NextEnergy Solar Regulatory News (NESF)

28 June 2016

NextEnergy Solar Fund Limited ("NESF" or the "Company")

Final results for the year ended 31 March 2016

Delivering on our strategy since IPO

NextEnergy Solar Fund announces its results for the year ended 31 March 2016.

Highlights

• Largest listed renewable energy fund on the London Stock Exchange by installed solar capacity, with 414MWp across an investment portfolio of 33 solar PV assets

• Significant operating outperformance; energy generated 4.1% above budget

• Net Asset Value ("NAV") per share of 98.5p (2015: 103.3p), reflecting reductions during the year due to power price forecasts and LECs removal, which had a combined negative impact of 14.6p per share. Adverse NAV effects mitigated by operating outperformance, NAV-accretive acquisitions and other value-add measures

• Weighted average discount rate increased from 7.5% to 7.7% to reflect project level debt. Unlevered equity discount rate unchanged at 7.5%. For reference, a discount rate of 6.6% would result in NAV per share of 111.3p

• Including capital raisings net assets rose 10% to £273.8m at year end (2015: £248.4m)

• £285.4m capital raised since IPO in April 2014; £38.8m raised in the financial year

• Financial debt outstanding of £216.6m at year end; £243m short and long-term debt facilities in place

• Total dividend per share up 19% to 6.25p, in line with our target; strong cash dividend cover of 1.2x

• 6.31p dividend target for the year ending 31 March 2017 to be paid in quarterly instalments

• Strong pipeline of acquisition targets and further growth opportunities under consideration

Financial highlights

As at 31 March 2016

Total capital raised £285.4m

NAV £273.8m

NAV per share 98.5p

Share price 97.8p

Dividend Yield 6.3%

Number of shares 308.8m

Market capitalization £271.7m

Dividends in relation to the year £17.4m

Net dividend cover 1.2x

Kevin Lyon, Chairman of NESF, commented:

"I am pleased to report another year of significant progress, in which we continued to deliver on the objectives set at our IPO in 2014."

"We are now the largest listed renewable energy fund on the London Stock Exchange by installed solar capacity. This is a testament to our proven ability to identify a high quality pipeline, raise capital, make acquisitions at attractive valuations and deliver outperformance through our operational expertise. This combination was critical in mitigating headwinds from declining power prices and removal of LECs during the year. I am particularly pleased to report a second successive year of operational outperformance across our portfolio."

"We are confident of achieving our dividend target of 6.31p per share for the current financial year to 31 March 2017. We have ambitious growth objectives, and expect to continue issuing capital and financial debt during the course of the current financial year."

Dividend Declaration

A second interim dividend of 3.125p per Ordinary Share declared on 28 June 2016, totaling £8.7m for payment on 22 July 2016 to all shareholders on the register on 8 July 2016.

Dividend Timetable

Ex-dividend date: 7 July 2016

Record Date: 8 July 2016

Payment date: 22 July 2016

For further information:

Notes to Editors:

NESF is a specialist investment company that invests in operating solar power plants in the UK. Its objective is to secure attractive shareholder returns through RPI-linked dividends and long-term capital growth. The Company achieves this by acquiring solar power plants on agricultural, industrial and commercial sites.

NESF has raised equity proceeds of £285.4m since its initial public offering on the main market of the London Stock Exchange in April 2014. It also has credit facilities of £243.1m in place (Macquarie and Santander: £120m, MIDIS: £55.0m, Bayersiche Landesbank: £45.4m and NIBC: £22.7m).

NESF is differentiated by its access to NextEnergy Capital Group (NEC Group), its Investment Manager, which has a strong track record in sourcing, acquiring and managing operating solar assets. WiseEnergy is NEC Group's specialist operating asset management division, providing solar asset management, monitoring and other services to over 1,250 utility-scale solar power plants with an installed capacity in excess of 1.7 GW. NextPower II is NEC Group's private equity fund with initial commitments of €150m, investing in operating solar power plants and focused on consolidating the substantial, highly fragmented Italian solar market.

Further information on NESF, NEC Group and WiseEnergy is available at www.nextenergysolarfund.com, www.nextenergycapital.com and www.wise-energy.eu.

Corporate Summary

NextEnergy Solar Fund Limited is a closed-ended investment company limited by shares, registered and incorporated in Guernsey under the Companies (Guernsey) Law, 2008, as amended, on 20 December 2013, with registered number 57739.

The Company is a Registered Closed-ended Collective Investment Scheme regulated by the Guernsey Financial Services Commission (the "GFSC") pursuant to the Protection of Investors (Bailiwick of Guernsey) Law 1987, as amended.

The Company has 308,807,105 shares in issue, of which 30,850,000 are held in Treasury and therefore have no voting rights, are admitted to the premium listing segment of the Official List of the UK Listing Authority ("UKLA") and are traded on the London Stock Exchange's main market for listed securities under the ticker "NESF".

The Company makes its investments through intermediate holding companies (the "UK HoldCos") and underlying Special Purpose Vehicles ("SPVs") which are ultimately wholly-owned by the Company (collectively referred to as the "Group"). References to the Company's activities (investments in solar PV plants or debt financing) refer to activities through the UK HoldCos. The UK HoldCos are registered and incorporated in England and Wales under the Companies Act, 2006, as amended:

• NextEnergy Solar Holdings Limited, incorporated on 24 March 2014, with registration number 08956168

• NextEnergy Solar Holdings II Limited, incorporated on 13 February 2015, with registration number 09438822

• NextEnergy Solar Holdings III Limited, incorporated on 20 July 2015, with registration number 09693016

• NextEnergy Solar Holdings IV Limited, incorporated on 16 March 2016 with registration number 10066420

The Company controls the investment policy of each of the UK HoldCos and their wholly-owned SPVs to ensure that each will act in a manner consistent with the investment policy of the Company.

The Investment Manager is NextEnergy Capital IM Limited (the "Investment Manager"), a company incorporated in Guernsey with registered number 57740 licensed under the Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended (the "POI Law") and regulated by the GFSC. The Investment Manager has appointed NextEnergy Capital Limited (the "Investment Adviser"), a company incorporated in England and Wales on 23 October 2006 with registered number 05975223, to provide investment advice, pursuant to an Investment Advisory Agreement.

Chairman's Statement

Introduction

I am pleased to present, on behalf of the Board, the Annual Report and Audited Financial Statements for NextEnergy Solar Fund Limited for the year ended 31 March 2016.

The Company acquires and owns operating solar power projects exclusively in the UK. Our investment strategy is driven by our belief that solar power projects have significantly less operating and financial risk than other renewable energy technologies, while regulatory risk in the UK continues to be lower relative to other geographical markets. We target equity returns of between seven and nine percent, an attractive yield considering our assets' risk profiles.

The Company has delivered a strong set of results in a difficult regulatory and trading environment, and we have significantly increased our asset base via well-priced acquisitions.

At year-end, the Company's portfolio comprised 33 assets amounting to c.414MW installed solar capacity and an invested capital of c.£481.0m (2015: 16 assets, 217MW and £251.6m invested capital). At the Date of Distribution, the Company was the largest listed renewable energy fund on the London Stock Exchange in terms of installed solar capacity.

Financial Results and Performance

Financial Results

The Company has prepared its accounts for the year to 31 March 2016 in accordance with IFRS. In accordance with these rules, the Company prepares IFRS financial statements considering the fair market value of its investments and net assets of its various subsidiaries.

Profit before tax was £2.0m (2015: £8.5m) with earnings per share of 0.78p (2015: 9.13p) negatively impacted by reduction in fair value of investments. Cash dividend cover was 1.2x.

The Company's Ongoing Charges Ratio ("OCR") was 1.2%, lower than budgeted (1.3%) and lower than previous year (1.5%). OCR budgeted for next year is also 1.2%.

Portfolio Performance

We are particularly pleased with the operational performance of the portfolio during the year. Overall, energy generated by our plants was 225GWh, approximately 4.1% above our budget. This is the Company's second year of energy generation outperformance relative to budget. During the previous financial year, energy generation from our portfolio amounted to 23GWh.

During the year, solar irradiation across the portfolio was 0.4% above our expectations, partially explaining the operational outperformance. However, the principal driver for our continued outperformance continues to rest with the structure and quality of our asset management organisation.

We did not experience any significant operational issues or technical underperformance across the portfolio as a whole during the course of the year.

The electricity generated by our portfolio is equivalent to a saving of c.104,179 tonnes of carbon emissions and sufficient to power some 57,000 households for a year. This is roughly equivalent to powering a city the size of Oxford for an entire year.

Net Asset Value

At the year end, the Company's NAV was £273.8m, equivalent to 98.5p per share (March 2015: NAV of £248.4m, 103.3p per share) mainly affected by reductions in our power price forecast and removal of LECs (which had a combined negative impact on NAV of 14.6p per share).

As experienced during the previous reporting period, several issues impacted the Company's NAV over the course of the reporting year. The Company was affected by the continuing decline of the market price of electricity, and we have revised our power price forecasts downward again to reflect current market conditions. Targeted dividends were paid during the year, while new assets acquired or completed were NAV-accretive at the time of completion.

We have further reduced our power price forecasts to take current market conditions into account, reducing our forecasts by an average 21% over the forecasting term. The unlevered discount rate remains unchanged at 7.5%, while we have valued asset portfolios with leverage acquired during the year at discount rates up to 8.5% to reflect project leverage. As a consequence, the weighted average discount rate across the portfolio increased to 7.7% from 7.5%.

Further details on the Company's NAV and discount rate are included in the Financial Review section.

Portfolio Growth

The Company's Investment Adviser carefully reviews acquisition targets that are identified in the market. There has been very significant activity in the UK solar sector in terms of assets being offered for sale. The Investment Adviser pursues only a small proportion of opportunities it identifies.

As part of the Company's growth during the year, we acquired several portfolios of operating plants as well as contracted to acquire solar plants to be built for us.

Overall, the group of assets added to the portfolio over the year was secured at attractive investment values compared to the average costs for solar plants we observed in the market. Considering each site's irradiation and Renewable Obligation Certificates ("ROC") banding, our average investment value is below the market average.

Capital Raising and Financing

The Company continued to secure support from its shareholders to pursue its growth strategy. In September, the Company issued 37.6m new shares taking the voting shares in issue to 278.0m. The majority of these shares were taken up by existing shareholders, underlining the backing we enjoy among parties that have supported our growth since the IPO in April 2014. This new capital was rapidly deployed (within six weeks) to secure new portfolio assets for the Company.

During the year, the Company took advantage of the strong interest of institutional debt providers and banks to lend to the UK solar sector to put in place a mix of short- and long-term debt. At the year-end, the Company had total financial debt outstanding of £216.6m (2015: no financial debt) on a pro-forma look-through basis including project level debt. Of the total financial debt, £100.4m was long-term fully amortising debt, while the remainder of £116.2m was drawn under the Company's short-term credit facilities. The Company sourced its financial debt from multiple providers, carefully selected to ensure competitive terms and conditions.

Dividend and Dividend Growth

The Company continues to achieve all of its dividend and dividend growth objectives. For the year under consideration, the Company will have paid out a total dividend of 6.25p per share (2015: 5.25p) in two half-yearly distributions.

Our target is expected to grow future dividends in line with UK retail price index growth, starting with the 2016/17 financial year. The UK retail price index published by the Office for National Statistics and applicable to the value of ROCs during the 2016/17 financial year was 1.0% and therefore we are targeting to grow the dividend to 6.31p per share for the 2016/17 financial year.

During the month of April 2016, the board decided to move to a quarterly dividend schedule, beginning with the 2016/17 financial year. We expect to pay out four equal dividends starting in September 2016 and continuing on a quarterly basis thereafter.

Corporate Governance and Regulation

The Board continues to review the Company's corporate governance structure with a view to maintaining best-practice processes and procedures. During the course of the year, the Board undertook a review of its effectiveness, taking into account the views of the external service providers and consultants of the Company. The outcome of the review was that the Board and the Audit Committee are functioning effectively. We undertake the Board effectiveness review on a yearly basis. Further details (including adhering to the 2014 UK Corporate Governance Code and viability statement reporting) on the Company's Corporate Governance can be found in the Corporate Governance section.

Market Developments

The solar PV sector has grown significantly in the UK. The Department of Energy and Climate Change ("DECC") reported that at the end of 2015 energy from renewables represented 27% of all electricity generation in the UK (up from 22% at the end of 2014), and solar PV represented c.10% of renewable generation for the full year 2015. DECC also reported a growth in installed solar capacity from 8,023MW in April 2015 to 9,519MW in March 2016, an increase of 19%. We expect the UK solar market to continue growing into 2016/17, and are forecasting a total installed capacity of c.12,000MW to be constructed and in place by the end of our financial year. This equates to a further growth of 26% in installed capacity and is the same target we expected at the time of IPO to be reached by 2020.

The ROC regime will come to an end on 1 April 2017, newly constructed solar projects will not be eligible to receive ROCs for the energy they generate and should be eligible for other forms of support, such as future Contract for Difference ("CfD") auctions and/or Feed-in-Tariff ("FiT") structures.

Nonetheless, the Company will continue to grow its portfolio by predominantly acquiring operating solar power plants constructed under the ROC regime.

Roughly 50% of the Company's long-term revenues derive from the sale of electricity into the market. As a result, the market price of electricity is one of the Company's key value drivers. We have observed a recent brief period of relative stabilisation in the electricity market price after a period of continuous decline over the year. The Company has sought to reduce revenue volatility by fixing the price of a significant portion of its generated energy. For the 2016/17 financial year, approximately 83% of the Company's expected generation, including ROCs and electricity generated, has fixed sales prices agreed.

Outlook

The UK Government held a referendum on 23 June 2016 for the UK to vote either to remain in or leave the European Union. As a result of the referendum, the majority of voters elected to leave the European Union ("Brexit"). While the impact of Brexit on the Company and on the renewable energy sector is at this point unclear, we believe it will have limited, if any, impact on the UK's climate change policies or the regulation of the sector. We will monitor any Brexit effects on power prices, sector regulation and growth opportunities carefully.

The risk-return characteristics of acquisition opportunities we are reviewing continue to be attractive and in line with our investment objectives. We expect to increase the portfolio of assets further during the course of the coming year.

The Company has begun reviewing refinancing options for its short-term credit facilities. These may include issuing long-term fully amortising debt or extending the facilities short-term (for further details see the Financial Review).

Given our ambitious growth objectives, we expect to continue issuing equity and increasing financial debt during the course of the next financial year.

In parallel, we will continue to focus on maximising the operating performance of the assets currently owned and exploring further value-enhancing opportunities around the existing portfolio.

Kevin Lyon

Chairman of the Board of Directors

Strategic Report

Solar Energy within Renewable Energy Context

Renewable energy is defined as energy sourced from theoretically inexhaustible sources and not derived from fossil or nuclear fuels. The principal renewable generation sources include solar, wind, geothermal, hydro and biomass.

The Company believes that, within renewable energy, solar represents the most attractive risk-adjusted investment opportunity. The low variability of solar irradiation over the long-term, low on-going operating costs and low capital expenditure requirements post-construction compare favourably with the characteristics of other clean energy technologies.

In the second period of operation, the Company has made a contribution to the reduction of greenhouse gas emissions into the Earth's atmosphere. The amount of CO2 emissions avoided by the Company's plants amounts to c.104,179 tonnes. This amount is expected to increase as the new plants in the portfolio achieve a full year of operation and further projects are acquired in due course.

Market Growth

2015 marked a very strong year for renewable energy worldwide as renewables added 156GW of net power generating capacity in 2015, compared to 97GW from coal, gas and nuclear. The cumulative amount of installed renewable generating capacity as at 2015 stood at 1,985GW. This trend is expected to continue, with renewable energy increasing its share of energy produced as well as of new capacity added to the global grid.

The transition to cleaner energy is driven and defined by important considerations, including the need to address climate change, emissions of greenhouse gases into the Earth's atmosphere, the relative rapidity in the construction of renewable energy plants, concerns on reliance of hydrocarbon sourcing and imports, the relative ease of constructing clean energy plants as well as the rapidly declining unit investment cost of renewable energy installations.

Developed countries and economies in transition across the globe continue to embrace renewable energy as a key energy source to satisfy increased energy demand and replace obsolete power generation plants.

Investment Objective and Policy

The Company's Investment Objectives and Policy are stated in the Investment Manager's Report.

Corporate Group Structure

The Company is a Guernsey Registered Closed-ended Investment Scheme. Further information is provided in the Corporate Summary. The Company's Board comprises three independent Directors.

The Company has a 31 March financial year-end and announces interim results in November and full year results in June. The updated NAV is published on a quarterly basis and in the course of any fundraising events during the financial year.

The Company's Board and Committees

The Company's Board of Directors comprises three independent, non-executive directors. The Board's role is to manage and monitor the Company in accordance with its terms of reference. The Board monitors the Company's adherence to its investment policy, the operational and financial performance of the Company and its underlying assets, as well as the performance of the Investment Adviser and other key service providers. In addition, the Board has overall responsibility for the review and approval of the Company's NAV valuations prepared by the Investment Manager and Administrator. It also maintains the risk register, which it monitors and updates on a regular basis. The structure of the Board processes allows the members to test business controls and choice of acquisitions to ensure they meet the strategy driving the long-term dividend target.

The Investment Manager, Investment Adviser, Developer and Operating Asset Manager

The Company's Investment Manager is NextEnergy Capital IM Limited. The Investment Manager has appointed NextEnergy Capital Limited to act as Investment Adviser in relation to the Company. Michael Bonte-Friedheim, Aldo Beolchini and Abid Kazim comprise the Investment Committee of the Investment Adviser, whose role is to consider and, if thought fit, recommend actions to the Manager in respect of the Company's potential and actual investments.

• Michael Bonte-Friedheim is Founding Partner and CEO of the NextEnergy Capital Group. He has over 20 years' specialist experience in the power and energy sector and was previously Managing Director in Goldman Sachs energy and power investment banking team in London and non-executive Chairman and CEO of listed energy companies.

• Aldo Beolchini is Managing Partner and CFO of the NextEnergy Capital Group. He has over 15 years' experience in investment banking and renewables. Mr Beolchini joined in 2008 and was previously Vice President at Morgan Stanley Investment Banking and an Officer at the Financial Guard Corps in Italy.

• Abid Kazim is the UK Managing Director of the NextEnergy Capital Group and has over 25 years' experience in strategy development and large programme delivery, with a significant track record in business outsourcing, transaction services, and service management in the renewable energy sector.

The Company has also signed a project sourcing agreement with NextPower Development Limited (the "Developer"), another unit of the NextEnergy Capital Group. The relationship has increased the efficiency of the transactional process reflected in the size of the investment pipeline and is a key driver for delivering dividend growth.

The Company has entered into an asset management framework agreement with the Operating Asset Manager WiseEnergy (GB) Limited, an affiliate of the NextEnergy Capital Group. Under the framework agreement, WiseEnergy (GB) Limited enters into individual asset management contracts with each solar power plant entity acquired by the Company and performs a broad and defined set of asset management activities for each entity. The collective experience of the NextEnergy Capital Group in managing and monitoring solar PV plants best positions the Company to implement efficiencies at both the investment and operating asset level. The technical and operating outperformance of the portfolio to date underlines the benefits of this comprehensive strategic relationship.

The NextEnergy Capital Group is a privately-owned specialist investment and asset manager focused on the solar sector. It was formed in 2007 and has developed a unique track record in the European solar sector. Prior to the IPO of the Company, it had developed, financed, managed the construction of and owned 14 solar projects in the UK and Italy. In addition, its asset management activities now cover the management and monitoring of in excess of 1,250 utility-scale solar power plants and approximately 3,000 solar rooftop installations for a total capacity of over 1.7GW on behalf of third-party equity investors and financing banks. Its clients include listed solar funds (in addition to the Company), private equity, family offices, renewable energy specialists and other equity investors as well as some of Europe's leading lenders to and financiers of the solar sector. The estimated value of the assets managed and monitored by NextEnergy Capital Group amounts to c.£3.5 billion. It has developed proprietary hardware and software products and solutions to facilitate delivery of its services to its client base. The NextEnergy Capital Group also manages NextPower II LP, a €150m private equity fund dedicated to solar PV investments in Italy.

NextEnergy Capital Group's team comprises some 50 dedicated staff focused on the European solar sector. The team has a combined investment track record of over 1GW in European solar transactions and had roles in over €100 billion in European energy and infrastructure transactions.

The Company, through its contractual arrangements with the NextEnergy Capital Group, has access to a highly experienced investment team and to a leading asset manager in the European solar sector and expects to leverage this expertise to secure further attractive solar power plant acquisitions and achieve best-in-class technical, operational and financial performance from its portfolio of operating plants. The wide range of services provided by the NextEnergy Capital Group strategically positions the Company to best resolve any potential technical and commercial issues that may impact individual assets and drive best-in-class performance. This ensures that the Company's solar PV plants are operated as efficiently as possible to optimise their technical and financial performances with a view to achieve and exceed the target cash flow yield over their useful life span.

Activities of the NEC Group for NextEnergy Solar Fund Limited

Investment Manager

NextEnergy Capital IM Limited

• Full discretion to make investments in accordance with investment policy

• Acts as Alternative Investment Fund Manager ("AIFM") of the Company

• Responsible for risk management and portfolio management activities

• Considers investment proposals, exclusively advanced by the Investment Adviser

• The Board reviews activity of the Investment Manager to ensure adherence to the Company's investment objective and investment policy

• Reports to the Company's Board comprehensively on all technical, operational and financial issues

Developer

NextPower Development Limited

• Sources and presents investment opportunities to the Company and its advisers

• The Company has right of first offer over all suitable projects identified by the Developer

• Identifies projects at all stages (pre-construction, construction and operation)

• Structures and negotiates, in conjunction with the Investment Adviser, project contracts

• Project manages pre-construction and construction phase

Investment Adviser

NextEnergy Capital Limited

• Provides investment advice and recommendations to the Investment Manager

• Identifies, in conjunction with the Developer, investment opportunities for the Company

• Evaluates investment opportunities and co-ordinates external due diligence activities

• Negotiates all project contracts with counterparts

• Prepares investment proposals and provides general advice and recommendations to the Investment Manager concerning the Company's portfolio, financing, strategy, market developments, etc.

• Reviews performance of the Company's portfolio together with the Operating Asset Manager

Operating Asset Manager

WiseEnergy (GB) Limited

• Assumes asset management of solar power plants upon acquisition

• Provides periodic technical, financial and administrative reports to the Company

• Undertakes periodic site visits on each plant

• Prepares technical and financial analysis of each site to assess and identify improvement potential

• Manages Special Purpose Vehicle's ("SPV") administrative and financial functions and requirements

• Ensures SPV's suppliers perform in accordance with contracts

• Manages unexpected occurrences at plants and ensures prompt response to any asset management requirements of the Company

Other Key Service Providers

In addition to the Investment Manager, Investment Adviser, Developer and Operating Asset Manager, the Company has the following key service providers:

Investment Outlook

The Company believes the investment outlook for UK solar remains very attractive. It expects to secure investment opportunities from a variety of solar sub- sectors over the course of the 2016/17 financial year. These opportunities are expected to include recently constructed plants accredited under the 1.4 ROC regime, projects to be built under current Feed-in Tariff ("FiT") or ROC regimes, previously constructed projects under the 1.4, 1.3 and 1.2 ROC regimes as well as portfolios of rooftop installations either already in operation or to be constructed over the course of the year.

At the Date of Distribution of this annual report the Investment Manager, together with the Developer, have identified a pipeline of c.540MW of short-term acquisition targets and are actively developing further opportunities.

The Company's market standing coupled with the NextEnergy Capital Group's market access will continue to position the Company as a pre-eminent participant in the UK solar market.

Kevin Lyon

Chairman of the Board of Directors

Corporate Social Responsibility

Context

There is an implied contract between business and society. Businesses need a healthy environment and society to survive, and communities also need successful businesses in order to progress, therefore mitigating negative externalities and securing a sustainable future.

The Company's activities are highly supportive of the environment, as they comprise renewable energy investments that directly address global environmental and climate change regulatory and political targets. For our investors, we seek to both mitigate the risk of increased regulatory pressure, as well as to improve the community relationship, that will indirectly drive a positive impact to the business.

The Company views the adoption of Corporate Social Responsibility ("CSR") and Environmental, Social and Governance ("ESG") principles as a potent source of innovation and competitive advantage for its core business. In this sense, it is committed to generating economic value in a way that also produces value for society by addressing its challenges and safeguarding the transition to a low-carbon economy.

Increasingly adverse social and economic pressures have pushed landowners and local communities to look for alternative sources of income and land use to support their financial sustainability. Whilst solar farms present this alternative source of income to the farmers and already benefit the local communities by giving them comfort that the land will not be misused, the Company has an ethical commitment to engage with them in a way that develops a strong and long-lasting relationship for the entire life-time of the project. This means getting involved in local projects for outdoor recreation, wildlife conservation, education, and raising awareness on benefits of solar farms for landowners and communities alike with investments such as biodiversity and local energy supply. By taking a proactive approach the Company creates what is termed as shared value to its regular activities.

Sustainable Metrics

In order to maximise value creation, the Company accounts for ESG metrics that relate to the value chain of its activities. By proactively taking an additional step to traditional investment in the photovoltaic solar industry, it aims to create higher standards of long-term value in the entire industry.

One of the core ambitions of the Company is to build supportive industry clusters for its projects in the UK. It believes it can achieve this by mitigating ESG externalities and enhancing relationships with stakeholders and developing projects that improve the ecosystem and environmental outputs of the photovoltaic solar plants it invests in.

As shown above, these actions create added value to the business, which studies show correlates with improved stock market performance over time, whilst concurrently positively impacting society. This leads to an optimal integration between the Company and society, maximising return to investors as shareholders to the Company, and also as part of society. The ultimate result of which is that society perceives the shared value and benefits generated from the Company's activities, supporting future business, and shareholders stimulate the company to continue implementing its strategy and investing in additional projects.

Implementing ESG Metrics in our portfolio

In 2015, the Company expanded its efforts in supporting local communities where its projects are located by investing in educational activities and development contributions.

The Company began engaging with local schools and intends to become more involved in coming years. It donated the appropriate photovoltaic systems and installed solar panels on the rooftop of a local school in Cornwall, helping them become more energy efficient and economical in the long-term. The Company's technical team has also been devoting time to educating local children on the technical and operational functionality of ground mounted solar farms, so they can appreciate the work and outputs that result from the solar farm that is connected with their community. The organised school visit to one of its sites in Suffolk.

We believe educating the community about the local environment is very important to improve their relationship with their own society and stimulate the preservation of ecological systems. With this in mind, the Company is now funding the building of an outdoor classroom structure in a country park in Bedfordshire, containing information displays about the park and its amenities (as shown below), for school groups and visitors to learn about the local environment, which is particularly rich in birdlife. One of our solar power plants in East Sussex already has an outdoor classroom structure in place, which the company aims to start making use of to educate the local community.

One of the Company's goals for 2016 is to continue deploying its efforts engaging with the community and start implementing the environmental metrics in developing a biodiversity management plan to:

• improve local stakeholder and community engagement and education on the benefits of transforming solar plants into ecosystem-friendly assets;

• improve local wildlife habitat conditions and community ecosystem services and well-being; and

• play an active role in assisting the UK meet its biodiversity and environmental policy targets.

This plan will allow the Company to optimise land use and improve landscape conditions, whilst systematically assessing the vulnerability of the projects and local communities to floods, droughts, and other climate change risks. It will also create opportunities for the community to learn more about the local environment and wildlife.

We believe supporting local communities is of paramount importance to sustain long-term relationships that help our solar power plants access value creation opportunities that ultimately contribute to their outperformance. By such means, the Company intends to continue to build stronger and long-lasting relationships that positively influence the efficiency and responsible management of its portfolio.

United Nations Principles for Responsible Investment

In our fiduciary role as institutional investors, we believe that ESG issues can affect the performance of investment portfolios (to varying degrees across companies, sectors, regions, asset classes and through time). In 2016, NextEnergy Capital Group committed to the United Nations' Principles for Responsible Investment (UNPRI), an independent, leading proponent of responsible investment.

By becoming a signatory, NextEnergy Capital Group companies work together to enhance the effectiveness by which it implements the Principles for Responsible Investment, reflecting the Company's initiative to incorporate ESG issues into investment analysis, decision-making processes, ownership policies and practices.

In partnership with:

PRI Principles for Responsible Investment UNEP FINANCE INITIATIVE/United Nations Global Compact

Investment Manager's Report

About NextEnergy Capital

The Investment Manager and Investment Adviser are both members of the NextEnergy Capital Group. The NextEnergy Capital Group is a specialist investment and operating asset manager focused on the solar energy sector, with a 50-strong team of which 25 are focused on the UK solar market. Through its operating asset management division, WiseEnergy, the NextEnergy Capital Group manages and monitors over 1,250 utility-scale solar plants and approximately 3,000 solar rooftop installations (comprising an installed capacity of approximately 1.7GW and an estimated £3.5 billion asset value) for a client base which includes leading European banks and equity investors (including private equity funds, listed funds and institutional investors). The NextEnergy Capital Group also manages NextPower II LP, a €150m private equity fund dedicated to solar PV investments in Italy.

Investment Objective

The Company seeks to provide investors with a sustainable and attractive dividend that increases in line with RPI over the long term. In addition, the Company seeks to provide investors with an element of capital growth through the reinvestment of net cash generated in excess of the target dividend in accordance with the Company's investment policy.

Investment Policy

The Company intends to achieve its investment objective by investing exclusively in solar PV plants located in the UK.

The Company intends to continue to acquire solar PV plants that are primarily ground-based and utility-scale and which are on sites that may be agricultural, industrial or commercial. The Company may also acquire portfolios of residential or commercial building-integrated installations. The solar PV plants that will be targeted are anticipated to generate stable cash flows over their asset lifespan.

The Company will typically seek to acquire sole ownership of individual solar PV plants through SPVs, but may enter into joint ventures or acquire majority interests, subject, in each case, to the Company maintaining a controlling interest. Where an interest of less than 100% in a particular solar PV plant is acquired, the Company intends to secure controlling shareholder rights through shareholders' agreements or other legal arrangements.

The Company has built up a diversified portfolio of solar PV plants and its investment policy contains restrictions to ensure risk diversification. No single investment (or, if an additional stake in an existing investment is acquired, the combined value of both the existing and the additional stake) by the Company in any one solar PV plant will constitute, at the time of investment, more than 30% of the Gross Asset Value. In addition, the four largest solar PV plants will constitute, at the time of investment, not more than 75% of the Gross Asset Value.

The Company will, primarily, continue to acquire operating solar PV plants, but may also invest in solar PV plants under development (that is, at the stage of origination, project planning or construction) when acquired. Such assets will constitute (at the time of investment) not more than 10% of the Gross Asset Value in aggregate. As at year end, the Company has not invested directly in solar PV plants under development.

The Company may also agree to forward-fund by way of secured loans the construction costs of solar PV plants where it retains the right (but not the obligation) to acquire the relevant solar plant once operational. Such forward-funding will not fall within the 10% restriction above but will be restricted to no more than 25% of the Gross Asset Value (at the time such arrangement is entered into) in aggregate and will only be undertaken where supported by appropriate security (which may include financial instruments as well as asset-backed guarantees).

A significant proportion of the Company's income is expected to result from the sale of the entirety of the electricity generated by the solar PV plants within the terms of power purchase agreements ("PPA") to be executed from time to time. These are expected to include the sale of ROC's, other regulated benefits and the sale of electricity generated by the plants. Within this context, the Investment Manager expects to conclude PPAs with creditworthy counterparties at the appropriate time.

The Company will continue to diversify its third party suppliers, service providers and other commercial counterparties, such as developers, engineering and procurement contractors, technical component manufacturers, PPA providers and landlords.

In pursuit of the Company's investment objective, the Company may employ leverage, which will not exceed (at the time the relevant arrangement is entered into) 50% of the Gross Asset Value in aggregate. Such leverage will be deployed for the acquisition of further solar PV plants in accordance with the Company's investment policy. The Company may seek to raise leverage at any of the SPV, UK Holdco or Company level. The Company has a preference for medium- to long-term amortising debt financing.

The Company intends to invest with a view to holding its solar PV plants until the end of their useful life. However, assets may be disposed of or otherwise realised where the Investment Manager determines, in its discretion, that such realisation is in the best interest of the Company. Such circumstances may include (without limitation) disposals for the purposes of realising or preserving value, or of realising cash resources for reinvestment or otherwise. The Company will seek to optimise and extend the lifespan of its assets and may invest in their repowering and/or integration of ancillary technologies (e.g. energy storage) on its solar PV plants to fully utilise grid connections and balance the electricity grid with a view to generating greater revenues. The Company expects to re-invest any cash surplus (in excess of that required to meet the Company's dividend target and on-going operating expenses) in further investments, thereby supporting its long-term net asset value ("NAV").

The Company may invest cash held for working capital purposes and pending investment or distribution in cash or near-cash equivalents, including money market funds. The Company may (but is not obliged to) enter into hedging arrangements in relation to interest rates and/or power prices.

Portfolio Highlights and Performances

At the Date of Distribution of this annual report, the Company has announced the acquisition of 33 separate solar PV plants for a total investment cost of up to c.£481.0 m, representing 169% of the equity proceeds raised to date. The 33 solar PV plants amount to an installed capacity of c.414MW in operation.

The portfolio grew continually during the year, with further equity and debt issuance enabling the Company to acquire an additional 17 assets during its second financial year, growing the number of plants from 16 to 33. At 31 March 2016, all of the 33 solar plants acquired by the Company were operational and connected to the grid.

During the year, the Company focused on integrating the acquisition of assets that had been previously announced and made further incremental acquisitions. The NextEnergy Capital Group has actively led the completion process of all the acquisitions made by the Company. The completion process is subject to the satisfaction of several conditions set in the interests of the Company, including the plant satisfactorily passing strictly-defined technical and performance tests. The details of these tests, and whether they refer to the delivery of preliminary, intermediate or final acceptance certificates (or PAC, IAC, FAC as they are known) vary across the portfolio but in general terms these are required by the Investment Manager to ensure that the Company settles the majority of the acquisition consideration only as and when the target solar PV plants demonstrate the desired level of quality and ability to obtain and exceed the expected technical performances in the long run.

The operational performance of the portfolio during the year was satisfactory. The Investment Manager is providing in this report details of the actual performance compared to expectation for 23 of the total 33 solar PV plants, specifically only those plants that have been managed and monitored by the NextEnergy Capital Group for at least three months at the year end. As a result of the Company's operating asset management strategy, this sub-portfolio of 23 solar PV plants generated an outperformance of 4.1% above the budgeted generation values, for a total generation of 225GWh. Solar irradiation across the sub-portfolio was broadly in line with expectations, registering 0.4% above budget. During the previous period, the observed sub-portfolio of six plants meeting the above criteria registered solar irradiation of 0.4% below budget, while energy generated by the portfolio was above budget by 4.8%.

Typically, energy generation of a solar PV asset is directly correlated with the level of solar irradiation received by the PV plant itself, such that a higher level of solar irradiation by any percentage should normally result in a higher energy generation by the same percentage. Active asset management practices and technical improvements can positively affect the technical performance of PV plants and thus impact this direct correlation (as well as unplanned outages or technical issues can negatively impact it). NESF defines as Asset Management Alpha the difference between the delta of energy generation vs. budget and the delta of solar irradiation vs. budget. The table below summarizes this analysis for the relevant periods since IPO:

The Asset Management Alpha allows the Company to identify a "real" outperformance of the solar portfolio due to active management having sterilised the effects of variation in solar irradiation. The nominal outperformance is calculated as GWh generated by the portfolio vs. the GWh expected in the assumptions used at the time of acquisition. In this light, the "nominal" outperformance of the Company's portfolio during the period ended 31 March 2016 was 4.1% whereas the Asset Management Alpha of 3.7% during the period represents the "real" outperformance due to active asset management.

The budgeted electricity generation and solar irradiation are derived from the financial models prepared at acquisition of each solar power plant and used to value and acquire such plant. An on-going operating outperformance versus the acquisition budget is expected to result in higher asset returns, other things being equal.

Investment Portfolio

The Investment Manager achieved a high level of diversification in the Company's portfolio: the 33 solar PV plants are located across 17 different counties of England and Wales, the largest one represents 9% of the total installed capacity and the four largest solar PV plants represent together 28% of the total installed capacity. In addition, the portfolio is diversified across 16 non-connected contractors, 12 different Tier 1 solar panel manufacturers and nine Tier 1 inverter manufacturers. This spread of counterparties effectively diversifies the Company's key counterparty risks.

Below is a summary of the overall investment portfolio with various relevant breakdown analysis:

(1) An explanation of ROC Regime is available at www.ofgem.gov.uk/environmental-programmes/renewables-obligation-ro

(2) As at the Date of Distribution of this annual report.

(3) Investment excludes debt drawn down included in cost.

(4) Part of the Three Kings portfolio.

(5) Part of the Radius Portfolio.

Higher Hatherleigh

Higher Hatherleigh was NESF's first acquisition, which took place in May 2014. The site is located near Wincanton in Somerset and has a capacity of 6.1MW. The site has performed well since it became operational in April 2013 and during the period from acquisition to 31 March 2016 the plant produced 11.9GWh (+6.8% vs budget). The acquisition cost was £7.3m and the investment value at year end was £6.9m, which is 1.8% of the portfolio value.

Shacks Barn

Announced shortly after the Higher Hatherleigh acquisition, Shacks Barn, located near Silverstone in Northamptonshire, was also acquired by the Company in May 2014. This 6.3MW plant has been operational since March 2013. Since acquisition to 31 March 2016, the site has produced 12.0GWh (+11.9% vs budget). The acquisition cost was £8.2m and the investment value at year end was £8.0m, which is 2.1% of the portfolio value.

Gover Farm

Gover Farm is the Company's most south-westerly asset, located near to Truro in Cornwall. The acquisition was announced at 9.4MW in June 2014. From acquisition to 31 March 2016, the plant produced 11.7GWh (+9.2% vs budget). The acquisition cost was £11.1m and the investment value at year end was £11.4m, which is 3.0% of the portfolio value. As part of the Company's commitment to biodiversity, the site is in the NextEnergy grazing programme ensuring that the land is dual-purpose and remains employed in food production.

Bilsham

Bilsham is located near Bognor Regis in Sussex, close to the southern coast of the UK. The plant was delivered to the Company in two phases with an initial phase of 12.7MW followed by an extension of 2.5MW in March 2015. The site produced 18.2GWh (+3.3% vs budget) since acquisition to 31 March 2016. The acquisition cost was £18.9m and the investment value at year end was £17.6m, which is 4.6% of the portfolio value.

Brickyard

Brickyard is a site located near Leamington Spa in Warwickshire and has a capacity of 3.8MW. Since acquisition to 31 March 2016, Brickyard produced 4.3GWh (+7.4% vs budget). The acquisition cost was £4.1m and the investment value at year end was £3.7m, which is 1.0% of the portfolio value.

Ellough

Ellough is a solar plant located on a disused airfield near Ellough in Suffolk and has been operational since March 2014. The 14.9MW site has produced 20.5GWh (+4.7% vs budget) since acquisiton to 31 March 2016. The acquisition cost was £20.0m and the investment value at year end was £18.8m, which is 4.9% of the portfolio value. The Company has committed to acquire a second phase to this project which has already been constructed and commissioned.

Poulshot

The Poulshot plant is located near Trowbridge in Wiltshire and has a capacity of 14.5MW. The plant was acquired in September 2014 and has been operational since March 2015. The site has produced 13.9GWh (+1.8% vs budget) since acquisition to 31 March 2016. The acquisition cost was £15.7m and the investment value at year end was £15.3m, which is 4.0% of the portfolio value.

Condover

Condover is located near Shrewsbury in Shropshire and has a capacity of 10.2MW. The plant was acquired in October 2014 has been operational since March 2015. The site has produced 8.7GWh (+3.4% vs budget) since acquisition to 31 March 2016. The acquisition cost was £11.7m and the investment value at year end was £10.5m, which is 2.7% of the portfolio value. The plant has been installed around two existing rocky outcrops on the site. These add an interesting dimension to the layout and provide sheltered habitat for local wildlife.

Llwyndu

Currently Llwyndu is the only asset owned by the Company that is not in England. This site is located in Mid-Wales and has a capacity of 8.0MW. The plant was acquired in December 2014 and has been operational since February 2015. This site has produced 6.9GWh (+2.4% vs budget) since acquisition to 31 March 2016. The acquisition cost was £9.4m and the investment value at year end was £9.0m, which is 2.4% of the portfolio value. It is the most westerly plant that the Company has acquired in the mid-country sector, close to the Ceredigion coast.

Cock Hill Farm

Cock Hill Farm is located near Trowbridge in Wiltshire and has a capacity of 20.0MW. The plant was acquired in December 2014 and has been operational since March 2015. The site has produced 17.3GWh (+0.8% vs budget) since acquisition to 31 March 2016. The acquisition cost was £23.3m and the investment value at year end was £22.2m, which is 5.8% of the portfolio value.

Boxted Airfield

Boxted site is located north of Colchester in Essex on the now disused Boxted Airfield. Boxted has a capacity of 18.8MW and was acquired in March 2015, after it became operational. The site has produced 18.6GWh (+3.0% vs. budget) since acquisition to 31 March 2016. The acquisition cost was £20.6m and the investment value at year end was £20.1m, which is 5.2% of the portfolio value. The site has been sympathetically installed and benefits from wildflower seeding which has been specifically designed to enhance the local wildlife population.

Langenhoe

Langenhoe is located near Colchester in Essex and has a capacity of 21.2MW. The plant has been operational since March 2015. The site has produced 22.0GWh (+6.8% vs budget) since acquisition to 31 March 2016. The acquisition cost was £22.9m and the investment value at year end was £21.5m, which is 5.6% of the portfolio value. The site overlooks the Mersey estuary and has innovative wildlife enhancement measures incorporated in to its design and operation with specific support for both local bird and bumblebee populations. The construction works also energised three previously off-grid properties.

Park View

Park View is located near Ashburton in Devon, situated at the top edge of a valley with a capacity of 6.5MW. The site has produced 4.9GWh (-1.3% vs budget) since acquisition to 31 March 2016. The acquisition of Park View was first announced in March 2015. The acquisition cost was £7.7m and the investment value at year end was £7.3m, which is 1.9% of the portfolio value.

Croydon

Croydon is a plant located in South Cambridgeshire and has a capacity of 16.5MW. The plant was acquired and has been operational since March 2015. The site has produced 15.5GWh (+2.7% vs budget) since acquisition to 31 March 2016. The acquisition cost was £17.8m and the investment value at year end was £17.0m, which is 4.4% of the portfolio value. The site also forms part of the Company's biodiversity drive after being sown with wildflower seed mix. The site will provide lengthy foraging seasons for bumblebees, a vital and declining species.

Hawkers Farm

Hawkers Farm is a site located near Theale in Somerset with a capacity of 11.9MW. The plant was acquired in April 2015 and has been operational since March 2015. The site has produced 12.3GWh (+3.2% vs budget) since acquisition to 31 March 2016. The asset is located on a dairy farm and the site itself is being grazed by sheep ensuring that the land stays in food production. The acquisition cost was £14.5m and the investment value at year end was £13.8m, which is 3.6% of the portfolio value.

Glebe Farm

Located not far from Wellingborough and partially on the old airfield land that is now taken up by the Santa Pod Raceway, Glebe Farm is one of the largest solar plants acquired by the Company with a capacity of 33.7MW. The acquisition was completed in May 2015. The plant has been operational since March 2015. The site has produced 26.0GWh (+10.0% vs budget) since acquisition to 31 March 2016. The acquisition cost was £40.5m and the investment value at year end was £38.8m, which is 10.2% of the portfolio value.

Bowerhouse

Bowerhouse is located near Banwell in Somerset and has a capacity of 9.3MW. The plant was acquired in June 2015 and has been operational since March 2015. The site has produced 6.4GWh (-6.8% vs budget) since acquisition to 31 March 2016. The acquisition cost was £11.1m and the investment value at year end was £10.5m, which is 2.8% of the portfolio value.

Wellingborough

Wellingborough is located near the town of Wellingborough in Northamptonshire and has a capacity of 8.5MW. The plant was acquired in June 2015 and has been operational since March 2015. The site has produced 5.6GWh (+3.1% vs budget) since acquisition to 31 March 2016. The acquisition cost was £10.8m and the investment value at year end was £9.9m, which is 2.6% of the portfolio value.

Birch Farm

Birch Farm is a 5.0MW site located near Colchester in Essex. The plant was acquired in September 2015 and has been operational since June 2015. The site has produced 1.6GWh (-1.0% vs budget) since acquisition to 31 March 2016. The acquisition cost was £5.3m and the investment value at year end was £5.5m, which is 1.4% of the portfolio value. The site also enabled an energy supply to be created at an adjoining recycling facility.

Thurlestone Leicester

Thurlestone Leicester is located in Leicestershire and has a capacity of 1.8MW. The plant was acquired in October 2015 and has been operational since April 2013. The site has produced 0.3GWh (-3.0% vs budget) since acquisition to 31 March 2016. The acquisition cost was £2.3m and the investment value at year end was £2.7m, which is 0.7% of the portfolio value. This asset is the only rooftop component of the Company's portfolio providing green energy to tenants of Social housing.

North Farm

North Farm is an 11.5MW site located in Dorset. The plant was acquired in October 2015 and has been operational since March 2015. The site has produced 3.1GWh (-9.7% vs budget) since acquisition to 31 March 2016. The acquisition cost was £14.5m and the investment value at year end was £13.9m, which is 3.6% of the portfolio value.

Ellough Phase 2

Ellough Phase 2 is located in Suffolk and has a capacity of 8.0MW. The plant was acquired in November 2015 and has been operational since March 2016. The acquisition cost was £8.0m and the investment value at year end was £8.0m, which is 2.1% of the portfolio value.

Hall Farm

Hall Farm is located in Leicestershire and has a capacity of 5.0MW. The plant was acquired in November 2015 and has been operational since May 2016. The acquisition cost was £5.0m and the investment value at year end was £5.0m, which is 1.3% of the portfolio value.

Decoy Farm

Decoy Farm is a 5.0MW site located near Colchester in Essex. The plant was acquired in November 2015 and has been operational since January 2016. The acquisition cost was £5.2m and the investment value at year end was £5.6m, which is 1.5% of the portfolio value.

Green Farm

Green Farm is located in Essex and has a capacity of 5.0MW. The plant was acquired in November 2015 and has been operational since December 2015. The acquisition cost was £5.8m and the investment value at year end was £5.8m, which is 1.5% of the portfolio value.

Fenland

Fenland is located in Cambridgeshire and has a capacity of 20.4MW. The plant was acquired in January 2016 and has been operational since March 2015. The site has produced 3.2GWh (+11.5% vs budget) since acquisition to 31 March 2016. Fenland is part of the Three Kings portfolio which has project level debt, the equity acquisition cost was £7.6m and the investment value at year end was £8.4m, which is 2.2% of the portfolio value.

Green End

Green End is a 24.8MW site located in Cambridgeshire. The plant was acquired in January 2016 and has been operational since March 2015. The site has produced 3.9GWh (+12.8% vs budget) since acquisition to 31 March 2016. Green End is part of the Three Kings portfolio which has project level debt, the equity acquisition cost was £9.2m and the investment value at year end was £10.1m, which is 2.6% of the portfolio value.

Tower Hill

Tower Hill is located in Gloucestershire and has a capacity of 8.1MW. The plant was acquired in January 2016 and has been operational since March 2015. The site has produced 1.2GWh (+8.2% vs budget) since acquisition to 31 March 2016. Tower Hill is part of the Three Kings portfolio which has project level debt, the equity acquisition cost was £3.0m and the investment value at year end was £3.5m, which is 0.9% of the portfolio value.

Branston

Branston is located in Lincolnshire and has a capacity of 18.9MW. The plant was acquired in March 2016 and has been operational since March 2015. This solar PV plant is part of the Radius portfolio whose acquisition of £47.5m was financed with project level debt and whose equity investment value at year end was £51.4m, which is 13.5% of the portfolio value.

Great Wilbraham

Great Wilbraham is a 38.1MW site located in Cambridgeshire. The plant was acquired in March 2016 and has been operational since March 2015. This solar PV plant is part of the Radius portfolio whose acquisition of £47.5m was financed with project level debt and whose equity investment value at year end was £51.4m, which is 13.5% of the portfolio value. This site is the largest in the Company's portfolio.

Berwick

Berwick is located in Sussex and has a capacity of 8.2MW. The plant was acquired in March 2016 and has been operational since March 2015. This solar PV plant is part of the Radius portfolio whose acquisition of £47.5m was financed with project level debt and whose equity investment value at year end was £51.4m, which is 13.5% of the portfolio value. The site has an adjoining community flower meadow and boards displaying information about the site for use by local residents and schools.

Bottom Plain

Bottom Plain is a 10.1MW site located in Dorset. The plant was acquired in March 2016 and has been operational since December 2014. This solar PV plant is part of the Radius portfolio whose acquisition of £47.5m was financed with project level debt and whose equity investment value at year end was £51.4m, which is 13.5% of the portfolio value.

Emberton

Emberton is located in Buckinghamshire and has a capacity of 9.0MW. The plant was acquired in March 2016 and has been operational since March 2015. This solar PV plant is part of the Radius portfolio whose acquisition of £47.5m was financed with project level debt and whose equity investment value at year end was £51.4m, which is 13.5% of the portfolio value.

Current and Long Term Power Prices

During the Company's second financial year, the wholesale power market in the UK experienced further downward volatility which has reduced revenues generated by the sale of electricity generated by the portfolio. Both short- and medium-term electricity prices moved downwards, as a result of, inter alia, lower-than-average winter temperatures, declining commodity prices and regulatory developments. Electricity spot prices fell from c.£40/MWh in March 2015 to c.£34/MWh in March 2016 (UK baseload - day ahead). In addition, the market consensus on long-term power prices has also changed in the estimates produced by the Company's appointed independent market consultant. The Investment Manager continuously reviews multiple inputs from market contributors and leading consultants and adjusts the Company's power price forecasts periodically to reflect the latest market developments.

Since the Company's IPO in April 2014 the long-term power price forecast used by the Company has been revised six times (August 2014 to April 2016) with a cumulative reduction of c.21% compared to the assumptions employed at 31 March 2015 and c.30% as at IPO. The Company's current long-term power price forecast implies an average growth rate of approximately 2.3% in real terms over the 20-year period starting April 2016. The financial performance of the Company and its NAV are sensitive to further positive and negative movements in the short-, medium- and long-term power prices. Detailed sensitivity analyses are provided in the Financial Review section of the Annual Report and Audited Financial Statements. It is worth noting that this exposure is significantly mitigated by the balanced mix of revenues typical of the solar PV plants acquired by the Company which, as at March 2017 are expected to comprise c.60% of regulated revenues (ROCs and embedded benefits, mainly linked to RPI) and c.40% of sale of electricity on the wholesale market through PPAs.

Power Purchase Agreements

The Company's electricity sales strategy is designed to maximise revenues whilst mitigating the negative impact of short-term fluctuations in the power markets. During the year, this strategy allowed for the flexibility required by the rapid growth of the portfolio, so that the Company could build significant scale to then optimise the PPA terms on the entire portfolio. As at 31 March 2016, the Company had a mix of PPA with fixed prices for periods ranging from three months to five years. As a result of these PPAs as well as of the UK regulatory framework, the Company had a total of 83% of its revenues linked to fixed power prices and ROCs until March 2017 and 68% until 2021, by mitigating the risk of dividend reductions from volatility in the power price market.

Taking into account the current level of performance of its portfolio, the Company expects to be able to meet its long term dividend targets even in a scenario in which power prices for the period to 2033 were to fall 40% below current forecasts or where to remain flat at current levels in nominal terms (i.e. not increased even for inflation).

Financial Review

Overall the Company performed positively during the year. Significant increases in the values of individual plants were driven by excellent transactional achievements and asset-specific over-performance. These positive factors have contributed to mitigate the negative impact of declining wholesale energy prices and regulatory changes throughout the year. The Company has met its targets for dividend distribution and generation of surplus cash to be re-invested in its portfolio or in further solar assets.

Dividends to Shareholders

During the year the Company paid the second interim dividend for the financial period ended 31 March 2015 of 2.625p per Ordinary Share and the first interim dividend for the year ended 31 March 2016 of 3.125p per Ordinary Share. A second interim dividend of 3.125p per Ordinary Share totalling £8,686,160 is expected be paid to shareholders in July 2016. As a result, the Company will achieve its target for total dividend distribution for the full financial year ended 31 March 2016 of 6.25p per Ordinary Share. The summary of all dividends paid by the Company until the Date of Distribution of this annual report is set out in the table below.

During the year the Company generated investment cash income of £24.0m and had net operating costs of £3.6m. As a result, the net dividend cover for the year was 1.2x. The table below provides additional details and metrics.

The Investment Manager currently estimates a 1.2x long- term dividend cover (assuming refinancing of the existing short-term debt positions with long-term debt at a conservative all-inclusive fixed rate of 4.5%).

As stated in the Chairman's Statement, the Company is targeting to pay a dividend of 6.31p per share for the 2016/17 financial year. Following the Board's decision to move to a quarterly dividend, as announced in April 2016, the forward looking dividend calendar is set out in the table below:

Operating Costs and Profits for the Year

The operating costs of the Company amounted to £3.5m, in line with expectations. The profit before tax for the year ended 31 March 2016 was £2.0m and the earnings per share was 0.78p, negatively impacted by reduction in fair value of investments.

The Company's ongoing charges for the year ended 31 March 2016 are 1.2%, lower than budgeted (1.3%) and lower than previous year (1.5%). The budgeted ongoing charges ratio for the next year ending 31 March 2017 is 1.2%.

Valuation of the Investment Portfolio

The Investment Manager is responsible for carrying out the fair market valuation of the Company's underlying investment portfolio, as described in Note 5. The resulting fair market value of the Company's investment portfolio is presented to the Company's Board of Directors for their review and approval. The valuation is carried out at least quarterly or more often if capital increases or other relevant events arise. The valuation principles used are based on a discounted cash flow methodology, and take into account Invest Europe (formerly European Private Equity and Venture Capital Association) guidelines.

The Investment Manager reviews multiple sources and inputs in determining the fair market value of the underlying investments, including analysing all announced solar transactions in the UK during the year as well as undertaking a discounted cash flow analysis of each investment made by the Company. The Investment Manager exercises its judgement based on its expertise in the UK solar PV market and in assessing the expected future cash flows from each investment. In the discounted cash flow analysis, the fair value for each operating asset is derived from the present value of the investment's expected future cash flows, using reasonable assumptions and forecasts for revenues and operating costs, and an appropriate discount rate.

For solar PV plants not yet operational or where the completion of the acquisition is not imminent at the time of valuation, the acquisition cost is used as an appropriate estimate of fair value.

The Board reviews the operating and financial assumptions, including the discount rates, used in the valuation of the Company's underlying portfolio and approves them based on the recommendation of the Investment Manager. As part of the annual audit, PricewaterhouseCoopers CI LLP ("PwC CI") reviews the valuation model used by the Investment Adviser, including the discount rate. The 'valuation' process comprises the analysis of multiple factors, all relevant to ascertain the fair value of the portfolio, including:

• Discount rates applicable for other comparable infrastructure assets classes or regulated energy sectors

• CAPM (Capital Asset Pricing Model) analysis and risk premia over relevant risk free rates

• Discount rates publicly disclosed by the Company's peers in the UK solar sector

• Discount rates implied in the price at which comparable transactions have been announced or completed in the UK solar sector

Based on all of the above, the Company continues to adopt a 7.5% discount rate for unlevered operating solar assets and started to adopt a discount rate up to 8.5% for solar assets with project level debt.

For those operating solar assets with fully-amortizing long-term project level debt (the Radius portfolio comprising Branston, Berwick, Bottom Plain, Emberton and Great Wilbraham, and the Three Kings portfolio comprising Fenland, Green End and Tower Hill) the Company has decided to adopt a higher discount rate to capture the greater level of risk associated with the cash flows available to equity investors after debt service. The appropriate level of risk premium due to project level debt was evaluated taking into account various factors for each specific asset including level of financial gearing, maturity profile and cost of debt. As a result, the discount rates applied to these projects range up to 8.5%.

The resulting weighted average discount rate for the Company's portfolio is 7.7%.

The Company does not adopt Weighted Average Cost of Capital ("WACC") as a discount rate for its investments, as it believes that the reduction in WACC deriving from introduction of long-term debt financing does not reflect the greater level of risk to equity investors associated with levered assets or levered portfolios. However, the following sensitivity analysis was prepared to illustrate the potential impact of using WACC as a discount rate. The Company's pre-tax WACC as of 31 March 2016 is 5.8%, driven by the low cost of debt of the short-term facilities. Assuming the entire short-term debt position of the Company was refinanced with long-term debt at a conservative all-inclusive rate of 4.5%, the resulting pre-tax WACC would be 6.1%. Had the Company adopted this pre-tax WACC of 6.1% as a discount rate for its portfolio, the NAV per share would be 117.9p (i.e. 20% higher than current NAV). For sake of comparison with other listed solar investment funds, had the Company adopted a pre-tax WACC of 6.6% as a discount rate for its portfolio, its NAV would be 111.3p per share (i.e. 13% higher than current NAV).

The value uplift generated by the assets valued on a Discounted Cash Flow ("DCF") basis is supported by an analysis performed by the Investment Manager demonstrating how the Company's portfolio (including all acquisitions since IPO) has been acquired through transactions closed at prices lower than the market average by approximately 2%. This analysis reviewed all publicly disclosed information related to acquisition of UK solar assets since 2014 and included adjustments for project specific ROC banding and site irradiation based on the Investment Manager's estimates and best knowledge and publicly available PVGIS database. The market average prices are then compared to each of the Company's completed acquisitions and the summary result is then calculated as a weighted average based on the installed MW capacity.

The DCF methodology implemented in the Portfolio Valuation assumes a valuation time-horizon capped to the current terms of the lease on the properties where each individual solar PV asset is located. These leases have been typically entered into for a 25-year period from commissioning of the relevant PV plants (specific terms may vary). However, the useful operating life of the Company's portfolio of solar PV plants is expected to be longer than 25 years. This is due to many factors, including: a) solar PV plants with technology components similar to the ones deployed in the Company's portfolio have demonstrated to be capable of operating for over 40 years, with levels of technical degradation lower than that assumed or guaranteed by the manufacturers; b) local planning authorities have already granted initial planning consents that do not expire and/or have granted permissions to extend initial consented periods; and c) the Company owns rights to inject electricity into the grid through connection agreements that do not expire. The Company has begun extending the useful life of its assets, mainly by extending the terms of the property leases for some projects with the intention of extending leases for others in due course.

As of 31 March 2016, the remaining weighted average lease duration of the Company's portfolio was 25.7 years. In this portfolio, the 33MW Glebe Farm is valued on the basis of an extended remaining lease term of 34 years and the 5 assets in the 84MW Radius portfolio on an average lease term of 29.5 years. For illustration purposes, should the entire portfolio of assets be valued on a 35 years basis from connection (assuming current lease terms) the Company's NAV would increase by c.11%.

As to the other main operating assumptions adopted in the DCF valuation of the portfolio, the Company conservatively values each solar PV plant on the basis of the minimum Performance Ratio guaranteed by the vendor or on the basis of the Performance Ratio estimated by the appointed technical adviser during due diligence. These estimates are generally lower than the actual performance ratios that the Company has been experiencing during subsequent operations. The Investment Manager deems it appropriate to adopt the actual Performance Ratio after two years of operating history, when typically the plants have satisfied the Final Acceptance tests. As of 31 March 2016, only three out of the 33 solar PV plants in the investment portfolio had at least two years of operating history, and their actual Performance Ratio was crystallized into the relevant financial model, therefore generating a material uplift in their valuation. As to the other 30 solar PV plants, these are expected to reach their two year operating life milestone according to the calendar below, and the Investment Manager currently expects to update the relevant Performance Ratio inputs based on the actual performance observed at that time.

For illustration purposes, had the entire portfolio of solar PV assets be valued based on actual Performance Ratios observed from date of commissioning until 31 March 2016, the Company's NAV would have increased by c.£6m representing c.2.0p per share.

The Company's NAV is calculated on a quarterly basis based on the valuation of the investment portfolio determined by the Investment Manager and the overlay of other net assets provided by the Administrator. It is then reviewed and approved by the Board of Directors. All variables relating to the performance of the underlying assets are reviewed and incorporated in the process of identifying relevant drivers for the discounted cash flow valuation. The portfolio valuation process and underlying drivers are subject to a comprehensive review as part of the year-end audit to ensure they are a true reflection of the expected operating environment.

The Company experienced NAV growth during the year ended 31 March 2016 mainly driven by the issuance of new capital in September 2015 for c.£38.8m and the acquisition of additional investments during the year. As a result, NAV grew over the year from £248.4m to £273.8m as at 31 March 2016.

The evolution of NAV per share during the year was affected by a number of positive and negative factors. During the year NAV decreased from 103.3p to 98.5p. As the Company reports its financial results under IFRS 10 (see note 2(c)) the change during the year in fair value of its assets drives the profit and loss of the Company. The change in NAV per share in the year from 103.3p to 98.5p was mainly driven by the following factors:

• The downward revisions in the forecasts for long-term power prices adopted by the Investment Manager for a cumulative reduction of c.21% compared to the assumptions employed at 31 March 2015;

• The removal of LECs in the July 2015 Summer Budget, which together with power price reductions had a cumulative negative impact on NAV of 14.6p per share;

• The value uplift generated by the Company completing acquisitions on assets whose internal rate of return was higher than the discount rate applied when valuing them on a discounted cash flow basis;

• The operating results achieved by the Company's solar PV plants; and

• The cash dividends paid in July 2015 and December 2015 and the Company's operating costs.

An important driver for the movement in NAV was the revaluation of the Investment Portfolio which accounted for £18.5m. This represented the difference between the acquisition cost and closing fair value of the portfolio at the end of the year. The revaluation is summarised in the net changes in financial assets at fair value in the Statement of Comprehensive Income.

The Company's investment portfolio is valued at £315.5m, comprising 26 investments valued through discounted cash flow methodology and three investments valued at investment cost. Among the 26 investments, Radius (which is considered as one portfolio investment consisting of five solar PV plants) was completed shortly after 31 March 2016, but the contractual conditions in its acquisition and financing agreements implied effective transfer of ownership before the year end and as such is included in the investment portfolio at year end. The valuation of the investment portfolio is net of the project level debt (£45.4m project financing advanced by Bayerische Landesbank to the 53MW Three Kings portfolio (comprising Fenland, Green End and Tower Hill), acquired by the Company in January 2016; and £55m project financing arranged by Macquarie Infrastructure Debt Investment Solutions ("MIDIS") in conjunction with the acquisition of the 84MW Radius portfolio signed by the Company in March 2016).

The three investments valued at investment cost (Ellough Phase II, Green Farm and Hall Farm) comprise the investments in solar PV plants for which the relevant milestones and technical tests had not yet been finalised at the year end and as such their completion was not deemed imminent. At the year end all of these three solar PV plants were operational and the Investment Manager was in the process of completing their acquisitions.

1. These investments were not yet completed as at 31 March 2016.

2. A summary of the total investment in the Holding Company is provided in note 5 (Investments) of the FinancialStatements.

3. These investments have financial leverage at project level.

Sensitivity Analysis

Sensitivities on the Company's NAV and detailed disclosure on the asset valuation methodologies are provided below and in note 12 (Financial instruments) of the Financial Statements.

In the previous reporting period, the sensitivity on energy yield was driven by a P10/P90 probability analysis on solar irradiation over 10 years, which is a technical standard employed across the broader renewable energy asset class (particularly relevant for Wind assets given the significant volatility of Wind energy sources year on year). The Investment Manager, based on its experience, considers that for solar PV assets more appropriate and meaningful information is provided by the sensitivity analysis of the aggregated effect of solar irradiation and technical performance (in a reasonable range of -/+ 5% over the life of the DCF valuation horizon). For reference purposes, the sensitivity based on P10/P90 would have resulted in a -/+9.6% impact on Portfolio valuation.

In addition to the above sensitivities on NAV, the Investment Manager has performed further sensitivities on actual cash generation. This analysis takes into account the impact of selected changes in valuation assumptions over the twelve months to March 2017. In this analysis, should energy prices fall by a further 10% from current forecasts, NESF would experience a reduction of only 2.6% in its net operating cashflows, such impact being mitigated by the fixed price PPAs in place over the period. Also, should the portfolio achieve an over performance of 5% throughout the twelve months to March 2017 (whether due to higher solar irradiation or asset management), total operating cashflows would increase by 6.6%. Conversely, these sensitivities on cash generation would have similar but opposite results in their respective inverted scenario.

Since the Company's IPO in April 2014 the long-term power price forecast used by the Company was revised six times (August 2014 to April 2016) with a cumulative reduction of c.30%. For sake of illustration, had the power price forecasts remained in line with those at the time of the IPO, the Company's NAV would be 131.2p per share.

Summary of Capital Raising and Capital Deployment

The Company completed five capital raisings since inception: its IPO of 85.6m New Ordinary Shares in April 2014, a second issue of 91.0m New Ordinary Shares in November 2014, a placing of 4.0m New Ordinary Shares in December 2014, a further 59.8m New Ordinary Shares in February 2015 and a further placing of 37.6m New Ordinary Shares in September 2015. All issues following the IPO have been completed pursuant to the Placing Programme announced on 10 November 2014.

On 9 November 2015, the Company issued 30,850,000 New Ordinary Shares to Cantor Fitzgerald at a price of 104.0p per Share under the Placing Programme. On the same day, the New Ordinary Shares were repurchased by the Company, at the same price, to be held in treasury.

The NAV per Share and the net cash position of the Company have not been affected by this transaction. This issuance and repurchase transaction was undertaken to provide the Company with flexibility to raise additional capital in an efficient and cost-effective manner in due course. The shares purchased have been placed in treasury and will be available to be sold out of treasury on a non-pre-emptive basis, subject to shareholder approval, to meet future market demand. The net proceeds of any sales of shares out of treasury will provide the Company with additional capital to enable it to take advantage of new investment opportunities. Shares will only be sold out of treasury at a premium to the then prevailing NAV per Ordinary Share.

Following the repurchase outlined above, the Company's issued share capital comprised 308,807,105 Ordinary Shares and the total number of voting rights in the Company was 277,957,105. The figure of 277,957,105 may be used by Shareholders and other investors as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in, the Company under the FCA's Disclosure and Transparency Rules.

Share Price Development

During the year the share price fell from 103.25p to 97.75p.

As a result of share price developments, and taking into account dividends paid, NESF total shareholders return was 0.2% for the year ended 31 March 2016 (and 3.2% since IPO). NAV total return for the year was 1.1% (and 3.7% since IPO).

NESF shares are included in the FTSE All-Shares Index as well as the FTSE Small Cap Index. Without taking into accounts dividends paid, NESF shares outperformed its FTSE All-Shares benchmark by 2.4% during the period end and by 3.2% since IPO.

Financing and Cash Management

As of 31 March 2016, the Company had a total of £74.2m in short-term financial debt outstanding, resulting from the following:

• £51.5m drawn under the two-year revolving credit facility ("RCF") advanced by Macquarie Bank Limited on 17 September 2014 (and subsequently syndicated for 40% to Santander) and extended to a total of £100m on 30 October 2015 (and further extended to £120m post year end); and

• £22.7m drawn under the debt facility advanced by NIBC Bank B.V ("NIBC") on 21 July 2015 to finance the acquisition of two assets (Cock Hill and Llwyndu). The NIBC Facility has a 12-month duration, with a further 12-month extension available. As of the Date of Distribution of this annual report, the Company is executing the extension of this facility with NIBC for a further 3 years. NIBC previously financed the construction of the two projects for the vendor. The upfront costs to the Company favourably reflected NIBC's previous involvement in and knowledge of the two projects and the remaining terms of the facility are in line with current market conditions.

In addition, during the year the Company made two investments in solar PV portfolios with project level long-term fully-amortising debt in place:

• £45.4m project financing advanced by Bayerische Landesbank to the 53MW Three Kings portfolio (comprising Fenland, Green End and Tower Hill), acquired by the Company in January 2016; and

• £55m project financing arranged by Macquarie Infrastructure Debt Investment Solutions ("MIDIS") in conjunction with the acquisition of the 84MW Radius portfolio signed by the Company in March 2016

As a result, the total pro-forma debt position of the Company on a look-through basis as of 31 March 2016 is £216.6m. This represents a gearing of 44% in terms of total debt vs. Gross Asset Value (which is equal to NAV plus total financial debt outstanding). The corresponding average cost of debt is 3.5%. After the end of the year, and as the Date of Distribution of this annual report, the Company has further extended its RCF to a total of £120m. The table below provides detailed information on the total debt outstanding as of the Date of Distribution of this report:

It is intended that the short-term facilities will be repaid through one or a combination of the following: rollover of the same short-term facilities, refinancing with a long-term debt facility and/or further equity issuance. The Investment Manager is actively working on the refinancing of the £120m RCF and has selected a leading financial adviser to the Company to run a competitive tender process with a view to finalise the refinancing during the fourth quarter of 2016. The Investment Manager is also working with NIBC with a view to extend the existing short-term debt facility for a further 3 years and to potentially extend it to £50m to finance the acquisition of further assets.

The Investment Manager has not charged any additional fees to the Company in conjunction with the structuring, execution and monitoring of any of these financial debt facilities.

The debt financing strategy of the Company is supported by strong indications of support from equity investors for both further capital increases to increase the Company's size and the employment of financial leverage up to the 50% target level to optimise equity returns. Additional comfort on the employment of structural debt comes from the evidence of robust and increasing appetite from institutional debt capital providers for long-term dated securities backed by solar PV assets, with levels of gearing that range up to 75-80% Loan to Value. This buoyant debt market is supportive for highly geared debt strategies, which usually require accepting long- term PPAs of up to 15 years at discount to market price, a requirement that limits the overall revenue obtainable for energy generated over such a term. However, the Investment Manager negotiated debt financing agreements that left flexibility to the Company to negotiate PPAs over time with a view to maximise revenues.

As at 31 March 2016 the Company's total assets included cash totalling £5.9m split between Barclays Bank PLC and Lloyds Bank PLC.

Outlook

The UK solar PV market continued to experience exceptional growth during the year, reaching a total installed capacity of 9.5 GW, an increase of 19% over the last twelve months. In addition, the announcement of regulatory changes that introduced a phase-out of the ROC and FiT regimes for new solar installations after 31 March 2016 caused a further acceleration in the rate of new installations expected to be commissioned.

During the year the regulatory framework for UK solar PV underwent significant changes:

On 8 July 2015 the Chancellor of the Exchequer introduced as part of the Summer Budget 2015 the removal of the Climate Change Levy exemption for renewable electricity generation, effective 1 August 2015. This has negatively impacted the valuation of the portfolio and the Company's NAV (by an estimated 4p per share, partly offset by a reduction in corporate tax rates introduced in the same Summer Budget 2015, resulting in total impact of 3.2p per share).

Over the course of 2015, the Department of Environment and Climate Change (DECC) undertook a review of the subsidy regime for renewable energy in the UK. The consultation process led to the government bringing to an end the regime for ROCs in it is entirety for Solar by 31 March 2017 where projects benefit from a grace period; and significantly truncated the Feed in Tariff (FiT) regime with a quota led approach to curtailing wide spread use. These changes imply that growth in the solar installed base will be curtailed. The government was clear throughout the consultation process that changes would not be retrospective. At the conclusion of the review the UK government confirmed that the subsidy regime achieved at accreditation would be maintained for the original life of the subsidy regime.

The Company believes that there remains a material pipeline of opportunities for growth. The NEC Group continues to leverage its long-standing experience as an investor and leading asset manager in the solar sector to focus on reducing solar investment and operating costs to meet a decreasing support and no-support market in the future.

Over the next 12 months, the Company will benefit from the pipeline of opportunities identified by the Developer, ranging from large industrial scale plants in operation and benefiting from the previous ROCs regimes, or under construction and benefiting from the 1.3 ROCs or FiT regimes as well as portfolios of residential and commercial rooftops. At the Date of Distribution of this annual report the Investment Manager, together with the Developer, have identified a pipeline of over c.540MW of short-term acquisition targets and are actively developing further opportunities.

In addition to these further growth opportunities, in the mid- to long-term period the Investment Manager intends to add value to the Company's portfolio by optimising the technical and financial performances of its assets and by extending the useful lifespan of its plants. Furthermore, the Investment Manager remains fully engaged in monitoring technological change in the energy sector and is already exploring the feasibility of the application of energy storage facilities to the Company's portfolio of solar PV plants. Consequently, the Company is well-positioned to incorporate the continuing innovation in energy technology and benefit from the associated incremental returns and/or cost reductions in solar energy generation and storage.

Description of the Principal Risks and Uncertainties

The Company has in place risk management procedures and internal controls to monitor and mitigate the main risks faced as well as a process to review the effectiveness of those controls. The Investment Manager assists the Company in regularly identifying, assessing and mitigating those risk factors likely to impact the financial or strategic position of the Company. The Company's Risk Matrix is regularly reviewed on at least a semi-annual basis, and includes:

• External and Market Risks

• Investment Strategy

• Investment Process and Management of Assets

• Monitoring Process

• Valuation Process

• Financial and Accounting Process

• Governance, Tax and Regulatory Compliance

Based on the Board's assessment, the main risks faced by the Company are likely to be related to the following areas, the other ones being less likely or less significant:

• Uncertainty for the future regulatory framework for solar PV in the UK and risk that as a consequence further planned acquisitions do not take place, affecting the Company's growth potential, or that regulatory changes may affect the profitability and valuation of the current portfolio

• Risk that the heightened competition for solar assets will make it more difficult for the Company to continue acquiring assets at attractive values. This increased competition may be fuelled by investors with aggressive financial structures seeking lower returns than the Company for the same solar PV assets

• Exposure to the wholesale energy market impacts the prices received for energy generated and revenues forecasted by the operating assets of the company. This also exposes the company to a risk of further reduction in forward price curves

• The UK government held a referendum on 23 June 2016 for the UK to vote either to remain in or leave the European Union. As a result of the referendum, the majority of those voting elected to leave the European Union ("Brexit"). The Investment Manager believes Brexit is likely to have a very limited effect, if any at all, on the Company's financial and operating prospects. The UK's 2008 Climate Change Act enshrines the Government's commitment to reduce the country's greenhouse gas emissions by 80 per cent compared to 1990 levels, and we do not think government will introduce primary legislation to reverse this commitment as a result of Brexit. Given the recent referendum result there is uncertainty in the market around the impact of the vote, however we currently have no reason to expect the availability of debt financing in the UK solar sector to be affected significantly following Brexit. In addition, the Company's exclusive focus on the solar sector in the UK protects it from any adverse foreign currency fluctuations emerging as a result of Brexit. Further implications of Brexit on the Company are not identifiable at present.

Post Year-End Update

Since 31 March 2016, the following relevant events occurred:

• On 14 April 2016 the Company completed the acquisition of the Radius portfolio. For this investment, the contractual conditions of its acquisition and financing agreements implied an effective transfer of ownership at time of exchange on 31 March 2016. As a result, this investment has been valued in the investment portfolio through the discounted cash flow methodology.

• As at 31 March 2016, the Company had announced three other investments that were operational but for which the relevant contractual milestones and technical tests had not been achieved (namely Hall Farm, Green Farm and Ellough Phase II) and as such their completion was not deemed imminent. These three investments have not been valued through discounted cash flow methodology in the investment portfolio. As of the Date of Distribution of this Annual Report and Audited Financial Statements, the Investment Manager had completed the acquisition of Hall Farm on 7 April 2016 and was in the process of completing the other two investments shortly.

• On 17 May 2016 the Company extended its RCF with Macquarie and Santander from £100m to £120m

NextEnergy Capital IM Limited

27 June 2016

Corporate Governance

Introduction

As a regulated Guernsey incorporated company with a Premium Listing on the Official List and admitted to trading on the Main Market for Listed Securities of the London Stock Exchange, the Company is required to comply with the principles of the UK Corporate Governance Code dated September 2014 ("UK Code").

The Board recognises the importance of a strong corporate governance culture that meets the requirements of the UK Listing Authority as well as other relevant bodies such as the Guernsey Financial Services Commission and the Association of Investment Companies (the "AIC").

As an AIC member, the Board has also considered the principles and recommendations of the AIC Code of Corporate Governance ("AIC Code") by reference to the AIC Corporate Governance Guide for Guernsey Domiciled Investment Companies ("AIC Guide"). The AIC Code addresses all the principles set out in the UK Code, as well as setting out additional principles and recommendations on issues of specific relevance to the Company. The AIC Code published in February 2013, and updated in February 2015, addresses all of the principles set out in the UK Code, and has been endorsed by the Financial Reporting Council as ensuring investment company boards fully meet their obligations to the UK Code and LR 9.8.6 of the Listing Rules. Having adopted the AIC Code with effect from Admission (25 April 2014), the Board has therefore assessed itself, the Committees and performance of the Directors against the parameters and principles outlined within the AIC Code for the year ended 31 March 2016.

The Guernsey Financial Services Commission Finance Sector Code of Corporate Governance ("GFSC Code") came into force in Guernsey on 1 January 2012. The Company is deemed to satisfy the GFSC Code provided that it continues to conduct its governance in accordance with the requirements of the AIC Code, which incorporates the UK Code.

The Board is of the view that throughout the year ended 31 March 2016, the Company has complied with the recommendations of the AIC Code and the relevant provisions of the UK Code, except as set out below:

• The role of the chief executive,

• Executive directors' remuneration,

• The appointment of a Senior Independent Director,

• The need for an internal audit function, and,

• The appointment of a Remuneration, Nomination and Management Engagement Committee.

For the reasons set out in the AIC Guide, and as explained in the UK Code, the Board considers that given the Company's current size and the structure of the Board, these provisions are not currently relevant or appropriate to the position of the Company.

Chairman

Mr Lyon was appointed to the position of Chairman of the Board on 22 January 2014. Mr Lyon is responsible for leading the Board in all areas, including determination of strategy, organising the Board's business and ensuring the effectiveness of the Board and individual Directors in all aspects of their role. He also endeavours to produce an open culture of debate within the Board which facilitates the ability of the Board to make objective decisions free from the interests of the Investment Manager and Investment Adviser.

Prior to the Chairman's appointment, a job specification was prepared which included an assessment of the time commitment anticipated for the role. Discussions were undertaken to ensure the Chairman was sufficiently aware of the time needed for his role, and agreed to upon signature of his letter of appointment. Other significant business commitments of the Chairman were disclosed to the Company prior to appointment to the Board, and were publicly disclosed in the Company's Prospectus dated 18 March 2014 relating to the Company's listing and again in the Company's Prospectus dated 10 November 2014 and further within the Supplementary Prospectus dated 19 August 2015, both relating to the Company's Placing Programme. There have not been any subsequent changes to the Chairman's business commitments, as stated in the Prospectus, that require to be declared. A summary of Mr Lyon's commitments can be identified in his biography.

The effectiveness and independence of the Chairman is evaluated on an annual basis as part of the Board's performance evaluation; the Audit Committee Chairman is tasked with collating feedback and discussing with the Chairman on behalf of the rest of the Board. The Chairman is not subject to any relationships which may create a conflict between his interests and those of the shareholders and does not serve on any other investment company board managed by the Investment Manager.

As per the Company's Articles all Directors, including the Chairman, must disclose any interest in a transaction that the Board and Committees will approve.

Board Independence and disclosure

The Board and Chairman confirm that they were selected prior to the Company's launch and were able to assume all responsibilities at an early stage, independent of the Investment Manager and Investment Adviser.

The Board is composed entirely of non-executive Directors, who meet regularly to determine the Company's strategic direction, review its financial performance and to oversee the performance of the Investment Manager or service providers to scrutinise the achievement of agreed goals and objectives, and monitor performance. Through the Audit Committee they are able to ascertain the integrity of financial information and confirm that all financial controls and risk management systems are robust.

There is no management engagement committee appointed for the Company as it is deemed that the size, composition and structure of the Company would mean the process would be inefficient and counter-productive. Therefore, the Board as a whole also fulfils the functions of a management engagement committee and reviews and analyses the actions, performance and judgments of the Investment Manager and also the terms of the Investment Management Agreement. Further to this the Board analyses and evaluates the performance of other service providers on a regular basis. The Board will continue to consider the need for a management engagement committee as the needs and structure of the Company develop.

As part of the annual performance evaluation process, the independence of each of the Directors was considered. Following the annual performance evaluation, it was deemed that the Directors had been proven to challenge the Investment Manager throughout the year under review, as minuted and recorded, therefore for the purposes of assessing compliance with the AIC Code, the Board as a whole considers that each Director is independent of the Investment Manager and free from any business or other relationship that could materially interfere with the exercise of his independent judgment. If required, the Board is able to access independent professional advice. The Investment Manager is also requested to declare any potential conflicts surrounding votes, share dealing and soft commissions on an annual basis to the Board to help with the assessment of investments.

Open communication between the Investment Manager and the Board is facilitated by regular Board meetings, to which the Investment Manager is invited to attend and update the Board on the current status of the Company's investments, along with ad hoc meetings as required.

Coming to mutual agreement on all decisions, it was agreed the Board had acted in the best interests of the Company to the extent that, if deemed appropriate a Director abstain or have his objection noted and minuted.

Similar to the process outlined above for the appointment of the Chairman, a job specification was prepared for each Directorship which included an assessment of the time commitment anticipated for the role to ensure each Director was aware of the time commitment needed for the role. The Directors' other significant business commitments were disclosed to the Company prior to appointment to the Board, and were publicly disclosed in the Company's Prospectus dated 18 March 2014 relating to the Company's listing and restated in the Company's Prospectus dated 10 November 2014 and further within the Supplementary Prospectus dated 19 August 2015 both relating to the Company's Placing Programme. No subsequent changes have required to be declared during the year. Each Director's commitments can be identified in their biographies. Details of the skills and experience provided by each director can also be found in their biographies, alongside identification of the role each Director currently holds in the Company.

The terms and conditions of appointment for non-executive Directors are outlined in their letters of appointment, and are available for inspection by any person at the Company's registered office during normal business hours and at the AGM for fifteen minutes prior to and during the meeting.

There is no executive director function in the Company; all day-to-day functions are delegated to external service providers.

Development

The Board believes that the Company's Directors should develop their skills and knowledge through participation at relevant courses. The Chairman is responsible for reviewing and discussing the training and development of each Director according to identified needs. Upon appointment, all Directors participate in discussions with the Chairman and other Directors to understand the responsibilities of the Directors, in addition to the Company's business and procedures. The Company also provides regular opportunities for the Directors to obtain a thorough understanding of the Company's business by regularly meeting the Investment Manager, members of the senior management team from the Investment Adviser and other service providers, both in person and by phone.

Balance of the Board and diversity policy

It is perceived that the Board is well-balanced, with a wide array of skills, experience and knowledge that ensures it functions correctly and that no single director may dominate the Board's decisions. Having three Directors appointed ensures that during any transition period, there are at least two Directors to provide stability.

At this time, the Board has chosen not to adopt a formal diversity policy for diversity. However, the Board recognises the importance of diversity, including gender, for the effective functioning of the Board and is committed to supporting diversity in the boardroom. It is the Board's on-going aspiration to have a well-diversified representation. The Board also values diversity of business skills and experience because Directors with diverse skills sets, capabilities and experience gained from different geographical backgrounds enhance the Board by bringing a wide range of perspectives to the Company. The Board believes that the current mix of skills, experience, knowledge and age of the Directors is appropriate to the requirements of the Company.

The Board has established an Audit Committee composed of all members of the Board. The Chairman of the Board is included as a Committee member to enable a full understanding of the issues facing the Company, but would not be appointed as its Chair.

Annual performance evaluation

The Board's balance is reviewed on a regular basis as part of a performance evaluation review. Using a pre-determined template based on the AIC Code's provisions as a basis for review, the Board undertook an evaluation of its performance and in addition, an evaluation focusing on individual commitment, performance and contribution of each Director was conducted. The Chairman then met with each Director to fully understand their views of the Company's strengths and to identify potential weaknesses. If appropriate, new members would be proposed to resolve the perceived issues, or a resignation sought. Following discussions and review of the Chairman's evaluation by the other Directors, the Audit Committee Chairman reviewed the Chairman's performance. Training and development needs are identified as part of this process, thereby ensuring that all Directors are able to discharge their duties effectively.

Given the Company's size and the structure of the Board, no external facilitator or independent third party was used in the performance evaluation.

Re-election and Board tenure

There is currently no Nominations Committee for the Company as it is deemed that the size, composition and structure of the Company would mean the process would be inefficient and counter-productive. The Board therefore undertakes a thorough process of reviewing the skill set of the individual Directors, and proposes new, or renewal of current, appointments to the Board.

Each director was required to be re-elected by shareholders at the first Annual General Meeting of the Company and thereafter will be submitted for re-election not less than once in every three year period. Kevin Lyon is therefore submitting himself for re-election at the AGM on 24 August 2016. Any director who has served on the Board for longer than nine years will be subject to annual re-election. Going forward, any director that is appointed to the Board will be required to submit themselves for re-election at the first Annual General Meeting following their appointment and thereafter once every three years.

The Audit Committee Chairman and other Members of the Board confirm that Kevin Lyon has proven his ability to fulfil all legal responsibilities and to provide effective independent judgment on issues of strategy, performance, resources and conduct. The Board therefore has no hesitation in recommending to shareholders that Kevin Lyon be re-elected.

It is anticipated that, should any Director have served on the Board for nine or more years, their independence would not automatically be considered to be compromised through length of service, but it would be closely scrutinised and the Director would be subject to annual election.

Appointment process

The appointment process for the Chairman and Directors at the time of incorporation of the Company is described above. As no new Director has been appointed since the Company's launch and the Board believes there is no gap that currently needs to be filled, no appointment process has been formalised. It is anticipated, however, that the process will be led by the independent Directors and will involve identifying gaps and needs in the Board's composition and balance, including diversity, then reviewing the skill set of potential candidates. For renewal of current appointments, all Directors except the individual in question are entitled to vote at the meeting. Similarly, no new nominations have been made for the role of Chairman of the Board since prior to launch.

Board and Board Committees

Matters reserved for the Board include a review of the Company's overall strategy and business plans; approval of the Company's interim and annual report; review and approval of any alteration to the Company's accounting policies or practices and valuation of investments; approval of any alteration to the Company's capital structure; approval of dividend policy; appointments to the Board and constitution of Board Committees; observation of relevant legislation and regulatory requirements; and performance review of key service providers. The Board also retains ultimate responsibility for Committee decisions; every Committee is required to refer to the Board, who will make the final decision.

Terms of reference containing a formal schedule of matters reserved for the Board of Directors and its duly authorised Committee has been approved and can be reviewed at the Company's registered office.

The Board met 15 times during the year ended 31 March 2016; the meeting attendance record is displayed further on in the Corporate Governance Statement. The Company Secretary acts as the Secretary to the Board.

As noted above, the Board fulfils the responsibilities typically undertaken by a Management Engagement Committee and reviews the actions and judgments of the Investment Manager and also the terms of the Investment Management Agreement.

The Board looks to undertake an assessment of the Investment Manager's scope and responsibilities as outlined in the service agreement and prospectus on a formal basis every year. Discussions on Investment Manager performance are also conducted regularly throughout the year by the Board. Reviews of engagements with other service providers to ensure all parties are operating satisfactorily are also undertaken by the Board so as to ensure the safe and accurate management and administration of the Company's affairs and business and that they are competitive and reasonable for shareholders.

As detailed in the Remuneration Report, the Board also fulfils the duties and role of a Remuneration Committee. Full details as to how the Board fulfils those duties can be found in the Remuneration Report.

Audit Committee

The Board has established an Audit Committee composed of all the independent members of the Board. The Chairman of the Board is included as a Committee member to enable a full understanding of the issues facing the Company, but cannot be Audit Committee Chairman. The Audit Committee, its membership and its terms of reference are kept under regular review by the Board, and it is perceived all members have sufficient financial skills and experience. Patrick Firth is Audit Committee Chairman.

The Audit Committee met three times during the year ended 31 March 2016; the meeting attendance record is displayed below. The Company Secretary acts as the Secretary to the Audit Committee.

Owing to the size and structure of the Company, there is no internal audit function. The Audit Committee has reviewed the need for an internal audit function, and perceived that the internal financial and operating control systems in place within the Company and its service providers, as evidenced by the internal control reports provided by the Administrator, give sufficient assurance that a sound system of internal control is maintained that safeguards shareholders' investment and Company assets.

The Audit Committee is intended to assist the Board in discharging its responsibilities for the integrity of the Company's financial statements, as well as aiding the assessment of the Company's internal control effectiveness and objectivity of the external auditors. Further information on the Audit Committee's responsibilities is given in the report of the Audit Committee.

Formal terms of reference for the Audit Committee are available at the registered office, and are reviewed on a regular basis.

Board and Committee meeting attendance

Individual attendance at Board and Committee meetings is set out below:

1 In place of the fourth quarterly scheduled board meeting, the Board met with the Investment Adviser to conduct site visits of a number of portfolio assets, receiving an informal update on the portfolio at that time.

2 The ad hoc Board meetings are convened at short notice to deal with administrative matters. In such cases, it is not always feasible, or a necessity, for the Chairman of the Board to attend such meetings, and he has participated as an observer by phone.

In addition to the scheduled quarterly and additional offshore ad hoc meetings, the Directors and the Investment Manager have been provided with a number of telephone and face to face investment briefings by the Investment Adviser in order to keep the Directors and the Investment Manager fully appraised and up to date with the current investment status and progress.

Company Secretary

Reports and papers, containing relevant, concise and clear information, are provided to the Board and Committees in a timely manner to enable review and consideration prior to both scheduled and ad-hoc specific meetings. This ensures that Directors are capable of contributing to, and validating, the development of Company strategy and management. The regular reports also provide information that enables scrutiny of the Company's Investment Manager and other service providers' performance. When required, the Board has sought further clarification of matters with the Investment Manager and other service providers, both by means of further reports and in-depth discussions, in order to make more informed decisions for the Company.

Under the direction of the Chairman, the Company Secretary facilitates the flow of information between the Board, Committees, Investment Manager and other service providers through the development of comprehensive, detailed meeting packs, agendas and other media. These are circulated to the Board and other attendees in sufficient time to review the data.

Full access to the advice and services of the Company Secretary is available to the Board; in turn, the Company Secretary is responsible for advising on all governance matters through the Chairman. The Articles and schedule of matters reserved for the Board indicate the appointment and resignation of the Company Secretary is an item reserved for the full Board. A review of the performance of the Company Secretary is undertaken by the Board on a regular basis.

Financial and Business Information

An explanation of the Directors' role and responsibility in preparing the Annual Report and Audited Financial Statements for the year ended 31 March 2016 is provided in the Statement of Directors' responsibilities.

Further information enabling shareholders to assess the Company's performance, business model and strategy can be sourced in the Chairman's Statement, the Strategic Report and the Report of the Directors.

Viability Statement

In accordance with provision C.2.2 of the 2014 revision of the Code, the Directors have assessed the prospect of the Company over a period of five years, which was selected for the following reasons:

• The Group's strategic review covers a five year period, and

• If in the third or any subsequent financial year of the Company the Ordinary Shares have traded, on average over that year, at a discount in excess of ten per cent to the Net Asset Value per Share, the Board shall propose a special resolution at the Company's next annual general meeting that the Company ceases to continue in its present form.

The five year strategic review considers the Group's cash flows, dividend cover, and other financial ratios over the period. These metrics are subject to sensitivity analysis which involves fixing a number of the main assumptions underlying the forecast. Where appropriate, this analysis is carried out to evaluate the potential impact of the Group's principal risks actually occurring. The five year review also makes certain assumptions about the impact of unfavourable weather conditions and unfavourable electricity markets and considers whether additional financing facilities would be required.

Based on the results of this analysis, and subject to passing any continuation vote, the Directors 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 of their assessment up to and including 31 March 2021.

Principal Risk Management and Risk Control

Details of the Company's principal risks can be found in the Financial Review.

Risk Management and Risk Control

The Board is required annually to review the effectiveness of the Company's key internal controls such as financial, operational and compliance controls and risk management. The controls are designed to ensure that the risk of failure to achieve business objectives is minimised, and are intended to provide reasonable assurance against material misstatement or loss. Through regular meetings and meetings of the Audit Committee, the Board seeks to maintain full and effective control over all strategic, financial, regulatory and operational issues. The Board maintains an organisational and Committee structure with clearly defined lines of responsibility and delegation of authorities.

As part of the compilation of the risk register for the Company, appropriate consideration has been given to the relevant control processes and that risk is considered, assessed and managed as an integral part of the business. The Company's system of internal control includes inter alia the overall control exercise, procedures for the identification and evaluation of business risk, the control procedures themselves and the review of these internal controls by the Audit Committee on behalf of the Board. Each of these elements that make up the Company's system of internal financial and operating control is explained in further detail as follows:

(i) Control environment

The Company is ultimately dependent upon the quality and integrity of the staff and management of its Investment Manager, its Investment Adviser and its Administration and Company Secretarial service providers. In each case, qualified and able individuals have been selected at all levels. The staff of both the Investment Manager and Administrator, are aware of the internal controls relevant to their activities and are also collectively accountable for the operation of those controls. Appropriate segregation and delegation of duties is in place.

The Audit Committee undertakes a review of the Company's internal financial and operating controls on a regular basis. The auditors of the Company, PricewaterhouseCoopers CI LLP, considers internal control relevant to the Company's preparation and fair presentation of the financial statements in order to design their audit procedures, but not for the purpose of expressing an audit opinion on the effectiveness of the Company's internal controls.

The Board is made aware of the business controls of the Investment Advisor and Investment Manager during periodic Board Updates enabling oversight of the key business processes. The Investment Advisor also provides an update of the control environment for the HoldCo and SPVs to ensure the Board have oversight of business controls for the entire Group.

In its role as a third-party fund administration services provider, the Ipes Group, of which Ipes (Guernsey) Limited is a part, produces an annual AAF 01/06 Assurance Report on the internal control procedures in place within the Ipes Group, and this is subject to review by the Audit Committee and the Board.

(ii) Identification and evaluation of business risks

Another key business risk is the performance of the Company's investments. This is managed by the Investment Manager, which undertakes regular analysis and reporting of business risks in relation to the investment portfolio, and then proposes appropriate courses of action to the Board for their review.

(iii) Key procedures

In addition to the above, the Audit Committee's key procedures include a comprehensive system for reporting financial results to the Board regularly, as well as quarterly impairment reviews of loans (including reports on the underlying investment performance).

Although no system of internal control can provide absolute assurance against material misstatement or loss, the Company's system is designed to assist the Directors in obtaining reasonable assurance that problems are identified on a timely basis and dealt with appropriately. It is the view of the Board that the controls in relation to the Company's operating, accounting, compliance and IT risks performed robustly throughout the year. In addition, all have been in full compliance with the Company's policies and external regulations, including:

• Investment policy, as outlined in the IPO documentation;

• Personal Account Dealing, as outlined in the Model Code;

• Whistleblowing Policy;

• Anti-Bribery Policy;

• Applicable FCA Regulations;

• Listing Rules, and Disclosure and Transparency Rules;

• Treatment and handling of confidential information;

• Conflicts of interest;

• Compliance policies; and

• Anti-Money Laundering Regulations.

Corporate Governance Statement

There were no protected disclosures made pursuant to the Company's whistleblowing policy, or that of service providers in relation to the Company, during the year ended 31 March 2016.

In summary, the Board considers that the Company's existing internal financial and operating controls, coupled with the analysis of risks inherent in the business models of the Company and its subsidiaries, continue to provide appropriate tools for the Company to monitor, evaluate and mitigate its risks.

Alternative Investment Fund Management Directive ("AIFMD")

The AIFMD, which was implemented across the EU on 22 July 2013 with the transition period ending on 22 July 2014, 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.

After seeking professional regulatory and legal advice, the Company was established in Guernsey as a Non-EU AIF, appointing NextEnergy Capital IM Limited to act as the Non-EU AIFM.

In accordance with AIFMD disclosure obligations, Note 5 provides a summary of realised gains and losses.