Foresight Solar Fund Regulatory News (FSFL)

9 March 2022

Foresight Solar Fund Limited

('Foresight Solar' or 'the Company')

Annual Results to 31 December 2021

Foresight Solar, a fund investing in a diversified portfolio of ground-based solar PV and battery storage assets in the UK and internationally, is pleased to announce its Annual Results for the year ended 31 December 2021.

Highlights

Key Metrics

Commenting on the Company's results, Alex Ohlsson, Chairman of Foresight Solar Fund Limited, said:

"I am pleased to report a strong performance by Foresight Solar in 2021. We made good progress on our strategy of revenue and geographic diversification and further enhanced our sustainability efforts, while a total NAV return for the year of 21.4% and earnings per share of 19.7% were significantly ahead of budget and represent an excellent financial performance. Strong cash generation meant that we have been able to comfortably pay our target dividend, as we have done every year as a listed company, and I am pleased to announce an increased dividend target for 2022 of 7.12 pence per share that also benefits from improved dividend cover.

We made our first battery storage investment last year, and our UK solar portfolio delivered another year of solid operational performance. Portfolio performance in Australia is expected to improve in the first half of 2022 as specific external factors which negatively impacted operations last year fall away. In Spain, we have made good progress on our subsidy-free solar projects which are expected to become fully operational and to contribute to portfolio generation in the first half of this year.

Sustainability has always been central to everything we do and, following an assessment of our entire portfolio, I am pleased to say that 100% of our assets are fully aligned with the EU Taxonomy's criteria for sustainable activities. Looking forward, we can see a strong pipeline of solar projects and opportunities in the UK and Spain, as well as a burgeoning market for corporate PPAs, while on the battery storage front we are reviewing a stream of greenfield projects being brought to the market. It's an exciting pipeline of opportunities which, along with the ongoing global transition to renewable energy and our proactive hedging strategy, gives us confidence for 2022 and beyond."

Results presentation

Foresight Solar is holding a webcast presentation for analysts at 09:00 today. Analysts wishing to attend should contact foresightsolar@citigatedewerogerson.com. An investor presentation will also be uploaded to the FSFL website.

Dividend Declaration

Foresight Solar is pleased to announce the fourth interim dividend, in respect of the period 1 October 2021 to 31 December 2021, of 1.745 pence per ordinary share (the "Dividend"). The shares will go ex-dividend on 21 April 2022 and the Dividend will be paid on 27 May 2022 to shareholders on the register as at the close of business on 22 April 2022.

Foresight Solar confirms that this final interim for 2021 achieves its dividend target of 6.98 pence per ordinary share for the 2021 financial year.

Full details of the scrip dividend alternative that is being offered in respect of the Dividend (the "Scrip Offer") and the Scrip Dividend Scheme can be found in the Scrip Dividend Alternative Offer Document (the "Scrip Document") available on the Company's website at https://fsfl.foresightgroup.eu/investor-relations/dividend-history/.

The Scrip Document is also available on the National Storage Mechanism website at https://data.fca.org.uk/#/nsm/nationalstoragemechanism and copies are also available for inspection at JTC House, 28 Esplanade, St. Helier, Jersey JE2 3QA. The reference price of the new shares issued under the Scrip Offer will be calculated and published on or around 28 April 2022.

Shareholders will receive the Dividend in cash, unless they have previously completed a standing election (a "Form of Election") to receive new shares pursuant to the Scrip Offer. Shareholders who would like to receive such new shares rather than cash, and who have not previously submitted a Form of Election, should complete the Form of Election at the back of the Scrip Document and return it to the Company's Receiving Agent, Computershare Investors Service (Jersey) Limited by no later than 5.00pm on 10 May 2022.

The expected timetable in relation to the Dividend will be as follows:

For further information, please contact:

Foresight Group 

+44 (0)20 3911 2318

Nish Sivarajan

InstitutionalIR@ForesightGroup.eu

Jefferies International Limited

+44 (0)20 7029 8000

Neil Winward

Gaudi Le Roux

Citigate Dewe Rogerson 

+44 (0)20 7638 9571 

Toby Moore

Lucy Eyles

Lucy Gibbs

Notes to Editors

About Foresight Solar Fund Limited

Foresight Solar is a Jersey registered, closed-end investment company investing in a diversified portfolio of ground-based solar PV and battery assets in the UK and internationally.

Foresight Solar Fund Limited is regulated by the Jersey Financial Services Commission.

Since its IPO in October 2013, Foresight Solar has raised more than £634 million through multiple share placings. It is the largest UK-listed dedicated solar energy investment company by solar installed capacity and market capitalisation. The Company targets a progressive dividend policy and has paid all target dividends to date. The target dividend for 2022 is 7.12 pence per share.

Foresight Solar is managed by Foresight Group, a leading independent Global Infrastructure & Private Equity manager, which provides the Company with depth of experience in fund management, deal origination and execution. The Company has a fully independent Board of Directors and is chaired by Alex Ohlsson. The lead Investment Manager for the Company is Ricardo Piñeiro, Co-Head of Infrastructure at Foresight Group.

FORESIGHT SOLAR FUND LIMITED

ANNUAL REPORT AND FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2021

OUR PURPOSE

Foresight Solar Fund Limited is a closed-ended investment company investing in a diversified portfolio of ground-based solar PV and battery storage assets in the UK and internationally.

The Company aims to deliver sustainable investment returns to investors alongside strong environmental, social and governance ("ESG") benefits.

INVESTMENT OBJECTIVES

Deliver a sustainable, progressive quarterly dividend

Develop geographical diversity

Preserve and enhance capital value

HIGHLIGHTS

AS AT 31 DECEMBER 2021

GEOGRAPHIC FOOTPRINT

Our diversified portfolio consists of 59 assets with a total global net peak capacity of 1.043GW.

In 2021, the portfolio has been further diversified with the first battery storage acquisition.

UK

Assets:

51 Assets

Australia

Assets:

4 Assets

Spain

Assets:

4 Assets

CHAIRMAN'S STATEMENT

On behalf of the Board, I am pleased to present the audited Annual Report and Financial Statements for Foresight Solar Fund Limited (the "Company" or the "Fund") for the year ended 31 December 2021.

The Company performed strongly in 2021 benefiting from robust asset availability, rising power prices throughout the period and increased short-term forward power prices. A total Net Asset Value ("NAV") return for the year of 21.4% and earnings per share of 19.7 pence represent excellent financial performance well ahead of base case. Strong cash generation has comfortably allowed payment of the target dividend to Shareholders with 1.21 times dividend cover. The Fund continues to implement its diversification strategy with its first investment in battery storage systems ("BSS") in May 2021. Good progress is being made on the construction of its Spanish portfolio of solar assets.

As pandemic restrictions around the world eased, industrial and commercial activity ramped up, leading to increased demand for electricity. Power prices, already at pre-pandemic high levels at the start of 2021, continued to rise during the fourth quarter resulting in record high wholesale energy prices in the UK and western Europe. This was predominantly driven by the reduced supply of natural gas, coupled with low reserves, higher pent-up demand and low wind levels in northern Europe during the summer months.

The Company remained well protected from downside risk in the electricity markets during the pandemic as it secured a high proportion of its revenues through advanced fixed price agreements. The Company actively seeks to maintain an element of its revenues with exposure to merchant power prices kept 26% of generation unhedged in 2021, a decision which proved beneficial given rising energy prices. The Fund further capitalised on the current power price environment by increasing the level of future fixed rate power price agreements at prices significantly above forecasts. As at 31 December 2021 contracted revenues represented 78% for 2022, compared with 69% for 2023 and 65% for 2024 and the Company has continued to fix forward contracts at attractive rates since then.

Operational performance across the global portfolio was 5.3% below budget for the year, producing approximately 903MWh of clean electricity across the 54 operating assets (2020: 969MWh on generation 8.4% above budget). Lower than forecast total generation was primarily attributable to the Australian assets, whilst strong production and high-power prices in the UK resulted in financial performance significantly above budget for the whole portfolio.

In Spain, good progress has been made on the four subsidy-free solar projects acquired in late 2020 with construction works substantially complete at all sites. The projects are now undergoing the administrative commissioning phase where bottlenecks with the authorities have been observed across the wider market, however, the assets are currently expected to become fully operational and contributing to portfolio generation in the first half of 2022. In the UK, the design and build of the Sandridge battery storage project has commenced with the facility scheduled to become operational by the fourth quarter of the year.

Development of these greenfield assets is an important step forward in the Company's strategy of geographic and revenue diversification. The Company continues to see potential in sourcing investments in both the solar and battery storage markets at attractive risk-adjusted returns.

Key financials

In 2021, the NAV per Ordinary Share increased by 12.9% to 108.2 pence (31 December 2020: 95.8 pence).

In contrast with the previous year, the Company's financial performance in 2021 was positively impacted by strengthening UK wholesale power price forecasts, particularly in the short term, and strong asset availability. This resulted in significant improvement in both consolidated revenue and EBITDA which ended the year 16% and 22% ahead of budget respectively at underlying asset level.

UK power prices hit all-time highs during the fourth quarter of 2021 and near-term upward pressure remains. Revenues in the period were above budget due to the ability to fix prices above existing power curves and elevated merchant power prices. Higher UK power price forecasts also increased forecast revenues, resulting in total power-related updates contributing 5.9 pence per share of NAV uplift for the year. Inflation remained significantly above the Company's assumption of 3% for the year, resulting in an uplift on NAV of 3.6 pence per share. The Company's inflation forecast remains unchanged and accordingly, if high inflation persists during 2022 this can be expected to have a further net positive impact on the Company's NAV during the year ahead.

The Board's decision to decrease the UK discount rate by 50 basis points to 6.00% and reduce the weighted average discount rate for the Australian assets from 8.41% to 7.88% had a positive impact on NAV of 4.0 pence per share. It is the opinion of management that these revisions reflect the current fair market value of the investments.

Operational performance

The Fund's UK solar portfolio delivered another year of strong operational performance with electricity generation 1.0% above base case following good asset availability and strong irradiation in the first half of 2021. The portfolio continues to perform well, with the Asset Manager having developed a well-structured process for sourcing major components and repairing assets to minimise downtime.

The Australian portfolio experienced several challenges during 2021 including lower than budgeted irradiation, curtailment and negative pricing events which impacted assets that are otherwise performing to technical specifications. Operations in Queensland were significantly impacted in the year by prolonged outages for State-level interconnector works, resulting in final generation for the year of 217MWh, 20.7% below budget (2020: 230MWh). Portfolio performance is expected to improve for 2022 as works on the national grid infrastructure are scheduled to complete. On a global basis production was therefore 5.3% below budget.

Portfolio optimisation initiatives by the Asset Manager continued with a focus on string monitoring and the sourcing of spare parts to minimise downtime from repairs. The benchmarking or retendering of multiple operations and maintenance contracts also commenced in the period and will conclude in 2022. This is viewed as an opportunity to improve contractual terms whilst retaining value for money.

Acquisitions

In May 2021, the Company announced its first move into the battery storage market with the acquisition of a 50% equity stake in the 50MW Sandridge lithium-ion BSS project. The project is scheduled to become operational in the fourth quarter of 2022 and will support the diversification of portfolio revenue streams. On 31 December 2021, the Company completed the acquisition of the remaining 51% stakes in the Oakey 1 (30MW) and Longreach (17MW) solar farms in Queensland, Australia. Together these three acquisitions have added a further 49MW of generating capacity to the portfolio.

Dividends

The Company has declared total dividends of 6.98 pence per share for the year, in line with its target. The fourth and final FY2021 dividend of 1.745 pence per share will be paid on 27 May 2022.

Dividend cover for the period on a cash basis was 1.21x, including the impact of the scrip dividend programme and after paying £32.9 million of debt service at asset and Group level. Excluding the benefit of scrip dividends, the equivalent was 1.15x cash cover.

I am pleased to declare a target dividend of 7.12 pence per share for FY2022, an increase of 2.0% compared with 2021. In establishing the 2022 dividend target the Board has sought to balance the near-term benefits of higher forward power prices, inflation, and cash generation with uncertainty over macroeconomic factors and power price forecasts over the long term.

Based on contracted revenues alone, the 2022 target dividend is 1.25x cash covered.

Debt facilities

As at 31 December 2021, the total outstanding debt of the Company and its subsidiaries amounted to £512.0 million (31 December 2020: £472.4 million), with long-term debt representing £388.6 million (December 2020: £391.55 million). Total gearing decreased to 43.7% of Gross Asset Value ("GAV") (please refer to the Alternative Performance Measures ("APMs") (December 2020: 44.8%), following drawdowns of £42.5 million of short-term debt during the year.

Long-term structural gearing represented 33.2% of GAV (2020: 37.1%), well within the 40% long-term debt target set by the Board. The Company's net debt position, considering available cash balances, represented 37.9% of GAV.

The Company's revolving credit facilities ("RCF") totalled £123.4 million at 31 December 2021. On 28 February 2022, the Company announced it had refinanced and replaced the two existing RCFs with a new £150 million RCF. At the date of this report, the RCF totalled £123.4 million, with £26.6 million remaining undrawn.

The Board believes the current level of Company debt to be appropriate to the size and revenue profile of the portfolio.

Listing of Investment Manager

The Company's Investment Manager, Foresight Group LLP, successfully listed on the London Stock Exchange as Foresight Group Holdings Ltd (FSG) on 9 February 2021. The Board welcomes the additional visibility and opportunities that this has given its Investment Manager along with the continued high standard of services it provides to the Company.

Sustainability update

2021 saw the 26th UN Climate Summit (COP26) take place in Glasgow where the need to move away from fossil fuels was, for the first time, enshrined in an internationally upheld climate agreement. Whilst there is almost unanimous agreement that the phasing down of fossil fuels may have had greater ambition, the final deal agreed goes a long way to further strengthen the case for continued mass deployment of renewable generation assets worldwide.

The year also saw increased focus on the protection of human rights in the solar supply chain. The Company has been proactive both in industry engagement, through Solar Energy UK's "Responsible Sourcing Task Group", and in its own due diligence processes, appointing the consultancy ethiXbase to conduct enhanced sustainability and ESG due diligence on the Company's primary counterparties.

Following the Company's decision to attain external validation of representative solar assets against the EU Taxonomy, the Fund is pleased to announce that 100% of its assets are assessed to be fully aligned with the EU Taxonomy's criteria for sustainable activities.

The Company also recognises the importance of assessing climate-related risks that have the potential to materially impact its business. As such, it supports the recommendations and has made a commitment to acting on climate change through the Task Force on Climate-related Financial Disclosures ("TCFD"). The Company has voluntarily made its first disclosures under the framework this year, which are set out in the risk management section of this report.

Finally, after nearly two years of COVID-imposed restrictions, it has been particularly gratifying to resume the programme of educational site visits. The Company's assets played host to more than 250 local schoolchildren across six separate site visits this year, helping to educate them about the benefits of renewable energy as part of the national energy infrastructure and about more localised biodiversity.

The portfolio has grown consistently since the Company's inception in 2013 providing energy suppliers, companies and households with renewable electricity. The electricity generated in 2021 alone equated to enough clean energy to power 311,379 UK homes.

Outlook

The Company is looking forward with confidence to 2022 and beyond.

COP 26 culminated in the Glasgow Climate Pact, a package of commitments designed to build on the Paris Agreement and covering financing, reporting transparency and market mechanisms for affecting change. It required all countries revisit and strengthen the 2030 targets in their own Nationally Determined Contributions ("NDCs") to provide greater confidence in meeting existing pledges.

Ahead of the summit the UK Government revealed its strategy for achieving net zero with its "Build Back Greener" plan, including the commitment to delivering a fully decarbonised power system by 2035. Achieving this will require a significant investment in both solar and battery storage.

Declining construction costs in recent years have improved the economic case for the deployment of subsidy-free solar at scale in the UK. In reality, this would have been achieved far sooner had it not been for the pandemic and the subsequent squeeze on raw materials costs. The Company sees the UK solar market as primed to recommence significant growth and is well-positioned to capitalise on the opportunity with the Investment Manager holding preferential rights on a pipeline of projects in excess of 400MW once they reach "Ready to Build" status.

Alongside this there is a burgeoning market for corporate Power Purchase Agreements ("PPAs") in the UK, highlighted by the strength of the counterparties with "blue-chip" corporates, financial services and public sector entities all seeking clean energy provision. This is a natural and welcome development offering the potential to achieve long-term price fixes for the existing portfolio and new investments.

The battery storage market is witnessing a stream of greenfield projects being brought to the market by developers for 2022 and beyond. The energy storage sector is expected to be one of the primary beneficiaries of the roll-out of intermittent renewable energy generation and the intra-day trading opportunities that result. The Investment Manager also continues to evaluate many solar projects in the Spanish market and internationally.

Given the opportunities available to invest in projects that are accretive to NAV, the Company will actively consider recycling capital from the sale of existing assets where it sees a clear rationale to rebalance the portfolio for long-term resilience and to reinvest proceeds at attractive returns.

The Asset Manager is committed to its approach of continuous improvement of the operational performance of the portfolio with the primary focus on ensuring strong asset availability. The Company is also pursuing several initiatives via the Asset Manager including formal lease extensions, benchmarking of operations and maintenance contracts and the implementation of sustainability KPIs.

The Company continues to prioritise the health and safety of all its stakeholders, and its commitment to sustainable strategies, alongside the strength of its financial and operational performance.

Annual General Meeting

We look forward to meeting Shareholders at the Company's next Annual General Meeting ("AGM") on 15 June 2022 at 9:30am. Details of how Shareholders may participate will be set out in the Notice of Annual General Meeting that will be published in due course.

Alexander Ohlsson

Chairman

9 March 2022

MARKET CONTEXT

Market developments

United Kingdom

In advance of COP26 the UK Government published its strategy for achieving net zero with its "Build Back Greener" strategy, including its commitment to delivering a fully decarbonised power system by 2035. The deployment of renewable energy generation is expected to remain at the core of Government policy to achieve this goal with the continuing retirement of coal and nuclear generation capacity.

It is expected that virtually all new solar deployment in the UK will be developed on a subsidy-free basis. Whilst solar was eligible to tender in the fourth round of the Contracts for Difference ("CfD") subsidy auction in December 2021, the total support available to both solar and onshore wind amounted to only £10 million. The reality is that following years of falling construction prices and ever-increasing investment demand for renewable energy projects, solar development in the UK is no longer reliant on Government support with over 1GW of solar deployed since the renewable obligation mechanism was removed.

In 2021, 730MW of new solar was installed in the UK, of which around 50% was ground-mounted utility scale1. This represents a 34% increase compared to 2020 and the third consecutive year of growth for the market. The fourth quarter saw over 150MW of ground-mounted solar assets installed, which likely reflects a catch up from earlier in the year following a rise in the price of solar modules. Having readjusted, the market appears primed to push ahead in 2022 with the pipeline of UK projects now exceeding 18GW.

1. Source: Solar Power Portal (17 February 2022).

In parallel, the UK battery storage market has been successfully developing without subsidies since the beginning. The Investment Manager has sight of a large pipeline of late-stage development projects coming to the market that present attractive investment opportunities. With significant and increasing deployment of solar and wind projects, intermittency will rise, thereby increasing the need for storage solutions. With significant and increasing deployment of solar and wind projects, intermittency will rise, thereby increasing the need for storage solutions.

Australia

The Australian market is continually adapting as the energy grid transitions away from a centralised system of large coal and gas generation, towards a mixture of smaller scale, widely dispersed wind and solar generators supported by battery storage.

At Federal level, the Energy Security Board ("ESB") released its final advice to State and Federal Ministers on the "Post-2025 Market Design" in the third quarter of 2021. Attention has focused on the proposed introduction of a capacity market to the National Electricity Market ("NEM"), a fundamental shift in NEM's design, albeit still at an early stage. On 1 October 2021, the five-minute settlement rule change made by the Australian Energy Market Commission ("AEMC") in 2017 became operational. This reform aligns operational dispatch and financial settlement to five minutes and is expected to reward technologies that can more quickly respond to changes in supply and demand such as battery storage assets.

At State level, the Victorian ("VIC") Government tendered for 600MW of renewable energy capacity in 2021 through CfDs to deliver on commitments to source all the Government's energy from renewable sources by 2025, as well as achieving Victoria's renewable energy targets ("VRET") of 35% by 2020, and 40% by 2025. In June 2021 the Queensland Government announced that it would invest A$2 billion (up from a previously announced A$0.5 billion) into renewable energy and hydrogen jobs as part of both its COVID-19 economic recovery plan and its achievement of the State's renewable energy target ("QRET").

In New South Wales ("NSW"), the Government continues to develop their renewable energy zones and incentivise investment across three categories: generation, long duration storage ("LDS") and firming projects. The tenders will support the NSW Government's legislated objectives of 12GW of large-scale renewables and 2GW of LDS by 2030.

Spain

In January 2021 the Spanish Government announced the result of the first "pay-as-you-bid" renewable energy auction since 2017, with a total awarded capacity of approximately 3GW from a total participation pool of 9.7GW of projects. Solar PV projects represented approximately 2GW of the total capacity awarded.

This was closely followed in October 2021 with the results of a second "pay-as-you-bid" renewable auction in which solar PV projects totalling 866MW secured awards with the auction settling on a weighted average price of €31.65/MWh. By comparison, prices in the Spanish wholesale electricity market were running at €200/MWh at the time.

Provisional data from Red Eléctrica de España ("REE") for 2021 shows that 2.1GW of solar PV capacity was installed in the Spanish peninsular during the year, along with 493MW of wind capacity. This represents growth of 19% for solar PV for the year with total capacity installed reaching 13.6GW.

Spain's Integrated National Energy and Climate Plan aims to add 60GW of additional renewable capacity across the country by 2030, of which 39GW is expected to be solar PV. This ambitious plan would require the installation of 2.8GW of solar PV every year for the next nine years.

Power prices

United Kingdom

Wholesale power prices through 2021 have been the strongest since the inception of the Fund, reaching record levels in the fourth quarter and remaining high throughout the period. The N2EX day ahead auction prices averaged £117/MWh through 2021, a 3.3 times rise on the £35/MWh average in 2020. Pricing was strong through the entire period while the second half of the year saw the highest increases, with the index averaging £166/MWh in H2 2021 (4 times increase versus the £42/MWh H2 2020 average).

As reported in the Interim Report, high prices are primarily a function of the commodity market, most notably gas which remains one of the most significant drivers of wholesale power prices. Gas prices in Europe have remained at record high levels, driven by multiple factors including low inventories, tightening supply in Europe, strong demand from Asia and economic activity recovering to pre-COVID-19 levels.

Lower output from domestic sources, especially wind, also contributed to higher pricing as UK gas production through 2021 was impacted by pipeline and field maintenance in addition to companies deferring new projects as a result of the pandemic.

The average power price achieved across the UK portfolio during the period, including fixed price arrangements, was £67.93/MWh, versus £37.05/MWh in 2020, an increase of 83% year-on-year.

As a result of the positive power price environment, the Company has identified the opportunity to increase the percentage of annual contracted revenues by entering new fixed price arrangements for specific portfolio assets for periods up to 2026. The fixed price arrangements were entered into at prices above forecasts for the respective periods. The Company continually monitors forward electricity prices and has continued to enter new fixed price arrangements at attractive prices into 2022.

Australia

Whilst the National Electricity Market ("NEM") was relatively less impacted by a decreased electricity demand during COVID-19 than UK and European markets, the time-weighted average power price across the NEM saw a 20% year-on-year increase to A$57.6/MWh (A$47.8/MWh in 2020).

A particularly strong rebound in the wholesale electricity price was observed during the second quarter of 2021 with the average price of A$84.8/MWh representing the highest quarterly average in almost two years. This also occurred in what is typically a lower-priced quarter for the market. The increase was largely driven by higher operational demand across the NEM, especially in Queensland, resulting from: 1) increased heating requirements due to colder-than-average temperatures; 2) the lifting of COVID-19 restrictions; and 3) power used for increased LNG production in Queensland to meet the increased demand for LNG exports.

This rebound was followed by a drop in the third quarter of 2021 driven by a drop in gas prices combined with lower demand due to milder weather and the re-implementation of COVID-19 restrictions. Additionally, the NEM has seen high levels of negative prices in the second half of the year, principally during peak solar output periods. Incidents of negative pricing have been particularly pronounced in Queensland whilst works on the interconnector with neighbouring New South Wales have been undertaken during the second half of 2021.

Overall, 16% of NEM trading intervals were zero or negative which is a material uplift on the previous record of 7% in the fourth quarter of 2020.

Subsidy revenues

The Renewables Obligation Certificate ("ROC") buy-out price for the 2021-22 annual compliance period increased to £50.80 (2020-21 compliance period: £50.05), reflecting the average monthly percentage change in RPI during 2021. On average, the Company received 1.42 ROC/MWh across the UK portfolio. The 2021-22 Feed-in Tariff ("FiT") rate for the Yardwall asset is £74.30/MWh (2020-21: £73.50/MWh).

In Australia, the average Large-Scale Generation Certificate ("LGC") price secured by the portfolio assets for the full year was A$30.29 per certificate. The sale of LGCs for Bannerton and Oakey 2 that were contracted at a fixed price with Origin Energy until 2030 contributed to providing improved debt terms when Bannerton converted its debt in June 2021.

Power price forecasts

The Investment Manager uses forward-looking power price assumptions to assess the likely future income of the portfolio assets for valuation purposes. The Company's assumptions are formed from a blended average of the forecasts provided by three third-party consultants, adjusted by the Investment Manager for the expected capture price discounts for solar generation as deemed appropriate. For assets with fixed price arrangements in place, the contracted values are used in place of the blended forecast. For assets with subsidy arrangements in place for a period shorter than the assumed useful economic life of the asset, the blended forecast is used for the remaining period.

United Kingdom

When compared against June 2021 forecasts, the long-term average annual power price forecasts used for December 2021 valuations increased by 3.8% across the duration of the curves used to model the Company's projected cash flows. This was largely due to movements in the short term as a result of the current pricing environment mentioned earlier in this report.

The Company's forecasts over the short to medium term assume a decrease in prices in real terms of 9.5% per annum as the current market is expected to revert to historical levels. From 2030 onwards, prices then flatten off with a 0.6% per annum decline forecast as solar capture price discounts are expected to become more prominent.

Where the assumed asset life extends beyond 2050, the Investment Manager has assumed no real growth in forecast power prices.

Australia

The wholesale power price is expected to increase steadily in the 2020s driven by the increase in supply of State-backed renewables and a recovery from low gas prices. Post 2030, stabilisation is expected as coal-fired plants are retired and other flexible and storage technologies are priced up to the marginal cost of the marginal unit of generation.

However, the solar capture price discount to the baseload price is forecast to widen as solar (including rooftop solar) continues to build throughout the forecast period and increases the price cannibalisation.

Revenue analysis

The Company's revenues are generated at solar asset level from the export of electricity into the grid. The revenues predominantly arise from the regulatory support mechanisms available in the markets in which the Company operates and the sale of electricity to third-party offtakers either at fixed or merchant prices.

In 2021, approximately 51% of revenue was derived from subsidies, with the remaining 49% from the sale of electricity. However, given fixed price contracts secured on UK PPAs, 74% of revenues in 2021 were considered contracted, with the remaining 26% considered merchant.

For 2022, 81% of the total expected revenues for the UK portfolio is considered contracted. The equivalent number for the total portfolio is 78%. At the time of writing, the weighted average contracted price (under PPAs) for 2022 stands at £82.11 per MWh.

On an NPV basis as at 31 December 2021, contracted revenues over the entire investment period represented 52% of the total forecasted revenues.

The Company intends to minimise the impact of power price volatility on future cash flows by entering fixed price arrangements for the sale of electricity to achieve a high percentage of annual fixed revenues in the short and medium term. This will be predominantly achieved by actively managing the power price exposure of the UK portfolio on a periodic basis, primarily by fixing electricity sales in summer seasons due to the seasonal production profile of solar assets, to support the Company dividend policy while allowing the Company to capture potential upsides from power price volatility.

FUND STRUCTURE

The Company is a closed-ended company with an indefinite life and was incorporated in Jersey under the Companies (Jersey) Law 1991, as amended on 13 August 2013, with registration number 113721.

The Company's Initial Public Offering on 24 October 2013 raised £150 million, creating the largest solar investment company listed in the UK at the time. Following multiple equity raises since launch, the Company has grown steadily and now owns a portfolio with a Gross Asset Value of £1,172.0 million as at 31 December 2021.

As at 31 December 2021, the Company had 609,958,720 Ordinary Shares in issue which are listed on the premium segment of the Official List and traded on the London Stock Exchange's Main Market.

Operating structure

As an investment company, the Company has no direct employees and outsources all operations to a number of key service providers.

The Company makes its investments through intermediate holding companies and underlying Project Vehicles/Special Purpose Vehicles ("SPVs").

Investment objective

The Company's objective is to provide investors with a sustainable, progressive quarterly dividend and enhanced capital value, through investment in ground-based solar and BSS predominantly located in the UK.

Investment policy

The Company pursues its investment objective by acquiring ground-based, operational solar power plants. The Company is also permitted to invest in utility scale battery storage systems up to a limit of 10% of the GAV of the Company, calculated at the time of investment.

Investments in assets which are, when acquired, still under construction will be limited to 25% of the GAV of the Company and subsidiaries, calculated at the time of investment.

Investments outside the UK will be limited to 25% of the GAV of the Company and subsidiaries, calculated at the time of investment.

Investment strategy

The Company's continuing aim is to build a diversified portfolio of assets by acquiring majority or minority stakes in individual ground-based solar assets and BSS.

When investing in a stake of less than 100% in a solar power plant or BSS SPV, the Company will secure its shareholder rights through shareholders' agreements and other legal transaction documents.

PPAs will be entered into between each of the individual solar power plant SPVs in the portfolio and creditworthy offtakers. Under the PPAs, the SPVs will sell solar-generated electricity and/or green benefits to the designated offtaker. The Company may retain exposure to power prices through PPAs that do not include mechanisms such as fixed prices or price floors.

Investment may be made in equity, debt or intermediate instruments but not in instruments traded on any investment exchange.

The Company is permitted to invest cash held for working capital purposes and awaiting investment in cash deposits, gilts and money market funds.

Investment restrictions

In order to spread risk and diversify its portfolio, at the time of investment no single asset shall exceed 30% of the Company's GAV post-acquisition. If the investment is an additional stake in an existing investment, the combined value of both the existing stake and the additional stake acquired should also not exceed 30%.

The GAV of the Company will be calculated based on the last published gross investment valuation of the Company's portfolio, including cash, plus acquisitions made since the date of such valuation at their cost of acquisition. The Company's portfolio will provide diversified exposure through the inclusion of not less than five individual solar power plants and the Company will also seek to diversify risk by ensuring that a significant proportion of its expected income stream is derived from regulatory support (which will consist of, for example, without limitation, ROCs and FiTs for UK assets). Diversification will also be achieved by the Company using a number of different third-party providers such as developers, engineering, procurement and construction ("EPC") contractors, operations and maintenance ("O&M") contractors, panel manufacturers, landlords and distribution network operators.

The Articles provide that gearing, calculated as Group borrowing (including any asset-level gearing) as a percentage of the Company's GAV, will not exceed 50% at the time of drawdown.

It is the Board's current intention that long-term gearing (including long-term, asset-level gearing), calculated as Group borrowings (excluding intra-group borrowings (i.e. borrowing between members of the Group) and revolving credit facilities) as a percentage of the Company's GAV will not exceed 40% at the time of drawdown.

Investments in BSS will be limited to 10% of the GAV of the Company and subsidiaries, calculated at the time of investment.

Any material change to the investment policy will require the prior approval of Shareholders by way of an ordinary resolution (for so long as the Ordinary Shares are listed on the Official List) in accordance with the Listing Rules.

Alternative Investment Fund Management Directive ("AIFMD")

The AIFMD, which was implemented across the EU on 22 July 2013, aims to harmonise the regulation of Alternative Investment Fund Managers ("AIFMs") and imposes obligations on managers who manage or distribute Alternative Investment Funds ("AIFs") in the EU or who market shares in such funds to EU investors. Under the AIFMD, the Company is self-managed and acts as its own Alternative Investment Fund Manager.

The Company is located outside the European Economic Area ("EEA") but the Company's marketing activities in the UK are subject to regulation under the AIFMD and the National Private Placement Regime.

PORTFOLIO ANALYSIS

2021 global portfolio revenue split

Global portfolio revenue split - NPV basis

Countries by 2021 production

O&M contractors by capacity

Countries by installed capacity

Installed capacity by revenue type

Inverters by capacity

Solar panel suppliers by capacity

INVESTMENT PORTFOLIO

Current portfolio

1. Original equity cost at time of acquisition, including transaction costs. For assets under construction, this includes estimated construction costs to start of operations. International acquisition costs converted to GBP including transaction costs at the applicable rate at the time of acquisition.

2. Includes the 2MW extension acquired in March 2015.

3. Accounts for the 48.5% stake the Company holds of Bannerton (110MW).

Portfolio summary

As at 31 December 2021, the Company's portfolio comprised 59 assets with a total net peak capacity of 1.043GW, of which 150MW remains under construction. In the UK, the Company has an operational portfolio of 51 assets representing a total installed capacity of 748MW, including the battery storage project. The Company owns a further four operational assets in Australia which account for 170MW of installed capacity.

Two acquisitions in 2020, comprising an additional four subsidy-free assets in Spain, will add 125MW upon completion of construction.

The Company's UK assets all benefit from regulatory support and are accredited under the Renewables Obligation ("RO") scheme, with the exception of Yardwall which is a Feed-in Tariff ("FiT") scheme accredited asset (representing less than 1% of the UK portfolio). The Australian assets benefit from subsidies in the form of Large-Scale Generation Certificates ("LGCs").

The Company's greenfield Spanish projects do not benefit from regulatory support; however, the investment assumption was that these projects would bid into the long-term Power Purchase Agreement ("PPA") market to provide a high proportion of contracted revenues. In December 2021, the Company entered into a ten-year PPA for the electricity to be generated from the 98.5MW solar Lorca portfolio in Granada, Spain.

Acquisitions

Sandridge

In May, the Company announced the acquisition of a 50% equity stake in Sandridge Battery Storage Limited, a 50MW lithium-ion BSS located in the UK, its first acquisition in the sector and one which will provide portfolio diversification and operating efficiencies. The asset is adjacent to the Sandridge solar park owned by the Company and is expected to become operational in the fourth quarter of 2022.

The acquisition will represent a total investment of up to £12.7 million, including the anticipated construction costs, and will be funded using the Company's existing revolving credit facilities ("RCF").

The project is expected to begin construction in the first quarter of 2022.

Longreach and Oakey 1 solar farms

In December, the Company acquired the remaining 51% interests in the Oakey 1 (30MW) and Longreach (17MW) solar farms in Queensland, Australia for a consideration of A$14.5 million. Both assets are fully operational and complete ownership provides the Company with full management control over future optimisation initiatives.

The assets currently have senior debt facilities in place from the Bank of Tokyo-Mitsubishi, Ltd ("MUFG") and the Clean Energy Finance Corporation ("CEFC"). The senior debt facilities expire in April 2022 and are expected to be refinanced during the first quarter of 2022.

Both Longreach and Oakey 1 benefit from Power PPAs for the sale of electricity and LGCs with the Queensland Government. These are under a contract-for-difference structure for a period of 20 years from the date of commissioning, delivering highly contracted revenues and operational cash flows.

INVESTMENT MANAGER'S REPORT

Investment Manager's outlook

The operational portfolio has demonstrated its resilience to the worst economic shocks of the COVID-19 pandemic. More generally, the wider renewable generation sector has held up well during the uncertainties of the last two years, adding further support to the already significant demand for the asset class.

The economic case for subsidy-free solar in the UK has strengthened, encouraging developers to bring forward a significant pipeline of projects. There is currently over 18GW of solar sites in planning, with a large volume at "ready to build" stage, due to come to the market in 2022. A significant proportion of this volume represents an overhang resulting from the pandemic. This is a result of falling power prices and an increase in solar panel prices for the first time in many years, due to supply chain imbalances, which caused many projects to be placed on pause.

Decisions on development have been supported by the recovery in electricity prices across the UK, Europe and much of the developed world, from the lows caused by the COVID-19 pandemic during 2021. Many countries are now grappling with the onset of record high energy prices that have predominantly been driven by supply imbalances in the natural gas market, which itself acts at the "price-setter" for wholesale energy prices in most markets. While prices have pulled back from the peak seen in late 2021, most factors that influence the price of natural gas point to upward pressure on the market remaining over the near term. One outcome is the observed growth in the market for corporate PPAs, especially in the UK where businesses are keen to lock-in fixed pricing with clean energy providers.

In Spain, the Company has made good progress in the construction of the four subsidy-free assets it acquired in late 2020 with each of the sites reaching substantial completion during the fourth quarter of 2021. The projects are now undergoing commissioning with the Spanish authorities, where there is a backlog of applications affecting the entire industry due to high demand. This has the potential to cause a regulatory delay that would push back final completion, however, the current expectation is that all projects will be connected during H1 2022.

The Investment Manager continues to monitor the Spanish market for further attractive subsidy-free assets.

In Australia, the Company is in the process of restructuring the capital structure of the operating assets and will then review opportunities to add further resilience to the portfolio.

In battery storage, the market has also witnessed the impact of supply chain pressures with lithium prices more than tripling during 2021, alongside cost increases for shipping and other raw materials. This has inevitably led to the delay of projects as the market adjusts to the new pricing points. The UK battery storage market is well placed to forge ahead in 2022 with a significant number of standalone and co-location projects being developed. Australia remains an attractive market for battery projects and the Spanish Government has approved an energy storage strategy targeting 20GW of storage capacity by 2030.

The Asset Manager continues to focus on improving and maintaining high operational availability and strong performance. Alongside this it will also focus on delivering value enhancement and protection initiatives including lease extensions, contract re-tenders and other operational efficiencies.

Management's approach will continue to be sustainability driven and aims to deliver best-in-class initiatives with the co-operation of local communities and counterparties.

Key investment metrics

Movements in Net Asset Value

The Company's NAV per share increased from 95.8 pence to 108.2 pence during the year. A breakdown in the movement of the NAV is shown in the table below.

Valuation methodology

The Investment Manager is responsible for providing fair market valuations of the Company's underlying assets to the Board of Directors. The Directors review and approve these valuations following appropriate examination and challenge. Valuations are undertaken quarterly. A broad range of assumptions is used in the valuation models. These assumptions are based on long-term forecasts and generally are not materially affected by short-term fluctuations, economic or portfolio technical performance. Significant change to long-term forecasts typically have a greater impact.

It is the policy of the Investment Manager to value with reference to discounted cash flows ("DCF") from the date of acquisition. Assets under construction are valued at cost until the date of commissioning and start of operations. Revenues accrued during construction or the commissioning process do not form part of the DCF calculation in making a fair valuation.

The current portfolio consists of non-market traded investments and valuations are based on a DCF methodology or held at cost where the assets have not yet reached commissioning.

This methodology adheres to both IAS 39 and IFRS 13 accounting standards as well as the International Private Equity and Venture Capital ("IPEV") Valuation Guidelines.

The Company's Directors review and challenge the operating and financial assumptions, including the discount rates, used in the valuation of the Company's portfolio before approval, based on the recommendation of the Investment Manager.

Discount rates for valuation

During the period, the Investment Manager undertook a review of the discount rates applied to the valuation of the portfolio as a result of the valuation information received from participating in multiple tender processes to acquire UK operational assets. As a result of this analysis, discount rates for the UK portfolio have been reduced by 0.50% from 6.50% to 6.00% on a levered basis in order to bring valuations in line with the expected market pricing for operational assets. In terms of assessing the climate change risk, the Investment Manager benchmarks the discount rate against a similar asset base to ensure the underlying climate risk exposure is factored into the analysis.

The discount rate used for UK asset cash flows which have received lease extensions beyond the initial investment period of 25 years is 7.00% for subsequent years, reflecting the merchant risk of the expected cash flows beyond the initial 25-year period.

For the Australian portfolio, assets are valued using a discount rate which is dependent on the level of contracted revenues in place. Following a review of comparable transactions, the weighted average discount rate across the Australian portfolio was reduced from 8.14% to 7.88% on a levered basis.

The Spanish portfolio of assets, currently in construction, will be valued on a discounted cash flow basis once they are fully commissioned. The Investment Manager has good visibility on the discount rates used to value comparable operational assets in the Spanish market via its Madrid office.

The weighted average levered discount rate across the portfolio is now 6.26% compared to 6.74% as at 31 December 2020.

Other assets under construction, such as the Sandridge battery project, are valued at cost and will continue to be held at cost until the assets are connected to the grid and fully operational, at which point they will be valued on a DCF basis.

Non-UK assets valuations are updated quarterly to reflect movements related to exchange rates.

Asset life

The expected weighted average life of the UK portfolio as at 31 December 2021 is 30.6 years (31 December 2020: 30.6 years) from the date of commissioning. This represents a remaining portfolio useful life of 23.8 years when the historical operational periods are taken into consideration.

The average useful economic life across 40 of the 50 operational UK assets goes beyond 25 years, averaging 32.0 years from the date of commissioning. Conservative operational and lifecycle costs are incorporated into the extended useful life period. The useful economic life for assets located in Australia increased to 40 years within land restrictions, which compares to the 30-year assumption at the date of acquisition.

Dividends paid

The Company paid dividends of £40.0 million during the year to 31 December 2021.

Fund costs

Total costs of £10.5 million, which predominantly include management fees, financing costs and corporation tax incurred by the Company and its subsidiaries on a consolidated basis during the year.

Other adjustments

Exceptional movements in the year include the net release of £6.8 million from compensation accounts under the existing debt facilities for historical rectification works.

Foreign exchange movements

Fluctuations in the exchange rate over the period impacted the GBP valuation of the Australian assets.

Time value

A value uplift resulting from moving the valuation date forward and therefore bringing future cash flows closer to the present date (and therefore discounting them less).

Project actuals

Cash generation from UK projects exceeded modelled forecasts by £6.6 million in the year due to base case outperformance, which is predominantly a function of the high power prices achieved across the portfolio.

Power price forecasts

The Company uses forward-looking power price assumptions to assess the likely future income of the portfolio assets for valuation purposes. The Company's assumptions are based upon a blended average of the forecasts provided by third-party consultants which are updated on a quarterly basis. The valuation change during the period includes the impact of both the UK and Australian price forecasts.

Inflation forecasts

This update reflects actual inflation for 2021 which has been in excess of the 3% forecast used in the valuation modelling. The forecast for inflation remains unchanged (3% from 2022-2030, dropping to 2.25% thereafter to reflect the convergence of RPI to CPIH).

Corporation tax

The corporation tax forecasts now assumes 25% from April 2023 and for the duration of the asset lives.

Other

The Company has adjusted the generation forecast at a selection of assets which have displayed consistent overperformance above budget. The Company has also recognised operating running cost reductions where deemed appropriate. The £4.0 million value generated from the successful refinancing of the Australian asset Bannerton is also included within this step.

Valuation sensitivities

Where possible, assumptions are based on observable market and technical data. In many cases, such as forward power prices, independent advisors are used to provide evidenced information, enabling the Investment Manager to adopt a prudent approach. The Investment Manager has set out the inputs which it has ascertained would have a material effect upon the NAV in note 16 of the Financial Statements. All sensitivities are calculated independently of each other.

OPERATIONAL REVIEW

UK portfolio performance

The UK portfolio continued to outperform expectations during the period with electricity generation above base case by 1.0%, when adjusted for financial compensation received, reflecting annual irradiation 0.6% above base case. The overperformance has also been driven by the prompt resolution of several material incidents across the portfolio leading to high levels of asset availability. An increase in unexpected DNO outages was seen over the summer months which led to some underperformance at a small number of assets.

The impact on the operation of the portfolio due to the COVID-19 pandemic remained negligible. Corrective maintenance required to resolve faults was unaffected, as asset operators were still able to act quickly and safely when issues arose during the period. Where it was not possible to complete preventative maintenance at the required time, operators were still able to complete all required preventative maintenance across the portfolio within the timelines of the contractual framework.

Health and safety

During 2021, the provision of health and safety services to the SPVs has been enhanced by the implementation of third-party reviews via independent consultancy services that offers an additional level of support to the project.

Competency assessments were performed on the portfolio O&M contractors to ensure their health and safety management systems adhered to good practice and a programme of site audits was completed across every site in the portfolio.

The Asset Manager continues to monitor health and safety incidents and uses the feedback from these events to raise awareness and drive improvement of key health and safety risks.

Ofgem audits

In previous years, Ofgem continue to carry out RO accreditation audits across the portfolio. To date, several audits have been fully closed with no further action and a limited number remain open awaiting feedback from Ofgem.

Optimisation

During the period, technical optimisation of the assets continued with a greater focus on areas such as string monitoring and repair times to enhance performance. Key spare parts have continued to be reviewed and purchases made accordingly to further improve the availability given the success of this strategy to date.

At a commercial level there has been a review of lease extensions and multiple discussions are being held with landlords across the portfolio to determine where these may be extended. This approach will continue in 2022 with the aim of realising the value of these extensions in the valuation of the assets.

Post Final Acceptance Certificate ("FAC") remedial works at Shotwick identified during the FAC process are well advanced, with completion targeted for the end of the second quarter of 2022. Further optimisation under review at the site includes the real-time monitoring of the main 132kV transformer at the site, anticipated to be completed in the first quarter of 2022.

Previous initiatives such as critical spare parts have continued to contribute to the stable performance of the portfolio during the year and will continue to be evaluated. With this experience, the Asset Manager can feed this practical knowledge back into new projects being developed and constructed, including construction management, site design, key component quality control, warranty terms improvement and key contractual terms for both EPC and O&M contracts.

Australian portfolio update

During 2021, the Queensland assets (Oakey 1, Oakey 2 and Longreach) experienced significant levels of generation reduction due to negative prices in the central hours of the day. Incidents of negative pricing have increased due to the Queensland-New South Wales interconnector outages, resulting from specific upgrade activities by the transmission network service provider. Whilst the interconnector is down, there is no opportunity for Queensland producers to sell electricity to its neighbouring state and thus oversupply has been common at peak production times.

The interconnector works are paused for the peak summer months (October-March), which saw the frequency of negative pricing significantly reduced. Works on the interconnector are expected to recommence and conclude in the second quarter of 2022.

Bannerton's performance has been affected by network outages, network constraints and irradiation levels below budget in the second half of the year. The Asset Manager has also been working with the tracker manufacturer to implement a new tracker algorithm, to increase energy yield in diffused light conditions and early/late winter sun hours, which is expected to be implemented in the first half of 2022.

Spanish portfolio update

Virgin del Carmen (under construction)

The construction of the asset was substantially completed in the fourth quarter of 2021 and the project has now entered the administrative process for grid connection, allowing first electricity export, which is expected before the end of the second quarter of 2022.

It should be noted, however, that due to the significant level of projects reaching completion in Spain, there is currently a backlog of grid applications awaiting approval by the authorities. This has the potential to impact the wider market and, whilst it is believed the Company's portfolio of assets is already sufficiently well advanced, the construction management team is constantly monitoring progress.

Lorca portfolio (under construction)

Construction of the three assets is progressing well and is expected to be finalised in February 2022. The portfolio remains on track to be grid connected and exporting electricity by June 2022.

The portfolio entered into a ten-year fixed price Power Purchase Agreement ("PPA") with Statkraft, Europe's largest producer of renewable energy, which develops, builds and operates solar, hydro, wind and gas assets. The PPA provides the portfolio with a long-term hedge for c.70% of its annual production and increases the Company's revenue visibility.

Following the execution of the PPA, the Company is in discussions to secure a senior project finance facility for the Lorca portfolio.

Electricity generation

The generation figures below have been adjusted, where relevant, for events where compensation has been, or will be, received.

UK

Australia

Overall portfolio

1. Please note this is based on the percentage holding prior to 31 December 2021, when the remaining acquisition of Oakey 1 and Longreach took place.

CASE STUDY

ASSETS UNDER CONSTRUCTION

PROJECT LORCA

Investment overview

Rationale

Project Lorca comprises a portfolio of three solar projects located in the province of Granada, Spain, with a total planned installed capacity of 98.5MW. The project provides:

Background

The Company acquired Project Lorca in December 2020, which provides an attractive addition to the Spanish portfolio following the acquisition of Virgen del Carmen in September 2020. The sites are located in the municipalities of Ventas de Huelma and Escúzar, in the southern province of Granada. The location offers excellent conditions for the installation of a photovoltaic ("PV") solar plant as the south of the Iberian Peninsula has some of the highest irradiation levels in continental Europe.

The three projects share the same connection point to the national grid with a target connection date set for June 2022. Construction of all three sites was substantially completed in the fourth quarter of 2021 with final commissioning works due to finish in the first quarter of 2022. The project has made a positive contribution to the local economy during the construction phase as well, via the use of the local workforce and suppliers.

The acquisition represents a fully sustainable investment as the project meets the environmentally sustainable criteria by contributing towards renewable electricity generation and therefore the reduction of CO2 emissions. The development of the Spanish portfolio has increased the international diversification and enhanced the Company's growth prospects and will support the progressive dividend policy.

The Spanish electricity market is one of Europe's most active markets for the development of new renewable projects. This is the consequence of the global fall in PV costs combined with strong primary resources (both irradiation and wind speed) and the availability of land. PPA agreements have experienced huge growth in Iberia, which is now one of the most active long-term PPA markets for renewable assets in Europe.

As a result, the project will benefit from a ten-year fixed price PPA with Statkraft which, as Europe's largest producer of renewable energy, is developing, building and operating solar, hydro, wind and gas assets. The PPA provides the portfolio with a ten-year fixed price for c.70% of its annual production, increasing the Company's revenue visibility.

SUSTAINABILITY AND ESG

Approach

Sustainability and Environmental, Social and Governance ("ESG") considerations are firmly at the centre of the Company's strategy, helping to inform its investment process and its asset management operations.

2021 marked a year of significant development in terms of how the Company embeds sustainability and ESG considerations in the way it does business to achieve sustainable growth, recognising that such factors are also of increasing importance to global investors.

The nature of the Company's business means it is well positioned to serve the needs of those investors seeking to achieve positive environmental and social outcomes alongside attractive financial returns.

Sustainable development contribution

How do the assets contribute to global sustainability?

How can this be tracked against the UN's SDGs?

Environmental footprint

Do the assets follow good practice for limiting or mitigating their environmental impact, in the context of its industry?

How do they encourage the responsible use of the world's resources?

Social welfare

What impact do the assets have on their stakeholders and society as a whole?

Are they taking steps to improve the lives of others, either directly, such as through job creation, or indirectly?

Governance

Do the assets and their leadership team demonstrate integrity?

Are the correct policies and structures in place to ensure they meet legislative and regulatory requirements?

Third-party interactions

Is the principle of corporate responsibility evidenced in the assets' supply chain?

How do the assets promote ESG values and share best practice?

2021 highlights

EU Taxonomy asset accreditation

The EU Taxonomy is a classification system that stipulates a list of environmentally sustainable economic activities as a means of enabling the scale up of sustainable investment to help implement the European Green Deal. It intends to create security for investors and protect them from greenwashing, while helping to move capital to where it is most needed.

In 2020 the Company took the landmark step of seeking independent validation of its compliance with the EU Taxonomy for Sustainable Finance framework. The Company submitted two of its assets for validation with leading environmental consultant Aardvark Consulting Ltd, both of which were declared compliant with the Taxonomy in December 2020. This approach has continued for new assets, with the Virgen del Carmen project achieving validation in May 2021, and work is underway to assess and validate both Project Lorca and the Sandridge Battery Storage System.

Additionally, the Company has now undertaken an internal assessment of the entire portfolio's level of alignment. Based on this assessment, the Company is pleased to report that 100% of its assets are assessed to be fully aligned to the EU Taxonomy's criteria for sustainable activities, further consolidating FSFL's sustainability credentials. Details of the EU Taxonomy for Sustainable Activities are available on the European Commission website: https://ec.europa.eu/info/business-economy-euro/banking-and-finance/sustainable-finance/eu-taxonomy-sustainable-activities_en

Reducing risk of forced labour and modern slavery within the solar supply chain

When acquiring a project, Foresight Group instructs third parties to carry out technical due diligence checks on the module manufacturer from which the EPC is sourcing products. For greenfield projects these typically include obtaining documentation around health and safety, remuneration, training, working conditions and environmental issues relating to the module manufacturing facilities. To date, checks have not been carried out on companies further down the supply chain, such as those that produce solar cells, wafers or polysilicon. Wafer manufacturers usually blend polysilicon from different suppliers, which means that a solar cell can contain polysilicon from various sources. Panel manufacturers sometimes also source solar cells from various suppliers.

It is widely recognised that the supply chain that supports the manufacture of solar panels is complex and that it is particularly difficult to have full visibility over the procurement of every material used in panel production. To promote greater transparency, Foresight Group signed a statement issued by the trade association, Solar Energy UK, on 12 April 2021. This statement condemns any human rights abuses taking place anywhere in the global energy supply chain and calls for the development of a supply chain transparency protocol.

Signed by many of the UK's leaders in solar energy, the aim is to raise the profile of this issue and encourage greater transparency throughout the broader supply chain. Furthermore, during the second half of 2021, the Investment Manager worked with a consultant to develop its own Modern Slavery Statement which was published in September 2021.This has been shared with our key counterparties and is publicly available on the Foresight Group website.

As members of Solar Energy UK's "Responsible Sourcing Task Group" the Investment Manager has now appointed ethiXbase, an organisation that provides a range of due diligence services covering key ESG areas including anti-corruption, human rights, labour and environment. ethiXbase will be conducting enhanced ESG due diligence across three key counterparty categories:

In addition to this, ethiXbase have developed a Modern Slavery Questionnaire in collaboration with global law firm Norton Rose Fulbright, which requests information directly around modern slavery policies, practices and responsible procurement processes. This questionnaire is sent to all suppliers that fall within the above three categories, helping to identify risk areas and suppliers that may require further support or work to ensure their processes are more robust.

Where risks or poor performance are identified through this due diligence process, direct engagement with the supplier will take place to request further clarity to enable an informed decision as to whether the issue can be rectified, and the working relationship can continue.

Sustainability Key Performance Indicators ("KPIs")

During the second half of 2021 the Company can confirm the establishment of a number of sustainability and ESG-related KPIs. The KPIs will help inform strategic and operational decision-making to support the Company in continually improving its sustainability and ESG performance. In 2022, the Investment Manager will look to set sustainability objectives and targets based on the data collected.

Key themes:

Contribution to Sustainable Development Goals

Demonstrating Foresight Group's commitment to sustainability is the Company's ability to report against the United Nations Sustainable Development Goals ("SDGs"). The SDGs, which were adopted by all United Nations member states in 2015, comprise the most urgent economic, social and environmental issues to be addressed for peace and prosperity for people and the planet.

To be achieved by 2030, they recognise that ending poverty must go hand-in-hand with strategies that build economic growth and address a range of social needs including education, health, social protection and job opportunities, while tackling climate change and environmental protection. The following table represents the Company's contribution to the SDGs for 2021:

Sustainability and ESG priorities and progress in 2021

As has been stated in previous Annual Reports, Foresight's Sustainability Evaluation Tool ("SET") is used as a means of assessing an asset's sustainability credentials. Over the course of 2021, the scoring methodology was updated using more quantitative data, making the assessment less subjective. The five SET criteria are:

The Company's adherence, and contribution, to these themes is assessed as follows.

1. Sustainable Development Contribution

This theme supports reporting on the development of affordable and clean energy, improved resource and energy efficiency and contributions to the fight against climate change.

In 2021, the Company's operational portfolio produced over 903GWh of renewable energy. Furthermore, using Ofgem's assessment that the average UK household consumes 2.9MWh per year, it can be inferred that the Company's portfolio generated enough clean electricity to power c.311,379 UK homes during the period.

2. Environmental Footprint

Each asset is closely monitored for its localised environmental impact. As such, this criterion assesses potential environmental impacts such as emissions to air, land and water, effects on biodiversity and noise and light pollution. The Asset Manager ensures that solar power plants are managed in a manner that maximises the agricultural, landscape, biodiversity and wildlife potential, which can also contribute to lowering maintenance costs and enhancing security.

The Asset Manager has continued to pursue a number of initiatives to ensure the solar power plants are being effectively managed for agriculture, landscape and biodiversity. Such schemes include:

3. Social Welfare

During the acquisition process, and throughout an asset's lifecycle, the Company engages with contractors, local residents, community organisations, landowners and local authorities to promote public support for the project, maximise the local benefit and minimise any actual or perceived negative effects. This has been achieved through a number of initiatives:

4. Governance

The Asset Manager actively reviews the regulatory and property consents of every solar asset to ensure compliance with the permissions and conditions attached to each site and actively engages with local government organisations to ensure ongoing compliance. In addition to ensuring the Company is protected from potential legal issues, this promotes trust with the sites' local communities.

In February 2021, all of the Company's UK assets adopted a suite of sustainability and ESG-focused policies. These policies included:

These policies were reviewed and approved by the Board of each SPV and will continue to be adopted on an annual basis. Additionally, a General Data Protection Regulation ("GDPR") policy is currently being developed and will be reviewed for adoption by the Board of each SPV at the Board meeting in February 2022.

Compliance

Integral to the maintenance of the Company's reputation is its regulatory compliance and adherence to relevant laws. The Company is committed to carrying out business fairly, honestly and in compliance with laws and regulations and the Investment Manager has established policies and procedures to prevent bribery within its organisation. The Company is also committed to a policy to conduct all its business in an honest and ethical manner, taking a zero-tolerance approach to facilitation of tax evasion, whether under Jersey law, UK law or under the law of any foreign country.

As a means of ensuring that sustainability considerations are at the forefront of the investment process, the Investment Manager delivers "Best Practice" sessions to its staff. These sessions focus on how the sustainability performance of a given asset can be assessed, measured and improved, while also demonstrating how good ESG management can result in financial benefits. Foresight Group's staff are taken on induction tours of the assets and educated on how the sites are managed for biodiversity and habitat gain, as well as the processes undertaken to ensure the sites are in compliance with environmental and planning laws.

More details of the Company's approach to governance are contained in the Corporate Governance Report.

5. Third-Party Interactions

Counterparty due diligence forms an essential part of ensuring that key counterparties are reputable, experienced, competent and that they have robust and sustainable supply chains and have an approach to governance, compliance and ESG aligned with the Company, which must be evidenced by appropriate policies.

Two initiatives are being undertaken by the Company to further enhance these processes, with a view to improving overall asset performance and protecting the Company against reputational risk.

STAKEHOLDERS

The Board seeks to encourage a culture that promotes integrity and openness, values diversity and is responsive to the views of shareholders and wider stakeholders.

Stakeholder engagement

Directors are required to act in good faith at all times and to act in a way that promotes the long-term success of the Company for the benefits of stakeholders as a whole. While the Company is an investment company with no employees, the Company has identified its key stakeholders. A description of these key stakeholders, their interests and how the Board has taken these interests into account when making decisions is set out below.

Shareholders

Shareholders are the Company's primary stakeholders and all key decisions are carefully considered by the Board with their long-term interests in mind. The Company, supported by its Investment Manager, communicates with its Shareholders through a variety of means and welcomes their views at all times. This includes the publication of comprehensive Annual and Interim Reports, market announcements, investor factsheets, and through the Company's dedicated website.

All Shareholders are normally invited to the Annual General Meeting where they have the opportunity to ask questions of the Directors, including the Chairman, as well as the chairmen of the Audit and Risk, Remuneration, Nomination and Management Engagement Committees. However, during this year and given the social distancing measures and latest Government guidance, Shareholders were encouraged not to attend the AGM in person in order to ensure the health, well-being and safety of the Company's Shareholders and Officers.

Shareholders were, however, invited to submit questions to the Company, its Directors and the Investment Manager in advance of the AGM, in order to maximise this opportunity for engagement around the AGM.

The Board also makes itself available to meet with key Shareholders at their request and welcomes this engagement with Shareholders.

During the year, the Chair and Senior Independent Director met with a major Shareholder to discuss the Company's strategy and its growth ambitions. The Chair reinforced the Company's intention to continue to pursue growth opportunities that would support the Company's financial return and dividend cover requirements. The Investment Manager undertakes Shareholder roadshows following the publication of Annual and Interim results, giving Shareholders the opportunity to meet key members of the team responsible for portfolio management. The Investment Manager also makes itself available to meet Shareholders and analysts throughout the year as required.

During the year, the Investment Manager and the Company's broker held a number of direct engagement sessions with major Shareholders. The main topics covered during these sessions were the Company's move into battery storage as a complementary investment strategy, performance of the Company's international portfolio, and the anticipated impact of increases to corporation tax. Consistent with previous years, Shareholders were also interested in understanding the Company's view on power prices, the Company's growth ambitions in the UK and internationally, dividend growth and dividend cover.

In addition, the Investment Manager and the Company's broker report to the Board on at least a quarterly basis and provide the Board with an overview of feedback and recommendations on how to address any issues raised.

Investment Manager

The Company, supported by its Management Engagement Committee, conducts an annual review of the Investment Manager's performance and the terms of engagement of the Investment Manager. This review is focused on constructive engagement with the Investment Manager in order to ensure that the expectations of the Shareholders are being met and that the Board is cognisant of challenges being faced by the Investment Manager.

The Board and the Investment Manager maintain an ongoing and open dialogue on key issues facing the Company with a view to ensuring that recommendations by the Investment Manager and key decisions taken by the Board are aligned with achieving long-term Shareholder value.

Communities

The Company remains committed to proactively engaging with the communities within which it operates.

Business partners and key service providers

The Company, supported by its Management Engagement Committee, reviews all key service providers and the terms of their engagement. During the year, the Company enhanced its review process by proactively seeking positive feedback from its key service providers.

This process allows for two-way engagement between the Board and key service providers on service delivery expectations and feedback on important issues experienced by service providers during the year. The intention of the Company is to maintain and develop high standards of business conduct across all key service providers.

Summary of key stakeholders

RISK AND RISK MANAGEMENT

The Company is exposed to multiple risks that have the potential to materially affect the Company's valuation, reputation and financial or operational performance. The nature and levels of risk are identified according to the Company's investment objectives and existing policies, with the levels of risk tolerance ultimately defined by the Board.

The Investment Manager and the Administrator have a comprehensive Risk Management Framework in place which is reviewed on a regular basis by the Company's Audit and Risk Committee and then by the Board, with the objective of reducing the likelihood and the impact of principal and emerging risks. Reliance is placed on the internal systems and controls of the Investment Manager and external service providers such as the Administrator to effectively manage risk across the portfolio and maintain an up-to-date risk register. Risk management is regularly reviewed by the Board and the Audit & Risk Committee reviews the risks in detail annually.

Climate change related risk and Task Force on Climate-related Financial Disclosures ("TCFD") reporting

The Company recognises that risks traditionally considered to be non-financial, such as climate change, have the potential to impact upon long-term shareholder returns across many sectors. While the Board believes that the Company's investments are making a meaningful contribution towards decarbonisation efforts in the countries in which it operates, the Company is working with its manager to assess climate-related risks and opportunities within its portfolio. As a result, the Company is voluntarily reporting on the Task Force on Climate Related Disclosures in the 2021 Annual Report. This will continue to develop over time to identify and share both risks and opportunities the Company faces as a result of climate change.

The Company operates a diversified portfolio consisting of 59 assets with a total global net peak capacity of 1.043GW. In 2021, the Company's operational portfolio produced over 903GWh of renewable energy and avoided 697,116 tonnes of carbon emissions. Furthermore, using OFGEM's assessment that the average UK household consumes 2.9MWh per year, it can be inferred that the Company's portfolio generated enough clean electricity to power c.311,379 UK homes during the period.

The Company currently does use a level of import power across the portfolio, which is necessary at times when the assets are not generating themselves (i.e. at night). After discounting all clean energy import tariffs in place the Company's net electricity usage is 2,982MWh for the year, which represents around 0.3% of the portfolio's production for 2021 of 903,000MWh to put into context. As part of its transition plan towards carbon neutrality and net zero the Company aims to reduce its electricity usage from non-clean energy production, which is captured in its Scope 2 emissions reporting.

Task Force on Climate-related Financial Disclosures

The Company recognises climate change as one of the defining challenges of our time and is supportive of the framework established by the Task Force on Climate-related Financial Disclosures. TCFD creates a uniform approach for organisations to report on how they expect climate-related risks and opportunities to impact upon their business over time.

The Company has sought to ensure that the consideration of climate-related matters is appropriately embedded throughout its governance, strategy and risk management processes. The Company has responded to all 11 of the recommended disclosures for the period to December 2021, whilst also recognising that its TCFD reporting will continue to develop and be enhanced in the future.

Governance

Disclose the Company's governance around climate-related risks and opportunities.

Board governance

The Board assumes overall responsibility and accountability for the management of the Company's climate-related risks and opportunities. It also sets the risk appetite for new investments and provides oversight for the management of the existing portfolio where physical and other risks are monitored.

In conjunction with the Investment Manager, the Board shapes the Company's strategy, reviews performance reports and authorises new initiatives. A key aspect of the Board's role is to ensure that sustainability and ESG considerations, along with the frameworks to manage them, are incorporated within the Company's investment processes and the asset management activities are appropriate and market-leading.

Meeting once a quarter, or more frequently as required, the Board and the Investment Manager discuss broader strategic risks and opportunities, ensuring these are both monitored and managed. Climate-related risks are incorporated within the Company's Business Risk Assessment ("BRA") framework, are reported against on an ongoing basis and are considered in respect of the Company's broader strategy and specific assets.

The Board monitors the performance of the Investment Manager, which is formally reviewed by the Management Engagement Committee on an annual basis. The Investment Manager's performance on tracking climate-related risks and opportunities forms part of this review.

Role of the Investment Manager

The Company's consideration of climate-related risks covers both the existing portfolio and the assessment of new investment opportunities.

In targeting new investments, the Investment Committee ("IC") of the Investment Manager is ultimately responsible for considering the market, regulatory and physical issues pertaining to climate-related risks relevant to a given investment and the opportunities open to that investment. The IC will formally assess each deal during a series of IC meetings that will apply increasing scrutiny as a deal progresses towards completion.

It is the responsibility of the Investment Manager to track all sustainability and climate change related issues and collaborate with both the deal teams assessing new transactions and the IC to ensure that material issues are systematically integrated into the investment, asset management and reporting processes. The Investment Manager's in-house sustainability function also supports the process of due diligence for sub-contractors on new investments, such as liaising as appropriate with third-party consultants to undertake supply chain auditing.

Role of the Asset Manager

The asset management team is responsible for closely monitoring the performance of and risks relating to, the Company's assets and reviewing climate-related factors that may pose a threat to long-term project forecasts or present new opportunities.

This includes regular inspections of the physical assets themselves and where specific issues become more frequent, highlighting a potential systemic risk, the Asset Manager would act proactively to mitigate such risks. For example, on certain project sites the Asset Manager has overseen the installation of cooling systems to equipment such as transformers in response to changing irradiation patterns and higher average temperatures.

The Asset Manager also collects key sustainability performance indicators for the operational portfolio, including data for scope 1 and 2 emissions. This enables the Company to directly monitor aspects of its impact on climate change whilst its solar and battery assets significantly reduce reliance on fossil fuel technologies. It is acknowledged at this stage that further work is required to better understand scope 3 emissions and the ability to reduce them.

As this considers emissions created by third-party providers, this will naturally require working with our partners such as operations and maintenance providers to understand their own carbon footprint and plans to reduce it. The Investment Manager is also working with external consultants to develop a framework to evaluate scope 3 emissions for the 2022 reporting cycle.

To assist with fully assessing the sustainability impact of an investment and asset, the Investment Manager has developed its own in-house Sustainability Evaluation Tool ("SET")

Strategy

Disclose the actual and potential impacts of climate-related risks and opportunities on the Company's business, strategy and financial planning where such information is material.

Impacts of climate-related risks and opportunities on the Company

The Company recognises that climate change presents both risks and opportunities for the Fund, its investments and asset managers and its investors. The Company's business objective is aligned with investing in the opportunities created by the deployment of renewable energy technology and energy efficiency, specifically in the solar and battery storage markets.

The table below sets out a non-exhaustive list of the strategic climate-related opportunities and risks that the Company has identified over the short, medium and long term:

The business of the Company is to invest in solar power plants and battery storage facilities with the intention of holding the assets for the long term as part of a growing portfolio. Strategically, the business seeks to continue to grow the Fund via organic growth whilst continuing to deliver a stable and progressive dividend.

Existing portfolio

With respect to the existing portfolio there is a risk that extreme weather conditions may become more commonplace in the future, affecting both the assets directly and the markets they operate in. The UK has experienced a higher frequency of severe flooding in recent years than has previously been the case. The Asset Manager continues to carry out flood risk assessments across the assets as part of its operational due diligence on a periodic basis.

In countries such as Australia, severe drought and bush fires may become increasingly frequent. Even in more temperate climates such as the UK, higher temperatures can lead to heat stress on key critical equipment such as inverters and transformers. Where this has been observed, fans have been fitted to force cool the transformers. This has been completed at Spriggs Farm and High Fields. With heat stress likely to become a bigger issue in the future the sites have been adapted to counter this.

In extreme heat the efficiency of the solar panels can also be reduced.

Volatility in wholesale power prices is forecast to increase with the retirement of coal, and nuclear baseload generation and intermittent renewable generation will deliver an increasing proportion of electricity. Such high volatility is beneficial to the arbitrage trading strategies of battery storage projects and is likely to become an increasingly relevant component of their revenue stack.

Over the longer term the Company will have to monitor new technologies to ensure that the core assets of the Fund are not displaced by new technologies. Solar is currently well placed, offering one of the most cost-effective sources of energy generation, but generating technologies will continue to evolve.

Strategy

In the short term, renewable energy is expected to enjoy continued political and societal support for further investment to drive energy transition. The regulatory and planning environments for solar and battery storage in target markets are also expected to continue to develop favourably. Alongside the ever-greater focus on sustainability, increased flows of capital are being directed into all areas of renewable energy investment. Significant further investment into solar and battery storage is forecast in the Company's core markets. This creates an environment supportive of continued growth for the Company on the basis it can continue to source investments with attractive returns and acceptable risk profiles. Assuming so, these factors should also help to improve the Company's success in attracting further capital.

The associated risk with high levels of investment into both solar and battery storage is that competition for assets is also likely to intensify as more renewable-focused investment funds are launched in the drive towards decarbonisation and net zero. Greater competition for renewable assets could place pressure on returns and heighten the risk of overpaying for assets. In this regard maintaining investment discipline is key to ensuring that the Company continues to make investments that are value accretive to the fund.

Financial planning

The impact of climate-related changes and the energy transition presents both opportunities and challenges for the Company's finances.

Increasing power price volatility represents both an opportunity and a risk. A prolonged fall in power prices and the associated merchant revenues for the generating solar portfolio presents a significant risk. The Company manages this by securing a significant proportion of revenues with fixed power prices agreements up to four years ahead, whilst retaining a level of merchant exposure.

Significant deployment of renewable energy generation during a short period of time could lead to greater power price cannibalisation in the future. Power price forecasters used by the Company currently present a stagnation of real power price growth in the medium to long term. A significant build out of renewable generation at marginal cost may push those forecast power prices well below expected levels; however, this will likely result in a fall in the number of new projects developed as many would become economically unviable, thus self-balancing development.

The Company has entered into an ESG-linked credit facility, which provides the opportunity to achieve savings on margins if several sustainability criteria are met.

Enhanced disclosure of sustainability metrics itself presents an opportunity for clean energy investors to further differentiate their offering to current and prospective shareholders. It is reasonable to assume that investors will begin to screen opportunities and allocate capital based on sustainable criteria, including TCFD, and it is therefore reasonable to assume that those that score well on sustainability will be more successful in attracting capital-seeking sustainable outcomes.

Analysis of climate-related scenarios on the Company's resilience

Overview

The Investment Manager has engaged an external consultant, Independent Commodity Intelligence Services ("ICIS"), and has reviewed various climate change scenarios under differing assumptions. For the purposes of this resilience analysis, a climate scenario based on internationally recognised standards for climate modelling and research is presented.

The basis for the analysis is the Representative Concentration Pathways ("RCPs") which have been adopted by the Intergovernmental Panel on Climate Change ("IPCC"). They represent a wide range of possible changes in future anthropogenic greenhouse gas emissions and their impact on atmospheric concentrations. The RCPs range from RCP 1.9 to RCP 8.5 as follows;

Between RCP 1.9 and 8.5 are a range of scenarios. The following analysis has been based on RCP 4.5 as the central case, which assumes that combined efforts to limit global warming to 1.5°C will fall short; however, this can be considered a realistic outcome if nations are currently behind schedule on delivery for achieving net zero.

ICIS has provided power price forecasts for the period 2021-50 for both its base case and a specific climate case based on RCP 4.5.

Base case power forecasts take into consideration the current available power price and commodity forwards and in the medium-term model renewable capacity is modelled based on the pipeline of projects, future CfD auction schedules and government targets.

The climate change scenario principally changes two key variables in the modelling of the power price forecast, relating to electricity demand and renewable generation, both of which are expected to place downward pressure on power prices. In brief:

The output of the analysis is a base case power curve forecast to 2050 and a climate case that shows a reduction in prices over the medium to long term factoring in the assumptions above. The Investment Manager has taken the delta between the ICIS cases and applied this to its own blended power curve forecast to estimate the impact.

The results of the modelling are as follows:

The results of the climate change scenario point to a potential £4 million reduction to NAV (0.6% of total or 0.6 pence per share), which should be considered a purely indicative example. Whilst this result may appear low, there are two factors worth considering. Firstly, although immaterial, the climate change scenario does include an increase in irradiation post 2040 that specifically benefits solar production. The outcome for other renewable energy generators may not be as favourable. Secondly, it is acknowledged that the central case of RCP 4.5 assumes insufficient renewable capacity is installed during the forecast period to achieve a pathway that limits global warming to below 1.5°C. Should deployment into clean energy investment greatly exceed the assumptions in the climate case, or current forecasts, then there is the potential for greater pressure on forecast power prices.

At this stage, such climate change modelling requires making many assumptions on which it is difficult to place a high degree of confidence. The Investment Manager will, however, continue to build on this indicative analysis of climate-related risk as forecasts are revised and will include the output of further downside scenarios.

Risk management

Disclose how the Company identifies, assesses and manages climate-related risks.

The Investment Manager is responsible for creating and managing the framework that ensures the systematic integration and assessment of climate-related risks and opportunities. The primary system for achieving this is Foresight's proprietary Sustainability Evaluation Tool ("SET") which ensures that a given asset's resilience to climate-related risk is considered from the earliest stages of due diligence during the investment process. This is covered under the "Climate Change Resilience" parameter within the tool and is completed for all assets both at the investment stage and during each asset's periodic review as part of ongoing asset management.

Climate-related risks are identified in the BRA framework for the Company (please also refer to section A of the Governance section above).

As is industry standard, the Company's climate-related risks can be categorised to two principal ways which will impact the portfolio returns and growth of the fund:

A. Transition risks: Risks related to the transition to a lower-carbon economy, including:

Table of transition climate risks as shown in the TCFD Final Recommendations Report

B. Physical risks: Risks related to the physical impacts of climate change, including:

Table of identified potential physical climate risks for the Company's current portfolio

Physical risks identified as relevant are scored using a risk heatmap (see the solar risk heatmap below). A suite of tools can then be employed to assess the severity of an asset's susceptibility to the most material risks and identify mitigation measures to reduce the overall risk score.

Scenario analysis

The Investment Manager currently uses the Carbon Brief scenarios of 1.5, 2 and 3+ degrees centigrade of global warming to incorporate scenario analysis into its investment and asset management processes. These open-source scenarios use data from c.70 peer-reviewed climate studies to show how global warming is projected to affect the world and each region. The Investment Manager's active asset management approach then ensures the scenarios detailed above can be applied to existing assets within the portfolio as a means identifying areas of enhanced climate-related risks.

The Investment Manager is also currently working with a number of market advisors to co-develop a scenario-based forecasting tool that will allow for the integrated analysis of transition risks and the evaluation of regional climate and weather impacts on asset and portfolio performance going forward.

Managing climate risk

All potential investments are evaluated in accordance with the SET to ensure that all potential investments undertaken meet the Investment Manager's definition of sustainable infrastructure, and that climate-related risks are systematically identified, assessed and subsequently managed. The SET comprises five criteria that cover the key areas of sustainability and ESG considerations to be assessed:

The SET is an evolving tool. It has been designed with flexibility in mind, making it adaptable to new sectors, industry frameworks and impact standards as sustainability, ESG and climate-change agendas continue to develop. The materiality of certain issues within each of these areas is subject to change, therefore a framework that can adapt easily to reflect these changes is important. The Investment Manager carries out regular in-house consultations to decide on the individual "weighting" for each KPI within parameters. The weighting dictates the materiality of the KPI in the overall asset score, which can be updated based on new information obtained.

The tool draws on IRIS+ indicators, which are an aggregation of several widely recognised sustainability and climate-related frameworks to measure, manage and optimise sustainability and climate-related performance. These frameworks include GRESB, the Global Reporting Initiative ("GRI"), the Sustainability Accounting Standards Board ("SASB"), the UN SDGs, the Global Impact Investing Network ("GIIN") and Principles for Responsible Investment ("PRI").

The final SET assessment, and the asset's corresponding "Sustainability Web", are produced as part of investment due diligence.

Before any new investment proceeds, an assessment of both physical and transition climate-related risk is made in the Climate Change Resilience assessment parameter of the SET.

This parameter is made up of multiple KPIs, with each weighted based upon internal materiality assessments and scored in line with response bands corresponding to the five-point scale below:

An average is then calculated to produce an overall score for the Climate Change Resilience parameter, which is reviewed and updated periodically by the asset management team to track an asset's sustainability performance. This can be tabled at the Company's Board meetings to enable implementation of an asset-specific plan to manage any material risks as required.

Every solar or battery asset the Company invests in must be justified as contributing to a set of measurable sustainability goals and must demonstrate how its resilience to climate change related risk has been assessed. If the information required to complete the assessment is not readily available through project documentation, Technical Advisors may be tasked with conducting further investigation to address any sustainability or climate change related specific queries.

The above-mentioned physical risks are assessed as part of the Climate Change Resilience assessment parameter. A Climate Risk Heatmap is then produced which is used to identify the most material physical risks the assets of the Company face from climate-related extreme weather events, allowing for further investigation to be conducted or mitigation measures to be put in place.

During the investment stage, it is the responsibility of the Investment Manager's deal team to complete the SET and use it to inform their understanding of a given asset's sustainability credentials, including its exposure to climate-related risks. Furthering this understanding may require augmenting the scope of a Technical Advisor during due diligence to comment on and assess specific risks. Crucially, it will need to be satisfactorily addressed in the final submission to the Investment Committee with an accompanying risk re-profiling or mitigation measures detailed as appropriate. Via the various IC processes, relevant issues will be reported to the Investment Manager's senior leadership, wherein any updated thinking can be more effectively applied across the wider portfolio of assets.

Once the investment has been made, the asset undergoes a comprehensive handover to the Asset Management team wherein the responsibility for identifying and assessing climate-related risks and opportunities also transfers. It is the role of this team to ensure periodic updates of the SET are completed as a means of systematically reassessing the physical and transition risks the asset is exposed to.

The Investment Manager is responsible for the periodic review of the portfolio assets' exposure to risk, ranging from health and safety to climate change. Material changes to the risk rating of any risk are considered in line with the periodic reassessment and, where possible, are mitigated accordingly.

Metrics and targets

Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material.

TCFD core metrics

The Company's focus for quantitative reporting of exposure to climate-related risk is achieved using the universally accepted core metrics, as recommended by the TCFD. These include the following metrics, the calculation methodologies for which can be found here:

In line with current FCA guidance, the calculation of these metrics will be performed using scope 1 and scope 2 emissions only, with scope 3 emissions to be incorporated in future reports. The Investment Manager is currently working with external consultants to better understand and prepare to report on scope 3 emissions. In using these core metrics, the Company is not only able to compare performance amongst its own assets but against those of its wider peer group, further incentivising the decarbonisation of the Company's portfolio.

Data drawn from the calculation of the core metrics will be used as an aid to driving decarbonisation across the portfolio and to highlight carbon hotspots in specific business areas as a means of influencing decision-making across the business.

For the Company, the results are as follows:

Asset carbon intensity, carbon savings and sustainable impact data

The Investment Manager uses an in-house Sustainability Calculator to provide reporting on lifecycle emission intensities of the sectors it invests in. This further allows for the calculation of carbon savings data for each of the Company's infrastructure assets under management. The calculations draw on the data presented in the IPCC's Special Report on Renewable Energy ("SRREN")1, which uses a wide variety of peer-reviewed research papers to establish median figures for the lifecycle CO2 intensities of different renewable energy technologies (measured in kgCO2e/MWh).

1. Annex III: https://www.ipcc.ch/site/assets/uploads/2018/02/ipcc_wg3_ar5_annex-iii.pdf

The Investment Manager tracks and reports both the carbon savings and the more holistic sustainable impact of all portfolio investments, which are assessed to be contributing significantly to climate change mitigation through net avoidance of carbon emissions.

For calendar year 2021, the Company contributed to the below carbon savings and the associated sustainable impact:

EU Taxonomy alignment

The EU Taxonomy for sustainable activities defines the criteria that an investment must meet for it to be considered sustainable. By setting out transparent, science-based, industry-specific criteria to direct investment flows, the EU Taxonomy provides assurance for projects that are making a genuine contribution to climate change mitigation and global sustainability targets. Following internal review of the EU Taxonomy's performance thresholds, the Investment Manager decided there would be merit in independent, third-party validation of its investments' alignment with the Taxonomy.

In 2020 the Investment Manager sought independent validation of its compliance with the EU Taxonomy for Sustainable Finance framework. The Investment Manager initially submitted two assets for validation with environmental consultant Aardvark Consulting Ltd, both of which were declared compliant with the Taxonomy in December 2020. This approach has been continued and the Company's investment in the Virgen del Carmen project achieved validation in May 2021. Following this, the Company has now also undertaken an internal assessment of the whole portfolio's level of alignment (please refer to the "Sustainability update" in the Chairman's Statement for further details).

In an environment where greenwashing represents a significant reputational risk, the Company views this independent approach to Taxonomy validation as providing enhanced disclosure.

Disclose scope 1, scope 2 and, if appropriate, scope 3 greenhouse gas ("GHG") emissions and the related risks

The Greenhouse Gas Protocol separates emissions into the following categories:

Details on the Company's scope 1 and 2 greenhouse gas emissions are shown in the table below. As mentioned above, scope 3 emissions will be incorporated at a later date as the Investment Manager works with external consultants in order to gain a more thorough understanding.

The scope 2 emissions split reflects as 42.2% for the UK assets and 57.8% for the Australian assets.

The National Grid Intensity applied to the UK import power prices: 233.1 gCO2e/kWh

The National Grid Intensity applied to the Australian power prices: 790 gCO2e/kWh. This is significantly higher than the factor applied to UK projects based on the higher reliance of the Australian grid on coal power generation.

The Company follows the methodology that the Task Force recommends asset owners and asset managers and can be viewed in the below link: E09 - Carbon footprinting - metrics.pdf (tcfdhub.org)

At present, more than half of the portfolio assets have contracts for electricity import with providers whose energy is sourced from clean energy sources (green tariffs). The Company will seek to increase the proportion of green tariffs across the portfolio as it develops a clear plan to achieve net zero.

Describe the targets used by the Company to manage climate-related risks and opportunities and performance against targets

Asset level

A workstream is currently underway to develop methodologies to calculate the carbon footprints of the Company's assets, which will help to further inform the portfolio decision-making and target-setting processes. The TCFD's recommended core metrics are also used as part of this process to identify where decarbonisation needs to happen the most.

In accordance with the TCFD's Carbon Footprinting and Exposure Metrics and the Science Based Targets Initiative ("SBTi"), the targets being considered include:

The Company already tracks and reports the GHG savings delivered by all clean energy investments assessed to be contributing significantly to climate change mitigation through net avoidance of carbon emissions and other pollutants.

Emerging risks

Risks that are characterised by a degree of uncertainty are regularly reviewed by the Board, with the support of the Investment Manager, the Administrator and other relevant advisors. During the period, risks relating to global pandemics, such as COVID-19, and the potential future impact on operational performance and cash flow generation in the short and medium term have been reviewed and continue to be closely monitored. The risk is still considered material by the Investment Manager, however the disruption to the portfolio operations to date has been minimal.

The Directors also note the emerging risk of heightened geopolitical tensions and the economic volatility that may likely arise as a consequence. The Directors continue to monitor and review the macro-political environment and its impact on the Company under its risk management framework.

Principal risks

Set out below are the principal risks and uncertainties which the Company believes are most relevant, given the nature of its business, together with their mitigants.

More information on the risks that should be considered before investing in the Company are contained within the Prospectus, which is available at https://fsfl.foresightgroup.eu/investor-relations/publications/prospectus/

GOING CONCERN AND VIABILITY STATEMENT

Going concern

The Company's business activities, together with the factors likely to affect its future development, performance and position, are set out in this report. The financial position of the Company, the financial performance, its cash flows, liquidity position and borrowing facilities are referred to in the Chairman's Statement, Investment Manager's Report and Notes to the Accounts. In addition, the Financial Statements include the Company's objectives, policies and procedures for managing its capital; its financial risk management objectives; and its exposures to credit risk and liquidity risk.

A detailed evaluation of the cash flow impact, for the going concern period, of the following individual and combined three scenarios was reviewed:

The Board has decided the going concern assessment period should be the 18-month period to 30 June 2023. Due to the nature of the fixed price subsidised revenues and the long-term debt in place across the portfolio, the Board believes it is appropriate to evaluate a period longer than the required 12 months.

The evaluation demonstrated the Company would be able to meet it liabilities and could continue to meet its dividend target in the going concern assessment period. It was also noted no debt covenants would be breached in the same period.

Consequently, the Directors are confident that the Company will have sufficient funds to continue to meet its liabilities as they fall due for the going concern assessment period and have therefore prepared the Financial Statements on a going concern basis.

Viability statement

In accordance with the UK Corporate Governance Code, the Directors have assessed the viability of the Company over a five-year period to 31 December 2026, on the basis the Company has significant long-term fixed and subsidised revenues and long-term debt, both extending beyond a five-year period.

This is the period focused on by the Board during the strategic planning process and is considered reasonable for a business of its size and nature. Whilst the Directors have no reason to believe the Company will not be viable over a longer period, it believes this presents users of the Annual Report with a reasonable degree of confidence whilst still providing a longer-term perspective.

The Directors have considered the principal risks, identified on pages 54 to 59, in relation to the Company's resilience over a five-year period. In doing so, the Directors believe the three direct principal risks with respect to the five-year period are changes to the level of political support subsidies, near-term energy prices and the impact of climate and weather‑related risks.

In addition to these principal risks, the Directors have also reviewed the sustainability-related risks that consider environmental, social and governance considerations, one of which is climate change (in line with the recommendations of the Task Force on Climate-related Financial Disclosures ("TCFD"))

Subsidy revenue comprises 47% of the portfolio's revenue for the period to December 2026, whilst this is a significant proportion, the subsidies are spread across three different jurisdictions (United Kingdom, Australia, and Spain). It is expected the respective governments, in light of global commitments to tackling climate emergency and the vast growth of the sector, will continue to meet their obligations under the respective subsidy regimes. In terms of prospective regime changes, such as the closure of the Renewable Obligation scheme for projects commissioned after 31 March 2017, these may affect the availability of the assets for acquisition, but not the viability of the Company.

For the period to December 2026, 65% of the portfolio revenue is contracted through government subsidies or contracted electricity sales at a fixed price, therefore 35% of the revenues are exposed to power price volatility. The Directors believe this risk is sufficiently mitigated through the Company's price fixing strategy which is reviewed on a regular basis by the Investment Manager.

The Company owns assets across three jurisdictions globally, therefore considers short- and medium-term changes in localised weather patterns to be a risk. For example, Australia has experienced two consecutive low irradiating summer seasons which could transpire to be a result of climate change. Whilst very limited action that can be taken by the Company to address weather and broader climate shifts, aside from specific protective measures locally at each asset, the Directors and Investment Manager continue to monitor and assess the impact on an ongoing basis.

In making this statement, the Directors have reviewed the summary five-year cash projections of the Group, considering cash balances, dividend cover and debt covenants. Sensitivity analysis covers the potential impact of the Group's principal risks occurring and how those risks would threaten its business model, future performance, solvency, or liquidity. A summary of key valuation sensitivities is set out earlier in the document. These forecasts are based on the Investment Manager's view of future asset performance, income and costs, and are consistent with the methodology applied to produce the valuation of the investments.

The Board carried out a robust assessment of the principal and emerging risks facing the Company, including those that would threaten its business model, future performance, solvency, or liquidity.

The Board also considers the ability of the Company to raise debt and equity and deploy capital. As part of this process, the Directors have also considered the ongoing viability of the Company's long-term and short-term debt strategies. In February 2022 a new three-year £150.0 million RCF was signed, giving the Company an additional £20.0 million of liquidity, of which a proportion can be deployed as working capital.

This review has considered the principal risks which were identified by the Investment Manager. The Board concentrated its effort on the major factors which affect the economic, regulatory, and political environment. The Board also paid particular attention to the importance of its close working relationship with the Investment Manager.

Based on this review, the Directors confirm that they have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the five-year period to December 2026.

FINANCIAL REVIEW

The Company applies IFRS 10 and Investment Entities: Amendments to IFRS 10, IFRS 12 and IAS 28, which states that investment entities should measure all their subsidiaries that are themselves investment entities at fair value. The Company accounts for its interest in its wholly owned direct subsidiary Foresight Solar (UK Hold Co) Limited as an investment at fair value through profit or loss.

The primary impact of this application, in comparison to consolidating subsidiaries, is that the balances, the working capital balances and borrowings in the intermediate holding companies are presented as part of the Company's fair value of investments.

The Company's intermediate holding companies provide services that relate to the Company's investment activities on behalf of the parent which are incidental to the management of the portfolio.

The Company and its intermediate holding companies (the "Group") hold investments in 59 portfolio assets which make distributions in the form of interest on loans and dividends of equity as well as loan repayments and equity redemptions.

For more information on the basis of accounting and Company structure please refer to the Notes to the Financial Statements.

Key metrics for the year ended 31 December 2021

1. Total net assets as per the Statement of Financial Position

2. Calculated as the sum of the NAV and total outstanding debt.

Net assets

Net assets increased by 13.4% from £582.2 million at 31 December 2020 to £660.0 million at 31 December 2021, primarily driven by the PPA fixing strategy, the impact of actual inflation on future cash flows and reductions in discount rates, detailed in the Investment Manager's Report.

The net assets of £660.0 million comprise the £1,107.8 million portfolio of UK, Australian and Spanish solar and battery investments, the Group's cash balance of £67.4 million offset by £388.6 million long-term debt, £123.4 million of RCF outstanding debt and other net liabilities of £3.2 million.

Analysis of the Group's net assets at 31 December 2021

1. Gross portfolio value is equal to the sum of the portfolio value, intermediate holding companies' cash, intermediate holding companies' other liabilities, Company's cash and Company's other liabilities.

Third-party debt arrangements and gearing position

As at 31 December 2021, total outstanding long-term debt was £388.6 million, representing 33.2% of the GAV (calculated as NAV plus outstanding debt) of the Company and its subsidiaries (31 December 2020: £391.5 million or 37.1% of GAV).

As at 31 December 2021, total outstanding debt including RCFs was £512.0 million, representing 43.7% of GAV (31 December 2020: £472.4 million or 44.8% of GAV).

The Group net debt position, after deducting existing Group cash balances, is £444.6 million, representing 37.9% of GAV.

Long-term facilities

As at 31 December 2021, £388.6 million of long-term debt facilities were outstanding.

Inflation-linked debt facilities represent £82.7 million of total long-term debt outstanding as at 31 December 2021.

At 31 December 2021, the average cost of long-term debt was 2.66% per annum, including the cost of inflation-linked facilities of 1.31% per annum. The cost of the inflation-linked facility is expected to increase over time in line with the Company's long-term RPI expectations of 3% in the medium term and 2.25% post 2030 to reflect RPI reform.

During the first half of 2021, the Company successfully refinanced the Bannerton project senior debt facility. The new facility was secured on a significantly more favourable financing cost compared to the previous facility. The size of the debt facility has remained unchanged.

The refinancing of the senior debt facilities for the Longreach and Oakey 1 assets is expected to take place in the first quarter of 2022 and is expected to be secured on financing terms more attractive than the existing facilities.

Revolving credit facilities

In April 2021, the Company increased its RCF capacity by £25 million. The Company now holds two separate RCFs totalling £130 million. At the end of the period £6.6 million remained undrawn.

In February 2022, the Company announced that the two RCFs had been refinanced and replaced by a new £150 million RCF (see note 25 to the Financial Statements for details). At the date of this report, the RCF totalled £125.9 million, with £24.1 million remaining undrawn.

At 31 December 2021, the weighted total cost of the RCFs was 1.69% per annum (2020: 2.5%).

Debt structure

The following table summarises the debt position of the Company as at 31 December 2021.

1. Interest rate swap for 100% of the outstanding debt during the initial five years, 75% from years six to ten and 50% thereafter.

2. Australian debt prorated for Company's share of asset ownership. AUD/GBP exchange rate of 0.538 as at 31 December 2021.

3. Nominal loan balance as at 31 December 2021 with the applicable RPI applied.

The Company continues to have limited exposure to benchmark rate movements in the UK and Australia as a result of the long-term interest rate swaps in place to protect the Company from underlying interest rate movements.

Sterling-denominated debt facilities priced over LIBOR benefit from interest rate swaps hedging between 80% and 100% of the outstanding debt during the terms of the loans, depending on the facility. In Australia, debt facilities entered into with the CEFC have no exposure to the Bank Bill Swap Bid Rate ("BBSY") as the rate was fixed at financial close. Debt facilities provided by Mitsubishi UFJ Financial Group ("MUFG") have in place interest rate swaps on a decreasing nominal amount for a notional tenor of 20 years.

In March 2021, the Financial Conduct Authority ("FCA") announced that most LIBOR panels, including sterling panels, would cease to be effective from 31 December 2021. LIBOR-linked facilities were therefore required to transition to an alternative Risk-Free Reference Rate ("RFR"). A transition to Sterling Overnight Index Average ("SONIA") was agreed and implemented during the year.

Profit and loss

The Company's profit before tax for the year ended 31 December 2021 is £117.9 million, generating profits of 19.7 pence per share.

In the year to 31 December 2021, the operating income and gains on fair value of investments was £124.9 million, which comprised of the receipt of £38.1 million of interest on the Foresight Solar (UK Hold Co) loan notes and £86.8 million net profits on investments at fair value in the year.

Operating expenses included in the income statement for the year were £6.9 million, in line with expectations. These comprise Investment Management fees of £6.0 million and £1.0 million of operating expenses. The details on how the Investment Management fees are charged are set out in note 5 to the Financial Statements.

Cash flow

The Company had a total cash balance at 31 December 2021 of £11.0 million (31 December 2020: £16.9 million). This amount excludes cash held in subsidiaries. The breakdown of the movements in cash during the year is shown below.

Cash flows of the Company only for the year to 31 December 2021 (£million)

Combined profit and loss of underlying investments

The underlying operating investments in the UK and Australia generated an operating profit of £90.6 million in the year.

The Australian assets are consolidated based on the Fund's ownership, using an average AUD/GBP exchange rate of 0.5422.

Subsidised revenues consist of ROC, ROC recycle, Feed-in Tariff, embedded benefits and Large-Scale Generation Certificates ("LGCs").

Cash flows of the Company and intermediate holding companies for the year to 31 December 2021 (£million)

During the year to 31 December 2021, the underlying solar assets paid £78.6 million of ordinary distributions to the intermediate holding companies.

Cash received from underlying solar investments covers the long-term debt repayments, financing costs and the operating and administrative expenses of the Company and the intermediate holding companies as well as the dividends declared to Shareholders.

During the year, the Group released £7.7 million from compensation accounts in relation to legacy issues within some UK assets. £4.3 million of this cash was in relation to lost revenue and therefore available for distribution.

The acquisition costs of £61.2 million relate to the investment in Sandridge Battery Storage Limited and further investment into the Spanish portfolio acquired in December 2020 to fund construction milestones.

Debt arrangement fees relate to the upsizing of the RCF in April.

Dividend cover

Total dividends of £40.0 million were paid during the year ending 31 December 2021. Compared with the relevant net cash flows from operations of the Company and underlying investments of £48.3 million, these dividends were covered 1.21 times (31 December 2020: 1.11 times), including the impact of the scrip dividend programme. Removing the impact of the scrip gives a dividend cover of 1.15 times.

Dividends

The Company has declared dividends for the year ended 31 December 2021 of 6.98 pence, representing a 1.00% increase compared with the dividend declared for 2020.

The Company has met all target dividends since IPO and follows a progressive dividend policy aiming to grow its dividend over time.

Dividend timetable for FY2021

On 10 February 2022, in light of the Company's Net Asset Value per Ordinary Share being greater than the scrip reference price, the Board exercised its discretion to cancel the scrip dividend alternative in respect of the third quarter dividend.

On 8 March 2022, the Board announced a fourth and final dividend relating to FY2021 of 1.745 pence per share however, the Board retains the right to cancel the scrip should it not be deemed appropriate.

Full details of the scrip dividend alternative that is being offered in respect of the Dividend (the "Scrip Offer"), its timetable and the Scrip Dividend Scheme can be found in the Scrip Dividend Alternative Offer Document (the "Scrip Document") available on the Company's website to view and/or download at fsfl.foresightgroup.eu/ investor-relations/. The Scrip Document is also available on the National Storage Mechanism website at www.morningstar.co.uk/uk/NSM and copies are also available for inspection at JTC House, 28 Esplanade, St. Helier, Jersey JE2 3QA.

Foreign exchange

The Company is exposed to foreign exchange movements in respect of its investments in Australia and Spain. As such, the Company continues to implement a hedging strategy in order to reduce the possible impact of currency fluctuations and to minimise the volatility of equity returns and cash flow distributions.

Foreign exchange hedging will not be applied to the cost of the equity investments, considering the long-term investment strategy of the Company.

For the Australian assets, the Company has entered into a rolling two-year forward contracts strategy for an amount equivalent to approximately 75% of its expected distributable foreign currency cash flows at project level. For the Spanish assets recently acquired, the Company has implemented a ten-year rolling foreign currency hedging strategy covering c.80% of the annual future cash flows generated.

The Company reviews its foreign exchange strategy on a regular basis with the objective of limiting the short-term volatility in sterling distributable cash flows caused by foreign exchange fluctuations and optimising the costs of the hedging instruments.

Ongoing charges

The ongoing charges ratio for the year to 31 December 2021 was 1.14% (31 December 2020: 1.18%). This has been calculated using methodology as recommended by the Association of Investment Companies ("AIC"). Asset management fees charged by Foresight Group LLP on an arm's length basis at project level are excluded from the ongoing charges ratio.

BOARD OF DIRECTORS

The Directors are responsible for the determination of the investment policy, have overall responsibility for the Company's investment activities and for reviewing the performance of the portfolio.

Alexander Ohlsson

Chairman

Background

Mr Ohlsson is Managing Partner of the law firm Carey Olsen in Jersey. He is recognised as a leading expert in corporate and finance law in Jersey and is regularly instructed by leading global law firms and financial institutions. He sits on the boards of a number of companies and is also Chairman of the listed company GCP Asset Backed Income Fund Limited. He is an Advisory Board member of Jersey Finance, Jersey's promotional body and Treasurer of the Jersey Law Society. He has recently retired as the independent Chairman of the States of Jersey's Audit Committee. He was educated at Victoria College, Jersey and at Queens' College, Cambridge, where he obtained an MA (Hons) in Law. He has also been an Advocate of the Royal Court of Jersey since 1995.

Mr Ohlsson was appointed as a Non-Executive Director and Chairman on 16 August 2013 and was re-elected on 16 July 2020.

External Directorships

GCP Asset Backed Income Fund Limited.

Chris Ambler

Senior Independent Director

Background

Mr Ambler has been the Chief Executive of Jersey Electricity Plc since 1 October 2008. He has experience in a number of senior positions in the global industrial, energy and materials sectors working for major corporations including ICI/Zeneca, The BOC Group and Centrica/British Gas, as well as in strategic consulting roles. He is a Director on other boards including a Non-Executive Director of Apax Global Alpha Limited, a listed fund which launched on the London Stock Exchange on 15 June 2015. Mr Ambler is a Chartered Director, a Chartered Engineer and a Member of the Institution of Mechanical Engineers. He holds a First-Class Honours Degree from Queens' College, Cambridge and an MBA from INSEAD.

Mr Ambler was appointed as a Non-Executive Director on 16 August 2013 and was re-elected on 16 July 2020.

External Directorships

Jersey Electricity Plc, Apax Global Alpha Limited.

Ann Markey

Non-Executive Director

Background

Ms Markey is an experienced business leader and Non-Executive Director with a strong financial background and over 20 years' experience as a senior executive and board Director in a number of businesses. Ms Markey has extensive experience in the electricity industry, particularly in thermal and renewable generation, including PV solar and wind. She was a senior executive with ESB, a leading Irish electricity utility, and with Greencoat Capital, a leading renewable energy investment manager.

She holds a number of non-executive director positions where she is also Chair of the Audit & Risk Committee. She is a Chartered Accountant, having trained and qualified with Arthur Andersen.

Ms Markey was appointed as a Non-Executive Director in September 2020 and was elected on 16 July 2021

External Directorships

Velocys Plc, Sustainable Energy Authority of Ireland, member of the Audit & Risk Committee of the Health Services Executive (Ireland's national health service

Monique O'Keefe

Non-Executive Director

Background

Mrs O'Keefe is the co-founder of investment consultancy business Kairos Wealth Limited. She serves on a number of boards, including Phoenix Spree Deutschland Limited which is a London Stock Exchange listed property fund, as well as a private equity fund, a European hedge fund and a non-performing credit fund. Mrs O'Keefe also sits on the Board of Commissioners at the Jersey Financial Services Commission.

Mrs O'Keefe was appointed as a Non-Executive Director on 1 June 2019 and was re-elected on 16 July 2020.

External Directorships

Phoenix Spree Deutschland Limited.

Peter Dicks

Non-Executive Director

Background

Mr Dicks is currently a Director of a number of quoted and unquoted companies. He is also on the Board of Mercia Fund 1 General Partnership Limited and Miton UK Microcap Trust plc and Chairman of SVM Emerging Fund plc.

Mr Dicks was appointed as a Non-Executive Director on 16 August 2013 and was re-elected on 16 July 2020.

External Directorships

Mercia Fund 1 General Partnership Limited, Miton UK Microcap Trust plc, SVM Emerging Fund plc.

INVESTMENT MANAGER

>300

infrastructure assets under management

200+

institutional clients

3.1GWh

Generating capacity

The Company's Investment Manager, Foresight Group LLP, is responsible for the acquisition and management of the Company's assets, including the sourcing and structuring of new acquisitions and advising on the Company's borrowing strategy. Foresight Group is authorised and regulated by the Financial Conduct Authority.

Foresight Group was founded in 1984 and is a leading listed infrastructure and private equity investment manager. With a long-established focus on ESG and sustainability-led strategies, it aims to provide attractive returns to its institutional and private investors from hard-to-access private markets. Foresight manages over 300 infrastructure assets with a focus on solar and onshore wind assets, bioenergy and waste, as well as renewable energy enabling projects, energy efficiency management solutions, social and core infrastructure projects and sustainable forestry assets. Its private equity team manages eight regionally focused investment funds across the UK, supporting over 120 SMEs. Its Foresight Capital Management team manages four funds with £1.5 billion Assets Under Management ("AUM"), investing in listed real assets with environmental and social benefits. Foresight operates from 12 offices across six countries in Europe and Australia with AUM of £8.4 billion as at 31 December 2021. Foresight Group Holdings Limited listed on the Main Market of the London Stock Exchange in February 2021. https://www.fsg-investors.com/

Foresight Infrastructure's team consists of 105 investment, portfolio and technical professionals as at 30 September 2021. The team is comprised of:

The Foresight infrastructure team has substantial experience in sourcing and executing all required elements of the capital structure of an investment across geographies, including project-level debt finance and other required forms of finance.

The key strengths of the infrastructure investment team include (i) sourcing and execution of asset acquisitions; (ii) experience of pricing complex revenue streams; (iii) pricing wholesale power exposure; (iv) managing construction projects; and (v) finance and structuring, including bank debt and project finance.

The asset management team consists of individuals with engineering, consulting and operations backgrounds, accountants and in-house personnel responsible for the process of "on-boarding" and managing acquired assets as well as a technical team of specialist infrastructure engineers that help by evaluating an asset's operational and physical characteristics during due diligence, construction management and assist the asset management team to manage the assets by identifying and implementing optimisations post-acquisition. Members of these teams work together throughout the investment lifecycle.

The asset management services provided ensure the day-to-day operation of the sites is robust, with commercial and strategic decisions clearly communicated to the O&M counterparties. The services also include:

Key FSFL professionals

Ricardo Piñeiro

Partner,Co- Head of Infrastructure

Background

Mr Piñeiro joined Foresight in 2011 and is a Partner and Co-Head of Infrastructure. A member of the firm's Executive Committee, he has 17 years of experience in fund management, sustainable infrastructure investment and financing in the UK and internationally. During his time at Foresight, Mr Piñeiro has led the Fund's management team since its IPO.

Prior to joining Foresight, Mr Piñeiro worked at Espirito Santo Investment where he focused on lending and advisory for the energy infrastructure and transportation sectors.

Gary Fraser

Partner, CFO & COO

Background

Mr Fraser joined Foresight in 2004 and is an Executive Director and CFO of Foresight Group Holdings Limited, which listed on the London Stock Exchange in February 2021. He has over 28 years of experience. Mr Fraser is the Head of Finance and Administration within Foresight Group LLP, providing or facilitating specialist financial input into corporate, portfolio and VCT decisions. Prior to Foresight, Mr Fraser worked at F&C Asset Management as a Company Secretary, where he focused on legal and tax compliance, financial compliance, technical and financial reporting and corporate finance. He has also worked at EY, focusing on audit and risk assurance.

Mr Fraser is a Chartered Fellow of the Securities Institute, Chartered Accountant, BAcc from the University of Stirling.

Ross Driver

Director, Infrastructure

Background

Mr Driver joined Foresight in 2021 as part of the Fund's advisory team, to oversee delivery of all aspects of the Investment Mandate. He has over 16 years' infrastructure and renewable energy investment experience covering deal structuring and execution, debt financing and asset management across multiple asset classes. Prior to Foresight, Mr Driver spent eight years at InfraRed Capital Partners where he focused on greenfield renewable energy and infrastructure investments. He has also worked at John Laing Investments and KPMG Corporate Finance.

BOARD LEADERSHIP AND COMPANY PURPOSE

CORPORATE GOVERNANCE REPORT

A successful company is led by an effective board, whose role is to promote the long-term sustainable success of the company, generating value for shareholders and contributing to wider society.

On behalf of the Board, I am pleased to introduce the Company's Corporate Governance Statement for the reporting period ended 31 December 2021.

Board leadership

The Board has overall responsibility for the management of the affairs of the Company and is responsible for the long-term sustainable success of the Company.

The Company has a Board of five Non-Executive Directors and all Directors are considered by the Board to be independent.

During the year, the Board conducted an internal Board effectiveness assessment and, as part of that assessment, all Directors have confirmed that they have adequate time to commit to their roles and responsibilities to the Company

The Board believes that, as a whole, it has an appropriate balance of skills, experience and knowledge. The Board also believes that diversity of experience and approach amongst Board members is important, and it is the Company's policy to give careful consideration to issues of Board balance and diversity when making new appointments.

Board operation

The Board is responsible to Shareholders for the proper management of the Company and Board meetings are held on at least a quarterly basis with further ad hoc meetings scheduled as required. In the year under review, nine Board meetings were held, over and above the normal four quarterly Board meetings.

The Board monitors the investment performance of the Company in comparison to its objectives at each Board meeting. The Board also reviews the Company's activities since the last Board meeting to ensure that the Investment Manager adheres to the agreed investment policy and approved investment guidelines and, if necessary, approves changes to such policy and guidelines.

At the Company's quarterly Board meetings, the Board typically considers the following business:

Further, the Board has refreshed its schedule of matters reserved for the Board in order to ensure full and effective control over appropriate strategic, financial, operational and compliance issues. The Investment Management Agreement between the Company and the Investment Manager sets out the matters over which the Investment Manager has authority, including monitoring and managing the existing investment portfolio and the limits above which Board approval must be sought.

Full details of the Directors' duties and obligations are provided at the time of appointment and are supplemented by further details as requirements change. A formal induction programme for all new Directors appointed to the Board remains in place.

The Board has access to the officers of the Company Secretary, who also attends all Board meetings. Representatives of the Investment Manager attend all Board meetings although the Directors may meet without the Investment Manager being present. Informal meetings between the Board and the Investment Manager are also held in between formal Board meetings as required.

Purpose and culture

The Company's purpose is to offer investors access to a sustainable, progressive quarterly dividend and enhanced capital value through investing in a diversified portfolio of ground-based solar PV and battery storage assets in the UK and internationally.

The Company's culture is aimed at achieving this purpose and creating an environment of proactive engagement between the Board and stakeholders, constructive challenge of the Investment Manager, holding key service providers accountable and encouraging openness, integrity and transparency in all business relationships.

The Board recognises its sustainability and ESG responsibilities and aims, with the support of its Investment Manager, to continually improve the Company's ability to deliver attractive financial returns to investors alongside strong environmental, social and governance ("ESG") benefits.

Governance

The Board has continued to improve its governance framework throughout the year by working closely with the Company Secretary to review and refresh the Company's policies and procedures to ensure that they remain up to date and fit for purpose. This work included the restructuring of the Board Committees and the implementation of a revised risk management framework and business risk assessment, which was supported by the Board's Audit and Risk Committee.

Further, the Board has refreshed its schedule of matters reserved for the Board in order to ensure full and effective control over appropriate strategic, financial, operational and compliance issues.

Statement of compliance with the AIC Code

The Company is a member of the Association of Investment Companies ("AIC"). The Board has considered the Principles and Provisions of the AIC Code of Corporate Governance ("AIC Code"). The AIC Code addresses the relevant Principles and Provisions set out in the UK Corporate Governance Code (the "UK Code"), as well as setting out additional Provisions on issues that are of specific relevance to Foresight Solar Fund Limited.

The AIC Code is available on the AIC website (https://www.theaic.co.uk/aic-code-of-corporate-governance).

The AIC Code includes an explanation of how this Code adapts the Principles and Provisions set out in the UK Code to make them relevant for investment companies.

The Board considers that reporting against the Principles and Provisions of the AIC Code, which has been endorsed by the Financial Reporting Council and is supported by the Jersey Financial Services Commission ("JFSC"), provides more relevant information to Shareholders.

The Company has applied the Principles and complied with the Provisions of the AIC Code published in February 2019.

Attendance by Directors at Board and Committee meetings is detailed in the table below.

1. As part of the Committee composition review, Alex stepped down from the Audit and Risk Committee and Remuneration Committee on 23 May 2021.

2. As part of the Committee composition review, Ann stepped down from the Remuneration Committee and Nomination Committee on 23 May 2021.

3. As part of the Committee composition review, Chris stepped down from the Management Engagement Committee on 23 May 2021.

4. As part of the Committee composition review, Monique stepped down from the Management Engagement Committee on 23 May 2021.

5. As part of the Committee composition review, Peter stepped down from the Nomination Committee on 23 May 2021.

DIVISION OF RESPONSIBILITIES

The Company's governance structure is aimed at achieving the Company's purpose and creating a framework that supports the Company's intended culture and sustainability and ESG initiatives.

Our governance framework:

Board Committees

The Board has four standing committees: the Audit and Risk Committee, Management Engagement Committee, Remuneration Committee and Nomination Committee. The Board has adopted formal terms of reference for the four standing Committees which make recommendations to the Board in specific areas. These terms of reference are available to view by writing to the Company Secretary at the Company's registered office.

During the year, the Board has resolved to amend the constitution of the Board's Committees in light of the expanded Board. The refreshed composition of the Board's Committees is set out below.

AIFM Directive

The Company is categorised as a self-managed non-EEA AIF for the purposes of the Alternative Investment Fund Managers Regulation 2013 and the AIFM Directive and, as such, neither it nor the Investment Manager is required to seek authorisation under the AIFM Directive. The Board retains responsibility for the majority of the Company's risk management and portfolio management functions and performs a number of its management functions through the various committees described above.

MANAGEMENT ENGAGEMENT COMMITTEE REPORT

The main roles and responsibilities of the Committee are to:

The Management Engagement Committee's main responsibility is reviewing the performance of the Investment Manager in the context of the Investment Management Agreement between the Company and the Investment Manager. Further, the Committee is also charged with reviewing the performance of key service providers as considered appropriate. This Committee meets at least annually.

Performance of the Investment Manager

During the year, the Committee considered the Investment Manager's overall performance, its ability to support the Board in delivering the Company's purpose, the Investment Manager's relative performance against its peers and the remuneration of the Investment Manager for services to the Company for the year under review.

The Committee also challenged the Investment Manager on the resources available to the Company and the capacity of the Investment Manager to support the Company's growth strategy.

The Committee conducted a detailed review and was able to conclude that, while the Board should continue to challenge the Investment Manager on its ability to deliver growth, financial performance for the desired risk profile, effective management of the Company's assets and a sustainable, progressive dividend, the ongoing retention of the Investment Manager at the remuneration levels paid to the Investment Manager remained in the Company's best interests.

The Investment Manager is responsible for supporting the Company in developing its environmental, social and corporate governance framework and reporting. More details on this can be found in the sustainability and ESG section.

Performance of key service providers

The Committee also conducted a review of the Company's key service providers, including its Company Secretary and Administrator, brokers, PR agents, legal advisors and registrar. The Committee concluded that it would continue to work with service providers to address any performance concerns and to ensure that the fees paid to these advisors remained in line with the agreed budget and agreements with those providers. Further, the Committee was comfortable that the fees paid to key service providers were, broadly, in-line with market rates for comparable services.

Conclusion

The Committee, following its review of the performance of the Investment Manager, was satisfied that the Investment Manager's ongoing appointment on its current terms, as set out in the Investment Management Agreement, was in the best interests of the Company's Shareholders and other stakeholders.

Alexander Ohlsson

Chair of the Management Engagement Committee

8 March 2022

COMPOSITION, SUCCESSION AND EVALUATION

NOMINATION COMMITTEE REPORT

The main roles and responsibilities of the Committee are to:

The Nomination Committee is responsible for ensuring that the Company sets formal, rigorous and transparent procedures along with objective selection criteria that also seek to promote diversity of gender, social and ethnic backgrounds, cognitive and personal strengths for Board appointments and succession plans.

Appointments and succession planning

All appointments to the Board are subject to a formal, rigorous and transparent procedure and are typically supported by external search consultants. The requirements for vacancies on the Board are set with reference to objective criteria and promote diversity of gender, social and ethnic backgrounds, cognitive and personal strengths.

Further, the Board reviews, at least annually, its effectiveness and its combination of skills, experience and knowledge.

The Board, supported by its Nomination Committee, assesses the need for succession planning on an annual basis. The Nomination Committee has considered the tenure of the Company's Directors and whether succession was likely to be an issue in the near term.

In light of the continued strong performance of the Directors, the longer-term nature of the assets, and desire to retain corporate history, knowledge and experience, the Nomination Committee has recommended to the Board that the continued service of these Directors on the Board be welcomed.

The Committee, however, noted the desire for the Board to be continually refreshed and for the Board to continuously look for opportunities to improve its diversity. During the year, the Committee reviewed these requirements along with the tenure of the current Directors and the Chair. The Committee has resolved to implement a phased succession plan to ensure that the Company has strong continuity of leadership through the evolution of its strategy and allows for key roles and responsibilities to be handed over through the anticipated Director rotations.

The Committee reviewed the composition of the current Board and concluded that the Directors work well together as a board and possess a desirable balance of skills, experience and expertise. The Committee will continue to pursue the Company's succession plan with due regard to maintaining the effective working dynamics achieved by the current Board.

Board performance evaluation

The Board undertakes an annual evaluation of its own performance and that of its Committees through an initial evaluation questionnaire. The Chair then discusses the results with the Board and its Committees and takes appropriate action to address any issues arising from the process.

During the year under review the Company conducted an internal review of the Board's effectiveness. This review included an evaluation of the Chairman, each Director, the Board as a whole, and each of the Board's Committees.

As part of this review, the Committee considered the Board's progress against its effectiveness goals for 2021, as set in 2020, and concluded that Shareholder engagement was more limited than had been hoped for as a result of not being able to invite Shareholders to the Company's AGM in person during 2021. The Committee also initiated the refreshed composition of the Board's Committees during the year.

Under the leadership of the Nomination Committee, the effectiveness review for 2021 identified the following key issues for the Board to consider in 2022:

Overall, the Board is of the view that the Board, the Chair, each of the Directors and all Committees have performed well during the year and have continued to manage well despite the ongoing challenging circumstances arising from the pandemic. The Board continues to work well with the Investment Manager in developing the Company's growth strategy and promoting the long-term success of the Company.

Directors' professional development

Full details of duties and obligations are provided to the Directors at the time of appointment and are supplemented by further details as requirements change. A formal induction programme for new Directors is now in place. Directors are also provided with key information on the Company's policies, regulatory and statutory requirements and internal controls on a regular basis. Changes affecting Directors' responsibilities are advised to the Board as they arise. Directors also participate in industry seminars annually. Further, the Directors, as Directors of a Regulated Fund in Jersey, are required to undertake a minimum of 25 hours' continuous professional development per year and all Directors have met this requirement for 2021.

Diversity

The Board has adopted a formal Diversity Policy in order to support the Board's commitment to increased diversity at Board level as an essential element in maintaining an effective Board. This policy is reviewed by the Nomination Committee each year to ensure that it remains fit for purpose.

During the year, the Nomination Committee noted that the Company retained 40% female representation on the Board, but had limited ethnic diversity.

The Nomination Committee confirmed that it remained committed to ensuring that diversity in all forms, including gender and ethnicity, remained a component of the Company's recruitment and succession plans.

Conflicts of interest

The Directors have undertaken to notify the Company Secretary as soon as they become aware of any actual or potential new conflict of interest. Only Directors who have no material interest in the matter being considered will be able to participate in the Board approval process.

Other business relationships, including those that conflict or may potentially conflict with the interests of the Company, are taken into account when appointing Board members and are monitored on a regular basis. The terms of each Director's appointment letter with the Company require that they seek prior approval from the Board before taking up any additional external appointments.

The Board recognises the holdings of Ordinary Shares in the Company held by the relevant Directors. The Board considers these interests at each scheduled meeting and remains satisfied that they do not affect the ability of the Directors to exercise independent judgement or their objectivity.

Re-election of Directors

Mr Ohlsson, Mr Ambler, Mrs O'Keefe and Mr Dicks were all reappointed at the Annual General Meeting of the Company held on 16 July 2021. Ms Markey was also elected at the 2021 Annual General Meeting. All Directors will, again, offer themselves for re-election at the Company's 2022 Annual General Meeting.

Monique O'Keefe

Chair of the Nomination Committee

8 March 2022

AUDIT, RISK AND INTERNAL CONTROL

AUDIT AND RISK COMMITTEE REPORT

The main roles and responsibilities of the Committee are to: