Foresight Solar Fund Regulatory News (FSFL)

15 March 2023

Foresight Solar Fund Limited

("Foresight Solar" or "the Company")

Annual results to 31 December 2022

Foresight Solar Fund Limited, 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 results for the year ended 31 December 2022.

Highlights

Key Metrics

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

"Foresight Solar has enjoyed another strong year, benefiting not only from elevated power prices and higher than anticipated inflation, but also from its favourable power price hedges, good operational performance, and construction completion of the Spanish portfolio. This resulted in impressive total shareholder return of 24.8% for the calendar year and NAV total return for 2022 of 24%.

"Looking into 2023, the Company is pleased to declare a target dividend of 7.55 pence per share, a 6.0% increase year-on-year. Based on a strong contracted revenue position, and even after accounting for the effects of the EGL and the windfall tax in Spain, this year's target dividend is expected to be at least 1.50x covered from cash generated in the period alone. A similar level of cover is expected for 2024 and 2025, assuming current revenue forecasts.

"Operationally, the portfolio continued to perform well, generating above budget electricity levels. The Company's Spanish portfolio is now fully operational and, at 11% of total capacity, is expected to make a significant contribution to 2023 revenues. Foresight Solar has a strong focus on the Spanish market, and I am pleased to announce that the Company is in advanced negotiations to acquire the full project rights to a development-stage portfolio in the country with a potential capacity of more than 400MW. The transaction is well progressed and is expected to close in the first half of 2023.

"After the year end, Foresight Solar also entered exclusive negotiations for the rights to a further 50MW ready-to-build battery project. Discussions have progressed well and completion is expected in the second quarter of 2023. Given the positive market dynamics, the Investment Manager is actively considering building this asset as a longer duration project, as well assessing the potential for extending the duration of its other BSS sites.

"The Investment Manager believes there are several attractive opportunities in UK battery storage and in development-stage portfolios in the UK and Europe. As governments continue to support the transition to a net zero economy and prioritise domestic energy security, there is significant upside for the Company's core solar and battery storage markets. These industry fundamentals, combined with Foresight Solar's exciting pipeline of opportunities and attractive yield, position us strongly for 2023 and the following years."

Results presentation

Foresight Solar is holding a presentation for analysts at 09:30 today. Analysts wishing to attend should contact foresightsolar@citigatedewerogerson.com. The presentation will also be uploaded to the Company's website.

Dividend Declaration

Foresight Solar confirms total dividends of 7.12 pence per ordinary share for 2022, in line with its target.

The Board is pleased to announce the fourth and final interim dividend relating to 2022 of 1.78 pence per ordinary share ("the Dividend"). The shares will go ex-dividend on 20 April 2023 and the Dividend will be paid on 26 May 2023 to shareholders on the register as at the close of business on 21 April 2023.

The expected timetable in relation to the Dividend is:

For further information, please contact:

Foresight Solar Fund Limited

Annual report and financial statements

for the year ended 31 december 2022

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 and progressive investment returns to investors alongside strong environmental, social and governance ("ESG") benefits.

Investment objectives

Highlights

AS AT 31 DECEMBER 2022

In 2022, FSFL has delivered:

GEOGRAPHIC FOOTPRINT

At the end of the year, the Company's diversified portfolio comprised 61 assets, with a total global net peak capacity of 1,095MW.

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 2022.

The Company has enjoyed another strong year, benefiting not only from elevated short-term power prices and higher than anticipated inflation, but also from its favourable power price hedges, good operational performance and construction completion of the Spanish portfolio. This resulted in total shareholder return of 24.8% for the calendar year and NAV total return for the period of 24.0%. Earnings per share were significantly ahead of budget at 25.3 pence per share.

Dividend cover for the year was 1.74x, underwritten by attractive price hedges and higher merchant power prices. Forecast dividend cover remains robust even after accounting for the additional tax payments from the UK Government's Electricity Generator Levy ("EGL") and from the windfall taxes in Spain. The Company's revenue generation position in the short and medium term will be supported by the high proportion of contracted revenues, as the Investment Manager continues to forward-hedge power prices to build dividend cover.

Generation from the Company's global portfolio was 2.3% ahead of budget for the year, producing 1,113GWh of clean energy (2021: 903GWh). The UK portfolio, representing 75% of total generation for the period, enjoyed its best year to date due to a combination of strong irradiation and high levels of availability. Good operational performance in Australia was not sufficient to mitigate low irradiation. Across both markets, however, the effect of elevated power prices resulted in revenues significantly above budget for the year.

The Company is pleased to confirm that its existing portfolio of Spanish solar assets is now fully operational following energisation of the 26MW Virgen del Carmen project in October 2022. Whilst initial generation for the Spanish sites has not been included in the 2022 production figures, the projects are expected to make a significant contribution to revenues in 2023, representing 11% of total capacity.

FSFL has a strong focus on the Spanish market and, as such, we are excited to announce the Company is in advanced negotiations to acquire the full project rights to a development-stage portfolio with a potential capacity of over 400MWp in the country. The counterparty is an experienced developer that would continue to progress the sites under a development services agreement.The transaction is well progressed and is expected to close in the first half of 2023.

More broadly, the Company has made good progress in its diversification strategy during 2022, continuing to expand its portfolio of battery storage projects with two further acquisitions in the second half of the year. Post year end, the Fund also announced the proposed acquisition of the full project rights to a further 50MWp battery storage asset in Scotland, subject to final approvals. The Company will seek to develop this project with two-hour duration capacity and the Investment Manager is currently exploring options to similarly extend the duration of FSFL's other recent battery storage systems ("BSS") acquisitions. The Company believes the opportunities available in battery storage and development-stage assets provide good potential for growth and has visibility of a strong near-term pipeline in both sectors.

Key financials

In 2022, the NAV per Ordinary Share increased by 16.9% to 126.5 pence (31 December 2021: 108.2 pence).

The Company's financial performance during the year was strengthened by elevated power prices and inflation, alongside strong asset availability and projects emerging from construction. Sustained high power prices and inflation have driven returns, with consolidated revenue and EBITDA 26% and 37% ahead of budget for the year, respectively.

Power prices across all the Company's markets have been volatile but remained at elevated levels throughout the year. Actual power prices were above forecast, contributing to an 11.7 pence per share NAV uplift for the year, double the rise registered in 2021. The Investment Manager's commitment to forward-fix rates at attractive prices and the ability to fix output at these higher levels contributed to drive higher revenues.

Inflation also surged in 2022, reaching a 40-year high at the end of December, significantly ahead of the Company's revised forecast of 5.0%. A revised forecast of 6.5% has been applied for 2023 and in combination these adjustments produced a further NAV uplift of 11.1 pence per share.

This high inflationary environment resulted in the fastest tightening of monetary policy in decades as central banks grappled to bring spiralling prices under control. Between February and December, the Bank of England raised interest rates from 0.25% to 3.50%, which by extension has significantly reduced risk premia for renewable assets. Given the spread of yield to government bonds at 4.0% by the third quarter, the Board considered it appropriate to raise the discount rate for UK assets by 100 basis points to 7.00%, with a subsequent negative impact on NAV of 7.0 pence per share.

Operational performance

The Company's UK solar portfolio delivered an excellent year's performance with electricity generation 8.6% above budget, reflecting consistently high levels of irradiation and good asset availability. This was despite a small number of material incidents that impacted performance, such as supply delays for replacement inverters and occasional DNO outages. Looking at the technical performance of the UK assets excluding DNO outages, electricity generation was 9.0% above budget compared to an irradiation value of 9.4% above expectations.

Whilst operational performance in Australia was good, it was not sufficient to mitigate the lasting effects of La Niña. The meteorological phenomenon led to a third successive year of above-average rainfall and low irradiation, disrupting solar production across the country, and resulting in generation being below budget for 2022. Adverse weather was the main reason for the underperformance for the year, with irradiation 11.8% below forecast and production 12.5% below budget for the full year.

The Asset Manager carries out a process of continual improvement to optimise the portfolio, with recent initiatives focused on the evaluation and implementation of repowering options for sites where it is prudent to replace technology that is no longer well supported. Tendering and benchmarking of operations and maintenance contracts were completed during 2022, providing improved contractual terms and modest increases in NAV.

Acquisitions

The Company has continued to expand its position in the battery storage market with several further acquisitions. In August and October, the Fund announced it was acquiring 50% equity holdings in the Clayfords and Lunanhead BSS projects, both of which are scheduled to become operational in the second half of 2024. Post year end, the Company announced that it is in exclusive negotiations to acquire the full project rights to a further 50MW BSS site in Scotland, subject to certain conditions being met. Completion of this investment will bring the Fund's total battery capacity to the equivalent of 125MW.

The Company is also seeking to conclude its first investment in development-stage projects with the Spanish platform of over 400MW of potential capacity. This will involve acquiring 100% ownership of the project rights to the portfolio that is currently awaiting grid connection and environmental permits.

Dividends

The Company has declared total dividends of 7.12 pence per share for the year, in line with its target. The fourth and final FY2022 dividend of 1.78 pence per share will be paid on 26 May 2023.

Dividend cover for the year on a cash basis was 1.74x after paying a total of £35.7 million of debt.

I am pleased to declare a target dividend of 7.55 pence per share for FY2023, an increase of 6.0% compared with 2022. In establishing the 2023 dividend target, the Board has sought to balance the near-term benefits of higher forward power prices, inflation and cash generation against macroeconomic factors and power price forecasts over the long term.

Based on a strong contracted revenue position and including an assessment of the effects of the EGL and the windfall tax in Spain, the 2023 target dividend is expected to be at least 1.50x covered from cash generated in the period alone. A similar level of cover is also expected for 2024 and 2025 assuming current revenue forecasts.

Debt facilities

As at 31 December 2022, the total outstanding debt of the Company and its subsidiaries amounted to £524.8 million (31 December 2021: £512.0 million), including long-term debt of £409.8 million (December 2021: £388.6 million). Total gearing decreased to 40.5% of Gross Asset Value ("GAV") (December 2021: 43.7%), following drawdowns of £23.5 million of long-term debt in the Spanish portfolio, offset by scheduled repayments of long-term debt and £8.4 million net repayment of short-term debt during the year. Other adjustments to the nominal long-term debt balances include currency and inflation exposure. (Refer to the Alternative Performance Measures (APMs) shown on page 152 for more details.)

Long-term structural gearing represented 31.6% of GAV (2021: 33.2%), well within the 40% long-term debt target set by the Board. The Company's net debt position, after deducting existing Group cash balances, represented 32.7% of GAV (December 2021: 37.9%).

During the year, the Company announced it had refinanced and replaced two existing revolving credit facilities ("RCF") with a new £150.0 million facility. The three-year sustainability-linked resource is due to expire in February 2025 and does not need to be refinanced before then. As at 31 December 2022, the Company had used £115.0 million of its RCF, leaving £35.0 million undrawn (December 2021: £123.4 million used), of which £11.8 million was allocated to letters of credit due to expire during 2023.

Of the £409.8 million long-term debt, £320.2 million is exposed to interest rate risk, although the Company has interest rate swaps in place for 99.5% of this exposure. The interest rate for the remaining 22% of the Company's long-term debt is linked to inflation. The RCF facility remains unhedged, which the Board considers to be an appropriate level of exposure.

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

Sustainability update

Sustainability and environmental, social and governance ("ESG") considerations lie at the heart of the Company's ethos and operations. The Company frequently assesses its approach to sustainability and ESG, seeking to emulate and drive best practice wherever possible.

In 2022, the Company celebrated its first full year of data collection on various portfolio metrics, tracking different sustainability indicators that allow for performance monitoring and comparison. The focus has been on consolidating the Company's processes in terms of how sustainability and ESG considerations are embedded, recognising that such factors are of increasing importance to investors. We expect to continue to evolve and improve our processes and use the information collected in 2022 to drive meaningful change across all areas of sustainability and ESG.

Towards the end of the year, the Investment Manager launched its Nature Recovery Ambition Statement, written in collaboration with its sustainability partner, the Eden Project. The Statement will pave the way for a Solar Nature Recovery Blueprint, which will be used to guide a best practice approach to biodiversity baselining and nature recovery throughout the Company's portfolio.

The Board also recognises the importance of assessing climate-related risks that have the potential to materially impact its business. As such, it published its second Task Force for Climate-related Financial Disclosures report, with the analysis presented on pages 44 to 60.

Finally, the Company's programme of educational site visits continued its successful run, with assets playing host to nearly 500 schoolchildren across 12 separate site visits and 15 workshops during the year. These events not only help make the projects more meaningful to local communities, they contribute to educate the children and their families on the benefits of renewable energy and the importance of protecting and enhancing biodiversity.

The portfolio of assets has grown consistently since the Company's inception in 2013, providing more and more energy suppliers, companies and households with renewable electricity. The energy generated in 2022 alone equated to enough clean power to fuel over 383,900 UK homes.

Governance

During the year, the Nomination Committee commenced the first phase of the succession plan for the rotation off the Board of Peter Dicks, who will be succeeded by an appropriate candidate. The second phase of the Company's succession plan will focus on the replacement of Jersey-based Directors.

The Company's current auditors, KPMG, have now been in place for nine years and will be asked to re-tender as part of an ITT process for the reviews starting from the year ending 31 December 2024. The process will be managed by a Board steering committee and the Investment Manager.

Outlook

We entered 2023 with central banks hopeful that the most rapid tightening of monetary policy in decades had begun to wrestle inflation down. The Company now faces a materially different macroeconomic backdrop to that of 12 months ago. Yields on 20-year UK Government bonds ended 2022 at 4% and a return to the exceptionally low interest rates of the last decade is not expected in the near term. With spreads over the risk-free rate narrowed, the Company's ability to focus on growth opportunities alongside reliable yield is now more desirable than it has been in the past.

Following the political and regulatory turmoil of the past year, greater clarity has emerged in terms of government intervention in the energy markets. There is now defined guidance on the implementation of the Electricity Generator Levy in the UK and on the price ceiling and clawback tax in Spain. This has allowed the impact of such policies to be factored into Company forecasts.

With its most recent acquisition targets, the Investment Manager has signalled that there are attractive investment opportunities for the Company in the UK battery storage market and in development-stage portfolios. They continually appraise all segments within the Fund's investment mandate to assess investment attractiveness. For the last few years, it has been the Investment Manager's view that the pricing for UK subsidy-backed operational solar projects is not returns accretive. Whilst this position may change with discount rates increasing, the Company has displayed capital discipline and has not acquired any assets on the secondary market since 2018. Instead, the focus has been on driving performance from the existing portfolio and pursuing value-accretive opportunities in earlier stage projects.

The Investment Manager is reviewing several further development-stage opportunities in both the UK and across Europe and with a variety of structures, and is seeking to invest in similar solar or battery storage development pipelines in the United Kingdom.

In battery storage, the UK continues to be the most active market in Europe, assisted by a clear framework that is attracting private capital to develop a potential pipeline of over 34GW of new projects. The successful deployment of this target is dependent on the availability of new grid connections and so, realistic expectations for connection dates need to be set for projects not already in planning. Notwithstanding this, the Investment Manager continues to develop a significant pipeline of opportunities via trusted partners. The Company will also seek, where feasible, to develop battery projects with longer durations, reflecting the more favourable pricing dynamics and an enhanced ability to take advantage of arbitrage opportunities.

Across Europe, the deployment of large-scale ground-mounted solar is expected to accelerate over the next few years with many nations expected to be "gigawatt plus" markets for annual installations. This includes Germany, Italy, the Netherlands, Poland and Spain, which are all aiming to deploy significant levels of solar to meet net zero pledges, while reducing reliance on foreign gas imports to improve energy security. In 2022, the UK also approved a record of over 4GW of new solar capacity, which bodes well for greater numbers of projects reaching the ready-to-build stage in the near term.

Looking forward, we continue to see significant opportunity in the Company's core solar and battery storage markets as governments carry on supporting the transition to a net zero economy and prioritising domestic energy security. In addition to offering investors the opportunity to participate in the move to a greener society, the Company offers an attractive yield, alongside growth potential and an exciting pipeline.

Annual General Meeting

We look forward to meeting Shareholders at the Company's next Annual General Meeting ("AGM") on 14 June 2023 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

14 March 2023

MARKET CONTEXT

Market developments

United Kingdom

In April 2022, the then UK government of Prime Minister, Boris Johnson, announced the British Energy Security Strategy with the aim of expanding nuclear, wind, solar and hydrogen, alongside oil and gas. The Strategy's bold targets, which could potentially lead to 95% of Great Britain's electricity being produced from low carbon sources, took on new significance with the war in Ukraine as energy security concerns made a case for greater domestic production. The Strategy also highlighted the potential for the UK's existing 14GW of solar capacity to grow up to five times by 2035, with the promise of streamlining planning consents. Whilst there has been significant political upheaval since, this remains the official Government position.

The following month, in May, the surge in energy prices spurred by Russia's invasion of Ukraine prompted then Chancellor of the Exchequer Rishi Sunak to state that HM Treasury would not rule out expanding the windfall tax levied on the oil and gas sector to all energy producers, including renewables generators. In the political upheaval that followed, it would be over six months before details of the Electricity Generator Levy ("EGL") were defined. The buoyant listed infrastructure and energy market that had seen around £3 billion of capital raised in the first six months of the year collapsed in the second half, with both the macroeconomic backdrop and uncertainty around government intervention weighing heavily on investor confidence.

Notwithstanding these challenges, there has been positive progress on the planning side for both new solar and battery storage in the UK. It was a record year for solar farm approvals, with almost 4GW of new capacity signed off by August, up significantly from the 3.1GW that received a green light during all of 2021. This points to strong levels of deployment over the next five years. The battery storage market is also primed for significant growth, with a record 800MWh of utility-scale energy storage capacity added in 2022, while the sector is expected to bring online gigawatts of capacity every year to 2030.

The government has also been considering more fundamental changes to energy markets with the former Department for Business, Energy and Industrial Strategy (BEIS) last year publishing its consultation on the Review of the Electricity Market Arrangement (REMA).

Whilst this review is necessary to assess how best to construct a market that enables the incorporation of an increasing share of renewable energy and flexible generation, it is also incredibly wide ranging. The sooner there is clarity on the direction of travel, the better it will be for investors, operators and consumers.

The UK is not alone in taking such action. Across Europe, national governments are considering similar reforms to decouple the cost of electricity production from natural gas as the marginal price-setter. However, without a clearer position on what the price signals for future renewable energy income streams will be, there is risk that uncertainty will impact investor sentiment and actually limit deployment in the sector.

Australia

Australia's National Electricity Market ("NEM") experienced unprecedented volatility in spot prices during the first half of 2022. A combination of thermal generation outages, coal and gas supply problems and an early winter that increased demand led to an "energy squeeze" driving prices to record highs. Solar generators benefited from the fluctuations, locking in higher-than-expected revenues. The second half of the year brought a normalisation to the market with power prices returning to recent annual averages, including some negative pricing events occurring during peak mid-day solar production hours.

In May, Australian voters handed the Labor Party its first national election majority in almost a decade. Prime Minister Anthony Albanese succeeded in securing a mandate to deliver a proposed centrist platform based on climate and tax, promising to transform the country into a "renewable energy superpower."

To date, there is no proposed replacement for the Large-scale Renewable Energy Target ("LRET"), a scheme that incentivises the installation of renewable energy power stations. The government has, however, endorsed a domestic emissions reduction target of 43% by 2030, higher than the 26% to 28% target set by the previous Coalition Government; it has also extended stimulus for large-scale battery storage systems, with the Australian Renewable Energy Agency ("ARENA") granting significant funding to eight projects with an aggregate capacity of 2.0GW/4.2GWh in December.

At local level, the government of New South Wales is in the development phase of the state's first Renewable Energy Zone ("REZ"). These zones will group new wind and solar power generation in areas where it can be efficiently stored and transmitted, guaranteeing reliable supply as coal-fired power stations retire. The REZ in the Central-West Orana region promises 10GW of renewables by 2030 and 1GW of pumped hydroelectric power by 2036.

Meanwhile, in Queensland, the upgrade of the interconnector to New South Wales was completed in April and the Callide coal power station will remain closed until the first quarter of 2023. Both developments have reduced the oversupply of electricity in the state, effectively removing the downward pressure on prices in the local market.

Spain

As with the rest of Europe, Spain experienced high power prices at the beginning of 2022. This resulted in the government introducing measures to mitigate the effect on households and on the wider economy. Amongst the initiatives, a cap on natural gas prices, a tax on extraordinary energy revenues, and the suspension of the 7% generation tax, all had a direct impact on renewable energy assets.

Whilst such interventionist policies initially generated concerns for investors and operators, the relatively quick clarity provided and widespread nature of similar regulation across Europe served to level the playing field, allowing the Spanish market to remain active. A similar level of activity is expected to continue in 2023 based on strong market fundamentals and the government's overall supportive approach.

Despite the short-term noise, the Spanish government has ambitious renewable energy targets and is aiming to increase generation from solar and wind by 60GW to a total of 100GW by the end of this decade. Those goals can only be achieved with capital from the private sector, so, to hasten the deployment of projects, the government has pushed through market-friendly proposals.

In March, a package of measures to speed up the approval process of renewable energy projects, looking favourably on those with low environmental impacts, was enacted. In late January 2023, Spain's Ministry for Ecological Transition and Demographic Challenge ("MITECO") announced that approximately 25GW of solar PV projects had secured favourable environmental impact statements. Under current legislation these projects will need to complete by a mid-2025 commissioning deadline. Whilst it appears unlikely that there is even available resources to bring such volume of projects online in time, it is still expected to help drive a significant increase on the 19GW of current installed capacity.

The government also published the draft scheme for its latest capacity market auction, the process to award grid connection access to new renewable projects, with an update on the process expected in the coming months. Since the first tender two years ago, the government has authorised more than 6GW of production to solar, wind and biomass in four different processes.

Power prices

United Kingdom

The UK power market reached record highs during 2022, following what were already elevated prices in 2021. Day-ahead auction prices at N2EX, the exchange-traded marketplace in the United Kingdom, averaged £204/MWh during the year, a 75% increase on the 2021 average of £117/MWh. Pricing remained high throughout the 12 months, with an average of £176/MWh in the first half, whilst the second semester registered an increase to £232/MWh. Prices peaked in the summer, reaching an average of £370/MWh in August.

Surging natural gas costs in Europe placed direct upward pressure on power prices. The Russian invasion of Ukraine in February 2022 led European countries to limit their imports from what was previously the continent's largest fossil fuel provider. Combined with record-breaking temperatures, the boycott pushed gas prices to their summer highs. Demand in the UK also increased due to maintenance on oil generation plants. With prices at unsustainable levels, it was fortunate that milder autumn and winter temperatures across the continent reduced heating needs, limiting the demand for gas and helping to reduce prices by the end of the year.

Throughout the period, the Company continued its policy of entering power price hedges for periods up to 2026. Overall, the average price secured across the UK portfolio during the year, including fixed price arrangements, was £117/MWh, a 73% year-on-year increase to the £68/MWh achieved in 2021. The Company regularly monitors forward electricity prices and has continued to enter new arrangements at attractive prices into 2023.

As a response to rising energy costs, the UK Government extended its windfall tax with a levy on renewable generators for exceptional revenues that could be made over the next five years. The Electricity Generator Levy applies a 45% tax on generation revenues over £10 million and above a cap set at £75/MWh for 2023. This benchmark rate will rise in line with the Consumer Price Index ("CPI"), a measure of inflation, each year starting from April 2024 until the EGL is scheduled to end in April 2028.

Australia

The year was marked by increased coal-fired power plant outages and a continued surge in commodity prices, resulting in higher spot prices on the country's National Electricity Market (NEM). Coal and gas prices rose substantially in the first half of the year due to lower-than-expected supply and disruptions linked to Russian sanctions. The enhanced opportunity to sell liquefied natural gas ("LNG") and thermal coal in global markets led Australian gas generators to reprice their spot market offers, pushing prices higher.

In the first six months of 2022, the power price across the NEM was A$175/MWh, an increase of 191% compared to the same period a year earlier. In the second half of the year, however, spot prices fell in line with historical averages, bringing the full year average down to $A115/MWh, compared to A$60/MWh in 2021.

In Queensland, where the Company has three assets, several factors contributed to higher power prices in the first half of the year, including the outage at the Callide coal plant, which is expected to continue well into 2023. The second semester, on the other hand, was marked by good irradiance, but the excess solar generation and the reduced demand because of lower-than-usual seasonal temperatures led to lower power prices.

In the State of Victoria, home to the Company's Bannerton site, the pressure on supply was not as pronounced because operational coal plants experienced fewer outages, although, in the second half of the year, solar farms suffered increased economic curtailment because of lower demand.

Spain

Throughout 2022, power prices remained above historic averages as a direct result of the sustained upward trend in natural gas prices.

Spanish benchmark electricity prices are set by a marginal cost model, which means they are based on the cost of the most expensive plant required to satisfy demand - and that is typically gas-fired generation. With Russia's invasion of Ukraine pushing up natural gas prices, electricity prices followed.

Spiralling energy prices were eventually capped by the Spanish government in June, when it imposed a limit of €40/MWh on thermal generators that will gradually increase to €70/MWh by May 2023. Whilst the cap initially had a predicted end in June 2023, the government has already filed to extend it until at least 2024.

This cap resulted in average baseload prices of €135/MWh between June and December 2022, considerably lower than the €212/MWh registered for the first five months of the year. Although prices trended down in the second semester, this was mostly caused by higher wind production and lower gas prices.

In addition to the energy price cap, the Spanish government also implemented a levy on "extraordinary revenues", recently extended until December 2023. This tax seeks to claw back excess revenues received by renewable energy producers due to the incorporation of unusually high gas costs into the wholesale price of electricity. Although provision was made for power purchase agreements ("PPAs") signed up to a price of €67/MWh (prior to 31 March 2022), the tax charge amounted to, on average, an extra €32/MWh on unhedged production after the cap on gas prices was introduced. The combination of these interventions has effectively limited electricity prices at €120/MWh until the end of 2024, which is borne out by the forward rates.

Despite the cap and the tax, the wider landscape in Spain remains appealing. The country has some of the highest irradiation levels in Europe and, overall, the regulatory environment remains supportive, with the government looking to achieve ambitious decarbonisation targets. In the short term, despite the government's attempt to rein in high power prices, they remained materially above what was forecast when most recent investments in the country were made.

Subsidy revenues

The buy-out price for Renewables Obligation Certificates ("ROC"), the United Kingdom's main support mechanism for large-scale renewable electricity projects, for the 2022/23 annual compliance period increased to £52.88 (2021/22 compliance period: £50.80). The change reflected the average monthly percentage change in the Retail Price Index ("RPI"), a measure of inflation, during 2022. On average, the Company received 1.30 ROC/MWh across the UK portfolio. Meanwhile, the 2022/23 Feed-in Tariff ("FiT") rate for the Yardwall project, the only UK asset to which ROC does not apply, was £79.90/MWh (2021/22: £74.30/MWh).

In Australia, the average Large-Scale Generation Certificate ("LGC") price secured by the portfolio for the full year was A$21.12 per certificate, lower than the A$30.29 registered in 2021. This is due to step-down mechanisms in the contracted price, although, considering the timeline to 2030, the prices are in line with forecast merchant LGC prices.

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 considered 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 2022 expectations, the long-term average annual power price forecast used for December 2022 valuations increased 5.1% 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 resulting from the current elevated pricing environment.

The Company's forecasts over the short to medium-term assume a decrease in prices in real terms of 16.6% per annum as the current market is expected to revert to historical levels by around 2030. From that point on, prices are forecast to flatten out, with a 1.5% per annum decline expected as solar capture price discounts become more prominent.

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

Australia

Electricity prices are forecast to trend down through the 2020s, before rising as coal-powered plants retire and more expensive gas and flexible technologies set the majority of electricity prices in the following decade.

As more solar projects come online in the next few years, they will flood the grid with renewable energy during the day. This likely imbalance between supply and demand has the potential to push down prices of electricity generated from green sources. The introduction of new battery capacity, however, may help offset that discount as these storage systems can consume electricity to charge when prices are low and discharge back into the grid when demand is high - and renewable generation is low.

Spain

Although short to medium-term futures saw a significant increase during 2022, long-term fundamentals in the Spanish energy market remain largely unaffected. It is expected that a significant amount of new renewable energy capacity, particularly solar PV, will be added to the grid over the coming years due to the country's high solar resource. This will cause a decrease in power prices, particularly solar capture prices, in the long-term but this is already incorporated in the projections the Company's consultants prepare and is reflected in the valuation models.

Revenue analysis

The Company's income is 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 2022, approximately 39% of revenues were derived from subsidies, with the remaining 61% from the sale of electricity to the grid. However, given fixed price contracts secured via UK PPAs, 76% of revenues in 2022 were considered contracted (i.e. subsidy or fixed price sales), with the remaining 24% merchant.

For 2023, 79% of the total expected revenues across the portfolio are contracted. At the time of writing, the weighted average contracted price (under PPAs) for the UK portfolio in 2023 stands at £121 per MWh.

On an NPV basis, as at 31 December 2022, contracted revenues over the entire investment period represented 49% of the total forecast revenues.

The Company will continue to minimise the impact of power price volatility on future cash flows by entering fixed price arrangements for the sale of electricity. The goal is to achieve a high percentage of annual fixed revenues in the short and medium-term by actively managing the power price exposure of production. By way of example, the Company can fix some electricity sales in the summer, due to the seasonal production profile of solar assets, to support the dividend policy, while leaving some exposure to market rates that allow the Company to capture potential upside from power price volatility.

Status of contracted revenues

The table below sets out the average PPA fixed price achieved for the UK portfolio in each calendar year, and the proportion of generation that has been forward hedged.

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 £1,296.3 million on 31 December 2022.

On that same date, the Company had 609,958,720 Ordinary Shares in issue, all of 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 few key service providers.

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

The operating structure and key service providers are detailed in the graphic below:

Investment objective

The Company's objective is to provide investors with a sustainable, progressive quarterly dividend and enhanced capital value through investment in a diversified portfolio of ground-based solar farms and battery storage systems ("BSS") predominantly located in the UK.

Investment policy

The Company pursues its investment objective by acquiring ground-based 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, calculated at the time of investment. There is also scope for the Company to invest up to 5% of its GAV in development-stage assets, in other words, solar or BSS opportunities that are pre-construction and may not have secured grid connection rights or planning consent at the date 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. (Refer to the Alternative Performance Measures ("APMs") shown on page 152 for more details.)

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 a battery SPV, the Company will secure its rights through shareholders' agreements and other legal transaction documents.

Power purchase agreements ("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

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 no 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, but will not be limited to, ROCs and FiTs for UK assets).

The Company will also seek diversification 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, such as borrowing between members of the Group, and revolving credit facilities) will not exceed 40% of GAV at the time of drawdown.

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 firms that manage or distribute Alternative Investment Funds ("AIFs") in the EU or that market shares in such funds to EU investors. Under the AIFMD, the Company is self-managed and acts as its own AIFM.

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

Global portfolio revenue split

Global portfolio revenue split - NPV basis

Countries by 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

Portfolio summary

As at 31 December 2022, the Company's portfolio comprised 61 assets with a total net peak capacity of 1,095MW, of which 75MW remains under construction.

In the UK, the Company has an operational portfolio of 50 solar assets with a total installed capacity of 725MW. In addition, the Fund holds a 50% share in three battery storage projects, equivalent to 75MW, that are currently in construction. The Company owns four operational solar assets in Australia, totalling 170MW of installed capacity, and 125MW of installed capacity distributed across four solar projects in Spain that commenced operations in the second half of the year.

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

The Company's Spanish projects do not benefit from regulatory support. These assets bid into the long-term power purchase agreement ("PPA") market, aiming to strike production deals at determined prices with specific counterparties for a certain period, providing a high proportion of contracted revenues. They have been successful in settling those transactions, with the Lorca portfolio signing a ten-year agreement with Statkraft in December 2021 and the Virgen del Carmen project establishing a ten-year offtake agreement with Shell in September 2020.

Acquisitions

Clayfords

In August, the Company announced the acquisition of a 50% equity stake in Clayfords Energy Storage Limited ("CESL"), a 50MW lithium-ion battery energy storage plant based in Aberdeenshire, UK. The project is fully consented and construction-ready, and is expected to start commercial operations at the end of 2024.

CESL represents the Company's second investment into standalone battery storage systems, adding to the Sandridge project in Wiltshire, England, which was acquired in May 2021. Sandridge will provide portfolio diversification and operating efficiencies since it is adjacent to the Sandridge solar park, also owned by the Company.

Lunanhead

A third BSS project was added to the portfolio in September. The Company acquired a 50% equity stake in Gigabox No 4 Limited, known as Lunanhead, which holds the development rights to construct a 50MW energy storage plant in Angus, Scotland.

The project is fully consented and is expected to start commercial operations by mid-2024. It will be connected to Scottish Hydro Electric Power Distribution's network initially for a capacity of 45MW, increasing to the maximum capacity by early 2025.

INVESTMENT MANAGER'S REPORT

Questions and answers with the Investment Manager

Ross Driver recounts some of the opportunities and challenges faced in 2022, discusses the approach for the current year and outlines Foresight Solar's organic growth opportunities.

There were many macroeconomic and geopolitical issues affecting energy prices, renewables policy and equity markets in 2022. How would you summarise the year?

From an economic perspective, 2022 was certainly a year without recent comparison. Natural gas prices, and by extension electricity prices, were beginning to normalise from elevated levels when Russia invaded Ukraine in late February. The subsequent sharp rise in fossil fuel costs, particularly gas, was the catalyst that sent prices spiralling to the highs of late last year. In the UK and other developed economies, double-digit inflation led central banks to hike interest rates at the fastest pace seen in a generation. In combination, rampant inflation and rising interest rates had a significant impact on investors' risk appetite and, consequently, on equity markets.

In the UK, the already complex macroeconomic environment was compounded by political instability and regulatory uncertainty. Specific details on how the government's Electricity Generator Levy ("EGL") would operate were announced in December, a full six months after the initial indication that a windfall tax might be extended to renewable energy producers. This gap created a long period of uncertainty.

Inflation and what is next for gilt rates remains at the forefront of investors' minds. Political instability, government intervention and the potential for wide ranging market reform, however, risk undermining investor confidence, especially when other countries are planning significant economic support for renewable energy roll-out.

Despite this challenging backdrop, the Company managed to withstand external pressures, grow and deliver strong returns. Good operational availability across the generating portfolio resulted in production above expectations, and the Investment Manager continues to deliver on opportunities with the potential to organically grow the NAV. (Refer to the Alternative Performance Measures (APMs) shown on page 152 for more details.)

As you mention, Russia's invasion of Ukraine and the UK government's Electricity Generator Levy ("EGL") had a direct impact on energy prices. Did they peak in the third quarter of 2022?

That most likely is the case, but it does not mean that energy prices will quickly revert to levels seen in the years before the pandemic. Day-ahead gas prices fell significantly from mid-December to the start of 2023 but remain almost three times the historic average. Remember, Europe has experienced a milder winter than average, a glut of liquefied natural gas arrived in response to price signals, and until recently China was still pursuing its strict zero-COVID-19 policy. It appears the worst is over for now, but it remains to be seen what happens heading into next winter, especially if the Chinese economy can successfully re-open.

Late last year, the UK government provided much-needed clarity on the EGL. Whilst questions about its efficacy remain, mitigating factors in the draft legislation include the introduction of inflation indexation to the benchmark energy price from 2024. The EGL itself is unlikely to dampen immediate pressures in markets that typically forward-hedge power prices several years in advance, but we expect it will provide a meaningful contribution towards the government's price cap subsidy. Prices are falling in response to increased supply and a fall in demand, albeit in the UK there has not been a targeted government scheme on the latter. This helps reduce prices for now, but there could be further bumps in the road before power prices revert to historical averages.

In the near term, Foresight Solar is well insulated from potential falls in power prices thanks to its active hedging approach. The proportion of contracted revenues for the global portfolio now stands at 79% for 2023, 75% for 2024 and 66% for 2025, offering reassurance for dividend cover.

Inflation has been steadily climbing since the COVID-19 pandemic. In the UK, the Consumer Prices Index ("CPI"), a measure of inflation, rose by 10.5% in 2022. What are your expectations for this year?

The Bank of England will certainly hope that its programme of rate rises has been sufficient to stem the inflation spiral, and it appears indicators are beginning to fall even if January 2023 inflation remained in double figures.

As with energy prices, peak inflation is now likely behind us and most analysts expect it to fall significantly during the year, but the real question is how quickly that happens. Labour markets remain tight, understandably adding upward wage pressure and core inflation could prove to be stickier than initially thought. Peak passed, but we are not out of the woods yet.

The Company has always taken a prudent approach to inflation estimates and, as measures come down from their December 2022 and January 2023 peaks, our expectation is that the average throughout 2023 will be around 6.5%. Over the medium and long term, inflation assumptions remain unchanged at 3.0% from 2024.

In 2022, the Spanish portfolio became fully operational. Tell us a bit more about the evolution of those assets and what it means for the Company.

The four assets in Spain represent an exciting growth story. The Company acquired the project rights to the 125MW subsidy-free portfolio in late 2020, taking advantage of the Investment Manager's presence in the country, and shepherded the projects through construction to full operation.

Located in Granada and Huelva, in the south of Spain, the solar plants are in a region with some of the highest irradiation levels in continental Europe and are expected to make a significant contribution to revenues in 2023.

The Spanish electricity market is one of Europe's most active for the deployment of new renewable projects and continues to be a strong focus for the Company because of the attractive opportunities it offers.

The Company is now able to invest in development-stage projects. How do you see that creating additional value?

Development-stage projects are those that have a delivery plan and have secured some form of land rights but still require additional work before they are ready to start construction. This means the upfront capital commitment can be significantly lower than that for "construction-ready" assets. Whilst not all projects in a development portfolio will always achieve final approval for construction, those that do present the opportunity for superior returns. Hence why it is desirable to enter development with a portfolio approach.

The Investment Manager has the expertise to take on such projects, carefully pricing risks and being able to capture that increased financial upside from projects that are built out and brought into operation. Foresight Group has been doing this with joint venture development partnerships for several years, realising strong value uplift as projects reach the ready-to-build stage and once again at construction completion.

Delivery of the Lorca portfolio and Virgen del Carmen in Spain demonstrate the Company is already familiar with the second stage of this strategy. Taking the four assets from construction to operation delivered approximately 2 pence per share of NAV uplift in 2022.

What about battery storage systems ("BSS"), how do they fit into the overall strategy?

As the proportion of renewable generation increases, the requirements for grid stability and for services able to rebalance the intermittent nature of solar and wind energy are expected to increase. BSS will gain in importance and will play a significant role in the energy transition. It also offers diversification of revenue streams, both with the ability to capture capacity market contracts but also to arbitrage the peaks and troughs in volatile energy markets.

The Company currently has three BSS assets in its portfolio. Post year end, it entered exclusive negotiations for a potential fourth project, aiming for a closing date by the second quarter of 2023. The development of greenfield BSS projects, and the co-location with solar assets, has strong growth potential, and offers an additional, differentiated source of portfolio revenue with attractive

risk/return characteristics.

Looking ahead, what should FSFL stakeholders expect?

The Company's investment objectives remain unchanged. Going into its tenth year, the Company continues to build an attractive, diversified portfolio with the goal of preserving and enhancing capital value whilst also delivering a progressive quarterly dividend.

Alongside offering a strong, reliable yield, the Fund will further seek to offer an attractive Total Shareholder Return. As the markets continue to develop, we see a large number of growth opportunities to also offer investors continued NAV growth.

We are doing that with demonstrable environmental, social and governance benefits. We are proud to contribute to the transition to a lower carbon economy.

Our ultimate objective is to be the premium diversified solar energy platform in the industry, and we are delivering that sustainably.

Key investment metrics

The purpose and calculation methodology of the key APMs are shown on page 152.

Movements in Net Asset Value

The Company's NAV per share increased to 126.5 pence during the year from 108.2 pence in 2021. 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 every quarter. A broad range of assumptions is used in the models. These assumptions are based on long-term forecasts and generally are not materially affected by short-term fluctuations, economic gyrations or portfolio technical performance unless they represent a significant movement. Material changes to long-term forecasts typically have a greater impact.

It is the policy of the Investment Manager to value assets based on 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 and costs accrued during construction or during 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 while the assets have not yet reached commissioning.

This approach adheres to both IAS 39 and IFRS 13 accounting standards (page 125), as well as the International Private Equity and Venture Capital ("IPEV") Valuation Guidelines.

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

Discount rates for valuation

During the year, the Investment Manager reviewed the discount rates applied to the valuation of the portfolio due to increases in government bond rates. As a result of this analysis, discount rates for the UK portfolio were increased by 100bps from 6.0% to 7.0% on a levered basis to maintain an adequate premium to the risk-free rate. 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 8% for subsequent years, reflecting the merchant risk of the expected cash flows beyond the first two and a half decades.

For the Australian portfolio, assets are valued using a discount rate which is dependent on the level of contracted revenues in place. The weighted average discount rate across the Australian portfolio has increased to 8.00% (31 December 2021: 7.88%). This is due to assets with higher discount rates now forming a larger percentage of the Australian portfolio, rather than any underlying discount rate changes.

Since the Spanish assets commenced operation, they moved to valuation on a DCF basis. The discount rate for the three Lorca portfolio assets is 7.5%, whilst the discount rate for Virgen del Carmen ("VdC") is 7.0%. VdC is an unlevered project, therefore a lower risk premium is applied. It should be noted that the discount rates have not been reduced following construction completion given the recent increase in Euribor. As with all jurisdictions, these discount rates will also continue to be reviewed against recent transactions to ensure they reflect market values, and rates will be adjusted accordingly.

The weighted average levered discount rate across the portfolio is now 7.16% compared to 6.26% as at 31 December 2021.

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

Non-UK asset 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 2022 is 30.8 years (31 December 2021: 30.6 years) from the date of commissioning. This represents a remaining portfolio useful life of 23.0 years when the historical operational periods are taken into account.

The average useful economic life across 40 of the 50 operational UK assets goes beyond 25 years, averaging 32.3 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 remained stable at 34.4 years (31 December 2021: 34.4 years).

Movements in NAV

Dividends paid

The Company paid £43.0 million in dividends during the year to 31 December 2022.

Fund costs

Total costs were £10.6 million, which predominantly include management fees, financing costs and corporation tax incurred by the Company and its subsidiaries on a consolidated basis.

Other adjustments

Working capital adjustments in relation to the Company and its subsidiaries released £2.7 million.

Time value

A value uplift of £43.3 million, resulting from moving the valuation date forward and, therefore, bringing future cash flows closer to the present (and discounting them less).

Project actuals

Cash generation from UK projects exceeded modelled forecasts by £12.1 million in the year due to electricity generation base case outperformance, which is predominantly a function of the high power prices achieved across the portfolio and of strong operational availability.

Foreign exchange movements

Fluctuations in the exchange rate over the period positively impacted the GBP valuations of the Australian and Spanish assets by £3.0 million.

Power price forecasts

The Company uses forward-looking power price assumptions to assess the likely future income of its assets for valuation purposes. The Company's assumptions are based on a blended average of the forecasts provided by third-party consultants, which are updated on a quarterly basis.

The valuation change of £71.5 million during the period includes the impact of the UK, Australian and Spanish price forecasts. This also includes the effects of the UK Government's Electricity Generator Levy (EGL) on the UK portfolio.

Inflation forecasts

This update reflects actual inflation for 2022, which has been more than the 5% forecast used in the valuation modelling; as well as forecast inflation, which has been increased to 6.5% for 2023. For future years, assumptions remain unchanged: 3% from 2024 to 2030, dropping to 2.25% thereafter to reflect the convergence of RPI to CPIH, which is a more comprehensive measure of inflation. This modelling leads to the £67.7 million uplift.

Discount rates

The Investment Manager reviewed discount rates and, as a result, the UK levered discount rates increased to 7% from 6% during the year, causing the negative £42.9 million impact. The discount rates for other geographies were left unchanged.

Operational updates

Operational updates to the portfolio, including life extensions, newly signed O&M contracts, business rates updates and other asset-related costs came to £4.0 million.

Post-construction revaluation (Spain)

As the Spanish assets began exporting to the grid in the third and fourth quarter of 2022, their valuations moved to a discounted cash flow basis, leading to a £11.7 million gain, equivalent to a 1.9 pence per share increase in the NAV.

The Lorca portfolio added 1.1 pence per share to the NAV when it reached operations in the third quarter. The Virgen del Carmen project moved to a discounted cash flow valuation in the last quarter of 2022, adding 0.8 pence per share to the NAV. This represents a project valuation, whilst the overall NAV factors in the additional costs of bringing the asset to commissioning following schedule delays.

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 chart below shows the impact per share of changes in key valuation assumptions on NAV.)

The Investment Manager has set out the inputs which it has ascertained would have a material effect on the NAV in note 16 of the Financial Statements. All sensitivities are calculated independently of each other.

OPERATIONAL REVIEw

United Kingdom portfolio performance

The UK operational assets outperformed expectations during the year, with electricity generation 8.6% above base case reflecting annual irradiation that was 9.4% higher than forecast, and after adjusting for financial compensation received.

Whilst irradiation was notably higher during the year, especially over the summer, two other factors ensured high levels of asset availability and helped drive outperformance. The first was the utilisation of key spare parts that the Company has warehoused and the other was the Asset Manager's prompt resolution of a small number of material incidents across the portfolio. Both served to reduce assets' downtime and maintain production.

Some issues, however, were outside the Company's control. In 2022, the portfolio experienced a higher number of distribution network operator ("DNO") outages than in the previous year. The most notable was at Crow Trees, which lasted 12 days. When DNO outages occur, the Asset Manager works with the network operator to minimise their impact. Excluding these types of outages, production during the year was 9.0% above base case.

Another challenge was the lack of supply chain reliability. A few assets were affected by issues with certain inverter manufacturers. In the instances in which these problems have persisted, repowering of the assets was initiated, with works scheduled to begin in the first quarter of 2023 so that all solar farms are ready in time to benefit from the higher irradiation periods from spring.

Health and safety

The unusually hot summer in the UK led to ground fires at two of the Company's assets. Fire services promptly dealt with the incidents at Sandridge and Verwood, and there were no injuries or material impact on the solar farms or their production. Lessons were learnt and have been communicated to the Company's operator partners to further minimise the risk during high irradiation periods in the future.

One RIDDOR (Reporting of Injuries, Diseases and Dangerous Occurrences Regulations) was recorded during 2022 when an electrical fault occurred on an inverter at Verwood. Follow-up actions were undertaken to ensure procedures were correctly followed and to reduce the risk of further incidents.

Health and safety services to the SPVs remain in place via an independent consultancy that continues to provide additional support to the projects. The Asset Manager continues to monitor health and safety incidents and uses the feedback from these events to raise awareness, drive improvements and limit risks.

Ofgem audits

Audits remain open by the Office of Gas and Electricity Markets (Ofgem), the UK energy regulator, and the Asset Manager awaits further instruction to close them fully - but does not anticipate any material issues. At the end of the year, a total of 11 audits remained open awaiting responses from Ofgem, and one was fully closed.

Ofgem continues to request audits and the Asset Manager follows up promptly. As part of the regulator's oversight role, more audits are anticipated in 2023. To prepare for this, the Asset Manager has been conducting mock audits across the portfolio to establish any potential issues in advance and to mitigate the prospect of future reviews.

Security

One theft occurred at Crow Trees in early 2022 that had a minor impact on the solar farm's performance. The material damage and the production losses, however, were recovered in a successful insurance claim.

To minimise these types of occurrences and improve protection - with robust security systems - the Asset Manager completed CCTV upgrades across the portfolio. Additional initiatives, such as mock thefts, were also carried out to identify weak spots and determine potential corrective measures.

In terms of cybersecurity, the Company completed a global portfolio review to identify key risks at operator and asset level. For operational assets, technical risks are being mitigated with the completion of programmes of work to upgrade routers. On newly constructed assets, there is focus on the EPC contract to ensure that cybersecurity specifications are up to date and relevant.

Optimisation

During 2022, concerns about the potential for systemic inverter failures for some manufacturers increased, with the Company more actively reviewing options to repower sites where such risks may become a serious performance issue. The decision stems from the Company's abundance of caution since the inverters in question are not a significant proportion of the portfolio.

Regardless of isolated problems, technical optimisation of assets continued to further improve performance. Special attention was paid to string monitoring and reducing repair times. As part of that process, the Company continued to review the need for key spare parts and to make purchases accordingly. This strategy has proven successful, reducing downtime and driving operational efficiency.

On the commercial front, the work to extend leases continued to progress and the Company secured multiple extensions throughout the year. This has direct, positive financial implications as they are recognised in higher valuations of the assets. The programme of works continues into 2023 and more extensions are expected.

Regarding operations, two key operations and maintenance ("O&M") contracts were signed in 2022. In the first half of the year, a tender was completed for the five Second Generation Portfolio 1 assets, with a new 15-year agreement penned with Lightsource BP, the existing operator.

The second contract was with Brighter Green Engineering, which operates 25 assets in the UK. The agreement includes a reduction in price, with an average cost per megawatt 20% lower, and introducing more robust contractual guarantees to drive the performance of those assets.

The changes resulted in annual cost savings for the Company and uplifts in NAV. (Refer to the Alternative Performance Measures (APMs) shown on page 152 for more details.)

Australia portfolio performance

The Australian market experienced unprecedented volatility in the first six months of 2022; so much so that the market operator suspended the National Electricity Market ("NEM") in June to address energy security issues.

The wild price variability was a positive for some renewables companies and the elevated spot prices ensured the Company's Australian assets, for example, beat expected revenue in the months to July. In the second half of the year, the NEM returned to normality and re-established historical intraday patterns with negative pricing intervals in the central hours of the day.

Good operational performance from the Company's solar farms was not sufficient to mitigate the lasting effects of La Niña, which continued to limit irradiation across the country and led to generation 12.5% below forecast.

At the state level, in Queensland, despite the government completing the New South Wales interconnector works in May, Units C3 and C4 of the Callide coal plant remained out of service and will continue out of commission until April 2023. This combination of factors will likely result in smaller intervals of negative pricing in the middle of the day, benefiting solar generation.

Looking specifically at the Company's operational assets, Bannerton was affected by network constraints and outages, as well as irradiation levels below budget.

To improve the performance of assets more generally, the Asset Manager worked with a tracker manufacturer to implement a new algorithm that increases energy yield in diffused light conditions and early and late winter sun hours. The new tool was implemented in the first half of 2022.

Spain portfolio update

The three assets of the Lorca portfolio started producing electricity in late June and began full commercial operations in August. The project programme remained on track for construction completion, and the Provisional Acceptance Certificate ("PAC"), a significant milestone towards completion, was signed in December. Lorca is now operating under the Engineering, Procurement and Construction ("EPC") contract warranty and the Asset Manager is working with the EPC contractor to monitor the sites and ensure optimal performance.

Further west, in Huelva, the Virgen del Carmen ("VdC") solar farm commenced exporting to the grid in October and is going through the final commissioning phases of the EPC contract. The project was originally due to complete at the start of 2022, but a combination of delays in achieving the necessary public approvals and a subsequent halt to the energisation process due to wildfire risk meant that the connection occurred materially later. As a result, there were additional costs involved in bringing the asset to operations. These additional overheads were covered from group cash flows, but the project expects to recover liquidated damages from the contractor under the EPC contract.

Due to the recent commissioning date of the solar farms, generation from the Spanish portfolio was not included in the 2022 figures. All four sites are now operating in line with design specifications and with a full year's production in 2023, the projects will make a significant contribution to revenues, and this will be laid out in line with the rest of the portfolio. Spain consistently has some of the best irradiation levels in Europe and, with a supportive regulatory environment, the country remains an attractive market.

Battery storage systems ("BSS") construction update

Sandridge

The Company's 50% investment in Sandridge Battery Storage Limited, a 50MW lithium-ion project located in the UK, experienced construction delays in 2022 because of setbacks in broader grid enhancement works being carried out by the distribution network operator ("DNO").

Operations will now likely start in late 2023 or early 2024, although the effects of the delayed completion are expected to be more than offset by the improved market outlook for large-scale batteries.

Clayfords

Discussions with the DNO took place to bring forward the connection date for the UK-based 50MW project from the second half of 2024. A definitive date, however, has not yet been agreed.

The focus for the next steps of the project is on construction procurement, with the Investment Manager now evaluating options for extending the project to a two-hour duration.

Lunanhead

The principal activity is final negotiation of the EPC contract with the preferred supplier. A framework construction and operation contract is at an advanced stage, with an expected closing date during the first half of 2023.

The Investment Manager is evaluating the possibility to construct the 50MW Lunanhead BSS as a two-hour duration site, which would likely form the basis for future projects.

Electricity generation

The generation figures below for Australia and the UK have been adjusted, where relevant, for events in which compensation has been, or will be, received. The Spanish assets have not been included in the analysis due to their recent commissioning date.

case study

BATTERY STORAGE SYSTEMS ("BSS")

Longer duration opportunities

Context

Since the implementation of the Electricity Market Reform ("EMR") in the UK in 2013, the take-up of renewable generation increased to 38% in 2021 from 13% the year the policy was implemented. That share is likely to continue to grow if the country is to meet its 2050 net zero target. With more and more nations seeking to deliver on their own decarbonisation goals, the reliance on solar and wind production will only rise.

The intermittent nature of renewables, however, needs to be balanced with storage solutions if grid operators are to successfully manage supply and demand requirements.

It was the opportunity to capitalise on the nascent battery storage market that led Shareholders to vote overwhelmingly in favour of updating the Company's investment policy in 2020 to include BSS projects.

In the time since, the Company has acquired stakes in three UK-based projects, and the Investment Manager has an extensive pipeline of yield-accretive BSS opportunities from trusted partners.

The storage market is growing quickly. In 2022, the UK added a record 800MWh of new utility-scale energy storage capacity, bringing the total of connected projects to 2.6GWh. The country's battery pipeline has also continued to grow, reaching 34.5GW in December.

That same month, the EPEX wholesale day ahead market reached a new record high of £2,585/MWh. Roughly two weeks later, the N2EX wholesale market settled a record low price of minus £50.08/MWh. Negative pricing provides BSS with an opportunity to be paid to charge, and longer duration projects can take advantage of this to maximise revenues when pricing in other markets, such as ancillary services, is not as favourable.

After the year ended, in January 2023, the balancing mechanism registered the highest monthly volume of battery dispatches since late 2020. Numbers almost tripled to reach 0.3% of the BM total, demonstrating the BSS growth potential.

Description of revenue streams

Rationale

The abundance of projects has made longer duration assets even more appealing.

Part of that is due to the fast-evolving nature of the market. Short duration sites coming online have had a direct impact in the ancillary services market, increasing supply and pushing down revenues. One way to counter this budding saturation is to branch out to other revenue streams, capitalising on trading in the wholesale market, tapping capacity markets, and increasingly benefiting from the balancing mechanism. Longer duration sites are better positioned to capture these opportunities and generate growth for the Company.

Another important aspect of BSS projects with higher capacity is the potential to benefit from increased economies of scale in construction and connection. EPC contractors, for example, are offering more appealing terms for two-hour solutions, making these projects even more competitive in comparison to their one-hour counterparts. The longer duration sites may also be connected at transmission level, which provides the potential for additional revenue streams and for reduced upfront grid connection costs.

Considerations

The location of BSS sites is crucial to maximise returns. Parts of the network where batteries can turn up to solve locational constraints are the ones that offer the highest revenue potential. For longer duration assets, operating in a place where energy costs are high at peak times but there is cheap energy available because of turning down for constraints can be especially profitable.

Another relevant consideration is tied to the improved reliability of the latest battery storage technology, especially when it comes to its environmental footprint. Ensuring the traceability and the compliance of all project components and suppliers is already standard practice for the Company (as described in the Sustainability section of this report, on page 42), but it's something that has even stronger relevance when it comes to the extraction of the commodities needed to produce batteries.

Overview of existing assets

SUSTAINABILITY AND ESG

The Company's direct investments into solar energy generation and battery storage support global decarbonisation targets and the broader sustainability agenda.

Highlights

During 2022, the Company delivered on several landmarks:

Ratings

The Investment Manager is a signatory to the Principles for Responsible Investment ("PRI"), a set of voluntary guidelines that help companies address social, ethical, environmental and corporate governance issues as part of the investment process. The scorecard for Foresight Group's latest annual assessment is available via the PRI's assessment portal but, in summary, the Investment Manager achieved:

Approach to sustainability

Sustainability and environmental, social and governance (ESG) considerations are central to the Company's strategy, helping drive decision-making in both its investment and asset management processes.

A key component of this is the Company's ability to quantify, measure and enhance the sustainable impact it generates as a result of its investments and operations. The nature of the Company's business activities means it is well positioned to serve the needs of investors seeking to achieve positive environmental and social outcomes alongside attractive financial returns.

The Investment Manager's Sustainable Infrastructure Investment Strategy is based on:

Sustainable Finance Disclosure Regulation (SFDR) categorisation of fund

As a UK-managed entity, the Company is not obligated to deliver the EU-legislated reporting requirements under SFDR.

Due to the sustainable nature of the Company and its assets, however, it is currently in the process of obtaining Article 9 status under SFDR. The necessary disclosures will be published once this process has been finalised.

Pursuant to Article 11 of SFDR (which requires transparency via periodic reports), disclosures relating to the Company's overall sustainability-related impact by means of relevant indicators will be included in the SFDR Product Disclosures. The Principal Adverse Impacts ("PAI") of its investment decisions on sustainability factors will also be included and updated on an annual basis.

EU Taxonomy alignment

A key element of the European Commission's sustainable finance agenda, the EU Taxonomy is a classification system that provides transparent, science-based, industry-specific thresholds to determine truly sustainable assets and funds. The classification system aims to provide assurance to investors that projects make a genuine contribution to sustainability targets whilst also having no material negative environmental consequences.

Following internal review, 100% of the Company's assets were assessed as being aligned with the EU Taxonomy. The assessment involves scrutinising each asset against the EU Taxonomy's Technical Screening Criteria, inclusive of the Do No Significant Harm ("DNSH") criteria, to ensure that the projects meet the required standard.

Sustainable impact reporting

The UN's Sustainable Development Goals ("SDGs") are a set of 17 objectives that seek to mobilise the international community to deliver sustainable development by 2030. They represent a key driver of the Company's investment activities.

The table below and the subsequent graphic demonstrate to which SDGs the Company contributes, the underlying targets that contribution is measured against and the yearly performance.

Good health & well-being

Affordable & clean energy

Industry, innovation & infrastructure

Climate Action

Life on land

Portfolio Sustainability Metrics

For the Company's operational sites, a series of metrics are reported on quarterly, tracking sustainability and ESG performance via the Investment Manager's data platform, Sennen. In 2022, the Company completed its first full year of reporting against these metrics for each asset.

This information forms part of the Investment Manager's commitment to ongoing monitoring and is processed to generate data pertaining to sustainable impact, emissions reporting, social value, community benefits payments and other statistics pertaining to employment, Inclusion & Diversity, and waste management.

For the coming year, continued emphasis will be placed on encouraging participation from across the operator base to ensure the dataset continues to improve in quality and consistency. The information from 2022 will also give the Company a robust baseline against which to compare future results and help identify new opportunities for enhanced sustainability performance across the portfolio.

GHG emissions

Carbon footprint

Weighted Average Carbon Intensity (WACI) of investee companies

Share of non-renewable energy consumption and production

Board gender diversity

Emissions reporting

Emissions avoided

As demonstrated, the Company tracks and reports on the tonnes of CO2e1 emissions avoided as a result of its investments.

The Investment Manager has been undertaking a full review of the GHG emissions avoidance calculation methodology to reflect best practice and, going forward, intends to calculate them using country-specific grid emissions factors for the geography in which the asset is based, rather than the previous approach of using coal as the sole comparator.

This adjustment follows the International Financial Institutions ("IFI") Approach to GHG Accounting for Renewable Energy Projects and uses the Harmonised IFI Default Grid Factors for calculation. The modification will result in a lower number of avoided emissions being reported but they will be calculated using a more standardised approach to GHG accounting.

Absolute emissions

Although the Company's investment activities make a significant and quantifiable contribution to climate change mitigation through decarbonisation of the energy system, there are still emissions associated with the operation and maintenance of the portfolio.

The table below represents the key Scope 1, Scope 2 and Scope 3 carbon emissions statistics for the Company's operational assets. Scope 1 and Scope 2 data have been collected as part of the quarterly operational reporting and then calculated in accordance with GHG Protocol guidance.

Meanwhile, the Investment Manager continues to work with its supply chain to gain a better understanding of their emissions and enable more accurate calculation of associated Scope 3 emissions.

In the interim, the Scope 3 emissions presented below have been calculated using the Partnership for Carbon Accounting Financials ("PCAF") methodology, a financial industry-led group that aims to develop and implement a harmonised approach to assess and disclose greenhouse gas emissions associated with investments and loans. The calculation is based on project-specific revenues and on the official statistical PCAF information that provides region and sector-specific average emissions factors. The database has been created to provide PCAF participants with a large set of publicly available emission factors, enabling them to perform an initial assessment of emissions associated with their investment activities. Even though it is a widely accepted approach, it has its limitations, and the data remains generic. The intention is to continually refine this analysis as more of the Company's supply chain begins to report their emissions data.

Emissions avoided:

Absolute emissions: