Bluefield Solar Regulatory News (BSIF)

28 September 2023

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

 Annual Report and Financial Statements for the Year Ended 30 June 2023

Bluefield Solar (LON:BSIF), the London listed income fund focused on acquiring and managing renewable energy and storage assets predominantly in the UK, is pleased to announce its Annual Results for the Year Ended 30 June 2023.

The Annual Report has been submitted to the National Storage Mechanism and will shortly be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism  

As at 30 June 2023 / 30 June 2022

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. It is defined in the Alternative Performance Measure appendix.

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. It is defined in the Alternative Performance Measure appendix.

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 Scott, Chair of Bluefield Solar, said:

"We are delighted to report on a further period of strong financial performance in this, the Company's tenth year of operations. Over that decade, we have experienced significant changes in the emergence of renewables as an asset class and as a proportion of UK generation against a variety of backdrops in the investment environment. Solar and wind have grown from 8.5% to 28.8% of indigenous generation in this time. In this latest period of strong performance irradiation was above expectations, wind revenues outperformed our forecasts, we sold our electricity at record prices, our regulated revenues increased with inflation and our 129 solar PV plants performed well. Accordingly, we were able to increase total declared dividends for the period to 8.60pps (2022/23 8.20pps), ahead of our original target of 8.40pps.

My strong belief is that Bluefield Solar has a major role to play in the future of Britain's rapidly changing electricity mix and your Board looks with confidence at the challenges and opportunities that lie ahead.''

Analyst presentation

A remote call for analysts will be hosted by James Armstrong and Neil Wood of Bluefield Partners LLP at 09:30am today, 28 September 2023. 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 at 09:30am today.

https://bluefieldsif.com/

For further information:

Notes to Editors

About Bluefield Solar

Bluefield Solar is a London listed 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 a 812MWp UK portfolio, comprised of 754MWp of solar and 58MWp of onshore wind.

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 £6.5 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 makes its investments via its wholly owned subsidiary Bluefield Renewables 1 Limited (BR1) and 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 within BSIF's portfolio. 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 c.80% of the investment portfolio held by the Company as at year end.

In December 2020 Bluefield Renewable Developments Limited (BRD), a company with the same ownership as the Investment Adviser, commenced providing BSIF with new build development opportunities in addition to arrangements in place with the Company's other development partners.

Introduction

The Company was founded in the summer of 2013 and the Period under review therefore covers our tenth year of operations; our first decade has seen remarkable changes in electricity markets and how they are supplied, notably the emergence of renewables as a significant contributor to Britain's electricity mix, aided by the dramatic reduction in capital costs, particularly for solar panels. Ten years ago, solar and wind power contributed only 8.5% to indigenous electricity generation; by 2022, that number had grown to 28.8%.

By most measures, the 2022/23 year was a period of considerable success for your Company. Irradiation levels were above expectations, wind revenues outperformed our forecasts (despite low wind speeds), we sold our electricity at record prices, our regulated revenues increased with inflation and our 129 solar PV plants performed well. Progress was made on a number of fronts, but the main disappointment for your Board is the softening of the Company's share price (down 8.4% for the year under review), despite growing profits, a raised dividend, excellent operating ratios and a robust Net Asset Value (NAV).

The Period was not without its challenges, the problems deriving in significant part from the rapidly changing UK political landscape, with the chaotic Johnson regime giving way to the short-lived Truss administration, whose "mini Budget" was sufficiently badly received by financial markets for the Premier's defenestration to follow in short order. None of these events can be seen as conducive to enhancing Britain's reputation for financial prudence and stability.

The fallout which has affected Bluefield relates not to our operations - demand for green electricity continues to grow, and together with others in our sector we play our part in meeting this. The main issue we face is that our access to equity markets is hampered by the discount to NAV at which our shares currently trade, making it difficult to raise the fresh equity which would in other circumstances be the cornerstone of the investment programme which is required if we are to increase our participation in the UK's quest to decarbonise the economy. In short, we are capital constrained at a time when renewable electricity is in urgent need of capital investment, and there are attractive opportunities in our pipeline.

Highlights of the year

The main features of the year under review are:

· BSIF generated 836GWh of electricity (2021/22: 688GWh), an increase of 22%;

· Our installed capacity grew to 754.3MW of solar and 58.3MW of wind power (2021/22: 707.9MW and 58.3MW, respectively);

· The Company completed the purchase of a 46.4MW operational solar portfolio for £56.0 million, all accredited under the ROC regime with approximately 60% of contracted and regulated revenues, expiring in 2035;

· Ensuring a focus on increasing future renewable generation and supporting the UK's transition to Net Zero, 93MW of new build solar entered construction and c.62MW of solar Contracts for Difference were secured through the fourth Allocation Round;

· Momentum on the Company's development pipeline continued apace, with planning consents being secured on some 350MW of solar projects and 19MW of battery projects, while the wider pipeline grew to approximately 950MW of solar and 470MW of battery storage;

· The Net Asset Value per share fell marginally to 139.7pps (30 June 2022: 140.39pps), reflecting higher interest and discount rates, which offset the sharply increased electricity prices that we have been able to capture through our successful power sales strategy;

· BSIF's shares moved to a wider discount to NAV, the closing price on 30 June 2023 being 14% below the Directors' Valuation (30 June 2022: 7% discount);

· Total declared dividends for the Period increased to 8.60pps (2022/23: 8.20pps), ahead of our original target of 8.40pps;

· The Company successfully re-financed its £110 million three-year term loan with NatWest during the year, increasing the facility to £130 million and extending maturity to December 2039. Hedging on £110 million has been put in place for the tenor of the loan, at an effective all-in cost of c.2.7%;

· The Company also increased its £100 million revolving credit facility (RCF) by £110 million, with an uncommitted accordion feature allowing for a further increase of up to £30 million;

· The term of the facility has been extended to May 2025 with the lender group being diversified further with the introduction of Lloyds Bank plc, alongside existing lenders RBS International and Santander UK;

· Post period end one project received planning permission for 70MW of solar and 40MW of battery storage, and BSIF achieved allocations of CfDs on all 4 projects submitted to AR5.

At the time of writing, the Group's total outstanding debt stands at c.£597.4 million and its leverage level stands at c.41% of GAV (June 2022: 35% of GAV).

Underlying Earnings and Dividends

The Underlying Earnings for the Period, before amortisation of long-term debt, were £108.4 million, or 17.72pps, and underlying earnings available for distribution, post debt repayments of £18.3m (3.00pps), were £90.1m (14.74pps). Thus, the Company has earned comfortably in excess of its dividend target of 8.40pps for the year to 30 June 2023, thanks to higher power prices and the strong operational performance of its portfolio.

This has enabled the Board to declare an increased fourth interim dividend of 2.30pps, bringing the total dividend for the Period to 8.60pps (30 June 2022: 8.20pps); the yield on our shares - based on a share price of 118.20pps on 26 September - is 7.3%. The Company remains the LSE listed solar investment company sector's highest dividend payer on a pence per share basis. Notwithstanding its strong dividend cover, the Company's established policy is to increase distributions on a progressive basis, and it has set a target dividend for the 2023/24 financial year of not less than 8.80pps. Retained earnings are being deployed by the Company to finance further projects emerging from its strong development pipeline.

Valuation and Discount Rate

Secondary market demand for renewable electricity projects, at all stages of their lifecycle, remains strong; power prices and inflation have surged, largely cancelling out the impact of higher interest rates and operating costs. The Investment Adviser is currently seeing solar portfolios priced in a range of £1.20m/MW - £1.45m/MW, which is very similar to previous years (typically £1.20m/MW - £1.40m/MW). Higher interest rates have caused the Board to increase the discount rate for the 30 June 2023 Directors' Valuation to 8.0% (June 2022: 6.75%). By valuing the Company's operational portfolio at an enterprise value of £1,195m (c.£1.35m/MW for the solar assets vs. £1.38m/MW in June 2022), the Directors' Valuation as at 30 June 2023 is in line with recent market transactions and is consistent with the Company's valuation approach of 'willing buyer/willing seller'.

Inflation

In the past 12 months UK inflation has continued at a high level, notwithstanding a string of interest rate increases that have taken the current Base Rate up to 5.25%, from 0.1% less than two years ago. The UK 5 year gilt rate, which was below 1% for some 3 years prior to January 2022, now stands at approximately 4.5%. Current UK inflation, on an RPI basis, is close to 9%, with CPI at 6.8%. Interest rates may have further to rise, but for the moment at least inflation has fallen from its peak, suggesting that the medicine prescribed by the Bank of England is working, albeit later in the day than many of us might have wished.

BSIF is a net beneficiary of inflation, since our regulated income (principally from ROCs) is index-linked, boosting our regulated revenues faster than the increase in our operating costs. Our prudent approach to debt, where we have (predominantly) fixed rate and amortising long term loans, means that the capital structure has been largely shielded from the rises in interest rates. The flipside of this, however, is that as gilt yields adjust upwards in the face of inflation, bond prices go down; in tandem with others in our sector, the price of your Company's shares has likewise fallen, as investors seek a concomitant increase in yield from BSIF to preserve the risk premium between our shares and Government bonds. We therefore find ourselves in the invidious position of posting excellent operating results and having built a robust capital structure well suited to this environment, yet watching our share price fall to a significant discount to NAV.

Power Prices

Increasing electricity demand and fuel supply concerns following the onset of Russia's war against Ukraine saw UK electricity prices in the autumn of 2022 at record levels, with day-ahead power prices touching c.£180/MWh in December 2022. They stabilised in the first half of 2023, but power prices remain significantly higher than those seen prior to the March 2022 invasion.

The Company's PPA strategy of fixing power prices for between one and three years has allowed it to agree power contracts through the months of rising prices, insulating the portfolio from short term volatility, and enabling it to create pricing certainty for up to 36 months ahead. The average weighted prices for these contracts were £190.1/MWh for June 2022, £303/MWh for January 2023 and £230/MWh for June 2023.

Environmental, Social and Governance ("ESG")

I am delighted to present the Company's significantly expanded ESG report and I applaud the commitment shown by the Investment Adviser in ensuring that the Company implements best practice policies in this important and rapidly evolving area.

In addition to the Period being the Company's first year for implementing and monitoring its ESG performance against its KPIs, it was also the first time BSIF reported against the Level 2 requirements of the EU's Sustainable Finance Disclosure Regulation ("SFDR"). The Company also produced its first Principal Adverse Impact ("PAI") report.

The Energy Crisis and the Levy

The fuel supply crisis precipitated by the Ukraine war resulted in energy prices reaching unsustainably high levels and prompted the UK Government to intervene by introducing caps on domestic electricity prices to alleviate the widespread hardship being experienced. In late 2022 the Government introduced the Electricity Generator Levy (the "Levy"), to operate from January 2023 until March 2028; the Levy is a 45% charge on revenues from the sales of electricity in excess of £75 per MWh for generators who have in-scope annual generation in excess of 50GWh. The Government has also stated that it recognises the need to reform electricity market arrangements to deliver the pace and scale of change required to meet its target of decarbonisation of the electricity system by 2035 and continues to assess its options following a first round of consultations in 2022. We are active participants in this debate.

The Board

John Rennocks, having stepped down as Chair at the November 2022 AGM, retired from the Board in February. Much has already been said about John's contribution to the creation and development of BSIF so I will simply repeat the deep gratitude we feel to John for what was achieved during his tenure.

Paul Le Page, another Director who has served from the start and who has throughout chaired our Audit and Risk Committee with remarkable skill and diligence, will retire from the Board on 30 September 2023. On behalf of the Board, I thank Paul most sincerely for what he has done for BSIF in his decade of service. Libby Burne, whose principal career has been with PwC and who joined the BSIF Board in 2021, will succeed Paul as Audit and Risk Committee Chair.

Last October, we welcomed Michael Gibbons to the Board, and he has assumed the role of Senior Independent Director. Michael has many years of experience of electricity and other energy markets, which is already proving to be invaluable to our business.

The AGM and Continuation Vote

The Company's Annual General Meeting will take place at 10am on 28 November 2023 at Floor 2, Trafalgar Court, Les Banques, St Peter Port, Guernsey. Shareholders who are unable to be present in person are encouraged to submit questions in advance of the meeting.

Resolution 13 is a continuation vote, seeking the support of Shareholders for the Company to remain in business for a further five years. Your Board believes that it has met or exceeded all of the objectives of its original and subsequent prospectuses, producing sector-leading returns for investors, while assisting with the decarbonisation of the economy. The Board is confident that BSIF is well placed to continue investing in renewable electricity and thereby delivering value for Shareholders; it is therefore unanimous in recommending that Shareholders support this Resolution.

Conclusion

Our business is a relatively straightforward one - we convert daylight and wind energy into electric power for sale to the wholesale markets and, in the case of those plants which were constructed at a time when incentives were required to compensate for the high cost of equipment, we receive subsidies, typically for 20 years from the date of plant commissioning. In the Period, we generated 836GWh of electricity which, if used to power electric cars, would replace over 200 million litres of petrol. Another measure of our output and our contribution to de-carbonising the economy is that it represents sufficient electricity to meet the annual needs of 288,000 homes, or a city the size of Leeds. All of our generation took place in the UK, with 84% coming from solar PV and 16% from onshore wind. In 2022/23, we received £107 million from the sale of electricity, £77 million from government subsidies (principally ROCs) and £5 million from other sources which are set out in more detail in the Investment Adviser's report. We believe that scale is important, and it is our intention to continue to grow the Company through acquisition and the construction of new assets, while pursuing our established policy of paying progressively higher dividends.

Our Investment Adviser, Bluefield Partners, is to be congratulated for what has been achieved in our first decade. We raised an initial £128 million in July 2013 and today your Company has an enterprise value of £1.2 billion, having in the past 10 years distributed over £270 million in dividends. There are several important contributors to this result, including Bluefield Partners' strong record in constructing or purchasing the plants we now own, and the record of both Bluefield Services and Bluefield Operations in running these facilities at industry-leading levels of performance. Particularly in the context of the past year, I would also identify the forward power sales strategy implemented by the Investment Adviser as one of the significant successes of the Company, providing a high degree of visibility of our income for up to 30 months ahead.

If the world is to reduce its dependence on fossil fuels, we will need more electricity and much of this must come from renewable sources; there is, for example, little point in making us abandon the internal combustion engine in favour of electric cars if the energy for the latter has to come from a fossil fuelled power plant. In the UK the additional power is likely to involve substantially more solar and wind generation, sources which remain the lowest cost generators, while providing indigenous, clean and secure supplies of energy. My strong belief is that BSIF has a major role to play in the future of Britain's rapidly changing electricity mix and your Board looks with confidence at the challenges and opportunities which lie ahead.

John Scott

Chair

27 September 2023

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Introduction from the Managing Partner of the Investment Adviser

The Period to 30 June 2023 has been the most successful period in BSIF's decade long history, with the Company delivering record earnings, record dividend cover, its highest dividend whilst maintaining parity with its highest recorded NAV. Conversely, it has also been the first time the share price has been at a significant discount to NAV.

There is a certain irony to this as the financial shocks to the system that have precipitated the falls - sharp rises in gilt and interest rates - have only heightened the Company's five core strengths, summarised below (and outlined in detail within the Investment Advisers report):

1. Capital Structure: since its 2013 IPO the Company has focused on a simple and deliberate strategy of ensuring, outside of the Company's Revolving Credit Facility, all debt within the structure is secured at portfolio level with fixed interest rates on fully amortising terms. This is a prudent use of debt in any environment, but with a current average cost of debt of c.3.5% on all the Company's long term borrowings being c.£430m as at 30 June 2023, it looks particularly prescient in today's higher interest rate environment. 

2. Power Sales Strategy: Bluefield Solar focuses on fixing Power Price Agreements contracts at the short end of the power curve (6-30 months), through competitive tender processes, enabling it to maximise value for shareholders from the most liquid part of the power market. This strategy has not only underpinned the sector-leading dividends paid since inception, but crucially has enabled the Company to secure highly attractive power contracts when power prices reached record highs during the period to June 2023. The result has been record full year earnings and a c.2x covered dividend (net of debt amortisation and the EGL). This is creating retained earnings that can be invested into new opportunities, not least the proprietary pipeline.

3. Active Management: Active Management is a much misused term in investment. In the context of Bluefield Solar's portfolio it means a dedicated workforce of 115 (and growing) within Bluefield Partners and Services, split across specialist teams covering primary investment, secondary investment, ESG, development, engineering, construction management, monitoring and reporting, debt compliance, technical asset management, operation and maintenance and commercial with 74 different core responsibilities. These specialist units have been established in the past decade to deliver an aligned, dedicated and diversely skilled workforce to an increasingly complex business.

4. Proprietary Pipeline: Bluefield Solar's ability to control the pipeline has been a major contributor to its success over the past ten years. Fusing deep rooted relationships across the UK renewables market with the support of its specialist technical teams, Bluefield has been able to establish the DNA of the business around developing the primary pipeline. No better highlight of this is the 1GW solar and storage proprietary pipeline the Investment Adviser has built up exclusively for Bluefield Solar. These transactions, alongside secondary opportunities that are being evaluated, provide Bluefield Solar with the platform for a further period of significant growth.

5. Capital Discipline: Adherence to investment principles is paramount and so despite the fast paced growth of the solar market in the past decade, uniquely for Bluefield Solar there have still been periods where the Company elected to cease acquisitions, based on our view that nothing we saw would provide Shareholder value. To emphasise this, between 2016 to 2020 BSIF did not go to the market for an equity raise. This capital discipline has benefitted Shareholders and has contributed to BSIF's outperformance. This discipline will continue, as it has been a key pillar in enabling the Company to achieve exceptional growth - not least during and after the Covid 19 pandemic. 

The solace we take from the current situation is that these strengths, applied since the Company was founded, cannot be easily replicated, and will continue to benefit the Shareholders for many years to come.

We have visibility over earnings that will support the ongoing progression of our dividend and retained earnings that can deliver reinvestment into our accretive pipeline, whilst always focusing on the capital discipline Bluefield Solar is known for. And, thus, as the Chair has said in his statement, we look forward to the future with great confidence and with the expectation of a rerating of the shares in the short term.

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 £6.5 billion renewable funds and/or transactions in both the UK and Europe, including over £1.4 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 150 individual SPV acquisitions on behalf of BSIF and European vehicles.

2. Portfolio: Acquisitions, Performance and Value Enhancement

Portfolio Overview

As at 30 June 2023, the Company held an operational solar portfolio of 129 PV plants (consisting of 87 large scale sites, 39 micro sites and 3 roof top sites), 6 wind farms and 109 small scale UK onshore wind turbines with a total capacity of 812.6MW (30 June 2022: 766.2MW).

During the period to 30 June 2023, the combined solar and wind portfolio generated an aggregated total of 836.2GWh (30 June 2022: 687.5GWh), representing a Generation Yield of 1,029MWh/MW.

Investment Approach and Acquisitions in the Period

The Company has taken a disciplined approach to the deployment of capital since listing, deploying capital only when there are projects of suitable quality at attractive returns to complement the existing portfolio. Rigorous adherence to restrained capital deployment inevitably means there can be periods where acquisition activity falls, even when sector activity appears in contrast, but this controlled approach is beneficial in driving long term, sustainable growth for Shareholders, as evidenced by Bluefield Solar's record of sector leading returns since listing over a decade ago.

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In December 2022 the Company completed the acquisition of a 46.4MW operational solar portfolio from Fengate Asset Management. At the time of the transaction, the enterprise value of the portfolio was £56.0 million, which included the economic benefit of all cashflows from May 2022. The portfolio contained £27.3 million of long-term amortising debt provided by Macquarie Bank Limited. 

The portfolio consists of two ground mounted solar photovoltaic ('PV') plants, a 39.3MW plant (Ravensthorpe) located in Scunthorpe, Lincolnshire and a 7.1MW facility (Roanhead) located in Barrow-in-Furness, Cumbria. Both solar sites are accredited under the Renewable Obligation Certificate ('ROC') regime with a tariff of 1.4 ROCs.

In May 2023, the Company completed the purchase of three recently consented ready to build PV projects, totalling 97MW from its development partners Lightrock Power and Bluefield Renewable Developments, for a total of £3.9m. The projects, which are located in Devon, East Sussex and Shropshire, have grid connection dates between 2024 and 2026.

Portfolio Performance and Optimisation

Solar PV Performance

In the 12-months to 30 June 2023, irradiation levels were 6.0% higher than the Company's forecasts and 3.1% higher than FY 2021/22, whilst generation, being 702.4GWh, was marginally lower than expectations.

During the year, the solar portfolio achieved a Net PR of 76.16% (FY 2021/22: 79.38%) against a forecast of 80.63%, due to availability issues driven primarily by supply chain challenges and capital improvement works. Consequently, generation yield was 959.88MWh per MW of installed capacity, marginally lower than recorded in the previous year.

Table 1. Summary of Solar Fleet Performance for 2022/23: 

Notes to Table 1. 

1. Periods of irradiation where irradiance exceeds the minimum level required for generation to occur (50W/m2)

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

3. Average Total Unit Price includes all income associated with the sale of power, all subsidy payments, liquidated damages and insurance claims amounts. ROC recycle revenue is included assuming a 10% recycle rate for both Actual and Forecast Revenue

4. Includes 46.4MW of solar assets acquired in December 2022, not included in the published 2022/23 interim results

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Total Revenue for the period was £157.2m, 19% higher than forecast and 121% higher than the previous FY. PPA agreements which commenced during the Period were the principal reason for increased revenue, as the average power price rose from £57/MWh in the previous FY to £141/MWh, a 147% increase.

Operational costs for the Period (incorporating all fixed, contracted costs such as lease payments, O&M fees etc.) totalled c.£23m, including expenditure associated with the optimisation & enhancement projects (see below).

Solar PV 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. Principally, this is done through in-depth performance monitoring and carefully tailored preventative maintenance programmes, ensuring that capital spend across the Company's portfolio (expected to be £4m to £5m annually over the next decade) is completed during months of low irradiation (typically October to February).

A rolling capital investment programme is essential for optimising the long-term operational performance of the portfolio. The Investment Adviser has identified that one of the key causes of lower-than-expected availability is a long lead time for spare parts for major High Voltage ('HV') components, notably central inverters, due to industry demand from construction projects and other operators' repowering works.

Two significant string-inverter repowering projects and the replacement of 3 transformers at Hall Farm were completed during the Period to improve both current and future performance of the assets. Further inverter repowering and optimisation projects are planned for FY 23/24.

As at 30 June 2023, 494.6 MW (30 June 2022: 401 MW) of the PV portfolio have leases that allow for terms beyond 30 years (being 66% of the solar PV portfolio), of which 338.2 MW (100% of applications successful) benefit from planning terms in excess of 30 years, with the Investment Adviser continuing to pursue lease extensions on the remaining assets in the portfolio.

Onshore Wind Performance

As at 30 June 2023, the Company held an operational onshore wind portfolio of 135 installations, comprising 109 small scale turbines (55-250kW) and 26 turbines (850kW-2.3MW), with an aggregated capacity 58.4MW.

During the reporting period, the portfolio generated 133.8 GWh, -16.2% below forecasts. This was largely due to reduced wind resource, combined with lower than forecasted availability during H1. Availability improved considerably during H2 following the replacement of the O&M provider for Delabole Wind Farm in December 2022. Significant liquidated damages were further recovered from the previous O&M provider for the underperformance at Delabole.

The average onsite wind speeds recorded were similar to FY 2021/22, which was a period of historically low wind resource.

Table 2. Aggregated Wind Portfolio Performance, FY 2022/23

Notes to Table 2.

The portfolio achieved a Generation Yield of 2,293 MWh per MW of installed capacity, equivalent to a 9.6% increase from FY 2021/22, largely due to the improved plant availability. Despite lower than forecast generation, the portfolio provided total revenues of £27.9 m, with an average revenue per MWh of £208.3, 2% above forecast. 

Onshore Wind Optimisation & Enhancement Activity

In Northern Ireland, 17 of the 29 small-scale turbines have been identified for repowering with replacement EWT 250kW turbines. This will increase efficiency and output, whilst maintaining their respective NIRO accreditation status. 

As at 30 June 2023, seven turbines have been repowered and returned to operation, with a further nine having received planning approval for repowering, with a new 25-year term. A further two projects have received a turbine delivery, with repowering planned for FY 2023/24. Planning applications for the remaining projects have been submitted to the relevant Local Planning Authorities.

General Portfolio

OFGEM Audits

As part of the industry-wide audits of FiT and RO-accredited generating assets, the Investment Adviser and Asset Manager have been working closely with the regulator on certain assets that have been selected, at random, for audit. All OFGEM audits completed to date have been classified as 'satisfactory', with the respective assets' accreditation being fully compliant.

Health & Safety Activities

The Investment Adviser continues to ensure H&S awareness, policies, processes and procedures remain at the forefront of every activity around the portfolio. H&S policies and logs are reviewed at least annually. All main contractors (including asset management and O&M providers) are audited annually by a qualified third-party specialist consultant, with new retained contractors (associated with operational projects acquired by BSIF, for example) audited immediately following acquisition.

Cyber Security

The Investment Adviser arranged penetration testing of 48.2% of the solar PV portfolio (of those plants above 2MW) by a specialist external consultant, as part of a periodic cyber security review. Whilst the security across the portfolio was satisfactory, the Investment Adviser has arranged for all the recommendations to further enhance cyber security to be undertaken, including both hardware and software upgrades, with works to commence shortly. The remainder of the PV portfolio and all wind farms will undergo similar penetration testing in FY 2023/24.

3. Power Purchase Agreements

The Company actively monitors power market conditions, ensuring that contract renewals are spread evenly through any 12-month period with competitive tender processes on both fixed and floating price options run for each PPA renewal in the 3 months prior to the commencement of a new fixing period.

Flexibility within the Company's capital structure enables PPA counterparties to be selected on a competitive basis and not influenced by lenders requiring long term contracts with one offtaker.

This means the programme of achieving value and diversification from contracting with multiple counterparties (which in turn reduces offtaker risk) is executed for the benefit of shareholders and not the lenders.

By rolling PPA fixes during the year and targeting the most liquid area of the power market (one to three years) the Company was able to complete a number of fixes during periods when wholesale power prices were at their peak.

Evidence of this is reflected in the BSIF average seasonal weighted power price, which for the 12 months ending 30 June 2023 increased by 147% from the 12 months ending 30 June 2022, rising from £57/MWh to £141/MWh. The rise in the BSIF average seasonal weighted power price is a result of the 156.2MW fixed secured during the reporting period from January 2023, at an average fixed price of £118.9/MWh, combined with favourable pricing from contracts struck in the period preceding the end of December 2022.

As at 30 June 2023, the average term of the fixed-price PPAs across the portfolio is 26.2 months (FY 2021/22: 25.8 months) and the Company has a price confidence level of 92% to December 2023 and 86% to June 2024 (including subsidy revenues), representing the % of the BSIF portfolio that already has a fixed price in place and thus no exposure to power market uncertainty. Looking ahead, the strategy has also secured power fixes and thus revenue certainty, at levels that are materially in excess of the latest forecaster expectations.

Chart 1. PPA Fixed Power Prices (Average Vs Average for Fixes completed during Reporting Period)

Footnote: MW stated in the BSIF Portfolio Weighted Average Contract price refers to the total amount of the portfolio fixed for that period.

The result is the Investment Adviser believes its PPA policy is the best strategy for Shareholders, who are looking for stable revenues and forecastable, sustainable dividends with high visibility of revenues on a rolling multiyear basis. It is this approach that has delivered almost a decade of sector leading dividend cover (covered by current earnings and post debt amortisation).

4. Power Market Summary

Since December 2022, power markets have begun to stabilise after record highs were seen in August and December 2022, due to Russia's continuing war against Ukraine exacerbating concerns surrounding gas supplies to Europe ahead of Winter 2023.

Chart 2. UK Natural Gas & Wholesale Power Prices (1 July 2020 - June 2023)

[chart]

Source data: Bloomberg

Gas prices fell from their recent historic highs, as supply increased as more liquefaction facilities become available, with power prices predominantly following gas markets. This is demonstrated in Chart 2, with day-ahead baseload power prices falling from highs of £180/MWh in mid-December 2022 to lows of £86/MWh at the end of June 2023.

In relation to medium-term market expectations, the gas market is expected to rebalance by the mid-2020s, with prices set to fall back to levels seen prior to COVID. As a result, the baseload wholesale power prices are forecast to fall by 23% on average from 2023 to 2030, driven by lower gas prices.

Over the Company's ten year history, building a proprietary pipeline and then funding the construction of new projects has been at the heart of its success. Entering earlier in the value chain brings some additional risk but if managed appropriately, we believe it also allows us to control the quality of projects far better, which ultimately brings enhanced risk-adjusted returns to Shareholders.

5. Proprietary Pipeline

Over the past four years, the Company has continued to implement its new build strategy across the solar value chain to ensure that Bluefield Solar continues to build its market share amongst UK solar power producers. We have signed co-development agreements to fund new sites. We have also expanded our strategy to battery storage, which will enable the diversification of the BSIF's revenues and allow us to monetise the expected increases in volatility of power prices in the future.

This focus on development activities has enabled the Company to build up a significant pipeline of assets which can be built over the next five years. As our projects progress, we are working with selected construction contractors to ensure that projects are designed and built to a high specification for long term performance.

We are pleased to report that the new build strategy has delivered well on its objectives thus far: the development pipeline now stands at over 1.4 GW and the first development to be funded, Yelvertoft, - is progressing well through construction. This 49MW project is set to be connected to the grid towards the end of 2023 and it has entered into a Contract for Difference ("CfD") for its output.

The following sections provide a more detailed update on both our construction and development programmes.

Construction Programme

As at the end of the period, BSIF had solar assets with a capacity of 412MW and battery storage assets with 183MW capacity that are fully consented and are in pre-construction. The projects have connection dates between 2023 and 2028.

Of these the first projects to enter the construction phase are Yelvertoft Solar Farm, a 49MW solar PV park in Northamptonshire and Mauxhall Farm Energy Park, a c.44MW solar PV project in North East Lincolnshire. Yelvertoft signed a fixed price EPC contract with Bouygues in September 2022 and is targeting operation in Q4 2023, while Mauxhall Farm signed a fixed price EPC contract with EQUANS in March 2023 and is expected to be operational in Q2 2024. Mauxhall Farm is planned to be a co-located project and construction of a 25MW battery energy storage scheme is expected to commence shortly after the solar plant has been commissioned.

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.

Projects with CfDs

In July 2022, the Investment Adviser successfully secured CfDs on 62.4MW of ready to build PV plants (Yelvertoft, Romsey extension and Oulton extension). By securing a CfD contract, the plants will benefit from index-linked (to CPI) revenues over a 15-year duration at the AR4 solar PV strike price of £45.99/MWh (in 2012 equivalent prices) or c.£64/MWh (in 2023 equivalent prices). The contracts commence from 31 March 2025 and the strike prices will be adjusted appropriately for CPI.

Post period BSIF achieved allocations of CfDs on all 4 projects submitted to AR5.

Development Programme

The Investment Adviser has been pursuing its development strategy since 2019 to enable BSIF to continue to be a key player in the UK renewable energy market. Since this time, a portfolio of approximately 950MW of solar and over 470MW of batteries has been built up across 28 projects. BSIF has a 5% investment limit in pre-construction development stage activities, while less than 1% is currently committed.

Currently, no value is attributed to projects without planning consent. Once developments receive planning consent, however, and move from the development stage to pre-construction, the Investment Adviser believes it is appropriate to reflect this change in the Company valuation. At this point in their lifecycle, the projects will have received all the necessary planning consents, land rights and valid grid connection offers and so have discernible value beyond the direct costs of development.

The current pipeline status and valuation is summarised in the graphic below.

Current pipeline status and valuation

[chart]

6. Analysis of underlying earnings

The total generation and revenue earned in the Period 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.

The key drivers behind the changes in Underlying Earnings between FY 2022/23 and FY 2021/22 are the combined effects of the acquisitions within the Period and higher PPA pricing.

Underlying Portfolio Earnings

* Other Revenue includes ROC mutualisation, ROC recycle late payment CP20, insurance proceeds, O&M settlement agreements and rebates received.

#Includes the Company, BR1 and BSIFIL (the UK HoldCos) and any tax charges within the UK HoldCos.

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

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

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

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

** Reserves carried forward are based on the shares in issue at the point of Annual Accounts publication (being c.611m shares for 30 June 2022 and c.496m shares for 30 June 2021).

7. 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 quarterly basis at 30 September, 31 December, 31 March 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 2023 was £1,018.4m (30 June 2022, £939.9m).

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

Discounting Methodology

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, if relevant. The discount rate applied on the project cash flows is the weighted average discount rate. In addition, the Board continues to adopt the approach under the 'willing buyer/willing seller' methodology, that the valuation of the Company's portfolio be appropriately benchmarked to pricing against comparable portfolio transactions.

Key factors behind the valuation

There have been a number of key factors that have been considered in the Investment Adviser's recommendation to the Directors' Valuation (and which are quantified in the NAV movement chart below):

(i) The RPI inflation forecast for 2023 has been increased to 7% (5.5% in December 2022 and 3.4% in June 2022), reflecting expectations that UK inflation will remain higher for longer. As evidence builds that inflation will fall during H2 2023, a rate of 3.5% has been applied for 2024 (2024 inflation forecast previously used: 4.0% in December 2022 and 3% in June 22);

(ii) The portfolio discount rate has been increased to 8.00% (7.25% in December 2022 and 6.75% June 2022). This is a result of increases over the period in both the Bank of England base rate (rising to 5.0% as at 30 June 2023 , from 3.5% as at 31 December 2022) and 15 year gilt yields (c. 4.8% as at 30 June 2023, from c. 3.9% as at 31 December 2022);

(iii) Inclusion of the latest forecasters' curves as at 30 June 2023, and the corresponding impact of the Electricity Generator Levy ("the Levy") - a 45% tax on the extraordinary returns made by electricity generators, announced late in 2022, following sharp increases in electricity prices. The Levy will be in place from 1 January 2023 until 31 March 2028 and is applied to returns from sale of electricity in excess of a benchmark price of £75 per MWh, indexed to CPI from April 2024;

(iv) The value attributed to BSIF's development and construction portfolio has risen during the Period, reflecting sites receiving planning permission and further progress and investment into construction projects;

(v) Working capital has grown in the period to Jun 23 reflecting higher power prices being captured from the Company's successful PPA strategy. 

By reflecting the core factors above within the Directors' Valuation for 30 June 2023, the EV of the operational portfolio is £1,195.2m (June 2022: £1,180.6m) with the effective price for the solar component of £1.35m/MW (June 2022: £1.38m/MW). These metrics sit within the pricing range of precedent market transactions and the 'willing buyer-willing seller' methodology upon which the Directors' Valuation is based.

Power Prices

A blended forecast of three leading consultants is used within the latest Directors' Valuation[1], as shown in the graph below. This is based on forecasts released in the quarter to end June 2023. For illustration purposes, the graph below also includes the blended curve used in the Company's accounts for the year ended 30 June 2023.

The curves used in the 30 June 2023 Directors' Valuation reflect the following key updates:

1. Short-term European fuel prices - gas and coal - have fallen amid lower gas demand, higher gas storage levels and robust LNG deliveries, with a similar trend reflected in the wholesale power price curve;

2. Higher renewable generation capacity deployment levels in the medium term (with ambitions for up to c.50GW offshore wind by 2030) as the UK strives to meet its net zero targets and fully decarbonise its power system by 2035; and

3. Annual demand for power in Great Britain, driven principally by electrification of heat and transport, is expected to rise from 292TWh in 2023 to 438TWh by 2035.

[chart]

The main contributors to the increase in the Directors' Valuation from 30 June 2022 to 30 June 2023 were an increase in power price forecast curves provided by the Company's three independent advisers, a new acquisition, change in development portfolio valuation (8.6pps) and updated near-term inflation assumptions.

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 scope 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 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 2023, at Fair Value of £852.9m plus RCF of £153.0m and 3rd party portfolio debt of £430.8m (giving total debt of £583.8m).

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]

8. Financing

Debt Strategy

Since its IPO the Company has focused on a simple and defensive approach to debt. This means having debt agreements that have, primarily, fixed interest rates and are amortising. Debt split into (1) long-term asset-level debt, and (2) revolving credit facility at fund-level for short-term funding. Debt in the portfolio is generally not subject to stringent lender requirements on PPAs, allowing BSIF to take advantage of more competitive PPA pricing.

The Company's weighted average cost of long-term debt is 3.5% and is largely locked-in via fixed interest rates. Whilst BSIF has some index-linked debt, it also has significant levels of RPI linked revenues, leaving the Company a net beneficiary of inflation.

The fund's revolving credit facility (RCF) is the only floating-rate debt instrument in the portfolio and represents 26% of the total debt balance. 80% of asset-level debt has a fixed interest rate. 20% of principal for long-term debt is inflation-linked.

Revolving Credit Facility

On 22 June 2023, the Company agreed a £110 million increase to its existing committed £100 million revolving credit facility ('RCF'), bringing the total committed amount to £210 million. The facility also has an uncommitted accordion feature allowing it to be increased by up to a further £30 million. As part of the increase, the Company has sought to broaden the lender group through the introduction of Lloyds Bank Plc, alongside the existing lenders RBS International and Santander UK. The term of the facility has been extended to May 2025 and the facility's margin remains unchanged at 1.9%.

As at 30 June 2023 the Company's subsidiary RP1 had drawn £153m from its RCF.

External Debt

Excluding the Company's RCF, total outstanding loans to third-party lenders as at 30 June 2023 total £431m, with each loan secured against a portfolio of assets and fully amortising within the life of the respective asset's subsidies. The average interest cost, excluding the Company's RCF, across the external debt facilities in the table below is 3.54%.

Note: Index-linked debt treated as fixed for the purposes of this table as proportion fixed represents interest rate risk only

NatWest 3-year term loan maturity and refinancing

On 2 May 2023, the Company announced the re-financing of its £110 million three-year term loan with NatWest.

The original loan, 75% hedged with a swap at circa 0.35% over a notional 18-year period, had a maturity of September 2023 and has been increased to £130 million and extended in maturity to December 2039.

Hedging has been put in place for the tenor of the loan on £110 million, at an effective all-in cost of c.2.7% (being margin and swap rate).

The financing is secured against the UK-based portfolio of 31 operational PV plants with a total installed capacity of 139MW and benefitting from attractive subsidies; 29 of the assets are accredited under the ROC regime with tariffs ranging from 1.2 - 2.0 ROCs, while two are accredited under the FiT scheme.

The additional debt of £20 million is being used to provide financing for the construction of Yelvertoft, the Company's 49MW CfD-backed solar PV project in Northamptonshire. Once construction is complete, expected in Q4 2023, the Company will review whether to enter hedging arrangements on this tranche.

GAV Leverage

The Group's total outstanding debt, as at 30 June 2023, was c.£584 million and its leverage stands at c.41% of GAV (35% as at 30 June 2022) within the 35% - 45% preferred range the Directors have previously outlined as desirable for the Company.

9. Market Developments

UK renewable generation capacity and deployment

Latest Government data shows that UK solar photovoltaic (PV) capacity stands at around 15GW, across c.1.3 million installations. Of this amount, around 7.3GW (c.48% of the total solar capacity in the UK) and 5.1GW (34%) is accredited under the RO and FiT schemes, respectively, and c.2.4GW (16%) is unaccredited. Onshore and offshore wind installed capacity stands at around 15.2GW and 13.9GW, respectively. The UK has 2.8GW of operational battery storage capacity, according to data from energy association RenewableUK.

The UK's total renewable generation capacity is projected to continue to grow over the coming years as the Government strives to meet its net zero targets and meet power demand from the electrification of the domestic heat, transport and industrial sectors. Deployment is expected to be supported by policies such as the CfD scheme, which is described in more detail in the next section of this report.

In March 2023, the UK Government stated its ambition to increase solar capacity up to 70GW by 2035 and signalled its support for ground and rooftop solar technologies on brownfield, industrial and low/medium grade agricultural land. The Government's newly created Solar Taskforce is expected to publish a roadmap next year to drive forward its solar growth ambitions. The Government also aims to develop up to 50GW of offshore wind by 2030.

The chart below illustrates the distribution of total installed capacity across different renewable generation technologies at the end of the first quarter of 2023 (the latest data available at the time of this report) compared with a year earlier.

[chart]

Source: UK government Department for Business, Energy & Industrial Strategy *Anaerobic Digestion includes sewage sludge digestion, animal biomass 

Secondary market transactions, development and construction activity

Transactional activity in the UK renewables market has eased to some extent, as inflation and higher interest rates have increased investor uncertainty.

Acquisitions across established technologies have totalled c.150MW in solar, c.1.5GW in offshore wind and c.140MW onshore wind in the Period[2].

Activity in the UK development market has continued to be 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 upcoming CfD auction rounds. Development activity has been particularly noticeable in the battery storage area as developers seek to provide solutions to help manage the grid as larger quantities of intermittent renewables are added to the system. Solar development activity has, however, slowed recently, primarily due to grid constraints.

Some construction activity has been observed in the UK solar and battery storage area, although this is against a backdrop of supply chain challenges and rising interest rates. Converting the UK's significant development pipeline into operational solar projects over the next five years will require developers to adopt an innovative approach to overcome current macroeconomic challenges as well as challenges surrounding higher construction costs and grid connection lead times.

With 754MW of operational solar capacity, the Company maintains a strong position within the UK solar market, owning about 7.6% of the country's utility-scale solar PV capacity.

10. Regulatory Environment

The regulatory environment remains under the spotlight as the Government seeks to support renewable energy deployment under particularly tough macroeconomic conditions, including high inflation and rising interest rates. Key themes are outlined below.

Update on Contracts for Differences (CfD)

In July 2022, the UK Government awarded support for c.10.8GW of new build renewable generation capacity through its CfD scheme, allocation round 4 (AR4) - with c.7GW awarded for offshore wind projects, c.2.2GW for solar and c.0.9MW for onshore wind. The overall budget for AR4 - across pot 1-3 technologies - was £295m per year.

The UK Government published the CfD allocation round 5 (AR5) results on 8 September 2023. A total of 3.7GW of renewable energy projects, with expected deliveries in 2025-28, won contracts with strike prices at or close to the administrative strike price (ASP) caps set by the government.

Almost 2GW of solar projects won contracts at the maximum ASP of £47/MWh (in 2012 terms), of which almost 1.4GW is due to come on line in 2027-28 - the final target delivery year for the auction. Onshore wind - including remote island wind - won 1.7GW of contracts at £52.29/MWh, while no bids were successful from offshore wind. This was the first time since the launch of the CfD scheme in 2015 that no new offshore wind projects won contracts. In the run-up to the AR5 auction, many potential offshore wind participants expressed concerns over the low ASPs particularly given the high inflationary and cost of capital backdrop. The ASP for offshore wind was set at £44/MWh (in 2012 prices) in AR5, down from £46/MWh in AR4. Almost 7GW of offshore wind technology was successful in AR4 which closed in July 2022.

Further ahead, the Government is also considering introducing non-price factor legislation for future CfD allocation rounds (AR7 onwards, 2025-30). This would encourage bid applicants to balance overall costs with other non-price factors, including sustainability and enabling system flexibility and operability.

UK Carbon Market

In July 2023, the UK Emissions Trading Scheme (UK ETS) Authority announced several reforms to tighten limits on power, industrial and aviation sector emissions which are scheduled to become effective in 2024. The Authority also plans to extend the sector coverage of the UK ETS from 2026-28 which could incentivise industries to invest in lower-carbon footprint renewable technologies.

Electricity Generator Levy

Please refer to 'Key factors behind the valuation' below.

Review of Electricity Market Arrangements

The Government launched its Review of Electricity Market Arrangements (REMA) consultation last summer to identify the necessary reforms needed to transition to a cost effective, lower carbon and secure electricity system. In March 2023, a summary of the 225 consultation responses was published, with several wholesale energy market reforms still under consideration, including zonal and nodal market pricing. The Government intends to publish a second REMA consultation later this year.

1. Introduction

An introduction from the Chair

Across the globe, the impacts of climate change are becoming all too apparent. In July, on the same day that wildfires ravaged Sicily, in Milan planes were grounded by hailstones the size of tennis balls. This summer, Greece, Algeria, and Tunisia are amongst the many countries that have experienced an unprecedented level of wildfires, exacerbated by extreme heat and arid conditions, with devastating social and economic impacts. Climate change is often thought of as something which will occur in the future, but it is happening now, and its effects will amplify as time goes on. As President Biden said on a recent visit to hurricane-stricken Florida, "Nobody intelligent can deny the impact of the climate crisis anymore. Just look around."

As we move towards a Net Zero future, the Company plays a key role in providing low carbon energy to a decarbonising economy. However, the transition away from fossil fuels gives rise to challenges regarding energy security and affordability, heightened but also accelerated by the fallout from the Russian invasion of Ukraine. The UK needs rapid, large-scale deployment of renewable infrastructure to reach Net Zero, which will also deliver energy security and stabilise energy pricing.

As growth of the renewable energy sector continues to accelerate, the solar power industry must take accountability and responsibility for the impacts of its own operations. We believe consideration of material environmental, social and governance (ESG) factors is integral to the long-term success of any investment fund, contributing to both risk management and value creation.

Last year the Company developed its ESG strategy, which included a comprehensive set of commitments and KPIs. Delivery of these commitments has enhanced the Company's ESG governance, including further developing supply chain management processes, and putting new policies in place. During the coming year, we will enact these policies across the Company's operations, as well as continuing to deliver additional value across our portfolio through our nature and social initiatives. Building the Company's climate change resilience will also remain a priority.

The Company continues to integrate ESG across the asset lifecycle, critically evaluating and improving ESG processes, and with sharp focus on risks and opportunities most material to the Company's operations. As the ESG landscape evolves, the Company will continue to ensure compliance with appropriate ESG regulation and reporting frameworks, ensuring ESG achievements and challenges are reported transparently to stakeholders. Doing so will support the Company in achieving its purpose of delivering renewable energy responsibly, with the ambition not only to offer a sustainable product, but also to achieve sustainability throughout its operations.

John Scott,

Chair

An introduction from the Investment Adviser

The Company has made great progress with its ESG strategy during the reporting period. In addition to being the first year implementing, monitoring, and measuring the Company's ESG performance against its KPIs, it was also the first time the Company reported in line with the Level 2 requirements of the EU's Sustainable Finance Disclosure Regulation (SFDR) and produced its first Principal Adverse Impact (PAI) report.

In a year of 'firsts', the Investment Adviser has taken a robust approach to both the Company's ESG commitments and regulatory requirements, reporting comprehensively and transparently. The Investment Adviser supported the Company with collection of a wide range of sustainability data, enabling the Company to make its most quantitative ESG disclosures to date. By continuing to support and work collaboratively with service providers, we hope to increase the accuracy and quality of data over time.

Bluefield's ESG team has grown and ESG has continued to be embedded into every aspect of our operations. The Bluefield group structure, with four separate but complementary businesses, facilitates this process, and enables the Company to benefit from the holistic management of ESG across the asset lifecycle. Bluefield employees share a passion towards sustainability and their dedication is reflected in the Company's successes this year.

Having refreshed its ESG commitments, we look forward to supporting the Company with the second year of its ESG strategy, ultimately contributing to its long-term value. 

James Armstrong,

Managing Partner of Bluefield Partners LLP

2.  ESG Highlights

Covering the reporting period ending 30 June 2023:

· Powered the equivalent of over 288,000 UK homes with renewable electricity[3].

· Achieved over 173,000 tonnes of CO2e savings[4].

· Undertook physical scenario analysis for the first time to examine the potential impacts of extreme heat on the Company's solar assets.

· Adopted a Human Rights Policy, Sustainable Procurement Policy, Waste Management Policy, and Supplier Code of Conduct.

· The Board of the Company established an ESG Committee.

· Conducted thirty Biodiversity Net Gain (BNG) assessments across the operational portfolio.

· Undertook ten independent ecological assessments.

· Delivered seventeen in-school workshops and eight solar site visits to schools surrounding the Company's assets.

3. ESG Landscape

ESG Context

As a renewable energy business, the Company is actively contributing towards the UK's Net Zero target, but this does not remove the Company from its broader ESG impacts and responsibilities. As such, the Company's ESG strategy has identified a range of priority topics across ESG areas, all of which will need to be considered as part of the Company's responsible investment approach. These have been integrated into a comprehensive framework through which the Company can deliver value for its stakeholders, and which will support delivery of long-term returns for shareholders. 

ESG Regulation & Framework Alignment 

SFDR & EU Taxonomy

Please refer to the Periodic Annex IV presented within Appendix and the Company's website for further information regarding its ongoing compliance with the SFDR and EU Taxonomy.

Please note that, as part of the Company's implementation of the SFDR Regulatory Technical Standards, the Company's Article 23 pre-contractual disclosure was updated on 22 December 2022. This involved the deletion of the sections titled 'Promotion of environmental and social characteristics' and 'Taxonomy-alignment', and the addition of the SFDR annex to provide the relevant sustainability-related information in the format of the mandated template. A section titled 'Consideration of principal adverse impacts of investment decisions on sustainability factors' was also added to inform investors of the Company's approach to implementing the PAI requirements.

These changes are intended to comply with the Company's regulatory obligations and provide greater information to investors about the Company's sustainability profile and attributes. The most recent versions of the Company's sustainability-related disclosures are available on its website.

Task Force on Climate-related Financial Disclosures (TCFD)

The Company has voluntarily adopted the recommendations of the TCFD and its second TCFD report is presented below.

UK Sustainability Disclosure Requirements & UK Green Taxonomy

The Company is following progress of the UK Sustainability Disclosure Requirements (SDR) and UK Green Taxonomy, to ensure it is well positioned to comply with these new rules and guidance as and when they come into effect.

Sustainability Disclosure Standards

To better integrate ESG considerations alongside financial reporting, the ISSB has recently issued two IFRS sustainability disclosure standards IFRS S1 and S2. The Company will assess its alignment with the requirements of the IFRS standards over coming months, in preparation for the adoption of these standards by the FCA. 

How regulatory requirements have been embedded within the Company's ESG strategy.

Regulatory requirements were a key consideration during development of the Company's ESG strategy. As a result, regulatory reporting requirements, such as PAIs, are integrated within the Company's commitments and KPIs. For transparency, the Company will signpost where information can be found if it sits outside its main ESG report, for example as part of standalone SFDR disclosures.

The Company is mindful that regulatory reporting timeframes, which are typically calendar year, do not run in tandem with the Company's financial reporting year. As a result, to prevent duplicate sets of reporting for each metric (which may become confusing to stakeholders), the Company will typically not re-report PAI metrics in line with its financial year. Instead, stakeholders will be referred to the PAI statement to obtain this information. The exception is the Company's GHG inventory, which is currently being calculated in relation to both its calendar and financial year.

4. The Company's ESG Strategy

ESG Strategy

The Company's ESG strategy reflects stakeholder expectations and has been developed to deliver a positive impact across the Company's portfolio of investments[5]. Material ESG topics are defined within each of the Company's key pillars:

[chart]

Sustainable Development Goals[6]

The most relevant United Nations Sustainable Development Goals (UN SDGs) have been mapped against the Company's ESG pillars, following the alignment protocol. In total, eight goals have been identified where the Company believes it can have the greatest positive impact. The Company's largest contribution will be in relation to Goal 7, 'Affordable and Clean Energy' and Goal 13, 'Climate Action'. With over 812 MW of installed capacity, the Company's portfolio generated 836,232 MWh of renewable energy during the reporting period, supporting domestic energy security and decarbonisation of the UK energy market. The Company also endeavours to minimise any negative impacts of its operations, as described throughout this report.

Commitments & KPIs

Focus this year has been the collection of data to enable the Company to report against its ESG commitments and KPIs. As this was the first time baseline data had been collected for most of these KPIs, data collection processes had to be newly established across a variety of the Company's operations and service providers.

Whilst relationships between the Bluefield service provider companies enabled efficient data collection for a large portion of the Company's portfolio, data collection from external third parties was more challenging, particularly as many providers across the industry did not have existing data collection processes in place. Therefore, whilst every effort has been taken by the Investment Adviser to ensure the accuracy of the Company's ESG performance, the Company will implement further processes to improve the accuracy and quality of ESG data over time. 

Key commitments for the FY 23-24 are presented in Table 1 and a full breakdown of the Company's commitments and KPIs, and performance against these, is presented within the ESG Appendix[7]. Commitments and KPIs are renewed annually to ensure alignment with the Company's evolving ESG approach; the Board approves any changes made and monitors ongoing progress. As a result, several new commitments have been adopted this year and minor amendments made to some existing commitments and KPIs, based on the Investment Adviser's experience of implementing the strategy over the last twelve months.

Table 1 - key ESG commitments for the 23-24 financial year

5. How ESG is Embedded

ESG Oversight

The Board of the Company has ultimate responsibility and oversight of ESG risks and opportunities, and ESG is considered by the Directors as part of Board meetings, investment decisions and risk management. Daily management of ESG is outsourced to the Investment Adviser, with the Board regularly updated on ESG activity through investment committee papers, Board meetings, ad hoc calls, and written updates. During the reporting period, the Board established an ESG committee, chaired by Meriel Lenfestey. The Committee provides a forum for mutual discussion, support, and challenge to the Investment Adviser with respect to ESG matters. ESG committee meetings, of which there are at least two a year, provide an additional forum through which the Board engage on ESG activity. 

The Investment Adviser is responsible for communicating, embedding, and monitoring ESG initiatives across the portfolio, ensuring ESG is considered at every stage of the asset lifecycle. ESG is included as a standing agenda item as part of the Investment Adviser's quarterly Board meetings and the Investment Adviser's ESG Manager regularly reports progress to the Managing Partner and Group General Counsel.

The Company's ESG Governance Structure illustrates how ESG is integrated across portfolio-related activities, presented in Figure 1.

[chart]

Responsible Investment

Please refer below and the Company's Sustainable Investment Policy for further information on its responsible investment approach.

6. Climate Change Mitigation

Key Commitments

• Report our renewable energy generation annually.

• Develop a Net Zero pathway.

• Invest up to £50,000 in industry collaborations annually to support the energy transition.

• Continue to build our climate resilience and inform our business strategy through climate risk assessments and scenario analysis.

Introduction

Critical and ambitious action is needed to address climate change. The UK has remained firm on its Net Zero commitment, aiming to reduce emissions by 78% by 2035[8]. In their 2023 'Powering up Britain' publication, the UK government acknowledged the energy trilemma, and the role renewable deployment will play in achieving interim and long-term Net Zero targets, increasing energy independence, and shielding the UK from volatile energy markets, ultimately reducing energy prices[9].

As a UK-focused renewable energy business, the Company is well positioned to support the UK's transition to a low carbon economy and domestic energy security.

Advocating Renewable Energy

The Company substantially contributes to climate change mitigation and the UK's decarbonisation agenda through its generation of renewable energy. During the reporting period the Company:

• Generated 836,231 MWh of renewable energy.

• Powered the equivalent of over 288,000 UK homes with renewable electricity for a year[10].

• Achieved over 173,000 tonnes of CO2e savings[11].

• Had 93MW of solar infrastructure under construction, which on completion is estimated to generate an additional 91,000 MWh of renewable energy annually.

Since IPO in 2013, the Company has saved the equivalent of approximately 1,200,000 tonnes of CO2e from being released into the atmosphere[12].

Environmental accreditations - Guernsey Green Fund, TISE Sustainable, Green Economy Mark

Whilst the Company's activities are central to the UK's Net Zero agenda, the Company recognises the potential harmful impacts that come with being part of the renewables industry, and that as the sector continues to grow, industry players will need to work together to address emerging social and environmental risks. End-of-life considerations for renewable generation assets are an increasingly important topic, particularly with movement towards a more circular economy.

During the reporting period, the Company identified a potential partnership with a UK university, focused upon end-of-life options for solar and wind assets. The Company has elected to allocate its first-year research budget of up to £50,000 to this project, noting that funds will be transferred once the project is finalised.

Case study: Supporting the Energy Transition through Industry Engagement

The Investment Adviser takes a proactive approach to supporting the energy transition, not only through its advisory role to the Company, but also by engaging and supporting the government to create a policy environment which can enable Net Zero. This includes responding to government consultations, meeting with senior political leaders across the House to discuss renewable energy, and working with partners in the sector to engage in relevant discussions via the government's Solar Energy Taskforce. Bluefield employees are also members of the industry trade body Solar Energy UK, and frequently engage in discussions across the various working groups. Such enables the Company to benefit from a coherent and broad view on a range of industry matters, whilst contributing to best practice for the renewables sector.

Carbon Emissions

GHG Inventory

The Company takes account of its carbon impact and reports its emissions annually. Last year the Company commissioned its first Lifecycle Assessment (LCA) to estimate the emissions associated with a solar PV asset across its lifetime. Depending on the future energy mix modelled, the study found that the solar farm "pays back" the total emissions consumed during production and installation in between one to three years; a small proportion of its expected forty-year lifespan. The study emphasised the positive contribution that solar assets can offer to a decarbonising grid, but also enabled the Company to have sight of the absolute emissions impact of a solar asset, highlighting potential opportunities for improvement.

Please refer to the Company's TCFD Report below for its GHG inventory.

The Company's assets consume a small amount of electricity, derived from the grid. To reduce Scope 2 emissions, and ensure that its portfolio consumes energy derived from renewable sources, the Company has been transferring its assets onto renewable energy import tariffs, where these are not already in place. Looking forward, to formalise its decarbonisation commitment, the Company will develop a Net Zero pathway, and will analyse different target-setting frameworks to ensure the decarbonisation strategy most suitable for its investments is adopted.

Installed capacity on renewable energy tariffs: 13% (as at 30 June 2022); 85% (as at 30 June 2023). 

Climate-related Risks and Opportunities

The assessment of climate-related risks and opportunities is a continual process for the Company as part of its risk management processes and strategy. Please refer to the Company's TCFD report below for further information.

7. Pioneering Positive Local Impact

Key Commitments

• Evaluate Biodiversity Net Gain (BNG) across the operational portfolio and achieve at least 20% BNG on new solar developments.

• Conduct independent biodiversity assessments across at least 10% of our sites annually (relating to assets over 1MW in capacity)

• Develop a Nature Strategy, building upon our existing biodiversity commitments and encompassing the recommendations of the Taskforce on Nature-related Financial Disclosures.

• Continue to promote positive action within the communities we operate within through community benefit funds and educational sessions.

Introduction

The topic of nature has been a real area of focus and commitment for the Company. Its investments have an important role to play at the local level and the Company seeks to positively impact the communities and environments it is a part of. The Company has strengthened how it communicates ESG expectations with its suppliers and contractors, who manage the Company's investments on its behalf.

Nature

Climate change and nature are intrinsically linked. The Company aims to make positive impact in both areas simultaneously, focusing upon BNG across its portfolio as an additional way to help mitigate climate change beyond its contribution to Net Zero. The Company has updated its ESG strategy to reference 'Nature', recognising that biodiversity represents a critical aspect of this and that the Company's operations have wider environmental impacts and dependencies.

Focus during the reporting period was delivery of the Company's biodiversity implementation plan (adopted alongside its Biodiversity Policy last year), and the quantification of biodiversity across the portfolio.

Delivering the Biodiversity Implementation Plan

The biodiversity implementation plan was created to support the Company in achieving the commitments made within its Biodiversity Policy. Initial activities have focused upon how to minimise the adverse impacts of the Company's land management activities on nature. During the reporting period, the Investment Adviser worked closely with Bluefield Operations Limited, the Company's principal O&M contractor, to undertake the following activities:

· Mapping of the Company's assets to identify sites located within 1km of a biodiversity-sensitive area[13] and within 500m of a water course.

· Creation of systems to record and track threatened and protected species[14] identified at the Company's assets, using data from ecological assessments.

· Conduct a comprehensive review of Landscape and Ecological Management Plans (LEMPs) to support ongoing LEMP compliance, but also assess their suitability and practicality. 

· Development and adoption of hierarchies of control for herbicide use and rodent control.

· Review of grass and hedgerow management practices. 

These activities have enabled the Company to better understand what fauna and flora are present in the localities of its assets, enabling the identification of assets which could potentially have greater impacts on, or opportunities to support, nature. Review of environmental practices and adoption of hierarchies of control will help ensure negative environmental impacts are minimised and a best-practice approach to land management is taken.

Quantifying Biodiversity

Wychwood Biodiversity, a leading ecological consultant, were engaged to undertake ten ecological assessments across the portfolio to help build the Company's biodiversity data set. Their findings identified:

· Twelve red listed bird species, including yellowhammer and skylark.

· Seventeen amber listed bird species, including marsh harrier and sparrowhawk.

· Fifteen butterfly species, including small heath, and five native bee species identified from ten pollinator surveys (consisting of 129 transects).

Botany[15] and soil[16] data were also collected. These assessments, along with eleven additional assessments conducted as part of ongoing LEMP requirements, will be used to inform the Company's nature-related activities over the coming year. 

Biodiversity Net Gain

The Company has been evaluating BNG across its portfolio. BNG is calculated using the Defra Biodiversity Metric, which assesses the change in biodiversity units from a baseline state (i.e., before the site was built) to its post-construction condition, when habitats specified within the planning conditions, including within the LEMP, have been established.

In relation to its development pipeline, the Company has committed to achieving at least 20% BNG on all new solar developments, despite the 10% BNG provision of the UK Environment Act not coming into effect until November 2023. This commitment will be enacted through the Company's development partners and applies to all planning applications submitted since July 2022. During the reporting period, several prospective solar applications were submitted into planning, all of which achieve at least a 20% BNG uplift. The Company is closely following developments related to the trade of BNG units, and the opportunities this may present for the renewables industry as an additional source of revenue.

BNG assessments[17] were undertaken across the operational portfolio by the land management team within Bluefield Operations Limited, who gained competency through CIEEM training courses and engagement with third party specialists. Thirty assessments were completed, representing approximately 33% of the Company's operational portfolio (relating to sites over 1MW in capacity). A variety of the Company's portfolio was sampled, including sites ranging from 1.8MW to 50MW in capacity, located across England, Scotland, and Wales. Additional ecological data was collected where necessary through monitoring and walkover surveys.

Table 2 - Results of retrospective Biodiversity Net Gain (BNG) assessments undertaken across the Company's operational solar assets. 

These results demonstrate the potential of solar infrastructure to support nature and achieve a considerable uplift in biodiversity compared to a pre-construction state. The results of the BNG assessments will be used to identify measures to increase the BNG of lower scoring sites, with the assessments updated over time as land conditions change.

Next steps for Nature

· Develop a Nature Strategy, aligned with the recommendations of the Task Force on Nature-related Financial Disclosures (TNFD) and pulling together the progress the Company has made over the last 18 months in relation to its biodiversity datasets and enhanced approach to land management.

· Build a framework through which the Company can manage its material nature-related risks and opportunities, and develop nature focused commitments and KPIs to communicate progress.

· Complement BNG assessments with other forms of biodiversity assessment (for example industry tools such as SPIES assessment or Wild Power Scorecard), to ensure a rounded approach.

Community Impact and Initiatives

Community engagement is key across all stages of the asset lifecycle. During the reporting period, the Company engaged Earth Energy Education, an organisation dedicated to educating pupils on the importance of renewable energy through engagement both in and outside of the classroom. On behalf of the Company, Earth Energy Education delivered 25 educational workshops, including 17 school workshops and eight solar site visits between May 2023 and July 2023, delivering educational content to 447 different pupils. 23 Bluefield employees also volunteered as part of the site visits, providing their solar expertise and experience of working within different functions of the Bluefield companies, engaging pupils on green careers.

The Company will continue to work with Earth Energy Education over the coming year, delivering a sustainability-focused education programme to even more pupils. Such will support the Company in strengthening relationships with the local community and upskilling future generations on the importance of renewables in the climate emergency. 

 "My Year 4s really enjoyed the workshop and it was an engaging introduction to their new Science unit for after half-term on electricity. The hands-on investigation into solar panels today was valuable for our future learning on solar power." Year 4 teacher, Wantage Primary Academy

Case Study: STEM Webinar

As part of the Company's engagement with Earth Energy Education, a webinar was delivered to 200 pupils in July, hosted by five Bluefield employees. The webinar provided insight into their roles, experiences of being a woman in a STEM career, pathways into the sector and general encouragement and awareness about STEM careers.

The transition to Net Zero will create significant employment opportunities[18], and during the reporting period, the Company's portfolio supported the creation of 42 new positions within the Bluefield companies. Bluefield has a number of initiatives in place to encourage entry into green careers, and during the reporting period supported: 

· Four internships, including two through the '100 Black Interns' scheme.

· One work experience placement.

· Two apprenticeships.

· Engaged with an environmental consultancy firm to support a project with Norfolk and Suffolk County Councils on green skills development in the region, including skills shortages and projected skills needed in the future.

The Company has community benefit funds in place across its portfolio, which are usually agreed as part of the development process. During the reporting period, the Company paid over £253,000 to community benefit funds, which are used to support a range of community projects.

St Margaret's Churchland, West Raynham: Grassland Conservation Project

In 2017, the local community decided to introduce a new land management regime to St Margaret's Churchland, located in West Raynham, to better support the ecology of the site. The predominant characteristics of the site included thick, overgrown grass and little floral diversity. After engaging with Norfolk Wildlife Trust, the grass cutting regime of the site was altered, native hedgerow planted, and wildflower seed sown. In Autumn 2021, grazing was also introduced.

Following these changes, a wildflower meadow is now well established, and surveys indicate that a large variety of pollinators, mammal and birds use the area, including red and amber listed species. The first orchids have also been identified; likely dormant for several years but have re-emerged due to the improved land conditions.

Since being initiated five years ago, the project has been supported with over £5,000 of funds contributed by West Raynham Solar site, administered through the West Raynham Solar Fund Committee. The project has been highly successful both in its ecological objectives and in creating community interest and involvement, with an enthusiastic group of local volunteers who continue to support the project.

Delivery Partnerships

To help ensure ESG expectations are upheld by suppliers, the Company has adopted a suite of new policies, including: a Sustainable Procurement Policy; Human Rights Policy; Waste Management Policy and Supplier Code of Conduct. Policies were adopted by both SPV Directors and the Board of the Company, and cover the Company's operational and construction assets. Focus over the coming year will be to ensure the requirements of these policies are appropriately disseminated and complied with, helping drive ethical practices across the Company's operations and supply chain.

The Supplier Code of Conduct sets out the values and principles the Company expects its suppliers to follow as a minimum requirement, and was developed in line with global frameworks, including the United Nations Guiding Principles on Business and Human Rights (UNGP), UN Global Compact principles (UNGC), and the OECD Guidelines. It covers topics including ethics, human and social rights, environmental, business and supply chain risk, and whistleblowing. The Company requested that priority suppliers, i.e., those which made up the largest proportions of the Company's addressable spend[19], acknowledge, sign, and conform to the Supplier Code of Conduct. During the reporting period, twenty-six of the Company's priority suppliers signed the Supplier Code of Conduct, representing approximately 75% of the Company's 2022 addressable spend.

Case Study: Engaging Suppliers Through Webinars

To support the rollout of the Supplier Code of Conduct, the Company delivered two webinars to priority suppliers. The webinars explained the purpose of the Code, the key principles within it, and the impact on suppliers. In addition to providing a forum through which concerns could be raised, suppliers were encouraged to adopt their own Supplier Code of Conduct if they had not already, helping cascade best practice across the Company's supply chain.

Health & Safety ('H&S') is of the highest importance to both the Company and the Bluefield service provider companies. Every asset owning SPV holds H&S policies. Main contractors (including the Bluefield companies) undergo annual H&S audits by the SPVs, to ensure ongoing compliance. During the reporting period, the Investment Adviser engaged a H&S adviser to review the H&S management system across the operating solar portfolio. The review is ongoing and will ensure each of the SPVs are complying with the latest H&S guidance and industry standards.

EPC contractors, O&M contractors, and Asset Managers are required to regularly submit their H&S performance to the Company. Relating to the reporting period:

Lost time incident rate[20]: 0

Number of reportable accidents (RIDDOR)[21]: 6

Number of near misses: 154

The majority of near misses were reported by Bluefield Operations Limited, where identifying, investigating, and reporting near miss incidents is culturally ingrained within the organisation (helping reduce the probability of H&S incidents occurring). Therefore, the relatively high number of near misses is reflective of a proactive risk management culture. Four of the RIDDOR incidents related to fire incidents (where no personnel were injured), and the remaining two incidents involved subcontractors of the Company's O&M and EPC service providers. Bluefield Services Limited, acting as asset manager, continues to work with service providers to improve data collection and reporting processes.

8. Generating Energy Responsibly

Key Commitments

• Ensure 100% of our assets are covered by a Human Rights Policy, which covers UNGC principles and OECD guidelines.

• Continue to develop our due diligence mechanisms to identify, prevent and mitigate human rights impacts across our operations and, where possible, our supply chain.

• Require adoption of our Supplier Code of Conduct by priority Tier 1 and, where possible, Tier 2 suppliers.

Human and Labour Rights

Human and labour rights remain an area of focus for the Company. The Company's Human Rights Policy communicates its commitment to respect human rights and its ambition to identify, prevent and mitigate adverse human rights impacts throughout its value chain. The policy was developed in line with recognised human rights frameworks.

Whilst human rights due diligence processes are already in place, these will be reviewed by the Company over the coming year as commitments made within the Human Rights Policy are embedded across the asset lifecycle. The Company will also perform a deeper analysis of how its operations interact with the requirements of the UNGC and OECD Guidelines, enabling the Company to robustly evidence its alignment to these frameworks.

The Company acknowledges that supply chains are complex and full transparency has not yet been achieved, particularly in relation to solar PV modules and batteries. The Investment Adviser is continuing to engage with the industry response led by Solar Energy UK and Solar Power Europe, which is focused on developing systems and processes to improve transparency and sustainability within the PV supply chain. The UK solar industry's supply chain statement, to which the Investment Adviser is a signatory, can be viewed here.

Examples of existing Human Rights due diligence & management mechanisms:

- Comprehensive ESG due diligence undertaken on key third parties, such as EPC contractors.

- Human rights considerations embedded within pre-investment due diligence processes.

- External ESG risk analysis conducted on key solar and battery manufacturers.

- Social audits requested for solar manufacturing facilities as part of EPC engagements.

- Enhanced contractual protections.

- Adoption of the Company's Supplier Code of Conduct.

- Participation in industry supply chain initiatives.

Responsible and Sustainable Procurement

Though the Company does not yet undertake direct large-scale procurement, it has due diligence processes in place to help ensure that the EPC contractors it engages, and the equipment that they procure on behalf of the Company, are not associated with material ESG risks. The Company's Sustainable Procurement Policy includes principles such as assessing and managing supply chain risks; upholding human rights; and where possible reducing the environmental impacts of procurement activity.

To better understand its supply chains, the Company mapped its Tier 1 supplier spend relating to the 2022 calendar year. Once consolidated, the Company identified its priority suppliers, i.e., those which related to the largest proportion of addressable spend. Priority suppliers were analysed via a desktop assessment across a range of social and environmental topics, to identify upstream risk and improvement opportunities. Several key supply chains were identified for further focus. The Company will map its supply chains annually, and will map Tier 2 suppliers in key supply chains, focusing on those engaged by the Bluefield companies in the first instance.

During the reporting period, the Bluefield companies completed their first supply chain audit, undertaken by an external consultant. Supply chain management processes were assessed in relation to governance, sourcing, transparency and risk, and the results will be used to support the Company in benefiting from robust supply chain practices.

Good Governance and Business Ethics

ESG is increasingly integrated into the Company's corporate governance. For example, during the reporting period, there has been ongoing regulatory compliance (including monitoring emerging reporting requirements and frameworks); creation of an ESG sub-committee of the Board; adoption of new policies; and enhanced climate risk analysis. Commitments for the coming year will further embed ESG within the processes and procedures underpinning the Company's operations.

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. The Investment Adviser has recently implemented new policies and processes relating to Consumer Duty.

The Board's commitment to diversity is referenced below, and the Board actively seeks to ensure that diversity is considered in the board succession process. The Investment Adviser and other Bluefield companies continue to enhance their approach to Diversity, Equity, Inclusion and Belonging (DEIB). DEIB is embedded through an equal opportunities policy in the UK and a DEIB committee, which has developed a strategy focused around: culture, talent, and community. Over the coming year, in addition to launching a ''Women in Leadership" programme, the Investment Adviser will partner with GAIN (Girls are Investors) to create a paid internship, helping increase gender diversity within the organisation.

9. Looking Forward

This year, the Company has enhanced its approach to material ESG topics and reported against its KPIs for the first time, evidencing an improvement in ESG performance across most indicators. The second year of the strategy will be just as ambitious, as the Company responds to growing interest around topics such as climate, nature, and human rights, perpetuated by evolving ESG regulatory requirements. Though ESG remains fast-evolving, clarity and standardisation of reporting requirements should provide much needed guidance to financial markets and investors on what 'best practice' looks like. 

The Company looks forward to continuing its sustainability journey, constantly evaluating, and improving its practice as a renewable energy investor which aims to truly deliver renewable energy, responsibly.

ESG Appendix

The following table highlights the Company's ESG performance relating to the financial year ending 30 June 2023. Where data was available, ESG performance as of 30 June 2022 has been included, to allow comparison to be made. Where referenced in the below table, unless otherwise stated, 'assets' refers to operational and construction assets.

1. Introduction

The Company's core objective, to provide attractive returns to shareholders through investment in renewable energy infrastructure assets, sets it in an advantageous position to capitalise upon opportunities that arise from the transition to a low carbon economy. However, climate change is dynamic and uncertain, and societal response will be shaped by climate events of varying severity and impact, depending on the trajectory that global emissions take. With this in mind, the Company is committed to ensuring a climate resilient strategy is in place, supported by scenario analysis and risk management processes, to strengthen its ability to deliver shareholder value in a changing world. The following report explains how the Company is working to comply with all eleven recommendations of the TCFD.

2. Governance

Board oversight

The Board of the Company has ultimate responsibility for and oversight of climate-related risks and opportunities; please refer to the Company's ESG report for how the Board oversee progress against ESG (including climate) commitments and KPIs. The Board remains well-informed of developing physical and transitional risks and opportunities associated with climate change, and how these might materialise in the Company's short, medium, and long-term future, through close engagement with the Investment Adviser. Moreover, the Board receives climate risk training on an annual basis. 

Given the nature of the Company, every investment decision considered by the Board is associated with renewable energy infrastructure or supporting technologies. Therefore, the Board is conversant in assessing climate-related opportunities in this regard. Increased consideration of climate-related risks, particularly physical risks, has therefore been the main area of focus for the Company since adopting the TCFD recommendations.

Management

The Investment Adviser is responsible for day-to-day management of ESG, including climate matters, and progress is regularly communicated to the Board as described above. ESG is a Board agenda item for both the Board of the Company and the Investment Adviser, where it is discussed as part of wider strategic priorities and risk management.

Roles and responsibilities concerning ESG matters, which include climate, are defined within the Company's ESG structure above. The Investment Adviser oversees the implementation of the Company's ESG Strategy, which includes a Climate Change Mitigation pillar and specific climate-related commitments and KPIs. In line with this strategy, the Investment Adviser works with the Company's key service providers to embed climate considerations across the investment lifecycle, including pre-investment due diligence, asset management and reporting. Asset data collected from service providers is collated by the Investment Adviser and used to inform the ongoing assessment of climate-related risks and opportunities.

3. Strategy

During the reporting period, the Company used scenario analysis[37] to better characterise its most material climate-related risks and opportunities, and understand how they could materialise over short, medium, and long-term time horizons (2030, 2040 and 2050, respectively). Two scenario analyses were undertaken: the first assessed risks associated with the transition to a low carbon economy, and the second focused upon the impacts of "extreme heat"; identified as a salient physical risk to the Company during previous climate screening workshops. The scenarios used for the analyses are outlined in table 1. The methods used to conduct the analysis are described in the Risk Management section.

Table 1: Scenarios used for transitional and physical scenario analyses, based on established climate models. Broad alignment exists between each set of scenarios, despite slight differences in warming implications. 

Risk & Opportunities

Extreme Heat

Above a certain temperature threshold (around 25°C), heat can start to affect multiple components of PV systems, resulting in efficiency losses in PV modules, accelerated PV cell damage, and inverter failure. As average temperatures increase with climate change, the IPCC predicts extreme heat events will become more frequent and severe[38], presenting a risk to the Company's portfolio over the short, medium, and long-term. Extreme heat on PV systems was therefore the focus of the Company's first physical scenario analysis.

During the summer of 2022, temperatures in the UK exceeded 40°C for the first time, deemed by the Met Office as "virtually impossible"[39] without human-induced climate change.

In addition to PV systems, the impact of extreme heat on battery storage systems was evaluated. Analysis of technical specifications revealed that battery storage systems are resilient to the UK temperature ranges predicted across all three scenarios, with in-built cooling systems able to maintain internal ambient air temperature and therefore optimal asset performance. Therefore, based on the current analysis, it was concluded that extreme heat is unlikely to present a material risk to the operation of battery storage systems adopted into the Company's portfolio in the future.

Table 2: Physical scenario analysis, with focus upon the potential impact of extreme heat on the Company's current solar PV portfolio.

Transition Risk

The transitional scenario analysis qualitatively assessed the impact of potential policy, regulatory, technology, and market changes associated with mitigative and adaptative responses to climate change.

Table 3: Transitional scenario analysis undertaken in relation to the Company's investments.

Resilience

Drawing on the results from both analyses, the Company has assessed its resilience to climate-related risk in each of the scenarios, summarised below. Work will continue to integrate findings from the scenario analyses into the Company's risk management processes, strategic and investment-related decisions, and financial planning.

Net Zero (1.5°C - 2°C)

Due to the nature of its investments, few transitional risks are expected to present a high risk to the Company. The greatest risks in this scenario come from technology change in the long-term. This could quicken the rate of asset depreciation and require large scale investment to install new technologies across the portfolio. However, the Company views the accompanying opportunity as high. Technological progress may lead to greater yielding PV assets as well as better battery storage solutions, combining to increase revenues. Policy and legal shifts are also likely to present high opportunities over the long-term, which the Company is well placed for, as they create conditions conducive to growth of the portfolio.

Delayed Transition (2-4°C)

In a Delayed Transition, the medium-term is more disruptive than the other scenarios. This is due to significant shifts required to move to a low-carbon trajectory, compensating for previous inaction. Again, this creates both risks and opportunities to the Company. Market shifts are particularly likely: service providers may face supply chain issues, and revenues may be exposed to risk from volatility in power prices. However, the opportunity from a delayed transition is that there is a sudden shift away from fossil fuels which is likely to cause a demand spike for renewable energy. With the Company's growing portfolio and development pipeline, it can facilitate this increased demand. Reputational opportunities are also highest in this scenario in the long-term, as increased value is placed on sustainability credentials to limit warming. In a 2-4°C scenario, chronic physical risk increases over time as PV cells incur greater yield losses with rising temperatures, but to a lesser extent than in the >4° scenario. Similarly, incidences of acute heat events are likely to increase over time but are less impactful in this scenario, as much of the Company's generation capacity is located away from the anticipated worst affected counties.

Current Policies (>3, >4°C)

The Company is generally exposed to lower transitional risks and opportunities in this scenario. As a provider of renewable energy, it stands to gain from a transition to a low carbon economy. If this does not occur, there may be reduced opportunities to grow the portfolio, especially compared with other scenarios. A lack of climate policy and action will result in the greatest increase in both average and extreme temperature, making the physical risk to assets most severe in this scenario. It is anticipated that battery assets will be resilient to these effects, therefore, the Company's focus will be on using the results of the climate modelling to inform mitigation measures to enhance the resilience of its solar portfolio to growing heat-related risk. 

 4. Risk Management

Risk identification and assessment

Risks, including those relating to climate, 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 impact of any particular risk occurring. The risks are assessed in a pre- and post- mitigated setting, to map risks into a composite score ranging from 1-9.

During the reporting period, the Board adopted risk time horizons; these have been applied against all risks within the Company's risk register. Principal and emerging risks are disclosed annually within the Company's Financial Accounts.

Last year, the Company undertook a climate materiality assessment to identify physical and transitional climate-related risks considered to have the greatest potential to impact its investments, revenues, and organisational expenditure. This year, through the means of scenario analysis, the Investment Adviser sought to better characterise the impacts of identified material risks.

Extreme heat was prioritised for the physical analysis, examining the impacts on solar PV (being the dominant asset class in the Company's portfolio) and battery storage (an asset class it intends to grow over coming years). The scenarios used in the physical analysis were derived from Shared Socioeconomic Pathways (SSPs)[40]; the transitional scenarios were derived from global climate models produced by the Network for Greening the Financial System (NGFS)[41]. The SSP pathways denote higher warming potential, which better highlights physical risks, whilst the NGFS pathways more effectively portray transitional impacts. The results of this analysis are presented in the 'Strategy' section of this report and will continue to be developed and integrated into business strategy and financial planning. 

On a daily basis, asset management and O&M service providers identify, escalate, and respond to climate-related incidents impacting the Company's assets. Irregularities in generation are flagged in real time by monitoring teams who diagnose the issue, classify the risk, and communicate it to asset management and O&M teams through incident reports. Examples of risks classified as "climate-related" include string-level identification of inverter failures during heatwaves and downtime of wind turbines due to storm activity.

Climate considerations are integrated into pre-investment ESG due diligence and are a key consideration within the Company's ESG strategy, ensuring the long-term management of climate matters post-investment. Development partners, including Bluefield Renewables Development Limited, ensure that climate factors are considered during the development process of new assets, for example through flood risk assessments. 

The Company is also taking steps to build a more resilient supply chain. For instance, the Company has developed a Supplier Code of Conduct to communicate its ESG expectations, including the measurement and reduction of greenhouse gas emissions.

Mitigation measures relating to transitional risks are presented in Table 4; those relating to physical risks are presented within the Company's 2022 TCFD Report.

Table 4: Mitigation measures used by the Company to manage transitional climate-related risks. 

5. Metrics and Targets

Metrics

The financial performance and overall success of the Company is intrinsically linked to opportunities that result from the transition to a low carbon economy. The Company monitors this through metrics relating to returns and dividends paid to shareholders, which are underpinned by the total generation yield of the portfolio.

The Company also tracks its ESG performance against a set of commitments and KPIs, enabling the Company to manage its ESG risks and opportunities alongside financial objectives. Insights from scenarios analyses will be used to inform metrics used by the Company to assess and monitor climate-related risks and opportunities.

GHG Inventory results

The Company's GHG inventory relating to the reporting period is presented in Table 5[42], calculated in line with the GHG Protocol Corporate Accounting Standard. DEFRA GHG reporting conversion factors, DEFRA conversion factors by SIC, and AIB residual mix emissions factor datasets were used in the analysis (corresponding with the period emissions were incurred).

Table 5: the Company's GHG emission inventory for the period 1 July 2022 - 30 June 2023, highlighting emission results per category.

The Company defines its organisational boundaries using the Operational Control approach as per the GHG Protocol Corporate Standard. Under this approach, the Company will account for 100% of the GHG emissions from sources over which it has operational control.

Table 5 presents the results of the Company's GHG inventory for the financial year ended 30 June 2023. The Company has enhanced its GHG accounting methodology since its first inventory (published in its previous annual report for the financial year ended 30 June 2022), expanding the scope 3: Purchased Goods and Services category boundary to include spend data from every SPV, holding company and parent company within the Company structure. For this reason, the results previously published are not comparable with the data presented in Table 5.

These changes increased the accuracy of the Company's inventory, and the Company will continue to evaluate and adjust its GHG accounting methodology as it evolves its approach. The Company will review opportunities to enhance the accuracy of scope 3 data, given that this represents the majority of the footprint. The Company is working to continually improve its GHG inventory; however, some aspects of data collection remained challenging, and as a result, a small proportion of data was estimated or extrapolated.

The Company engages an external consultant to calculate its GHG inventory. The Company published emissions data relating to the year ended 31 December 2022 as part of its SFDR PAI statement. During the calculation of the inventory covering year ended 30 June 2023, an error was identified within the Purchased Goods & Services category of scope 3, which resulted in an overstatement of the Company's scope 3 emissions. As a result, a revised methodology was applied to both inventories. This also involved a review and update of the emissions factors used within the calculations to further increase accuracy. The Company has since updated its SFDR PAI statement to reflect any changes concerning the reference period ending 31 December 2022.

Climate-related targets

The Company's refreshed ESG commitments and KPIs are presented above. Most notably, during the coming year the Company has committed to developing a Net Zero pathway, which will involve the creation of decarbonisation targets, further enhancing the metrics used by the Company to manage climate-related risks and opportunities. The Company will also undertake a second physical scenario analysis, this time focused upon the impact of changing wind patterns on the Company's wind assets, to provide a more holistic view of the potential impacts of climate change on its portfolio. The results will feed into the creation of a climate adaptation plan for the portfolio.

1. Company's Objectives and Strategy

The Company seeks to provide Shareholders with an attractive and sustainable return, principally in the form of quarterly income distributions, by investing primarily in solar energy assets located in the UK. The Company also invests a minority of its capital into other renewable assets, including wind and energy storage.

Subject to maintaining a prudent level of reserves, the Company aims to achieve the quarterly income distributions through optimisation of asset performance, acquisitions and the use of gearing. The Company's original dividend target for the financial year ended 30 June 2023 was 8.40pps. Having now declared four interim dividends totalling 8.60pps, 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, Bluefield Renewables 1 Limited (BR1), in which it is the sole shareholder.

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Management

Board and Committees

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

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

Investment Adviser

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

Through a Technical Services Agreement with BR1 the Investment Adviser is also responsible for all issues relating to the supervision and monitoring of existing investments. 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. BOL and BRD 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 Period the Investment Adviser was paid a fee equivalent to 0.8% of NAV at 30 June 2023 (0.6% at 30 June 2022), reflecting the increase in the Company's assets. 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, New Build Development 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 markets 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 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, ESG 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. In the situation of joint ventures or minority interests, the Company would ensure a high degree of influence over decisions.

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. As at 30 June 2023 this is less than 2%. 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 developing 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 the 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

As an investment company with a long-term horizon, the Company is well positioned to integrate ESG considerations and evaluate environmental and social impacts over time. ESG is embedded within the Company's investment process, and a standalone ESG questionnaire ensures detailed checks are made in relation to ESG risks and opportunities, as identified by SASB standards. Diligence is also undertaken in relation to requirements of the EU SFDR, including in relation to PAI indicators and climate risk screening, and the EU Taxonomy's Do No Significant Harm (DNSH) criteria. ESG due diligence may be outsourced to a competent third party, with the resulting reports reviewed by both the Investment and ESG teams.

ESG due diligence is also undertaken on any Operations & Maintenance (O&M) arrangements which may form part of the investment opportunity, including in relation to topics such as human rights, business ethics, and Health and Safety (H&S). ESG continues to be integrated into the vetting and monitoring of third-party service providers, including use of a comprehensive ESG due diligence process in association with engineering, procurement, and construction ("EPC") site contractors. Further information on the Company's approach to supply chain management can be found above.

Post-acquisition, there is active management of sustainability issues over the operational lifetime of the assets. Each asset will be subject to routine ESG data reporting to allow the remote monitoring of ESG performance and fulfilment of ESG reporting requirements. For a full breakdown of the Company's responsible investment approach, please refer to the Company's Sustainable Investment Policy, available on its website. 

Principles for Responsible Investment; The Investment Adviser has been signatory to the PRI since 2019

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 - the market value of its Ordinary Shares at the end of the Period - fell to £734m, from £801m 12 months earlier. This reflects an increase in the discount to underlying NAV.

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 4.9% from 8.20pps to 8.60pps.

NAV

The Company's average NAV forms the denominator of the Total Expense Ratio calculation and is thereby a determinant of BSIF's total expense ratio. As the variable costs of running the company tend to reduce with increasing NAV a larger NAV will reduce the TER. The finite life of renewable asset leases will ultimately lead to attrition of 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.

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 fell modestly during the year and produced a negative return to capital, largely as result of valuation uplifts deriving from strong demand for electricity and renewable generation assets being offset by the impact of a higher cost of capital in the sector.

Total Shareholder Return(1)

This is 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 return of -2.03% for 2023 compared to the return of 14.55% in 2022 reflects the significant reduction in share price during the year to 30 June 2023 following a substantial increase in UK interest rates.

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 18 to 36 month electricity sales 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 BR1 to BSIF.

The total comprehensive income before tax of £46.8 million reflects the performance of the Company when valuation movements and operating costs are included. Further detail on valuation movements of BSIF's portfolio is given in the Report of the Investment Adviser.

The Company's ongoing charges ratio for the Period was 1.00% (2022: 1.02%), 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 quarterly, as at 30 September, 31 December, 31 March and 30 June, with an external review as and when the Board deems appropriate. 

The fair market value adopted for the portfolio was £1,018.4m (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 to 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

· 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.

During the Period, whilst the principal risks for the business have not changed, there have been significant changes in key assumptions as a result primarily of the continuing progress around ESG and TCFD reporting, a bottom up review of the risk matrix has been completed. This has led to the refreshed summary of principal and emerging risks included in the table below.

* 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

FUND OPERATIONS

EXTERNAL

EMERGING RISKS

Longer term viability statement

Assessing the prospects of the Company

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

The scenarios are designed to be severe but plausible and take full account of the 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 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 continue in business for a further five years. At the 2018 AGM a shareholder vote resulted in a 99.46% vote to allow the Company to continue in business. The next continuation vote is due to be held at the 2023 AGM and the Directors have no reason to believe that shareholders will vote against continuation.

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 2028. The Directors last year 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 remains 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 with a reasonable degree of confidence whilst still providing an appropriate longer term outlook. 

Confirmation of longer term viability

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 30 June 2028.

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 and Risk 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 and Risk Committee meeting held on 29 August 2023. The Board relies on periodic reports provided by the Investment Adviser and Administrator regarding risks that the Company faces. When required, external experts, including tax advisers, legal advisers and ESG advisers, are employed.

8. Stakeholder Engagement

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

The Directors of the Company, by abiding by the AIC Code, aim to achieve high standards in corporate governance. According to the AIC Code, all member businesses, regardless of where they are headquartered, are required to report on the items outlined in Section 172 of the UK Companies Act 2006.

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, with focus on the consequences of any decision in the long term. 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. A key stakeholder is one that either has a direct stake in the Company or directly impacts the long-term performance of the Company. Key decisions are those that are either material to the company or are significant to any of the company's key stakeholders.

The Board considers that the interests of the Company and its stakeholders must be balanced for the Company to succeed. As a result, the Board has summarised below some of the methods by which it develops and maintains connections with its stakeholders, while also considering the Company's effects on the environment and broader society.

Based on stakeholder interaction mentioned in the previous table, by way of example, a few key decisions made in the Period to meet investor objectives are described in the following table:

The Directors hereby submit the annual report and financial statements of the Company for the year ended 30 June 2023.