Aquila Euro. Regulatory News (AERI)

AQUILA EUROPEAN RENEWABLES PLC

(the "Company", the "Fund" or "AER")

LEI Number: 213800UKH1TZIC9ZRP41

Final Results

We are pleased to present the results for the year ended 31 December 2022.

HIGHLIGHTS

Investment Objective

Aquila European Renewables Plc (the "Company", the "Fund" or "AER") seeks to generate stable returns, principally in the form of income distributions, by investing in a diversified portfolio of renewable energy infrastructure investments.

Highlights

· 80.7% growth in portfolio operating capacity (+184.7 MW1) during 2022, resulting in a step‑change in earnings capacity

· 2022 total NAV return of 12.9%2, the highest one-year return since IPO

· 2022 revenue of the portfolio 24.2% ahead of budget, driven by favourable electricity pricing environment

· Robust dividend cover: 1.4x in 2022. 1.8x expected in 2023 and 1.6x4 on average over the next five years

· Electricity production during 2022 increased by 27.6% compared to 2021 to 666.4 GWh (2021: 522.3 GWh)

· Annualised total NAV return of 7.1%2 since IPO, at the top end of long-term target range of 6.0 to 7.5%

· EUR 150.5 million of capital deployed or committed during 2022 in unlevered solar PV, increasing solar portfolio exposure to 51.5%3

Subsequent events

· EUR 20.0 million share buyback announced on 3 February 2023, in addition to a 5.0% increase in target dividend for 20235

· In April 2023, the Company extended the maturity date of the Revolving Credit Facility ("RCF") by twelve months to April 2025

· Completion of the construction project Guillena and The Rock EPCM takeover declared in April 2023

· Members of the Board of Directors and Investment Adviser announced their commitment to acquire AER Ordinary Shares

1. Includes the investments in and the completion of The Rock and the Spanish solar PV Assets in 2022.

2. Calculation is based on NAV per Ordinary Share in euros, includes dividends and assumes no reinvestment of dividends.

3. Percentage calculated on a pro-forma basis assuming the final payments for Greco are completed.

4. As announced in February 2023 based on forward-looking assumptions as at 31 December 2022. Dividend cover presented is net of existing project debt repayments, excludes the impact of the share buyback and assumes the 2023 target dividend is paid in 2023 to 2027. No reinvestment of surplus cash flow or interest received is assumed. There can be no assurance that these targets can or will be met and it should not be seen as an indication of the Company's expected or actual results or returns.

5. Subject to the portfolio performing in line with expectations.

1. This disclosure is considered to represent the Company's alternative performance measures ("APMs"). Definitions of these APMs and other performance measures used, together with how these measures have been calculated, can be found in Annual Accounts on pages 112 to 113. All references to cents are in euros, unless stated otherwise.

2. Calculation based on NAV per Ordinary Share in euros, includes dividends and assumes no reinvestment of dividends.

3. Dividends paid/payable and declared relating to the period.

4. Calculation based on the operational result at special purpose vehicle ("SPV") level. Refer to page 22 in the Annual Report for further details.

5. Calculation based on average NAV over the period and regular recurring annual operating costs of the Company, further details can be found in the Annual Report on page 43.

6. Calculation based on Ordinary Share price in euros, includes dividends.

WHY INVEST?

We seek to generate stable returns, principally in the form of income distributions, by investing in a diversified portfolio of renewable energy infrastructure investments.

Market Opportunity

· Opportunity to participate in Europe's green energy transition.

o  Significant capital required to meet green energy targets; and

o  Heterogenous power markets provide diversification and optionality.

· Highly experienced and credentialed Investment Adviser:

o  Managing a 19 GW clean energy portfolio across Europe;

o  10 GW clean energy development and construction pipeline; and

o  Ambitious CO2 reduction targets.

Positioning

· European focused (excluding UK), diversified by geography and technology.

· High contracted revenues (PPAs, Regulated Tariffs) to ensure earnings visibility.

· Fully invested.

· Low gearing levels (25.6%3).

· Strong dividend cover supported by a diversified operating portfolio.

Returns

· Long-term return target of 6.0 to 7.5% (net of fees and expenses).

· Ordinary Share price discount to NAV of 16.6%.

· Total NAV return of 12.9%1,3 in 2022.

· Annualised total NAV return of 7.1%1,2,3 since IPO.

· Two consecutive increases in annual dividend by 5.0% since 2021.

1. Includes dividends and assumes no reinvestment.

2. Assumes an opening NAV per share of 0.98.

3. This disclosure is considered to represent the Company's alternative performance measures (APMs). Definitions of these APMs and other performance measures used, together with how these measures have been calculated, can be found in the Annual Accounts on pages 112 to 113. All references to cents are in euros, unless stated otherwise. All references to cents are in euros, unless stated otherwise.

For further details contact:

Media contacts:

Edelman Smithfield

Ged Brumby | 020 3047 2527

Kanayo Agwunobi | 020 3047 2126

Sponsor, Broker and Placing Agent

Numis Securities 020 7260 1000

Tod Davis

David Benda

Vicki Paine

CHAIRMAN'S STATEMENT

I am pleased to present the 2022 Annual Report and Financial Statements for Aquila European Renewables Plc ("AER" or the "Company") on behalf of the Board of Directors.

Introduction

In my statement last year, I expressed the hope that our Company was now close to achieving the goals of its initial stage of development, namely to have an efficiently invested balance sheet, with a diversified and resilient portfolio offering strong cash flow cover for a progressive dividend. The transformation of both our portfolio and our technological balance is now evident, as we managed to achieve these objectives during the 2022 calendar year and our initial goal has therefore been achieved.

With the completion of our first three construction projects, Albeniz, The Rock and Jaén (part of the Greco portfolio), our total portfolio operating capacity increased by approximately 80.7% in 2022. The Company also successfully deployed and committed an incremental EUR 150.5 million of our available balance sheet resources, representing our largest year on record for capital deployment.

In combination, these two events have led to a step-change in the earnings capacity of our portfolio, with strong cash flow capabilities and dividend cover to support a progressive dividend policy.

Our announcement on 3 February 2023 highlighted the positive outlook for the Company and this is also reflected in our dividend cover guidance in the short to medium term. More details of this outlook were provided in that announcement and are also available later in this report. I would also refer our Shareholders to the investor presentation of 6 February 2023 on our website (https://www.aquilaeuropean-renewables.com/investorrelations/reports-publications#submenu), which sets out in detail the assumptions behind this analysis and models numerous sensitivities in relation to both power prices and production levels.

Dividend

The Board also announced on 3 February 2023 an increase in the target dividend by 5.0% to 5.51 cents per Ordinary Share for 2023, subject to the portfolio performing in line with expectations.

In 2023, the Company is expecting dividend cover of 1.8x1 and over the next five years is expected to generate an average cover of 1.6x1, reflecting both our fully invested balance sheet, and our robust and resilient portfolio.

Share Buyback Programme

As a result of last autumn's volatility in the financial markets, by the end of last year the Company's share price fell to trade at a large and sustained discount to NAV per Ordinary Share, in line with the peer group. In our statement of 3 February 2023, the Board of Directors firmly stated its belief that the current share price did not properly reflect the value of the underlying portfolio and consequently we announced a EUR 20.0 million share buyback programme. The share buyback programme is expected to be accretive to NAV per Ordinary Share and dividend cover.

Members of the AER Board of Directors and Investment Adviser employees also bought additional AER Ordinary Shares.

2022 Performance

During the reported period, revenue of the portfolio was 24.2% above budget due to higher than expected power prices, particularly in the Nordics. This was partially offset by the lower than expected production of the portfolio by 6.9%, largely as a result of the significant drought that impacted Portugal during the period, as well as lower than expected wind conditions in Greece. The strong revenue performance has been reflected in the Company's dividend cover, which was 1.4x during the reported period.

In November 2022, The Rock, a 400.0 MW onshore Norwegian wind farm in which AER owns 13.7% interest, became operational and has been benefiting from high electricity prices observed in the NO4 pricing region. Over the next 14 years, The Rock will continue to provide Alcoa's Aluminium smelter in Mosjøen with renewable energy. Alcoa's Aluminium smelter is a key contributor to employment and growth in Mosjøen. As at 25 April 2023 there have been no new developments in the Sami appraisal case which is scheduled to commence on 30 May 2023. In April 2023, the Company announced that the takeover under the Engineering, Procurement and Construction Management ("EPCM") agreement for The Rock has been achieved. Key provisions are in place to ensure the EPCM contractor, Eolus, remains responsible for the appraisal case.

We expect the parties will find good and workable solutions to safeguard migration of the reindeer and we look forward to updating Shareholders in due course.

During 2022, the Investment Adviser's Markets Management Group successfully concluded three new Power Purchase Agreements ("PPAs") for our new solar PV investments in Spain and were able to lock-in attractive prices for up to seven years, further enhancing the portfolio's income visibility and dividend cover over the medium term.

Revolving Credit Facility

The Company's remaining commitments (via its wholly owned subsidiary, Tesseract Holdings Limited) amount to approximately EUR 47.5 million, primarily in relation to the Guillena project which was completed in April 2023. AER has a very conservative gearing structure, with low levels of gearing (25.6% of Gross Asset Value2 ("GAV")), whilst the majority of its project level debt is fully amortising with fixed interest rates. Through Tesseract Holdings Limited, the Company also has significant funding flexibility via its EUR 100.0 million Revolving Credit Facility ("RCF"), which at 31 December 2022 was EUR 65.1 million undrawn3, with the option to be increased by a further EUR 50.0 million (to EUR 150.0 million), subject to bank consent. In April 2023, the Company extended the maturity date of the RCF by twelve months to April 2025.

ESG

The Company is committed to contributing to the UN Sustainable Development Goals in order to ensure access to affordable, reliable, sustainable and modern energy for all. In March 2022, Tesla, AER's operating wind farm in Norway (AER interest: 25.9%) was awarded Norweaʼs 2022 membership award; this prize is given to a member who has excelled in positive engagement with the community through social or environmental sustainability. We also announced our second GRESB assessment results for the year with a score of 88 out of 100, representing an improvement compared to our 2021 result and also higher than the GRESB average of 82 points.

However, the Company's GRESB rating reduced from 4 out of 5 to 3 out of 5 stars due to the relative net underperformance compared to its peer group. In response, the Investment Adviser has identified various improvements which are expected to be introduced in 2023 and we look forward to keeping Shareholders updated on our progress throughout the year.

Regulatory Change

Recently, the European Commission ("EC") announced a public consultation process to reform the European electricity market design in order to better protect consumers from excessive price volatility and support their access to secure energy from clean sources. Importantly, the EC has committed to securing European energy sovereignty and achieving climate neutrality, whilst recognising that renewables is the key driver to achieve these goals, further reinforcing the positive tailwinds in this sector. Additionally, the EC has announced its "Green Deal Industry Plan" which aims to provide a more supportive environment for the scaling up of the EU's manufacturing capacity for the net-zero technologies and products required to meet Europe's ambitious climate targets. This will be done on four pillars: a predictable and simplified regulatory environment, speeding up access to finance, enhancing skills, and open trade for resilient supply chains.

The Investment Adviser is actively contributing to the consultation process in combination with the broader industry. AER is well positioned given its pan‑European investment strategy, which reduces our reliance on any single power market, combined with a strong contracted revenue base in the form of Power Purchase Agreements or subsidies, increasing our earnings visibility.

Board View

Since undergoing rapid growth in 2022, AER now offers a fully invested balance sheet and a resilient and diversified portfolio which the Board believes deserves to be significantly more valuable than is implied by the recent share price discount to NAV. As illustrated in our short and medium-term dividend cover guidance, the portfolio is expected to generate significant surplus cash flow over time, supporting our progressive dividend policy.

It is the Board's view that there remains an attractive and sizeable opportunity to deploy incremental capital to help fund the build-out of the very substantial construction pipeline (over 10 GW in European geographies) developed by Aquila Capital, our Investment Adviser.

Outlook

The Board remains of the view that the market outlook for renewable energy generation in Europe is strong, reinforced by a combination of geopolitical and macro-economic factors, along with the ever-more urgent need to decarbonise Europe's energy supply. We expect this to ensure a continuing favourable regulatory backdrop at the European level.

It is the ambition of the Board to build a larger-scale portfolio to further enhance the investment proposition for our current and future Shareholders. Clearly our share price needs to regain a premium to our NAV to enable us to fund the investment opportunities provided by the Investment Adviser. We hope that the Company's continued strong operational performance, combined with clear and consistent communication of our strengths and opportunities, can set us back onto that path. The first stage on this journey involves the inaugural Shareholder continuation vote, which will be tabled at the Annual General Meeting in June 2023, and which the Board is recommending that Shareholders should support. I am pleased to confirm that Aquila, who hold approximately 2.1% of the issued share capital, will not be voting their shares in respect of the continuation vote, given the inherent conflict of interest were they to do so.

The Board and the Investment Adviser have been engaging with our major Shareholders in light of the disappointing performance of the share price, despite the 12.9% NAV return2 achieved this year. Your feedback as Shareholders is highly valued and we hope our actions since the announcement on 3 February 2023 demonstrate that we are listening and will act decisively in the interests of all Shareholders. The Board and its advisers will, over the coming year, continue to explore a number of different initiatives to help secure recognition in the share price of the real underlying value of the portfolio with a commitment to review broader options if that value fails to be reflected in the share price.

On behalf of the Board, we thank you for the support that you have shown and we hope, will continue to show, for a company that is making a significant contribution to our collective objective of achieving a net zero economy.

Ian Nolan

Chairman

25 April 2023

1. These are targets only and not forecasts. There can be no assurance that these targets can or will be met and it should not be seen as an indication of the Company's expected or actual results or returns. These forecasts do not include the buybacks.

2. This disclosure is considered to represent the Company's alternative performance measures ("APM"). Definitions of these APMs and other performance measures used, together with how these measures have been calculated, can be found in Annual Accounts on pages 112 to 113.

3. Includes EUR 10.9 million provided as guarantees to offtakers when securing PPAs and town council as a part of dismantling guarantee and grid connection guarantee.

INVESTMENT ADVISER'S REPORT

Investment Adviser Background

Aquila Capital is one of the leading investment and industrial development companies, managing over EUR 14.7 billion on behalf of institutional investors worldwide and managing one of the largest clean energy portfolios in Europe. Over the past two decades, Aquila Capital and its subsidiaries have committed to support the green energy transition and create a more sustainable world. As of 31 December 2022, the company manages wind energy, solar PV, hydropower energy and battery storage assets with a capacity of around 19 GW. Additionally, it has projects in sustainable real estate and green logistics, either completed or under development. Aquila Capital also invests in energy efficiency, carbon forestry and data centres.

The Investment Adviser's dedicated, expert investment teams comprise over 700 employees worldwide. Moreover, a strategic partnership since 2019 with Japan's Daiwa Energy & Infrastructure draws on their sector networks and experience to screen, develop, finance, manage and operate investments along the entire value chain. As this business model requires local management teams, Aquila Capital is represented across 17 investment offices.

The Investment Adviser currently has a significant pipeline of over 10.0 GW of development and construction assets in the EMEA region, primarily in solar PV located in Southern Europe. This represents an attractive source of growth opportunities for AER.

Aquila Capital's in-house Markets Management Group ("MMG"), a team of experts dedicated to sourcing and structuring Power Purchase Agreements, market analysis, trading, origination, FX, interest rates and other hedge products, has facilitated the Company's proactive approach to hedging and risk management.

The Company's Alternative Investment Fund Manager ("AIFM"), FundRock Management Company (Guernsey) Limited (previously known as International Fund Management Limited), has appointed Aquila Capital as its Investment Adviser in respect of the Company. Aquila Capital's key responsibilities are to originate, analyse and assess suitable renewable energy infrastructure investments and advise the AIFM accordingly.

Overall CO2eq emissions avoided1

2.2 million tonnes

Green energy produced1

7.4 TWh

Households supplied1

2.0 million

1. Contribution for the year 2022 based on current portfolio of the Aquila Group.

INVESTMENT PORTFOLIO

AS AT 31 DECEMBER 2022

1. Installed capacity at 100% ownership.

2. COD = Commercial Operations Date.

3. PPA = Power Purchase Agreement, FiT = Feed-in tariff, FiP = Feed-in premium, CfD = Contract for Difference.

4. Leverage level calculated as a percentage of debt plus fair value as at 31 December 2022.

5. Majority of remaining shares are held by entities managed and/or advised by Aquila Capital.

6. 21 individual assets. Approximately ten years remaining asset life when calculated using net full load years.

7. Represents voting interest. Economic interest is approximately 93.0%.

8. Calculation based on voting interest.

INVESTMENTS 2022

Over EUR 150 million capital deployed or committed during 2022.

Greco Solar PV

In March 2022, the Company acquired 100.0% interest in Greco, a solar PV project located in the region of Andalucía, southern Spain. Greco benefits from attractive solar irradiation yields and consists of two assets with a total capacity of 100.0 MWp, comprising Jaén (50 MWp) and Guillena (50 MWp). The portfolio has an assumed operating life of 30 years. Total consideration for Greco was EUR 90.0 million, excluding earn-out, with the majority due at completion. The remaining consideration for the portfolio is EUR 47.5 million, corresponding to the completion of Guillena and a 5% deferred payment for Jaén that was paid after the reporting period in March 2023 at the time the provisional acceptance certificate was also issued.

Jaén achieved completion and started producing electricity in November 2022, having secured a pay-as-produced PPA in October with Statkraft Markets GmbH at an attractive price, hedging 70% of P50 production. Guillena secured a PPA hedging 60% of P50 production with Statkraft Markets GmbH, with completion of the project expected by the second quarter of 2023.

The project is expected to provide 184 GWh of renewable electricity annually over its lifetime, equivalent to approximately 93 kt of CO2 avoidance in its lifetime.

Tiza Solar PV

In June 2022, the Company acquired 100.0% interest in Tiza, a solar PV asset with 30 MWp capacity, located in the region of Almeria, southern Spain. The project benefits from a recently signed, 6.5-year fixed price PPA with Axpo Iberia, a subsidiary of Axpo Solutions, which covers 70% of P50 production.

Tiza is expected to provide 54 GWh of renewable electricity annually over its lifetime, representing approximately 62 kt of CO2 equivalent avoidance over its lifetime. During construction a series of environmental benefits were implemented, such as the restoration and relocation of olive trees, the building of over ten rabbit refuges built and the introduction of a natural barrier of plants around the perimeter to protect the local fauna.

Albeniz Solar PV

The project is part of a cluster of four separate solar PV parks in various stages of development and construction, owned by funds managed by Aquila Capital. The portfolio is located in the south of Spain, benefiting from high irradiation and yields and advanced solar PV technology.

The project was completed and became operational in June 2022, and has been producing revenue since then, with final commissioning taking place in August 2022. The asset is expected to have an operating life of 30 years after commissioning. Albeniz benefits from PPAs covering 80% of P50 production with Statkraft over a term of approximately five years.

The Rock Wind energy

The Rock benefits from a fixed price PPA for 14 years covering approximately 70% of production. The asset has been operational since November 2022 following takeover under the Turbine Supply Agreement ("TSA"). In April 2023, the Company announced that the takeover under the EPCM agreement for The Rock has also been achieved. Following takeover under the EPCM, all parties agreed that Eolus will remain responsible for the upcoming appraisal case with the Sami district, which is due to commence on 30 May 2023, and the result of the case is expected on or before autumn 2023.

The project company, the developer and the turbine supplier are currently involved in an arbitration process to settle outstanding claims related to construction delays and extensions of time under the TSA. The project company does not expect the arbitration case to negatively affect its financial position.

PORTFOLIO CONSTRUCTION

AS AT 31 DECEMBER 2022

Capital Deployment Profile since IPO1

During 2022 the Company has successfully deployed or committed EUR 150.5 million on new acquisitions and existing assets, increasing its total capital deployment since IPO to EUR 434.8 million. As at 31 December 2022, the Company's only remaining commitments (via its wholly owned subsidiary, Tesseract Holdings Limited) amounted to approximately EUR 47.5 million relating to the deferred payment for Guillena (the second asset of the Greco portfolio), and the 5% remaining deferred consideration to Jaén, which was paid during the first quarter of 2023. Remaining capital commitments are expected to be funded from AER's existing surplus liquidity comprising cash on hand and the RCF (please refer to the gearing section in the Annual Report on page 26 for further details).

The Company, together with its Investment Adviser, has identified an attractive pipeline of investment opportunities which are consistent with the Company's investment objectives. The pipeline offers the potential for further diversification in terms of geography and technology, whilst also offering potential to invest in construction projects which could enable further value creation opportunities over time. These assets are spread across northern, eastern and southern Europe, over wind energy, solar PV, hydropower and energy storage technologies.

1. Data show invested capital as at 31 December of each year.

Contracted Revenue position

1. Includes replacement PPA assumed to be secured for Olhava once the FiT runs out from 2025 for a tenor of three years.

2. Asset revenues are discounted by the weighted average portfolio discount rate as of 31 December 2022 and are taken from 1 January 2023 onwards.

3. Contracted revenue as at 31 December 2022, discounted by the weighted average portfolio discount rate.

4. Aggregate contracted revenue over entire asset life (not discounted).

5. Weighted based on investment value and on production hedged. Olhava future PPAs has been excluded as it has not yet been secured.

The Company is diversified across six countries and six different price zones in Norway (NO2 and NO4 regions), Iberia (Spain and Portugal), Finland, Denmark and Greece, allowing it to benefit from different subsidy schemes as well as PPAs.

Contracted revenues expected over the next five years, on a present value basis, have decreased to 51.9% (December 2021: 68.5%) as a result of the increases in electricity price forecasts (boosting merchant exposure), combined with the expiry of existing tariffs and PPAs, including those for Olhava, Benfica III and Ourique over the next five years.

However, the Company has continued to focus on maintaining a high degree of contracted revenues to mitigate its exposure to seasonal fluctuations and short-term events which have the potential to increase volatility in electricity prices. It has retained flexibility to capitalise on periods of higher power prices, whilst simultaneously enabling the Company to avoid fixing prices during periods of significant weakness.

The Company has continued to implement fixed power prices evenly throughout the year. During the year, the Investment Adviser and its in-house MMG have secured attractive PPAs for the Company (see Spanish PPAs section in the Annual Report on page 25 for further detail):

· Jaén: 70% of P50 production, pay‑as‑produced with Statkraft Markets, five years;

· Guillena: 60% of P50 production, pay‑as-produced with Statkraft Markets, seven years;

· Tiza: 70% of P50 production, fixed solar profile PPA with Axpo Iberia, 6.5 years.

The Company was pleased to secure these PPAs at such attractive price levels, which were almost double what had been observed for similar PPA terms over the last few years.

The portfolio has good visibility of future cash flows with a weighted average contract life of approximately 7.4 years for revenues contracted (31 December 2021: 8.8 years). Furthermore, the Company contracts its revenues with investment grade counterparties.

FINANCIAL PERFORMANCE

1. Data includes Tiza from March 2022, Albeniz from June 2022 and The Rock and Jaén from November 2022. Desfina based on voting share (89.0%).

2. Includes merchant revenue, contracted revenue & other revenue (e.g. Guarantees of Origin, Electricity Certificates).

3. Revenues reflect the whole year 2022 for all assets. Desfina based on economic share (93.0%).

4. Average technical availability based on weighted installed capacity (AER share).

Electricity production during 2022 increased by 27.6% to 666.4 GWh (2021: 522.3 GWh), aided by the acquisition of Tiza (30.0 MWp), the operating solar PV asset, and the completion of three of the four assets under construction: The Rock (400.0 MW), Albeniz (50.0 MWp) and Jaén (50.0 MWp). These four assets alone have added 137.8 GWh1 of production to the portfolio and represent approximately 20.7% of 2022 total production. As a result, the portfolio is well positioned given these four assets will contribute significantly to the portfolio in 2023 and beyond.

For 2022, revenue was 24.2% over budget because of high electricity prices that started to rise during the first half of 2021 across Europe. The upward trend in power prices was intensified by the supply disruptions caused by the conflict in Ukraine, which drove commodity prices up, most notably for gas and coal. Prices in the Nordics were also impacted due to tighter hydrological balance and increased interconnection links to Germany and the United Kingdom.

Production performance was 6.9% below budget, while technical availability remained strong in all asset classes, at 97.5%. The underperformance in production was due to the severe drought that affected the first three quarters of the year in Portugal; this led to Sagres production to be 32.1% below budget. Also, lower than expected wind levels in Greece led to Desfina production to be 12.3% below budget. Furthermore, irradiation in Iberia was slightly below budget and this led to production being 2.9% below budget at the Iberian solar PV assets, whilst slower wind levels in the Nordics led to production being 4.0% below budget. Underperformance in December was driven by lower than expected wind conditions in Greece and Norway. Production forecasts which underpin the Company's net asset value are based on P50 production assumptions sourced from leading technical advisers.

1. Accumulated production since economic transfer date of each asset, except for The Rock accumulated since completion occurred.

Dividend Cover

Reconciliation to Company Cash Flow Statement

The table above calculates dividend cover based on the underlying earnings of its investment portfolio, sourced from the profit & loss ("P&L") statements from each of the Company's investments, held by HoldCo, with the exception of debt amortisation which is sourced from the cash flow statement. Each of the investments are held through special purpose vehicles ("SPV")8. The majority of SPV financial statements are audited.

Total underlying asset earnings are calculated by aggregating the P&L of the Company's SPVs (adjusted for AER's share), less any repayments of project level debt at the SPV level (adjusted for AER's share), less fund level costs at the Company and HoldCo level.

1. This disclosure is considered to represent the Company's alternative performance measures("APMs"). Definitions of these APMs and other performance measures used, together with how these measures have been calculated, can be found in the Annual Report on page 112. Numbers and percentages may vary due to rounding differences.

2. Non-euro currencies converted to EUR as at 31 December for each year. Desfina contribution reflects AERs economic interest (93.0% in 2022, 100.0% in 2021) rather than voting interest (89.0%).

3. Tesseract Holdings Limited.

4. nmf = not meaningful.

5. Expenses reflect recurring ordinary costs and expenses at AER and THL level. Legal fees, investment expenses and Investment Adviser fee (which is financed by the issuance of new ordinary shares, where applicable) is not included. The figure for 2021 includes income accrued by AER in relation to shareholder loans provided to construction assets.

6. Investment advisory fee funded by share issuance treated as a cash flow expense for Company net cash flow from operating activities.

7. Deduction of legal costs and currency losses, addition of financing costs.

8. References to SPVs in this section also includes holding companies, where applicable.

The Company reported robust dividend cover of 1.4x during the period, compared to 1.1x reported in 2021, driven by a 48.8% increase in total underlying asset earnings. The improvement in total underlying asset earnings was primarily driven by higher power prices across the portfolio whilst production also increased as a result of the successful completion of construction projects (Albeniz, The Rock) and the acquisition of an operating asset (Tiza). Dividends paid increased by 24.4% as a result of higher shares in issue due to capital raising in late 2021, combined with a 5.0% increase in the dividend target for 2022.

Cash Dividend Cover

The table above provides an alternative dividend cover calculation based on actual cash distributions received by the Company and HoldCo from the investment portfolio or SPVs. Cash distributions are paid in the form of dividends or Shareholder loan payments (interest or principal).

Adjusted net cash flow from operating activities is calculated by consolidating net cash flow from operating activities at the Company and HoldCo, subject to certain adjustments (as shown in the table above), the most notable being distributions from the Company's assets in the form of Shareholder loan repayments.

Cash dividend cover increased significantly from 0.3x to 1.2x in 2022 as a result of the increase in net cash flow from operating activities, which was primarily driven by the completion of construction assets (Albeniz, The Rock), the acquisition of an operating asset (Tiza) and the timing of distributions paid by the respective assets.

1. Distributions from operating activities in the form of shareholder loan repayments from Olhava, Benfica III, Tiza and Desfina (2021: Benfica III).

2. Accrued shareholder loan interest purchased at the Tiza acquisition (2021: Ourique).

3. Other: refund of refinancing fee (The Rock), payment of legacy receivables (Ourique).

CASE STUDY:

SAGRES OPTIMISATION

Capacity

107.6MW

Location

Sagres, Portugal

Sagres is a 107.6 MW hydropower asset in which AER acquired an 18.0% interest in July 2019. During 2022, the Investment Adviser's Asset Management team identified an opportunity to refinance the existing bank debt on accretive terms. After running a competitive tender process, the refinancing completed in October 2022 resulted in a marginal decrease in the debt balance to EUR 40.0 million (100% interest basis). The refinancing resulted in lower gearing levels, lower margins and a higher tenor, whilst also being accretive to economic returns.

Additionally, during the due diligence process undertaken for the refinancing, an independent technical adviser identified a 1.1% increase in long-term average annual production for the asset (resulting in an increase in maximum net capacity from 102.7 MW to 107.6 MW). This can be attributed to a series of improvements to the hydropower plants performed by the Aquila Capital Asset Management team between 2019 and 2022, such as upgrades to the control systems, major overhauls and refurbishments to the units, regular civil works and replacement of hydromechanical equipment. This increase in production has been included in the fourth quarter valuation of the asset, which increased by 1.8%. However, this was offset by a rise in the discount rate during the same period.

CASE STUDY:

SPANISH PPAs

Capacity

130MWp

Location

Spain

The Investment Adviser's MMG was active in negotiating PPA contracts in Spain, where the majority of the Company's investment activities took place in 2022. During the second half of 2022, the Spanish government introduced measures to cap the price of electricity on merchant revenues and introduced a clawback on PPA revenues for prices above EUR 67.0/MWh. The MMG team had to adapt its PPA strategy in response to regulatory changes and accordingly sought to maximise the PPA tenor up to the pricing cap. As a result, the MMG team secured attractive PPAs for three solar PV assets located in Spain, with tenors ranging from five to seven years, providing AER with a greater visibility on future revenues.

As illustrated in the graph below, two of the three PPAs were secured at peak pricing levels (Tiza and Guillena), whilst with the remaining PPA (Jaén) a more conservative approach was taken in order to gain greater visibility of the expected start of operations and thus minimise any delivery risks under the PPA. Furthermore, prices entered for these three PPAs were almost double what had been observed historically for comparable terms.

Gearing1

The portfolio remains conservatively levered with the Company operating at a gearing ratio of 25.6% of GAV (2021: 25.7%)6. The Company's prospectus allows it to operate with a maximum gearing level of 50.0% of GAV7. The Company's asset level debt is largely fully amortising with fixed interest rates. Approximately EUR 13.1 million of asset level debt (AER share) was repaid in 2022, offset by increased utilisation of the Company's RCF.

During the period the Company increased the RCF limit from EUR 40.0 million to EUR 100.0 million (via its wholly owned subsidiary, Tesseract Holdings Limited, which is the borrowing entity), with the maturity date extended by twelve months until April 2024. After the reporting period, the Company subsequently exercised a further twelve month extension option under the RCF, extending the maturity from April 2024 to April 2025. As at 31 December 2022, the RCF was drawn to EUR 34.9 million (EUR 65.1 million undrawn), including bank guarantees. It is expected that the RCF will be used to fund the Company's remaining commitments for Greco (estimated at EUR 47.5 million).

Debt Summary as at 31 December 2022

1. Foreign currency values converted to EUR as at 31 December 2022. Data represents AER's share of debt. AER share of Desfina debt based on voting interest.

2. Debt corresponds to senior debt secured at project level and RCF at HoldCo level.

3. This disclosure is considered to represent the Company's alternative performance measures ("APMs"). Definitions of these APMs and other performance easures used, together with how these measures have been calculated, can be found in the Annual Report on page 112. All references to cents are in euros, unless stated otherwise.

4. Weighted average all in interest rate for EUR denominated debt (excl. RCF). DKK denominated debt has an average weighted interest rate of 2.8% (2021: 2.7%).

5. Margin over EURIBOR.

6. Excludes bank guarantees of EUR 10.9 million.

7. The Company may take on long-term structural debt provided that, at the time of entering into such debt, it does not exceed 50% of the prevailing Gross Asset Value. Any short-term debt, such as a Revolving Credit Facility, will be subject to a separate gearing limit so as not to exceed 25% of the Gross Asset Value at the time of entering into such debt.

Valuation

Fair Value

The table below shows the fair values of the investments on HoldCo level as well as the reconciliation to the respective item on Company level.

1. Includes capital contributions related to construction assets (Albeniz: EUR 6.3 million), new investments (Greco, Tiza combined: (EUR 94.3 million), capital injection (Sagres: EUR 2.2 million) and other (EUR 0.3 million).

· The Company's NAV as at 31 December 2022 was EUR 451.7 million or 110.6 cents per Ordinary Share. Compared to 31 December 2021 (EUR 417.4 million or 102.6 cents per Ordinary Share) this represents a NAV total return of 12.9% per Ordinary Share (including dividends).

· Dividends of EUR 21.2 million (5.2 cents per Ordinary Share) were paid during the year with respect to the fourth quarter of 2021 to the third quarter of 2022.

· The main drivers of NAV movements throughout the reporting period include:

· Forecast power prices: increase in short-term electricity price forecasts across the majority of the portfolio resulted in an increase of 13.2 cents per Ordinary Share; the methodology continues to assume an average of two power price curves from independent market analysts over the life of each asset. No forward or futures curves are used;

· Inflation: increase in short-term CPI forecasts1 boosted the NAV per Ordinary Share by 6.9 cents, whilst medium and long‑term assumptions remain unchanged;

· Discount rate: the Company's discount rate has increased by 70 bps to 7.2% (31 December 2021: 6.5%), following the increase in risk-free rates across the portfolio, which has the effect of decreasing the valuation of each asset; and

· Norwegian onshore wind taxes for Tesla and The Rock (-1.7 cents).2

Valuation Methodology

The Company owns 100.0% of its subsidiary Tesseract Holdings Limited ("HoldCo" or "THL"). The Company meets the definition of an investment entity as described by IFRS 10. As such, the Company's investment in the HoldCo is valued at fair value.

The Company has acquired underlying investments in SPVs through its investment in the HoldCo. The Investment Adviser has carried out fair market valuations of the SPV investments as at 31 December 2022 and the Directors have satisfied themselves as to the methodology, the discount rates and key assumptions applied, and the valuations. All SPV investments are at fair value through profit or loss and are valued using the IFRS 13 framework for fair value measurement. The economic assumptions shown on page 30 were used in the valuation of the SPVs.

1. Short-term inflation forecast sourced from Bloomberg.

2. Includes production tax, high price contribution tax, and natural resources tax.

Valuation Assumptions

Portfolio Valuation - Key Assumptions

There were no significant changes in the key valuation assumptions compared to the previous reporting period.

1. Remaining asset life based on net full load years. Does not consider any potential asset life extensions. 

2. Asset life assumption from date of commissioning.

MARKET COMMENTARY AND OUTLOOK

Asset Life Extensions

The Company's assets continued to be valued based on asset life assumptions of 25 to 30 years for wind energy and 30 years for solar PV, which is generally lower compared to the peer group and broader market, where up to +10 years in operating life have been observed.

The Company's Investment Adviser is undertaking due diligence for each of the Company's assets to validate a potential asset life extension on a case-by-case basis across the portfolio. To demonstrate how an extension of asset life could impact the Company's NAV, if the life of wind energy assets were to be extended to 35 years, the Company's NAV as of 31 December 2022 would increase by 8.6% or 10 cents per Ordinary Share1. Similarly, if the life of the Company's solar PV assets were to increase from 30 to 40 years (as seen in the market) this would increase the NAV by 3.2% or 3 cents per Ordinary Share2.

1. Data reflects latest pricing forecast as at 31 December 2022. All power prices are in nominal terms as at 31 December 2022 and reflect the captured price. The methodology has changed compared to what was reported previously. Current methodology reflects the actual weighted captured price based on merchant revenue and merchant production. Previous methodology applied weighting based on last reported asset valuation.

2. Excludes any potential changes to opex/capex assumptions, which would be subject to further due diligence which would offset against some of the potential increase in NAV.

Market Prices

In 2022 power markets witnessed the continuation of the uprise in power prices underway since the second half of 2021, with power prices across Europe being traded at a premium compared to the previous year. This trend of power prices was intensified by the supply disruptions caused by the conflict in Ukraine, which drove commodity prices up, most notably for gas and coal. However, since mid-2022 the governments of the jurisdictions in which the Company operate, together with the European Commission, introduced measures in order to reduce these impacts. Nevertheless, near-term power price forecasts continue to abide the demand and supply law, and are further enhanced by weather conditions. Thus, near-term forecasts provided by independent markets analysts continue to be above historical levels.

Nordics

In 2022, power prices in the Nordics presented an increasing convergence from prices in continental Europe and were thus subjected to increasing fuel prices. This was due to tighter hydrological balance, with hydro reservoirs below the average levels for 2021, and increased interconnection links with Germany and the UK. The Nordic electricity system spot price averaged EUR 135.6 per MW in 2022 (2021: EUR 62.3 per MW).

Additionally, due to the different patterns for southern and northern price areas in Norway, the impact of higher commodity prices differs widely across these zones. The southern zones (NO1, NO2 and NO5) prices were significantly impacted by continental Europe via the existing interconnection. In contrast, northern regions (NO3 and NO4) were less affected by fluctuations in power prices due to lower demand and abundant wind resources; however, a higher interconnection to the southern zones has resulted in an increase in prices.

Iberia

Whilst spot prices remained high across all European geographies, average spot prices in Iberia were at a discount when compared to other geographies. This was due to the temporary gas price "cap" mechanism introduced by the Spanish and Portuguese governments in mid‑June 2022, which held back the impact of escalating fuel prices on power prices. In Iberia, spot prices were, on average, traded at EUR 167.9 per MW in 2022 (2021: EUR 111.9 per MW).

As described in the case study in the Annual Report on page 25, the Investment Adviser with its MMG team secured PPAs for the new operating assets. This, together with the high degree of contracted revenue in the remaining Iberian assets, has limited the impact of the new regulations on the asset valuations.

Greece

Power prices in Greece have been impacted by elevated fuel prices more than other European countries due to the higher proportion of hours in which gas-fired generation sets the marginal price in the wholesale market. During 2022, power prices averaged EUR 279.7 per MW (2021: EUR 116.4 MWh). The Greek government has introduced an EUR 85.0 MW threshold applied for revenue in the Day-Ahead Market. However, since 100% of the revenues from Desfina are hedged, these regulations had no impact on the asset's valuation.

EU Market Design1

As a result of soaring energy prices and with the aim to increase the resilience of the EU's energy market, on 16 March 2023 the EU Commission unveiled its draft proposal for a reform of the EU electricity market. The proposal aims to boost the deployment of renewables by 2030, improve consumer protection and enhance industrial competitiveness. In doing so, it aims to reduce the link between electricity bills and volatile short-term fossil fuel prices, whilst better protecting consumers from future price spikes and potential market manipulation. The reform integrates measures to various directives to promote the use of more stable, long-term Power Purchase Agreements ("PPAs"), in order to make the energy market more resilient following the expiration of emergency tools. It aims to increase the market's flexibility, competitiveness and transparency by ensuring security of supply, and fully utilising alternatives to gas, such as storage and demand response from individual Member States.

The proposal seeks to enhance the predictability and stability of energy costs to boost industrial competitiveness. In this context, to provide power producers with revenue stability, all public support for new investments in infra-marginal renewable electricity generation is set to be in the form of two-way Contracts for Difference (CfDs). Finally, the proposal aims to boost liquidity for forward contracts that lock-in future prices and facilitate the integration of renewables into the system by means of transparency obligations relating to grid congestion and trading deadlines closer to real time.

The Green Deal Industrial Plan: Putting Europe's Net-zero Industry in the Lead

In February 2023, the European Commission presented its Green Deal Industrial Plan (the "Plan") to enhance the competitiveness of Europe's net-zero industry and support a faster transition to climate neutrality. The Plan aims to provide a more supportive environment for the scaling up of the EU's net-zero technologies and products that are required to meet Europe's ambitious climate targets.

The Plan aims to build on former initiatives implemented in the EU, whilst being based on four pillars: (1) predictable and simplified regulatory environment; (2) speeding up access to finance; (3) enhancing skills; and (4) open trade for resilient supply chains.

Pillar 1 - Predictable and Simplified Regulatory Environment

The Commission is to provide a regulatory framework that allows for quick deployment, ensuring simplified and fast-track permitting, while promoting European strategic projects and developing standards to support the scale-up of technologies across the EU Single Market.

Pillar 2 - Faster Access to Funding

This pillar aims to speed up investment and financing for clean tech assets in the region. By guaranteeing a level playing field within the Single Market, private financing as well as Member States are able to invest and/or grant aid to help fast-track the green transition.

Pillar 3 - Enhancing Skills

Between 35% and 40% of all jobs could be affected by the green transition, and so developing the skills needed for well-paid quality jobs will be a priority for the Commission. Therefore, it will propose to establish Net-Zero Industry Academies to roll out up-skilling and re‑skilling programmes in strategic industries.

Pillar 4 - Open Trade for Resilient Supply Chains

There will be an expected increase in global co-operation under the principles of fair competition and open trade. To that end, the Commission will develop the EU's network of Free Trade Agreements and other forms of co-operation with partners to support the green transition. It will also explore the creation of a Critical Raw Materials Club, to bring together raw material "consumers" and resource‑rich countries. This will help to ensure the global security of supply through a competitive and diversified industrial base, and of Clean Tech/Net-Zero Industrial Partnerships. It will also help to protect the Single Market by ensuring foreign subsidies do not distort competition.

Outlook

The outlook for the European renewable energy sector continues to be encouraging. Energy security, affordability and decarbonisation have become vital considerations for governments and businesses in light of the continuing conflict in Ukraine, leading to increased competition as well as public and private investment in renewable infrastructure projects. The dependence of many countries on external suppliers of key commodities has become an irrefutable concern given the drastic reduction in Russian gas supply into Europe. The resulting supply chain challenges have helped set the stage for renewable infrastructure to play a dominant role in delivering greater energy diversification and independence in the coming future.

Energy prices are forecast to decrease over the medium and long term, having fallen from the peaks of 2022, with governments likely to continue to utilise fiscal policy and regulation as a way to reduce costs to consumers, who are already feeling the pressure of higher inflation and interest rates. Nonetheless, the Company's business model and investment portfolio have demonstrated their resilience in enduring these changes, continuing to deliver strong financial returns whilst maintaining a prudent capital structure.

Adding further impetus to the renewable energy sector is the EU's developing response to the US Inflation Reduction Act, focused on ensuring Europe's continued industrial competitiveness throughout the energy transition. Support by the EU through the earmarking of substantial funding for renewable projects, including the REPowerEU plan, is being accelerated with measures to give member states greater freedom to support industry and the fast-tracking of permitting and access to funding for relevant projects. This increased certainty and visibility over the regulatory landscape is an encouraging tailwind for the Company and the sector. Moreover, we envisage a continued acceleration of national deployment plans for renewables in order to meet existing net zero targets, including the target of having renewable energy sources account for at least 45% of the EU's energy mix by 2030. Europe will thus need to almost double its existing share of renewable energy by the end of the decade. This trend is further compounded by decarbonisation becoming an increasingly urgent priority for governments and businesses considering the repercussions of climate change, especially the likelihood of extreme weather events increasing in frequency.

Finally, grid access has become an increasingly critical concern across several jurisdictions. Projects are coming to market with grid connection dates for the end of the decade and beyond, in large part due to aging networks and the need for capacity upgrades, adding further urgency to public and private investment in the near future. Other technologies are also gathering momentum, such as the rising trend of (co-located) battery energy storage systems ("BESS"), but also floating offshore wind and green hydrogen power plants. The Investment Adviser is well positioned to participate in this stage of the green energy transition given its dedicated BESS team already manages 1.74 GW of installed capacity, across a pipeline of 25 projects throughout Europe, and the Company can invest up to 20% of GAV into BESS assets. Thus, we envisage greater investment in the flexibility of grids to integrate the rising demand for renewable generation while improving reliability of supply. Overall, tailwinds behind the sector continue to be strong, with the Company set to benefit from multiple opportunities whilst delivering on a progressive dividend.

Aquila Capital Investmentgesellschaft mbH

25 April 2023

ENVIRONMENTAL, SOCIAL AND GOVERNANCE

1. Environmental

In 2015, the UN launched 17 Sustainable Development Goals, with the purpose of putting an end to poverty, improving health and education, reducing inequality, spurring economic growth and tackling climate change around the world. These goals are set to stimulate action for people, the planet and prosperity, and aim to transform the world by 2030.

UN Sustainable Development Goals

In 2018, the EU agreed to a climate and energy framework and set ambitious goals for 2030. The aim is to have a clean, affordable and reliable energy system in Europe, targeting:

40.0%

At least a 40.0% decline below 1990 levels in greenhouse gas emissions

32.0%

A 32.0% renewables share of the energy system

32.5%

A 32.5% improvement in energy efficiency

"The war in Ukraine following the global pandemic has created an exceptional environment for renewable technologies in Europe. The announcement by the European Commission of the European Green Deal Industrial Plan to enhance the competitiveness of Europe´s Net Zero industry and support a faster transition to climate neutrality provides welcome tailwinds and the projected growth of renewables has intensified.

According to the International Energy Association ("IEA")'s 2022 market report, renewable capacity expansion in the next five years will be much faster than what was expected in 2021. From 2022-2027, the IEA projects renewables to grow by almost 2,400 GW, equal to the entire installed power capacity of China today. This is almost 30% higher than what was forecast in the IEA's 2021 report, making it their largest upward revision ever.

In parallel the EU's efforts to regulate the industry using transparency frameworks such as the Sustainable Finance Disclosure Regulation ("SFDR") or the EU Taxonomy aims to further facilitate investment into sustainable activities, including the energy transition. While the alignment with these regulatory standards is not straight-forward, Aquila Capital uses clearly defined mechanisms to measure our climate mitigation impacts and ensure that the construction and operation of renewable energy projects do not come at the expense of the environment and society. Hence, we are confident in our position to benefit from and further support these initiatives."

Angela Wiebeck

Chief Sustainability Officer at Aquila Capital

UN Sustainable Development Goals

The Company aims to invest in a diversified portfolio of renewable energy infrastructure investments, such as hydropower plants, wind and solar parks, across continental Europe and Ireland. With the objective of providing investors with a diversified portfolio of renewable assets, AER is able to deliver on its investment objectives as well as contribute towards the green economy. AER contributes to the following three UN Sustainable Development Goals:

AER's Contribution to the UN Sustainable Development Goals

GRESB

GRESB is a global ESG benchmark for real estate and infrastructure which synthesises Environmental, Social, and Governance ("ESG") data. The Company undertook its second GRESB assessment, with AER achieving an overall score of 88 out of 100 (2020: 84 out of 100), higher than the GRESB average of 82 points amongst its peer group. In addition, AER achieved a 3 out of 5-star GRESB rating (2020: 4 out of 5).

At portfolio level, the score shows an improvement in performance in the category of Leadership, Reporting and Risk Management whilst the score in the two remaining categories of Stakeholder Engagement and Policies was maintained. Meanwhile, at asset level, the rating recognises AER's policy frameworks and strong performance in resource and emission management, including water consumption, greenhouse gas emissions and energy use.

AER and its Investment Adviser will continue to improve their systems and policy frameworks, leading to potentially even higher GRESB ratings and ESG performance in the coming years.

1. Forecast households supplied and avoided CO2 emissions for the year 2023, based on the portfolio as of 31 December 2022; Guillena forecast is assumed from July 2023.

2. Social

Desfina Reforestation

At Desfina, the Greek 40 MW wind farm in which the Company acquired 89.0% interest in December 2020, the project company has built a wooden house for the benefit of the Forestry Authority. The house was built at the entrance of the Parnassos National Park; this will support the reforestation process of the landscape in the area, the planting of 2,000 plants and the maintenance, fertilisation and watering of them for the following three years. 

Sustainable Construction in Spain

The construction of both Tiza and Albeniz benefited from the integration of a number of sustainability initiatives, including the creation of a barrier of plants around the perimeter of the solar PV (approximately 711 metres), an increase in localised plantations with the addition of 152 units of retama sphaerocarpa and translocation of over 150 olive trees between the two projects, whilst pardoning over 50 additional trees. Additionally, over 200 sheep have been introduced into the solar PVs in order to control the vegetation to avoid possible shading of the solar panels and to avoid possible fires. This is controlled and supervised by the O&M provider, thus resulting in a smooth operation that helps the local shepherds while providing a sustainable vegetation control plan for the solar parks.

Tesla Engagement with Local Community

In March 2022, Midtfjellet Wind Farm (Tesla) was awarded the Norwea's membership award. This prize is given to a member who has excelled in positive engagement with the community, for example through social or environmental sustainability.

Norwea writes1: "The prize goes to Midtfjellet Wind Farm for its many years of work for outdoor life and activities in and around the facility. At Midtfjellet, past and future meet in a spectacular way. The landscape is wild and beautiful, at the same time as it houses the production of clean and renewable energy. The wind farm is a popular destination: cycling, skiing, fishing and family trips. The surroundings with the fantastic turbines make the whole experience unique and special. Since the start in 2011, about 17,000 visitors have been on a guided tour of the area. There have been people from nursing homes, kindergartens, schools, universities and other institutions, as well as companies and politicians. Congratulations to Midtfjellet Vindpark, all employees in the company and partners who have contributed to the success."

Workshop with High School Students in Benfica III

In May 2022, the Investment Adviser's Asset Management team, Aquila Clean Energy, hosted a training session on solar photovoltaic energy for a group of secondary school students from the Agrupamento de Escolas de Oliveira do Hospital school. The event helped to enhance awareness of both photovoltaic energy and the operation of the Tapadas and Azambuja PV plants (part of the Benfica III portfolio).

The students visited a solar power plant with an installed capacity of more than 15 MW to understand the main characteristics of a PV plant, the different phases of a renewable energy project including the development and operation of a solar plant, and the importance of sustainability for the environment.

Further training was given at the Tapadas and Azambuja PV plants, which are located in Minde, Alcanena Municipality, with the aim of raising awareness of job opportunities related to solar PV energy and its technology. In Portugal the unemployment rate in youths between 16-24 years is 23.5%. These type of initiatives aim to reduce that percentage.

1. Translation of text prepared by Norwea in Norwegian.

3. Governance

AER Board:

3 men

1 woman

Investment Adviser:

58% men

42% women

56 different nationalities

The independent Board of Directors has the responsibility for AERʼs sustainability policy and its implementation, with the daily operations being delegated to its independent AIFM, FundRock Management Company (Guernsey) Limited ("FundRock"). FundRock monitors environmental, social and governance risks, which are fully integrated across every single stage of its investment process. Aquila Capital publishes its own ESG report, describing the Investment Adviser's approach to sustainability within the investment process. Aquila Capital regards integrity and diversity as key pillars in their governance and they have been vital for the growth and success of the Company. The Investment Adviser is fully regulated and supervised by the Federal Financial Supervisory Authority in Germany.

Angela Wiebeck has joined the Investment Adviser as Chief Sustainability Officer on 3 October 2022 from her previous role at UBS, with responsibility for designing, expanding, and optimising capabilities in topics such as Net Zero and broader ESG efforts.

Diversity

The Board of Directors is appointed based on expertise and merit, being mindful of the benefits generated by diversity. The Board is comprised of members with different skills and experiences, whilst endeavouring to comply with the Listing Rules on diversity. The current Board is comprised of three men and one woman, all non-executive Directors who have a significant number of years of experience in their relevant fields. The search for a fifth non-executive member of the Board is underway to further enhance the Board's independence, diversity and breadth of experience. Additionally, the Investment Adviser is also mindful of the benefits provided by diversification, both in terms of culture (its employees comprise 56 different nationalities), and in terms of gender (its gender ratio is 58% men and 42% women). Additionally, 27% of people in leadership positions are female, of which two, Susanne Wermter (CEO Aquila Clean Energy) and Christine Brockwell (CPO Aquila Clean Energy), are ranked in the Top 100 Women's Green Fund Power List, honouring women working in wind power worldwide.

Supply Chain Management

The Investment Adviser's membership in associations such as the Global Infrastructure Investor Association (GIIA) and the Global Listed Infrastructure Organization (GLIO) accord it the opportunity to lobby for human and labour rights along the value chain of several manufacturers to prevent trade disruptions. In addition, membership in the associations is also beneficial in highlighting the economic interests of the Investment Adviser to the relevant authorities.

The Investment Adviser takes a multi-faceted approach to the mitigation of governance risks, limiting exposure to risks within the supply chain. All EPC and Operations and Maintenance (O&M) contracts are negotiated with contractors operating in a country adhering to the European Union's labour minimum standards. Any sourcing of raw materials, components, equipment or services from suppliers domiciled in countries linked to the use of forced labour is made with guarantees that such components are not associated with human rights violations. Moreover, an in-house on-boarding and screening process for suppliers is in place to prevent and mitigate any risk of human rights violations, including a pre-screening of counterparties in terms of bad press risk and a fully-fledged Know Your Customer (KYC) process. All counterparties are monitored by the Investment Adviser according to internal compliance and procurement policies. Measures include the selection of geographies with strong regulatory frameworks, comprehensive internal due diligence processes that examine counterparties and their governance frameworks, and the use of specialist advisers to conduct technical and legal due diligence analyses at the project level. All governance measures are audited by major audit firms on a regular basis.

INVESTMENT POLICY AND KEY PERFORMANCE INDICATORS

Investment Policy

The Company will seek to achieve its investment objective, set out above, through investment in renewable energy infrastructure investments in continental Europe and the Republic of Ireland comprising (i) wind, photovoltaic and hydropower plants that generate electricity through the transformation of the energy of the wind, the sunlight and running water as naturally replenished resources, and (ii) non-generation renewable energy related infrastructure associated with the storage (such as batteries) and transmission (such as distribution grids and transmission lines) of renewable energy, in each case either already operating or in construction/development ("Renewable Energy Infrastructure Investments").

The Company will acquire a mix of controlling and non-controlling interests in Renewable Energy Infrastructure Investments and may use a range of investment instruments in the pursuit of its investment objective, including, but not limited to, equity, mezzanine or debt investments.

In circumstances where the Company does not hold a controlling interest in the relevant investment, the Company will seek, through contractual and other arrangements, to, inter alia, ensure that the Renewable Energy Infrastructure Investment is operated and managed in a manner that is consistent with the Company's investment policy, including any borrowing restrictions.

Investment Restrictions

The Company aims to achieve diversification principally through investing in a range of portfolio assets across a number of distinct geographies and a mix of wind, solar PV and hydro technologies involved in renewable energy generation. The Company will observe the following investment restrictions when making investments:

· no more than 25 per cent. of its Gross Asset Value (including cash) will be invested in any single asset;

· the Company's portfolio will comprise no fewer than six Renewable Energy Infrastructure Investments;

· no more than 20 per cent. of its Gross Asset Value (including cash) will be invested in non-generation renewable energy related infrastructure associated with the storage (such as batteries) and transmission (such as distribution grids and transmission lines) of renewable energy;

· no more than 30 per cent. of its Gross Asset Value (including cash) shall be invested in assets under development and/or construction;

· no more than 50 per cent. of the Gross Asset Value (including cash) will be invested in assets located in any one country;

· no investments will be made in assets located in the UK; and

· no investments will be made in fossil fuel assets.

Compliance with the above restrictions will be measured at the time of investment and non-compliance resulting from changes in the price or value of assets following investment will not be considered as a breach of the investment restrictions.

The Company will hold its investments through one or more special purpose vehicles ("SPVs") and the investment restrictions will be applied on a look‑through basis.

Although not forming part of the investment restrictions or the Investment Policy, where Renewable Energy Infrastructure Investments benefit from a Power Purchase Agreement, the Company will take reasonable steps to avoid concentration with a single counterparty and intends that no more than 25 per cent. of income revenue received by Renewable Energy Infrastructure Investments will be derived from a single off-taker.

Changes to the Investment Policy

The Directors do not currently intend to propose any material changes to the Company's Investment Policy. Any material changes to the Company's Investment Policy set out above will only be made with the approval of Shareholders.

Hedging

The Company does not intend to use hedging or derivatives for investment purposes but may from time to time use derivative instruments such as futures, options, futures contracts and swaps (collectively "Derivatives") to protect the Company from fluctuations of interest rates or electricity prices. The Derivatives must be traded on a regulated market or by private agreement entered into with financial institutions or reputable entities specialised in this type of transaction.

Liquidity Management

The AIFM will ensure that a liquidity management system is employed for monitoring the Company's liquidity risks. The AIFM will ensure, on behalf of the Company, that the Company's liquidity position is consistent at all times with its investment policy, liquidity profile and distribution policy. Cash held pending investment in Renewable Energy Infrastructure Investments or for working capital purposes will be invested in cash equivalents, near cash instruments, bearer bonds and money market instruments.

Borrowing Limits

The Company may make use of long-term limited recourse debt for Renewable Energy Infrastructure Investments to provide leverage for those specific investments. The Company may also take on long-term structural debt provided that at the time of entering into (or acquiring) any new long-term structural debt (including limited recourse debt), total long-term structural debt will not exceed 50 per cent. of the prevailing Gross Asset Value. For the avoidance of doubt, in calculating gearing, no account will be taken of any Renewable Energy Infrastructure Investments that are made by the Company by way of a debt or a mezzanine investment. In addition, the Company may make use of short-term debt, such as a Revolving Credit Facility, to assist with the acquisition of suitable opportunities as and when they become available. Such short-term debt will be subject to a separate gearing limit so as not to exceed 25 per cent. of the Gross Asset Value at the time of entering into (or acquiring) any such short-term debt.

In circumstances where these aforementioned limits are exceeded as a result of gearing of one or more Renewable Energy Infrastructure Investments in which the Company has a non-controlling interest, the borrowing restrictions will not be deemed to be breached. However, in such circumstances, the matter will be brought to the attention of the Board who will determine the appropriate course of action.

Dividend Policy

The Company is targeting a progressive dividend over the medium term with a minimum dividend of 5 cents per Ordinary Share, subject to having sufficient distributable reserves.

Dividends are expected to be paid quarterly, normally in respect of the three months to 31 March, 30 June, 30 September and 31 December, and are expected to be made by way of interim dividends to be declared in

May, August, November and February.

The Company will declare dividends in euros and Shareholders will, by default, receive dividend payments in euros. Shareholders may, on completion of a dividend election form, elect to receive dividend payments in sterling (at their own exchange rate risk). The date on which the exchange rate between euro and sterling is set will be announced at the time the dividend is declared. A further announcement will be made once the exchange rate has been set. Dividend election forms will be available from the Registrar, Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol BS99 6ZY or via telephone 0370 707 1346.

The Company's target dividend for 2023 was announced on 3 February 2023 and is as set out in point (iv) below.

Key Performance Indicators ("KPIs")

The Board measures the Company's success in achieving its investment objective by reference to the following KPIs:

(i) Achievement of NAV and Share Price Growth since IPO (June 2019)

2022 6.7% share price returns

27.6% NAV

2021 11.3% share price returns

14.1% NAV

2020 10.8% share price returns

6.3% NAV

The Board monitors both the NAV and share price performance and compares with other similar investment trusts. A review of performance is undertaken at each quarterly Board meeting and the reasons for relative under and over-performance against various comparators is discussed. The Company's NAV total return and total Shareholder return since IPO (June 2019) to 31 December 2022 was 27.6% and 6.7% (2021: 14.1% and 11.3%) respectively. The Company's NAV total return and share price total return for the year to 31 December 2022 was 12.9% and (4.5%) (2021: 7.6% and 0.5%) respectively. On an annualised basis, the NAV total return per Ordinary Share has achieved 7.1% since IPO.

The Chairman's Statement above incorporates a review of the highlights during the year. The Investment Adviser's Report above highlights investments made and the Company's performance during the year.

(ii) Maintenance of a Reasonable Level of Premium or Discount of Share Price to NAV1

2022 (16.6%)

2021 (0.6%)

2020 6.5%

The Company's broker monitors the premium or discount on an ongoing basis and keeps the Board updated as and when appropriate. At quarterly Board meetings the Board reviews the premium or discount in the year since the previous meeting in comparison with other investment trusts with a similar mandate. The share price closed at a 16.6% discount to the NAV as at 31 December 2022 (2021: 0.6% discount).

On 3 February 2023, the Board announced the details of a Buyback Programme for up to EUR 20 million in response to the widening discount at which the Company's share price was trading, as compared to its NAV per Ordinary Share, as they believe that the current share price does not accurately reflect the inherent value in the portfolio. This is part of a broader package of initiatives seeking to improve the marketability of the Company's shares. Since that date, the Company has bought back for Treasury a total of 16,652,452 Ordinary Shares for an aggregate amount of EUR 15.9 million.

(iii) Maintenance of a Reasonable Level of Ongoing Charges

2022 1.1%

2021 1.1%

2020 1.4%

The Board receives management accounts containing an analysis of expenditure and which is reviewed at its quarterly Board meetings. The Board reviews the ongoing charges on a quarterly basis and considers these to be reasonable in comparison to peers.

Based on the Company's average net assets during the year ended 31 December 2022, the Company's ongoing charges figure was calculated in accordance with the Association of Investment Companies ("AIC") methodology.

(iv) To Meet its Target Total Dividend in each Financial Year (cents per share)

Target:

2023 forecast 5.51 cents (target dividend)

2022 5.25 cents

2021 5.00 cents

2020 4.00 cents

On 3 February 2023, the Company announced a target dividend of 5.51 cents per Ordinary Share ("2023 Target Dividend") in relation to the year ending 31 December 2023. The 2023 Target Dividend is in accordance with the Company's dividend policy to pay a progressive dividend over the medium term and is subject to the portfolio performing in line with expectations. The 2023 Target Dividend represents an increase of 5.0% versus the prior year and followed a 5.0% increase in the 2022 target dividend announced in April 2022.

The dividend target set for 2022 was for not less than 5.25 cents per Ordinary Share, subject to the performance of the portfolio. These were paid in four equal interim dividends which totalled 5.25 cents.

SECTION 172

Section 172 of the Companies Act 2006 requires the Board to act in a way that it considers would most likely promote the success of the Company for the benefit of all stakeholders, taking into account the interests of stakeholders and the environment in its decision-making and to share how this duty has been discharged.

The Board's values - integrity, accountability and transparency - mean that the Board has always worked hard to communicate effectively with the Company's stakeholders. This is a two-way process and the feedback received from the Company's stakeholders is highly valued and factored into the Board's decision-making process.

The Company has a range of stakeholders, and this section maps out who they are, what the Board believes their key interests to be, how the Company enables engagement with stakeholders and highlights the key results that have consequently arisen during the year.

Company Sustainability and Stakeholders

As an externally managed investment company, the Company does not have any employees. Its main stakeholders are as set out in the diagram below, which explains the relationship between the Company and each of its stakeholders.

Company's Operating Model

The Company was listed on the main market of the London Stock Exchange on 5 June 2019. The Company's investments are held via its sole subsidiary, Tesseract Holdings Limited, which in turn holds the investment portfolio via a number of Special Purpose Vehicles ("SPVs').

Engagement with Stakeholders

The Board is aware of the need to foster the Company's business relationships with suppliers, customers and other key stakeholders through its stakeholder engagement activities. These activities include meetings, annual reviews, presentations and publications and enable the Board to ensure it fulfils its strategies and discharge its duties under section 172 of the Act.

The Board carried out an annual review of its key service providers, including the Investment Adviser, to understand the culture of its service providers to ensure they and the Company can maintain high standards of business conduct. The annual review process involves the assessment of the service providers' policies and control environments to ensure their continued competitiveness and effectiveness.

Shareholders

As a public company listed on the London Stock Exchange, the Company is subject to the Listing Rules and the Disclosure Guidance and Transparency Rules. It is a regulatory requirement, for the Board to act fairly between Shareholders. The Board ensures that the Company complies with the Listing Rules at all times and seeks the advice of the Company Secretary, lawyers and corporate broker in its dealings.

The Chairman and key Board members met many of the Company's key investors to gauge their views on the Company's progress since IPO. Separately, the Investment Adviser has participated in a roadshow to meet with the Company's key investors. Additionally, on 29 March 2022, the Company, together with its Investment Adviser, held a Capital Markets Day to provide Shareholders and analysts with further background and information about AER and its investments. The outcome of these meetings was discussed by the Board and as a consequence of these meetings, and in order to better align the Company with its Shareholders, a number of initiatives have been undertaken as detailed below.

In the run-up to year end and following the mini budget announced under the Truss administration, stock markets became more volatile and the Company's discount to NAV widened. In response, and following consultation with the Company's stakeholders, on 3 February 2023, the Board announced the details of a share Buyback Programme for up to EUR 20 million pursuant to the authority granted to the Board at the last Annual General Meeting to purchase up to 14.99% of the Company's issued share capital. The Board authorised the buyback as it believes that the current share price does not accurately reflect the inherent value in the Company's portfolio. Since that date the Company has bought back for Treasury a total of 16,652,452 Ordinary Shares for an aggregate amount of EUR 15.9 million. Since the start of the Buyback Programme, the discount to NAV at which the Company's shares trade has narrowed from 16.6% to 14.6 and the liquidity in the Company's shares has markedly improved.

The Company's name was changed from Aquila European Renewables Income Fund plc to Aquila European Renewables plc to maximise the appeal of the Company across a broader range of investors and other stakeholders. The name change became effective on 3 November 2022.

At its quarterly Board meetings, the Board reviews and discusses detailed reports from the Company's broker and media PR consultants in relation to the Company's share performance, trading and liquidity as well as the composition of, and changes to, the register of Shareholders. Shareholders' views are also considered by the Board at those meetings to assist the Board's decision-making process and to ensure expected returns are achieved and sufficient capital is available to invest in appropriate renewable energy infrastructure investments and to grow the business in line with strategy and expectation. Details of the decisions taken by the Board during the year can be found below under 'Key Decisions made During the Year'.

The Investment Adviser and Board believe that it is important for the Company's continued success to have the potential to access equity capital in order to expand the Company's portfolio over time, to further diversify the investment portfolio, to create economies of scale and, at times when the Company's shares are trading at a premium against its NAV, as a means to manage such premium. The Company's shares traded at a premium early in the year and during that time issued shares to its Investment Adviser in lieu of its quarterly management fees. The Company may issue shares from its Treasury account but will only issue shares at a premium to NAV at the time of issue.

To help the Board in its aim to act fairly between the Company's members, it seeks to ensure effective communication is provided to all Shareholders. The Board encourages Shareholders to attend the Annual General Meeting or General Meetings, at which Directors and representatives of the Investment Adviser are available to meet Shareholders in person and answer questions. The Annual Report and half-yearly accounts are distributed to the Company's Shareholders and made available on the Company's website. The quarterly factsheet is also available on the Company's website.

The Company's website - www.aquila-european-renewables.com is considered an essential communication channel and information hub for Shareholders. As such, it includes full details of the investment objective, supporting philosophy and investment process and performance along with news, opinions, disclosures, results and key information documents. It also presents information about the Board, its committees and other governance matters and Shareholders are encouraged to view the website in order to better understand the Company.

Service Providers

As an externally managed investment trust, the Company conducts all its business through its key service providers. The Board believes that maintaining positive relationships with each of the Company's service providers is important to support the Company's long-term success.

In order to ensure strong working relationships, the Company's key service providers (the Investment Adviser, AIFM, Company Secretary, Administrator) are invited to attend quarterly Board meetings to present their respective reports. This enables the Board to exercise effective oversight of the Company's activities. During the year, the Board spent a considerable amount of time between Board meetings engaging with the Company's key service providers to continue to develop strong working relationships and to determine good working practices to ensure the smooth operational function of the Company. The Board and its advisers seek to maintain constructive relationships with the Company's key service providers on behalf of the Company through the annual review process, regular communications, meetings and the provision of relevant information.

Alternative Investment Fund Manager ("AIFM")

The AIFM is an important service provider for the Company's long-term success. The AIFM has engaged Aquila Capital to act as the Company's the Investment Adviser for the purpose of providing investment advisory services to the Company. The AIFM is responsible for reviewing each investment opportunity prior to being presented to the Board. In addition to the reports the Board receive from the Investment Adviser, it also receives quarterly reports from the AIFM. The Board maintains regular contact with the AIFM in order to foster a constructive working relationship. Additionally, the AIFM is responsible for monitoring the risks faced by the Company and these are regularly discussed at meetings of the Audit and Risk Committee.

Investment Adviser

The Investment Adviser is the most significant service provider to the Company. The performance of the Investment Adviser is determined by the quality of the Investment Adviser's management team and their ability to source high quality assets at attractive prices.

The Board closely monitors the Company's investment performance in relation to its objectives, investment policy and strategy. To assist the Board, the Investment Adviser provides monthly reports. Additionally, the Investment Adviser presents its quarterly production and operational update reports at each quarterly Board meeting. The Board maintains constructive dialogue between meetings with the Investment Adviser. On a periodic basis, the Board visits the Investment Adviser at its Hamburg office, the site of one of the portfolio assets or one of its other offices so that they are able to gain a better understanding of the Investment Adviser, to meet key members of the team and gain further insight into the operation of each asset. The Investment Adviser's remuneration is based on the NAV of the Company. From IPO until 30 June 2023 the Investment Adviser's fees will be paid in shares, which aligns the Investment Adviser's interests with those of the Company's Shareholders.

Portfolio Investments

Prior to being presented to the Board of HoldCo, the Company's wholly owned subsidiary, the Company's Board is presented with potential investment opportunities that have been identified by the Investment Adviser and which have undergone a process of analysis and challenge by the AIFM, including considerations relating to environmental, social and governance issues. The Board considers each proposal against the Company's investment objective, investment policy and strategy and with consideration for the wider group of stakeholders. In considering each investment opportunity, the Board considers the Company's long-term success, having particular regard to the following aspects of each proposal:

· potential revenue forecast to be generated by each asset;

· the diversity of the Company's portfolio;

· any community and environmental issues associated with each asset;

· geopolitical risk;

· the length of tenure of each asset;

· hedging aspects to limit risk; and

· funding aspects, including the use of gearing.

As at 31 December 2022, the Company and the HoldCo had EUR 89.9 million of liquidity consisting of EUR 24.7 million in cash on hand plus EUR 65.1 million in an undrawn revolving credit facility. Remaining commitments via Tesseract Holdings Limited amounted to EUR 47.5 million.

Society and the Environment

The Company is an investor in renewable energy assets and is acutely aware of its impact on the environment. The Company has an ESG policy and climate risk strategy which ensure that society and the environment are considered when implementing its investment strategy. The ESG policy is available on request from the Company Secretary. Further details of matters relating to ESG can be found above or on its website at https://www.aquila-european- renewables.com.

Key Decisions made During the Year

Decisions Relating to the Company's Portfolio of Assets

All acquisitions and decisions made during the year in respect of the Company's portfolio of assets, including new acquisitions, PPA agreements, financing or refinancing of the Company's assets and other matters, are detailed in the Investment Adviser's Report above.

Investment Adviser's Fees

The Board agreed to purchase or issue shares to the Investment Adviser in relation to fees payable during the year as detailed below:

Following year end, and as instructed by the Board, the Company's brokers purchased a further 900,340 Ordinary Shares at a price of 90 cents for Aquila Capital Investmentgesellschaft mbH in lieu of fees due to them in respect of the fourth quarter, in accordance with the Investment Advisory Agreement.

The Board believes issuing shares to the Investment Adviser in lieu of fees further aligns the interests of the Investment Adviser with the Company's Shareholders.

Dividend Guidance

During the year the Board agreed to increase the Company's dividend by 5.0% to 5.25 cents per ordinary share. Since year end, on 3 February 2023, the Board approved a further 5.0% increase to the Company's target dividend to 5.51 cents per share.

Funding Consideration

During the year the Board authorised the AIFM and Investment Adviser to negotiate an increase in the Company's Revolving Credit Facility ("RCF") following which the bank agreed to increase the Company's RCF from EUR 40 million to EUR 100 million and to extend the term until maturity to April 2024. Since then, the Board has instructed the AIFM and Investment Adviser to negotiate a further twelve month extension of the facility to April 2025. Approval to this extension was granted on 21 April 2023.

Name Change

As detailed above, on 31 October 2022, the Board agreed to change the Company's name from Aquila European Renewables Income Fund plc to Aquila European Renewables plc with effect from 3 November 2022, to maximise the appeal of the Company across a broader range of investors and other stakeholders.

Board Changes

On 2 February 2023, Dr Patricia Rodrigues replaced Kenneth MacRitchie as Chair of the Remuneration and Nomination Committee as part of the Board's ongoing commitment to ensure that they maintain suitable diversity and representation within the Board structure. The Board has begun the process of recruiting an additional Board member to further expand its skills base and to enhance its diversity.

Principal Risks and Uncertainties

During the year the Company has carried out a robust assessment of its principal and emerging risks and the procedures in place to identify any emerging risks are described below.

Procedures to Identify Principal or Emerging Risks

The Board regularly reviews the Company's risk matrix, with a focus on ensuring that the appropriate controls are in place to mitigate each risk. The experience and knowledge of the Board is important, as is advice received from the Board's service providers, specifically the Alternative Investment Fund Manager ("AIFM"), who is responsible for the risk and portfolio management services and outsources the portfolio management to the Investment Adviser.

· Investment Adviser: the Investment Adviser provides a report to the Board on a quarterly basis or periodically as required on industry trends and insight to future challenges in the renewables sector including the regulatory, political and economic changes likely to impact the renewables sector;

· Alternative Investment Fund Manager ("AIFM"): following advice from the Investment Adviser and other service providers, the AIFM maintains a register of identified risks, including emerging risks, likely to impact the Company;

· Broker: the Broker provides advice periodically specific to the Company on the Company's sector, competitors and the investment company market, whilst working with the Board and Investment Adviser to communicate with Shareholders;

· Company Secretary: the Company Secretary briefs the Board on forthcoming legislation/regulatory change that might impact the Company; and

· AIC: The Company is a member of the Association of Investment Companies, which provides regular technical updates as well as drawing members' attention to forthcoming industry and regulatory issues.

Procedure for Oversight

The Audit and Risk Committee undertakes a review of the Company's risk matrix on a regular basis and a formal review of the risk procedures and controls in place at the AIFM and other key service providers to ensure that emerging (as well as known) risks are adequately identified and, so far as practicable, mitigated.

Principal Risks

The Board considers the following to be the principal risks faced by the Company along with the potential impact of these risks and the steps taken to mitigate them.

Viability Statement

In accordance with the UK Corporate Governance Code and the Listing Rules, the Directors have assessed the prospects of the Company over a longer period than the 12 months required by the 'Going Concern' provision.

In reviewing the Company's viability, the Directors have assessed the viability of the Company for the period to 31 December 2027 (the "Period").

The Board believes that the Period, being approximately five years, is an appropriate time horizon over which to assess the viability of the Company, particularly when taking into account the long-term nature of the Company's investment strategy, which are modelled over five years and the principal risks outlined above. Based on this assessment, the Directors have a reasonable expectation that the Company will be able to continue to operate and to meet its liabilities as they fall due over the period to 31 December 2027.

In considering the prospects of the Company, the Directors looked at the key risks facing the Company, HoldCo and the SPVs, focusing on the likelihood and impact of each risk as well as any key contracts, future events or timescales that may be assigned to each key risk. The Directors are satisfied that the Company would continue to remain viable under downside scenarios, including a decline in long term production and power price forecasts, taking into account tax implications and regulatory changes imposed on renewables and on those in the electricity generation market in certain jurisdictions across Europe. These risks, together with the mitigating factors of each, are shown in the Principal Risk section shown above.

As a sector-focused renewable energy investment company, the Company aims to produce stable dividends while preserving the capital value of its investment portfolio. As part of their analysis, the Board were mindful that the Company's portfolio assets, held via HoldCo, are predominantly fully constructed and operating renewable electricity generating facilities with asset lives significantly in excess of the period under consideration.

This assessment also included a detailed review of the issues arising following the war in Ukraine, high volatility in commodity prices, the windfall revenue clawback on inframarginal technologies (e.g. solar PV, wind, nuclear, hydro) and other taxes that currently face the Company's assets as disclosed in the Principal Risk and the Investment Adviser's Report shown above. The Board have also considered the impact of climate related events on the Company's assets and on its ability to continue to produce electricity. For example, based on the guidance provided in the Company's February 2023 investor presentation, the Company expects its 2023 target dividend to be fully covered even if forecast power prices decline by 30%.

The Company has a low gearing level representing 25.6% as at 31 December 2022 of its Gross Asset Value, comprised of a RCF (which has an undrawn limit of EUR 65 million) and non-recourse debt at the asset level. The Company (via its subsidiaries, where applicable) is in compliance with its covenants related to the RCF and non-recourse debt. The Company has recently negotiated an extension to its RCF which now expires in April 2025. The Board and advisers have analysed the covenants of the RCF and based on stress testing the Company's RCF covenants, significant headroom exists in relation to both the Interest Coverage Ratio ("ICR") and Loan to Value Ratios. For example, based on the Company's RCF compliance certificate for Q4 2022, forward cash flows would have to reduce by over 65% in order to breach the Company's ICR ratio.

The Board have also considered the failure of Silicon Valley Bank and Credit Suisse and the Impact of contagion, and have concluded that the Company's counterparty banking relations are unaffected and are sufficiently robust.

The Directors believe that the Company is well placed to manage its business risks successfully over both the short and long term and accordingly, the Board has a reasonable expectation that the Company will be able to continue in operation and to meet its liabilities as they fall due for a Period of at least five years.

The internal control framework of the Company is subject to a formal review on at least an annual basis. On a regular basis, the Board reviews the risk report prepared by the AIFM.

The Directors do not expect there to be any material increase in the expenses of the Company over the Period. The Company's income from investments provides substantial cover to the Company's operating expenses and buyback programme, and any other costs likely to be faced by the Company over the Period of the assessment.

The Company is subject to a continuation vote at this year's AGM to be held on 14 June 2023. Following discussions with the Company's broker, Investment Adviser and a number of existing shareholders, the Directors are of the view that the continuation vote will be passed at the forthcoming AGM. The Board believes there are several significant factors that support the Director's view of a positive vote for the Company's continuation as detailed in the Going Concern Statement shown below. If the Continuation Resolution is not passed, then the Directors shall within six months of such Continuation Resolution not being passed, put proposals to shareholders for the reconstruction, reorganisation or liquidation of the Company.

Going Concern

The Directors have adopted the going concern basis in preparing the financial statements. The following is a summary of the Directors' assessment of the going concern status of the Company.

The Company continues to meet its day-to-day liquidity needs through its cash resources and RCF. In reaching this conclusion, the Directors have considered its cash position, income, expense flows, ongoing buyback programme and compliance with the RCF covenants. The Company's net assets as at 31 December 2022 was EUR 451.7 million (2021: EUR 417.4 million). As at 31 December 2022, the Company held EUR 19.9 million (2021: EUR 94.3 million) in cash.

The Company has a low gearing level representing 25.6% as at 31 December 2022 of its Gross Asset Value, comprised of a RCF (which has an undrawn limit of EUR 65 million) and non-recourse debt at the asset level. The Company (via its subsidiaries, where applicable) is in compliance with its covenants related to the RCF and non-recourse debt. The Company has recently negotiated an extension to its RCF which now expires in April 2025. The Board and advisers have analysed the covenants of the RCF and, based on stress testing the Company's RCF covenants, significant headroom exists in relation to both the Interest Coverage Ratio ("ICR") and Loan to Value Ratios. For example, based on the Company's RCF compliance certificate for Q4 2022, forward cash flows would have to reduce by over 65% in order to breach the Company's ICR ratio. The total expenses for the year ended 31 December 2022 were EUR 4.7 million (2021: EUR 4.1 million), which represented approximately 1.1% (2021: 1.1%) of average net assets during the year. At the date of approval of this document, based on the aggregate of investments and cash held, the Company has substantial operating expenses cover.

The major cash outflows of the Company are the payment of dividends, costs relating to the acquisition of new investments and payment due in respect of the settlement of shares purchased in respect of the Company's buyback programme. The Directors are confident that the Company has sufficient cash balances to fund its commitments to Guillena, which as at 31 December 2022 was the Company's only remaining commitment which is intended to be funded via the Company's RCF.

This assessment has included a detailed review of the issues arising following the war in Ukraine; high volatility in commodity prices; the windfall revenue clawback on inframarginal technologies (e.g. solar PV, wind energy, nuclear, hydropower); other taxes that currently face the Company's assets, as discussed in the Chairman's Statement and Investment Adviser's Report above and the impact of climate related events on the Company's assets.

The Directors are also satisfied that the Company would continue to remain viable under downside scenarios, including a decline in long term production and power price forecasts. For example, based on the guidance provided in the Company's February 2023 investor presentation, the Company expects its 2023 target dividend to be fully covered even if forecast power prices decline by 30%.

The underlying SPV revenues are derived from the sale of electricity, 51.9% of which is through Power Purchase Agreements which cover the Company's liabilities.

The Company is subject to a Continuation Resolution at this year's AGM to be held on 14 June 2023. Following discussions with the Company's broker, Investment Adviser and a number of existing shareholders, the Directors are of the view that the Continuation Resolution will be passed at the forthcoming AGM. The Board believes there are several significant factors that support the Director's view of a positive vote for the Company's continuation as detailed below:

· The Company's Investment Adviser is one of the largest participants in the European renewables market and provides the Company with access to a 10 GW development and construction pipeline, providing significant opportunities for long-term growth;

· The recent transformation of the Company's portfolio has resulted in high level of earnings visibility and dividend cover. This has enabled the Board to recently announce a 5% increase to its dividend target for 2023;

· The Company is trading at a forward dividend yield which compares favourably to other renewable funds providing exposure to European assets;

· The Company's portfolio is well positioned, with all of its construction projects completed, relatively low gearing levels (25.6% of Gross Asset Value) and high contracted revenue. In addition, the Investment Adviser is also undertaking due diligence in relation to asset life extensions which could realise further upside within the portfolio;

· The Company has demonstrated a proactive approach to capital allocation following the EUR 20 million share buyback programme announced in February 2023;

· The Board of Directors and Investment Adviser have demonstrated strong shareholder alignment through the commitment of the Investment Adviser to take its management fee in shares since IPO, as well as recent share purchases by select members of the Board and employees of the Investment Adviser; and

· The Company has an efficient cost structure, which is up to 30% less than peers based on its Ongoing Charges as a percentage of Net Asset Value.

If the Continuation Resolution is not passed, then according to the Company's articles, the Directors shall within six months of such Continuation Resolution not being passed, put proposals to shareholders for the reconstruction, reorganisation or liquidation of the Company. Accordingly, the Directors expect that if the Continuation Resolution is not passed, an event which the Directors consider to be unlikely, formulating and implementing any such proposals would require the Company to continue operations for a period of at least 12 months from the date of approval of the Company's financial statements.

STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE FINANCIAL STATEMENTS

The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and regulation.

Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors have prepared the financial statements in accordance with international accounting standards in conformity with UK adopted international accounting standards and with the requirements of the Company's Act 2006 as applicable to companies reporting under these standards. Under Company law, Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.

In preparing the financial statements, the Directors are required to:

· select suitable accounting policies and then apply them consistently;

· state whether they have been prepared in accordance with UK adopted international accounting standards, subject to any material departures disclosed and explained in the financial statements;

· make judgements and accounting estimates that are reasonable and prudent; and

· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for keeping adequate 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 and the Directors' Remuneration Report comply with the Companies Act 2006 and Article 4 of the IAS Regulation.

The Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Directors' Confirmations

Each of the Directors, whose names and functions are listed in Corporate Governance section, confirm that, to the best of their knowledge:

· the Company financial statements, which have been properly prepared in accordance with UK adopted international accounting standards, give a true and fair view of the assets, liabilities, financial position, and profit of the Company; and

· the Directors' Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

For and on behalf of the Board

Ian Nolan

Chairman

25 April 2023

STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2022

The notes below are an integral part of these financial statements.

The total column of the Statement of Comprehensive Income is the profit and loss account of the Company.

All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the year.

Return on ordinary activities after taxation is also the "Total comprehensive income for the year".

STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2022

The notes below are an integral part of these financial statements.

The financial statements were approved by the Board of Directors on 25 April 2023 and signed on its behalf by:

Ian Nolan

Chairman

STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2022

The notes below are an integral part of these financial statements.

During the year, the Company issued 1,286,293 new Ordinary Shares with gross proceeds of EUR 1.33 million (2021: 89,902,303 shares with gross aggregate proceeds of EUR 92.56 million).

STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2022

The notes below are an integral part of these financial statements.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2022

1. General Information

Aquila European Renewables Plc (formerly ''Aquila European Renewables Income Fund Plc'', "the Company") is a public company limited by shares, incorporated in England and Wales on 8 April 2019 with registered number 11932433. The Company is domiciled in England and Wales. The Company is a closed‑ended investment company with an indefinite life. The Company commenced its operations on 5 June 2019 when the Company's Ordinary Shares were admitted to trading on the London Stock Exchange. The Directors intend, at all times, to conduct the affairs of the Company so as to enable it to qualify as an investment trust for the purposes of section 1158 of the Corporation Tax Act 2010, as amended.

On 3 November 2022 the Company changed its name from Aquila European Renewables Income Fund Plc to Aquila European Renewables Plc.

The registered office and principal place of business of the Company is 6th Floor, 125 London Wall, London, EC2Y 5AS.

The Company's investment objective is to generate stable returns, principally in the form of income distributions, by investing in a diversified portfolio of Renewable Energy Infrastructure Investments. RE: F1 Update

The Company's Investment Adviser is Aquila Capital Investmentgesellschaft mbH, authorised and regulated by the German Federal Financial Supervisory Authority.

FundRock Management Company (Guernsey) Limited (formerly Sanne Fund Management (Guernsey) Limited) acts as the Company's Alternative Investment Fund Manager for the purposes of Directive 2011/61/EU of the Alternative Investment Fund Managers Directive.

Apex Listed Companies Services (UK) Limited (formerly Sanne Fund Services (UK) Limited) provides administrative and company secretarial services to the Company under the terms of an administration agreement between the Company and the Administrator.

2. Basis of Preparation

The financial statements have been prepared in accordance with UK adopted international accounting standards in conformity with the requirements of the Companies Act 2006, as applicable to companies reporting under those standards.

The financial statements have also been prepared as far as is relevant and applicable to the Company in accordance with the Statement of Recommended Practice issued by the AIC in April 2021.

The financial statements are prepared on the historical cost basis, except for the revaluation of certain financial instruments at fair value through profit or loss. The principal accounting policies adopted are set out below. These policies are consistently applied.

The functional currency of the Company is euros as this is the currency of the primary economic environment in which the Company operates. Accordingly, the financial statements are presented in euros, rounded to the nearest thousand euros, unless otherwise stated. The EUR/GBP exchange rate as of 31 December 2022 was 0.8853 (2021: 0.8408).

Accounting for Subsidiary

The Company owns 100% of its subsidiary Tesseract Holdings Limited ("HoldCo" or "THL"). The Company has acquired renewable energy infrastructure investments through its investment in the HoldCo. The Company finances the HoldCo through a mix of loan investments and equity. The loan investment finance represents Shareholder loans (the "Shareholder loans" or "SHL") provided by the Company to HoldCo. The Company meets the definition of an investment entity as described by IFRS 10. Under IFRS 10 an investment entity is required to hold subsidiaries at fair value through profit or loss and therefore does not consolidate the subsidiary.

The HoldCo is an investment entity and as described under IFRS 10 values its SPV investments at fair value through profit or loss. SPV investments are investments held at HoldCo. Further details of the HoldCo and SPV structure and investments can be found in note 21 below.

Characteristics of an Investment Entity

Under the definition of an investment entity, the Company should satisfy all three of the following tests:

I. Company obtains funds from one or more investors for the purpose of providing those investors with investment management services;

II. Company commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation, investment income, or both; and

III. Company measures and evaluates the performance of substantially all 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:

I. the Company has multiple investors and obtains funds from a diverse group of Shareholders who would otherwise not have access individually to investing in renewable energy infrastructure investments due to high barriers to entry and capital requirements;

II. the Company intends to hold these renewable energy infrastructure investments, via the HoldCo, for the remainder of their useful life for the purpose of capital appreciation and investment income. The renewable energy infrastructure investments are expected to generate renewable energy output for 25 to 30 years from their relevant commercial operation date; the Directors believe the Company is able to generate returns to the investors during that period; and

III. the Company measures and evaluates the performance of all its investments, held via HoldCo, on a fair value basis which is the most relevant for investors in the Company. Management use fair value information as a primary measurement to evaluate the performance of all the investments and in decision making.

The Directors are of the opinion that the Company meets all the typical characteristics of an investment entity and therefore meets the definition set out in IFRS 10. The Directors are satisfied that investment entity accounting treatment appropriately reflects the Company's activities as an investment trust.

The Directors have also satisfied themselves that Tesseract Holdings Limited meets the characteristic of an investment entity. Tesseract Holdings Limited has one investor, Aquila European Renewables Plc; however, in substance Tesseract Holdings Limited is investing the funds of the investors of Aquila European Renewables Plc on its behalf and is effectively performing investment management services on behalf of many unrelated beneficiary investors.

The Directors believe the treatment outlined above provides the most relevant information to investors.

Critical Accounting Judgements, Estimates and Assumptions

The preparation of financial statements in accordance with IFRS requires management to make judgements, estimates and assumptions in certain circumstances that affect reported amounts. These are judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities.

Key Judgements

As disclosed above, the Directors have concluded that the Company and HoldCo meet the definition of an investment entity as defined in IFRS 10. This conclusion involved a degree of judgement and assessment as to whether the Company met the criteria outlined in IFRS 10.

The Company classifies its investments based on its business model for managing those financial assets and the contractual cash flow characteristics of the financial assets. The portfolio of 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 contractual cash flows of the Company's Shareholder loans are solely principal and interest, however, these securities are not held for the purpose of collecting contractual cash flows. The collection of contractual cash flows is only incidental to achieving the Company's business models objective. Consequently, all investments are measured at fair value through profit or loss. The Company considers the equity and Shareholder loan investments to share the same investment characteristics and risks and they are therefore treated as a single unit of account for fair value purposes (IFRS 13) and a single class for financial instrument disclosure purposes (IFRS 9).

As a result, the evaluation of the performance of the Company's investments is done for the entire portfolio on a fair value basis, as is the reporting to the key management personnel and to the investors. In this case, all equity and Shareholder loan investments form part of the same portfolio for which the performance is evaluated on a fair value basis together and reported to the key management personnel in its entirety.

Key Estimation and Uncertainty: Investments at Fair Value Through Profit or Loss

The key assumptions that have a significant impact on the carrying value of the Company's underlying investments in SPVs are the discount rates, useful lives of the assets, the rate of inflation, the price at which the power and associated benefits can be sold, the amount of electricity the assets are expected to produce and operating costs of the SPVs.

The discount rates are subjective and therefore it is feasible that a reasonable alternative assumption may be used resulting in a different value. The discount rates applied to the cash flows are reviewed annually by the Investment Adviser to ensure they are at the appropriate level. The Investment Adviser will take into consideration market transactions, which are of similar nature, when considering changes to the discount rates used. The weighted average discount rate applied in the December 2022 valuation was 7.2% (2021: 6.5%).

Useful lives are based on the Investment Adviser's estimates of the period over which the assets will generate revenue, which are periodically reviewed for continued appropriateness. The assumption used for the useful life of the wind assets is 25 to 30 years and solar PV is 30 years. The actual useful life may be a shorter or longer period depending on the actual operating conditions experienced by the asset. The operating lives of hydropower assets are estimated in accordance with their expected concession terms.

Climate risks can also impact the carrying value of the Company's underlying investments. The Company relies (via the HoldCo or relevant SPVs) on third party technical advisers to consider the impact of climate risks when assessing P50 production forecasts. For example, the impact of increasing temperatures on precipitation, evapotranspiration and its subsequent impact on P50 production was recently considered by a third party technical adviser as part of due diligence related to a refinancing for the Company's hydropower asset, Sagres.