensive Income. GBPnil
was outstanding at year end (2022: GBPnil).
Under existing arrangements with the Asset Manager, each of the
operating subsidiaries of the Company entered into an asset
management agreement with the Asset Manager and each of the HoldCos
entered into on accounting services agreement with the Asset
Manager. The total value of recurring and one-off services paid to
the Asset Manager by the subsidiaries during the period amounted to
GBP7.6m (2022: GBP6.6m).
At 31 March 2023 GBP5.9m (2022: GBP8.3m) was owed from the
subsidiaries in relation to their restructuring, GBP5.9m being cash
trapped within the structure at year end (2022: GBP8.0m). GBP10.4m
of administrative service fees were received from the subsidiaries
during the year (2022: GBP10.2m), GBP504k of which was outstanding
at 31 March 2023 (2022: GBPnil). During the year, dividends of
GBP56.3m (2022: GBP42.0m) were received from the subsidiaries.
Refer to note 11 and 12 for terms and conditions on amounts due
from and to subsidiaries.
During the prior year the Company committed US$50m to NPIII LP,
as a Limited Partner governed by a Limited Partnership Agreement,
with US$38.1m drawn as at 31 March 2023 (2022: US$24.1m). The
Investment Manager, the Investment Adviser and the Asset Manager
are all professionally engaged to provide services to this fund.
Equalisation interest of nil (2022: GBP0.8m) was received due to
subsequent closes of NPIII LP. The principal activity of NPIII LP
is to invest in solar photovoltaic plants globally (primarily in
OECD countries). The Company has committed a fixed amount of
capital which may be drawn (and returned) over the life of NPIII
LP. The Company pays capital calls when due and receives
distributions from NPIII LP over the life of the fund. The
outstanding commitment to NPIII LP is disclosed in note 25.
During the year to 31 March 2023, NextEnergy Solar Holdings II
Limited and its subsidiaries were sold to RRAM Energy Limited (a
subsidiary of NextEnergy Solar Holdings III Limited) for
consideration of GBP33.4m.
The Directors' fees for the year ended 31 March 2023 amounted to
GBP277k (2022: GBP222k).
As at 1 June 2023, NextEnergy Capital Group employees held
1,532,060 shares in NESF.
27. Controlling Parties
In the opinion of the Directors, on the basis of shareholdings
disclosed to them, the Company has no immediate nor ultimate
controlling party.
28. Events After the Balance Sheet Date
On 11 May 2023, the Directors approved a dividend of 1.88 pence
per ordinary share for the quarter ended 31 March 2023 to be paid
on 30 June 2023 to ordinary shareholders on the register as at the
close of business on 19 May 2023.
On 27 April 2023, the Board announced a capital recycling
programme. Through the programme, the Company aims to capture
significant value from the divestment of a 236MW portfolio of
subsidy-free UK solar assets, the proceeds from which will be used
to reduce gearing, invest in future long-term growth opportunities
and, if appropriate, buyback shares.
Alternative Performance Measures ( "APMs")
We assess our performance using a variety of measures that are
not specifically defined under IFRS and are therefore termed APMs.
The APMs that we use may not be directly comparable with those used
by other companies. Our APMs, which are shown below, are used to
present a clearer picture of how the Company has performed over the
year and are all financial measures of historical performance.
Asset Management Alpha
Asset Management Alpha measures the operating performance of the
portfolio. It is the performance of the portfolio relative to
budget due to active management and excludes the effect of
variation in solar irradiation.
Year ended Year ended
31 Mar 31 Mar
2023 2022
% %
------------------------------------ ---------- ----------
Delta of generation vs. budget (A) 3.8 1.8
Delta of irradiation vs. budget (B) 7.5 3.4
------------------------------------ ---------- ----------
Asset Management Alpha (A - B) (3.7) (1.6)
------------------------------------ ---------- ----------
Invested Capital
Invested capital measures the capital deployed into solar assets
through the HoldCos and SPVs to generate investment returns for
shareholders.
31 March 31 March
2023 2022
GBP'000 GBP'000
----------------- --------- ---------
Invested capital 1,133,769 1,038,648
----------------- --------- ---------
Total Gearing
Total gearing measures the aggregate of the NESF Group's
financial debt and fair value of the preference shares relative to
GAV.
31 March 31 March
2023 2022
GBP'000 GBP'000
-------------------------------------------------- -------- --------
NESF Group's outstanding financial debt (A) 345,275 283,304
Preference shares as per Statement of Financial
Position (B) 198,197 198,058
Net assets as per Statement of Financial Position
(C) 674,420 668,500
-------------------------------------------------- -------- --------
Total gearing ((A + B) / (A + B + C)), expressed
as a percentage) 44.6% 41.9%
-------------------------------------------------- -------- --------
Financial Debt Gearing
Financial debt gearing measures the aggregate of the NESF
Group's financial debt relative to GAV.
31 March 31 March
2023 2022
GBP'000 GBP'000
-------------------------------------------------- -------- --------
NESF Group's outstanding financial debt (A) 345,275 283,304
Preference shares as per Statement of Financial
Position (B) 198,197 198,058
Net assets as per Statement of Financial Position
(C) 674,420 668,500
-------------------------------------------------- -------- --------
Financial debt gearing ((A) / (A + B + C)),
expressed as a percentage) 28.4% 24.6%
-------------------------------------------------- -------- --------
Cash Income
Cash income measures the cash generated from the Company's
operations.
31 March 31 March
2023 2022
GBP'000 GBP'000
------------------------------------------------ -------- --------
Income as per Statement of Comprehensive Income
(A) 79,023 65,034
Trade and other receivables - administrative
service fee income accrual at beginning of
year (B) - 758
Trade and other receivables - administrative
service fee income accrual at end of year (C) (504) -
------------------------------------------------ -------- --------
Cash income (A + B - C) 78,519 65,792
------------------------------------------------ -------- --------
Cash Dividend Cover (Pre-scrip Dividends)
Cash dividend cover (pre-scrip dividends) measures the cash
available to pay ordinary share dividends, treating all scrip
dividends as if they had been paid as cash dividends.
31 March 31 March
2023 2022
GBP'000 GBP'000
--------------------------------------------------- -------- --------
Cash Income as per the table above (A) 78,519 65,792
Total expenses as per Statement of Comprehensive
Income (B) 17,709 16,190
Pre-scrip ordinary dividends paid as per Statement
of Changes in Equity (C) 43,807 41,940
--------------------------------------------------- -------- --------
Cash dividend cover (pre-scrip dividends)
((A - B) / C) 1.4x 1.2x
--------------------------------------------------- -------- --------
Dividend Yield
Dividend yield is a measure of the return to the ordinary
shareholders.
31 March 31 March
2023 2022
GBP'000 GBP'000
-------------------------------------------------- -------- --------
Dividend per ordinary share (A) 7.52 7.16
Ordinary share price at end of year (B) 104.8 103.4
-------------------------------------------------- -------- --------
Dividend yield (A / B, expressed as a percentage) 7.18% 6.92%
-------------------------------------------------- -------- --------
NAV per Ordinary Share
NAV per ordinary share is a measure of the value of one ordinary
share.
31 March 31 March
2023 2022
pence pence
-------------------------------------------------- ----------- -----------
Net assets as per Statement of Financial Position
(GBP'000) (A) 674,420 668,500
Number of ordinary shares in issue at year
end (B) 590,254,181 589,077,244
-------------------------------------------------- ----------- -----------
NAV per ordinary share ((A / B) x 100) 114.3p 113.5p
-------------------------------------------------- ----------- -----------
NAV Total Return per Ordinary Share
NAV total return per ordinary share is a measure of the overall
financial performance of the Company and measures the combined
effect of dividends paid together with the rise or fall in the
NAV.
Year ended Year ended
31 Mar 31 Mar
2023 2022
pence pence
--------------------------------------------- ---------- ----------
Basic NAV per ordinary share at year end as
per Statement of Financial Position (A) 114.3 113.5
Annual dividend per ordinary share declared
in respect of year (B) 7.52 7.16
Basic NAV per ordinary share at beginning of
year as per Statement of Financial Position
(C) 113.5 98.9
--------------------------------------------- ---------- ----------
NAV total return per ordinary share ((A +
B - C) / C, expressed as a percentage) 7.33% 21.98%
--------------------------------------------- ---------- ----------
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
2023 2022
pence Pence
------------------------------------------------- -------- --------
Ordinary share price at year end (A) 104.8 103.4
Annual dividend per ordinary share declared/paid
in respect of year (B) 7.52 7.16
Ordinary share price at beginning of year (C) 103.4 99.6
------------------------------------------------- -------- --------
Ordinary shareholder total return per share
((A + B - C) / C, expressed as a percentage) 8.63% 11.0%
------------------------------------------------- -------- --------
Discount to NAV per Ordinary Share
Discount to NAV per ordinary share is a measure of the
performance of the ordinary share price relative to the NAV per
ordinary share.
31 March 31 March
2023 2022
pence Pence
---------------------------------------------------- -------- --------
Ordinary share price at year end (A) 104.8 103.4
NAV per ordinary share at year end as per Statement
of Financial Position (B) 114.3 113.5
---------------------------------------------------- -------- --------
Discount to NAV per Ordinary Share ((A - B)
/ B, expressed as a percentage) (8.3%) (8.9%)
---------------------------------------------------- -------- --------
Ongoing Charges
Ongoing charges measures the Company's recurring operating costs
(excluding the costs of acquisition or disposal of investments,
financing charges and gains or losses arising on investments) as a
percentage of the average of the net assets at the end of each of
the last four consecutive quarters ending at the period end.
31 March 31 March
2023 2022
GBP'000 GBP'000
-------------------------------------------------- -------- --------
Total expenses as per Statement of Comprehensive
Income (A) 17,709 16,181
Preference share dividends as per Statement
of Comprehensive Income (B) 9,500 9,454
Non- recurring expenses (C) 700 248
Average of quarterly net assets (D) 705,851 595,637
-------------------------------------------------- -------- --------
Ongoing charges ratio ((A - B - C) / D, expressed
as a percentage) 1.06% 1.09%
-------------------------------------------------- -------- --------
General Shareholder Information
Alternative Investment Fund Management Directive ("AIFMD")
The AIFMD aims to harmonise the regulation of Alternative
Investment Fund Managers ("AIFMs") and imposes obligations on
managers who manage or market Alternative Investment Funds ("AIFs")
in the EU or who market shares in such funds to EU investors.
The Company is a non-EU AIF and has appointed NextEnergy Capital
IM Limited as its non-EU AIFM. The Company's marketing activities
in the UK and the EU are subject to regulation under the AIFMD and
any applicable National Private Placement Regimes ("NPPRs"). NPPRs
provide a mechanism to market non- EU AIFs that are not allowed to
be marketed under the AIFMD domestic marketing regimes. The Board
uses NPPRs to market the Company, specifically in the UK, the
Republic of Ireland, the Netherlands and Sweden.
In accordance with the AIFMD, information in relation to the
Company's leverage and remuneration of the Investment Manager, as
the Company's AIFM, are required to be made available to investors.
These disclosures, including those on the AIFM's remuneration
policy, are available on request from the Investment Manager.
Packaged Retail and Insurance-Based Investment Products
("PRIIPs") Regulation/Key Information Document ("KID")
The PRIIPs Regulation aims to ensure retail investors are
provided with transparent and consistent information across
different types of financial products.
The Company is a PRIIP. The PRIIPs Regulation requires the
Investment Manager to publish a KID in respect of the Company that
includes standardised illustrations of theoretical risk and
returns. The KID is available on the Company's website under
Investor Relations (nextenergysolarfund.com).
The Company is not responsible for the information contained in
the KID and investors should note that the procedures for
calculating the risks, costs and potential returns are prescribed
by law. The figures in the KID may not reflect the expected returns
for the Company and anticipated performance returns cannot be
guaranteed.
Foreign Account Tax Compliance Act ("FATCA")/ OECD Common
Reporting Standard ("CRS")
FATCA is a United States federal law enacted in 2010, the intent
of which is to enforce the requirement for United States persons
(including those living outside the US) to file yearly reports on
their non-US financial accounts. Developed and approved by the OECD
in 2014, the CRS is a global standard for the automatic exchange of
financial account information between governments around the world
to help fight against tax evasion and protect the integrity of
systems.
The Board, in conjunction with the Company's service providers
and advisers, will ensure the Company's compliance with the FATCA
and CRS requirements to the extent relevant to the Company.
Markets in Financial Instruments Directive II ("MiFID II")
Status
MiFID II requires retail investors in complex products to be
assessed for "knowledge and understanding" by distributing firms if
they are buying them without advice.
The Company's ordinary shares are considered as "non-complex" in
accordance with MiFID II.
Retail Distribution of the Company's Shares Via Financial
Advisers and Other Third-Party Promoters
The FCA's rules restrict the promotion of investment products
classified as "non-mainstream pooled investment products" to retail
investors. The restrictions do not apply to ordinary shares in a UK
investment trust or non-UK investment company which would qualify
for approval as an investment trust under section 1158 of the
Corporation Tax Act 2010 if resident and listed in the UK.
The Board has been advised that the Company would qualify as an
investment trust if it was resident in the UK. Accordingly, the
promotion and distribution of the Company's ordinary shares are not
subject to the FCA's restrictions referred to above.
The Company currently conducts its affairs so that its ordinary
shares can be recommended by financial advisers to retail investors
and intends to continue to do so for the foreseeable future.
ISA Status
NESF's ordinary shares are eligible for stocks and shares
ISAs.
The Company intends to continue to manage its affairs so that
its ordinary shares qualify as an eligible investment for a stocks
and shares ISA.
Net Asset Value per Ordinary Share
The NAV per ordinary share is calculated on a quarterly basis
and published through a stock exchange announcement.
Scrip Dividends
The Company offers a scrip dividend alternative to shareholders.
For further information, please see the scrip dividend alternative
circular for the year ended
31 March 2023, which is available under "Publications" in the
Investor Relations section of the Company's website
(nextenergysolarfund.com).
Additional Information
Copies of the Company's Annual and Interim Reports, quarterly
fact sheets and stock exchange announcements, together with
information on the Company's ordinary
share price, NAV per ordinary share, historic ordinary
share and NAV performance, along with further information, is
available on the Company's website (nextenergysolarfund.com).
Financial Calendar for Year Ending 31 March 2024
Interim results announced November 2023
Annual results announced June 2024
Annual General Meeting August 2024
Interim dividends
In the absence of unforeseen circumstances, the Directors expect
to declare and pay the following interim dividends per ordinary
share in respect of the financial year ending 31 March 2024.
Announcement Ex-dividend Payment
Dividend date date date Amount
--------- ------------- ------------ -------- ------
17 Aug 24 Aug 30 Sept
1st 23 23 23 2.09p
16 Nov 23 Nov 31 Dec
2nd 23 23 23 2.09p
31 Mar
3rd Feb 24 Feb 24 24 2.09p
30 Jun
4th May 24 May 24 24 2.09p
Cautionary Statement
This Annual Report and the Company's website may contain certain
"forward-looking statements" with respect to the Company's
financial condition, results of its operations and business, and
certain plans, strategies, objectives, goals and expectations with
respect to these items and the markets in which the Company
invests. Forward-looking statements are sometimes, but not always,
identified by their use of a date in the future or such words as
"aims", "anticipates", "believes", "estimates", "expects",
"intends", "targets", "objective", "could", "may", "should", "will"
or "would" or, in each case, their negative or other variations or
comparable terminology.
Forward-looking statements are not guarantees of future
performance. By their very nature forward-looking statements are
inherently unpredictable, speculative and involve risk and
uncertainty because they relate to events and depend on
circumstances that will occur in the future. Many of these
assumptions, risks and uncertainties relate to factors that are
beyond the Company's ability to control or estimate precisely.
There are a number of such factors that could cause the Company's
actual investment performance, results of operations, financial
condition, liquidity, dividend policy and financing strategy to
differ materially from those expressed or implied by these
forward-looking statements. These factors include, but are not
limited to: changes in the economies and markets in which the
Company operates; changes in the legal, regulatory and competition
frameworks in which the Company operates; changes in the markets
from which the Company raises finance; the impact of legal or other
proceedings against or which affect the Company; changes in
accounting practices and interpretation of accounting standards
under IFRS; and changes in power prices and interest and exchange
rates.
Any forward-looking statements made in this Annual Report or the
Company's website, or made subsequently, which are attributable to
the Company, or persons acting on its behalf (including the
Investment Manager and Investment Adviser), are expressly qualified
in their entirety by the factors referred to above. Each
forward-looking statement speaks only as of the date it is made.
Except as required by its legal or statutory obligations, the
Company does not intend to update any forward-looking
statements.
Nothing in this Annual Report or the Company's website should be
construed as a profit forecast or an invitation to deal in the
securities of the Company.
Glossary and Definitions
Administrator Ocorian Administration (Guernsey) Limited
AGM Annual General Meeting
-----------------------------------------------------------
AIC The Association of Investment Companies
-----------------------------------------------------------
AIC Code The AIC Code of Corporate Governance (February
2019)
-----------------------------------------------------------
AIFM Alternative Investment Fund Manager for the purpose
of the EU's Alternative Investment Fund Management
Directive (see above for further information)
-----------------------------------------------------------
Asset Management The difference between (i) the delta of generation
Alpha vs. budget and (ii) the delta of irradiation vs.
budget
-----------------------------------------------------------
Apollo portfolio 21 UK solar plants held within NESH (see the Operating
Portfolio - Overview above for further details)
-----------------------------------------------------------
Asset Manager WiseEnergy (Great Britain) Limited and WiseEnergy
or Italia Srl
WiseEnergy
-----------------------------------------------------------
Brexit The withdrawal of the United Kingdom from the European
Union
-----------------------------------------------------------
Capacity Market The Capacity Market is a UK Government initiative
Auction that ensures security of electricity supply by
providing a payment for reliable sources of capacity
-----------------------------------------------------------
Cash dividend The ratio of the Company's cash income to dividends
cover paid or payable in respect of the financial period/year
-----------------------------------------------------------
CBA Commonwealth Bank of Australia
-----------------------------------------------------------
Company or NextEnergy Solar Fund Limited
NESF
-----------------------------------------------------------
Consultants The three independent market forecasters used by
the Company
-----------------------------------------------------------
CO2e or A term for describing different greenhouse gases
carbon dioxide in a common unit. For any quantity and type of
equivalent greenhouse gas, CO2e signifies the amount of CO2
which would have the equivalent global warming
impact
-----------------------------------------------------------
DNO Distribution Network Operators ("DNOs") are regionally
based licensed companies responsible for completing
rolling programmes of preventative maintenance
and upgrade works to ensure stability of the energy
supplied to consumers
-----------------------------------------------------------
DNOO Distribution Network Operator Outages
-----------------------------------------------------------
EBITDA Earnings before interest, tax, depreciation and
amortisation
-----------------------------------------------------------
Embedded benefits Supplier costs that are reduced or avoided via
contracting with small-scale generation connected
at the distribution network level instead of the
national transmission system
-----------------------------------------------------------
EPC Engineering, Procurement and Construction
-----------------------------------------------------------
ESG Environmental, Social and Governance
-----------------------------------------------------------
FCA Financial Conduct Authority
-----------------------------------------------------------
FiT Feed-in-Tariff schemes are financial mechanisms
by which the UK Government incentivised the deployment
of small-scale renewable energy generation and
the Italian Government incentivised the deployment
of large-scale renewable energy generation by requiring
participating licensed electricity suppliers to
make payments on both generation and export from
eligible installations
-----------------------------------------------------------
GAV Gross asset value, being the aggregate of the net
asset value of the ordinary shares, the fair value
of the preference shares and the amount of NESF
Group debt outstanding
-----------------------------------------------------------
GW Gigawatt, a unit of power equal to 1,000 MW
-----------------------------------------------------------
GWh GW hour, a measure of electricity generated per
hour
-----------------------------------------------------------
HoldCos Intermediate holding companies used by the Company
as pass-through vehicles to invest in underlying
solar energy infrastructure assets, currently being
NESH, NESH III, NESH IV, NESH V and NESH VI
-----------------------------------------------------------
IFRS International Financial Reporting Standards
-----------------------------------------------------------
Investment NextEnergy Capital Limited
Adviser or
NEC
-----------------------------------------------------------
Investment NextEnergy Capital IM Limited
Manager
-----------------------------------------------------------
IPO Initial Public Offering
-----------------------------------------------------------
IRR Internal Rate of Return
-----------------------------------------------------------
KPMG KPMG Channel Islands Limited, independent auditor
to the Company
-----------------------------------------------------------
KWh Kilowatt hour, being a measure of electricity generated
per hour
-----------------------------------------------------------
MIDIS Macquarie Infrastructure Debt Investment Solutions
-----------------------------------------------------------
MW A Megawatt is unit of power equal to one million
watts and is used as a measure of the output of
a power plant
-----------------------------------------------------------
MWh MW hour, being a measure of electricity generated
per hour
-----------------------------------------------------------
NAB National Australia Bank
-----------------------------------------------------------
Net assets Net asset value
or NAV
-----------------------------------------------------------
NAV total The actual rate of return from dividends paid and
return any increase or reduction in the NAV per ordinary
share over a given period of time
-----------------------------------------------------------
NEC or NEC The NextEnergy Capital group of companies, including
Group the Investment Manager, Investment Adviser and
Asset Manager
-----------------------------------------------------------
NESF Group The Company, HoldCos and SPVs
-----------------------------------------------------------
NESH NextEnergy Solar Holding Limited
-----------------------------------------------------------
NESH III NextEnergy Solar Holding III Limited
-----------------------------------------------------------
NESH IV NextEnergy Solar Holding IV Limited
-----------------------------------------------------------
NESH V NextEnergy Solar Holding V Limited
-----------------------------------------------------------
NESH VI NextEnergy Solar Holding VI Limited
-----------------------------------------------------------
NIROC Like the ROCs in Great Britain, the Northern Ireland
Renewable Obligation Certificate scheme obliges
electricity suppliers to produce a certain number
of NIROCs for each MWh of electricity which they
supply to their customers in Northern Ireland or
to pay a buy-out fee that is proportionate to any
shortfall in the number of NIROCs being so presented
-----------------------------------------------------------
NPIII LP NextPower III LP
-----------------------------------------------------------
NZ NextZest
-----------------------------------------------------------
O&M Operations and Maintenance
-----------------------------------------------------------
OECD Organisation for Economic Co-operation and Development
-----------------------------------------------------------
OFGEM Office of Gas and Electricity Markets
-----------------------------------------------------------
Ongoing charges The regular, recurring annual costs of running
ratio 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 The actual rate of return from dividends paid and
total return any increase or reduction in the ordinary share
price over a given period of time
-----------------------------------------------------------
Ordinary shares The issued ordinary share capital of the Company
-----------------------------------------------------------
Performance Describes the relationship between the actual and
ratio theoretical energy outputs of a solar plant (expressed
as a percentage)
-----------------------------------------------------------
PPA Power purchase agreement
-----------------------------------------------------------
Premium/discount The amount, expressed as a percentage, by which
to NAV the Company's ordinary shares trade above or below
the NAV per ordinary share
-----------------------------------------------------------
Preference The issued preference share capital of the Company
shares
-----------------------------------------------------------
PV Photovoltaic
-----------------------------------------------------------
Radius portfolio Five UK solar plants held within NESH IV (see the
Operating Portfolio - Overview above for further
details)
-----------------------------------------------------------
RCF Revolving Credit Facility
-----------------------------------------------------------
ROC Renewable Obligation Certificates (the Renewable
Obligation scheme is the financial mechanism by
which the UK Government incentivised the deployment
of large-scale renewable electricity generation
by placing a mandatory requirement on licensed
UK electricity suppliers to source a specified
and annually increasing proportion of the electricity
they supply to customers from eligible renewable
sources or pay a penalty)
-----------------------------------------------------------
ROC recycle The payment received by generators from the redistribution
of the buy-out fund (payments are made into the
buy-out fund when suppliers do not have sufficient
ROCs or NIROCs to cover their obligation)
-----------------------------------------------------------
RPI Retail Price Index
-----------------------------------------------------------
RRAM portfolio 10 UK solar plants held in NESH III (see the Operating
Portfolio - Overview above for further details)
-----------------------------------------------------------
Scrip shares Ordinary shares issued pursuant to the Company's
scrip dividend alternative
-----------------------------------------------------------
SDG The Sustainable Development Goals are a set of
ambitious global developmental targets adopted
by the United Nations Member States in 2015 to
be achieved by 2030 and seek to address the global
challenges we face through the promotion of development
as a balance of social, economic, and environmental
sustainability
-----------------------------------------------------------
Solis portfolio Eight Italian solar plants held within NESH V (see
the Operating Portfolio - Overview above for further
details)
-----------------------------------------------------------
SONIA Sterling Overnight Index Average
-----------------------------------------------------------
SPVs Special purpose vehicles that hold the Company's
investment portfolio of underlying solar energy
infrastructure assets
-----------------------------------------------------------
Thirteen Kings 13 plants held in NESH III (see the Operating Portfolio
portfolio - Overview above for further details)
-----------------------------------------------------------
Treasury shares Ordinary shares which are bought back by the Company,
reducing the number of outstanding shares on the
open market, and held by the Company for resale
at a future date
-----------------------------------------------------------
Wholesale Revenue from energy sold in the wholesale power
revenue market which is not connected with subsidy schemes
or PPAs
-----------------------------------------------------------
Corporate Information
The Company
NextEnergy Solar Fund Limited
Registered Office:
Floor 2
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 4LY
Registered no.: 57739
LEI: 213800ZPHCBDDSQH5447
Ordinary Share ISIN: GG00BJ0JVY01
Ordinary Share SEDOL: BJ0JVY0
London Stock Exchange Ticker: NESF
Website: www.nextenergysolarfund.com
Directors
Kevin Lyon, Chairman
Vic Holmes, Senior Independent Director
Patrick Firth
Josephine Bush
Joanne Peacegood
Helen Mahy (appointed 1 April 2023)
(All Non-Executive and Independent)
Investment Manager
NextEnergy Capital IM Limited
PO Box 656, East Wing
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3PP
Investment Adviser
NextEnergy Capital Limited
75 Grosvenor Street
Mayfair
London W1K 3JS
Asset Manager
WiseEnergy
75 Grosvenor Street
Mayfair
London W1K 3JS
Company Secretary and Administrator
Ocorian Administration (Guernsey) Limited
Floor 2
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 4LY
Independent Auditor
KPMG Channel Islands Limited
Glategny Court
Glategny Esplanade
St Peter Port
Guernsey GY1 1WR
Registrar
Link Market Services (Guernsey) Limited
Mont Crevelt House
Bulwer Avenue
St Sampson
Guernsey GY2 4LH
Legal Advisers
As to UK Law
Stephenson Harwood LLP
1 Finsbury Square
London EC2M 7SH
As to Guernsey Law
Carey Olsen (Guernsey) LLP
PO Box 98
Carey House
Les Banques
St Peter Port
Guernsey GY1 4BZ
Sponsor and Joint Broker
Cenkos Securities plc
6, 7, 8 Tokenhouse Yard
London EC2R 7AS
Joint Broker
RBC Capital Markets Limited
100 Bishopsgate
London EC2N 4AA
Media and Public Relations Adviser
Camarco
107 Cheapside
London EC2V 6DN
The Maitland Consultancy Limited
(appointed June 2023)
3 Pancras Square
London N1C 4AG
Principal Bankers
Barclays Bank plc
6/8 High Street
St Peter Port
Guernsey GY1 3BE
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END
FR GPUBWQUPWPUR
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June 19, 2023 02:00 ET (06:00 GMT)
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