TIDMNESF
RNS Number : 4330R
NextEnergy Solar Fund Limited
30 June 2020
30 June 2020
NextEnergy Solar Fund Limited
("NESF" or the "Company")
Full Year Results for the year ended 31 March 2020
NextEnergy Solar Fund, the solar power renewable energy
investment company, is pleased to announce its full year results
for the year ended 31 March 2020.
Financial highlights
-- Net asset value per ordinary share of 99.0p (2019: 110.9p)
-- Ordinary shareholder annualised total return since IPO of 6.3% (2019: 9.5%)
-- Gearing (including preference shares) of 42% (2019: 36%)
-- Cash dividend cover before scrip of 1.2x (2019: 1.3x)
-- Ordinary shareholders' NAV of GBP579m (2019: GBP645m)
-- Dividends per ordinary share of 6.87p (2019: 6.65p)
-- Targeting a total dividend of 7.05p per ordinary share in
respect of the year ending 31 March 2021, payable quarterly
Operational highlights
-- Total capacity installed of 755 MW (2019: 691 MW)
-- Total electricity generation of 712 GWh (2019: 693 GWh)
-- 90 operating solar assets (2019: 87)
-- Electricity generation +4.7% above budget (2019: +9.1%)
-- Successful energisation of Staughton, the UK's largest
subsidy-free solar plant, in December 2019 with an installed
capacity of 50MW
ESG highlights
-- 185,000 UK homes powered for one year (2019: 184,000 UK homes)
-- 307,500 tonnes of CO2e emissions avoided (2019: 299,000 tonnes)
-- Awarded Guernsey Green Fund accreditation and the London
Stock Exchange's Green Economy Mark
Kevin Lyon, Chairman of NESF, commented:
"I am pleased to report another solid set of operating results,
benefiting from high levels of solar irradiation and technical and
operational outperformance across the portfolio. Over the past
year, we have continued to extend the useful life of more of our
assets, reduce operating costs, make technical improvements and
execute our electricity sales strategy to maximise revenue and
reduce power price risk.
Our portfolio and asset management strategy has enabled us to
cope with falling power prices during the course of the financial
year, which resulted mainly from lower international hydrocarbon
commodity prices as well as warmer weather patterns. In addition,
during March 2020, an oil price war between oil-producing countries
coupled with the initial effects of the COVID-19 pandemic on power
demand further depressed power prices in the UK and Italy. This had
a material adverse impact on our NAV as at 31 March 2020, which
reduced to 99.0p.
We have made significant progress with our subsidy-free
programme in the last 12 months, becoming the first listed solar
investment company to develop, build and energise a subsidy-free
asset in the UK, Hall Farm II. We also successfully energised
Staughton, the largest subsidy-free solar plant in the UK to date,
which will cover the yearly electricity demand of approximately
15,000 UK households.
We are proud to have been awarded the Guernsey Green Fund
accreditation and the London Stock Exchange's Green Economy Mark
earlier in the year in recognition of our meaningful contribution
to reducing CO2e emissions through the generation of clean solar
power."
Results presentation
There will be a webcast and conference call for analysts at
9.00am this morning. To register for the webcast presentation,
please contact MHP Communications on 020 3128 8734 or
ailsa.prestige@mhpc.com.
For further information:
NextEnergy Capital Limited 020 3746 0700
Michael Bonte-Friedheim
Aldo Beolchini
Cenkos Securities Plc 020 7397 8900
Justin Zawoda-Martin
Robert Naylor
William Talkington
Shore Capital 020 7408 4090
Anita Ghanekar
Darren Vickers
MHP Communications 020 3128 8734
Oliver Hughes
Giles Robinson
Ailsa Prestige
Apex Fund and Corporate Services
(Guernsey) Limited 01481 735 827
Nick Robilliard
Notes to Editors [i]:
A constituent of the FTSE 250 Index, NextEnergy Solar Fund
("NESF") is a renewable energy infrastructure investment company
that invests primarily in operating solar power plants in the UK
(it may invest up to 15% of its gross assets in other OECD
countries). The Company is committed to ESG principles and
responsible investment and makes a meaningful contribution to
reducing C O2e emissions through the generation of clean solar
power. NESF has been designated a Guernsey Green Fund by the
Guernsey Financial Services Commission and has been awarded the
London Stock Exchange's Green Economy Mark.
NESF has a diversified portfolio comprising 90 operating solar
assets, primarily on agricultural, industrial and commercial sites,
with a combined installed power capacity in excess of 755MW. As at
31 March 2020, the Company has gross assets of GBP991 million, of
which 88% is invested in the UK, and net assets of GBP579 million.
The majority of long-term cash flows from its investments are
inflation-linked.
To provide ordinary shareholders with attractive risk-adjusted
returns, principally in the form of regular dividends, by investing
in a diversified portfolio of primarily UK-based solar energy
infrastructure assets. The dividend is payable quarterly, and the
Company has announced a dividend target for the year ending 31
March 2021 of 7.05p per ordinary share.
NESF is differentiated by its access to NextEnergy Capital Group
("NEC Group"), its Investment Manager, which has a strong track
record in sourcing, acquiring and managing operating solar assets.
WiseEnergy is NEC Group's specialist operating asset management
division, which since its founding has provided operating asset
management, monitoring, technical due diligence and other services
to over 1,500 utility-scale solar power plants with an installed
capacity in excess of 1.7 GW.
Further information on NESF, NEC Group and WiseEnergy is
available at nextenergysolarfund.com , nextenergycapital.com and
wise-energy.eu .
[1] Note: All data is as at 31 March 2020, being the latest date
in respect of which NESF has published financial information.
NextEnergy Solar Fund
Generating a more sustainable future
Annual Report for the year ended 31 March 2020
Our Objectives
Investment Objective
To provide ordinary shareholders with attractive risk-adjusted
returns, principally in the form of regular dividends, by investing
in a diversified portfolio of primarily UK-based solar energy
infrastructure assets.
Strategic Objectives
Investment
-- To maintain our pricing discipline in relation to acquisitions.
-- To optimise the value of our investments through active asset management.
Operational
-- To achieve consistently positive Asset Management Alpha
(operational outperformance of the portfolio attributable to active
asset management).
Environmental
-- To mitigate climate change, enhance biodiversity and
contribute towards a zero-carbon future.
Society
-- To positively impact the communities in which our solar assets are located.
Governance
-- To act in a manner consistent with our values of integrity, fairness and transparency.
-- To maintain strong and constructive relationships with our
shareholders and other key stakeholders.
Overview
Performance Highlights
Financial Highlights
99.0p (2019: 110.9p)
NAV per ordinary share
as at 31 March 2020
GBP579m (2019: GBP645m)
Ordinary shareholders' NAV
as at 31 March 2020
6.87p (2019: 6.65p)
Dividend per ordinary share for
the year ended 31 March 2020
1.2x (2019: 1.3x)
Cash dividend cover (pre-scrip dividends)
for the year ended 31 March 2020
42% (2019: 36%)
Gearing as at 31 March 2020
6.3% (2019: 9.5%)
Ordinary shareholder annualised total return since IPO
Operational Highlights
755MW (2019: 691MW)
Total capacity installed
as at 31 March 2020
712GWh (2019: 693GWh)
Total electricity generation
for the year ended 31 March 2020
90 (2019:87)
Operating solar assets as at 31 March 2020
+4.7% (2019: +9.1%)
Generation above budget
for the year ended 31 March 2020
ESG Highlights
307,500 (2019: 299,000)
Tonnes of CO(2) e emissions avoided p.a.(1)
185,000 (2019: 184,000)
UK homes powered for one year(2)
1 www.greeninvestmentgroup.com/green-impact/green-investment-handbook
2 www.gov.uk/government/statistics/energy-consumption-in-the-uk
Contents
OVERVIEW 3
NextEnergy Solar Fund 3
Snapshot of Our Diversified Portfolio 4
Why Invest in Solar Assets? 6
STRATEGIC REPORT 7
Chairman's Statement 7
Our Business Model 12
Our Investment Strategy and Track Record 15
Investment Adviser's Report 20
Generation Performance and Investment Portfolio 32
Sustainability and ESG 36
Stakeholder Engagement 43
Risks and Risk Management 45
Going Concern and Viability 48
GOVERNANCE 50
Introduction from the Chairman 50
Governance Structure 51
Board of Directors 52
Corporate Governance Statement 54
Directors' Remuneration Report 63
Audit Committee Report 66
Directors' Report 69
Statement of Directors' Responsibilities 71
Independent Auditor's Report 72
FINANCIAL STATEMENTS 78
Statement of Comprehensive Income 78
Statement of Financial Position 79
Statement of Changes in Equity 80
Statement of Cash Flows 81
Notes to the Financial Statements 82
ADDITIONAL INFORMATION 101
Alternative Performance Measures 101
General Shareholder Information 104
Glossary and Definitions 106
Corporate Information 109
NextEnergy Solar Fund
SOLAR INFRASTRUCTURE INVESTMENT COMPANY FOCUSED ON THE UK AND
OTHER OECD COUNTRIES
TARGETING A TOTAL DIVID OF 7.05P PER ORDINARY SHARE IN RESPECT
OF THE YEARING 31 MARCH 2021, PAYABLE QUARTERLY
DIVERSIFIED PORTFOLIO OF 90 INDIVIDUAL OPERATING SOLAR
PLANTS
OPERATING AND ASSET MANAGEMENT OUTPERFORMANCE SINCE IPO
POWERING THE EQUIVALENT OF OVER 185,000 UK HOMES (EQUIVALENT TO
BRIGHTON AND ABERDEEN COMBINED) ANNUALLY WITH CLEAN RENEWABLE
ENERGY
MANAGED BY THE NEXTENERGY CAPITAL GROUP, ONE OF THE LEADING
SPECIALIST INVESTMENT AND ASSET MANAGERS IN THE SOLAR ENERGY
INFRASTRUCTURE SECTOR
OUR INVESTMENT MANAGER IS A SIGNATORY TO THE UNITED NATIONS
PRINCIPLES OF RESPONSIBLE INVESTMENT
Snapshot of Our Diversified Portfolio
As at 31 March 2020
By Subsidy
By Installed Capacity
By Revenue Type
By Inverter Manufacturer
By Solar Module Manufacturer
By Location
By Location
United Kingdom
Italy
Operating assets - for further information, see pages 34 and
35.
Why invest in Solar Assets?
ABUNDANT ENERGY SOURCE
More solar energy hits the Earth in a single hour than the
energy being used by the entire human population in a year
Solar energy generation has achieved significant growth in
markets not characterised by high levels of solar irradiation (e.g.
United Kingdom)
PROVEN AND STABLE TECHNOLOGY
Reliable and predictable source of electricity due to high
consistency in yearly solar irradiation
Long useful life (24-45 years) with high proportion of
contracted cash flows from operating solar plants
COST-EFFECTIVE ELECTRICITY GENERATION
Low operating and maintenance costs and ongoing capital
expenditures
Solar PV technology has benefited from a significant reduction
in costs and non-subsidised solar assets are now economically
competitive with fossil fuel sources and provide attractive
financial returns
CLIMATE CHANGE SOLUTION
Fundamental to achieving a more sustainable future by
accelerating the transition to clean renewable energy
Meaningful contribution to reducing CO(2) e emissions through
the generation of clean solar power
Strategic Report
Chairman's Statement
Kevin Lyon,
Chairman of NESF, commented:
I am pleased to report another solid set of operating results,
benefiting from high levels of solar irradiation and technical and
operational outperformance across the portfolio. Over the past
year, we have continued to extend the useful life of more of our
assets, reduce operating costs, make technical improvements and
execute our electricity sales strategy to maximise revenue and
reduce power price risk.
Our portfolio and asset management strategy has enabled us to
cope with falling power prices during the course of the financial
year, which resulted mainly from lower international hydrocarbon
commodity prices as well as warmer weather patterns. In addition,
during March 2020 an oil price war between oil-producing countries
coupled with the initial effects of the COVID-19 pandemic on power
demand further depressed power prices in the UK and Italy. This had
a material adverse impact on our NAV as at 31 March 2020, which
reduced to 99.0p.
We have made significant progress with our subsidy-free
programme in the last 12 months, becoming the first listed solar
investment company to develop, build and energise a subsidy-free
asset in the UK, Hall Farm II. We also successfully energised
Staughton, the largest subsidy-free solar plant in the UK to date,
which will cover the yearly electricity demand of approximately
15,000 UK households.
We are also proud to have been awarded the Guernsey Green Fund
accreditation and the London Stock Exchange's Green Economy Mark
earlier in the year in recognition of our meaningful contribution
to reducing CO(2) e emissions through the generation of clean solar
power.
I am pleased to present, on behalf of the Board, the Annual
Report and Audited Financial Statements for NextEnergy Solar Fund
Limited ("NESF" or the "Company") for the year ended 31 March
2020.
The final months of this financial year have witnessed the
emergence and effects of the COVID-19 pandemic. The electricity
sector, along with most others, is in unchartered territory in
terms of the short- to long-term effects stemming from the pandemic
and the ongoing efforts to contain it. Workers in the electricity
sector are considered key workers, and as a result, COVID-19 has
not had a material impact on the operating performance of our
portfolio.
In the UK, electricity demand in March 2020 declined by 4.5%
versus expectations without COVID-19 (deviation from business as
usual)(1) . In April 2020 the decline was more significant at 15.3%
as it captured a full month under lock down(1) .(.) Declining
demand led to further falls in UK power prices. Before the impact
of COVID-19, power prices had been falling significantly over the
previous quarters of the financial year, mainly due to an
over-supply of gas for power generation as well as milder winter
temperatures. Recovery in demand for electricity and the
normalisation of power prices will be driven by the pace of
economic recovery once the effects of COVID-19 subside.
Developments in electricity demand and power prices in Italy,
where we have a sizeable operating portfolio, largely followed the
same trend as in the UK.
We, together with the NextEnergy Capital Group, which manages
our portfolio, continue to monitor the effects of the COVID-19
pandemic closely, and have taken actions where necessary to protect
employees, contractors and counterparts, while maintaining the
Company's operations. The economic slowdown has not had a
significant impact on the operations of the Company or its
underlying portfolio. However, the decline in demand for energy has
reduced the forecast price of electricity, which has had a material
impact on the valuation of our assets.
A significant proportion of the Company's revenues are fixed for
the long-term in accordance with the terms of the relevant ROC,
NIROC or FiT subsidy (61% of the Company's revenues for the year
ended 31 March 2020 were derived from subsidies and, as at 31 March
2020, the average remaining weighted life under the relevant
subsidies was 16.5 years). We seek to maximise the Company's
wholesale revenues (that is, non-subsidised revenues) and mitigate
the negative impact of short-term fluctuations in power prices by
securing fixed prices for specified periods. Of the wholesale
revenues derived from the sale of electricity generation, the
Company has secured fixed pricing for 95% of its electricity
generation for this summer and 50% of its electricity generation
for winter 2020/21. These fixed prices were secured primarily
during the 2019 calendar year and at prices well above the current
market prices.
We energised our first subsidy-free asset in the UK, Hall Farm
II (5MW), in August 2019. NESF was the first listed solar
investment company to develop, build and energise a subsidy-free
asset in the UK, marking a defining moment in our Company's
history. Our second subsidy-free asset, Staughton (50MW), was
energised in December 2019. This plant is the largest in our
portfolio and will cover the yearly electricity demand of
approximately 15,000 UK households. Our third subsidy-free asset,
High Garrett (9MW), is expected to energise in autumn 2020 subject
to the impact of COVID-19.
(1) Bloomberg New Energy Finance - COVID-19/Electricity Demand Tracker
Throughout the year, sales values for UK operating solar plants
with subsidies largely remained at unattractive levels.
Nevertheless, during the first half of the year, we acquired one
operating solar plant, Ballygarvey in Northern Ireland, which
demonstrates our Investment Adviser's expertise in finding value in
the saturated UK market. The 8MW plant benefits from subsidies
under the NIROCs' regulatory framework. The Company now has a
presence in England, Scotland, Wales and Northern Ireland.
In August 2019, we raised GBP100m by issuing further preference
shares on similar terms to the GBP100m issuance in November 2018.
The preference shares have a fixed 4.75% p.a. coupon, resulting in
significantly lower all-in annual cash costs to the Company over
the subsidy period of our assets, when compared to the issue of
ordinary shares or long-term amortising financial debt products. As
a result, the preference shares also provide us with some
protection against ongoing lower power prices compared to
traditional debt financing structures.
Over the past year, our Investment Adviser and Asset Manager
have continued to optimise the returns from the portfolio by:
-- extending the useful life of 17 more of our assets;
-- reducing operating costs through re-negotiating contractual
terms and entering into new agreements;
-- implementing technical improvements; and
-- executing our electricity sales strategy to maximise revenue and reduce power price risk.
For the financial year, the ordinary shareholder total return
was -7.8% and the NAV total return was -4.6%. As at 31 March 2020,
NESF had achieved an annualised ordinary shareholder total return
of 6.3% and an annualised NAV total return of 5.9%, both below the
target range of 7-9% p.a. equity return for investors, based on the
IPO price. At the year-end, the NESF share price was 101.5p, which
was a 2.5% premium to the NAV per ordinary share of 99.0p (2019:
share price was 117.5p, premium was 6.0%, NAV per ordinary share
was 110.9p).
After the year-end, the share price has risen and, as at 26 June
2020, was 107.4p, equivalent to a premium of 8.5% to the NAV per
ordinary share as at 31 March 2020. The Company's annualised
ordinary shareholder total return since IPO to 26 June 2020 equates
to 7.3%.
Net Asset Value
At the year-end, the Company's ordinary NAV was GBP579m,
equivalent to 99.0p per ordinary share (2019: NAV was GBP645m, NAV
per ordinary share was 110.9p).
Our valuation methodology has remained consistent since IPO,
using a discounted cash flow model prepared by the Investment
Adviser and using key assumptions recommended by the Investment
Adviser based on its extensive experience, judgement and
benchmarking valuations against comparable transactions to arrive
at the fair value of each of our assets.
The main detractor during the 12 months was the downward
revision of the forecasts for the power prices (13.4p per share).
The Investment Adviser endeavours to mitigate the portfolio's
exposure to power prices (see "Power Purchase Agreements" in the
Investment Adviser's Report on page 21).
The main contributors during the year were the decrease in the
unlevered discount rate from 6.50% to 6.25% (1.6p per share) and
the lease extensions (2.5p per share).
Further details on the valuation process and the calculation of
the NAV can be found on pages 23-27 of the Investment Adviser's
Report.
Operating Results
Loss before tax was GBP29.7m (2019: profit of GBP71.6m) with
earnings per ordinary share of -5.09p (2019: 12.37p). Cash dividend
cover (pre-scrip dividends) was 1.2x (2019: 1.3x). The loss for the
year was due to the reduction in the valuation of the investments
mainly due to the reduction in the forecast price of electricity in
the short and medium term as mentioned above.
Portfolio Performance
Energy generated was 712GWh (2019: 693GWh), 4.7% above budget
(2019: 9.1%), resulting in the sixth continuous year of
outperformance.
During the year, solar irradiation across the portfolio was 4.0%
above expectation (2019: 9.0%). Asset Management Alpha for the year
was 0.7% (2019: 0.1%), which would have been 1.5% (2019: 1.1%) if
we excluded distributor network outages, over which we have no
control.
Our UK portfolio performed above expectations with generation
outperformance of 4.6% (2019: 9.4%) and an Asset Management Alpha
of 0.7% (2019: -0.1%).
Our Italian portfolio also performed well during the year with
6.4% extra generation over budget (2019: 5.4%) and an Asset
Management Alpha of 1.3% (2019: 2.5%).
Overall, we estimate the generation outperformance to have
delivered additional revenues of approximately GBP3.5m (2019:
GBP6.4m) to the Company.
Portfolio Update
During the year, the portfolio's installed capacity increased by
64MW with the acquisition of Ballygarvey and the energisation of
our two subsidy-free assets, Hall Farm II and Staughton. The
construction of High Garrett is advancing and is expected to add a
further 9MW by autumn 2020, subject to the impact of the COVID-19
pandemic.
Our strategy envisages a total of approximately 150MW in
subsidy-free capacity in the portfolio by the end of the current
financial year. This amounts to an estimated further investment of
between GBP55m and GBP80m (6-8% of GAV as at 31 March 2020).
Assuming 150MW of subsidy-free capacity and average generation
levels, our subsidy-free portfolio would be equivalent to
approximately 15-20% of the Company's generation during the year
ended 31 March 2020. We are progressing strategies for the sale of
electricity from these subsidy-free plants to secure attractive
risk-adjusted returns using electricity sales agreements, corporate
power purchase agreements or direct- wire agreements with
off-takers. For example, the Company will finance, design, build,
operate and own over 43MW of solar, the power generated from which
will be sold directly to Anglian Water for a 25-year period through
private wire agreements.
On 14 May 2020, two subsidy-free projects under development,
Strensham (40MW) & Llanwern (75MW), were disposed of for a
combined consideration of GBP11.5m. This resulted in NESF
recovering all development costs incurred and producing a return of
capital invested significantly in excess of NESF's annualised
target return of 7-9%. Construction had not started on either of
these projects, and they were disposed of as it became apparent
during the development process they would not meet NESF's
annualised target return, partly due to the decline in power price
forecasts. The transaction constituted a smaller related party
transaction as set out in the FCA's Listing Rules. The Investment
Adviser's Report on page 22 contains more information on our
subsidy-free asset strategy.
Capital Raising and Debt Financing
In August 2019, the Company successfully issued a second tranche
of preference shares, raising gross proceeds of GBP100m. The
proceeds were deployed to partially repay a HoldCo level short-term
credit facility, finance the acquisition of Ballygarvey and invest
in the construction of Staughton.
The preference shares are irredeemable save for in the event of
a change in control or delisting of the Company and then only at
the option of the holders at any time after 1 April 2030. After
March 2036, preference shares have the right to convert into new
ordinary shares or a new class of unlisted B shares with the same
dividend and capital rights as the ordinary shares, based on the
preference share issue price of 100p and the NAV per ordinary share
at the time of conversion. The preference shares are treated as a
long-term liability.
As at 31 March 2020, in addition to the GBP200m of preference
shares (2019: GBP100m), the Company's subsidiaries had consolidated
financial debt outstanding of GBP214m (2019: GBP269m) on a
look-through basis, including project-level debt. Of the financial
debt, GBP196m comprises two long-term fully amortising debt
facilities and GBP18m was drawn under a short-term credit
facility.
At the year-end, the Company's subsidiaries had GBP52m undrawn
from two short-term credit facilities and NESF had cash of GBP25m.
One short-term credit facility of GBP20m was extended to February
2022 during the year and the other of GBP70m has been extended from
July 2020 to July 2022 following the year-end.
The total financial debt represented 22% of GAV as at 31 March
2020 (2019: 27%). As at 31 March 2020, the aggregate gearing
comprising the total financial debt and the Company's preference
shares represented 42% of GAV (2019: 36%).
Dividends
The Directors have approved a fourth interim dividend of 1.7175p
per ordinary share, which will be payable on 30 June 2020 to
ordinary shareholders on the register as at the close of business
on 22 May 2020. Following the payment of the fourth interim
dividend, the Company will have paid total dividends of 6.87p per
ordinary share in respect of the year ended 31 March 2020 (2019:
6.65p).
During the year under review, the Company paid a total of
GBP36.7m of dividends (2019: GBP31.5m) and, in addition, issued
GBP3m of scrip shares to ordinary shareholders who elected for the
scrip dividend alternative (2019: GBP6.6m), making a total of
GBP39.7m of distributions (2019: GBP38.1m).
For the financial year ending 31 March 2021, the UK RPI
applicable to the value of ROCs is 2.6% (as published by the Office
for National Statistics). We are therefore targeting an increased
total dividend of 7.05p per ordinary share in respect of the
current financial year. The Company intends to continue to offer
scrip dividends subject to shareholder approval at this year's
AGM.
The Company has paid dividends since IPO that have increased
annually in line with RPI. However, power prices and inflation
levels have become less correlated since the IPO. This has been
exacerbated by the significant fall in the forecast power prices
and the uncertain economic outlook as a result of COVID-19. We
believe it is prudent, therefore, to keep the Company's future
dividend policy under review.
Environmental, Social and Governance Matters
The Company is committed to its Environmental, Social and
Governance ("ESG") responsibilities. Our Investment Adviser is a
signatory of the United Nations' Principles for Responsible
Investments and has integrated ESG principles into all aspects of
the NEC Group's investment and asset management processes.
The Company makes a meaningful contribution to reducing CO(2) e
emissions through the generation of clean solar power. The
electricity generated by our portfolio during the year ended 31
March 2020 is equivalent to a saving of 307,500 tonnes of CO(2) e
emissions (2019: 299,000 tonnes) and sufficient to power some
185,000 UK homes for an entire year (2019: 184,000 homes). This is
roughly equivalent to powering a city with 443,000 inhabitants
(e.g. Brighton and Aberdeen combined) for an entire year.
Our Asset Manager actively engages in activities that enhance
the environment and community surrounding our solar plants,
including, where feasible, on-site activities such as encouraging
wildflower meadows, installing bug hotels, partnering with local
beekeepers and other initiatives to improve the local biodiversity,
as well as local community programmes.
During the year, NESF was awarded the London Stock Exchange's
Green Economy Mark, which recognises companies that derive over 50%
of their annual revenues from products and services that contribute
to the global green economy. As an investment company that meets
strict eligibility criteria of green investing and has the
objective of a net positive outcome on the planet's environment,
the Company was also designated a Guernsey Green Fund by the
Guernsey Financial Services Commission during the year.
During the year, the Company made a charitable donation of
GBP50,000 to the NextEnergy Foundation. Information on the
NextEnergy Foundation and how it has used the donation can be found
of page 40.
Board Changes
During the year, Sharon Parr resigned, and the Board would like
to take this opportunity to thank her for her contributions during
her time as a Director, and we wish her well for the future.
The Board was pleased to announce the appointment of Joanne
Peacegood to the Board as a Non-executive Director with effect from
20 February 2020. This appointment maintains appropriate Board
diversity and broadens expertise, especially with respect to audit
and controls.
Proposed Change to Investment Policy
The Company is permitted to invest up to 15% of GAV (at the time
of investment) in OECD countries outside the UK. The Company
acquired a portfolio of Italian solar assets in 2017 that has
delivered attractive risk-adjusted returns as well as increasing
our portfolio's geographic diversification. As at 31 March 2020,
the value of the Italian solar assets was 12% of GAV
In recent years, UK solar assets have become more expensive,
and, as a result, yield lower returns. There continue to be more
attractively priced assets elsewhere with risk-adjusted returns
that are compatible with the Company's objectives, but the current
limit on the Company's permission to invest in OECD countries
outside the UK severely restricts the Company's ability to acquire
such assets. Increasing the Company's exposure to non-UK assets
would have the additional benefit of reducing the sensitivity of
our overall portfolio to volatility of wholesale power markets.
Having considered the benefits to shareholders of increasing the
diversity in the geographic focus of the Company's portfolio,
sought advice from the Company's corporate brokers and sought the
views of the Company's largest ordinary shareholders, we have
concluded that it would be in the best interests of shareholders as
a whole to increase the Company's authority to invest in OECD
countries outside the UK, Therefore, at this year's AGM, we intend
to put forward an ordinary resolution seeking ordinary shareholder
approval to permit the Company to invest up to 30% of GAV (at the
time of investment) in OECD countries outside the UK.
Distribution of Reports and Communications
This Annual Report can be accessed on the Company's website. As
part of our principles of environmental responsibility, the Company
no longer issues printed copies of reports or communications,
except where a shareholder has expressly requested a hard copy.
Outlook
The ongoing COVID-19 situation is unprecedented and the effects
on electricity demand and prices in the short- and medium-term, and
on the economies in our key markets, remain uncertain. We continue
to monitor closely macro and micro economic indicators and
governmental information to assess the potential future impact on
the Company's activities. Nonetheless, the Company will continue to
focus on generating attractive financial returns for our
shareholders, while having positive social and environmental
impacts.
The price for electricity is driven by a number of factors that
are proving difficult to predict under the current environment but
is ultimately dependent on the supply and demand for electricity.
On a macro level, countries have operated different processes
towards the lifting of the lock downs, and the change in the number
of COVID-19 cases affects governmental intervention and consumer
confidence. The economic shock of COVID-19 has had a profound
impact on oil prices and the prices of energy. Recovery in demand
for electricity will be driven by the pace of economic recovery
once the effects of the pandemic subside.
The development and construction of two subsidy-free assets has
demonstrated our ability to construct such solar plants in the UK.
In seeking to meet our target of a total of approximately 150MW in
subsidy-free solar plants by the end of the current financial year,
we will select projects from our pipeline of development
opportunities that can still meet the Company's target returns in
these volatile markets.
The NEC Group's specialist energy trading desk will seek to
ensure that our wholesale electricity sales strategy, including for
our subsidy - free assets, maximises revenues and manages the risk
of further falls in power prices during these volatile times.
We are aiming to extend the useful life of a further 20 assets
during the current financial year, adding to the 31 assets which
have already secured extensions. These extensions will be value
accretive, and optimise our revenues.
We will keep under review deployment of ancillary solar
technologies to mitigate the generation risks of individual assets,
whilst adapting our portfolio to the changing dynamics of the solar
markets in which our assets are located.
ESG continues to be a fundamental part of our mission. As
activities mitigating climate change accelerate globally, the
execution of our ESG policy will ensure we continue to lead by
example. Our Company and stakeholders are aligned to create a
better environment for both this and future generations.
In these extraordinary times, we will continue to monitor
closely the impacts of COVID -19 on the UK and Italian economies,
and the effect they may have on the Company and its assets.
Finally, on behalf of my fellow Directors, I would like to
express my thanks and appreciation for the numerous people who have
worked under difficult conditions during the lock down to enable
our Company to continue to operate successfully in these
challenging times.
Kevin Lyon,
Chairman
29 June 2020
GREAT WILBRAHAM
38MW installed
Energised in April 2016
1.4 ROC subsidy
9,400 homes powered annually
Cambridgeshire
Our Business Model
Structure
The Company is regulated by the Guernsey Financial Services
Commission as a registered closed-ended investment company.
The Company's issued share capital comprises ordinary shares and
preference shares. The ordinary shares are listed on the FCA's
premium segment of the Official List and traded on the London Stock
Exchange's Main Market. The preference shares are not listed or
traded on any public market. The rights attaching to each class of
shares are summarised in note 10 and 21 to the Financial Statements
on pages 89 and 97.
The Company makes its investments through intermediate holding
companies ("HoldCos") and underlying special purpose vehicles
("SPVs") that hold the solar assets. The NESF Group comprises the
Company, the HoldCos and the SPVs. As explained in note 1 to the
Financial Statements on page 82, as the Company is an investment
entity as described by IFRS 10, the Company does not prepare
consolidated accounts and, instead, holds its investments in its
HoldCos and SPVs at fair value.
The Company has the ability to use short- and long-term debt at
the Company, HoldCo and SPV levels.
Operating Model
The Company's business model follows that of an externally
managed investment company. Therefore, the Company does not have
any employees and outsources its activities to third party service
providers, including the Investment Manager, Asset Manager and
Administrator who are the principal service providers. The
Investment Manager outsources specific services to the Investment
Adviser.
Management of the Company
The independent Board is responsible to shareholders for the
overall management of the Company, including strategy and strategic
aims, corporate governance, risk management and financial
reporting.
The Company has outsourced the management of its day-to-day
activities to the Investment Manager and the Administrator, which
operate within clearly defined terms of agreements that set out
their roles, responsibilities and authorities. The Investment
Manager, operating under guidelines determined by the Board, has
direct responsibility for the decisions relating to the day-to-day
running of the Company and is accountable to the Board for the
investment and operating performance of the Company. The
Administrator provides the Company with company secretarial, fund
accounting and administration services.
Further information on the division of responsibilities for the
management of the Company can be found in the Corporate Governance
Statement on pages 55-57.
Management of the Company's Investment Activities and Assets
The investment management services are provided by NextEnergy
Capital IM Limited, which is incorporated in Guernsey and licensed
and regulated by the Guernsey Financial Services Commission. The
investment advisory services and other services delegated by the
Investment Manager are provided by NextEnergy Capital Limited,
which is incorporated in the UK and regulated by the FCA. The asset
management services are provided by WiseEnergy (Great Britain)
Limited & WiseEnergy Italia Srl. The key roles of the
Investment Manager, Investment Adviser and Asset Manager are shown
on the following page.
The Investment Manager, Investment Adviser and Asset Manager are
all members of the NextEnergy Capital Group (the "NEC Group"). The
NEC Group, which is privately owned, was founded in 2007 and has
evolved into a leading specialist investment and asset manager in
the solar energy infrastructure sector. Since its inception, it has
been active in the development, construction and ownership of solar
assets, which is its sole focus. As at 31 March 2020, the NEC Group
had assets under management of GBP1.7 billion with a cumulative
generating capacity of more than 1.3GW. In addition to the Company,
it manages two private equity funds, NextPower II LP (invests in
solar assets in Italy) and NextPower III LP (invests in solar
assets globally).
The NEC Group's team of some 190 individuals has significant
experience in energy and infrastructure transactions across
international jurisdictions. The Investment Adviser's Investment
Committee comprises Michael Bonte-Friedheim, Aldo Beolchini and
Abid Kazim (formerly CEO of WiseEnergy), who combined, have in
excess of 60 years' industry experience.
Since it was founded, the NEC Group has provided operating asset
management, monitoring, technical due diligence and other services
to over 1,500 utility-scale solar power plants with an installed
capacity in excess of 1.7GW. Its asset management clients include
listed solar funds (in addition to the Company), banks, private
equity funds and other specialist investors. The Asset Manager has
created a proprietary asset management platform which integrates
all technical, financial and commercial data to analyse clients'
data in real-time and generate insight, all of which help to
protect and enhance the long-term quality and performance. The
Asset Manager's software and systems, which have been refined over
the past 11 years, and specialist staff with extensive solar
experience allows WiseEnergy to be at the forefront of the
"digitalisation of energy".
The collective experience of the NEC Group of investing and
managing solar assets best positions the Company to implement
efficiencies at both the investment and operating asset levels. The
technical and operating outperformance of the Company's portfolio
to date underlines the benefits of this comprehensive strategic
relationship.
Michael Bonte-Friedheim is Founding Partner and CEO of the NEC
Group. He has 20 years' specialist experience in the power and
energy sector and was previously Managing Director in Goldman
Sachs' energy and power investment banking team in London and non-
executive Chairman and CEO of a number of listed energy
companies.
Aldo Beolchini is Managing Partner and CIO of the NEC Group. He
has 20 years' experience in investment banking and renewable
energy. Prior to joining the NEC Group in 2008, he was a Vice
President at Morgan Stanley Investment Banking.
Entity Principal Roles
Investment Manager
* Act as the Company's Alternative Investment Fund
Manager ("AIFM"), providing portfolio and risk
management services as required by the EU's AIFM
Directive
* Make investments and approve divestments in
accordance with the Company's investment policy,
subject to them having been recommended by the
Investment Adviser
* Issue reports to the Board on all financial,
operational and technical issues and the valuation of
the Company's investments and the calculation of its
NAV
Investment Adviser
* Provide advice and recommendations concerning the
Company's investment strategy, portfolio composition
and financing and strategy to achieve the Company's
objectives and target returns within the agreed risk
appetite
* Provide investment and other advice and
recommendations in respect of the Company's existing
and potential investments and negotiate all project
contracts with counterparties
* Identify and evaluate investment opportunities for
the Company
* Day-to-day running of the Company (excluding matters
for which the Administrator is primarily responsible),
including oversight of the Company's other key
service providers
* Manage debt finance at the HoldCo and SPV levels
* Monitor financial performance against the Company's
objectives, targets and forecasts and manage the
process for valuing the Company's investments and
calculating its NAV
* Monitor operational performance of the Company's
portfolio
* Manage the Company's investor relations activities
Asset Manager
* Monitor and oversee the day-to-day operations of the
Company's operating assets and subsidy-free
developments, including appointment and oversight of
service providers, contractors and suppliers
* Implement the Company's ESG strategy applicable to
its investments
* Manage resolution of operational issues and disputes
affecting the Company's investments
* Technical and financial analysis of each of the
Company's investments to assess performance and
identify potential improvements
* Seek cost savings through contract tenders,
renegotiations and extensions
* Develop and manage the Company's energy sales
strategy, including electricity sales agreements,
corporate power purchase agreements and direct-wire
agreements with off-takers
* Manage the SPVs' administrative, financial and
accounting functions and provide directors to their
boards
Administration of the Company
The Company has appointed Apex Fund and Corporate Services
(Guernsey) Limited to provide company secretarial, fund accounting
and administration services. Further details on the Administrator's
responsibilities can be found in the Corporate Governance Statement
on page 57.
The Administrator is part of the Apex Group, which was
established in Bermuda in 2003 and is a global financial services
provider. It has over 40 offices worldwide and more than 3,000
employees.
Dividend Policy, Scrip Dividends and Dividend Target for
Financial Year Ending 31 March 2021
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
shareholders and currently anticipates that it will continue to do
so. Scrip dividends provide ordinary shareholders with the
flexibility to receive their quarterly dividend in cash or newly
issued ordinary shares. Details of the scrip dividend alternative
for the year ending 31 March 2021 will be set out in a separate
circular to ordinary shareholders, which is expected to be
published in August 2020. Once published, a copy of the circular
will also be available in the Company's website
(www.nextenergysolarfund.com).
The target dividend for the financial year ending 31 March 2021
is 7.05p per ordinary share, an increase of 2.6% compared to the
financial year ended 31 March 2020. We expect to declare four
quarterly dividends of 1.7625p each.
For the reasons explained in the Chairman's Statement on page 9,
we believe it is prudent to keep the Company's dividend policy in
respect of the Company's financial year beginning 1 April 2021 and
subsequent financial years under review.
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, located in the UK and other OECD
countries, that generate reliable cash flows over their useful
lives (typically, at least 25 to 45 years from energisation).
-- Asset management: We seek to enhance the returns from our
assets through active asset management, including rigorously
controlling costs, delivering operational efficiencies, extending
their useful lives and implementing our energy sales strategy 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 gearing, subject to
gearing being capped at 50% of GAV.
-- Risk management: We seek to actively manage potential risks,
including maintaining a diversified exposure by location,
third-party suppliers, service providers and other commercial
counterparties to improve the resilience of the Company's portfolio
and contributing to its long-term sustainable success.
Investment Policy(1)
The Company seeks to achieve its investment objective by
investing exclusively in solar energy infrastructure assets,
primarily in the UK. Not more than 15% of the Company's GAV
(calculated at the time of investment) may be invested in solar
assets that are located outside the UK. Investments outside the UK
will be made only 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.
The Company invests in solar 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 assets that are
anticipated to generate stable cash flows over their asset
lifespan.
The Company typically acquires sole ownership of individual
solar assets through SPVs, but may enter into joint ventures or
acquire majority interests, subject, in each case, to the Company
maintaining a controlling interest. Where an interest of less than
100% in a particular solar asset is acquired, the Company will
protect its controlling shareholder rights through shareholders'
agreements or other legal arrangements. Investments by the Company
in solar assets may be by way of either equity or a mix of equity
and shareholder loans.
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 asset will
constitute (at the time of investment) more than 30% of GAV. In
addition, the four largest solar assets will not constitute (at the
time of investment) more than 75% of GAV.
The Company mostly acquires operating solar assets, but it may
also invest in solar assets that are under development (that is, at
the stage of origination, project planning or construction) when
acquired. Such assets in aggregate will not constitute (at the time
of investment) more than 10% of GAV.
The Company may also agree to forward-fund by way of secured
loans the construction costs of solar 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 referred to above but will be restricted in
aggregate to not more than 25% of GAV (at the time such arrangement
is entered into) and will only be undertaken where supported by
appropriate security (which may include financial instruments as
well as asset-backed guarantees). 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 Company's revenues result from
the sale of the entirety of the electricity generated by its solar
assets within the terms of power purchase agreements ("PPAs")
entered into from time to time. These include the monetisation of
ROCs, NIROCs and FiTs and any other regulated benefits and the sale
of electricity generated by the assets to energy consumers and
energy suppliers. Within this context, the Company expects to
execute PPAs with creditworthy counterparties at the appropriate
time.
The Company maintains a diversified exposure to its third-party
suppliers, service providers and other commercial counterparties,
including landlords, developers, engineering and procurement
contractors, technical component manufacturers and PPA
counterparties.
The Company may employ leverage, provided that it does not
exceed (at the time the relevant arrangement is entered into) 50%
of GAV. For this purpose, leverage includes all short- and
long-term debt raised by the Company or any of its HoldCos or SPVs,
as well as the aggregate subscription monies paid in respect of all
preference shares in issue and any unpaid dividends due in respect
of the preference shares.
The Company invests with a view to holding its solar assets
until the end of their useful lives. 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 seeks to optimise and extend the lifespan of
its assets and may invest in their repowering of and/or the
integration of ancillary technologies (e.g. energy storage) with
its solar assets to fully utilise grid connections and balance the
electricity grid with a view to generating greater revenues. The
Company expects to re-invest cash (in excess of that required to
meet the Company's ongoing operating expenses and to pay dividends
in accordance with its dividend policy) in additional appropriately
priced assets.
The Company may invest cash held for working capital purposes
and pending investment or distribution in 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.
Any material change to the Company's investment policy will be
made only with the approval of the FCA and of the Company's
ordinary shareholders by ordinary resolution.
1 The Board intends to seek shareholder approval at this year's
AGM for certain changes to the investment policy, primarily to
increase the limit on the Company's investments in OECD countries
outside the UK from 15% to 30% .
Capital Deployment Timeline
Installed Capacity
Total Generation
2,482 GWh total portfolio generation since IPO
Performance since IPO(1)
NESF Total Return vs FTSE All-Share Index Total Return
Source: Morningstar
Cumulative Annual Returns to 31 March 2020
Source: Morningstar
Compound Performance to 31 March 2020
Source: Morningstar
(1) To ensure like-for-like comparisons, all the total returns
in the charts assume dividends have been reinvested.
Five-year Record
Year Ended 31 March
Financial Key Performance Indicators 2016 2017 2018 2019 2020
Ordinary shares in issue 278.0m 456.4m 575.7m 581.7m 584.2m
Ordinary share price 97.75p 110.5p 111.0p 117.5p 101.5p
Market capitalisation of ordinary
shares GBP272m GBP504m GBP639m GBP683m GBP593m
NAV per ordinary share* 98.5p 104.9p 105.1p 110.9p 99.0p
Total ordinary NAV* GBP274m GBP479m GBP605m GBP645m GBP579m
Premium/(discount) to NAV* (0.8%) 5.3% 5.6% 6.0% 2.5%
Earnings per ordinary share 0.78p 13.81p 5.88p 12.37p (5.09p)
Dividend per ordinary share 6.25p 6.31p 6.42p 6.65p 6.87p
Dividend yield* 6.39% 5.71% 5.78% 5.66% 6.77%
Cash dividend cover - pre-scrip
dividends* 1.2x 1.1x 1.1x 1.3x 1.2x
Preference shares in issue - - - 100m 200m
Financial debt outstanding at subsidiaries
level GBP217m GBP270m GBP270m GBP269m GBP214m
Financial debt (financial debt/GAV)* 44% 36% 31% 27% 22%
Gearing (financial debt + preference
shares/GAV)* 44% 36% 31% 36% 42%
GAV GBP489m GBP749m GBP875m GBP1,014m GBP991m
Weighted average cost of capital 5.8% 5.9% 5.8% 5.4% 5.5%
Ordinary shareholder total return
- cumulative since IPO 6.1% 26.7% 33.6% 46.7% 37.5%
Ordinary shareholder total return
- annualised since IPO 3.2% 9.1% 8.5% 9.5% 6.3%
Ordinary shareholder total return 0.2% 21.1% 6.2% 11.8% (7.8%)
Ordinary NAV total return* 3.7% 14.4% 6.3% 11.8% (4.6%)
Ordinary NAV total return - annualised
since IPO* 1.9% 4.9% 7.0% 8.1% 5.9%
Ongoing charges ratio* 1.2% 1.2% 1.1% 1.1% 1.1%
Weighted average discount rate 7.7% 7.9% 7.3% 7.0% 6.8%
Operational Key Performance Indicators
Invested capital* GBP481m GBP522m GBP734m GBP896m GBP950m
Number of assets 33 41 63 87 90
Total installed capacity 414MW 454MW 569MW 691MW 755MW
Annual generation 225 GWh 394 GWh 451 GWh 693 GWh 712 GWh
% increase (year-on-year) 878% 75% 14% 54% 3%
Generation since IPO 0.2 TWh 0.6 TWh 1.1 TWh 1.8 TWh 2.5 TWh
Irradiation (delta vs. budget) +0.4% (0.3%) (0.9%) +9.0% +4.0%
Generation (delta vs. budget) +4.1% +3.3% +0.9% +9.1% +4.7%
Asset Management Alpha* +3.7% +3.6% +1.8% +0.1% +0.7%
Weighted average lease life 25.7 24.6 23.3 25.2 26.9
years years years years years
* Alternative performance measures - see pages 101-103
STAUGHTON
50MW installed
Energised in December 2019
Subsidy- free
15,000 homes powered annually
Bedfordshire
Investment Adviser's Report
Michael Bonte-Friedheim
Aldo Beolchini
Abid Kazim
Investment Committee of the Investment Adviser
Introduction
As at 31 March 2020, the NAV per ordinary share was 99.0p (2019:
110.9p). The reduction since last year occurred mainly at the end
of the financial year, and primarily reflects the adoption of the
most recent forward power curves released by the two independent
market forecasters used by the Company. These forward power curves
reflect a substantial reduction in power prices in the short- to
medium-term, and incorporate an anticipated reduction in demand for
electricity and a corresponding decrease in energy-related
commodity prices as a result of the effects of the COVID-19
pandemic.
Compared to December 2019, the blended average curve used by the
Company has declined on average by 16.9% over the next five years,
including a 21.2% reduction over 2020 and 2021, and by 5.0% from
2025 until 2050. The blended average curve corresponds to an
average solar capture price of approximately GBP39.9 per MWh for
the period 2020-2024 and GBP46.8 per MWh for the period 2025-2050
(in 2020 prices). This downward shift in the blended curve resulted
in a negative impact on NAV per ordinary share of approximately
6.5p per share.
Portfolio Highlights
During the year, the portfolio grew from 87 to 90 assets, which
represented an increase of 64MW, increasing the total capacity of
the portfolio to 755MW. Our subsidy-free construction progress
contributed 55MW of this increased capacity.
In August 2019, our first subsidy-free asset, (Hall Farm II, an
extension of one of our existing sites in Leicestershire) was
connected to the grid after a five- month construction period. The
5MW plant was the first subsidy-free plant to be energised by a UK
listed investment company.
By December 2019 we had completed the second subsidy-free asset,
Staughton, located on the Cambridgeshire/Bedfordshire border. This
became the largest asset in our portfolio at 50MW and was also the
UK's largest subsidy-free plant. It was connected to the grid on
schedule after an eight-month construction period.
Our third subsidy-free asset, High Garrett, is expected to
energise in autumn 2020, subject to the impact of the COVID--19
pandemic.
Pre- construction works began in early 2020 and full
construction is expected to commence in the summer of 2020. High
Garrett will be a 9MW extension to the 5MW ROC asset known as
Kentishes acquired in 2016.
In August 2019, the Company announced the acquisition of
Ballygarvey, an 8MW operating asset located in Northern Ireland.
The plant receives subsidies under the Northern Irish ROCs
regulatory framework and receives 1.4 NIROCs per MWh generated.
NIROCs have substantially the same value as UK ROCs and operate
under a similar regulatory framework.
Portfolio Performance
During the year, solar irradiation across the entire portfolio
was 4.0% above expectation (2019: 9.0%), and generation was 4.7%
above budget (2019: 9.1%). Asset Management Alpha for the year was
0.7% (2019: 0.1%), which would have been 1.5% (2019: 1.1%) if we
excluded distributor network outages.
The Asset Management Alpha is an important metric that allows
the Company to identify the "real" outperformance of the portfolio
due to active management and, excluding the effect of variation in
solar irradiation. The "nominal" outperformance is calculated as,
the GWh generated by the portfolio versus the GWh expected in the
assumptions used at the time of acquisition.
In the UK, the summer of 2019 was one of the hottest on record,
with the highest ever UK temperature of 38.7degC recorded in
Cambridge on 25 July. Whilst the extra irradiation drove a greater
than expected level of generation, the Asset Manager had to cope
with some adverse effects of high temperatures on the technical
performance of solar PV components, which perform optimally at
temperatures below 25degC.
During the year, certain plants suffered from grid curtailment,
as generation peaks driven by exceptional irradiation levels
exceeded, at times, the export capacity allocated by the grid
authority to each plant. In addition, the portfolio was negatively
impacted due to the works carried out to replace the inverters at
our Raglington plant.
Irradiation Generation Asset
No. of Assets (Delta vs. (Delta vs. Management
Financial Year Ended 31
March Monitored Budget) Budget) Alpha
2016 23 +0.4% +4.1% +3.7%
2017 31 (0.3%) +3.3% +3.6%
2018 55 (0.9%) +0.9% +1.8%
2019 84 +9.0% +9.1% +0.1%
2020 85 +4.0% +4.7% +0.7%
Cumulative from IPO
to 31 March 2020 85 +2.5% +5.0% +2.5%
During the year, a government grant was issued to incentivise UK
generators to carry out an update on the protection relay settings
to reduce the number of nuisance trips. The works to undertake this
affected 58 assets in the portfolio and they were carried out
during the winter of 2019 and spring months of 2020 in order to
minimise the impact on generation.
Our UK portfolio performed above expectations with generation
outperformance of 4.6% (2019: 9.4%) and an Asset Management Alpha
of 0.7% (2019: -0.1%).
Our Italian portfolio also performed well during the year with
6.4% (2019: 5.4%) extra generation over budget and an Asset
Management Alpha of 1.3% (2019: 2.5%).
The Asset Manager monitors actual performance versus
expectations for assets operational for at least two months post
completion. The three rooftop portfolios have been excluded as
irradiation is not monitored. The two operational subsidy-free
assets were excluded as they are currently passing through the
internal Provisional Acceptance Clearance (PAC) process.
Portfolio Optimisation
Asset Life Extensions Programme
Extending the useful life of the Company's assets is a
value-creating opportunity we have focused on since 2015. During
the year, we secured options or rights to extend the leases and/or
planning on 17 individual UK plants. The positive impact on NAV of
these lease extensions amounts to 2.4p per ordinary share at the
year- end. In total, as at 31 March 2020, 31 UK assets (284MW) have
secured a mixture of 5, 10 and 15 year lease extensions. We
continue to work on extending the life of the remaining UK
portfolio and are in advanced stages of negotiations on another 5
sites, with a further 15 being targeted in the current financial
year.
For illustrative purposes, should the 20 targeted assets be
valued on a 35-year lease basis from the date of connection to the
grid (assuming current lease terms), the Company's ordinary NAV at
31 March 2020 would increase by approximately 2.0% (1.8% based on
99.0p NAV per ordinary share).
Contract Restructuring
During the year, an import power tender was successfully
completed across all UK assets. If the current counterpart prices
remained competitive, the contract remained with the current
supplier.
We conducted a competitive Renewable Energy Guarantees Origin
("REGO") tendering process through brokers and participated in the
E-REGO auction. We contracted REGOs during the year ended 31 March
2020, creating additional revenue amounting to GBP235k across the
UK portfolio.
The insurance renewals for 2020/21 were completed across the UK
portfolio and reduced the overall premium by 25% in comparison to
last year, which was a substantial saving for the SPVs and will be
realised in the current financial year.
We continue to perform a systematic review of all operating
expenses across the portfolio, targeting the sites with the lowest
performance in terms of EBITDA. We have identified several
opportunities to reduce costs which will be pursued during the year
ending 31 March 2021.
Power Purchase Agreements
The NEC Group's specialist energy trading desk, along with
external brokers, ensures that the Company's electricity sales
strategy maximises revenues whilst mitigating the negative impact
of short-term fluctuations in the power markets. As the capacity of
assets under management increased by 64MW during the year, the
Asset Manager has executed a range of short-term PPA hedges from
one month rolling to one year on these new assets through a wider
competitive tendering process resulting in reduced fees and
increased pass-through value of embedded benefits (and ROCs, if
applicable)
On the UK existing portfolio, hedging was undertaken for the
Apollo, NESH II and Radius portfolios. During the year, the RRAM
portfolio also entered into a trading contract and was similarly
hedged. Bespoke terms were negotiated for the RRAM trading
contract, allowing volume to be over hedged. This allowed the RRAM
portfolio to over-hedge seasons when prices were high and
potentially buy back months if prices fell significantly or the
over hedged volume could be rolled over to cover the exposed volume
under the Apollo, NESH II and Radius contracts.
Back in 2018 market fundamentals were bullish through the summer
which encouraged a shorter-term hedging strategy to capitalise on
the rising prices. As market prices declined through 2019, a
significant amount of fixed price contracting took place in
February 2019 for summer and winter 2019/20 to protect against the
bearish market.
The majority of UK volume under the trading contracts had also
already been hedged ahead of summer and winter 2019/20 delivery,
which ensured that the Company reduced its exposure to the daily
volatility in the UK market. Of the market revenues derived from
the sale of electricity generation, the Company has secured pricing
for 95% of its electricity generation for the summer of 2020 and
50% of its electricity generation for the 2020/21 winter. Secured
pricing comprises of fixed price contracts, hedging under the
trading contracts, and nine FIT sites opted into the export
tariff.
During the year, NESF signed an agreement with Anglian Water
Services to own and operate a portfolio of solar sites on Anglian
Water's operational sites. NESF will finance, design, build,
operate and own over 43MW of solar assets and sell the power
directly to Anglian Water through private wire agreements for a
25-year period. This opportunity, which is part of the Company's
allocation to subsidy-free assets, will provide long-term
contracted revenues to NESF's portfolio and supplements the growth
of our subsidy-free build programme. The deal is the largest
on-site solar PV generation tender to date in the UK solar market
and shows the continued growth of the commercial and industrial
solar generation landscape.
For the financial year ending 31 March 2021, the Italian
portfolio will derive approximately 83% of revenues from regulated
revenues (principally FiTs) and approximately 17% of revenues will
result from the sale of electricity generated under short-term
contracts, of which the Company has secured fixed price agreements
covering 100% of its electricity generation until the end of the
2020 calendar year.
OFGEM Review
In December 2019, OFGEM issued the Company with a notice to
downgrade the ROC banding of our Wellingborough site from 1.6 to
1.4 ROCs and to revoke all ROCs from 31 March 2014 to 8 February
2015 as OFGEM did not agree with the commissioning date. The
Company engaged a law firm to issue a response to OFGEM challenging
their decision and the Company is currently awaiting a reply. The
potential impact of the ROC downgrade is -GBP0.6m and, to be
prudent, this has been included within the NAV.
In January 2020, subsequent to an OFGEM audit on our Fiskerton
site, OFGEM stated that they would either be revoking the
accreditation or downgrading the ROC banding from 1.4 to 1.3. As as
31 March 2020, the Company had not received the notice letter from
OFGEM, but is preparing a response using a law firm to challenge
the decision. The potential impact of the downgrade is -GBP0.6m
and, to be prudent, this has been included within the NAV.
Operational Impact of COVID-19
As discussed in the Introduction on page 20, COVID-19 has had a
material adverse impact on power prices, current and projected.
However, the operational activities of the Company and its
investments have been largely unaffected
The NEC Group has enabled its business continuity plans for its
global staff to work from home with minimal disruption. The
Company's other key service providers and suppliers have also
enabled their business continuity plans and continue to provide
contracted services on a "business as usual" basis in all material
respects. We remain in close contact with them and continuously
monitor and review their ability to perform in light of COVID-19
developments.
Workers in the electricity sector are considered "key workers"
and this has enabled the Asset Manager to ensure that the technical
and operational integrity of NESF's solar assets has been
maintained and, to date, NESF has not experienced any significant
technical or operational impacts on its portfolio resulting from
the effects of COVID-19. In both the UK and Italy, the Company
built up a stock of spare parts during the second half of 2019 and
we are not currently expecting any significant complications along
its spare parts supply chain. The Asset Manager is not anticipating
any material delays in its asset remediation and optimisation
plans.
We continue to monitor closely the impact of COVID-19 in the UK
and Italy and will continue to work with the Board and the
Company's other service providers and suppliers to anticipate and
mitigate, where possible, arising risks.
Subsidy-free Asset Strategy
The Company has sourced a pipeline of projects which can be
developed into operating subsidy-free assets and is targeting
approximately 150MW of operating subsidy-free assets in its
portfolio. As at 31 March 2020, the Company had 55MW of operating
subsidy-free assets in the portfolio. Subject to the impact of
COVID-19, High Garrett (9MW) will be energised in autumn 2020,
making a total of 64MW. The Company's subsidy-free pipeline is as
follows:
MW
Subsidy-free Pipeline Capacity
Under Construction (High Garrett) 9
Projects Post-planning Development 85
Projects in Planning 164
Projects Pre-planning Development 481
Anglian Water Development(1) 43
Total 782
(1) See "Power Purchase Agreements" on page 21.
The Company's subsidy-free pipeline is greater than its target
allocation to operating subsidy-free assets of 150MW. This is to
ensure a broad set of investment options for NESF from which it can
select the most attractive projects for inclusion in its portfolio.
All the pipeline projects were expected, when secured, to generate
a rate of return in line with or in excess of NESF's target equity
annualised return range of 7-9%. The Company will consider
divesting those subsidy-free development projects that are surplus
to its requirements or that are no longer likely to generate
financial returns that are in line with the Company's target range.
A development project can fall below the target range due to a
change in the forecast capital expenditure, operating expenditure
or revenues, particularly in the COVID-19 environment.
Following the end of the financial year, the Company disposed of
Strensham and Llanwern development projects (40MW and 75MW
respectively) as they had ceased to meet the Company's target
returns, achieving an IRR on the disposal significantly in excess
of its target returns (see "Portfolio Update" in the Chairman's
Statement on page 9 for further details).
The NEC Group has recruited a Head of Energy Sales who manages
the strategy for the sale of electricity from the subsidy-free
operating assets. Details on the power price risk management
strategy can be found in note 14 to the Financial Statements.
Valuation of the Investment Portfolio
Introduction
The Investment Manager is responsible for carrying out the fair
market valuation of the Company's underlying investment portfolio
which is presented to the Company's Board for its 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 and take into
account International Private Equity and Venture Capital ("IPEV")
valuation guidelines.
Assets not yet operational or where the completion of the
acquisition is not imminent at the time of valuation, use the
acquisition cost as a proxy for fair value, which take into account
IPEV valuation guidelines.
Portfolio Valuation Bridge for the Year Ended 31 March 2020
The Board reviews the operating and financial assumptions used
in the valuation of the Company's underlying portfolio and approves
them based on the recommendation of the Investment Manager.
Current and Long-Term Power Prices
The Investment Adviser continuously reviews multiple inputs for
UK power price forecasts and takes a blended average of two of the
leading independent energy market consultants' long-term
projections to derive the power curve adopted in the valuation of
the Company's portfolio. This approach allows mitigation of
inevitable forecasting errors as well as any delay in response from
the Consultants in publishing periodic (quarterly) or ad hoc
updates following any significant market development. For the
Italian portfolio, a leading independent energy market consultant's
long-term projections are used to derive the power curve adopted in
the valuation.
During the year, the Consultants revised their forecasts for the
UK wholesale power price downwards. These forward power curves
reflect a substantial reduction in power prices in the short- to
medium-term, and incorporate an anticipated reduction in demand for
electricity and a corresponding decrease in energy-related
commodity prices as a result of the effects of the COVID-19
pandemic.
In the longer term, the wholesale power prices are trending
downwards as more low-cost generation is being deployed, notably
off shore wind and solar PV.
The power price forecasts used by the Company also reflect an
assumed "solar capture" discount which reflects the difference
between the prices available on the market in the daylight hours of
operation of a solar plant versus the baseload prices included in
the power price estimates. This solar capture discount is estimated
by the Consultants on the basis of a typical load profile of a
solar plant 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 assets compared to the baseload price, driven by the
expected further deployment of low- cost renewable capacity. This
lower price is already included in the financial estimates that
drive the Company's NAV.
The Company's current UK long-term power price forecast implies
an average growth rate of approximately 1% in real terms over the
20-year period and an average price of approximately GBP45.1/MWh in
today's terms. This represents a decrease of 23.4% compared to
those used at the end of the previous financial year (and 49% below
the assumptions employed at IPO).
Compared to the previous year, electricity day ahead prices in
the UK decreased from approximately GBP44/MWh in March 2019 to
approximately GBP32/MWh in March 2020 (see graph below).
Following a similar trend, the Italian price of electricity
decreased from approximately EUR53/MWh in March 2019 to
approximately EUR32/MWh in March 2020 (see graph below).
Discount Rate
During the year, the solar market continued to experience
increased competition for operating and subsidised assets in the
secondary market. In the context of high liquidity provided to
international investors, a maturing renewable energy market, a
scarcity of subsidised assets and the lack of any incentive
framework for new installations, demand for operating solar assets
remained strong resulting in sustained pressure on prices in the
last year. These changing dynamics were evidenced by the experience
of the Investment Adviser when bidding for solar assets in the UK.
As a result, the Company decided to reduce its discount rate for
unlevered operating solar assets in the UK by 0.25% (from 6.50% to
6.25%).
Historic - UK Power Prices
Source: N2EX - UK Baseload
Forecast UK Power Prices (Real 2020)
Historic - Italian Power Prices
Source: Gestore del Mercato Elettrico S.p.A. - PUN
Forecast Italian Power Price (Real 2020)
% of NESF Revenues Fixed until 31 March 2021
NESF 20-year Forecast Revenue Breakdown
For those UK operating solar assets with debt, the Company
adopts a levered discount rate to capture the greater level of
volatility risk associated with the cash flows available to equity
investors after debt service. The appropriate level of risk premium
due to project level debt was evaluated taking into account various
factors for each specific asset, including the level of gearing,
maturity profile, cost of debt and other factors mentioned above.
This range was unchanged from the previous year (0.7% - 1.0%).
For UK operating subsidy-free assets, the appropriate level of
risk premium to the discount rate for unlevered operating solar
assets was evaluated at 1.0% (2019: 1.0%) to capture the greater
level of power price risk associated with the cash flows available
to equity investors, offset against the absence of debt
financing.
Where UK operating solar assets have secured lease extensions, a
1% discount rate premium is applied to all cash flows after a 30
year asset life (2019:0%) due to the uncertainty in the latter
period of each asset's lifetime.
As a result of the change in the UK discount rate, the discount
rate for the Italian unlevered operating solar assets was reduced
by 0.25% (from 8.00% to 7.75%). The additional country risk premium
to the UK, considering the differences in risk-free rates in the
long-term, remained unchanged at 1.5%. It is worth noting that the
Italian portfolio debt was fully repaid in November 2018 and the
current currency hedge effectively mitigates the revenue exposure
to FX.
The resulting weighted average discount rate for the Company's
portfolio was 6.8% (2019: 7.0%). The Company does not adopt
weighted average cost of capital ("WACC") as a 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
levered assets or levered portfolios. However, for the purposes of
transparency, the Company's pre-tax WACC as of 31 March 2020 was
5.5%. (2019: 5.4%). The increase in the WACC reflects an increase
in the overall gearing from 36% to 42%, as further described
below.
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 PV plants (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 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; and
-- the Company owns rights to supply electricity into the grid
through connection agreements that do not expire.
The Company continues to seek to extend the useful life of its
assets, mainly by extending the terms of the land leases for some
projects with the intention of extending leases for others in due
course. During the year, 17 assets in the portfolio secured a lease
extension, which added 2.5p per ordinary share to the value of the
existing portfolio (2019: 14 assets, 1.2p). As at 31 March 2020, a
total of 31 assets had secured lease extensions. The remaining
weighted average lease life of the Company's portfolio was 26.9
years (2019: 25.5 years). The discounted cash flow valuation
assumes a zero-terminal value at the end of the lease term for each
asset or the end of the planning permission, whichever is the
earlier.
Operating Performance
The Company values each solar asset on the basis of the minimum
performance ratio ("PR") guaranteed by the vendor or the PR
estimated by the appointed technical adviser during the acquisition
due diligence. These estimates are generally lower than the actual
PR that the Company has been experiencing during subsequent
operations. The Investment Adviser deems 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").
During the year, 11 FACs were closed across 78MW. As at 31 March
2020, 61 UK solar assets and all Italian solar assets (515MW) in
the portfolio had achieved FAC and their actual PR was used in the
discounted cash flow valuation.
MW
FAC Timeline for Remaining Assets Capacity
Financial Quarter Ending June 2020 41
Financial Quarter Ending September 2020 91
Financial Quarter Ending December 2020 5
Financial Quarter Ending March 2021 8
Period from April 2021 to June 2022 47
NAV
The Company's NAV is calculated on a quarterly basis based on
the valuation of the investment portfolio provided by the
Investment Adviser and the other assets and liabilities of the
Company provided 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. The Company reports its
financial results on a non-consolidated basis under IFRS 10 (see
note 4c) to the Financial Statements on page 85) and the change in
fair value of its assets during the year is taken through the
Statement of Comprehensive Income.
NAV Bridge for the Year Ended 31 March 2020
NAV Sensitivity Analysis as at 31 March 2020
As at 31 March 2020, the Company's NAV was GBP578.6m
(GBP645.0m), and the NAV per ordinary share was 99.0p (2019:
110.9p). The movements were driven by the following factors:
-- downward revisions in the forecasts for power prices provided
by the Consultants, being 23.4% lower compared to the assumptions
at 31 March 2019 (the Company uses the forecasts released by the
Consultants up to the date of preparation of this Annual
Report);
-- the uplift arising from a decrease in the unlevered discount
rate by 0.25%, from 6.50% to 6.25%;
-- the downward revision resulting from increasing the discount
rates after 30 years for assets with lease extensions;
-- the removal of embedded benefits payments from April 2021
following OFGEM's Targeted Charging Review;
-- the uplift arising from lease extensions;
-- the operating results achieved by the Company's solar assets;
-- the downward revision of short-term inflation forecasts;
-- the UK corporation tax rate remaining at 19% over the long-term; and
-- the cash dividends paid by the Company during the year and the Company's operating costs.
NAV Sensitivity Analysis
The chart on the previous page shows the percentage change in
the portfolio resulting from a change in the underlying variables
and its impact on the NAV per ordinary share. Additional
sensitivity analyses can be found in note 14c to the Financial
Statements on pages 94-96.
Cash Flow Generation
The Company generates revenues through the sale of electricity
to the markets and the subsidies provided under different subsidy
regimes (ROC, NIROC and FiT). Both revenue streams are underpinned
by two main factors:
-- the actual energy output (measured as amount of KWh of energy
generated), which is mainly driven by the solar irradiation,
technical performance and availability of the plant; and
-- the actual price at which the energy generated is sold to the
markets, as well as the subsidies received for the same
generation.
The performance of a plant in terms of revenues is therefore a
product of both the operational performance and the commercial
terms of the PPAs in place. Before taking into account tax payments
and financing considerations, the cash flow generation of solar
assets is also influenced by operating expenses, which are usually
governed by long-term contracts and characterised by low volatility
over the long- term.
Year Ended 31 March Actual per Budget per Delta Comments
2020 MWp(1) MWp(1) vs. Budget
Actual
(kWh/m(2) irradiation
Solar Irradiation [A] ) 1,255 1,207 + 4.0% for the year
Positive delta
represents
Asset Management
Conversion Alpha for the
Factor(2) [B] (%) 85.5% 84.9% + 0.7% year
Actual
generation
[C] = measured at
[A x the meter for
Metered Generation B] (kWh) 1,073 1,025 + 4.7% the year
Power Subsid-ies Power Subsid-ies
Price Price
Implied average
power price
and subsidies
across entire
portfolio
(including
ROC recycle
(GBP/ and embedded
Realised Prices [D] MWh) 48.6 74.4 50.0 71.2 + 4.6% benefits)
Revenues [E] =
(Subsidies, [C x (GBP
PPAs, Etc.) D] '000) 52.1 79.9 51.2 72.9 + 9.5%
Actual revenues
at portfolio
level for the
year (unaudited
(GBP figures per
Total Revenues [E] '000) 132.0 124.2 + 6.3% MW)
Actual costs
at portfolio
level for the
year (unaudited
Operating (GBP figures per
Expenses [F] '000) (26.5) (29.0)(4) (8.6%) MW)
Actual EBITDA
[G] = for the year
[E - (GBP (unaudited
EBITDA(3) F] '000) 105.5 95.1 + 10.9% gures per MW)
EBITDA Margin(3) 79.9% 76.6%
1 Based on the average installed capacity 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 as well as
the availability (which reflects all system shut-downs for
maintenance or one-off events such as DNO outages).
3 EBITDA is a reference to EBITDA at the SPV levels.
4 Budgeted operating expenses are based on the acquisition case of the assets.
The table below summarises the economic performance across the
whole portfolio during the year, as illustrated by the average
revenue and average costs per MW.
During the year, the investment portfolio performance exceeded
budget in terms of generation, revenue and operating expenditure
due to the following factors:
-- positive impact from higher irradiation compared to budget;
-- cumulative positive generation results across the portfolio;
-- higher FiT, ROC, NIROC and wholesale revenues compared to budget; and
-- higher ROC recycle and embedded benefits comparing to budget.
Operating Results
Loss before tax was GBP29.7m (2019: profit of GBP71.6m), with
earnings per ordinary share of -5.09p (2018: 12.37p). The loss for
the year was due to the reduction in the valuation of the
investments mainly due to the reduction in the forecast price of
electricity in the short and medium term as detailed in the
Introduction on page 20.
Operating Expenses and Ongoing Charges
The net operating expenses of the Company amounted to GBP7.2m
(2019: GBP6.7m). The Company's ongoing charges ratio ("OCR") was
1.1% (2019: 1.1%). The budgeted OCR for the financial year ending
31 March 2021 is 1.1%. The OCR, which has been calculated in
accordance with the AIC's recommended methodology, is an
Alternative Performance Measure (see page 103).
Dividends
For the year ended 31 March 2020, the fourth quarterly dividend
of 1.7175p per ordinary share is expected to be paid on 30 June
2020 to ordinary shareholders on the register at the close of
business on 22 May 2020. As a result, the Company will achieve its
target for total dividends for the financial year ended 31 March
2020 of 6.87p per ordinary share. The Company offers scrip
dividends, details of which can be found on the Company's website
(www.nextenergysolarfund.com).
Pre-scrip
Dividends
Cash Income for Year Ended 31 March 2020(1) GBP'000 GBP'000
Cash income 61,189(1)
Net operating expenses (7,233)
Preference shares dividend (7,789)
Net cash income available for distribution
to ordinary shareholders 46,168
Ordinary shares dividend paid during the year 39,731
Cash dividend cover(2) 1.2x
1 Cash income differs from Income in the Statement of
Comprehensive Income. This is because the Statement of
Comprehensive Income is on an accruals basis.
2 Alternative Performance Measure (see page 101).
Dividends Declared per Ordinary Share
1 The period 2014/2015 was the first financial year following the Company's IPO.
Financing and Cash Management
Further Issue of Preference Shares
On 8 November 2018, ordinary shareholders passed a resolution to
create a class of preference shares and authorise the allotment of
up to 200m preference shares with no pre-emption rights.
Subsequently, on 13 November 2018, the Company issued an initial
tranche of 100 preference shares, raising GBP100m. The Company
issued a further 100m of preference shares, raising GBP100m, on 12
August 2019. The proceeds of the second issue of preference shares
were deployed to partially repay a HoldCo level short-term credit
facility, finance the acquisition of Ballygarvey and invest in the
construction of Staughton.
The rights of the preference shares issued in 2019 are the same
as those issued in 2018, save that the second tranche benefit from
certain additional undertakings and covenants given by the
Company.
The preference shares are only redeemable at the option of the
holders in the event of a change in control or delisting of the
Company. They are generally non-voting and carry a fixed preferred
dividend of 4.75% p.a. as well as a preferred capital entitlement
at nominal value (100p). From 1 April 2036, the preference
shareholders have the right to convert all or some of their
preference shares into either ordinary shares or B shares, at the
election of the holders, with B shares being unlisted shares
carrying the same rights to dividends and capital in a liquidation
as the ordinary shares. The conversion price will be based on the
ratio of the preference share issue price (100p) plus any unpaid
dividends relative to the NAV per ordinary share at the date of
conversion. Accordingly, conversion of the preference shares will
not result in any dilution of the NAV per ordinary share.
From 1 April 2030, the Company may elect to redeem all or some
of the preference shares. Dividends and, save as referred to in the
preceding paragraph, redemption will remain at the sole discretion
of the Board during the life of the preference shares. Should more
competitive sources of capital become available, the Company may
choose, at its sole discretion, to issue new capital (debt or
equity) to fund a full or partial redemption of the preference
shares after March 2030.
Benefits of the second tranche of preference shares for NESF
included:
-- a reduction in the exposure to secured debt financing;
-- the repayment of existing short-term debt facilities (GBP90m
due in February 2020 and July 2020), removing any short-term
refinancing risk, with the balance of the proceeds being available
for investment;
Termination
Number Facility Amount (Including
Provider/ of Plants Gearing Amount Outstan-ding options Applic-able
Arranger Type Borrower Secured(1) Level(3) Tranches GBPm GBPm to extend) Rate
Fully-amortising
long-term 2.91%
MIDIS/CBA/NAB debt2 NESH 21 51.6% Medium-term 48.4 48.4 Dec-26 4
Floating
long-term 24.2 24.2 Jun-35 3.68%4
Index
linked RPI
long index
term 38.7 35.9 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 RPI
long-term NESH index
MIDIS debt2 IV 5 51.8% Inflation-linked 27.5 23.1 Sep-34 + 1.44%
Fixed
long-term 27.5 25.5 Sep-34 4.11%
Total
long-term
Debt 195.8
Revolving
Credit NESH LIBOR
NIBC Facility II 2 - n/a 20.0 - Feb-22 + 2.20%
Revolving LIBOR
Credit NESH + 1.
Santander Facility VI 13 - n/a 70.0 18.5 Jul-20 50%
Total
short-term
Debt 18.5
Total 214.3
1 NESF has 325MW under long-term debt financing, 128MW under
short-term debt financing and 302MW without debt financing
2 Long-term debt is fully amortised over the period secured
assets receive subsidies (ROCs and others)
3 Gearing level defined as 'Debt outstanding / GAV'
4 Applicable rate represents the swap rate
-- 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 and increasing the IRR
for ordinary shareholders.
For accounting purposes, the preference shares are treated as
liabilities. The investment management fee is calculated based on
NAV and, accordingly, no management fee is payable in respect of
the preference shares.
Financial Debt
At 31 March 2020, the Company's subsidiaries had financial debt
outstanding of GBP214m (2019: GBP269m), on a look-through basis,
including project level debt, as shown in the table below.
As a result of relatively low HoldCo debt levels, and support of
RPI linked subsidies, debt covenants at the HoldCos level would
only be breached at extraordinarily low power prices.
Total Gearing
The financial debt, together with the preference shares,
represented a gearing level of 42% (2019: 36%), which is below the
maximum debt-to-GAV level of 50% in the Company's investment
policy.
Cash
As at 31 March 2020, the Company held cash of GBP25.1m at a high
credit rated financial institution in the UK.
Ordinary Shareholder and NAV Total Returns
During the year the ordinary share price decreased from 117.5p
to 101.5p. During March 2020, the uncertainty surrounding the
COVID-19 pandemic resulted in global equity markets suffering an
unprecedented decline. As a result of the fall in the ordinary
share price, at 31 March 2020, the annualised return since the
Company's IPO on 25 April 2014 had fallen below the target range of
7-9% equity return for ordinary shareholders (at IPO both the issue
price and NAV per ordinary share were 100p).
NESF's ordinary share price has risen since the year end and, as
at 26 June 2020, was 107.4p, resulting in an annualised ordinary
shareholder total return since IPO of 7.3%.
Events After the Balance Sheet
On 14 May 2020, two subsidy-free projects under development,
Strensham (40MW) & Llanwern (75MW), were disposed of for a
combined consideration of GBP11.5m resulting in NESF recovering all
development costs incurred. The transaction resulted in a net IRR
(after transaction costs) significantly in excess of NESF's
annualised target return of 7-9% p.a. The transaction constituted a
smaller related party transaction as set out in the FCA's Listing
Rules.
On 29 June 2020, a short-term credit facility of GBP70m was
extended from July 2020 to July 2022.
NextEnergy Capital Limited
29 June 2020
Salcey Farm (battery storage)
5.5MW installed
Energised in May 2018
1.4 ROC subsidy
1,400 homes powered annually
Buckinghamshire
Portfolio Generation Performance
Year Ended 31 March
2020 Since Acquisition
Irradiation Generation Irradiation Generation
Operational Acquisition Generation Delta Delta Delta Delta
Power Plant Date Date (GWh) (%) (%) (%) (%)
1 Higher Hatherleigh Apr-14 May-14 6.1 2.6 5.9 0.2 4.8
2 Shacks Barn May-14 May-14 6.0 3.5 5.0 2.5 8.3
3 Gover Farm Jan-15 Jun-14 9.1 5.5 0.0 2.3 (0.6)
4 Bilsham Jan-15 Jul-14 15.7 4.9 2.1 4.1 5.0
5 Brickyard Jan-15 Jul-14 3.6 3.5 5.7 2.7 5.2
6 Ellough Jul-14 Jul-14 15.1 1.3 5.4 0.5 6.4
7 Poulshot Apr-15 Sep-14 13.9 1.5 4.3 (0.3) 4.0
8 Condover May-15 Oct-14 9.0 (0.3) (4.1) (0.7) 0.2
9 Llywndu Jul-15 Dec-14 8.1 (1.0) 7.7 (4.1) 1.9
10 Cock Hill Farm Jul-15 Dec-14 20.1 2.6 5.4 2.0 3.5
11 Boxted Airfield Apr-15 Dec-14 18.9 3.7 6.6 3.0 5.3
12 Langenhoe Apr-15 Mar-15 21.6 7.1 7.6 5.8 8.8
13 Park View Jul-15 Mar-15 6.3 (1.5) (2.3) (3.3) (0.5)
14 Croydon Apr-15 Mar-15 15.8 7.6 6.7 5.6 6.5
15 Hawkers Farm Jun-15 Apr-15 12.3 1.3 5.2 (0.9) 2.9
16 Glebe Farm May-15 Apr-15 34.9 7.8 14.1 5.6 11.7
17 Bowerhouse Jul-15 Jun-15 9.1 5.1 1.4 1.7 1.2
18 Wellingborough Jun-15 Jun-15 8.0 3.9 2.8 2.0 3.8
19 Birch Farm Sep-15 Oct-15 5.0 5.2 7.3 3.7 5.7
Thurlestone
20 Leicester1 Oct-15 Oct-15 1.5 - (1.0) - 0.5
21 North Farm Oct-15 Oct-15 12.4 (0.8) 1.1 (3.9) (2.0)
Ellough Phase
22 2 Aug-16 Nov-15 8.3 7.4 10.8 8.8 12.1
23 Hall Farm Apr-16 Nov-15 4.8 3.3 9.0 3.3 1.3
24 Decoy Farm Mar-16 Nov-15 4.9 5.6 8.0 4.2 8.8
25 Green Farm Dec-16 Nov-15 5.1 3.1 3.7 3.6 4.2
26 Fenland Jan-16 Jan-16 21.2 6.2 10.2 4.8 9.2
27 Green End Jan-16 Jan-16 24.6 6.8 5.4 4.7 5.2
28 Tower Hill Jan-16 Jan-16 8.0 3.7 6.3 2.3 6.0
29 Branston Mar-16 Apr-16 19.3 7.6 10.7 6.0 5.1
30 Great Wilbraham Mar-16 Apr-16 38.2 5.9 6.9 4.9 5.5
31 Berwick Mar-16 Apr-16 9.3 4.6 9.7 5.0 8.8
32 Bottom Plain Mar-16 Apr-16 10.7 5.1 5.6 2.7 3.7
33 Emberton Mar-16 Apr-16 9.0 5.3 6.0 4.1 4.2
34 Kentishes Jul-17 Nov-16 5.2 4.6 4.7 5.5 6.1
35 Mill Farm Jul-17 Jan-17 5.3 7.9 11.8 8.3 10.8
36 Bowden Sep-17 Jan-17 5.3 (0.0) 0.6 (0.5) 0.7
37 Stalbridge Sep-17 Jan-17 5.4 0.3 5.7 (0.1) 5.9
38 Aller Court Sep-17 Apr-17 5.3 2.9 4.3 2.7 3.9
39 Rampisham Sep-17 Apr-17 5.2 (3.1) (1.7) (2.6) (2.7)
40 Wasing Aug-17 Apr-17 5.3 6.0 8.8 5.9 9.6
41 Flixborough Aug-17 Apr-17 5.0 5.4 8.0 5.4 8.0
42 Hill Farm Mar-17 Apr-17 5.0 5.6 5.8 6.7 8.0
43 Forest Farm Mar-17 Apr-17 3.1 3.7 6.8 4.0 7.7
44 Birch CIC May-17 Jun-17 1.7 5.2 4.8 4.9 4.6
45 Barnby Aug-17 Jun-17 5.0 4.6 7.8 5.2 7.6
46 Bilsthorpe Aug-17 Jun-17 5.0 4.0 6.9 4.4 7.9
47 Wickfield Mar-17 Jun-17 4.8 4.5 0.9 4.7 2.8
48 Bay Farm Sep-17 Aug-17 7.9 6.4 6.1 8.3 6.5
49 Honington Sep-17 Aug-17 13.3 2.8 3.4 4.2 3.5
50 Macchia Rotonda Nov-17 Nov-17 10.1 9.1 7.0 5.5 5.2
51 Iacovangelo Nov-17 Nov-17 5.5 6.9 9.0 3.7 6.6
52 Armiento Nov-17 Nov-17 3.0 7.8 9.9 4.5 7.1
53 Inicorbaf Nov-17 Nov-17 4.8 8.6 8.5 4.9 6.2
54 Gioia del Colle Nov-17 Nov-17 9.7 0.6 4.3 (1.1) 2.7
55 Carinola Nov-17 Nov-17 4.4 3.3 7.6 1.3 5.4
56 Marcianise Nov-17 Nov-17 7.3 4.4 5.3 2.3 3.7
57 Riardo Nov-17 Nov-17 7.4 3.6 4.4 1.7 1.1
58 Gilley's Dam Nov-17 Dec-17 5.0 (6.0) (4.0) (5.6) (2.9)
59 Pickhill Bridge Dec-17 Dec-17 3.6 2.4 5.4 5.0 8.2
60 North Norfolk Dec-17 Feb-18 11.4 6.9 8.9 7.4 9.7
61 Axe View Dec-17 Feb-18 5.1 4.0 6.0 4.4 6.2
62 Low Bentham Dec-17 Feb-18 4.6 (0.1) 1.1 1.6 3.3
63 Henley Jan-18 Feb-18 4.8 1.1 4.3 2.5 5.4
64 Pierces Farm May-18 May-18 1.7 1.1 3.6 4.4 6.6
65 Salcey Farm May-18 May-18 5.2 6.2 1.3 11.0 5.4
66 Thornborough Jun-18 Jun-18 4.7 2.4 (3.4) 7.8 (6.6)
67 Temple Normaton Jun-18 Jun-18 4.5 2.4 (1.8) 6.7 (2.3)
Fiskerton Phase
68 1 Jun-18 Jun-18 12.7 6.9 1.4 10.4 1.2
Huddlesford
69 HF Jun-18 Jun-18 0.8 2.7 1.4 7.6 3.5
70 Little Irchester Jun-18 Jun-18 4.5 1.5 (3.3) 7.5 (6.6)
71 Balhearty Jun-18 Jun-18 3.7 (5.5) (11.8) (2.1) (14.2)
72 Brafield Jun-18 Jun-18 4.9 3.7 0.3 8.5 0.1
Huddlesford
73 PL Jun-18 Jun-18 0.9 2.5 1.6 7.4 3.3
74 Sywell Jun-18 Jun-18 4.9 2.6 1.1 9.1 (0.8)
75 Coton Park Jun-18 Jun-18 2.3 1.1 3.5 5.7 6.0
76 Hook Jul-18 Jul-18 15.5 1.5 (0.2) 3.0 0.1
77 Blenches Jul-18 Jul-18 6.0 1.8 4.6 4.5 7.1
78 Whitley Jul-18 Jul-18 7.3 2.5 (3.9) 3.3 (0.5)
79 Burrowton Jul-18 Jul-18 13.0 2.8 0.3 2.8 1.3
80 Saundercroft
81 Raglington Jul-18 Jul-18 5.0 1.6 (17.7) 3.9 (10.1)
82 Knockworthy Jul-18 Jul-18 4.7 1.0 (2.6) 1.7 (0.6)
83 Chilton Canetello Jul-18 Jul-18 5.5 2.9 5.0 4.2 7.0
84 Crossways Jul-18 Jul-18 5.6 2.0 0.9 3.1 3.9
85 Wyld Medow Jul-18 Jul-18 5.1 (3.1) (1.9) (2.4) (0.4)
86 Ermis Aug-18 Aug-18 0.8 - (0.4) - (0.8)
87 Angelia Aug-18 Aug-18 0.2 - 6.7 - 7.0
88 Ballygarvey Mar-18 Aug-19 2.8 1.8 (2.1) 1.8 (2.1)
89 Hall Farm II Aug-19 Aug-19 - - - - -
90 Staughton Dec-19 Dec-19 - - - - -
Total 712 4.0 4.7 2.5 5.0
1 Rooftop asset which is not monitored for irradiation.
2 Subsidy-free assets which is not been monitored as it is yet
to pass Provisional Acceptance Clearance (PAC).
Operating Portfolio
Remaining
Installed life of the
Announcement Capacity Investment Plant
Power plant Location Date Subsidy(1) (MWp) Cost (GBPM) (Years)
1 Higher Hatherleigh Somerset May-14 1.6 6.1 7.3(5) 18.0
2 Shacks Barn Northamptonshire May-14 2.0 6.3 8.2(5) 17.3
3 Gover Farm Cornwall Jun-14 1.4 9.4 11.1(5) 19.7
4 Bilsham West Sussex Jul-14 1.4 15.2 18.9(5) 24.2
5 Brickyard Warwickshire Jul-14 1.4 3.8 4.1(5) 19.6
6 Ellough Suffolk Jul-14 1.6 14.9 20.0(5) 28.9
7 Poulshot Wiltshire Sep-14 1.4 14.5 15.7(5) 18.9
8 Condover Shropshire Oct-14 1.4 10.2 11.7(5) 19.6
9 Llywndu Ceredigion Dec-14 1.4 8.0 9.4 29.7
10 Cock Hill Farm Wiltshire Dec-14 1.4 20.0 23.6(5) 19.4
11 Boxted Airfield Essex Dec-14 1.4 18.8 20.6(5) 20.0
12 Langenhoe Essex Mar-15 1.4 21.2 22.9(5) 35.0
13 Park View Devon Mar-15 1.4 6.5 7.7(5) 34.8
14 Croydon Cambridgeshire Mar-15 1.4 16.5 17.8(5) 19.7
15 Hawkers Farm Somerset Apr-15 1.4 11.9 14.5(5) 20.0
16 Glebe Farm Bedfordshire Apr-15 1.4 33.7 40.5(5) 29.7
17 Bowerhouse Somerset Apr-15 1.4 9.3 11.1(5) 35.0
18 Wellingborough Northamptonshire Jun-15 1.6 8.5 10.8(5) 19.2
19 Birch Farm Essex Oct-15 FiTs UK 5.0 5.3(5) 20.2
Thurlestone
20 Leicester Leicestershire Oct-15 FiTs UK 1.8 2.3 13.1
21 North Farm Dorset Oct-15 1.4 11.5 14.5(5) 34.7
Ellough Phase
22 2 Suffolk Nov-15 1.3 8.0 8.0(5) 35.6
23 Hall Farm Leicestershire Nov-15 FiTs UK 5.0 5.0(5) 40.4
24 Decoy Farm Lincolnshire Nov-15 FiTs UK 5.0 5.2(5) 36.0
25 Green Farm Essex Nov-15 FiTs UK 5.0 5.8 21.0
26 Fenland Cambridgeshire Jan-16 1.4 20.4 23.9(2,3) 20.3
27 Green End Cambridgeshire Jan-16 1.4 24.8 29.0(2,3) 21.0
28 Tower Hill Gloucestershire Jan-16 1.4 8.1 8.8(2,3) 20.0
29 Branston Lincolnshire Apr-16 1.4 18.9 34.6
30 Great Wilbraham Cambridgeshire Apr-16 1.4 38.1 25.0
31 Berwick East Sussex Apr-16 1.4 8.2 97.9(2,4) = 21.5
32 Bottom Plain Dorset Apr-16 1.4 10.1 35.2
33 Emberton Buckinghamshire Apr-16 1.4 9.0 40.1
34 Kentishes Essex Nov-16 1.2 5.0 4.5 41.5
35 Mill Farm Hertfordshire Jan-17 1.2 5.0 4.2 36.8
36 Bowden Somerset Jan-17 1.2 5.0 5.6 36.7
37 Stalbridge Dorset Jan-17 1.2 5.0 5.4 36.8
38 Aller Court Somerset Apr-17 1.2 5.0 5.5 22.0
39 Rampisham Dorset Apr-17 1.2 5.0 5.8 22.5
40 Wasing Berkshire Apr--17 1.2 5.0 5.3 26.7
41 Flixborough South Humberside Apr-17 1.2 5.0 5.1 27.8
42 Hill Farm Oxfordshire Apr-17 1.2 5.0 5.5 31.9
43 Forest Farm Hampshire Apr-17 FiTs UK 3.0 3.3 32.0
44 Birch CIC Essex Jun-17 FiTs UK 1.7 1.7 20.2
45 Barnby Nottinghamshire Jun-17 1.2 5.0 5.4 22.3
46 Bilsthorpe Nottinghamshire Jun-17 1.2 5.0 5.4 22.7
47 Wickfield Wiltshire Jun-17 1.2 4.9 5.6 23.1
48 Bay Farm Suffolk Aug-17 1.6 8.1 10.5 33.9
49 Honington Suffolk Aug-17 1.6 13.6 16.0 33.8
50 Macchia Rotonda Apulia Nov-17 FiTs Italy 6.6 15.8
51 Iacovangelo Apulia Nov-17 FiTs Italy 3.5 16.1
52 Armiento Apulia Nov-17 FiTs Italy 1.9 16.1
53 Inicorbaf Apulia Nov-17 FiTs Italy 3.0 15.9
54 Gioia del Colle Campania Nov-17 FiTs Italy 6.5 16.6
55 Carinola Apulia Nov-17 FiTs Italy 3.0 116.2(2,6) = 16.6
56 Marcianise Campania Nov-17 FiTs Italy 5.0 16.5
57 Riardo Campania Nov-17 FiTs Italy 5.0 16.5
58 Gilley's Dam Cornwall Dec-17 1.3 5.0 6.4 34.7
59 Pickhill Bridge Clwyd Dec-17 1.2 3.6 3.7 21.9
60 North Norfolk Norfolk Feb-18 1.6 11.0 14.6 24.6
61 Axe View Devon Feb-18 1.2 5.0 5.6 27.4
62 Low Bentham Lancashire Feb-18 1.2 5.0 5.4 25.9
63 Henley Shropshire Feb-18 1.2 5.0 5.2 26.2
64 Pierces Farm Berkshire May-18 FiTs UK 1.7 1.2 19.1
65 Salcey Farm Buckinghamshire May-18 1.4 5.5 6.5 19.1
66 Thornborough Buckinghamshire Jun-18 1.2 5.0 5.7 21.0
67 Temple Normaton Derbyshire Jun-18 1.2 4.9 5.6 21.3
Fiskerton Phase
68 1 Lincolnshire Jun-18 1.3 13.0 16.6 30.0
Huddlesford
69 HF Staffordshire Jun-18 1.2 0.9 0.9 20.8
70 Little Irchester Northamptonshire Jun-18 1.2 4.7 5.9 21.8
71 Balhearty Clackmannanshire Jun-18 FiTs UK 4.8 2.6 30.8
72 Brafield Northamptonshire Jun-18 1.2 4.9 5.8 21.7
Huddlesford
73 PL Staffordshire Jun-18 1.2 0.9 0.9 21.0
74 Sywell Northamptonshire Jun-18 1.2 5.0 5.9 21.1
75 Coton Park Derbyshire Jun-18 FiTs UK 2.5 1.1 21.1
76 Hook Somerset Jul-18 1.6 15.3 21.8(2) 34.0
77 Blenches Wiltshire Jul-18 1.6 6.1 7.8(2) 18.7
78 Whitley Somerset Jul-18 1.6 7.6 10.4(2) 33.8
79 Burrowton Devon Jul-18 1.6 5.4 7.3(2) 18.5
80 Saundercroft Devon Jul-18 1.6 7.2 9.6(2) 33.9
81 Raglington Hampshire Jul-18 1.6 5.7 8.1(2) 33.8
82 Knockworthy Cornwall Jul-18 FiTs UK 4.6 6.6(2) 18.0
83 Chilton Canetello Somerset Jul-18 FiTs UK 5.0 9.0(2) 32.3
84 Crossways Dorset Jul-18 FiTs UK 5.0 10.0(2) 32.3
85 Wyld Meadow Dorset Jul-18 FiTs UK 4.8 7.1(2) 33.3
Rooftop
86 Ermis Portfolio Aug-18 FiTs UK 1.0 3.0 16.6
Rooftop
87 Angelia Portfolio Aug-18 FiTs UK 0.2 0.6 16.5
88 Ballygarvey County Antrim Aug-19 1.4 NIROCs 8.2 8.5 27.8
89 Hall Farm 2 Leicestershire Aug-19 None 5.4 2.5 39.3
90 Staughton Bedfordshire Dec-19 None 50.0 27.4 38.9
Total 755 932 26.9
1 ROCs, unless otherwise stated. An explanation of ROC subsidy is available at www.ofgem.gov.uk/environmental-programmes/renewables-obligation-ro.
2 Acquired with project level debt.
3 Part of the Thirteen Kings portfolio.
4 Part of the Radius portfolio.
5 Part of the Apollo portfolio.
6 Part of the Solis portfolio.
Sustainability and ESG
Introduction from the CEO of NextEnergy Capital Group
Since our founding in 2007, the NEC Group's mission has been to
generate a more sustainable future by leading the transition to
clean energy. We place this mission at the heart of everything we
stand for and do, recognising the privilege we have to generate
clean energy for the planet.
Businesses need a healthy environment and society to survive,
and communities need successful businesses in order to progress. We
believe that identifying and accounting for Environmental, Social
and Governance ("ESG") performance makes our clients' investments
risk-sound and improves longer-term returns, making ESG integration
a source of innovation and competitive advantage for our core
business.
NEC's sustainability strategy refers to the United Nations
Sustainable Development Goals ("SDGs") as the underlying framework
to identify, manage and measure our impacts on the environment and
society, and to align our and our clients' business objectives with
those of the governments and societies in which we operate. Our
strategy is built on three pillars, Climate Change, Biodiversity
and Human Rights, and applies to the whole value chain of our
business, from our clients' investments and our employees, to our
suppliers and services providers, our business partners, and the
broader communities we operate in. The core of NEC's sustainability
strategy is our Sustainable Investment Policy(1) , which was
revised in September 2019 to better reflect our understanding of
the value-creating ability of ESG considerations in our business
and operations, and the solar sector more broadly, as well as our
commitment to the United Nations Principles for Responsible
Investment.
Our Sustainable Investment Policy applies to both NESF and our
private equity funds and defines the NEC Group's principles and
commitments, excluded activities, screening and due diligence
process, reference standards, monitoring and reporting and
engagement approach.
NESF's Sustainability Commitments
We believe that solar energy can change the world, transform our
economies and sustain our future. NEC's Sustainable Investment
Policy enhances NEC's mission and commitment to tackling climate
change which is, without doubt, the biggest challenge and threat in
the 21(st) century. NESF is committed to supporting the UK
Government in its ambitious objective of bringing all greenhouse
gas emissions to net zero by 2050 and limiting global average
temperature rise to 2degC from pre-industrial era levels. In line
with the sustainability strategy. NESF considers the three pillars
of Climate Change, Biodiversity and Human Rights as an integral
part of the investment process:
-- Climate change: NESF is committed to report its positive
contribution to mitigate climate change through clean energy
generation. NESF reports annually on CO(2) e emissions avoided for
the portfolio. In line with NEC's broader climate commitment and as
NEC is an official supporter of the Task Force on Climate-Related
Non-Financial Disclosure ("TCFD"), NESF also aims to improve its
assessment of climate-related physical risks throughout the
investment process.
-- Biodiversity: A key focus for NESF has been the opportunity
to enhance biodiversity across the portfolio's sites. The Company's
commitment to leading best practices in biodiversity in the solar
industry begins during the site selection phase.
-- Human rights: NESF promotes the respect of fundamental human
rights principles. The commitment to respect human rights is guided
by the United Nations Universal Declaration of Human Rights.
Performance Measurements
Since most of NESF's portfolio is already invested, the
implementation of NEC's Sustainable Investment Policy is more
relevant for the asset management phase rather than the
pre-investment phase. The focus for the financial year ending 31
March 2021 will be on measuring NESF's current portfolio
performance through key performance indicators based on the SDGs
which have been identified as material to the business (see the
following page) and based on the requirements of the upcoming EU
Regulation on sustainable finance.
NESF has contracted the Green Investment Group ("GIG") to
independently verify our positive impact on climate change: GIG is
a specialist developer, sponsor and investor with a mission to
accelerate the transition to a greener global economy. GIG is part
of the Macquaire Group and it has expertise in principal
investment, project and portfolio management, advisory services and
access to flexible capital. GIG developed a proprietary methodology
to measure green impact, with strong academic and scientific rigour
that can be applied pragmatically, day-in and day-out, through a
commercial investment process. GIG is working with us on our SDGs
performance reporting and will assist us with the evaluation and
verification of NESF's climate-related positive impacts(1) .
(1) www.nextenergycapital.com/wp-content/uploads/2019/10/Sustainable_Investment_Policy.pdf
Our Commitment to the United Nations Sustainable Development
Goals
The SDGs form the basis of our sustainability strategy.
Application of NEC's Sustainable Investment Policy
We are committed to continuing to implement our sustainability
strategy through the rigorous integration of NEC's Sustainable
Investment Policy into NESF's investment process to deliver
consistent, responsible and sustainable growth for the long -term.
As mentioned in the introduction from the CEO of the NEC Group on
page 36, NEC's Sustainable Investment Policy was revised in
September 2019.
The revised Policy applies to the asset management and ownership
phase of the assets acquired prior to September 2019, where ESG
integration during the acquisition phase was mainly driven by
compliance with UK environmental and social regulatory requirements
and stewardship based on solar industry best practice.
The revised pre- and post-acquisition ESG principles and
commitments, excluded activities, screening and due diligence
process, reference standards, monitoring and reporting and
engagement approaches set out in the revised Policy are being
applied to all new acquisitions and developments since September
2019.
ESG Integration into Pre-Investment Process
Investment Process
NESF has a tried and tested investment process. We recognise the
value in considering ESG metrics when identifying potential
investment opportunities. Indeed, ESG considerations form part of
the investment decision-making at each stage of a site's
development. As part of the due diligence undertaken in the
pre-acquisition phase, national and local environmental and social
policies and legislation are accounted for in a project's site
selection, and for its overall development. In line with NEC's
Sustainable Investment Policy's principles and commitments, a
comprehensive set of national and local data sets are considered to
avoid sensitive areas and to comply with the applicable guidelines
for the deployment of solar projects. This development phase is
supported by the use of computer-based geographic information
system modelling tools, whilst the Solar Trade Association's 10
Commitments for Solar Farms guide the considerations of material
ESG risks and opportunities during due diligence. Examples of
material ESG risks include: land grade; local community impacts,
such as negative visual impacts; and impacts to ecology or
archaeological heritage areas. Examples of material ESG
opportunities include: introduction of new biodiversity hot spots;
job creation; and educational opportunities.
Excluded Activities and Site Selection
In accordance with the international, national and local
landscape designations recognised by the UK Government(1) , NESF
does not invest in areas of high biodiversity or landscape
character value. In order to ensure a consistent approach to site
assessment and review, NEC is currently identifying and
incorporating site-specific ESG factors into a standard template
which will form part of the sign-off process. Regularly updated
data sets from the Environment Agency and Magic Maps and
Environmental and Social Impact
Assessments are used to review and discount inappropriate sites
during the site-searching phase of development.
In terms of site selection, where possible, the information
provided by these sources has also been used to limit a selected
site's environmental impact. In conjunction with dialogues with
landowners, local site sequential testing is carried out to cross
reference site suitability and identify land where the long- term
benefits of solar deployment may see the highest impact.
Furthermore, national and local planning policies and strategies
are used to identify suitable areas. Where possible, we support and
instruct local and small-sized suppliers and specialists to carry
out site and planning-related surveys.
ESG Integration into Investment and Ownership Phase
ESG factors considered throughout the investment and ownership
phase include:
-- Climate change: Climate-related risks, such as areas at risk
of flooding according to the Environment Agency's datasets, are
identified during the pre-investment phase. We currently avoid
areas at risk of flooding or model them to ensure that the project
minimises any negative flood risk. In the past, mitigation measures
put in place for solar projects have helped to alleviate flooding
issues on adjacent land. Despite the operational lifetime of NESF's
sites being up to 45 years, all sites are designed using a 100-year
flood projection to account for projected climate-induced risks. A
climate-related physical risk assessment for climate-induced risks
other than flooding is not conducted during the pre-acquisition
phase.
-- Biodiversity: NEC has a dedicated Biodiversity Team that is
working with organisations, such as Wychwood and Twig, to ensure
that land management and native fauna and flora are being
considered throughout the investment and ownership phases. A set of
proven biodiversity solutions are included within
planning-controlled site proposals with the view of ecologically
enhancing the project area and any additional land held under the
project ground lease. NEC has developed a specific Universal
Biodiversity Management Plan ("UBMP") for NESF sites (see case
studies 1, 2 and 3 on pages 41 and 42) and NESF has hired
biodiversity specialist companies to design and implement bespoke
and effective measures that develop, repair and connect local
wildlife, habitats and ecosystems. Our UBMP also exists to improve
local stakeholder and community engagement and education on the
benefits of transforming solar plants into ecosystem-friendly
assets. It makes up part of NEC's wider Biodiversity Strategy which
works to support the UK Government's 25-year Environmental
Plan2.
During the asset's operational lifetime, schemes are designed to
allow sheep grazing. Such schemes employ densities which work
within the land's natural carrying capacity. They are also devised
in conjunction with the broader environmental, landscape and
ecological objectives of site-specific measures,
1
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/218695/env-impact-landscape.pdf
2
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/693158/25-year-environment-plan.pdf
which are agreed in advance with local councils, and the Universal
Biodiversity Management Plan.
-- Community engagement: During the pre-acquisition phase, NESF
closely engages with local parishes and councils to ensure the
suitability of site proposals. Where possible, community feedback
is incorporated into the transaction proposals so that we can work
on long-term community development plans (see case study 4 on page
42). We commit to employ people locally where practical and
possible. In addition, community funds are established to promote
development and support community renewable energy projects and
initiatives (see case study 5 on page 42). We also commit to using
our solar farms as educational opportunities, particularly
regarding the promotion of the value of biodiversity and clean
energy (see case study 2 on page 41).
-- Human rights: NESF has zero tolerance for human rights abuses
across the value chain. We work with our counterparties to ensure
that they abide by our human rights related principles, as outlined
in NEC's Sustainable Investment Policy. To this extent, by end of
2020, NEC aims to introduce human rights related criteria into our
solar PV module framework agreements (see "Panel Suppliers" below).
We also aim to add obligations to comply with human rights related
standards in our contractual relationships with all our
counterparties, including co-owners, engineering, procurement and
construction contractors and operation and maintenance contractors
and subcontractors.
-- Panel suppliers: NESF has developed module framework
agreements as the framework to identify and select top-tier,
reputable manufacturers with a proven track record of delivering
high quality products (i.e. manufactured for high durability, easy
dismantling, refurbishment and recycling). Quality control, product
certification and international standards, including ISO 9001 and
IEC61215:2016, are all incorporated in this framework to provide
visibility of the entire supply chain and materials used during
production.
-- Circular economy: Where possible, biodegradable or recyclable
materials are sourced. At the end of the solar farm's life, we
expect there to be a residual value in most of the materials used
in the modules, for example glass, silicon, steel, aluminum and
copper. The value of these materials is expected to pay in full for
the decommissioning costs of the solar farm.
-- Health and safety: Regarding occupational and environmental
health and safety standards, we uphold minimum construction and
production-related industry standards, such as those set out in the
Construction, Design and Management Regulations 2015 and the
International Organisation for Standardisation's requirements.
These standards are incorporated into the main service delivery
contracts to impose contractual obligations on our suppliers.
-- Anti-bribery, corruption and tax evasion: It is both NESF's
and NEC's policy is to conduct all of its business in an honest and
ethical manner. We both have a zero-tolerance policy towards
bribery, corruption and the criminal facilitation of tax evasion.
Both NESF and NEC are committed to acting professionally, fairly
and with integrity in all business dealings and relationships
wherever it operates.
Asset Management and Portfolio Performance
Our focus for the financial year ending 31 March 2021 will be to
measure NESF's current portfolio performance through a select group
of key performance indicators. These are based on the SDGs which
have been identified as material to our business and operations
(see page 37). From the assessment carried out last year with the
independent support of the Green Investment Group, NESF's
performance in relation to the SDGs was recognised through its
contribution to SDG 3 (Good Health and Wellbeing), SDG 7
(Affordable and Clean Energy), SDG 9 (Industry, Innovation and
Infrastructure), SDG 12 (Responsible Consumption and Production,
SDG 13 (Climate Action) and SDG 15 (Life on Land).
NEC's M&A and Operating Teams are working together to
integrate ESG factors into a broader data platform which will be
used to capture the individual asset's performance in relation to
the selected key performance indicators, as well as that of the
portfolio as a whole. ESG indicators will include, but not be
limited to, CO(2) e emissions avoided, water consumption;
biodiversity measures and employment metrics.
NEC's ESG Team
NEC's ESG Team reports to the NEC Group CEO and comprises two
experts: Giulia Guidi, the Head of the Team with more than 20 years
of experience in ESG risk management in the financial sector, and
Flavia Galdiolo, the ESG Analyst for the NEC Group, who is also
responsible for running NextEnergy Foundation (see page 40). The
ESG Team is actively involved in NESF through regular engagement
with the members of NEC's M&A and Biodiversity Teams and the
SPV managers, as well as the Operational Team on asset management
matters. The ESG due diligence for new acquisitions is currently
carried out by the M&A Team. Going forward, the aim is to
receive greater oversight and support from the ESG Team to ensure
consistency with the ESG principles and approach detailed in NEC's
Sustainable Investment Policy.
NEC regularly engages with important stakeholders, including the
UK Government, alongside leading UK industry associations, such as
the Solar Trade Association, and non-profit organisations, such as
the Business and Human Rights Resource Centre, to promote best
practices on ESG matters in the solar sector.
The NEC Group is a signatory of the United Nations Principles
for Responsible Investment ("UNPRI") and a member of the
Institutional Investors Group on Climate Change ("IIGCC"). The ESG
Team actively engages and collaborates with both organisations to
promote best practices within the solar industry, and regularly
discusses any relevant recommendations and important trends for
NESF with colleagues who are responsible for the investment and
asset management of the Company's portfolio.
Recognition of NESF's Green Credentials
During the year ended 31 March 2020, the Company was awarded the
London Stock Exchange's Green Economy Mark, which recognises
companies that derive over 50% of their annual revenues from
products and services that contribute to the global green
economy.
The Company was also successful in obtaining Guernsey Green Fund
status from the Guernsey Financial Services Commission ("GFSC").
Following an application to the GFSC via Route 1 suitable
third-party certification, NESF is deemed to have met the following
investment criteria as outlined in the Guernsey Green Fund Rules,
2018 ("Rules"):
-- the property of a Guernsey Green Fund shall be invested with
the aim of spreading risk and with the ultimate objective of
mitigating environmental damage resulting in a net positive outcome
for the environment; and
-- a Guernsey Green Fund shall comprise 75% of assets by value
that meet the Rules' criteria and the remaining 25% must not lessen
or reduce the Guernsey Green Fund's overall objective of mitigating
environmental damage or comprise an investment of a type specified
within schedule 3 of the Rules.
The Route 1 suitable third-party certification was provided by
Grant Thornton Limited in the form of an independent limited
assurance report and their engagement was conducted in accordance
with the International Standard on Related Services ("ISRS") 4400
"Engagements to Perform Agreed-Upon Procedures Regarding Financial
Information".
Charitable Donation to the NextEnergy Foundation (the
"Foundation")
The Foundation is an international charity founded in 2016 with
the vision of participating proactively in the global effort to
reduce carbon emissions, providing clean power sources in regions
where they are not available and contributing to poverty
alleviation. The NextEnergy Foundation is NEC's personal effort to
support small or other commendable projects that would otherwise
not be in the remit of its operations. NEC has pledged 5% of its
profits annually to the Foundation and recognises the importance of
benefiting communities in which it is present and beyond.
In December 2019, NESF made a charitable donation of GBP50,000
to the Foundation. The funds donated by NESF were used to support
some of the Foundation's most recent work, including:
-- providing fuel vouchers to those living in fuel poverty across the UK;
-- building energy-efficient cookstoves and equipping local
health posts with solar power and electrical equipment in the
Surkhet District of Nepal; and
-- increasing access to water sources in the Oromia Region of
Ethiopia by installing a solar pumping system to rehabilitate a
non-functioning borehole.
Details of each project are disclosed on the NextEnergy
Foundation's website (www.nextenergyfoundation.org).
Looking Ahead and Next Steps
For NESF, ESG integration is an evolving process where
stakeholder engagement and implementation of industry best practice
helps to continuously improve our practices and become a leader in
the solar sector.
We are planning to strengthen our ESG disclosures and to deepen
the overall integration of ESG into our investment process in line
with the requirements of the upcoming EU Disclosure and Framework
(Taxonomy) Regulation. This includes explaining how we
substantially contribute to climate mitigation, how we do no
significant harm ("DNSH") to the other four environmental
objectives applicable to the solar PV sector (climate adaptation,
water management, circular economy and biodiversity), and how we
comply with the minimum safeguard standards, including, but not
limited, to human rights violations.
Regarding key environmental risks in our investments, we will
place greater emphasis on assessing climate-related risks more
systematically and minimising water usage during the
pre-acquisition, designing and monitoring phases of projects.
Regarding panel suppliers, environmental and minimum safety
standards are currently imposed on all suppliers. We recognise
that, because projects can be scaled down to community-level or
individual-use production levels, solar is well positioned to
provide integrated benefits to communities who struggle to access
traditional energy sources. However, we are also aware of the
potential human rights abuses in the value chains of the solar
sector, and the poor labour rights of workers in mineral extraction
and in some solar panel manufacturing facilities. As Human Rights
is one of the three pillars in NEC's Sustainable Investment Policy,
the existing supplier selection process is being revised to include
an enhanced pre-qualification questionnaire and tendering programme
which, among other things, will be used to screen for evidence of
human rights abuses. NEC also plans to liaise with the Solar Trade
Association and the Business and Human Rights Resource Centre to
lead the discussion on human rights within our industry and promote
stakeholder engagement on the issue.
Regarding community engagement, we aim to establish a blueprint
for community engagement which will apply to all projects through a
systematic process. This blueprint will include, among other
things, stakeholder engagement and consultation plans, stewardship
principles, compensation and community development plans to ensure
a more streamlined commitment to addressing social issues across
all NESF sites.
Finally, with regard to governance, NESF plans to expand the
current pre-qualification questionnaire and tendering programme to
continue to comply with the UK Bribery Act, 2010.
ESG Case Studies
Case Study 1: Biodiversity Exemplar Sites - An Update
NEC has developed a biodiversity strategy that encompasses an
"above and beyond" approach to be introduced in the exemplar site
portfolio. An exemplar site consists of site-specific measures to
enhance the native flora and fauna situated near or on the solar
farm. These sites have also had new biodiversity management plans
developed to aid in the management and promotion of biodiversity
net gain over the plant's lifetime. Exemplar sites are identified
from the NESF portfolio as those which have met all of their
planning conditions, and those where there is an active
relationship with landowners who wish to engage with NESF, thus
increasing the potential for the positive benefits of the
biodiversity measures put in place to be reaped by neighbouring
communities.
NESF has invested GBP45,000 over the last two years for the
development and maintenance of the exemplar sites. Annual
biodiversity surveys were carried on all exemplar sites during the
year ended 31 March 2020 and showed a significant increase in
pollinators, especially in the newly introduced wildflower meadow
areas at the original exemplar sites. These aspects will be
monitored annually over the lifetime of the sites.
In 2017, four out of a potential 35 sites were selected as
biodiversity exemplar sites (Berwick, Boxted, Emberton and
Langenhoe) and the implementation of biodiversity management plans,
including, but not limited to, site-specific wildflower meadows,
bug hotels, hibernaculas, and ongoing beehive maintenance, which
are nearing completion.
As at 31 March 2020, NESF had implemented a total of five sites
at an exemplar standard. An additional three sites have been
earmarked for 2021. Furthermore, the Balhearty, Brafield on the
Green, Burrowton and Temple Normanton sites have undergone baseline
biodiversity surveys which have driven the development of
site-specific measures. These measures are currently being
introduced and are expected to be finalised next year. The plan for
next year is to have approximately eight sites within NESF's
portfolio at an exemplar standard that can be sustained with
appropriate management. However, due to COVID-19, these measures
and plans have been put on hold.
Exemplar Sites
NESF Wildflower Bug Hotel Hibernaculars
Sites Year of Implementation Meadows (ha) (n) (n) Beehive Maintenance
Balhearty 2019 Pending (1) Pending (1) Pending (1) Pending (1)
Berwick 2017 0.15 2 Pending (1) 2
Boxted 2017 0.3 2 0 5
Brafield 2019 Pending (1) Pending (1) Pending (1) Pending (1)
Burrowton 2019 0.5 0 0 0
Emberton 2017 0.77 Pending (1) 0 0
Langenhoe 2017 0.35 2 0 0
Temple Normanton 2019 Pending (1) Pending (1) Pending (1) Pending (1)
Total 2.1 6 0 7
1 Currently on hold due to COVID-19.
Case Study 2: Community Engagement - Contribution to
Education
-- Community orchard and outdoor classroom: A plot of land was
developed to build a community orchard, which is also helping to
promote wildlife, near the Birch site in Colchester. At the request
of the local community, an outdoor classroom was built. This was
made possible by a donation from one of our SPVs, Birch CIC. The
classroom is used to give lessons to children in the nearby school
and members in the surrounding community on nature.
-- Two day school field trip: Over two days, volunteers from the
NEC Group, WiseEnergy, took approximately 270 Year 8 Geography
pupils from Imberhorne School to visit our Berwick solar farm,
located in West Sussex. The aim of the trip was to give pupils the
opportunity to experience what they are taught in class in real
life, helping to deepen their knowledge about renewable energy. The
pupils learnt about the different uses of the land at the site, the
advantages of a solar farm and how it can enhance the local
biodiversity. A separate activity was to carry out a noise survey
at various parts of the solar farm, which they would later compare
to a wind farm nearby. The school prepared an educational pack
which allowed the groups to interact with the volunteers as well as
the teachers, encouraging the pupils to ask questions and
stimulating interesting discussions on the topics being taught.
Overall, it was a successful two days for both the students and the
NEC Group.
Case Study 3: Introduction of the Universal
Biodiversity Management Plan
NEC has developed a Universal Biodiversity Management Plan
("UBMP") for NESF. The UBMP differs from the biodiversity
management plans referred to in case study 1, which are
site-specific. The UBMP allows non-site-specific biodiversity
measures to be introduced throughout the entirety of NESF's
portfolio over time. Each site may then have its own additional
site-specific measures.
As part of the UBMP, NESF is planning "Adopt a Beehive" scheme
where the 15 sites selected for the roll out of the UBMP will be
fitted with a solar thermal beehive. The beehives will be managed
by local beekeeping associations and financially supported by NESF.
If successful, there are plans to extend this initiative throughout
the whole UK portfolio to tackle the decreasing numbers of
pollinators and increase biodiversity net gain regionally. This
demonstrates our commitment to going above and beyond what is
required from planning obligations to create a unique web of hubs
that foster biodiversity net gain and enhance pollinator numbers.
The UBMP also consists of a native wildflower mix, hibernaculas,
bird/bat boxes and bug hotels. The main objective is to establish
cost-effective measures that can be installed into any solar farm
environment and which require minimal maintenance but can
significantly contribute to an increase in fauna and flora over the
lifetime of the site. Out of the portfolio's 90 sites, 15 have been
selected to trial the UBMP during the year. Approximately 4.8
hectares of native wildflower mix will be planted by autumn 2020,
and 16 hibernacula, 95 bird/bat/owl boxes and 15 bug hotels
installed.
UBMP
Native
Wildflower
NESF Mix Hibernacula's Bird/Bat/Owl Bug Hotels Beehive Schemes
Sites (ha) (n) Boxes (n) (n) (n)
Bilsham 0.4(1) 1(1) 8(1) 1(1) 1(1)
Birch 0.1(1) 1(1) 6(1) 1(1) 1(1)
Bottom Plain 0.2(1) 1(1) 10(1) 1(1) 1(1)
Branston 1(1) 1(1) 0(1) 1(1) 1(1)
Brick Yard 0.1(1) 1(1) 4(1) 1(1) 1(1)
Cock Hill Farm 0.7(1) 1(1) 8(1) 1(1) 1(1)
Condover 1(1) 1(1) 6(1) 1(1) 1(1)
Croydon 0(1) 2(1) 10(1) 1(1) 1(1)
Decoy Farm 0(1) 1(1) 5(1) 1(1) 1(1)
Gover Farm 0.2(1) 1(1) 0(1) 1(1) 1(1)
Hall Farm 0(1) 1(1) 6(1) 1(1) 1(1)
Higher Hatherleigh 0.25(1) 1(1) 10(1) 1(1) 1(1)
Llwyndu 0.4(1) 1(1) 10(1) 1(1) 1(1)
North Farm 0.2(1) 1(1) 8(1) 1(1) 1(1)
Shacks Barn 0.25(1) 1(1) 4(1) 1(1) 1(11)
Total 4.8 16 95 15 15
1 Currently on hold due to COVID-19.
Case Study 4: Community Engagement - Green
Corridor
NESF closely engages with local parishes and councils during the
pre-acquisition phase and, where possible, the feedback is
incorporated into a site-specific framework which is established to
create a mutualistic relationship between NESF and local
communities. In the past, this has included changes to the specific
land take (the loss of agricultural land due to land development),
site design, landscaping strategy and its implementation. As an
example of this, following consultation with the local community of
an NESF site, land take was reduced and a "green corridor"
introduced to protect the views and nature trails along public
rights of way.
Case Study 5: Community Engagement - Tackling Homelessness
According to the charity Greater Change, homelessness affects
around 300,000 people in the UK. Greater Change aims to provide
financial support to those who are homeless. In a bid to bring
about real change in the way that we support our site communities,
NESF is helping to combat homelessness around the Bilsham site in
Chichester and the Hill Farm site in Oxford. The Company is
supporting 10 individuals living around both sites through Greater
Change, which is working to aid these individuals to find
accommodation, as well as training them to live and maintain their
new homes.
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 long-term.
As the Company has no employees and given the nature of its
services, our Investment Adviser has significant dealings with our
other stakeholders and, therefore, is an integral point of contact
between the Company and our stakeholders. The Company's corporate
brokers, Cenkos Securities plc and Shore Capital Ltd, are also an
integral point of contact between the Company and our shareholders
and, together with the Investment Adviser keep us up-to-date with
regard to any shareholder concerns or other significant
feedback.
Our key stakeholders are shown in the table below, in no
particular order. The table seeks to explain why those stakeholders
are important to us and how we seek to engage with them, which we
may do either directly or through our Investment Adviser or
corporate brokers, as appropriate.
Our Key Stakeholders Why They Are Important to How We Engage With Them
Us
Investment The Investment Adviser's
Adviser performance * Board and Committee meetings
is critical for the Company
to deliver its investment
strategy successfully and * Ad hoc meetings and calls with the Chairman and other
meet its investment and Directors
strategic
objectives. Accordingly, the
Company relies on the * External Board evaluation, which includes feedback
Investment from the Investment Adviser.
Adviser's expertise, and needs
to ensure the quality and
sustainability of its * Informal meetings and dinners
services,
to deliver 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 role
Manager is important to ensure all * Quarterly reports to the Board
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
Shareholders A well-informed and supportive
(All investors shareholder base is crucial * Annual and Interim Reports
in the Company to the long-term
- institutional sustainability
investors - of our business. Understanding * Quarterly factsheets
(including the views and priorities of
wealth managers) our shareholders is,
and retail therefore, * Market announcements, including quarterly NAV
investors (including fundamental to retaining their announcements
private individuals)) continued support and to have
the potential to access equity
capital in order to continue * Website
to expand the Company's
portfolio
over time in order to further * Institutional investor meetings (one-to-one and
diversify the investment group), primarily through our Investment Adviser and
portfolio corporate brokers, to update them (e.g. annual and
and create economies of scale. interim results presentations) or 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
Administrator As the Company has no
employees, * Board and Committee meetings
we rely on the Administrator
to provide us with
administrative, * Ad hoc meetings and calls with the Chairman and other
fund accounting and company Directors
secretarial services. In
particular,
on the Administrator * Quarterly reports to the Board
maintaining
the accuracy of our accounting
records and ensuring our * Annual evaluation of the Administrator by the
compliance Management Engagement Committee
with applicable laws, rules
and regulations.
Other Key A strong and constructive
Service Providers working relationship with * Board and Committee meetings
and Advisers our other key service
(Registrar, providers
Financial Adviser, and advisers ensures that * One-to-one meetings and calls
Legal Advisers, we receive high-quality
Corporate Brokers, services
Public Relations to help deliver our investment * Provision of relevant information to or by the
and Auditors) and strategic objectives Company
* Annual evaluation of key service providers and
advisers by the Management Engagement Committee
Lenders An appropriate amount of
(Provider of gearing * Provision of information to lenders in accordance
the is required to achieve our with the terms of the relevant facility agreements
NEC Group's target returns. It is
credit facilities) important
to maintain a strong working * Consultation in advance on matters which may require
relationship with our existing their consent under the relevant facility agreements
lenders in case we may need,
at some point, their consent
for, e.g., strategic
initiatives.
We also look to build strong
relationships with lenders,
including our existing
lenders,
who may provide debt
facilities
in the future.
Local Communities Ensuring our investment
creates * See "Sustainability and ESG" section on pages 36-42
a positive social impact is
core to our sustainability
approach.
Asset Manager The Asset Manager's
performance * Monthly and ad-hoc meetings with the Investment
is critical for the operating Adviser
solar assets to deliver
operational
outperformance verses the * Monthly reports to the Investment Adviser
budget. The Asset Manager
also provide the
administration * Quarterly reports to the Investment Manager, which is
and fund accounting for the reported to the Board
Company's subsidiaries, as
well as providing an Energy
Sales desk to manage our
electricity
price ad 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 significant risks
we face. The process can therefore only provide reasonable, and not
absolute, assurance.
The Audit Committee formally reviews, on the Board's behalf, the
effectiveness of our risk management and internal control systems
bi-annually. During the course of these reviews, the Audit
Committee has not identified or been advised of any significant
failings or weaknesses that it has determined to be material.
Risk Appetite
The Board is ultimately responsible for defining the level and
type of risk that the Company considers appropriate, ensuring it
remains in line with the Company's investment objective and
investment policy that sets out the key components of its risk
appetite.
The Company's risk appetite is considered in the light of the
principal and emerging risks that the Company faces, including
having regard to, amongst other things, the level of exposure to
power prices, financing risk and solar resource risk.
Principal Risks
Details of the principal risks we face that have the potential
to materially affect our business are set out in the tables below.
There are some risks that we currently regard as immaterial and,
therefore, they have not been included below but they may become
material in the future. In addition, other risks may be unknown to
us at present or cannot easily be determined or quantified. These
include the OFGEM reviews of subsidy accreditations for solar
assets and the impact of future UK and Italian taxation as a
consequence of government support to the economy arising from the
impact of COVID-19.
The Company also recognises that as well as being a public
health emergency, the COVID-19 pandemic is a continuing risk to our
business, as it has a significant impact on the economy which
affects the demand of electricity, a significant factor affecting
the price of electricity. The Company has three priorities in
managing risks deriving from COVID-19:
-- the well-being of the people involved in our business,
including our Investment Manager, Investment Adviser, Asset
Manager, contractors, subcontractors and the other key
stakeholders;
-- keeping our solar assets operational whilst conducting essential maintenance; and
-- protecting the financial performance of the Company's portfolio.
The principal risks are the same as detailed in the 2019 Annual
Report, save for the impact of COVID-19.
Emerging Risks
An emerging risk is characterised by a degree of uncertainty.
The Board and the Investment Adviser discuss and consider what
emerging risks there are to the Company and its assets at the
quarterly Board meetings and the Audit Committee formally reviews
emerging risks, actual and potential, twice a year.
The Company has a range of advisers in addition to the NEC
Group, including our corporate brokers, legal and industry
advisers. These advisers report on key topics and potential events
which may present potential risks that the Board and the Investment
Adviser need to consider and monitor.
An example of an emerging risk is the current disruption caused
by COVID-19 and the potential longer term impact of the pandemic on
economies. The Investment Adviser does not currently expect there
to be any material adverse operational impact on the Company's
assets but is closely monitoring the risk. The potential
longer-term impact of the pandemic on economies is uncertain and
we, together with the Investment Adviser, will continue to monitor
this and its potential impact on the Company and our ability to
meet our objectives.
Portfolio Management and Performance Risk
Risks Summary Mitigation
1. Electricity Solar is an intermittent There is a level of predictability
generation falling energy source compared for solar irradiation compared
below expectation to traditional energy to other renewables, in
resources such as coal that irradiation levels
and gas. tend to follow a set trend
The volume of solar irradiation throughout the year.
available on a given day The geographical location
is out of the Company's of the asset has an impact
control and this is a on irradiation levels, due
risk on the performance to climate variations and
of the assets. small differences in day
Unplanned DNO outages, lengths across regions.
weather patterns and technical Assets are chosen with this
issues can impact generation. 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.
The reliability of the solar
technology when properly
maintained.
2. Portfolio Valuation of a solar PV Drivers of the SPV valuation
valuation asset is dependent on model are frequently reviewed
nancial models based on by the Investment Manager
several drivers, principally: to ensure they are at the
discount rates, rate of appropriate level.
in ation, power price Documentation to prove these
curves and amount of electricity calculations are presented
the solar assets are expected to the Board quarterly for
to produce. Certain assumptions approval and adoption.
may prove to be inaccurate, To mitigate the impact of
particularly during periods the power price volatility,
of volatility. the Investment Adviser uses
an average of the power
price curves from the Consultants.
External and Market Risks
Risks Summary Mitigation
1. Adverse changes Brexit negotiations continue The Investment Manager believes
in government between the UK government Brexit is likely to have
policy and political and the European Union. a very limited effect on
uncertainty An unfavourable outcome the Company's nancial and
could affect an investor's operating prospects.
appetite to invest in In 2019, the UK became the
the Company. rst major economy to pass
Changes by the coalition net zero emission laws.
government in Italy could The new target will require
affect the value of the the UK to bring all greenhouse
Italian assets. gas emissions to net zero
by 2050. The Investment
Manager does not think the
UK government will introduce
primary legislation to reverse
this commitment as a result
of Brexit.
Most other OECD countries,
including Italy, which follow
the Kyoto Protocol and 2015
Paris Agreement have similar
targets for the reduction
in greenhouse gas emissions
and transition to a low-carbon
economy.
The implications of Brexit
and the policies of the
Italian government on the
Company are not identi able
at present. These risks
are beyond the control of
the Company, but the Company
closely monitors developments
and their impact on the
solar industry.
2. Adverse changes Uncertainty for the future The Company actively monitors
to regulatory regulatory framework for regulatory changes within
framework for solar PV creates a risk the industry and participates
solar PV that further planned acquisitions in contributing towards
do not take place. This government discussions on
would affect the Company's the industry.
growth potential, valuation
and pro tability.
3. Changes to Changes to the existing The Investment Manager has
tax legislation rates and rules could tax advisers to ensure constant
and rates have an adverse effect awareness of any upcoming
on the valuation of the changes to tax legislation
portfolio and levels of and rates, to implement
dividends paid to shareholders. the necessary changes as
quickly and smoothly as
possible.
Operational and Strategic Risks
Risks Summary Mitigation
1. A decline Revenues of solar assets The Investment Adviser uses
in the price are dependent on the the most recent quarterly
of electricity, electricity market. Exposure reports from the Consultants
and revenues to the wholesale energy to be kept informed of longer
market impacts the prices term electricity prices,
received for energy generated and uses this information
by and revenues forecast to formulate the Company's
for the operating assets electricity sales and hedging
of the Company. strategies.
The acquisition of subsidy-free Short-term: The Company
assets will increase enters into PPAs and forward
this risk as currently contracts to x electricity
most of their revenues prices for a future period
are derived from the ranging from six to 12 months.
wholesale energy market The NEC Group has an Energy
with only a part bene Sales desk which is responsible
ting from short-term for hedging generation produced
PPAs. in the short-term. As at
The Company is exposed 31 March 2020, the Company
to a reduction in the had secured xed price agreements
price of electricity. covering 95% of its electricity
The COVID-19 pandemic generation for the summer
has resulted in a decline of 2020 and 50% for winter
in demand for energy 2020/21.
which has exacerbated Long-term: Wholesale power
recent declines in the prices are beyond the control
price of electricity. of the Company. Factors
This risk exists with that could increase the
future pandemics. price of electricity including
It is not certain if the roll-out of electric
or when prices will recover vehicles and the electri
to previously forecast cation of domestic heating
levels. and transportation networks.
The COVID-19 pandemic The Investment Adviser reviews
has impacted demand for wholesale electricity price
goods and services in forecasts and enters into
the economy and the closure long-term PPAs where appropriate.
of businesses and this Subsidy free assets: The
will translate into lower Investment Adviser will
in ation in the short plan for short-term and
term, which will lead long-term contracts before
to lower revenues as the asset is operational.
a signi cant proportion
of revenues are subject
to subsidies, with in
ation linkage and xed
for the long-term.
2. Counterparty This is the risk of counterparty The Asset Manager continuously
risk failure. The Company monitors its contracts in
has entered into O&M line with the market.
contracts and PPAs, which There are contractual arrangements
affect the costs and in place that have warranties
revenues of the Company. in case of defaults.
The Company has also The Asset Manager ensures
contracted with various that counterparties are
EPCs for construction of an acceptable nancial
of the subsidy-free assets. standing to minimise risk.
If the counterparty becomes
insolvent there is a
risk of disruption and
nancial loss until the
counterparty is replaced.
3. Plant operational The Company relies on The Company can seek legal
risk third-party contractors recourse against failure
to provide corrective by an O&M contractor.
and preventative maintenance The Asset Manager monitors
through O&M contracts. and ensures that the O&M
The O&M contractor could contract maintains a detailed
fail to ful l its obligation preventative schedule, with
and the solar plant's contract warranties and
performance could deteriorate. penalty payments in the
Degradation of the solar event of failure.
modules reduce the performance The Company looks at technological
of the plant over time. improvements on an ongoing
An increase in the rate basis to offset the effect
of degradation may lead of degradation. Also, the
to under performance. Company has contract warranties
to secure the performance
of the plants.
Going Concern and Viability
Going Concern
This Strategic Report describes the Company's business
activities, together with the factors likely to affect its future
performance, position and prospects. The financial position of the
Company, its cash flows, liquidity position and borrowing
facilities are referred to in the Chairman's Statement, Investment
Adviser's Report and notes to the Financial Statements.
The Board is satisfied that the Company has sufficient 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 and the
FCA's Listing Rules, the Directors have assessed the prospects of
the Company over a longer period than the 12 months required when
preparing financial statements on a going concern basis.
In reviewing the Company's viability, the Directors have
assessed its viability for the period to 31 March 2025. The Board
believes this period, being approximately five years, is an
appropriate period over which to assess the Company's viability as
it is consistent with the five year period used by the Board when
considering the Company's investment strategy and medium-term
business plans, including cash flows, and is considered reasonable
having regard the long-term nature of the Company's investment
strategy.
The Company owns a portfolio of solar energy infrastructure
assets in the UK and Italy that are predominantly fully
constructed, operational and generating renewable electricity. As a
result, it benefits from predictable and reliable long-term cash
flows and is subject to a set of risks that can be identified and
assessed. Each solar asset is supported by a detailed financial
model at acquisition and incorporated into the Company's valuation
model for quarterly valuations. The Directors believe that the
diversification within the Company's portfolio of solar assets
helps to withstand and mitigate the emerging and principal risks
the Company is most likely to face. The Company's revenues from
investments provide substantial cover to the operating expenses of
the SPVs, HoldCos and the Company and any other costs likely to be
faced by any of them over the viability assessment period.
The Investment Adviser prepares a five-year cash flow forecast
annually and the Investment Manager and the Board review this as
part of business planning and to address the sustainability of the
dividends. This forecast is based on the Investment Manager's
expectations of future asset performance, income and costs, and are
consistent with the methodology applied to provide the valuation of
the investments. The forecast considers the Company's cash
balances, cash flows, dividend cover, other financial ratios,
compliance, investment policy and key operational and financial
indicators over the assessment period. Furthermore, the forecast
also considers the terms of the NESF Group's borrowing facilities
(mainly interest payable, amortisation and financial covenants) and
the terms of the preference shares and their limited redemption
rights. Apart from any drawings under two revolving credit
facilities for an aggregate of GBP90m that expire in 2022, there
are no borrowings by the Company or any of the HoldCos or SPVs that
are expected to be refinanced during the assessment period.
The viability assessment assumes continued government support
for existing subsidy arrangements for the assets within the
portfolio.
The key assumptions underpinning the cash flows and covenant
compliance forecasts are subject to sensitivity analysis to explore
and evaluate the Company's resilience to the potential impact of
those emerging and principal risks summarised on pages 45 to 47
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
electricity generation falling below expectation and a decline in
the price of electricity, as these could have a material negative
impact on valuations and cash flows and give rise to a reduction in
the availability of finance. The remaining emerging and principal
risks, whilst having an impact on the Company's business model and
future performance, position and prospects, are not considered by
the Directors to have a reasonable likelihood of impacting the
Company's viability over the five-year period to 31 March 2025.
The sensitivities performed were designed to be severe but
plausible; and to take full account of the availability and likely
effectiveness of mitigating actions that could be taken to reduce
or avoid the impact or occurrence of the underlying risks.
If the ordinary shares trade, on average, at a discount to the
NAV in excess of 10% over any financial year of the Company, the
Board is required to propose, at the next AGM, a special resolution
that the Company ceases in its current form. In assessing the
likelihood of a discontinuation resolution being triggered, the
Board has had regard to the historic average ratings of the
Company's ordinary shares and its peers over rolling 12 month
periods since the Company's IPO in 2014.
Viability Statement
Having considered the five-year forecast cash flows and covenant
compliance, the impact of the sensitivities in combination and the
emerging and principal risks facing the Company, the Directors
confirm that they have a reasonable expectation that the Company
will be able to continue in operation and meet its liabilities as
they fall due over the period to 31 March 2025.
COVID-19 Pandemic
In assessing whether the going concern basis should be adopted
in the preparation of the Financial Statements and the Company's
viability over the period to 31 March 2025, the Board undertook a
detailed review of the impact of the COVID-19 pandemic as discussed
in the Chairman's Statement and Investment Adviser's Report on
pages 7 and 20 respectively.
Approval
This Strategic Report was approved by the Board on 29 June 2020
and signed on its behalf by:
Kevin Lyon
Chairman
29 June 2020
HAWKERS FARM
11.9MW installed
Energised in June 2015
1.4 ROC subsidy
3,000 homes powered annually
Somerset
Governance
Introduction from the Chairman
Kevin Lyon
Chairman
I am pleased to present the Company's Corporate Governance
Report, which comprises pages 50-76, for the year ended 31 March
2020.
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.
Enhanced Corporate Governance Regime
A number of key changes were made to the UK corporate governance
regime for listed companies for financial years beginning on or
after 1 January 2019, including placing greater emphasis on
explaining how the corporate governance principles have been
applied. This Corporate Governance Report explains how we apply the
principles and provisions of the AIC Code of Corporate Governance
(February 2019). 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.
Board Composition and Evaluation
As mentioned in last year's Annual Report, Sue Inglis (Sue)
joined the Board on 1 April 2019. This enhanced our gender
diversity, with our female Directors making up 40% of the Board,
ahead of the voluntary target set by the Hampton-Alexander
Review.
During the year, Sharon Parr resigned as a Director. The Board
therefore engaged OSA Recruitment (an independent recruitment
search firm) to assist with identifying an appropriate candidate.
Following consideration of succession and identification of the
required skillset, Joanne Peacegood (Jo) was appointed to the
Board. Information on Jo's skills and experience are included in
her biography on page 53. We believe that Jo's experience in the
asset management sector including evaluating how businesses respond
to change, risk assessments and internal controls will be of
significant value to the Board and, specifically, given her audit
experience, Jo is a strong candidate to chair the Audit Committee
in due course. Jo's appointment also supports the Board's
objectives around diversity including skills, experience, age and
gender. Further details of the search process that led to Jo's
appointment are included under "Committee Activities" on page
58.
During the year, we implemented our first external Board
evaluation, which was undertaken by Linstock Limited. Overall, the
conclusions from the evaluation were positive, although they did
identify some areas that we should seek to improve on and we are
responding to the recommendations. Having joined the FTSE 350 Index
during the year, the AIC Code requires us to undertake externally
facilitated Board evaluations at least every three years. As we
believe we have benefited from this year's external evaluation, we
intend to undertake an external Board evaluation process again next
year. Further information on this year's evaluation process and its
findings can be found under "Annual Performance Evaluations" on
page 60.
New Management Engagement Committee
Prior to Sue's appointment, the annual evaluation of our
Investment Manager, Investment Adviser, Administrator and other key
service providers and advisers was undertaken by the Board (save
for the external auditor, who is evaluated by the Audit Committee).
Having regard to the increase in the Board's size and Sue's skills
and experience (her biography is on page 53), the Board decided it
would be appropriate to establish a Management Engagement
Committee, chaired by Sue, and to delegate responsibility for the
annual evaluation of all of our key service providers and advisers
(apart from the auditor) to the new Committee.
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" on pages 43-44.
During the year, we updated the Company's website
(www.nextenergysolarfund.com), incorporating improved features and
additional functionality. We have also updated the format of the
Annual Report to improve clarity and ease of use.
We will continue to look at how we engage with all of our key
stakeholders to ensure that our engagement is both appropriate for
the Company's business and dynamic so that we can respond as the
business and our key stakeholders' views evolve.
Kevin Lyon
Chairman
29 June 2020
Governance Structure
Our governance framework reflects the fact that, as an
investment company, the Company has no employees, its Directors are
all non-executive and its day-to-day activities, including
investment management and administration, are outsourced to
external service providers.
BOARD
(All independent of the Investment Manager, Investment Adviser
and Administrator)
Independent Chairman: Kevin Lyon (since 22 January 2014)
Principal Responsibilities: To lead the board; to ensure the
board's overall effectiveness in directing NESF
Senior Independent Director: Vic Holmes (since 22 January 2014)
Principal Responsibilities: To provide a sounding board for the
chairman and serve as an intermediary for the other directors and
shareholders
Non-executive Directors: Patrick Firth (since 22 January 2014),
Sue Inglis (since 1 April 2019), Joanne Peacegood (since 20
February 2020) SCHEDULED MEETINGS: 4 p.a.
PRINCIPAL RESPONSIBILITIES:
To promote the long-term sustainable success of NESF, generating
value for shareholders whilst having regard to the interests of
wider stakeholders
To set NESF's strategic objectives and ensure that the necessary
resources are available for it to meet its objectives
To establish a framework of prudent and effective controls that
enable risk to be assessed and managed To oversee the performance
of the Investment Manager and other external service providers
To ensure effective engagement with shareholders and other key
stakeholders
To robustly scrutinise and constructively challenge all matters
that come before the board
A M R
AUDIT COMMITTEE MANAGEMENT REMUNERATION AND
ENGAGEMENT COMMITTEE NOMINATIONS COMMITTEE
MEMBERSHIP: All Directors MEMBERSHIP: All Directors MEMBERSHIP: All Directors
CHAIRMAN: Patrick Firth CHAIRMAN: Sue Inglis CHAIRMAN: Vic Holmes
(since 2014) (since 14 June 2019) (since 2014)
SCHEDULED MEETINGS: 3 SCHEDULED MEETINGS: 1 SCHEDULED MEETINGS: 1
p.a. p.a. p.a.
PRINCIPAL RESPONSIBILITIES: PRINCIPAL RESPONSIBILITIES: PRINCIPAL RESPONSIBILITIES:
To oversee the quality To evaluate at least To keep under review
of financial reporting annually the performance the Directors' remuneration
To review and monitor and continuing appointments policy
the risks the company of the Investment Manager To review and evaluate
is exposed to, its risk and other key service regularly the Board's
appetite and the effectiveness providers and advisers composition and succession
of its risk management planning and lead
framework the process for new
To review the effectiveness Board appointments
of the external audit To lead the annual evaluation
process and independence of the Board and Committees
of the external auditor
Board of Directors
Committees
Audit Committee
Management Engagement Committee
Remuneration and Nominations Committee
Committee Chairman
Diversity
Tenure
Kevin Lyon
Chairman
Resident: UK
Appointed: 22 January 2014
Independent: Yes
Committee Memberships:
Relevant Skills and Experience:
Over 30 years of experience in private equity and Director
positions in a number of different companies.
Qualified Chartered Accountant.
Spent approximately 17 years with 3i Group, responsible for
their core private equity business across the UK, with a team of 10
Directors and 40 executives.
Independent Non- executive Director and Chairman of more than 20
companies over the last 15 years, including Smart Metering Systems
plc, Valiant Petroleum plc, Wyndeham Press Group, Craneware plc,
Booker plc, David Lloyd Leisure and Phase 8.
Attended management courses at INSEAD, IESE and Ashridge.
Won the Institute of Directors Scotland Non-executive Director
of the Year Award in 2013.
Principal External Appointments:
Chairman of Inoapps Ltd, a vendor of Oracle software.
Chairman of Ramco Ltd, a service company focussed on the oil
sector.
Non-executive Director of retailer SpaceNK.
Vic Holmes
Senior Independent Director
Resident: Guernsey
Appointed: 22 January 2014
Independent: Yes
Committee Memberships:
Relevant Skills and Experience:
Over 30 years of experience in financial services.
Qualified Chartered Certified Accountant.
Joined the Board of Guernsey International Fund Management
Limited, Guernsey's largest fund administration company, in
1986.
Senior roles in the international fund administration services
business of the Baring Asset Management group of companies from
1990 to 2005 (based in Dublin), including Head of Fund
Administration Services with responsibility for services out of
London, Dublin, Guernsey, Isle of Man and Jersey.
Head of Northern Trust's Irish businesses (2005 to 2007) and
Channel Island businesses (2007 to 2011).
First chairman of the Irish Fund Industry Association, which he
was instrumental in establishing in 1991.
Chairman of the Guernsey Investment Fund Association's executive
committee from 2013 to 2015.
Has served on a wide range of fund-related Boards, based mainly
in Guernsey and Ireland but also in the UK and Cayman Islands,
since 1986.
Principal External Appointments:
Chairman of Permira Holdings Limited, Utmost Worldwide Limited
and Highbridge Tactical Credit Fund Limited
Non-executive Director of DBG Management GP (Guernsey) Limited
and a range of Ashmore funds.
Patrick Firth
Non-executive Director
Resident: Guernsey
Appointed: 22 January 2014
Independent: Yes
Committee Memberships:
Relevant Skills and Experience:
Has worked in the fund industry in Guernsey since joining
Rothschild Asset Management C.I. Limited in 1992.
Qualified Chartered Accountant.
Managing Director at Butterfield Fund Services (Guernsey)
Limited (subsequently Butterfield Fulcrum Group (Guernsey)
Limited), a company providing third party fund administration
services, from 2002 to 2009.
Former Chairman of the Guernsey International Business
Association and of the Guernsey Investment Fund Association.
A member of the Chartered Institute for Securities and
Investment.
Former Non-executive Director of JZ Capital Partners
Limited.
Principal External Appointments:
Non-executive Director of a number of management companies,
general partners and investment companies, including Riverstone
Energy Limited, ICG-Longbow Senior Secured UK Property Debt
Investments Limited and GLI Finance Limited.
Sue Inglis
Non-executive Director
Resident: UK
Appointed: 1 April 2019
Independent: Yes
Committee Memberships:
Relevant Skills and Experience:
Over 30 years' experience in advising investment companies and
financial institutions.
Qualified lawyer and a former partner, and head of the funds and
financial services group, at Shepherd & Wedderburn, a leading
Scottish law firm.
In 1999, a founding partner of Intelli Corporate Finance, an
advisory boutique firm focusing on the asset management and
investment company sectors, which was acquired by Canaccord Genuity
in 2009.
Before embarking on a non-executive career in 2018, executive
roles included Managing Director - Corporate Finance in the
Investment Companies teams at Cantor Fitzgerald Europe (2012-2018)
and Canaccord Genuity (2009-2012).
Former Non-executive Director of The European Investment Trust
plc.
Principal External Appointments:
Chairman of The Bankers Investment Trust PLC.
Senior Independent Director of Baillie Gifford US Growth Trust
PLC.
Non-executive Director of BMO Managed Portfolio Trust PLC and
Seneca Global Income & Growth Trust plc.
Joanne Peacegood
Non-executive Director
Resident: Guernsey
Appointed: 20 February 2020
Independent: Yes
Committee Memberships:
Relevant Skills and Experience:
Over 20 years of experience in the Investment Management sector
including Premium Listed Funds and Alternative assets.
Worked for big four in the Channel Islands, UK and Canada for 20
years.
Qualified as a Chartered Accountant in 2002 (FCA) and holds a BA
honours degree in Accounting.
Led hundreds of Audits for reputable Asset Management clients
and Controls Assurance engagements.
Expertise in Valuations, Corporate Governance and
Regulations.
Previous Risk & Quality Director. Responsibilities included
considering and responding to risks, regulatory relationships and
assessment of quality/controls.
Innovation & Technology Director overseeing technology
solutions to enable the business to operate more efficiently.
Principal External Appointments:
Non-executive Director roles include Private Equity, Debt and
Asset Managers.
Vice Chair of the Guernsey Investment & Fund Association
Executive Committee.
Member of the Guernsey International Business Association
Council.
Corporate Governance Statement
Statement of Compliance
The Board considers that the principles and provisions set out
in the AIC Code of Corporate Governance (February 2019) provide the
most appropriate framework for the Company's governance and
reporting to shareholders. The AIC Code addresses the principles
and provisions set out in the UK Corporate Governance Code (July
2018) as well as setting out additional principles and
recommendations on issues that are of specific relevance to
investment companies. The AIC Code includes an explanation of how
the AIC Code adapts the principles and provisions set out in the UK
Corporate Governance Code to make them relevant for investment
companies. The AIC Code is available on the AIC's website
(www.theaic.co.uk).
The AIC Code has been endorsed by the Financial Reporting
Council and the Guernsey Financial Services Commission. By
reporting against the AIC Code, the Board is meeting its
obligations in relation to:
-- the UK Corporate Governance Code (and associated disclosure
requirements under the FCA's Listing Rule 9.8.6R) and, accordingly,
the Company does not need to report further on issues contained in
the UK Corporate Governance Code which are irrelevant to it;
and
-- the Guernsey Financial Services Commission's Finance Sector
Code of Corporate Governance (February 2016).
The Company has complied with the principles and has complied
with the provisions of the AIC Code during the year ended 31 March
2020.
Board Leadership and Company Purpose
Board Leadership
The role of the Board is to promote the long-term sustainable
success of the Company, generating value for our shareholders
whilst having regard to the interests of wider stakeholders.
The Investment Manager, Investment Adviser and Administrator are
responsible for implementing the Company's strategy and managing
the Company's day -to -day activities and operations. The Company's
success is based on such implementation and management being
effective. The Board leads and provides direction for the
Investment Manager, Investment Adviser and Administrator by setting
the Company's strategic objectives within a robust framework of
risk management and internal controls. The Board oversees the
execution of the Company's strategy and implementation of its key
investment, financial, operational and compliance policies,
enabling it to scrutinise robustly and challenge constructively the
performance of the Investment Manager, Investment Adviser and
Administrator.
Company Purpose, Values and Strategy
The Company's principal purpose is to provide ordinary
shareholders with attractive risk-adjusted returns, principally in
the form of regular dividends, by investing in a diversified
portfolio of primarily UK-based solar energy infrastructure assets,
through investment in a diversified portfolio of solar assets
managed in accordance with its investment policy. Details of the
Company's investment and strategic objectives and its investment
strategy are set out in "Our Objectives" and "Our Investment
Strategy and Track Record" on page 2 and pages 15-18 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 on page 21);
-- the key considerations relating to new investment
opportunities (see "Portfolio Highlights" in the Investment
Adviser's Report on page 20);
-- 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" on pages 45-47); and
-- the sustainability of the Company's business model (see "the
Going Concern and Viability section" on page 49).
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 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 applies directly to UK
domiciled companies. Nonetheless, the intention of the AIC Code is
that the matters set out in section 172 are reported on by all
companies, irrespective of domicile, provided this does not
conflict with local company law. Under section 172, directors have
a duty to promote the success of their company for the benefit of
its members as a whole, whilst having regard to (amongst others)
the likely consequences of their decisions in the long-term and the
interests of the company's wider stakeholders.
Information on how we have acted in accordance with the
requirements of section 172 is included throughout the Strategic
Report and this Corporate Governance Report. In particular:
-- information on the Company's values and business model and
our culture can be found under" Our Business Model" on pages 12-14
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 on pages 20-30;
-- 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" on pages 45-47;
-- 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" on pages 43-44;
-- in relation to the Company's solar assets, the Asset Manager
and the Investment Adviser have day-to day responsibility for the
Company's dealings with suppliers, contractors, customers and
others and information of how they foster these relationships are
included under "Principal Roles" on page 14;
-- 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 on pages
36 to 42; and
-- a summary of the Board's principal activities during the year
under review are included under "Principal Roles" on page 14.
In making decisions, our aim is always to ensure the long-term
sustainable success of the Company and, therefore, the likely
long-term consequences of any decision are a key consideration. In
relation to the decisions we took during the year under review, we
acted in the way we considered, in good faith, would be most likely
to promote the Company's long-term sustainable success and achieve
its wider objectives for the benefit of our shareholders as a
whole, having had regard to our wider stakeholders and the other
matters set out in section 172.
Conflicts of Interest
The Directors have a duty to avoid situations where they have,
or could have, a direct or indirect interest that conflicts, or
possibly could conflict, with the Company's interests ("conflict
situations"). A Director must inform the Chairman (or, in the case
of the Chairman, the Senior Independent Director) as soon as they
become aware of the possibility of a conflict situation.
Where it deems it appropriate, the Board may approve conflict
situations. In deciding whether to approve a conflict situation,
the Board will act in a way it considers, in good faith, will be
most likely to promote the Company's long-term sustainable success.
The Board can impose limits or conditions when giving approval if
it considers this appropriate.
We believe that our arrangements for approving and monitoring of
conflict situations operate effectively.
There were no conflict situations during the year under review
(or since the end of the year).
Division of Responsibilities
Board
The Board comprises five Directors, all of whom are
non-executive and independent, and is chaired by Kevin Lyon. The
biographies of the Directors are on pages 52 and 53.
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 prudent and effective controls
that enable risk to be assessed and managed;
-- establishing a framework of high standards of corporate governance;
-- overseeing the execution of the Company's strategy and
implementation of its key investment, financial, operational and
compliance policies;
-- overseeing the performance of our Investment Manager,
Investment Adviser, Administrator and other key service providers
and advisers;
-- ensuring effective engagement with shareholders and other key stakeholders; and
-- robustly scrutinising and constructively challenging all
matters that come before the Board.
The Board has overall responsibility for the Company's
activities. However, it has delegated or outsourced various matters
to its standing Committees and day-to-day activities to the
Investment Manager and the Administrator, all of which operate
within clearly defined terms of reference or agreements that set
out their roles, responsibilities and authorities. All other
matters are reserved for consideration and approval by the Board
(including those matters listed in a formal schedule of reserved
matters approved by the Board), thus enabling the Board to maintain
full and effective control over appropriate strategic, financial,
operational and compliance issues. The reserved matters
include:
-- the Company's strategy and strategic aims;
-- the Company's dividend policy and declaration of dividends;
-- alterations to the Company's equity and debt capital structures;
-- valuations of the Company's investments;
-- financial reporting and controls;
-- the Company's operating and marketing budgets;
-- Board membership; and
-- all corporate governance matters.
To enable the Board to fulfil its responsibilities, the
Directors are expected to provide strategic guidance, constructive
challenge, offer specialist advice and hold the Investment Manager,
Investment Adviser, Administrator and other service providers and
advisers to account.
The Directors have access to the advice and services of the
Administrator. Where necessary, in carrying out their duties, the
Directors may also seek independent professional advice and
services at the expense of the Company.
Chairman
The current Chairman is Kevin Lyon. His primary role as Chairman
is to provide leadership to the Board. The principal
responsibilities of the Chairman include:
-- the overall effectiveness of the Board in directing the Company;
-- taking a leading role in setting the Company's strategic aims,
-- promoting behaviours and attributes that make up the Board's
culture (details of which can be found under "Board Culture" on
page 54);
-- ensuring the Directors receive information of appropriate
quality and form in a timely manner and encouraging balanced, open
and inclusive Boardroom discussions, all of which facilitate the
Board's ability to debate robustly and challenge constructively and
to make objective decisions;
-- 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 2020 appraisal of the Chairman can be found
under "Annual Performance Evaluations" on pages 60 and 61.
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" on
pages 62 and 64 for information on the 2020 annual evaluation).
Board Committees
The Board has three standing Committees:
-- Audit Committee: Information on the Committee's membership,
roles and responsibilities is included in the Audit Committee
Report on pages 66 to 68.
-- Management Engagement Committee: The Committee was
established on 14 June 2019 and is chaired by Sue Inglis (see "New
Management Engagement Committee" on page 50 for further
information). The Committee aims to serve the interests of the
Company's shareholders and other stakeholders through seeking to
ensure that the Company's key service providers, including the
Investment Manager, Investment Adviser and Administrator, and
advisers are delivering a high level of performance and value for
money. The Committee's principal responsibilities are to evaluate,
at least annually, the performance and appropriateness of the
continuing appointments of the key service providers and advisers
and to review terms of the Management Agreement, including the
basis of the fees payable to the Investment Manager, having regard
to current market practice.
-- Remuneration and Nominations Committee: Information on the
membership and the remuneration-related roles and responsibilities
of the Committee are included in the Directors' Remuneration Report
on page 63.
The Committee's nomination-related responsibilities include:
- reviewing the Board composition and assessing whether the
balance of skills, experience, knowledge, diversity and
independence is appropriate to enable the Board to discharge its
responsibilities effectively and efficiently;
- succession planning;
- leading the process for new appointments to the Board; and
- leading the annual evaluation of the Board and its Committees.
A copy of the terms of reference of each Committee is available
on the Company's website (www.nextenergysolarfund.com). The
Committees review their terms of reference at least annually, with
any proposed changes recommended to the Board for approval.
The Board also establishes additional Committees from time to
time to take operational responsibility on specific matters
following "in principle" approval from or with subsequent
ratification by the Board. These Committees ensure that key matters
are dealt with efficiently.
Investment Manager and Investment Adviser
A Management Agreement between the Company and the Investment
Manager sets out the matters over which the Investment Manager has
authority and responsibility. Under the Management Agreement, but
subject to the overall control and supervision of the Board, the
Investment Manager has full discretion to make investments in solar
assets that have been recommended by the Investment Adviser and
meet the requirements of the Company's investment policy.
The Investment Manager is also the Company's Alternative Fund
Manager ("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 and SPVs in order to facilitate the performance
of its obligations.
The Investment Adviser's role primarily entails the origination,
evaluation, co-ordination and recommendation of investment
opportunities for the Company and the related provision of
investment advice to the Investment Manager in respect of strategy,
acquisitions and disposals, portfolio efficiencies, financing,
market developments and other matters that may affect the Company's
portfolio or the Company's ability to meet its investment or
strategic objectives. In addition, the Investment Adviser is
responsible for overseeing the performance of the Company's
portfolio.
In advance of Board meetings, the Investment Manager provides
regular reports, which include operating updates on the Company's
solar assets, information on potential new investment
opportunities, cash flow forecasts and other financial information,
industry updates and other relevant information. Senior
representatives of the Investment Manager and the Investment
Adviser attend Board meetings. In addition, there is regular
contact between the Board, Investment Manager and Investment
Adviser, including Informal meetings between Board meetings. Our
active engagement and supportive working relationship with the
Investment Manager and Investment Adviser create an open and
collaborative culture that ensures that we have a thorough
understanding of the Company's business and facilitates our robust
scrutiny and constructive challenge of the activities and
performance of the Investment Manager and Investment Adviser.
Administrator
The Company has appointed the Administrator to provide company
secretarial, fund accounting and administration services. The
Administrator's responsibilities include:
-- ensuring that the Company complies with applicable Guernsey
laws, rules and regulations and also the FCA's rules and
regulations applicable to investment companies with a premium
listing and of the London Stock Exchange's rules and
regulations;
-- advising on all governance matters;
-- supporting the Board to ensure that it has the policies,
processes and information it needs in order to function effectively
and efficiently;
-- under the direction of the Chairman, facilitating the flow of
information between the Board, Committees, Investment Manager,
Investment Adviser and other service providers and advisers;
and
-- ensuring that Board procedures are followed.
In advance of Board meetings, the Administrator provides regular
reports, which include financial and other operational information,
details of any breaches or complaints and relevant legal,
regulatory, corporate governance and other technical updates. There
is also regular contact between the Directors and the Administrator
between Board and Committee meetings. Our working relationship and
dialogue with the Administrator provides us with a thorough
understanding of the Company's operational activities, ensures we
comply with relevant legal, regulatory, corporate governance and
other technical requirements and facilitates our effective
oversight and scrutiny of the activities and performance of the
Administrator.
Board and Committee Meetings and Activities
Meetings
The Board and its standing Committees hold regular scheduled
meetings and additional meetings as required. The agenda for each
meeting is prepared by the Administrator and approved by the
Chairman of the relevant meeting. Representatives of the Investment
Manager, Investment Adviser and Administrator attend all scheduled
meetings, although the Directors may meet without all or some of
them being present.
Agendas, along with reports and other papers containing
relevant, concise and clear information, are circulated to the
Board and Committees in a timely manner to enable review and
consideration prior to scheduled and ad hoc meetings. This ensures
that the Directors are capable of contributing to and making
informed decisions. The Board or a Committee may also seek, as
required, further clarification of matters from the Investment
Manager, Investment Adviser, Administrators and other service
providers or advisers by means of additional reports and/or
in-depth discussions.
The primary focus at the quarterly Board meetings is:
-- a review of the Company's investments, including their
performance and any operational issues and asset management
initiatives;
-- any investment opportunities and how they fit within the Company's strategy;
-- legal, regulatory and market developments that may impact the Company or its investments;
-- valuation of investments and NAV calculation;
-- the Company's financial performance;
-- the Company's financial and regulatory compliance;
-- investor relations, shareholder analysis and marketing; and
-- peer group benchmarking and other relevant sector information.
Board Activities
In addition to routine business at the quarterly Board meetings,
matters considered by the Board during the year under review
included:
-- the Company's strategy and strategic aims, including in
respect of subsidy-free solar assets (see "Portfolio Update" in the
Chairman's Statement on page 9 and in the Investment Adviser's
Report on page 22);
-- raising additional preference share capital (see "Capital
Raising and Debt Financing" in the Chairman's Statement on page 9
and in the Investment Adviser's Report on pages 29 and 30);
-- the suspension of the scrip dividend alternative in respect
of the third interim dividend (see "Dividends" in the Chairman's
Statement on page 9);
-- approving the Annual and Interim Reports;
-- the appointment of a new Director (see "Board Composition and Evaluation" on page 50);
-- the creation of the Management Engagement Committee (see "New
Management Engagement Committee" on page 50);
-- the 2019 annual assessment of the performance and
appropriateness of the continuing appointments of the Investment
Manager, Investment Adviser, Administrator and other key service
providers and advisers and assessment of the commercial terms of
the Management Agreement (see "Annual Performance Evaluations" on
pages 60 and 61);
-- recommendations from its Committees, including the
appointment of a new external auditor following a formal tender
process (see "Audit tender" in the Audit Committee Report on page
67);
-- the appointment of a new legal adviser and a new financial
adviser and joint corporate broker and (see below); and
-- the Company's corporate governance framework having regard to
the February 2019 version of the AIC Code.
During the year, as the Company had passed its fifth anniversary
of its IPO, the Board decided it would be in the best interests of
shareholders to review the competiveness and performance of the
Company's existing UK legal adviser against other UK legal advisers
active in the investment companies sector. Having concluded the
review, the Board decided, based on the strength and experience of
the overall team within the sector and the fee charging structure,
to appoint Stephenson Harwood LLP as the Company's legal adviser
with effect from 17 January 2020.
At the beginning of the year under review, the Company had four
corporate brokers, two of which subsequently ceased their corporate
broking activities. The Board decided, therefore, to conduct a
formal tender process to assist in assessing the performance of the
Company's remaining corporate brokers against other providers in
the market (excluding those with potential conflicts due to their
engagement by the Company's peers) and to determine whether it was
appropriate to make any changes to its remaining corporate brokers.
At the end of this process, the Board decided, based on their
collective knowledge of the Company and experience in the sector,
to retain Shore Capital and Corporate Limited as its sponsor and
joint broker and to appoint Cenkos Securities Plc as its financial
adviser and other joint broker with effect from 27 January
2020.
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 on pages 66 and 67.
The Management Engagement Committee was established on 14 June
2019, after the 2019 annual evaluation of the Company's key service
providers, including the Investment Manager, Investment Adviser and
Administrator, and advisers had been completed. Therefore, the
Committee did not meet during the year under review.
Matters considered by the Remuneration and Nominations Committee
during the year under review included:
-- Board appointment: Following Sharon Parr's resignation with
effect from 31 December 2019, and having evaluated the skills,
experience, knowledge and tenure of the continuing Directors, the
Committee prepared a description of the role and capabilities
required for the vacancy. The Company appointed OSA Recruitment
(which has no other connection with the Company or with individual
Directors, other than providing this type of service) to assist
with the search for suitable candidates. Having assessed a number
of candidates put forward by OSA Recruitment and following her
meetings with the Directors and the Investment Adviser, the
Committee recommended the appointment of Joanne Peacegood as a
Director. The Board approved Jo's appointment with effect from 20
February 2020. Details of Jo's skills, experience and principal
external appointments can be found in her biography on page 53 and
anticipated benefits of her appointment to the Board are discussed
under "Board Composition and Evaluation" on page 50.
-- 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 Evaluations" on pages 60 and
61.
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 18 ad
hoc Board meetings and one ad hoc Remuneration and Nominations
Committee meetings 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 are expected to communicate their views on any matters to
be discussed to their fellow Directors ahead of the meeting.
Management Remuneration
Engagement and Nominations
Director Board Audit Committee Committee(1) Committee
Kevin Lyon 4/4 3/3 n/a 1/1
Vic Holmes 4/4 3/3 n/a 1/1
Patrick Firth 4/4 3/3 n/a 1/1
Sue Inglis 4/4 3/3 n/a 1/1
Sharon Parr(2) 3/3 2/2 n/a 1/1
Joanne Peacegood(3) n/a n/a n/a n/a
1. The Management Engagement Committee did not meet during the
year ended 31 March 2020 as it was established after the 2019
annual evaluation of the Company's key service providers and
advisers had been completed.
2. Sharon Parr resigned as a Director on 31 December 2019.
3. Joanne Peacegood became a Director on 20 February 2020.
Board Composition and Succession
Board Composition and Independence
The Board currently comprises five Directors, all of whom are
non-executive and independent of the Investment Manager and the
Investment Adviser. Details of the Directors' skills, experience
and principal external appointments are included in their
biographies on pages 52 and 53.
The current Chairman, Kevin Lyon, and Senior Independent
Director, Vic Holmes, have held their positions since the Company's
IPO in 2014. The Chairman does not have, and has not had, any
relationships or circumstances that may create a conflict of
interest between his interests and those of shareholders.
Appointments to the Board
The Remuneration and Nominations Committee oversees the
recruitment process, which generally 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 now 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
sole PV assets.
Details of appointments to the Board during the year under
review can be found under "Board Composition and Evaluation" on
page 50 and "Board Appointment" on page 58.
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 on page 58.
Neither the Chairman nor any of the other Directors took on any new
significant appointments 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
strengths) and with the objective of ensuring that the Board and
its Committees have the skills, experience and knowledge necessary
to bring a wide range of perspectives and to discharge their
responsibilities effectively. Our priority when making new
appointments is to identify the candidate with the best range of
skills, experience and knowledge to complement those of the
existing Directors. Accordingly, we do not believe it is in the
interests of the Company or its shareholders to set prescriptive
targets for diversity on the Board.
Board Tenure
We have considered the question of tenure for Directors,
including the Chairman, and are mindful that three of our five
Directors will reach their ninth anniversary simultaneously in
January 2023. We have 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, particularly in relation to our three original
Directors.
None of the Directors have been on the Board for nine years or
more. The date of appointment of each Director can be found in
their biographies on pages 52 and 53.
Succession Planning
The Remuneration and Nominations Committee is responsible for
reviewing the succession plans for the Board. Kevin Lyon, Vic
Holmes and Patrick Firth are the longest standing Directors, having
been appointed at the time of the Company's IPO in 2014. Whilst the
Board does not consider that length of service in itself
necessarily undermines a Director's independence or that each
Director, including the Chairman, should serve for a finite fixed
period, the Remuneration and Nominations Committee intends, during
the current financial year, to review and recommend to the Board a
succession plan for the staged refreshment of the Board in due
course.
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 elect
Joanne Peacegood and to re-elect the other four Directors.
Removal of Directors
The Directors' letters of appointment do not impose any maximum
limit on the period for which they may serve, although the
continuation of their appointment is contingent on satisfactory
performance evaluation and annual re-election (or, in the case of a
Director appointed since the previous AGM, election) by
shareholders at the AGM.
Under their letter of appointment, a Director's appointment may
be terminated at any time by either the Company or the Director
giving not less than three months' notice or otherwise in
accordance with the Company's Articles of Incorporation.
Annual Performance Evaluations
Board, Committees and Directors
In January 2020, the Company engaged Linstock Limited, an
independent consultant, to facilitate an external Board evaluation.
Linstock has no other connection with the Company or with
individual Directors, other than providing this type of
service.
All Directors, apart from Sharon Parr and Joanne Peacegood due
to the dates of their resignation and appointment respectively,
participated in the evaluation. The Investment Adviser also
participated in the evaluation. The evaluation took the form of
comprehensive online questionnaires, which asked us to consider,
among other things: board composition, expertise, dynamics and
succession planning; the management and focus of, and atmosphere
in, Board meetings; Directors' training requirements, Board support
by the Administrator; the effectiveness of the Chairman; the
performance of the Audit and Remuneration and Nominations
Committees; the Company's strategy and strategic objectives and
oversight of its strategy, investment activities and performance;
risks and risk management; investor relations and marketing,
including shareholder engagement; and priorities for change over
the next 12 months.
The Remuneration and Nominations Committee considered Linstock's
report at its meeting in February 2020. Linstock's report rated a
number of key areas of focus highly, including Board composition
and dynamics, management of meetings, the effectiveness of the
Committees, the clarity of the Company's strategic aims, the
Board's oversight of the Company's strategy and the Board's
effectiveness in monitoring risks and risk management. The top
three priorities for the next 12 months were identified as
reviewing the Company's longer-term strategy, increasing investor
engagement and marketing activities and integrating Joanne
Peacegood as a Director and developing relationships with the newly
appointed advisers. Linstock's report provided a number of useful
recommendations, predominantly of an administrative nature, which
the Board have taken on board and will work to progress. The
Remuneration and Nominations Committee concluded that, based on the
evaluation and the appointment of Joanne Peacegood to fill the
Board vacancy, the composition of the Board and its Committees
reflected a suitable mix of skills, experience and knowledge and
that the Board and its Committees, were functioning
effectively.
Having considered Linstock's report, each Director's individual
performance, contribution and commitment, the Boardroom atmosphere
and the relationships between the Board members, the Remuneration
and Nominations Committee was satisfied that each Director
contributed effectively and that, collectively, the Directors
worked together effectively in the pursuit of achieving the to
achieve the Company's objectives.
Chairman
Led by Vic Holmes, the Senior Independent Director, the
Directors met without the Chairman present to appraise his
performance. The review of the Chairman was very positive, with the
other Directors commenting favourably on, in particular, his
leadership, his facilitation of constructive Board relations and
the effective contribution of individual Directors and his
encouragement of open and inclusive Boardroom discussions. The
other Directors concluded that the Chairman continued to chair the
Board effectively.
Investment Manager and Investment Adviser
At its meeting held in June 2019, the Board evaluated the
performance and services provided by the Investment Manager and
Investment Adviser. This process included the completion of a
questionnaire by the Investment Manager and Investment Adviser. The
Board considered the completed questionnaires, the Company's track
record in terms of NAV and share price performance and achievement
of performance objectives, the quality of the services provided by
the Investment Manager and Investment Adviser, 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 outcome of the evaluation was very
positive. The Board concluded that, having regard to the 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 agreed, therefore, 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 17 and 18 to the Financial
Statements on page 96.
Other Key Service Providers and Advisers
The Board reviewed the service levels of the Administrator and
the Company's other key party service providers and advisers at its
meeting held in June 2019. The Board concluded that they were all
operating effectively and providing a good level of service.
Directors' Remuneration
The Directors' Remuneration Report on pages 63 to 65 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" on pages 45 to 47. The Company's financial instrument
risks are discussed in note 14 to the Financial Statements on pages
91 to 96.
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 attributes assigns, in relation to each risk, a
rating (high, medium or low) of the risk value, risk probability
and effectiveness of control.
The Audit Committee is responsible for monitoring and regularly
reviewing Company's systems of internal controls and risk
management and reports its findings and conclusions to the Board
(see "Risk management and internal control processes" on page 66 of
the Audit Committee Report).
Taking into account the information under "Risks and Risk
Management" on pages 45 to 47, the ongoing work of the Audit
Committee in monitoring the risk management and internal control
systems on behalf of the Board and the Audit Committee's reports to
the Board on its findings and conclusions regarding the risk
management and internal control systems, the Board:
-- is satisfied that it has carried out a robust assessment of
the principal and emerging risks facing the Company, including
those that could threaten its business model, future performance,
solvency, liquidity or reputation; and
-- has reviewed the adequacy and effectiveness of the risk
management and internal control systems and no significant failings
or weaknesses were identified.
Risk Management and Internal Control Systems
The Company's risk management and internal control systems are
designed to identify, manage and mitigate on a timely basis both
the key principal risks and the emerging risks inherent to the
Company's business and safeguarding the Company's assets. The
systems are also designed to manage, rather than eliminate, the
risk of failure to achieve the Company's investment and strategic
objectives and can only provide reasonable, but not absolute,
assurance against material misstatement or loss.
The Company has delegated its day-to-day activities to the
Investment Manager, Investment Adviser and Administrator and has
clearly defined their roles, responsibilities and authorities. The
Board oversees the ongoing performance and work of the Investment
Manager, Investment Adviser and Administrator at its quarterly
meetings.
The Board monitors the actions of the Investment Manager and
Investment Adviser at quarterly and relevant ad hoc Board meetings.
At each quarterly Board meeting, the Investment Manager and
Investment Adviser report on the performance of the Company's
investments, activities since the last Board meeting, any specific
new risks identified relating to the Company's portfolio,
investment valuations and cash projections. The Board also receives
updates from the Investment Manager and Investment Adviser on
material developments affecting the Company or its investments
between quarterly Board meetings.
The Board, Investment Manager and Investment Adviser, together,
review all financial performance and results notifications.
The Investment Manager reports to the Board twice a year
regarding the Company's longer-term viability, which includes
financial sensitivities and stress testing of the business to
ensure that the adoption of the going concern is appropriate.
The Board is made aware of the business controls of the
Investment Manager and Investment Adviser during periodic Board
updates enabling oversight of the key business processes. The
Investment Adviser also provides an update of the control
environment for the UK HoldCos and SPVs 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. In its role
as a third-party fund administration services provider, the
Administrator produced an annual ISAE 3402 Assurance Report on its
internal control procedures in place for the year ended 30
September 2019 and this was reviewed by the Audit Committee and the
Board. 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 Board (since 14
June 2019, this has been done by the Board through the Management
Engagement Committee).
Internal Audit Function
For the reasons stated under "Internal audit requirements" in
the Audit Committee Report on page 67, the Board does not currently
consider that an internal audit function is required.
Approval
This Corporate Governance Statement was approved by the Board on
29 June 2020 and signed on its behalf by:
Kevin Lyon
Chairman
29 June 2020
Directors' Remuneration Report
Vic Holmes
Remuneration and Nominations Committee Chairman
I am pleased to present the Directors' Remuneration Report for
the year ended 31 March 2020.
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 includes the
proposed Directors' remuneration policy, which is subject to
shareholder approval at this year's AGM, and shows how the current
remuneration policy, which was approved by shareholders at the AGM
in 2017, was implemented during the year ended 31 March 2020.
Remuneration and Nominations Committee
Chaired by Vic Holmes, the Remuneration and Nominations
Committee comprises of all of the Directors. The Board is satisfied
that, as all of the Directors are non-executive, it is appropriate
for all of them to be members of the Committee. All of the
Directors are, and have been since appointment, independent.
In respect of remuneration-related matters, the Remuneration and
Nominations Committee's responsibilities include:
-- setting the policy for the remuneration of the Directors;
-- reviewing the ongoing appropriateness and relevance of the remuneration policy;
-- within the terms of the approved policy, determining the
remuneration of the Chairman and reviewing the quantum of the other
Directors' remuneration and, if considered appropriate,
recommending any changes to the Board;
-- appointing and setting the terms of reference for any
remuneration consultants to advise the Committee;
-- agreeing policy on the recovery by the Directors of expenses
incurred in performance of their duties; and
-- drafting the Directors' Remuneration Report and reporting to
shareholders on the implementation of the Company's remuneration
policy in accordance with relevant corporate governance
requirements.
Full details of the Committee's roles and responsibilities are
set out in formal terms of reference. The terms of reference are
regularly reviewed by the Committee and are available on the
Company's website (www.nextenergysolarfund.com ).
Remuneration Policy
The Directors' remuneration policy is designed to support the
strategic objectives of the Company and to promote its long-term
success. In this context, the remuneration policy is designed to
enable the Company to attract and retain Directors of high calibre
with suitable skills, experience and knowledge and to ensure that
their remuneration is set at a reasonable level commensurate with
their duties and responsibilities and the time commitment required
to carry out their duties effectively.
As all Directors are non-executive, there are:
-- no service contracts with the Company;
-- no bonuses or other performance-related payments;
-- no pensions or pension-related benefits, medical or life
insurance schemes, share options, long-term incentive plans or
other benefits; and
-- no payments for loss of office save for payment of any fees
or expenses due but unpaid at the time of termination and for any
unexpired notice period.
The Directors have letters of appointment that provide that
their appointment can be terminated by no more than three months'
notice by either party. In normal circumstances, the Directors are
expected to serve up to a maximum of nine years, subject to
satisfactory performance, which is reviewed annually by the
Remuneration and Nominations Committee. The Company requires that
all Directors are re-elected at each AGM and, if any Director is
not re-elected, their appointment ceases immediately and without
the requirement for any notice. A Director's appointment may also
be terminated with immediate effect in certain other circumstances
as detailed in the Company's Articles of Incorporation.
The Directors' remuneration:
-- will reflect their duties, responsibilities, experience and
time spent on the Company's affairs, taking into account the nature
of the Company's activities;
-- will allow those chairing the Board and key Committees, as
well as the Senior Independent Director, to be paid higher fees
than other Directors in recognition of their more demanding roles
and increased accountability;
-- will be paid quarterly in arrears;
-- at the discretion of the Board, may include additional fees
for any further specific work undertaken on behalf of the Company
which is outside of their normal duties and requires a meaningful
time commitment (details of any additional fees paid and the
associated work undertaken will be disclosed in the Directors'
Remuneration Report in the next Annual Report); and
-- will be reviewed by an independent professional consultant
with relevant experience at least every three years.
The aggregate fees payable to the Directors will not exceed
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 five Directors
sufficient for the Company, the number of Directors may increase to
six for some periods 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 2019. 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
During the year ended 31 March 2020, the Remuneration and
Nominations Committee appointed Deloitte LLP in order to benchmark
the Directors' fee levels. As Deloitte LLP has no other connection
with the Company or any of the Directors, the Committee is
satisfied that it is independent.
Deloitte LLP's review included benchmarking the fees paid by the
Company against those paid by UK-listed investment companies
operating in the renewable energy infrastructure sector and other
UK-listed investment companies with similar market capitalisations
to that of the Company.
Following a detailed discussion regarding Deloitte LLP's report
and other factors, including changes in legal, regulatory and
corporate governance requirements since the quantum of Directors'
remuneration was last increased in 2016, the Remuneration and
Nominations Committee's recommendation, to which the Board agreed,
was that the Directors' fees should be increased, with effect from
1 October 2019, to the annual amounts set out in the table
below.
Previous
Role New Fee Fee
Chairman GBP70,000 GBP60,000
Audit Committee Chairman GBP50,000 GBP40,000
Senior Independent Director/Remuneration and
Nominations Committee Chairman GBP46,000 GBP37,500
Management Engagement Committee Chairman GBP45,000 n/a(1)
Director (base fee) GBP42,000 GBP35,000
1 The Management Engagement Committee was established on 14 June 2019.
The table below shows the Directors' remuneration for the
financial year ended 31 March 2020, together with the comparative
figures for 2019.
Director Role 2020 2019
Kevin Lyon Chairman GBP65,000 GBP60,000
Patrick Firth Audit Committee GBP45,000 GBP40,000
Chairman
Vic Holmes Senior Independent GBP41,750 GBP37,500
Director/
Remuneration and
Nominations
Committee
Chairman
Sue Inglis Management GBP40,000(2) n/a
Engagement
Committee
Chairman
Sharon Parr Director GBP28,000(3) GBP35,000
Joanne Peacegood Director GBP4,705(4) n/a
2 Appointed with effect from 1 April 2019.
3 Resigned with effect from 31 December 2019.
4 Appointed with effect from 20 February 2020.
No additional fees were paid to the Directors during the year
ended 31 March 2020 (2019: none).
The total amount of Directors' expenses reimbursed during the
year ended 31 March 2020 was GBP1,729 (2019: GBP4,785).
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.
The interests of the Directors (and their connected persons) in
the ordinary shares of the Company at 31 March 2020, together with
the comparative figures for 2019, are shown in the table below.
Director 2020 2019
Kevin Lyon 160,000 160,000
Patrick Firth 83,904 80,429
Vic Holmes 110,000 110,000
Sue Inglis 50,000 N/a
Joanne Peacegood - N/a
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 2020, together with the comparative figures for 2019.
2020 2019 Change
GBP'000 GBP'000 GBP'000
Directors' total remuneration 224(5) 173 51
Total dividends paid or payable(6) 39,731 38,159 1,572
5 The Board was increased to comprise five Directors with effect from 1 April 2019.
6 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 was last approved at the AGM held in 2017. Accordingly, at
this year's AGM, shareholders will also be asked to approve the
Directors' remuneration policy, as set out in this Directors'
Remuneration Report, for the three years ended 30 April 2023. 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 2017.
At the AGM held on 24 August 2017, of the 301,564,982 votes cast
by proxy and at the meeting (including votes cast at the Chairman's
discretion), 99.99% were in favour of the resolution to approve the
Directors' remuneration policy, as set out in the Annual Report for
the year ended 31 March 2017, and 0.01% were against. 0 votes were
withheld.
Shareholder Approval of Remuneration Report
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 8 August 2019, of the 386,053,208 votes cast
by proxy and at the meeting (including votes cast at the Chairman's
discretion), 99.99% were in favour of the advisory resolution to
approve the Directors' Remuneration Report in respect of the year
ended 31 March 2019 and 0.01% were against. 0 votes were
withheld.
Approval
This Directors' Remuneration Report was approved by the Board on
29 June 2020 and signed on its behalf by:
[Signature]
Vic Holmes
Remuneration and Nominations
Committee Chairman
29 June 2020
Audit Committee Report
Patrick Firth
Audit Committee Chairman
I am pleased to present the Audit Committee's Report for the
year ended 31 March 2020.
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 Audit Committee comprises of all
of the Directors. As permissible under the AIC Code the Chairman of
the Board is a member of the Committee to enable his greater
understanding of the issues facing the Company and also to benefit
from his valuable contributions. All of the Directors are, and have
been since appointment, independent.
The Board has considered the composition of the Audit Committee.
With the exception of Sue Inglis, all members of the Committee are
chartered 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 on pages 52 and 53.
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 audit planning meeting. The auditor may request
that a meeting of the Committee be convened if it deems it
necessary.
The Audit Committee met three times during the year ended 31
March 2020 (details of the Committee members' attendance at the
meetings can be found under "Meeting Attendance" on page 58).
Responsibilities and Activities
The Audit Committee's responsibilities include:
-- monitoring the integrity of the Company's financial
statements and any formal announcements relating to its financial
performance;
-- reviewing significant financial reporting judgements;
-- evaluating the effectiveness of the systems of internal control and risk management;
-- assessing the effectiveness and independence of the Company's external auditor; and
-- making recommendations to the Board on the appointment and
remuneration of the external auditor.
Full details of the Committee's roles and responsibilities are
set out in formal terms of reference and include all of the roles
and responsibilities recommended by the AIC Code. The terms of
reference are regularly reviewed by the Committee and are available
on the Company's website (www.nextenergysolarfund. com).
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" on
pages 45 to 47). 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" on pages 61 and
62.
-- 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 was satisfied with, the effectiveness,
including performance and 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.
The Committee concluded that, taken as whole, the Annual Report
was fair, balanced and understandable and provided the information
necessary for shareholders to assess the Company's position and
performance, business model and strategy.
-- 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.
-- Audit tender: As reported in last year's Annual Report, as
the Company had passed its fifth anniversary and in order to assess
the competitiveness of PricewaterhouseCoopers CI LLP (the Company's
external auditor since its IPO), the Audit Committee conducted a
competitive tender for the role of external auditor. This process
concluded with presentations to the Committee from three of the
"Big 4" accountancy firms (the fourth having declined an invitation
to tender due to a potential conflict of interest with another
client). Following the conclusion of the process, the Committee
recommended to the Board that the Company appoint KPMG Channel
Islands Limited ("KPMG") as the Company's new external auditor and
KPMG was subsequently appointed on 27 September 2019. KPMG
conducted a review of the Interim Report and reported to the
Committee prior to the Committee recommending its approval to the
Board.
-- 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 areas connected with the
preparation of the financial statements of the Company related to
the valuation of investments.
The Company is required to calculate the fair value of its
investments. Whilst there is a relatively active market for
financial assets of this nature, there are no suitable listed or
other public market quotations against which the value of the
Company's investments can be benchmarked. Accordingly, the
valuation of the Company's investments is undertaken using a
discounted cash flow methodology in line with IFRS 9 Financial
Instruments and IFRS 13 Fair Value Measurement and takes into
account the International Private Equity and Venture Capital's
valuation guidelines.
As further explained in note 4 to the Financial Statements on
page 85, 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 or 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.
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 two 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. The
Company has added an additional 1% premium to the discount rate to
all cash flows after 30 years.
-- 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 on
pages 23 and 26.
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.
Annual Report for Year Ended 31 March 2020
The production of the Annual Report, including the audit of the
Company's financial statements, for the year ended 31 March 2020
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.
Non-audit Services Provided by External Auditor
The Company may only use its external auditor for non-audit work
with the prior approval of the Audit Committee. The Committee has a
policy regarding the provision of non-audit services by the auditor
that precludes the auditor from providing any of the prohibited
non-audit services as listed in Article 5 of the EU Directive
Regulation (EU) No. 537/2014. 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 period from 1 April 2019 to 29 June 2020, the only
non-audit work carried out by KPMG was in relation to its review of
the Interim Report and certain agreed upon procedures in relation
to a related party transaction for which it was paid fees of
GBP20,000 and GBP40,000 respectively (equivalent to 4.4% and 8.8%
respectively of the audit fee for the year ended 31 March
2020).
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 2020, 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. 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.
The Committee enquired of KPMG as to whether they had been
subject to external evaluation during the year and was advised that
the most recent "Audit Quality Review Team" was in 2018 and no
issues of significance were highlighted. Under the evaluation
programme it is expected that there will be another such process
during 2021.
Audit Tender Policy
The Audit Committee has established an audit tender policy that
was adopted by the Board. The Committee will consider the need for
a competitive tender for the role of external auditor at least
every five years and recommend to the Board if a tender process is
felt to be appropriate. In any event, a competitive tender will
take place at least every 10 years.
The tender process will be administered by the Audit Committee,
which will consider whether to seek major investors' views on the
audit firms to be invited to tender and success criteria to be used
by the Company in the course of the tender. If a tender is
conducted as part of a normal tender cycle, the incumbent auditor
will be invited to participate in the tender unless prohibited due
to specific factors such as lack of independence. The Committee
will make a recommendation to the Board of its preferred
appointee.
The audit tender policy also requires the external auditor to
rotate the audit partner for the Company at least every five
years.
Auditor's Fees for NESF and Subsidiaries
The fees payable to KPMG for Audit services to the Company and
its subsidiaries for the year ended 31 March 2020 were as
follows:
2020
GBP'000
NESF 75
Subsidiaries 380
Total audit fees 455
Interim review 20
Total fees 475
External Auditor's Tenure
There are no contractual obligations that restrict the Company's
choice of external auditor and the auditor's appointment is subject
to shareholder approval at each AGM.
As KPMG was first appointed as the Company's external auditor in
2019 following a competitive tender, the Committee will consider
the need for a competitive tender for the role of external auditor
in, or before, 2024. In any event, the Committee will carry out a
competitive tender in, or before, 2028 in respect of the audit for
the year ending 31 March 2029.
The audit partner for the Company, Dermot Dempsey, has been in
place for one year 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 29 June 2020 and signed on its behalf by:
[Signature]
Patrick Firth
Audit Committee Chairman
29 June 2020
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 2020.
This Directors' Report and the Strategic Report on pages 69 and
7 respectively 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
Location in
Information Annual Report
Pages 52 and
Directors 53
Directors' interests in shares Page 65
Pages 59 and
Appointment and removal of directors 60
Pages 84 and
Financial instruments 85
Pages 45 to
Principal and emerging risks 47
Going concern and viability Page 48
Annual review of systems of risk Page 61
management and internal control
Disclosure of Information to Auditor Page 66
Annual evaluation of the Investment Page 60
Manager and Investment Adviser
Section 172 statement Page 54
Financial Results and Dividends
The financial results for the year can be found in the Statement
of Comprehensive Income on page 78.
Details of the four interim dividends that have been declared in
respect of the year ended 31 March 2020 are set out in note 12 to
the Financial Statements on page 90. 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 2021" on page 14.
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 2021" on page 14
Share Capital
During the year, the Company issued 2,475,390 ordinary shares as
scrip shares. As at 31 March 2020 and the date of this Directors'
Report, there were 584,205,931 ordinary shares in issue.
The Company issued 100,000,000 preference shares at 100p per
share pursuant to a private placement in August 2019. As at 31
March 2020 and the date of this Directors' Report, there were
200,000 preference shares in issue. Details of the private
placement and further information regarding the rights of the
preference shares can be found in note 21 to the Financial
Statements on page 97.
Substantial Shareholdings
As at 31 March 2020, 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 76,005,013 13.01
LLP on behalf of discretionary funds
under management
M&G Plc 68,755,148 11.77
Investec Wealth & Investment 50,399,566 8.63
Limited
Baillie Gifford & Co 41,180,510 7.05
Legal & General Group plc 38,052,043 6.51
Tredje AP-Fonden (AP 3) 36,426,102 6.24
Between 31 March 2020 and the date of this Directors' Report,
the Company was notified that VT Gravis Funds ICVC has an interest
in 30,020,447 ordinary shares (5.14% of the issued ordinary
shares). There have been no other notifications during that
period.
Powers to Issue and Buy-back Ordinary Shares
At the Company's AGM held on 8 August 2019, 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, 116,475,460 ordinary shares,
equivalent to 20% of the ordinary shares in issue at the date the
authority was granted. 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, 87,298,358 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 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 GBP50,000 to the NextEnergy Foundation,
information on which can be found in the Sustainability and ESG
section on page 40. No other charitable donations were made during
the year.
Post Balance Sheet Events
Details of events occurring since 31 March 2020 can be found in
note 24 to the Financial Statements on page 98.
Independent Auditor
The Company appointed KPMG Channel Islands Limited ("KPMG") to
act as its independent auditor on 27 September 2019. KPMG replaced
PricewaterhouseCoopers CI LLP following a competitive tender
process, details of which are set out "Audit tender" in the Audit
Committee Report on page 68.
KPMG has indicated its willingness to continue as auditor for
the year ending 31 March 2021 and resolutions to re-appoint KPMG
and to authorise the Directors to determine KPMG's remuneration,
will be proposed at this year's AGM.
2020 AGM
A separate notice convening this year's AGM will be sent to
shareholders in due course. The notice will include an explanation
of the resolutions to be considered at the meeting. A copy of the
notice will also be published on the Company's website
(www.nextenergysolarfund.com).
Approval
This Directors' Report was approved by the Board on 29 June 2020
and signed on its behalf by:
Kevin Lyon Chairman
29 June 2020
Statement of Directors' Responsibilities in Respect of the
Annual Report and the Financial Statements
The Directors are responsible for preparing the Annual Report in
accordance with applicable law and regulations.
Directors' Responsibilities
The Companies (Guernsey) Law, 2008 requires the Directors to
prepare Financial Statements for each financial year of the
Company. The Financial Statements have been prepared in accordance
with International Financial Reporting Standards ("IFRS"). Under
company law, the Directors must not approve the Financial
Statements unless they are satisfied they give a true and fair view
of the state of affairs of the Company and of the profit or loss
for the Company for that year.
In preparing the Financial Statements, the Directors are
required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable and prudent;
-- state whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the Financial Statements; and
-- prepare the Financial Statements on a going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
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
the Financial Statements comply with The Companies (Guernsey) Law,
2008, as amended.
The Directors are also responsible for taking such steps as are
reasonably open to them to safeguard the assets of the Company and,
hence, for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
Website Publication
The Directors are responsible for ensuring the Annual Report, is
made available on a website. Annual Reports are published on the
Company's website (www.nextenergysolarfund.com). Legislation in
Guernsey governing the preparation and dissemination of financial
statements may vary from legislation in other jurisdictions. The
maintenance and integrity of the Company's website is the
responsibility of the Directors. The Directors' responsibility also
extends to the ongoing integrity of the financial statements
contained on the website.
Directors' Confirmations
In accordance with the FCA's Disclosure Guidance and
Transparency Rule 4.1.12R, we confirm that, to the best of our
knowledge:
-- the Financial Statements have been prepared in accordance
with International Financial Reporting Standards 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 on
pages 7 to 48, the Directors' Report on pages 69 and 70 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
29 June 2020
Independent auditor's report
to the members of NextEnergy Solar Fund Limited
1. 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 2020, 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 state of the Company's
affairs as at 31 March 2020 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 of 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 applied to
listed entities. We believe that the audit evidence we have
obtained is a sufficient and appropriate basis for our opinion.
Overview
Materiality : GBP11.5m
financial statements as a whole Approximately 2% of net
asset value
Key audit matter vs 2019
Recurring risk Valuation of
investments
2. Key audit matters: our assessment of 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 Company as a whole,
and in forming our opinion thereon, and we do not provide a
separate opinion on these matters. In arriving at our opinion
above, the key audit matter was as follows (unchanged from
2019):
The risk Our response
Valuation of Forecast based valuation: Our audit procedures included:
investments Basis Control evaluation:
at fair The Company's investments We tested the design and
value through in its direct subsidiaries implementation of the control
profit are carried at fair value operated by management during
and loss through profit or loss and the valuation process to
GBP753.6 million represent a significant determine the fair value
(2019: GBP722.7 proportion of the underlying investment
million) of the Company's net assets. portfolio.
Refer to pages Those direct subsidiaries Valuation methodology, model
66 to hold equity interests in integrity and model inputs:
68 (Audit Committee special purpose vehicles With support from KPMG valuation,
Report), pages which in turn own solar taxation and modelling specialists,
82 to photovoltaic we:
85 (accounting assets (the "underlying * assessed the appropriateness of the valuation
policies) investment methodology applied by the Investment Manager and
and pages 91 portfolio") for which there held discussions with them. These discussions also
to 96 (financial is no liquid market. included understanding how the valuation methodology
instrument disclosures). The fair value of the and assumptions used took account of the impact of
Company's COVID-19 on the underlying investment portfolio;
investments has been
determined
as the product of the fair * tested the valuation model for integrity, logic and
value of the underlying material formula errors;
investment
portfolio and the other
residual * verified key inputs into the valuation model,
net assets within the including power price forecasts, energy yield,
subsidiaries. contracted revenue and operating costs, to supportin
The fair value of the g
underlying documentation;
investment portfolio has
been determined using the
income approach whereby the * agreed the cash transfers made between the Company
long term forecasted cash and its directly held subsidiaries to relevant
flows of each individual supporting documentation such as bank statements;
solar photovoltaic asset
is discounted at a rate that
reflects their risk profile. * obtained and vouched supporting documentation in
Inherent in these long term relation to all significant acquisitions, additions
forecasted cash flows are to cost of investments and constructed assets during
macro-economic assumptions the year;
including power price
forecasts,
future energy yields, and * agreed a value driven sample of balances within the
inflation. residual net asset amounts at subsidiary levels to
Risk supporting documentation such as independent bank
The valuation risk confirmations, post year end receipts and other
represents source documentation;
a risk of fraud and error
associated with estimating
the timing and amount of * assessed the reasonableness of the tax treatment
long term forecasted cash applied to long term forecasted cash flows between
flows alongside the the subsidiaries and the Company;
selection
and application of
appropriate * for a risk based sample assessed the historical
assumptions and the impact accuracy of the cash flow forecasts against actual
COVID-19 has had on those results in order to assess the reliability of the
assumptions. Changes to long forecasts.
term forecasted cash flows
and/or the selection and
application of different
assumptions may result in
a materially different
valuation
for the underlying
investment
portfolio which in turn
would
impact the valuation of the
Company's investments at
fair value through profit
or loss.
The valuation risk Benchmarking valuation assumptions:
represents With support from our KPMG
a risk of fraud and error valuation specialist we assessed
associated with estimating and challenged the appropriateness
the timing and amount of of the Company's selection
long term forecasted cash of assumptions including
flows alongside the the discount rate and other
selection macro-economic assumptions,
and application of applied in the valuation
appropriate model and the impact COVID-19
assumptions and the impact has had on those assumptions
COVID-19 has had on those by:
assumptions. Changes to long * benchmarking against independent market data and
term forecasted cash flows relevant peer group companies; and
and/or the selection and
application of different
assumptions may result in * using our KPMG valuation specialist's experience in
a materially different valuing similar investments.
valuation
for the underlying
investment Assessing transparency:
portfolio which in turn We considered the adequacy
would of the Company's investment
impact the valuation of the valuation policies and the
Company's investments at Company's disclosures in
fair value through profit relation to the use of estimates
or loss. and judgements regarding
the fair value of investments.
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 including
the impact of
COVID-19.
3. Our application of materiality and an overview of the scope of our audit
Materiality for the financial statements as a whole was set at
GBP11.5m, determined with reference to a benchmark of net assets of
GBP578.6m, of which it represents approximately 2.0%.
We reported to the Audit Committee any corrected or uncorrected
identified misstatements exceeding GBP0.5m, 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.
4. We have nothing to report on going concern
The directors have prepared the financial statements on the
going concern basis as they do not intend to liquidate the Company
or to cease their 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 activities including where
relevant the impact of the COVID-19 pandemic and the requirements
of the applicable financial reporting framework. We analysed how
those risks might affect the Company's financial resources or
ability to continue operations over the going concern period,
including challenging the underlying data and key assumptions used
to make the assessment, and evaluated the directors' plans for
future actions in relation to their going concern assessment.
Based on this work, we are required to report to you if we have
anything material to add or draw attention to in relation to the
directors' statement in Note 2(b) 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 a period of at least twelve months from the
date of approval of the financial statements. We have nothing to
report in these respects.
5. We have nothing to report on the other information in the annual report
The directors are responsible for the other information
presented in the annual report together with the financial
statements. The other information comprises the information
included in the annual report but does not include the financial
statements and our auditor's report 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
Based on the knowledge we acquired during our financial
statements audit, we have nothing material to add or draw attention
to in relation to:
-- the directors' confirmation within the viability statement
(page 48) that they have carried out a robust assessment of the
emerging and principal risks facing the Company, including those
that would threaten its business model, future performance,
solvency and liquidity;
-- the principal and emerging risks disclosures describing these
risks and explaining how they are being managed and mitigated;
and
-- the directors' explanation in the viability statement (page
48) of how they have assessed the prospects of the Company, over
what period they have done so and why they considered that period
to be appropriate, and their statement as to whether they have a
reasonable expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the period
of their assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
Corporate governance disclosures
We are required to report to you if:
-- we have identified material inconsistencies between the
knowledge we acquired during our financial statements audit and 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; or
-- the section of the annual report describing the work of the
Audit Committee does not appropriately address matters communicated
by us to the Audit Committee
We are required to report to you if the Corporate Governance
Statement does not properly disclose a departure from the
provisions of the UK Corporate Governance Code specified by the
Listing Rules for our review.
We have nothing to report to you in these respects.
6. We have nothing to report on the 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 we require for our audit.
7. Respective responsibilities
Directors' responsibilities
As explained more fully in their statement set out on page 71,
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.
8. The purpose of our audit work and to whom we owe our responsibilities
This report is made solely to the Company's members, as a body,
in accordance with section 262 of the Companies (Guernsey) Law.
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 & Recognised Auditors
Guernsey
29 June 2020.
BERWICK
8.2MW installed
Energised in March 2016
1.4 ROC subsidy
2,000 homes powered annually
East Sussex
Financial Statements
Statement of Comprehensive Income
For the Year Ended 31 March 2020
Year Ended 31 March 2020 2019
Notes GBP'000 GBP'000
Income
Income 5 61,192 55,613
Net changes in fair value of investments 6 (75,714) 24,538
Total net income (14,522) 80,151
Expenditure
Preference share dividends 7,789 1,822
Management fees 17 5,629 5,402
Legal and professional fees 897 732
Administration fees 274 277
Directors' fees 20 224 173
Sundry expenses 112 27
Audit fees 16 99 156
Charitable donations 50 -
Regulatory fees 30 33
Insurance 25 15
Total expenses 15,129 8,637
Operating (loss)/profit (29,651) 71,514
Finance income - 65
(Loss)/profit and comprehensive (loss)/income
for the year (29,651) 71,579
Earnings per ordinary share - basic 11 (5.09p) 12.37p
Earnings per ordinary share - diluted 11 (2.99p) 11.93p
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 Financial
Statements.
Statement of Financial Position
As at 31 March 2020
As at 31 March 2020 2019
Notes GBP'000 GBP'000
Non-current assets
Investments 6 753,560 722,763
Total non-current assets 753,560 722,763
Current assets
Cash and cash equivalents 25,128 19,285
Trade and other receivables 7 23,992 41,409
Total current assets 49,120 60,694
Total assets 802,680 783,457
Current liabilities
Trade and other payables 8 (26,270) (39,384)
Total current liabilities (26,270) (39,384)
Non-current liabilities
Preference shares 21 (197,781) (99,022)
Total non-current liabilities (197,781) (99,022)
Net assets 578,629 645,051
Equity
Share capital and premium 10 602,989 600,029
Retained earnings (24,360) 45,022
Equity attributable to ordinary shareholders 578,629 645,051
Total equity 578,629 645,051
Net assets per ordinary share 13 99.0p 110.9p
The accompanying notes are an integral part of these Financial
Statements.
The Financial Statements were approved and authorised for issue
by the Board of Directors on 29 June 2020 and signed on its behalf
by:
Director Director
Kevin Lyon Patrick Firth
Chairman Director
Statement of Changes in Equity
For the Year Ended 31 March 2020
Share Capital Retained
and Premium Earnings Total Equity
GBP'000 GBP'000 GBP'000
Ordinary shareholders' equity at 1 April
2019 600,029 45,022 645,051
Loss and comprehensive loss for the year - (29,651) (29,651)
Scrip shares issued in lieu of dividends 2,960 - 2,960
Ordinary dividends paid - (39,731) (39,731)
Shareholders' equity at 31 March 2020 602,989 (24,360) 578,629
Ordinary shareholders' equity at 1 April
2018 593,388 11,602 604,990
Profit and comprehensive income for the
year - 71,579 71,579
Scrip shares issued in lieu of dividends 6,641 - 6,641
Ordinary dividends paid - (38,159) (38,159)
Ordinary shareholders' equity at 31 March
2019 600,029 45,022 645,051
Statement of Cash Flows
For the Year Ended 31 March 2020
Year Ended 31 March 2020 2019
Notes GBP'000 GBP'000
Cash flows from operating activities
(Loss)/profit and comprehensive (loss)/income
for the year (29,651) 71,579
Adjustments for:
Proceeds from HoldCos 6 - 4,654
Payments to HoldCos 6 (106,511) (176,658)
Change in fair value of investments 6 75,714 (24,538)
Finance income - (65)
Amortisation 109 22
Operating cash flows before movements in
working capital (60,339) (125,006)
Changes in working capital
Movement in trade and other receivables 17,417 (13,012)
Movement in trade and other payables (13,114) 13,863
Net cash used in operating activities (56,036) (124,155)
Cash flows from investing activities
Finance income - 65
Net cash generated from investing activities - 65
Cash flows from financing activities 22
Proceeds from preference shares 21 98,650 99,000
Dividends paid on ordinary shares 12 (36,771) (31,518)
Net cash generated from financing activities 61,879 67,482
Net movement in cash and cash equivalents
during year 5,843 (56,608)
Cash and cash equivalents at the beginning
of the year 19,285 75,893
Cash and cash equivalents at the end of
the year 25,128 19,285
The accompanying notes are an integral part of these Financial
Statements.
Notes to the Financial Statements
For the Year Ended 31 March 2020
1. General Information
The Company was incorporated with limited liability in Guernsey
under the Companies (Guernsey) Law, 2008, as amended, 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 1,
Royal Plaza, Royal Avenue, St Peter Port, Guernsey, Channel
Islands, GY1 2HL.
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-based solar energy infrastructure assets.
The Company currently makes its investments 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 NEC
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 (the "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.
The Financial Statements are presented in pounds sterling (GBP)
because that is the currency of the primary economic environment in
which the Company operates.
2. Significant Accounting Policies
a) Basis of Preparation
The Financial Statements, which give a true and fair view, have
been prepared on a going concern basis in accordance with IFRS.
The Financial Statements have been prepared on the historical
cost basis, except for the revaluation of certain investments and
financial instruments. The principal accounting policies adopted
are set out below. These policies have been consistently
applied.
b) Going Concern
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;
-- timing of future investment transactions;
-- expenditure commitments; and
-- forecast income and cash flows.
The Company has cash and short-term deposits as well as
projected positive income streams and an available credit facility
through its subsidiaries (see note 21) and, as a consequence, the
Directors have, at the time of approving the Financial Statements,
a reasonable expectation that the Company has adequate resources to
continue in operational existence for the next 12 months.
Accordingly they have adopted the going concern basis of
preparation in preparing the Financial Statements.
c) Basis of Non-consolidation
The Company has 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 five holding
companies (NextEnergy Solar Holdings Limited, NextEnergy Solar
Holdings II Limited, NextEnergy Solar Holdings III Limited,
NextEnergy Solar Holdings IV Limited and NextEnergy Solar Holdings
V Limited, 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 those investors with investment management services;
and
-- commits to its investors that its business purpose is to
invest funds solely for returns from capital appreciation,
investment income, or both (including having an exit strategy for
investments); and
-- measures and evaluates the performance of substantially all
of its investments on a fair value basis.
In assessing whether the Company meets the definition of an
investment entity set out in IFRS 10 the Directors note that:
-- the Company is an investment company that invests funds
obtained from multiple investors in a diversified portfolio of
solar energy infrastructure assets and related infrastructure
assets and has appointed the Investment Manager to manage the
Company's investments;
-- the Company's purpose is to invest funds for investment
income and potential capital appreciation and will exit its
investments at the end of their economic lives or when their
planning permissions or leasehold land interests expire (unless it
has repowered their sites) and may also exit investments earlier
for reasons of portfolio balance or profit; and
-- the Board evaluates the performance of the Company's
investments on a fair value basis as part of the quarterly
management accounts review and the Company values its investments
on a fair value basis twice a year for inclusion in its annual and
interim financial statements with the movement in the valuations
taken to the Income Statement and, therefore, is measured within
its earnings.
Taking these factors into account, the Directors are of the
opinion that the Company has all the typical characteristics of an
investment entity and meets the definition set out in IFRS 10.
The Directors believe the treatment outlined above provides the
most relevant information to investors.
d) 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 the HoldCos and SPVs are subject
to tax in their country of incorporation.
e) Segmental Reporting
The Chief Operating Decision Maker, which is the Board, is of
the opinion that the Company is engaged in a single segment of
business, being investment in solar energy infrastructure assets
via its HoldCos and SPVs. Therefore, the financial information used
by the Chief Operating Decision Maker to manage the Company
presents the business as a single segment.
f) Dividends
Dividends to the Company's shareholders are recognised when they
become legally payable. In the case of interim dividends, this is
when paid.
g) Income
Income includes investment income from financial assets at fair
value through profit or loss, administrative service fee income,
interest income from Eurobonds and finance income.
Investment income 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.
h) Expenses
All expenses are accounted for on an accruals basis.
i) 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.
j) 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.
k) 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
Fair value is 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 fair value of financial assets that are not traded on an
active market is determined using valuation techniques. The
Company's investments have been valued on a look through basis
based on the discounted cash flows of the solar assets 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 on 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.
l) 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.
m) 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.
n) 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.
o) 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
The Directors have considered new accounting standards,
amendments and interpretations in issue but not yet effective 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. These valuations are reviewed and
approved by the Board. The investments are held through SPVs.
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 GBP753.6m (2019: GBP722.8m) and consist of 90
(2019: 87) investments in solar PV plants (held indirectly through
the HoldCos), all of which have been valued on a look through basis
based on the discounted cash flows of the solar assets (except for
those solar assets not yet operational) and the residual value of
net assets at the HoldCos level. The unlevered discount rate
applied in the 31 March 2020 valuation was 6.25% (2019: 6.50%). 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. In addition, COVID-19, has had a negative 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 2020
in measuring financial instruments categorised as Level 3 in the
fair value hierarchy and their sensitivities are disclosed in note
14. Unlisted investments reconcile to the "Total investments at
fair value" in the table in note 6.
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 2c).
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 4a).
c) Significant Judgement: Preference Shares
The Company and the HoldCos operate as an integrated structure
whereby the Company invests solely in the HoldCos. Under IFRS 10,
there is a requirement for the Board to assess whether the HoldCos
are themselves investment entities. The Board has performed this
assessment and concluded that each of the HoldCos is an investment
entity for the following reasons:
-- the HoldCos have obtained funds for the purpose of investing
in equity or other similar interests in multiple investments and
providing the Company (and its investors) with investment income;
and
-- the performance of investments made through the HoldCos are
measured and evaluated on a fair value basis.
Furthermore, the HoldCos themselves are not deemed to be
operating entities providing services to the Company and,
therefore, are able to apply the exemption to consolidation.
5. Income
Year Ended 31 March 2020 2019
GBP'000 GBP'000
Interest income 9,573 614
Investment income 42,934 46,957
Administrative services income 8,685 8,042
Total Income 61,192 55,613
6. Investments
The Company owns its portfolio of solar assets through its
investments in the HoldCos. The Company's investments comprise of
its portfolio of solar assets and the residual net assets of the
HoldCos. The Company's total investments at fair value are recorded
under "Non-current assets" in the Statement of Financial
Position.
As at 31 March 2020 2019
GBP'000 GBP'000
Brought forward cost of investments 689,478 517,474
Investment proceeds from HoldCos - (4,654)
Investment payments to HoldCos 106,511 176,658
Additions - acquisition of Eurobonds 125,000 175,000
Disposal - derecognition of loans(1) (125,000) (175,000)
Carried forward cost of investments 795,989 689,478
Brought forward unrealised gains on valuation 33,285 8,747
Movement in unrealised gains on valuation (75,714) 24,538
Carried forward unrealised gains on valuation (42,429) 33,285
Total investments at fair value 753,560 722,763
1 Non-cash transactions: On 28 February 2019, NESH III and NESH
V issued Eurobonds listed on The International Stock Exchange
totalling GBP175m, On 18 September 2019, a further issue by NESH
III was made totalling GBP125m. The Eurobonds were put in place to
ensure optimum tax planning within the Company and replaced certain
debt facilities between the Company, NESH III and NESH V, which
were repaid.
The total change in the value of the investments in the HoldCos
is recorded through profit and loss in the Statement of
Comprehensive Income.
7. Trade and Other Receivables
As at 31 March 2020 2019
GBP'000 GBP'000
Administrative service fee income receivable 252 249
Prepayments 22 461
Due from HoldCos 23,718 40,699
Total trade and other receivables 23,992 41,409
Amounts due from HoldCos are interest free and payable on
demand.
8. Trade and Other Payables
As at 31 March 2020 2019
GBP'000 GBP'000
Other payables 184 264
Ordinary share dividends payable 6 -
Preference share dividends payable 2,362 1,171
Due to HoldCos 23,718 37,949
Total trade and other payables 26,270 39,384
Amounts due to HoldCos are interest free and payable on
demand.
9. Subsidiaries
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. As stated in note 4c), the HoldCos are incorporated
in the UK and 100% directly owned. Below is the legal entity name
for the SPVs, all owned 100% at 31 March 2019 and 31 March 2020
directly or indirectly through the HoldCos listed below).
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 Ltd 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
Ltd UK Limited UK
NextEnergy Solar Holdings
II Limited UK
ESF Llwyndu Limited UK Trowbridge PV Limited UK
NextEnergy Solar Holdings
III Limited UK
Burcroft Solar Parks
Balhearty Solar Limited UK Ltd UK
Burrowton Farm Solar
Ballygarvey Solar Ltd UK Park Ltd UK
Chilton Cantello Solar
BESS Pierces Ltd UK Park Ltd UK
Crossways Solar Park
Birch Solar Farm CIC UK Ltd UK
Blenches Mill Farm Solar
Park Ltd UK Empyreal Energy Limited UK
Brafield Solar Limited UK Fiskerton Limited UK
Francis Lane Solar Limited UK Nextpower SPV 10 Ltd UK
Gourton Hall Solar Limited UK Nextpower SPV 11 Ltd UK
Greenfields (F) Limited UK Nextpower SPV 12 Ltd UK
Nextpower Water Projects
Greenfields (T) Limited UK Ltd UK
Gwent Farmers' Community
Solar Partnership Limited UK NextZest Ltd UK
Helios Solar 1 Limited UK PF Solar Limited UK
Helios Solar 2 Limited UK Pierces Solar Limited UK
Hook Valley Farm Solar Raglington Farm Solar
Park Ltd UK Park Ltd UK
Knockworthy Solar Park Renewable Energy HoldCo
Ltd UK Ltd UK
Lark Energy Bilsthorpe
Ltd UK RRAM (Portfolio 2) Ltd UK
RRAM (Portfolio One)
Le Solar 51 Limited UK Ltd UK
Little Irchester Solar
Limited UK RRAM Energy Limited UK
Little Staughton Airfield Saundercroft Farm Solar
Solar Limited UK Park Ltd UK
Micro Renewables Domestic
Ltd UK SL Solar Services Ltd UK
Micro Renewables Ltd UK Sywell Solar Limited UK
Moss Farm Solar Limited UK Tau Solar Limited UK
Moss Lane Farm Solar Temple Normanton Solar
Limited UK Limited UK
NESH 3 Portfolio A Limited UK TGC Solar Radbrook Ltd UK
Nextpower Bosworth Ltd UK Thornborough Solar Limited UK
Nextpower Higher Farm Thurlestone-Leicester
Ltd UK Solar Limited UK
NextPower High Garrett UK Solar (Fiskerton)
Ltd UK LLP UK
Nextpower Lower Strensham
Limited UK Warmingham Solar Limited UK
Wheb European Solar (UK)
Nextpower SPV 4 Ltd UK 2 Ltd UK
Wheb European Solar (UK)
Nextpower SPV 5 Ltd UK 3 Ltd UK
Whitley Solar Park (Ashcott
Nextpower SPV 6 Ltd UK Farm) Ltd UK
Nextpower SPV 7 Ltd UK Wickfield Solar Ltd UK
Nextpower SPV 8 Ltd UK Wyld Meadow Farm UK
Nextpower SPV 9 Ltd 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
NextEnergy Solar Holdings
VI Limited UK
Bowden Lane Solar Park Green End Renewables
Ltd UK Limited UK
Tower Hill Farm Renewables
Fenland Renewables Limited UK Limited UK
10. Share Capital and Reserves
The share capital of the Company comprises solely of ordinary
shares of no par value and preference shares of no par value.
Ordinary Shares
Number of
Ordinary Gross Amount Share
Ordinary Share Issuance Shares Raised Issue Costs Premium
GBP'000 GBP'000 GBP'000
Total issued at 31 March 2019 581,730,541 607,494 (7,465) 600,029
Scrip shares in lieu of dividend
- 28 June 2019 646,767 756 - 756
Scrip shares in lieu of dividend
- 30 September 2019 1,240,195 1,484 - 1,484
Scrip shares in lieu of dividend
- 31 December 2019 588,428 720 - 720
Total issued at 31 March 2020 584,205,931 610,454 (7,465) 602,989
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.
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 21.
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.
11. Earnings per Ordinary Share
Basic
Year Ended 31 March 2020 2019
(Loss)/profit and comprehensive (loss)/income for
the year (GBP'000) (29,651) 71,579
Basic weighted average number of issued ordinary
shares 582,993,198 578,844,510
Earnings per share - basic (5.09p) 12.37p
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.
Year Ended 31 March 2020 2019
(Loss)/profit and comprehensive (loss)/income for
the year (GBP'000) (29,651) 71,579
Plus: preference share dividends (GBP'000) 7,789 1,822
(Loss)/profit for the year attributable to ordinary
shareholders (GBP'000) (21,862) 73,401
Basic weighted average number of issued ordinary
shares 582,993,198 578,844,510
Plus: weighted number of ordinary shares issuable
on any conversion of preference
shares, based on the NAV per ordinary share as
at the financial year end 147,745,278 36,234,245
Adjusted weighted average number of ordinary shares 730,738,476 615,078,755
Earnings per share - diluted (2.99p) 11.93p
12. Dividends
Year Ended 31 March 2020 2019
GBP'000 GBP'000
Amounts recognised as distributions to equity
holders:
Interim dividend for the period ended 31 March
2018 of 1.605p per ordinary share, paid on
26 June 2018 - 9,239
Interim dividend for the period ended 30 June
2018 of 1.6625p per ordinary share, paid on
28 September 2018 - 9,608
Interim dividend for the period ended 30 September
2018 of 1.6625p per ordinary share, paid on
28 December 2018 - 9,646
Interim dividend for the period ended 31 December
2018 of 1.6625p per ordinary share, paid on
28 March 2019 - 9,666
Interim dividend for the period ended 31 March
2019 of 1.6625p per ordinary share, paid on
28 June 2019 9,671 -
Interim dividend for the period ended 30 June
2019 of 1.7175p per ordinary share, paid on
30 September 2019 10,003 -
Interim dividend for the period ended 30 September
2019 of 1.7175p per ordinary share, paid on
31 December 2019 10,023 -
Interim dividend for the period ended 31 December
2019 of 1.7175p per ordinary share, paid on
31 March 2020 10,034 -
Total 39,731 38,159
13. Net Assets per Ordinary Share
As at 31 March 2020 2019
Ordinary Shareholders' equity (GBP'000) 578,629 645,051
Number of issued ordinary shares 584,205,931 581,730,541
Net assets per ordinary share 99.0p 110.9p
14. Capital and Financial Risk Management, Valuation Methodology
and Sensitivity Analysis of the Portfolio
a) Capital Management
Capital Structure
The NESF Group, which comprises the Company and its
unconsolidated subsidiaries (being the HoldCos and SPVs), manages
its capital to ensure that it will be able to continue as a going
concern while maximising the return to ordinary shareholders
through the optimisation of the debt and equity balances. The NESF
Group's principal use of cash has been to fund investments in
accordance with the Company's investment policy as well as ongoing
operational expenses.
The capital structure of the Company consists entirely of equity
(comprising issued ordinary share capital and retained earnings)
and preference share capital (which, for accounting purposes, are
treated as a liability). The capital structure of each of the
Company's subsidiaries consists entirely of equity or a combination
of equity and debt, which may be short- or long-term. The Board,
with the assistance of the Investment Adviser, monitors and reviews
the NESF Group's capital structure on an ongoing basis.
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 HoldCos or SPVs, as well as the aggregate
subscription monies paid in respect of all preference shares in
issue and any unpaid dividends due in respect of the preference
shares.
As at 31 March 2020, the Company had GBP200m of preference
shares in issue (2019:GBP100m) and no financial debt outstanding
and the HoldCos had GBP214.3m in long-term debt and revolving
credit facilities outstanding (2019: GBP269.3m) (see note 21),
representing a gearing level of 42% (2019: 36%).
b) 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.
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
2019 the Company had no recourse financial debt, although the
Company is a guarantor for two financing and hedging facilities of
its subsidiaries (see note 23).
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.
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
form subsidies and short-term PPA hedges that fix prices, other
revenue streams are not hedged and subject to wholesale electricity
prices.
A decrease in economic activity in the UK or Italy, as during
the COVID-19 period, could result in a decrease in demand for
electricity in the market. Short-term and seasonal fluctuations in
electricity demand could also impact the price at which the
subsidiaries can sell electricity. Supply of electricity can be
affected by new entrants to the wholesale power market.
The Investment Adviser monitors these factors and hedges the
price at which the subsidiaries sell electricity as necessary.
Currency Risk (Company Only)
The Company has no direct exposure to currency risk as all its
assets and liabilities are in pounds sterling, the Company's
functional and presentational currency. A substantial majority of
the cash flows from the Company's solar assets in Italy to NESH V
are hedged and so the cash flows to the Company from that HoldCo
are exposed to limited currency risk and therefore the currency
risk on the value of the assets is not considered to be
significant.
Interest Rate Risk (Company and Subsidiaries)
The Company is indirectly exposed to interest rate risk from the
credit facilities of the HoldCos. As at 31 March 2020, of the
GBP214.3m (2019: GBP269.3m) credit facilities outstanding,
GBP123.2m (2019: GBP126.7m) had fixed interest rates and the
remaining GBP91.1m (2019: GBP142.6m) 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 GBP72.6m
(2019: GBP72.6m). The counterparties to these swaps are all
Investment grade financial institutions. The remaining GBP18.5m
(2019: GBP70.0m) had floating rates which are not hedged and are
not considered by the Directors to be significant.
Credit Risk (Company and Subsidiaries)
Credit risk is the risk that a counterparty will default on its
contractual obligations resulting in a financial loss to the
Company or the subsidiary that is a party to the contract. Credit
risk arises from cash and cash equivalents and derivative financial
instruments, as well as credit exposures to customers.
The Company and its subsidiaries mitigate their risk on cash and
derivative transactions by only transacting with major
international financial institutions with high credit ratings
assigned by international credit rating agencies. At the investment
level, the credit risk relating to significant counterparties is
reviewed on a regular basis, in conjunction with monitoring the
credit ratings issued by recognised credit rating agencies, and
potential adjustments to the discount rate are considered to
recognise changes to credit risk where applicable. The Directors
believe that the NESF Group is not significantly exposed to the
risk that the customers of its investments do not fulfil their
payment obligations because of the NESF Group's policy to invest in
jurisdictions and with customers with satisfactory credit
ratings.
The Company's maximum exposure to credit risk is the carrying
amounts of the respective financial assets set out below:
2020 2019
As at 31 March GBP'000 GBP'000
Cash and cash equivalents 25,128 19,285
Trade and other receivables 23,992 41,409
Debt investments 300,000 175,000
Total 349,120 235,694
Debt investments relate to Eurobonds which have been valued at
fair value as part of the Company's Investments as disclosed in
note 6. No collateral is received from NESH III or NESH V in
relation to the Eurobonds. The credit quality of these investments
is based on the financial performance of NESH III and NESH V as
well as the underlying investments they own. The risk of default is
deemed low and the principal repayments and interest payments are
expected to be made in accordance with the agreed terms and
conditions.
The Company does not have any significant credit risk exposure
to any single counterparty in relation to trade and other
receivables. In respect of the Company's subsidiaries, ongoing
credit evaluation is performed on the financial condition of
accounts receivable. As at 31 March 2020, the probability of
default of the Company's subsidiaries is considered low and so no
allowance has been recognised based on 12-month expected credit
loss as any impairment would be insignificant to the subsidiary.
The Investment Adviser has sufficient oversight of the subsidiary's
receivables to assess the probability of default.
Details of the Company's cash balances at the financial year end
are set out in the tables below.
Credit Rating
Standard
& Total Cash
31 March 2020 Poor's GBP'000
Long - A
Short -
Barclays Bank PLC A-1 25,128
Total 25,128
Credit Rating
Standard
& Total Cash
31 March 2019 Poor's GBP'000
Long - A
Short -
Barclays Bank PLC A-1 19,283
Long - BBB+
Short -
Lloyds Bank PLC A-2 2
Total 19,285
Liquidity Risk (Company and subsidiaries)
Liquidity risk is the risk that the NESF Group will not be able
to meet its financial obligations as they fall due. The Board has
established an appropriate liquidity risk management framework for
the management of the NESF Group's short-, medium- and long-term
funding and liquidity management requirements. The Company and its
subsidiaries manage liquidity risk by monitoring forecast and
actual cash flows and matching the maturity profiles of assets and
liabilities and maintaining sufficient cash balances to meet their
operating needs.
The table below shows the maturity of the Company's
non-derivative financial assets and liabilities. The amounts
disclosed are contractual, undiscounted cash flows and may differ
from the actual cash flows received or paid in the future as a
result of early repayments.
Carrying Up to 3 to 12 Months
31 March 2020 Amount 3 Months 12 Months Plus
GBP'000 GBP'000 GBP'000 GBP'000
Assets
Cash and cash equivalents 25,128 25,128 - -
Trade and other receivables 23,992 274 - 23,718
Liabilities
(200,149) (2,368) (7,132) (344,868)
Contractual preference shares repayment
and dividend payable(1)
Trade and other payables (23,902) (184) - (23,718)
Total (174,931) 22,850 (7,132) (344,868)
(1) Assumes no conversion of preference shares in 2036.
31 March 2019 Carrying Up to 3 to 12 Months
Amount 3 Months 12 Months Plus
GBP'000 GBP'000 GBP'000 GBP'000
Assets
Cash and cash equivalents 19,285 19,285 - -
Trade and other receivables 41,409 710 - 40,699
Liabilities
Contractual preference shares
repayment and dividend payable(1) (100,193) (1,171) (3,566) (177,171)
Trade and other payables (38,213) (264) - (37,949)
Total (77,712) 18,560 (3,566) (174,421)
(1) Assumes no conversion of preference shares in 2036.
c) Valuation Methodology and Sensitivity Analysis of the
Portfolio
The Directors have satisfied themselves as to the methodology
used and the discount rates and key assumptions applied in
producing the valuations in accordance with the International
Private Equity and Venture Capital valuation guidelines. All
operational investments are at fair value through profit or loss
and are valued using a discounted cash flow methodology.
Investments 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.
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.
The discount rates used for valuing the Company's investments
are as follows:
As at 31 March 2020 2019
Weighted average discount rate 6.8% 7.0%
6.25% to 6.50% to
Range of discount rates (unlevered to levered) 7.75% 8.0%
Premium applied to cash flows earned 30 years after
grid connection date 1.0% 0.0%
A change to the weighted average discount rate by plus or minus
0.5%, with all other variables held constant, has the following
effect on the valuation of the portfolio only.
Discount Rate Sensitivity +0.5% Change Investments -0.5% Change
Directors' valuation at 31 March 2020 (GBP18.3m) GBP753.6m GBP19.7m
Directors' valuation - percentage movement -3.3% 3.5%
Change in NAV per ordinary share (3.1p) 3.4p
Directors' valuation at 31 March 2019 (GBP20.6m) GBP722.8m GBP22.0m
Directors' valuation - percentage movement (3.3%) 3.6%
Power Price
As at 31 March 2020, estimates implied an average rate of growth
of UK electricity prices of approximately 1% (2019: 0.3%) in real
terms and a long-term inflation rate of 3.0% (2019: 3.0%). During
the first quarter of 2020, the COVID-19 pandemic and other factors
negatively impacted long-term power price projections. The
Consultants provided a range of UK power price forecasts accounting
for different COVID-19 economic recovery scenarios. The blended
average of the "central case" scenarios have been applied to the
valuation, which assumes power prices return to the forecast pre
COVID-19 (real) by approximately 2027. Due to the level of
uncertainty that COVID-19 has created, it is prudent to consider
the range of power price forecasts and provide transparency on the
impact. For illustrative purposes, if the "high case" scenarios
were to be applied to the valuation, the NAV per ordinary share at
31 March 2020 would be 110.6p. If the "low case" scenarios were to
be applied to the valuation, the NAV per ordinary share at 31 March
2020 would be 71.8p. The "high case" scenarios assume power prices
return to the forecast pre COVID-19 (real) by 2025, whereas the
"low case" scenarios assume power prices return to the forecast pre
COVID-19 (real) by 2030.
The table below shows the sensitivity of the portfolio valuation
to a sustained decrease or increase in the power price by minus or
plus 10% on the valuation, with all other variables held
constant.
Power Price Sensitivity -10% Change Investments +10% Change
Directors' valuation at 31 March 2020 (GBP40.7m) GBP753.6m GBP39.8m
Directors' valuation - percentage movement -7.3% 7.1%
Change in NAV per ordinary share (7.0p) 6.8p
Directors' valuation at 31 March 2019 (GBP42.5m) GBP722.8m GBP43.4m
Directors' valuation - percentage movement (6.9%) 7.0%
Energy Generation
The portfolio's 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 by minus or plus 5% on the valuation, with all other
variables held constant.
5% 5%
Energy Generation Sensitivity Underper-formance Investments Outper-formance
Directors' valuation at 31 March 2020 (GBP41.0m) GBP753.6m GBP40.4m
Directors' valuation - percentage movement -7.4% 7.2%
Change in NAV per ordinary share (7.0p) 6.9p
Directors' valuation at 31 March 2019 (GBP43.8m) GBP722.8m GBP43.4m
Directors' valuation - percentage movement (7.1%) 6.6%
Inflation Rates
The portfolio valuation assumes long -term inflation of 3.0%
(2019: 3.0%) p.a. for investments (based on UK RPI). A change to
the inflation rate by minus or plus 0.5%, with all other variables
held constant, has the following effect on the valuation.
Inflation Rate Sensitivity -0.5% Change Investments +0.5% Change
Directors' valuation at 31 March 2020 (GBP26.4m) GBP753.6m GBP28.2m
Directors' valuation - percentage movement -4.7% 5.1%
Change in NAV per ordinary share (4.5p) 4.8p
Directors' valuation at 31 March 2019 (GBP34.6m) GBP722.8m GBP36.6m
Directors' valuation - percentage movement (5.6%) 5.9%
Operating Costs
The table below shows the sensitivity of the portfolio to
changes in operating costs by plus or minus 10% at the SPVs level,
with all other variables held constant.
Operating Costs Sensitivity +10% Change Investments -10% Change
Directors' valuation at 31 March 2020 (GBP12.3m) GBP753.6m GBP11.7m
Directors' valuation - percentage movement -2.2% 2.1%
Change in NAV per ordinary share (2.1p) 2.0p
Directors' valuation at 31 March 2019 (GBP11.5m) GBP722.8m GBP11.2m
Directors' valuation - percentage movement (1.9%) 1.8%
Tax Rates
The UK corporation tax assumption for the portfolio valuation
was 19% for all periods (2019: 19% until 2020, 17% thereafter), in
accordance with the latest UK Budget announcements.
15. Financial Assets and Liabilities Not Measured at Fair
Value
Cash and cash equivalents are Level 1 items in the fair value
hierarchy. Current assets and liabilities are Level 2 items in the
fair value hierarchy. The carrying value of current assets and
current liabilities approximates fair value as these are short-term
items.
Preference shares are held at amortised cost and are measured at
gross proceeds net of transaction costs incurred. The transaction
costs are amortised over the expected life of the preference shares
to 2036.
16. Audit Fees
The analysis of the auditor's remuneration is as follows:
Year Ended 31 March 2020 2019
GBP'000 GBP'000
Fees payable to the auditor for the audit of the
Company 75 148
Additional audit fee and disbursements for prior
year 24 8
Total audit fees 99 156
The decrease in the fee payable to the auditor was due to the
change of auditor in September 2019. The auditor was also paid
GBP20,000 for the review of the Interim Report. (2019:
GBP20,000).
17. Management Fees
The Investment Manager is entitled to receive an annual fee,
accruing daily and calculated on a sliding scale, as follows
below:
-- for the tranche of net assets up to and including GBP200m, 1% of net assets;
-- for the tranche of net assets above GBP200m and up to and
including GBP300m, 0.9% of net assets; and
-- for the tranche of net assets above GBP300m, 0.8% of net assets.
For the year ended 31 March 2020 the Company incurred GBP5.6m in
management fees, of which GBPnil was outstanding at 31 March 2020.
(2019: GBP5.4m in management fees of which GBPnil was outstanding
at 31 March 2019).
18. Related Parties
The Investment Manager, NextEnergy Capital IM Limited, is a
related party due to having common key management personnel with
the subsidiaries of the Company. All management fee transactions
with the Investment Manager are disclosed in note 17. In addition,
a fee of GBP500,000 (2019: GBP500,000) was paid to the Investment
Manager for the arrangement of the issue of preference shares.
The Investment Adviser, NextEnergy Capital Limited, is a related
party due to sharing common key management personnel with the
subsidiaries of the Company. There are no fee transactions between
the Company and the Investment Adviser.
The Asset Manager, WiseEnergy (GB) Limited and WiseEnergy Italia
Srl (together "WiseEnergy"), are related parties due to sharing
common key management personnel with the subsidiaries of the
Company. Under existing arrangements, 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 an accounting services agreement with the Asset Manager. The
total value of recurring and one-off services paid to the Asset
Manager by the subsidiaries during the year amounted to GBP5.9m
(2019: GBP4.6m). This includes GBP0.3m in relation to energy sales,
an additional service provided to the Company (which commenced in
the current year) under the existing arrangements with WiseEnergy.
A further GBP0.4m relates to services provided in the prior year,
but expensed in the current year.
NextPower Development Limited is a related party due to sharing
common key management personnel with the subsidiaries of the
Company. There are no advisory fee transactions between the
Company, its subsidiaries and NextPower Development Limited during
the year. Note 24 provides details of a related party transaction
that occurred after 31 March 2020.
At the year end, GBP23.7m (2019: GBP37.9m) was owed to and from
the subsidiaries, in relation to their restructuring. GBP8.7m of
administrative service fees were received from the subsidiaries
during the year (2019: GBP8.0m), none of which was outstanding at
the year-end (2019: nil). During the year, dividends of GBP42.9m
(2019: GBP47.0m) were received from the subsidiaries.
The Directors of the Company and their shareholdings are stated
in the Directors' Remuneration Report on page 65.
19. Controlling Party
In the opinion of the Directors, on the basis of shareholdings
disclosed to them, the Company has no immediate nor ultimate
controlling party.
20. Remuneration of the Directors
The remuneration of the Directors was GBP224k for the year
(2019: GBP173k), which consisted solely of short-term employment
benefits.
21. Preference Shares, Revolving Credit and Debt Facilities
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.
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 2020, the
outstanding amount was GBP147.2m (2019: GBP148.2m). The five
tranches terminate between June 2026 and June 2035.
In February 2020, NESH II extended the term of its GBP20.0m
revolving credit facility with NIBC to February 2022. As at 31
March 2020, the outstanding amount was GBPnil 2019: GBP51.1m). The
two tranches terminate in September 2034.
In March 2016, NESH IV agreed the purchase of the Radius
portfolio. The acquisition was part funded by a debt facility
entered into 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 2020, the outstanding amount
was GBP48.6m (2019: GBP51.1m).
In July 2018, NESH VI closed a revolving credit facility 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 drawn down. In August 2019,
GBP56.0m was repaid, with a further GBP4.5m drawn down in December
2019. As at 31 March 2020, the outstanding amount was GBP18.5m
(2019: GBP70.0m).
22. Reconciliation of Financing Activities for the Year Ended 31
March 2020
Net Income Non-cash
Opening Cash Flows Allocation Flows Closing
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Share capital and
premium 600,029 - - 2,960 602,989
Preference shares 99,022 98,650 - 109 197,781
Retained earnings 45,022 (36,771) (29,651) (2,960) (24,360)
Total 744,073 61,879 (29,651) 109 776,410
23. Commitments and Guarantees
The Company had parental guarantees in place with two financial
institutions for a debt obligation and a currency hedge transaction
executed through subsidiaries.
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 GBP2,275,150. As at 31 March 2020, no letters of
credit were in issue (2019: none).
On 1 December 2017, the Company provided a guarantee to Intesa
Sanpaolo S.p.A. ("ISP") relating to derivative transactions made
available by ISP in favour of NESH V. The guarantee covers all
present and future obligations of NESH V to ISP relating to the
derivative transactions. As at 31 March 2020, the Company has no
outstanding commitments related to this guarantee (2019: none).
NESH V entered into the 15 year derivative transaction which hedges
the majority of the future cash flows at fixed exchange rates. As
at 31 March 2020, the unhedged portion of the derivative
transaction is GBP39.4m over the term of the transaction on a look
through basis.
24. Events After the Balance Sheet Date
As announced on 14 May 2020, two subsidy-free projects under
development, Strensham (40MW) and Llanwern (75MW), were sold to a
subsidiary of NextPower Development Ltd for a combined value of
GBP11.5m, resulting in NESF recovering all development costs
incurred. The transaction resulted in a net IRR (after NESF's
transaction costs) significantly in excess of NESF's annualised
target return of 7-9% p.a. The transaction constituted a smaller
related party transaction as set out in the FCA's Listing Rule
11.1.10R.
On 11 May 2020, the Company announced an interim dividend of
1.7175 pence per ordinary share for the quarter ended 31 March
2020, to be paid on 30 June 2020 to ordinary shareholders on the
register as at the close of business on 22 May 2020.
On 29 June 2020, a short-term credit facility of GBP70m was
extended from July 2020 to July 2022.
EMBERTON
9MW installed
Energised in March 2016
1.4 ROC subsidy
2,200 homes powered
Buckinghamshire
Additional Information
Alternative Performance Measures ("APMs")
We assess our performance using a variety of measures that are
not specifically defined under IFRS and are therefore termed APMs.
The APMs that we use may not be directly comparable with those used
by other companies. Our APMs, which are shown below, are used to
present a clearer picture of how the Company has performed over the
year and are all financial measures of historical performance.
Asset Management Alpha
Year Ended 31 March 2020 2019
% %
Delta of generation vs. budget (A) 4.7 9.1
Delta of irradiation vs. budget (B) 4.0 9.0
Asset Management Alpha (A - B) 0.7 0.1
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.
Invested Capital
As at 31 March 2020 2019
GBP'000 GBP'000
Invested capital 949,831 GBP896,000
Invested capital measures the capital deployed into solar assets
through the HoldCos and SPVs to generate investment returns for
shareholders.
Gearing
As at 31 March 2020 2019
GBP'000 GBP'000
Financial debt outstanding at HoldCos and SPVs (A) 214,299 269,000
Preference shares as per Statement of Financial Position
(B) 197,781 99,022
Net assets as per Statement of Financial Position
(C) 578,629 645,051
Gearing ((A + B) / (A + B + C)), expressed as a
percentage) 41.6% 36.3%
Gearing measures the aggregate of the NESF Group's financial
debt and fair value of the preference shares relative to GAV.
Cash Income
Year Ended 31 March 2020 2019
GBP'000 GBP'000
Income as per Statement of Comprehensive Income (A) 61,192 55,613
Trade and other receivables - administrative service
fee income accrual at beginning of year as per note
7 to Financial Statements (B) 249 1,708
Trade and other receivables - administrative service
fee income accrual at end of year as per note 7 to
Financial Statements (C) 252 249
Cash income (A + B - C) 61,189 57,071
Cash income measures of the cash generated from the Company's
operations.
Cash Dividend Cover (Pre-scrip Dividends)
Year Ended 31 March 2020 2019
GBP'000 GBP'000
Cash income per table above (A) 61,189 57,071
Total expenses as per Statement of Comprehensive
Income (B) 15,129 8,637
Pre-scrip ordinary dividends paid as per Statement
of Changes in Equity (C) 39,731 38,159
Cash dividend cover (pre-scrip dividends) ((A -
B) / C) 1.2x 1.3x
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.
Dividend Yield
As at 31 March 2020 2019
Pence Pence
Annual dividend per ordinary share declared in respect
of year (A) 6.87 6.65
Ordinary share price at end of year (B) 101.5 117.5
Dividend yield (A / B, expressed as a percentage) 6.8% 5.7%
Dividend yield is a measure of the return to the ordinary
shareholders.
NAV per Ordinary Share
As at 31 March 2020 2019
Net assets as per Statement of Financial Position
(GBP,000) (A) 578,629 645,051
Number of ordinary shares in issue at year end (B) 584,205,931 581,730,541
NAV per ordinary share ((A / B) x 1,000) 99.0p 110.9p
NAV per ordinary share is a measure of the value of one ordinary
share.
NAV Total Return per Ordinary Share
Year Ended 31 March 2020 2019
Pence Pence
NAV per ordinary share at year end as per Statement
of Financial Position (A) 99.0 110.9
Annual dividend per ordinary share declared in respect
of year (B) 6.87 6.65
NAV per ordinary share at beginning of year as per
Statement of Financial Position (C) 110.9 105.1
NAV total return per ordinary share
((A + B - C) / C, expressed as a percentage) (4.6%) 11.8%
NAV total return per ordinary share is a measure of the overall
financial performance of the Company.
Ordinary Shareholder Total Return
Year Ended 31 March 2020 2019
Pence Pence
Ordinary share price at year end (A) 101.5 117.5
Annual dividend per ordinary share declared/paid
in respect of year (B) 6.87 6.65
Ordinary share price at beginning of year (C) 117.5 111.0
Ordinary shareholder total return per share
((A + B - C) / C, expressed as a percentage) (7.8%) 11.8%
Ordinary shareholder total return is a measure of the overall
performance of the ordinary shares.
Premium to NAV per Ordinary Share
Year Ended 31 March 2020 2019
Pence Pence
Ordinary share price at year end (A) 101.5 117.5
NAV per ordinary share at year end as per Statement
of Financial Position (B) 99.0 110.9
Ordinary shareholder total return per share
((A - B) / B, expressed as a percentage) 2.5% 6.0%
Premium to NAV per ordinary share is a measure of the
performance of the ordinary share price relative to the NAV per
ordinary share.
Ongoing Charges Ratio
Year Ended 31 March 2020 2019
GBP'000 GBP'000
Total expenses as per Statement of Comprehensive
Income (A) 15,129 8,637
Preference share dividends as per Statement of Comprehensive
Income (B) 7,789 1,822
Non- recurring expenses (C) 264 254
Average of quarterly net assets (D) 643,236 596,466
Ongoing charges ratio ((A - B - C) / D, expressed
as a percentage) 1.1% 1.1%
Ongoing charges ratio measures the Company's recurring operating
costs (excluding costs incurred by the HoldCos and SPVs, interest
costs, preference share dividends and taxation) as a percentage of
the average of the net assets at the end of each quarter during the
financial year.
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 (www.nextenergysolarfund.com ).
The Company is not responsible for the information contained in
the KID and investors should note that the procedures for
calculating the risks, costs and potential returns are prescribed
by law. The figures in the KID may not reflect the expected returns
for the Company and anticipated performance returns cannot be
guaranteed.
Foreign Account Tax Compliance Act ("FATCA")/ OECD Common
Reporting Standard ("CRS")
FATCA is a United States federal law enacted in 2010, the intent
of which is to enforce the requirement for United States persons
(including those living outside the US) to file yearly reports on
their non-US financial accounts. Developed and approved by the OECD
in 2014, the CRS is a global standard for the automatic exchange of
financial account information between governments around the world
to help fight against tax evasion and protect the integrity of
systems.
The Board, in conjunction with the Company's service providers
and advisers, will ensure the Company's compliance with the FATCA
and CRS requirements to the extent relevant to the Company.
Markets in Financial Instruments Directive II ("MiFID II")
Status
MiFID II requires retail investors in complex products to be
assessed for "knowledge and understanding" by distributing firms if
they are buying them without advice.
The Company's ordinary shares are considered as "non -- complex"
in accordance with MiFID II.
Retail Distribution of the Company's Shares Via Financial
Advisers and Other Third Party Promoters
The FCA's rules restrict the promotion of investment products
classified as "non-mainstream pooled investment products" to retail
investors. The restrictions do not apply to ordinary shares in a UK
investment trust or non-UK investment company which would qualify
for approval as an investment trust under section 1158 of the
Corporation Tax Act 2010 if resident and listed in the UK.
The Board has been advised that the Company would qualify as an
investment trust if it was resident in the UK. Accordingly, the
promotion and distribution of the Company's ordinary shares are not
subject to the FCA's restrictions referred to above.
The Company currently conducts its affairs so that its ordinary
shares can be recommended by financial advisers to retail investors
and intends to continue to do so for the foreseeable future.
ISA Status
NESF's ordinary shares are eligible for stocks and shares
ISAs.
The Company intends to continue to manage its affairs so that
its ordinary shares qualify as an eligible investment for a stocks
and shares ISA.
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 "Dividend Policy, Scrip
Dividends and Dividend Target for Financial Year Ending 31 March
2021" on page 14.
Additional Information
Copies of the Company's Annual and Interim Reports, quarterly
fact sheets and stock exchange announcements, together with
information on the Company's ordinary share price, NAV per ordinary
share, historic ordinary share and NAV performance, together with
further information, is available on the Company's website
(www.nextenergysolarfund.com).
Financial Calendar for Year Ending 31 March 2021
Interim results announced November 2020
Annual results announced June 2021
Annual General Meeting August 2021
Interim Dividends
In the absence of unforeseen circumstances, the Directors expect
to declare the following interim dividends per ordinary share in
respect of the financial year ending 31 March 2021.
Ex-
Dividend Record Payment
Dividend Date Date Date Amount
1st 20/08/20 21/08/20 30/09/20 1.7625p
2nd 19/11/20 20/11/20 31/12/20 1.7625p
3rd 18/02/21 19/02/21 31/03/20 1.7625p
4th 20/05/21 21/05/21 30/06/21 1.7625p
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 Apex Funds and Corporate Services (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 page 104
for further information)
Asset Management The difference between (i) the delta of
Alpha generation vs. budget and (ii) the delta
of irradiation vs. budget
Apollo portfolio 21 UK solar plants held within NESH (see
the Operating Portfolio on pages 34 to 35
for further details)
Asset Manager or WiseEnergy (Great Britain) Limited and WiseEnergy
WiseEnergy Italia Srl
Brexit The withdrawal of the United Kingdom from
the European Union
Cash dividend cover The ratio of the Company's cash income to
dividends paid or payable in respect of
the financial year
CBA Commonwealth Bank of Australia
Company or NESF NextEnergy Solar Fund Limited
Consultants The two independent market forecasters used
by the Company
CO(2) e or carbon A term for describing different greenhouse
dioxide equivalent gases in a common unit. For any quantity
and type of greenhouse gas, CO2e signifies
the amount of CO2 which would have the equivalent
global warming impact
DNO Distribution Network Operators
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 A unit of power equal to 1,000 MW
GWh GW hour, being a measure of electricity
generated per hour
HoldCos Intermediate holding companies that are
used by the Company as pass-through vehicles
to invest in underlying solar energy infrastructure
assets, currently being NESH, NESH II, NESH
III, NESH IV, NESH V and NESH VI
IFRS International Financial Reporting Standards
Investment Adviser NextEnergy Capital Limited
or NEC
Investment Manager NextEnergy Capital IM Limited
IPO Initial Public Offering
IRR Internal Rate of Return
KWh Kilowatt hour, being a measure of electricity
generated per hour
LIBOR London Interbank Offered Rate
MIDIS Macquarie Infrastructure Debt Investment
Solutions
MW A Megawatt is unit of power equal to one
million watts and is used as a measure of
the output of a power plant
MWh MW hour, being a measure of electricity
generated per hour
NAB National Australia Bank
Net assets or NAV Net asset value
NAV per share Net asset value per ordinary share
NAV total return The actual rate of return from dividends
paid and any increase or reduction in the
NAV per ordinary share over a given period
of time
NEC or NEC Group The NextEnergy Capital group of companies,
including the Investment Manager, Investment
Adviser and Asset Manager
NESF Group The Company, HoldCos and SPVs
NESH NextEnergy Solar Holding Limited
NESH II NextEnergy Solar Holding II Limited
NESH III NextEnergy Solar Holding III Limited
NESH IV NextEnergy Solar Holding IV Limited
NESH V NextEnergy Solar Holding V Limited
NESH VI NextEnergy Solar Holding VI Limited
NIROC Like the ROCs in Great Britain, the Northern
Ireland Renewable Obligation Certificate
scheme obliges electricity suppliers to
produce a certain number of NIROCs for each
MWh of electricity which they supply to
their customers in Northern Ireland or to
pay a buy-out fee that is proportionate
to any shortfall in the number of NIROCs
being so presented
O&M Operations and Maintenance
OECD Organisation for Economic Co-operation and
Development
OFGEM Office of Gas and Electricity Markets
Ongoing charges ratio The regular, recurring annual costs of running
the Company (excluding the costs of acquisition
or disposal of investments, financing charges
and gains or losses arising on investments),
expressed as a percentage of average net
assets, calculated in accordance with the
AIC's methodology
Ordinary shareholder The actual rate of return from dividends
total return paid and any increase or reduction in the
ordinary share price over a given period
of time
Ordinary shares The issued ordinary share capital of the
Company
Performance ratio Describes the relationship between the actual
and theoretical energy outputs of a solar
plant (expressed as a percentage)
PPA Power purchase agreement
Premium/discount The amount, expressed as a percentage, by
to NAV which the Company's ordinary shares trade
above or below the NAV per ordinary share
Preference shares The issued preference share capital of the
Company
PV Photovoltaic
Radius portfolio Five UK solar plants held within NESH IV
(see the Operating Portfolio on pages 34
to 35 for further details)
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 on pages 34 to 35
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 on pages
34 to 35 for further details)
SPVs Special purpose vehicles that hold the Company's
investment portfolio of underlying solar
energy infrastructure assets
Thirteen Kings portfolio 13 plants held in NESH III (see the Operating
Portfolio on pages 34 to 35 for further
details)
Treasury shares Ordinary shares which are bought back by
the Company, reducing the amount of outstanding
shares on the open market, and held by the
Company for resale at a future date
Wholesale revenue Revenue from energy sold in the wholesale
power market which is not connected with
subsidy schemes or PPAs
Corporate Information(1)
The Company
NextEnergy Solar Fund Limited
Registered Office:
1 Royal Plaza
Royal Avenue
St Peter Port Guernsey GY1 2HL Registered no.: 57739
LEI: 213800
ZPHCBDDSQH5447 Ordinary Share ISIN: GG00BJ0JVY01 Ordinary Share
SEDOL: BJ0JVY0 London Stock Exchange Ticker: NESF Website:
www.nextenergysolarfund.com
Directors
(All non-executive and independent)
Kevin Lyon, Chairman
Vic Holmes,
Senior Independent Director Patrick Firth
Sue Inglis
Joanne Peacegood
Investment Manager
NextEnergy Capital IM Limited
1 Royal Plaza
Royal Avenue
St Peter Port
Guernsey GY1 2HL
Investment Adviser
NextEnergy Capital Limited
20 Savile Row
London W1S 3PR
Company Secretary and Administrator
Apex Funds and Corporate Services (Guernsey) Limited
1 Royal Plaza
Royal Avenue
St Peter Port
Guernsey GY1 2HL
Independent Auditor
KPMG Channel Islands Limited
Glategny Court
Glategny Esplanade
St Peter Port
Guernsey GY1 1WR
Registrar
Link Market Services (Guernsey) Ltd
Mont Crevelt House
Bulwer Avenue
St Sampson
Guernsey GY2 4LH
Legal Advisers
As to UK Law
Stephenson Harwood LLP
1 Finsbury Square
London EC2M 7SH
As to Guernsey Law
Carey Olsen (Guernsey) LLP
PO Box 98, Carey House
Les Banques
St Peter Port
Guernsey GY1 4BZ
Mourant Ozannes
Royal Chambers
St Julian's Avenue
St Peter Port
Guernsey GY1 4HP
Financial Adviser and Joint Broker
Cenkos Securities plc
6, 7, 8 Tokenhouse Yard London EC2R 7AS
Sponsor and Joint Broker
Shore Capital and Corporate Ltd
Cassini House
57 St James's Street
London SW1A 1LD
Media and Public Relations Adviser
MHP Communications Limited
60 Great Portland Street
London W1W 7RT
Principal Bankers
Barclays Bank plc
6/8 High Street St Peter Port
Guernsey GY1 3BE
1 As at the date of this Annual Report.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR MZGZVVLKGGZM
(END) Dow Jones Newswires
June 30, 2020 02:00 ET (06:00 GMT)
Nextenergy Solar (LSE:NESF)
Gráfica de Acción Histórica
De Mar 2024 a Abr 2024
Nextenergy Solar (LSE:NESF)
Gráfica de Acción Histórica
De Abr 2023 a Abr 2024