Bluefield Solar Regulatory News (BSIF)

5 October 2021

 Bluefield Solar Income Fund Limited('Bluefield Solar' or the 'Company')

 Annual Report and Financial Statements for the Year Ended 30 June 2021

Bluefield Solar (LON:BSIF), a UK focused income fund that invests primarily in UK-based solar assets, is pleased to announce its Annual Results for the Year Ended 30 June 2021.

As at 30 June 2021 / 30 June 2020

1. Underlying earnings is an alternative performance measure employed by the Company to provide insight to the Shareholders by linking the underlying financial performance of the operational projects to the dividends declared and paid by the Company. Further detail is provided below.

2. Total return to Shareholders is based on share price movement and dividends paid in the year.

3. Excludes assets invested during the period.

4. The equivalent number of vehicles is calculated using a UK government conversion factor based on a medium sized petrol car.

Results Summary:

1. Underlying earnings is an alternative performance measure employed by the Company to provide insight to the Shareholders by linking the underlying financial performance of the operational projects to the dividends declared and paid by the Company. Further detail is provided below.

2. Underlying EPS is calculated using underlying earnings available for distribution divided by the average number of shares.

3. Total return is based on NAV per share movement and dividends paid in the year.

4. Total return to Shareholders is based on share price movement and dividends paid in the year.

5. Total Return to Shareholders since inception is an alternative performance measure based on share price movement and dividends paid since the IPO.

John Rennocks, Chairman of Bluefield Solar, said:

"We are pleased with the strong earnings performance in the period despite covering a particularly challenging time for the energy markets due to the turbulence caused by Covid 19. We were pleased to deliver a sector leading dividend of 8p per share, post debt amortisation to shareholders while the Net Asset Value also held up well which we believe will support the share price going forward. The robust nature of the earnings from the portfolio during the pandemic highlights the durability and defensive nature of the Company's investment strategy. We look forward to updating the market on further attractive investment opportunities in due course."

Analyst presentation

A remote call for analysts will be hosted by James Armstrong and Neil Wood of Bluefield Partners LLP at 09:30am today, 5 October 2021. For details, please contact Buchanan on BSIF@buchanan.uk.com.

A copy of the presentation is available via the Company's website and an audio webcast of the presentation will also be made available after 12pm today.

https://bluefieldsif.com/

For further information:

Notes to Editors

About Bluefield Solar

Bluefield Solar is a UK income fund focused on acquiring and managing UK-based renewable energy and storage projects to generate long term dividend growth for its shareholders whilst furthering the decarbonisation of the energy system. Not less than 75% of the Company's gross assets will be invested into UK solar assets. The Company can also invest up to 25% of its gross assets into wind, hydro and storage technologies. The majority of the Company's group's revenue streams are regulated and non-correlated to the UK energy market. Bluefield Solar owns and operates one of the UK's largest, diversified portfolios of solar assets with a combined installed power capacity in excess of 613MWp.

Further information can be viewed at www.bluefieldsif.com 

About Bluefield Partners LLP

Bluefield Partners LLP was established in 2009 and is an investment adviser to companies and funds investing in renewable energy infrastructure. It has a proven record in the selection, acquisition and supervision of large-scale energy assets in the UK and Europe. The team has been involved in over £4 billion renewable funds and/or transactions in both the UK and Europe, including over £1 billion in the UK since December 2011.

Bluefield Partners LLP has led the acquisitions of, and currently advises on, over 100 UK based solar PV assets that are agriculturally, commercially or industrially situated. Based in its London office, it is supported by a dedicated and experienced team of investment, legal and portfolio executives. Bluefield Partners LLP was appointed Investment Adviser to Bluefield Solar in June 2013.

Investment objective

The investment objective of the Company is to provide Shareholders with an attractive return, principally in the form of regular income distributions, by being invested in solar energy assets located in the UK. The Company also has the ability to invest a minority of its capital into wind, hydro and energy storage assets.

Structure

The Company is a non-cellular company limited by shares incorporated in Guernsey under the Law on 29 May 2013. The Company's registration number is 56708, and it is regulated by the GFSC as a registered closed-ended collective investment scheme and as a Green Fund after successful application under the Guernsey Green Fund Rules to the GFSC on 16 April 2019. The Company's Ordinary Shares were admitted to the Premium Segment of the Official List and to trading on the Main Market of the LSE following its IPO on 12 July 2013. The issued capital during the year comprises the Company's Ordinary Shares denominated in Sterling.

The Company has the ability to use long term and short term debt at the holding company level, as well as having long term, non-recourse debt at the SPV level.

Investment Adviser

The Investment Adviser to the Company during the period was Bluefield Partners LLP which is authorised and regulated by the UK FCA under the number 507508. In May 2015 Bluefield Services Limited (BSL), a company with the same ownership as the Investment Adviser, commenced providing asset management services to the investment SPVs held by BSIFIL. In August 2017 Bluefield Operations Limited (BOL), a company with the same ownership as the Investment Adviser, commenced providing operation and maintenance services to the Company and provides services to 50 of the investment SPVs held by BSIFIL as at year end.

In December 2020 Bluefield Renewable Developments Limited (BRD), a company with the same ownership as the Investment Adviser, commenced providing the Company with new build development opportunities.

Introduction

As I wrote in my Chairman's statement in the previous annual report, due to the Covid-19 pandemic the period since March 2020 has again been a remarkable one.

During this time the UK, along with many other countries across the globe, has entered and exited a number of lockdowns. However, as the immunisation programme gathered momentum both at home and abroad, easing of social restrictions and the resumption of international travel mean it is with cautious optimism that we are now able to look forward to a point where life and activity resumes under new Covid-19 norms.

Looking back over the year ended 30 June 2021, the Board is particularly pleased with the way the Company and Investment Adviser have handled the complications to working life that the Covid-19 pandemic has presented.

The principal features of the period under review have been:

· Shareholders provided approval of ability to invest outside of solar infrastructure assets, notably in wind and energy storage.

· Shareholders approved an update to the Company's dividend policy.

· The Company completed, for a combined value of up to £195.6 million (including working capital), the acquisition of both a portfolio of 15 UK ground mounted operating PV assets and a single 70MWp asset.

· The Company, working with its development partners Bluefield Renewable Developments, Lightrock Power and Anglo Renewables, achieved planning consent in November 2020 for a 50MWp PV plant whilst its proprietary pipeline of subsidy free solar and battery developments grew to c.770MWp.

· The Company, through two over-subscribed share issues, successfully raised £45m in November 2020, followed by a further £105.1m raise post period end in July 2021.

· Two major milestones were passed post the end of the reporting period as the Company completed the acquisitions of its first wind assets (a portfolio of 109 wind turbines for £63m) alongside its first ready to build, co-located 45MWp solar and 25MWp battery opportunity for £5m (including land rights to the site).

· Power prices rose from a low of £24.18/MWh in April 2020, during the first wave of the pandemic, to a twelve month high in December 2020 £54.98/MWh before rising dramatically during H1 2021 to highs of £95m/MWh in May/June 2021 as both gas and carbon pricing jumped significantly while the global recovery from the pandemic accelerated.

· Despite varying degrees of lockdown restrictions, the Company's principal O&M provider, Bluefield Operations, has continued to provide full contractual services and is a key element behind the highly pleasing technical performance of the portfolio.

These themes are dealt with in more detail below.

At the year end the Net Asset Value per share in the Company was 115.83pps (30 June 2020: 117.01pps), with on target dividends declared for the period totalling 8.00pps. The share price declined from 134.5p at 30 June 2020 to 121.4p at 30 June 2021, due largely to a de-rating of the renewable generation sector following heavy issuance. This equates to a total return for Shareholders for the period of -3.79%. At the time of writing, the share price has recovered marginally in the post year end period. The performance of the assets of the Company and how this is reflected in returns to Shareholders is set out in detail in the Investment Adviser's report below.

Key Events

During the period, in August 2020, the Company completed the acquisition of 15 solar plants totalling 64.2 MWp (a mixture of FiT and ROC assets with an average ROC of 1.8) and then, in January 2021, announced the acquisition of Bradenstoke Solar Farm, a 1.4 ROC, 70MWp ground mounted solar farm located in Wiltshire whilst considerable progress has also been made with respect to the Company's solar and battery development activities.

At the time of writing the total pipeline currently stands at 593MWp of solar (with 81MWp currently in planning and a further c.254MWp close to submission) and 179MWp of battery projects (of which a co-located 19MWp project is in planning).

Furthermore, two highly significant transactions have been completed post period end, in August 2021; the first was the purchase of a portfolio of 109 operational wind turbines for approximately £63m and the second the project rights to a ready to build co-located 45MWp solar and 25MWp battery opportunity (Please see the Acquisitions section of the Investment Adviser's report below for further details).

The Board is particularly encouraged by these post period end acquisitions as they marked the first investments made by the Company into non-solar technologies since Shareholders approved a broadening of the Company's mandate in July 2020.

With both the operational solar and wind acquisitions benefitting from high proportions of regulated revenue, they not only underpin our objective to sustain market leading earnings and dividend payments in the years ahead, but also enable us to build on the excellent asset performance which has contributed to our ability to convert high levels of irradiation into generation and revenues.

Beyond growing the earnings potential of the Company, the Board is pleased that these investments, totalling c.£263 million, were financed by successful equity raises in November 2020 of £45m and £105.1m in July 2021 as well as a carefully structured mix of the Company's increased and extended £100m RCF and a bespoke 3 year £110m term loan from NatWest with an associated interest rate hedge.

At the time of writing, the Group's total outstanding debt has increased to c.£340.4 million and its leverage level stands at c.37% of GAV; comfortably in line with the range the Directors have previously outlined as desirable for the Company of between 35% - 45%.

Finally, the Board and the Investment Adviser were delighted to achieve planning consent in November 2020 with respect to Yelvertoft Solar Farm, a 50MWp plant located in Northamptonshire. We have exercised our option to construct the project and we are looking forward to updating Shareholders on construction timings for both this plant and the co-located 45MWp solar and 25MWp battery project in the coming months. Consent for the Company's first subsidy-free development project marks an important milestone for the Company and its ambition to support the de-carbonisation of the UK's electricity network, and the UK Government's net-zero ambitions.

As ever, the Investment Adviser continues to evaluate further solar, wind and battery storage investment opportunities and the Board will continue to ensure that these potential new projects are capable of enhancing dividends by a judicious use of debt and equity financing.

Underlying Earnings and Dividend Income

The Underlying Earnings for the period, pre amortisation of long-term finance, were £48.6m or 11.34pps and underlying earnings for distribution, post debt repayments of £9.3m (2.17pps), of £39.3m (9.16pps).

The on-target operational performance of the Company's portfolio over the period to 30 June 2021, combined with the benefit of brought forward reserves of 1.93pps (adjusted for the new shares issued in the period to 30 June 2021), as well brought forward earnings (1.18pps) of the two solar acquisitions (being January 2020 for the 64MWp portfolio and April 2020 for the 70MWp project) made during the period, means the Company has exceeded the earnings required to support its dividend target of 8.00pps for the year to 30 June 2021, allowing the Company to retain its position as the sector's highest dividend distributor (on a pence per share basis).

Further details of Underlying Earnings are set out in the Investment Adviser's Report below.

Valuation and Discount Rate

Valuation methodology remains consistent with previous reporting periods, with the Board receiving a valuation recommendation from the Investment Adviser which is derived from a comprehensive DCF model. This valuation is then benchmarked, on a capacity basis, against comparable transactional activity for UK based solar assets.

As a result of successful asset extension activity by the Investment Adviser over the past 12 months, as well as wider market assumptions now deployed on asset length, the Directors' Valuation as at 30 June 2021 now includes 490MWp (c.80% of the portfolio by capacity) being valued on the basis of an additional 5 - 15 years of operational life, resulting in a weighted average life of the portfolio of 30.2 years (vs. 27.4 years in June 2020), reflecting both new acquisitions and asset life extensions.

The equity discount rate of 6.00% remains unchanged from 30 June 2020, however following the Spring Budget in 2021, the tax rate within the valuation has been increased from 19% to 25% from April 2023 for the remaining life of each asset. The Directors' Valuation also includes the latest power curves, available as at 30 June 2021, from three leading forecasters.

The Company's valuation policy balances recommendations from the Investment Adviser (as a product of a comprehensive DCF model) with benchmarking against comparable transactional activity for UK based solar assets. As a result of the continued demand for subsidised solar assets, the range of values witnessed by the Investment Adviser and Board for assets equivalent to those in the Company's portfolio remains between £1.20m/MWp and £1.40m/MWp.

By valuing the Company's operational portfolio at an Enterprise Value of £770.1m (£1.26m/MWp, the Directors' Valuation as at 30 June 2021 sits sensibly at the lower end of precedent public market transactions and in keeping with the Company's valuation methodology of 'willing buyer/willing seller'.

Power Prices and BREXIT Impact

From the historic lows seen in Q2 2020, as the UK Government placed the country into a nationwide lockdown in response to the Covid-19 pandemic, power prices rose steadily during the second half of 2020 (increasing from £24.18/MWh in April 2020 to £54.98MWh in December 2020).

This increase in pricing has not only accelerated during H1 2021 across both day ahead (£79.21 per MWh in June 2021) and season ahead (Winter 21 baseload reached highs of £95.35 per MWh) and continues to rise at the time of writing.

This increase in baseload pricing from December 2020 has been driven by a combination of factors; easing of national and international restrictions, rising carbon pricing (which returned to pre pandemic levels) and increasing gas prices as re-opening the global economy has coincided with extended outages in the UK on both nuclear and fossil-fuelled generating stations, as well below average winter temperatures.

The Company's flexible PPA strategy has meant it was able to manage the timing of power price fixes to avoid the lows in April 2020, before carefully fixing selected asset tranches to take advantage of rising power prices during the second half of 2020 and first half of 2021.

As such, the average contracted price for the portfolio achieved per MWh for contracts starting post 30 June 2021 of £61.7 per MWh is considerably higher than the average contracted price for the twelve month period to 30 June 2021 of £48.20 per MWh (vs. day ahead base load price of £58.02 per MWh for the same period).

On 24 December 2020 the UK and EU finally reached a post-Brexit trade deal, one week before the end of the transition period. Whilst the deal provides a framework for future energy market relations between the UK and EU, Great Britain will no longer be part of the Internal Energy Market ("IEM"), and some uncertainty remains over the future of GB carbon pricing and cross border electricity trading across interconnectors.

Whilst plans are in place to develop models to address both of these issues and GB carbon pricing has broadly tracked that of the EU during 2021, the lack of certainty in the short term has led to increased volatility in day ahead and intraday power prices.

At the time of writing, it is clear that the UK economy is experiencing inflationary pressures and that, in the short term, RPI is likely to exceed the 3% level which is embedded in our financial forecasts. Economic commentators are divided on whether this will be a short-lived phenomenon, or whether higher inflation will endure for some time. In addition to increasing our operating costs, inflation has immediate consequences for your Company: it increases the interest payments on the inflation-linked segment our long term debt (currently some £64 million), but the cost of this is more than compensated by the indexation provisions in our regulated revenues.

Looking beyond the near term and out over the next 20 years, whilst de-carbonisation is expected to drive an increase in demand for electricity, medium to long term power price predictions have been lowered (from predictions in June 2020 and December 2020) as forecasters continue to predict that, despite rising demand for electricity, pricing will be suppressed by falling commodity prices and increased renewable generation post-2030. (Please see below in the Investment Adviser's report for a graph illustrating the blended power curves used by the Company in the Directors' Valuation.)

Covid-19 Contingency Planning

As I have outlined in my previous two Chairman's Statements (for June 2020 and December 2020), the Board has been happy with the services provided in relation to technical management of the Company's portfolio by Bluefield Services and Bluefield Operations during the extended period of the Covid-19 pandemic. Despite numerous lockdowns, both companies have continued to provide full and uninterrupted services - a credit to the management of the businesses and the dedication of their staff.

The Board would like to express its thanks to the Investment Adviser and all its staff for their exceptional efforts in supporting the Company during this unprecedented period.

Environmental, Social and Governance

I have previously discussed how ESG considerations have become increasingly important to Shareholders over the past few years and the pandemic has only served to accelerate this view.

However, as we have also outlined, one consequence of this for Shareholders is that it can be difficult to understand the basis upon which companies are making ESG disclosures and whether companies' ESG policies are correctly identifying both the risks and opportunities that ESG considerations are creating.

In response to this, the Board and the Investment Adviser have been working on the completion of a Materiality study in order to provide a clear and transparent ESG 'audit' of the Company; the results of this comprehensive review, I am delighted to advise, are published in the ESG section below.

In addition to the above I have instigated a Board refreshment programme as this year marks the 8th anniversary of the Company's listing on the LSE and I shall advise shareholders of our initial Board changes ahead of the AGM.

Conclusion

The recent activities of the Company have been immensely pleasing. After a period of portfolio consolidation, the Company has not only acquired over 134MWp of solar projects with a high proportion of regulated revenues, but crucially (post period end) has made maiden investments into an operational onshore wind portfolio and a consented co-located solar and battery storage project.

Whilst it is disappointing to see a compression in the share price premiums enjoyed by the Company and its renewable peers, the Board believes that the diversification of the Company's portfolio and its share register, mark a key inflection point in the life of the Company. I am grateful to both our existing and new shareholders and my Board colleagues for their support in a busy year.

John Rennocks

Chairman

4 October 2021

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1. Company's Objectives and Strategy

The Company seeks to provide Shareholders with an attractive, sustainable return, principally in the form of quarterly income distributions, by investing in a portfolio of large-scale UK based solar and wind energy infrastructure assets. The Company had a dividend target that was increased at the end of each financial year in line with RPI during the financial year. This was amended to a progressive dividend target following a shareholder vote on 6 July 2020. Subject to maintaining a prudent level of reserves, the Company aims to achieve this through optimisation of asset performance, acquisitions and the use of gearing. The Company's dividend target for the financial year ended 30 June 2021 is 8.00pps and the Company has declared four interim dividends totalling this amount.

The Operational and Financial Review section below provides further information relating to performance during the year.

2. Company's Operating Model

Structure

The Company holds and manages its investments through a UK limited company, BSIFIL, in which it is the sole shareholder.

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Management

Board and Committees

The independent Board is responsible to Shareholders for the overall management of the Company. The Board has adopted a Schedule of Matters Reserved for the Board which sets out the particular duties of the Board. Such reserved powers include decisions relating to the determination of investment policy, approval of new investments, oversight of the Investment Adviser, approval of changes in strategy, risk assessment, Board composition, capital structure, statutory obligations and public disclosure, financial reporting and entering into any material contracts by the Company.

Through the Committees and the use of external independent advisers, the Board manages risk and governance of the Company. The Board consists of five independent non-executive Directors, three of whom are Guernsey residents. See the Corporate Governance Report for further details.

Investment Adviser

The Investment Adviser's key responsibilities include identifying and recommending suitable investments for the Company and negotiating the terms on which such investments will be made.

Through a Technical Services Agreement with BSIFIL the Investment Adviser is also responsible for all issues relating to the supervision and monitoring of existing investments (included within the fee cap under the Investment Advisory Agreement). The Company has appointed BSL, a company with the same ownership as the Investment Adviser, to provide asset management services for the Company's portfolio. Bluefield Operations Limited and Bluefield Renewable Developments Limited also have the same ownership as the Investment Adviser and provide operational management for the majority of the Company's investments and a pipeline of development projects for the Company respectively.

During the year the Investment Adviser has been paid a fee equivalent to 0.8% of NAV at 30 June 2021.

A summary of the fees paid to the Investment Adviser is given in Note 16 of the financial statements. The fees paid to BSL, BRD and BOL, the Solar Asset Management and Operations and Maintenance businesses under common ownership with the Investment Adviser are also detailed in Note 16.

Administrator

The Board has delegated administration and company secretarial services to the Administrator. Further details on the responsibilities assigned to the Investment Adviser and the Administrator can be found in the Corporate Governance Report.

Employees and Officers of the Company

The Company does not have any employees and therefore policies for employees are not required. The Directors of the Company are listed below.

Investment Process

Through its record of investment in the UK solar energy market, the Investment Adviser has developed a rigorous approach to investment selection, appraisal and commitment.

Repeat transaction experience with specialist advisers

The Investment Adviser has worked with a range of specialist advisers from multiple disciplines in each of the transactions it has executed in the UK market and is able to source relevant expertise to address project issues both during and following a transaction.

Application of standardised terms developed from direct experience

The Investment Adviser has developed standardised terms which have been specifically tested by reference to real transaction and project operational experience. Whilst contract terms are specifically negotiated and tailored for each individual project, the Investment Adviser always includes contractual protection regarding recovery of revenue losses for underperformance and obligations for correction of defects.

Rigorous internal approval process

All investment recommendations issued to the Company, are made following the formalised review process described below:

(1) Investment origination and review by Managing Partners

Before incurring costs in relation to the preparation of a transaction, a project is concept reviewed by the Investment Adviser's Managing Partners, following which, a letter of interest or memorandum of understanding is issued, and project exclusivity is secured.

(2) Director Concept Approval

In the event that material costs are to be incurred in pursuing a transaction, a concept paper is issued by the Investment Adviser for review by the Board. This concept review fixes a project evaluation budget as well as confirming the project proposal is in line with the Company's investment policy and strategy.

(3) Due diligence

In addition to applying its direct commercial experience in executing renewable energy acquisitions and managing operational projects, the Investment Adviser engages legal, technical and, where required, insurance and accounting advisers from its extensive network to undertake independent due diligence.

(4) Bluefield Partners LLP Investment Committee

Investment recommendations issued by the Investment Adviser are made following the submission of a detailed investment paper to the Investment Committee. The Investment Committee operates on the basis of unanimous consent and has a record of making detailed evaluation of project risks. The investment paper submitted to the Investment Committee discloses all interests which the Investment Adviser and any of its affiliates may have in the proposed transaction.

(5) Board approval

Following approval by the Investment Adviser Investment Committee, investment recommendations are issued by the Investment Adviser for review by the boards of the Company and BSIFIL. The boards undertake detailed review meetings with the Investment Adviser to assess the recommended projects. If the boards of both the Company and BSIFIL approve the relevant transaction, the Investment Adviser is authorised to execute it in accordance with the Investment Adviser's recommendation and any condition stipulated in the boards' approvals. The boards are regularly updated on the pipeline of potential new investments to help provide context for capital allocation decisions.

(6) Closing memorandum

Prior to executing the transaction, the Investment Adviser completes a closing memorandum confirming that the final transaction is in accordance with the terms presented in the investment paper to the Investment Committee; detailing any material variations and outlining how any conditions to the approval of the Investment Committee and/or Board approval have been addressed. This closing memorandum is countersigned by an appointed member of the Investment Committee prior to completing the transaction.

Managing conflicts of interest

The Investment Adviser is regulated by the FCA and is bound by conduct of business rules relating to management of conflicts of interest. The Investment Adviser and any of its members, directors, officers, employees, agents and connected persons, and any person or company with whom they are affiliated or by whom they are employed may be involved in other financial, investment or other professional activities which may cause potential conflicts of interest with the Company and its investments.

The Board has noted that the Investment Adviser has other clients and has satisfied itself that the Investment Adviser has procedures in place to address potential conflicts of interest which, together with any mitigation measures, are disclosed in the investment recommendation for each investment.

2. Investment Policy

The Company initially invested in a diversified portfolio of solar energy assets, all located within the UK, with a focus on utility scale assets and portfolios on greenfield, industrial and/or commercial sites. The Company targeted long life solar energy infrastructure, expected to generate renewable energy output over a minimum 25 year asset life. On 6 July 2020, Shareholders approved revisions to the Company's investment objectives and policies. The Company will no longer exclusively invest in solar infrastructure assets but will now have the ability to invest a minority of its capital into other renewable energy assets and energy storage assets; such a minority exposure will be limited to a maximum of 25% of the Company's GAV.

Individual assets or portfolios of assets are held within SPVs into which the Company invests through equity and/or debt instruments. The Company typically seeks legal and operational control through direct or indirect stakes of up to 100% in such SPVs, but may participate in joint ventures or minority interests where this approach enables the Company to gain exposure to assets within the Company's investment policy which the Company would not otherwise be able to acquire on a wholly-owned basis.

The Company may, at holding company level, make use of both short term debt finance and long term structural debt to facilitate the acquisition of investments, but such holding company level debt (when taken together with the SPV finance noted above) will also be limited so as not to exceed 50% of the GAV. The Company may also make use of non-recourse finance at the SPV level to provide leverage for specific solar energy infrastructure assets or new portfolios provided that at the time of entering into (or acquiring) any new financing, total non-recourse financing within the portfolio will not exceed 50% of the prevailing GAV.

The Company can invest up to 10% of the GAV into assets outside the UK to enable it to participate in acquisitions of portfolios with a mix of UK and non-UK assets, though it is not the Company's policy to be a long term holder of non-UK assets. Furthermore, up to 5% of the GAV may be invested into pre-construction UK solar development opportunities. In addition to the limitations above, the aggregate exposure to other renewable energy assets, energy storage technologies, UK solar development opportunities and non-UK assets will be limited to 30% of the Company's GAV.

No single asset (excluding any third-party funding or debt financing in such asset) will represent, on acquisition, more than 25% of the NAV.

The portfolio provides diversified exposure through investment in no less than 10 individual assets. Diversification is also achieved across various other factors such as technology, revenue streams, grid connection points, individual landowners and leases, providers of key components and assets being located across various geographical locations within the UK.

The Company aims to derive a significant portion of its targeted return through a combination of the sale of ROCs, FiTs and CfDs (or any such regulatory regimes that may replace them from time to time). Such regimes are currently underwritten by the UK Government, providing a level of fixed term, non-power market correlated revenues, typically for 20 years from the date of grid connection. The Company also intends, where appropriate, to enter into power purchase agreements with appropriate counterparties, such as co-located industrial energy consumers or wholesale energy purchasers. In addition, the Company may store energy or convert it into other forms for future sale.

The Company's investment policy has the flexibility to invest up to 5% of GAV into UK solar development opportunities and purchase assets pre or post construction in order to:

1. Maximise quality and scale of deal flow: The flexibility of the strategy maximises the pool of assets available to the Company. The majority of developers and contractors in the UK renewables market are unable to fund on their own balance sheets, therefore flexible funders such as the Company are able to select their construction partners and assets from the widest possible pool. The maturing of the UK renewable market has resulted in the Company being offered both operational and development asset portfolios;

2. Optimise the efficiency of the acquisitions: Funding through the construction phase removes a layer of financing cost provided by third party construction funders, typically passed on to the end acquirer; likewise, when acquiring secondary assets, the Company has selected assets based on quality, cost and attractiveness of the financing attached to the acquisitions;

3. Minimise risk via appropriate contractual agreements: Risk can be further reduced by appropriate contractual agreements. For construction assets, these include making milestone payments backed, typically, by bonds, security plant and equipment and significant cash hold backs; and

4. Acquire assets using prudent assumptions: As can be seen by the valuation contained in this report, the Company has acquired assets based upon a prudent set of assumptions.

Listing Rule Investment Restrictions

The Company currently complies with the investment restrictions set out below and will continue to do so for so long as they remain requirements of the FCA:

· neither the Company nor any of its subsidiaries will conduct any trading activity which is significant in the context of the Group as a whole;

· the Company must, at all times, invest and manage its assets in a way which is consistent with its objective of spreading investment risk and in accordance with the published investment policy; and

· not more than 10% of the GAV at the time of investment is made will be invested in other closed-ended investment funds which are listed on the Official List.

As required by the Listing Rules, any material change to the investment policy of the Company will be made only with the prior approval of the FCA and Shareholders.

4. Policies, approach and achievements adopted in respect of CSR

The Board and the Investment Adviser are focused on the corporate objective of providing investors with an ethical, socially responsible and transparently managed Company. The best standards of governance and CSR are central to the Company's ethics and important in ensuring the continued attractiveness of the Company to the broad group of stakeholders with which it interacts. The production of sustainable energy from the Company's portfolio is expected to save the emission of millions of tonnes of CO2 throughout the life of the assets. In addition, the Company seeks to increase biodiversity at its sites by appropriate planting and landscaping of the land it manages, as detailed in the Environmental, Social and Governance report below. The Company was the first London listed investment company to achieve Guernsey Green Fund Status.

5. Operational & Financial Review for the period

Key Performance Indicators

The Board has identified the following indicators for assessing the Company's annual performance in meeting its objectives:

Acquisitions

Acquisitions are discussed within the Investment Adviser's report in Section 2.

Portfolio Performance

Portfolio performance and power price movements are discussed within the Investment Adviser's report under Sections 2 and 4. 

The Company's PPA strategy is to enter into short term contracts with contracting periods spread quarterly across the portfolio in order to minimise the portfolio's sensitivity to short term price volatility.

Summary Statement of Comprehensive Income

Income for the period includes interest income and monitoring fees paid by BSIFIL to BSIF.

The total comprehensive income before tax of £24.5 million reflects the performance of the Company when valuation movements and operating costs are included. Further detail on valuation movements of BSIFIL's portfolio is given in the Report of the Investment Adviser.

The Company's ongoing charges ratio is 1.14% (2020: 1.10%), calculated in accordance with the AIC recommended methodology, which excludes non-recurring costs and uses the average NAV in its calculation. See below for a tabular calculation of the Company's ongoing charges ratio.

6. Directors' Valuation* of Company's portfolio

The Investment Adviser or an independent external valuer is responsible for preparing the fair market valuation recommendations for the Company's investments for review and approval by the Board.

Valuations are carried out semi-annually as at 31 December and 30 June each year, with the Company committed to procuring a review of valuations by an independent expert at such times as the Board deems appropriate.

Such an external review of valuation was last undertaken by an independent third party for June 2018.

The Directors' Valuation adopted for the portfolio as at 30 June 2021 was £694.5m (Note 8 of the financial statements), representing a cumulative 10.72% uplift on investment cost, derived from a combination of income generated within the investments and revaluation uplift under discounted cash flow methodology.

The Board reviews and considers the recommendations of the Investment Adviser to form an opinion of the fair value of the Company's investments.

A detailed analysis of the Directors' Valuation is presented in the Report of the Investment Adviser.

7. Principal and Emerging Risks

Under the FCA's Disclosure Guidance and Transparency Rules, the Board is required to identify those material risks to which the Company is exposed and take appropriate steps to mitigate those risks.

These inherent risks associated with investments in the solar energy sector could result in a material adverse effect on the Company's performance and value of Ordinary Shares.

The Company's risk register covers five main areas of risk:

· Portfolio Management;

· Operational;

· External;

· Reputational; and

· Emerging.

Each of these areas, together with the principal risks associated with that category, is summarised in the table below and includes commentary on the mitigating factors. The list is a subset of a much larger set of risks which the Board review on a regular basis.

* Directors' Valuation is an alternative performance measure to show the gross value of the SPV investments held by BSIFIL, including their holding companies. A reconciliation of the Directors' Valuation to Financial assets at fair value through profit and loss is shown in Note 8 of the financial statements.

PORTFOLIO MANAGEMENT

OPERATIONAL

OPERATIONAL AND EXTERNAL

REPUTATIONAL

EMERGING RISKS

Longer term viability statement

Assessing the prospects of the Company

The corporate planning process is underpinned by scenarios that encompass a wide spectrum of potential outcomes. These scenarios are designed to explore the resilience of the Company to the potential impact of significant risks set out below.

The scenarios are designed to be severe but plausible and take full account of the availability and likely effectiveness of the mitigating actions that could be taken to avoid or reduce the impact or occurrence of the underlying risks and which would realistically be open to management in the circumstances. In considering the likely effectiveness of such actions, the conclusions of the Board's regular monitoring and review of risk and internal control systems, as discussed above, is taken into account.

The Board reviewed the impact of stress testing the quantifiable risks to the Company's cash flows above as detailed in risk factors 1-9 and concluded that the Company, assuming current leverage levels, would be able to continue to produce distributable income in the event of the following scenarios:

The Board considers that this stress testing based assessment of the Company's prospects is reasonable in the circumstances of the inherent uncertainty involved. In accordance with the Articles, every five years the Board is required to propose an ordinary resolution that the Company should cease to continue as presently constituted. The first such discontinuation vote was held at the 2018 AGM and resulted in a 99.46% vote in favour of continuation. The next discontinuation vote is due to be held at the 2023 AGM and based on the Company's recent ability to raise capital the Directors have no reason to assume that shareholders would vote for discontinuation. For the purposes of modelling the Company's viability the discontinuation vote would have limited impact as a restructuring or sale of the Company's portfolio would be likely to require more than the three year viability modelling period to execute and the Company's portfolio would continue to be cash-flow generative irrespective of the outcome of the vote.

The period over which we confirm longer term viability

Within the context of the corporate planning framework discussed above, the Board has assessed the prospects of the Company over a three year period ending 30 June 2024. Whilst the Board has no reason to believe the Company will not be viable over a longer period, given the inherent uncertainty involved the period over which the Board considers it possible to form a reasonable expectation as to the Company's longer term viability, based on the stress testing scenario planning discussed above, is the three year period to June 2024. This period is used for our mid-term business plans and has been selected because it presents the Board and therefore readers of the annual report with a reasonable degree of confidence whilst still providing an appropriate longer term outlook.

Confirmation of longer term viability

The Board confirms that its assessment of the principal and emerging risks facing the Company was robust.

Based upon the robust assessment of the principal and emerging risks facing the Company and its stress testing based assessment of the Company's prospects, the Board confirms that it has a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period to June 2024.

These inherent risks associated with investments in the solar energy sector could result in a material adverse effect on the Company's performance and value of Ordinary Shares.

The Company's risks are mitigated and managed by the Board through continual review, policy setting and half yearly review of the Company's risk matrix by the Audit Committee to ensure that procedures are in place with the intention of minimising the impact of the above mentioned risks. The Board carried out its last formal review of the risk matrix at the Audit Committee meeting held on 19 May 2021. The Board relies on periodic reports provided by the Investment Adviser and Administrator regarding risks that the Company faces. When required, experts will be employed to gather information, including tax advisers, legal advisers and ESG advisers.

Directors' Responsibilities Pursuant to Section 172 of the Companies Act 2006

Section 172 of the Companies Act 2006 applies directly to UK domiciled companies. Nonetheless the AIC Code requires that the matters set out in section 172 are reported on by all companies, irrespective of domicile, provided this does not conflict with local company law.

Section 172 recognises that directors are responsible for acting in a way that they consider, in good faith, is the most likely to promote the success of the Company for the benefit of its Shareholders as a whole. In doing so, they are also required to consider the broader implications of their decisions and operations on other key stakeholders and their impact on the wider community and the environment. Key decisions are those that are either material to the Company or are significant to any of the Company's key stakeholders. The Company's engagement with key stakeholders and the key decisions that were made or approved by the Directors during the year are described below.

1. About Bluefield Partners LLP

Bluefield was established in 2009 and is an investment adviser to companies and funds investing in solar energy infrastructure. Our team has a proven record in the selection, acquisition and supervision of large scale energy and infrastructure assets in the UK and Europe. The Bluefield team has been involved in over £4 billion renewable funds and/or transactions in both the UK and Europe, including over £1 billion in the UK since December 2011.

Bluefield was appointed Investment Adviser to the Company in June 2013. Based in its London office, Bluefield's partners are supported by a dedicated and highly experienced team of investment, legal and portfolio executives. As Investment Adviser, Bluefield takes responsibility, fully inclusive within its advisory fees, for selection, origination and execution of investment opportunities for the Company, having executed over 70 individual SPV acquisitions on behalf of BSIF since flotation in July 2013.

Bluefield's Investment Committee has collective experience of over £18 billion of energy and infrastructure transactions.

2. Portfolio: Acquisitions, Performance and Value Enhancement

Portfolio

As at 30 June 2021, the Company held an operational portfolio of 106 PV plants (consisting of 65 large scale sites, 39 micro sites and 2 roof top sites) with a total capacity of 613MWp, with the portfolio displaying strong diversity through: geographical variety (as shown by the map above), a range of proven PV technologies and infrastructure (arising from the solar PV farms having been constructed by a number of experienced solar contractors), and a blend of asset sizes with capacities ranging from microsites to substantial, utility-scale solar farms (including two plants at c.50MWp).

Acquisitions

In August 2020, the Company successfully completed the first of two material acquisitions during the year under review.

A UK-based portfolio of 15 solar PV plants, with a total installed capacity of 64.2MWp, was acquired for an initial cash consideration of £106.6 million (including working capital), with deferred consideration of up to £2.1 million, contingent on securing asset life extensions. The Company received the economic benefit of the acquisition from 1 January 2020.

The portfolio consists of 15 ground-mounted operational solar PV plants, with 8 sites clustered in the south west of England, 2 in west Wales and a further 5 across central and eastern England. It also benefits from attractive subsidies; 13 of the projects are accredited under the Renewable Obligation Certificate ('ROC') regime with tariffs ranging from 1.4 - 2.0 ROCs, while 2 of the projects are accredited under the feed-in-tariff ('FiT') scheme.

The acquisition was financed by a bespoke £110m three-year, interest only, re-drawable term loan at an effective all-in cost of c.1.40% (being margin and swap rate) with NatWest, with the Company electing to hedge 75% of the loan repayments and interest over a notional 18-year period, at a swap rate of approximately 0.31% until 2038, to provide underlying rate certainty in anticipation of a refinancing scenario in or before August 2023.

The second material acquisition, in January 2021, was the purchase by the Company of Bradenstoke Solar Farm, an operational 70MWp ground mounted solar PV plant, for a total cash consideration of £89.0 million and from which the Company has received the economic benefit of all cash flows from 1 April 2020.

The plant, located in Wiltshire, has been operational since March 2015 and is accredited under the ROC regime with a tariff of 1.4 ROCs.

The acquisition was financed using the Company's revolving credit facility which, as well as being extended to September 2022 (with an option to extend to September 2023), was also increased, through a further £50m uncommitted tranche, to £100 million.

Post Period End Acquisitions

Maiden wind and co-located solar and battery acquisitions

On 28 June 2021 the Company announced the conditional acquisition of 109 small scale UK onshore wind turbines ("The Wind Portfolio") for approximately £60 million, with an opportunity to increase investment by a further £35 million to re-power 17 turbines in Northern Ireland before confirming completion of the acquisition on 16 August 2021 for approximately £63 million (including working capital and transaction fees) following the closing on 21 July 2021 of the Company's successful equity raise of £105.1 million.

Following the broadening of the Company's investment mandate in July 2020 to permit the Company to make investments of up to 25% of Gross Asset Value into non solar renewable technologies, the Wind Portfolio acquisition represents an excellent strategic fit for the Company through both a diverse geographical presence in the UK onshore wind market, with projects across England (62), Northern Ireland (29), Scotland (11) and Wales (7), as well as highly regulated revenue streams until 2034-2037 driven from the fact that the projects within England, Scotland and Wales are all FIT accredited, whilst those in Northern Ireland have been accredited under its Renewable Obligation Scheme ("RO Scheme") with a tariff of four Renewable Obligation Certificates ("ROC").

As a result of these accreditations, total revenue from the Wind Portfolio is over 90 per cent subsidised, with the remaining revenue, being less than 10 per cent of income, received from power sales sold under 15-year power purchase agreements with Power NI.

Beyond the attractive income producing aspects of the Wind Portfolio Acquisition, the highly regulated revenue stream is highly complementary to the Company's subsidy free ambitions and the management of merchant power prices in the new build opportunities which the Company is developing, and which are fundamental in supporting the UK Government meeting its net zero targets.

To this end, on 16 August 2021 the Company also announced the purchase of the rights (and associated land) to build 45MWp solar asset and co-located 25MWp battery project for approximately £5 million from EQUANS (re-branded from ENGIE Renewables). This co-located project is based in northeast Lincolnshire and is expected to begin construction during 2022, along with Yelvertoft, a 5 MWp solar project developed through the Company's proprietary pipeline.

Following these post period acquisitions, and the Company's successful equity raise of £105.1 million, the Company's total outstanding debt stands at £340.4 million, equivalent to 37% of Gross Asset Value (34% in June 2020), whilst the total installed capacity of its portfolio has grown to 625.6MWp (June 2020: 479MWp).

In keeping with the Investment Adviser's objective to deliver value and return accretive acquisition opportunities to the Company, the Investment Adviser is currently assessing a range of transactions as it looks to continue its policy of securing high quality, return accretive acquisitions.

Performance

In the year to 3o June 2021 the portfolio, with a total installed capacity at the year end of 613MWp, achieved a net PR of 80.3% (2020: 79.1%), against a forecast of 80.6%, generating 545.13GWh of power (vs 487.6 GWh FY 2019/20), marginally below the forecasted level.

Table 1. Summary of BSIF Portfolio Performance for 2020/21: 

Notes to Table 1. 

1. Excluding grid outages and significant periods of constraint or curtailment that were outside the Company's control (for example, DNO-led outages and curtailments).

2. Due to the acquisition of Bradenstoke Solar Farm at the beginning of January 2021, calculations have been pro-rated: H1 (Jul - Dec 20) excl. Bradenstoke & H2 (Jan - Jun 21) incl. Bradenstoke.

3. Actual data for 2019/20 published results exclude the 3 x CTF assets & Little Bear as these were acquired during that reporting year.

4. Actual and forecast revenue figures include ROC recycle estimates in line with standard forecasts.

5. Actuals also include LDs of £160.4k (FY2019/20 £0.39m) and insurance claims payments of £0.62m (FY 2019/20 £0.37m).

As shown in the table above, irradiation levels during the period were marginally lower than the Company's forecast (-0.8%) and 11.7% lower than the 2019/20 FY, which saw unusually high levels of irradiation.

With the Net Performance Ratio virtually as expected, at 80.3%, the generation yield was 938.9MWh for each MWp of installed capacity, 1.1% below the Company's expectations. With the Total Unit Price being higher than forecast by +3.9%, Total Revenues were above expectations at £118.0k/MWp (+2.8%), and 15.6% below those recorded in FY 2019/20. The reduction in Total Revenues compared to the previous year was due to the significantly higher irradiation recorded during that period, with the reduction in Total Unit Price impacted by PPAs fixed during a period of very high wholesale levels in Q3 2018 expiring.

The portfolio's 'availability' (the total time the plant was operating, as a percentage of the maximum possible) was 97.6%, marginally lower than the forecasted level of 99% (2020: 97.4%). This was largely due to the rectification of failed equipment (for which insurance claims were submitted, where appropriate), and annual preventative maintenance activity. If HV equipment required replacing during the year, temporary units were sourced to ensure generation losses were minimalised until permanent replacement parts could be delivered and installed.

Figure 1. FY 2020/21 - Actual Generation and Revenue 

[chart]

Note: The portfolio increased from 542.8MWp to 613MWp as of 1 January 2021 with the acquisition of Bradenstoke Solar Farm. 

The portfolio's Net Performance Ratio (or 'Net PR', the ratio at which a PV plant converts available irradiation to electrical generation output, excluding periods of outage which were outside the control of the plant) of 80.3% was virtually as forecast, and exceeding the level recorded during the 2019/20 reporting period of 79.1% by 1.5%. This improvement can be attributed to the increased level of service provided by Bluefield Operations Limited ('BOL'), which now provides O&M services on over 77% of the Company's solar farms.

Figure 2 - Actual Net PR and Irradiation in FY 2020/21

[chart]

Note: The portfolio increased from 542.8MWp to 613MWp as of 8 January 2021 with the acquisition of Bradenstoke Solar Farm. 

The geographical and equipment diversity within the Company's portfolio allows the effects of both 'Outage Risk' (whereby a higher proportion of large capacity assets would hold increased exposure to material losses due to curtailments and periods of outage, as directed by a specific DNO) and 'Defect Risk' (where over reliance on limited equipment manufacturers could lead to large proportions of the portfolio suffering similar defects) to be mitigated. 

This diversification, combined with the considerable efforts of the Company's asset manager Bluefield Services Limited ('BSL'), to minimise operational interruptions, is demonstrated by the fact that the outages experienced by the portfolio (those events both outside and within the Company's control) allowed the higher irradiation levels experienced during the Reporting Period to be directly converted into higher generation and, consequently, higher revenues being collected. 

The impact of outages resulting from events within the control of the Company (for example, periods when a plant, or part of a plant, were shut to conduct essential maintenance or repairs) accounted for a loss of 3.52% (2020: 2.84%) of the Portfolio's total generation, equating to 19.17 GWh. The increase compared to the previous reporting year can in part be attributed to a revised formulae for calculating losses, which now includes all generation lost through the effects of clipping, inter-row shading and snow cover.

Outages and curtailments which were outside the control of the Company (for example, where these events are initiated by a DNO for them to undertake upgrade works in the local area) accounted for 1.75% (2020: 0.70%) of total generation, equating to 9.56 GWh. These outages are accounted for in the portfolio's Net PR for the year of 80.3%.

The table below summarises the main outage events during the reporting period:  

During the financial year, the Group received £160.4k in LDs (£393.4k in FY19/20) for underperformance, revenue losses and the rectification of minor equipment defects. 

The ability of the Group to collect LDs, notwithstanding that the portfolio overall has performed in line with expectations, reflects the fact that the Group benefits from strong enforceable contractual protections and warranties across its portfolio and that the Investment Adviser has been disciplined in enforcing the group's rights to deliver the optimal outcome for its investors.

In addition, the Group's subsidiaries received £622.2k of payments from insurance claims (with a further £354.9k of submitted claims under review by the insurer) and £77.4k of business rates rebates, following appeals which highlighted discrepancies in the Valuation Office's calculations.

In addition, the Group received £150.58k from RO Mutualisation benefits for CP16 (1 Apr 2017 - 31 March 2018) and a further £242.8k for the CP17 period, totalling £393.4k. RO Mutualisation payments are provided by suppliers to Ofgem to cover any significant shortfall in the total RO payment amounts received due to some suppliers going out of business during the obligation period. CP16 was the first time the mutualisation mechanism has been triggered. Funds are then recycled back to suppliers who met their RO with ROCs (but not to those suppliers who failed to meet their RO). Any positive difference between the amount a supplier paid into the fund, then received back, is passed onto the generator as defined in the Company's PPA agreements.

Successful insurance claims, rebates and RO mutualisation revenues provided for a combined total of £1.09m (FY19/20: combined total of £2.01m).

As at 30 June 2021, all but two PV plants had successfully passed their warranty periods and achieved final acceptance, equating to a combined installed capacity of 594.38MWp which represents 97% of the portfolio. The remaining two sites are expected to achieve final acceptance by 31 December 2021.

During the year a single plant (Redlands, 6.2MWp), completed and passed final acceptance testing.

Final acceptance occurs following the fulfilment of the contractual requirements by the EPC Contractor. These requirements entail the plant's performance being above the contractually warranted levels over an average of at least two years of testing period, as well as the asset being defect free. A comprehensive audit of the site for defects is conducted by BSL, all of which are remedied or provided for before the final acceptance is passed. Following this rigorous procedure and the issuance of the final acceptance certificate, the EPC Contractor is released from its contractual obligations, though some warranties will remain in place for the full statute of limitations period.

Following the assets passing their final acceptance, they enter new availability and/or performance guarantees with their respective O&M providers, whilst also benefitting from comprehensive insurance coverage with respect to damage, theft, equipment failure and business interruption. 

Figure 3. BSIF Portfolio Assets Under EPC Warranty ('pre-FAC') and post-FAC, as at 30 June 2021 

[chart]

During the year ended 30 June 2021, O&M contracts for a further 14 assets (totalling 107.84MWp) were transferred to Bluefield Operations Limited ('BOL'). BOL now provides O&M services on a total of 50 plants with a combined capacity of 473.52MWp, equating to 77.3% of the portfolio. 

Using BOL as the O&M provider to these 50 assets has provided annual operational cost savings of c. £413.3k, in addition to the tangible operational benefits from increased contractual service levels and faster response times through a close operational working relationship with the asset manager, BSL. 

The Company's operating portfolio as at 30 June 2021 and the electricity generated in the 2020/21 financial year is shown below:

Table 4. BSIF Portfolio Generation for 2020/21 by Asset: 

*Assets acquired during the year

Value Enhancement Initiatives 

The most significant of these initiatives is a wide-ranging asset life extension programme, which seeks to allow the SPVs to extend the available tenor of the PV plants (above 2MWp of installed capacity) up to at least 40 years (with the majority of the assets' leases and planning approvals currently envisaging an average term of more than 25 years).

In addition to extending the lease tenor and inserting battery storage optionality, each SPV is also including options around the future optimisation of each plant. Examples of this include rights to re-powering, reconfiguring, or permitting the laying of additional conducting media (primarily cables to support the installation of batteries).

The discussions on lease extensions also present an opportunity for landowners to request variations and where these do not materially affect the operation of the plants or adversely impact the economics of its investment, the Company makes every effort to accommodate the landowner's wishes (such as rights to graze livestock on the sites).

Over the last 12 months the programme has continued to progress well, with negotiations concluded and 40-year or more leases now available on 36 assets (FY 2019/20: 29 assets) with a combined total of 262.7MWp, representing 42.9% of the (larger) portfolio as at 30 June 2021. Of these 36 assets, 28 (combined total of 225.8MWp) have received successful planning determinations following the execution of the extension options.

To date, 100% of the planning submissions have been successful, often with the amended terms receiving unanimous support from the relevant planning authority. At the time of writing, plants with an aggregated installed capacity of 25.8MWp have been submitted and are awaiting planning decision, with applications for a further 4 plants (total: 26.3MWp) to be submitted by end-September 2021.

As a reflection of the successful progress made regarding negotiations with landlords, receipt of positive planning determinations and wider market assumptions regarding asset lives in transactions, the Directors believe it appropriate, within the June 2021 Directors' Valuation, to value 80% of the portfolio, 490MWp (245MWp in June 20), on the basis of up to 40 years of operational life.

Looking ahead, if the Company were to decide it appropriate to value all assets on the basis of 40-year operational lives (being the remaining 20% of the portfolio) the prospective valuation uplift would be c.£14.5m or c.2.9pps.

PPA Strategy

Over the year the Company maintained its strategy of fixing power price contracts for periods between 12 and 36 months with the majority of contracts continuing to be struck for a minimum of 18 months (the average required duration under the LTF agreement with Aviva).

The Company has continued to implement the approach of fixing power prices evenly throughout the year, in order to mitigate the Company's exposure to seasonal fluctuations and short term events which have the potential to increase volatility in the price of electricity in the UK.

Prices can be agreed up to 3 months in advance of the commencement of the fixing period and PPA counterparties are selected on a competitive basis, but with a clear focus on achieving value and diversification of counterparty risk.

The graph below shows that as at 30 June 2021 the Company has a price confidence level of 100% to December 2021 and c.88% to June 2022 over the pricing of its power and subsidy revenue streams.

Figure 4. % of BSIF revenues fixed as at 30 June 2021

[chart]

Note: There is c.95MWp of capacity (some 20% of the portfolio) which benefits from long term offtake agreements, with 9 years remaining. These agreements have built in floor prices, which are automatically applied in the absence of direct short-term power price fixes.

The Company's strategy of fixing prices over periods of 12-36 months means the portfolio has the flexibility to capitalise on periods of above-forecasted power prices, as it successfully did during September 2018, but also to avoid fixing at points of significant market deterioration (e.g. in April 2020 and May 2020). This is made possible by the Board and Investment Adviser's strategy of securing leverage at the portfolio, rather than asset, level.

Furthermore, this also gives the Company the flexibility to explore value-enhancing options, such as negotiating corporate PPA offtakes, as well as maximising potential economies of scale by taking advantage of opportunities available only to owners who can commit significant volumes of generating capacity.

Revenues and Power Price

The portfolio's revenue streams in the reporting period (including any ROC recycle estimates for CP 20; the period April 2020 to March 2021) show that the sale of electricity accounted for 38% (June 2020: 41%) of the Company's income. Regulated revenues from the sale of FiTs and ROCs accounted for 62% (June 2020: 59%).

Looking back over the Company's financial year, the wholesale power market has recovered from the lows the market experienced in spring 2020.

Natural gas and carbon continued to be key drivers of the UK power market and as both have risen in price since April 2020, so too have UK power prices. Within the reporting period, particularly strong prices have been observed since April 2021, when multi-year highs in gas contract prices, all-time high carbon prices as well as multi-year high Brent Crude oil prices all combined to drive significant power price rises on both the day ahead (baseload reached an average of £79/MWh during June 2021) and 12-18 month seasonal periods (Winter 2021 baseload reached highs of £95/MWh in May/June 2021).

Driving the rise in gas and power prices, which have continued to climb post period end, have been a series of interconnected factors. Firstly, the start of 2021 saw a particularly cold winter in Europe which in turn caused significant draw-down of European gas storage facilities. With domestic gas production from the North Sea falling and challenges with supply from Groningen, this increased the need to replenish gas reserves during Summer 21 from outside Europe. However, at the same time demand in Asia rose sharply and limited shipping capacity prevented further export of US gas to Asia and Europe - further pushing up already high European LNG prices.

With higher gas prices resulting in a change to the gas-coal switching dynamics, demand for carbon emissions certificates have risen from coal generators which together with EU policy announcements, have pushed EU ETS carbon prices north of 60 €/tonne, with UK-ETS carbon pricing tracking accordingly.

The impact of the drivers outlined above was a year-on-year increase of 50.6% between the UK day ahead market base load power price for the 12 months to 30 June 2020 of £35.66 per MWh to £53.71 per MWh for the 12 months to 30 June 2021.

As a further illustration of the points mentioned above, the below charts compare the wholesale electricity prices versus gas and carbon from December 2018 to June 2021.

[chart]

Source data from Bloomberg. Carbon price EU ETS from Bloomberg, effective GB price based on IA calculations

Revenues and Power Price

The upward movement of the wholesale power market is yet to be fully reflected in the Company's average seasonal weighted power price which has declined by 11.0%, from £53.76 per MWh for the 12 months ending 30 June 2020 to £47.86 per MWh to 30 June 2021. This fall is due principally to the expiry of high price fixes achieved in September 2018 (which averaged c.£60 per MWh across 177MWp of the portfolio) and resulting re-fixes, despite still being materially above forecasted levels at c.£50 per MWh, being lower.

The impact of power prices on NAV is set out in the valuations section.

3. Analysis of underlying earnings

The total generation and revenue earned in 2020/21 by the Company's portfolio, split by subsidy regime, is outlined below.

The Company includes ROC recycle assumptions within its long term forecasts and applies a market based approach on recognition within any current financial period, including prudent estimates within its accounts where there is clear evidence that participants are attaching value to ROC recycle for the current accounting period.

In October 2020, Ofgem announced that value for ROC recycle for the period April 2019 to March 2020 (CP18) was £5.02/ROC (equivalent to 10.29% of CP18 ROC buyout prices). This was in line with the ROC Recycle estimate the Company had recognised in its 30 June 2020 Financial Statements; a further 'late payment' amount of £0.63/ROC was announced in December 2020, equating to a further £459k. This amount has been included within the 'Other revenue' line within the table below.

The key drivers behind the changes in Underlying Earnings between FY 2020/21 and FY 2019/20 are the combined effects of lower generation and PPA pricing (-10.3% and -5.8% respectively) as well as limited receipt of business rates rebates being offset by an increase in earnings from the 64.2MWp acquisition completed in August 2020 and the 70MWp acquisition completed in January 2021.

The table below demonstrates that the portfolio generated underlying earnings, pre debt amortisation, of £48.6m (11.34pps) and underlying earnings for distribution, post debt repayments of £9.3m (2.17pps), of £39.3m (9.16pps).

As a result, after meeting the FY20/21 dividend target of 8.00pps, and accounting for the additional shares from the post period end equity raise of £105.1 million but before inclusion of earnings from the purchase of the Wind Portfolio acquired in post period end (as these will be shown in the reporting period to June 2022), the Company has carry forward earnings available for future dividends of 2.67pps.

Underlying Portfolio Earnings

* Other Revenue includes ROC mutualisation, ROC recycle late payment CP 18, insurance proceeds, O&M settlement agreements and rebates received.

#Includes the Company and BSIFIL (included within BSIFIL is a group tax charge of £2.3m vs £1.2m June 2020).

**Excludes one-off transaction costs and the release of up-front fees related to the Company's debt facilities

**\* Target distribution is based on funds required for total target dividend for each financial period.

The table below presents the underlying earnings on a 'per share' basis.

* Average number of shares is calculated based on shares in issue at the time each dividend was declared.

** Reserves carried forward are based on the shares in issue at the point of Annual Accounts publication (being c.496m shares, 2020: c.370m).

*** An additional dividend of 0.63pps was paid for the year ended 30 June 2019.

4. NAV and Valuation of the Portfolio

The Investment Adviser is responsible for advising the Board in determining the Directors' Valuation and, when required, carrying out the fair market valuation of the Company's investments.

Valuations are carried out on a six-monthly basis at 31 December and 30 June each year, with the Company committed to conducting independent reviews as and when the Board believes it benefits Shareholders.

As the portfolio comprises only non-market traded investments, the Investment Adviser has adopted valuation guidelines based upon the IPEV Valuation Guidelines published by the BVCA (the British Venture Capital Association). The application of these guidelines is considered consistent with the requirements of compliance with IFRS 9 and IFRS 13.

Following consultation with the Investment Adviser, the Directors' Valuation adopted for the portfolio as at 30 June 2021 was £694.5m (30 June 2020, £624.3m).

The table below shows a breakdown of the Directors' valuations over the last three financial years:

During the reporting period there have been a number of key factors that have been considered in the Investment Adviser's recommendation to the Directors' Valuation:

(i) Competition for operational assets has remained high, as the range of pricing on subsidised solar assets equivalent to the ROC weighting of the Company's portfolio (average c.1.4ROC) continues to be between c.£1.20m/MWp and c.£1.40m/MWp although the Investment Adviser is observing a trend of increasingly aggressive assumptions where pricing is beyond £1.30m/MWp for portfolios and projects comparable to the Company's. Accordingly, to ensure the Company's portfolio sensibly reflects market pricing as at 30 June 2021, the Directors have continued to apply a discount rate of 6.00% (cf. 6.00% in June 2020);

(ii) Inclusion, on a discounted cash flow basis, of both the 64.2MWp acquisition completed in August 2020 and associated financing (the £110m 3 year term NatWest loan with 75% of the underlying gilt curve interest rate exposure hedged over 18 years at a swap rate of 0.31%) as well as the 70MWp acquisition of Bradenstoke in January 2021 (resulting in the Company's RCF being £90m drawn as at 30 June 2021);

(iii) The increase in the UK Corporation Tax rate, following the Spring Budget in 2021, from 19% to 25% from 2023 for the remaining life of each of the Company's assets;

(iv) Reflecting continued progress of the Company's asset life extension programme (as outlined in the Portfolio section), the Directors' valuation now assumes 80% of the Company's portfolio is valued on the basis of 30-40 years of operational life (490MWp as at 30 June 2021 vs 245MWp as at 30 June 2020). The Board continues to believe the most suitable method to value the additional cash flows from these assets is to apply a combination of prudent assumptions on performance and maintenance reserve as well as a discount rate of 7.5% (7.5% in June 2020) for periods over 30 years. As at 30 June 2021, the weighted average remaining life of the portfolio was 30.2 years (June 2020: 27.4 years);

(v) As reported in the Company's 30 June 2020 annual report, the Directors' Valuation now uses an equal blend of three leading forecasters' power curves (see power curve graph above).

Discounting Methodology and Discount Rate

The Directors' Valuation is based on the discounting of post-tax, projected cash flows of each investment, based on the Company's current capital structure, with the result then benchmarked against comparable market multiples. The discount rate applied on the post-tax levered project cash flows is the weighted average discount rate.

In addition, the Board continues to adopt the approach under the 'willing buyer/willing seller' methodology, that the valuation of the Company's portfolio be appropriately benchmarked on £/MWp basis against comparable portfolio transactions.

Strong competition for large scale portfolios of equivalent or lower ROC banding to the Company's, mean pricing continues to be within a pricing range of £1.20m/MWp - £1.40m/MWp and so by valuing the portfolio at an EV of £770.1m (June 2020: £602.7m), and an effective price of £1.26m/MWp (June 2020: £1.26m/MWp), using a discount rate of 6.0%, the Board remains conservatively within the pricing range of precedent market transactions.

Debt Assumptions

The debt assumptions within the Directors' Valuation reflect all third-party loans within the Company's capital structure as at the valuation date. Interest rates and repayment profiles are matched to the terms of each loan. In the case of any short-term financing, conservative assumptions are applied with respect to interest rates and repayment profiles post maturity. As at 30 June 2021, the Company's short term debt consisted of £90m drawn under its RCF along with a £110m term loan from NatWest, maturing in September 2023, with the conversion assumption within the Directors' Valuation aligned to the percentage of the loan that has been hedged (being 75% with 18-year interest rate swaps at a rate of 0.31% until 2038).

The interest rate applied to the converted balance of both the RCF and the NatWest term loan (being a cumulative balance of £145.5m) is 3.0%.

Power Price

The blended forecast of three leading consultants used within the latest Directors' Valuation, as shown graphically below, is based on forecasts released in April 2021 and June 2021 and implies a compound annual growth rate, in real terms from 2021, over the period of 30 years, of -1.47% per annum.

The curves used in the 30 June 2021 Directors Valuation reflect the following key updates:

1. Electricity demand, driven principally through electrification of heat and transport, is expected to rise from 312TWh in 2021 to 474TWh in 2050;

2. As outlined above, short-term gas prices have risen dramatically, driving material increases in near term wholesale power prices,

3. Increased renewable deployment in the UK (notably by 2030 c. 33 GWp of Offshore wind, c.19 GWp of Onshore Wind and c.19 GWp of solar) and Europe, which reflect the Government's energy budgets, long-term plans and announcements by project developers. Compared to June 2020 forecasts, this results in lower price forecasts in the medium-long term.

For illustration purposes, the graph also includes the blended curves used in the past two Directors' Valuations.

[chart]

The DCF for each project applies the contractually fixed power price applicable to each solar PV asset until the end of the fixed period and, thereafter, the blended independent forecast price.

Plant Performance

With all assets in the Company's portfolio generating for a minimum of four years, the entirety of the portfolio (being 613MWp as at 30 June 2021) is now being valued using PRs that reflect historical operational performance of each asset (up from 425MWp in June 2020). The weighted average PR in the Director's Valuation, including the effects of degradation, is 81.6% (June 2020: 82.2%).

Consistent with the valuation approach taken in previous periods, the Directors' Valuation does not amend long term plant performance forecasts based upon short term performance, especially while the plants remain within the warranty period and subject to outstanding contractual testing obligations.

Inflation

The Directors have decided to apply an inflation assumption between 2020 and 2025 of 3.00%, and from 2025 onwards of 2.75%. 

Other Cash flow Assumptions

No material changes have been made regarding regulatory revenue or cost assumptions.

NAV movement

In the period, the Company paid total dividends of £31.1m, being 4.00pps in total for the third and fourth interim dividends in respect of the year ended 30 June 2020 and 4.00pps in total for the first and second interim dividends in respect of the year ended 30 June 2021.

Over the period the Company's NAV has increased by £37.9m, from £433.5m as at 30 June 2020, to £471.4m as at 30 June 2021. Adjusting the 30 June 2020 NAV of £433.5m for the dividends paid in the period (£31.1m) and net equity raised of £44.5m results in an uplift in the NAV of the Company during the period of £24.5m.

A breakdown in the movement of the NAV of the Company over the period and how this interacts with the movement in the valuation of the portfolio is illustrated in the charts below. Post period end, in July 2021 the Company paid the third interim dividend for the 2020/21 financial year of 2.00pps.

[chart]

Directors' Valuation movement

Each movement from the 30 June 2020 valuation is considered in turn below:

New investment (134.2MWp PV assets) & New NatWest term loan

These movements reflect the base investment cost of £193.2m (being £104.2m for the 64MWp portfolio and £89m for the 70MWp asset acquired in August 2020 and January 2021 respectively), a small value uplift of £1.9m on the 64MWp portfolio and the three year term loan of £110m the Company arranged with NatWest to finance the 64MWp portfolio. The difference in value between base cost of the 64MWp portfolio and quantum of the NatWest term loan is due to working capital and transaction fees.

Cash receipts from the Portfolio

This movement reflects the cash payments made from the underlying project companies up to BSIFIL and the Company to enable the companies to settle operating costs and distribution commitments as they fall due within the period.

Directors' Valuation movement

Power curve updates (incl. PPAs)

The Company's three independent forecasters released updated forecasts in April 2021 and June 2021 and these have been applied to the Directors' Valuation. The impact of adopting an even blend of three independent forecasters as well as the latest power price fixes, against power price expectations applied in the 30 June 2020 valuation, results in a valuation decrease of £18.0m.

The discounted cash flow for each project applies the contractually fixed power price applicable to each solar PV asset until the end of the fixed period, and thereafter an even blend of three independent forecasters' prices.

Asset life update

As at 30 June 2021, 490MWp of the Company's portfolio has been valued on the basis of up to 40 year operating life (versus 245MWp in June 2020). To reflect the increased uncertainty in the latter period of each asset's lifetime, a discount rate of 7.50% (7.50% in June 2020) has been applied to all cash flows after a 30 year asset life. The £19.1m increase in valuation compared to 30 June 2020 reflects both the progress of the Company's asset life extension programme over the last twelve months and wider transactional market assumptions on asset life.

Increase in Corporation Tax to 25% from 19%

In March 2021, the UK Government announced that Corporation Tax would be increased from 19% to 25% from April 2023. As such, the Directors' Valuation has duly recognised this change, and this results in a reduction in value of £14.0m compared to the 30 June 2020 valuation.

Balance of Portfolio Return

The balance of portfolio return is predominantly the result of the unwinding of the discount rate over the period, but it also includes the effects of the Company's slight change in capital structure following the equity issuance of £45m and the full repayment of the RCF in November 2020, the extension by one year of inflation at 3.00% to 2025, release of working capital from new acquisitions in the period, as well as minor operational and financial assumption changes.

Other assumptions

Consistent with previous Directors' Valuations, the valuation assumes a terminal value of zero for all projects within the portfolio c.25 years after their commencement of operation, or up to 40 years for those with asset life extensions.

There have been no material changes to assumptions regarding the future performance or cost optimisation of the portfolio when compared to the Directors' Valuation of 30 June 2020.

On the basis of these key assumptions, the Board believes there remains further potential for NAV enhancement from the potential extensions of asset life for further projects in the portfolio, as well as cost optimisation on long term O&M fees.

The assumptions set out in this section will remain subject to continuous review by the Investment Adviser and the Board.

Reconciliation of Directors' Valuation to Balance sheet

*30 June 2021, 30 June 2020 and 30 June 2019 include c.£1m of upstream intercompany loans.

**GAV is the Financial Assets, as at 30 June 2021, at Fair Value of £470.3m plus Aviva long term debt of £160.6m, Durrants' project debt of £9.8m, RCF of £90m and NatWest of £110m term loan, (giving total debt of £370.4m). Subsequent to year end, the issue of equity caused a reduction of the gearing to 37% based on the 30 June 2021 NAV and addition of the wind portfolio.

Directors' Valuation sensitivities

Valuation sensitivities are set out in tabular form in Note 8 of the financial statements. The following diagram reviews the sensitivity of the EV of the portfolio to the key underlying assumptions within the discounted cash flow valuation.

[chart]

5. Financing

Aviva Investors Long Term Facility

The LTF is provided by Aviva Investors in two tranches. The first is a £121.5m fixed rate long term facility and the second is a £65.5m index-linked long term facility.

Both tranches are fully amortising over 18 years, providing natural alignment with the average remaining life of the Company's regulated revenues, eliminating refinancing risk as well as insulating the Company's

equity cash flows from significant principal repayments in the final years of the facility when the contribution of revenue from power is increased.

During the period principal repayments of £8.0m, combined with indexation increases of £1.7m, resulted in a total outstanding balance to Aviva Investors as at 30 June 2021 of £160.5m (Fixed £99.4m, Index linked £61.1m).

The LTF is held by the Company's wholly-owned subsidiary, BSIFIL, and is the result of a deliberate structuring approach to maximise both transparency and portfolio management flexibility, whilst also delivering a low cost of capital (as at 3o June 2021, the blended all in debt cost of the facilities was 3.0%).

Thanks to the prudent leverage (37% of GAV as at 30 December 2020), on the Company's base case projections the average DSCR remains close to 3 times. The current leverage (44% of GAV as at 30 June 2021) is the Company's position pre equity raise, this reduces to 37% as at 30 September 2021.

NatWest Revolving Credit Facility

On 6 November 2020, the Company agreed with NatWest, to extend the tenor of its £50m RCF to September 2022. This includes flexibility for a further one year extension to 30 September 2023 as well as an uncommitted facility of a further £50m. The facility therefore has £100m available. The terms of the revised facility remained unchanged, with a constant margin of 2.0% over LIBOR.

As at 30 June 2021 the Company's subsidiary had drawn £90m, out of the £100m available, from its RCF.

Post period end, following the Company's equity raise of £105.1m and completion of the acquisitions of the Wind Portfolio for approximately £63 million and £5 million for land and project rights for a 45MWp solar and 25MWp battery project, the drawn balance of the RCF is currently £60m (out of £100m available).

Both the RCF and the LTF are secured upon a selection of the Company's investment portfolio and offer the ability to substitute reference assets.

Project level debt

In addition to the LTF and the RCF, the Company also has a three year term loan with NatWest of £110m, maturing in September 2023 (secured against a portfolio of 141.7MWp within the Company's structure) and a small project finance loan of £9.8m, provided by BayernLB and fully amortising until maturity in 2029, secured against Durrants, a 5MWp FiT plant located on the Isle of Wight.

6. Market Developments

UK solar photovoltaic capacity and deployment

According to BEIS, the UK's total installed solar photovoltaic capacity as at June 2021 (the latest statistics available) was 13.53 GWp, across just over one million installations. This compares to 13.39 GWp in June 2020. Expansion over the period, of 186MWp, has been driven exclusively by the deployment of c. 50,000 small unaccredited installations with capacities below 50 kWp. The chart below illustrates how the deployment of new generating capacity has diminished significantly since the closure of the RO scheme in 2017.

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*Source; BEIS, Solar photovoltaics deployment July 2021

Capacity accredited nationally under the RO Scheme is 7.3 GWp, represents 50% of the total solar capacity in the UK, but constitutes only 2.1% of the number of installations. Capacity accredited under the FiT scheme was 5.1 GWp according to the latest data from BEIS released in July 2021. This equates to about 37% of total solar capacity and 79% of all installations. Subsidy-free capacity stands at 1.1 GWp and 19% of installations, although many of these are micro installations.

Secondary market transactions and subsidy-free activity

Transactional activity in the UK secondary solar PV market saw a slight resurgence in 2020 and early 2021 after a quiet period in 2019 as investor appetite for subsidised assets continued to increase. According to the most recent figures from Bloomberg New Energy Finance (BNEF), 525MWp of subsidised projects changed hands between July 2020 and June 2021. For reference, some 300MWp of solar PV project deals were reported in 2019.

Activity in the UK subsidy-free market has also continued at pace. Significant development activity is now underway within the UK, which is being driven by factors such as ambitious decarbonisation targets, falling installation costs and the inclusion of solar PV in the upcoming CfD auction round. Estimates from Solar Power Media indicate that there are over 17 GWp of large-scale solar projects in the development/ready-to-build phase (as at the end of June 2021), a 96% increase on the 9 GWp reported in June 2020.

Towards the beginning of the period there were indications that the construction of larger-scale unsubsidised projects was starting to gain momentum as projects progress through the development phase. However, in the second half of the year, this has slowed due to increased construction costs. The elevated pricing is being driven by a significant increase in module prices, together with increases in commodity prices and higher shipping costs/disruption in global supply chains.

With 613MWp under management, the Company continues to maintain a strong position within the UK solar market, as it owns and operates about 6.5% of the country's utility-scale solar PV capacity. As an established and experienced market participant, this regulated revenue base provides a strong foundation for growth of the Company through its subsidy-free solar strategy.

7. Regulatory Environment

Update on Contracts for Differences (CfD)

The CfD scheme is now the Government's main mechanism for supporting low-carbon electricity generation and operates via an auction process. During the period BEIS announced that solar PV will be allowed to participate in the next CfD allocation round (AR4) for the first time since 2015.

The UK Government is aiming to support around 12 GW of renewable energy projects in AR4, which is set to open in December 2021. The tender has been set a £265m budget and will split technologies across three 'pots'. Pot 1 (£10m) includes established technologies such as onshore wind and solar PV; pot 2 (£55m) includes less-established renewable technologies such as advanced conversion technologies and tidal stream, while a new pot 3 (£200m) has been set up for offshore wind.

The IA is evaluating the design parameters for AR4 with its advisors and assessing which of the Fund's pipeline of projects may be most suitable for entering into the auction. Subsequent rounds are then expected to be held approximately every two years.

UK net zero target

Since the UK introduced legislation requiring net greenhouse gas emissions to reduce to zero by 2050, the Government has published its Ten Point Plan for a Green Industrial Revolution and the Energy White Paper. These documents address how the Government envisages development of our energy system to accelerate the delivery of net-zero emissions and how it will promote a greener future for the country.

In December 2020 the UK Government also announced its new Nationally Determined Contribution (NDC) under the Paris Agreement, which commits the UK to reducing nationwide greenhouse gas emissions by at least 68% by 2030, compared to 1990 levels. The Climate Change Committee ("CCC") also published its sixth carbon budget (covering the period 2033 - 2038), which targets a 78% reduction in emissions relative to 1990 levels. This target came into force on 24 June 2021 and will for the first time cover the UK's share of international aviation and shipping emissions.

The Ten Point Plan

This document, published on 18 November 2020, outlined the government's vision to become a global leader in green technologies and details targets for different sectors including offshore wind, hydrogen, transport, carbon capture and buildings. The plan also outlines ambitious funding plans, including £12 billion of Government investment to help create and support up to 250,000 green jobs. Solar is not specifically referenced within the document, besides the plan to include it in the next CfD auction round.

Energy White Paper

The Government published its highly anticipated Energy White Paper on 14 December 2020, which provides further clarity on how the UK aims to achieve its net zero target. The three objectives stated in the paper are to: i) transform the energy system; ii) support a green recovery and promote green jobs; and iii) to create a fair deal for consumers. The paper provides further detail on how to achieve the targets set out in the Ten Point Plan, as well as announcements such as the establishment of a UK emissions trading system.

COP26

The UK is hosting the 26th UN Climate Change Conference of the Parties (COP26) in Glasgow from 31 October 2021 - 12 November 2021. These climate talks will bring together heads of state, climate experts and environmental campaigners with the objective of agreeing coordinated action to tackle climate change. As the UK has taken on COP26 Presidency, it has stated that it is committed to working with all countries and joining forces with civil society, companies and people on the frontline of climate change to inspire action ahead of COP26. The main goals of COP26 are to:

1. Secure global net zero by mid-century and keep 1.5 degrees within reach. To deliver this, countries are expected to set stretching targets to deliver emissions reductions by accelerating the phase-out of coal, curtailing deforestation, speeding up the transition to electric vehicles and encouraging investment in renewables.

2. Adapt to protect communities and natural habitats. For example, by protecting and restoring ecosystems and building resilient infrastructure to protect those affected by climate change.

3. Mobilise finance. To deliver the first two goals, developed countries are being encouraged to work to unleash trillions of dollars to secure global net zero.

4. Work together to deliver. At COP26 the Paris Rulebook (the detailed rules that make the Paris Agreement operational) is expected to be finalised, while talks are expected to help collaboration between governments, businesses and society.

1. Introduction from Chairman

The Company was founded on the belief that renewable investments created the opportunity for attractive and stable returns whilst advancing the decarbonisation of the energy markets. As a pioneer in the renewable market, the Company has always had a clearly articulated environmental focus. Less well articulated has been the Company's ongoing focus on social and governance issues. I hope this report better highlights these considerations and the Board's commitment to these areas going forward.

To date, environmental considerations have taken centre stage in ESG. Though emphasis had started to shift towards the 'S' and 'G', social considerations were rapidly elevated as a result of the pandemic. Further to just monitoring financial health, companies were analysed on how they treated their staff, addressed inequalities and supported their local communities. It was not enough to be a viable business - it had to be a responsible one, too.

Despite implications of the pandemic, focus on the climate crisis has not diminished, in fact, it has intensified. The UK Government have clearly expressed the role renewable infrastructure must play in achieving the UK's 2050 net zero target. This presents an opportunity for the renewable sector to lead by example, demonstrating how industries can grow rapidly whilst upholding a responsible and ethical approach to investment.

ESG is evolving quickly. Pressure on companies to evidence their ESG commitment is mounting, with Shareholders placing increasing emphasis on the social and environmental impact of their investments. Emerging regulation will make it easier to identify sustainable investments, cutting through 'greenwashing' by mandating companies to prove their sustainable credentials through a series of disclosures. Such will also provide much needed progress towards standardised sustainability reporting.

The Company believes in taking an informed, evidence-based approach to the management of ESG. The Company elected to undertake a materiality assessment in order to identify material ESG opportunities and risks, which will inform its ESG strategy. The results of the assessment are presented within this report and will provide transparency to Shareholders on how the Company has determined its ESG priorities.

Given the importance of transparency, the Board is conscious of the recent allegations relating to forced labour within the polysilicon supply chain. We want to assure Shareholders that the Company adopts a zero-tolerance approach to any form of modern slavery and human trafficking within its supply chains, or indeed any type of human rights breach. The actions taken by the Company in relation to this matter are detailed later in this report.

The following constitutes a detailed summary of the ESG activities and progress made by the Company, and its key service providers, over the last twelve months. ESG presents an opportunity for companies to take responsibility for their impact and take positive action towards building a sustainable future. The Company will continue to engage with its Shareholders as part of its dedication to creating an ESG approach which will maximise the benefit to both society and the environment over the long term.

John Rennocks,

Chairman

2. Introduction from the Investment Adviser

We are extremely proud of the way the Bluefield Group has worked together to overcome the difficult circumstances imposed by the pandemic over the last year. There is a renewed sense of optimism as normality starts to edge closer, with the collective understanding that the 'new normal' has to be better than the old one.

Social considerations have come to the forefront; however, this does not mean that environmental goals have been pushed aside. Instead, increased synergy between environmental and social considerations, led by good governance, has made them both integral to the long-term success of any investment fund.

Since Bluefield's first detailed ESG report last year, the ESG activities of the Group have progressed significantly. To support the Company as it builds out new capacity, internal systems have been enhanced to incorporate additional ESG considerations. Social considerations have remained a priority, with particular attention given to employee wellbeing and diversity & inclusion. In addition to the Group's usual compliance activities, there is ongoing assessment in connection with the Sustainable Finance Disclosure Regulation (SFDR) and EU Taxonomy Regulation.

Our ESG plans for the next 12 months are just as exciting. Focus will continue to be given to integrating ESG considerations across the asset lifecycle, from pre-investment to operational management. The Group will formalise its ESG approach, detailed within an ESG policy which will be made publicly available for the Company and the Bluefield Group.

Though there is much more to do, we will continue to approach ESG with integrity and transparency, working with the Company as we continue on a path of constant evaluation and improvement.

James Armstrong,

Managing Partner of Bluefield Partners LLP

3. Annual ESG Highlights

Relating to the period 1 July 2020 - 30 June 2021:

4. Responsible Investment

ESG Management

ESG is considered by the Board as part of Board meetings and investment decisions. As an externally managed investment company, the Board has limitations on the influence it can exert on how its service providers can run their business. However, ESG activity is actively monitored through regular communication with the Investment Adviser, including as part of investment committee papers, Board meetings, ad hoc calls and written updates.

Day-to-day management of ESG is the responsibility of the Investment Adviser and other Bluefield companies which service the portfolio. The Partners of the Investment Adviser and CEO of Bluefield Services and Operations oversee the implementation of ESG across the Bluefield Group. The Group ESG Manager works closely with the Bluefield investment, legal, portfolio, asset management and operational teams to integrate ESG considerations across all phases of the asset lifecycle. ESG progress is regularly reported to the Bluefield Partners, CEO and Group General Counsel. This year, an external ESG consultant was engaged to provide additional support and expertise.

Company's Approach to Responsible Investment

As defined by the United Nations-supported Principles of Responsible Investment (PRI), responsible investment refers to the integration of environmental, social and governance considerations into investment decisions and active ownership[1]. The Company recognises that management of material ESG issues, both risks and opportunities, is essential to the achievement of long-term, sustainable returns. The Company also places high importance on maximising its positive impact and reducing its negative impact, aiding the transition to a more sustainable economy.

As an investment company with a long-term focus, the Company is well positioned to formally integrate ESG considerations and evaluate environmental and social impact over time.

Integration of ESG into the Investment Process

The Company invests in renewable energy assets, primarily utility scale solar PV but also potentially wind, hydro and storage technologies. On behalf of the Company, the Investment Adviser undertakes detailed due diligence on each investment opportunity to identify risks and opportunities, including those relating to ESG. A final recommendation for investment is then presented to the Board of the Company.

The following diagram details how sustainability risks are currently integrated into the Company's investment process. Consideration of sustainability factors within the investment process will continue to be enhanced over the coming year.

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Case Study - The Bluefield Group's approach to Responsible Investment

The Bluefield Group has continued to enhance its approach to responsible investment over the last twelve months. ESG factors have been integrated more deeply into investment and due diligence processes and a set of minimum ESG requirements have been created for EPC contractors. An ESG policy for the Group will be finalised in coming months.

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The Investment Adviser is also signatory to the UN PRI, a set of voluntary investment principles which promote the integration of ESG considerations into investment practice. In line with its responsibilities as a signatory, the Investment Adviser submitted its first full PRI report and will continue to make progress in implementing the investment principles.

5. Materiality Assessment

Purpose

An effective ESG strategy for the Company will be focused on ESG topics which are deemed highly material. To achieve this, the Company engaged an external consultant to undertake a materiality assessment; an evidence-based approach to the identification of material ESG risks and opportunities. The Company hopes this assessment will provide transparency to Shareholders and other stakeholders on its approach to the identification, and subsequent management, of material ESG factors relating specifically to BSIF.

 Methodology

The materiality assessment was conducted using best practice methodology, aligning to Global Reporting Initiative (1.3 in GRI 101) standards. An initial desktop review identified a large list of potentially material ESG topics, derived from the investor space, global ESG frameworks and peer activity.

To determine which ESG topics were most material, feedback from internal and external stakeholders was obtained through interviews and online surveys. The Board recognises the importance of stakeholder engagement in identifying ESG risks and opportunities, therefore a wide range of stakeholders were consulted, including investors, PPA suppliers, EPC contractors, landowners, sheep grazers, audit partners, law firms and H&S advisers. In total, 18 in-depth interviews were conducted and 56 surveys completed.

A Business Impact Assessment (BIA) was completed to assess the likelihood and impact of key ESG risks and opportunities for the Company. The resulting risk impact scoring was combined with qualitative analysis from stakeholder feedback to map materiality topics onto a matrix, based on an aggregated score. With deep stakeholder insight and a clear understanding of risks and opportunities facing the core business, priority ESG topics were identified.

Results 

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In total, 16 material topics were identified. The materiality matrix above plots each topic according to its BIA significance rating (x axis) and its importance to stakeholders (y axis). Based on the final, aggregated score, the 16 topics were sub-divided into three categories of importance: 'very high - requiring active management', 'high - requiring active monitoring' and 'moderate - requiring tracking', as highlighted below.

It is important to note that all identified topics are material, therefore require consideration from the Company. The materiality assessment is used to highlight, at a given point in time, which ESG topics represent the biggest risk to the Company if not managed correctly, and also the topics which are of highest importance to stakeholders. Priority topics are in line with expectations, with the Company and its service providers aware and managing these risks as part of their operations.

Given the structure of an investment trust, which has no employees and relies entirely on external advisers for its activities, the Company cannot independently address all identified matters. Instead, in areas where it does not have direct control, the Company works with its service providers to ensure an appropriate approach is taken. Where these service providers relate to the Bluefield Group, the Company will work with the Investment Adviser to develop an appropriate ESG strategy to address material topics. For service providers outside of the Bluefield Group, additional diligence and engagement will be undertaken to ensure risks and opportunities are managed to a satisfactory level.

The identification of socially focused ESG topics, such as 'Employee Engagement & Satisfaction', may seem surprising given that the Company has no direct employees. However, it is in the Company's interest to ensure social aspects are appropriately considered, as the performance of its service providers can have a direct impact on the Company itself.

Next Steps

The materiality assessment will inform the Company's ESG strategy, which will be developed over the coming year and will include ESG targets and KPIs. The outputs of the assessment will also inform due diligence processes, ensuring a consistent approach to ESG management across the Bluefield Group.

The Company recognises that materiality is transient, meaning the importance of different ESG topics will change over time. As a result, steps will be taken to ensure the assessment of key ESG risks and opportunities remains up to date, capturing new material topics and ensuring that the Company's ESG strategy remains informed and effective.

6. Sustainable Development Goals[2]

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The Company intends to embed the Sustainable Development Goals[3] (SDGs) within its ESG strategy, following best practice guidelines. Whilst full alignment will be completed over coming months, the Company positively contributes to the following SDGs:

7. Environmental

Generation of Renewable Energy

The Company plays an important role in the decarbonisation of the energy sector in the UK. To achieve the UK's target of net zero greenhouse gas emissions by 2050, the Government has outlined its ambitious plans for green technologies within its Ten Point Plan and Energy White Paper. Given its widened investment mandate, the Company is well positioned to support renewable energy growth targets and assist the transition to a sustainable future.

Since 2013, the Company has saved over 936,000 tonnes of CO2e[4] from being released into the atmosphere, as highlighted in the table below. CO2e savings have been calculated for each financial year using generation data aligned with the appropriate Government CO2e conversion factor.[5]

Though CO2e savings have been a useful metric to demonstrate the positive environmental impact of renewable technology, the table highlights that CO2e savings for the portfolio have largely declined since 2017, despite installed capacity increasing. This is caused by the reducing contribution of fossil fuels to the UK's electricity mix (and within that mix coal has largely been replaced by gas, which produces significantly less CO2 than other fossil fuels). As renewable energy generation increases, the proportion of the grid supplied by fossil fuels will continue to decrease. This means CO2e savings, derived from the displacement of fossil fuel generated energy, will also decline over time. As a result, the positive impact of renewable technology may be better indicated by the absolute generation of energy produced each year or the equivalent number of houses powered.

During the financial year ending 30 June 2021, the Company achieved over 127,000 tonnes of CO2e savings and generated over 545,000,000 kWh of renewable power. Based on Ofgem's Typical Domestic Consumption Values[6], a medium household uses 2900 kWh electricity per year. As a result, the portfolio powered the equivalent of nearly 188,000 homes, corresponding to a city similar in population size to Bristol.

 Carbon Footprint

To date, the Company has primarily invested in secondary assets, meaning the PV sites were operational when acquired. Once operational, a renewable asset will generate more energy than it will consume, making its carbon impact net positive.

However, the Company is aware of the footprint associated with the construction of new assets and that this must be reduced in line with the UK's net zero targets. As the Company builds out new capacity, the Investment Adviser is working with EPC contractors to understand how energy and water consumption can be reduced during construction. Where possible, EPC contractors will be asked to track usage in these areas.

Understanding the Company's footprint will be an area of focus over the coming year and the Board has committed to undertaking more meetings via online platforms, reducing travel taken on behalf of the Company.

The Investment Adviser and Bluefield subsidiaries have been carbon neutral since 2018, reducing their carbon footprint where possible and offsetting the remainder. Annual calculation of the footprint considers factors such as electricity consumption, gas usage and travel. Bluefield Operations Limited, who provide O&M services to the Company, is continuing to investigate how electric vehicles can be incorporated effectively into its fleet.

Land Management

The Investment Adviser oversees biodiversity and land management across the portfolio, working closely with the asset management and O&M teams from Bluefield Services Limited and Bluefield Operations Limited, respectively. If managed correctly, a solar farm can return intensively farmed land back into natural meadow, increasing diversity and returning nutrients to the soil.

Bluefield Operations Limited is responsible for ensuring each asset remains fully compliant with its Landscape and Ecological Management Plan (LEMP). The LEMP is often created during the planning phase of a new project, to ensure the asset has no net negative impact on the surrounding environment. The LEMP specifies enhancement measures which must be implemented to support (and potentially increase) the biodiversity present, including wildflower seeding, bat and bird box installation, mammal gates and hibernacula.

Land management activities are scheduled to minimise impact on surrounding fauna and flora. Grass cuts avoid ground bird nesting season and sections of a site may be left uncut to provide refuge and boost biodiversity. Where it cannot be avoided, pesticide use is kept to a minimum. Many of the sites also support sheep grazing, helping manage grassland whilst supporting farming activities.

The environmental conditions of each asset are closely monitored by Bluefield Operations Limited, who work alongside specialist environmental advisers to implement remedial works as necessary. The O&M team update the asset management team at Bluefield Services Limited, who independently assess site compliance with environmental standards as part of their regular site visits.

Enhancing Biodiversity 

The Company is taking an informed approach to enhancing biodiversity across the portfolio. Partnering with Wychwood Environmental, an independent consultant, the Company will deliver a biodiversity strategy which will consider both the existing portfolio and new build assets. The Company will communicate this strategy via a biodiversity policy, which will detail biodiversity objectives and how these will be achieved. The Company looks forward to updating its Shareholders on its progress in this area in due course.

Case Study - Beehives

The rapid decline of pollinators in the UK is well recognised, with threats including habitat loss, food shortages, disease and chemical use. https://www.britishbeecoalition.org/decline-threats

In addition to seeding wildflower, an important food source for pollinators, the Company has increased the number of beehives across the portfolio.

Over the last year an additional 11 hives have been installed, bringing the total hives in the portfolio to 14. As well as supporting local bee farmers, it is hoped the pollinators will enhance surrounding ecosystems.

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Case study - University Research

The Bluefield Group collaborated with the University of East Anglia to conduct student studies across the portfolio over the summer.

Focusing on biodiversity, the students analysed within- and between-site variability and the effects of different land management practices.

Results are expected later this year, but camera trap findings include the identification of an otter on one of the sites.

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Accreditations

Recognising its positive environmental impact, the Company has received a number of accreditations:

The Company was also a finalist at the 'Investment Company of the Year awards' 2020, as part of the Environmental and Renewables category.

8. Social

Supporting Local Communities

The Company views its relationships with local communities as highly important. Renewable assets create both positive and negative impacts, particularly for the communities surrounding them. The Company aims to mitigate any perceived negative impacts and provide local benefits beyond the generation of renewable energy.

Social impacts are most likely to arise during the construction of a new asset, therefore community engagement is a key consideration in the build out of new capacity. As part of due diligence, the Investment Adviser assesses how EPC contractors obtain and consider local stakeholder feedback. EPC contractors are also strongly encouraged to source local resources and labour where possible, to support the local economy.

The Bluefield Group ensures that relationships with the local community remain strong over the lifespan of an asset, particularly with landowners. The Company also supports community benefit schemes across the portfolio, which are often agreed during the planning phase of new projects. This year the Company paid over £151,000 to community schemes, which will be used by councils to fund local projects.

Case Study - Weasenham Parish Council

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The Company makes annual community benefit payments to the Weasenham Parish Council. Payments are used to benefit the local village and have included the purchase of new litter bins, the planting of a hedge of diversified small trees and the placement of benches, to allow residents to sit and enjoy local beauty spots.

More recently, the Weasenham Parish Council have used the community benefit payments to help fund a larger project - the replacement of a derelict building on the recreation ground, with the aim of restoring community spirit as well as supporting a new football team. The project received overwhelming support from the village, both through donation of local materials and time dedicated by local tradesmen and other residents. Planning permission was successfully obtained to build a replacement eco-friendly building, in keeping with the style of the village, which is due to be completed imminently.

Anna Coke, Chair of Weasenham Parish Council, said

"The whole project has been a huge success. The building will provide a social hub for the village and allow activities such as line dancing, children's clubs and social evenings, as well as being the centre of activity for our up-and-coming football club! It just shows what can be achieved with an annual benefit payment combined with a strong sense of community and a determined Parish Council."

Diversity and Inclusion

The Company recognises the value of diversity and is looking to make progress in this area in line with recommendations from the Hampton-Alexander review. Whilst the Company has no direct employees, it is important to the Board that the Investment Adviser and other Bluefield companies maintain an inclusive working environment.

The Bluefield Group is committed to ensuring equal opportunities for all team members, regardless of their background or individual characteristics. To achieve this, the Bluefield Group has sought feedback about the feeling of belonging in the organisation, has issued an employee engagement survey and has provided training on topics such as unconscious bias and management practices. Discussions with universities are in progress to identify opportunities to engage on diversity and inclusion issues, such as through mentoring and seminars, and support students wanting to enter less diverse sectors.

Employee Wellbeing & Culture

Employee wellbeing is a major consideration for the Bluefield Group. A number of wellbeing initiatives have been developed, including nature workshops and incentives to encourage employees to spend time outdoors and enjoy exercise. The Group continues to mark dates like stress awareness month and mental health awareness week through internal initiatives and comms campaigns. Open and honest dialogue with reporting lines is facilitated through performance management practices.

Through its employee training budget, access to e-learning and Leadership programmes, the Bluefield Group promotes a learning environment. Employees have participated in learning pertaining to business skills, well-being, compliance and leadership skills, with over 50 colleagues participating in a 360 feedback and insights programme and over 350 hours of e-learning taken place this year.

"Results of the 20-21 Employee Engagement Survey revealed that over 80% of respondents feel like their wellbeing is considered at Bluefield and would recommend working at Bluefield to friends and family" 

Corporate Responsibility 

The Bluefield Group has continued to support FareShare South West and The Felix Project, charities focused on alleviating food poverty through the redistribution of surplus food. Both charities acted as a safety net for local communities throughout the pandemic and saw at least a three-fold increase in demand. During the last year, donations made by the Bluefield Group resulted in the rescue and redistribution of over 89,000 meals to those in need.

Looking forward, the Bluefield Group is pleased to announce that it is launching a charitable Foundation to maximise its CSR activity, with a full update to be provided in due course.

9. Health & Safety

Health & Safety is of the highest importance to the Company and its service providers. The Company demands that respect for Health & Safety matters is demonstrated across all portfolio activities, regardless of their size. The Board is conscious of the risk posed by Health & Safety and rigorously monitors the Health & Safety approach of its key service providers.

Every asset owning SPV holds Health & Safety policies, standards and process requirements, to which all contractors must observe and comply. Approved contractors (including those companies within the Bluefield Group) undergo annual Health & Safety audits by the SPVs, to ensure internal compliance. Each SPV reviews its Health & Safety records and policies annually, to ensure compliance with the latest Health & Safety guidance and industry best-practise. The Company receives routine updates on Health & Safety matters.

The on-site activities of Bluefield Operations Limited and other retained O&M service providers pose the highest risk and are therefore a key area of focus. The contracting SPV's Health & Safety policies, standards and processes are complemented by additional working practises, with the advice of specialist consultants. Every task, whether corrective maintenance or simply a site visit, is proceeded by Health & Safety analysis, with Risk Assessments and Method Statements a pre-requisite for all onsite activity. During the reporting year, there was one major incident to declare, which resulted in no injuries to personnel.

Site Health & Safety audits are conducted by Bluefield Services Limited and Bluefield Operations Limited, using independent consultants, to ensure that sites remain compliant with Health & Safety regulations and provide a safe working environment for staff, subcontractors and approved visitors. Regular internal safety audits are also conducted as part of preventative maintenance activities. Staff competence in Health & Safety matters is assessed through eLearning courses, Health & Safety training, competence certification, independent assessment with Authorising Engineers and other activities.

10. Corporate Governance

Approach to Corporate Governance

The reputation and success of the Company could not have been achieved without its foundation of sound corporate governance. It is the framework from which the Company undertakes decision making, reporting, management, risk analysis and compliance. Further detail on the Company's approach to corporate governance, including its adherence to the AIC code, can be found within the separate Corporate Governance report.

As key service providers, the Investment Adviser and other Bluefield companies also demonstrate strict governance and controls, with the Board regularly updated on significant matters related to the Bluefield Group. The Investment Adviser uses third party compliance advisers to ensure its regulatory obligations are met through quarterly audits and reports on business activities. The asset management team at Bluefield Services Limited use internal procedures alongside an asset management platform to ensure compliance with the specific conditions associated with each asset, throughout the asset's lifetime.

ESG Legislation

The Sustainable Finance Disclosure Regulation (SFDR) came into effect in 2021 and requires companies to make sustainability disclosures at both the level of the firm and financial products. The EU Taxonomy Regulation adds an additional set of disclosure requirements, which establish whether an economic activity is environmentally sustainable.[10] The Company continues to assess its alignment against these frameworks, with disclosures available on the Company's website. In addition, the Company will look to align with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) over the coming year.

Case Study - Engagement

The Investment Adviser regularly discusses ESG as part of conferences and webinars, most recently as part of an ESG seminar series hosted by Numis, focused on topics such as net zero and supply chain management.

In addition, a number of Bluefield employees are members of trade body working groups, including Solar Energy UK's Natural Capital and Supply Chain task groups. Solar Energy UK is an "established trade association working for and representing the entire solar and energy storage value chain", serving over 230 businesses and associates.[11] Participation in working groups allows Bluefield to contribute to the improvement of industry standards and remain at the forefront of industry developments. Luke Roberts, Portfolio Director of the Investment Adviser, joined the board of Solar Energy UK in 2020 and became the Chair of the Utility Scale Commercial working group in 2021.

Anti-bribery, Money Laundering and Slavery

Internal policy requires that the Investment Adviser and Bluefield companies, and all those who work for them and with them, uphold principles embodied in the anti-bribery, anti-money laundering and anti-slavery & trafficking legislation. These requirements are reflected in contractual obligations and may be followed up with annual audit requirements of contractors. Policies are subject to periodical reviews and renewed as appropriate, with staff trained on a yearly basis. The Investment Adviser, as an FCA regulated entity, also complies with additional policies applicable to it. The Investment Adviser conducts due diligence in these areas on behalf of the Company as part of every acquisition.

Forced Labour Allegations (subsection of above)

The Company is aware of the concerns regarding forced labour within the polysilicon supply chain. As reflected within its Modern Slavery Statement, the Company is committed to ensuring that modern slavery is not associated with its supply chains or any part of its business.

The Company has been working closely with the Investment Adviser to ensure appropriate action is taken regarding this matter. Within the Bluefield Group, a specialist taskforce has been created to perform extensive due diligence, including engagement with Shareholders, manufacturers, EPC contractors, trade bodies and independent consultancy services. The Investment Adviser is a signatory to the Solar Energy UK's industry supply chain statement and representatives of the Investment Adviser are part of the Solar Energy UK Supply Chain Task Force.

The Company is conscious that the concerns of forced labour can only be fully investigated and subsequently eradicated through industry collaboration. Consequently, the Company has been engaging with trade bodies to maximise the impact of the UK solar industry on this matter. The issue will remain a priority and the Company will continue to monitor and engage on the subject over coming months.

Third Party Due Diligence

ESG due diligence has been enhanced for key third party providers. By engaging on ESG topics, the Investment Adviser can evaluate the ESG offering of the contractor and ensure the ESG priorities of the Company are understood prior to engagement.

The Bluefield Group ensures that none of its counterparties has ever been sanctioned by a regulatory body. Searches and checks are applied during initial tenders and negotiations, as well as during formal audits. A vetting process has been developed to ensure subcontractors are suitably qualified, carry appropriate levels of insurance and have planned works in a safe manner. Training in these matters is undertaken by appropriate staff.

Cybersecurity

Cybersecurity is a key focus for the Company, particularly in relation to the security of the solar assets. Following a previous security audit at one of the portfolio's largest sites, implementation of recommended security enhancements has commenced. A framework for security is being developed and is expected to be retrofitted across existing sites and applied to new sites as they are built.

During the reporting period Bluefield appointed a Group IT Manager, with responsibility for strategy and security across all Bluefield companies. Priority has been given to evaluating and improving security and resilience, which has been achieved through a number of measures. Bluefield employees also complete mandatory cyber security training with periodic refreshment, with this year's training provided in conjunction with the South West Police Regional Cyber Crime Unit.

GDPR

Ongoing business compliance with the GDPR Guernsey, GDPR UK and the GDPR EU, as appropriate, is a priority. The Bluefield Group has training in place for both newly engaged and long-standing staff members. Particular attention has been paid to the changes brought about by Brexit. Contract adjustments and the adoption of standard form clauses form part of the ongoing documentation and policy updates. Regular consideration of risk impact assessments and purging of data continues. The result is a workforce highly aware of confidentiality matters, with full understanding around data treatment and retention.

11. Looking Forward

The Company is pleased with the ESG progress it has made this year. Material ESG topics have been identified and will inform the creation of an ESG strategy. At the same time, the Company has deepened its integration of ESG considerations into key contractor relationships and areas of due diligence, whilst continuing to develop longstanding ESG initiatives.

There is evidence to show that a strong ESG approach can help companies outperform their peers and achieve sustainable returns. In addition, companies have a responsibility to also consider the environmental and social impacts they create. In doing so, they can minimise negative impact and maximise their contribution to sustainable development, whether this is through climate action or other environmental or social initiatives.

It is for this reason that the Company will continue to focus on its ESG offering and will engage with its stakeholders to ensure ESG activities are developed and communicated transparently. As a renewable energy fund, environmental considerations are intrinsic to the Company's purpose. However, ESG goes beyond this, and the Company looks forward to enhancing its ESG credentials and continuing to promote itself as a successful, yet responsible, investment opportunity.

The Directors hereby submit the annual report and financial statements of the Company for the year ended 30 June 2021.

General Information

The Company is a non-cellular company limited by shares incorporated in Guernsey under the Law on 29 May 2013. The Company's registration number is 56708, and it has been registered and is regulated by the GFSC as a registered closed-ended collective investment scheme and as a Green Fund after successful application under the Guernsey Green Fund Rules to the GFSC on 16 April 2020. The Company's Ordinary Shares were admitted to the Premium Segment of the Official List and to trading on the Main Market of the London Stock Exchange following its IPO which completed on 12 July 2013.

Principal Activities

The principal activity of the Company is to invest in a portfolio of large scale UK based solar and wind energy infrastructure assets.

The Company's objective was to target a dividend of 7pps in respect of its second financial year ended 30 June 2015, with the intention of the dividend rising annually in line with UK RPI thereafter. In 2020, this was amended to a progressive dividend target. The dividend target for its eighth financial year ended 30 June 2021 was 8.00pps.

Business Review

A review of the Company's business and its likely future development is provided in the Chairman's Statement above, Strategic Report above and in the Report of the Investment Adviser above.

Listing Requirements

The Company has complied with the applicable Listing Rules throughout the year.

Results and Dividends

The results for the year are set out in the financial statements below.

The dividends for the year are set out in the financial statements in Note 14 below.

Share Capital

The Company has one class of Ordinary Shares. The issued nominal value of the Ordinary Shares represents 100% of the total issued nominal value of all share capital. Under the Company's Articles, on a show of hands, each shareholder present in person or by proxy has the right to one vote at general meetings. On a poll, each shareholder is entitled to one vote for every share held.

Shareholders are entitled to all dividends paid by the Company and, on a winding up, providing the Company has satisfied all of its liabilities, the Shareholders are entitled to all of the surplus assets of the Company. The Ordinary Shares have no right to fixed income.

Shareholdings of the Directors

The Directors of the Company and their beneficial interests in the shares of the Company as at 30 June 2021 are detailed below:

*including shares held by PCAs

Directors' Authority to Buy Back Shares

The Board believes that the most effective means of minimising any discount to NAV which may arise on the Company's share price is to deliver strong, consistent performance from the Company's investment portfolio in both absolute and relative terms. However, the Board recognises that wider market conditions and other considerations will affect the rating of the Ordinary Shares in the short term and the Board may seek to limit the level and volatility of any discount to NAV at which the Ordinary Shares may trade. The means by which this might be done could include the Company repurchasing its Ordinary Shares. Therefore, subject to the requirements of the Listing Rules, the Law, the Articles and other applicable legislation, the Company may purchase Ordinary Shares in the market in order to address any imbalance between the supply of and demand for Ordinary Shares or to enhance the NAV of Ordinary Shares.

In deciding whether to make any such purchases the Board will have regard to what it believes to be in the best interests of Shareholders and to the applicable Guernsey legal requirements which require the Board to be satisfied on reasonable grounds that the Company will, immediately after any such repurchase, satisfy a solvency test prescribed by the Law and any other requirements in its Articles. The making and timing of any buybacks will be at the absolute discretion of the Board and not at the option of the Shareholders. Any such repurchases would only be made through the market for cash at a discount to NAV.

On incorporation, the Company passed a written resolution granting the Board general authority to purchase in the market up to 14.99% of the Ordinary Shares in issue immediately following Admission. A resolution to renew such authority was passed by Shareholders at the AGM held on 17 December 2020. Therefore, authority was granted to the Board to purchase in the market up to 14.99% of the Ordinary Shares in issue immediately following the AGM held on 17 December 2020 at a price not exceeding the higher of (i) 5% above the average mid-market values of Ordinary Shares for the five Business Days before the purchase is made or (ii) the higher of the last independent trade or the highest current independent bid for Ordinary Shares. The Board intends to seek renewal of this authority from the Shareholders at the next AGM scheduled to be held on 3 December 2021.

Pursuant to this authority, and subject to the Law and the discretion of the Board, the Company may purchase Ordinary Shares in the market on an ongoing basis with a view to addressing any imbalance between the supply of and demand for Ordinary Shares.

Ordinary Shares purchased by the Company may be cancelled or held as treasury shares. The Company may borrow and/or realise investments in order to finance such Ordinary Share purchases.

The Company did not purchase any Ordinary Shares for treasury or cancellation during the period.

Directors' and Officers' Liability Insurance

The Company maintains insurance in respect of directors' and officers' liability in relation to their acts on behalf of the Company. Insurance is in place, having been renewed on 11 July 2021.

Substantial Shareholdings

As at 30 June 2021, the Company had been notified, in accordance with chapter 5 of the Disclosure and Transparency Rules, of the following substantial voting rights over 3% as Shareholders of the Company.

The Directors confirm that there are no securities in issue that carry special rights with regards to the control of the Company. The Company also provides the same information as at 4 October 2021, being the most current information available.

Independent Auditor

KPMG has been the Company's external Auditor since the Company's incorporation. A resolution will be proposed at the forthcoming AGM to re-appoint them as Auditor and authorise the Directors to determine the Auditor's remuneration for the ensuing year.

The Audit Committee will periodically review the appointment of KPMG and the Board recommends their appointment. Further information on the work of the Auditor is set out in the Report of the Audit Committee below.

Articles of Incorporation

The Company's Articles may be amended only by special resolution of the Shareholders.

Going Concern

At 30 June 2021, the Company had invested in 106 solar plants, committing £760.2 million to SPV investments. The Company through its direct subsidiary, BSIFIL, has access to a RCF which, together with the net income generated by the acquired projects, are expected to allow the Company to meet its liquidity needs for the payment of operational expenses, dividends and acquisition of new solar assets. The Company, through BSIFIL, expects to comply with the covenants of its long term loan and RCF.

The Board in its consideration of going concern has reviewed comprehensive cash flow forecasts prepared by the Investment Adviser, maturity of debt facilities, future projects in the pipeline including the successful July 2021 capital raise, and the performance of the current solar plants in operation and, at the time of approving these financial statements, has a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future and do not consider there to be any threat to the going concern status of the Company.

The current worldwide Coronavirus outbreak (Covid-19), declared by the World Health Organization as a global health emergency in March 2020, has caused disruption to businesses and economic activity. The Board and Investment Adviser have been closely monitoring this and indeed all other material macro sources of uncertainty related to Covid-19 and its potential impact on the Company and its operations.

The Investment Adviser activated its business continuity plan and its regular working pattern has changed to remote working, though all staff are continuing to assume their day-to-day responsibilities remotely. There has been regular communication with its employees, as well as with its investors. In addition, the Investment Adviser is continuing to explore potential investment opportunities in this new environment, so that the Company can best position the portfolio for the future.

The Board has concluded that it is appropriate to adopt the going concern basis of accounting in preparing the financial statements.

Internal controls review

Taking into account the information on Principal and Emerging Risks provided above of the strategic report and the ongoing work of the Audit Committee in monitoring the risk management and internal control systems on behalf of the Board, the Directors

· are satisfied that they have carried out a robust assessment of the principal and emerging risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity; and

· have reviewed the effectiveness of the risk management and internal control systems and no significant failings or weaknesses were identified.

Fair, Balanced and Understandable

The Board has considered whether the Annual Report taken as a whole is fair, balanced and understandable, taking into account the commentary and tone and whether it includes the requisite information needed for Shareholders to assess the Company's business model, performance and strategy. In addition, the Board also questioned the Investment Adviser on information included and excluded from the Annual Report, and considered whether the narrative at the front of the report is consistent with the financial statements. As a result of this work, each of the Board members considers that the Annual Report is fair, balanced and understandable and includes the requisite information needed for Shareholders to assess the Company's business model, performance and strategy.

Financial Risks Management Policies and Procedures

Financial Risks Management Policies and Procedures are disclosed in Note 15.

Principal and Emerging Risks

Principal and Emerging Risks are discussed in the Strategic Report above.

Annual General Meeting

The AGM of the Company will be held on 3 December 2021 at Floor 2, Trafalgar Court, Les Banques, St Peter Port, Guernsey. Details of the resolutions to be proposed at the AGM, together with explanations, will appear in the Notice of Meeting to be distributed to Shareholders together with this Annual Report.

Members of the Board will be in attendance at the AGM and will be available to answer shareholder questions.

By order of the Board

John Rennocks (Chairman)

John Rennocks was appointed as non-executive Chairman on 12 June 2013 and is Chairman of Utilico Emerging Markets, an investor in infrastructure and related assets in emerging markets. He has broad experience in emerging energy sources, support services and manufacturing. Mr Rennocks previously served as a non-executive director of Greenko Group plc, a developer and operator of hydro and wind power plants in India, non-executive deputy chairman of Inmarsat plc, a non-executive director of Foreign & Colonial Investment Trust plc, Chairman of Diploma plc, as well as several other public and private companies, and as Executive Director-Finance for Smith & Nephew plc, Powergen plc and British Steel plc/Corus Group plc. Mr Rennocks is a Fellow of the Institute of Chartered Accountants of England and Wales.

John Scott (Senior Independent Director)

John Scott was appointed as a non-executive director of the Company on 12 June 2013 and is a former investment banker who spent 20 years with Lazard and is currently a director of several investment trusts. Mr Scott has been Chairman of Impax Environmental Markets plc since May 2014 and Chairman of Alpha Insurance Analysts since April 2013. In May 2017, he was appointed Chairman of Jupiter Emerging and Frontiers Income Trust. In June 2017, he retired as Chairman of Scottish Mortgage Investment Trust PLC. He has an MA in Economics from Cambridge University and an MBA from INSEAD. He is also a Fellow of the Chartered Insurance Institute.

Paul Le Page (Chairman of the Audit Committee)

Paul Le Page was appointed as a non-executive director of the Company on 12 June 2013 and is a former executive Director and Senior Portfolio Manager of FRM Investment Management Limited, a subsidiary of Man Group, and holds non-executive directorships at a number of London Stock Exchange listed investment funds. Mr. Le Page is Audit Committee Chair of UK Mortgages Limited and RTW Venture Fund Limited and was previously Audit Committee Chair of Thames River Multi Hedge PCC Limited and Cazenove Absolute Equity Limited. Mr. Le Page has 17 years' Audit Committee experience within the closed end investment fund sector and has a broad-based knowledge of the global investment industry and product structures. Mr Le Page graduated from University College London and later received an MBA from Heriot Watt University in Electrical and Electronic Engineering and qualified as a Chartered Electrical Engineer whilst leading the development of robotic immunoassay equipment. He obtained an MBA from Heriot Watt University in 1999 which he used to switch from industrial R&D to investment research.

Laurence McNairn

Laurence McNairn was appointed as a non-executive director of the Company on 1 July 2013.He was a founding director and co-owner of Heritage International Fund Managers Limited from 2006 where he was responsible for the operational delivery and client relationship management for a number of key relationships. Prior to his time with the Heritage Group Laurence was a director of Guernsey International Fund Managers Limited, a Baring Asset Management Group company. During his career with Heritage and Barings he held board appointments with a number of prominent Fund Management groups with particular focus on private equity, infrastructure, property and alternative investment funds. Prior to his career in fund management and administration Laurence was the Finance Director of an industrial electronics manufacturing company which was a subsidiary of a UK plc. Prior to this he worked in professional practice with KPMG. He is a member of the Institute of Chartered Accountants of Scotland and holds a degree in Accountancy and Operational Research from Strathclyde University.

Meriel Lenfestey

Meriel Lenfestey was appointed as a non-executive director of the Company on 1 April 2020. Ms Lenfestey founded Flow Interactive in 1997, a London based Customer Experience Consultancy providing creative strategic and tactical expertise across all sectors embracing digital transformation. Since exiting the business in 2016 she has held a portfolio of non-executive director and advisory roles across Energy, Telecoms, Transport, Infrastructure, Technology, E-gaming, Entrepreneurial Support and local charities. She is Chair of Gemserv, a provider of consultancy and governance services helping the Energy and Health markets embrace technology-driven change and deliver large programmes effectively; Senior Independent Director at Jersey Telecom who are leading the world in full fibre, delivering innovative global IOT (Internet of Things) services and providing local data and voice services; as well as holding non-executive director roles at International public partnerships (FTSE 250 INPP) and Aurigny Air Services. She has an MA in Computer Related Design from the Royal College of Art, a Financial Times Non-Executive Director Diploma and is a Fellow of the RSA.

The Directors are responsible for preparing the annual report and financial statements in accordance with applicable law and regulations.

The Law requires the Directors to prepare financial statements for each financial year. Under the Law, the Directors are required to prepare the financial statements in accordance with IFRS as adopted by the EU and applicable law. Under the Law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of its profit or loss for that period. In preparing these financial statements, the Directors are required to:

· select suitable accounting policies and then apply them consistently;

· make judgments and estimates that are reasonable, relevant and reliable;

· state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements;

· assess the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and

· use the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

The Directors are responsible for keeping proper accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time, the financial position of the Company and enable them to ensure that the financial statements comply with the Law. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

So far as each Director is aware, there is no relevant audit information of which the Company's Auditor is unaware, and each Director has taken all the steps that he ought to have taken as a Director in order to make himself aware of any relevant audit information and to establish that the Company's Auditor is aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of section 249 of the Law.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website, and for the preparation and dissemination of Financial Statements. Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

By order of the Board

Each of the Directors, whose names are set out above in the Board of Directors section of the annual report, confirms that to the best of their knowledge that:

· the financial statements, prepared in accordance with IFRS, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company;

· the Management Report (comprising Chairman's Statement, Strategic Report, Report of the Directors and Report of the Investment Adviser) 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 and emerging risks below; and

Having taken advice from the Audit Committee, the Directors consider the annual report and financial statements, taken as a whole, is fair, balanced and understandable and that it provides the information necessary for Shareholders to assess the Company's position, performance, business model and strategy.

By order of the Board

The Board recognises the importance of sound corporate governance, particularly the requirements of the AIC Code. The Company is currently complying with the latest AIC code effective 1 January 2019.

The Company has been a member of the AIC since 15 July 2013. The Board has considered the principles and provisions of the AIC Code. The AIC Code provides a 'comply or explain' code of corporate governance and addresses all the principles set out in the UK Code as well as setting out additional principles and recommendations on issues that are of specific relevance to investment companies such as the Company. The Board considers that reporting against the principles and recommendations of the AIC Code provides better information to Shareholders.

The GFSC issued a Guernsey Code which came into effect on 1 January 2012. The introduction to the Guernsey Code states that "Companies which report against the UK Code or the AIC Code of Corporate Governance are also deemed to meet this Code". Therefore, AIC members which are Guernsey-domiciled and which report against the AIC Code are not required to report separately against the Guernsey Code.

The AIC Code is available on the AIC's website (www.theaic.co.uk). The UK Code is available from the FRC's website (www.frc.org.uk). The Guernsey code is available from the GFSC's website (www.gfsc.gg).

Throughout the year ended 30 June 2021, the Company has complied with the provisions of the AIC Code and the provisions of the UK Code, except to the extent highlighted below.

Provision A.2.1 of the UK Code requires a chief executive to be appointed, however, as an investment company, the Company has no employees and therefore has no requirement for a chief executive. As all the Directors, including the Chairman, are non-executive and independent of the Investment Adviser, the Company has not established a nomination committee, remuneration committee or a management engagement committee, which is not in accordance with provisions B.2.1 and D.2.1 of the UK Code, and Principle 7 of the AIC Code respectively. The Board is satisfied that as a whole, any relevant issues can be properly considered by the Board. The absence of an internal audit function is discussed in the Report of the Audit Committee below.

The Board monitors developments in corporate governance to ensure the Board remains aligned with best practice, especially with respect to the increased focus on diversity. The Board acknowledges the importance of diversity, including gender (as stated in Principle 7 of the AIC Code), for the effective functioning of the Board and commits to supporting diversity in the boardroom. It is the Board's ongoing aspiration to have well-diversified representation and it continues to value directors with diverse skill sets, capabilities and experience gained from different geographical and professional backgrounds that enhance the Board by bringing a wide range of perspectives to the Company. The Board is satisfied with the current composition and functioning of its members.

At the AGM of the Company, held on 17 December 2020, Special Resolution 14 was not passed by the Shareholders. Special Resolution 14 granted the Directors authority to allot, issue and sell up to an additional 10% of the Ordinary Shares in issue for a period expiring at the date falling 15 months after the date of the AGM. The Board noted the large number of votes received against Special Resolution 14 and continued to engage with the Company's shareholders and Proxy voting agencies where appropriate to understand the reasons for the votes. Following the year end, at an EGM held on 15 July 2021, the resolution passed in a modified form where the power to allot, issue and sell ordinary shares is limited to up to 500 million new ordinary shares, in conjunction with that described in the prospectus of the Company dated 29 June 2021 and shall expire on 28 June 2022.

The Board

The Directors' biographies are provided above which set out the range of investment, financial and business skills and experience represented.

John Rennocks, John Scott and Paul Le Page were appointed on 12 June 2013, Laurence McNairn was appointed 1 July 2013 and Meriel Lenfestey was appointed on 1 April 2019. The Board appointed John Scott as Senior Independent Director effective from 10 December 2013 to fulfil any function that is deemed inappropriate for the Chairman to perform.

The Directors shall retire and submit themselves for re-election at each AGM of the Company; the next AGM is due to take place on 3 December 2021.

Any Director who is elected or re-elected at that meeting is treated as continuing in office throughout. If he is not elected or re-elected, he shall retain office until the end of the meeting or (if earlier) when a resolution is passed to appoint someone in his place or when a resolution to elect or re-elect the Director is put to the meeting and lost.

The Board is of the opinion that members should be re-elected because they believe that they have the right skills and experience to continue to serve the Company. As recommended in Principle 7 of the AIC Code, the Board has considered the need for a policy regarding tenure of service. As at 30 June 2021, each of the directors had been on the Board for almost eight years, with the exception of Ms Lenfestey who was appointed to the Board in 2019. With regard to the nine year tenure limit in terms of independence, a partial refreshment of the Board is intended to take place at the 2021 AGM.

The Board meets at least four times a year in Guernsey, with unscheduled meetings held where required to consider investment related or other issues. In addition, there is regular contact between the Board, the Investment Adviser and the Administrator. Furthermore, the Board requires to be supplied in a timely manner with information by the Investment Adviser, the Company Secretary and other advisers in a form and of a quality appropriate to enable it to discharge its duties.

The Company has adopted a share dealing code which applies to the Board and any persons discharging managerial responsibilities. This is to ensure compliance by the Board, and relevant personnel of the Investment Adviser, with the requirements of the EU Market Abuse Regulations.

Directors' Remuneration

The Chairman is entitled to an annual remuneration of £62,500 (2020: £60,000). The other Directors are entitled to an annual remuneration of £39,000 (2020: £37,500). Paul Le Page receives an additional annual fee of £8,000 (2020: £7,500) for acting as Chairman of the Audit Committee. The Board will review all Directors' remuneration annually.

The remuneration earned by each Director in the past two financial years was as follows:

The total Directors' fees expense for the year amounted to £226,500 (2020: £217,500). As disclosed in Note 16, John Rennocks and John Scott are directors of BSIFIL, and have received remuneration in respect of BSIFIL.

All of the Directors are non-executive and each is considered independent for the purposes of Chapter 15 of the Listing Rules.

In accordance with Article 22 of AIFMD, the Company shall disclose the total amount of remuneration for the financial year, split into fixed and variable remuneration, paid by the AIFM to its staff, and number of beneficiaries, and, where relevant, carried interest paid by the AIF. As the Company is categorised as an internally managed Non-EU AIFM for the purposes of AIFMD, Directors' remuneration reflects this amount.

Duties and Responsibilities

The Board has overall responsibility for optimising the Company's success by directing and supervising the affairs of the business and meeting the appropriate interests of shareholders and relevant stakeholders, while enhancing the value of the Company and also ensuring the protection of investors. A summary of the Board's responsibilities is as follows:

· statutory obligations and public disclosure;

· strategic matters and financial reporting;

· investment strategy and management;

· risk assessment and management including reporting, compliance, governance, monitoring and control; and

· other matters having a material effect on the Company.

The Directors have access to the advice and services of the Administrator, who is responsible to the Board for ensuring that Board procedures are followed and that it complies with the Law and applicable rules and regulations of the GFSC and the LSE. Where necessary, in carrying out their duties, the Directors may seek independent professional advice and services at the expense of the Company.

The Company maintains appropriate directors' and officers' liability insurance in respect of legal action against its Directors on an ongoing basis.

The Board's responsibilities for the annual report are set out in the Directors' Responsibilities Statement above. The Board is also responsible for issuing appropriate half-yearly financial reports and other price-sensitive public reports.

The attendance record of the Directors for the year to 30 June 2021 is set out below:

Nine ad-hoc Board Meetings were held during the period to formally review and authorise each investment made by the Company, to discuss the placing of Ordinary Shares and to consider interim dividends, amongst other items.

The Board believes that, as a whole, it comprises an appropriate balance of skills, experience, age, knowledge and length of service. The Board also believes that diversity of experience and approach, including gender diversity, amongst Board members is of great importance and it is the Company's policy to give careful consideration to issues of Board balance when making new appointments. With any new Director appointment to the Board, induction training will be provided by an independent service provider at the expense of the Company.

Performance Evaluation

In accordance with Principle 7 of the AIC Code, the Board is required to undertake a formal and rigorous evaluation of its performance on an annual basis. A formal evaluation of the performance of the Board as a whole, and the Chairman, is in progress as at the date of this report. The evaluation is undertaken utilising self-appraisal questionnaires and is followed by a detailed discussion of the outcomes which includes an assessment of the Directors' continued independence.

Committees of the Board

Audit Committee

The Board established an Audit Committee in 2013. It is chaired by Paul Le Page and at the date of this report comprised all of the Directors set out above. The report of the role and activities of this committee and its relationship with the Auditor is contained in the Report of the Audit Committee below. The Committee operates within clearly defined terms of reference which are available on the Company's website (www.bluefieldsif.com).

Internal Control and Financial Reporting

The Board acknowledge that it is responsible for establishing and maintaining the Company's system of internal control and reviewing its effectiveness. Internal control systems are designed to manage rather than eliminate the failure to achieve business objectives and can only provide reasonable but not absolute assurance against material misstatements or loss. The Board reviews all controls including operations, compliance and risk management. The key procedures which have been established to provide internal control are:

· the Board has delegated the day-to-day operations of the Company to the Administrator and Investment Adviser; however, it remains accountable for all of the functions it delegates;

· the Board clearly defines the duties and responsibilities of the Company's agents and advisers and appointments are made by the Board after due and careful consideration. The Board monitors the ongoing performance of such agents and advisers;

· the Board monitors the actions of the Investment Adviser at regular Board meetings and is also given frequent updates on developments arising from the operations and strategic direction of the underlying investee companies; and

· the Administrator provides administration and company secretarial services to the Company.The Administrator maintains a system of internal control on which it reports to the Board.

The Board has reviewed the need for an internal audit function and has decided that the systems and procedures employed by the Administrator and Investment Adviser, including their own internal controls and procedures, provide sufficient assurance that a sound system of risk management and internal control, which safeguards shareholders' investment and the Company's assets, is maintained. An internal audit function specific to the Company is therefore considered unnecessary.

The systems of control referred to above are designed to ensure effectiveness and efficient operation, internal control and compliance with laws and regulations. In establishing the systems of internal control, regard is paid to the materiality of relevant risks, the likelihood of costs being incurred and costs of control. It follows therefore that the systems of internal control can only provide reasonable but not absolute assurance against the risk of material misstatement or loss.

The Company has delegated the provision of all services to external service providers whose work is overseen by the Board at its quarterly meetings. Each year a detailed review of performance pursuant to their terms of engagement will be undertaken by the Board.

Investment Advisory Agreement

In accordance with Listing Rule 15.6.2(2)R, the Directors formally appraise the performance and resources of the Investment Adviser.

The Investment Adviser is led by its managing partners, James Armstrong and Giovanni Terranova, who founded the Bluefield business in 2009 following their prior work together in European solar energy. Neil Wood, who joined in 2013 was appointed partner in 2020 and runs the Investment Adviser alongside the two founders. The Investment Adviser's team has a combined record, prior to and including Bluefield Partners LLP, of investing more than £1 billion in solar PV projects. The Management team have been involved in over £1.5 billion of solar PV transactions in the UK and Europe since 2008. The Investment Adviser's non-executive team includes Mike Rand, Bluefield Partners founder and former Managing Partner, William Doughty, the founding CEO of Semperian; Dr. Anthony Williams, the former chair of the Risk Committee for the Fixed Income, Currencies & Commodities Division, and Partner at Goldman Sachs & Co; and Jon Moulton, former managing partner and founder of Alchemy Partners.

In view of the resources of the Investment Adviser and the Company's investment and operational performance for the period, in the opinion of the Directors the continuing appointment of the Investment Adviser is in the interests of the shareholders as a whole.

Dealings with Shareholders

The Board welcomes shareholders' views and places great importance on communication with its shareholders. The Company's AGM will provide a forum for shareholders to meet and discuss issues with the Directors of the Company. Members of the Board will also be available to meet with shareholders at other times, if required. In addition, the Company maintains a website which contains comprehensive information, including regulatory announcements, share price information, financial reports, investment objectives and strategy and information on the Board.

Principal and Emerging Risks

Each Director is aware of the risks inherent in the Company's business and understands the importance of identifying, evaluating and monitoring these risks. The Board has adopted procedures and controls that enable it to manage these risks within acceptable limits and to meet all of its legal and regulatory obligations.

The Board considers the process for identifying, evaluating and managing any significant risks faced by the Company on an ongoing basis and these risks are reported and discussed at Board meetings. It ensures that effective controls are in place to mitigate these risks and that a satisfactory compliance regime exists to ensure all applicable local and international laws and regulations are upheld.

The Company's Principal and Emerging Risks are discussed in detail abovein the Strategic Report. The Company's financial instrument risks are discussed in Note 15 to the financial statements.

The Company's principal risk factors are fully disclosed in the Company's Prospectus, available on the Company's website (www.bluefieldsif.com) and should be reviewed by shareholders.

Changes in Regulation

The Board monitors and responds to changes in regulation as they affect the Company and its policies.

AIFMD

AIFMD was introduced on 22 July 2014 in order to harmonise the regulation of AIFMs and imposes obligations on managers who manage or distribute AIFs in the EU or who market shares in such funds to EU investors. After seeking professional regulatory and legal advice, the Company was established in Guernsey as a self-managed Non-EU AIF. Additionally, the Company has taken advice on and implemented sufficient and appropriate policies and procedures that enable the Board to fulfil its role in relation to portfolio management and the management of risk. The Company is therefore categorised as an internally managed Non-EU AIFM for the purposes of AIFMD and as such neither it nor the Investment Adviser is required to seek authorisation under AIFMD.

The marketing of shares in AIFs that are established outside the EU (such as the Company) to investors in an EU member state is prohibited unless certain conditions are met. Certain of these conditions are outside the Company's control as they are dependent on the regulators of the relevant third country (in this case Guernsey) and the relevant EU member state entering into regulatory co-operation agreements with one another.

Currently, the NPPR provides a mechanism to market Non-EU AIFs that are not allowed to be marketed under AIFMD domestic marketing regimes. The Board is utilising NPPR in order to market the Company, specifically in the UK pursuant to Regulations 57, 58 and 59 of the UK Alternative Investment Fund Managers Regulations 2013. The Board is working with the Company's advisers to ensure the necessary conditions are met, and all required notices and disclosures are made under NPPR. Eligible AIFMs will be able to continue to use NPPR for the time being.

Any regulatory changes arising from implementation of AIFMD (or otherwise) that limit the Company's ability to market future issues of its shares may materially adversely affect the Company's ability to carry out its investment policy successfully and to achieve its investment objectives, which in turn may adversely affect the Company's business, financial condition, results of operations, NAV and/or the market price of the Ordinary Shares.

The Board, in conjunction with the Company's advisers, will continue to monitor the development of AIFMD and its impact on the Company.

FATCA and CRS

The Company is registered under FATCA and continues to comply with FATCA and the Common Reporting Standard's requirements to the extent relevant to the Company.

PRIIPs

The Company is in compliance with the requirements under PRIIPs to publish a KID. The KID is available on the Company's website.

NMPI

On 1 January 2014 FCA rules relating to the restrictions on the retail distribution of unregulated collective investment schemes and close substitutes came into effect.

The Board has been advised that the Company would qualify as an investment trust if it was resident in the UK, and therefore the Board believes that the retail distribution of its shares should be unaffected by the changes. It is the Board's intention that the Company will make all reasonable efforts to conduct its affairs in such a manner that its shares can be recommended by independent financial advisers to UK retail investors in accordance with the FCA's rules relating to non-mainstream investment products.

Guernsey Green Fund Status

The Guernsey Green Fund aims to provide a platform for investments into various green initiatives and gives investors a trusted and transparent product that contributes to the internationally agreed objectives of mitigating environmental damage and climate change. The Company successfully obtained Guernsey Green Fund Status on 16 April 2019.

Following an application to the GFSC, the Company was deemed to have met the following investment criteria outlined in the Guernsey Green Fund Rules, 2018 ('The Rules'):

· The Property of a Guernsey Green Fund shall be invested with the aim of spreading risk and with the ultimate objective of mitigating environmental damage resulting in a net positive outcome for the environment;

· A Guernsey Green Fund shall comprise 75% assets by value that meet the Guernsey Green Fund Rules criteria. The remaining 25% must not lessen or reduce the Guernsey Green Fund's overall objective of mitigating environmental damage nor comprise an investment of a type specified within schedule 3 of the Guernsey Green Fund Rules, 2018;

· A Guernsey Green Fund shall only comprise assets permitted to be held under its principal documents or prospectus and of a nature described in its prospectus; and

· A Guernsey Green Fund shall not be invested in contravention of limits or restrictions imposed under its principal documents or prospectus.

The Company fulfils the above investment criteria by investing in a diversified portfolio of solar energy assets, each located within the UK, with a focus on utility scale assets and portfolios on greenfield sites. The Group targets long life solar energy infrastructure, expected to generate stable renewable energy output over asset lives of at least 25 years. The Company incorporates Environmental Social & Governance policies into its investment processes and is conscious of its environmental and social impact. The production of renewable energy equates to a significant amount of CO2 emissions saved, representing a sustainable and ethical investment.

By order of the Board

The Audit Committee, chaired by Paul Le Page and comprising all of the Directors set out above, operates within clearly defined terms of reference (which are available from the Company's website, www.bluefieldsif.com) and includes all matters indicated by Rule 7.1 of the UK FCA's DTRs and the AIC Code. Appointments to the Audit Committee shall be for a period of up to three years, extendable for one or further three year periods. It is also the formal forum through which the Auditor will report to the Board of Directors.

The Audit Committee meets no less than twice a year, and at such other times as the Audit Committee shall require, and meets the Auditor at least twice a year. Any member of the Audit Committee may request that a meeting be convened by the company secretary. The Auditor may request that a meeting be convened if they deem it necessary. Any Director who is not a member of the Audit Committee, the Administrator and representatives of the Investment Adviser shall be invited to attend the meetings as the Directors deem appropriate.

The Board has taken note of the requirement that at least one member of the Committee should have recent and relevant financial experience and is satisfied that the Committee is properly constituted in that respect, with two of its members who are chartered accountants and three members with an investment background.

Responsibilities

The main duties of the Audit Committee are:

· monitoring the integrity of the financial statements of the Company and any formal announcements relating to the Company's financial performance and reviewing significant financial reporting judgements contained in them;

· reporting to the Board on the appropriateness of the Board's accounting policies and practices including critical judgement areas;

· reviewing the valuation of the Company's investments prepared by the Investment Adviser, and making a recommendation to the Board on the valuation of the Company's investments;

· meeting regularly with the Auditor to review their proposed audit plan and the subsequent audit report and assess the effectiveness of the audit process and the levels of fees paid in respect of both audit and non-audit work;

· making recommendations to the Board in relation to the appointment, re-appointment or removal of the Auditor and approving their remuneration and the terms of their engagement;

· monitoring and reviewing annually the Auditor's independence, objectivity, expertise, resources, qualification and non-audit work;

· considering annually whether there is a need for the Company to have its own internal audit function;

· keeping under review the effectiveness of the accounting and internal control systems of the Company;

· reviewing and considering the UK Code, the AIC Code, the FRC Guidance on Audit Committees and the Company's institutional investors' commitment to the UK Stewardship code; and

· reviewing the risks facing the Company and monitoring the risk matrix.

The Audit Committee is required to report formally to the Board on its findings after each meeting on all matters within its duties and responsibilities.

The Auditor is invited to attend the Audit Committee meetings as the Board deems appropriate and at which they have the opportunity to meet with the Committee without representatives of the Investment Adviser or the Administrator being present at least once per year.

Financial Reporting

The primary role of the Audit Committee in relation to the financial reporting is to review with the Administrator, Investment Adviser and the Auditor the appropriateness of the interim and annual financial statements, concentrating on, amongst other matters:

· the quality and acceptability of accounting policies and practices;

· the clarity of the disclosures and compliance with financial reporting standards and relevant financial and governance reporting requirements;

· material areas in which significant judgements have been applied or there has been discussion with the Auditor;

· whether the annual report and financial statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for Shareholders to assess the Company's performance, business model and strategy; and

· any correspondence from regulators in relation to the Company's financial reporting.

To aid its review, the Audit Committee considers reports from the Administrator and Investment Adviser and also reports from the Auditor on the outcomes of their half year review and annual audit. Like the Auditor, the Audit Committee seeks to display the necessary professional scepticism their role requires.

Meetings

The Committee has met formally on 6 occasions in the year covered by this report. The matters discussed and challenged at those meetings were:

· consideration and agreement of the terms of reference of the Audit Committee for approval by the Board;

· review of the Company's risk matrix;

· review of the accounting policies and format of the financial statements;

· review and approval of the audit plan of the Auditor and timetable for the interim and annual financial statements;

· review of the valuation policy and methodology of the Company's investments applied in the interim and annual financial statements;

· detailed review of the interim and annual report and financial statements;

· assessment of the effectiveness of the external audit process as described below; and

· a review of the process used to determine the viability of the Company.

The Audit Committee chairman or other members of the Audit Committee appointed for the purpose, shall attend each AGM of the Company, prepared to respond to any shareholder questions on the Audit Committee's activities.

Primary Area of Judgement

The Audit Committee determined that the key risk of misstatement of the Company's financial statements is the fair value of the investments held by the Company in the context of the high degree of judgement involved in the assumptions and estimates underlying the discounted cash flow calculations.

As outlined in Note 8 of the financial statements, the fair value of the BSIFIL's investments (Directors' Valuation) as at 30 June 2021 was £694,542,588 (2020: £624,268,573). Market quotations are not available for these investments so their valuation is undertaken using a discounted cash flow methodology. The Directors have also considered transactions in similar assets and used these to infer the discount rate. Significant inputs such as the discount rate, rate of inflation and the amount of electricity the solar assets are expected to produce are subjective and include certain assumptions. As a result, this requires a series of judgements to be made as explained in Note 8 in the financial statements.

The valuation of the BSIFIL's portfolio of solar assets (Directors' Valuation) as at 30 June 2021 has been determined by the Board based on information provided by the Investment Adviser.

The Audit Committee also reviewed and suggested factors that could impact BSIFIL's portfolio valuation and its related sensitivities to the carrying value of the investments as required in accordance with IPEV Valuation Guidelines.

Risk Management

The Company's risk assessment process and the way in which significant business risks are managed is a key area of focus for the Committee. The work of the Audit Committee is driven primarily by the Company's assessment of its Principal and Emerging Risks as set out above of the Strategic Report, and it receives reports from the Investment Adviser and Administrator on the Company's risk evaluation process and reviews changes to significant risks identified.

Internal Audit

The Audit Committee considers at least once a year whether or not there is a need for an internal audit function. Currently it does not consider there to be a need for an internal audit function, given that there are no employees in the Company and all outsourced functions are with parties who have their own internal controls and procedures.

External Audit

KPMG has been the Company's external Auditor since the Company's inception.

The Auditor is required to rotate the audit partner every five years. The current partner is in his fifth year of tenure. There are no contractual obligations restricting the choice of external auditor and the Company will consider putting the audit services contract out to tender at least every ten years. In line with the FRC's recommendations on audit tendering, this will be considered further when the audit partner rotates every five years. Under the Companies Law, the reappointment of the external Auditor is subject to shareholder approval at the AGM.

The objectivity of the Auditor is reviewed by the Audit Committee which also reviews the terms under which the external Auditor may be appointed to perform non-audit services. The Audit Committee reviews the scope and results of the audit, its cost effectiveness and the independence and objectivity of the Auditor, with particular regard to any non-audit work that the Auditor may undertake. In order to safeguard Auditor independence and objectivity, the Audit Committee ensures that any other advisory and/or consulting services provided by the external Auditor do not conflict with its statutory audit responsibilities. Advisory and/or consulting services will generally only cover reviews of interim financial statements, tax compliance and capital raising work. Any non-audit services conducted by the Auditor outside of these areas will require the consent of the Audit Committee before being initiated.

The external Auditor may not undertake any work for the Company in respect of the following matters: preparation of the financial statements; provision of investment advice; taking management decisions; advocacy work in adversarial situations; provision of tax and tax compliance services; promotion of, dealing in, or underwriting the Company's shares; provision of payroll services; design or implementation of internal control or risk management or financial information technology systems, provision of valuation services, provision of services related to internal audit; and provision of certain human resources functions.

The Committee reviews the scope and results of the audit, its cost effectiveness and the independence and objectivity of the Auditor, with particular regard to the level of non-audit fees. During the year, KPMG was also engaged to provide a review of the Company's interim information. Total fees paid amounted to £105,250 for the year ended 30 June 2021 (30 June 2020: £150,822) of which £74,200 related to audit and audit related services to the Company (30 June 2020: £133,744) and £31,050 in respect of non-audit services (30 June 2020: £17,078).

Notwithstanding such services, which have arisen in connection with review of the interim financial statements, the Audit Committee considers KPMG to be independent of the Company and that the provision of such non-audit services is not a threat to the objectivity and independence of the conduct of the audit as appropriate safeguards are in place.

To fulfil its responsibility regarding the independence of the Auditor, the Audit Committee has considered:

· discussions with or reports from the Auditor describing its arrangements to identify, report and manage any conflicts of interest; and

· the extent of non-audit services provided by the Auditor and arrangements for ensuring the independence and objectivity and robustness and perceptiveness of the Auditor and their handling of key accounting and audit judgements.

To assess the effectiveness of the Auditor, the Committee has reviewed and challenged:

· the Auditor's fulfilment of the agreed audit plan and variations from it;

· discussions or reports highlighting the major issues that arose during the course of the audit;

· feedback from other service providers evaluating the performance of the audit team;

· arrangements for ensuring independence and objectivity; and

· robustness of the Auditor in handling key accounting and audit judgements.

The Audit Committee is satisfied with KPMG's effectiveness and independence as Auditor, having considered the degree of diligence and professional scepticism demonstrated by them. Having carried out the review described above and having satisfied itself that the Auditor remains independent and effective, the Audit Committee has recommended to the Board that KPMG be reappointed as Auditor for the year ending 30 June 2022.

To further enhance the audit efficiency of the Company and its subsidiaries the Audit Committee has recommended to the Board that KPMG should undertake the audit of the Company's subsidiary SPVs and a phased two-year programme is currently in process to implement this.

The Chairman of the Audit Committee will be available at the AGM to answer any questions about the work of the Committee.

On behalf of the Audit Committee

Paul Le Page

Chairman of the Audit Committee

4 October 2021

Independent Auditor's Report to the Members of Bluefield Solar Income Fund Limited

Our opinion is unmodified

We have audited the financial statements of Bluefield Solar Income Fund Limited (the "Company"), which comprise the statement of financial position as at 30 June 2021, the statements of comprehensive income, changes in equity and cash flows for the year then ended, and notes, comprising significant accounting policies and other explanatory information.

In our opinion, the accompanying financial statements:

· give a true and fair view of the financial position of the Company as at 30 June 2021, and of the Company's financial performance and cash flows for the year then ended;

· are prepared in accordance with International Financial Reporting Standards as adopted by the EU; and

· comply with the Companies (Guernsey) Law, 2008.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our responsibilities are described below. We have fulfilled our ethical responsibilities under, and are independent of the Company in accordance with, UK ethical requirements including FRC Ethical Standards, as applied to listed entities. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion.

Key audit matters: our assessment of the risks of material misstatement

Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In arriving at our audit opinion above, the key audit matter was as follows (unchanged from 2020):