Bluefield Solar Regulatory News (BSIF)

30 September 2022

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

 Annual Report and Financial Statements for the Year Ended 30 June 2022

Bluefield Solar (LON:BSIF), the sterling income fund focused on acquiring and managing UK-based renewable energy assets, is pleased to announce its Annual Results for the Year Ended 30 June 2022.

As at 30 June 2022 / 30 June 2021

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 Shareholder Return is based on share price movement and dividends paid in the year. It is defined in the Alternative Performance Measure appendix.

3. Total Return is based on the NAV movement and dividends paid in the year. It is defined in the Alternative Performance Measure appendix.

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 Shareholder Return is based on share price movement and dividends paid in the year.

5. Total Shareholder Return since inception is based on share price movement and dividends paid since the IPO.

John Rennocks, Chairman of Bluefield Solar, said:

"It is highly pleasing to report another set of excellent results for Bluefield Solar. With maiden investments into onshore wind and storage, as well as further acquisitions of solar, supported by two successful capital raises, the financial standing of the Company has never been stronger as it enters the FTSE 250. Furthermore, the growth of the Company's development pipeline to over 1.1GW, provides Bluefield Solar with a wonderful opportunity to play an increasing role in the transformation of the UK's energy map.''

Analyst presentation

A remote call for analysts will be hosted by James Armstrong and Neil Wood of Bluefield Partners LLP at 09:30am today, 30 September 2022. 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 sterling income fund focused on acquiring and managing renewable energy and storage projects in the UK, to provide long term, growing dividends 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 other technologies, such as wind and storage. The majority of the Company's revenue streams are regulated and non-correlated to short term UK energy market fluctuations. 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 766 MWp.

Bluefield Solar is listed on the Main Market of the London Stock Exchange and is a member of the FTSE 250, classified within the Closed End Investments subsector.

Further information can be viewed at www.bluefieldsif.com

 About Bluefield Partners

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 primarily in solar energy assets located in the UK. The Company also invests a minority of its capital into other renewables assets including wind and energy storage.

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 the UK limited company parent, which changed from Bluefield SIF Investments Limited (BSIFIL) to Bluefield Renewables 1 Limited (BR1) in May 2022 to facilitate arrangement of the new RCF. 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 64 sites (555MW) of the investment portfolio held by BR1 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 in addition to arrangements in place with the Company's other development partners.

Introduction

As the Company ends its ninth year of operation, it gives the Board and I great pleasure once again to be reflecting on a year of considerable success for the Company.

As the world emerged from the Covid pandemic and the global economy rebounded, the Company's Investment Adviser succeeded in growing the generating capacity of the Company's portfolio by over 25% in the period to June 2022. When combined with the increase seen in the previous financial year, your Company's portfolio of operating renewable assets has grown by over 60% since June 2020. In the light of recent increases in inflation and (particularly) the price of electricity, our acquisition programme looks well timed and provides shareholders with excellent value.

The Company's ability to maximise the value of energy sales through its strategy of typically fixing prices 18 months ahead, and thanks to its high levels of inflation- linked revenues, it continues to deliver a sector leading, covered dividend. With its proprietary pipeline of business, the Company intends to continue to grow its high quality asset base.

The principal activities of the Company, as well as main features of the period under review, are:

· The Company completed the purchase of three portfolios of subsidised onshore wind and solar assets, with a combined enterprise value of approximately £300m;

· To complement this level of investment, the Company raised c.£255m through equity issuance, in August 2021 and June 2022;

· Ensuring a focus on increasing future renewable generation and supporting the UK's transition to Net Zero, 45MW of new build solar and over 125MW of ready to build storage assets were purchased for a combined total of £11m;

· Momentum on the Company's development pipeline continued apace, with planning consents being secured on c.100MW of solar projects whilst the wider total pipeline grew to c.900MW of solar and c.429MW of battery storage;

· The Net Asset Value per share rose to 140.39pps (30 June 2021: 115.83pps), reflecting both the dramatically higher electricity prices which have been seen since Russia's invasion of Ukraine and the spike in inflation;

· Total declared dividends for the year have been increased to 8.20pps, ahead of our original target of 8.12pps;

· Post period end the Company signed contracts for the construction of Yelvertoft, a CfD backed 50MW solar plant; and

· The Company was recently promoted to the FTSE 250 index.

At the time of writing, the Group's total outstanding debt has increased to c.£460 million and its leverage level stands at c.35% of GAV, which is at the lower end of our preferred range of 35%-45%.

Acquisitions

Over the reporting period the Company completed 153.3MW of ROC and FiT accredited acquisitions, consisting of solar (95MW) and onshore wind (58.3MW) projects, increasing the Company's generating portfolio to 766MW as at 30 June 2022 (June 2021: 613MW); this resulted in a generating mix for the portfolio of 92.4% solar and 7.6% onshore wind, the latter being our first foray into this sector. The Company's mandate allows for diversification up to 25% of its GAV into non solar renewables.

In addition to successfully completing acquisitions of subsidised assets, good progress has been made on the Company's strategy of investing in the future build out of the UK's renewable mix through receipt of planning consent on two ready to build PV plants totalling 80MW and investments into ready to build co-located solar and storage (45MW and 25MW, respectively), as well as standalone battery storage of over 100MW.

These ready to build assets provide the Company with the opportunity to invest up to £34m over the next year and are in addition to the investment of up to £34m to complete construction of Yelvertoft. More details of acquisitions during the period are outlined below within the Investment Adviser's report.

Underlying Earnings and Dividend Income

The Underlying Earnings for the period, pre amortisation of long-term finance, were £66.8m, or 12.04pps, and underlying earnings for distribution, post debt repayments of £13.8m (2.50pps), were £52.9m (9.54pps).

The strong operational performance of the Company's portfolio over the six months to 31 December 2021, combined with the benefit of brought forward revenue reserves of 2.39pps (adjusted 204,452,595 new shares issued during the period) means the Board has earned comfortably in excess of its dividend target of 8.16pps for the year to 30 June 2022. By declaring a fourth interim dividend of 2.09pps, the total dividend for the year is 8.20pps and the Company thereby remains 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

Demand for renewable projects, at all stages of their lifecycle, remains strong ; as both power prices and inflation have surged, valuations of assets have risen in tandem.

The Investment Adviser is now observing that pricing for solar portfolios, on £m/MW basis, has moved to c.£1.40m/MW, with the upper range on deals closer to £1.50m/MW. Transactions in previous years have been in the £1.25m/MW - £1.40m/MW range.

Higher interest rates and the inclusion of onshore wind within the portfolio have caused the Board to increase the discount rate for the 30 June valuation to 6.75% (June 2021: 6%).

By valuing the Company's operational portfolio at an enterprise value of £1,181m (c.£1.39m/MW for the solar assets (vs. £1.26m/MW in June 2021), the Directors' Valuation as at 30 June 2022 is in line with recent market transactions and consistent with the Company's valuation methodology of 'willing buyer/willing seller'.

Please see below in the Investment Adviser's report for further details on the Directors' Valuation.

Inflation

Over the past year inflation has surged, reflecting higher commodity and energy prices following a recovery in demand from pandemic lows. Since March 2022, Russia's invasion of Ukraine and the continuing conflict there have helped push inflation to levels not seen since the 1980s. The result is current UK inflation, on an RPI basis, close to 12% (CPI 9.4%).

Prevailing opinion among economic forecasters remains that inflation will abate during 2023, but it is possible that price pressures will endure. Since our income grows with inflation, resulting from the indexation provisions in our regulated revenues, increases in RPI boost both our earnings and the valuation of our assets.

Reflecting the latest economic forecasts, as well as the transition from RPI to CPIH post 2030, inflation assumptions supporting the valuation are 10.9% in 2022 (an increase from 6.4% as per the December 21 Interim statements), 3.4% in 2023 and thereafter 3.0% until 2029, before dropping to 2.25%.

Power Prices

Increasing electricity demand, as the world emerged from the Covid 19 pandemic, had seen power prices rising steadily but Russia's invasion of Ukraine sent shockwaves through European energy markets, with concerns around the supply of Russian gas to Europe driving a 45.5%[1] increase in gas prices and sending UK day-ahead power prices surging from c.£78/MWh to highs of c.£593/MWh in August 2022.

Navigating such turbulent times requires care, and the Company's PPA strategy of fixing power for between one and three years has allowed it to fix power contracts throughout the period of rising prices. This not only insulates the portfolio from market volatility, as successfully demonstrated during the Covid pandemic, but also enables it to create pricing certainty at increasing levels for up to three years ahead. Evidence of this is seen in the average fixed price achieved for fixed contracts from January 2022 onwards. As at June 2022 the average weighted price for these contracts were £190.1/MWh, £303/MWh for January 2023 and £230/MWh for June 2023. This provides the expectation of over 2 x dividend cover (post and ex-carried forward earnings) in the financial years ending June 2023 and June 2024.

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.

Environmental, Social and Governance ("ESG")

It gives me great pleasure to present the Company's first ESG strategy within this report and I take pride in the unwavering commitment the Board and Investment Adviser have in ensuring the Company strives to implement best practice policies in this hugely important area.

This year has seen the first retirement from the Board of Directors since the Company was established in 2013, so I would like to extend a warm welcome to Libby Burne who joined us as a Non-Executive Director in October 2021 following a distinguished career at PwC; and to thank Laurence McNairn, who has retired from the Board, for his wise counsel and dedication since the very early days of the Company.

After nine years as Chair it is now my intention to stand down at the forthcoming AGM, and the Board has agreed that John Scott will move from his role as Senior Independent Director to succeed me as Chair of the Company. I believe this is important for continuity as we rotate other Board members who have served since the IPO. John intends to serve not more than three additional years, during which time the newer members of the Board will be more established, and we will look for a longer term replacement as Chair. We are also at an advanced stage in appointing a new non-executive director who will succeed John as Senior Independent Director at the AGM.

The Energy Crisis and Reform

The energy crisis has resulted in power prices reaching unsustainably high levels, putting pressure on every section of the economy. The government is engaging with renewable energy generators to see how our industry can be part of the solution, recognising that the renewable energy sector is well placed to play a major role in creating a long term solution to this crisis. Solar and wind are today the lowest cost generators in the market, their technologies are relatively quick to deploy and they provide indigenous, clean and secure supplies of energy. The Company welcomes the opportunity to discuss an equitable reform of the electricity market that will result in consumers seeing the benefit of the lower generating costs of existing portfolios. In the event that both government and generators find a fair solution that will not impair the future attractiveness of the market and which does not constrain our ability to raise the new capital required to support the investment needed to continue the process of decarbonising the economy, there is an opportunity for a good outcome for all.

Conclusion

With high levels of index-linked revenues, a conservative debt and power sales strategy and no currency risk, we have demonstrated after close to a decade of operation that your Company remains a safe haven for investors looking for robust sterling income, with sector leading earnings and dividends.

I am delighted that the Company has been promoted to membership of the FTSE 250 index, and it does so on the strongest of financial footings and with a wonderful opportunity to play an increasing role in the transformation of the UK's energy map.

John Rennocks

Chair

29 September 2022

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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 renewable energy infrastructure assets. 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 original dividend target for the financial year ended 30 June 2022 was 8.12pps and this was subsequently raised to a target of not less than 8.16pps. Having now declared four interim dividends totalling 8.20pps, the Company is pleased to have exceeded this target.

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, in which it is the sole shareholder. On 6 May 2022 the UK limited company parent changed from BSIFIL to Bluefield Renewables 1 Limited (BR1) to facilitate arrangement of the new RCF. 

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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 is fully made up of 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 BR1 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 0.6% of NAV at 30 June 2022 (0.8% at 30 June 2021) reflecting the increase in the Company's asset size. 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 renewable 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 and European 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 and aligned to ESG principles.

(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 BR1. The boards undertake detailed review meetings with the Investment Adviser to assess the recommended projects. If the boards of both the Company and BR1 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 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.

3. Investment Policy

The Company invests in a diversified portfolio of renewable energy assets, all located within the UK, with a focus on utility scale assets and portfolios on greenfield, industrial and/or commercial sites. With a focus on solar, the Company has the ability to invest up to 25% of the Company's GAV into complementary renewable technologies, principally wind and storage. The Company's responsible investment approach is discussed in section 4 of the Strategic Report.

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 normally 100% in such SPVs, but may participate in joint ventures or minority interests to gain exposure to assets which the Company would not 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, but such holding company level debt (when taken together with the SPV finance noted above) will not exceed 50% of the GAV. It may also make use of non-recourse finance at the SPV level to provide leverage for specific renewable 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 GAV.

While it is not the Company's policy to be a long term holder of non-UK assets, the Company can invest up to 10% of GAV into assets outside the UK to enable it to acquire portfolios with a mix of UK and non-UK assets. Furthermore, up to 5% of the GAV may be invested into pre-construction UK solar development opportunities. 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 Company derives its revenues from the sale of ROCs, FiTs and CfDs (or any such regulatory regimes that may replace them from time to time) alongside the sale of electricity under power purchase agreements with counterparties such as co-located industrial energy consumers and wholesale energy purchasers.

The Company may invest up to 5% of GAV into further UK solar development opportunities and purchase assets pre- or post- construction in order to:

1. Maximise quality and scale of deal flow;

2. Optimise the efficiency of the acquisitions;

3. Minimise risk via appropriate contractual agreements; and

4. Acquire assets using prudent 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. Responsible Investment

In line with its purpose of 'Renewable Energy, Delivered Responsibly', the Company is committed to delivering shareholder value whilst at the same time promoting positive environmental and social impact. As part of its responsible investment approach, the Company must consider both the positive and adverse impacts of its investment decisions on sustainability factors, seeking to mitigate the negative where possible.

ESG consideration within the investment process has been enhanced this year, with the creation of a standalone ESG due diligence questionnaire. Developed in line with SASB standards, the questionnaire includes an exclusionary list, high-level climate screening and SFDR considerations, in addition to focused environmental, social and governance questions. As part of a recent potential acquisition, the Company outsourced ESG due diligence to an external consultant.

Further information on the Company's approach to Responsible Investment and its ESG strategy is contained within the ESG Report below.

5. Operational & Financial Review for the period

Key Performance Indicators

Market Capitalisation (1)

The Directors regard the Company's market capitalisation as an important secondary indicator of the trading liquidity in its shares. The Company's market capitalisation grew from £494m to £801m, due to an increased share price as a result of two successful capital raises and during the year.

Total Dividends Per Share Declared (1)

BSIF generates returns primarily in the form of distributions and the Company has a progressive dividend target, so it is important that the dividend increases each year. During the year the dividend grew by 2.5% from 8pps to 8.20pps.

NAV

The Company's average NAV is a determinant of BSIF's total expense ratio as forms the denominator of the calculation. The finite life of renewable asset leases will ultimately lead to the attrition the Company's NAV. The Directors recognise this as a significant feature and have expanded the mandate of the Company in part to mitigate this effect. The Company's NAV grew during the year as a result of capital raising activity and valuation uplifts.

(1) please see Alternative Performance Measures below for further details.

NAV Per Share(1)

Whilst the Company's principal goal is to produce income, the NAV per share movement informs our shareholders and the Board whether this income has been produced at the expense of capital growth. The NAV per share grew during the year and produced a positive return to capital, largely as result of valuation uplifts deriving from strong demand for electricity and renewable generation assets.

Total Shareholder Return(1)

This is a measure of the combined return to Shareholders from dividend income and share price movements and whilst this should be positive in the long-term, short term fluctuations in shareholder and market sentiment can cause this number to be positive or negative. The positive return of 14.55% for 2022 compared to the negative return of -3.79% in 2021 reflects an improvement in market sentiment for the Company and the renewables sector.

Acquisitions

See the Investment Adviser's Report in Section 2.

Portfolio Performance

See 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 and BR1 to BSIF.

The total comprehensive income before tax of £174.6 million reflects the performance of the Company when valuation movements and operating costs are included. Further detail on valuation movements of BR1's portfolio is given in the Report of the Investment Adviser.

The Company's ongoing charges ratio is 1.02% (2021: 1.14%), 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, with an external review as and when the Board deems appropriate.

This fair market value adopted for the portfolio was £939.9m (note 8 of the financial statements) and is confirmed by an alternative approach using a combination of discounted cash flows of income generated from the portfolio of investments.

The Board reviews 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 renewable 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;

· Fund Operations;

· Regulation and Compliance;

· External;

· 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 reviews on a regular basis. Emerging risks are identified in the course of board discussions and meetings and are recorded in a separate area of the risk register.

* Directors' Valuation is an alternative performance measure to show the gross value of the SPV investments held by BR1, 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

EXTERNAL

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 likely effectiveness of the actions to be taken to avoid or reduce the impact of the underlying risks and which would be open to management. 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 and envisaged 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 the Directors have no reason to believe that shareholders will 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 five 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 five year period ending 30 June 2027. The Directors have increased the viability period from three to five years, reflecting the maturity of the Company and the industry, and have determined that the five year period to June 2027 is an appropriate period to provide this viability statement as this period accords with the Group's planning purposes.

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 2027.

These inherent risks associated with investments in the renewable 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 last carried out a review of the risk matrix at the Audit Committee meeting held on 26 September 2022. 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.

Introduction from the Investment Adviser

The period under review straddles the end of prolonged low inflation with relatively stable power prices and the start of rapidly increasing inflation and significantly higher power prices. This shift is likely to see changes in public policy. The UK government has commenced a consultation on the energy markets (Review of Energy Market Arrangements under the acronym REMA) which is looking to see whether changes can be effected to make the energy system more efficient. More urgently, the government is also opening up fast track discussions with the renewable industry to see whether there is a way for the merchant power element of the Renewable Obligation Scheme's revenues to be converted into a Contract for Difference. It could be a good solution, as long as the outcome is fair to the Company's shareholders and to consumers, and we will be engaging with government on these potential solutions. 

A time of crisis can often propel positive change and I believe that this crisis is the opportunity for the renewable energy industry to become even more central and vital to the government's core energy objectives. Solar and wind are now the lowest cost energy sources in the market today. They are both relatively quick to deploy and will add to the country's energy security. They also, particularly solar, have high levels of public support.

James Armstrong

Managing Partner, Bluefield Partners LLP

1. About Bluefield Partners LLP ('Bluefield')

Bluefield was established in 2009 and is an investment adviser to companies and funds investing in renewable 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 £6 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 for selection, origination and execution of investment opportunities for the Company, having executed over 100 individual SPV acquisitions on behalf of BSIF and other European vehicles.

2. Portfolio: Acquisitions, Performance and Value Enhancement

a. Acquisitions in the period

Following these acquisitions, the portfolio's total outstanding debt has increased to £460 million, and the total installed capacity of its operational portfolio has grown to 766MW (made up of solar 708MW and wind 58MW). The Company's leverage as at 30 June 2022 is c.35% of Gross Asset Value ('GAV') (c.44% as at 30 June 2021).

Post period end - Construction Programme

In July 2022, the Investment Adviser successfully secured CfDs on 62.4MW of ready to build PV plants (Yelvertoft 49.9MW, Romsey 6.5MW and Oulton 6.0MW). By securing a CfD contract, the plants will benefit from index linked revenues (to CPI) over a 15 year duration at the AR4 solar PV strike price of £45.99/MWh (in 2012 equivalent prices), or £57.48/MWh in 2022. The contracts commence from 31 March 2025, at which point the strike price referenced above will include inflation from 2023 and 2024.

The first development to enter the mobilisation phase is the Yelvertoft Solar PV project, which signed an EPC contract with Bouygues in September 2022 and is targeting initiation of construction in Q4 2022 and operation in Q3 2023.

As the EPC agreements require contractors to provide full procurement activity and to supply all materials, the Investment Adviser completes a full assessment of each contractor's procurement and supply chain management processes, to ensure compliance with the Company's ESG policies and standards. For further information relating to the Company's wider ESG activity, please refer to the ESG section below.

a. Portfolio Performance and Optimisation

As of 30 June 2022, the Company held an operational portfolio of 766.2MW, comprising both solar PV (707.9MW, representing 92.4%) and onshore wind (58.3MW, representing 7.6%) assets, located across the UK (June 21: 613MW, +25.0% increase). For completeness, due to the timing of an acquisition in late May 2022, 12 utility-scale plants and 3 micro sites plants (aggregated capacity of 64.9MW) and 4 wind farms (aggregated capacity of 28.3MW), are not included in the performance section of the report. These will be included in full for the FY 22/23.

The combined solar and wind portfolio generated an aggregated total of 687.5GWh during the reporting year, with a Generation Yield of 1,027MWh/MW.

Chart D.1: Summary of Installed Capacity by Technology and Total Generation by Technology

[chart]

(1) Solar PV

As of 30 June 2022, the capacity of the solar PV portfolio was 708MW comprising 124 PV plants (83 large-scale plants, 39 micro sites and 2 roof top arrays). Following acquisitions outlined in the table above, this is an increase of 95MW from 30 Jun 2021. However, as outlined above, due to the timing of the acquisition of 64MW in May 2022, these assets are excluded from the performance summaries below.

The solar plants are located across the UK, predominantly in the South West and South East of England:

Chart D.2: Solar PV Capacity (MW) by Location

[chart]

As shown in the table below, irradiation levels during the period were 2.6% higher than the Company's forecast and 4.7% higher than FY 2021/22. As chart D.3 illustrates above, this reflects an offsetting of irradiation between the first six months of the period to December 2021 (-2.9% below expectations) and the second six month period to June 2022 (+7.3% above expectations).

In the 12 months to 3o June 2022, the solar portfolio achieved a Net PR of 79.4% (FY 2020/21: 80.3%) against a forecast of 81.4% and generated 624.58GWh of power, marginally above expectations. The generation yield was 971MWh for each MW of installed capacity, 3.5% higher than recorded in the previous year.

Availability (the total time the plant was operating, as a percentage of the maximum possible) for the year was in line with expectations at 98%.

Table D. 1. Summary of Solar Fleet Performance for 2021/22: 

Notes to Table D.1. 

1. Excludes 12 solar plants acquired in late May 2022 (aggregated capacity of 64.9MW)

2. Periods of irradiation where irradiance exceeds the minimum level required for generation to occur (50W/M2)

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

4. The Total Unit Price includes all income associated with the sale of power, subsidy payments, Liquidated Damages and insurance claims amounts but excludes assumptions around ROC Recycle amounts (which may contribute a further 5-7% of revenue)

Chart D.3: Irradiation & Generation (Actual & Forecast) by month, FY 2021/22

[chart]

Total Revenue for the period was £82.89m, equivalent to £128.93k/MW, 4.53% higher than forecasts and 21% higher than the previous FY (2020/21: £118/MWh), due to the more favourable fixed PPA agreements which commenced during the period.

Operational Costs for the period were c.£18.4m, including the cost associated with the optimisation & enhancement projects (see below).

Optimisation & Enhancement Activity

A core focus of the Investment Adviser's activities is protecting, optimising, and enhancing the value of the Company's operational portfolio. Examples of key activities for the solar portfolio include:

· Asset Life Extension: Over 400MW (31 December 21: 371.4MW) of the PV portfolio now has leases that allow for terms beyond 30 years, representing 62.8% of the solar PV portfolio as at 30 June 2022, with 332.2MW benefitting from planning term extensions up to 40 years (100% of applications successful). The Investment Adviser continues to negotiate further lease extensions.

· Transfer of O&M Services to Bluefield Operations Limited ('BOL'): BOL now provides O&M contractor services to 64 of the Company's assets, totalling 555MW of installed capacity, representing 86.4% of the solar portfolio (FY 2020/21: 486MW). This transition has brought enhanced service levels and operational savings of £454.3k/annum compared to the original fees paid to external service providers. Further contracts will continue to transfer to BOL in the 2022/23 FY.

· Capital Works Projects: We completed optimisation/enhancement projects across 10 plants, with a total investment of c.£1.46m. Further projects include the replacement of existing transformers, a phased repowering of string inverters, strengthening mounting structures and improving site drainage. The Investment Adviser intends to undertake similar works over the winter 22/23 period.

OFGEM Audits

As part of the industry-wide audits of RO-accredited generating assets, the Investment Adviser and Asset Manager have been working closely with the regulator on those assets (randomly) selected for audit. All of the Company's assets to have completed OFGEM audits have been classified as 'satisfactory'.

Table D.2. BSIF Solar PV Generation by Asset, FY 2021/22:

*Although assets were acquired in January 2022, generation data is for the full FY

(2) Onshore Wind

During the reporting period the Investment Adviser managed a wind portfolio of 117 onshore turbines, comprising of 109 small scale turbines (55-250KW) with 8 turbines of 2.0-2.3MW, and an aggregated capacity 30.0MW.

Chart D.4 BSIF Wind Portfolio, and Turbine Type/Installed Capacity by Location/Installed Capacity.

[chart]

In late May 2022, the Company acquired an additional 18 large onshore wind turbines, with a total installed capacity of 28.5MW. These turbines have performed better than expected, but are excluded from this report, as having less than 2 months of operations in the reporting period.

Over the reporting year, the wind speed across the asset locations averaged 6.1m/s (-4.2% to forecasts); UK averages during 2021 were at the lowest level recorded in the previous 10 years

Total generation from onshore wind during the reporting period was 62.9MWh, 17% below forecasts, largely due to low availability of 2 turbines at Delabole Wind Farm, which experienced several key component failures during the second half of the reporting year. Liquidated Damages ('LDs') have been received from the OEM for the 2021 calendar year, with losses during 2022 due to calculated in January 2023. Availability for the remainder of the fleet (Hampole and the small-scale turbines) was largely as forecast at 95.9%.

Table D.3: Aggregated Wind Portfolio Performance, Annual 2021/22

The Investment Adviser was able to negotiate improved fixed PPA terms on many assets; thus, despite low generation, the wind portfolio's total revenue was as forecast, at £13.4m.

During the reporting period the wind assets recorded lower than forecast wind speeds. This was largely due to the UK experiencing the lowest average wind speeds in 10 years, during 2021.

Chart D.5 Average Windspeed & Generation (Actual Vs Forecast) by month, 2021/22

 [chart]

Optimisation Activities

In the Northern Ireland fleet, 17 out of 29 small-scale turbines have been identified for repowering with replacement EWT 250KW turbines. These assets can repower to a higher capacity, whilst maintaining their respective RO accreditation statuses.

As at 30th June 2022, 4 turbines have been repowered and are operational, and a further 7 have received full planning approval for a new 25-year term. Prior to end December 2022 an additional turbine will be decommissioned and repowered with the EWT model, and a further 3 are scheduled for early 2023. The remaining 6 turbines have seen planning applications submitted to the relevant LPAs.

The Investment Adviser has continued to implement and manage a range of operational enhancement measures across the small-scale turbines, both to improve performance and to protect against failure.

Power Purchase Agreements

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).

As shown in the charts below, 100% of BSIF assets hold subsidy accreditation, the vast majority with RO accreditations, with RO and FiT subsidy revenue accounting for 59.2% of the total revenue (45.6% ROC, 13.6% FiT). Income from fixed purchase power agreements constituted 37.5% the total revenue for the year, with the remaining 3.3% of revenues coming from existing index-linked power agreements on newly acquired assets.

Chart D.6 Subsidy accreditation by % of Portfolio Capacity (left) and Revenue Source by % of Portfolio Capacity (right)

[chart]

The Company has continued to implement the approach of fixing power prices evenly throughout the year for between 18-36 months, with the average current portfolio PPA term as at 30 June 2022 standing at 25.2 months.

The purpose of this strategy is to mitigate the Company's exposure to seasonal fluctuations and short-term events which have the potential to increase volatility in price, whilst allowing flexibility to capitalise on periods of higher power prices, and simultaneously enabling the Company to avoid fixing prices during periods of significant weakness.

The Investment Adviser continues to believe this is the best strategy for the Shareholders, who are looking for stable revenues and forecastable, sustainable dividends. In March 2020, the Company went into the pandemic with over 90% of its revenues fixed and had the best twelve months' performance since IPO, at a time when unhedged strategies were generating less than 50% of their expected revenues. The current market is offering the opportunity to restrike contracts at far higher prices out to 2025, something we are actively doing (see chart below for the average of all fixes and 270MW, fixed in 2022). A fixed contract strategy will always lag a sudden upturn in prices, but we have very high visibility of revenues over the next few years where other strategies do not and it is a strategy that has almost a decade of delivering the highest covered dividend (covered by in year earnings and post debt amortisation).

New PPA prices are 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 2022, the Company has a price confidence level of 96% to December 2022 and c.87% to June 2023 over the pricing of its power and subsidy revenue streams.

Chart D.7. % of BSIF revenues fixed as at 30 June 2022 (solar PV and onshore wind, combined)

[chart]

Note: There is c.95MW of capacity 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. Graph also includes all fixed wind assets but excludes 5.33MW of the small-scale wind portfolio which hold 'floating' PPAs, linked to the NI SEM.

Over the past 12 months, global energy demand grew rapidly in the second half of 2021, propelled by rapid economic recovery as Covid-19 lockdowns eased, leading to increasing gas prices. The UK is particularly exposed to high gas prices due to a reliance on residential gas supplies and a significant portion of UK electricity being generated in gas-fired power stations. Increased demand, coupled with historically low gas storage levels, led to LNG and LPG prices rising significantly, pushing up wholesale electricity markets. This trend was further compounded by Russia's invasion of Ukraine, enforcing uncertainty around the security of European gas supply and price volatility on the gas markets, in turn leading to record prices and high volatility in the UK power markets.

The price of coal also rose sharply towards the latter end of the Period driven by high demand in Europe, a ban on imported Russian coal and limited supply from Asia. As a result, UK-ETS carbon prices held largely above the £70/tonne of CO2 equivalent mark throughout the second half of the Period, having closed below the £60/tonne of CO2 equivalent on most days between July 2021- mid-November 2021. The demand for carbon certificates is likely to remain supported in the coming winter after several coal plants were requested to stay online to safeguard GB system security and reduce its reliance on gas imports.

The impact of sharp commodity price increases was a three-fold year-on-year increase in the UK day-ahead base load power price for the 12 months to 30 June 2022, of £171.25 per MWh from c. £55.25 per MWh, for the 12 months to 30 June 2021.

Day-ahead base load power prices settled at £384.85/MWh on average in March 2022, which was almost 80% above market expectations, whilst UK seasonal forward power prices also rose sharply over the year, with Winter 2022-23 base load reaching highs of £345/MWh in June 2022, almost five times the level seen in July 2021.

As a further illustration of the points mentioned above, the below charts compare the wholesale electricity prices versus gas and carbon from December 2019 to June 2022.

[chart]

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

The upward movement of the wholesale power market is reflected in the BSIF average seasonal weighted power price. The average seasonal weighted power price for the 12-month period ending 30 June 2022 has increased by 18.47% from the previous 12-month period ending 30 June 2021, from £47.86 per MWh to £56.70 per MWh.

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 2021/22 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 2021, Ofgem announced that value for ROC recycle for the period April 2020 to March 2021 (CP19) was £3.87/ROC (equivalent to 7.7% of CP19 ROC buyout prices). This was in line with the ROC Recycle estimate the Company had recognised in its 30 June 2021 Financial Statements; a further 'late payment' amount of £0.55/ROC was announced in December 2021, equating to a further £455k. 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 2021/22 and FY 2020/21 are the combined effects of higher generation and PPA pricing in solar (8.6% and 9.2% respectively), lower generation in wind assets (-17%) and an increase in earnings from the acquisitions completed during the year.

The table below demonstrates that the portfolio generated underlying earnings, pre debt amortisation, of £66.8m (12.04pps) and underlying earnings for distribution, post debt repayments of £13.8m (2.50pps), of £53.0m (9.54pps).

As a result, after declaring four interim dividends totalling 8.20pps, the Company has carry forward earnings available for future dividends of 3.39pps.

Underlying Portfolio Earnings

* Other Revenue includes ROC mutualisation, ROC recycle late payment CP19, insurance proceeds, O&M settlement agreements and rebates received.

#Includes the Company, BSIFIL and BR1 (included within BSIFIL is a group tax charge of £1.4m vs £2.3m June 2021).

**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.

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

*** Reserves carried forward are based on the shares in issue at the point of Annual Accounts publication (being c.611m shares, 2021: c.496m).

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 2022 was £939.9m (30 June 2021, £694.5m).

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

Discounting Methodology

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 £/MW basis against comparable portfolio transactions.

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.

Key factors behind the valuation

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 continues to remain high. This has resulted in average pricing for subsidised projects moving towards the higher band of the pricing range witnessed by the Investment Adviser of c.£1.25m/MW and c.£1.45m/MW for comparable portfolios to the Company's. The step up in average pricing is also related to significant increases in near-term power price forecasts, see details below, and the rate of inflation (see below);

(ii) Inflation has risen sharply since the Company's Interim financial statements in December 2021, with RPI rising to over 11% on a year on year basis as at 30 June 2022. To align the Directors Valuation with the latest public data and Bloomberg's basket of independent forecasters, a revision to the assumption for 2022 from 6.4% (in December 2021) to 10.9% has been made. With high levels of uncertainty over the potential level of inflation in 2023 and beyond, the Directors have elected to remain at 3.4% in 2023 and 3.0% until 2029. Thereafter, an assumption of 2.25% from 2030 has been applied to reflect the transition from RPI to CPIH;

(iii) In tandem with rising inflation, interest rates have also seen significant increases over the period as the Bank of England raised base rates from the historic lows of 0.1% (in place until as recently as November 2021) to 1.25% as at 30 June 2022. Post year end, as at 22 September 2022, the Bank of England raised base rate to 2.25% with further increases expected. With long term debt yields increasing by a comparable amount, the Directors have determined it is appropriate that a proportional adjustment is made to the Company's equity discount rate. As such, the Levered equity discount rate has been increased to 6.75% (6.00% in December 2021 and June 2021). The discount rate for asset lives in excess of 30 years has also been increased to 8.00% (7.50% in in December 2021 and June 2021);

(iv) Acquisitions made in the period, being a 109 wind turbine portfolio with 12.5MW capacity and two mixed solar and wind portfolios of 47.5MW and 93MW, have been valued on a discounted cash flow basis as at 30 June 2022 with inherited 3rd party financings (£113.5m in total) associated with these acquisitions included alongside the impact of £255m of equity raised during the period.

By reflecting the core factors above within the Directors' Valuation for 30 June 2022, the EV of the portfolio is £1,180.6m (June 2021: £770.1m) with the effective price for the solar component of £1.38m/MW (June 2021: £1.26m/MW). These metrics sit squarely within the pricing range of precedent market transactions and the 'willing buyer-willing seller' methodology upon which the Directors' Valuation is based.

Valuation Assumptions - Further detail

Debt

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 2022, the Group's short term debt consisted of £70m 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 the RCF is 4% and on the NatWest term loan it is 3% (with a cumulative balance of £131.5m).

Power Price

The blended forecast of three leading consultants used within the latest Directors' Valuation, as shown in the graph below, is based on forecasts released in the quarter to June 2022. For illustration purposes, the graph below also includes the blended curves used in the Company's December 2021 Interim accounts and June 2021 Annual accounts.

The curves used in the 30 June 2022 Directors' Valuation reflect the following key updates:

1. Short-term European fuels - gas and coal - prices have risen significantly following the invasion of the Ukraine, driving material increases in near-term wholesale power prices;

2. Increased renewable deployment in the UK (notably in the early 2030s following the launch of the REPowerEU package in May 2022 which highlights the EU's plans to accelerate the clean energy transition and rapidly reduce the region's dependence on Russian gas imports)

3. Annual GB electricity demand, driven principally by electrification of heat and transport, is expected to rise from 305TWh in 2022 to 497TWh by 2050;

 [chart]

NAV Movement

[chart]

Directors' Valuation movement

Each movement from the 30 June 2022 valuation is considered in turn below:

New investments acquired (12.6MW wind portfolio, 47.5MW solar and wind portfolio, 93.2MWsolar and wind portfolio)

These movements reflect the base investment cost of £63.6m of the 12.6MW, 109 single stick wind portfolio the Company acquired in August 2021, 47.5MW ROC backed operational portfolio of solar and wind, located largely in the South West, acquired in January 2022, and 93.2MW ROC and FiT backed operational portfolio of solar and wind, located across England, Wales, Northern Ireland and Scotland, acquired in May 2022. New acquisitions were bought into the valuation model on a discounted cash flow basis together with the associated financing.

Cash receipts from the Portfolio

This movement reflects the cash payments made from the underlying project companies up to BSIFIL, BR1 and the Company to enable the companies to settle operating costs and distribution commitments as they fall due within the period.

Power curve updates (incl. PPAs)

The Company's three independent power price forecasters released updated forecasts in April 2022 and June 2022, and these have been applied to the Directors' Valuation. The impact of consistently applying an even blend of three independent forecasters as well as the latest power price fixes, against power price expectations applied in the 30 June 2022 valuation, results in a valuation increase of £99.9m from June 2021.

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

Inflation

The Company's inflation assumptions within the June 2022 valuation have been adjusted to reflect higher short-term inflation expectations with levels now projected at 10.9% in 2022, 3.4% in 2023, 3.0% to 2029 and 2.25% from 2030 onwards (June 2021: 2020 and 2025 of 3.00%, and from 2025 onwards of 2.75%);

Balance of Portfolio Return

The balance of portfolio return is the Company's change in capital structure following the equity issuance of c.£255m from equity raises in August 2021 and June 2022, 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 2022.

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

*GAV is the Financial Assets, as at 30 June 2022, at Fair Value of £856.3m plus RCF of £70m and 3rd party portfolio debt of £390.7m (giving total debt of £460.7m).

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

Revolving Credit Facility

On 11 May 2022, the Company agreed a new and enlarged £100 million revolving credit facility ("RCF"), provided equally by RBSI and Santander UK which, as well as being extended to May 2024 (with an option to extend to May 2025), also contained a new accordion tranche of up to a further £100.0 million which matured on 8 August 2022. The accordion facilitated the acquisition of the 93.2MW operational portfolio acquired in May 2022 and was repaid in full following the £150 million equity raise in June 2022. The margin, over SONIA, on the facility has also been lowered from 2.0% to 1.9%.

As at 30 June 2022 the Company's subsidiary had drawn £70m from its RCF.

External Debt

Excluding the Company's RCF, total outstanding loans to 3rd party lenders stands at £390.6m with each loan secured against a portfolio of assets and fully amortising within the life of the respective asset's subsidies.

The table below outlines core details of all debt facilities within the Company, excluding the RCF, which is detailed above.

GAV Leverage

The Group's total outstanding debt, as at 30 June 2022, is c.£460 million and its leverage stands at c.35% of GAV (44% as at 30 June 21) at the lower end of the 35% - 45% range the Directors have previously outlined as desirable for the Company.

6. Market Developments

UK solar photovoltaic capacity and deployment

According to BEIS, the UK's total installed solar photovoltaic capacity as at June 2022 (the latest statistics available) was 13.99GWp, across just over 1.2 million installations. This compares to 13.66GWp in June 2021. Expansion over the period, of 330MW, has been driven exclusively by the deployment of c. 90,000 small unaccredited installations with capacities below 50kWp. The chart below illustrates how the deployment of new generating capacity has diminished significantly since the closure of the RO scheme in 2017.

[chart]

*Source; BEIS, Solar photovoltaics deployment June 2022

Capacity accredited nationally under the RO Scheme is 7.3GWp, according to the latest data from BEIS released in March 2022, representing c. 52% of the total solar capacity in the UK, but it constitutes only 2% of the number of installations.

Capacity accredited under the FiT scheme was c. 5.1GWp. This equates to about 36% of total solar capacity and c. 75% of all installations. Subsidy-free capacity stands at 1.5GWp and 23% 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 continued its momentum during July 2021-June 2022 with investor appetite for subsidised assets remaining very high. According to the most recent figures from Bloomberg New Energy Finance (BNEF) and Bluefield internal data, 272MW of subsidised projects changed hands during January-June 2022. For reference, some 732MW of solar PV project deals were reported in 2021. 

Activity in the UK subsidy-free market has also continued at pace. Significant development activity is being carried out within the UK, which is being driven by factors such as ambitious decarbonisation targets, increasing preferences by customers for clean energy, demand for ESG investments and the inclusion of solar PV in the recent CfD auction round.

Estimates from Solar Power Media indicate that there are over 41GWp of large-scale solar projects in the development/ready-to-build phase (June 2021: 17GWp) and c. 7.2GWp awaiting or under construction as at the end of May 2022.

Over the past 18 months there have been a small number of larger-scale unsubsidised projects constructed in the UK. Throughout the 2021 financial year, however, there have been indications that solar deployment rates have stagnated somewhat due to increased construction costs and supply chain challenges. The elevated pricing is being driven by a significant increase in solar module prices, together with increases in commodity prices and disruption in global supply chains.

With 708MW of operational solar capacity, the Company maintains a strong position within the UK solar market, owning about 7.4% of the country's utility-scale solar PV capacity.

As an established and experienced market participant, this predominantly regulated revenue base provides a strong foundation for continued growth of the Company through both primary and secondary acquisitions in solar, storage and wind.

7. Regulatory Environment

The regulatory environment is under the spotlight for the first time in a number of years as the government looks to manage soaring energy costs and increase energy security. A consultation has been launched to look at whether there needs to be reform of the energy markets. More immediately, the government is looking to see whether the renewable industry and the government can agree a mutually favourable change to the merchant part of the Renewable Obligation Scheme.

Update on Contracts for Differences (CfD)

The CfD scheme, which currently provides a tariff for 100% of an asset's generation over a 15 year period, is now the UK Government's main mechanism for supporting low-carbon electricity generation and operates via an auction process. The latest CfD allocation round (AR4) opened in December 2021 and closed in July 2022. It was the first auction round since AR1 (2015) that allowed solar PV projects to participate.

A total of ninety-three new renewable energy projects won contracts in AR4 across GB, which is more than the number of projects awarded in the previous three auctions combined. A total of 10.8GW renewable projects received CfDs in AR4 (up by 87% from the previous auction in 2019) with the majority going to offshore wind at 7GW and 2.2GW to solar PV projects. These numbers reflect the success the scheme is having with respect to accelerating the deployment of renewable energy in the UK.

In February 2022, the UK government confirmed that it will hold annual CfD auctions from 2023, having previously been scheduled once every two years. The next CfD auction (AR5) is planned for March 2023.

A CfD consultation outcome published in May 2022 announced changes to Supply Chain Plan requirements and a strengthened non-delivery disincentive. The 2020-21 government call for evidence on 'Enabling a high renewable, net zero electricity system' also highlighted several areas in which CfDs could be reformed.

The UK Energy Security Strategy

In April 2022, the UK government published its British Energy Security Supply paper following widespread calls to lower the UK's reliance on Russian gas and reduce the impact of significant wholesale power price rises on UK retail energy consumers. The latest targets largely added to the goals set in the Government Energy White Paper, published in late 2020, with a particular focus on greater nuclear and offshore wind capacity targets.

The Government now plans to reach 50GW offshore wind capacity by 2030 - an increase from the 40GW target in its net zero strategy released in October 2021 - of which floating offshore wind should make up 5GW, up from 1GW previously. No target was set for onshore wind growth targets with former Prime Minister Boris Johnson having been reluctant to ease planning rules to enable more onshore wind developments. A nuclear target of 24GW by 2050 was set, with small modular reactors expected to form a key part of the nuclear project pipeline. The Government estimated a five-fold increase in solar deployment levels by 2035, as well as its intention to consult on amending planning rules for ground-mounted solar to strengthen policy in favour of development on non-protected land.

Future of the UK ETS

A joint consultation of the UK, Scottish, Welsh and North Irish governments on developing the UK Emissions Trading Scheme (UK ETS) was launched in March 2022 and closed in mid-June. The governments sought feedback on a net zero consistent UK ETS cap following advice from the Climate Change Committee's (CCC), with any changes to the policy to align the cap with a net zero trajectory to be implemented by no later than January 2024. The wide-ranging consultation also sought comments on other topics such as the role of Free Allocation policy as a carbon leakage mitigation tool and the incorporation of greenhouse gas removal into the UK ETS, all of which ultimately aim to improve the ambition and operational effectiveness of the scheme.

Balancing Services Use of System (BSUoS) Charges

The UK energy regulator Ofgem approved a measure to move balancing charges away from generators and onto final demand users from 1 April 2023, following several years of consultation processes on the proposal. Successful applicants in the AR4 will have their CfD strike prices adjusted downwards to reflect this regulatory change.

BSUoS charges are how the ESO recovers costs associated with balancing the electricity transmission system, including the costs of constraints, frequency response services, provision of reserve, the costs of actions taken in the Balancing Mechanism and the ESO's internal costs. BSUoS charges are currently recovered from demand customers and generators based on the amount of energy import from or exported into the network in each half-hour period.

Review of Electricity Market Arrangements

The UK Government published its Review of Electricity Market Arrangements (REMA) consultation in mid-July which potentially opens the GB power market to one of the biggest overhauls for a generation. REMA aims to deliver fundamental reform to non-retail electricity market arrangements to facilitate the decarbonisation of the electricity system by 2035, while ensuring security of supply. Topics covered include the revision of the wholesale market structure (potentially decoupling power from gas prices), balancing mechanism, network charging, operability services and related policies such as CfD and capacity market schemes. The consultation closes on 10 October 2022 and a delivery roadmap is expected to be released in 2024.

1. Introduction

An introduction from the Chair

I am pleased to present the Company's first environmental, social and governance (ESG) strategy within this report, encompassing the Company's purpose of 'Renewable Energy, Delivered Responsibly'. The Company has refreshed its materiality assessment, engaged stakeholders to identify priority ESG topics, established its key pillars and articulated its ESG ambition. To enable our shareholders to feel confident that ESG issues are being well managed, and opportunities grasped, ESG performance will be reported annually against a set of commitments and KPIs.

Climate action is at the forefront of the sustainability agenda. The journey to Net Zero continues to be a challenging one, with the global pandemic, conflict between Ukraine and Russia and the cost-of-living crisis evidencing the dynamic relationship between social and environmental factors. Our societies cannot be separated from the natural environment they inhabit, and global emission reduction goals cannot be achieved in isolation from social challenges.

The renewables industry plays an important role in climate change mitigation through decarbonisation of the energy markets. As the demand for renewables continues to rise, the industry must address social risks, such as those presented within its supply chain. Indeed, we have witnessed the renewables sector come together over such matters in recent years, recognising that the greatest impact will be achieved through industry collaboration.

The Company was founded on the belief that investment in renewable technology created the opportunity for attractive and sustainable returns whilst delivering clean, renewable energy. As a pioneer in the market, BSIF has always had a clearly articulated environmental focus. The Company recognises the opportunities and value that ESG considerations present, and the positive impact which can be delivered by its portfolio in addition to financial returns.

Over the coming year, the Company will work towards its ESG vision, embedding policies and processes to ensure best practice ESG governance. A key focus will be alignment with the EU Sustainable Finance Disclosure Regulation (SFDR) and EU taxonomy, in preparation for the Company's first full disclosure next year. The Company will also enhance its understanding of potential climate related impacts, helping it to better adapt, mitigate and manage climate related risks and leverage opportunities.

This year has been a significant one in the Company's ESG journey. The Board looks forward to continuing this momentum, progressing towards the Company's ESG vision, and delivering positive impact across the communities and environments it operates within.

John Rennocks,

Chair

An introduction from the Investment Adviser

As the Company's Investment Adviser, Bluefield Partners LLP has worked closely with the Board over the last 12 months to develop its first ESG strategy, which will enable the Company to manage its ESG risks and opportunities, deliver meaningful impact and meet its regulatory requirements.

The strategy will be delivered through the activities of the Bluefield companies which service the portfolio. Their structure, with four separate but complementary businesses, facilitates the integration of ESG into different parts of the investment and operational cycle. Input from Bluefield employees, including investment and development teams through to field service engineers who maintain the portfolio on a daily basis, was instrumental to the development of the Company's ESG strategy and their passion and dedication towards sustainability will drive its success.

Though it has been a year of considerable achievement for the Bluefield companies, we are aware of the social context in which we operate, in particular the cost-of-living crisis in the UK and the contribution of rising energy prices towards this. It has always been our belief that renewable energy assets offer shareholders attractive returns, but they are also the most cost-effective energy solution globally and have a low carbon impact once operational. Large-scale deployment of renewable infrastructure throughout the UK will both support net zero ambitions and help secure domestic energy supply stabilising energy pricing. Echoing the Chair's message above, social and environmental factors cannot be considered in isolation, and we must make simultaneous progress towards energy stability, affordability, and sustainability.

James Armstrong,

Managing Partner of Bluefield Partners LLP

2.  2022 ESG Highlights

Covering the 12-month period ending 30 June 2022:

Note: CO2e savings have reduced from 2021 due to the decreasing contribution of fossil fuels to the UK grid mix, resulting in reduced displacement of fossil fuel generated energy and therefore reduced CO2e savings. This is discussed in more detail below.

3. ESG Context

ESG Landscape

Urgent action is needed to tackle the climate crisis and extensive financial investment will be needed to decarbonise global economies and mobilise the green transition. The Company presents an investment solution which delivers attractive returns to shareholders whilst mitigating the effects of climate change through the production of clean energy. Through its UK focused portfolio, the Company is also contributing to domestic energy security.

Whilst ESG considerations increasingly dominate the executive agenda, historically these have not received equal attention, with more focus placed on environmental issues. Recently, it has been recognised that social and environmental factors cannot be viewed separately. This has been exacerbated by the global pandemic, and the war between Russia and Ukraine. Sustainable development requires simultaneous environmental and social progress. In combination with good governance, consideration of these factors is integral to the long-term success of any investment fund.

ESG Regulation

Rising demand for environmentally sustainable investments has caused a global surge in mandatory ESG reporting, driving funds to transparently disclose how they consider sustainability aspects. A suite of regulation is emerging, with the SFDR in Europe and the highly anticipated Sustainable Disclosure Regulation (SDR) in the UK. These regulations have a shared purpose to drive more consistent sustainability reporting and prevent greenwashing.

SFDR

SFDR Level 1 disclosure requirements came into effect in March 2021. The Board reviewed the Company's ESG strategy and characteristics with the Investment Adviser and elected to adopt an Article 8 classification. Given the nature of the Company's investments, Article 9 classification has been considered. However, there is currently insufficient detail on the level of regulatory scrutiny Article 9 funds will be subject to compared to Article 8. The Company has decided to remain classified as an Article 8 product for the interim and is preparing to make its first full disclosure under the SFDR Level 2 requirements, coming into effect in January 2023. As the requirements and expectations of the SFDR become clearer, the Company will review whether Article 8 classification remains appropriate.

For the purposes of Article 8, the environmental characteristics promoted by the Company are to reduce reliance on fossil fuels and facilitate the UK transition to renewable and sustainable methods of energy generation. Please see the 'Climate Change Mitigation' section of this report to see how the Company has met its environmental characteristics over the reporting period.

EU Taxonomy

The EU Taxonomy, complementary to the SFDR, specifies an additional set of disclosure requirements which establish whether an economic activity is environmentally sustainable[2]. To align with the EU Taxonomy, the Company's investments must satisfy the following criteria:

The Company considers that its investments substantially contribute to the environmental objective of Climate Change Mitigation. During the reporting period, the Company aimed to achieve this objective through its production of clean, renewable energy, and by investing in new renewable energy infrastructure and energy storage facilities. Please see the 'Climate Change Mitigation' section of this report to see how the Company's investments have contributed to this environmental objective during the reporting period.

The Company acknowledges that its investments in renewable energy infrastructure have the potential to harm the other environmental objectives of the Taxonomy Regulation. The Company takes the following actions to help mitigate such risks:

· Protection and restoration of biodiversity and ecosystems. On-site measures are in place to preserve the natural environment and prevent adverse impacts on biodiversity-sensitive areas. This includes ensuring each asset remains compliant with its Landscape & Ecological Management Plan (LEMP). During the reporting period, a Biodiversity Policy has also been created for the portfolio. Please refer to the 'Pioneering Positive Local Impact' section of this report for further detail.

· Transition to a circular economy. The Company remains committed to a best practice approach in respect of asset decommissioning and recycling, acknowledging that recycling practices at the point of decommissioning remain difficult to define, given the long lifespan of renewable infrastructure. Further information on the Company's approach to decommissioning can be found within the 'Generating Energy Responsibly' section of this report.

Human and labour rights are key priorities for the Company, particularly in relation to materials sourcing and supply chain management. During the reporting period, the Investment Adviser carried out appropriate due diligence and compliance checks on key contractors and other counterparties to help mitigate risks, including in relation to human and labour rights, anti-money laundering, anti-bribery, and anti-corruption. The Company has also committed to ensuring that its assets are covered by a Human Rights Policy, aligned with the principles of the United Nations Global Compact[3] (UNGC) and OECD Guidelines[4]. Please refer to the 'Generating Energy Responsibly' section of this report for further detail.

Given that the Company only invests in renewable energy infrastructure and supporting technologies such as energy storage, its high-level assessments indicate that all of its investments contribute to the environmental objective of climate change mitigation. Therefore 100% of the portfolio may be taxonomy-aligned, including approximately 12.5% in enabling activities (based on operational and controlled pipeline capacity). However, the Company acknowledges that further work is needed to ensure compliance with the other requirements of the Taxonomy Regulation, and this will be addressed as part of the ESG activities being undertaken over the coming year, which are detailed throughout this report.

The "do no significant harm" principle applies only to those investments underlying the financial product that take into account the EU criteria for environmentally sustainable economic activities. The investments underlying the remaining portion of this financial product do not take into account the EU criteria for environmentally sustainable economic activities.

Other Regulation

In its 2021 Annual Report, the Company committed to aligning with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and is pleased to present its first voluntary disclosure on below. Emerging regulation, including the Taskforce on Nature-related Financial Disclosures (TNFD) and the UK climate transition plan standard[5], are being monitored by the Investment Adviser.

4. The Company's ESG Strategy

Introduction

As a pioneer in the renewable market, the Company has always considered ESG issues. The Company is proud to have developed its approach and embraced a critically self-reflective practice to discover, define and articulate an ESG strategy that reflects stakeholder expectations, and which will deliver a positive impact across its portfolio of investments. 

Company Purpose & ESG Vision

The Company's ESG vision acts as a guide for the strategy and aligns with the Company's wider purpose and ambition to deliver value through its investments. 

Our purpose: 

RENEWABLE ENERGY, DELIVERED RESPONSIBLY 

Driving shareholder value whilst promoting positive environmental and social impact through our work as a pioneering and responsible renewables fund. As well as supporting the UK's Net Zero carbon ambition, we aim to enhance biodiversity across our sites, to support the UK in mitigating both the climate and ecological crisis. 

Our ESG vision: 

BSIF is helping to mitigate climate change through decarbonisation of the energy sector, whilst delivering long-term dividends to our shareholders. We match our best-in-class shareholder returns with a best-in-class approach to environmental, social and governance aspects. We recognise that being a renewables fund does not mean that we can remove ourselves from wider environmental, social, and governance topics, and are conscious of the potentially harmful impacts that come with being part of the renewables industry. We have committed to further developing our robust due diligence processes and requirements of our suppliers and contractors and we believe that the assets within our fund have a part to play at the local level as much as at the national level. We aim to enhance biodiversity at our sites and integrate this in our efforts in the communities in which we operate, recognising the interconnection between ecological and climate impact.

ESG Strategy

The Company's ambitions will be achieved through delivery of its ESG strategy, which is centred around three key pillars. ESG topics are arranged under the three pillars and reflect:

• Priority focus areas, as identified by stakeholders

• Regulatory requirements, e.g., EU SFDR, EU Taxonomy and TCFD

• ESG reporting frameworks, e.g., SASB

These underpin what will become the Company's biggest value and impact drivers.

[chart]

Figure 1 - the Company's ESG strategy, including key pillars and priority ESG topics

Sustainable Development Goals[6]

The United Nations Sustainable Development Goals (UN SDGs)[7] were a key consideration during strategy development. Following the alignment protocol, the most relevant SDGs have been mapped against each of the Company's ESG pillars (Figure 1). In total, eight goals have been identified where the Company believes it can have the greatest positive impact.

The Company's largest impact will be in relation to Goal 7, 'Affordable and Clean Energy' and Goal 13, 'Climate Action'. Through its portfolio of renewable energy assets, the Company is producing hundreds of thousands of MWh of renewable energy each year and supporting decarbonisation of the UK economy. 

Commitments & KPIs

Commitments and KPIs have been developed to enable the Company to monitor and evidence its ESG performance. These were adopted by the Board in August 2022 and will be reviewed by the Board annually, to ensure they remain aligned to the evolving ESG landscape. Data will be collected over the coming year to enable the Company to first report against its KPIs in 2023.

Key commitments are highlighted in Table 1 and a full breakdown of the Company's commitments and KPIs is presented within Appendix 1.

Table 1 - key ESG commitments for the 22/23 financial year

5. How ESG is Embedded

ESG Oversight

ESG is considered by the Board as part of Board meetings and investment decisions, with Meriel Lenfestey named as the Director having overall responsibility and oversight of ESG risks and opportunities, including in relation to climate. Figure 2 presents the Company's ESG and climate governance structure.

The Board monitors ESG and climate activity through regular communication with the Investment Adviser, including as part of investment committee papers, Board meetings, ad hoc calls, and written updates. Key activities, such as development of the Company's ESG strategy, must be approved by the Board. Where additional ESG expertise is required, the Company engages external consultants, including ESG specialists, biodiversity consultants and law firms. The Company's ESG policy, which communicates its ESG ambition and strategy, is available on its website: bluefieldsif.com/investors/publications/.

[chart]

Figure 2 - the Company's ESG and Climate Governance Structure

Day-to-day management of ESG and climate is the responsibility of the Investment Adviser. The Group ESG Manager works closely with the Investment and Commercial teams to drive ESG and climate activities across the portfolio. ESG is included as a standing agenda item as part of the Investment Adviser's quarterly Board meetings and the Group ESG Manager regularly reports progress to the Managing Partner and Group General Counsel.

The Group ESG Manager is also responsible for communicating, embedding, and monitoring ESG initiatives across the other Bluefield companies which service the portfolio. Key individuals from each team, including Commercial Analysts, Investment Managers, Asset Managers and O&M Portfolio Managers, regularly interact with the Group ESG Manager to integrate ESG considerations into each stage of the asset lifecycle. The performance of the Group ESG Manager is assessed via progress against agreed ESG objectives, which are reviewed and updated annually.

Responsible Investment

On behalf of the Company, the Investment Adviser undertakes detailed due diligence on each investment opportunity. ESG consideration within the investment process has been enhanced recently, with the creation of a standalone ESG due diligence questionnaire. Developed in line with SASB standards, the questionnaire includes an exclusionary list, high-level climate screening and SFDR considerations, in addition to focused environmental, social and governance questions. As part of a recent potential acquisition, the Company piloted outsourcing ESG due diligence to an external consultant, trialling the questionnaire and refining it for future use. 

The following diagram details how sustainability risks are integrated into the Company's investment process:

• negative screening - checks made against the Company's investment policy and exclusionary list (which forms part of its ESG due diligence questionnaire).

• investment screening - the Company primarily invests in solar energy infrastructure, alongside a minority exposure to other renewable energy assets, including energy storage;

• due diligence - in 2022, a comprehensive due diligence questionnaire was created to identify material ESG risks and opportunities and identify data gaps associated with the asset which the Company may need to fill in order to comply with its ESG reporting requirements. In addition to an exclusionary list, the questionnaire includes questions relating to material ESG risks and opportunities, developed in line with SASB standards. Requirements of the EU SFDR, including in relation to Principal Adverse Indicators (PAIs) and climate risk screening, and the EU Taxonomy's Do No Significant Harm (DNSH) criteria, are also captured. Where required, the Company may outsource ESG due diligence to a competent third party;

• vetting and monitoring -legal checks are undertaken on key counterparties to ensure that they are reputable, particularly as regards anti-money laundering, anti-bribery and anti-corruption, and sanctions breaches. Diligence is undertaken on O&M contractors associated with target assets, including in relation to labour practices and Health & Safety. Integration of ESG into vetting and monitoring of third-party service providers is ongoing, including use of an ESG due diligence process in association with engineering, procurement and construction ("EPC") site contractors;

• investment approval - approval of acquisition of renewable energy assets by the Board, with a dedicated ESG section within the submitted investment committee papers;

• management and reporting - active management of sustainability issues over the operational lifetime of the assets, including implementation of the Company's ESG strategy and reporting against ESG commitments and KPI's;

• end of investment life - best practice will be followed in the recycling of assets in line with industry standards at the time of decommissioning, recognising their long lifespan.

The focus over the coming months will be to integrate the Company's ESG strategy into portfolio related activities. Collaboration between the Bluefield companies, including between development, investment, asset management and O&M teams, will aid this process. Robust data will be needed to evidence ESG performance, and the Company is working with the Investment Adviser to implement systems to facilitate the collection, analysis, and monitoring of ESG data across the portfolio.

Stakeholder Engagement

Stakeholder engagement was key in defining the Company's ESG focus. To identify priority ESG topics, interviews were conducted with a range of internal and external stakeholders, capturing different perspectives and interests, and building upon the findings of the materiality assessment undertaken in 2021. The interviews were conducted by Anthesis Group ("Anthesis"), a global sustainability consultancy engaged to support the Company with development of its ESG strategy. Stakeholders were asked to identify topics that they felt were most likely to influence the Company's future performance as a sustainable business, and what areas should be focused on as a priority.

Though different ESG challenges and opportunities presented for different stakeholder groups, three topics were routinely identified:

Ø Renewable Energy Production

Ø Ecological Impacts

Ø Material Sourcing and Lifecycle Assessment

Other topics such as supplier and contractor relations, community impact and Greenhouse Gas (GHG) emissions were also identified as important areas for the Company to address. With no employees, health, safety, and wellbeing were linked to the Company in relation to its duty of care to those who service its portfolio, and therefore areas for which the Company should retain oversight.

The Company will look to implement formal processes to facilitate engagement with its stakeholders on ESG topics. The Company will continue to engage with local communities, as detailed within the 'Pioneering Positive Local Impact' section of this report. 

Materiality Assessment

In addition to stakeholder interviews, a landscape review of the Company was undertaken. This helped evaluate the ESG context that the Company sits within and included a review of regulatory drivers and industry reporting standards. Information gathered from the interviews and landscape review was used to update the Company's materiality assessment. The materiality assessment is presented in a matrix (Figure 3), that compares internal and external stakeholder priorities, with the highest priorities appearing in the top right corner.

[chart]

Figure 3 - the Company's updated materiality assessment, highlighting priority ESG topics

Identified material topics form the basis from which the Company's ESG strategy was built and are represented within each of its three key pillars. By focusing on these prioritised topics, the Company aims to anticipate and meet the needs of its stakeholders as much as possible.

6. Climate Change Mitigation

Introduction

Critical and ambitious action is needed to address climate change. To remain in line with the Paris Agreement, global emissions need to reduce by at least 45% by 2030[8]. Despite this, fossil fuels still account for 64% of global greenhouse gas emissions[9].

The UK has set one of the world's most ambitious climate change targets, aiming to reduce emissions by 78% by 2035[10]. Renewable energy infrastructure will be critical for decarbonisation and to reduce reliance upon volatile and polluting fossil fuel markets[11].

In addition to supporting the UK's transition to net zero, the Company is contributing to sustainable development by helping secure domestic energy supply. Through its ESG strategy, the Company will evidence a responsible and ethical approach to investment, driving shareholder value whilst also promoting positive environmental and social impact.

Advocating Renewable Energy

The Company substantially contributes to climate change mitigation through its generation of renewable energy. During the 12-month period ending 30 June 2022, the Company produced:

Ø Over 624,000,000 kWh of renewable energy 

Ø Powered the equivalent of over 215,000 UK homes with renewable electricity for a year[12]

Ø Achieved over 120,000 tonnes of CO2e savings[13]

Since IPO in 2013, the Company has saved over 1 million tonnes of CO2e from being released into the atmosphere. Though CO2e savings are a commonly used metric in the renewables industry, the reducing contribution of fossil fuels to the UK grid mix means that relative CO2e savings will decrease over time, even if renewable energy generation increases. This is because the CO2e savings metric is derived from the displacement of fossil fuel generated electricity, therefore as fewer fossil fuels supply the grid, there will be less carbon to be displaced. For this reason, the Company reports against additional environmental metrics to evidence the portfolio's positive environmental impact.

The Company will achieve its greatest impact in the fight against the climate crisis by working side by side with other industry players. The Company recognises the potential harmful impacts that come with being part of the renewables industry, and as the sector continues to grow, it will need to address emerging social and environmental risks. Where immediate solutions do not present, the industry will need to work collaboratively to manage these risks and ensure an ethical approach to investment is upheld. Such has been recently demonstrated in regard to concerns of forced labour in the polysilicon supply chain. 

Over the coming year, the Company will invest up to £50,000 in industry initiatives, including universities and research institutions, to support the energy transition. Renewable asset end-of-life considerations, an increasingly important topic for the industry to address, will be considered as part of this. The Company's approach to end-of-life considerations is discussed in more detail in the 'Generating Energy Responsibly' section of this report. 

Carbon Emissions

Though the Company generates renewable energy, it also takes accountability for its own carbon contribution and is committed to reporting against its carbon emissions annually. To date, the Company has primarily invested in secondary assets, meaning they were operational when acquired. Once operational, a renewable asset will generate more energy than it will consume, making its carbon impact net positive. However, as the Company plans to construct new solar and battery assets from 2022, it is taking steps to better understand the carbon intensity of its operations.

The Company has calculated its first GHG inventory for the period 1 July 2021 - 30 June 2022, in line with the GHG Protocol. Emission factor sources included DEFRA 2021, DEFRA EEIO 2022, and IEA 2021. Table 2 highlights emission results per category[14].

Table 2 - the Company's GHG emission inventory for the period 1st July 2021 - 30th June 2022

Emissions are reported as tonnes of carbon dioxide equivalent (tCO2e) and include all relevant greenhouse gases. No emissions that fall within the reporting boundary have been excluded from the GHG inventory.

The Company defines its organisational boundaries using the Operational Control approach as per the World Resource Institute (WRI) and World Business Council for Sustainable Development (WBCSD) GHG Protocol. Under this approach, the Company will account for 100% of the GHG emissions from operations over which it has operational control. Scope 1 emissions are those arising directly from the Company's operations; Scope 2 are those which arise indirectly in relation to the purchase of electricity; and Scope 3 relates to indirect emissions associated with the Company's wider supply chain. Scope 3 emission categories included: Purchased Goods and Services; Fuel-and-Energy-Related Activities; and Waste.

As this was the Company's first GHG inventory, certain areas of data collection proved challenging and therefore some data were estimated. The Company will improve the accuracy of its inventory over time as it embeds the required data collection processes into its regular GHG reporting routine.

As expected, the Company's Scope 3 emissions represent the bulk of its carbon footprint. It is expected that Scope 3 emissions will increase over coming years as the Company begins its construction programme. The Investment Adviser is working collaboratively with Engineering, Procurement & Construction (EPC) contractors to understand how energy use can be reduced during the construction process.

As a measure to reduce its direct emissions, the Company will transfer its assets onto renewable energy import tariffs, where these are not already in place. As standard, renewable energy import tariffs will be elected for all new assets being developed. The Company will continue to review what additional measures could be taken to reduce its operational footprint over time.

The Investment Adviser and other Bluefield companies calculate their carbon footprint annually and offset this through investment in Plan Vivo verified carbon offset projects. Bluefield Operations Limited is also continuing to investigate how electric vehicles can be incorporated effectively into its fleet.

Climate-related Risks and Opportunities

The Task Force on Climate-related Financial Disclosures (TCFD) is the first international initiative to examine climate change in a financial context. Recognising the potential impact of climate risks and opportunities on investments, the FCA introduced mandatory TCFD reporting for asset managers and asset owners, supporting the UK's ambition to create a net zero aligned financial centre[15]. Although the Company does not currently fall within the scope of the FCA's mandatory reporting requirement, it has chosen to undertake TCFD reporting on a voluntary basis. The Company's first TCFD disclosure can be found below.

7. Pioneering Positive Local Impact

Introduction

The Company believes that the assets within its portfolio can drive positive local impact, as well as having a role at the national level. Recognising that ecological improvements such as enhanced biodiversity can bring about community gain, for example through visual accessibility to nature, education and conservation, the Company wishes to maximise its impact by strengthening its approach to these areas simultaneously.

The Company is also mindful of the potential adverse impacts that its operations may have at a local level. This includes the activities of delivery partners, such as suppliers and contractors, who service the portfolio on the Company's behalf. Supply chain engagement will therefore be key to ensuring the Company's ESG expectations are communicated and met across portfolio related activities.

Biodiversity

Climate change and ecological impact are intrinsically linked, and both require urgent action. The Company aims to create positive impact in both of these areas simultaneously, focusing upon Biodiversity Net Gain (BNG) across the portfolio as an additional way to mitigate climate change beyond its contribution to the net zero transition. Given the alarming rate of biodiversity decline in the UK[16], and the thousands of acres of land under management, the Company has the opportunity to go beyond its mandatory requirements to deliver a notable ecological impact. 

The Company has developed a biodiversity policy which reflects its aspiration to become an industry leader in biodiversity management. The policy is available on the Company's website: bluefieldsif.com/investors/publications/.

The policy was developed with support from Wychwood Biodiversity, a leading ecological consultant working closely with the UK solar industry to enhance ecological monitoring standards. Delivery of the policy will help the Company benefit from nature related opportunities which may arise in the future and also evidence to shareholders how nature related risks are being considered as part of ensuring long term sustainability.

To achieve the Company's biodiversity aspirations, a 12-month implementation plan has been created and will be delivered by the Bluefield companies which service the portfolio. Due to the close working nature of the Bluefield companies, the Company has an enhanced ability to implement, manage and monitor biodiversity initiatives across its portfolio, integrating them into the planning process of new developments and fostering them throughout the operational lifecycle. Focus will be given to quantifying BNG across the existing portfolio, as well as ensuring at least 20% BNG is achieved for all new solar developments, going beyond the 10% requirement of the Environment Act.

In line with the EU Taxonomy's requirement to do no significant harm to biodiversity, the Company carefully manages its ecological impacts across the operational cycle of its assets. Bluefield Operations Limited is responsible for ensuring each asset remains compliant with its Landscape and Ecological Management Plan (LEMP). The LEMP is often created during the planning phase of a new project, to help 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.

Once operational, 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. Many of the sites also support sheep grazing, helping manage grassland whilst supporting farming activities.

Community Impact and Initiatives

A key focus for the Company is how it can maximise its positive impact towards the communities surrounding its portfolio. Community perception of renewable technology is important as it feeds into local decision making, policy development and ultimately planning requirements. Engagement undertaken as part of the planning process helps develop positive relationships with local stakeholders and obtain community support.

Though a certain level of public consultation must be undertaken as standard, Bluefield Development, currently developing a solar and battery pipeline for the Company, prides itself on going beyond minimum requirements to actively engage community representatives, such as Parish Councils, as early in the planning process as possible. Information obtained during early consultation helps refine project plans and can feed into the creation of community benefit funds.

Minimising community impact during the construction process is a priority for the Company. Though the Company has yet to start its new construction programme, as part of the tender process, EPC contractors are asked how they engage with the local community. Adherence of subcontractors to construction and traffic management plans, which help minimise disturbance to the local community, will be monitored by EPC contractors and reported as required to the Investment Adviser.

Once assets are operational, community engagement is maintained through long-term relationships with landowners and the administration of community benefit funds. To better understand the positive impact of its community benefit payments, the Company has engaged an independent grant specialist to oversee community benefit fund management across the portfolio. As well as offering administrative support to Parishes, the engagement will provide greater insight into how funds are being used, enabling the Company to enhance its reporting in this area.

The Company has paid over £154,000 to Community Benefit Funds during the financial year ending 30th June 2022.

Over the coming year, the Company will identify and support partnerships and initiatives which benefit the local communities surrounding its assets. The Investment Adviser will also explore how to better quantify community engagement and value, which is currently challenging. One area could relate to local job creation - for example, during the last financial year Bluefield Operations Limited created an additional ten Field Service Engineer (FSE) positions to support growth of the Company's portfolio.

Delivery Partnerships

On-site activities, including construction and maintenance, grass cutting, panel cleaning and ecological management, all require the services of external parties. To communicate its ESG expectations and to support delivery of its ESG strategy, the Company will adopt a suite of policies at SPV level, including a Sustainable Procurement Policy, a Waste Management Policy, and a Supplier Code of Conduct. Commitments within these policies will be enacted through the activities of the Company's delivery partners, including suppliers and contractors, helping drive ethical practices across the Company's operations and supply chain.

Health & Safety is of the highest importance to both the Company and the Bluefield companies which service its portfolio. Every asset owning SPV holds Health & Safety policies, standards, and process requirements, with which all contractors must comply. Main contractors (including Bluefield companies) undergo annual Health & Safety audits by the SPVs, to ensure ongoing compliance. Each SPV conducts a routine review of its Health & Safety records and policies, to ensure compliance with the latest Health & Safety guidance and industry best-practise.

During the reporting year, Bluefield Operations Limited had one major Health & Safety incident, which resulted in no injuries to personnel. Bluefield Operations Limited investigate every incident report raised and any learnings or significant trends are followed up and communicated to the wider team.

8. Generating Energy Responsibly

Introduction

To ensure that ESG issues are well managed, the Company is currently embedding policies, processes, and procedures to drive best practice and reduce its exposure to industry risks, both social and environmental. As part of its responsible investment approach, the Company will consider both the positive and adverse impacts of its investment decisions on sustainability factors, seeking to mitigate the negative where possible.

By integrating ESG considerations into its underlying corporate governance, the Company hopes to not only produce a sustainable product but achieve sustainability throughout its operations. 

Human & Labour Rights

The renewables industry has a responsibility to ensure social safeguards are upheld during the transition to a low carbon economy. Human and labour rights are a key consideration for the Company, particularly in relation to materials sourcing and supply chain management.

The Company has zero tolerance for any form of human rights abuse, reflected in the Company's Modern Slavery Statement: bluefieldsif.com/modern-slavery-statement/. To mitigate these risks as far as possible, and help ensure it is benefitting from ethical supply chains, the Company is committed to building robust management and due diligence practices, aligned with global frameworks. Over the coming months, the Company will ensure its assets are covered by a Human Rights Policy, which will be aligned with the principles of the United Nations Global Compact (UNGC) and OECD Guidelines. The Company will also begin mapping its supply chains to identify upstream social and environmental risk and improvement opportunities.

Whilst the Company is taking steps to strengthen its own approach to human rights due diligence, it is also supporting industry initiatives in this area. In 2021, concerns arose relating to the use of forced labour in the supply chain of polysilicon, which is the base material used to manufacture solar cells. This prompted an industry response, led by Solar Energy UK and Solar Power Europe, to develop systems and processes to improve transparency and sustainability within the PV supply chain. Representatives of the Investment Adviser are part of the Solar Energy UK Supply Chain Taskforce, which is driving progress of this initiative, and financial support has also been committed - the Investment Adviser is one of only a few UK solar power organisations to do so. The UK solar industry's supply chain statement, to which the Investment Adviser is a signatory, can be viewed here: https://solarenergyuk.org/uk-industry-supply-chain-statement/.

Responsible and Sustainable Procurement

To meet future energy demand through renewable sources, extensive deployment of renewable infrastructure will be needed. As a result, demand for the raw materials needed to manufacture these products will increase substantially. Consideration of risks relating to materials sourcing will be an important element of the Company's responsible investment approach, including in relation to human rights.

In addition to a Sustainable Procurement Policy, during the next financial year the Company will adopt a Supplier Code of Conduct, which will set out the Company's expectations in regard to responsible and ethical supplier practices, including materials sourcing. The Company will require adoption of the Supplier Code of Conduct by its Tier 1 suppliers in the first instance. 

Through its Code of Conduct, the Company will encourage its contractors to take a responsible approach to waste management, in line with Waste Hierarchy principles[17]. A Waste Management Policy will also be adopted by each SPV. To better understand the waste generated by its portfolio, and to reduce this over time, the Company will implement mechanisms to calculate its hazardous waste ratio.

As with operational considerations, the Company also seeks to take a responsible approach to asset end of life. End of life considerations refers to the processes undertaken once assets are withdrawn from operation, including how the materials are repaired, recycled, reused, or disposed of. These processes are difficult to define given the long lifespan of renewable technology, which is often 25+ years, and the uncertainty around what recycling practices will look like in several decades time, or how technology may develop to facilitate this.

Despite end-of-life considerations being largely unknown, as part of the lease and planning conditions for each project, budget is set aside to support with the dismantling and recycling of equipment once it is no longer operational. Equipment on-site is maintained to ensure it lasts as long as possible, with Bluefield Operations Limited implementing a detailed Planned Preventative Maintenance (PPM) programme to reduce equipment failures. Wherever possible, equipment is repaired as opposed to being replaced. 

Over the coming year the Company will invest in industry collaborations to support the energy transition, which may include initiatives relating to end-of-life considerations. The Investment Adviser will also track end-of-life developments through engagement with key suppliers and industry trade bodies. 

Good Governance and Business Ethics

The reputation and success of the Company could not have been achieved without its foundation of sound corporate governance, into which ESG is being increasingly considered. It is the framework from which the Company undertakes decision making, reporting, management, risk analysis and compliance.

The Company's approach to responsible investment, which was further enhanced this year, facilitates the identification of ESG risks and opportunities, which are considered as part of investment decisions. Integration of ESG into policies, procedures, and processes is ongoing, and the Company will develop a range of related policies over the coming year to support its responsible approach. These will increase the Company's requirements for its suppliers and contractors and enhance due diligence processes.

As an FCA regulated entity, the Company's Investment Adviser evidences the highest standards of professional conduct. Key policies, including in relation to anti-bribery, anti-corruption and anti-money laundering, conflicts of interest and compliance are in place, and third-party compliance advisers are used to ensure regulatory obligations are met through quarterly reviews and reports on business activities. For the other Bluefield companies which service the portfolio, governance is evidenced through a suite of policies, including in relation to anti-bribery, anti-corruption, GDPR, conflicts of interest and whistleblowing.

The Company has always taken a comprehensive and transparent approach to financial reporting. Through its ESG strategy, commitments and KPIs, the Company will take a similarly transparent approach to its ESG disclosures, with more quantitative reporting over time. By continually improving its ESG performance, the Company will deliver positive environmental and social impact whilst continuing to decarbonise energy markets.

The Company recognises the value of diversity and has previously committed to making progress in this area. In October 2021 the Board was pleased to announce the appointment of Ms. Libby Burne as an independent non-executive Director, bringing the current representation of women on the Board to 40%, being two of five current Directors. The Company will continue to diversify its Board as part of its commitment to fostering an inclusive culture.

Diversity, Equity, Inclusion and Belonging (DEIB) is a key focus of the Investment Adviser and other Bluefield companies. DEIB is embedded through an equal opportunities policy in the UK and a new DEIB committee, which will contribute to the creation of a DEIB strategy from 2023. Inclusive Leadership training has also been provided to managers. Discussions with universities are in progress to identify opportunities to engage on diversity and inclusion issues, such as through mentoring and seminars, supporting students wanting to enter less diverse industry sectors. Bluefield has also pledged to create two paid internship placements in 2023 through the 10,000 Black Interns initiative[18], a programme that is designed to change the horizons of young black people in the UK, with the aim of creating a more diverse workforce. 

9. Looking Forward

To the Company, ESG provides a framework through which the Company can deliver environmental and social gain whilst also taking accountability for its own adverse impacts. It provides opportunities to drive shareholder value, recognising the Company's role in mitigating the climate crisis, but also further opportunities relating to biodiversity, community benefit and industry collaboration.

Through the Company's new ESG strategy, it has made a number of commitments, from becoming a leader in biodiversity management to the development of Human Rights and Sustainable Procurement policies. Working with its Investment Adviser and the Bluefield companies which service its portfolio, the Company will deliver its ESG strategy and satisfy regulatory reporting requirements, implementing processes and procedures to collect and report quantitative ESG data, which will form the basis from which the Company will measure its ESG performance moving forward.

The Company is proud of the progress it has made towards ESG this year. To achieve its ESG ambition and truly deliver renewable energy responsibly, the Company will continue to embed ESG into its corporate governance, approaching ESG with transparency and integrity on a journey of constant evaluation and improvement.

Appendix 1

A full breakdown of the Company's ESG commitments and KPIs for the financial year 1 July 2022 - 30 June 2023. 

1. Introduction

Climate change is one of the largest environmental challenges facing the planet, with urgent action needed to reduce global Greenhouse Gas (GHG) emissions. The Company supports the UK's Net Zero carbon ambition by helping to mitigate climate change through decarbonisation of the energy sector, whilst delivering long-term, attractive dividends to its shareholders.

As a renewable energy fund, climate-related opportunities are the basis on which the Company was founded. However, climate change poses both opportunities and risks, and the Company will need to ensure it is considering both of these in order to increase the resilience of its strategy over time. Climate-related considerations form a key element of the Company's ESG strategy, helping ensure that climate is considered across the investment lifecycle, including pre-investment due diligence, asset management and reporting. 

The following present the Company's first voluntary TCFD disclosure. This will develop over time as climate-related considerations are further embedded into the activities of the fund.

2. Governance

a. Describe the Board's oversight of climate-related risks and opportunities

Given the nature of the Company, climate opportunities are fundamental to every investment decision. The Board, who meet formally at least once a quarter, have ultimate oversight of climate-related risks and opportunities.

[chart]

These are considered by the Board as part of every investment decision and, to date, on an ad hoc basis as part of Board meetings. Recently, 'Climate-related risks and opportunities' has been added as a standalone Board agenda item. Though the Board has overall responsibility for managing all forms of risk, Meriel Lenfestey, non-executive Director, has been named as having oversight and responsibility of material climate-related risks and opportunities. The Company's ESG and climate governance structure is presented below.

Figure 1 - the Company's ESG and Climate Governance Structure

To help ensure that climate issues are suitably considered as part of strategic decision making, and to strengthen understanding of climate-related risks and opportunities, in September 2022 the Board undertook climate risk training, which will be repeated on an annual basis.

b. Describe management's role in assessing and managing climate-related risks and opportunities

The Board monitor climate-related matters through regular communication with the Investment Adviser, including as part of Board meetings, investment committee papers, ad hoc calls, and written updates. The Bluefield Group ESG Manager engages with the Board directly on material topics, to discuss risks and opportunities and obtain approval on climate-related activities. The Company's Audit & Risk Committee, comprised of all Board members, meets at least three times a year to monitor the Company's risk matrix and assess material risks, including in relation to climate.

Day-to-day management of ESG and climate matters is the responsibility of the Investment Adviser and other Bluefield companies which service the portfolio. Working with the Investment team, the Group ESG Manager oversees the integration of climate considerations into the risk management and strategic thinking of both existing assets and new acquisitions. Implementation of ESG initiatives across the Bluefield companies is overseen by the Partners of the Investment Adviser and CEO of Bluefield Services Limited, Bluefield Operations Limited and Bluefield Development.

To strengthen the identification and assessment of climate-related risks and opportunities, the Investment Adviser has enhanced consideration of climate change within the investment due diligence process. As a result, assessment and management of climate-related factors are now embedded into business-as-usual activities. Climate change considerations will be integrated into wider portfolio activities through the Company's ESG strategy, which includes a Climate Change Mitigation pillar, ESG objectives and key performance indicators (KPIs). As part of this, the Bluefield companies which service the portfolio will play an important role in providing the Company with climate specific data.

3. Strategy

a. Describe the climate-related risks and opportunities the organisation has identified over the short, medium, and long term

The Company is well positioned to benefit from climate-related opportunities over the short, medium, and long term. In 2022, the Company undertook a climate materiality assessment to identify areas of potential greatest impact and vulnerability. This included consideration of the activities of the Bluefield companies which service the portfolio, to ensure the Company's upstream risks and opportunities were captured. Identified risks are described within the 'Risk Management' section of this disclosure.

Given its investment strategy, it was identified that the Company is already leveraging climate-related opportunities from the transitional perspective of market shifts, policy shifts and the transition to low carbon technologies (with the speed of the transition impacting upon the scale of opportunities available). Whilst these opportunities exist in the short-term, they will also play a critical role in the Company's business model over the medium and long term.

The materiality assessment also identified potential climate-related risks, primarily related to the physical impacts of climate change and how these may impact the Company's assets, operations, and productivity of service providers over the short, medium, and long term. The 2022 heatwave highlighted the risk of extreme heat, including the potential negative impacts of rising temperatures upon the efficiency of solar PV and the productivity of on-site service providers. This is expected to impact the Company in the long-term, however, efforts are being made to reduce the impact of this risk across the medium to long-term time horizons.

The increased frequency and intensity of storm events, such as Storm Eunice earlier in 2022, has been identified as a potential short-term risk, which could result in damaged assets or equipment being offline for prolonged periods. The impact that extreme weather events, such as precipitation and flooding, could have upon the Company's service providers was also identified as a potential material risk in the medium to long-term.

b. Describe the impact of climate-related risks and opportunities on the organisations businesses, strategy, and financial planning

The Company's investment objective is to provide shareholders with an attractive return through investment in renewable energy assets. The Company recognises the importance of managing climate-related risks and opportunities as part of preserving shareholder value, and it is for this reason that the Company has embedded climate considerations so prominently within its ESG strategy, including a 'Climate Change Mitigation' pillar.

As a renewable energy fund which is supporting the transition to a net zero economy, the Company has desirable investment attributes, which are only further enhanced by its robust ESG strategy and focused lens upon climate change adaptation and mitigation. The Company is well positioned to benefit from climate-related opportunities and in 2020 widened its investment mandate to allow minority investment into a more diversified range of renewable technologies. Since 2019, the Company has also invested a small proportion of its gross asset value into development stage opportunities. The build out of these projects will enable the Company to contribute to renewable infrastructure deployment targets whilst increasing its market share.

However, the Company is conscious of the risks posed by climate change. The Company's portfolio will likely be exposed to more frequent and intensive weather events, resulting in an increased risk of damage to on-site infrastructure and off-site transmission and distribution systems. Long-term changes to weather patterns will likely result in material increases and decreases in asset yield and performance. The Company's service providers will also be exposed to additional health and safety risks, transportation disruption, and wider operational disturbance.

To better understand the potential impact of climate change on its portfolio, the Company has committed to undertaking scenario analysis for material physical and transitional risks and opportunities. The analysis is likely to be undertaken later in 2022 and will include a climate risk and vulnerability assessment to determine the greatest impacts of climate risks and opportunities on the Company's strategy and financial planning. 

c. Describe the resilience of the organisation's strategy, taking into consideration different future climate scenarios, including a 2°C or lower scenario

As described above, the Company has not yet undertaken scenario analysis, but is planning to do so shortly. This will include the analysis of a material physical risk across three-time horizons (e.g., short, medium, and long-term) and will be modelled against three temperature scenarios. For the physical scenario model, this will be aligned to CMIP6 global and regional climate model data. Scenario pathways will also be developed for transitional risk, enabling the Company to understand the potential positive and negative impacts of transition risks on the portfolio, as well as the opportunities for the Company to further embed climate resilience into the overarching strategy.

4. Risk Management

a. Describe the organisation's processes for identifying and assessing climate-related risk.

Climate-related risks and opportunities are identified, assessed, and discussed by the Audit and Risk Committee and included as part of the Company's risk matrix. The Board currently uses a 1-3 rating to assess the potential likelihood and potential impact of any particular risk occurring. The risks are assessed in a pre- and post- mitigated setting, to map risks into a compositive score ranging from 1-9. Principal and emerging risks are disclosed annually as part of a risk matrix within the Company's Financial Accounts. Historically, 'Unfavourable Weather and Climate Conditions' has been considered a principal risk and has sat within mainstream risk management processes. Following the climate-related materiality assessment undertaken in 2022, the Company has enhanced its consideration of climate change within its risk matrix, which is presented above.

Climate risks and opportunities are also identified by the Investment Adviser and Bluefield companies which service the portfolio. These are communicated to the Board as part of quarterly Board meetings, investment committee papers and ad-hoc communications. The Investment Adviser actively monitors electricity markets and government policy/regulatory developments. This is especially the case in relation to national planning policy frameworks and local authority development plans, to identify transitional risks and opportunities for the Company. Independent market advisers are also engaged to help track potential regulatory changes in electricity markets and related areas, so that the Company is prepared for any risks to its business model.

Working with Bluefield's technical advisers, the Investment Adviser closely follows developments in renewable energy technology, to ensure the Company is well positioned to benefit from any advances made in the future. In 2022, the Investment Adviser commissioned a Lifecycle Assessment (LCA) relating to a new build solar farm, identifying which areas of the asset lifecycle have the greatest environmental impact, including in relation to carbon emissions. The results of the assessment can be used by the Company to further enhance its climate resilience.

Climate-related risks, particularly physical risks, are also considered as part of asset management service provisions, including monitoring and reporting. As an example, the impact of weather events, including elevated generation from high irradiation or downtime caused by storm damage, is captured within portfolio reporting. For new developments, consideration is given to wind speed and different flooding scenarios, helping inform site design and increase resilience to adverse weather. When acquiring operational assets, due diligence is undertaken in relation to any flood risk assessments which have been previously carried out or damage that has previously occurred due to adverse weather. This year, high-level climate screening was incorporated into a new ESG due diligence questionnaire as part of the investment process, to help ensure material climate-related risks are identified and that sufficient management systems and processes are in place to manage these risks.

b. Describe the organisation's processes for managing climate-related risks

The Investment Adviser, working with the Bluefield companies, is responsible for managing climate-related risks on behalf of the Company. Identified climate-related risks are presented in the table below: